BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH; Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322

BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH; Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322 - VSC 2009 case summary — Zoe

[186]

We have been talking to Mr Gebhardt [sic], and he said that it is not very recommendable to put so few knobs (100 knobs/m2) to the sheets. As they are immersed in a 550C liquid, this high temperature can cause severe deformations and bulges on the surface, finally damaging the sheets. In loose lined tanks, there will not appear severe damages in the lining during the first months of service, as the material will stay in position. Afterwards bulges or bellies will appear, and the whole sheet will get permanent deformations that cannot be corrected. The formation of the bellies is provoked by the dilatation of the sheet due to the increase in temperature. If you have knobs quite near one to each other, the maximum dilatation is restricted to the distance between these two points. As the distance is small the bulge that will form is only small. If you have a distance of some meters in between the supporting points, the elongation of the sheets due to temperature is very big and the material will bulge out, creating a big belly. If there is also the possibility of gathering condensation water behind the sheets, this bulge will get bigger and bigger and after some time the whole sheet will fail, and float up on to the surface. Steuler has seen this happen in quite a lot of cases during the past years. 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. 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. 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.

[210]

Protec began 16 years ago in Tasmania as wear specialists. Expanded into protective coatings and linked up with Steuler recently to offer broad range of corrosion protection systems
Protec have worked for large companies such as BHP, ICI and MIM as well as WMC
Protec have signed partnership agreement with Steuler to provide complete supply, design and installation facility
Steuler have been in business over 80 years - started by Michael's grandfather [sic]. Background was chemical processing, he developed new acid process. 11,000 [sic] employees with 400 being site based workers carrying out installation
Steuler provide range of protection systems - ceramic tiles as well as plastic (PE,PP) and rubber liners
Steuler developed first mechanically fixed liner
Steuler have experience in SX tanks, they installed some Uranium SX liners which have been in service since 1978 without failure
Technical
- They utilise spark testing - conductive paint or conductive "zip strip" joiner
- Joining techniques are selected to suit application - butt weld, "zip strip" joiner, corner joiner etc
- They have offered fully fixed liners for both mixer boxes and settler/tank farm tanks!
- They offered 5mm thick Bekaplast for the mixer boxes but 3mm for the other tanks. Pond liners offered were 2.4mm thick
- They recommend fully fixed liner to avoid liner movement (thermal expansion, contraction) problems. They indicate that there is large expansion which can be predicted but local constraints which restrict movement in some areas could cause problems in other areas
- Sheets can be supplied in a range of sizes - suggested 2m wide with length to suit dimensions, within handling constraints. Sheet sizes are selected to suit specific position, planned layout drawing
- Pull-out force tests were supplied which indicated an [sic] tested ultimate strength of 583 kPa with over 600 kPa actually achieved. Calculated values were 2.2 kN per stud, with 256 studs per sq m. Tests highlighted negative effect on strength of cracks in concrete and need for proper concrete procedure. The tests indicated failure modes of plug deformation/pull-out and plug pull-off were equally likely
- They have automatic welders but indicate that these are mainly used for piping. They generally use hand welders but employ trained, certified welders to do the work
- Welding equipment requires power (415V) and compressed air
- We discussed the large amount of coordination required between the concreter and the lining installer to specify design details - they indicate that this is their usual practice. Need to confirm formwork design between concreter and liner installer
- Steuler confirmed that a Steuler supervisor would be available for design coordination initially and who would then lead the installation team, certify welders and ensure proper installation procedure is followed including compliance with quality standards
- Howard Smith indicated that cheaper option of polypropylene offered in the bid was the result of a misunderstanding and was not correct - PP is slightly more expensive and would not be recommended by Protec/Steuler
- Both parties are accredited to ISO 9000 quality standards, Steuler to ISO 9001, Protec to ISO 9002
Procurement
- Freight was included for the tank liner material to Adelaide and for the pond liner to Olympic Dam

[398]

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.

[473]

There is no question that the wavy surface was caused by a plasticisation and swelling of the polyethylene material which, in combination with and bolstered by thermal expansion, have led to bulging between the anchoring knobs.
It is a known fact that polyethylene swells and plasticises under the influence of certain solvents, particularly BTX aromatics (benzene, toluene, xylene). Such plasticisation and swelling is reversible over longer periods without necessarily causing lasting damage. If the effect of solvents is removed, the solvents which have diffused into the material are gradually expelled and the material returns to its original properties with only minimal reductions in its strength.
Permanent waves or bulges can form if the solvent is eliminated while the material is in a state of thermal expansion and the thermal deformation is therefore "frozen" into the material, so to speak. This is similar to the normal process of thermoplastic deformation when material is tooled by plasticising the polyethylene through heat and then shaping it in this state without causing damage to the material itself.
The particularly large bulges in the mixers are typical for this. It was apparently the case here that the lined surfaces were exposed to direct sunlight after the lids were opened. Under the local climatic conditions prevailing, this results in temperatures of 80°C or more for black polyethylene material. At the same time, the solvents are expelled quickly under the influence of high temperatures and thus lose their plasticising effect on the lining which is then fixed in an expanded, bulging state (photos 4, 23 and 26). In contrast, without the effect of the solvents there would, at such high sun-induced temperatures, also be small bulges between the anchoring knobs which would not cause damage and fully recede again when the temperature falls.
In the mixers, the formation of bulges of particular size in the gas area is further enhanced by another circumstance. Only the mixers are covered by lids which rest on the rim and therefore, in contrast to the tanks, hardly leave any room to ventilate the gas area. The evaporation of solvents caused by the action of the stirrers thus has a much more severe effect on the lined surface above the level of the liquid than is the case in the ventilated tanks.
As already mentioned above, plasticisation and swelling, combined with thermal expansion, can cause peaks in stress which can in turn lead to damage to welded seams for which the welding factor is still within tolerance but below 1. This hazard is amplified by the property of certain solvents, among them the BTX aromatics, to cause stress crack corrosion.

[937]

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.

[1025]

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]

[1026]

... 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]

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Cases Cited (20)