Newell v Sam Pemberton Civil Limited
[2023] NZHC 2676
•26 September 2023
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2019-019-813
[2023] NZHC 2676
BETWEEN WAYNE WILLIAM NEWELL and DENISE MARION NEWELL
Plaintiff
AND
SAM PEMBERTON CIVIL LIMITED
Defendant
Hearing: 17-21 July 2023 Appearances:
M D Talbot for the Plaintiff
V A Whitfield for the Defendant
Judgment:
26 September 2023
JUDGMENT OF ANDERSON J
This judgment was delivered by me on 27 September 2023 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules 2016.
………………………………
Registrar/Deputy Registrar
Solicitors: Talbot Law Ltd, Hamilton
Bluett Legal, Hamilton
NEWELL v SAM PEMBERTON CIVIL LIMITED [2023] NZHC 2676 [26 September 2023]
TABLE OF CONTENTS
Para No
INTRODUCTION [1]
WITNESSES [5]
LANDSDALE CLAIM [7]
Issues [7]
Factual and technical background [12]
Placement of suitable fill [24]
Geotechnical specifications [31]
Discovery of non-compliant fill [37]
Engineer’s decision on cause of fill failing specification [67]
Contractual obligations [84]
Preliminary [84]
When were the Addendum Specifications provided? [91]
Contractual position on the Addendum Specifications [96]
Breach of contract [101]
Breach of obligation to meet Addendum Specifications [101]
Breach of implied obligations [103]
Damages for breach of contract [115]
Remediation costs [118]
Right to remedy defective works [119]
Mitigation [123]
Liquidated damages [136]
Legal fees [151]
Tort claim [156]
Conclusion on the Landsdale claim [158]
Interest [159]
RANGITAHI CLAIM [162]
Item (a) – Deduction of $21,625.52 [164]
Item (b) – Deduction of $3,910 [172]
Item (c) – Deduction of $4,260.75 [178]
Conclusion [182]
OVERALL CONCLUSION [183]
INTRODUCTION
[1] Mr and Mrs Newell operated a partnership (the Partnership) providing bulk earthmoving services from 1979 until Mr Newell’s recent retirement. Sam Pemberton Civil Limited (SPC) is a civil works and earthworks contractor. SPC and its predecessor company had engaged the Partnership as subcontractor on numerous projects over approximately 18 years.
[2] The present case arises due to disputes between the parties under two such projects, both residential subdivisions – the Landsdale development in Horsham Downs, Hamilton and the Rangitahi development in Raglan. Until these disputes the parties had a good working relationship.
[3] The dispute in relation to the Landsdale development (the Landsdale Claim) arises because the Partnership claims it should be paid outstanding retentions of
$140,139.621 whereas SPC says it is entitled to set-off and counterclaim for losses
suffered due to the Partnership’s defective works. Specifically, Lots 71–74 at the site contained fill which was unsuitable and failed to meet specifications. The net total of SPC’s claim is for $108,775.66. SPC claims in contract or alternatively in tort for negligence by the Partnership in carrying out the earthworks.
[4] The dispute in relation to the Rangitahi development (the Rangitahi Claim) is relatively modest. The Partnership claims a net sum of $25,543.06 involving certain disputed deductions made by SPC to an invoice issued by the Partnership. The primary deduction relates to an asserted overclaim of quantities for works undertaken by the Partnership.
WITNESSES
[5] The Partnership called only one witness being Mr Newell himself. Mr Newell read his first brief of evidence plus a brief of evidence responding to the evidence of SPC.
[6]SPC called five witnesses:
1 All figures are GST inclusive as they were presented this way by the parties.
(a)Samuel Pemberton, a director and shareholder of SPC. Mr Pemberton gave evidence of the contractual arrangements between the parties and the events giving rise to the disputes.
(b)Anthony Burman, Chief Financial Officer for SPC. Mr Burman provided calculations of amounts owing and amounts paid by SPC. His evidence was taken as read (with a minor correction being made) and these numbers as corrected are now undisputed.
(c)Nathan Sweetman, a contractor manager employed by SPC. Mr Sweetman assessed the correct quantities and amount owed to the Partnership in response to its invoice on the Rangitahi development.
(d)Andrew Holland, a geotechnical engineer and director and shareholder of HDG Geo Ltd (HDG). He was involved in relevant events and provided expert views on technical aspects including why the Landsdale lots required remediation.
(e)Stephen Crawford, an independent geotechnical engineer. Mr Crawford gave evidence on his views of the most likely cause of the deficient fill and on what can be expected of a reasonable earthworks contractor.
LANDSDALE CLAIM
Issues
[7]Broadly the issues I need to decide are:
(a)What was the scope of the Partnership’s obligations in contract or tort in respect to the cut to fill earthworks?
(b)Was the Partnership in breach of those obligations?
(c)If so, what damages are recoverable?
[8] The trial proceeded on the basis that the Partnership contested that it had placed fill that failed to meet the specifications (non-compliant fill). Essentially, Mr Newell’s
evidence was that when the Partnership placed the fill it was compliant but subsequently became non-compliant. He said this was due to deficiencies in the sub-soil drainage design or installation and/or because compliant fill had degraded due to the deposit by SPC of unsuitable materials on the surface of Lots 72–74 at the instruction of Landsdale. In closing submissions, the Partnership advised that it no longer sought to advance these hypotheses for how the site came to need remediation. It conceded that it placed non-compliant fill. That was a responsible concession. Neither of the hypotheses advanced by Mr Newell were technically or factually credible.
[9] The Partnership’s concession did not go so far as to accept SPC’s evidence as to the mechanism by which the Partnership placed non-compliant fill. That is because the mechanism does or might bear on whether there was any breach of the Partnership’s obligations in undertaking the earthworks.
[10] The scope of the concession means that I still need to outline the factual background relating to the non-compliant fill and give some consideration to how the fill came to be non-compliant. However, the concession also means that the only evidence before me on why the fill failed to meet specification are the explanations advanced by SPC.2 It is potentially open to me to reject SPC’s expert and fact evidence, although that would leave me in a vacuum without alternative explanations. I return to the facts and my conclusions on the evidence later.
[11] First, I need to provide some technical and factual context to enable the issues to be addressed.
Factual and technical background
[12] The Landsdale development is a large residential development on the corner of Kay and Horsham Downs Roads on the outskirts of Hamilton (Landsdale Development). There are four stages. Stage one comprises 37 building lots, stage two comprises 36 building lots, and stages three and four comprise 28 building lots.
2 That is because Mr Newell’s evidence at trial as to why the fill was non-compliant is inconsistent with the concession because he was contending that it was other than because the Partnership deposited non-compliant fill.
[13] SPC entered into two contracts with Landsdale Developments Ltd (the Principal):
(a)A contract dated 15 January 2015 for earthworks for stages one to four, and civil works for stage one (the Stage One Contract).
(b)A contract dated 3 October 2016 for civil construction works for stages two to four (the Stage Two Contract).
[14] In late 2014, SPC subcontracted the Partnership to complete the cut to fill bulk earthworks on the Landsdale Development. Cut to fill earthworks involve fill (soil) being taken (cut) from one area of an earthworks site to build up (fill) in another area so that in both cases the designed ground level is achieved. Fill is placed in layers approximately 200 millimetres to 300 millimetres thick by being spread using a bulldozer with a scoop. Each layer placed is then compacted using a soil compactor to achieve appropriate compaction.
[15] The Partnership owned a bulldozer and compactor whereas SPC did not. SPC owned a digger (excavator) whereas the Partnership did not. Mr Newell did not have the experience to operate the latter machinery.
[16] The parties have never dealt with each other on the basis of detailed written contracts and there is a dispute between the parties as to precisely what documents Mr Newell was provided with and which form part of the contract. It is common ground however that he provided priced unit rates against scheduled quantities for works.
[17] In respect to cut to fill, the schedule of quantities quoted against required the Partnership to:
Cut from formation alignments to subgrade level Roads, Row’s [sic], berms, footpath, batters, vehicle crossings and building platforms. Spread and compact on site as controlled fill where shown on the plans, and as directed by the Geotechnical Engineer.
[18] It is not in dispute that the Partnership contracted on the basis that SPC would retain 10 per cent of any invoices issued for a period of 12 months after practical completion for the relevant works.
[19] The particular part of the site relevant to the Landsdale Claim is known variously as “Gully 2” and “Lots 71–74”. Lots 71–73 were fill areas whereas Lot 74 was both a cut and fill area. The delineation of roles between SPC and the Partnership was as follows: SPC first stripped the site using its equipment. It then installed subsoil drainage in the bottom of the gully. Once the swampy bottom of the gully area was dug out SPC placed a layer of geo filter cloth on the cleaned out fill area, then placed imported rock followed by another layer of geo filter cloth over the rock. This is what is described as a rock blanket. On completion of the rock blanket the site was handed over to Mr Newell to bring his bulk earthwork equipment on site to cut and fill the area as required. Once the site had been brought up to the required finished level, either SPC or the Partnership would spread topsoil when and where instructed by the Principal or its representatives.
[20] It is worth emphasising that the Partnership carried out all cut to fill operations on site and the payment for these works was passed through to it. This was confirmed by Mr Pemberton’s evidence:3
We never placed any cut to fill on this job. Everything that we were paid by the engineer of the contract as certified quantities within the payment certificates was handed straight through to [the Partnership].
[21] The rock blanket and subsoil drainage had two functions. The first was a temporary purpose. There needed to be a sufficiently stable platform for the bulk machinery to work on. The subsoil drainage and rock blanket created a building platform. Secondly, the subsoil drainage and rock blanket provided a permanent drainage infrastructure. Specifically, they fulfilled a function of reducing the water pressure in the site. The function was not to prevent water entering engineered fill placed on top of it for the long term. The expert evidence (which I accept) was that ingress of water is inevitable and expected. If suitable fill is laid, water ingress has no more than a 10 per cent effect on the strength of the soil. In contrast, where soil is
3 Notes of Evidence (NoE), page 174, lines 34 and 35, page 175, line 1.
placed too dry or too thick, air voids are created and will absorb the water, causing the soil to lose strength.
[22] Gully 2 was on the northern border of the site at a point where the Waikato Expressway was to be constructed adjacent. At the time of the earthworks the construction of this had not started. The neighbouring land was still a paddock. Along the northern border, but still within the subdivision, was a temporary sediment pond required for Regional Council purposes. When this was decommissioned for a period there was a five-metre unfilled strip adjacent to where the Expressway was to be constructed on the border of the Landsdale site.
[23] The Partnership completed the cut to fill earthworks on site in January and February 2015 other than the filling of this five-metre strip. Mr Newell came back to undertake this in January 2016. At that time there was an incident that caused Mr Newell concern as to the robustness of the geotechnical services being provided and the sufficiency and design of the drainage. The incident was relevant to liability when the Partnership was asserting his theories for why the remediation work to Gully 2 was later required. In light of the concession made in closing, it now only has some relevance to a position taken by Mr Newell as to whether he would have carried out the remedial works in Gully 2 had he been given the opportunity (relevant to damages). Accordingly, I come back to the facts around that in the context of considering damages issues.
Placement of suitable fill
[24] Fill must not be placed too wet or too dry. That means that it may require conditioning by the earthworks contractor before being placed (i.e. wetting or drying it on site). Mr Newell accepted that an experienced contractor can assess in general terms whether material is too wet or too dry. There are three ways this can be done without technical measuring tools.
[25] First is a visual assessment of the material. Secondly, an experienced contractor can use feel to assess whether the fill is appropriate. When it is in a workable condition, it is like a pliable plasticine. When it is too dry it is too granular
and does not bind. When it is too wet it is too sloppy (and unworkable with machinery).
[26] Thirdly, and most practically for the earthworks contractor, a check can be made as the fill is deposited. The methodology is as follows: each scoop load of fill is spread at approximately 200–300 millimetres deep over an area approximately three metres wide and 45 metres long. The next scoop load continues from where the last finished until the area to be filled is covered. While placing fill the soil compactor works continuously on the fill already placed leaving the outside tyre mark on the spread untouched as the guide for the next lot of fill to be spread.
[27] After about six or eight passes of the compactor, each layer of fill is compacted to the appropriate thickness. The operator’s observation of the compactor wheels and pads is a guide to the quality of the fill. The compactor pad indent left on the fill is ideally a constant 30 millimetres, meaning the fill will be within the required specifications. Indents that are shallower mean the fill is getting drier than the optimum required moisture content and air voids in the material will start to climb above the maximum allowable. If indents get deeper than 30 millimetres, this indicates fill is wetter than the optimum required moisture content and the shear strength of the material will begin to fall.
[28] There are also tools used to test the fill for moisture content and for compaction. A shear vane is the tool used generally to measure fill to ensure it is not too wet or soft. This tests the strength of the material in kilopascals (kPa). The other tool used is a nuclear densometer which is used to test for air voids. This determines whether fill is too dry and whether it is sufficiently compacted. It is a more sophisticated device and is usually employed by a geotechnical engineer or similarly qualified person. The samples are taken from the soil using an augur and tested using the densometer. Samples are then oven baked before being further tested to complete the testing procedure.
[29] Neither SPC nor Mr Newell owned a nuclear densometer. Both owned and used a shear vane. Mr Newell used a shear vane for his internal purposes to confirm whether a particular area needed reworking. He did not record the results of these
tests and has never been required by SPC or any other head contractor to provide those test results, including on the Landsdale Development.
[30] Appropriate compaction is achieved with soil of the required strength (kPa) and low air voids. As noted above, air voids are a problem because when water enters the soil (which, as discussed at [21], it inevitably will) soil with high air voids will absorb the water and lose its strength. Air voids will occur where fill is placed too dry and/or in too thick layers.
Geotechnical specifications
[31] HDG was engaged by the Principal as geotechnical engineer to the project. Clauses 17.1.14 and 17.1.15 of the Stage One Contract stated:
17.1.14[HDG] has been engaged as Geotechnical Engineers for the contract. Earthworks operations are to be carried out under their direction. Contact details will be provided to the successful tenderer.
17.1.15To remove any doubt please note that the appointment of the Geotechnical Engineer does not remove the responsibility of the contractor to undertake all necessary testing to ensure compliance with the relevant standards and specifications in a uniform manner across the full extent of works. The Geotechnical Engineer has been appointed to observe and certify works for the principle [sic], not to demonstrate that the contractor has met their obligation under this contract.
[32] Earthworks specifications prepared by HDG formed part of the head contract between SPC and the Principal. At trial these were referred to as the “Addendum Specifications” to distinguish them from other specifications in that contract. There is a dispute about when the Addendum Specifications were provided to Mr Newell which I will return to. A coloured version of the material pages of this document were among the Partnership’s discovered documents. Mr Newell accepted that he received this at the latest during undertaking the earthworks.
[33] The Addendum Specifications recorded in their “Introduction” that “HDG has been engaged by [the Principal] to provide earthworks design and construction
observation for the Landsdale Development”.4 The document provided for HDG to undertake independent inspection and acceptance testing to enable completion reporting and to assist the Engineer in determining whether the placed fill met specification.
[34]The Addendum Specifications provided that:
The Contractor is required to do sufficient testing to ensure that they are meeting the specification in relation to compaction. [HDG] will be undertaking independent testing to enable completion reporting and to assist the Engineer in determining if the placed fill meets the Specification. During fill construction each lift may be subject to inspection and approval by the Engineer to confirm that the required compaction standards have been achieved. This testing is completed as a check in addition to the testing completed by the contractor.
[35] In accordance with the Addendum Specifications, HDG visited the site virtually daily to undertake representative testing at every 600 millimetre “lift.” The specific requirements in the specification for fill included:
Cohesive material
·Cohesive fill material is to be compacted with a sheeps foot roller.
·Testing will be required in 0.5m lifts for the first 1m of fill and average 1m lifts above this.
·Maximum air voids of 10% and average of no more than 8% over 10 consecutive tests.
[36] There was also a table of shear vane requirements (minimum and average requirements). These specifications also set out optimum moisture content that fill was required to meet.5
4 Mr Newell said in evidence that: “Until [the Partnership] received discovery documents in this proceeding, I understood HDG was the Geotechnical Engineer to the contract responsible for all testing. I did not know that HDG was working for the developer Landsdale, not for SPC, so I did not know that SPC was also responsible for a tier of testing in the contract.” If this is intended to suggest Mr Newell did not have the document until then, it is incorrect, given that the material pages of the document were produced in the Partnership’s discovery.
5 Specifications [307.1455]. Refer also email to Mr Newell with table setting out requirements [303.0410].
Discovery of non-compliant fill
[37] HDG had carried out testing as fill was deposited as indicated by the Addendum Specifications. This led to fill being reworked at times, where the testing showed that fill was non-compliant. In addition, HDG carried out completion testing for the purposes of obtaining Council sign off in November 2016. On 8 November 2016, HDG informed SPC that some poor material had been discovered below compliant fill placed towards the centre of Lot 74. Within the fill area, at depths of
1.2 metres and 1.4 metres, there were low shear vane readings of 34 kPa and 65 kPa. These are extremely low readings. The specifications required average strength of 150 kPa. By the same communication, HDG told SPC that “we will need a digger to do some pot holing in this area to chase out the soft material”.
[38] On 25 November 2016, CKL Surveys Ltd (CKL) issued formal notice under the head contract to SPC requiring it to remediate the defective fill; and advising that if it failed to do so, the Principal had the right to instruct others to do so at SPC’s cost. SPC commenced work on Lot 74. It was subsequently discovered that the area of non- compliant fill extended to Lots 72 and 73 and subsequently Lot 71.
[39] It is significant to the issue of damages to note that the earthworks in Lot 74 were works in Stage 1b, the last works to be completed under the Stage One Contract. The earthworks for Lots 71–73 (the other lots in Gully 2) were being completed under the Stage Two Contract. Completion date under the Stage One Contract was 31 December 2016. Completion date for the separable portion for the Lot 72 and Lot 73 earthworks under the Stage Two Contract was originally 16 January 2017 but later assessed as 3 March 2017 due to a delay in commencement. Liquidated damages payable by SPC accrued at $20,000 per week for late completion under the Stage One Contract and at $10,684.64 per week for late completion of the relevant stage under the Stage Two Contract.
[40] At the start of the defective fill issue arising, the size or cause of the problem was not known. It was in SPC’s interests to have the work required characterised as a variation rather than work for which it was responsible. This affected both who would pay for the remediation, and whether any resulting delay would be covered by an extension of time or involve liquidated damages for late completion under one or both
contracts. SPC notified its insurers with a view to seeking to claim under its liability policy.
[41] On 29 November 2016 SPC advised the Principal that it had started chasing out the soft material in Lot 74. As the term suggests “chasing out” describes finding and following the unsuitable material. “Find and follow” is the term Mr Newell used. By the same communication, SPC advised that the non-compliant material was observed to be 400 millimetres thick and not changing in condition (not getting much better). SPC advised that it intended to deal with the material in Lot 74 first so as not to hold up the Stage 1b lots (with its 31 December completion date) before moving on to Lot 73 and so on. SPC informed the Principal that it had spoken to Mr Newell who they reported was “coming to site in the next couple of days to hopefully shed some more light on this”.6 In evidence, Mr Newell accepted that he had had a discussion with SPC at about this time.
[42] On 13 December 2016 John Sheppard, the then Contracts Manager of SPC, emailed Mr Newell referring back to their conversation a few weeks prior in regard to the fill in Gully 2 and said:
… can you please make yourself available ASAP to come to site to discuss the filling and compacting you undertook there. It looks like at this point the wet, failing material is chasing out over multiple lots and may end up being a rather large issue. There may be some significant remediation work involved. We are keen to try and get to the bottom of it prior to doing too much work, that way everyone knows where we are all at before commencing. At this stage it is difficult to ascertain where the problem lies, with the client and ground conditions being the issue, with the Geotechs and their testing or with yourself and the placement of the fill. We have also engaged another Geotech engineer to review all of the test results and he has been to site to view the material, which will have a cost associated. We are also awaiting his determination. If you are available over the next few days to look at the area let me know when would suit you. If you have any diary notes from instructions given by the [HDG] guys, this may be beneficial to pull out and bring along.
[43] Mr Newell had responded that he regarded the issue as a design problem. He concluded with:7
Will call you next time we are rained off and come have a look.
6 Email 29/11/16 [304.0669].
7 Email 13 02/16 [304.0677].
[44] Mr Sheppard emailed back on 14 December 2016 asking whether Mr Newell had time to head out to the site, noting that the weather was starting to turn a bit that day and the next.8
[45] The next communication from Mr Newell came on Friday 16 December. He recorded:9
The area that you guys dug out was filled in the 14/15 season. Andrew and Emily did the inspections and testing. The first season the fill was mainly on the dry side. The gully was filled to design and the preload placed. The areas to be filled were inspected by [HDG] before any fill was placed. The fill was placed in 200/300 mm layers and compacted, every 600 mm a compaction test was then done. When the tested layer was confirmed to be within spec more fill was then placed. The size of the area and the shear strength of 30 kPa, a soft area would have been easily noticed The problem is water moving from the natural ground into the fill. Your photo of water in the hole after excavating the soft area goes a long way to confirming that. As there was no attempt to prevent water from getting into the new fill placed, a test in say 12 months’ time will be further confirmation.
[46] The email did not respond to the request to head out to the site. It is important to note here the Mr Newell is accepting in his email that an area of fill with such a low shear strength would have easily been noticed.
[47] On 20 December 2016 SPC outlined its position in relation to the non- compliant fill issue to CKL as engineer to the Principal, advising that it did not accept liability for the material encountered. It sought an urgent resolution of the issue. SPC asserted that the most glaring issue was photos showing there was water pooling at the bottom of the digout, indicating water down at that level with fill above and below hard and dry. The email recorded that the earthworks contractor (the Partnership) had placed fill at 300 millimetre lifts and testing was done at 600 millimetre lift intervals and suggested that it would be unlikely that testing would miss these areas. The email concluded that the fill was placed dry and met compaction criteria but water had infiltrated afterwards.10 This email in substance relayed Mr Newell’s views on the issues that had arisen. However, Mr Newell’s views on the issue reflected misconceptions he held as to the function and nature of infrastructure that had been designed and installed. It was not correct to say there was a design issue. As discussed
8 Email 14/12/16 [304.0679].
9 Email 16/12/16 [304.0678].
10 Email 20/12/16 [304.0682].
at [21], water moving into soil above the rock blanket is intended and not an issue, provided the fill placed is compliant fill.
[48] It is now accepted that the Partnership placed non-compliant fill. Having heard the expert evidence and having regard to this concession, the view that the non- compliant fill was caused by water infiltrating after the fill was placed was incorrect.
[49] SPC reported to Mr Newell on 21 December 2016 that there had been a site meeting the previous day in which SPC had outlined its position on the Gully 2 fill issue. This advised:11
Will keep you in the loop how things proceed. At this stage once we chase more of the wet material out and see how far it goes / possibly find the cause, a determination will be made then. So looking at early next year.
…
[Stage Two] is due to be completed in early Feb and as with the 1st stage Liquidated damages will apply for late completion. We would like to get to the bottom of the issue in this area ASAP, as this area will need remediated [sic] and completed prior to the end of Jan 2017. Do you have gear available for this?
Again I will be onsite during this week if you would like to head out, and we will be happy to dig a couple of test pits for inspection.
[50] Mr Newell stated in evidence that he then went out to the site, but provided no details as to when, or how many times.
[51] On 22 December 2016, after the remediation works for Lot 74 were completed, practical completion under the Stage One Contract was certified prior to its contractual completion date.
[52] The next communication between Mr Newell and SPC was on 31 January 2017. Mr Sheppard was about to go away. He said:12
I am leaving in a couple of weeks and thought I would get something on email in relation to the couple of issues we have encountered at Landsdale with the earthworks. I have had a conversation with Josh in regards to these couple of issues as he wants to get these sorted ASAP, but understand given the nature of them may not be sorted until after I go.
11 Email 21/12/16 [304.0684].
12 Email 31/01/17 [304.0702].
[53]In respect to the Gully 2 issue he said:
Wet material in lot 74 (and continuing into lot 73 etc) at a depth of approx 2-3 m. At this stage we have lodged an insurance claim with our insurers who have appointed another geotech company to investigate. We are awaiting their report but should be through in the next few days fingers crossed. We have to date used our machinery to remediate lot 74 as this lot was in stage 1B which had a fast completion date and liquidated damages applying to it. In hindsight an insurance claim with your insurance company might have been the better way to go as you were the earthworks contractor. It maybe [sic] something you might like to look into as although we are fighting the fight so to speak in regards to what the issue is down there we don’t know how that will end and what decision will be made. To date in this area we have kept our hours and costs and is currently sitting at $20,140 ex GST. We are hoping the wet material yet to chase out isn’t a large amount more. To remediate this work looks to be digger and roller work which we will keep the hours on.
[54]The email concluded:
Happy to meet again on site to discuss further if you wish. Given that im [sic] taking off in a couple of weeks probably a good idea that we get Josh along too so the next person knows whats [sic] going on. He’s currently working in Auckland a bit so might need a day or so notice to come out. Let me know what you’d like to do.
[55] There was then an exchange between Mr Sheppard and Mr Newell in which Mr Sheppard interposed comments to an email. Mr Newell continued to contend (incorrectly) that the problem was nothing to do with earthworks but to do with poor or insufficient drainage design. Specifically, Mr Newell asserted that the design failed to take the rock blanket to a level that would collect and stop water getting into the fill. He referred back to having seen water entering the natural ground and the photo taken of this in January 2016. He also emphasised that fill areas had been inspected by HDG before fill was placed. Mr Newell stressed that there was no sign of moisture when the fill was placed. He said that the issue did not lie between himself and HDG.
[56] Mr Sheppard responded that he agreed HDG signed off the tests and carried out the inspections so should hold some responsibility. He relayed that HDG had said that it was employed to do scattered testing and not to sign off every cubic metre of fill installed. The email response recorded that the unsuitable material excavated was about one-and-a-half metres above the rock blanket to the base, with good hard clay placed in between this unsuitable layer and the rock blanket which did not need to be removed. Mr Sheppard also noted that Mr Sam Pepper, a representative of the Principal, had a theory that the haul road was pushed in without compaction.
[57]Mr Sheppard subsequently advised on 1 February 2017:13
The bottom line is on this issue, is that once the problem was raised through [HDG] doing the lot validation testing in their completion report, we had a matter of days to complete the remediation of this unsuitable in lot 74 in stage 1. Otherwise [liquidated damages] of $21,369.27 per week would apply. We were instructed by the client in accordance with our contract NZS:3910 to make good and had 5 days to commence. You don’t have the appropriate equipment to remediate this issue, as it is isolated and confined and is digger work, so we have done this work. We still have lots 73 and beyond to excavate and remediate at this point, but they are in the next stage and still to be done.
You may be getting the wrong end of the stick from my emails. We have already been battling this with all parties for the last three months, and have got to the point of getting our insurer involved. What we are after is the support from you in the form of records, photos, reports, emails etc to come out the other end of this at the very least covering our costs, as we think it will end in court with Pepper/[HDG] as the costs are building fast. The issue does lie between you and [HDG], as you are the earthworks contractor, however we are the meat in the sandwich trying to achieve an outcome to resolve this at no cost to either of us.
[58] Mr Newell responded that he supported SPC in the battle with the Principal and HDG saying:
I fully understand what you are going through its not nice arguing about these things. I don’t keep records etc when placing fill, all emails on tests and inspections are sent to you and me this is all we have.
[59] Mr Newell then emailed again on 3 February 2017 and described concerns he had had when he was filling up the five-metre strip by the expressway in January 2016. Wet material was found, and he said HDG were then suggesting it was because the Partnership had placed unsuitable fill. On that occasion Mr Newell had refuted this. He had confirmed his stance that the reason for this was that the fill was sitting in water on the drainage blanket by having one of SPC’s staff use SPC’s digger to dig down to the rock blanket where it was observed that 200–300 millimetres of fill on the blanket was wet. Mr Newell reported that Mr Holland refused to accept that water had got into the fill or that the drainage blanket was the problem.
[60] He reported that Mr Holland said it was an isolated area and so recommended to fill the hole in. This was the gist of Mr Newell’s contention that the drainage blanket design was the problem. He recorded:14
13 Email 1/02/17 [304.0712].
14 Email 3/02/17 [304.0717].
You say you have engaged your insurance co and a geotech and it could end up in court it might be a good idea to pass this info on to them I am happy to meet with your Geotech and show him where he can augur down to confirm this
You say in your email that I might have the wrong end of the stick on something in all of this
The info and comments from me are as it happened, as the work was done, no more no less, and for your use as you see fit
[61] A 7 February 2017 team site meeting was held in which the earthworks were discussed:15
Earthworks continuing within lots 70-73. Pot hole observed within Lot 73 to determine extent of unsuitable material. Material generally looked consistent and hard. [HDG] to complete augers around area to determine if all unsuitables have been removed.
[62] The remediation works continued into February and March. SPC continued to dispute its liability in respect to the remediation works with CKL as engineer. SPC asserted in early March that HDG was holding up obtaining reports from SPC’s insurer by not providing its reports or answers to questions. The Principal was contending that liquidated damages would be payable under the Stage Two Contract.
[63] On 23 March 2017 SPC provided a practical completion letter for Stage Two. In response CKL advised that there were several items still outstanding for Stage Two completion:16
These items include cut to fill within lots 69-73/remediation of lots 72/73, Topsoil and seed within 69-73, removal and replacement of dish channel damaged within both parking bays on Road 1, chip seal and hot mix of parking bays within Road 1, Road Markings and street signs for the stage.
[64] The letter recorded that practical completion could not be issued until those works were complete.
[65]Mr Pemberton replied saying, among other things:17
Dishchannel [sic] won’t be removed I’ve view [sic] the repairs and am happy, [L]ance was also happy with this on the last stage.
15 Minutes 7/02/17 [304.0722] at [304.0724].
16 Email 24/3/17 [305.0778].
17 Email 24/03/17 [305.0778].
Go and view the site, I did yesterday and it looks great.
Please issue practical completion and start this process with HCC.
[66] Practical completion for the relevant works in Lots 71–73 was certified on 16 May 2017. This was beyond the contractual completion date of 3 March 2017.
Engineer’s Decision on cause of fill failing specification
[67] As outlined above at [9], while the Partnership concedes it placed the non-compliant fill, it does not concede the mechanism by which this occurred.
[68] On 13 December 2016 Mr Holland of HDG set out his summary of what he had observed and views on probable causes. He then updated this in an email dated 28 March 2017.
[69] Mr Holland outlined that the non-compliant fill that was chased out in Lots 70-74 was not an isolated layer in the base of the fill, but layers of varying thickness throughout the fill placed in this area. When HDG undertook testing in the area of Lot 74 (and later Lots 70–73), it found generally good fill with layers in zones of wet, soft material. These were not isolated to the base of the fill but scattered throughout the fill. Mr Holland’s initial assessment of the probable causes of the soft material being encountered in his email of 13 December 2016 and update on 28 March 2017 was that it was more likely that fill was placed dry and therefore wetted up and lost strength after placement. He concluded it was possible but less likely that the fill was placed wet initially.
[70]Mr Holland’s conclusion was:18
While it is not possible to definitively identify the cause of the soft fill in the area of Lot 74, there are a number of observations that suggest possible/probable causes. The contractor who placed the majority of the fill in gully 2 typically favoured a dry, hard fill and was often struggling with the air voids specification. Lot 74 is in a transition area from fill to natural, and lift control appears to be less accurate than in the layers above the soft fill (where the transition is buried). My opinion is that these factors combined to create an area with thicker lifts, sometimes uncontrolled, minimal compaction in some layers and high voids that was placed below specification and in some places has been able to soften significantly with an increase in moisture
18 Email 13/12/16 [305.0781] at [305.0783].
content. It may have been put in place wet, and further softened, or dry and hard with high voids and subsequently softened. It is likely a combination of both mechanisms for the various layers.
[71]In terms of the observations on site of this material, Mr Holland observed:
(a)The material found as at 13 December 2016 was typically a mix of ash soil with layers of what appeared to be swamp deposits (unsuitables in the base of the gullies).
(b)Soft material was encountered in layers and often observed in large thicknesses. He noted that directly above the subgrade was the thickest mass which included a large portion of swamp material. The soft material then extended into layers, the most significant being approximately one metre thick.
(c)He observed at least two layers of significant unsuitable material in the overall layer of soft material with a few isolated layers at shallower depths. Layers of swampy soft material were encountered in layers up to 100 millimetres thick within hard “EC Fill”. In the lower part of the excavated area, the soft material (ash mixed with swamp deposits) was more than one metre thick. The main layers of swamp material were up to 200 millimetres to 300 millimetres thick and within soft ash.
(d)Natural subgrade exposed was hard and relatively dry.
(e)Engineered fill above and below was high strength with obvious thin layering.
[72] HDG postulated that the main layers of swamp material could have been dropped as the gully was cleared out and covered over by fill material. It also noted that Lot 74 is on the edge of the Gully 2 fill area. Mr Holland referred to the numerous temporary access tracks in the area and the transition from fill to natural land nearby.
[73] In his later email on 28 March 2017 Mr Holland referred to continuation of the soft material encountered in Lot 74 towards Lot 73 and that this was dug out to continue chasing out the thick layer of soft material (being approximately a bucket-width removed). He considered that all observations made were consistent
with the original opinion expressed on 13 December. He referred to isolated areas within Lots 72–73 noting that soft material was encountered at a shallower depth to the initial Lot 74 excavation containing a large amount of unsuitable alluvial material mixed with ash.
[74] Mr Holland noted that a soft area around the settlement marker was encountered and expressed his belief that hand compaction or compaction of fill with small plant was not undertaken around the pin. He also noted a soft layer at the back of Lots 72–74 which he believed was caused from an old haul track that had not been cleared before placing fill. He advised that soft material underlying a stockpile of unsuitable material that had been placed on site was continuing to be encountered and chased out.
[75] On receipt of Mr Holland’s updated report on the Lot 74 soft fill issue on 28 March 2017, CKL requested any further response from SPC before the engineer moved to decide whether SPC had responsibility for the issue. SPC continued to refute HDG’s position both factually and legally. At that point, additional costs on remedial work to date were $44,148 excluding GST and rising.19
[76] Mr Newell was provided with Mr Holland’s observations and continued to reject the conclusions.20 He was angry at the accusations of poor quality control and rejected the opinions. Mr Pemberton responded advising that SPC was going to pull together HDG site visit dates, instructions, test results and the like and once they had done this they would get Mr Newell in for an hour to pin some dates on when some of the more critical meetings/instructions would have taken place. He observed that he would need more concrete evidence “so if we all collectively try and pull some of this together – I am sure we have a solid case”. Mr Pemberton advised he had been told that the Principal was taking six weeks of liquidated damages from SPC.
[77] There were further exchanges between SPC and CKL regarding the rework in Lots 71–74 with SPC maintaining its position that it was not liable. As part of SPC’s case that responsibility for fill being within specification was with HDG, SPC referred
19 Email 28/03/17 [305.0780].
20 Email 29/03/17 [305.0786].
to a pre-start meeting held on site in which it was recorded that SPC did not own a nuclear densometer and that therefore shear vanes would be carried out for indicative kPa testing only and recorded daily. SPC sought to tie this into clauses of the contract relating to the respective responsibility between the parties.21
[78] The final inspection of the excavation for Lots 70–73 was completed on or about 4 May 2017.
[79] On 21 June 2017 CKL issued its engineer’s decision in respect to the Gully 2 remediation works.22 This concluded that the defect was likely a result of SPC not achieving the required specifications. It recorded:
It is important to note that no physical evidence, testing results or expert analysis was provided with the Contractors [sic] arguments. As [HDG] are experts in the field of soils and have provided information based on investigations, sampling and testing a level of weighting to their findings has been given.
[80] The decision effectively adopted the information HDG had provided.23 It also rejected the contention SPC was advancing that it was not contractually responsible for the fill meeting specification. The decision noted that the material described as swamp deposits or unsuitables was clearly visible as soft darker material in layers during remediation works and that this had been backed up by low shear vane results within the material.
[81] The decision was provided to Mr Newell. Mr Pemberton commented in his covering email:24
Well I’ve done my best.
Its lawyers now, if we want to go any further. What’s your thoughts?
[82] Mr Newell continued to deny that the issue was one for which he bore any responsibility.
21 Email 1/05/17 [305.0819].
22 Letter 21/06/17 [305.0918].
23 Mr Holland’s reports reference to above.
24 Email 22/06/17 [305.0923].
[83] By letter dated 5 July 2017 SPC formally recorded to the Principal that it disputed CKL’s findings. There then followed some engagement between the lawyers on the issue. Ultimately SPC did not pursue any continued objection through the contractually available steps.
Contractual obligations
Preliminary
[84] The first issue is what contractual obligations were owed by the Partnership. The Partnership accepts that it owed a number of implied obligations, which I address later. Here I deal with disputed issues relating to obligations on the Partnership to comply with the Addendum Specifications referred to above at [32]–[36].
[85] It is common ground that Mr Newell was provided with a schedule of quantities and quoted based on providing his proposed cut to fill rate on these. The schedule included the following:
Spread and compact [fill] on site as controlled fill where shown on the plans,
and as directed by the Geotechnical Engineer.
[86] The parties agree that these words form part of the contract but disagree about what they convey.
[87] The Partnership says the words “as directed by the Geotechnical Engineer” meant that it was to do what was directed by HDG but that it did not itself have any obligation to comply with the Addendum Specifications (or more particularly, the specifications contained within the Addendum Specifications as to air voids and optimum water level). Rather, it says this was the job of HDG to ensure compliance using the testing it was undertaking. This required a nuclear densometer, which everyone knew neither the Partnership nor SPC owned.
[88] Mr Talbot submitted that if SPC took on the risk of ensuring compliance with the specifications in the Addendum Specifications despite not having a nuclear densometer, this risk was not passed through to the Partnership. The Partnership also says it was not provided with the Addendum Specifications until it was on site doing the work and they do not form part of the contract for that reason. As noted at [32], it
is common ground that Mr Newell did receive the Addendum Specifications at some point, as the document was provided on discovery by the Partnership.
[89] SPC says that the words “as directed by the Geotechnical Engineer” required the Partnership to place fill that met specifications provided by HDG and it was for the Partnership to ensure that this was so. SPC pointed to Mr Newell’s acknowledgment that he could tell when fill was too wet or dry by the various non- technical methods in his standard methodology. While HDG undertook scatter testing at the surface of each 600 millimetre lift, this did not and could not ensure all fill met specification, nor did it detract from an obligation to meet specifications.
[90] SPC says for this purpose it is irrelevant whether the Addendum Specifications were provided to the Partnership before or after the contract was formed. However, it says these were provided by Mr Pemberton at a first walkover of the site (back when the Partnership provided its rates) and if that is not accepted, then prior to work commencing.
When were the Addendum Specifications provided?
[91] As referred to above, the parties differed in their recollections on the documents provided at the outset. They also differed on the circumstances in which SPC came to tender on the contract. Mr Newell said he obtained the schedule of quantities for the project from Schick Construction (Schick), another earthworks contractor, who had been invited to tender. Mr Newell said it was he who approached SPC to enquire whether it was going to tender for the earthworks contract, and it is through this that SPC was introduced to the work. Mr Newell’s evidence was that he had not obtained any other material documents at this time.
[92] Mr Pemberton does not recall Mr Newell introducing SPC to the project. He said that this was unlikely given that SPC was a preferred contractor for CKL. In particular, SPC had worked for CKL on the very substantial Huntingdon development. Also, Mr Pemberton said that he recalled walking around the site with Mr Newell and providing him with the contract documents, which included the Addendum Specification. He said it was the usual course to provide Mr Newell with the contract
documents, and also noted that at the time Mr Newell’s daughter was working with SPC so it was no issue retrieving them.
[93] I accept Mr Newell’s evidence that he did obtain the schedule of quantities from Schick and that he went into Schick’s offices and viewed some documents on screen. This is such a specific memory and Mr Newell had no particular reason to invent this scenario. However, I also accept Mr Pemberton’s evidence that SPC was asked to tender independently, so was not introduced to the project by Mr Newell. More significantly, I accept that Mr Pemberton walked with Mr Newell around the site and gave him the contract documents which included the Addendum Specifications. Mr Talbot was critical that this particular scenario (walking around the site and providing the documents) was not put to Mr Newell. I do not agree that it was necessary to do so given Mr Newell’s recollection was that he had received no documents from SPC and he was cross-examined generally about this.
[94] I conclude on the facts that the Addendum Specifications were provided to Mr Newell at or about the time that he quoted on the work. I also conclude that the particular copy of the Addendum Specifications discovered by the Partnership was provided before Mr Newell started work on the site. I agree with Ms Whitfield that on any view it is much more likely he received them prior to commencing.
[95] In my view, the Addendum Specifications form part of the contract between the Partnership and SPC as the specification to which the works were to be undertaken.
Contractual position on the Addendum Specifications
[96] The Addendum Specifications placed ultimate responsibility on the contractor, not HDG to place compliant fill, notwithstanding that testing was being undertaken by HDG. It is correct that HDG undertook testing and required reworking by the contractor where tests failed as it went along. It tested fill at each 600 millimetre lift at the surface of that lift. Its testing was random and completed after the fill was placed. I accept the proposition that this testing was not intended to be, nor was it able to be, a confirmation that all fill met specification. HDG could not and did not observe the fill placement on a continual basis.
[97] I do not agree that this obligation was negated by the prior site meeting where it was acknowledged that SPC/the Partnership did not own a “nuke” (nuclear densometer). I agree with the finding of CKL in the engineer’s report that it was for the contractor to meet the specifications and it was up to it how this was done. My conclusion on this matter is supported by the evidence I heard from both parties that from a practical perspective a competent contractor can tell whether fill is too wet or too dry.
[98] In my view, the Partnership stood in SPC’s shoes insofar as the Addendum Specifications obligations are concerned. The Partnership was to undertake (and did undertake) all the cut to fill works, with a straight pass through of all payments received by SPC for those works. The fact that the whole of these works were subcontracted to the Partnership which received the full payments for them supports that the Partnership as compared to SPC assumed the obligations for those works under its subcontract. Moreover, if the Partnership was not responsible for fill meeting specification, this would deprive the Partnership’s acknowledged obligations (discussed below at [103]) to exercise reasonable care and to act in a proper and competent manner of any sufficient content.
[99] In summary, the Partnership was obliged to comply with the Addendum Specifications. This obligation is unaffected by HDG’s testing.
[100] There is a suggestion that the Partnership was not required to undertake testing and that therefore it cannot be liable. I agree with SPC’s submission that this is a red herring. The Partnership’s contractual obligations were to achieve the standards set out in the Addendum Specifications, that is, not to place fill that was too wet or too dry. How it achieved these was a matter for them.
Breach of Contract
Breach of obligation to meet Addendum Specifications
[101] I have concluded that the Partnership was contractually obliged to meet the Addendum Specifications. The Partnership concedes that it deposited non-compliant fill. Therefore the Partnership was in breach of contract.
[102] I note that my conclusions on the disputed issue of the status and applicability of the Addendum Specifications are not determinative of the Partnership’s liability. That is because, as discussed below, I also find that the Partnership was in breach of the suite of implied obligations that the Partnership acknowledges it owed.
Breach of implied obligations
[103]The Partnership admits that it owed the following contractual duties:
(a)To exercise reasonable skill and care when performing its services.25
(b)To undertake its work in a proper and competent manner.
(c)To use the “placement and compaction” methodology referred to in the “CKL specification” to the head contract.26 In closing, Mr Talbot described this as an obligation to use the “industry standard placement and compaction methodology” described in Mr Newell’s evidence, being the methodology he had used for 40 years as follows:
3.I do not accept that the Partnership placed any unsuitable fill. I used the same methodology I have used for 40 years on this job. Each scoop load of carefully selected fill is spread at approximately 200-300 millimetres deep over an area approximately 3 metres wide and 45 metres long. The next scoop load continues on from where the last spread finished and so on until the area to be filled is covered. As we are placing the fill, our soil compactor works continuously on the fill that has already been placed, leaving the outside tyre mark on the spread untouched as the guide for the next lot of fill to be spread. Any area of fill before compaction that appears thicker than 200- 300 millimetres is trimmed by the compaction blade.
4.Each layer of fill, after about 6 or 8 passes of the compactor, is compacted to approximately 200 millimetres thick. My observation of the compactor wheels and pads is a constant guide to the quality of the compaction. The compactor pad indent left on the fill is ideally a constant 30 millimetres, meaning the fill will be within the required compaction specifications. Indents any shallower than 30 millimetres means the fill material is likely to be getting drier than the optimum required moisture content, and air voids will start to climb above the maximum allowable 8%. If fill appears drier than the optimum required moisture content, that fill needs to be reworked and wet.
25 Para 14 of the Reply by Plaintiffs to Defendant’s Statement of Defence and Counterclaim dated 30 June 2023 [101.0026].
26 Refer 2.17.1-2.17.8 at [302.0106].
5.If the indents left by the compactor are getting deeper than 30 millimetres, this indicated fill wetter of the optimum required moisture content and the sheer strength will begin to fall. I monitor these areas of plus or minus of the 30 millimetres with my own shear vane. This methodology has served me well over my 40 years of earthmoving as it did in the placement of 122,000 cubic metres of fill at Landsdale.
6.I do have a shear vane, which I use on site to test areas that may not appear to have passed our own compaction requirements. These shear vane tests are carried out for our internal purposes only to confirm whether a particular area needs reworking. We do not record the results of these tests and we have never on the Landsdale contract, or on any other contract, been required by SPC or any other head contractor to provide our test results.
7.When we placed each 600 millimetre layer, so 3 layers of 200 millimetres, the filling process stopped, and we had to notify the SPC that a layer is ready for testing. SPC then requested HDG to complete the testing. All instructions to me or from me were through SPC. We always had a good working relationship with HDG and always enacted any recommendations and instructions regarding the placement of the fill. There is fill that is either too dry or too wet according to the Geotech tests on all cut to fill jobs, and we have always managed these to the Geotech’s satisfaction by reworking the fill as instructed.
[177] Mr Sweetman’s evidence was that the deduction is significantly less than justified given that it reflected a quantity of non-compliant fill of 500 m3 not 1,030.4 m3. He believes that it was because Mr Wright of SPC was trying to err on Mr Newell’s side of the equation. SPC’s deduction is fair and reasonable (that is, lower than contractually justified) and I accept it.
Item (c) – Deduction of $4,260.75
[178] SPC made a deduction of $4,260.75 for works SPC says it undertook to rectify topsoil that was placed too thick by the Partnership.
[179] The Partnership invoiced for spreading topsoil in an area of the site. The topsoil was spread too thickly. This was recognised by Mr Newell. In the invoice the
73 BoE of Mr Pemberton, para 116.
Partnership had charged $5.00 per m3, not his usual rate of $5.30 per m3. In an email of 3 October 2018, he explained: “Trimming of topsoil. Extra thick in some areas in my a/c you will see I charged some at stockpile rate this covers extra work”. By this Mr Newell meant he charged less than his usual rate for spreading topsoil (which is
$5.30 per m3) and instead charged $5.00 per m3, his stockpiling rate, to leave
30 cents per m3 for someone to remove the additional thickness to stockpile or some other use.
[180] Rather than accepting this approach to dealing with the excessively thick layer of topsoil deposited by the Partnership, SPC instead adjusted the amount invoiced to pay the Partnership for the full thickness of topsoil at the Partnership’s full rate of
$5.30 per m3 but SPC then deducted the actual costs it incurred to trim the topsoil so that it was to the right thickness.
[181] In my view SPC’s approach is correct. It pays for the work done at the charge for spreading, but appropriately deducts from the invoice a sum reflecting the cost of remediation required due to the topsoil being placed too thickly.
Conclusion
[182] I acknowledge Mr Newell’s frustrations with the delays he experienced in SPC providing information for him to produce his invoice. I also acknowledge that Mr Newell has come to be highly distrustful of SPC with the breakdown of what had previously been a positive and mutually respectful relationship. However, in my view on the evidence before the Court the deductions are appropriate. Moreover, the evidence demonstrates that SPC was seeking to be reasonable in the way it approached the May invoice. It halved its claim for the area of remediation of the failed fill. It also provided a higher amount for the compactor and diesel than Mr Newell himself had allowed. The overall result is fair to the Partnership, if not favourable.
OVERALL CONCLUSION
[183] I award judgment in favour of SPC on liability in the sum of $108,775.66 on the Landsdale Claim plus interest in accordance with the calculator maintained under s 13 of the IMCA from 30 November 2016 to the date of payment.
[184]I dismiss the Partnership’s claim for deductions from its Rangitahi invoice.
[185] SPC has been successful. I will receive submissions on costs and as to interest calculation by SPC within 14 days and from the Partnership within a further 14 days.
Anderson J
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