Rooney Earthmoving Limited v Transform Minerals Limited HC Christchurch CIV 2010-409-714

[2010] NZHC 2123

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2010-409-000714

BETWEEN  ROONEY EARTHMOVING LIMITED Plaintiff

ANDTRANSFORM MINERALS LIMITED Defendant

Hearing:         15 & 16 November 2010

Counsel:         NRW Davidson QC, R S Brown and J J Mills for Plaintiff

N S Elsmore for Defendant

Judgment:      1 December 2010

JUDGMENT OF FOGARTY J

[1]      Rooney  Earthmoving  seeks  judgment  against  Transform  Minerals   for

$176,551.41 together with interests and costs.  The sum sought is the balance of a number of accounts, principally, but not entirely for the 2009 year when Rooney invoiced Transform in the sum of $477,000.

[2]      There are three causes of action:

1.That Rooney is entitled to the sum sought by way of the variation of contract that took place on or about September 2008.

2.That Transform Minerals is estopped from denying such variation of contact; and

3.That Rooney is entitled based on a claim for quantum meruit for plant hire.

ROONEY EARTHMOVING LIMITED  V TRANSFORM MINERALS LIMITED  HC CHCH CIV 2010-409-

000714  1 December 2010

The background

[3]      Rooney Earthmoving is, as the name suggests, an earthmoving company. Transform  Minerals  carries  on  the  business  of  mining  and  sale  of  Bentonite. Bentonite  is  a  clay  with  valuable  properties.    There  is  a  Bentonite  mine  in Canterbury near Coalgate.  It has been there for many years.  It used to be owned by a company called Omya, which is an international company of considerable size. The Bentonite is extracted by open cast mining.  Overburden is removed and taken elsewhere on the site or nearby for disposal.   The Bentonite is then removed and transported to a processing plant at Coalgate.   For many years this removal and transport was undertaken by another earthmoving business trading as Doug Hood Limited.  Rooney Earthmoving purchased the business of Doug Hood and continued the contractual arrangements entered into between Doug Hood and Omya.

[4]      These contractual relations required the earthmover to work on instructions from Omya.   They imposed on the contractor at its cost the responsibility for all surveying requirements throughout the duration of the contract.  In that regard and additional to the initial establishment of boundaries and levels of excavation the company would undertake a regular survey of the excavated volumes.   The earthmoving  company  was  required  to  use  the  survey  results  to  reconcile  the volumes against truck tallies.

The basis of payment will be by truck tally sheets in the first instance with subsequent reconciliation by survey.

[5]      Payment for overburden removal and subsequent dumping and for Bentonite removal, including transportation to Coalgate, were at rates of $/BCM.  Other work, including preparing a haul road were at prices to be agreed from time to time.

[6]      BCM stands for “bench cubic metre”.  The reference to “bench” refers to the place material is found before it is removed.   Bench cubic metre therefore refers to the volume of material in situ before removal.

[7]      When earth is removed it naturally bulks up in volume.   The bulked up volume of overburden removed and dumped in a dump truck can be approximated to

the volume it took in situ.   But the best measurement of the bench cubic metres removed is by comparing a survey of the site prior to excavation with a survey of the site post excavation.

[8]      With these facts in mind the terms of the contract between Omya and Doug Hood that I have just summarised become logical.  Interim billing was to be by way of adding up the truck loads, and approximating their loads to an equivalent BCM basis and then multiplying that sum by the rate per BCM for overburden, which was

$10.50/m³ and for Bentonite which was $14/m³.   The resultant charges were, however, subject to reconciliation after survey.

[9]      These terms of business survived both the acquisition of the business of Doug

Hood by Rooney and the acquisition of the mine from Omya by Transform Minerals.

[10]     After the latter acquisition Rooney became dissatisfied as to the profitability of the contract.  The business of Transform Minerals was of a lower scale than Omya so it needed less Bentonite.   The earthmoving work it required on the site was subsequently less and more bitsy.  The earthmoving could only take place between late Spring and Autumn, as if the Bentonite was wet the equipment could not be used.  Transform’s lesser demand than Omya exacerbated the disruptive character of the earthmoving.

[11]     From an invoice dated 31 October 2008, the start of the 2008/2009 season, Rooney began invoicing on a plant hire basis.  This was immediately apparent.  The formatting of the invoices changes from estimates of BCM, to plant on the site, times hours worked, times rate.

[12]     There  is  no  contemporaneous  documentary  evidence  that  this  change  of billing was agreed at the time it was made.  There are no letters or emails.  None of the witnesses from either party in these proceedings could recall any discussion, let alone agreement, on the change in rates when they were first sought from the end of October 2008.

[13]     There was a pleading in the statement of claim that there had been an oral agreement by Mr Lundy to the change to plant hire around late 2008 in a discussion by  him  with  Mr  Reg  Cavill,  the  site  foreman  for  Rooney.    It  is  pleaded  that Mr Lundy advised Mr Cavill the contract was operating on a plant hire basis and asked Rooney staff to complete daily log sheets provided by Transform, the first log sheets being completed in October 2008.

[14]     These propositions were not sustained in the trial.   Neither Mr Lundy nor Mr Cavill could recall such conversations.  If there was a complete shift over to plant hire basis then the  amount of overburden being removed was irrelevant to that contract.  There was never going to be any need to record the amount of Bentonite by way of daily log sheets.  The Bentonite was measured on the pad at the factory.

First cause of action

[15]     Mr  Davidson’s  argument  was  that  Transform  accepted  this  variation  of charging to plant hire by billing and paying on plant hire for 17 months.  Further, Mr Lundy for Transform admitted liability on 14 April of this year.

[16]     On 9 April Transform had received a statutory demand from Rooney for

$246,551.44.  On 14 April Mr Lundy filed an affidavit in opposition to this demand in which he argued that the company had always been given time to pay as they sold off the Bentonite product some time after it had been collected;   that in the 2009 season Rooney had removed a greater amount of overburden than had been anticipated so that the invoice for that year of $477,383 was nearly four times greater than they had paid in 2008.

[17]     He went on to say:

We have continued to pay the full amount owing over time as previously agreed.   We are unaware of any change in the arrangement with Rooney. Some of the amount claimed in the demand is current and under the terms we had would be paid over the year.

We are prepared to make payment to Rooney and are attempting to resolve this through negotiations with Rooney.   We therefore need an increased

period of time for statutory demand to expire to allow us to ensure we have sufficient cash on hand to pay Rooney.

[18]     It is in the nature of statutory demand proceedings that applications to set aside a demand have to be made swiftly.  The demand was made on 9 April.  This is an affidavit in reply made five days later.  It is in the nature of civil litigation that problems often need to be analysed in order to identify defences.

[19]     The affidavit of 14 April 2010 cannot be categorised as an agreement to the changed terms of charging which commenced in the 2008/2009 season.  It may be relevant to the estoppel cause of action and to the quantum merit causes of action.  I will return to it later.   But the affidavit itself does not answer the question as to whether or not the variation had been agreed.  The best argument for the plaintiff that the variation to charging, which stated in 2008 had been agreed was the regular payments made on account of the invoices.  (There was always a debt owing on the running account from Transform to Rooney.)

[20]     There was no doubt that Mr Lundy was aware of the change in billing.  He prepared a spreadsheet analysing quarry production for the year 2009.     He then compared the costs of this work by comparing three categories:

Clay expense if on contract rate of $14/m³

OB (overburden) expense if on contract rate of $10.50 m³

Total per month if on contract rate

Savings by machine hire

[21]     He calculated that the total billing had it been on contract rate would have been $691,922.70 representing a saving of $313,357.27.

[22]     The same spreadsheet contains some notes which record:

1.Prior to May 2008 a calculation was carried out on in situ volume of overburden and clay as (bench m³) using survey reconciliation.

2.        Contractor has invoiced on base of equipment hire.

3.Since May 2008 overburden volume has been calculated using truck tallies noted on daily log sheets by Rooney’s staff.

4.On daily log sheets volumes are calculated using 20m³ per truck load which is incorrect because of the following:

(Goes on to discuss the conversion of loose material to a BCM equivalent)

Concludes:

Hence we use 15 m³  per truck load (this was agreed by the Rooney supervisor).

5.        Volume calculation change by Rooney staff on 12 March 2009 from

15 m³ to 20 m³ per truck load, the reason is unknown.

[23]     There was another note to this document:

Contract price per m³ of clay is $14 and overburden is $10.50.

[24]     This  schedule  was  prepared  obviously  some  time  in  2010,  during  the

2009/2010 season.  It does not, on the face of it, say that Transform Minerals agreed or now agree to being invoiced on the basis of equipment hire.   It was plainly an analysis to see whether or not there were savings by machine hire.  It was a comfort to  Mr  Lundy  at  the  time  that  there  were  savings.    It  was  originally  a  private document.

[25]     There were two surveys to calculate BCM removed conducted in 2009 by Rooneys at the request of Transform Minerals.  If Transform Minerals had agreed to charging by plant hire, whether or not this was producing a higher rate than the BCM rates, there would be no need for the surveys.

[26]     Mr Lundy’s evidence at the trial was to the effect that it was a standard industry basis of charging removal of overburden and minerals against BCM, if only to impose some discipline on the efficiencies of the mining contractors.

[27]     I am satisfied that Transform Minerals would not have agreed to simply move to a hire rate without some kind of mechanism which involved some kind of reconciliation to BCM.  The fact that they did ask for surveys is telling.  This was in the midst of their regular payment of invoices.

[28]     Mr Davidson’s argument relies also on the fact that after the surveys were done and the results given to Transform Minerals there was silence.  Mr Lundy says there was silence because he sent the survey data away to be analysed.

[29]     The validity of an asserted variation of contract has to be subject to the same rules of offer and acceptance which apply to the formation of contract.  There has to be an offer which is accepted.  An acceptance is a simple agreement to the proposed change.   Against a previous history of interim billing followed by reconciliation I cannot find that payments during the 2009/2009 season evidences simple acceptance of the variation.   There is an alternative explanation.   It would appear from the spreadsheet prepared in early 2010 that Mr Lundy was examining whether being charged  according  to  machine  hire  offered  savings  over  what  he  continued  to describe as the contract rate.   This spreadsheet was attached to Mr Lundy’s first affidavit of 14 April 2010.   It was part of an exhibit designed to record the total billing over 2009.  It plainly reflected at that stage his appreciation that charging on a hire rate was cheaper than charging on the contract rate.

[30]     In my view the fact that this spreadsheet was prepared before the notice of demand, and in obvious ignorance of the data revealed by the surveys shows that Mr Lundy was still examining in-house whether or not the new charging regime was providing an advantage.  He thought it was and thereby was not seeking to challenge the hire rate.

[31]     But none of these facts amount to an unequivocal communication to Rooney of “yes” to the unilateral change in hire rate imposed by Rooney, as a final charge, not to be reconciled by survey and converted to the BCM rates.  I do not find that the hire rate was an agreed variation of contract.

Second cause of action – estoppel

[32]     The second cause of action is similar on the facts to the first cause of action. It essentially argues that it is now too late after 17 months’ payments for Transform Minerals to dispute the hire rate.

[33]     Rooney relies on Transform Minerals’ conduct in:

1.        Accepting invoices charged on a plant hire basis over 17 months.

2.        Making payments in terms of those invoices without demure.

3.Making promises and assurances of payment in accordance with such invoices (April 2010).

4.Failing to raise any issue with regard to the stripping ratio required to extract  Bentonite  (discernible  from  the  survey  results  done  in February and April 2009).

[34]     To establish an estoppel Rooneys have to sustain the proposition that this conduct  of  Transform  (which  is  not  disputed)  amounts  to  a  clear  statement  to Rooney:   that it accepts that the contract is to be billed finally on plant hire.  Second, it has to be shown that Rooneys relied on this proposition;  and thirdly, that it is just that Transform Minerals be held to it.

[35]     The same reasons why I rejected a clear acceptance of the change in plant hire apply equally to these three necessary preconditions to establishing estoppel. Estoppel is not made out.

General comment to first two causes of action

[36]     Whether Rooney management were conscious of it at the time, they took a risk in unilaterally changing the charging basis of the contract in late 2008 without getting agreement by Transform Minerals at the time.  The view of Mr Lundy, that it

is an industry standard for the costs of overburden being in accordance with the amount of overburden removed, was supported by the expert called by Transform Minerals, Mr Gray.  The other expert called for Rooneys, Mr Price, was not asked to dispute that proposition.

[37]     There may well have been some conversations either between Mr Lundy and Mr Rae for Rooneys or Mr Cavill for Rooneys or between Mr Panchel (Transform Minerals’ site supervisor) with either of those other two gentlemen from Rooneys. Certainly, somewhere along the line, and prior to this dispute arising, Mr Lundy was preparing the spreadsheet looking for savings from the hire rate.  It was compounded by Rooneys agreeing in February and again in April 2009 to use their staff to do surveys, a step consistent with the earlier trading terms.

Second cause of action – recovery on a quantum meruit

[38]     Mr Elsmore agreed at the start of the case that he could not sustain a simple argument that the contract terms had not been changed.   His client had clear and consistent notice that Rooneys was billing on  a different basis.   What was left unresolved was whether there was going to be any ongoing reconciliation.  For sure, if the hire charges were going to produce a lower price for the work obviously Transform Minerals would be in agreement.

[39]     It follows that both parties were at all times in agreement that the work would be paid for, and, at the least that the interim billing basis had changed to a hire rate. There has never been any dispute by Transform Minerals that they should pay a fair price for the work done by Rooneys.   That is at the least an implied term, and makes available the remedy of quantum meruit, where the parties have not reached final agreement on variation of the method of establishing the price.  See Halsbury’s Laws

of England (4th ed, reissue, 1998) vol 9(1) at [1155]. The remedy provides a party

with  a  reasonable  price  for  work  done  in  the  absence  of  a  binding  contractual formula for calculating a price.

[40]     Most  of  the  trial  was  occupied  with  an  examination  of  the  amount  of overburden actually removed by BCM.  There was a dispute about that.  The dispute

arose because there was no complete survey evidence for the 08/09 season.  I use the word “season” because, as explained, it is of the nature of Bentonite that it cannot be mined in the Winter.   The mining season, therefore, is from late Spring to early Autumn.  There were two surveys taken, one in February 09 and one in April 09. There was no survey taken at the beginning of the late Spring 09-Autumn 10 and there was no survey immediately prior to October 08.  Therefore, both experts had to rely on the record of lorry movements converting loose material to an equivalent BCM rate for the periods outside February to April 09.

[41]     There is no dispute about the number of lorries.   There became a factual dispute as to how much material was being carried by the lorries.

[42]     Both parties agreed that the survey method of calculating the removal of overburden is reliable.  It measures the contours of the land at the start of the period and the contours of the land at the end of the period.  Provided that the survey points are  the  same  for  each  period  modern  software  can  convert  the  changes  in  the contours of the land into a volume and so produce the volume of BCM removed. The amount of Bentonite delivered to the site is reliably calculated.  Therefore, the total volume removed less the amount of Bentonite collected in the same period is the amount of overburden removed.

[43]     On these facts it is not possible, however, to rigorously apply the BCM rate because of insufficient surveys.   Ultimately that is a problem for Transform, not Rooney, for Transform knew Rooneys wanted to vary the contract, and had moved to invoicing on the hire rate.   Yet Transform did not consistently seek surveys. Mr Lundy  and  Mr Panchel  were  distracted  by  the  dispute  with  Ms  Langen. Mr Lundy acknowledged that their usual supervision of earthmoving fell away.

[44]     There were two factual differences in the data used by the two experts in applying variants of the survey method.  Rooney’s expert, Mr Price, used a larger area of the mine, the areas coloured yellow in AB170 and numbered 3, 4, 5 and 7. Second, within the common area coloured in blue in AB170 Rooneys used the whole of the area, whereas Transform Minerals’ expert, Mr Gray, used areas 1-6 in ABD566c.

[45]     The second difference is that both experts agreed that the best way to assess the likely amount of BCM equivalent carried per lorry movement was to take the number of lorry movements in a survey period and divide that into the total amount of overburden removed less the Bentonite recovered.   But again here the experts relied on different survey data.   Mr Gray for Transform used a survey taken in October 2010 and used that survey to derive overburden removed from April 2009 to October 2010 and divided that by lorry movements in that period of time.  This was challenged on the basis that there was other mining in 2010 within that survey period undertaken by Transform Minerals itself after Rooneys had ceased mining.

[46]     Mr Lundy challenged the proposition that the yellow areas were mined.  He pointed out that Area 7 had never been mined, was steep and covered in vegetation. Similarly, he argued Area 3 was a steep face that had never been mined.  I queried him about the “toe” of Area 3 as to the possibility that it could be mined.

[47]     Mr Cavill was recalled.  He gave specific evidence that all the yellow areas had material removed from them.   He said in the case of Area 7 there was a slip threatening to come down on to an access road and a digger removed material from that slope.  That was not a removal of overburden in order to get to Bentonite, but was, nonetheless, a removal of material.  In respect of Area 3 he said that a digger worked the edges of that area and removed material.  He confirmed the position of Areas 4 and 5 relative to the Area A, hillside, appearing in photo 112.

[48]     Photo 112 shows a slip in the vicinity of Area 7 which has obviously gone across a benched track.  The digger in photo 112 is close to Area 3 and shows tracks leading up towards Area 3.

[49]     There is no reason for Rooneys to be exaggerating the area moved.   I find that material was removed from the yellow areas in ABD170.

[50]     In respect of Transform Minerals’ argument that the areas in the blue area and in area E on ABD170 were mined in sub Areas 1-6 as discussed above.  I prefer the evidence of Rooneys.   This is for these reasons.   Firstly, Transform Minerals’ expert, Mr Gray, was relying on instructions from Mr Panchel.  Mr Panchel was not

called.  I do not criticise Mr Gray for relying on those instructions.  Nor do I suggest Mr Panchel would have mislead Mr Gray.  But, Mr Panchel was not on the site all the   time.   He was there periodically.   It is common ground that normal on site supervision by Transform Minerals was interrupted in the 2009 year by attention being paid  by Mr  Lundy and  Mr Panchel to  the  progress  of  an  dispute  in  the Environment Court  between Transform Minerals and Ms Langen, the owner of the land.

[51]     The analysis by Mr Price for Rooney reduced the derived BCM loading per truck load from the estimated 11.1 down to 10.5.  By contrast Mr Gray’s analysis, using the October 10 survey, and smaller areas, reduced the loading down to 6.5

BCM.  Given that the Volvo trucks could carry 20.5 m³ of loose material, Mr Gray’s derived number looks low, indeed unusually low, almost half the projected estimate in the daily logs.   This low number confirms my judgment that the results of his work are less reliable than those of Mr Price.  This is nothing to do with the expertise or method employed by Mr Gray.  It has everything to do with the data that he was instructed to use.   That data was deficient because it was chosen by persons who were not in as much daily contact with work on the site as were the Rooney staff.

[52]     For these reasons I consider that Transform Minerals has failed to challenge the estimates of overburden removed calculated by Rooneys according to a reliable scientific method and using better data.  I therefore regard the Rooney estimates as more probable than not to be correct.

[53]     I have not had to refer so far to the third method of calculation, assessing the size  of  Area  B  into  which  most  of  the  overburden  was  transported.    (Some overburden was placed below Area A.)  This was recognised by both experts to be a very unreliable method, at best a very crude cross-check.

[54]     For these reasons I accept the calculations of Mr Price for Rooney.  I refer to ABD566D and set out Mr Price’s overburden volume reconciliation.  Keep in mind that the truck count is of overburden only, Bentonite being separately counted in Bentonite trucks.   So outside of survey Mr Price has been able to use overburden

truck counts but for the periods within survey he has had to reduce the overburden taken by the Bentonite volume:

[55]     I  take  that  sum  of  36,969/m³  as  total  overburden  extracted  excluding

Bentonite recovery in 2009.

[56]     At the original contract price of $10.50 per BCM that comes to the sum of

$388,174.50.    The  Bentonite  recovered  in  2009  were  assessed  in  Mr  Price’s document ABD559 at 8,285 BCM high, 4,730 BCM low, a range between $115,993 and $66,220.   My own audit of his calculations varies by less than $5 on each number.

[57]     Mr Price’s figures are higher than those in Mr Lundy’s calculation in his early 2010 private spreadsheet, showing a total Bentonite to plant of 2,225,55 m³ for

2009.  However, this spreadsheet was not relied upon at the trial.  Mr Gray took a lower figure of 1,935 BCM for the period February 19 2009 to October 2010.  Apart from these totals and general evidence that there was low recovery of Bentonite, there was no evidence from Transform recording the receipt or use, or other quantifications of Bentonite, on the pad at the Coalgate works.    Mr Gray’s figures appears to be an estimate as he says the Bentonite figures are “from TMC Plant records and truck movements”.    He says since Jan 1 2009 there have been 6,075 tonnes delivered, in 628 loads.  He derives a load rate of 5.37 BCM and uses that to derive his total.

[58]     Using Mr Price’s figures and taking the two ranges this suggests that the total billing for 2009 based on Mr Price’s figures should range between $504,167.50 and

$454,394.50.   This can be compared with the billing on the hire basis in 2009 of

$477,000.

[59]     If  the  Bentonite  recovery  were  of  the  order  of  2,000  m³,  as  argued  by

Transform, that would reduce the total 2009 bill to $416,000.

[60]     Under the quantum meruit cause the ultimate question is what is reasonable. What is reasonable is not a precise standard.   It is an exercise of judgment over which reasonable persons could differ.  But in the absence of agreed contract terms, it is a judgment that has to be made by the Court.

[61]     Quantum meruit reasoning is not and cannot be precise.  I am satisfied that the hire rate was fair.  Taking Mr Price’s workings it was similar to the BCM rate in outcome.    Taking Transform’s lower Bentonite figures Rooney is at best overcharging of about 12% of the total hire rate invoicing of $477,000.

[62]     It is not possible to derive a reliable BCM price on the data available.  I am satisfied the hire rate interim billing has not been shown to be unreasonable. Moreover, I am satisfied that it is the best available method to establish a fair price in the absence of reliable and comprehensive survey evidence.

[63]     I conclude that the better rate on these facts is the hire rate.    Because of the unreliability of the modified survey methods I do not think one gets a better figure by finding a compromise figure between the hire rate, and from amongst the range of

‘survey’ prices.  So I judge the reasonable price to be the price at the hire rate.

[64]     Accordingly, the plaintiff obtains judgment for $176,551.41, the issue of interest is reserved, costs to the plaintiff at a 2B, including allowance for one junior counsel.  These costs include all steps since and including the statutory demand.  If the parties cannot resolve interest and costs, I will receive written submission of no more than five pages, exchanged in draft.

Solicitors:

Meares Williams, Christchurch, for Plaintiff (Counsel Acting: NRW Davidson QC) Layburn Hodgins, Christchurch, for Defendant (Counsel Acting: N S Elsmore)