P Ward Civil Engineering Pty Limited v Bovis Lend Lease Pty Limited [2002] NSWSC 206

New South Wales Supreme Court

CITATION : P Ward Civil Engineering Pty Limited v Bovis Lend Lease Pty Limited [2002] NSWSC 206 CURRENT JURISDICTION: Equity Division Technology & Construction List FILE NUMBER(S) : SC 55062/97 HEARING DATE(S) : 19-20 March 2002 JUDGMENT DATE : 17 April 2002

PARTIES : P Ward Civil Engineering Pty Limited (Plt) Bovis Lend Lease Pty Limited (Def) JUDGMENT OF : McClellan J

COUNSEL : S R Donaldson SC(Plt) M R Gracie (Def) SOLICITORS : Tress Cocks & Maddox (Pltf) Freehills (Def) CATCHWORDS : Adoption of referee report - where works were undertaken before entry into formal contract - whether referee was entitled to consider material extrinsic to the contract - the relevant stage at which risk from defect passed - whether a correct approach was adopted for calculation of liquidated damages and interest LEGISLATION CITED : Trade Practices Act (Cth) CASES CITED : Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 Bridge v Campbell Discount Co Ltd [1962] 1 All ER 385 DECISION : Paras 23, 31, 36, 41, 48, 54, 64, 72, 82

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

McCLELLAN J

WEDNESDAY, 17 APRIL 2002

55062/97 - P WARD CIVIL ENGINEERING PTY LIMITED v BOVIS LEND LEASE PTY LIMITED JUDGMENT 1 HIS HONOUR: The plaintiff and the defendant (which was at the time of contract known as Civil & Civic Pty Limited "Civil & Civic") are in dispute in relation to some aspects of the report of the court appointed referee Mr K J Hinds, dated 29 November 2001. The dispute arises from the construction of the Prospect Water Filtration Plant ("the plant") that was constructed by the defendant using various subcontractors. The plaintiff was the subcontractor in relation to earthworks and associated matters. 2 An order for reference was made under Pt 72 of the Supreme Court rules on 4 December 1998 appointing Mr Hinds. The matters referred to him were identified as the directions for Separate Determination. Matters relating to some aspects of the liability dispute between the parties were determined by Einstein J on 3 August 1999. 3 The contract between the parties was unusual. Following the issue of tender documents and the preparation of extensive and detailed priced bills of quantities, the plaintiff and the defendant agreed to a Target Guaranteed Maximum Price ("TGMP") for site preparation, earthworks, civil works, road works and landscaping associated with the construction of the plant. The TGMP was agreed in November 1993 in the sum of $16.7 million. The extent of the works which the plaintiff had been asked to price was detailed in documents known as the "TGMP Summaries." 4 The plaintiff commenced work in relation to the project in December 1993 under a separate agreement for the performance of "early works". A further "interim contract" for additional works was entered into in February 1994. The works, the subject of both of these contracts, were completed and further works commenced prior to 18 May 1994, which was the day on which a formal contract was made between the parties. 5 The contract between the plaintiff and the defendant was executed in respect of the whole of the works including works undertaken between January and May 1994 ("the contract"). The contract was stated to have a commencement date of 12 January 1994. The contract incorporated a number of drawings which had not formed part of the tender material prior to 17 November 1993 and included contractual terms and a Scope of Works which were in some respects different to those provided to the plaintiff for the purpose of agreement of the November 1993 TGMP. 6 The contract provided that the parties agree: "A. the Contractor must execute and complete the whole of the works namely all site preparation, earthworks, civil works, road works, landscaping and other works and as more particularly disclosed in the Scope of Works (including variations under the Contract) ("Works") in every respect to the satisfaction of Civil & Civic Pty Limited and in accordance with the Contract." 7 In return, the defendant was obliged to pay the sum of $16,700,000. The TGMP price, which as it happened became the contract price. ("GMP") 8 The contract incorporated specifications provided in a Schedule of Specifications. A Scope of Works was also provided, the preamble to which was in the following terms: "The Scope of Work required to complete the works shall include, but not be limited to the works described in the following sections. This SOW describes the extent of the Works and is not meant to be complete in every detail. In particular, detailed drawings, specifications and data sheets (the design documents) relating to the Works will be issued by C & C as the design development process proceeds. The Contractor will be given an opportunity to review the design documents prior to final issue during the design development process. The Contractor is expected to input the benefit of its knowledge and experience to the design development process to ensure that the final documented design is practical and achievable. The Contract Sum includes all cost changes arising out of the design development process including changes to drawings, data sheets and specifications with the exception of costs recoverable from the Client. The SOW covers all provisions by the Contractor, that are necessary for the Contractor to execute the Works in accordance with the approved for construction issue of design drawings, specifications and data sheets (the final documented design)." 9 Various other obligations are set forward in additional schedules and documents which form part of the contract. 10 Clause 6.30 provides the agreement between the parties with respect to design development. The clause is in the following terms: "6.30 Design Development 6.30.1 The Contractor acknowledges that: (a) the design of the Works is not finalised and further development of the design will be undertaken by C & C; and (b) the development of the design may result in changes to the Works ("Design Development Variations") including matters which would otherwise constitute variations. 6.30.2 Notwithstanding any other term of this Contract C & C will not be liable for any losses suffered by the Contractor in connection with and no adjustment will be made to the Contract Sum in respect of any Design Development Variation except to the extent that C & C receives payment for the Design Development Variation under the Head Contact. 6.30.3 If an amount is payable to the Contractor under Clause 6.30.2, the amount shall be determined under Clause 10.4 but shall in no circumstances exceed the amount payable to C & C under the Head Contractor in respect of the Design Development Variation." 11 It is perhaps not surprising that a contract drawn up in this manner has given rise to litigation. The proceedings before Einstein J involved consideration of whether the plaintiff was bound by the contract to provide the agreed works for the nominated sum. It was submitted that it may not be bound by reason of a claim in rectification, a claim under the Trade Practices Act (Cth), and for other reasons. The plaintiff failed in the proceedings. His Honour held: "I accept that on the evidence, Wards priced a bill of quantities for the purpose of agreeing a TGMP which would then undergo change and refinement through a process of design participation and drawing and specification revisions until a GMP was agreed upon. To assume or assert that the 19 November 1993 bill of quantities constitutes the scope of works which would relate to the later GMP contract then ignores the evidence that a GMP could have been struck at a higher or lower figure than $16.7m. The evidence, I accept, was that the process of design development was an attempt to establish a GMP of equal value to the TGMP, but the basis upon which that GMP was determined must have differed by design development. I accept that this fact is the only way of explaining the design development process after the TGMP. If the scope as at 17 November 1993 when the TGMP was established was to remain unchanged, it would be necessary for the parties to have formally agreed as at 17 November 1993 on the then current drawings and specifications. On the evidence, those drawings and specifications were already obsolete and Wards' evidence was that the only matter agreed as at 17 November 1993 was a TGMP upon which the parties would then embark in a process of design development. That would, I accept, lead to a situation whereby a GMP would be agreed based on drawings and specifications which were then applicable to that sum and not the TGMP which, on the evidence, was the culmination of the August 1993 to November 1993 process in respect of entirely different drawings and specifications." 12 The parties proceeded to a reference before Mr Hinds, who was appointed by the court for the purpose of dealing with the dispute. It is convenient to deal firstly with the matters in Mr Hinds' report about which the plaintiff complains. Variation Claim 98 – Additional Ground Anchors 13 When preparing its tender, the plaintiff allowed for the installation of 556 ground anchors. However, it was ultimately required to install 1,148 ground anchors. The original position with respect to anchors was provided in drawings issued in November 1993 and was reflected by the plaintiff in the TGMP. 14 Before the referee, the plaintiff claimed to be entitled to payment as a variation, in respect of the anchors which were additional to those allowed in the TGMP. At least, this was its initial claim. It ultimately claimed for the cost of all the ground anchors. This claim was advanced because it is said the contract documents made no provision for any ground anchors. 15 The problem arises because of the failure to adequately document the works. There was no reference to rock anchors in either interim contract but in fact, they were largely installed before the formal contract was signed. That installation was undertaken in accordance with drawings issued before the execution of the contract in May. 16 As I have identified, the contract provided in clause A that the plaintiff must complete the whole of the works, "disclosed in the Scope of Works (including variations under the Contract) ("works") in every respect to the satisfaction of Civil & Civic (the defendant) and in accordance with the contract." Because earthworks are defined in the Scope of Works to include ground anchors, it is accepted that the plaintiff was obliged by the contract to install them. The question is whether it was entitled to be paid as a variation for the cost of the installation. 17 It is plain that circumstances surrounding the execution of the contract, could give rise to difficulties unless the drafting of the contract was carefully undertaken. The situation was made more complicated because the plaintiff was undertaking pre-contractual works. Whether the works were a primary obligation of the contract, or a design development variation for which no additional payment would be made or a variation for which payment would be made was not readily apparent in all cases. 18 The referee determined, with respect to the anchors, that although they were not shown on the "contract drawings", because they were included on drawings issued to the plaintiff prior to the formation of the contract, they were within the scope of works for ground anchorage as defined in the contract. 19 Having regard to his general remarks as to the approach he proposed to take to the difficulties created by the draftsperson, he should be understood as having concluded that the reference to "ground anchors" in the Scope of Works, without a reference in the contract drawings, was ambiguous and accordingly, he looked to the surrounding circumstances to determine whether the parties intended the contract price to include the ground anchors which had been constructed. He came to the conclusion that the parties had agreed that the ground anchors were included in the contract price. 20 It is obvious that the contract was ambiguous with respect to ground anchors. However, it is plain that the parties understood that ground anchors would be required, indeed the plaintiff's original tender provided for them. In these circumstances, the true meaning of the contract may be informed by the fact that the drawings before contract provided for ground anchors and by the time the contract was executed, they had in fact been installed. 21 As it happens, the approach which the referee adopted to the issue was consistent with the submissions made to him by the plaintiff which suggested that "the obligation to provide ground anchors must be resolved by reference to material extrinisic to the contract". 22 Of course, the plaintiff had in mind only the pre-November 1993 tender drawings, but the referee considered all the material available prior to the date of the contract. The referee noted that the original intention with respect to ground anchors changed during the development of the design and was the subject of numerous design review meetings which involved the plaintiff. He also had regard to the evidence given on behalf of the plaintiff by Mr Pittolo (who was responsible for submitting the plaintiff's claim) to the reference that at the date of the contract, the plaintiff was aware of the need for and its responsibility to install the additional anchors. 23 I am satisfied that the referee's finding in respect of this claim should be adopted. It was plain that the contract raised the need for ground anchors and the parties always understood that they would be required. As the contract price was agreed at a time when the parties had agreed the required number of ground anchors, it was appropriate to conclude they could not be claimed as a variation. Variation Claim 99 – Change in Backfill Specification to Meet Ko Requirement 24 The plaintiff claims a variation, under this heading, in the sum of $506,718. The claim is that the plaintiff was required to undertake additional work when backfilling adjacent to various structures so as to avoid exceeding a lateral pressure co-efficient ("Ko") of less than 0.5. 25 The obligation to achieve Ko of less than 0.5 is identified in the groundworks specification under the requirement "Filter Internal Backfill below RL57 – Adjacent Structures." This reference was ambiguous and there are difficulties in identifying the structures being referred to. The defendant contends that the words "adjacent structures", being incorporated as an amendment to the specification, plainly required the relevant filling in the area of both the filters and the adjacent structures and was not limited to the area of the filters. 26 On Contract Drawing PWG 011/G021 Revision D there is a note to the following effect: "Refer geotechnical information prepared by Coffey Partners International Pty Limited ("CPI") for details of excavations and filling in filter areas" 27 Drawing PWG 011/GO20 contained the further note: "Refer to earthwork specification and geotechnical information prepared by Coffey Partners International Pty Limited as regards suitable fill material and compaction requirements." 28 Both drawings were issued before the contract was executed. 29 The referee concluded that the effect of these notes was to incorporate into the contract the requirements communicated by CPI prior to the execution of the contract. In my opinion it was an appropriate interpretation. As it happens, before the contract was executed, the relevant drawings were issued and there were extensive discussions involving CPI and the plaintiff as to the nature and extent of compaction required. There was also a written report issued by the defendant for guidance as to the manner in which the required Ko would be achieved. 30 The referee found that the plaintiff at 18 May 1994 had full knowledge of the nature and extent of the compaction requirements of CPI. Accordingly, he found that the plaintiff had, when offering its contract price, agreed to meet those requirements. That finding was open to the referee. 31 I am satisfied that it is appropriate to adopt the referee's report in relation to this aspect of the matter. Variation Claim 112 – Double Handling of Material from CWT 2 32 The plaintiff claims $20,015 under this heading. 33 Clause 8.3.1(1) of the contract provides: "C&C will not be liable … for losses suffered or incurred by the [Plaintiff] which in any way whatsoever arise out of or are connected with the delay, disruption or interference to the progress or completion of the Works which arises out of or is in any way connected with either or both of the following: (1) the acts or omissions of others [excluding those parties under the head contract and their consultants or the [Defendant's] consultants but otherwise including, but not limited to the contractor's [ie the Plaintiff's] personnel and C&C's construction employees, whether engaged by C&C or otherwise; or …". 34 The referee found that the plaintiff did incur additional direct costs in double handling material for backfilling of Conduit 5 but said "this arose from the delay by others in completion of the Conduit 5 structure". He appears to have made this finding having regard to the evidence of Mr Pittolo, who was not cross-examined on this matter. 35 As it happens, the plaintiff's own documentary material suggests that the cause of the handling was the delay by John Holland Pty Ltd, another subcontractor of the defendant. Accordingly, any claim was excluded by clause 8.3.1. 36 This is sufficient to determine this claim in favour of the defendant and accordingly, I am satisfied that it is appropriate to adopt the referee's report in relation to this claim. Variation Claim 163: Rip Rap to Coffer Dam 37 The plaintiff claims $54,492 for this variation. However, if a variation is allowed, the sum to be awarded remains in dispute. As the referee rejected the claim, he made no relevant findings as to quantum. 38 Item 6.0 of the Scope of Works requires the plaintiff to construct all associated earthworks and drainage systems for Stages 1-3 of the Coffer Dam including "silt curtains, reservoir face protection and spillways." The contract documentation does not specify the precise material required for "reservoir face protection". 39 The plaintiff's TGMP refers to the prospective use of "fabriform revetment mattresses" for this purpose. However, as it happens, fabriform revetment mattresses were not suitable for the nominated purpose and could not be used. The referee found that the proposal to use riprap was suggested by the plaintiff and furthermore, that it met the requirements of the contract. 40 The plaintiff had an obligation under the contract to provide suitable "reservoir face protection". As this could not be provided using "fabriform revetment mattresses" as the plaintiff had originally intended, it was obliged to use a suitable alternative. Accordingly, it is not entitled to recover any additional cost as a variation. 41 The referee's report will be adopted in relation to this claim. Variation Claim 170: Vertical Cuts (Shotcreting) 42 The claim is for a sum of $172,173 and relates to the provision of shotcreting to vertical faces in Conduit 5. 43 Contract Drawing GO20 Revision C provides for this aspect of the works and contains the note: "All excavated surfaces to be protected after exposure. Refer to geotechnical information prepared by Coffey Partners International Pty Limited." 44 CPI forwarded a fax to the plaintiff dated 21 March 1994 which stated: " Shotcrete requirements : Shotcrete protection to vertical cut faces should involve a nominal thickness of 50m shotcrete reinforced with light welded mesh." 45 The relevant Contract Dawings contained two notes of relevance. Firstly: "Vertical excavation face in rock to be maintained where face of excavation shown hatched", and secondly: "No allowance has been made for thickness of shotcreting on exposed rock walls." 46 It follows that it was appropriate for the referee to conclude that when the contract was executed, the plaintiff was bound to provide shotcreting as required by CPI. The reference in the plans to the fact that "no allowance has been made for thickness of shotcreting" is a reminder to anyone reading the drawings that the appropriate dimensions for shotcrete should be allowed in the construction, although not shown on the particular drawing. 47 The fact that the CPI requirements were not available at the time of the issue of the drawings is irrelevant. All that matters is that they were available before the contract was entered into. 48 I propose to adopt the referee's report in relation to this claim. Variation Claim 193: Repairs to Channel 5 Base. 49 The plaintiff claims $38,856 for this variation. 50 Clause 3.1 of the contract provides: "The Contractor [ie the plaintiff] accepts sole responsibility for and assumes the risk of all losses arising out of the physical and other conditions and characteristics of the Site and its surroundings (including water, atmosphere and subsurface conditions and characteristics) encountered in the execution of the Works." 51 The plaintiff excavated Channel 5 and completed the required works and handed them over to the defendant on 19 August 1994. On 14 September 1994 the plaintiff was informed that cracking had occurred in some areas and was subsequently instructed to rectify the works. 52 The referee found that the work carried out by the plaintiff was satisfactory but because the events which "triggered the damage" occurred during execution of the plaintiff's work, the plaintiff carried the risk. The essential question is whether the loss occurred in the execution of the works, within the meaning of clause 3.1 of the contract. 53 In my opinion, once any part of the works was complete and handed over, the risk from a latent defect such as that which occurred passed to the defendant. Certainly that risk would pass once the whole of the works were completed. Where, as in the present case, the works were contemplated as occurring in stages and progressively handed over, clause 3.1 should be construed to confine the plaintiff to risks which materialise during the course of the relevant stage of construction. Once handed over, any loss which occurs is not one "encountered in the execution of the works." 54 I am satisfied that in relation to this claim the referee's report should not be adopted. Delays arising from Known Circumstances. 55 As I have already related, the final contract was executed on 18 May 1994. However, the contract provides in clause 9.1, and in the Appendix, that the date for commencement of the works is 12 January 1994. 56 It would follow that in the ordinary course, any delays occurring after 12 January 1994 but before 18 May 1994 should be assessed having regard to the provisions with respect to delays in the contract. 57 There were in fact two events, which occurred before the contract was signed, which the plaintiff alleges delayed the works and in respect of which it made claims for delay costs and extensions of time. The first was the failure of the Coffer Dam and the second, wet weather. 58 There was evidence before the referee that the project engineer of the plaintiff, Mr Niederberger, had prepared a program in April 1994 for the works. As that program took account of the fact that the Coffer Dam was already known to have failed, the referee found that the plaintiff was not delayed in achieving the date for substantial completion. Although the referee found that the April program was not a contract document, he nevertheless found that "the plaintiff was aware of the delay as a result of the Coffer Dam, and had reasonably allowed for same when agreeing the Dates for Substantial Completion at the time of entering into the May Contract." Accordingly, he determined that the plaintiff had not been delayed by the failure of the Coffer Dam in meeting any relevant contractual obligations. 59 In my opinion, this finding was both open to the referee and undoubtedly correct. Given the complexity of the arrangements between the parties, the referee was required to determine whether in fact a delay had occurred which entitled the plaintiff to a claim. 60 In this respect, the referee was entitled to have regard to the April program to assist in determining whether the Coffer Dam failure had caused a delay in the critical path beyond that contemplated by the parties. As he found that the plaintiff had allowed for the failure of the Coffer Dam when agreeing upon the dates for substantial completion, no claim could be sustained. 61 The referee rejected the plaintiff's claim with respect to wet weather prior to the contract date. He found that the dates provided in the contract Schedule for Substantial Completion were extended to take into account the wet weather which had already occurred. 62 Although challenge is made to this finding, it has not been demonstrated that the evidence did not allow it to be made. In fact, both Mr Niederberger, for the plaintiff, and Mr O'Connell, on behalf of the defendant, gave evidence that the date for substantial completion had been adjusted to accommodate the delays. 63 In any event, the contract capped the plaintiff's entitlement to an extension of time and delay costs at 10 percent of the scheduled duration of the project. As it happened that allowed a maximum extension for inclement weather of 51 days which was given. 64 The challenge to this aspect of the referee's report fails. Liquidated Damages. 65 The difficulties in relation to this aspect of the matter commence with the wording of clause 10.12 of the contract: "Late Completion Damages If the Contractor fails to bring the Works or one or more Stages to Substantial Completion by the Date for Substantial Completion, the Contractor must pay to C&C by way of liquidated damages the amount stated in the Appendix, for every day after the Date for Substantial Completion up to and including the Date of Substantial Completion. If the employment of the Contractor is terminated under Part 12 the Contractor will remain liable under this Clause until the Works reach Substantial Completion." 66 The schedule of Substantial Completion is in the following terms. The additional words at the foot of the table are of significance: