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[2009] VSC 322
Supreme Court of Victoria
2009-08-07
HABERSBERGER J
Original judgment source is linked above.
TRADE PRACTICES - Misleading or deceptive conduct - Representation by supplier that a particular liner was suitable for use as a long term containment membrane for the concrete solvent extraction tanks at the Olympic Dam mine - Other representations about the liner - Whether made to installer of liner or to owner of mine - Reliance - Whether representations were misleading or deceptive - Causation - Loss and damage - Trade Practices Act 1974 (Cth) ss.52, 82.
CONTRACT - Which company entered into contract bearing name of one entity and ACN of another.
1 The dispute involved in these two proceedings concerned the suitability of a high density polyethylene ("HDPE") lining material for the concrete tanks forming part of the new copper and uranium solvent extraction plant constructed at the Olympic Dam mine at Roxby Downs in South Australia in 1998 and 1999. The mine is owned by BHP Billiton Olympic Dam Corporation Pty Ltd, formerly known as WMC (Olympic Dam Corporation) Pty Ltd ("WMC"). The HDPE lining material was manufactured by a German company, Steuler Industriewerke GmbH ("Steuler") and marketed under the trade name "Bekaplast". It was sold by Steuler to an Australian company, Protec Pacific (NSW) Pty Ltd, and installed by that company or by a related company, Protec Pacific Pty Ltd, pursuant to one or more agreements with WMC. WMC alleged that the Bekaplast was not a suitable lining material for use in the solvent extraction tanks and that it had failed, or was about to fail, prematurely, with the result that it had been replaced with a fibreglass lining at considerable cost to WMC.
2 The Olympic Dam mine is located over 500 kilometres north, northwest of Adelaide in a hot, dry and remote part of South Australia. Its ore body compromises copper, uranium, gold and silver disseminated throughout a five kilometre by three kilometre area, 350 metres below the surface. It is said to be the largest uranium deposit and the sixth largest copper deposit in the world. The Olympic Dam enterprise, which commenced operations in 1988, consisted of a highly mechanised underground mining system and a complex metallurgical processing plant. The new copper and uranium solvent extraction plant was part of a major expansion of the operations to substantially increase the production capacity of Olympic Dam, from about 80,000 tonnes of copper per annum to in excess of 200,000 tones per annum and from 1,500 tonnes of uranium per annum to about 4,600 tonnes per annum. It was planned to operate the plant 24 hours a day, 365 days a year. Extremely toxic chemicals were used in the tanks as part of the solvent extraction process.
3 In 1997, WMC was a subsidiary of a large public company, Western Mining Corporation Limited. In 2005, it became the subsidiary of an even larger public company, BHP Billiton Limited. WMC undertook the expansion of the mine and processing plant by setting up an integrated management team, the Olympic Dam Expansion Project ("the OEP"), which, at least in the case of the solvent extraction plant, comprised employees from WMC, Fluor Daniel Pty Ltd ("Fluor Daniel"), Bechtel Australia Pty Ltd ("Bechtel") and Thiess Contractors Pty Ltd ("Thiess"). Fluor Daniel was the structural and mechanical engineer, Bechtel the project manager and Thiess was responsible for the construction of the tanks.
4 Protec Pacific, Wear & Corrosion Control Specialists ("Protec Pacific"), had been in the corrosion protection business since 1982. In 1997 and 1998, its business was operated through two companies, Protec Pacific (NSW) Pty Ltd ("Protec NSW") and Protec Pacific (Tas) Pty Ltd, which from 5 May 1998 was called Protec Pacific Pty Ltd ("Protec"). It is this latter company which is the party to these proceedings. The managing director and majority shareholder of both Protec Pacific companies was Howard Smith.
5 Protec Pacific had completed more than 5,000 contracts by the time it was awarded the OEP contract. It had been previously involved with the Olympic Dam mine in 1987 and 1988 when it had provided protection for the concrete floors using thermoset materials with hypoxy resins. Although Protec Pacific had experience using polymer concrete, fibre reinforced polymer ("FRP") and thermoplastics, including polyvinyl chloride ("PVC") and polypropylene ("PP") and possibly HDPE, it had no experience with copper or uranium solvent extraction prior to the OEP. A thermoset material was a material which became permanently rigid when heated or cured, whereas a thermoplastic material was one which was capable of softening or fusing when heated and of hardening again when cool. The top grade thermoplastic was polyvinyl diflouride or PVDF.
6 In 1997, Steuler had been in the business of designing, manufacturing, supplying and installing protective linings for many years. It was started in Germany in 1908 by Georg Steuler, the great grandfather of the present managing director, Michael Steuler. Later both his uncle and his father had managed the company. By 1997, Steuler had five divisions - refractory systems, surface protection systems, equipment engineering, plastics engineering and tiles/design ceramics. It employed some 1,100 people throughout the world. Mr Steuler said that his company held itself out as an international expert in the area of corrosion protection. It was an ISO 9001 accredited company.
7 One of the main products of Steuler's surface protection systems division was Bekaplast. This was a lining system utilising HDPE to protect concrete pipes and tanks against corrosion. Steuler purchased smooth HDPE sheets from a manufacturer. It then welded a defined number of conical anchor studs to the underside of the sheet to produce the Bekaplast product. The anchor studs were intended to create a durable bond between the concrete and the lining. They could be cast directly into the concrete at the time it was poured, or they could be put into a cementitious screed or grout placed on top of the concrete after it had been cured. The Bekaplast technology was about twenty years old in 1997.
8 By a generally indorsed writ in proceeding No. 5797 of 2000 ("the WMC proceeding") filed on 19 June 2000, Protec sued WMC claiming a sum in excess of $2.1 million for monies due and payable under two agreements between them. The first of these agreements was alleged to have been made on or about 10 April 1998. It was said to be for the off-site supply by Protec of HDPE lining material for the copper and uranium solvent extraction area of the OEP. The second agreement was alleged to have been made on or about 13 June 1998. It was said to be for Protec to supply all labour, supervision, plant, equipment, vehicles and consumables necessary to carry out all of the work required to complete the installation and testing of HDPE lining materials to concrete tanks in the copper and uranium solvent extraction area of the OEP. A statement of claim was delivered on 23 August 2000.
9 On 22 September 2000, WMC filed its defence and counterclaim. It sought damages from Protec for breach of its duty to exercise reasonable care and skill in the design and installation of the lining system. WMC also sought repayment of a sum of about $610,000 which it alleged it had mistakenly overpaid Protec.
10 On 18 December 2001, WMC was granted leave to join Steuler as the second defendant to its counterclaim. By an amended defence and counterclaim, filed on the same day, WMC claimed damages from Steuler pursuant to s.82 of the Trade Practices Act 1974 (Cth) ("the TPA"), alternatively at common law, for numerous false and misleading representations about the design and qualities of the Bekaplast lining system and the training or supervision to be provided by Steuler.
11 On 3 June 2002, WMC filed an amended defence and counterclaim which introduced, for the first time, the allegation that the HDPE lining was unsuitable and would have to be replaced.
12 WMC continued to regularly amend its defence and counterclaim and its particulars of loss and damage. For example, on 5 June 2006, WMC filed a defence and counterclaim which was described as its second amended defence and sixth amended counterclaim against the plaintiff (as first defendant by counterclaim) and third amended counterclaim against the second defendant by counterclaim. By now, the damages sought by WMC exceeded $27 million, plus interest.
13 In April 2004, Protec issued a proceeding against Steuler claiming damages for negligent misstatement, but it did not serve the writ within time. Mr Smith gave evidence that neither the writ nor a notice of contribution in the WMC proceeding was served because he did not want either WMC or Steuler to know that Protec had sued Steuler. This strategy was designed to assist Protec's bargaining position with WMC. Mr Smith gave evidence that at some stage he started negotiating directly with WMC. He said that he thought he was in a no win situation. Moreover, the amount of the counterclaim had increased dramatically. He told WMC that it could not recover that amount from Protec.
14 By a Deed of Settlement dated 3 July 2006, Protec settled with WMC the claim and counterclaim in the WMC proceeding, conditional upon Protec being successful in an application to serve Steuler out of time with its 2004 proceeding. In April 2007, an application to extend the period of validity for service of the writ on Steuler was refused by Hansen J.[1] Accordingly, the original settlement did not come into effect.
15 On 17 May 2007, I refused an application by Steuler to amend its defence to WMC's counterclaim insofar as it related to the inclusion of Protec NSW in the pleading. The issue was that, whereas Steuler once pleaded that certain things had been done or agreed by Protec, it now sought to plead that in some cases they had been done or agreed by Protec NSW and in other cases by one or other of the Protec Pacific companies. I upheld WMC's argument that it would possibly be prejudiced by the late amendment because it would have been statute barred from joining Protec NSW as a defendant to the counterclaim.[2]
16 On 31 May 2007, WMC, Protec and Mr Smith entered into a new Deed of Settlement pursuant to which Protec consented to judgment being entered against it in the sum of $15 million. Part of the settlement terms was that Protec would issue a proceeding against Steuler, such proceeding to be conducted by WMC and by solicitors and counsel nominated by WMC. In consideration of the Deed, WMC agreed to pay all costs of the proceeding and to indemnify Protec, Mr Smith and Protec's employees against any award of costs against them in favour of Steuler. Protec agreed that any amount of damages, costs and interest awarded to it in the new proceeding against Steuler would be applied in satisfaction of the judgment sum of $15 million. Protec further agreed to give WMC a first ranking charge and to provide WMC with first ranking priority over its entitlement to recover damages, costs and interest from Steuler. The Deed also provided that WMC would return to Protec a bank guarantee in the sum of $175,865.08. This was not contingent upon any payment by Protec to WMC. Mr Smith gave evidence that he understood that WMC could seek to enforce the settlement, even though Protec was in no position to pay $15 million.
17 Accordingly, on 3 August 2007, consent judgment was entered against Protec in the WMC proceeding, in the sum of $15 million. The only part of that proceeding remaining unresolved was WMC's claim against Steuler, which had initially formed part of WMC's counterclaim. Thus, WMC became, in effect, the plaintiff in the principal proceeding and the name of that proceeding was accordingly amended to reflect the changed situation.
18 On 16 July 2007, Protec issued a new proceeding against Steuler, No. 7268 of 2007 ("the Protec proceeding"). In its statement of claim, Protec alleged that in July 1998 it entered into an On-Site Service Agreement ("the OSS Agreement") with WMC for the design, supply and installation of HDPE corrosion protection linings for concrete tanks forming part of the OEP, and that in consideration of WMC agreeing to enter into the OSS Agreement it warranted to WMC that the HDPE would have a service life of 20 years when used with the chemicals and under the operating temperatures listed in clause 1.5.4 of section 1 of the Bid Request ("the warranty"). Protec then alleged that Steuler made certain misleading or deceptive representations to Protec in relation to the Bekaplast HDPE and to the giving of the warranty. Protec further alleged that Steuler was negligent in making the representations to Protec. Protec said that it relied upon the representations in entering into the OSS Agreement and giving the warranty to WMC. Protec alleged that as a result of the misleading and deceptive representations, and/or negligence of Steuler, it suffered loss and damage as constituted by the Deed of Settlement with WMC. Therefore, Protec claimed judgment for the amount of its liability under the Deed of Settlement, being $15 million.
19 Steuler applied for summary judgment, largely on the basis that Protec had no claim against it because it was Protec NSW which had entered into the OSS Agreement with WMC. On 31 August 2007, I dismissed that application.[3] Pleadings were then completed with the delivery of Protec's reply and defence to counterclaim on 5 October 2007.
20 Having settled with Protec, WMC filed a fourth amended counterclaim against Steuler. The final form of this document was dated 30 April 2008 ("WMC's counterclaim").
21 At the start of the hearing, WMC's amended particulars of loss and damage were as follows:
Payments made to Protec for supply of HDPE lining material and initial offsite installation costs
Payments to Protec to rectify or repair defects in the HDPE lining system
Costs of removing HDPE lining system and replacing it with a fibreglass lining system
Less reasonable cost for the design, supply and installation of a fire retardant FRP lining system in 1997-1998
Further, interest to July 2008 was said to be in excess of $21 million.
22 In mid-April 2008, or about two weeks into the hearing, Steuler sought to file an amended defence and counterclaim, raising for the first time issues of estoppel and rectification. Apparently, the filing and service of this pleading was meant to have taken place in December 2007, but it had been overlooked. Eventually, on 30 May 2008, by consent Steuler filed a different amended defence and counterclaim which omitted any reference to rectification and thus only raised the plea of estoppel as a new issue. On 1 July 2008, Protec filed a reply and defence to the amended defence and counterclaim.
23 At an early stage in the hearing, I raised with the parties the possibility of splitting off the question of quantum. I did so as a result of problems with the state of the evidence about the quantum of WMC's claim and Steuler's readiness to deal with further evidence filed at a late stage by WMC, and as a result of concerns that the trial would last much longer than the estimated three months. After due consideration, counsel for WMC and Protec agreed with this course of action, whilst counsel for Steuler stated that their client did not consent to, but did not oppose, such a course being followed. Accordingly, on 12 May 2008 I ruled that the trial be split along the lines proposed by the parties. This was that in the first hearing the Court should determine all issues other than:
(a) the question of the assessment of WMC's loss (if any) as alleged in paragraph 56 of the fourth amended counterclaim against the second defendant by counterclaim, dated 30 April 2008;
(b) the issue of betterment pleaded in paragraph 29 of Steuler's amended defence to counterclaim, dated 28 May 2007; and
(c) possibly, the issue of the reasonableness of Protec's settlement with WMC.
It was further agreed that in the first hearing the Court should decide the factual and legal issues necessary to determine whether any and which of the categories of loss claimed by WMC in paragraph 56 were recoverable, but not determine the actual amount recoverable in any particular category or part thereof and that the question of the assessment of WMC's loss would include any question that an item claimed by WMC should not be allowed because it was not reasonably required for the replacement of the HDPE lining with FRP lining. This course had the advantage that considerable time and cost might possibly be saved because it would only be necessary to hear evidence about quantum, if WMC (or possibly Protec) was successful in establishing liability on the part of Steuler.
24 Splitting off the question of quantum still left a raft of issues raised by the pleadings in both proceedings. However, by the time of final submissions many of these issues had been either abandoned or significantly narrowed. This was a sensible approach by both sides. Nevertheless, some extremely difficult issues remained for determination.
25 As stated above, pursuant to the Deed of Settlement, Protec's proceeding was conducted by WMC's lawyers. Thus, WMC and Protec had a common interest in establishing liability on the part of Steuler. On occasions, WMC and Protec are hereafter referred to in these reasons as "the plaintiffs" and Steuler as "the defendant". Until it has been determined which of the two Protec Pacific companies, Protec and Protec NSW, was involved in the relevant events, I will use the term "Protec Pacific" when referring to something done by one or other of them, if that issue is uncertain, and when referring to something done by the group as a whole.
26 In order to understand the dispute about the suitability of the HDPE lining for the solvent extraction tanks, it is useful to set out very briefly the process of ore extraction that was used at Olympic Dam. The following description of this process is based on the helpful evidence of Mark Butterworth, a Senior Metallurgist employed by WMC in the hydromet area after the second fire.
27 The ore at the Olympic Dam site was mined underground and brought to the surface and collected in open stock piles. It was taken from the stock pile by conveyer to the mill where it was ground to a sand consistency. Water was added so that it became a slurry. It then went into a cyclone where it was further separated. The thinner material was transferred to the downstream flotation process and the thicker material was returned to the mill for further grinding.
28 In the flotation process, the slurry was transferred to the rougher and scavenger tanks where the slurry was agitated with air. Chemicals were added so that the copper, gold and silver attached to the air bubbles and thereby floated to the top of the tanks. This process enabled approximately 90% of the copper to be recovered, which then moved to the smelter through polishing circuits. The gold, silver and copper were separated at the refinery stage in the electro refining section.
29 The balance, known as the flotation tailings, were then transferred to a tailings thickener which extracted the water out of them. The water was recycled back into the mill for use in the grinding process. The residual material went through the tailing leach tanks where the material was heated with steam to about 600C and acid and sodium chlorate were added to leach or dissolve the copper and uranium (and any other minerals) out of the solids in the flotation tailings slurry. The dissolved minerals were then contained in the resultant solution. The solids were then separated from the liquid in the counter current decantation circuit, which was comprised of six tanks or thickeners in series. At the end of this process, the solution containing the dissolved copper and uranium was known as the pregnant leach solution ("PLS") from which the residual solid material had been separated. The PLS was then piped to the PLS pond.
30 After the PLS pond, the solution entered the solvent extraction ("SX") plant, which was a subset of the hydrometallurgical plant, or hydromet, which consisted of everything downstream from the flotation tailings thickener through to the end of the solvent extraction process. The HDPE lining that was the subject of this dispute was used in the many tanks forming part of the solvent extraction plant. Within that were the copper solvent extraction area ("CuSX") and the uranium solvent extraction area ("USX"). Two copper extraction trains (A and B) and a copper tank farm area constituted the former. One uranium extraction train and a uranium tank farm area constituted the latter. Within each copper train there were five settler tanks (25 metres x 21 metres x 1 metre) each with an attached mixer box (3.3 metres x 3.3 metres x 3 metres). In the uranium train there were eight settler tanks (11 metres x 7 metres x 1.1 metres) each with an attached mixer box with the same dimensions as the mixer boxes in the copper trains.
31 The solution was pumped from the PLS pond into the extraction tanks in each copper train. The PLS solution was mixed with solvent (comprised of kerosene and a copper extractant called oxime) by agitation in the mixer box before it flowed over a weir into the settler tank of each unit. In the settler tanks, the lighter solvent or organic solution that had extracted the copper floated to the top of the tank. The heavier aqueous solution sank to the bottom. This process was assisted by a picket fence running across the settler tanks. The fence consisted of dividers or pickets made of HDPE. The solvent and PLS (now termed copper raffinate) were then separated at the end of the settler by a weir. The copper was extracted from the PLS in these units.
32 The copper raffinate (which now contained only 20% of the copper in the PLS but still contained all of the uranium) was then pumped to the copper raffinate tank, and the solvent was pumped to the loaded solvent tank. The loaded solvent was then "cleaned" in the scrub units in the A and B trains in which the solvent was mixed with a solution comprised mainly of water and small amounts of acid and copper, in order to remove iron and chloride. In the settler tanks, the solvent and scrub water then separated in a similar way to the extraction units, that is, with the solvent floating to the top and the water on the bottom of the settler, and the solvent and water were then separated at the end of the settler by a weir. The solvent then flowed from the scrub units to the strip units in each train. Electrolyte (acid) was mixed with the solvent in the strip units and it provided for the transfer of copper from the solvent to the electrolyte or aqueous stream. As in the extract and scrub units, the solvent floated to the top and the electrolyte to the bottom in the settler of each strip unit, with separation achieved by a weir at the end of each settler.
33 The electrolyte solution containing the copper was then piped to the refinery. The resultant solvent solution was called a barren organic solvent and it was pumped back to the extraction units to restart the process.
34 The copper raffinate which contained the uranium was treated in the uranium solvent extraction plant. The copper raffinate was pumped to the pulse columns which performed the same function as the copper extraction tanks except that the extraction was performed in a column and the solvent was now a mixture of kerosene, tertiary amine (a uranium extractant) and isodecanol, which modified solvent properties. The uranium was extracted in the pulse columns, and the resultant aqueous solution, which was referred to as uranium raffinate, was piped to the uranium raffinate tank.
35 The loaded solvent containing the uranium was transferred to the USX scrub tanks where it was treated or cleaned in much the same way as in the copper train. The scrubbed solvent was then moved to the USX strip tanks, where ammonia was added to transfer the uranium from the scrubbed solvent to a water solution called loaded strip. The loaded strip then moved to the precipitation area. The solvent, now called stripped solvent, was piped to the acidification unit, in which the solvent was mixed with acidified water. The acidified solvent was returned to the pulse columns to restart the process.
36 In cross-examination, Mr Butterworth said that the concentration of kerosene would be essentially uniform throughout the copper trains and the uranium train. The highest concentration of acid would be in the strip tanks in the copper trains and in the scrub tanks in the uranium train.
37 Initially, Steuler's Bekaplast HDPE sheeting was used for the walls and floors of the tanks in the trains and the tank farm areas, and smooth HDPE material, which was not supplied by Steuler, was used for weir capping or flashing on the overflow weirs between the mixer and settler tanks, the weir flaps on the adjustable weirs in the settler tanks, some of the tops of walls and the outside of walls of the mixer and settler tanks, and the picket fences and distribution fences in the settler tanks. Later, the smooth HDPE material was used in all finishing off and repair materials including cover strip material for overstripping repairs, extensive patching work, corner angles and strip repair material, and Bekaplast was used in 1999 when the smooth HDPE weir capping and flaps were replaced.
38 The plaintiffs, WMC and Protec, tendered witness statements or affidavits from 29 witnesses. Not all the plaintiff's witnesses were cross-examined. The majority of the plaintiffs' witnesses gave evidence relating to the factual background to the dispute. Most were present or former employees of WMC, but others had been members of the OEP team although employed by the contractors to WMC. Two of the plaintiffs' witnesses gave technical evidence in the sense of reporting on the scientific tests carried out by them on the HDPE material. Five of the plaintiffs' witnesses gave expert evidence on various aspects of the dispute. The following were some of the more important of the plaintiffs' witnesses.
39 Rolf Scherrer was the Project Director of the OEP from 1996 until about March 1999. He was a qualified architect who now worked as a project consultant. He had been involved in project management for nearly 40 years. Mr Scherrer worked for WMC for about eight years from 1993. He had no previous experience with solvent extraction plants. Mr Scherrer reported to the executive general manager of copper/uranium, Mr Pierce Bowman and later Mr Ross McCann.
40 Robert McCulloch was the Project Manager, Process Facilities, with Bechtel, assigned to the OEP. He was a civil engineer who had worked for Bechtel since 1968. Mr McCulloch was involved with the OEP for about a year from September 1996. He had five project teams working on process facilities, one of which included the solvent extraction mixer/settler tanks. Mr McCulloch gave his evidence by video link from Montreal in Canada, where he was then working.
41 Robert Hannan was WMC's Contract and Procurement Manager from about March 1992. He reported to Mr Sven Javer, WMC's commercial manager. Mr Hannan had an associate diploma in engineering and had worked in the oil and gas and resource industry for about 30 years in roles of contract and procurement management, project services and project management.
42 Michael Softley was WMC's Manager of Engineering for the OEP. He was a mechanical engineer who worked for WMC between 1962 and 2005. He was intimately involved with the Olympic Dam mine from its inception. He said that from mid-1998 through to the end of 1999 he was pretty well full-time on site during the working week.
43 Jeremy Folwell was the Chief Civil and Structural Engineer for the OEP. He reported to Mr Softley. At the time he gave evidence, Mr Folwell had worked for WMC at the Olympic Dam site and in its Adelaide office for over 12 years.
44 Jon Weir was a Senior Process Metallurgist with WMC. He commenced working for WMC in 1984 and was transferred to Olympic Dam in 1988 to work on the commissioning of the metallurgical plant. Mr Weir was involved with the feasibility study on the refinery. In late 1996 he became the WMC employee responsible for the design contract for the hydromet and concentrator. Initially, no witness statement was filed by Mr Weir. When it became obvious that Steuler would be making a submission concerning their failure to call Mr Weir, the plaintiffs sought leave to file out of time a witness statement by Mr Weir. Over the defendant's opposition I granted that application. During the argument, counsel for Steuler indicated that they thought that he would be cross-examined for three days. Later, counsel announced that Mr Weir would not be cross-examined at all.
45 Jason Schell was a metallurgical engineer with an honours degree from the University of South Australia. He was currently employed as Vice President - Growth Projects for BHP Billiton Olympic Dam Corporation Pty Ltd. He was involved with the solvent extraction plant, amongst other areas at the mine, from 1995. He became the Manager of the solvent extraction plant in 2000. He was the Client Representative for the reconstruction of the plant post the second fire.
46 James Bowden was the Senior Chemist - Technical and Instruments employed by WMC at its Olympic Dam site between 1996 and 2006. He obtained a Bachelor of Science degree from Charles Sturt University in 1998.
47 Anthony Culf was a senior metallurgist employed by WMC at the Olympic Dam site. He was not involved with the hydromet at the relevant time. He gave evidence about the temperature records obtained from the Citect data management system in use in the hydromet.
48 Mark Starcevich was a Fluor Daniel mechanical engineer. He began working on the OEP in about March 1997. He had no prior experience in relation to hydrometallurgical plants. In his witness statement, Mr Starcevich said that he reported to Brian Thompson who was the lead mechanical engineer for the hydromet area of the OEP, and that Mike Sheeran was the person at Fluor Daniel who had responsibility for the design of the mixer and settler tanks and the choice of lining materials.
49 Len Matheson was a Fluor Daniel civil engineer. He had been an engineer for 38 years. In 1997 he was a senior civil engineer on the OEP, reporting to Jeffrey David, who, in turn, reported to Peter Albert. Mr Matheson worked on the OEP until about June 1998.
50 Keith Blizzard was a Procurement Specialist who worked with Bechtel for 38 years, retiring in 2004. From February to September 2007, he was a senior procurement officer on the OEP. This was an administrative position which did not require him to have technical qualifications or knowledge. Bechtel was the overall construction manager for the OEP, responsible for the procurement of all materials for the project. Mr Blizzard reported to John Otten, who was Bechtel's Procurement Supervisor.
51 Howard Smith was the Managing Director of both Protec Pacific companies. He was a marine engineer by training. Mr Smith said that he had the role on behalf of Protec Pacific of conducting an overview of the OEP project and ensuring that the key deliverables were met. Mr Smith was only involved with the documentation when he thought he needed to be, or someone else did. He was on site "infrequently", although he made a few visits, lasting between one and three days. Between visits, Mr Smith retained contact with his site manager twice or three times each week. When he was not on site, Mr Smith was travelling from project to project in New South Wales and Queensland.
52 Neil Pearson was Protec Pacific's Contracts Manager and its person in charge on site. Mr Pearson was a licensed plumber, drainer and gas fitter. He also held plastic welding and fabrication certificates. Mr Pearson said that he commenced employment with Protec Pacific in about 1996 as a work supervisor. At the time of giving evidence, Mr Pearson was a teacher with a Bachelor of Education.
53 Richard Thomas, the Technical Director of TRI Environmental Inc ("TRI") of Texas in the United States of America, gave evidence about the tests undertaken by his company on HDPE samples.
54 John Schiers was the principal of ExcelPlas Polymer Technology and Testing, which specialised in compositional analysis and failure analysis of polymers. Dr Schiers had obtained his doctorate in applied chemistry in 1991 from the University of Melbourne. He had written a leading text on polymer failure and another book on plastics recycling. Between 1994 and 1997 and from 2000, Dr Schiers had been engaged as a Polymer Consultant with ExcelPlas.
55 Ian Peggs was the President and principal of I-Corp International, Inc of Florida in the USA. Dr Peggs had obtained his doctorate in physical metallurgy in 1967 from Sheffield University in the United Kingdom. Dr Peggs had been a Geosynthetic Consultant for over 25 years. His speciality was geomembranes.
56 Simon Mann had been the principal consultant and testing specialist with Stone Initiatives & Materials Testing Group Pty Ltd since 2003. He had obtained a Bachelor of Applied Science in Applied Geology in 1979 and a Diploma in Metallurgy in 1983. Mr Mann's company specialised in the testing of stone and related products such as concrete.
57 Steuler tendered 14 witness statements. All of its nine witnesses giving factual evidence were present or former employees of Steuler. Three of Steuler's other witnesses gave only technical evidence in the sense of reporting on scientific tests carried out by them on the HDPE material. Finally, Steuler called two witnesses to give expert evidence. Not all of Steuler's witnesses were cross-examined. The following were some of the more important of Steuler's witnesses.
58 Michael Steuler was appointed the Managing Director of Steuler in 2004. He had obtained a degree in business administration in 1986. When he joined Steuler in 1994, he was the sales manager for the surface protection systems division. He then became the general manager of that division. In 2000, he was the managing director responsible for industrial products.
59 Walter Lähne was employed by Steuler from 1985 until 2005, when he retired. He commenced working in the Sales Department, dealing mainly with overseas exports. In 1987 he became a Project Manager and in 1995 he was appointed Head of the Export Department.
60 Matthias Walschburger worked for Steuler between November 1996 and October 2005. He had about 19 years' experience as a structural engineer prior to joining Steuler. He was experienced in the administration of contracts. Mr Walschburger was engaged as a sales consultant in the export department. There were about four other employees in that department which was headed by Mr Lähne. In late 1998, Mr Walschburger was promoted to the position of Project Manager.
61 Thomas Gebhard was a sales engineer who joined Steuler in 1990. He had been the project manager on numerous Steuler projects involving Bekaplast. At the time of giving evidence, Mr Gebhard was still in the sales section of Steuler.
62 Ralf Modes was a Sales and Project Manager with the Plastics Engineering Division of a Steuler subsidiary. He had worked at Steuler since 1990 after obtaining a Diplom Ingenieur from the University of Essen. His main focus in his studies had been plastic technologies, especially the welding of thermoplastic material.
63 Gerhard Pabst was a supervisor of the plastic welders. He had worked for Steuler, at different places around the world, since 1974.
64 Edgar Widerstein was another supervisor of the welders. He had worked as a specialist for plastic welding work with Steuler between 1992 and 2004. Since then he had been employed as a project manager with a subsidiary company of Steuler.
65 Karl-Heinz Dunker was a chemist at the Corrosion Resistant Materials Division (the laboratory) of Steuler. Part of its role was to check specifications to ensure that the materials were suitable for use in a particular project. This was a requirement of Steuler's ISO 9001 procedures.
66 Leopold Glueck had been an independent plastics technology consultant since 2003. He had obtained a Diplom Ingenieur from the University of Applied Sciences Wuerzburg Schweinfurt in 1978. Between 1981 and 2003 he had worked for SKZ Wuerzburg, a Plastics Testing Institute, finishing up as head of the department dealing with the testing of all kinds of concrete protective linings.
67 Ernest Rohringer had since 1990 been an independent consultant in acid resistant lining systems. He had obtained a Diplom Maschinenbau Ingenieur (Mechanical Engineer) in Austria in 1953. He had worked for 25 years with Steuler including being the General Manager of the Surface Protective Systems Division and the Managing Director of two Steuler subsidiary companies involved with the supply and installation of acid resistant linings. At the time he gave evidence Mr Rohringer had retired.
68 All of Steuler's witnesses who were cross-examined performed the remarkable feat of giving evidence in English, assisted on occasions by an interpreter, even though English was not their native language.
69 Pursuant to an order of the Court, an Experts' Conference was held in late January and early February 2006. It was attended on some or all of the six days by Dr Peggs, Dr Schiers, Mr Glueck, Mr Rohringer, Mr Modes and Professor Brian Cherry. The facilitator was Dr Donald Charrett, a member of the Victorian Bar. A detailed Joint Report of Experts' Conference dated 7 February 2006 was prepared by the facilitator.
70 Professor Cherry was the expert engaged by Protec to provide "advice concerning the suitability" of HDPE as a tank lining material. As a result of Protec settling with WMC, Professor Cherry understood that his involvement had ceased. In June 2007, he was approached by Steuler's solicitors to see whether he would be willing to meet to discuss his report dated 26 May 2003, concerning the environmental stress cracking of polyethylene, in which he commented on a report by Dr Peggs. On 7 November 2007 Professor Cherry met with Steuler's solicitors and counsel. Eventually, the detail of which is set out in my judgment,[4] Protec applied for and obtained an interlocutory order that Professor Cherry be restrained from communicating in any way with Steuler, its servants or agents, including its solicitors and counsel retained on its behalf in the Protec proceeding, save and except all necessary communications between Steuler's solicitors and Professor Cherry concerning arrangements for the latter being called by Steuler as an expert witness in the Protec proceeding. Neither side called Professor Cherry.
Selection of lining material for solvent extraction tanks
71 In 1994, WMC embarked on the planning of a major expansion to its operations at Olympic Dam, including an extension of the copper and uranium solvent extraction plant. It engaged Krebs, an internationally recognized engineering firm, to provide it with a report relating to the solvent extraction plant extension. Krebs presented the report in July 1994. It recommended that the concrete settler tanks be lined with FRP and that the mixers be constructed of free-standing FRP.
72 In June 1995, WMC's Copper Uranium Division completed a Prefeasibility Study for Expansion of Olympic Dam. The report accepted the Krebs design of the solvent extraction plant for the purpose of the study. It recommended that a Feasibility Study on a threestage expansion program be undertaken.
73 In September 1995, WMC engaged Davy John Brown Pty Ltd ("DJB") to supply engineering and consulting services for a feasibility study to expand the Olympic Dam Hydrometallurgical Plant, which area included the solvent extraction plant. DJB was an experienced international firm of engineering consultants. In its tender to WMC, DJB said:
The Davy group of companies have collectively studied, engineered, designed, constructed (or construction managed) over 40% of the world's Solvent Extraction/Electrowinning plants around the world.
74 As part of its work, DJB thoroughly reviewed existing hydrometallurgical plants and considered process alternatives, including a comparison of the performance of several mixer/settler types. The results of its work was reviewed with WMC.
75 One of the projects mentioned by DJB in its list of relevant project experience was the provision of basic engineering and consulting services for the solvent extraction/electrowinning facilities for Compania Minera de Cananea, S.A. in Mexico. DJB stated:
High-density polyethylene (HDPE) was used extensively in the plant as an alternative to more expensive stainless steel. HDPE has been used for SX piping in many SX plants and was also used to line the concrete settlers at Cananea. This material was selected because of its demonstrated ability to work in the high acid/organic chemical environment, and for its ease of maintenance and installation.
76 DJB also referred to the use of HDPE lined mixer settler units at the Codelco solvent extraction/electrowinning plant at Chuquicamata in Chile.
77 WMC completed its own Feasibility Study in March 1996. It consisted of the compilation of various independent third party consultants' work overviewed by the WMC Copper Uranium Division. It recommended that all rectangular concrete settler tanks be lined with HDPE, rather than FRP, and that the circular mixer tanks be constructed of FRP.
78 In October 1996, an Optimisation Study Report was completed. It was performed by an integrated team consisting of WMC managerial, financial, technical and operating personnel complemented by specialists and consultant engineers working in close coordination at the OEP offices in Adelaide. One of the principal objectives of the Optimisation Study Report was to provide superior technical solutions where the design basis was deemed to be suboptimal.
79 A key element of the execution plan developed by the OEP team during the optimisation phase was that the OEP team would be "a fully integrated management team focused on OEP goals. The organisation and performance of this team will be as one single, seamless entity".
80 In the Optimisation Study Report, reference was again made to the use of HDPE lined concrete tanks in the uranium and copper solvent extraction plant. This was for the settlers and major tankage. It was still proposed that mixer boxes and minor tankage would be constructed of fibre glass. One of the changes was that the volumetric throughput of the expansion SX plant was increased from 1900 m3/h to 2200 m3/h. The selection of the type of mixer/settler equipment was also changed from conventional mixer/settler plant to the reverse-flow mixer/settler layout.
81 It was stated in the Optimisation Study Report that it was planned to have the expanded plant operating by March 1999. It was to be a fast-track project and although WMC was in a hurry to get under way, it quickly fell behind schedule.
82 In September 1996, Fluor Daniel, an experienced international engineering company, expressed its interest in being considered for the engineering packages for the OEP. By a letter dated 21 October 1996, Fluor Daniel wrote to WMC stressing its "considerable Hydromet experience" both in Australia and overseas. It had designed the original Olympic Dam hydromet plant. Its process staff were said to have worked on 22 out of 25 operating copper solvent extraction/electrowinning ("SX/EW") plants world-wide. In its letter, Fluor Daniel also said that:
The SX system is the heart of a SX/EW plant. Efficient transfer of copper from the leach solution to the tankhouse-rich electrolyte is essential to the performance of the SX, Leach and EW circuits. The ability to assess the effect of design variables on a wide range of operating conditions and capacities is vital to efficient design.
...
The design of SX circuits continues to evolve as newer generations of extractants provide reduced mixing time, better separation characteristics and optimised chemical kinetics and performance.
Fluor Daniel has worked with and continues to maintain regular contact with the major reagent vendors, equipment suppliers and plant operators. We have up-to-the-minute knowledge of the latest available products and technology innovations.
83 The design for the solvent extraction area, including the leak detection system, was awarded to Fluor Daniel.
84 By a facsimile dated 25 November 1996, Mr Weir wrote to Mr Softley attaching information from DJB and another company. Mr Weir told Mr Softley that contrary to the minutes of a management meeting held on 15 November 1996, "HDPE is the preferred material". He said that what needed to be addressed was the fixing system as "T-locks" were not highly regarded.
85 The attached DJB response was a telefax, under the name of Kvaerner Davy-Andacollo, from a senior DJB engineer, Wayne Hopkins, apparently sent on 18 November 1996. Mr Hopkins listed ten HDPE lined concrete solvent extraction projects which had "all been successful". He continued:
... The earlier ones did not attach the HDPE to "T Lock" and have shown undulations on the lining from swelling with time. For this reason we prefer to put down "T lock".
I would say HDPE lined concrete is the standard method now in use with the only serious alternative being FRP lined concrete or free standing FRP for smaller units.
As regards your concerns with use of HDPE at higher temperatures we use this material as a tank lining for electrolyte at temperatures around 500C with no problem. Admittedly use with organic has been at more ambient (up to 350C) temperatures so some enquiries to the HDPE sheet vendors may be wise.
Mr Hopkins also warned Mr Weir not to mix FRP and HDPE.
86 By a facsimile dated 19 December 1996, Mr Weir wrote to Don Collins of WMC advising that the Optimisation Study had "factored an approx. $4m saving by using HDPE lined concrete versus rubber-lined mild steel". Under the heading "Precedents", he stated:
I have previously forwarded information on uses of HDPE in both thickener and SX applications. Nowadays, HDPE linings are the materials of choice for SX plants almost universally except in the States where chlorides are low enough to warrant stainless steel. ODO [Olympic Dam Operations] cannot consider stainless steel because of the expense of 2RK65 or SAF2507 stainless.
In thickening, there is no real precedent to using HDPE in this acidic application. There are many recent examples of neutral HDPE applications but none in acid environments. The use of HDPE in SX solutions at similar acidity and temperature is relevant but not directly comparable; in a slurry application, the wear characteristics are an additional concern but we can and do use HDPE lined pipe for our major slurry tailings lines.
Most, if not all, potential HDPE damage would be incurred during construction/fabrication. I am aware that QA/QC on HDPE installation is critical and our Constructability person, Bruce Weber, is pursuing States and Chilean expertise in construction systems for liners.
I am convinced that HDPE linings can be used successfully at ODO.
87 The minutes of an OEP meeting to discuss the SX plant held on 11 March 1997 noted that the mixer boxes were proposed to be constructed from stainless steel. It was also noted that the HDPE lining to settlers would be 5mm thick. Another meeting was held on 12 March 1997. The minutes noted that "mixer boxes were intended to be FRP after completion of the optimisation study. Stainless steel tanks were considered to be too expensive". It was also noted that "it was thought that HDPE lined concrete mixer boxes could present problems if the forces provided by the pumper/agitators caused lifting of the lining". Mr Matheson's note of the meeting on 12 March 1997 was that a HDPE cast in liner was also an option for the mixer boxes.
88 By a facsimile dated 13 March 1997, Paul Thompson wrote to Omar Durand and Mark McLean, his Fluor Daniel colleagues, "with regard to FRP mix boxes for SX use". He said that in the seventies and eighties all of the plants used stainless steel as they did not leak and lasted 30 to 50 years. But beginning with Codelco's Ripios plant in Chuquicamata HDPE lined settlers "became common". The challenge had been the connection between the metal mix boxes and the HDPE settlers but a reliable design had now been found. He said that he knew of only one plant linking cylindrical FRP mix boxes to HDPE "large" settlers. It had started recently in Chile, with a complicated connection. He said that for large flow mixer/settlers he would not recommend attempting to use "FRP mixers transitioning to HDPE lined settlers".
89 By a memorandum dated 25 March 1997, Mr Sheeran of Fluor Daniel wrote to Mr Weir as follows:
Please find attached a summary of a number of options evaluated as potential mixer box materials. These options are as follows:
Option (d) is the industry standard, but was rejected in the feasibility study for option (b) on the basis of cost. We have technical concerns about the use of circular FRP tanks in this duty (refer memo from Paul Thomson), hence our evaluation of other options. Option (c) is technically sound but cost is comparable to option (d) and is therefore rejected. The industry standard for large settlers is an HDPE lined concrete box. In option (a) we have extended this concept to the mixer box, the major difference being the use of complete studded panels set into the mixer box. Internal baffles and weirs would be manufactured in stainless steel or fibreglass as appropriate. The mixer boxes could be manufactured as pre-cast panels and assembled either on or off site.
... We recommend that the design be progressed on the basis of option (a), and request your approval and/or comments.
90 By an email dated 26 March 1997, Mr Weir advised his colleagues, including Messrs McCulloch, Softley, Folwell and Schell, that there were problems with the proposal that the mixer boxes be constructed with FRP and the settler tanks with HDPE. He said that "the preferred alternative" was to use HDPE 5mm lining material embedded in concrete. He wished "to progress with this design basis". The construction method would be simple and the cost equivalent or cheaper than the FRP proposal. By a further email dated 2 April 1997, Mr Weir stated that "judging by the lack of response from all", he was assuming that there were "no significant objections to this proposal".
91 As will be seen below, in its Bid Request WMC nominated HDPE as the lining material for the tanks in the solvent extraction plant.
Early involvement of Protec Pacific and Steuler
92 In the meantime, Mr Smith of Protec Pacific and Mr Steuler of Steuler had been engaged in discussions about ways in which they could work together in the Australian market. The Olympic Dam expansion project was seen by both Mr Smith and Mr Steuler as one such opportunity. Mr Smith said in his witness statement that when he was in Germany in February 1997 it was agreed with Mr Steuler that Protec Pacific alone would submit a tender specifying Bekaplast as the lining material and that Steuler would assist Protec Pacific "in providing information and preparing the tender". Mr Steuler and Mr Lähne told him that Steuler would be able to provide "the necessary technical expertise and support".
93 Steuler had submitted its response to a prequalification questionnaire distributed by WMC, by a facsimile dated 24 October 1996. It was signed by Mr Steuler, who was variously described as Sales Manager or General Manager, Surface Protective Systems. It was stated in the response that Steuler was "currently considering opening up a branch office or subsidiary in Australia". Included in the section on training was the following:
The site will be visited regularly by a Steuler project engineer. The training of the local personnel will be effected by our supervisor according to the Technical Information Sheets available for the materials used and according to our quality manual. Before starting with the execution of work, the local personnel will be trained carefully. They will also have to produce samples of the materials to be used which will be tested afterwards.
94 By a letter dated 29 January 1997, Mr Smith of "Protec Pacific, Wear & Corrosion Control Specialists" wrote to Des Milne of OEP giving information about Protec Pacific's products and services which could be used by OEP. One of the big benefits of using Protec Pacific's services mentioned by Mr Smith was that it was currently in the final stages of "Joint venture negotiation with one of the world's leading mineral processing corrosion control corporations - Steuler of Germany".
95 Mr Smith wrote a similar letter to Mr Weir on 13 February 1997. He added the following postscript:
Protec and Steuler of Germany have recently negotiated a partnership initiative that will facilitate the use of Steuler technology in Australia. This means that worlds' [sic] best practice (Steuler) in wear and corrosion control will be available through a local (Protec) organisation.
Part of this technology will involve the use of Bekaplast (HDPE/PP) cast in linings that have been used extensively around the world in refining plants including those that use solvent extraction and electrolytic cells.
96 What became a very lengthy exchange of correspondence between Protec Pacific and Steuler commenced in March 1997 with Mr Smith seeking assistance from Mr Lähne in terms of information, recommendations, case histories and reasoned arguments why Steuler's products would be superior for use in a number of specified projects including the OEP.
97 By a letter dated 14 March 1997, Mr Steuler sent to Mr Smith an "Agency Agreement" to be signed by him. The document was actually headed "Cooperation Agreement" and was expressed to be between Steuler and "Protec Pacific, Wear & Corrosion Control Specialists", thereafter called "Protec". However, when Mr Smith signed the Co-operation Agreement on 1 April 1997, he affixed the common seal of Protec NSW.
98 By clause 2 of the Co-operation Agreement Steuler appointed "Protec" as its sole and exclusive distributor for Steuler products in Australia and New Zealand and granted that entity the exclusive right of purchasing Steuler products in that territory. Clause 4 provided as follows:
4.1 Steuler warrants quality of material within the scope of specific tender/proposal technical specifications over a nominated period of time. This nominated period of time has to be agreed upon between both parties. If no time period will be specified in writing, the warranty time for installed products will be 12 months.
4.2 In case of delivery of any defective products, Steuler shall deliver subsequently proper products at it's [sic] sole expense to the end use or Protec store within the Territory.
99 By clause 5, Steuler agreed to pay "Protec" a specified commission for every order received by Steuler from other customers in the territory. It was also stated that "Protec" was not authorised to accept payments for Steuler. Clause 6 of the Co-operation Agreement stated:
6. Relationship
The relationship between Protec and Steuler shall be that of a purchaser and a seller. In case Steuler sells materials or services directly to third parties, a commission to [sic] will be paid to Protec.
Protec and Steuler also plan possibly on entering into project business together. For these kind of contracts separate agreements shall be worked out which will not affect the agreement on hand.
Protec shall not have any authority to incur any obligations on Steuler's behalf.
100 Annex A to the Co-operation Agreement was a letter from Mr Steuler to Mr Smith, which was to be treated as part of the Agreement. It stated in part:
In addition to the agreement attached we discussed the following issues which should be treated as part of our Cooperation Agreement:
Protec Pacific will send a draft of this plan to Steuler by mid March. Steuler will also draw up a budget to support Protec with promotional activities, material for trial applications as well as training. ...
101 By a letter dated 14 March 1997, Mr Smith sent Mr Lähne a draft Marketing Plan. The introduction referred to discussions between the senior executives of Steuler and Protec Pacific in Germany in March 1996 and February 1997. It also referred to the fact that:
Relevant hands-on marketing and technical experience currently rests with Steuler alone. Protec Pacific's formidable track record does not include the application of Steuler products. It is therefore essential that Steuler continues to be in a position to closely support Protec Pacific for at least 2 years.
102 The Marketing Plan itself stated that one of the objectives was:
[The] Promotion and operation of major application assignments as cooperative ventures between Steuler and Protec Pacific.
That would require "assistance from Steuler with site visits where appropriate and suitable documentation of track records". At this time, Mr Smith was actively involved in seeking work from the OEP.
103 By a facsimile dated 18 March 1997, Mr Walschburger responded to Mr Smith's latest queries. He said that most of the points had been discussed with Dr Dunker. Reference was made to "some big advantages of using Bekaplast instead of polymer concrete or laminate linings". Mr Walschburger said that for the OEP solvent extraction area, Steuler would like to see Bekaplast used instead of the loose lining. Enclosed were "a selection of our most important projects", most of which were electrolytic zinc plants. Included in the two page list were uranium solvent extraction plants installed by Cominak in Niger in 1976, by Outokumpu in Finland in 1993 and by Rössing in Namibia in 1991-1993.
104 Mr Smith's note of a meeting with Mr Weir on 19 March 1997 recorded that Mr Weir told him that the project was "a fast track one" with the design and construct phase shrunk from three to two years. Mr Weir was also noted as saying that a good deal of preference will be given to people who could "guarantee speed of project completion".
105 By a facsimile dated 7 April 1997, Mr Smith forwarded to OEP a list of Steuler Reference Projects and a Bekaplast summary sheet. The two page list of Reference Projects was headed "Electrolytic Plants for Non-Ferrous Metals". Amongst a number of electrolytic zinc and copper plants which had used Bekaplast were the three uranium solvent extraction plants referred to above. The Bekaplast summary sheet, which also bore Protec Pacific's name, listed numerous features of Bekaplast and the resulting benefits to the client. One such feature was "Broad Spectrum Chemical Resistance" which meant that it "Protects Substrate Against a 'Cocktail' of Process Liquids".
106 By a facsimile dated 8 April 1997, Mr Walschburger wrote to Mr Smith setting out "some advantages for using Bekaplast", which he could use in his "presentation". Mr Walschburger's comments included the following:
It has long been known in chemical engineering that these [Bekaplast] sheets possess excellent properties and resistance to both chemical and thermal conditions.
Extensive long-term laboratory studies and practical experience hive [sic] shown that a lining with Bekaplast sheets can also withstand frequent and extreme temperature fluctuations.
An example of the use of Bekaplast linings was "Lining of acid storage tanks, thickeners and sedimentation basins, etc, as well as acid and solvent resistant lining of solvent extraction plants".
107 There was some doubt about whether this facsimile was ever sent because Protec could not produce a copy of it, but receipt of a facsimile on 11 April 1997 from Mr Walschburger of Steuler on the subject of "Bekaplast linings" was recorded in Protec Pacific's incoming fax log. Mr Smith said that Protec Pacific had no other facsimile which matched the description in the log, but there was mention of a facsimile dated 10 April 1997. Whether or not the facsimile dated 8 April 1997 was sent, Mr Walschburger sent a similar document to Mr Smith on 24 April 1997.
108 On 11 April 1997, Mr Otten of OEP forwarded to "Protec Pacific" the tender or Bid Request document for "HDPE Lining of Tanks/Ponds". The due date for the bid was 17 April 1997. A replacement Material Requisition was sent by Mr Otten to Protec on 15 April 1997 and the due date was extended to 28 April 1997.
109 The Bid Request specified which tanks were to have the type "A" lining or the type "B" lining. The type "A" lining was:
Applicable to vigorously agitated tanks where significant negative pressure could be generated on the liner requiring secure fixing of the liner to the tank substrate. The liner is to extend above the maximum design liquid level with a splash cover continuing to the top of the tank wall, over the top and down the outside surface of the tank for a minimum distance of 150mm. Joint design of the liner shall ensure where possible that there are two welded joints between any liquid in the tank and the substrate.
HDPE sheet with integral fixing studs. Cast into concrete walls and floor. Liner shall be welded on interior and exterior of join.
Material - Black 5mm HDPE.
Applicable to non-agitated tanks without vigorous liquid movement allowing localised fixing of the liner to the tank substrate. The liner is to extend above the maximum design liquid level with a splash cover continuing to the top of the tank wall, over the top and down the outside surface of the tank for a minimum distance of 150mm. Joint design of the liner shall ensure where possible that there are two welded joints between any liquid in the tank and the substrate.
HDPE sheet.
Material - Black 5mm HDPE.
110 Clause 1.5.4 of Section 1, the Scope of Work and Pricing Schedule, read as follows:
Seller shall confirm that the lining material selected is suitable for a service life of 20 years exposed to the chemicals listed below, individually or in combination.
111 Clause 7.3 of the Engineering Specification stated:
THE LINING MANUFACTURER
The lining manufacturer shall confirm the suitability of its product and the proposed installation methods and details for the exposure conditions and operating conditions nominated in the Material Requisition.
112 Clause 4.1 of the General Conditions of Purchase read as follows:
4.1 Standards of Design and Manufacture
The Seller warrants and undertakes that it shall design, manufacture, supply and commission the Goods:
The Seller shall ensure that all plans, drawings, specifications and other documentation prepared by the Seller in respect of the Goods shall in each case be adequate and suitable for their respective functions and purposes.
113 Clause 20 of the same part of the Bid Request dealt with Defects Liability. It commenced:
The Defects Liability Period shall be twenty four (24) calendar months from delivery or twelve (12) calendar months from successful start up, whichever is the earlier.
114 Mr Starcevich said in his witness statement that Fluor Daniel relied on the supplier and manufacturer of materials, with their intimate knowledge of their product, to assess the suitability of the product and to provide a warranty that it would perform as required. That was the reason for the inclusion of clauses 1.5.4, 7.3 and 4.1.
115 By a facsimile dated 16 April 1997, Mr Smith returned the Bid Request Acknowledgment Sheet signed by him on behalf of Protec NSW. In the facsimile, Mr Smith confirmed that the Bid Due Date had been extended until 28 April 1997. Further, he requested a realistic commencement date of early August 1997 in lieu of the scheduled date of 1 June 1997.
116 On the same day, Mr Smith faxed Mr Walschburger advising him that Protec Pacific had been put on the bid list for the OEP SX plant. Mr Smith said that he would forward the relevant documentation to Steuler for it "to bid on" once he received OEP's approval of the August delivery date.
117 Mr Smith said that in this tender preparation period he was in regular contact with Steuler representatives, particularly Mr Walschburger, who provided him with technical and commercial information to enable him to respond to the Bid Request.
118 The first step was that Mr Smith forwarded the relevant documents to Mr Lähne by a facsimile dated 17 April 1997. It contained the following comments:
We have not yet examined the tender in great detail, as such there will be many more questions/requirements that we will need to ask of Steuler, in addition to those included herein.
The primary purpose of this fax is to give Steuler sufficient time to meet the bid close date. The attached documents sufficient to make a start on initial technical and commercial work.
By Friday 18th of April we will be in a position to set out how we would like your costings to be presented. In particular we will need a certain break up of the workshop and site-work labour manhours that you estimate will be required. ...
In the meantime please note the following:-
Innovation - although price is very important, delivery and speed of contract completion is particularly important. OEP say that they have allowed the project cost to increase from AUD 1.5B to 1.7B (200M increase) in order to shrink the construction phase. Therefore if you can come up with any innovative ways to speed things up please advise Protec so that we can include in the bid.
...
Technical
A detailed Work Method Statement, in the English language, will be required on how the linings would be fitted in a workshop environment and on-site. In this statement please -
Provide specification details on welding machines - name, model etc.
Provide a list of principal (main) tools and equipment that would need to be provided by Protec for a project of this size and scope.
Track Record
Please provide a specific track record stating where the proposed lining systems have been used in:-
Also shown should be date of installation, country, client name, project name and size of installation (m2 or USD).
Closing Date
The closing date for the bid is the 28th of April - this being the date that our bid must be in Melbourne (1000 kms from our office). The bid will be delivered to Melbourne by Protec courier.
We will need a minimum of 2 days to compile our documentation with Steuler's information. As it is unlikely that the Steuler information will be in [sic] exactly in accordance with Protec's requirements, it would be advisable for:-
Steuler to send information through regularly - not in one large lot.
To have all documentation to Protec by close of business (German time) on Wednesday 23rd April.
119 Dr Dunker said in his witness statement that on about 17 April 1997 Mr Walschburger telephoned him and said that he needed some advice in a hurry. According to Dr Dunker, Mr Walschburger said that he had a potential customer where HDPE had been specified as the lining material in a solvent extraction plant, and that he wanted Dr Dunker to look at a document listing the chemicals to be used at the project. Dr Dunker said that because HDPE had already been selected, Steuler was not being asked to test the proposed media against the Bekaplast product. In any event, time did not allow it and no sample of the solution was available for testing.
120 Dr Dunker said that, in order to respond to Mr Walschburger's request, he referred to a test done in 1993 or 1994 by Steuler in respect of the kerosene (Shellsol D70) used at the Outokumpu solvent extraction plant in Finland. That test had not been requested by the client, but had been carried out by Steuler because of the provisions of the quality control standard ΙSO 9001. Steuler agreed that it was a requirement of ΙS0 9001 that clearance be obtained from the laboratory before a product was recommended as suitable for an intended application.
121 Clause 1.5.4 was given to Dr Dunker. He wrote his response in German on a copy of the document. A translation of the German was accepted as accurate by the plaintiffs. Opposite the mixture of chemicals labelled "A" he wrote "OK". Opposite the mixture of chemicals labelled "B" he wrote "Slight swelling on the surface". On the lower part of the page he wrote:
PE-HD has been tested in our laboratory for 3 months at temperatures of 550C in a kerosene extraction solvent slight swelling of the surface (approximately 3%) with absorption of medium will occur, however this is reversible.
122 In cross-examination, Dr Dunker said that he had checked the chemical resistance charts produced by Simona and the German Institute for Building Technique prior to replying to Mr Walschburger's request. This had not been mentioned before.
123 Following a telephone conversation between Mr Smith and Mr Walschburger, Mr Smith sent Mr Walschburger a facsimile dated 18 April 1997. It included the following points:
...
I hope that the above makes sense to you and will allow us together to build an attractive bid. OEP have told me that after the bids are assessed, the most attractive offer will be analysed and a final fixed price offer will be developed.
124 Mr Walschburger's handwritten comments were noted on the facsimile. In respect of point 4, he wrote:
125 By a facsimile (of unknown date), Mr Walschburger replied to Mr Smith's facsimile of 18 April 1997. The parties proceeded on the basis that it was probably sent on about 23 April 1997. Relevantly, Mr Walschburger said:
126 Mr Walschburger gave evidence that most of the information in this facsimile came from the Bekaplast field installation manual and his discussions with Mr Gebhard.
127 Mr Gebhard agreed that he would have told Mr Walschburger that 256 knobs was preferable to 100 knobs, but he did not think that he had told him that 3mm was the preferred thickness. Mr Gebhard also said that he "definitely" did not provide Mr Walschburger with any information about the project in Niger, because he was not aware of the details. He assumed that it was Mr Rohringer who had given this information to Mr Walschburger.
128 Mr Steuler said in cross-examination that Steuler would not have had any problems if Mr Smith had passed this email on to WMC.
129 In the ensuing exchange of facsimiles over the next few days, Mr Smith sought Mr Walschburger's advice about attached sketches of proposed construction methods and Mr Walschburger advised Mr Smith of the prices for the tank linings. Included in the cost was an allowance of 200 hours for a supervisor's time. Mr Walschburger also noted in his facsimile dated 24 April 1997 that "As discussed with Michael Steuler, please put only an allowance of 10% on the material prices for OEP".
130 Protec Pacific submitted its Bid on 27 April 1997. In his letter to Mr Otten of OEP dated that day, Mr Smith stated that one of the key benefits of using Protec Pacific was:
Note: Steuler have over 20 years experience in designing and installing Bekaplast linings for SX plants - these original linings are still giving excellent service!
131 The warranty offered by Protec Pacific in part 5 of its Bid was as follows:
Protec guarantees that the work will be carried out in accordance with Protec Pacific's Bid submission and that such work will be free of defects caused either through defective workmanship or the use of defective materials for a period of[5]
This warranty shall not apply where any damage suffered and giving rise to a claim against Protec Pacific shall be due to:-
132 In part 6 of the Bid, Protec Pacific dealt with the lining system. Relevantly, the following statements were made:
The principal reasons for OEP requiring the lining system is to -
The principal function of the lining therefore is to act as containment membrane for the process liquor.
6.1 Lining system selection rationale
The Bekaplast has been chosen as the most appropriate membrane system for these works. This decision having been arrived at by matching Protec's perception of the Client's process/equipment requirements (the operational factors that would be endured by the system) with the capability of the selected system (the ability of the system to cope and perform successfully when encountering the various operational factors).
This matching process has been based around the following factors:
No. 1
The lining must have a proven long term durability track record in similar plants
⇩
Bekaplast has been used extremely successfully for over 20 years in similar plants
⇩
Note: Bekaplast linings installed over 20 years ago are still giving excellent service
No. 2
The lining must not "ruck" and/or buckle - as this can lead to premature failure
⇩
Bekaplast is a fully anchored system with 256 anchor points per m2. As such it will not "ruck" buckle.
133 Mr Smith said that he thought that by "similar plants" he meant solvent extraction plants. He agreed that the words "ruck and/or buckle" were not words communicated to him by Steuler. He said that to him "rucking" meant a major movement, a fold or a large crease, not small bubbling between the anchors.
134 Included as part 8 of the Bid were three lists of reference projects which had been forwarded by Steuler to Protec Pacific. The one page list of "Electrolytic Plants for Non-Ferrous Metals" repeated the reference to the use of Bekaplast in the uranium solvent extraction plants in Niger and Finland but omitted mention of the solvent extraction plant in Namibia. The other two lists were for "Waste Water, Wastes and Sewerage" and "Power Plants".
135 Part 10 of the Bid was headed: "Exceptions to General and Special Conditions". Point 14 under the sub-heading "Technical" read as follows:
The life expectancy of the linings have the potential to be 20 years. This statement is supported by Steuler's worldwide track record in similar environments. Linings installed more than 20 years ago in SX plants are still performing satisfactorily.
136 Four bids were submitted - by Protec Pacific, Beltreco, Vinidex Tubemakers and Poly Membrane & Pipe.
137 On 14 May 1997, OEP representatives met with representatives of Beltreco, and its supplier, Serrot Corporation.
138 On 20 May 1997, a meeting took place in Melbourne between Messrs Starcevich, Matheson and Blizzard representing OEP and Mr Smith representing Protec Pacific and Mr Steuler and Mr Lähne representing Steuler. Mr Starcevich prepared notes of what was discussed at the meeting:
Meeting was to get a clearer picture of the capabilities and expertise of Protec and Steuler to assist in the evaluation of the bids for the HDPE lining of SX tanks.
...
In summary Protec and Steuler both demonstrated an understanding of the work required, had considered how the work could be carried out efficiently and showed they had the technical experience to competently complete the job.
139 Mr Starcevich circulated his notes of the Protec Pacific/Steuler meeting to various OEP personnel on 21 May 1997. He stated in his covering document that he believed that both the Beltreco/Serrot and the Protec Pacific/Steuler bidders would meet OEP's requirements for the HDPE lining and that "the final selection criteria between these bidders can be on a commercial basis".
140 Both Beltreco and Protec Pacific were recommended as suitable in WMC's Technical Bid Evaluation form signed by four OEP/WMC personnel on 28 and 29 May 1997. The comments included: "Technically either could successfully complete the work" and "The award should be based on commercial considerations". Reference was also made to Steuler's overseas experience of similar applications.
141 Even though Protec Pacific had "the lowest conforming bid", WMC made attempts to have it reduce its price. It sought details of Protec Pacific's cost break-up for the linings. Thus, in his facsimile to Mr Smith dated 13 June 1997, Mr Blizzard requested a number of details relating to labour rates and the calculation of the areas for the proposed lining material. There then followed a number of communications between Mr Smith and Mr Blizzard and between Mr Smith and Mr Lähne and/or Mr Walschburger concerning price, whether there was to be a loose liner in the settler tanks, and whether that liner would have 256 or 100 knobs per square metre. These communications culminated in a facsimile dated 8 July 1997 from Mr Smith to Mr Blizzard in which he stated that:
The tank base lining using the Bekaplast system pressed into the wet concrete would carry the full performance warranty as tendered.
These events will be examined in more detail below as the plaintiffs placed great emphasis on this facsimile from Mr Smith.
142 By a letter dated 9 July 1997, which was prepared by Mr Blizzard, Mr McCulloch requested approval from Mr Scherrer to commit an estimated $1,422,289 to contract with Protec NSW for the design, supply, delivery and installation of the HDPE lining of tanks/ponds. Mr McCulloch said in his witness statement that he was satisfied upon reading the documents attached to Mr Blizzard's letter that a proper evaluation had been done. The detailed recommendation was approved by Mr Scherrer on 11 July 1997.
143 On 14 July 1997 Mr Blizzard telephoned Mr Smith and told him that Protec Pacific had been awarded the HDPE lining order. By a facsimile dated 14 July 1997, Mr Smith confirmed to Mr Lähne and Mr Walschburger that Protec Pacific had been awarded "the OEP SX plant tender". On 15 July 1997, Protec NSW placed its order for Bekaplast HDPE liner with Steuler.
144 By a Purchase Order dated 16 July 1997 ("the Purchase Order"), which was prepared by Mr Blizzard, OEP confirmed to Mr Smith his previous oral advice that Protec NSW had been awarded the contract for the design, supply, packaging, delivery and installation of HDPE lining material pursuant to and in accordance with the Bid Request for a sum not to exceed $1,422,289. The facsimile was signed by Mr Otten as Mr Blizzard did not have authority to sign award documents in excess of $1.4million. Page 6 of the Purchase Order set out two different ways of splitting the total cost of the contract of $1,422,289. First, it was split between the supply or material cost of $630,801 and the installation cost of $791,488. Secondly, it was split between the supply cost and the off-site installation cost of $1,081,285 and the on site installation cost of $341,004.
145 The Purchase Order contained the following warranty provision:
Seller hereby warrants the Purchaser that the Goods furnished pursuant to this Purchase Order will be free from defects in design, materials and workmanship for a period of not less than twenty four (24) months from the date of final delivery, or for a period of twelve (12) months from the date of successful start up, whichever period shall first expire. Seller shall immediately, after receipt of written notice thereof, make good any such defects which may develop during such period, at Seller's own expense.
146 Mr Smith said that he acknowledged the Purchase Order by signing it on behalf of "Protec Pacific" and dating it 30 July 1997. There was, however, no company's name appearing on the signed acknowledgement.
147 The Purchase Order also contemplated that a site installation agreement covering all installation work on-site would be entered into:
The Site Installation Agreement shall be developed by the OEP Contracts Department, Adelaide who are being passed all the necessary information for them to proceed with this requirement.
148 Thus, by a letter dated 23 July 1997, Nick Kilsby, a Contracts Engineer with OEP, forwarded to Protec Pacific a copy of the Standard Terms and Conditions for the on-site works which would form the basis of an "On-Site Service Agreement".
149 In late July 1997, OEP decided to cast the precast panels on site rather than off site. One of the advantages was that larger panels could be produced on site. This decision led to changes in design and pricing. At this time, Protec Pacific was required to be mobilised on site by 15 August 1997.
150 At a meeting between OEP representatives and Protec Pacific representatives on 7 August 1997, it was agreed that grouted 3mm Bekaplast liner would be used for the settler tank floors. By a memorandum dated 8 August 1997, Mr Smith wrote to Messrs Sheeran, Matheson and Blizzard concerning the meeting with him and Mr Sesia the day before. Reference was made to Protec Pacific not recommending the loose liner system. The memorandum also noted that there had been no allowance for the "fitting/removal" of the leak detection system, as the design was "not finalised and trialled". At a further meeting, on 8 August 1997, Mr Matheson's notes record that Mr Sheeran advised that they would be proceeding with grouted base. Also discussed was the leak detection system, which was to be reviewed, but was still required. Mr Softley agreed that the requirement for a leak detection system was as a result of WMC's insistence.
151 Following this, it appears that Mr Sheeran sent an undated memorandum to Mr Albert detailing "the installation procedure required of the construction contractors":
152 Mr Smith signed an acknowledgement of the draft on site service agreement on 13 August 1997 "subject to the statements made in" Protec's memorandum of 8 August 1997, "being incorporated into any contract covering the installation of HDPE lining on this project".
153 By a letter dated 16 August 1997, Mr Blizzard advised Mr Smith that it would be preferable if the supply and installation of the HDPE lining was under the one contract and was administered accordingly.
154 On 18 August 1997, an OEP Procurement Manager requested approval from Mr McCulloch to commit an estimated additional sum of $308,196 to Protec NSW to cover the increase in the installation costs of the HDPE lining of tanks/ponds for the SX mixer boxes, SX settler and raffinate tanks and uranium and copper dump ponds, and to include the supply and installation of the HDPE in the one contract. Mr Mackenzie informed Mr McCulloch that although the original plan had been to split the supply and installation of the HDPE lining between two separate agreements, being a Purchase Order for the supply of material only and a Site Installation Agreement for all the work on site, it had now been decided "to include the Supply and Installation of the HDPE lining in one contract agreement". Mr McCulloch signed the Letter of Recommendation approving the issue of the Contract Agreement to Protec NSW for the supply and installation of the HDPE lining for an estimated total sum of $1,730,485.
155 For some time thereafter, discussions continued within OEP and between OEP and Protec Pacific about the installation of the leak detection system.
156 By a facsimile dated 22 August 1997, Mr Smith wrote to OEP expressing his concern that although Protec had a Purchase order to cover HDPE supply, it still did not have "a clear and comprehensive contract to cover the HDPE lining works". He said that his concern stemmed "from the fact that we are rapidly approaching a point in time where Protec will be required by OEP to expedite the Works speedily and without delay ..." Mr Smith repeated this concern in another two facsimiles dated 8 and 12 September 1997 respectively.
157 By an email dated 20 November 1997, Mr Matheson asked Mr Sesia whether he or Steuler had "any test results for Bekaplast HDPE at 60 degree Centigrade". The tests mentioned were tensile yield strength, tensile modulus and flexural strength.
158 By a facsimile dated 26 November 1997 from Mr Sesia to Messrs Sheeran and Matheson, Mr Sesia forwarded information provided by Steuler indicating HDPE properties at 230C, but advised that:
To date, Neither Protec Nor Steuler can make available to You the information you request at 60 Deg. C. Please could you furnish us with more information as to the reasons for this information and perhaps Steuler can recommend solutions based on experience and/or case histories. Steuler will try to find such info., according to their fax, and certainly more information will help to expedite the process.
159 In early February 1998, Protec suspended work off site because of the lack of action on the contractual situation.
160 By a letter dated 5 February 1998, Darryl Pratt, the Co-Ordination and Liaison Manager of OEP, wrote to Mr Smith confirming their telephone conversation on the previous day to the effect that OEP gave notice that the site installation/supervision work would be the subject of a separate contract from the Purchase Order "due to the varying site regulations/requirements for field work versus provision of goods".
161 By a facsimile dated 4 March 1998, Mr Pearson asked Mr Walschburger if Steuler would have any objection to Protec Pacific using local suppliers for the plain HDPE sheeting. By a facsimile dated 1 April 1998, Mr Lähne replied that Steuler had no objection.
162 By a Purchase Order Revision dated 10 April 1998 from WMC to Protec NSW, WMC separated out the supply of materials and off site fabrication costs and at the same time increased the price for that work to $1,217,301.73. Protec Pacific again suspended work in mid April 1998 because outstanding contractual matters had still not been resolved.
163 By an internal OEP memorandum dated 11 May 1998, Ross Baker wrote to Andy Cameron recommending a revision of the contract with Protec Pacific. He included the following "History of Tender".
Tenders were sought for the supply and installation of HDPE protective lining to Copper and Uranium SX concrete tanks and mixer boxes in April 1997. A purchase order was awarded to Protec Pacific Pty Ltd in August 1997. The contract was based on the lining of internal faces of the perimeter walls only of the tanks as configured at that time.
Subsequent to the award of the contract, the design of the concrete tanks and mixer boxes has been refined. There has been an increase in the number of tanks and mixer boxes and a significant increase in the amount of lining within each tank. The method of construction and erection of the tanks has changed from the information provided to the tenderers.
In order to resolve problems related to the supply of the HDPE lining for precast and insitu concrete construction, the supply of the lining materials was excised from the original contract and is now subject to a revision of the original purchase order.
Prices have been sought and obtained from Protec Pacific for the installation, testing and repair of the HDPE protective lining for all tanks and mixer boxes in accordance with approved for construction drawings.
The recommendation was approved by Messrs Hannan, Scherrer and Cameron.
164 By a letter dated 13 June 1998 addressed to "Protec Pacific Pty Ltd" Mr Hannan informed Mr Pearson that it had been awarded the new contract "for installation of HDPE lining to the Copper and Uranium SX Tanks" for the "provisional lump sum price of $1,423,616.20". In the Agreement itself, the contractor was named as "Protec Pacific Pty Ltd", but the ACN was that of Protec NSW. The contract was signed by Mr Hannan on behalf of WMC and dated 14 June 1998. Attached to the letter was an "Acknowledgement of Acceptance of Award" document. Mr Smith wrote in the name of the contractor as "Protec Pacific P/L", signed it "for and on behalf of Protec Pacific Pty Ltd" and dated it 15 June 1998. The acceptance was expressed to be subject to achieving "a satisfactory resolution" of outstanding matters. Mr Smith faxed the Acknowledgement of Acceptance of Award back to Mr Hannan on 17 June 1998.
165 Clause 6 of the General Conditions provided that:
The Services provided by the Contractor shall:
6.1 be of the highest quality and fit for their intended purpose;
6.2 be performed or carried out with the highest degree of care, skill and diligence;
6.3 be free from any defects or deficiencies; and
6.4 strictly comply with the provisions of this Agreement.
166 Negotiations about the wording of the contract continued. Mr Hannan agreed in cross-examination that he was still tying up loose ends to finalise the contract at this time. Eventually, Mr Smith accepted WMC's assurances that it would negotiate in good faith to finalise outstanding contractual issues and, on behalf of the "Contractor", he signed and returned a copy of the execution page on 20 June 1998.
167 Mr Smith signed a copy of the final version of the On-Site Service Agreement ("the OSS Agreement") on 21 July 1998. Neither Mr Smith nor Mr Hannan could remember the circumstances in which this occurred.
168 Protec Pacific started work on site on 24 June 1998. Steuler's supervisor, Gerhard Pabst, arrived in Adelaide on 5 July and left on 28 July 1998.
169 In his report to Mr Smith by a facsimile dated 10 July 1998, Mr Pearson said that:
Gerhard is a fountain of knowledge and will improve quality and production immensely. We have already seen an improvement in the floor-laying rate. He is also a practical man!
170 By a facsimile dated 12 July 1998, Mr Pearson told Mr Smith that both he and Mr Pabst had no concerns about Protec being left to its own devices after Mr Pabst left.
171 Protec Pacific experienced a number of problems with the installation work. One ongoing difficulty concerned the leak detection system. Others were the poor construction of the walls of the tanks, the supply of thinner plywood sheets than requested and "mechanical damage" being caused to the HDPE lining. These and other difficulties will be examined in more detail below. For whatever reason, leaks were discovered in the HDPE lining. Mr Softley said that problems with leaks in the HDPE emerged soon after the tanks were hydro tested once they had been fully lined. He said that he observed the leaks which "happened frequently and persistently".
172 Thomas Gebhard visited the site between 2 and 4 October 1998. Mr Smith, Mr Sesia and Mr Pearson were also present. Mr Gebhard produced a written report dated 15 October 1998. In it he noted that to date around 90% of all flooring had been installed and around 50% of all welding work had been done. According to the accepted translation, Mr Gebhard continued:
Numerous defective spots can be found in the flooring that has been installed. All the flooring is also quite wavy after its installation.
After carefully inspecting the tools used to install the floor, the defects mentioned here are completely understandable.
To install the flooring, wooden floorboards only 12mm thick were used, which are in no way able to assure that the load on the floor is evenly distributed over the entire surface. I found such boards to be sagging and bent. After speaking with Mr Pabst, I found out that this had also been complained about before. According to my estimations, load-bearing amounts to 20-25 kg/m2 only, which is too little for proper installation purposes. The standard is around 60-80 kg/m2.
Because of the low load-bearing capacity and the poor distribution of the load across the surface, the boards were able to move freely during the curing period. In addition, there was also intensive direct sunlight on the surface which caused the boards to expand.
Also, the mortar shrinkage could not be compensated for later due to the poor installation and load distribution of the boards and this led to the defects in the surface.
A further reason for these places in the flooring is the poor smoothing of the mortar bed.
The first visual impression of the welded seams led me to consider that the quality of welding work done on them had to be poor, a suspicion that was also then confirmed.
The welding seams were not repaired or worked on later, something that was ordered, said Mr Howard Smith, because no one could see the reason for doing so.
The technical reason for doing repair work was explained to the gentlemen in depth (grooving or notching effects especially under swelling media).
Due to the poor visual impression the work made, it was agreed that a nightshift would be arranged with the welders in order to carry out an analysis of the defects.
Mr Gebhard then commented unfavourably on matters such as extruder settings, preparation of the welded seam, spark testing and repairing of the defects. He concluded:
Due to the very poor work done here, one can expect that a huge complaint is going to filed with the Protec Pacific company if a remedy for the situation is not found quickly.
A further reason for the poor quality of the work done here is that, as far as I am concerned, an attempt is being made to carry the project through to the bitter end with as little cost as possible and using poor quality. Also, a great deal of expertise is simple non-existent here, and the judgement of the situation is therefore equally poor.
During Mr Papst's [sic] supervision, only four welders were on the job, today there are 19 welders who have no idea what they are doing. But the welders are not to blame at all because no one is there at the works site to tell them what they are doing wrong.
The present situation has been discussed with the above-named gentlemen in detail. The conclusion was made that a Steuler Supervisor should be called in as quickly as possible and stay for the remainder of the project, first to deal with the repair work and then to complete the training of the welders there.
173 By a facsimile dated 6 October 1998, Mr Smith asked Mr Lähne whether Mr Pabst could return to the OEP site for four to six weeks in order "to advise Neil Pearson on action that needs to be taken to ensure that our welding is up to specification". Mr Pabst's role was to be that of "an on-site trainer and technical adviser". He returned to the site shortly thereafter.
174 In mid-October 1998, Protec Pacific sought more assistance from Steuler and it agreed to send out eight German welders, including Mr Widerstein.
175 At the request of Mr Smith, Incospec visited the site between 11 and 19 October 1998. Its brief was to investigate specific problems associated with weld quality, continuity testing and conformance with procedures, in particular the joint welding procedure. A report dated 28 October 1998 was prepared by Mr Harding of Incospec. He listed the following problems:
On 29 October 1998, Mr Hart of Incospec sent the report to Mr Smith. Mr Hart noted in his covering letter that one major concern was the amount of damage being caused to non-welded areas by mechanical or physical causes.
176 On 15 October 1998, Protec Pacific served two Notices of Delay. One related to rework and repairs required on uranium raffinate due to "inadequate welding technician performance". The other related to the extreme number of liner defects caused by manufacture, handling, storage and erection problems. On 21 October 1998, Protec Pacific served a Notice of Partial Variation resulting from it being forced to prepare concrete surfaces prior to laying floors and general cleaning of liner surfaces prior to welding.
177 By a facsimile dated 4 November 1998, Mr Pearson reported to Mr Smith as follows:
Protec Pacific have totally underestimated the competencies necessary to complete this project. The complexities required of HDPE extrusion welding were far greater than Protec anticipated, I believe Protec is at fault and I believe Steuler is at fault.
The least experienced German welder we have on site has more experience, ability, competency and knowledge than the Protec team combined. Even then, that welder still requires direction from Gerhard.
In short, Protec arrived at this most difficult & complex (logistics & personnel) construction site with no practical or relevant experience, no effective technical expertise, no experienced welders, no experienced welding supervisors & absolutely no clear indication of what was required to provide leak free linings.
The short time that G. Pabst spent with us was, in hindsight, totally insufficient to impart to us enough knowledge, technical information and experience to enable us to complete our job in an acceptable manner.
The experience that Protec brought with it to site was unsuitable & inadequate for this particular site. The workshop experience in no way reasonably prepared us for the fabrication of leak free liners in this construction environment.
This project requires a very high level of technically component [sic] and experienced supervision. We are unable to provide that experience and technical base. We as a company, do not have the expertise to complete this project unaided.
My statement that Pabst is pointing out defects to my "untrained eye" is in essence correct. The level of competency required for leak free HDPE extrusion welding is most definitely far superior to that which we collectively have as a company.
178 In late 1998 Protec Pacific carried out a lot of overstripping and reworking in the tanks at its own expense. Leaks, however, continued to appear. Repair work continued into 1999. Mr Hannan said in his witness statement that by February 1999 he was aware that there were "serious issues in relation to the standard of work carried out by Protec".
179 Mr Pabst left the site in November 1998. By a facsimile dated 23 November 1998, Mr Smith informed Mr Lähne of the problems with Mr Pabst's supervisory attitude which had led to him being asked to return to Germany. He queried whether a replacement supervisor was immediately required now that the Steuler welders were "carrying out the majority of the welding". By a facsimile dated 26 November 1998, Mr Pearson informed OEP that Mr Widerstein had replaced Mr Pabst.
180 By a facsimile dated 2 December 1998, Mr Malcolm of OEP wrote to Mr Pearson reporting his concern that, with Protec Pacific's supervisors either leaving or going on leave, another supervisor was needed on site. All of the Steuler welders, apart from Mr Widerstein, returned home on about 18 December 1998. Mr Widerstein remained on site between 4 January and 11 February 1999, when he was told by Mr Malcolm that he was no longer needed. He therefore went on leave until 30 March 1999.
181 By a letter dated 11 February 1999, Mr Malcolm and Mr Weir wrote to the Managing Director of Steuler advising that Mr Widerstein's performance of instructing other welders had been "outstanding". They noted that without Steuler's experienced welders, "the welding would have continued to be a failure".
182 In an email dated 11 February 1999, Mr Weir noted that minor leaks were still present in the uranium SX mixer and settlers. In February and March 1999, repairs were carried out to leaks which often appeared in the tanks after water tests.
183 For some two or three weeks from mid-February 1999, there was no Protec Pacific or Steuler supervisor on site.
184 There was a further Non-Conformance Report dated 16 March 1999 relating to faults appearing in the tanks after spark testing. There were faults in the overflow weir flashings and in the floor/welds.
185 By a facsimile dated 22 March 1999, Mr Pearson asked Mr Lähne, at OEP's request, that as a matter of urgency Mr Widerstein's services be made available for a period of four to six weeks. Mr Widerstein arrived back in Adelaide on 30 March 1999.
186 By a memorandum dated 23 March 1999, Ross McCann, Executive General ManagerProjects for WMC, reported to the managing director, Mr Hugh Morgan, and others. He said that:
Production from the Uranium circuit has been delayed by leaks in the eight mixers. It appears to be a design / installation issue with HDPE liners in the vertical corners of the mixers.
187 The minutes of the OEP Steering Committee meeting held on 24 March 1999 record that, with respect to the progress of the uranium/copper SX, there were problems with HDPE leaks in the USX mixer settlers and that water trials in the CuSX Train A were ongoing to ensure there were no leaks.
188 There was a further NonConformance Report dated 30 March 1999 reporting that cracks were developing in the internal 5mm HDPE corner flashings.
189 The minutes of the meeting of the OEP Steering Committee held on 9 April 1999 record that, with respect to the progress of the uranium/copper SX, there would be commitment to full production in the USX on 12 April 1999 and that the introduction of solvent to the CuSX Train A would be commenced on 16 April 1999. Thus, it would appear that the USX train went into service in about mid April 1999.
190 By a facsimile dated 9 April 1999, Mr Hannan advised Mr Smith that Protec Pacific would need to complete all outstanding work by 17 April 1999 and demobilise from site.
191 By a facsimile dated 20 April 1999, Mr Smith reported to Mr Pearson his observations from his site visit. He listed the following defects - incompatible/incorrect material supply - leading to weld failure; knob removal by blunt chisel - leading to cracking of Bekaplast; poor field and workshop weld preparation - weld failure; and the corner angles, which Mr Widerstein had stated were not supposed to be used in the tanks.
192 By an email dated 23 April 1999, Mr Lawton, a construction consultant engaged by OEP to oversee the completion of the HDPE lining works, asked Mr Hannan to arrange for Protec Pacific to return to the site to complete the work as there continued to be failures in verifying the integrity of the HDPE lining in the CuSX area. Mr Hannan confirmed his telephone request by a facsimile to Mr Pearson dated 23 April 1999.
193 A meeting was held on 6 May 1999 to discuss the HDPE remedial work for the copper SX Trains A and B. Amongst those attending were Messrs Cameron, Softley, Lawton, Malcolm and Widerstein. The notes of the meeting record that a survey had been conducted of the types of faults and their quantities and locations in the existing HDPE lining in Trains A and B. There were defects and failures in floor welding, wall to floor welding, factory welding and mechanical damage. Mr Widerstein recommended placing a HDPE strip over the existing welds in the floor, wall to floor and factory welds. This recommendation, which was accepted by WMC, had originally been proposed by Mr Widerstein in January 1999.
194 By a memorandum dated 11 May 1999, Mr Scherrer advised Mr McCann that the HDPE lining had been selected by Fluor "but with OEP approval". He further stated:
HDPE material is and remains a good choice, however:
195 On about 11 May 1999, Mr Folwell spoke to Dr Peggs about the problems WMC was having with the HDPE lining. Dr Peggs sent a long list of questions to Mr Folwell by an email dated 11 May 1999. He commenced by saying that:
The leakage problem may, unfortunately, be something that is not easy to resolve when operating at high temperatures.
Mr Folwell responded by an email dated 12 May 1999. He informed Dr Peggs of the proposed overstripping procedure and said that a site visit was not justified at the time as welders and supervisors were coming from Germany to carry out the repairs.
196 Dr Peggs' initial reaction was that simple cap stripping was not the way to go. In an email to Mr Folwell dated 13 May 1999, Dr Peggs said:
In service the strip will absorb organics, swell, bow away from the wall, and put every millimetre of weld under a peel stress. Periodic peel failures are almost guaranteed.
However, Dr Peggs incorrectly assumed that there had been "a few problematic leaks to begin with" which were resolved and that the leaks had been "generated as a function of time in service". On the contrary, there had been a large number of leaks at the beginning and they had occurred before the tanks had been put into service.
197 On 19 May 1999, Dr Peggs sent a lengthier response to the liner leak characteristics and proposed repair methods faxed to him a week earlier. One general comment made by Dr Peggs was that:
Whatever the repair method used, the major considerations are the effects of the stresses that will be developed by absorption of organics, and the longer term potential for stress cracking in the high temperature oxidizing acid environment.
It is doubly important that problems be identified and effectively repaired now, before the settlers are put into service. Once organics have started to be absorbed into the surface of the HDPE, extrusion welding repairs will be extremely difficult to make without allowing sufficient time for all the absorbed organics to desorb ...
Dr Peggs suggested some possibly more suitable lining materials but said that:
It would be highly recommended to do a chemical resistance test before making a decision to use anything else. Samples, both stressed and unstressed, should be exposed to actual settler solutions for a minimum of 30 days. Seaman [Corporation] has a set of basic mechanical tests they perform to assess compatibility. I would recommend a couple more analytical tests, since a 30 day exposure is not a long exposure to produce effects that can be adequately assessed by simple mechanical tests.
198 By a facsimile dated 20 May 1999, Mr Softley sent to Mr Steuler a note by Mr Softley which asked for his comments. Mr Softley said:
We have had an independent design consultant review the repair method being used in our Copper SX plant to cover joints with cover strips in an effort to stop leaks.
The Consultant has raised some concerns and we would like you to comment on those concerns. Please refer to the attached sketch for the item number.
He then referred to certain concerns about the cover strips (angled in corners, cap on flat surfaces) and holes in sheeting.
199 On 12 May 1999, Mr Pearson faxed to Mr Sesia a three page document identifying where various types of welding failures and mechanical damage failures had occurred in the tanks constituting the copper train. The lists totalled 1,210 failures in Train A and 1,223 failures in Train B. Of these failures, 380 in Train A were caused by mechanical damage (by the workmen) and at least a similar proportion in Train B.
200 The minutes of the meeting of the OEP Steering Committee held on 12 May 1999 record that the SX plant was nearly fully operational. It was further noted that:
Extensive problems with material thickness and quality control have been experienced to date. There have been over 1200 repairs in one train alone.
These problems are to be addressed via the full installation of cover and corner sheets. Protocol has been developed to allow HDPE repairs now and in the future. If this strategy fails then a new lining will need to be installed. We doubt that this will be required.
201 By a facsimile dated 14 May 1999, Mr Pearson advised Mr Smith and Mr Sesia of WMC's decision "to place safety strips over all floor with perimeter welds". He stated that:
80% of all faults are in/around the perimeter - floor welds. By welding strips over these areas, we eliminate the problem areas.
No definite causes of the leaks had yet been established. This work was an overall overstripping of all of the welded seams in the tanks, at WMC's expense.
202 By a letter dated 14 May 1999, which was handed, and faxed, to Mr Pearson on that day, Mr Hannan referred to the "serious problem with failures in our SX system tanks which were lined by Protec". Mr Hannan said that after discussions with Mr Pearson, he believed "that some of the failures were the responsibility of Protec to repair under the terms of the warranty of the respective agreement". The complaints included overflow weir capping, the leak detection system, mechanical damage, poor welding, adjustable weir flap in the settler tanks and pickets warping. There was no suggestion by WMC that the Bekaplast material itself was unsuitable for the process solutions.
203 By an email dated 19 May 1999, Mr Folwell informed Mr Softley that he had spoken to Mr Sadlier of Geosynthetic Consultants regarding a prefabricated liner to fit into the tanks. On the same day, Mr Folwell sent an email to Steve Liddell, the then manager of the hydromet, asking for the range of chemicals and temperatures the HDPE liners were exposed to because they were:
looking at contingency arrangements for copper SX mixer settlers in case we have further problems with the HDPE liners.
Well, we were looking at alternatives for the lining system, to replace or augment the lining system.
204 Perhaps not surprisingly, the possibility of litigation began to be anticipated. An internal Protec Pacific document dated 18 May 1999 listed seven "OEP Litigation Points". By a facsimile dated 18 May 1999 Mr Lähne forwarded to Mr Smith the information sent by WMC for Steuler's comments. He did this "so that we, Steuler and Protec, can combine our technical statements".
205 By a facsimile dated 19 May 1999, Mr Pearson sent Mr Sesia his lengthy but important summary of the faults with the OEP project:
This is not a simple process, it takes skill, aptitude & the correct attitude (tradesmanlike).
Protec recruited heavily prior to mobilisation. Due to his long delay between our expected start date & our actual start on site, we lost a large number of those people. Additionally, we were only provided 17 beds in camp instead of 30. This meant we had to accept people that were willing to move from elsewhere, & live locally. The contract pressure dictated that we use these (in a number of cases) instead of our preferred recruits.
This argument is also true for the floor laying processes.
In the workshop, routing & grinding are easily organised & effected. G Pabst told us to use a hammer & chisel. If done properly, (sharp chisel, competent people) this may be satisfactory. Certainly on 5mm + sheet it is no problem. 3mm sheet is a totally different proposition.
...
(b) Our supply & their non use of the tear off strips. ...
(c) Nailing the liner to the formwork.
(d) Very much out of line weir top. Up to 50mm. This, in hindsight, made our task of sealing the liner & installing the weirs flap, almost impossible.
The ledge shown ended up too high & was cut, we had to weld a strip of HDPE set on packers & sealed to the liner. A very unsatisfactory design.
Claudio, almost everything was magnified by
(i) our inexperience & lack of knowledge
(ii) OEP disorganisation
(iii) contract pressure.
206 By a facsimile dated 19 May 1999, Mr Smith wrote to Mr Steuler concerning the on-going commissioning problems at OEP with the SX tank linings:
Over the past few weeks, significant problems have been encountered in commissioning the OEP SX tanks. The problems relate to leaks that develop after (days - weeks) the tank has been passed as satisfactory i.e. filled with liquid and shown to be leak free. This cycle of passing as leak free one day/week and then recommencing leakage continues to occur with no end in sight!
These leakage problems do not just relate to tanks welded by Protec welders but virtually all tanks including those welded by Steuler welders.
As such, OEP have decided that all floor/floor - wall welds be covered with a strip of HDPE and welded along both edges.
...
The failure mechanisms are not clearly understood but indications are that there exists 2 main possible causes:-
...
At this juncture Michael I must also say that Protec feel strongly that Steuler have some responsibility and associated liability with regard to the problems currently being encountered because:-
207 By a facsimile dated 28 May 1999, Mr Smith wrote to Mr Lähne. He referred to an agreement reached on the telephone the previous night that:
We should focus on how to transfer the maximum (hopefully all) liability to OEP.
Mr Smith said that they would need to focus on the floor welds as this was where the vast majority of the weld failures were located. He proposed a line of argument attributing the defects to the leak detection system required by OEP. His facsimile concluded:
A couple of other matters that OEP (and Protec) urgently want information on are:
The above 2 items have been raised by independent consultants engaged by OEP to look at the Bekaplast linings.
208 Mr Sadlier of Geosynthetic Consultants Australia visited the site on 25 and 26 May 1999. Mr Sadlier was a civil engineer. He prepared a report dated 28 May 1999 for OEP. At the time of his visit the repairs to the uranium solvent extraction tanks had been completed and they had gone into service and the repairs to the copper solvent extraction tanks were in progress. Mr Sadlier made lengthy comments about the repairs. He did not agree with Dr Peggs' concerns about the possibility of organic absorption leading to swelling of the cap strip. However, he said the following about organic absorption generally:
There has been a question raised about the potential for the HDPE sheet to absorb some of the contaminants such that it might affect the performance of the liner and its reparability. The area most at risk would be the top water level region where the organic component is expected to concentrate as the components separate out.
We can refer to two private sources of general reference information from the early days (1985) of HDPE:
This would suggest that such absorption is self limiting and possibly reversible. However with any immersion situation specific immersion tests are the only way to obtain a clear picture of the behaviour of the material.
We therefore suggest that you initiate a well controlled long term series of exposure tests that involves carefully weighed and identified samples which are immersed in the more extreme locations in the tanks. There should be adequate samples for these tests to continue for a number of years although initially samples should be weighed on a weekly or monthly basis until a pattern develops.
Such an immersion test program is the only real way to evaluate the impact of the operating solutions on the liner. Depending on the pattern from this immersion test you might decide to do nothing, to place sacrificial layers or take other actions.
209 By a facsimile dated 28 May 1999, Mr Sesia sent Mr Lähne his technical report on the defects in the form of pinholes found in the Bekaplast linings. He concluded that "the welded seams were fraught with cavities (of different volumes) resulting in a sporadic lack of back pressure of the extrudate which is absolutely essential for a good weld". Mr Sesia considered that the substrate cavities under the floor seams were a result of the leak detection grooves not leaving enough backing strip on which the floor panels could be aligned.
210 A report was prepared on the Uranium Raffinate Facility dated 29 May 1999. It noted, in respect of tanks TK1652 and TK1613, that on 19 April 1999 the tanks were drained and cleaned and then inspected by Messrs Cameron, Softley, Weir and Malcolm. It was found that "the Bekaplast lining was becoming loose on the wall and splits had developed". Bekaplast knobs had either not been set in the concrete correctly or had "cracked off the lining".
211 By a facsimile dated 29 May 1999 Mr Folwell reported to Mr Softley on the comments made by Dr Peggs and Mr Sadlier. Mr Folwell recommended that the loose liner on the overflow weirs "be removed and replaced with studded sheet which is grouted into position". He also recommend that they continue with the current repair method but "initiate immersion testing to assess organic absorption. The tests should include weight change and also dimensional and strength changes with progressive exposure". There was no such testing by WMC. Mr Folwell gave evidence that he did not know why it was not carried out.
212 By a letter dated 31 May 1999, Mr Smith wrote to Mr Hannan rejecting any responsibility on the part of Protec Pacific for the cost of repairing the leaks. He requested a variation to the contract to cover these costs. Mr Smith blamed the leak detection system, the design of which was not approved by Protec Pacific and was "not prototyped" as required by Protec Pacific.
213 By a facsimile dated 25 May 1999, Mr Lähne advised Mr Softley that Mr Modes would fly to Australia to discuss the measures taken for the repairs, with "our partner in Australia, Protec Pacific" and OEP. Mr Modes arrived on site on 2 June 1999 and stayed until 5 June 1999. Mr Modes said that during the first two days he only looked at the tanks in the copper trains. They were empty as repairs were being carried out. He said that he did not see any bubbling in the copper tanks, which was not surprising given that they were yet to be put into service. Initially he could not inspect the uranium tanks as they were in operation. Later, one of the uranium tanks was put out of service and he was able to inspect it after it had been emptied, cleaned and ventilated. Mr Modes observed bubbling in the uranium settler tank but not in the connected mixer box.
214 Mr Modes attended a number of meetings with Mr Softley, Mr Lawton, Mr Malcolm and Mr Godfrey from OEP and Mr Sesia and Mr Pearson from Protec on 2 and 4 June 1999. Mr Softley, who was not present at every meeting, asked Mr Modes to review the reports from Mr Sadlier and Dr Peggs. He was given copies of both reports. The purpose of the last of these meetings was said to be to review these reports. The meeting notes record Mr Modes saying in respect of Dr Peggs' report:
Exposure to organics should not be a problem, but you can proceed with the test if you so desire.
Mr Modes insisted that a 5mm strip be used over the joins rather than the suggested narrower strip.
215 Mr Modes' written report was originally dated 16 June 1999. In it he stated that the Bekaplast material had been "quite poorly installed", including both welding and floor laying. He attributed "a major part of the current problems" to the leak detection system and the covering of the weirs with a loose, non-anchored PE sheet, both of which were OEP's responsibility. Mr Modes noted that the uranium tanks had been in operation for eight weeks and that "according to WMC, the medium deposited in the tanks is kerosene with a max. temperature of 400C". He continued:
The first tank showed big leaks in the concrete joints between the Settler Tank and the Mixer Box during my visit. The tank was taken out of order, cleaned and ventilated.
216 Mr Modes recorded that on inspection of this tank he:
discovered swellings ("bubbles"), partly approx. 1cm high, in the Bekaplast between the knobs. The location of the bubbles was mainly on a line along the max. filling level. But also in vertical direction, near welding joints, these bubbles were found.
Similar swellings were observed "along the waterline of the Settler Tanks" but "no damage could be found in the Mixer Boxes". Mr Modes concluded that it was "reasonable to assume that a different medium than specified before was introduced into the uranium tanks". This had yet to be settled with OEP and/or WMC. Mr Modes stated that "in principle", the statements in the reports of the two experts consulted by WMC were "okay". He said, however, that it was obvious to him that the experts did not have enough practical experience in the use of Bekaplast or other mechanically anchored thermoplastic linings. Mr Modes considered that "the only correct method of repair" was the covering of the existing floor joints with strips and the covering of the weirs with Bekaplast by trained personnel.
217 In WMC's Progress Report for the week ending 4 June 1999, the following was noted:
During this week a Mixer Box/Settler weir failed in USX area (note this facility has been in operation for approximately 10 weeks without any signs of failure). It has been confirmed by both Protec and Steuler that this failure is attributed to the same causes as referred in Trains A and B and is inherent in each settler/mixer Box weir in USX.
It would appear that this weir was the one referred to by Mr Modes in his report.
218 Mr Pearson made a diary note of Mr Modes' visit to the site on 4 June 1999. He recorded that they noticed "bubbles in uranium train walls only at liquor level". The bubbles protruded 25 to 30mm. Generally they were in the half of the settler tank adjacent to the mixer. Mr Pearson recorded that Mr Modes' initial concern was that this was caused by "chemical absorption".
219 By a handwritten note incorrectly dated 4 June 1998, instead of 1999, Mr Pearson told Mr Smith of his observations. As he said in his witness statement:
I was aware by 28 May 1999 that Ralf Modes, one of Steuler's plastic engineers, would visit site to investigate the problems. Modes was on site for a few days we inspected the work with Edgar and Sesia. We looked at as much of the work face areas as we could. As I recall the uranium train was not in operation at the time and this was inspected. We noticed some deformation of the Bekaplast HDPE in the uranium train walls at the liquid level at the side of the wall and down the walls between the area where the precast concrete wall panels were joined but the bubbles were most noticeable along the surface line of the liquid. The deterioration took the form of bubbles protruded up to 25 to 30mm and occurred within the area that was not affixed to the concrete by the anchor knobs. These bubbles were generally in the part of the tank nearest to the mixer boxes. The HDPE picket fences and the weir caps were also badly deformed. The position of the deformations indicated it was not related to the welding. Modes said his concern was that the bubbles in the lining and deformation of weir caps were as a result of chemical absorption. I made a note to this effect in my diary which I wrongly dated 4 June 1998, instead of 4 June 1999. I sent a copy of my file note to Howard Smith by facsimile 7 June 1999.
220 On 8 June 1999, Dr Dunker sent a handwritten note to Mr Walschburger. The agreed translation read:
According to the oral report of the visit by Mr Modes, blisters can be seen on the surface of Bekaplast in the extraction basins at the transition area between wet and dry.
There is a concern about the condition of the PEHD will be impaired.
Comments: Transition areas can always be considered problematic. At this point on the surface, it can come to a molecular dissolution of the polymer structure caused by the constant change in the equilibrium between absorption and desorption, and this can, under certain circumstances, make itself manifest in the form of blistering.
It is my opinion that this process is only taking place in the upper 1/10mm (0.1 - 0.4mm).
221 By a facsimile dated 9 June 1999, Mr Smith wrote to Mr Lähne as follows:
As you know, the Bekaplast at OEP is showing signs of swelling.
Ralf Modes noticed this phenomenon during his site inspection and it will not be long before OEP do likewise.
I have attached a copy of the chemical conditions that are supposedly within these tanks. This information was originally provided to Steuler at time of tender, as part of Protec Pacific fax F97287, 17 April 1997.
Please recheck your recommendations to ensure that a mistake has not been made during material selection.
If a mistake was made then we must come up with a common approach to the problem.
222 On or about 9 June 1999, Mr Walschburger wrote to Mr Smith as follows:
Today Ralf Modes came back from his trip and told us that some bubbles has appeared on the surface of the Bekaplast in the settler-tanks. We don't know if you remember that we told you about this possibility when we were procuring the project and that this phenomenon occurs only in the tidal zone. We have made some tests using Shellsol (Kerosine) [sic] in our laboratory and found out that the swelling is a normal thing and that the attacked profundity is of 0.5mm. We also observed that this swelling is reversible.
Now we hear that the swelling is not reversible and that it appears in mayor [sic] areas and not only in the tidal zone. As this phenomenon occurs in presence of other solvents that may appear in lower quality Kerosine [sic] (inclusion of Benzene, Toluol, Xylene etc.) it should be advisable, before they start telling us something about guarantees that we get a sample of the Kerosine [sic] they are using to do a test with it here in our lab. Could you procure it and send it?
223 Mr Walschburger said in cross-examination that the information in this letter had come from Dr Dunker. No sample of the Shellsol 2046 kerosene was ever provided to Steuler by Protec or WMC. By a facsimile dated 22 July 1999, Mr Pearson advised Steuler that he was unable to obtain samples of the kerosene used by WMC at Olympic Dam. He explained that because the solvent contained traces of uranium, it could not be removed from the site.
224 By a facsimile dated 27 June 1999, Mr Smith wrote to Mr Modes suggesting changes in the wording of his report. Whilst some of the suggestions were for linguistic reasons, others were proposed to "avoid any reference to Protec fault". Mr Smith referred to the issue of swelling in the uranium tanks and continued:
We would rather that this problem is not mentioned until Steuler have the results of their independent testing and Protec Pacific has resolved the other issues and got paid for the work carried out.
Once Steuler have their independent test results ... and the material selection is confirmed as being 100% correct, then we (Protec - Steuler) can bring in other concerns about swelling.
225 Only the minor suggested changes were accepted by Mr Modes. By a facsimile dated 30 June 1999, Mr Modes sent a copy of his report, now dated 23 June 1999, to Mr Hannan. He apologised for "the belated sending of this report which was due to a longer business trip of Mr M Steuler who has to work on this visiting report first".
226 By a facsimile dated 5 June 1999, Mr Pearson told Mr Hannan that labour was being withdrawn because Protec had not been paid.
227 By a notice dated 8 June 1999, Mr Smith informed OEP that it would waive its earlier notice provided $200,000 was deposited in Protec's bank account before 4.00 pm on 11 June and a date and time before 17 June was agreed for a meeting "to resolve the lining defect problems".
228 On 11 June 1999, Mr Smith advised OEP that Protec would commence demobilising men (Protec and Steuler) and equipment as at 4.00 pm on 15 June because OEP had not released the agreed $200,000 and were withholding money without just cause.
229 By a facsimile dated 11 June 1999, Mr Smith wrote to Mr Lähne asking for his advice about a material suitable for lining process pipes at OEP. Mr Smith referred to Bekaplast HDPE as being "not the flavour of the month". He also asked whether "exposure of Shellsol and other liquids within the tanks at OEP effect [sic] the repairability of the Bekaplast?"
230 By a facsimile dated 16 June 1999, Mr Smith wrote to Mr Steuler and Mr Lähne informing them that no satisfactory resolution of the situation at OEP was in sight. He further stated:
As you know, Protec believe that Steuler are in no small part responsible for the problems at OEP and if Protec are left with a huge bill, Protec will [be] looking for partners to share it with!
Mr Smith said in evidence he thought Steuler was at fault because Protec had relied on Steuler to provide a lining system and supervision and labour and despite that, the tanks were not leak free.
231 By a facsimile dated 17 June 1999, Mr Pearson complained to Mr Lawton about explosions causing leaks, welding work not being supervised or performed by Protec approved welders and Protec being directed by OEP on how to perform the work.
232 By a facsimile dated 17 June 1999, Mr Lawton sent three sketches for the capping of the overflow weir walls to Mr Sesia for him to review and to obtain Steuler's approval. Mr Smith agreed that this rectification work had to accommodate some misaligned walls which had been defectively constructed by Thiess.
233 By a memorandum dated 18 June 1999, Mr Smith wrote to the Project Manager, OEP, advising that Protec would be demobilising "its personnel and those contracted to it from Steuler" on the next day because money was still being retained by OEP without just cause and OEP had not issued variations to the contract repeatedly requested by Protec. By a second memorandum on the same day, Mr Smith wrote to the Project Manager, OEP complaining that the factory wall weld failure rates claimed by OEP were inaccurate. By a third such memorandum, Mr Smith advised that Protec would only carry out floor repairs if it received a written instruction from OEP. By a fourth such memorandum, Mr Smith rejected any suggestion that the weir defect was Protec's responsibility.
234 By a facsimile dated 18 June 1999, Mr Hannan replied to Mr Smith's demobilisation memorandum. He advised that if Protec did not continue to undertake the work, WMC would be forced to place it in default. By another facsimile on the same day, Mr Hannan replied to Mr Smith's three remaining memoranda. He advised that inquiries were still being made to ascertain whether there was any liability on the part of Protec.
235 Mr Smith responded on the same day with another memorandum. He advised that Protec would resume work at a moment's notice if it received confirmation in writing that it would be paid for the remedial work.
236 On 18 June 1999, the OEP Summary Report on Remedial Repair Works on the Copper and Uranium Solvent Extraction Circuits was completed. It was stated in the report that, in the copper SX trains, 95% of the failures occurred within approximately 3cm of a welded joint. All welds were patched. With the uranium SX approximately 70% of the welds were repaired. It was further stated in the report that frequent failure of the mixer/settler weir capping had resulted in a decision to modify the design based on the recommendations of Mr Modes. Finally, with respect to the aqueous weir, it was stated that the previous design was found to be deficient and that it placed excessive stresses on the thin 3mm liner.
237 Despite OEP reluctantly agreeing, on 15 June 1999, to pay Protec Pacific the $200,000, Protec's employees did not report for work on 19 June 1999. Its workmen left the site on 21 June 1999. Only Mr Widerstein and two Steuler welders remained.
238 By an email dated 21 June 1999, Mr Hannan asked Mr Walschburger whether Steuler would be prepared to contract with WMC for the supply of labour, materials and equipment to complete the repair works. Mr Lähne faxed a copy of the email to Mr Smith for his comment.
239 By a facsimile dated 22 June 1999, Mr Smith responded forcefully to Mr Lähne. He said that if Steuler agreed to deal directly with WMC, it would "gain a short term sale and lose a long term partner".
240 By a letter dated 22 June 1999, Mr Steuler wrote to Mr Hannan advising that Steuler could not interfere in the business problems between WMC and Protec Pacific, and that contracting directly with WMC would cause major disagreements "with our local partner and important customer", Protec Pacific. Mr Steuler faxed a copy of this letter on the same day to Mr Smith.
241 By a facsimile dated 23 June 1999, Mr Smith advised Mr Lähne that he had no objections to Steuler supplying OEP direct with Bekaplast. In a handwritten note, he told Mr Lähne that at the quoted rates there was "ample room" for Steuler to credit Protec Pacific with its commission.
242 On 23 June 1999, Mr Smith and Mr Hannan discussed their dispute. A timetable and deadline for the resolution of contractual matters was to be notified by OEP on the following day. On the following day, Protec forwarded its log of claims to OEP.
243 On 25 June 1999, Mr Jarver of WMC signed a Justification for Expenditure ("JFE") form seeking approval for $5.5 million for copper and uranium SX HDPE remedial works. The supporting report summarised the problems with the leaks in the copper and uranium solvent extraction areas:
The leaks are generally due to the HDPE lining not providing a complete seal to the concrete tanks. The faults resulting in the leaks in the HDPE lining system can be considered to be due to a combination of the following:
...
Overflow Weir Flashings
These leaks manifest themselves as tears in the 5mm HDPE flashing and appear at the peripherals of the weld areas. These tears or splits are caused by excessive unrestrained movement and are the result of expansion and contraction.
Design Deficiency
Protec/Steuler have advised that the cracking is caused by lateral movement across the weir cap due to the lack of mechanical restraint on the underside of the weirs caps i.e. No embedded Bekerplast [sic] knobs into the grout filled cavity.
Floor/Weld Faults
These leaks appear after spark testing and often after a period of hydrotesting for no apparent reason. They are usually within the weld area peripherals.
244 In the "Progress Report for SX Week Ending 2 July 1999", Mr Lawton and Mr Godfrey reported that:
Observations made on the surface of the drained settler indicate that severe swelling of the Bekaplast is occurring as a result of contact with the solution in USX. Pickets have also been observed to swell during the operation of the plant. The swelling of the liner appeared to be worse on the floor near the mixer end and had a beach like ripple effect. This gives rise to speculation that the organic is responsible for the swelling of the polyethylene liner. The action between the organic and the polyethylene is worthy of investigation.
There was no evidence that WMC did investigate this matter.
245 By a letter dated 7 July 1999, Mr Hannan advised Mr Smith that WMC had commenced a detailed review of Protec's claims for additional costs.
246 By a facsimile dated 12 July 1999, Mr Pearson advised Mr Hannan that he was receiving reports of a deteriorating quality of welding, "mainly with recent arrivals". This was a reference to the various contractors engaged by WMC to carry out the remedial works including the overstrip repairs, replacement of the overflow weirs, and rectification of the HDPE flap to the adjustable weirs.
247 On 13 July 1999, Mr Pearson sent to Mr Smith a detailed summary of the project. He reiterated that OEP was the designer and responsible for all design changes. He noted that the local HDPE sheeting had been obtained from different suppliers. Mr Pearson stated:
The most serious mistake/oversight was in allowing the installation of the flashings with the bending fault. My only excuse is that technically we were novices and this only magnified the major problem of insufficient and inadequate human resources. We could not adequately manage the project with what we had to work with and with the little experience that we collectively possessed in the time frame given to us. I could not do it then and I could not do it now with the same quality and quantity of resource, it would undoubtedly be better, but not sufficient.
As far as the on-site supervision was concerned, we attempted to ensure compliance with all facets of the original and the revised WI's. That they were not complied with on a number of occasions is on record. The project was split into two distinct work processes, namely, floor laying and welding.
Floor laying. The methods that we had hoped to use proved totally inadequate in a number of instances, eg continuous rolls, overcoming expansion. The client refused our request to use water buckets and supplied 12mm sheeting in lieu of 16mm. The latter is subject of an NCR, the former was discussed with you and Claudio prior to mobilization.
Claudio's presence was requested, by fax, on site after the first week to help overcome the inadequacies of our documents. This request was denied due to financial considerations.
The work instructions are not only for the information of the supervisors, they are also for the instruction and reference of the operatives. We had assembled a group of people that with only a few exceptions, were not suitable employees. The level of supervision that we were able to provide was not enough to ensure total compliance with the work instructions. We were not physically able to provide the level of close supervision required.
Requests were made for additional supervision.
Welding. The problems with compliance to welding WI's were the same as for the floor laying, magnified by two additional facts. a) Welding requires a high level of skill and competence from each welder. We did not have that competence. Not in operatives or the supervisors, myself include. b) Low level operator skill requires additional supervisors of sufficient competency to overcome the lack of skill in the operatives. We had neither! I doubt that we have the skill levels required even now. We are getting there but still fall short in the area of experience.
...
We had many instances of non-conformance to the WI's, the most destructive and costly was the failure to place a conductive medium in every weld, not overheating of extrudate and other such items. The temperatures of the welding units was checked daily up until Gerhard arrived (see attached sheet). This was policed, however, with the quality of personnel and the physical amount of supervision required, non-conformances occurred. (The Munsch Welder can be a cantankerous beast. A small amount of rubbish sucked into the air inlet can set it haywire and then just as easily remove itself). The problem then being that the integrity of the spark test was in question.
All the above was in itself a major problem, it was compounded by the fact that it was discovered after Gerhard arrived in October. It is worth splitting the welding into two distinct time frames. The damage was done prior to Gerhard's arrival in October. The period after this was basically incident free except for the operator errors that occurred due to lack of experience.
Protec could not control the welding processes for a variety of reasons.
In summary, I believe that the Work Instructions and Supervision were inadequate for the situation. The situation being the sum of the previous seven points.
...
In general, a significant amount of "blame" should be apportioned to our lack of available resources, both human and technical. This in my opinion represented the biggest threat to this project. This Project was a most unusual situation for Protec. The pre-contract, pre mobilisation experiences, remote site, no technical or practical experience etc. were a very real pointer to the situation and end results of this project. We as an organisation, must ensure that sufficient resources are identified and provided for future projects. The experiences gained, mine, Protec, Claudio, you and the operatives, must be preserved and learned from. It is with this strategy in mind that I have written this response.
In conclusion, my summary of the situation was as follows:
Inexperienced Manager.
Inexperienced Supervisors.
Totally inexperienced labour.
Company inexperience on remote sites.
No experience with the processes.
No history of Bekaplast to draw from.
Inadequate backup from our supplier. (Steuler)
A convoluted client hierarchy.
An incompetent Client.
Over estimated expectations.
248 On 16 July 1999, Mr McCann prepared a draft letter to Fluor Daniel criticising its performance in respect of the SX area. By a status report dated 10 September 1999, Mr Jarver listed HDPE repairs of $5 million approximately as potentially Fluor Daniel's responsibility. However, WMC subsequently agreed not to pursue any claims against Fluor Daniel.
249 On 23 July 1999, Mr Lawton advised Mr Smith by a facsimile that Mr Widerstein's services were no longer required after 30 July 1999. By a notice dated the same day, Protec Pacific advised OEP that the Bekaplast lining system was being exposed to increased probability of short, medium and long term failure because Mr Widerstein's advice was being ignored and he could not gain access to the site.
250 On 26 July 1999, Mr Lawton reported by email that more failures had occurred in uranium tanks.
251 In the "Progress Report for CuSX Week Ending 30 July 1999", it was stated that all settlers in Train B were under hydrostatic testing, that all settlers bar one appeared to be water tight and that Train A would soon be ready for water filling.
252 The final handover of the solvent extraction plant to WMC took place in August 1999 with the handing over of copper Train B on 4 August and copper Train A on 8 August 1999.
253 By an email dated 6 August 1999, Mr Hannan advised Mr Steuler that the problems with the leaking tanks were continuing. The most prevalent problem was weir cap failures where Bekaplast had not been used, but they were replacing the material with Bekaplast. Mr Hannan stated that:
The problems we have experienced are the result of poor workmanship, damage caused by third parties and some technical issues.
254 By a memo dated 17 August 1999, Mr Smith wrote to Mr Hannan registering his concern that the current dispute appeared no closer to being resolved. This was despite Protec agreeing to Mr Widerstein staying on the project and to OEP ordering Bekaplast direct from Steuler.
255 By an email dated 19 August 1999, Mr Lawton advised Mr Softley that all workforce personnel on the HDPE remedial work would be demobilised by 27 August.
256 On 31 August 1999, consulting engineers Corina Glavan and Harry Better of ETRS Pty Ltd presented their report to WMC. They had conducted an investigation into the weld failure of the HDPE tanks. Their conclusion was as follows:
In our opinion failure of the welds occurred as a result of poor quality welding, excessive weld material, presence of impurities, residual post-welding stresses and induced stresses as a result of movement due to temperature variations. The presence of sharp-edged steps and perpendicular front propagation of the crack suggested that the mechanism of failure of the polymer resembles to metal fatigue.
257 The Monthly Hydromet Report for August 1999 referred to a "USX shut down for major leak repairs".
258 By a facsimile dated 1 September 1999, Mr Lähne asked Mr Smith for a report on the situation between Protec and WMC. He also asked whether there was information "on the bubbles at the uranium plant".
259 The Hydromet Report for the month of September 1999 stated that:
Hydromet performance for the month was the best year to date in terms of recoveries and metal production.
New USX had its first month with no downtime as a result of HDPE failure.
However, there were some HDPE repairs to the copper train, which may not have led to a shutdown.
260 In October 1999, WMC finalised its arrangements with Thiess. Mr Hannan said that WMC recovered some money from Thiess "for their proportion of the repair costs". He could not remember the exact amount but said that it was over $100,000 and that it could even have been over $300,000.
261 By a letter dated 21 October 1999, Mr Hannan wrote to Mr Smith identifying three distinct components of its insurance claim:
Mr Hannan said that the first component did not affect Protec as it would be reimbursed for the work, but WMC was holding Protec responsible for both of the other items. His calculation was that Protec owed WMC over $2.2 million. By a letter dated 27 October 1999, Mr Hannan advised Mr Smith that this claim would not be accepted by WMC's insurers.
262 The Hydromet Report for the month of October 1999 stated that, even though there were leaks:
Hydromet performance for the month was again very good.
There was a shutdown of the uranium train for two days to repair leaks.
263 By a memo dated 2 November 1999, Mr Smith wrote to the OEP Commercial Manager rejecting any fault or liability on the part of Protec.
264 On 12 November 1999, a Sharesale Agreement between Mr Smith and Steuler was signed. Also on 12 November 1999, Mr Smith and Steuler entered into a Shareholders Agreement. The relevance of these Agreements will be considered below.
265 The Hydromet Report for the month of November 1999 stated that:
A couple of leaks developed in CuSX units over the month, however none of these were too bad, and the plan at this stage is to leave these until the shutdown in mid December.
Excellent results early in the month in USX resulted in the good result at the end of the month. The new USX circuit was shutdown late in the month for 3 days to repair three units that had developed leaks, which still appeared to coincide with limestone quarry blasts. ...
266 The December Hydromet Report suggested one day had been lost as a result of leaks in the copper train.
267 By a letter dated 9 December 1999, Mr Hannan wrote to Mr Smith recording what was discussed at a meeting on 2 and 3 December about unresolved issues such as design responsibility, leak detection system, floor and wall welds and overflow weir.
268 On 23 December 1999, there was a major fire in the CuSX plant area ("the first fire"). It damaged eight tanks in the copper tank farm area and associated pumps, electrical and pipe work. Four of those tanks had to be demolished, reconstructed and relined. The other four damaged tanks did not require demolition, but they did have to be relined. As a result of the first fire, the two copper extraction trains could not be operated, even though they were not damaged. After some modifications, the uranium solvent extraction circuit was able to continue operating from a short time after the fire.
269 In an Investigation Report by the South Australian Department for Administrative and Information Services dated 12 July 2000, it was stated that the exact cause of the fire could not be determined because the site was "too devastated".
270 In a Hazop Report dated February 2000 by SHE Pacific Pty Ltd, a number of recommendations were made. In respect of each tank, it was said that it was a "concrete poly lined tank with poor lining attached" which may have resulted in leaking of diluent. The recommendation was:
Investigate FRP tank or 316 stainless steel tank.
271 The Hydromet Report for the month of February 2000 noted that the new CuSX was still off-line, as a result of the fire, and that on the last day of the month, strip 2 (new USX) was shut down and cleaned out for mix box HDPE repairs. Other tanks had minor leaks. The uranium train lost four days in March for HDPE repairs to three tanks.
272 An undated JFE was prepared seeking approval for expenditure of $20.44 million to reinstate all sections of the copper solvent extraction plant damaged by the fire. This JFE was aimed at providing a plant identical to the pre-fire plant. However, all of the tanks which required relining were to be lined with FRP. There was nothing said in the JFE as to the reasons for using FRP in place of HDPE. This was to be addressed in another JFE "to be submitted separately for design changes incorporating recommendations from Fire Investigation reports and Hazops carried out following the fire".
273 That JFE, dated 3 May 2000, sought approval of expenditure of $2.9 million "to implement plant modifications to minimise the risk of recurrence of a fire in the new SX plant". The scope of work of the $2.9 million JFE included a proposal to have:
FRP lining of tanks in place of previous HDPE lining system which was plagued by numerous leaks during the commissioning of the new CuSX plant.
The justification for this additional expenditure was:
on the grounds of improved safety at preventing, detecting and extinguishing fires in the Copper SX plant".
274 Appendix 2 to this JFE was a list of fire investigation recommendations considered at a meeting on 23 February 2000. Those present included Mr Softley and Mr Folwell. Recommendation 31 was to install an alternate tank lining (FRP) "due to leakage problems with HDPE".
275 By a letter dated 17 May 2000, Mr Hannan advised Mr Smith that WMC was still reviewing its option to recover $2.2 million from Protec by legal means. He suggested one last meeting to try to resolve matters.
276 By an email dated 8 June 2000, Mr Gebhard warned Protec that as a result of tests in Steuler's laboratory there might be problems because Shellsol 2046 contained a lot of aromatic compounds which could cause swelling at the surface of the HDPE.
277 As previously stated, on 19 June 2000 Protec sued WMC. WMC delivered its defence and counterclaim on 22 September 2000. WMC delivered a third amended defence and counterclaim on 18 December 2001, in which it joined Steuler as a second defendant to the counterclaim. It was not said in this pleading that the Bekaplast lining system had swelled, rucked, buckled or had caused failures. Nor was it said that the lining system required replacement.
278 A file note dated 5 April 2001 reported that three USX mix boxes had been shutdown on 3 April. The purpose of the shutdown was to repair leaks in the poly lining of these tanks. Leaks were detected in the lining mainly in the tank corners, occurring both above and below the false floors. It was also noted that "a significant amount of bubbling was observed under the poly lining of each tank".
279 The Refinery & Hydromet Management Report for July 2001 stated that both copper and uranium production was ahead of budget year to date. It was a record production for the month for uranium. This picture was repeated in August and September 2001.
280 On 21 October 2001 the whole of the solvent extraction plant was rendered inoperable by a second major fire ("the second fire"). The report of the South Australian Metropolitan Fire Service Fire Cause Investigation Section on the second fire concluded that although the cause of the fire was not able to be conclusively determined, the most probable cause was the ignition of crud inside the pipe by static electrical spark subsequently igniting the inner wall of the pipe. Other reports were prepared, including one by WMC. That report concluded with respect to the question of the cause of the fire:
The most favoured initiation scenario is that a small fire was ignited by static electricity inside one of the large PE pipelines at a location where an earthing ring (designed to reduce static electricity levels) had led to a build up of "crud", a pasty solid material commonly found in solvent extraction circuits.
281 An inspector of mines, Mr M.A. Wilson, prepared a report of his investigation into the fire, in which he recommended that:
HDPE to be replaced by either FRP or SAF-Stainless Steel where pipes are used to convey solvents in the copper uranium SX plant.
Mr Wilson also described the proposed use of "FRP or Stainless/SAF ... instead of HDPE liners for the tanks" as one of the "additional or improved features" being undertaken by WMC.
282 Mr Graham Hearn, the Technical Director of Wolfson Electrostatics at the University of Southampton, visited the site "in week 7 of 2002" and prepared four reports dated 22 February, 21 April, 23 and 26 July (2 parts) and 10 October 2002 dealing with electrostatic ignition hazards at the copper solvent extraction plant at Olympic Dam. In his last report, Mr Hearn advised that:
significant levels of electrostatic charge are generated in the CuSX process ... There is little or no problem in this regard with the ... USX due to the solvent in this process having a significantly higher conductivity by several orders of magnitude.
He concluded that "changing to a conductive tank lining" would have "a significant improvement on the charge relaxation time of low conductivity solvent".
283 As a result of the second fire, the whole of the copper and uranium tank farms were destroyed and had to be replaced. The tanks in the copper and uranium trains escaped damage. Nevertheless, WMC decided, by about February 2002 at the latest, to replace the HDPE lining in these tanks with FRP. The process solution had remained in the solvent extraction tanks for over four months until the investigators had finished with them.
284 On 25 March 2002, WMC contracted with York Civil Pty Ltd to supply and install FRP lining to tanks in the uranium tank farm area for $4.83 million. The contractor guaranteed the FRP installation to be free of defects for five years, 100% for first year reducing by 20% per year.
285 By a letter dated 3 April 2002, Alexandra Maddern, WMC's Legal Affairs Manager, wrote to Mr Steuler advising him that:
As a result of:
(a) the ongoing problems that WMC has encountered with the HDPE lining system in the copper and uranium extraction tanks at Olympic Dam;
(b) the significant deterioration of the HDPE lining material that has occurred since its installation only two years ago; and
(c) information recently received regarding the suitability of HDPE lining for such applications and problems experienced at other installations.
WMC will be replacing the HDPE lining in all of the copper and uranium extraction tanks within the next 6 weeks.
Ms Maddern said that the preliminary advice of WMC's experts was that:
(a) the HDPE lining material is rapidly deteriorating resulting, inter alia, in buckling of the HDPE material and cracking in seams and joints;
(b) the HDPE lining material is deteriorating due to its exposure to the process chemicals stored in the uranium and copper settler tanks (particularly Shellsol/Kerosene); and
(c) ultimately the HDPE lining material will not function as an effective barrier.
Due to the significant losses that would be incurred by WMC as a result of the extraction tanks not being in operation for any significant period we intend to take advantage of the window of opportunity that has arisen to replace the HDPE lining at this time.
The cost to WMC to replace the HDPE lining in all of the settler tanks will obviously be considerable. We are presently receiving advice from our solicitors in relation to amending WMC's Counterclaim against Protec Pacific and Steuler to include the cost of replacement of the HDPE lining. The cost although not finally quantified is likely to exceed AUD$8 million.
We are in the process of having expert reports prepared with respect to the problems associated with the HDPE lining and its suitability for use in the extraction tanks at Olympic Dam. If Steuler would like its own representatives and/or expert/s to attend site to inspect the current condition of the lining of settler tanks and/or to take samples, I suggest that you contact me urgently to make those arrangements given the timetable for replacement of the HDPE lining that I have referred to above.
286 WMC's solicitors sent a similar letter to Steuler's solicitors on the same day.
287 WMC signed a Consultancy Agreement with I-Corp International Inc (Dr Peggs' company) on 3 April 2002. The scope of the consultancy services was to provide a report and opinion on or before 31 May 2002 on the cause of the failure of the HDPE lining of the tanks. He visited the site between 8 and 10 April 2002. At this time all of the tanks in the uranium train had been emptied. Two of the tanks, SC-1 and SC-2, had been cleaned and Dr Peggs was able to inspect them closely. Dr Peggs got into both these settlers and the mixers and took photographs and samples. The remaining tanks in the uranium train were looked at from the outside. Dr Peggs said that it was not possible to see the liner in the tanks in the copper trains because "most of them were filled with some liquid or sludge of some kind". Dr Peggs said that he did not think to ascertain what was in the sludge. He concentrated "totally" on the uranium train.
288 Dr Peggs prepared a report dated 27 June 2002. Dr Peggs concluded that the lining systems had failed primarily by a process of stress cracking due to three major contributory factors:
289 Dr Peggs prepared a second part to his report, which was dated 13 July 2002.
290 Mr Rohringer visited the site between 22 and 26 April 2002. In his report, dated 23 May 2002, Mr Rohringer described the "Exact type and extent of defects":
In general, all tanks display a certain amount of "rippling" to a greater or lesser extent, i.e. a wave-like bulging of the lining between its anchoring knobs, which are firmly fastened into the concrete, along with some additional larger bubble-like bulges in some areas.
291 Mr Rohringer then set out that in his inspection of the uranium plant he had walked through tanks SC1 and SC2 and looked into the remainder "from their rims". All of the tanks were empty and most were cleaned. His observations were that:
The mixers attached exteriorly to the tanks... display a particularly large amount of bulging. The mixers also show external traces of leakage, i.e. they leak ...
292 He continued with a description of what he observed in the copper plant:
A walk-through and photographs were only permitted in one tank, the one for the mixer/settler SC-B... In all other cases, it was possible to look into the tanks from their rims and walk around them from the outside. In the entire area, no photographing was allowed, neither from inside nor from out (fear of setting off the fire alarm). With the exception of the tank SC-B ... and tank SC-A ... all the other tanks were still partially filled, mostly to about a quarter of their total height of 1 m.
Photos 26-31 show the state of the lining which is comparable to the state of the lining in the UR plant. In this case as well, it is particularly the mixers that are affected by bulges and show external leaks. In contrast to the UR plant, however, there are several leaks marked in the tanks' leak control pipes...
The bulges are not a defect in and of themselves, though they can lead to damage if additional tension is created at particularly critical welded seams which can then lead as a result to cracks and leaks. This can be aggravated by the fact that aromatic compounds, which will be dealt with later, are known to cause stress crack corrosion in thermoplastics. A crack in a welded seam, therefore, does not necessarily mean that it was poorly made. The waves in the lining extend to varying degrees across the entire surface of the tanks. In the mixers, however, it is more the case that larger bulges have formed for reasons we will deal with later. Whereas in the UR plant, with the exception of the mixers, only two leaks can be found, in the copper plant it is a total of 17.
294 Mr Rohringer then turned to the question of the "Cause of the defects":
295 Mr Rohringer then recorded that it was stated on a data sheet on the kerosene quality used, Shellsol 2046, which he had been given, that it had a 19% proportion of aromatics. Mr Rohringer asserted that:
This portion is sufficient to cause the damage seen.
The plants will have to operate in future using aromatic-free kerosene.
Should WMC continue to use the aromatic kerosene, the present lining will not be suitable and will have to be replaced.
296 Mr Rohringer finished his report with the following summary:
297 By an email dated 26 April 2002, Mr Folwell reported to Ms Maddern that Mr Rohringer was "unequivocal" that the Bekaplast PE material was not suitable for WMC's solvent, with an aromatic content of 19%.
298 On 26 April 2002, WMC entered into contract with Ron Gee Enterprises Pty Ltd ("RGE") for the removal of the HDPE lining in the USX mixer/settler tanks and replacement with FRP lining for $1.1 million.
299 The recommendation for the replacement of the HDPE linings with FRP was incorporated into a JFE dated 2 May 2002. The JFE, which was titled "Olympic Dam Extraction Plant Enhancement Project", sought approval for expenditure of a further $169 million in the solvent extraction area of the plant:
This is in order to rebuild the copper and uranium sections of the plant after the fire that occurred on 21 October 2001 and to modify the remainder of the SX plant to conform with its enhanced fire safety standards.
The OEP SX plant mixer settlers will be modified by removing the HDPE lining and replacing it with fire retardant conductive lined FRP to reduce the potential for a fuel source but also to reduce leaks in the HDPE lining.
Further, it noted that $13 million "relating to mixer settler linings and HDPE piping" which was to be replaced with conductive FRP had been written off in February 2002 and recognised in the 2001 accounts. Ms Maddern agreed that this indicated that the decision to remove the HDPE was clearly made "before February 2002".
300 As previously stated, on 3 June 2002, WMC amended its counterclaim to allege for the first time that the HDPE lining was unsuitable and would have to be replaced.
301 By a memo dated 7 June 2002, Mr Smith informed Mr Steuler of his observations on a visit to the site on 29 May 2002. He said:
Mr Folwell said that the first point was a reasonable description.
302 On 8 July 2002, WMC entered into contract with RGE for the FRP lining of the copper and uranium SX tanks for $5.29 million.
303 By letters dated 18 and 29 July 2002, RGE raised with Halliburton KBR Pty Ltd their concerns with the concrete in the tanks. In a report dated 7 August 2002, James Mann of Amdel Limited concluded that:
From the testing carried out it would appear that the concrete in the tank floors is inherently sound. The low bonding strength between the concrete and mortar/fibreglass overlay that is being experienced is apparently being caused by poor quality aggregate used in the concrete mix. The problem is also likely to be exacerbated by the aggressive cleaning regime, which has eroded the surface and possibly caused further deterioration of the aggregate.
304 By a letter dated 22 February 2003, RGE wrote to Halliburton telling it that RGE could not "guarantee the lining of the copper mixer settler tanks to be defect free or 'water tight' due to pre existing cracks in the floor and walls inducing stresses into the FRP lining". This problem led to RGE relaying the FRP floor as a floating floor.
305 The work to the uranium train was completed in about May 2003, but the copper trains were not operational until the beginning of 2004.
306 On 23 May 2003, WMC lodged its Insurance Claim Report in respect of the second fire, claiming $269.15 million.
307 By the time WMC settled with its insurer, its claim was said in the Deed of Release dated 22 November 2004 to total $406.71 million, consisting of material damage of $200.67 million, business interruption of $171.84 million and interest of $34.2 million. The insurer agreed to pay WMC $175 million, which sum was not broken down into constituent parts. Ms Maddern said in her witness statement that WMC had received legal advice prior to the mediation and settlement of the claim that the costs of replacing the HDPE in the copper and uranium solvent extraction tanks would not be recoverable under the insurance policy, even on the best case scenario included in the advice.
308 As previously stated, on 31 May 2007, WMC, Protec and Mr Smith entered into a new Deed of Settlement pursuant to which Protec consented to judgment being entered against it in the sum of $15 million.
309 A preliminary issue is which of the two Protec Pacific companies, Protec and Protec NSW, was involved in the relevant events. In the end, this did not feature as an issue in the WMC proceeding. To some extent, this may have been due to the fact that two of the three representations eventually relied on by WMC were allegedly made by Steuler directly to WMC and not just via Protec Pacific. Perhaps more importantly, it may also have been due to my ruling in May 2007 that Steuler could not amend its defence to WMC's counterclaim to raise the issue of whether certain statements or actions were made or performed by Protec NSW and not Protec.[6] As pointed out in that judgment, not only had Protec and WMC pleaded and admitted in the WMC proceeding that all of the relevant contractual arrangements had been between those two entities,[7] Steuler had also pleaded in that proceeding that relevant statements or actions had been made or performed by Protec.[8] Thus, all three parties in the WMC proceeding had acted for some years on the basis that it was Protec and not Protec NSW which had participated in the relevant events, and they were not able to resile from that position.
310 The question of the correct Protec Pacific entity was, however, a live issue in the Protec proceeding. For present purposes, it is sufficient to note that in that proceeding Steuler submitted that Protec's claim must fail because:
(a) the warranty alleged in paragraph 5 of the statement of claim, if made to WMC, was made by Protec NSW in 1997 and not by Protec;
(b) the representations alleged in paragraph 6 of the statement of claim, if made, were made by Steuler to Protec NSW in 1997 and not by Protec; and
(c) it was Protec NSW and not Protec which was the party to the OSS Agreement, which as alleged in paragraph 3 of the statement of claim, was made with WMC on or about 21 July 1998.
311 It now seems that the evidence about events in 1997 is not that controversial because it was not disputed by Protec that the Cooperation Agreement was made in April 1997 between Steuler and Protec NSW. Nor was it disputed that the order for the supply of Bekaplast HDPE lining dated 15 July 1997 was placed by Protec NSW. Thirdly, in final submissions, the plaintiffs accepted that it was clear that the agreement constituted by the Purchase Order dated 16 July 1997 was between WMC and Protec NSW. However, this evidence still needs to be considered because it is necessary background to the issue of which Protec Pacific entity was a party to the OSS Agreement in 1998.
312 An appropriate starting point for considering this issue is the formal corporate history of the two companies. Protec was incorporated in Tasmania on 2 April 1982 under the name Tyndale (No. 7) Pty Ltd. Between 6 October 1982 and 5 July 1993 Protec was known as Protec Pacific Pty Ltd; from 6 July 1993 to 4 May 1998 it was known as Protec Pacific (Tas) Pty Ltd and on 5 May 1998 it changed its name back to Protec Pacific Pty Ltd. The principal place of business of Protec between 1 March 1991 and 30 December 1997 was in Wivenhoe or Burnie, Tasmania. On 31 December 1997, Protec changed its principal place of business to an address in Wollongong, New South Wales. The registered office of Protec changed from Tasmania to New South Wales on 9 December 1996.
313 Protec NSW was incorporated in Tasmania on 15 July 1993. At all material times, it was known as Protec Pacific (NSW) Pty Ltd and its registered office and principal place of business were located in Wollongong, New South Wales.
314 It appears that Mr Smith's first written communication with OEP was his letter dated 29 January 1997 to Mr Milne on behalf of "Protec Pacific, Wear & Corrosion Control Specialists". However, Mr Smith gave evidence that he did not believe that the name "Protec Pacific" was a registered business name between January and July 1997.
315 As previously stated, the Co-operation Agreement sent by Mr Steuler to Mr Smith was expressed to be between Steuler and "Protec Pacific, Wear & Corrosion Control Specialists", but when Mr Smith signed the Agreement on 1 April 1997, he affixed the common seal of Protec NSW. He said that it was just his decision at the time for no particular reason.
316 The Bid Request was forwarded by OEP to "Protec Pacific" in April 1997. Mr Smith returned the Bid Request Acknowledgement Sheet dated 16 April 1997, in which he had inserted the name of Protec NSW as the "Bidder".
317 A Bid dated 27 April 1997 was submitted by the "Bidder" under cover of a letter on the letterhead of "Protec Pacific", with the two Protec companies, Protec NSW and Protec, noted at the foot of the page. The name of the Bidder or Seller was stated three times in the Bid as "Protec Pacific P/L". At that time there was no Protec company with that name. Twice Mr Smith had signed the page on which the name of the company appeared. Twice its address was given as "22 Princes Hwy, Fairy Meadow, NSW". The address referred to was the registered principal place of business of Protec NSW. Mr Smith gave evidence that the Bid "wasn't submitted by any one company, it was just submitted as "Protec Pacific" with the two letterheads of the two companies that Protec Pacific embodied. ... I was putting an offer to WMC under the name of 'Protec Pacific' ".
318 WMC's internal "Letter of Recommendation" dated 9 July 1997 referred to Protec NSW as one of the four "approved Bidders", and went on to recommend that a "Purchase Order and Site Installation Agreement" be awarded to Protec NSW. On 14 July 1997, Mr Smith received verbal advice that Protec Pacific had been awarded the contract, although the Purchase Order was issued to Protec NSW. And it was Protec NSW which then placed the order for Bekaplast HDPE lining with Steuler.
319 Mr Smith's evidence on this issue was at times conflicting. He first said that prior to 1 July 1998 all dealings between Protec Pacific and WMC regarding the Olympic Dam project were between Protec NSW and WMC. But he then "qualified" or "clarified" that evidence, by stating that whilst the Purchase Order was between Protec NSW and WMC, at all times in all of his dealings with WMC/OEP, he talked about Protec Pacific without differentiating between Protec NSW and Protec. Mr Smith maintained that all of the preceding faxes, discussions and the Bid were carried out by him under the name Protec Pacific without indicating on behalf of which Protec company he was acting. Mr Smith said that he did not know when the choice of Protec NSW was made by him. He said that in general he did not make any particular distinction between the two. Since he owned both, it did not matter to him under which name he corresponded.
320 Mr Smith also said in respect of the relevant correspondence that he did not know on behalf of which Protec Pacific company those communications were made, and that with respect to documents headed "Protec Pacific", where the name of both Protec NSW and Protec appeared, such documents were sent "without proper regard to which company it was coming from".
321 In all, or virtually all, of the correspondence sent under the letterhead of "Protec Pacific" to WMC or Steuler during the period between January and July 1997, in a document which listed at the foot of the page the "Wollongong" address with Protec NSW's ACN and the "Burnie" and "Hobart" addresses with Protec's ACN, the "Wollongong" address was marked as the place to call in the event that all of the pages in the communication were not received. However, Mr Smith said that the main reason for inserting the cross was to indicate from what office Mr Smith was sending the document so that the person to whom it was sent knew where to send the documentation and knew where to call or what fax number to use.
322 Mr Smith also said that, prior to 1 July 1998, dealings between Protec Pacific and Steuler regarding the Olympic Dam project were between Protec NSW and Steuler, and that Protec did not conduct any business with Steuler or WMC in relation to the OEP Project during the period between January and July 1997. In addition, Mr Smith said that during this period Protec was conducting business but he did not know how much. He also said that the office at Bass Highway, Wivenhoe may have been wound down by that time or at most only operated with a skeleton office.
323 On the other hand, Mr Smith said that during the period between January and July 1997 Protec NSW:
(b) conducted business with Steuler and WMC in relation to the Olympic Dam Project;
(c) had staff and an office at the Wollongong address;
(d) had its accounts, staff and records at the Wollongong address; and
(e) had its records concerning the Olympic Dam Project at the Wollongong office.
324 Mr Smith also said that during this period he was stationed in New South Wales. He said that it was his base office, but that he conducted his business, via his laptop computer, from wherever he was in Australia.
325 Mr Smith agreed that, with respect to the representations alleged in paragraph 6 of the statement of claim in the Protec proceeding, they were all made in relation to the Purchase Order awarded to Protec NSW by WMC on 16 July 1997. He said that there were no further representations made by Protec Pacific or either of its companies after July 1997. Mr Smith also agreed that the alleged representations were made in relation to the material to be supplied. The Purchase Order was for the supply of material and its installation. On the other hand, the OSS Agreement in 1998 was only in relation to installation and did not relate to the supply of material.
326 The contract awarded by WMC to Protec NSW under the Purchase Order dated 16 July 1997 was for the design, supply, packaging, delivery and installation of the HDPE material pursuant to and in accordance with the Bid Request.
327 The Standard Terms and Conditions for the on-site works which would form the basis of a site installation agreement were forwarded to "Protec Pacific" in July 1997. Attached to the letter was a two page "Document Acknowledgement" document for signing and returning. Mr Smith signed the Document Acknowledgement on behalf of Protec NSW on 13 August 1997 and faxed it to WMC on that date.
328 When WMC decided in August 1997 that "the Supply and Installation of the HDPE Lining be under one contract agreement and administered accordingly", the documentation referred to Protec NSW.
329 On 22 August 1997, Protec NSW submitted invoice No. 10502, or progress claim No. 1, for the supply of the HDPE lining materials in the sum of $70,110. It should be noted that although the fax imprint was in the name of "Protec Pacific Pty Ltd", as at that date there was no Protec company with that name.
330 By a facsimile dated 12 September 1997, Mr Smith wrote to OEP on Protec Pacific letterhead about the proposed installation contract. By a letter dated 15 September 1997, Mr Blizzard wrote to Mr Smith of Protec NSW regarding an increase in the scope of work for the supply and installation of the HDPE lining.
331 Blair Dehuff, Contracts Administration Manager of WMC, forwarded to "Protec Pacific" a letter dated 6 October 1997 enclosing a form of contract for the "Design, Supply and Install HDPE Lining to Tanks and Ponds". He also requested Protec Pacific to submit evidence of insurance satisfying the special conditions regarding insurance. The schedule to the draft contract had the name of the Contractor as "Protec Pacific", and the "Contractors ACN" was that of Protec NSW.
332 By a facsimile dated 21 October 1997, Mr Pearson forwarded to Mr Kilsby the certificates of insurance which had been requested by WMC. The Certificates of Currency, all for the period to 30 June 1998, were:
(a) Public Risk Insurance. The insured was Protec NSW.
(b) Workers Compensation. The Quinton Insurance Brokers coversheet named Protec NSW as the insured. The certificate itself described the insured as "Protec Pacific Pty Ltd", although at this stage there was no company with that name. There was also a Workcover Certificate of Registration for Protec NSW.
(c) Motor Vehicle Insurance. The insured was shown as "Protec Pacific Pty Limited; Protec Pacific (NSW) Pty Limited & Protec Pacific (Tas) Pty Limited".
333 In January 1998, negotiations commenced between Mr Smith and Mr Steuler concerning Steuler acquiring an interest in the Protec Pacific group. Protec Pacific's accountants, KPMG, were involved in the negotiations. On 16 January 1998 Steuler sent KPMG a facsimile favouring an option which would allow Steuler to buy "a certain amount of shares of the existing Protec Pacific company".
334 In an internal WMC memorandum from Ross Baker to Dennis Gunn dated 31 March 1998 it was noted that WMC had agreed with "Protec Pacific":
to split the original contract into two separate portions so that the contract can be administered in a rational manner. The supply of HDPE lining will now be subject to a purchase order which will cover the lining design, material supply, fabrication, testing, packaging and shipping. A contract with the on-site installation and testing of the will by way [sic] of an on site service agreement (or contract).
335 WMC then issued to Protec NSW Purchase Order Revision No. 2 dated 10 April 1998 for the supply and off-site fabrication of the HDPE Lining of Tanks and Ponds in the sum of $1,217,301.73.
336 On 5 May 1998 Protec Pacific (Tas) Pty Ltd changed its name to Protec Pacific Pty Ltd. Mr Smith's evidence was that this was part of the arrangements with Steuler for Protec to become their joint company. Mr Smith said that he decided to put all of the trading activities into Protec as he had plans at the time to sell in the coming years all of his shares in Protec and he understood that such sale would be capital gains tax free. He had acquired the shares in Protec in 1982, whereas Protec NSW was not incorporated until 1993.
337 By an internal OEP memorandum dated 11 May 1998, Mr Baker wrote to Mr Cameron. After referring to the revised Purchase Order, he concluded his memorandum with the following recommendation concerning the installation contract:
We recommend that a revision to the abovementioned contract be issued to Protec Pacific Pty Ltd in accordance with the schedule of rates attached and the following considerations.
338 Steuler submitted that this concluding reference to "Protec Pacific Pty Ltd" should be read as a reference to Protec NSW. It submitted that support for this contention was to be gained from looking at what Mr Baker had said regarding the History of Tender. There, he had mistakenly referred to the WMC Purchase Order of 16 July 1997 being awarded to "Protec Pacific Pty Ltd", not Protec NSW. Clearly, Steuler submitted, he repeated that mistake in his reference to Protec in his recommendation.
339 By a letter dated 28 May 1998, Mr Steuler wrote to John O'Donnell of KPMG asking a number of questions about the details of the proposed share purchase by Steuler. Mr Steuler said:
If we are buying into Protec we would like to know if this does mean Protec Holding, Protec New South Wales and Protec Tasmania?
Thus, by this date he was well aware of the existence of both Protec NSW and Protec.
340 Mr O'Donnell replied to Mr Steuler by a letter dated 5 June 1998. He advised that:
The acquisition of an interest in the Protec Pacific group would be done through purchasing shares in Protec Pacific Pty Limited (ACN 009 534 552). All of the group's operations have been transferred to this company effective 1 July 1998.
341 Mr Smith said that the agreement was that Steuler would purchase a stake in Protec's business effective from 1 July 1998, so that Steuler could share in the profits of Protec from that financial year. Mr Smith said in his witness statement that:
By June 1998, all the Protec Group's operations had been transferred to [Protec] effective 1 July 1998 ... From 1 July 1998, I operated solely through Protec Pacific Pty Ltd with respect to all dealings with OEP.
Mr Steuler said that he understood that Protec had undertaken all works on the WMC site from 1 July 1998, rather than Protec NSW, in which he had no interest. He agreed that he had been told that all of Protec Pacific's activities were being rolled into Protec.
342 As previously stated, WMC awarded the new installation contract by a letter dated 13 June 1998 addressed to "Protec Pacific Pty Ltd" and Mr Smith signed the Acknowledgement of Acceptance of Award "for and on behalf of Protec Pacific Pty Ltd" and dated it 15 June 1998.
343 However, although the Contractor named in the contract was "Protec Pacific Pty Ltd", the ACN was that of Protec NSW. Mr Smith said that this was a mistake. He said in his witness statement that at the time of executing the OSS Agreement, Protec was "the operating company" and he "intended it to be the contracting party under that Agreement". Had he noticed the incorrect ACN, he "would have corrected it".
344 A Certificate of Currency for Public Risk Insurance dated 18 June 1998 issued by Quinton Insurance Brokers named the insured as "Protec Pacific (NSW) Pty Ltd". The expiry date under the Certificate of Currency was 30 June 1999. The liability limit was $10 million.
345 Steuler submitted that it was reasonable to infer that this Certificate of Currency was provided to replace the Certificate of Currency contained in Annexure I to the OSS Agreement which document was dated 8 August 1997 and had an expiry date of 30 June 1998. That certificate had named the insured as "Protec Pacific Pty Limited, Protec Pacific (NSW) Pty Ltd & Protec Pacific (Tas) Pty Limited". The liability limit was $5 million.
346 Also contained in Annexure 1 was a Certificate of Currency for Contractors All Risks Insurance dated 16 June 1998, which named only Protec NSW as the insured. It had an expiry date of 30 November 1998. The interest noted was "Contract for Olympic Dam Expansion Project at Roxby Downs, SA". The sum insured was $1,550,000.
347 Mr Smith was not prepared for Protec Pacific to go to the site until the OSS Agreement was finalised. One relevant communication during this extended negotiation period was a facsimile dated 19 June 1998 from Mike Hood on behalf of Mr Hannan to Mr Pearson of "Protec Pacific Pty Ltd".
348 The final form of the OSS Agreement was re-signed by Mr Smith and dated 21 July 1998.
349 A Steuler letter of intent dated 13 January 1999 was signed by Mr Smith. It referred to Steuler purchasing 50% of the companies Protec NSW and Protec.
350 On 25 January 1999 WMC sent a Purchase Order Revision to Protec NSW decreasing the supply of materials price by $60,147.21 as a result of the tailings dam being deleted from the work.
351 On 12 November 1999, Mr Smith and Steuler entered into two written agreements. The first agreement was a Share Sale Agreement whereby Mr Smith agreed to sell, or grant options to sell, to Steuler 50% of his shares in Protec, although subsequently Steuler only purchased 12.5% of the shares. Mr Smith also agreed that he would arrange for Mr Michael Steuler, the managing director of Steuler, to be appointed a director of Protec; that he would delete the reference to "Protec" in the name of Protec NSW and not seek to incorporate any other company utilising the name "Protec"; and that any plant and equipment used by Protec in its business and which had, in the past, been owned by Protec NSW would be transferred to Protec for the sum of one dollar. Further, the parties acknowledged that "all trading activities of the business will be operated by Protec Pacific Pty Ltd and have been effectively since 1 July 1998". The second agreement was a Share Holders Agreement which provided, among other things, that, unless otherwise agreed, Protec would exclusively work with Steuler in Australia and New Zealand, and that Steuler would exclusively use Protec for the installation of all of its products in those countries, and that Mr Smith and Steuler would each be entitled to appoint one director to the Board of Protec.
352 The evidence of Mr Smith, supported by the accounts of Protec and Protec NSW, was that in the financial year ended 30 June 1998, Protec NSW had $3,818,852 worth of sales, of which $1,096,000 was received from WMC, and Protec had $300,485 worth of sales, none of which was received from WMC, whereas in the financial year ended 30 June 1999 Protec NSW had $142,051 worth of sales none of which was received from WMC, and Protec had $12,397,471 worth of sales, of which $3,543,825 was received from WMC. As Mr Smith noted in his witness statement, the financial year ended 30 June 1999 had been "a particularly strong sales year" for Protec with "a number of major projects being undertaken in conjunction with Steuler supplied product".
353 In a his letter to Mr Hannan dated 2 June 2000, Mr Smith said that:
The purchase of Protec Pacific shares by Steuler occurred after the potential dispute matters occurred. Part of the agreement between Steuler and Protec Pacific is that liabilities incurred before the date of the buy in (late November 99) are not incurred by Steuler.
Mr Smith denied that this indicated that Steuler was only entitled to share in Protec's profits earned after November 1999. He said that he felt quite certain that a share of the profits for the 1999 financial year "was an attractive proposition for Steuler".
354 Mr Steuler agreed he would have been "a bit cross" if Mr Smith had contended that any profits from Olympic Dam were made by Protec NSW and not Protec. In fact, no dividends were paid by Protec for the 1999 and following financial years.
355 Mr Smith gave evidence that the financial year ended 30 June 2003 was the last year when any significant trading was carried out by Protec. By the time of the hearing, it had only about $20,000 in the bank. That Protec had been left to wither on the vine was illustrated by other evidence.
356 The above summary of the relevant factual matrix shows that the plaintiffs' concession, in final submissions, that the Purchase Order had been made between WMC and Protec NSW was clearly correct. Whilst Mr Smith may on many occasions have used his Protec Pacific companies interchangeably, it seems to me to be clear that, for whatever reason, he chose to use Protec NSW as his contracting entity in 1997. This was the case with the Co-operation Agreement with Steuler in April 1997 and the order dated 15 July 1997 for the supply by Steuler of Bekaplast HDPE lining. There was never any dispute that Protec NSW was the contracting party in those agreements. This conclusion carries with it the further conclusion that any warranty given, or representations made, in 1997 were given or made by Protec NSW and not by Protec.
357 I turn then to the issue of which Protec Pacific company was the contracting party with WMC to the OSS Agreement. Protec alleged that it was a party to the OSS Agreement and that it was made on 21 July 1998. Steuler submitted that Protec NSW was the contracting party and that the OSS Agreement was made in or about 13 to 20 June 1998.
358 Both sides accepted that there was an ambiguity in terms of the identity of the contracting party to the OSS Agreement, not the least because although the contractor named was Protec, the ACN was that of Protec NSW.
359 In Halsbury's Laws of Australia it is stated that:
The circumstances surrounding the contract may identify the parties with sufficient precision. However, if there is ambiguity, extrinsic evidence may also be admitted to prove the parties to a contract where the document does not make this matter clear.[9] [Footnotes omitted]
360 In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd,[10] contractual correspondence had been addressed to "Hospital Corporation Australia Pty Ltd", when there was no such entity at that time. The trial judge found that the relevant officer of the vendor knew that the respondent purchaser was changing its name to Hospital Corporation Australia Pty Ltd "as soon as possible". The vendor contended that, although it could be proved that Hospital Corporation did not exist, no further evidence could be led to show that Baulkham Hills was the contracting party. It contended that parol evidence is only admissible when the meaning of a document is ambiguous and that there was no ambiguity about the name Hospital Corporation.
361 McHugh JA (with whom Kirby P and Glass JA agreed) rejected the vendor's contention. His Honour said:
However, evidence of mutually known facts is always admissible to identify a descriptive term in a document: Prenn v Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at 241; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429; Codelfa Constructions Pty Ltd v State Rail Authority [1982] HCA 24; (1982) 149 CLR 337 at 351. In accordance with this general rule, parol evidence is admissible to show that whatever name was used in the contract the person sued or suing is the person who made the contract: Trueman v Loder [1840] EngR 273; (1840) 11 Ad & El 589 at 594; [1840] EngR 273; 113 ER 539 at 541. Moreover, even if parol evidence is only admissible to clarify meaning when a term in a document is ambiguous, that rule has no application when the issue is whether the person sued or suing is a party to the contract. Evidence was admissible and relevant, therefore, to show that Baulkham Hills was the contracting party.[11]
362 Extrinsic evidence is limited to evidence which assists in establishing the common intention of the parties to the contract, not the actual intentions and expectations of the parties before or at the time of the contract.[12] In Boral Resources (Qld) Pty Ltd v Donnelly[13] the Full Court of the Supreme Court of Queensland held that extrinsic evidence was admissible to establish the identity of a company referred to in the statement of consideration. Derrington J said that:
Extrinsic evidence is clearly admissible as an aid to construction but only that relating to the matrix of circumstances, the factual context, in which the guarantee was given. While that may include such things as knowledge of one or more of the parties, as the case may require, the essential point is the common intention of the parties as derived from the instrument itself as understood in its factual context.[14]
363 Steuler submitted that the evidence showed that, although on 16 July 1997 Protec NSW was awarded the contract to design, supply, package, deliver and install the HDPE lining material in accordance with the Bid Request dated 11 April 1997, the Purchase Order expressly contemplated that the parties would enter into a Site Installation Agreement which was to be developed by the OEP Contracts Department. It was said that this was not at all surprising because the parties would need to include the types of terms and conditions, specifications and other details concerning installation which were eventually agreed upon in the OSS Agreement. Steuler submitted that this situation fitted within what it referred to as the fourth category under Masters v Cameron,[15] namely the situation where the parties intend to be bound immediately while expecting to make a later more formal document containing by agreement additional terms.[16]
364 Steuler further submitted that there was no evidence of any intention prior to the making of the OSS Agreement in June or July 1998 to change the contracting party to another Protec company and that there was no novation of contract and therefore no basis for asserting that any party other than Protec NSW was the party engaged to install the lining system.
365 Steuler pointed out that, despite there being no novation entered into between WMC, Protec NSW and Protec, Protec pleaded in paragraph 3 of its statement of claim that in July 1998, it entered into a contract to design, supply and install the HDPE lining material for the SX plant at the OEP. Therefore, according to Steuler, Protec's position was that two separate entities, being Protec NSW and Protec, entered into two separate contracts with WMC (one in July 1997 and the other in June or July 1998) to perform the design, supply and installation of the HDPE lining material for the SX plant at the OEP. Steuler submitted that, without there being a novation, this was a complete legal nonsense. It also submitted that in practical terms it was also a nonsense. How could two separate entities be engaged to do the same things and both entities be entitled to payment of the agreed contract sums under the respective contracts?
366 Steuler submitted that, whilst this did not address the novation issue, the true position was that the final subject matter of the Purchase Order was for the design, supply, packaging and delivery of the material; the subject matter of the Purchase Order Revision No. 2 dated 10 April 1998 was for the supply of materials and off-site fabrication costs; and that the subject matter of the OSS Agreement was for the completion of the installation of the HDPE lining material to the tanks. This is undoubtedly correct and it means that Protec has incorrectly described the subject matter of the OSS Agreement in its pleading.
367 Steuler submitted that Protec's reliance on the evidence relating to the negotiations between Protec and Steuler concerning shareholding in Protec between January 1998 and November 1999, was completely irrelevant and inadmissible by way of extrinsic evidence in the determination of the identity of the contracting party to the OSS Agreement entered into with WMC in June or July 1998. It submitted that such negotiations and agreements were completely separate from any dealings between Protec and WMC and they therefore had no relevance or admissibility in determining the common intention of the contracting parties to the OSS Agreement. Steuler drew attention to the fact that:
(a) both the Share Sale Agreement and the Share Holders Agreement were executed on 12 November 1999 (approximately 5 months after Protec demobilised from the site, having completed performance of its work on site);
(b) neither Agreement referred to, evidenced, or purported to effect any novation in relation to the agreement made between Protec NSW and WMC on 16 July 1997; and
(c) the Agreements merely effected the sale of shares in Protec by Mr Smith to Steuler (the Share Sale Agreement), and detailed the basis upon which the parties were to hold those shares and conduct business of Protec Pacific in the future (the Share Holders Agreement).
368 Further, Steuler submitted that the Agreements had no legal effect on contracts already entered into between Protec NSW and third parties; and that the statement in clause 9(a) of the Share Sale Agreement, which set out how the purchase price for the shares purchased by Steuler had been agreed, that "the parties acknowledge that all trading activities of the business will be operated by Protec Pacific Pty Ltd and have been effectively since 1 July 1998" could not affect, much less determine, the issue of which Protec company entered into the OSS Agreement in June or July 1998.
369 Thus, Steuler submitted that the admissible evidence before the Court showed overwhelmingly that it was not Protec but Protec NSW which was the contracting party with WMC in the OSS Agreement.
370 The plaintiffs submitted that the objective facts demonstrated that the intention of Mr Smith (and the intention of Steuler and WMC) was for Protec to enter into the OSS Agreement. They submitted that Steuler's argument ignored the most powerful factual indications in favour of the conclusion that it was Protec and not Protec NSW which entered into the OSS Agreement, in particular the receipt of the WMC payments after 1 July 1998. The plaintiffs submitted that the evidence showed that, from January 1998, Mr Smith and Steuler were discussing arrangements for Steuler to buy into Protec Pacific and that it was therefore agreed that it would be Protec which was to become the principal trading entity for the Protec Pacific business (thus leading to Protec entering into the OSS Agreement) and that this was what the parties specifically acknowledged in the November 1999 agreements. They also asked rhetorically why Mr Smith would be sharing some $3.54 million with Steuler if it was not Protec which had entered into the contract.
371 I agree with the plaintiffs' submission that Mr Smith and Steuler intended that Protec would be the contracting party to the OSS Agreement. This was in accordance with their discussions about Steuler becoming a shareholder of Protec and receiving the financial benefits of the installation work. Moreover, KPMG's Mr O'Donnell told Mr Steuler in his letter of 5 June 1998 that "all of the Protec Pacific group's operations had been transferred to Protec effective 1 July 1998".
372 In my opinion, the objective evidence leading up to the making of the OSS Agreement is consistent with the plaintiffs' submission that it was entered into by WMC and Protec. I am not persuaded that the concluding reference in Mr Baker's letter of 11 May 1998 to "Protec Pacific Pty Ltd" being the contracting party to the new agreement was a mistake. After all, Protec's name change had occurred some six days earlier. But whether or not the reference in the letter was a mistake, the exchange of documents in the middle of June 1998 support the argument that Protec was intended by both WMC and Mr Smith to be the contracting party. Were it not for the incorrect ACN, this issue would be virtually unarguable, in my opinion.
373 The incorrect ACN can, however, be ignored. In Manpac Industries Pty Ltd (formerly t/as Pacific Concrete & Quarries Pty Ltd) v Work Cover Authority of New South Wales,[17] the New South Wales Industrial Relations Commission said:
The said maxim [falsa demonstratio non nocent], literally meaning that a false description does not vitiate a document, has application in law to the effect that if a description of something is partly true and partly false then, if the true part describes the subject with sufficient certainty, the false part will be ignored. In conceptual terms, it seems to us that the maximum is apt to apply in the present case because the identification of the defendant was correct in the name but where an incorrect ACN was added. We should not be seen as holding that the maxim falsa demonstratio non nocent is decisive of the issues as it is but a guide, to be utilised in appropriate circumstances, where a false description may sensibly be rectified if it is in the interests of justice to do so. [Emphasis added]
374 Steuler placed a lot of emphasis on the various insurance Certificates of Currency which named Protec NSW as the insured. However, these were issued by insurance brokers who understandably might have assumed that the earlier contracting party would be continuing as the contractor. The broker might not have been brought up to date with the reasons for Protec becoming the contractor.
375 Steuler's remaining argument was that because there was no novation, Protec NSW remained the contracting party. Installation of the lining system was certainly part of Protec NSW's initial obligations under the Purchase Order. And installation of the lining system was the subject of the OSS Agreement. But the scope of the work had changed significantly. Therefore, it seems to me that the OSS Agreement is correctly regarded as a new agreement, made by WMC with Protec, and that Protec NSW's earlier contract was terminated. Novation was not required, in my opinion.
376 As for when the OSS Agreement was made, I consider that it was not finalised until Mr Smith signed the execution page on 21 July 1998. No final agreement had been concluded between the parties before that date. Earlier signed execution pages were forwarded "in good faith" pending the finalisation of the terms.
377 The plaintiffs further submitted that, in any event, even if it was wrong to conclude that it was Protec which was the party that entered into the OSS Agreement with WMC and that Protec NSW was the contracting party, then Protec NSW carried out the work as agent for Protec, which received the benefit from the project. The plaintiffs submitted that, in that case, Protec was still liable because Protec NSW could only have been the agent for an undisclosed principal and Protec was estopped from denying that it was the contracting party given that this was the common understanding of the parties, as evidenced by Mr Steuler's agreement that his company's dividends would have been sourced from Protec. I accept this alternative submission.
378 The situation is, therefore, that although it was Protec which entered into the OSS Agreement with WMC in July 1998, the earlier events all took place in 1997 at a time when Protec NSW was the corporate vehicle being used by Protec Pacific. Further, the Bid was clearly made by Protec NSW. This raises the question of whether it matters that it is Protec and not Protec NSW which has brought the Protec proceeding.
379 In my opinion, there are several relevant issues to be considered. First, there is the fact that the Steuler representations, if made, were made to Protec NSW and not Protec because, as discussed above, at the relevant time in April to July 1997 Protec Pacific was acting through Protec NSW and not Protec. It was submitted by the plaintiffs' counsel that Protec could still rely on the false and misleading representations because it was "a member of an identifiable class" to whom Steuler knew or ought reasonably to have known the representations would be communicated "for a purpose that would be very likely to lead" Protec to enter into contractual arrangements with WMC in reliance on the representations.[18] The identifiable or "ascertainable"[19] class was said to be the various companies in the Protec Pacific group or the various corporate entities through which Mr Smith chose to operate.
380 I accept this submission. Cases which were said to illustrate the point were McCarthy v McIntyre,[20] where it was held that a purchaser could recover in respect of a transaction which would not have been financed by the bank or any other financier but for the false and misleading sales figures given to a valuer by the vendor and included in the relevant valuation, and APF Properties Pty Ltd v Kestrel Holdings Pty Ltd (No. 2),[21] where it was held that a purchaser could recover in respect of false and misleading representations made by the vendor to a valuer which misled the valuer and as a consequence the purchaser was also misled. Therefore, it becomes a question of whether Protec can establish that it entered into the OSS Agreement and suffered loss "by" the misleading and deceptive conduct of Steuler. This is considered below.
381 Secondly, there is the submission that the warranty, if made to WMC, was made by Protec NSW in 1997 and not by Protec. This is correct because it was Protec NSW which was a party to the Purchase Order which incorporated clause 1.5.4 of the Bid Request and Protec NSW's response in part 10 clause 14 of its Bid. Although it was said in the particulars given of the terms of the OSS Agreement alleged in paragraph 4 of the statement of claim, that the Bid was "incorporated into the On-Site Service Agreement by the Conditions of Tendering", I was not referred to, and I could not find, any such provision in the Conditions of Tendering for the OSS Agreement. The misapprehension would appear to stem from the inclusion in the particulars given in paragraph 3 of the statement of claim of the list of documents constituting the OSS Agreement itself, the Purchase Order dated 16 July 1997. This is simply not correct. In the "Operative Part" of the OSS Agreement various listed documents are said to "form the whole of the terms and conditions of the Agreement". The Purchase Order is not mentioned. Moreover, condition 42 of the General Conditions (Annexure B) states that:
This contains the entire agreement between the parties as to its subject matter and supersedes all prior agreements and understandings between the parties in connection with it.
382 This means, in my opinion, that in its proceeding Protec cannot establish the warranty which it pleaded. Therefore, as Protec was not in fact contracting to supply the Bekaplast but only to install it, apart from the way in which the WMC proceeding has been conducted, it would not, in my opinion, have been liable to WMC for the warranty or the false and misleading representations in the Bid. They were given or made by Protec NSW and not by Protec. Nevertheless, as previously discussed, Protec had disentitled itself from taking this defence in the WMC proceeding as a result of the allegations and admissions made by all three parties in that proceeding. In my opinion, this is a relevant consideration when one comes to consider, in the Protec proceeding, the reasonableness of the settlement reached by Protec with WMC.
383 Until that specific issue is considered below, it will be simpler now to refer to the relevant Protec Pacific entity as "Protec", because it is that company which is taken to be the one involved in the relevant events.
384 Although many misleading or deceptive representations in contravention of s.52(1) of the TPA were pleaded by WMC and Protec in their respective proceedings, in the end their claims were argued on the basis of only three representations. They were that:
(a) Steuler represented to Protec that Protec could certify that Bekaplast HDPE would have a service life of 20 years used with the chemicals and under the operating temperatures listed in clause 1.5.4 of the Bid Request ("the first representation"), and that Protec did certify to WMC to that effect;
(b) Steuler represented to WMC and Protec that Bekaplast HDPE lining systems supplied and manufactured by Steuler had been installed in solvent extraction plants in other parts of the world and had been in satisfactory service for more than 20 years ("the second representation"); and
(c) Steuler represented to WMC and Protec that Bekaplast HDPE was suitable for use as a long term containment membrane for the concrete solvent extraction tanks at Olympic Dam ("the third representation").
385 The plaintiffs submitted that all three representations were related, in that they all dealt with a similar topic, and that the third representation was really the upshot of the first two, plus other subsidiary representations relied on as background.
386 In the WMC proceeding, the first representation was originally pleaded in paragraph 50(e) and (f) of WMC's counterclaim as an implied representation by both Protec and Steuler. By an amendment to the particulars given under paragraph 50, it was then alleged that the representations in sub-paragraphs (e) and (f) were also express, and reference was made to the statement in the undated facsimile sent by Mr Walschburger to Mr Smith on or about 23 April 1997 ("the 23 April 1997 facsimile") that:
Service life of 20 years without damages can be certified through the work done in Niger for Cominak in Niamey.
387 There was no other reference to any written or oral expression of the first representation by Protec to WMC. Instead, it was said in the original particulars to paragraph 50 that the implied representations arose from the matters referred to in previous paragraphs and particulars thereto and:
from the silence of Protec and Steuler in not expressing any view to the contrary. Such implication also arises from the fact that the Bid Request called for confirmation that the material selected would be suitable for a service life of 20 years as referred to in clause 1.5.4 and from the fact that the Proposal was submitted without qualification as to the confirmation requested by clause 1.5.4 or the suitability of HDPE as a lining material for the project.
388 In the Protec proceeding, the first representation was pleaded in paragraph 6(c) of the statement of claim as one made by Steuler to Protec partly in writing, partly oral and partly implied. In the particulars, it was said that the relevant written parts were the 20 year references in the 23 April 1997 facsimile and the reference lists; the relevant oral parts were to be found in the post-tender meeting on 20 May 1997; and the implication was said to arise "from the content of the said facsimiles and documents referred to and the said conversations in connection therewith".
389 Protec pleaded in paragraph 5 of its statement of claim that in consideration of WMC agreeing to enter into the OSS Agreement, it warranted to WMC in terms of the first representation. This warranty was said to be partly in writing, partly oral and partly implied. Insofar as it was in writing, it was said to be contained in Protec's statement in part 10, clause 14 of the Bid. Insofar as it was oral, it was said to be constituted by "conversations primarily between Howard Smith of Protec and representatives of WMC including Keith Blizzard, Len Matheson and Mark Starcevich between May and July 1997 to the effect alleged". Insofar as it was implied, the implication was said to arise by reason of Protec's written response to clause 1.5.4, the said conversations and the need to give business efficacy to the dealings between the parties.
390 In the WMC proceeding, it was pleaded in paragraph 46(g) and (p) of WMC's counterclaim that, in part 6 paragraph 6.1 item No. 1 and part 10 clause 14 of the Bid, Protec and Steuler made the second representation or something similar to WMC.
391 In the Protec proceeding, the second representation was pleaded in paragraph 6(b) of the statement of claim. The relevant particulars referred to the statements in paragraphs 4 and 8 of the 23 April 1997 facsimile and to statements made by Mr Steuler and Mr Lähne at the 20 May 1997 meeting.
392 In the WMC proceeding, the equivalent of the third representation was pleaded in several ways. First, it was said, in paragraph 41(h) of WMC's counterclaim, to be one of the representations made by Protec and Steuler in Protec's facsimile to WMC dated 7 April 1997. This is the facsimile referred to in paragraph 35 of Part 2B above. Next, it was said, in paragraph 46(f) of WMC's counterclaim, to be one of the many representations made by Protec and Steuler in the Bid. In particular, there was reference to part 6 of that document. Thirdly, it was said, in paragraph 47(e) of WMC's counterclaim, to be one of the representations made by Steuler at the meeting on 20 May 1997. Finally, it was pleaded as an implied representation in paragraph 50(c) of WMC's counterclaim.
393 The generality of the third representation was no accident. In paragraph 50(c) of WMC's counterclaim it was specifically pleaded that "the intended purpose" of the lining system was "as defined in paragraph 46(f)". That sub-paragraph of the counterclaim alleged a representation by Steuler that:
a Bekaplast lining system would be suitable for its intended purpose, namely to provide a containment membrane to protect the concrete substrate and prevent process liquors escaping from the tanks and contaminating the site (the intended purpose) (the [Bid] paragraph 6.0).
394 At one stage during final submissions counsel for the plaintiffs seemed to be suggesting that the intended purpose involved the chemicals and operating temperatures listed in clause 1.5.4 of the Bid Request. Not only was this not what was pleaded as the third representation, it would also have made the third representation superfluous as it would simply have repeated the gist of the first representation.
395 In the Protec proceeding, the equivalent of the third representation was pleaded in paragraph 6(a) of the statement of claim. The relevant particulars referred to numerous facsimiles from Steuler to Protec, and brochures and promotional material prepared by Steuler and provided by it to Protec; to a number of conversations from late 1996 to mid 1997 between Messrs Steuler, Lähne and Walschburger and Mr Smith either in person or by telephone, including the post-tender meeting on 20 May 1997 and conversations between Mr Smith and Mr Walschburger and Mr Lähne on or about 4 July 1997; and to implications arising from the content of the said facsimiles and documents and the said conversations.
396 However, in their final submissions, the plaintiffs only relied on three occasions on which it was said one or more of these representations were expressly made or from which they were to be implied. They submitted that all three representations were made to Protec in the 23 April 1997 facsimile, and that Protec repeated or passed on the same or similar representations in its Bid made on 27 April 1997. Secondly, the plaintiffs submitted that the second and third representations were also made to Protec and WMC at the meeting on 20 May 1997 attended by Messrs Steuler, Lähne, Smith, Starcevich, Matheson and Blizzard. Thirdly, the plaintiffs submitted that the third representation alone was also made to Protec in a telephone conversation between Mr Walschburger and Mr Smith on or about 4 July 1997, and that Protec repeated or passed on the same representation in a facsimile dated 8 July 1997 from Mr Smith to Mr Blizzard.
397 I turn, then, to consider the evidence relating to each of the three alleged representations.
398 The plaintiffs submitted that by the 23 April 1997 facsimile Steuler expressly made the first representation to Protec. As previously stated, Mr Smith forwarded parts of the OEP Bid Request to Mr Lähne by facsimile dated 17 April 1997. Included in the documents was clause 1.5.4 of Section 1, which provided that:
Seller shall confirm that the lining material selected is suitable for a service life of 20 years exposed to the chemicals listed below, individually or in combination.
399 In his facsimile dated 18 April 1997 Mr Smith requested Steuler's response to a number of matters, including by asking the following:
400 By the 23 April 1997 facsimile, Mr Walschburger replied to Mr Smith. He said:
401 The plaintiffs submitted that, in reliance on this representation, Protec in effect repeated the first representation in its Bid by stating in part 10 of the Bid that:
The life expectancy of the linings have the potential to be 20 years. This statement is supported by Steuler's worldwide track record in similar environments. Linings installed more than 20 years ago in SX plants are still performing satisfactorily.
402 The plaintiffs submitted that there was no doubt about the meaning of Mr Walschburger's statement in the 23 April 1997 facsimile. It was, in effect, telling Protec that it could certify to WMC that the Bekaplast HDPE would have a service life of 20 years used with the chemicals and under the operating temperatures listed in clause 1.5.4 of the Bid Request. They contended that this was confirmed by Dr Dunker who gave evidence that:
(b) he was aware that he was being requested to advise whether that confirmation could be given; and
(c) his advice was that the confirmation that was being asked for could be given.
403 The plaintiffs also submitted that Mr Smith's evidence that he relied upon Steuler's representations in making the Protec representations in the Bid and in entering into the OSS Agreement was substantially unchallenged. In particular, Mr Smith said his statement in part 10 of the Bid was based on his assumption that what had been said about the Cominak plant was correct, that HDPE had operated satisfactorily in a solvent extraction plant for 20 years.
404 Further, it was submitted that the reasonableness of Mr Smith's reliance on the representation was confirmed by the evidence given on behalf of Steuler. The plaintiffs referred to the evidence of Mr Steuler that:
(a) Protec was wholly reliant on Steuler in preparing its tender in response to the Bid Request;
(b) it was common for clients to ask for confirmation of suitability of the lining material and that "Most of our clients expect the lining to last more than 10 years";
(c) a specification requirement that the lining manufacturer confirm suitability was not an unusual clause, and that he would have been prepared to give the confirmation sought in clause 7.3 that Steuler's product was suitable;
(d) he would understand that a confirmation that the material would be suitable for exposure to chemicals would mean that the lining would last 10 years or more;
(e) Protec was entitled to give a representation that Bekaplast was suitable for 20 years based on Steuler's recommendations and its experience in Niger; and
(f) Mr Smith was entitled to assume that he could give the confirmation (sought by clause 1.5.4) by reason of Steuler's response in item 8 of the 23 April 1997 facsimile (service life of 20 years).
405 WMC and Protec also referred to the evidence of Mr Lähne, who said that it was "standard procedure" for Steuler to check "chemical conditions according to ISO 9001" (for liner suitability). They also referred to the evidence of Mr Walschburger, who said that it was standard to obtain a clearance from the laboratory that a product about to be recommended would be suitable for the intended application. He said that it was part of Steuler's ISO 9001 obligations. Mr Walschburger also said that it was "basic" and "standard procedure" to tailor a specific solution to suit the client's needs. Finally, the plaintiffs referred to the evidence of Dr Dunker, who said that chemical testing was done as part of Steuler's QA accreditation "because we are responsible for giving an advice that the material is the best of choice".
406 In its submissions, Steuler denied that it represented to Protec that it was reasonable for Protec to give WMC a warranty that the HDPE would have a service life of 20 years used with the chemicals and under the operating temperatures listed in clause 1.5.4 of the Bid Request. Steuler submitted that there was no basis for this contended representation as Protec never raised clause 1.5.4 or any part of that clause with Steuler prior to the entry into the Purchase Order in July 1997 or the OSS Agreement in June or July 1998. The first occasion upon which Protec raised clause 1.5.4 with Steuler was when Mr Smith sent his facsimile to Steuler on 9 June 1999.
407 Steuler emphasised that in the facsimile dated 17 April 1997 which accompanied parts of the Bid Request, although Mr Smith highlighted some points he considered important concerning the Bid Request and the submission of Protec's tender, he said nothing about clause 1.5.4. Nor did he do so in his facsimile to Steuler of 18 April 1997. It was submitted that not surprisingly, therefore, Steuler did not refer to clause 1.5.4 in any of its communications to Protec.
408 Steuler submitted that, most importantly, Protec's primary witness on this point of the case, Mr Smith, did not give any evidence, either in his witness statements or at trial that there were any communications between Steuler and Protec in accordance with the first representation.
409 It was accepted by Steuler that there was evidence of communications between Mr Smith and Steuler about the 20 year service life requirement for the HDPE material. But Steuler submitted that there was no evidence by Mr Smith (or anyone else on behalf of Protec or Steuler) of communications wherein Steuler represented to Protec that it was reasonable for Protec to give WMC a warranty that the HDPE material would have a service life of 20 years used with the chemicals and under the operating temperatures listed in clause 1.5.4 of the Bid Request.
410 In response to the fact that clause 1.5.4. was referred to Dr Dunker, Steuler pointed out that both Mr Walschburger and Mr Steuler said that it was an ISO 9001 procedure or requirement that when a client's specification was provided, it was referred to the Steuler applications department to ascertain whether the intended Steuler product was suitable for the intended application. Moreover, Steuler submitted that there was no evidence that Dr Dunker's advice was provided to Protec. Nor was there any evidence that Steuler was asked for such advice or information by either Protec or WMC. That is, whilst Steuler had satisfied itself that its Bekaplast material was resistant to the clause 1.5.4 chemicals (per the internal referral of the sheet containing clause 1.5.4 to Dr Dunker and his written response), Steuler was never asked by Protec or WMC whether its HDPE material was chemically resistant to the chemicals listed in clause 1.5.4 at the specified temperature of 55ºC, or at all. Steuler submitted that it was important to recognise that Protec's enquiry by Mr Smith's facsimile of 18 April 1997 was specifically about the possible service life of the material and nothing more.
411 Steuler submitted that if Mr Smith had sought information about whether the Bekaplast would have a service life under specific circumstances, the Court could not find that Steuler would have given such an assurance. It argued that the evidence showed that Steuler would have been most unlikely to give a 20 year warranty in relation to any of its products.
412 Thus, Steuler submitted that, in the circumstances, there was simply no basis to the claim that the first representation was expressly made by Steuler in the 23 April 1997 facsimile.
413 Secondly, Steuler submitted that, in any event, the first representation was not repeated or passed on by Protec to WMC. It submitted that it was plain that the statement in part 10 clause 14 of the Bid did not amount to a warranty in the terms alleged. Protec did not even refer to clause 1.5.4, let alone provide a confirmation in its terms. And as far as a service life of 20 years was concerned, it simply stated that the life expectancy of the linings had the "potential" to be 20 years.
414 Steuler further submitted that it was clear from Mr Smith's evidence that Protec deliberately did not provide any confirmation of clause 1.5.4 in its Bid. In cross-examination, he agreed that he had not provided any confirmation in accordance with clause 1.5.4, that he had been "careful not to commit" to that clause and that that was the reason why he put in "have the potential" in the exception stated in part 10 clause 14 of the tender.
415 Steuler submitted that although the Bid Request called for the clause 1.5.4 confirmation, it was clear from the evidence that this was never pursued by WMC vis-à-vis Protec and correspondingly, never pursued by Protec vis-à-vis Steuler. Steuler submitted that the reason for this omission was that the decision to use HDPE had already been made by WMC. Accordingly, it was submitted, the question for WMC when it issued the Bid Request was not whether it was going to use HDPE, because the Bid Request already specified HDPE as the material, but rather, which tenderer would be awarded the contract to install the HDPE in the SX plant.
416 Steuler submitted that the evidence showed that WMC and Protec were interested in other things. First, there was the issue of a service life of 20 years. Mr Smith specifically raised that issue in paragraph 8 of his facsimile dated 18 April 1997. That related to the durability of the HDPE material. Mr Smith asked for confirmation in general terms that such longevity was possible. He did not request proof of service life of 20 years by reference to another project where the Bekaplast material had been subjected to the same range of proposed chemicals as listed in clause 1.5.4 and had lasted for 20 years. What he was concerned about was the requested long service life of the HDPE liner.
417 Secondly, it was submitted, WMC was not concerned about obtaining confirmation or advice from tenderers about whether their HDPE was suitable for the chemicals listed at the temperature specified. Steuler queried how it could have been in circumstances where, when it forwarded the Bid Request by mail to Protec on 11 April 1997 and required tenders to be submitted by 17 April 1997. It submitted that it was reasonable to infer that relevant OEP personnel would not be expecting such a confirmation to be given in circumstances where the chemicals were not available for any sort of chemical resistance testing either in the time available or at all. Steuler also drew attention to the Joint Report of Experts where the experts had all agreed that:
the tests they considered were necessary to be carried out to determine whether or not a particular HDPE liner was suitable for the duties specified in the Bid Request should either be carried out on behalf of the project engineers before the bid documents were issued, or sufficient time should be allowed in the bid period for the tenderers to carry out those tests.
418 Thirdly, Steuler emphasised that WMC did not take up the absence of a clause 1.5.4 confirmation with Protec or Steuler. It had the opportunity to do so at the meeting on 20 May 1997. However, despite the assertions in the statements of Mr Blizzard and Mr Starcevich, their evidence in cross-examination made it clear that there was no reference made to clause 1.5.4 at that time, much less any assurances given by Steuler regarding the clause. WMC did not follow up the issue of clause 1.5.4 because it was not concerned about it: the decision had already been made to use HDPE. The only question remaining for WMC was which tenderer would be selected to perform the installation work. Indeed, WMC referred to Protec's Bid as being a "conforming bid", notwithstanding that no clause 1.5.4 confirmation had been provided in the Bid. If WMC was in any way reliant upon the tenderer providing such a confirmation in accordance with clause 1.5.4, why would WMC have not gone back to Protec and sought such confirmation, or at the very least sought such confirmation orally at the post tender meeting on 20 May 1997?
419 In my opinion, Steuler did make the first representation to Protec in the 23 April 1997 facsimile, but Protec did not certify to WMC to that effect. Therefore, neither plaintiff succeeds in respect of the first representation.
420 I have reached those conclusions for the following reasons. First, whilst Protec did not specifically ask Steuler to respond to clause 1.5.4, in that it was never mentioned in the correspondence preceding the Bid, nor in the conversations at that time, it makes no sense to talk about a "service life requirement" of 20 years in a vacuum. What WMC, and therefore Protec, wanted to know was whether the lining would last for 20 years in the specified conditions. The 20 year period came from clause 1.5.4. Mr Walschburger and Dr Dunker understood what Steuler was being asked to confirm. Steuler's response that "service life of 20 years ... can be certified" was, therefore, given in the context of clause 1.5.4, which Mr Walschburger had specifically checked with Dr Dunker.
421 Secondly, Protec's Bid did not expressly confirm clause 1.5.4. Indeed, it did not even refer to that clause. The closest reference to it is found in a part described as "Exceptions to General and Special Conditions". Whilst expressed in positive terms, it clearly did not provide any confirmation in terms of the first representation. Further, any ambiguity in Protec's response was clarified by Mr Smith's evidence that he was "careful not to commit" to clause 1.5.4.
422 The plaintiffs submitted that Steuler made the second representation to Protec in the 23 April 1997 facsimile which Protec repeated or passed on in its Bid and that Steuler again made the second representation directly to representatives of both WMC and Protec at the meeting on 20 May 1997.
423 The relevant parts of the 23 April 1997 facsimile, on which WMC and Protec rely to establish the second representation to Protec, are paragraphs 4 and 8, where Mr Walschburger said that:
Steuler has been installing Bekaplast liners during the last 20 years and they are working well today. Out of the reference list you can see a project in Niger for Cominak, that is still working since it has been constructed in 1977.
Service life of 20 years without damages can be certified through the work done in Niger for Cominak in Niamey. There we installed in 1977 6000m2 of Bekaplast which are still working. ... Out of the reference list you can see that Bekaplast has been installed in a huge quantity of sites.
424 The plaintiffs submitted that Protec repeated these representations in various forms throughout its Bid, including by:
Steuler have over 20 years experience in designing and installing Bekaplast linings for SX plants - these original linings are still giving excellent service!;
The Bekaplast has been chosen as the most appropriate membrane system for these works. ...
This matching process has been based around the following factors:
... The lining must have a proven long term durability track record in similar plants
... Bekaplast has been used extremely successfully for over 20 years in similar plants
... Bekaplast linings installed over 20 years ago are still giving excellent service;
and
The life expectancy of the linings have the potential to be 20 years. This statement is supported by Steuler's worldwide track record in similar environments. Linings installed more than 20 years ago in SX plants are still performing satisfactorily.
425 The plaintiffs submitted that Protec's conduct in repeating these statements by Steuler was reasonable given the evidence of Mr Steuler that Protec was entitled to give a representation that Bekaplast was suitable for 20 years based on Steuler's recommendations and its experience in Niger.
426 The second occasion relied on by the plaintiffs for the making of this representation was the meeting on 20 May 1997. Any representations by Steuler on this occasion were, of course, made directly to both WMC and Protec. Whilst there was conflict in the evidence about what was said to be the purpose of the meeting and whether the third representation was made by Steuler in the meeting, the conflict did not extend to the making of the second representation. I therefore propose to defer consideration of the conflicting accounts of what was said in the meting until dealing with the third representation.
427 Both sides agreed that, generally, Mr Starcevich's contemporaneous notes of the meeting were likely to be more reliable than the witness' attempts at recollecting what was or was not said some 11 years before. Initially, all of the participants agreed that the notes were a reasonably accurate account of what was discussed.
428 As previously stated, Mr Starcevich's notes of this meeting record the following:
Steuler have experience in SX tanks, they installed some uranium SX liners which have been in service since 1978 without failure.
429 Mr Steuler said in his witness statement that, at the 20 May 1997 meeting, he said that:
Steuler had some experience with installing Bekaplast in solvent extraction plants. I referred to the plants in Niger and Finland.
Mr Steuler said in cross-examination that he doubted that he would have mentioned the year 1978 because he was not that familiar with the dates of Steuler reference projects. Nevertheless, the reference in the notes to 1978 must have come from somewhere, and I consider that Mr Steuler was the most likely source. (I note in passing that if Mr Walschburger's references to 1977 were correct, then Mr Steuler had indeed got the year wrong for the plant in Niger). But I very much doubt that Mr Steuler would have said that the plant in Finland had been in service for 20 years, when it was such a recent project. To that extent, I consider that Mr Starcevich's notes are incorrect, in that he has misunderstood what Mr Steuler was saying about the date of that project.
430 Steuler denied that it made the second representation to Protec or WMC. It pointed out that in Mr Smith's facsimile of 17 April 1997, he asked Mr Lähne to provide a specific track record stating where the proposed lining system had been used in:
(a) uranium solvent extraction plants;
(b) other solvent extraction plants;
(c) general lining works for hazardous liquids.
431 Steuler responded as outlined above. Steuler submitted that what it in fact represented was that Bekaplast had been successfully used in one solvent extraction project for a period of more than 20 years, that project being for Cominak in Niger, and that Bekaplast had also been successfully used in a range of different projects over that time. It submitted that this was not the second representation alleged by the plaintiffs.
432 Steuler accepted, however, that the representation it acknowledged making in the 23 April 1997 facsimile was incorrect to the extent that the Cominak project used Bekaplast PVC, not Bekaplast HDPE.
433 With respect to the repeating or passing on of this representation by Protec to WMC, Steuler submitted that if Mr Smith exaggerated or embellished the track record of Bekaplast, by turning one plant with a successful 20 year history into "similar plants" with "Bekaplast linings" installed "over 20 years ago" being extremely successful because they are "still giving excellent service", in circumstances where the list was included in the Bid sent to WMC, Steuler was not responsible for his actions. Nor was Steuler responsible if WMC misread the list. With respect to what Protec actually said in part 10 clause 14 of the Bid, Steuler submitted that it was correct. The list of reference projects included in the Bid referred to only one example of linings installed more than 20 years ago in a solvent extraction plant. This would have been obvious to WMC upon a consideration of the reference list. There were examples at other sites of linings installed more than 20 years but the plants were different in nature. Steuler argued that to the extent that Mr Smith exaggerated by suggesting there was more than one plant, Steuler was not responsible for his conduct.
434 In my opinion, the plaintiffs have established that Steuler made a representation, in the singular form of the second representation, to both of them - to Protec by the 23 April 1997 facsimile and to WMC (and Protec) by what Mr Steuler said in the meeting on 20 May 1997.
435 I have reached that conclusion for the following reasons. There is no doubt that Mr Walschburger represented to Mr Smith in the 23 April 1997 facsimile that Bekaplast had been installed in one uranium solvent extraction project for a period of more than 20 years, that project being for Cominak in Niger. Whilst Mr Walschburger did not expressly say so, he intended to convey, and it would have been understood as, a representation that HDPE had been used in that project, whereas it was in fact PVC. Although in Protec's Bid Mr Smith turned this one 20 year example into a plurality of examples, there was no evidence that WMC would have acted differently if it had known that fact. Thus, very little may turn on whether the reference was to one 20 year example or to more than one 20 year example. However, it is not necessary to determine this question because, in any event, in the meeting of 20 May 1997, Mr Steuler referred to the plant in Niger as an example of Steuler having installed Bekaplast in an uranium solvent extraction plant "which had been in service since 1978 without failure". Further, whilst Mr Steuler may not have expressly said so, he intended to convey, and it would have been understood as, a representation that HDPE had been used in the example which he mentioned.
436 The plaintiffs submitted that the third representation was made by Steuler on the following three occasions:
(a) to Protec by the 23 April 1997 facsimile, which Protec repeated or passed on to WMC in the Bid;
(b) to both Protec and WMC in the meeting of 20 May 1997; and
(c) in a telephone conversation between Mr Walschburger and Mr Smith on or about 4 July 1997, which was repeated or passed on to WMC by Mr Smith's facsimile to Mr Blizzard dated 8 July 1997.
437 As far as the 23 April 1997 facsimile is concerned, the plaintiffs relied not so much on anything specifically said in that document, but on the submission that the whole point of the facsimile was that Steuler was saying to Protec (and to WMC) that the Bekaplast HDPE lining was suitable for use as a long term containment membrane for the concrete solvent extraction tanks at Olympic Dam. Nevertheless, it is worth repeating part of what Mr Walschburger said in paragraph 4 of the 23 April 1997 facsimile:
So we consider, that it is a more sound solution to put the 256 knobs on a 3mm sheet and to guarantee that the lining will stay intact during a long period, as to reduce the quantity of them and getting problems with the service life of the lining. If they use the loose liner they will have to replace this lining every two to three years. ... We have to convince the owner, that the cheap solution of loose liners will not hold for very long and that he will have lots of shut downs of the production facility implicating high losses. With Bekaplast, having a higher initial cost, he will get in the end a cheaper solution, as probably no changes of the lining will be necessary during the service life.
438 WMC and Protec submitted that in reliance on the 23 April 1997 representation, Protec, in part 6 of the Bid represented that Bekaplast HDPE was "the most appropriate membrane system" for WMC's purpose, which was identified as being to act as "containment membrane for the process liquor".
439 In support of the reasonableness of Mr Smith's reliance on the representation, the plaintiffs referred to the evidence of Mr Steuler that:
(a) Steuler was prepared to recommend to a client what would be a suitable lining material, if it was told of the client's requirements;
(b) A specification requirement that the lining manufacturer confirm suitability was not an unusual clause; and he would have been prepared to give the confirmation sought in clause 7.3 of the Bid Request that Steuler's product was suitable;
(c) He would understand that a confirmation that the material would be suitable for exposure to chemicals would mean that the lining would last 10 years or more.
440 I agree that it was implicit from the 23 April 1997 facsimile that Steuler was saying that the Bekaplast HDPE lining was suitable for use in the solvent extraction tanks. I consider that Steuler would not have been participating in the discussions with Protec, culminating in the 23 April 1997 facsimile, unless it believed that the Bekaplast HDPE lining was suitable for use in the solvent extraction tanks. Even if I had not found Steuler had made the specific first representation to Protec, I consider that Steuler knew enough about the likely process to understand that in this context suitability for use in solvent extraction tanks meant, at least, able to contain for a lengthy period of time a solvent such as kerosene at elevated temperatures.
441 Further, it is clear, in my opinion, that Protec was reliant on Steuler's knowledge and experience concerning HDPE and that it was constantly asking Steuler for advice. Thus, having been given the more general third representation by Steuler, Protec repeated it to WMC in its Bid.
442 Turning then to the meeting of 20 May 1997, I have previously stated that there was conflict in the evidence of those in attendance, Messrs Steuler, Lähne, Smith, Starcevich, Matheson and Blizzard, about what was said to be the purpose of the meeting and whether the third representation was made by Steuler in the meeting.
443 On the first point, Mr Steuler and Mr Lähne both said that the meeting was a very general introductory meeting and that the details of the Protec Bid were not discussed at all. The other four men present all disputed that the Bid was not discussed.
444 In respect of the 20 May 1997 meeting, Mr Steuler said in his witness statement:
... I do not have a specific recollection of the details of the whole of the meeting. I told the meeting something about the nature and history of Steuler, the products it offered and how they could be suitable for WMC's needs. A topic raised was the merits of anchored as opposed to loose liners. I said that Steuler favoured mechanically anchored products like Bekaplast because there was less liner movement resulting from increases and decreases in temperature. This meant that the liner was subject to less stress because the stress on the welding would be less than what would happen with a loose liner. I said that Steuler had some experience with installing Bekaplast in solvent extraction plants. I referred to the plants in Niger and Finland.
At the meeting there was no discussion of the merits of HDPE in solvent extraction plants compared to alternatives like stainless steel or fibre reinforced plastic. No one from WMC asked for Steuler's views about material selection for the Expansion Project. The only discussion of comparative merits related to whether a mechanically anchored lining was better than loose lining.
445 Mr Steuler said in cross-examination that it was "a marketing visit" at which he and Mr Lähne "introduced the company and the products". He said that the talk shifted very quickly to HDPE because Mr Starcevich and his colleagues were not interested in Steuler's other products. Mr Steuler said that they did not talk about the particular tender, rather they spoke generally about the differences of HDPE linings such as mechanically fixed or loose lining. He said that he did not recollect that the specific Bid was actually mentioned.
446 WMC and Protec submitted that the evidence of Mr Steuler and Mr Lähne that the meeting was not a post tender meeting should be rejected, for the following reasons:
(a) The meeting had been specifically organised as a post tender meeting as was the meeting with the other preferred tenderer, Beltreco/ Serrot;
(b) The notes of the meeting make it plain that the question of this specific application was the subject of detailed discussion;
(c) It defied credibility that Mr Smith would not have told the Steuler representatives that the meeting was related to this tender and it was never put to Mr Smith that he had not done so.
447 I cannot accept that Mr Steuler and Mr Lähne have accurately recalled the purpose of the meeting on 20 May 1997. Whilst matters of general information were obviously discussed, it seems to me that the notes support the claim that aspects of Protec's Bid were discussed. A few examples will suffice. The references to "they" having "offered fully fixed liners for both mixer boxes and settler/tank tanks"; the need for "the large amount of coordination required between the concreter and the lining installer"; Steuler confirming that a Steuler supervisor would be available to perform certain tasks including leading the installation team; and all of the points under the heading "Procurement" which clearly related to Protec's Bid for the Olympic Dam project. Secondly, given that about 11 years had elapsed between the meeting and the giving of evidence, I consider that it is unrealistic to prefer oral evidence over what was stated in the contemporaneous notes. In this instance, the notes have assisted me in reaching the conclusion that Mr Steuler and Mr Lähne were wrong in suggesting that Protec's Bid was not discussed at the meeting on 20 May 1997.
448 The second conflict was what, if any, representations were made by Steuler. Here, the dispute arose out of Steuler's disagreement with what was said by Mr Blizzard and Mr Starcevich in their witness statements. Steuler submitted that these two had substantially overstated their recollection of what was said at the meeting.
449 Mr Blizzard said the meeting notes prepared by Mr Starcevich accorded with his recollection of the matters discussed at the meeting. Mr Starcevich had sent him a copy on the day following the meeting. In cross-examination he said that he regarded the notes as an accurate record. They did not include things which did not occur or omit significant or important events which did occur. He said that if there had been a serious omission or inclusion, he would have objected and raised the matter at the time. Mr Blizzard took some of his own notes at the meeting although he no longer had them. It was his practice at the time to create a clear paper trail in any transaction he was engaged in. He said that he would have wanted a written record of any important issue in relation to a client. Hence, where a confirmation or acknowledgment was needed on an important matter, it was his usual practice to obtain it in writing. This was highly desirable because it gave the client certainty and also produced a permanent record.
450 However, in his witness statement, Mr Blizzard said that:
(a) "There was specific discussion about the ability of the Steuler/Protec Pacific HDPE lining material to perform according to the specified application and to meet performance warranty requirements";
(b) Mr Steuler said he understood the issues involved in the project plant and was very confident that their material would perform according to the project requirements in the Bid Request;
(c) If Steuler had not confirmed that they were providing the warranties as to long term suitability of the material, as required by the Bid Request, Mr Blizzard would not have recommended the award of the tender to Protec.
451 In cross-examination, Mr Blizzard said that the Steuler representatives:
were quite positive in expressing their confidence that the material, the HDPE material that they were offering, was most suitable for the application that had been specified by WMC and this was certainly put forward by them in that meeting that we had.
452 Mr Blizzard said that what he meant by the "performance warranties" was clause 1.5.4. He agreed, however, that he did not recall Mr Steuler "actually using" the words of that provision. But he said that Mr Steuler confirmed:
to us in the meeting that his material would meet the requirements specified.
453 Steuler submitted that a problem with Mr Blizzard's evidence was that he made no specific reference to any warranties being sought in his presence at the meeting, in circumstances where this was the only occasion upon which he had direct dealings with the Steuler representatives. Nor did he give any specific evidence about anything which Mr Steuler or Mr Lähne said regarding performance warranties or suitability of the product. Steuler submitted that, ultimately, Mr Blizzard could do no more than refer to a general recollection of Mr Steuler having a "positive response" at the meeting. Mr Blizzard had no recollection of Mr Steuler making any comment about the capacity of the Steuler HDPE to satisfy the provisions of clause 1.5.4 or to have a 20 or 30 year service or operating life.
454 In his oral testimony, Mr Blizzard said that a number of things were critical or important to him at the time of the 20 May meeting. First, he said that the seller's warranty about the goods having an operating life of at least 30 years and being fit for the intended purpose was important for the client and that he would have checked that. Second, he said that clause 1.5.4 of the Bid Request was important. Third, Mr Blizzard said that the required performance warranties were critical to assessing the Protec Bid and that the performance warranty was crucially important to his decision making. However, Steuler submitted that Mr Blizzard's evidence about what constituted the performance warranty was confusing. At one point he said that the expression "performance warranty" was a reference to the 20 year/30 year warranty regarding the performance of the material in the specified application over the specified life expectancy. These details were set out in the Bid Request documents. Elsewhere, he said the performance warranty related only to clause 1.5.4. Finally, Mr Blizzard said that the suitability of the HDPE material was also crucial to him.
455 However, Steuler submitted that, under cross-examination, Mr Blizzard agreed that there was no reference in the Starcevich notes to:
(c) the suitability of Steuler HDPE for the project;
(d) the compatibility of Steuler HDPE with particular chemicals;
(e) a 20 or 30 year service life or operating life;
(f) the ability of the Steuler HDPE to meet the specified requirements in the bid request.
456 As Steuler pointed out, despite being a "details" person, Mr Blizzard did not draw attention to these important omissions from Mr Starcevich's notes. Steuler accordingly submitted that, given that Mr Blizzard thought that the notes accurately represented his recollection and he did not seek to change or expand them, the Court should infer that these so called important or crucial issues were not addressed in the 20 May 1997 meeting.
457 Steuler submitted it was also significant that notwithstanding Mr Blizzard's evidence about obtaining important confirmations for a client in writing, he did not get a written confirmation from Steuler as referred to in clause 7.3 of the Bid Request. He said he would have been looking for some form of statement in Protec's response to confirm that the company was offering suitable material. He regarded Steuler as the manufacturer. He accepted that there was no document in the Bid giving the requisite confirmation.
458 Steuler submitted that in relation to Mr Blizzard's evidence concerning the 20 May 1997 meeting, it was evident that he had no actual recollection of what was discussed. His evidence regarding what was said was in terms of what "would have been discussed", rather than displaying any actual recollection.
459 In paragraph 11 of his witness statement, Mr Starcevich gave a detailed account over approximately three and a half pages of the meeting which took place on 20 May 1997. His account was obviously based heavily upon the notes which he took at the time and largely consisted of a repetition of what was in the notes. However, Steuler submitted that there were embellishments. For example, Mr Starcevich said that Mr Steuler claimed he had experience in the suitability of liners in solvent extraction plants. Yet nowhere in Mr Starcevich's notes was there a reference to "suitability" or Mr Steuler claiming to have any such experience. Mr Starcevich also said that "in substance" Mr Steuler stated that he had an understanding of what was required to achieve a satisfactory outcome for WMC and with Protec's assistance Steuler had the knowledge and technical experience to carry out the job efficiently and to competently complete the job. At best, this evidence seems to have been extrapolated from the following item in the notes:
Steuler have experience in SX tanks, they installed some Uranium SX liners which have been in service since 1978 without failure.
460 Mr Starcevich said it was his practice in May 1997 to take notes as accurately as he could at meetings in order to have an accurate record of the meeting and to establish a permanent record. He tried to cover all the major points, whatever they might be at the time. He sought to record whatever was important or significant at the meetings he attended.
461 In his oral evidence, Mr Starcevich said that he regarded clause 1.5.4 and the confirmation required of the seller as "a very important component" of the bid. He also said that clause 7.3 was an important clause, being "a general requirement that the material be suitable for the application". Mr Starcevich also regarded clause 4.1 as an important clause. He said WMC wanted a material and installation system that would meet its requirements for an extended period of time. It was a crucial aspect of the Bid.
462 Mr Starcevich said that at the May 1997 meeting, Steuler made a "recommendation" that the system would be "the most suitable solution for the protection of the concrete tanks in the environment referred to in the Bid Request". He said that recommendation was important to him at the time.
463 In paragraph 13 of his witness statement, Mr Starcevich said that if Steuler or Protec had not been prepared to give "the necessary warranty" that the proposed Bekaplast lining system would be suitable for the long term, being 20 or 30 years, he would not have recommended them for the contract. In cross-examination, Mr Starcevich said that whilst he certainly could not remember the words:
... based on my notes and what I have subsequently read about the minutes of the meeting was that - and I do have a general understanding that I came away very confident that they knew the application, they had had experience in that application, they developed the Bekaplast. They were sort of innovative but also experts, if you like, in the field. I came away very confident that they could do the job.
Later, Mr Starcevich said that he could not remember "specific things" about what was said at the meeting. He said that it was "a bit hard" to say whether the solvent description in clause 1.5.4 did specifically come up as a subject. Steuler submitted that Mr Starcevich's explanation about what constituted "the necessary warranty" was confused. On the one hand he said it was clause 1.5.4 and clause 4.1 as referred to above. On the other hand, he said the warranty was more a general assurance that Steuler had the competence and expertise to do the job and the installation would last a long time. This involved, in Mr Starcevich's mind, an acceptance of the WMC specifications which included the warranty and service conditions. In any case, Mr Starcevich said that the giving of the warranty and the long term viability were important to him.
464 In paragraph 19 of his witness statement, Mr Starcevich said it was important that liner suppliers confirmed the material could cope with thermal expansion and contraction. The robustness of the liner was also important because that was a factor regarding installation. Mr Starcevich said in evidence that the issue of robustness was discussed with Mr Steuler and Mr Lähne in the May meeting.
465 Mr Starcevich said in his witness statement that if Mr Steuler had not confirmed "the full performance warranty", he would not have made the recommendation in Steuler's favour. Accordingly, this must have been important to Mr Starcevich at the time. He said that Mr Steuler confirmed at the meeting that the Bekaplast system would be suitable for the proposed application.
466 In cross-examination, Mr Starcevich also said that the warranty regarding the long term requirements and the capacity to meet them was important to him, as was the issue of an operating life of 20-30 years.
467 However, Mr Starcevich agreed that his notes contained no reference to:
(d) the suitability of HDPE for use in the project;
468 When it was put to Mr Starcevich that if a matter was not in the notes, then it was not referred to at the meeting, he said that could well have been the case, the matter might not have been raised. He also said that he was not sure if his notes were comprehensive or if the matters were raised and agreed without further discussion. Steuler contended that the Court should not accept any such qualification from Mr Starcevich. Even if a matter were raised and agreed, with respect to these important matters, they should have been noted in accordance with Mr Starcevich's own criteria and normal practice.
469 In relation to the issue of written confirmations, Mr Starcevich was unable to say whether he sought written confirmations from any of the bidders about any aspect of the Bid (over and above each proposal). Mr Starcevich said he did not seek warranties in writing from any of the other suppliers or manufacturers and did not receive any warranties in writing from any of them.
470 Steuler submitted it was highly unlikely that either Mr Blizzard or Mr Starcevich would have any actual recollection of a meeting that took place nearly 11 years before they gave their evidence. Nevertheless, both Mr Starcevich and Mr Blizzard said they had an actual recollection of a "positive feeling" at the meeting that Protec and Steuler could successfully achieve the requirements and meet WMC's needs.
471 Steuler submitted that such evidence was consistent with Protec and Steuler having given responses to the matters discussed at the 20 May 1997 meeting, which instilled confidence in Mr Starcevich and Mr Blizzard, based on what is expressed in the second last paragraph of the notes of the meeting:
In summary Protec and Steuler both demonstrated an understanding of the work required, had considered how the work could be carried out efficiently and showed they had the technical experience to competently complete the job.
472 Steuler submitted that as appeared from the summary set out in the notes, the issues about which Mr Blizzard and Mr Starcevich expressed their positive feeling did not include eliciting from, or discussing with, Protec or Steuler confirmation about material suitability to the process conditions. WMC had already decided this issue. The task for WMC at 20 May 1997 was to choose the right contractor to carry out the installation work.
473 Mr Matheson was part of the Fluor Daniel team responsible for the design of the hydromet. He attended meetings in May 1997 with both Beltreco and Protec. Mr Matheson recalled very little of these meetings. He said that "pretty well" the main purpose of the meetings was to assess who would do the better installation job. Steuler submitted this was the most accurate characterisation of the meeting. The aim was to assess the two firms to see which should perform the installation.
474 Mr Matheson did not sign off on the technical evaluation. He left that to Mr Starcevich. He agreed that both bidders were satisfactory in a technical sense. He also agreed that the ultimate decision as to who obtained the installation contract was made by Mr Blizzard. Mr Matheson said in his witness statement that he accepted from the material provided and what was said at the meeting that the Bekaplast product was a suitable material for what was required. However, in cross-examination he said that all that he could recall about what led him to that conclusion was that it was "a very professional presentation" and that they had "good literature in support of what they were saying, examples of where the product had been used".
475 Given that the meeting occurred over 11 years ago, the plaintiffs submitted that the Court should accept that statements were made at the meeting as set out in the notes of that meeting. That is, the plaintiffs did not seek to rely on anything which Mr Blizzard and Mr Starcevich asserted had been said by Mr Steuler, unless it was supported by a reference in the notes of the meeting. Nevertheless, the plaintiffs submitted that there were sufficient references in the notes to the material which Steuler was offering to supply for installation in the mixer boxes and settler tanks in the solvent extraction plant for there to be, at least, an implied representation by Mr Steuler that the Bekaplast HDPE lining was suitable for use as a long term containment membrane.
476 The plaintiffs further submitted that the evidence concerning what was said or implied by Mr Steuler in the meeting of 20 May 1997 had to be seen in the context of the following circumstances:
(a) WMC had required that Steuler, as the manufacturer, confirm the suitability of the material for the application;
(b) Steuler was aware that it was required to confirm the suitability of the material for the application;
(c) Steuler would have been prepared to give the confirmation requested; and
(d) Mr Smith's unchallenged and uncontradicted evidence that, during the post tender period, he was in regular contact with Mr Steuler and Mr Walschburger giving progress reports and getting further information with respect to the tender.
477 I agree with the plaintiffs' submission that Mr Starcevich's notes support the contention that Mr Steuler represented, at the very least by implication, that the Bekaplast HDPE lining was suitable for use as a long term containment membrane. The whole point of Steuler's participation in the meeting on 20 May 1997 was to persuade the WMC representatives that Steuler's material was suitable for use in the solvent extraction tanks. Why else would Steuler be making recommendations or suggestions about the thickness of the liner or the type of lining (that is, loose or anchored)? Whilst it is true that the notes do not contain any mention of the suitability of the Bekaplast HDPE, it was implicit, in my opinion, in what Mr Steuler was saying about the type of liners being offered that he was representing that his material was suitable for the job.
478 In further support of the third representation, the plaintiffs referred to an alleged telephone conversation between Mr Walschburger and Mr Smith on or about 4 July 1997 and Mr Smith's facsimile to Mr Blizzard dated 8 July 1997 in which he stated that the Protec-Steuler viewpoint with regard to the warranty was "The tank base lining using the Bekaplast system pressed into the wet concrete would carry the full performance warranty as tendered".
479 Indecision by the OEP designers over the suitability of a fixed lining system and price considerations led to the events of early July 1997. It appears that Mr Blizzard told Mr Smith that OEP wanted a better price and that it was undecided about whether to have a loose liner or a fixed liner for the settler tanks floors. Accordingly, by a facsimile dated 1 July 1997 Mr Smith wrote to Mr Lähne asking whether the pricing of the Bekaplast could be reduced. He referred to his discussions with Mr Blizzard. Following a quick response by Mr Lähne by a facsimile dated 2 July 1997, Mr Smith sent Mr Blizzard a list of the reduced prices by a facsimile dated 2 July 1997. He forwarded a copy of the latter to Mr Lähne and advised him that he still had 1.25% "up my sleeve" if necessary. By a facsimile dated 2 July 1997, Mr Blizzard then asked for a breakdown of the quoted price for the lining for the type B tanks, which according to the Bid Request were to have a loose liner on the floors.
480 In his witness statement, Mr Smith said that he had a telephone conversation with Mr Blizzard on 4 July 1997, in which Mr Blizzard reiterated WMC's preference for a loose liner on the base of the tank because it was proposed to lay the base in situ, but said that the cast in liner to the walls was acceptable. Mr Smith said that he mentioned that the Bekaplast liner could be installed into grout on the concrete base of the tank, and that another option was for the base liner to be 100 knobs per square metre rather than 256. He said that he would provide cost savings for both options. Mr Smith said that Mr Blizzard requested that he confirm that Steuler would give the performance guarantee on the liner for each of these options.
481 Mr Blizzard's evidence about this conversation was similar, except that he did not say that he requested confirmation from Steuler. In his witness statement, Mr Blizzard said:
On 4 July 1997, I had a telephone conversation with Smith and informed him that a loose liner was preferred on the bases of the tanks. Steuler/Protec Pacific had recommended a fully fixed liner on the bases and in the conversation Smith said that he had another grouted option for the base liner, being a 3mm 100 knobs per m2 liner. Smith said he would get back to me and advise the cost savings of both options and he would speak to Steuler to confirm that the Steuler performance guarantee would not be compromised by the alternative option.
482 Mr David's typed record of a meeting of OEP representatives (including Mr Starcevich and Mr Blizzard), held on Friday 4 July 2007, set out the following:
483 Mr Matheson's contemporaneous handwritten notes of the same meeting recorded the following about the item "HDPE Lining Options, cast in versus loose":
484 Mr Smith responded to Mr Blizzard's facsimile dated 2 July 1997 by his facsimile dated 4 July 1997, in which he stated that the item relating to the price breakdown was "not applicable because Type A and B linings are to be made from Bekaplast, i.e. fully anchored with 256 anchors/m2 over their entirety". In a postscript, Mr Smith stated:
Further to our discussions earlier today, I will advise that information hopefully on Monday.
485 Mr Smith then spoke by telephone with Mr Walschburger and followed up with a facsimile to him dated 4 July 2007 in which he requested pricing information on 3mm 100 knobs/m2 and loose Steuler HDPE material. In his witness statement, Mr Smith said:
On 4 July 1997 I had a conversation with Matthias. We discussed the proposal to use 3mm x 100 knobs lining for the floors. Matthias said that this proposal would be a suitable system for the settler floors but he would not recommend a loose liner. In this and in earlier conversations I had been told that Steuler did not like loose liners. A loose liner system would not carry Steuler's full performance warranty. I was told that a loose liner would be warranted only with respect to material supply and work practice conformance.
Later in the statement Mr Smith referred to the contents of his facsimile dated 8 July 1997 and said:
I communicated what Matthias had said to me about the performance guarantees.
486 As Steuler pointed out, there was very little in Mr Smith's witness statement about when and in what terms he had obtained this confirmation from Steuler. In his evidence, Mr Smith suggested that it would have been in one of his many telephone conversations at that time with Mr Walschburger. He said that he "always ran it past Matthias". Mr Smith also said that most of his evidence about these events "was prompted by the correspondence that would have transpired at that time". It was "not an actual recollection. It's what I believe was said based on the documentation that's part of the discovery". Later, Mr Smith said:
To the best of my recollection when I talked to Matthias on 4 July we had the discussion about the 100 knobs and that was a recommended system by Matthias.
Whether or not Matthias actually said to me: "It will carry the full performance warranty", I don't recall, but it was recommended by him.
487 Mr Walschburger said in cross-examination that he had no recollection of the alleged conversation with Mr Smith on 4 July 1997. He said that such a topic should have been discussed with Mr Lähne, not him.
488 By a facsimile dated 7 July 1997, Mr Blizzard responded to Mr Smith's facsimile of 4 July 1997 stating that he was awaiting Mr Smith's comments together with prices and other relevant data "pertaining to those matters discussed during our telephone conversation last Friday". Mr Smith said that he discussed Mr Blizzard's facsimile with Mr Lähne. This conversation ("our telephone discussion an hour ago") is referred to in Mr Smith's facsimile to Mr Lähne dated 7 July 1997, by which a copy of Mr Blizzard's facsimile of the same date was provided to Steuler. In that facsimile, Mr Smith asked Mr Lähne for responses to the points raised by Mr Blizzard. He concluded:
I will also copy you in on the spread sheet that will compare Bekaplast 256 knobs/m2 with Bekaplast 100 knobs per m2 and loose laid tank base linings. Please advise if you agree with my calculations.
489 Mr Lähne sent the pricing information to Mr Smith by a facsimile dated 7 July 1997.
490 By a facsimile dated 8 July 1997, Mr Smith responded to Mr Blizzard's queries. He set out his cost comparison of Bekaplast 256 knobs/m2, 3mm, Bekaplast 100 knobs/m2, 3mm and loose laid sheet, 5mm. One of the notes to the comparative table was as follows:
491 Mr Smith faxed a copy of this facsimile to Mr Lähne with the addition of a handwritten note:
Mr Lähne said that because his handwriting was on the document, it was likely that he had read it at the time.
492 WMC awarded the Purchase Order to Protec on 16 July 1997, following the preparation of a letter of recommendation dated 9 July 1997. Steuler pointed out that the contract was awarded without WMC having finally determined whether to proceed with:
(a) a loose liner or an anchored liner for the tank floors; and
This was not resolved until about 8 August 1997, when in an undated memorandum Mr Sheeran advised Mr Albert of the final decision regarding the lining material, namely:
(b) mixer boxes walls and base of mixer boxes - Bekaplast 256/m²;
(c) settler base - Bekaplast 100 knob/m², and the use of 3mm liner material.
This followed a meeting on 7 August 1997, attended by Messrs Sheeran, Matheson, Smith, Sesia and Blizzard, and a memorandum dated 8 August 1997 from Mr Smith to Messrs Sheeran, Matheson and Blizzard where he made it clear that Protec did not recommend a loose liner of 3mm thickness.
493 The plaintiffs emphasised that, although Mr Smith sent a copy of his facsimile to Mr Lähne, Steuler never disputed Protec's authority to confirm to OEP that a full performance warranty would apply to a mechanically anchored Bekaplast system. The evidence of Mr Smith was that the explanation of Steuler's warranty position was in accordance with what he was told by Mr Walschburger. Although the confirmation was not in writing, WMC and Protec submitted that the Court should accept his evidence on this point for the following reasons:
(a) The evidence was not contradicted by Mr Walschburger.
(b) Mr Smith demonstrated throughout this period that he was reliant upon Steuler for his responses and was assiduous in seeking Steuler's advice and recommendations on all relevant matters.
(c) If he had not been so authorised, he was not likely to have forwarded the letter containing the statement by facsimile to Steuler; and Mr Lähne, who read the letter, would have objected to the statement because the representation was made by Protec on behalf of itself and Steuler.
494 Further, the plaintiffs submitted that the Court should have regard to the evidence of Mr Steuler and Mr Lähne that, as manufacturer, Steuler was prepared to give a warranty with respect to suitability of the liner, provided it was a Bekaplast liner.
495 Steuler pointed out that the amendments to the particulars referring to the alleged conversations on 4 July 1997 and Protec's facsimile to WMC dated 8 July 1997 were raised for the first time in Protec's "Amended Particulars to Paragraph 6" dated 31 August 2007. The amended particulars were subsequently incorporated into Protec's amended statement of claim dated 6 September 2007.
496 Steuler noted in its final submissions that WMC had not sought to include these allegations in the WMC proceeding against Steuler. WMC disputed this assertion and referred to the amended particulars to paragraph 50 of its fourth amended counterclaim against the second defendant by counterclaim dated 19 December 2007. It should be noted, however, that the amendments made to the paragraph 50 particulars to include these new allegations related to the pleading of the first representation (paragraph 50(e) and (f)) and not to the third representation (paragraph 50(c)).
497 Steuler also pointed out that the amended particulars alleged that:
(a) on 4 July 1997 Mr Blizzard requested in a telephone conversation with Mr Smith that Steuler confirm that the performance guarantees of Steuler, with respect to the linings in the tender would not be compromised if WMC selected the Bekaplast 3mm 100 knobs per m²;
(b) on 4 July 1997 Mr Smith had a conversation with Mr Walschburger in which Mr Walschburger said to Mr Smith that Mr Smith could confirm to Mr Blizzard that the "performance guarantees of Steuler" would not be compromised if WMC selected Bekaplast 3mm 100 knobs per m²; and
(c) based on what Mr Walschburger had said to Mr Smith, Mr Smith on behalf of Steuler "confirmed that Steuler's full performance warranty of the Bekaplast system would not be compromised if WMC selected the Bekaplast 3mm 100 knobs per m²".
498 Steuler submitted that there were a number of reasons why the allegations made in the amended particulars should be rejected by the Court.
499 First, Steuler submitted that the allegations fell at the outset because Mr Smith gave no specific evidence about, and had no actual recollection of, either his alleged conversation with Mr Blizzard on 4 July 1997, or his alleged conversation with Mr Walschburger on 4 July 1997, as set out in his witness statement. Steuler referred to the cross-examination of Mr Smith, where he said that he did not have an actual recollection of what was set out in the relevant paragraphs of his witness statement. Further, even in his witness statement Mr Smith was very vague. He did not state that he requested Mr Walschburger to confirm and did not state that Mr Walschburger did confirm that the alleged Steuler "warranty" would apply.
500 Further, Steuler pointed out that Mr Smith's facsimile to Mr Walschburger on 4 July 1997 said nothing at all about confirming the applicability of a warranty in the event that WMC proceeded with Bekaplast 3mm 100 knob/m². Mr Smith simply requested Mr Walschburger to provide prices on Bekaplast HDPE 3mm 100 knob/m², Steuler smooth HDPE 5mm (loose) sheet, Steuler smooth HDPE 3mm (loose) sheet, and certain other materials.
501 Secondly, Steuler submitted that any performance warranty given by Mr Walschburger would not have been in respect of "3mm Bekaplast 100 knobs per m2". It pointed out that the communications between Protec and WMC in this early July 1997 period were more concerned with the issue of loose liner versus fixed liner rather than whether 100 knobs per m2 was preferable to 256 knobs per m2 Bekaplast. Mr Smith agreed that his statement about a full performance warranty did not deal with the issue of 100 versus 256 knobs per square metre but with the issue of a loose liner or fixed liner for the settler floors.
502 Steuler also submitted that it seemed inherently unlikely that if Mr Walschburger had been asked by Mr Smith he would not have recommended the use of 256 knobs per square metre Bekaplast as opposed to 100 knobs Bekaplast per square metre given the strong view he had expressed in the 23 April 1997 facsimile.
503 Despite Mr Smith's recollection of his conversation with Mr Walschburger on 4 July 1997 being poor, I am satisfied that he did receive Mr Walschburger's agreement to him telling WMC that there would be no "performance warranty" from Steuler if a loose laid lining system was chosen, but that the option of lining the tank base with Bekaplast pressed into grout or "wet concrete" would carry "the full performance warranty as tendered".
504 Two facts are clear. First, Mr Smith did have a "telephone conversation" with Mr Walschburger (as stated in his facsimile to him dated 4 July 1997). I consider it hardly surprising that Mr Walschburger would confirm that the "performance warranty" would be given by Steuler if WMC chose to use the grouted method of installing the Bekaplast anchored lining system. Secondly, Mr Smith forwarded a copy of his 8 July 1997 facsimile containing the reference to the full performance warranty to Mr Lähne on that day. I consider it most unlikely that Mr Smith would have sent to Steuler a copy of this facsimile to Mr Blizzard unless he had been given the assurance by Steuler that the full performance warranty as tendered was applicable.
505 However, I am not persuaded that Mr Walschburger told Mr Smith that the "performance guarantee" would apply to 3mm Bekaplast with 100 knobs per square metre. Mr Smith's evidence favoured the "performance guarantee" being limited to the question of a fixed liner rather than a loose liner. So did the wording of his facsimile to Mr Blizzard. Further, both sets of notes of the OEP meeting on 4 July 1997 support the argument that what WMC was concerned about at that time was the question of a fixed as against a loose liner.
506 Eventually WMC did decide to install by the grouted method 3mm Bekaplast with 100 knobs per square metre for the base of the settler tanks. Subsequently, in December 1997, Mr Lähne advised Mr Smith that if Protec wanted Bekaplast sheets two metres wide, the 100 knobs had to be changed to 160 knobs per square metre but nothing turns on that increase. It therefore seems to me that, once again, Steuler represented to Protec that the Bekaplast HDPE was suitable for use as a long term containment membrane for the concrete solvent extraction tanks at Olympic Dam, and that Protec repeated this representation to WMC.
507 Thus, I consider that the plaintiffs have established that Steuler made the third representation to both of them on each of the three occasions on which they rely.
508 The plaintiffs submitted that in reliance on each of the above representations:
(ii) entered into the OSS Agreement in July 1998, concerning the installation of the Bekaplast HDPE lining to the solvent extraction tanks at Olympic Dam; and
(b) WMC entered into the OSS Agreement in July 1998, concerning the installation of the Bekaplast HDPE lining to the solvent extraction tanks at Olympic Dam.
509 Steuler disputed that there was any reliance by WMC on any representations found to have been made by it or by Protec. Steuler submitted that the decision by WMC to use HDPE as the lining material for both the concrete mixer and settler tanks in the solvent extraction plant at Olympic Dam was made by it in March 1997, after a three year investigation and review by internationally recognised engineering firms in conjunction with WMC, and before there were any detailed discussions with Protec or Steuler regarding the lining material.
510 Steuler referred to the history of the selection of HDPE as the lining for the tanks (set out above) as illustrating how thoroughly WMC had investigated the matter before deciding to use HDPE. It submitted that this history of WMC's preparatory work demonstrated that it was WMC itself, or WMC in consultation with its advisers from DJB and Fluor Daniel, which decided to use HDPE. Steuler pointed out that the specification in WMC's Bid Request did not specify any lining material other than HDPE and did not seek any quotation in respect of any other material. Knowing its own processing system, WMC had, in the Bid Request, prescribed HDPE as the lining material to be used. It had not sought advice from the tenderers about the competing advantages and disadvantages of other containment systems.
511 Mr Matheson said in his witness statement that the decision to use HDPE:
reflected WMC's preference, was seen as a lower cost to other materials, and importantly, eliminated the difficulties of the interface between stainless steel proposed for lining the mixer boxes and HDPE in the settler tanks.
512 Steuler further submitted that WMC's lack of reliance upon tenderers, regarding the issue of whether HDPE was suitable for the proposed process conditions, was apparent from the following exchange of correspondence between WMC and Vinidex Tubemakers Pty Ltd ("Vinidex"), one of three rival bidders. By a letter dated 28 April 1997, Ed Jones, the Regional Contracts Manager of Vinidex, wrote to Mr Otten as follows:
In reference to the above bid the HDPE sheets offered are chemically resistance against the mixture A (Sulfuric Acid, Ferric, Copper, Chloride).
In regards to mixture B, Kerosene will cause a swelling of the material. This will cause a minor change to the mechanical properties of the material.
We kindly request an exact description and the chemical formula for Aldoxime (Tertiary Maine) in order to clarify the chemical resistance.
513 Mr Starcevich replied to Mr Jones by a facsimile dated 29 April 1997. He said:
We understand that HDPE is suitable for the proposed application and has performed successfully in other installations but to allow you to confirm the suitability I've been given the following information ...
He then set out some further technical information about mixture B.
514 Steuler submitted that the tenor of the Starcevich response was obvious, namely, that WMC already understood that HDPE was suitable for the proposed chemicals, but to allow Vinidex to confirm the suitability, it provided certain information. It submitted that Mr Starcevich's statement reflected WMC's knowledge of, and confidence in, HDPE to perform the proposed role in the solvent extraction plant. Steuler submitted that the response by Mr Starcevich was significantly different from what would be expected if WMC were truly waiting for, and reliant upon, the provision of a confirmation by Vinidex that its proposed HDPE material was suitable for the process conditions. Further, despite requests for relevant discovery, WMC had not provided any documents (or indeed any other evidence) showing that it ever pursued Vinidex for a confirmation of the suitability of its HDPE material for the process conditions, or a confirmation in accordance with clause 1.5.4. Nor was there any evidence that Vinidex ever provided any form of confirmation to WMC.
515 The plaintiffs submitted that Mr Smith's evidence that, if Steuler had not been prepared to certify the suitability of HDPE, he would not have proposed its use, and would not have given the warranties required by WMC, must be accepted. Further, they submitted that it must be accepted that WMC would not have proceeded with its contractual arrangements with Protec but for:
(a) Protec's representations in its Bid, which were made in reliance on Steuler's representations;
(b) the representations made by Steuler at the 20 May 1997 meeting; and
(c) the representation of the full performance warranty made in the fax of 8 July 1997.
If Protec Pacific and Steuler had not confirmed that they were providing the warranties as to long term suitability of the material, as required by the Bid Request, I would not have recommended that the tender should have been awarded to them.
517 Mr Blizzard said in cross-examination that it was quite possible that if he had not got the positive response from Mr Steuler he would have recommended Beltreco to supply and install the HDPE. But he also said that if Steuler had told WMC that it was not prepared to give a warranty that its HDPE product was fit for the purpose, he would have referred the question of the use of HDPE back to the technical people.
518 Mr Blizzard said that section 6 of the Bid was a clear indication to him that "Protec Pacific/Steuler were representing that their material was certainly suitable for the purpose and would meet the performance guarantees as specified in the documentation". Mr Blizzard also said that he did not consider clause 14 of part 10 to be an exception to the confirmation required in clause 1.5.4. He said that he "considered this to be more of a statement".
If Michael Steuler had not made the statements which he did on 20 May 1997 and satisfied me that the Steuler/Protec bid would result in a suitable lining system for the OEP project or if Steuler or Protec had not been prepared to give the necessary warranty that the proposed Bekaplast lining system would be suitable in the long term, whether it be 20 years or 30 years, I would not have recommended them for the contract. I would also have recommended to the relevant OEP personnel that none of the bids be accepted until the issue of the suitability of HDPE had been further investigated or another lining material be used.
Had I been involved in the process of selecting a suitable material for lining the concrete tanks in 1997 and an issue had been raised about the suitability of HDPE for use with the process solutions, I am confident there would have been a thorough investigation into what would have been suitable material. WMC would not have gone ahead and installed any lining if those in charge of the process were not confident it was going to last for a serviceable life. Mining facilities and the various process areas forming part of a mine are built for long-term service. They inevitably involve substantial cost and must provide reliable long-term performance because downtime is expensive in terms of lost production. Similarly, had I been involved in the selection process and if any of the contractors had indicated that they were not prepared to guarantee the suitability of the lining product for the process I would have wanted to know why and would not have accepted their product or services without an appropriate performance guarantee.
521 Mr Schell agreed in cross-examination that as he regarded obtaining a guarantee about the suitability of the product as fundamental, he would have wanted the guarantee from the supplier in writing as a permanent record.
522 Mr Weir said in his witness statement that he "believed" that HDPE was an appropriate lining material. He was no doubt instrumental in its selection as the tender material. Nevertheless, he also said in his witness statement that:
If the suppliers had refused to provide the warranties as to suitability for the long term performance of the product, it would have been necessary for Western Mining to review whether it would proceed with an HDPE liner. I would not have recommended a supplier who was not prepared to give the warranties. If WMC had decided not to proceed with HDPE, the material selection would have had to have been reviewed. I think it is likely that, if HDPE had been excluded, we would have selected FRP because that was a material which we had used for the initial plant and we knew it could perform satisfactorily. It was also cost effective by comparison with the stainless steel option. Low grade stainless steel was not an option in any event because of the high chlorine content of the bore water used at site. High grade stainless steel was cost prohibitive.
This evidence was not challenged because Mr Weir was not cross-examined.
523 In his witness statement, Mr Softley said that:
(a) similar solvent extraction plants overseas had been using HDPE;
(b) in Chile, where water quality was poor, HDPE was the material of choice;
(c) in the United States of America, where the water was better quality and low in chlorides, stainless steel was used;
(d) HDPE was considered the logical choice as the lining material because the water at Olympic Dam was artesian with a high chloride content;
(e) "the opinion at the time was that HDPE was a suitable lining material";
(f) his personal opinion was that HDPE was suitable because "we had no reason to doubt its use". The HDPE pipes installed in the initial solvent extraction plant at Olympic Dam had performed well; HDPE was "widely used overseas at the time"; and in 1997 it was specified for use in the Gunpowder plant in Australia.
524 The plaintiffs did not challenge the assertion that WMC had favoured HDPE as the preferred lining material or that it had made its own inquiries and obtained its own advice in relation to the choice of lining material. Nevertheless, they submitted that it could not seriously be contended that, if a tenderer had refused to provide the confirmations as to suitability and service life required, WMC would have thrown caution to the wind and proceeded to use HDPE regardless. Evidence and common sense dictated that, if a tenderer had refused to warrant the suitability of its HDPE product, then other lining options would have been considered. The plaintiffs also submitted that the fact that WMC had called for tenders on the basis of HDPE was not evidence against reliance. Further, the plaintiffs pointed to the statement in clause 1.6 of the Bid Request (on the same page as clause 1.5.4) that the scope of work was not intended to restrict innovative engineering or improvement in design especially if there was a reduction in capital or operating costs. That is, tenderers were free to propose alternative materials.
525 I do not accept Steuler's submission that the plaintiffs' position on reliance was not supported by the evidence of Mr Softley and Mr Weir. If Steuler had expressed doubts about the suitability of its material, then Mr Softley would have had "reason to doubt its use", and Mr Weir, like Mr Blizzard and Mr Starcevich, would have had to re-consider the suitability of HDPE liners.
526 In Gould v Vaggelas,[22] Wilson J stated the applicable principles concerning reliance:
527 In my opinion, Mr Smith did rely on the singular 20 year representation (the second representation), to some extent, and the suitability representation (the third representation) made by Steuler. He was not an expert in this area and he clearly relied on what he was told by Steuler. This led to Protec NSW making the second and third representations to WMC. It also led to Protec, in reliance on Steuler's earlier representations to Mr Smith/Protec NSW, entering into the OSS Agreement.
528 Secondly, in my opinion, WMC also relied on the singular 20 year representation, to some extent, and the suitability representation (the second and third representations) made directly by Steuler, and repeated by Protec NSW, in deciding to enter into the OSS Agreement and install the Bekaplast HDPE lining system. Obviously, WMC did favour HDPE, but I agree with the plaintiffs' submission that if Steuler had not been prepared to represent that its HDPE material was suitable, then WMC would have looked at the issue again. Perhaps it would have stuck with HDPE by contracting with Beltreco to install Serrot's HDPE material as the liner for the tanks. Or it may have abandoned HDPE and changed to FRP, as it did some four years later. Whatever course it might have followed, I am satisfied that if Steuler had not represented that its Bekaplast HDPE lining system was suitable, WMC would not have proceeded to enter into the OSS Agreement with Protec. As stated in Gould v Vaggelas,[23] it is sufficient if the representation played some part, even a minor part, in contributing to the formation of the contract. The evidence establishes that this was what occurred in this case, in my opinion.
529 However, counsel for the plaintiffs accepted that there was much to be said for the proposition that WMC did not really rely on the second representation. What was critical to it proceeding to install the HDPE lining was the third representation, that is that the lining was suitable, rather than that there was an example or examples of an HDPE lining lasting 20 years. The second representation simply reinforced the third representation. That is, on its own the second representation may not have been sufficient to make out the plaintiffs' claims.
Were Steuler's Representations Misleading or Deceptive?
530 WMC and Protec submitted that the three representations by Steuler, upon which they relied, were:
(a) misleading or deceptive in contravention of s.52 of the TPA; and
(b) made negligently in breach of Steuler's duty of care to each of Protec and WMC.
531 Clearly the most important of these representations, given my findings set out above, is the third representation, namely that Bekaplast HDPE was suitable for use as a long term containment membrane for the concrete solvent extraction tanks at Olympic Dam. As I have previously concluded, suitability in this context meant, at least, able to contain for a lengthy period of time a solvent such as kerosene at elevated temperatures.
532 The plaintiffs submitted that the third representation was false essentially because HDPE was unsuitable for use with solutions containing kerosene at elevated temperatures due to the similar solubility parameters between HDPE and kerosene. Under those conditions the kerosene was diffused into the amorphous regions of the HDPE which had the following effects:
(a) First, there was swelling of the liner between the knobs (a physical effect), with the consequence that stresses were applied to the liner. There was tension at the top side of the crest of the swelling, compression at the underside of the swelling, and shearing forces at the restraining knobs which made the liner susceptible to cracking and caused the knobs to break and lift away from the concrete. The results of these stresses, it was submitted, could be seen in photographs tendered in evidence. Further, the plaintiffs submitted, the evidence of Steuler's own witnesses, such as Mr Gebhard, Mr Modes and Mr Rohringer also established that the swelling had taken place.
(b) Secondly, anti-oxidants, which were added to the HDPE to provide protection against oxidation, were extracted by the kerosene acting as an effective solvent (a chemical effect).
(c) Thirdly, there was plasticisation or a softening of the liner and a reduction in its strength.
533 The temperature of the solution was said to be important because the amount of absorption of organics was a direct function of the temperature of the solution, that is, the higher the temperature the greater the amount of organics absorbed; the greater the amount of absorption of organics, the greater the swelling; the greater the swelling, the greater the pressures created in the Bekaplast lining, in the knob/sheet connection and in the weld seams proximate to the swelling; and the greater the pressures, the more likelihood of stress crack failure leading to leakage and a shorter lifespan of the lining system.
534 Dr Schiers explained why this occurred, in his report dated 4 July 2005:
In my opinion HDPE is not compatible with the conditions outlined in the bid request for a number of reasons. Firstly, HDPE is susceptible to swelling by hydrocarbon solvents such as kerosene, with this interaction being more pronounced at higher temperatures. The sorption and swelling of HDPE by kerosene is due to the chemical affinity of HDPE with hydrocarbon liquids.
Secondly, the antioxidant additives that are an essential formulant in HDPE are susceptible to extraction by good solvents (kerosene is an excellent solvent). The loss of antioxidants by solvent extraction renders the HDPE susceptible to thermal oxidation.
Thirdly, the combined presence of copper ions (i.e. copper in solution) and elevated temperatures can lead to accelerated thermal oxidation ... Such copper-catalyzed degradation of HDPE is especially likely for HDPEs that have had their inventory of antioxidants exhausted or depleted.
Lastly, kerosene does not directly chemically attack the liner itself, but rather it provides the conditions for other agents to accelerate the degradation of the HDPE. In particular, kerosene swells the HDPE and therefore increases its permeability. Moreover, since the HDPE sheets are permeable to kerosene the vapour can also transport through the liner to the other side which is an undesirable outcome (i.e. the liner should function to contain the ingredients and prohibit them from exiting the tank).
535 The plaintiffs submitted that the unsuitability of the HDPE liner was also demonstrated by the information contained in the Chemical Resistance Charts published by the various manufacturers concerning the reaction of the HDPE material to kerosene at different temperatures. This information was as follows:
536 Each of the charts used a three level grading system but with some different descriptions of the various levels. "Resistant", and "Satisfactory" indicated the highest grade; "Limited Resistance", "Some Attack", "Limited Application" and "Conditional" the middle grade; and "Not" or "Non Resistant" and "Unsatisfactory" the lowest grade. Thus, apart from Hoechst, the other manufacturers suggested that even at the lower temperatures, the resistance of HDPE to kerosene was at the middle level.
537 Both the Hoechst chart and the Rinker chart gave an explanation of their gradings in virtually identical terms. According to the Hoechst chart, "Limited Resistance" meant:
swelling 3-8% or weight loss 0.5-5% and/or elongation at break reduced by > for the medium kerosene, up to temperatures of > The chart only provides a general guide to chemical resistances since the immersions from which these data were generated involved only 100% chemicals; it provides no information on mixtures of a number of different chemicals. Since mixtures of chemicals may interact synergistically, it is always considered essential to perform resistance tests in the actual process solution.
541 Mr Glueck conceded that the Chemical Resistance Charts were a general guide. He also stated that the fact that the charts indicated "Limited resistance" at 60ºC would be of some concern to him in recommending a product for 20 years in a solvent extraction plant with significant amount of kerosene in the solution operating at up to 55ºC.
542 However, Mr Glueck said that otherwise he would not be concerned because:
This is a chart for a certain year. If you look to the actual chart of Hoechst you will see another result. Everything is changing in the years. From no resistance it has moved to limited resistance in the chart of Hoechst; the kerosene resistance.
But Mr Glueck did not produce another chart and the Hoechst chart produced by Mr Rohringer gave the same results.
543 Mr Glueck said that there was no uniform definition for the qualitative evaluations referred to in these charts. Mr Rohringer contended that "Conditional" or "Limited Resistance" indicated that it would be satisfactory for one sided immersion. However, he gave no examples of two sided immersion applications or any basis for his conclusion. Dr Schiers stated that in the plastic engineering field "conditionally resistant" generally implied that the material could be used "in contact with the chemical for short term periods and not continuous use at elevated temperatures indicated".
544 Whatever the precise meaning of these terms, I agree with the plaintiffs' submission that it was not credible to suggest that gradings in the middle level would indicate suitability for long term resistance to aggressive media. The fact that Hoechst only recommended HDPE with kerosene "up to temperatures of > All Experts agree on the necessity for any forensic testing to determine the chemical resistance of lining material to the chemicals to which it was exposed at the Project to be carried out using test solutions that simulate the actual process solutions and operating temperatures as closely as possible, and for the test solutions to be continuously agitated.
549 It was established by the evidence of Mr Bowden that the quantities in the process solutions actually used in the solvent extraction tanks differed from those specified in clause 1.5.4 of the Bid Request. Secondly, Mr Bowden's evidence established that the solutions he prepared for testing by Dr Schiers did not reflect the actual solutions because they did not include a test solution containing:
(a) oxine, which comprised 10% of the solution in all tanks in the copper trains and acted as chelating agent, that is, it removed the copper from the aqueous phase;
(b) isodecanol, which comprised 3% of the solution in all USX tanks; or
(c) possibly, ammonia, which was part of the solution in the USX strip tanks S1 to S4.
550 At this stage I am concerned with the question of whether the third representation, the more general suitability representation, was misleading or deceptive. It is, therefore, not relevant, in my opinion, if the tests were carried out using solutions which did match those specified in clause 1.5.4. What is important is whether the Bekaplast HDPE lining was suitable for use in the solvent extraction tanks at Olympic Dam, in the sense of able to contain for a lengthy period of time a solvent such as kerosene at elevated temperatures.
551 Both Dr Schiers and Dr Peggs said that they did not think that the results of the testing would not have been affected by the absence of the different chemicals. The real problem was the kerosene - "a real bad actor" as Dr Peggs put it. Counsel for Steuler described these responses as mere assertions without any scientific basis, contrary to the principles, set out in Makita (Australia) Pty Ltd v Sprowles.[25] Although the views expressed by these two witnesses were obviously based on their extensive training and experience, and Dr Schiers in fact referred to his "knowledge of chemistry" when stating in cross-examination that the isodecanol "would have no appreciable effect", it is hard to reconcile those views with the statement by Dr Peggs in the passage from his November 2002 report, quoted above, that:
Since mixtures of chemicals may interact synergistically, it is always considered essential to perform resistance tests in the actual process solution.
On the other hand, Steuler's own testing was performed using only kerosene without the additives.
552 The more important part of this criticism of the testing is that it was not done at the actual operating temperature of the process solution. The testing done by TRI in Texas and by Dr Schiers was done at 650C. Other tests were conducted at 550C and at 600C. Testing was done at these higher temperatures in order to accelerate the reactions of the material to the solution.
553 Steuler's initial position in its defence to WMC's counterclaim was that the process solutions had been operated at temperatures "well in excess of" 550C. This led to WMC tendering evidence through Mr Culf which purportedly showed that the maximum temperatures at the solvent extraction plant were around 550C. After analysing the Citect material, Steuler changed its position and opened its case on the basis that WMC's own Citect data showed that the average daily temperature of the pregnant leach solution at the entry to the solvent extraction plant for the period between 28 September 1999 and 21 October 2001 was only 220C. WMC then called further evidence to the effect that the relevant temperature probe ("TC5") was not in place during this period, and was probably simply measuring ambient temperatures.
554 Attention was then focused on the recordings for probe TC5 in the period between 1 March and 27 September 1999, later limited to the period between 1 June and 27 September 1999. Both sides then applied differing "filters" to the raw figures to come up with what were said to be the best indications of the temperature of the solution in the solvent extraction plant prior to the second fire. The recordings for the period between 25 February 2004 and 1 September 2006 were also examined. However, Mr Folwell said that it was his understanding that the solvent extraction plant was operated at higher temperatures after the enhancement following the second fire than before, and this was certainly borne out by the recordings, which on the various analyses were about 60C to 80C higher.
555 Steuler submitted that it should be accepted that the average solution temperature in the solvent extraction plant before the second fire was around 350C. It based this on the average of the average daily recordings at probe TC5 in the period between 1 June and 27 September 1999 of 37.10C, and on the median of the same average daily recordings of 37.20C, and on the uncontradicted evidence that the temperature would have dropped by between 10C to 30C from that recorded at probe TC5 by the time the solution entered the uranium tanks.
556 The plaintiffs submitted that the most realistic finding would be at least 50C higher. Mr Folwell gave evidence that after applying his "filters" he concluded that the average temperature of the solution was 430C in the copper solvent extraction tanks and 420C in the uranium tanks. The plaintiffs also pointed out that the average of the maximum daily recordings for the period between 1 June and 27 September 1999 was 43.30C. Further, they argued that it was not correct to concentrate solely on averages without regard to the actual temperatures recorded in this period, which occasionally exceeded 500C. Whilst Dr Schiers had said that a "relatively short" spike in temperature "would have little effect on the longevity", he had also said that if the increase was "sustained, obviously it would have a more appreciable effect". The plaintiffs therefore submitted that, as the 90th percentile figure for the average of averages resulted in a figure of 40.20C, to have the remaining 10% of daily recordings averaging in excess of 400C was a significant amount of time at higher temperatures than the 350C suggested by Steuler.
557 Doing the best I can with the various figures, and assuming that the temperatures recorded in this short period were representative of the whole period, I have concluded that in the period before the second fire the solution in the solvent extraction plant was generally operating at a temperature of about 400C. I note that this is consistent with what Mr Modes recorded he was told when he visited the plant in June 1999.
558 Apart from the criticism that the testing was performed at 550C and higher, and not at the actual operating temperature of the process solution, the importance of this evidence from Steuler's point of view is that Dr Schiers gave evidence that for every 100C increase or decrease in temperature there would roughly be a doubling or halving of the amount of sorption, that at ambient temperature he would not have expected any difficulty with the kerosene and the HDPE, and that 350C "would be considered close to ambient". However, Dr Schiers also said that to the extent that the temperature of the solution only just exceeded ambient temperature, he would have expected some swelling and dilation, but that "it would be proportionately reduced" from what would occur at 550C.
559 Even if Steuler had established that the plant had generally never operated before the second fire with the temperature of the solution no more than 350C, this would not, in my opinion, have defeated the claim that the Bekaplast HDPE lining was not suitable for use as a long term containment membrane for the solvent extraction tanks at Olympic Dam. Given that the Bid Request used a temperature of 550C in clause 1.5.4, WMC was entitled to change its process at any time and "elevate" the temperature of the solution up to that figure. But if the Bekaplast HDPE lining could not successfully contain a solution consisting largely of kerosene for a lengthy period of time at elevated temperatures such as 400C to 450C, then it was not suitable within the meaning of the third representation.
560 Steuler submitted that the plaintiffs' contentions concerning the unsuitability of the Bekaplast HDPE lining ignored the issue of equilibrium. It was common ground that the physical stresses caused by the swelling could tend to relax after the kerosene had been fully absorbed and equilibrium had been reached throughout the lining material.
561 The plaintiffs submitted that it was reasonable to expect that the swelling of the HDPE, which could be seen in the photographs to be uneven, would continue until there was substantial uniformity in the amount of the swelling throughout the material. They submitted that the only reasonable conclusion was that the large bulges would become uniform and there would be an increasing number of broken knobs associated with the bulging.
562 On the other hand, Steuler submitted that it was reasonable to conclude that equilibrium had been reached before the second fire and that the dimple effect created by the 256 knob configuration (where the distance between the knobs, 62.5mm, was the same in both directions) and the ripple effect created by the 160 knob configuration (where the distance between the knobs was 100mm in one direction and 62.5mm in the other) were the uniform results achieved following equilibrium. The large bulges were, it was submitted, not a result of the HDPE lining swelling from absorption of the kerosene.
563 The conclusion that equilibrium had not been reached before the second fire was supported, in my opinion, by the evidence that suggested that the actual operating temperature of the solution during this period was not 550C, but more like 400C. The whole damaging process of absorption and swelling was, it was agreed by all of the experts, slower at lower temperatures.
564 It was also submitted by Steuler that the plaintiffs' contentions concerning unsuitability ignored the issue of reversibility of the swelling. Dr Dunker, Mr Glueck and Mr Rohringer all said that there would be swelling, to some extent, associated with the use of HDPE in this application with a kerosene based solvent but that it would be reversible.
565 Mr Glueck based his opinion, about the reversibility of the swelling, on unpublished tests at SKZ, his former employer. These tests purported to show that after mass constancy was reached the material could be removed from the medium, dried and remeasured after it regained mass constancy. Mr Glueck said that the swelling would not be reversible unless it was removed from the solvent, and oven dried. The SKZ tests were carried out using benzene, which Mr Glueck noted to be a liquid similar to kerosene, and other chemicals, with a liner consisting of Vestolen A 3512 R, which was a 2.5mm thick HDPE geomembrane used for lining waste disposal sites.
566 Mr Rohringer based his opinion on reversibility on a particular event experienced by Ciba Geigy. That company did not operate a solvent extraction plant but it had storage tanks for waste liquid, which in 1992 became contaminated by the accidental introduction of a kerosene based solvent. He concluded that the blisters in the lining at Ciba Geigy had been caused by this contamination. His opinion about reversibility was based on the fact that he was told that, after the contaminating kerosene was removed, the swelling reversed.
567 The plaintiffs submitted that, leaving aside the fact that Mr Glueck did not carry out any test to establish the reversibility of Bekaplast HDPE after absorption of kerosene, this was an issue which did not support the proposition that Bekaplast HDPE was suitable for this application because the supposed reversibility was dependent upon the material no longer being in contact with the relevant solvent. They further submitted that the recovery of the mechanical properties would not resolve the physical damage caused by the swelling, being the stress cracks caused by the tension and the broken knobs, and that, even more importantly, the substantial re-establishment of the mechanical properties would not resolve the chemical changes and, in particular, would not be associated with a return of the extracted anti-oxidant stabilisers.
568 The concept of reversibility does not assist Steuler, in my opinion, because if the solvent extraction plant operated according to plan, there was never going to be any time when the solvent would not be in contact with the lining in the tanks.
569 The next issue with respect to the suitability of the Bekaplast HDPE liner was the question of whether it had been used successfully with kerosene in other solvent extraction plants around the world. Steuler attempted to put into evidence some case histories by Mr Rohringer about the plants in Niger and Finland, but that evidence was objected to on the basis that it was not in admissible form and because part of the evidence had been omitted from Mr Rohringer's statement when it was served and, despite being requested, it had not been provided to the plaintiffs until well into the hearing.
570 Nevertheless, that material had stimulated WMC into making inquiries for itself about what had happened at the Outokumpu plant in Finland. Very late in the hearing, the plaintiffs sought to tender a witness statement from Esa Lindell, who in December 1996 had been employed by Outokumpu Research Oy as a Research Engineer, assisting Outokumpu Harjavalta Metals Oy in commissioning its cobalt solvent extraction plant at its nickel refinery in Harjavalta in Finland. Attached to Mr Lindell's witness statement was a report dated 18 December 1996 which he had prepared purportedly about "problems with leaks from HDPE lining in the mixer settler tanks at the plant". The lining in that case had been a double walled HDPE system 8mm thick.
571 Counsel for Steuler objected to the witness statement being received at such a late stage. They submitted that the fact that Steuler had successfully installed an HDPE liner at Outokumpu's plant in the mid 1990s had been referred to in Steuler's pleading for many years and WMC could have made its inquiries earlier if it had wanted to dispute Steuler's claim.
572 Counsel for WMC submitted that it sought to tender the evidence not to show that what was said about the HDPE was necessarily true but to show that if Steuler had made inquiries of Outokumpu before telling Protec and WMC that the Bekaplast HDPE lining was suitable for use in the solvent extraction tanks at Olympic Dam, it would have been alerted to the possibility that the HDPE was not suitable.
573 I ruled that Mr Lindell's witness statement could be tendered for the limited purpose of WMC attempting to prove that if an inquiry had been made by Steuler of Outokumpu it might have revealed that there were allegations of serious problems with that installation. I also ruled that Mr Rohringer's case histories were not in admissible form or relevant to the issues in this case.
574 What the submissions on this evidentiary point demonstrated was that each plant operated under different conditions and with different materials. No two plants were the same. Any comparison would, therefore, only be of assistance if the situation at the other plant was fully examined and even then its relevance was likely to be marginal at best. Further, such a task went well beyond the confines of what was already a very lengthy hearing which had taken far longer than the original estimates.
575 It seems to me, therefore, that neither side can make anything of what evidence there was of examples of uses of HDPE in other solvent extraction plants (such as those mentioned in Mr Hopkins' letter dated 18 November 1996) or of the absence of more direct evidence of HDPE being successfully used in other solvent extraction plants. Without a full examination of the particular circumstances operating at that plant, such evidence would not be probative.
576 Steuler pointed out that in the particulars to paragraphs 54E and 54F of WMC's counterclaim, WMC had alleged that "the tanks were progressively put into service from about June 1999" and that "the HDPE lining system required replacement after a service life of less than 12 months". That is, it was alleged that by about May or June 2000 the lining system was shown to be unsuitable. During the plaintiffs' opening at the commencement of the hearing, their case changed in that the emphasis was now on the lining system having failed and requiring replacement by the time of the second fire on 21 October 2001, alternatively that the lining system was likely to fail prematurely, some time after that date, because it was unsuitable. In the plaintiffs' final submissions in reply, counsel confirmed that WMC was not contending that the lining system totally failed within 12 months.
577 Steuler submitted that, as WMC had not proven that the HDPE lining system required replacement after no more than 12 months, its claim must fail. However, Steuler seemed to accept that the claim could proceed as articulated above because it went straight on to deal with the claim on this changed basis. Thus, Steuler submitted that in order to prove unsuitability WMC had to show that, by the time of the second fire, the lining system had either failed completely or was about to fail completely. Once again, Steuler submitted that WMC could not succeed, because it had not proved either of its alternative claims.
578 WMC disagreed with Steuler's analysis of what it had to prove in order to establish unsuitability. I will defer considering this issue for the moment, and proceed with an examination of the evidence about what had actually happened to the Bekaplast HDPE lining by the time of the second fire.
579 The above chronological review of the factual background revealed that, as early as May 1999, WMC was considering replacing the HDPE lining because of the problems with leaking. However, most of these leaks must have been caused by factors other than the suitability of the lining system, given that they occurred during testing and before the process solution was introduced.
580 The next matter to consider regarding the suitability of the lining system would be the reasons for using FRP in place of HDPE to reline the damaged tanks after the first fire in December 1999. Steuler submitted that this occurred because of:
(a) the history of leaks during the testing and commissioning of the tanks from late 1998 to about mid 1999, when the tanks were put into service;
(b) measures taken to avoid the recurrence of a second fire.
Further, Steuler submitted that whilst there was evidence of swelling by this time, there was no evidence of leaks caused by swelling and no evidence of unsuitability, that is, stress cracking caused by swelling.
581 Mr Softley said in his witness statement that the decision was made to replace the HDPE lining with FRP in order "to avoid further maintenance issues and possible downtime", to use the opportunity to replace the lining given concerns about "the long term performance of HDPE in these tanks due to leakage problems". He acknowledged that "the fact that FRP offered improved fire resistance was also a factor".
582 Nevertheless, Mr Softley said that the swelling he observed in a typical tank was greater than he had expected. He said that it seemed to be worse in the floor beneath the weir between the mixer and the settler, where the composite mixture was discharged into the settler. He agreed that the concentration of the organic solution on the floor would be greatest at this point, before the separation of the organic and aqueous portions started to take effect. Mr Softley said that when he saw the swelling he formed the opinion that they had "a very significant issue" on their hands, which concerned him, even though "it may not have been presenting itself in the form of failures at the time".
583 Mr Softley agreed that "the vast majority" of the leaks which occurred prior to the first fire occurred in the solvent extraction tanks not affected by the fire. Apart from the copper raffinate tank, the tanks which had the liners replaced had not experienced significant leakage problems before the first fire. Mr Softley also said that once the completions teams had finished their tank repairs in about August 1999, "the leakage problem disappeared significantly". He agreed that at December 1999 he was not unhappy with the performance of the copper and uranium solvent extraction tanks. He said:
We were encouraged by their performance and they were operating far better than they had been prior to the repairs.
584 Mr Folwell said in his witness statement that following the first fire he formed the view that the damaged tanks should be lined with FRP "because the HDPE had proved unsuitable". He said that his decision to replace the HDPE lining was based on:
(a) his observations of the deterioration of the tank liners;
(c) the advice of Dr Peggs, who said in his May 1999 report that in his opinion the HDPE lining would not provide a long term solution with the kerosene and that the problem would persist and "may get worse".
585 However, in cross-examination Mr Folwell said that:
(a) rather than talking about his decision, a better way of expressing it would have been "my reasons for going along with the decision ... made by a group of people" and that the suggestion to replace the liners came from a Hazop study (a hazard and operational study);
(b) the statement about "his observations of the deterioration of the tank liners" was a reference to the swelling of the Bekaplast;
(c) he was not aware of any specific problems with the lining in the four tanks which were rebuilt after the first fire or with the lining in the four tanks where only the liner had to be replaced; and
(d) the reference to what Dr Peggs allegedly said in his May 1999 report was wrong because there was no such statement in that document.
586 Mr Folwell agreed that poor installation work had been a contributing factor to the initial leaking, but said that:
... the indications were that there was a significant risk going forward with the exposure of the lining system to the solvent in particular.
He would not accept that the only cause of the leaks to this time had been defective workmanship. However, he agreed that he was not aware at the time of any testing which "proved conclusively that leaks were due to unsuitability of material to the solvent".
587 The references to the tank lining in section 6.2 and Appendix 2 of the belatedly discovered Hazop report were to the effect that the lining had been "incorrectly installed" resulting in "leakage of diluent". Any reference to Dr Peggs' views was similarly absent from the list of fire investigation recommendations considered at a meeting held on 23 February 2000, which became Appendix 2 to the JFE for $2.9 million dated 3 May 2000. I agree with Steuler's submission that if, at that time, the swelling had been considered problematic and/or a cause or even a potential cause of cracking of the lining or failure of welds or leaks generally, it would have been referred to in at least one of these contemporaneous documents.
588 On the other hand, such views were expressed in other contemporaneous documents. By a Project Assessment Sheet, bearing the date 14 April 2000 at its foot, approval was sought for expenditure of $150,000. It was stated in that document that:
HDPE lined mixers and settlers in new CuSX and USX have failed along welds resulting in the need to take the particular train offline for a normal duration of 24 to 48 hours, depending on the location of the failure. The units failing and the location of the failure is random, thus making a permanent fix whilst a unit is offline almost impossible. Each defect is repaired, and repeat failures in each of these units has always been found to be associated with a new failure, not a failure of the last repair.
The cost of a failure is typically $5k to $10k to repair, however the production loss is 10 to 20 times this, depending on whether the failure is in CuSX or USX.
The predominate failures have been occurring in the new USX strip and scrub mixer settlers due to these being first fabricated. ...
Based on the success of FRP as a replacement material for lining mix boxes through SX, plan to remove and reline mix boxes, and potentially settlers that show solvent deterioration, with fibreglass. The focus for 2001 will be the relining of the USX mix boxes, as these have displayed the greatest failure rate. The main reason for the increased frequency of failure through this circuit was that these were the first units constructed, and a number of early issues highlighted through this circuit were modified in the CuSX circuit.
589 By a memorandum dated 18 April 2000, Mr Softley circulated a summary of the review to date of the possible trial replacement of the HDPE lining in one of the undamaged tanks. Three proposals, two FRP and one stainless steel, had been received. One FRP proposal did not involve removing the existing lining. A JFE seeking approval for expenditure of $40,000 was signed on 26 April 2000. The supporting documentation stated as follows:
Since commissioning the new SX area, a number of HDPE failures have occurred resulting in sections of the SX plant being shutdown for a few days to perform weld repairs. Of all the failures that have occurred, 90+% have been mix box failures. The mix box has the greater physical movement, solvent contact with all the surfaces and more intricate welds due to various fittings in the mix box. HDPE swells when in contact with solvent, which is believed to be one of the main contributing factors to the HDPE failures. As the HDPE swells, stress is induced on the anchor points which are either the HDPE nodules embedded in the concrete or a weld point. With continued swelling, the welds become a weak spot and fail.
The failures have been predominantly in the USX mixers, with an average of two unit repairs per month since commissioning mid 1999. CuSX has not been on line as long, however the performance of the circuit has not been as bad as USX with a total of 5 weld failures to date, 3 mix box and 2 settler. It is anticipated that with time the HDPE will continue to swell and failure rate will escalate.
Each time a unit has to be repaired results in a significant production interruption, and typically loss of solvent and reagent as the units need to be completely drained and cleaned. The reclaim [sic] of process fluids from the dump pond is not 100% effective due to mixing of solvent with crud either in the pond or in the unit being cleaned.
...
It is proposed to ... reline one CuSX strip unit with FRP sheeting as a trial. ...
Justification for the reline of the mix box is based on elimination of shutdowns for HDPE repairs. ...
Various alternatives were considered. It was said that:
The final alternative is to persist with the HDPE liner, which is displaying signs of deteriorating more frequently the more the material swells. This proposal is to at least prove up an alternative so that a business decision can be made in advance of the problem escalating beyond control.
590 I do not accept the validity of Steuler's criticism of these two documents, no doubt made in an attempt to play down the possible importance of the views expressed therein.
591 Next, there is the suggestion by some WMC witnesses that the HDPE lining system was shown to be unsuitable by what happened in the period between the two fires.
592 Mr Folwell said in his witness statement that, after the 1999 fire, problems continued to be experienced in the mixer and settler tanks, particularly with the mixer boxes. The problems were more in the uranium train than the copper train. He said that because of the ongoing problems with leaking and the satisfactory performance of the FRP in the reinstated tanks, it was his view that "the HDPE would be progressively replaced with FRP". Mr Folwell gave evidence that in this period the HDPE was not doing what WMC wanted the lining system to do. He said that "it was continuing at suboptimal rates" because the plant had to be shut down for repairs to the lining.
593 In cross-examination Mr Folwell agreed that the plan to replace the lining in all of the mixer boxes with FRP during 2001 did not take place. But he insisted that the Bekaplast "was causing ongoing issues". However, Mr Folwell could not point to any document referring to the planned replacement of the HDPE lining during the period from the middle of 2000 to the date of the second fire.
594 Mr Schell gave evidence that the lining system had failed within 12 months, that is, by August 2000. In cross-examination, he said that during this time there was continuous patching of leaks, which could be done within a 12 to 18 hour period, but that such short term measures would not have been recorded in the monthly hydromet reports. Mr Schell said, however, that the leaks would have been recorded in maintenance log books which, he said, were only kept for around 12 to 24 months. No such log books had been mentioned by Mr Schell in his witness statement, which was surprising as this would have been further evidence of the failure of the lining system. Further, no such log books were produced by WMC. I expressed some surprise that the log books would not have been retained by WMC, on the advice of its lawyers, when litigation had commenced in June 2000. I accept Steuler's submission that the most probable explanation of Mr Schell's evidence is that whilst the stoppages he referred to may not have been recorded in the monthly hydromet reports, they were recorded in another previously undiscovered document produced by Mr Schell, namely, the SAT Maintenance System extract.
595 Mr Schell also maintained that at the same time WMC was "waiting for an opportune time to replace the whole package". However, he agreed that he could not produce a document where he had put forward a plan for such a project.
596 I therefore consider that the plaintiffs have not shown that the Bekaplast HDPE lining system had failed completely by the time of the second fire. Not only was the lining still being used, but the summary of evidence of leaks prepared by Steuler showed that the number of leaks had dropped significantly after the first fire. Moreover, there was a lack of any contemporaneous evidence showing that WMC was claiming at the time of the second fire that the whole lining system had failed completely or demonstrating that it was contemplating or planning to change the whole lining system. Other relevant considerations are that, as previously stated, when WMC joined Steuler as a defendant to its counterclaim in December 2001, there was no allegation that the lining system had swelled, rucked, buckled, cracked and failed, nor that the lining system required replacement. That allegation was not made until Ms Maddern's letter of 3 April 2002. Finally, WMC's Insurance Claim Report dated 23 May 2003, which sought the cost of re-lining the destroyed tank farm areas and the cost of re-lining the CUSX and USX trains, was submitted on the basis that at the time of occurrence of the second fire, the liner had not failed.
597 I turn then to the evidence concerning the suggestion that the Bekaplast HDPE lining was unsuitable because it was likely to fail prematurely. Dr Peggs concluded in his report dated 9 September 2002 that:
The liners have failed to perform as required for a number of contributory reasons.
In my opinion HDPE was not an appropriate material for containment of the specified process solutions at the specified temperatures. And the various HDPE components used in the lining system were not of consistent quality - the smooth 5mm material, in particular, was completely unacceptable due to its low stress cracking resistance, low carbon content, low ultraviolet radiation resistance, low oxidation resistance, and low break strength/elongation. This material was the cause of many leaks.
The HDPE has absorbed organic components from the process solutions resulting in swelling, bowing, and the development of blisters in the liners on the walls and floors. Consequently, welds have been unduly stressed, studs have separated from the back surface of the sheet, welds have separated, and cracks have occurred. Attempts to repair the liner have been compromised by the evolution of absorbed organic vapors as the base liner has been heated during repair welding.
The training and experience of the welders was not adequate and trial weld and test procedures were not sufficient to assure that leak-tight, mechanically-durable production welds would be achieved. As a result welds were not adequately bonded, gaps were not adequately filled, cracks initiated in weld deposits and in adjacent sheet, and leaks occurred.
A lack of understanding of spark testing, and failure to perform proper calibration tests, has resulted in the lack of detection of leaks through welds, particularly through overlap fillet extrusion welds at the edges of cap strips and patches.
One of the more significant combinations of design and installation inadequacies has been the limited dimension of the leak drainage channel cast into the floor on which the floor panel welds were required to be positioned. ...
A large number of cracks had occurred at the ends of unstudded liner material on the weirs between the mixers and settlers. The cause of this cracking was the use of material with inferior stress cracking resistance and not that unstudded material was used.
To facilitate welding, studs have been removed from the sheet by mechanical means other than grinding, which is contrary to the requirements of the manufacturer, and which has resulted in cracking and leakage adjacent to the welds.
In my opinion the liner is irreparable. The need to remove all absorbed organic vapors prior to repair welding, the existence of non-penetrating defects that will eventually grow into leaks in the existing liner, the fact that new repair materials will also swell, bow, and stress their peripheral welds, and that continued oxidation of all HDPE components will lead to eventual embrittlement and stress cracking of the liner, make effective repairs impossible to assure.
598 Although Steuler treated Dr Peggs as having concluded that the lining had failed completely, I do not read the above passage as saying that. Rather, Dr Peggs was saying that the lining was "irreparable" and would eventually fail because of the defects which he had observed. He described the blistering and wrinkling as "a precursor of damage or initial damage". By that he meant "the start of damage that could lead to leakage".
599 Steuler pointed out that in his conclusion set out above, Dr Peggs identified a number of "contributory reasons" for his view that the HDPE lining had failed to perform as required. It submitted that it was not responsible for most of those reasons - defective welding and spark testing, the leak drainage channel and the removal of anchor studs by mechanical means. Even some of the problems with the HDPE material were not Steuler's responsibility because the smooth HDPE lining material, which Dr Peggs singled out for particular criticism, was not provided by Steuler. I consider below the relevance of these and other problems encountered during the design and construction of the tanks and the installation of the liner.
600 Steuler made a number of criticisms with respect to Dr Peggs' evidence of bulging. His samples 14 and 15 were the two bulges investigated. Steuler submitted that the investigation of only two bulges to prove the cause of the bulges was completely inadequate. It pointed out that:
(a) samples 14 and 15 were both in the USX mixer SC1 covering an area of 45m2 out of a total of 12,500m2 of HDPE lining; and
(b) SC1 was a USX mixer box, but the USX mixers were where most of the problems occurred and accordingly they were not representative of the remainder of the HDPE lining.
601 Steuler further submitted that forensically, the investigation of the cause of the bulges was wholly inadequate because:
(a) only two bulges were opened up and investigated;
(b) no photographs or videos were taken of the bulges prior to the cutting out of the samples;
(c) Dr Peggs did not remove the samples himself and could not remember whether he was present when samples 14 and 15 were removed; and
(d) although Dr Peggs said that great care was taken in removing samples 14 and 15 by using the chisel to "hit the studs that were still fastened at the outside", the grey marks left by the chisel showed in almost all instances, the chisel going between the anchors.
602 Moreover, Steuler submitted that WMC had not established, either in the case of samples 14 and 15, or with respect to other such bulges in the Bekaplast lining, that the bulges were caused by the sheet separating from the anchors. It submitted that, having regard to the inadequacies in the investigation of the bulging and the other possible causes and factors listed below, the Court could not be satisfied that, with respect to the bulges at samples 14 and 15, or any other bulges, they were the result of the sheet separating from the anchor knobs.
603 Steuler also pointed out that Dr Peggs had inspected two mixer/settlers between 8 and 10 April 2002, five and a half months after the fire. It contended that it could not be assumed that the parts of the lining system he inspected were in that condition immediately prior to the fire. WMC had not adduced any evidence as to precisely what happened with the two mixer/settler tanks inspected by Dr Peggs between 21 October 2001 and 8 April 2002. Steuler submitted that it would appear that they were left idle and that at some time between February and April 2002, they were emptied and cleaned. It was also submitted that these mixers may have been left open, without lids on and therefore subject to solar radiation heating and damage.
604 In their submissions in reply, the plaintiffs rejected these criticisms of Dr Peggs' investigation. Counsel pointed out Mr Rohringer had formed his conclusion without any sampling by him, and no-one had given evidence that the sampling was insufficient.
605 Counsel for the plaintiffs also submitted that the criticism of Dr Peggs' evidence about whether he was present when the samples were removed was unwarranted. Dr Peggs said that he was present when most the samples were removed but when asked whether he had an "actual recollection" of whether he was present when sample 14 was removed six years ago he said he did not know. However, he said that he was certainly in the tank when the sample was removed and he suspected he was watching sample 14 but he could not remember as he sat in the witness box. I accept Dr Peggs when he said that he believed he was present when samples 14 and 15 were removed.
606 The question of whether the attached knobs were removed by being hit with the chisel or whether the lining was prised away from the concrete with the chisel placed between the knobs was more equivocal as the photograph in question did show what appeared to be the grey marks of the chisel between some of the anchors. Nevertheless, I see no reason to doubt Dr Peggs' evidence that great care was taken to make sure that they did not break anything that was not already broken.
607 In my opinion, the other suggested possible causes of the knobs giving way do not bear examination. What Dr Peggs found when the lining was removed was that a number of the anchor knobs had separated from the lining as it bulged. But the anchor knobs had remained embedded in the concrete. Thus, the suggestions that weak concrete could have allowed the knob to be pulled out from the concrete, or that the knob had not been properly embedded into the concrete at the time of fabrication of the precast panels or the placement of the Bekaplast into the grout, or that the anchor knobs were missing from the Bekaplast sheet just do not make sense.
608 Steuler put together a lengthy and detailed list of other possible causes of the bulging of the HDPE liner. Steuler submitted that these possible causes arose from all of the problems with respect to the design and construction of the tanks and the installation of the lining which resulted in damage to, and/or defects in, the HDPE lining system. It is not necessary to do more than set out a summary of the more important factors because essentially the plaintiffs did not dispute that these problems had existed at an early stage. However, they submitted that they were irrelevant because they were not the reason why the lining had to be replaced. A second reason for not going into more detail of these problems is that much of the supporting evidence has already been set out above, including Dr Peggs' own views.
609 The summary of the issues relied on by Steuler as adversely affecting the integrity of the HDPE lining is as follows:
(a) the defective design and construction of the weir between the mixer boxes and the settler tanks, especially the design and installation of the weir capping material;
(b) the defective design and installation of the leak detection system, which caused difficulties in the welding together of the Bekaplast sheets, as well as it failing to perform its intended function;
(c) the many design changes made to the tanks between June 1998 and August 1999, which resulted on occasions in damaging work being performed after the lining had been put in place;
(d) the production of defective concrete panels, slabs and fixtures and fittings in and on the tanks, and the misalignment of tank elements by as much as 25mm;
(e) Protec's failure to comply with Steuler's "Bekaplast Field Installation Manual", and WMC's failure to enforce compliance;
(f) improper installation of the Bekaplast floor sheets in the tanks by not using the specified thickness of plywood boards with the specified ballast and not allowing curing to last for the specified time;
(g) exposing the Bekaplast lining to excessive temperatures during construction of the tanks and prior to installation of tank roofs;
(h) OEP's selection of, and instruction to install, inferior and unsuitable non-Steuler smooth HDPE lining material, including for the mixer box/settler tank weirs;
(i) the damage caused to the HDPE lining during handling, storage and installation by what was called "mechanical damage", caused by accidents or careless workmen;
(j) the failure to engage sufficient numbers of properly qualified thermoplastic welders, which problem was aggravated by the remoteness of the site and the lack of bed space;
(k) the failure to properly supervise the installation work;
(l) the testing of the leak detection system by injecting liquid under "considerable pressure" under the Bekaplast lining, which was contrary to the Steuler installation manual; and
(m) the repeated blasting by WMC at its nearby limestone quarry.
610 Whilst Dr Peggs agreed that some of these factors did contribute to the damage caused to the Bekaplast HDPE lining, and that it was "possible" that other factors in the list may have played a part, Dr Peggs did not resile from his view that one probable cause of the problems with the Bekaplast HDPE was absorption of "organic components from the process solutions". Moreover, agreeing that something is "possible" does not provide evidence that it was a probable cause of the problem. Further, Steuler's claim that these factors were still causing problems right up to the second fire is inconsistent with its submission, supported by its summary of evidence of leaks, that the number of leaks had dropped significantly after the first fire.
611 When asked his opinion of the future lifespan of the Bekaplast HDPE liner based on the results of the tests, Dr Peggs gave the rather contradictory answer:
I would consider it to have failed already, essentially, in six months, a year.
However, he agreed that as the tests had been performed at 650C, if the actual operating temperatures were 200C or 250C lower, he would expect that the liner "would last a little bit longer". Dr Peggs said that he could not say in months or years, but that he would expect it to be "on the low side of five years".
612 Dr Schiers did not inspect the tanks. He relied on the observations of Dr Peggs and Mr Rohringer. In the JRE, Dr Schiers is recorded as stating the following:
The HDPE lining material was in my opinion not suitable for a service life of 2 years when exposed to the chemicals (individually or in combination) and the operating temperature of 55 deg.C, on account of the high likelihood of premature failure by stress cracking due to:
613 His conclusions about the problems caused by the similar solubility parameters of kerosene and HDPE were supported, in my opinion, by the evidence of what happened to the Bekaplast lining.
614 Mr Rohringer inspected the tanks shortly after Dr Peggs. Whilst he did not consider that the bulges were "a defect in and of themselves", he said, in his report dated 23 May 2002, that they could:
lead to damage if additional tension is created at particularly critical welded seams which can then lead as a result to cracks and leaks.
Importantly, after viewing the tanks Mr Rohringer concluded that the lining was not suitable and had to be replaced. Whilst it is true that he mistakenly thought that the problems he observed had been caused by the high proportion of aromatics, the fact is that he considered that the lining could not continue to be used with the existing solution which had caused "plasticisation and swelling of the lining material". Having learnt that tests had shown that the aromatics played no part in the swelling and bulging, Mr Rohringer stated at both the Experts' Conference and the hearing that the Bekaplast HDPE liner was suitable for its intended purpose. I am unable to accept this evidence because of Mr Rohringer's firm view in April/May 2002 that the Bekaplast HDPE liner was not suitable and would have to be replaced based on what he had observed of the damage to the tanks at that time.
615 Mr Glueck is recorded in the JRE as saying that he accepted that "bulging that includes a number of studs is a defect", but that he was "unable to attribute a cause for the large bulges" which he had seen in Dr Peggs' photographs. In cross-examination at the hearing, Mr Glueck agreed that elevated temperatures would mean that the kerosene would be more easily diffused into the HDPE and that accordingly the volumetric expansion would be greater and the loss of antioxidants would be faster. Mr Glueck also said that, on the basis of the data that he then had, he could not certify that the liner would last for ten years:
One further piece of information he required was what were "the elevated temperatures".
616 Whilst criticisms were made of the limited or non-existent practical experience, specifically with respect to solvent extraction plants, of Dr Peggs (only one prior example) and Dr Schiers (no prior sample), I do not consider that their claimed qualifications, experience and general expertise, which was all relevant, could be called into question. Regrettably, the evidence of Steuler's expert witnesses was, I believe, hampered to some extent by the difficulty of giving evidence in a foreign language. Although I have taken that into account, where the experts differed I generally preferred the evidence of Dr Schiers and Dr Peggs to that given by Mr Glueck and Mr Rohringer.
617 I have, therefore, concluded that the plaintiffs have established that because of the similar solubility parameters of HDPE and kerosene, there were inherent risks in putting the two together particularly where the solution containing the kerosene was to operate at elevated temperatures. Secondly, I am satisfied on the evidence that one of the causes of the bulging of the Bekaplast HDPE liner and the consequent separation of the anchor knobs from the HDPE sheet was the stress applied to the liner by swelling and the reduction in strength of the liner as a result of the kerosene being diffused into the amorphous regions of the HDPE.
618 As I have said previously, there was disagreement between the parties as to what WMC had to prove in order to show that the Bekaplast HDPE lining was unsuitable for its purpose. The plaintiffs submitted that findings similar to what I have concluded above would be sufficient, whereas, as I understand Steuler's case, it submitted that if WMC had not proven that the lining system had failed completely by the time of the second fire, then it had to prove when it would have failed completely if it had continued in operation.
619 The plaintiffs' submission that the Bekaplast HDPE lining was not suitable for the identified purpose was based on the following reasoning:
(a) The determination of whether the Bekaplast HDPE was suitable for the purpose was a question of fact to be decided by weighing up the rarity of the unsuitability against the gravity of its consequences.[26]
(b) The application at Olympic Dam was to act as a containment membrane in copper and uranium solvent extraction tanks, which contained seriously aggressive chemicals, dangerous to both human health and the environment.
(c) The failure of the containment membrane would result in occupational health and safety issues, substantial repair costs and lost production and the need for replacement involving the expenditure of many millions of dollars.
(d) The time for the fitness for purpose to be measured is at the time of supply "in the light of the information at the time of the trial".[27]
(e) The condition of fitness for purpose requires that the product:
... should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods ...[28]
(f) The fact that there was a substantial risk of the HDPE Bekaplast failing (such that Mr Glueck was not prepared to certify it for even 10 years) was sufficient, in these circumstances to conclude that it was not suitable for the purpose.[29]
620 I accept this analysis. Like the example of the three poisoned cartons of yoghurt in a case of 100 cartons referred to by Branson J in Medtel Pty Ltd v Courtney,[30] I consider that the owner of a solvent extraction plant would not be prepared to run the risk of the HDPE liner failing once it was apprised of the risks associated with using a solution containing kerosene in the solvent extraction process. I would have thought that no one would seriously contemplate purchasing the HDPE liner in those circumstances. The risk and consequences of it failing are just too great. Therefore, it is not suitable for its intended purpose and the representation to this effect was false.
621 Even if Steuler was correct in submitting that WMC had to prove when the liner would have failed completely, I consider that it has established, on the balance of probabilities, the Bekaplast HDPE lining of the solvent extraction tanks at Olympic Dam would not have lasted for anything like a long term, such as 20 years.
622 I do not accept Steuler's submission that the evidence showed that the predictions of both Dr Peggs and Dr Schiers were mere assertions, unsupported by evidence of scientific criteria, testing or research demonstrating the basis of such assertions.[31]
623 First, the predictions were not made in a vacuum. They were made in respect of a liner which had experienced the particular problems observed by Dr Peggs and Mr Rohringer, among others, after operating for just over two years. Secondly, the observed problems were consistent with what both Dr Peggs and Dr Schiers would have expected based on their views about the undesirability of using HDPE lining to contain a kerosene based solvent at higher than ambient temperatures. Thirdly, I do not consider that this evidence about likely lifespan had to be precisely stated. It is sufficient, in my opinion, for the expert to give a prediction in general terms. Thus, it could be said that both Dr Peggs and Dr Schiers were of the view that the lining was likely to fail on the low side of five years.
624 Once again, therefore, I consider that the claim that the Bekaplast HDPE lining was not suitable for its intended purpose has been proven.
625 Given my conclusions about the third representation, it follows that I also consider that the first representation was misleading and deceptive. But my findings in respect of this representation were that it was only made by Steuler to Protec and that Protec did not pass on or repeat it to WMC. Therefore, this representation adds nothing to the plaintiffs' claims.
626 I have found that Mr Walschburger made the second representation in its singular form to Protec by his reference, in the 23 April 1997 facsimile and the "track record" lists of other projects, to Steuler having successfully installed a Bekaplast lining in Cominak's uranium solvent extraction plant in Niger some 20 years before, and that Protec passed on or repeated this representation to WMC in its Bid. I have also found that Mr Steuler made the second representation in its singular form to WMC and Protec, in the meeting on 20 May 1997, when he referred to Steuler having successfully installed a Bekaplast lining in a uranium solvent extraction plant in Niger some 19 or 20 years before (about 1978). I have also found that both of those men intended to convey, and would have been understood as representing, that HDPE had been used in that plant.
627 It was common ground, however, that the lining material used in the Cominak plant was PVC and not HDPE. Thus, the plaintiffs submitted that the second representation was clearly misleading and deceptive.
628 Steuler submitted that the representation was not misleading or deceptive because HDPE was a more developed plastic product which was an improvement on PVC. In circumstances where PVC had served successfully for 20 years, the upgraded product was better placed to meet such a service requirement and so would be expected to perform, at a minimum, at least as well as PVC.
629 Mr Steuler said in cross-examination that it was widely known that PVC was less suitable for these kinds of materials than HDPE, and therefore that it was safe to say that HDPE was all right there as PVC had already been shown to be all right.
630 However, Mr Smith gave evidence that if he had been told that the Cominak plant was a PVC lining, not HDPE, it would have made him "extremely wary about the validity of the track record ... about proceeding". The plaintiffs submitted that whilst HDPE may have been a more developed plastic product, because of its different structure it was not necessarily an improvement on PVC for use in a solvent extraction plant. Dr Schiers gave evidence that PVC's solubility parameter was different to HDPE's, and therefore from that of kerosene. There was virtually no other evidence comparing PVC with HDPE.
631 I consider that Mr Smith's evidence cannot be ignored. The representation was incorrect and if the true position had been stated, namely, that Steuler did not have a successful 20 year track record for the installation of a Bekaplast HDPE lining system in a solvent extraction plant, then Mr Smith would surely not have made that representation to WMC. WMC may also have been concerned that the proposed supplier had no relevant long term track record of successful uses of its HDPE material in solvent extraction plants.
632 I find, therefore, that the plaintiffs have established that the second representation made by Steuler, as set out above, was misleading and deceptive.
633 Neither side suggested that any of these three representations were with respect to future matters, and I do not consider that they were. Nevertheless, as a matter of caution, perhaps, the plaintiffs referred to s.51A of the TPA and submitted that Steuler had no reasonable grounds for making the representations. The plaintiffs pointed to the following circumstances in support of their submission:
(a) Steuler had not in 1997 (or since) installed Bekaplast HDPE anchored sheets in any solvent extraction plant;
(c) a double walled HDPE system 8mm thick installed at Outokumpu was the only Bekaplast HDPE installation supplied by Steuler and inquiry might have revealed that there were allegations of serious problems with that installation;
(d) no HDPE Bekaplast system had been in solvent extraction service for anything like 20 years;
(e) no testing had been carried out to determine the suitability of HDPE for use with kerosene;
(f) no inquiry was made by Steuler to ascertain how the Bekaplast installed at Cominak and Outokumpu was performing;
(g) Dr Dunker's advice was said to be based on charts not mentioned in either his report or his witness statement, and which were never discovered or produced;
(h) in any event Simona only recommended use of HDPE with kerosene up to temperatures of 200C.
634 On the question of causation and damage and loss, it is necessary to consider the position of each plaintiff separately.
635 As previously stated, it was agreed that all issues should be determined in this hearing, other than certain specified matters. One such matter was the assessment of WMC's loss, if any. But the question of causation of the loss and the question of the recoverable heads of loss were the subject of submissions.
636 At the relevant time, s.82(1) of the TPA provided as follows:
A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
It was common ground that subsequent amendments to this section were not relevant to the present dispute.
637 Counsel for the plaintiffs submitted that, in accordance with the High Court's decision in Henville v Walker[32] concerning the meaning of s.82 of the TPA, as set out above, WMC was entitled to recover each of the four heads of loss and damage sought by it, namely,
(a) the cost of supplying the HDPE lining and the initial off site installation costs;
(c) the cost of rectifying or repairing defects in the HDPE; and
(d) the costs of removing the HDPE and replacing it with a FRP lining system.
638 In Henville, the majority of the Court held that an architect, Mr Henville, was entitled to recover the whole amount lost by him in an unprofitable development project from a real estate agent, Mr Walker, who had advised him, in contravention of s.52(1) of the TPA, that there was demand for quality units in Albany and that if three units were built on the site they would fetch between $250,000 and $280,000 each. Mr Henville prepared a feasibility study which substantially underestimated the costs of the project. If either the selling prices or the costs had been estimated accurately, the project would not have been considered profitable and would not have proceeded.
639 In the leading majority judgment, McHugh J said:
This Court's decision in Wardley Australia Ltd v Western Australia[33] established that the term "by" in s 82 invokes the common law concept of causation. In Wardley,[34] Mason CJ, Dawson and Gaudron JJ and I said:
"The statutory cause of action arises when the plaintiff suffers loss or damage 'by' contravening conduct of another person. 'By' is a curious word to use. ... But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & MH) Pty Ltd,[35] except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so."
But this does not mean that common law conceptions of causation should be rigidly applied without regard to the terms or objects of the Act. Section 82 now applies to the contravention of any provision of Pt IV, IVB or V, or s 51AC of the Act. In Marks v GIO Australia Holdings Ltd,[36] Hayne and Callinan JJ and I pointed out that the section can apply to many different kinds of cases, not just those where a breach of s 52 is alleged. Moreover, the objects of the Act indicate that a court should strive to apply s 82 in a way that promotes competition and fair trading and protects consumers. The width of the potential application of s 82 and the objects of the Act tell against a narrow, inflexible construction of the section. No doubt in most cases, applying common law conceptions of causation will be sufficient to answer the issues posed by s 82 in its application to contraventions of the Act. But care must be taken to avoid a mechanical application of those conceptions to issues arising under the section.[37]
...
In Marks v GIO Australia Holdings Ltd,[38] the Court said that the central issue under s 82 is to establish a causal connection between the loss claimed and the contravening conduct. Once such a connection is found to exist, nothing in s 82 suggests that the recoverable amount should be limited by drawing an analogy with contract, tort or equitable remedies although they will usually be of great assistance.[39]
...
In this case, the most appropriate approach is to identify what Mr Henville has suffered by way of prejudice or disadvantage in consequence of altering his position by reason of the breach of the Act. ... By entering upon the project, Mr Henville has lost $319,846.51. If Mr Walker had not made representations in breach of the Act, none of this loss would have occurred. The loss suffered is therefore directly attributable to a contravention of the Act even though other factors played their part in bringing about the loss.[40]
...
Here the misrepresentations induced Mr Henville to enter into a contract and to construct units under the belief that the project would produce a substantial profit. If there had been no misrepresentations, Mr Henville would not have embarked on the course that he did and the loss that he suffered would have been avoided. That being so, his loss was a direct result of the misrepresentations and would have been recoverable in an action for damages for deceit. Moreover, I think that in a general way the loss was a reasonably foreseeable consequence of the misrepresentations. Although Mr Henville badly underestimated the cost of constructing the units, nothing in the findings of Anderson J or the Full Court demonstrates that any of the costs were unreasonably incurred. Matters such as the project being delayed with a consequential increase in costs and interest rates rising are matters that in the ordinary course of a development are reasonably foreseeable.
Nor do I see any reason why the principles applicable in an action for deceit at common law should not be applied in the present case. The purposes of the Act include promoting fair trading and protecting consumers from contraventions of the Act. Those purposes are more readily achieved by ensuring that consumers recover the actual losses they have suffered as the result of contraventions of the Act. Where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage, an award of damages that compensates for the actual losses incurred in embarking on that course of conduct best serves the purposes of the Act and should ordinarily be awarded.[41]
...
Nothing in the common law, in s 52 or s 82 or in the policy of the Act supports the conclusion that a claimant's damages under s 82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant's part. There is no ground for reading into s 82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant, it will be appropriate in assessing damages under s 82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act. But that proposition is concerned with the items that go to the computation of the loss.[42]
... The question is to what extent, if any, did the appellants suffer loss "by" (that is, caused by) the respondents' misleading conduct?
If the traditional "but for" test, the test of necessity, is applied to the history I have described, neither the overestimation of the selling price, nor the underestimation of the costs, will be seen as the single cause of the whole of the loss that the appellants sustained. It cannot be said of either of these steps that, but for its occurrence, the appellants would not have sustained the amount of loss that they did suffer. Yet it can be said of each step that it was a necessary element of the set of circumstances that, together, were sufficient to bring about the loss that was sustained. Each played its part in the history of the events; each was a cause of what happened. Moreover, the two steps were concurrent causes of what happened. It cannot be said of either estimate that it was, in any sense, an intervening event.[43]
...
In the present case, the respondents' contravention of the Act can be seen to have caused the appellants' damage because the appellants relied on the respondents' misleading or deceptive conduct in deciding to proceed with the project. The amount of the loss ultimately suffered by the appellants was, however, brought about by the combination of circumstances of which the respondents' misleading and deceptive conduct was only one factor. The appellants' mistaken estimate of costs was another. How is s 82(1) of the Act to operate in such a case?[44]
...
The conclusion that the appellants suffered loss requires comparison between the position in which the appellants found themselves after the project was finished, and the position in which they would have been if, instead of relying on what they were told by the respondents, they had not undertaken the project. It does not invite attention to what would have been their position if an accurate estimate of selling price had been given by the respondents. Moreover, the conclusion that the appellants suffered loss neither requires nor permits consideration of some third or intermediate position in which the appellants undertook some project or transaction other than the one they did. It is, therefore, not relevant to consider what the loss might have been if costs had been estimated properly.
Secondly, seldom, if ever, will contravening conduct be the sole cause of a person suffering loss. Other factors will always be capable of identification as a cause of the person suffering loss. In a case like the present, the appellants' relying on the respondents' estimate of likely receipts can be seen to be a cause of their loss. What the Act directs attention to is whether the contravening conduct was a cause. It does not require, or permit, the attribution of some qualification such as "solely" or "principally" to the word "by".[45]
641 Gummow J, the other member of the majority, agreed with the reasons for judgment of both McHugh J and Hayne J.[46] The other members of the Court, Gleeson CJ[47] and Gaudron J,[48] agreed that the appeal should be allowed but limited the damages to the amount of loss and damage that would have been suffered by Mr Henville if Mr Walker's statements had been true.
642 Counsel for the plaintiffs therefore submitted that as WMC was induced to enter upon a course of conduct that resulted in loss or damage, namely to install the unsuitable Bekaplast HDPE lining to the tanks in the solvent extraction plant, it was entitled to an award of damages that compensated for the actual losses it incurred in embarking on that course of conduct. Such actual losses, it was submitted, encompassed all four heads of WMC's claimed loss and damage, including the cost of repairs to the HDPE lining, after it had been installed and before it was removed.
643 Steuler submitted that it was not liable for either all or part of WMC's claimed loss or damage because, in effect, an intervening event or events had been such as to destroy the causal connection between contravention and loss or damage.[49]
644 This possibility was recognised by the majority judges in Henville. McHugh J said:
If the defendant's breach has "materially contributed" to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.[50]
There may be cases where some of the loss suffered by a person following ― and I use the word "following" in a neutral sense ― the conduct of another in contravention of the Act may not be loss suffered by that person by the contravening conduct. Had the appellants chosen, for wholly extraneous reasons, to change the design of the units, part way through their construction, in such a way as to waste some costs of construction already incurred, it might be said that the extra costs incurred were not caused by the respondents' contravention. ... Thus, if notions of remoteness of damage or reasonableness are to find reflection in s 82(1) it seems probable that they may do so only through consideration of the causation question which the subsection poses.[51]
646 In a joint judgment in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd, Gaudron, Gummow and Hayne JJ said:
As was recognised in Henville v Walker there may be cases where it will be possible to say that some of the damage suffered by a person following contravention of the Act was not caused by the contravention. But because the relevant question is whether the contravention was a cause of (in the sense of materially contributed to) the loss, cases in which it will be necessary and appropriate to divide up the loss that has been suffered and attribute parts of the loss to particular causative events are likely to be rare.[52]
647 The first supervening event Steuler pointed to was the second fire in October 2001. Steuler submitted that as a result of the second fire, WMC had to replace the HDPE in the solvent extraction plant in order to satisfy its statutory and common law obligations in relation to the safety of the plant, and to obtain insurance cover for the plant. That is, it submitted that the sole reason for the replacement of the HDPE was the safety and insurance requirements imposed on WMC following the second fire.
648 Steuler pointed out that it was stated several times in WMC's Insurance Claim Report that the new solvent extraction plant had been designed and constructed in 1999 "in accordance with worldwide best practice". There was no reference to the HDPE being completely unsuitable for the purpose it was supplied or that it had failed before the time of the fire and was therefore worthless. It was also stated in the report that WMC was required by statute, as part of the rebuild, to incorporate fire safety modifications in the design and rebuild of the damaged plant.
649 As part of the Overview in the Insurance Claim Report, WMC stated that:
Following the extensive investigation [into the cause of the fire], WMC was required to redesign and rebuild the SX facility, incorporating fire safety requirements to comply with WMC's regulatory obligations.
The following South Australian legislation was said to be relevant to the regulatory environment:
Occupational Health Safety and Welfare Act;
Dangerous Substances Act 1979; and
Environmental Protection Act 1993.
Under the heading "Fire Safety Requirements" in the Report WMC stated that:
To comply with WMC's statutory requirements the design for the rebuild of the SX plant incorporated a number of fire safety requirements ...
Included as one of the requirements for each of the copper and uranium mixer/settlers and the copper and uranium tank farms was the following:
All tanks fitted with conductible FRP lining to eliminate static charge build-up ...
Further, in Appendix N to the Report it was said in respect of the HDPE lining of the copper and uranium mixer/settler tanks which was to be replaced by FRP lining that whereas the purpose pre fire was "Corrosion protection of concrete tanks", the purpose post fire was:
Corrosion protection of concrete tanks plus the provision of a conductive layer for the safe discharge of any static electricity build-up within the tank.
In the column headed "Reason for any difference/comment" it was said:
Combustible and non conductive HDPE material removed. Conductive, fire retarded FRP material installed to increase passive fire protection measures and reduce build-up of static electricity.
In the column headed "Reason for Change" the following appeared:
650 Further, in the JFE dated 2 May 2002 it was noted, under the heading "Insurance Considerations", that WMC's global insurance for Industrial Special Risks covering property and business interruption was renewed at 31 March 2002 but with "a specific exclusion on the SX facility".
651 Counsel for WMC denied that the replacement of the HDPE was solely caused by the safety and insurance requirements following the second fire. They submitted that such a finding would have to completely ignore the largely unchallenged evidence of WMC's witnesses on this point. (Counsel accepted, however, that some of the replacement costs did result from the need to make changes to avoid the recurrence of a fire and that, accordingly, these items were not recoverable from Steuler).
652 In his witness statement, Mr Softley said that the replacement of the HDPE with FRP was "seen as sensible and only solution based on the fact that FRP had proved to be successful after the first fire" and that there were continual problems with the HDPE lining. Another factor was that the HDPE was "considered a fire risk". Mr Softley said that:
The downtime caused by the fire presented an opportunity to replace the problem linings.
653 Mr Softley agreed in evidence that the tanks in the solvent extraction areas were not directly affected by the second fire. The process solution was not removed from the tanks until March the following year.
654 Under cross-examination, Mr Softley said that the problems with leaks did not disappear between the two fires, "but the frequency of the problem had probably reduced". He then said that "They certainly reduced in number but they didn't disappear completely". Whilst he agreed that references to leaks did not appear as frequently in the monthly reports, he was not prepared to concede that other leaks had not occurred, which as they did not affect production, were not mentioned.
(a) replacing the HDPE was not the only solution; and
(b) the mixer tank with FRP insert performed by Thompson had not been successful.
656 In his witness statement, Mr Folwell said that:
On the basis of the serious extent of the deterioration of the liners and the opportunity presented to WMC by reason of the halt in production consequent on the second fire, I supported the recommendation that WMC should replace the HDPE in the mixer/settler tanks, in the copper SX trains and the uranium SX train with FRP.
That this had been Mr Folwell's view for some years was illustrated by a document dated 18 April 2002 attached to Mr Rohringer's report. In it, he recorded Mr Folwell's response to his queries preceding his visit to the site. Two relevant questions and answers were:
What was finally the reason for the decision to replace the whole lining and not to repair local failures?
"Ongoing problems and expected worsening of problems".
Why was it not possible to perform repair?
"It is possible but other failures to be expected! (Loss of production = $150,000/day)".
657 In his witness statement, Mr Schell said that the replacement of all of the remaining HDPE with FRP lining:
was primarily done because the work that had been done post 1999 proved to be successful and reliable whereas we were continuing to have problems in those tanks that had not been replaced that were still lined with HDPE ...
When we came to consider the lining reinstatement after the second fire, we knew the tanks relined with FRP after the 1999 fire had performed well. On the other hand, we continued to have leaks in the remaining HDPE lined tanks ...
The reason for recommending [in the JFE dated 2 May 2002] a fire retardant conductive lining was related to fire prevention; but the reason for the replacement of the HDPE with FRP was that we believed that the deterioration in the linings, which were observed after the second fire, meant that it was not a suitable containment membrane.
658 Although some of the statements in WMC's Insurance Claim Report are surprising, I have no reason not to accept the sworn evidence of Messrs Softly, Folwell and Schell that concerns about the suitability of the HDPE due to continuing problems with swelling and leaks were a factor in the decision to relace it with FRP. The timing of the decision to replace the HDPE may have been brought forward as a result of the opportunity presented by the halt in production consequent on the second fire. But this does not mean, in my opinion, that Steuler's contravening conduct (its false and misleading representation about suitability) was not a cause of WMC's loss, which would have resulted, at some time, without the second fire occurring.
659 The second supervening event relied on by Steuler was that the repairs to the HDPE lining were caused by the poor workmanship of Protec, Thiess and Fluor Daniel, as discussed above. Accordingly, Steuler submitted that, whatever else it might be responsible for, it should not be liable for the cost of repairing the HDPE. This argument might also apply to the installation costs head of loss and damage.
660 It seems to me that Steuler was correct in submitting that at least some of these repairs resulted from the conduct of others, such as Protec, Thiess and Fluor Daniel. But other repairs may have resulted from the unsuitability of the Bekaplast HDPE lining. That is, no definitive answer can be given at this stage. Therefore, it will have to be the subject of evidence and submissions in the second hearing (if the parties are unable to reach agreement on quantum).
661 Whilst not finally ruling on the matter of onus of proof, it is worth noting what was said on this issue in Henville. Gaudron J stated that:
... under s 82(1) of the Act, it is for the person whose contravening conduct materially contributed to the loss or damage to establish what component of that loss or damage is referable to some act or event other than his or her contravening conduct and not for the person who suffers loss or damage to establish the precise component or components referable to that conduct.[53]
662 McHugh J appeared to agree, as his Honour said:
Arguably, once a plaintiff demonstrates that a breach of duty has occurred that is closely followed by damage, a prima facie causal connection will be established. It is then for the defendant to show that the plaintiff should not recover damages. In the words of Dixon CJ in Watts v Rake,[54] it is the defendant who must disentangle, so far as possible, the various contributing factors.[55]
663 Hayne J said that he did not need to decide the point, although his Honour commented:
For the moment, it is enough to say that it seems to me that such questions must find their answers within the Act rather than in analogies with common law.[56]
664 A third argument advanced by Steuler about the question of damages was that, given the limited area of the lining in which the alleged defects were found by Dr Peggs, it was unnecessary to replace all of the lining in all of the mixer/settler tanks. It submitted that at most the lining of the mixer boxes required replacement. In a sense this is an argument about mitigation. In light of my findings about suitability, I do not consider it an unreasonable step for WMC to replace all of the HDPE lining, as all of it suffered from the same defect. I have found that the HDPE lining was unsuitable and that it was likely to fail completely well before a 20 year life. The consequences that future failure, in terms of employee and environmental safety and in terms of lost production, justified the decision to replace the whole lining following the second fire.
665 The situation is, therefore, that it would be premature to exclude any part of WMC's claimed heads of loss and damage. These issues, together with the issue of betterment, will have to be considered in the quantum hearing.
666 As previously stated, Protec's claim for damages was limited to $15 million, being the amount for which it settled WMC's claim against it and the amount of the consent judgment entered against it pursuant to that settlement.
667 In its defence in the Protec proceeding, Steuler pleaded that the settlement reached between Protec and WMC was not reasonable and gave various reasons for that conclusion.
668 One argument by Steuler was to the effect that Protec had suffered no loss from the settlement because it will never have to pay the settlement figure of $15 million. This was said to be the case because Protec had no ability to pay that sum; WMC knew that was the case; there was no term requiring Protec to actually pay that sum; on the contrary WMC agreed to release to Protec the bank guarantee in the sum of $175,865.08; as part of the settlement Protec agreed to pursue Steuler directly for damages and any damages recoverable by Protec would be payable by Protec to WMC; and the first ranking charge and/or priority executed by Protec in favour of WMC is only over Protec's entitlement to recover damages, interest and costs from Steuler in the Protec proceeding and does not extend to other assets or income of Protec.
669 In my opinion, there is nothing in any of these points. Parties are free to settle on any terms they see fit. In return for settling for a right to enter judgment for $15 million against an impecunious defendant, WMC gained Protec's assistance in pursuing Steuler, which was no doubt thought to be a defendant worth pursuing financially. Further, it is very easy to justify the view that giving up the limited amount of the bank guarantee was a small price for WMC to pay to obtain the overall settlement.
670 A second argument was that the settlement was not based on any proper or reasonable analysis by or on behalf of Protec as to its liability and/or the quantum of its liability to WMC in the WMC proceeding.
671 Protec's argument was that, on the basis that the Bekaplast HDPE supplied was not suitable for its intended purpose, Protec's position, with respect to WMC's claim against it, was hopeless. Counsel for the plaintiffs submitted that this was so because of the representations made by it and because in the OSS Agreement Protec had contracted, allegedly in terms of Specification 7, that:
the lining system was a tough durable and chemically resistant system which shall withstand the site operating conditions to give long term protection to the concrete substrate.
672 However, in my opinion, the situation is not that simple. As has been found, the representations in the Bid were in fact made not by Protec but by Protec NSW. It was the author of that document, which formed the basis on which WMC granted the Purchase Order to Protec NSW.
673 Nor do I agree with the submission based on the terms of Specification 7 of the OSS Agreement. When one looks at that specification, which is headed "Design Detail", it can be seen that rather than Protec promising that this is what it would provide, this was WMC stating or specifying that this is what "the concrete lining system shall be ..." WMC then went on in the same specification to require that:
The concrete lining system shall consist of Steuler™ HDPE Sheeting bonded to the prepared substrate.
That is, no doubt as a result of what had occurred in 1997, Protec was being told by WMC that the concrete lining system, which Protec was contracting to install, had to be the Steuler Bekaplast HDPE sheeting.
674 Nevertheless, I do consider that, if the Bekaplast HDPE supplied was not suitable for its intended purpose, Protec's position, with respect to WMC's claim against it in the WMC proceeding, was very difficult. This is because, as far as the WMC proceeding is concerned, all three parties (Protec, WMC and Steuler) have accepted that no distinction is to be drawn between Protec and Protec NSW. If this conclusion means that some amendments are required to be made to Protec's statement of claim in the Protec proceeding, I would be prepared to allow such a step, because the case was clearly fought on the above basis and therefore Steuler could not claim to be prejudiced by any such late amendment.
675 Counsel for the plaintiffs accordingly submitted that no one could suggest that, in these circumstances, settling for $15 million a claim said to total potentially $45.8 million (being $27.8 million, plus say $18 million in interest to the time of settlement) plus costs, was in any way unreasonable. Further, it would be obvious from the interlocutory history of the WMC proceeding and the lengthy hearing that the amount of costs, which an unsuccessful defendant might have to pay, would not be insignificant. In addition, settling at the time that it did, saved Protec from having to incur further costs in preparing for the trial, including drafting several witness statements, and the costs of the hearing itself.
676 While this might be considered to be a persuasive argument in favour of the reasonableness of the settlement, I propose to defer any final conclusion to the second hearing, when I will have a better understanding of the real quantum of WMC's loss.
677 One issue yet to be addressed is the question of how the future judgments in favour of WMC and Protec fit together, so that WMC does not end up being over-compensated for its loss and damage.
678 Even though I have held that each plaintiff is entitled to succeed in respect of their misleading or deceptive representation claim under the TPA, I should say something about their alternative common law claims. However, for obvious reasons, the parties were primarily concerned with the claims under the TPA and very little was said in final submissions about the negligence claims. By and large, all that Steuler submitted was that there had been no breach of any duty or any damage caused because it denied that the representations were false.
679 The plaintiffs submitted that the three representations by Steuler were made negligently in breach of the duty of care to each of Protec and WMC. They submitted that at the time that Steuler made each of the representations:
(i) the representations were with respect to a serious matter; and
(ii) Mr Smith and Protec, as a corporation of which he was a director, were likely to rely on the representations, in
(iii) WMC was likely to rely on the representations and the consequent Protec representations (made in the Bid) in deciding to proceed with the installation of Bekaplast HDPE linings for the concrete tanks at Olympic Dam.
(b) Protec did reasonably rely upon the representations in making representations to WMC; and entering into contractual relations with WMC.
(c) WMC did reasonably rely upon the representations and the consequent Protec representation in deciding to proceed with the installation of Bekaplast HDPE linings for the concrete tanks at Olympic Dam.
680 It was further submitted that, in the circumstances, Steuler owed a duty to Protec and WMC to exercise reasonable care in the making of the representations to avoid:
(a) Protec incurring economic loss by reason of its reliance referred to above; and
(b) WMC incurring economic loss by reason of its reliance referred to above.[57]
681 There was really no contrary argument advanced against these propositions, and I agree with them.
682 The plaintiffs submitted that the fact that Steuler owed Protec a duty of care was demonstrated by particular aspects of the close relationship between them. They submitted that the relationship between Steuler and Protec was one marked by the following features:
(a) Protec was entirely dependent upon Steuler with respect to product selection and specification because it had no experience with, or detailed knowledge of, Steuler's Bekaplast products.
(b) Protec referred all technical matters to Steuler for assistance and frequently asked it for information and advice.
(c) Under the Co-operation Agreement, Protec would act as an agent, a distributor and an installer and Steuler would act as supplier and supervisor.
(d) The relationship would be co-operative and long term and the plan was to "enter into project business together".
(e) Steuler would closely support Protec for at least 2 years and in the long term Protec and Steuler might form a joint vehicle for the Australian operation.
683 The plaintiffs submitted that, although the 23 April 1997 facsimile was sent to Protec and not to WMC, Steuler owed WMC a duty, in making the representation, to take reasonable care so as to avoid WMC sustaining a loss by reason of it entering into contractual relations with Protec and proceeding with the installation of Bekaplast HDPE linings for the concrete tanks at Olympic Dam. This duty arose because the 23 April 1997 facsimile was sent for the purpose of inducing WMC to do those very things. The same argument applied to the 4 July 1997 statement which was repeated in Mr Smith's facsimile dated 8 July 1997.
684 A person who knows or ought to know that information will be passed onto a third party owes a duty of care to the third party. In Esanda Finance Corp Ltd v Peat Marwick Hungerfords Brennan CJ said:
But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements is missing, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice.[58]
685 In my opinion, the representations were made negligently in that Steuler:
(a) incorrectly relied on the Cominak plant in Niger as an example of a successful installation of a Bekaplast HDPE lining in a solvent extraction plant, when PVC and not HDPE had in fact been used;
(b) relied on the Outokumpu plant in Finland as an example of a successful installation of a Bekaplast HDPE lining in a solvent extraction plant without making any inquiry as to what had happened at that plant;
(c) relied on tests performed in respect of the Bekaplast HDPE lining supplied to Outokumpu without making any inquiry as to what had happened at that plant;
(d) failed to advise Protec that time did not allow it to test the proposed solution against the Bekaplast HDPE lining;
(e) ignored the information contained in the Chemical Resistance Chart(s) published by Hoechst (the other manufacturers) concerning the reaction of the HDPE material to kerosene at elevated temperatures;
(f) failed to take into account that the solubility parameters of HDPE and kerosene were similar and that at elevated temperatures the kerosene was diffused into the HDPE with the detrimental effects referred to above; and
(g) had no evidence on which to base the representation that the Bekaplast HDPE lining would be suitable for long term use with a solvent such as kerosene at elevated temperatures.
686 I therefore find that the representations were made negligently by Steuler in breach of the duty of care it owed to each of Protec and WMC.
687 Steuler submitted that any loss or damage suffered by WMC was caused or contributed to by the negligence and lack of care of WMC and its agents Protec, Fluor Daniel and Thiess. However, as contributory negligence is not relevant to a claim under the TPA, this issue need not be considered further.
688 A similar issue pleaded by Steuler in the WMC proceeding was that apportionment of liability under s.72 of the South Australian Development Act 1993 was applicable to WMC's claim and that accordingly judgment should be given against Steuler only for such amount as may be just and equitable in the circumstances having regard to the extent to which the acts or defaults of Steuler contributed to the loss and damage suffered by WMC.
689 I accept the plaintiffs' submission that the provisions of the South Australian Act cannot impinge on the remedies laid down in the TPA. Once again, therefore, this issue need not be considered further.
690 Once the parties have had the opportunity to consider these reasons, I will hear submissions, at a mutually convenient time, as to what steps should be taken to deal with the outstanding issues concerning quantum.
[1] Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2007] VSC 93.
[2] Protec Pacific Pty Ltd v WMC (Olympic Dam Corporation) Pty Ltd (No. 2) [2007] VSC 152.
[3] Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2007] VSC 312.
[4] Protec Pacific Pty Ltd v Cherry [2008] VSC 76.
[5] Mr Smith said that he had omitted to put in any time.
[6] Protec Pacific Pty Ltd v WMC (Olympic Dam Corporation) Pty Ltd (No. 2) [2007] VSC 152.
[7] [2007] VSC 152 [10].
[8] [2007] VSC 152 [11], [13] and [14].
[9] Vol 6: "Contract", paragraph [110-2325].
[10] (1986) 40 NSWLR 631 (Kirby P, Glass and McHugh JJA).
[11] (1986) 40 NSWLR 631, 636-637. See also Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12; [2004] 1 AC 715, 794 (Lord Millett) and Chitty on Contracts, 30th ed (2008), vol 1, para 12-122, pp.880-881.
[12] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1981-1982) 149 CLR 337, 352 (Mason J).
[13] [1988] 1 Qd R 506 (Connolly, Williams and Derrington JJ).
[14] [1988] 1 Qd R 506, 511.
[15] [1954] HCA 72; (1954) 91 CLR 353, 360.
[16] GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1996) 40 NSWLR 631, 634-636 (McHugh JA).
[17] [2001] NSW IR Comm 190; (2001) 106 IR 435 [29] (Wright, Walton and Hungerford JJ).
[18] Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241, 252 (Brennan CJ).
[19] [1997] HCA 8; (1997) 188 CLR 241, 262 (Toohey and Gaudron JJ).
[20] [1999] FCA 784 [47]-[51] (Hill, Sackville and Katz JJ).
[21] [2007] FCA 1561 [295]-[296] (Heerey J).
[22] [1984] HCA 68; (1985) 157 CLR 215, 236.
[26] Henry Kendall & Sons v William Lillico & Sons Ltd [1968] UKHL 3; [1969] 2 AC 31 (the Hardwick Game Farm case).
[27] Medtel Pty Ltd v Courtney [2003] FCAFC 151; (2003) 130 FCR 182 [70] (Branson J).
[28] Australian Knitting Mills Ltd v Grant [1933] HCA 35; (1933) 50 CLR 387, 418 (Dixon J).
[29] Medtel Pty Ltd v Courtney [2003] FCAFC 151; (2003) 130 FCR 182 [71]-[74] (Branson J).
[31] Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705.
[34] [1992] HCA 55; (1992) 175 CLR 514, 525.
[36] [1998] HCA 69; (1998) 196 CLR 494, 509 [33].
[37] [2001] HCA 52; (2001) 206 CLR 459 [95]-[96].
[39] [2001] HCA 52; (2001) 206 CLR 459 [130].
[40] [2001] HCA 52; (2001) 206 CLR 459 [132].
[41] [2001] HCA 52; (2001) 206 CLR 459 [134]-[135].
[42] [2001] HCA 52; (2001) 206 CLR 459 [140].
[43] [2001] HCA 52; (2001) 206 CLR 459 [155]-[156].
[44] [2001] HCA 52; (2001) 206 CLR 459 [159].
[45] [2001] HCA 52; (2001) 206 CLR 459 [162]-[163].
[46] [2001] HCA 52; (2001) 206 CLR 459 [152].
[47] [2001] HCA 52; (2001) 206 CLR 459 [42]-[44].
[48] [2001] HCA 52; (2001) 206 CLR 459 [72].
[49] [2001] HCA 52; (2001) 206 CLR 459 [13] (Gleeson CJ).
[50] [2001] HCA 52; (2001) 206 CLR 459 [106].
[51] [2001] HCA 52; (2001) 206 CLR 459 [166].
[52] [2002] HCA 41; (2002) 210 CLR 109 [62].
[53] [2001] HCA 52; (2001) 206 CLR 459 [70].
[54] [1960] HCA 58; (1960) 108 CLR 158, 160.
[55] [2001] HCA 52; (2001) 206 CLR 459 [148].
[56] [2001] HCA 52; (2001) 206 CLR 459 [166].
[57] Mutual Life & Citizens Assurance Co. Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556.
[58] [1997] HCA 8; (1995) 188 CLR 241, 252.
(1978) 138 CLR 423
(1982) 149 CLR 337
(1986) 40 NSWLR 631
(1954) 91 CLR 353
(1996) 40 NSWLR 631
(2001) 106 IR 435
(1997) 188 CLR 241
(1985) 157 CLR 215
(1959) 101 CLR 298
(2001) 52 NSWLR 705
(2003) 130 FCR 182
(1933) 50 CLR 387
(2001) 206 CLR 459
(1992) 175 CLR 514
(1991) 171 CLR 506
(1998) 196 CLR 494
(2002) 210 CLR 109
(1960) 108 CLR 158
(1968) 122 CLR 556
(1995) 188 CLR 241