Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Ltd & Ors [2022] QSC 294

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - where the first plaintiffs contracted for the first and second defendants to design, engineer, procure, construct, test and commission two practically identical co-generation plants at Broadwater and Condong ("the EPC Contract") - where each plant was operated by the third plaintiff - where each plant contained a boiler system that would produce steam to generate electricity - where, in constructing the boiler at Broadwater, the first and second defendants erroneously installed and programmed a damper that controls the flow of air to the boiler's oil burner in reverse - where overheating of the boiler's grate caused significant damage to the boiler in July 2010 - where, in constructing and programming the boiler so that the damper operated in reverse, and then not identifying that it did, the first and second defendants breached their contract with the first plaintiffs - whether the reverse operation of the damper was a substantial cause of the overheating that resulted in the July 2010 damage

DEEDS - DEED OF RELEASE - GENERAL WORDS OF RELEASE - where, before the July 2010 damage, the first plaintiffs and the first and second defendants entered into a Disputes Resolution Deed containing mutual releases - where the deed expressly does not apply to claims of which, at the date of execution, the first plaintiffs were not aware and could not have become aware by the making of reasonable enquiries - where the defendants accept that, at the date of execution, the plaintiffs were not aware that the damper operated in reverse - whether the plaintiffs could have become aware, by the making of reasonable enquiries, that the damper operated in reverse - whether the deed releases the first and second defendants from the first plaintiffs' claim

LIMITATION OF ACTIONS - LIMITATION OF PARTICULAR ACTIONS - SIMPLE CONTRACTS, QUASI-CONTRACTS AND TORTS - ACCRUAL OF CAUSE OF ACTION AND WHEN TIME BEGINS TO RUN - SIMPLE CONTRACTS - where the damper was installed in 2007 - where the works the subject of the EPC Contract were purportedly completed on 21 November 2008 - where the proceeding was commenced on 20 November 2014 - where the defendants plead a limitation defence to the first plaintiffs' causes of action for breach of contract and contend that they accrued at the date the damper was installed - where the plaintiffs submit that the EPC Contract was an entire contract to complete works and that the limitation period runs from the date of practical completion, not from any earlier date when the defective damper was installed - whether the relevant contractual obligation under the EPC Contract is one to "carry out and complete" the works - whether the first plaintiffs' breach of contract claim was brought within time

Corporations Act 2001 (Cth), s 1305

Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 8, s 9

Limitation Act 1969 (NSW), s 14

Prescription and Limitation (Scotland) Act 1973 (UK), s 11

Trade Practices Act 1974 (Cth), s 52, s 82

Uniform Civil Procedure Rules 1999 (Qld), r 376, r 379

Agro Invest Overseas Ltd v Stewart Milne Group Ltd [2018] CSOH 120, considered

Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310, cited

Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229, cited

BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141, cited

Blatch v Archer [1774] EngR 2; (1774) 98 ER 969, cited

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36, cited

Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Limited & Ors [2022] QSC 182, cited

Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, cited

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 cited

Elevate NSW Pty Ltd v Canada Bay Private Hospital Pty Ltd (2019) 138 ACSR 186; [2019] FCA 1248, cited

Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358; [2008] VSCA 26, cited

Firstmac Ltd v Hunt & Hunt (A firm) [2018] QSC 258, cited

French v QBE Insurance (Australia) Ltd (2011) 58 MVR 214; [2011] QSC 105, cited

Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506; [2010] NSWCA 69, cited

Huntaven Properties Limited v Hunter Construction (Aberdeen) Limited [2017] CSOH 57, cited

Larking v Great Western (Nepean) Gravel Ltd (in liq) [1940] HCA 37; (1940) 64 CLR 221, cited

Menegazzo v Pricewaterhousecoopers (A firm) [2016] QSC 94, cited

Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd [2018] NSWSC 1304, cited

Oxford Architects Partnership v Cheltenham Ladies College [2006] EWHC 3156, cited

Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529; [1985] HCA 34, cited

Siegwerk Australia Pty Ltd (in liq) v Nuplex Industries (Aus) Pty Ltd (2016) 334 ALR 443; [2016] FCA 158, cited

Swansea Stadium Management Company Ltd v City & County of Swansea [2018] EWHC 2192, cited

Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd [2019] VSCA 74, cited

Westpac Banking Corporation v Jamieson [2016] 1 Qd R 495; [2015] QCA 50, cited

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16, cited

[1] This case is about boilermakers, boiler operators and a boiler at a sugar mill at Broadwater in northern New South Wales.

[2] The boiler that the first and second defendants built for the first plaintiffs was defective.

[3] A damper ("the ATO Damper") that controls the flow of air to the oil burner was erroneously installed and programmed so that it operated in reverse. For example, when the control system indicated that the damper was 15 percent open it was in fact 85 percent open.

[4] The ATO Damper was supposed to be almost closed for most the time. But because it operated in reverse, more air than was intended to enter the furnace through the ATO Damper went by that route. This deprived the travelling grate at the base of the boiler of undergrate air that was intended to cool the grate and aid the efficient combustion of biofuel.

[5] Overheating of the grate caused significant damage to it in early July 2010, after which the boiler needed to be shut down and repaired.

[6] In constructing and programming the boiler so that the ATO Damper operated in reverse, and then not identifying that it did, the first and second defendants breached their contract with the first plaintiffs. In handing over the boiler in that defective condition upon completion, they breached the contract.

[7] The plaintiffs' case is that the reverse operation of the ATO Damper was a substantial cause of the overheating that resulted in the July 2010 damage.

[8] The defendants accept that overheating of the grate resulted in that damage but deny that the reverse operation of the ATO Damper was a substantial cause of the overheating. They suggest other possible causes of the overheating.

[9] Therefore, a primary issue in the case is a factual one about causation: was the reverse operation of the ATO Damper a substantial cause of the grate overheating?

[10] Next, the first and second defendants say that even if their breach of contract in constructing, programming, commissioning and testing the ATO Damper so that it operated in reverse was a substantial cause of the grate overheating and the July 2010 damage, the effect of a Disputes Resolution Deed ("Settlement Deed") dated 20 January 2010 is to release them from the first plaintiffs' claim.

[11] The plaintiffs respond that the Settlement Deed was executed against the backdrop of a dispute in relation to other claims and the release expressly does not apply to claims of which, at the date of execution of the deed, the first plaintiffs (as principal) were:

(a) not aware; and

(b) could not have become aware by the making of reasonable enquiries.

[12] The defendants accept that the evidence supports the conclusion that, as at 20 January 2010, the plaintiffs were not aware that the ATO Damper operated in reverse and did not become aware of that matter until after the July 2010 damage. They contend, however, that as at 20 January 2010 the plaintiffs could have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse.

(a) was the reverse operation of the ATO Damper a substantial cause of the overheating that resulted in damage to the grate; and

(b) as at 20 January 2010, could the plaintiffs have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse?

[14] There are many other issues to which I will turn. Openings and the evidence in the trial occupied 18 hearing days. The evidence consists of a large volume of witness statements, expert reports, documents, and oral evidence. Written submissions from the parties run to hundreds of pages, and oral submissions occupied two days. In due course I will address the submissions and some of the more important evidence. Before doing so, I will give an overview of the case and a summary of my reasons for concluding in favour of the plaintiffs on the two main issues that I have identified.

[15] The first and second defendants (who were often referred to in the evidence as "Downer" and "CBH") are experts in constructing and commissioning power plants. CBH was particularly experienced in the construction and optimisation of boilers for a range of biofuels including bagasse and woodchip.

[16] The first plaintiffs formed a joint venture to construct and operate co-generation plants at Broadwater and Condong to power sugar mills that were operated by the third plaintiff ("NSWSMC").

[17] The idea was that the co-generation plants would operate year-round and burn biofuel in a furnace and boiler system that would produce steam to generate electricity. The biofuel would be principally bagasse (a fibrous by-product of sugar cane crushed at the mill) and wood waste, such as sawdust and woodchips, when bagasse was not available.

[18] Any excess electricity that was not used to power the mill was to be transferred into the electricity grid and earn income for the joint venture.

[19] In 2005, the joint venture contracted for Downer and CBH to design, engineer, procure, construct, test and commission a 30 MW co-generation plant at Broadwater and a practically identical plant at Condong. The third defendant ("DEDI") guaranteed the performance of "the Contractor" (the first and second defendants) under the contract and agreed to indemnify "the Principal" (the first plaintiffs) against losses for any default in performing the contract.

[20] The proper operation of the boiler depends on a complex and mainly automated system that Downer and CBH developed to control the flow of fuel and the flow of air into the boiler. The aim is to have a well-positioned fireball in the furnace that consumes fuel in an optimal way.

[21] Biofuels enter through a fuel duct and are injected into the furnace by compressed air from plates that are set at a certain angle. When bagasse is being used, the aim is for practically all of it to be consumed in suspension in a rotating fireball and before it falls onto the grate at the bottom of the furnace. Otherwise, unburnt fuel will fall onto a slowly travelling grate, may pile in large quantities and overheat the grate.

[22] When wood material is used instead of bagasse the fuel tends to fall onto the grate and combust there.

[23] Ash that is the product of combustion and impurities in the fuel is removed from the boiler. It falls through the travelling grate or falls off its end as it rotates. The ash is reclaimed and impurities such as stones are disposed of.

[24] Overall, the aim is to generate enough heat to produce steam to generate the required amount of power. At the same time, the system is designed to avoid overheating, which would damage parts of the boiler such as the metal parts of the grate and be potentially disastrous.

[25] Irrespective of whether bagasse or wood material is used as fuel, efficient combustion in the boiler relies on the controlled input of air under the grate and through certain secondary air ducts. The undergrate air cools the grate to prevent it from overheating and aids combustion.

[26] The undergrate air, having cooled the bottom of the grate, is injected into the boiler through small holes in the tiles of the grate and gaps between the tiles. One way it aids combustion is that it dries any moisture in unburnt fuel.

[27] The flow of fuel and the flow of air are controlled by a Distributed Control System ("the DCS"). It was designed and commissioned by Downer and CBH to automatically control the rate at which fuel is fed into the furnace and the rate of airflow. The DCS makes automatic adjustments to fuel and air inputs to achieve optimum combustion.

[28] Airflow is controlled by dampers in the air ducts.

[29] One such damper is the ATO Damper which, like other parts of the system, is controlled by the DCS. The blades of the ATO Damper are supposed to be almost closed most of the time, except on rare occasions when they are opened to supply air to start an oil burner, after which the damper is returned to a practically closed position.

[30] During the normal operation of the boiler, the ATO Damper needs to be kept slightly open to provide some cooling air to the retracted, non-firing oil burner and to keep it clean from ash.

[31] A boiler operator seated in the control room would see, if he needed to look at the relevant figure on the DCS, that the ATO Damper was open to, say, 15 percent. The same figure would appear on an outside physical gauge as the percentage the ATO Damper was open. To the operator, the damper would seem to be, as intended, almost closed. In fact, due to the construction and programming defect at Broadwater it would be almost completely open, namely 85 percent open, allowing much more air to flow into the boiler through the damper than intended.

[32] The ATO Damper is programmed to automatically adjust during brief periods of oil burning. Oil burning ceases once combustion of biofuels takes over. Operators are not expected to manually adjust the ATO Damper during the ordinary operation of the boiler.

[33] Efficient combustion of biofuels is intended to be achieved by automatic controls that govern the amount of air that enters the boiler under the grate and, to a lesser extent, through certain secondary air dampers. The secondary air dampers can be adjusted by an operator if needed to alter the position of the fireball within the boiler or to otherwise improve combustion.

[34] A boiler operator can override the automated operation of the DCS if there is some perceived problem with the boiler's operation, and shut down the boiler in the event of an emergency.

[35] The point of the automated system is to improve on what could be achieved by manual control of the boiler by an operator of the amount of fuel and the amount of air that is required at any particular time based on the operator's observations of combustion and other conditions. The automated system responds more quickly and more efficiently than a manual system could to changes in conditions. If it operates as intended, the system uses the amount of biofuel and the amount of air required to achieve optimum combustion and to produce the required number of megawatts of power.

[36] To use an analogy, the system is like cruise control on a car in which the driver aims to travel at a certain speed and the cruise control system achieves this by automatically accelerating or decelerating depending on road conditions. The driver can override the cruise control but ordinarily would not do so because the automated system is more efficient than manual controls in maintaining the required speed.

[37] At about the same time as the Broadwater plant was being constructed and commissioned, a practically identical co-generation plant was constructed and commissioned by the first and second defendants for the first plaintiffs at Condong. Its ATO Damper was correctly programmed. The Condong boiler did not encounter the same operational and overheating problems as the Broadwater boiler.

[38] The reverse operation of the ATO Damper at Broadwater was not detected by the defendants during the construction and programming phase, when the boiler was first fired on 20 December 2007, during subsequent testing, or during commissioning of the boiler in late 2008. Practical completion occurred at Broadwater on 21 November 2008, after which the third plaintiff's employees assumed responsibility for the boiler's operation.

[39] The proposition that Downer and CBH did not detect the reverse operation of the ATO Damper in 2008 during testing and commissioning of the boiler is subject to a qualification. On 2 April 2008, one of CBH's highly experienced operators, probably Mr Harvey, dictated an entry that was made by a trainee operator, Mr Timms, in a logbook. It records "Air/Oil Damper Control Working In Reverse". Understandably, Mr Timms expected this matter to be addressed and corrected by the defendants. Soon after, he went on stress leave. When he returned to work on or about 31 March 2009, he assumed that the defendants had corrected the problem. Why Downer and CBH did not correct the defect that was recorded on 2 April 2008 remains unexplained by them.

[40] Because the ATO Damper was encased within a duct, its reverse operation could not be physically observed by the third plaintiff's boiler operators, their supervisors or the engineers who worked at the sugar mill.

[41] That the ATO Damper operated in reverse was discovered by the plaintiffs in late August 2010, almost two months after the grate damage. By chance, a maintenance engineer, Mr Rojo, discovered that the ATO Damper was operating in reverse. Its reverse operation was corrected by a simple reprogramming exercise on a computer by a consultant, Mr Ironside.

[42] The plaintiffs' case is that the reverse operation of the ATO Damper caused overheating of the grate during the commissioning of the boiler and thereafter. They contend that this is evident in that heat alarms on the grate often activated and the defendants adjusted alarm settings in late 2008 so that alarms would not trigger so often. They also rely on the different operation of the practically identical boiler at Condong whose ATO Damper operated correctly rather than in reverse.

[43] The defendants deny that the reverse operation of the ATO Damper at Broadwater caused significant overheating of the grate. They point to other possible causes. In essence, these are:

(a) piling that was not attributable to a lack of undergrate air;

(b) bad fuel and rocks in the biofuel;

(c) boiler operators stopping the grate and operating it at the wrong speed; and

(d) incorrect use of undergrate air.

[44] The defendants contend that the predominant cause of the piling was not the reverse operation of the ATO Damper, but the manner in which the plates on the fuel spreaders were set up at the time of the damage on 5 July 2010. They contend that they were set up in a "significantly downward direction" of negative 20 degrees. This contention, however, cannot be sustained. There is no evidence that the plates were set at 20 degrees, or anything like it, on 5 July 2010. The evidence does not support the conclusion that the overheating that caused the damage was due to such misaligned feeder plates.

[45] There is no dispute that the grate became overheated. Metallurgical reports showed that parts of the grate deteriorated, including parts that were removed in November 2008 after the boiler had gone through the commissioning process and was about to be handed over to the plaintiffs.

[46] Eventually, parts of the grate that should not have been exposed to the temperatures to which they were exposed, failed.

[47] This failure occurred on 5 July 2010, when a chain link in the travelling grate overheated and failed. Other parts overheated and the grate was badly damaged. This led to shutdowns of the boiler, costly repairs to it, a loss of steam production to the mill, and a loss of power generation and the sale of electricity to the grid.

[48] The plaintiffs claim these costs and losses against the first and second defendants, and also against the third defendant which guaranteed the other defendants' performance of the EPC Contract and indemnified the first plaintiffs against loss.

[49] There is no dispute that in constructing and programming the boiler so that the ATO Damper operated in reverse, and then not identifying that it did, the first and second defendants breached their contract with the first plaintiffs.

Was the reverse operation of the ATO Damper a substantial cause of the overheating that resulted in damage to the grate?

[50] The central issue in the case is about causation.

[51] The causation question stated above involves important factual questions about the practical consequences of the ATO Damper operating in reverse. In particular, did it:

1. deprive the grate of undergrate air, and thereby:

(a) reduce the intended cooling effect of undergrate air; > > (b) reduce combustion of unburnt fuel on the grate and lead to increased piling?

2. redirect air that should have entered through the grate via the ATO Damper to a higher location in the boiler, and thereby affect combustion in the furnace?
3. by a combination of 1 and 2:

(a) affect the intended distribution of air and fuel within the furnace; > > (b) reduce efficient combustion; and > > (c) cause an excessive accumulation of unburnt fuel ("piling") on the grate?

4. result in overheating of the grate over a prolonged period?

[52] These questions require consideration of a large body of lay and expert evidence.

[53] Predictably, the plaintiffs rely on the noticeable difference in the operation of the boiler after the defective operation of the ATO Damper was corrected. After the ATO Damper was reprogrammed by Mr Ironside so that it operated correctly, boiler operators at the Broadwater mill noticed that it operated very differently. Some of their evidence describes it as operating as a completely different boiler. Their evidence, which I accept, is that it did not overheat as frequently as it did when the ATO Damper operated in reverse. The plaintiffs also rely on expert evidence about the effect of the ATO Damper operating in reverse. Also, after the reverse operation was corrected, Mr Rojo did a test of the effects of the correction. Grate temperatures reduced by 30°C in 30 minutes.

[54] The defendants, for their part, rely on expert opinion and other evidence to submit that the consequences of the ATO Damper operating in reverse were not as great as the plaintiffs suggest.

[55] As part of their defence, they say that if the reverse operation of the ATO Damper was a serious problem then overheating would have been evident in 2008 and before the handover. They submit that the grate did not overheat as often as the plaintiffs and their witnesses suggest it did during this period. This argument suggests that overheating only became a serious problem after the handover and was due to factors other than the reversal of the ATO Damper, such as the way the operators conducted themselves or the presence of bad fuel and rocks in the biofuel. However, for reasons that emerge from the evidence I will later discuss, I find that overheating was a frequent problem before the handover.

[56] Reduced to its basics, the dispute between the parties on the issue of causation goes something like this.

[57] The plaintiffs submit that the reverse operation of the ATO Damper indisputably affected airflows within the boiler, reducing the amount of undergrate air that was available to cool the grate, to inject air through the grate to aid combustion on the grate and combustion of fuel in suspension, and, if required, to dry wet fuel.

[58] Because of the reduced undergrate air, fuel that should have burnt either in suspension or on the grate, piled. The excessive accumulation of unburnt fuel on the grate is called "piling". The reduced combustion led to reduced steam output. The automated system then injected more fuel into the boiler. This compounded the problem of unburnt fuel. In this and other ways there was excessive piling of unburnt fuel on the grate.

[59] In combination, reduced cooling from reduced undergrate air, reduced combustion of materials on the grate and increased piling on the grate caused the grate to overheat.

[60] As a result, metal parts on the grate, particularly chain links and T-bars, became overheated for prolonged periods and deteriorated over time, with a particular chain link failing on 5 July 2010, resulting in grate damage to other parts of the grate which melted.

[61] A number of witnesses described the effect of the ATO Damper operating in reverse as "robbing" the boiler of undergrate air. This is a colourful way of describing how the unintended, increased flow of air through the ATO Damper injected air higher up the boiler rather than to the bottom of the boiler under the grate. The unintended increased flow of air through the ATO Damper made the boiler operate, unbeknownst to the operators, as an additional, secondary air damper. It reduced the efficient combustion of fuels, both in suspension and on the grate.

[62] Incidentally, the overheating of the grate by the ATO Damper operating in reverse may have been more pronounced when the boiler was using woodchips and other wood waste than when it was using bagasse during or shortly after the crushing season. This is because, as noted, wood tends to burn on the grate rather than in suspension and unburnt wood would pile on the grate and overheat it.

[63] The plaintiffs' case on causation, namely that the reverse operation of the ATO Damper during 2008, 2009 and the first half of 2010 caused the overheating that resulted in damage to the grate, rests on a number of planks. The first is the obvious inference that unintended changes to a finely-balanced system that is designed to have most of the air enter the boiler under the grate, some air enter through secondary air ducts, and practically none enter through the ATO Damper during normal operation of the boiler (when the boiler does not need to be started and is burning biofuels), must reduce efficient combustion and affect grate temperatures. A second plank is that, throughout the relevant period, the practically identical Condong boiler did not experience the problems that the Broadwater boiler did with excessive piling on the grate and overheating. The main difference was that the ATO Damper at Broadwater operated in reverse, and this is said to account for the difference. A third plank consists of the observations of the boiler operators and others about the marked improvement in performance after the reverse operation of the ATO Damper was corrected. The final plank is the expert evidence in the case, particularly that of Mr Lowry.

[64] One response by the defendants to the plaintiffs' claims about the consequences of the ATO Damper operating in reverse is along the following lines. The defendants argue that if the reverse operation of the ATO Damper had the consequences for which the plaintiffs contend, then someone would have noted this effect and detected the defect much earlier than in August 2010 after major damage to the grate occurred. The defendants point to the fact that their engineers and operators did not detect (with the qualification earlier noted) that the ATO Damper was operating in reverse during 2008 when the boiler was being commissioned by them, that an experienced consultant like Mr Ironside did not detect the problem before or after commissioning when he was fine-tuning the boiler, and that the plaintiffs' employees did not do so during the whole of 2009 and the first half of 2010.

[65] The fact that no one apparently detected that the ATO Damper was operating in reverse and causing the grate to overheat is said to show that the reverse operation did not have the significant consequences for which the plaintiffs contend.

[66] This is a superficially attractive argument. Ultimately, however, the argument and the evidence relied upon by the defendants to support it do not persuade me to reject the plaintiffs' case on causation. For reasons that will be more fully explained after a consideration of the more important evidence in the case and the parties' submissions, I conclude that the reverse operation of the ATO Damper was a substantial cause of the grate overheating prior to the July 2010 damage.

[67] At this stage, I shall preview why I am not persuaded by the defendants' argument that no one detected the ATO Damper was operating in reverse because it made little difference.

[68] One reason that no one investigated in 2009 or in 2010 the possibility that the ATO Damper was installed and programmed so that it operated in reverse is that it was practically unthinkable that the defendants would program it in reverse, then fail to detect the error during testing of the ATO Damper (including when its blades were able to be observed), and then fail to detect the error during commissioning of the boiler. This includes air balance tests that were conducted by the defendants that recorded differential pressures when the ATO Damper was opened in different positions. If the defendants had paid proper regard to the air balance tests during commissioning of the boiler when the ATO Damper was positioned at different percentage openings, they would have realised that it was operating in reverse.

[69] In late 2008 during commissioning and when heat alarms were regularly being triggered, and thereafter, neither the plaintiffs nor the defendants were prompted to think the practically unthinkable. This was that the defendants, including their highly experienced engineers and other employees, failed to make a physical inspection of the ATO Damper's operation after it was programmed, failed to detect during testing of the oil burner in 2008 that the damper was programmed so that it operated in reverse, and failed to detect its reverse operation during the many months of commissioning in late 2008. They did not detect its reverse operation and its consequences. Instead, they adjusted alarm settings and, with their considerable expertise, were able to commission the boiler and have it pass performance and reliability tests in late 2008. Those tests were undertaken using fresh bagasse that was used as fuel during commissioning in late 2008. Wood materials were hardly used. There is evidence that only a couple of truckloads of wood materials were available during that period.

[70] After handover, the plaintiffs would not reasonably suspect that such an error in programming had been made and had not been detected by the defendants during testing and commissioning. The defendants' experienced engineers and operators apparently did not give much attention to what the DCS or the air balance tests recorded about the consequences of moving the ATO Damper during the testing and commissioning period in 2008. Unsurprisingly, the plaintiffs' less experienced boiler operators also were not alert or alerted to the reverse operation of the ATO Damper when they looked at the control panel of the DCS.

[71] The fact that the plaintiffs' boiler operators and other employees did not suspect, let alone detect, that the ATO Damper had been programmed so it operated in reverse is also explained by the fact that, when problems were raised by the plaintiffs with the defendants about the boiler after it was handed over to them to operate, the defendants blamed problems on the quality of fuel being used or operator error. The defendants did not undertake a review to explain why the Condong mill was operating much better and with fewer problems than the Broadwater mill or suggest to the plaintiffs that they should do so. Instead, they cast blame on the plaintiffs' fuel and on their operators at Broadwater. The thought did not occur to them or to the plaintiffs that the ATO Damper at Broadwater was operating in reverse, depriving the boiler of undergrate air, and injecting into the boiler what is described as "trash air". This is the term engineers and operators use for unwanted air in a boiler.

[72] The practically unthinkable, namely that the defendants programmed the ATO Damper to operate in reverse and then failed to detect this defect during testing and commissioning, did not occur to the defendants or the plaintiffs over this period. Similarly, that the ATO Damper had been wrongly programmed so that it operated in reverse did not occur to other people, such as Mr Ironside. He did not notice by looking at the control panel or by any other means that this was the case. Neither he nor the operators had much occasion to do so because the oil burner worked on the rare occasions when it had to be used and the oil burner was designed to be operated automatically by the DCS.

[73] The fact that the reverse operation of the ATO Damper went undetected by the plaintiffs and the defendants until after the July 2010 damage does not mean that its reverse operation did not have real and significant effects. The evidence that I will review shows that it did. It supports the various planks in the plaintiffs' argument that I have already identified.

[74] In summary, the fact that no one detected the reverse operation of the ATO Damper during commissioning in late 2008, and during operation of the boiler in 2009 and the first half of 2010 does not persuade me that the reverse operation of the ATO Damper did not make much of a difference to the Broadwater boiler's operation and overheating of the grate. The reverse operation was not detected during that time because the plaintiffs and others did not suspect that the defendants would make such a basic error and then fail to detect it. This was an understandable and reasonable response by Mr Ironside and the plaintiffs' operators and other employees, who assumed that the damper had been properly programmed.

[75] Because during 2009 and 2010 they reasonably assumed that the airflows and damper positions were as indicated on the DCS screen and on the outside physical scale, it was easy to assume that the unburnt fuel on the grate was of poor quality or (in Mr Ironside's case) that the operators were not doing their job properly.

[76] At the risk of using a somewhat strained analogy, imagine that the maker of a Ferrari erroneously routed one of the exhausts from a piston back into the engine and blamed the car's poor performance on the fuel that the driver was using or the way that the driver operated the vehicle. Faced with those explanations, the driver would not think that the carmaker had set up the exhaust system so that one part of it operated in that way.

1. Reversal of the ATO Damper is a plausible and probable cause of overheating of the grate, excessive piling and the degradation of metal parts of the grate that led to metal failure of a chain link and major damage in July 2010.
2. The alternative causes of overheating suggested by the defendants are either not supported by the evidence or, to the extent they are, did not contribute significantly to overheating. They do not alter the fact that the reverse operation of the ATO Damper substantially contributed to overheating of the grate.
3. The proposition that the reverse operation of the ATO Damper was a substantial cause of overheating and excessive piling is supported by the expert evidence that I will address.
4. It is also supported by these facts:
   • there were no similar problems of overheating at the Condong plant which had its ATO Damper correctly oriented;
   • Condong used similar fuel and encountered similar problems of rocks in the fuel as the Broadwater plant did; and
   • after the defect in the ATO Damper at Broadwater was corrected, it operated like a different boiler.

[78] For these and other reasons to be developed, I conclude that the reverse operation of the ATO Damper substantially contributed to overheating of the grate prior to July 2010, when parts of the grate that should not have been subjected to prolonged overheating failed, and caused in the July 2010 damage.

As at 20 January 2010, could the plaintiffs have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse?

[79] This issue arises for determination against the background of matters that have just been addressed in discussing the first major issue.

[80] The plaintiffs were reasonably entitled to assume that the experts engaged by the defendants to construct, program, test, and commission the Broadwater boiler did so in a way that did not result in the ATO Damper operating in reverse.

[81] This would include a visual inspection by the defendants of how the ATO Damper blades moved from a fully opened to a fully closed position, as controlled by an actuator arm, and that the opening and closing positions accorded with the 0 to 100 scale on the crescent-shaped indicating scale. If such an inspection of the blades' movement did not occur before the blades were enclosed by ducting, then the fact that the blades opened and closed as indicated on the crescent scale could be established by a test of the kind undertaken by Mr Heese at the Condong plant when an entry was made into the duct so as to inspect the movement of the blades.

[82] Next, that the ATO Damper was operating in reverse should have been established by the defendants in the course of testing the oil burner after it was first fired in December 2007 and as the ATO Damper was moved through different degrees of opening.

[83] Next, that the ATO Damper was not operating properly should have been discovered by the defendants during commissioning of the boiler. In particular, it should have been discovered when reviewing air balance tests undertaken on or about 30 May 2007, which showed decreasing differential pressure as the ATO Damper was moved from what was indicated to be 25 percent open to 100 percent open. More generally, during testing and commissioning of the oil burner at the Broadwater boiler, the defendants' engineers and experienced operators should have observed readings on the DCS in relation to "Air to Oil" as the ATO Damper was moved through different positions.

[84] Overall, experts like the defendants might have been reasonably expected by the plaintiffs over a lengthy period of testing and commissioning of the boiler, and the oil burner in particular, to ensure that the ATO Damper was programmed correctly and that it did not operate in reverse.

[85] In the circumstances, the plaintiffs had reasonable grounds to believe that the ATO Damper had been properly programmed and tested by the defendants prior to practical completion on 21 November 2008.

[86] The issue then is what after practical completion should have placed one or more of the plaintiffs' employees on notice that the ATO Damper operated in reverse when this fact was not seemingly noticed, investigated, or detected by the defendants.

[87] An engineer who was an expert in tuning boilers, Mr Ironside, was engaged at different times by either the defendants or the plaintiffs to inspect the boiler and fine-tune it. During these visits the boiler was operating on biofuels. Unless Mr Ironside had occasion to re-start the boiler after a shutdown by activating the oil burner or to add oil as a fuel to increase combustion, he would not have had occasion to pay particular attention to it and the ATO Damper. Like the less experienced boiler operators and other individuals employed by the plaintiffs, he would have reasonably assumed that the damper was open to the extent indicated on the DCS (and also on the outside, crescent-shaped physical scale) and would not have had occasion to open or close it further. Any fine-tuning by him of airflows would have been by adjustments to secondary air dampers, rather than the ATO Damper, which he would reasonably have assumed was open only to the limited extent shown on the DCS.

[88] The issue is not what might have been apparent to Mr Ironside. Still, the fact that he did not suspect, let alone detect, that the ATO Damper was operating in reverse is relevant to the issue of what could have reasonably been expected from the first plaintiffs in the circumstances.

[89] What should have placed the plaintiffs' employees on notice that the ATO Damper operated in reverse when this fact was not seemingly noticed or investigated by the defendants or Mr Ironside?

(a) were not trained to test whether the ATO Damper operated in reverse;

(b) were reasonably entitled to expect that the ATO Damper had been installed, programmed and tested by the defendants so that it did not operate in reverse;

(c) were reasonably entitled to assume that if the oil burner operated to start combustion or to add fuel, that (as indicated in the instructional slides during their training) it was an automated system and that they should not make manual adjustments to it;

(d) were reasonably entitled, once the oil burner ceased to operate, to leave the ATO Damper in what appeared to them to be its fixed, almost closed position and not manually adjust it; and

(e) did not have occasion to give the oil burner or the ATO Damper and the readings on the DCS screen associated with them any particular attention during the daily operation of the boiler when it used biofuels and not oil.

Other employees of the plaintiffs, such as superintendents and engineers, likewise were entitled to assume that the ATO Damper had been tested during commissioning and did not operate in reverse.

[91] When the plaintiffs complained to the defendants after practical completion about aspects of the boiler's operation and, in April 2009, raised the question of whether overheating had caused damage to certain parts of the grate, the defendants responded that problems with excessive piling of fuel and other problems were the result of out-of-specification fuel, impurities like rocks in the fuel, and poor operating practices.

[92] After practical completion and in response to complaints about the boiler's operation, the defendants did not investigate the possibility that the ATO Damper had been installed, tested and commissioned so that it operated in reverse (this seemingly being unthinkable to them). It was not reasonable in the circumstances for the plaintiffs to try to locate the air balance tests among 24 volumes of the defendants' pre-handover test results that allegedly were delivered to them.

[93] Overheating was something that occurred before handover, and the third plaintiff's employees were trained by the defendants to respond to it and to bring the grate's temperature back within limits. Overheating was understood by those employees to be a part of the boiler's operation to which they had to respond.

[94] It was reasonable in the circumstances for the plaintiffs to assume that the ATO Damper at Broadwater had been installed, programmed and tested in the same way as the ATO Damper at Condong and did not operate in reverse.

[95] This remained the case up until the July 2010 damage. However, the relevant date for the purpose of the Settlement Deed is 20 January 2010. I conclude that as at 20 January 2010, the plaintiffs**:**

(a) were not aware that the ATO Damper operated in reverse; and

(b) could not have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse.

[96] As a result, the defendants were not released from claims made by the plaintiffs in this proceeding relating to the reverse operation of the ATO Damper.

[97] The trial heard from many witnesses, including boiler operators who were employed by the third plaintiff (NSWSMC), engineers who were employed by the parties in different capacities, a consulting engineer (Mr Ironside) who was engaged by the parties, and experts who provided expert reports for the purpose of this proceeding. The evidence-in-chief of lay witnesses was reduced to statement form. Some witnesses gave supplementary statements and some of their witness statements were voluminous. The experts' reports, including reports that responded to other experts' reports, were many and voluminous. Areas of agreement between Mr Lowry and Dr Dixon were identified in a joint report. Due to the volume of exhibits and other documents, the trial was conducted as an electronic trial.

[98] The parties do not suggest that the resolution of issues of substance turns on making an assessment of the credibility and reliability of each lay witness. It is unnecessary to give a witness-by-witness account of their evidence. I shall refer to their evidence only to the extent necessary to resolve a contentious issue of fact.

[99] Naturally, my findings of fact depend upon my assessment of the reliability or otherwise of the recollections of each lay witness, and the extent to which their evidence is supported or contradicted by contemporaneous documents.

[100] Some evidence, including metallurgical reports, was received into evidence without either party requiring the author of the report to be called as a witness. This became evidence for all purposes. Some evidence was admitted on a more limited basis.

[101] It is appropriate that I make some general observations about the reliability of the lay witnesses. Some witnesses had better recollections than others. Lay witnesses, such as boiler operators, were being asked to recall events that occurred between 2008 and 2010. Having witness statements stand as their evidence-in-chief had the advantage of reducing the length of the trial. It did not allow the lay witnesses to tell their stories, unprompted, in evidence-in-chief. However, in circumstances in which much of the lay evidence was uncontested and findings are not sought by the parties in relation to the reliability of the evidence of most lay witnesses, not being able to hear their evidence-in-chief given orally was not a significant disadvantage. Their evidence was tested under cross-examination.

[102] Some of the boiler operators were more suggestable than others. Some conceded that they could not recall matters. Others gave recollections that probably involved a fair degree of reconstruction, given the passage of time. I was generally impressed with the evidence of the operators. To take the first witness as an example, Mr David Timms was employed by NSWSMC as a "No 1 Operator". This meant that he spent a large amount of time in the control room. The reference to "No 1 Operator" distinguishes him from some witnesses who were employed by NSWSMC as "No 2 Operators" or "Rovers". They would undertake inspections and have other tasks around the boiler. Mr Timms gave reliable evidence about the training that was provided by CBH and Downer and problems that were experienced with the boiler both during the commissioning period and after. I found his evidence credible and reliable. Under cross-examination he made appropriate concessions, accepting that it was "hard to remember things from 13 years ago, but it-it's strange, some things are more memorable than others".

[103] The operators and site engineers employed by NSWSMC at the plant impressed me as conscientious employees who did their best to operate the boiler under difficult circumstances.

[104] Speaking generally, the evidence of many of these lay witnesses used terms of indeterminant reference when recalling matters such as the frequency of overheating or the amount of rock that was in the biofuel. Sometimes they were able to give more specific evidence about, for example, how often on average the travelling grate had to be stopped to address a problem and the relatively short amount of time that it had to be stopped to address such a problem.

[105] The operators kept logbooks and the contents of some of the logbooks became exhibits. The logbooks were generally of limited utility in resolving an issue such as the frequency of overheating and piling. The logbooks were in the form of Spirax pads or books in which the operators recorded certain basic information. The DCS itself recorded data, so the logbooks were not intended to be a comprehensive record of the boiler's operation each shift. The operators responded to what they saw on the DCS screen or what they or the No 2 Operator could observe through peep holes into the boiler. The purpose of the handwritten logbooks was not to record each occasion of overheating, or whenever piling occurred, or the occasions when the travelling grate was stopped. The main purpose of the logbook was to record significant events as an aid for the next operator whose shift was to follow. It also was a means by which the superintendents and the engineers might be alerted to maintenance that was required. An entry in a logbook on a particular shift might forewarn the next operator that problems had been encountered with bad fuel.

[106] If an operator encountered a problem with overheating, airflow, poor combustion, the flow of biofuel into the boiler or piling, then this was a problem requiring prompt action by the No 1 Operator with the assistance of the No 2 Operator. Depending on the problem, it might call for an adjustment of the fuel input, an adjustment of the airflow, the slowing or speeding of the travelling grate and, on occasions, the No 2 Operator would "air lance" an area of piling. These activities were part and parcel of the day-to-day operation of the boiler and were not usually recorded in the logbook.

[107] Sometimes, problems such as piling or the suspected presence of wet fuel were recorded in logbooks. However, the parties do not suggest that these entries record all such incidents. The limitations of the logbooks and the absence of historic electronic data from the system means that an assessment of the extent of overheating, piling and other problems turns largely on an assessment of the oral evidence of operators, superintendents and engineers who observed it and recall it. It also relies upon some contemporaneous documents such as emails in late 2008 which discuss the problem of overheating. Mr Ironside's reports from time to time also serve to identify problems that he was asked to address or found.

[108] The evidence of the lay witnesses supports the conclusion that I will later reach that overheating of the grate was a problem both before and after handover of the plant.

[109] No evidence was given by any boiler operators from CBH or Downer. During the commissioning period and the undertaking of tests, CBH personnel operated the boiler and trained boiler operators like Mr Timms. They included CBH personnel such as Mr Keith Harvey and Mr Warren Tillitzki. The defendants did not call these individuals as witnesses.

[110] The engineers who gave evidence included Regan Sawatzki, who was the chief engineer employed by NSWSMC and responsible for mechanical maintenance and lodging defect notices. Daniel Rojo was employed by NSWSMC as the project and maintenance engineer and was responsible for maintenance of the plant after handover in November 2008. Like Mr Sawatzki, he gave evidence about the problems that were experienced at the plant before the grate failed in July 2010. It was Mr Rojo who discovered in August 2010 that the ATO Damper had been installed and programmed so that it operated in reverse. The plaintiffs' witnesses included operators, production and shift superintendents, and engineers who observed the operation of the boiler during commissioning and also after handover. They were on the site each day of their working lives and, in the case of the operators, in the control room or observing the boiler throughout a shift.

[111] The defendants' witnesses included lay and expert witnesses. Mr Ironside, in a sense, straddled both fields, but he did not provide an expert report. Instead, his evidence was based upon his being engaged at various times by either the plaintiffs or the defendants to assist in tuning the boilers at Broadwater and at Condong. He attended both sites on numerous occasions, both before and after handover and provided reports shortly after his visits. Mr Ironside is the principal of his own business and a mechanical engineer by training. He has extensive experience in the commissioning and operating of power generation plants, including expertise in controls and instrumentation. This includes the DCS that was installed at the plant. One of the operators employed by NSWSMC, Paul Stanley-Jones, described Mr Ironside as the "boiler guru".

[112] It will be necessary to address, in due course, Mr Ironside's contemporaneous reports and the different opinions that he expressed, over time, about the effect of the ATO Damper's reverse operation. I should say at this point that I was impressed by Mr Ironside's independence and his attempts to assist the Court. He was not an advocate for any parties' position. He made appropriate concessions under cross-examination.

[113] Egbertus Heese is a mechanical engineer who worked for CBH between 2005 and 2018. From mid-2007 to August 2008, he was the commissioning manager for Condong and worked predominately there. He became CBH's project manager for the Broadwater plant in around August 2008. As project manager for both plants, he mostly worked from the Brisbane office but would travel to the sites about once a week. He did not provide any training to the Broadwater boiler operators. He had a limited involvement in the day-to-day operations of the Broadwater plant during the commissioning period and very limited involvement thereafter. He gave evidence on one contentious matter, namely having delivered certain hardcopy documents to the plaintiffs.

[114] Michael Stirling is an employee of Downer and a former employee of CBH. He gave evidence about the design and operation of the Broadwater plant and some evidence about training, fuel, the DCS and defect notices. I found Mr Stirling to be an impressive witness who assisted the Court to understand certain technical and engineering issues. As with the evidence of other engineering experts whose evidence I will briefly introduce, it will be necessary to engage in some greater detail on aspects of their opinions.

[115] While Mr Stirling was responsible for the design of both plants, he was not directly responsible for their commissioning and he was not involved in their operation. This means that his evidence was of limited assistance in reaching conclusions about the Broadwater plant's operation during commissioning and thereafter. He provided two days of classroom training to the Broadwater boiler operators in December 2007, but was not involved in the on-the-job training of those operators when they were in the control room using the DCS. Because of his various responsibilities, Mr Stirling spent most of his time in 2008 in the Brisbane office, rather than onsite.

[116] Graham Lowry is the director and principal consultant of Boiler & Power Plant Services Pty Ltd. He is highly qualified as an engineer and has worked in the boiler and power plant industries for over 40 years. He gave evidence and prepared reports. He provided a joint report with Dr Dixon and gave a supplementary statement. The plaintiffs rely upon his evidence which I will discuss in greater detail.

[117] The defendants contend that Mr Lowry was an advocate for a certain position, made speeches rather than responded to questions under cross-examination, and even went so far as to express a legal opinion at one point. This was the first time that Mr Lowry gave evidence in court or prepared a report for use in court. That should not be held against him, and I have assessed his evidence with that in mind.

[118] Mr Lowry was slightly enthusiastic in his exchanges with cross-examining counsel. He made few concessions under cross-examination. However, neither his enthusiasm nor the absence of additional concessions under cross-examination leads me to devalue his evidence. His active engagement with counsel during cross-examination might be characterised by some as a form of advocacy. However, I found his responses to be well-intentioned and what one would expect in a symposium that was trying to find the truth. I do not assess his evidence by counting the number of concessions he made and comparing them to the number of concessions that Dr Dixon made in the course of his evidence. Depending upon the particular topic, it would have been inappropriate for Mr Lowry to make a concession that he did not accept. The fact that he maintained the opinion that the reverse operation of the ATO Damper was a substantial cause of the overheating and the July 2010 damage does not mean that his opinion should be disregarded or discounted for that reason.

[119] Dr Terence Dixon also is a highly qualified and experienced engineer. He prepared three expert reports, a joint report with Mr Lowry, and a supplementary statement about the calculation of the quantity of diverted undergrate airflow. It will be necessary to return to his evidence, including a number of important concessions that he made during his cross-examination. The defendants submit that I should hesitate to place much weight on those answers. They submit that by this stage of his evidence, Dr Dixon had become overwhelmed by the process and began to readily agree with propositions that were put to him. I recall and have regard to the circumstances in which the concessions were made. I do not accept that Dr Dixon made them because he was overwhelmed by a protracted cross-examination and was disposed to readily agree with propositions that were put to him. Instead, Dr Dixon impressed me as someone who was prepared to make concessions, not out of tiredness, but because he was prepared to accept the force of arguments and propositions that were put to him.

[120] I will return to some aspects of the expert evidence. It will be unnecessary to address many of the contentions made in the numerous expert reports. This is because, both by virtue of the joint expert report and through the course of the trial, some issues fell away by reason of agreement or concession.

[121] It is sufficient to observe that I was generally impressed by all of the engineers who gave evidence. This includes engineers who were employed by the parties. As for the independent experts, I was assisted by the evidence of Mr Ironside, Mr Lowry and Dr Dixon. To the extent I need to resolve any issue that remains where their opinions differ, I will do so in the course of considering specific issues. The resolution of those issues does not depend upon some general view about the demeanour of those expert witnesses or the manner in which they gave their evidence. Each was trying to assist the Court in their own way and in their own words. Long gone are the days when conflicts between expert witnesses could be resolved by a judge saying that the manner in which an expert gave evidence instilled confidence.[1]

[122] Many other witnesses were called who addressed issues of loss and damage. It is unnecessary to discuss their evidence at this point. I will do so in the final part of these reasons.

[123] Some details about the co-generation plant at Broadwater and the operation of the boiler have been given above in the "Background" section. Some additional descriptions are necessary.

[124] The co-generation plant at Broadwater was purpose-built to provide power for export to the electricity grid and process steam for the Broadwater sugar mill's operations. It was designed to operate around the clock for 11 months a year, with the remaining month reserved for maintenance.

[125] The plant is composed of a biomass-fuelled boiler and other associated systems including a fuel handling plant, a steam turbine and a generator. The plaintiffs' claim relates to the boiler that creates heat energy. Water-filled pipes and drums make up the heat transfer surfaces inside the boiler. When biofuel is burnt in the boiler's furnace, the water boils to form medium-pressure, high-temperature steam.

[126] This steam is heated even further by superheaters as it exits the boiler. The resulting high-pressure, high-temperature steam flows to the steam turbine, that in turn drives the turbogenerator and produces electrical energy.

(a) a furnace;

(b) water drums;

(c) pipework;

(d) a combustion air system;

(e) two travelling grates operating in parallel (which I will refer to simply as "the travelling grate");

(f) a biofuel handling system consisting of fuel feeders, chutes and pneumatic air distributors;

(g) an oil burner; and

(h) dampers to control airflow.

[128] The boiler uses two kinds of fuel: bagasse and woodchip. Bagasse is a wet, fibrous by-product of the sugar cane crushing process. Woodchip is a heavier and denser fuel than bagasse, and is typically relied upon in the non-crushing season when no bagasse is being produced and after any stockpiled bagasse has been used. The boiler was designed to run predominantly on a "mixed fuel" of bagasse and cane trash (the leaves and tops of sugar cane that are disposed of pre-harvest), but the evidence is that "mixed fuel" has never been used at Broadwater.

[129] Either bagasse or woodchip is brought into the boiler by one of five biomass feeders, and then travels through a series of chutes before being sent into the furnace by pneumatic distributors. Vertically-adjustable distributor plates enable a boiler operator to adjust the trajectory of fuel blown into the furnace.

[130] Bagasse, being the lighter fuel, tends to burn while suspended in mid-air by airflows introduced into the furnace unless it has a particularly high moisture content. Woodchip, on the other hand, mostly lands on the travelling grate before combusting.

[131] The travelling grate sits horizontally at the bottom of the boiler and serves as the boiler's "floor". It roughly resembles a caterpillar track and operates as a conveyor belt for unburnt fuel within the furnace.

[132] The parts of the grate that are most directly exposed to the furnace and have the most direct contact with unburnt fuel are known as "grate clips", but to layman's eyes they look like tiles. They are rectangular, heat-resistant iron tiles that contain holes and have side slots to allow air from beneath the grate ("undergrate air") to flow through.

[133] In constructing the grate, series of grate clips were clipped in rows onto long metal rods known as "T-bars". These T-bars were arranged so that they lay parallel to the front and back walls of the furnace. They were then mounted to "roller chains", which were in turn supported on "skid shoes" that run on "skid rails".

[134] Fuel that is not burnt in suspension lands on the travelling grate towards the rear of the furnace. The travelling grate, pulled forward by an electric motor, carries this fuel from the rear to the front of the furnace. Any unburnt fuel remaining on the travelling grate at the front of the furnace drops off into a submerged ash conveyor and is carried away from the boiler.

[135] The travelling grate operates in a continuous loop. The grate clips and T-bars that were exposed to the furnace when carrying the unburnt fuel rotate around a drive shaft and then travel back along the underside of the grate to repeat the process. In this way, grate clips and T-bars should only be directly exposed to the furnace for half the boiler's operational time.

[136] As previewed, the introduction of airflows into the boiler enables fuel, particularly bagasse, to burn in suspension in the furnace. The ultimate source of any such introduced combustion air is the forced draft fan system ("FD Fan"). The FD Fan divides its air between the undergrate area, the secondary air nozzles and the oil burner.

[137] Undergrate air is a mixture of hot and cool air that passes through the travelling grate from underneath the furnace. The holes in each grate clip are designed to allow undergrate air through. Undergrate air:

(a) cools the grate components;

(b) provides combustion air for burning fuel within the furnace; and

(c) dries any moisture in unburnt fuel.

[138] The flow of undergrate air is controlled by two undergrate air dampers.

[139] The flow of air within the furnace creates a fireball in its centre. Secondary air is hot air used to rotate the fireball and affect its height and position within the furnace. Three secondary air nozzles are at different heights along the rear furnace wall, with another on the front wall.

[140] Secondary air dampers control the amount of air fed into these secondary air nozzles.

Oil burner and the air to oil damper ("ATO Damper")

[141] The oil burner initially fires the boiler. While the oil burner may also be used to stabilise combustion within the boiler, it has served its primary purpose once the furnace is lit.

[142] The oil burner sits on the rear wall of the furnace, slightly above the second of the three secondary air nozzles that are positioned on that wall. Diesel/distillate fuel is fed into the burner and combusts in the presence of combustion air. This air flows into the oil burner from the FD Fan, with the flow being regulated by the ATO Damper.

[143] The opening and closing of the ATO Damper is effected by an actuator that is controlled by the computerised DCS.

[144] The ATO Damper is designed to be open and supply a higher airflow to the burner on the rare occasions when the oil burner is in use. When the oil burner is not in use, the ATO Damper is not meant to be entirely closed. The DCS was supposed to be programmed to leave it at 10-15 percent open. A small amount of air should have been let through to cool the burner components and to prevent a build-up of ash.

[145] Once combustion has started as a result of the oil burner, biofuel can take over as the source of fuel, the oil burner can be turned off, and it can be retracted into a housing. Because the boiler is intended to operate 11 months of the year on biofuels, the oil burner is rarely used. It may be used to re-fire the boiler after a stand down period, such as a maintenance period or an emergency stoppage. On rare occasions the oil burner may be used to supplement combustion from biofuels, but this would be exceptional. For most of the time the oil burner is not used, and the ATO Damper does not move from its almost closed position. The operators have no occasion to manually adjust it or to look at the computer screen to see how far it is open. The screen in the control room will record that it is, say, 15 percent open.

[146] The parties agree that, during these periods of oil burner disuse, the ATO Damper was actually 85-90 percent open due to its reverse operation.

[147] The DCS is the boiler's "computerised brain". It is an automated system that allows boiler operators to monitor the boiler, as well as the steam turbine control system, and, if required, to make adjustments to the boiler's operation.

[148] The DCS connects a variety of sensors, controllers and programs, and was designed to monitor, control, display, and record aspects of the boiler's operation, including trends in inputs and outputs. It includes alarms that are displayed on the screen or which may sound.

[149] The DCS interfaces with computer screens in a control room. Boiler operators rely on these screens as a source of information in making decisions about the boiler's operation. One of many scores of matters recorded on these screens is the extent that the ATO Damper is open. For example, it might record that it was 15 percent open.

[150] The DCS automates much of the boiler's operation. A boiler operator must be in the control room to respond to any information the DCS might provide and problems reported by others, such as the "No 2 Boiler Operator" (or "Rover") who undertakes inspections of the plant and can observe, to some extent, the operation of the boiler through a "peep hole".

[151] In May 2005, the first plaintiffs (as "Principal") entered into a contract with the first and second defendants (as "Contractor") referred to as the "EPC Contract". Downer and CBH agreed to design, engineer, procure, construct, test and commission the work provided for in the EPC Contract. The consideration was $69,955,669. The parties also entered into an agreement, again under the EPC Contract, to design, engineer, procure, construct, test and commission an identical 30MW co-generation plant at Condong for a consideration of $78,224,547.

[152] Construction of the co-generation plants occurred between mid-2006 and mid-2008. This included installation of the ATO Damper.

[153] Testing and commissioning of the plant occurred during 2007 and 2008. This included air balance tests undertaken by the first and second defendants.

[154] The boiler at Broadwater was first fired on 20 December 2007.

[155] During 2008, Downer and CBH provided operating and maintenance training to operators employed by NSWSMC. This included classroom-style training. Additional training occurred during commissioning (2 August to 30 September 2008) and reliability testing (1 October to 31 October 2008). During these tests and during the training, the only persons who were usually permitted in the control room by Downer and CBH were their own representatives and the boiler operators who they were training.

[156] On 21 November 2008, practical completion occurred and the operation of the plant was handed over to employees of NSWSMC.

[157] The parties continued to engage with each other after handover, and metallurgical reports were obtained in July 2009 and January 2010. Representatives of the plaintiffs issued a large number of defect notices in the first half of 2009. Downer and CBH responded to a number of them by saying that the defects and any damage was due to out-of-specification fuel, the quality of fuel, rock content in fuel, or poor maintenance and operating procedures.

[158] A substantial claim for liquidated damages was made against Downer and CBH, and they claimed moneys allegedly owed to them by the first plaintiffs. The parties negotiated a settlement of those disputes and entered into the Settlement Deed dated 20 January 2010.

[159] On 5 July 2010, a chain link in the traveling grate failed, resulting in substantial damage to the grate and other parts of the boiler. The boiler had to be shut down and the damage repaired.

[160] In this proceeding, the plaintiffs claim for loss and damage including the cost of repairs, expenses incurred by the shutdown of the plant and loss of revenue.

[161] In late August 2010, after looking at some photographs of the Condong plant, Mr Rojo, an engineer employed by NSWSMC at Broadwater, discovered that the ATO Damper at the Broadwater plant had been installed and programmed so that it operated in reverse. This defect was corrected soon after when Mr Ironside programmed the system so that the ATO Damper no longer operated in reverse.

[162] After that, the operators noticed a major change in the boiler's operation, with far fewer instances of overheating and piling of unburnt fuel.

Was overheating a problem both before and after handover?

[163] The parties agree, as do the experts, that the July 2010 damage to the boiler's grate was caused by overheating. The parties do not agree about the cause or causes of the grate overheating. The defendants deny that the reverse operation of the ATO Damper was a substantial cause of the overheating that resulted in damage to the grate.

[164] Part of their argument is that the overheating was caused by operational and other matters that occurred only after NSWSMC took over the operation of the boiler. This raises for consideration whether overheating was a problem before the handover.

[165] The plaintiffs contend that overheating and damage started to occur before handover. The plaintiffs' case about overheating and its consequences does not depend upon a finding that grate temperature alarms were being triggered, so as to appear on the computer screen or by sounding an alarm, constantly. Their case is that when temperatures were high, alarms were regularly being triggered. This occurred until the reverse operating ATO Damper was corrected. Their case is not that grate temperature alarms were "constantly" being triggered on the DCS. Their case is that the overheating was a common occurrence and that many episodes of overheating led to a cumulative and progressive degeneration of grate components that were most affected by overheating.

[166] The plaintiffs rely, among other things, on:

(a) metallurgical reports;

(b) contemporaneous records, including emails sent between September and November 2008 in which CBH discussed the problem of high grate temperatures;

(c) the expert opinions of Mr Lowry and Dr Dixon; and

(d) evidence of operators and supervisors that overheating was an ongoing problem.

(a) the evidence does not establish that alarms were constantly being triggered; and

(b) the evidence does not support a conclusion that overheating had occurred since commissioning.

[168] Part of their argument is that there was no significant problem with overheating and alarms during commissioning.

[169] Four metallurgical reports were tendered in evidence for all purposes, without any requirement for the authors of those reports to be cross-examined. Two post-date the metal failure and damage that occurred on 5 July 2010. I shall return to those reports and the parties' submissions about them in considering the specific issue of whether (as the defendants submit) the 5 July 2010 damage occurred only because of events that occurred that day or (as the plaintiffs submit) was the result of prolonged exposure to elevated temperatures for a significant period of time. The present issue is what the metallurgical reports reveal about parts being exposed to elevated temperatures for prolonged periods that included the period prior to handover. It is convenient to largely reproduce with a few amendments, in the next few paragraphs, the plaintiffs' summary of the reports, rather than provide my own summary or quote lengthy extracts. The defendants do not submit that this summary is inaccurate.

[170] The metallurgical reports (being reports of Aurecon Australia Pty Ltd dated 22 July 2009 ("First Aurecon Report") and 21 January 2010 ("Second Aurecon Report"), and of Austpower Engineering Pty Ltd dated 7 August 2010 ("First Austpower Report") and 11 August 2010 ("Second Austpower Report") provided analyses of samples of:

(a) T-bars from November 2008, May 2009 and December 2009;

(b) grate clips from March 2009 and August 2010; and

(c) chains (with links and pins) from the northern grate tested in August 2010.

(a) for the November 2008 and May 2009 T-bars:

1. thermal softening of parts of the November 2008 and May 2009 T-bars;
2. intermediate stage spheroidisation of carbides with pearlite colonies still distinguishable in the ferrite matrix for parts of the November 2008 T-bars;
3. full spheroidisation of carbides and pearlite colonies no longer distinguishable for parts of the May 2009 T-bars; and
4. the significant extent of spheroidisation of the T-bars nearest to the centre of the grate, and significant thermal softening, indicated the T-bars were "exposed to elevated temperatures for prolonged periods of time" (emphasis added);

(b) for the December 2009 T-bar:

1. "significant thermal softening" in most of the T-bar;
2. full spheroidisation of pearlite with carbides that had migrated to the grain boundaries and increased in size by coalescence in the centre end of the T-bar which are features "characteristic of significant thermal degradation";
3. similar features to subparagraph 2 above for the mid-length of the T-bar (although with more distinguishable pearlite and relatively less coalesced carbides at the ground boundaries) which indicated "significant thermal degradation" (although not to the extent of that found in relation to subparagraph 2 above);
4. there was "significant thermal softening and spheroidisation of the microstructure...evident in the T-bar"; and
5. the "extent of spheroidisation and thermal softening found in the T-bar indicated that it had been exposed to elevated temperatures for a significant period of time, as found in past examination of T-bars from Broadwater" (emphasis added);

(c) the microstructure of the March 2009 grate clips was typical of grey cast iron that had undergone an annealing heat treatment (although it was unclear whether that was the result of exposure to elevated temperatures during service);

(d) in relation to grate clips tested on 6 August 2010:

1. the graphitisation of the iron carbides indicated exposure to metal temperatures in the vicinity of 700°C;
2. the microstructure of the grates was severely degraded;

[172] As noted, the experts agreed that the damage on 5 July 2010 was caused by overheating of components of the travelling grate. In reaching this conclusion they relied, in part, on the metallurgical reports that showed the failure was due to overheating.

[173] Both Mr Lowry and Dr Dixon agreed that the First Aurecon Report indicated that overheating of the T-bar had occurred before November 2008, at a temperature of over 425°C. Mr Ironside also agreed that the First Aurecon Report indicated thermal softening in the T-bars at November 2008, which should not have been occurring at that time. I leave to one side an argument that these experts are not metallurgists and are not qualified to express an expert opinion on matters within the field of metallurgy. If I disregard what they said about the metallurgical reports, I simply would be faced with the fact that the metallurgical reports in fact indicate overheating and thermal softening as at November 2008. It was, however, permissible for the experts to have regard to the metallurgical reports, which themselves became evidence, in reaching the conclusions that they did.

[174] The defendants made submissions about the First Aurecon Report in relation to the report's reference to "elevated temperatures" over "prolonged periods". They submit that:

(a) the report does not identify from what part of the grate the clips they tested came;

(b) it did not identify whether the metal had been heated to a high temperature in service or during manufacture, and was inconclusive of whether the tested clip had been overheated during service or had been annealed during heat treatment;

(c) the reference to "elevated temperatures" did not specify what that meant and in the absence of an explanation from the authors of the report there was no basis to conclude that "elevated temperatures" meant temperatures that were causing damage;

(d) the report's reference to "prolonged periods" did not explain what is meant by that term, for example, whether it referred to a period of hours in a day, or a period of hours repeated over numerous days; and

(e) the report does not permit one to conclude that the rest of the grate was in the same condition as those parts of the grate that Aurecon had tested and reported upon.

[175] For these and other reasons, the defendants submitted that one could not draw a connection between the First Aurecon Report and the ultimate source of the 5 July 2010 damage.

[176] As to the Second Aurecon Report, the defendants submit that to the extent the conclusion can be drawn from the report that the part examined had been overheated, no conclusion about the source of the overheating can be drawn.

[177] The defendants make additional submissions about what the Aurecon Reports should have led the plaintiffs to do by way of further investigation. That is a relevant point. However, it may be noted that the Aurecon Reports were provided to CBH and CBH did not undertake or suggest investigations in order to understand what was happening at Broadwater, to compare the clips with clips at Condong and to diagnose any problem at Broadwater.

[178] The present issue relates to what may be drawn from the first two metallurgical reports. It should be noted that the First Aurecon Report addressed what may be described as the "November 2008 T-bars". It concluded that significant thermal softening indicated the T-bars were "exposed to elevated temperatures for prolonged periods of time". As to the ultimate cause of failure, there is no basis to conclude that the components examined by the metallurgists in 2009 were not the same kind of components that were in the grate during 2010. The reference to "elevated temperatures" may be treated as referring to temperatures that were sufficiently high to cause the degradation of the metal components that were examined by the metallurgists. Whilst the First Aurecon Report does not explain what was meant by "prolonged periods of time", it is questionable whether the metallurgists were in a position to be specific. That would depend upon their having the kind of additional evidence that is before the Court about overheating, alarms and piling.

[179] Viewed in isolation, the First Aurecon Report does not prove that the 5 July 2010 damage was the consequence of prolonged overheating. It does, however, support the conclusion that overheating was occurring before handover and during commissioning. I do not conclude that the thermal degradation reported upon in the First Aurecon Report or the Second Aurecon Report was the result of annealing during heat treatment. There is a reasonable inference that additional parts of the grate to those that Aurecon tested and reported upon may have been exposed to similar elevated temperatures for prolonged periods of time. If, however, that inference is not drawn, the Aurecon Reports support the conclusion that some metal parts of the grate had suffered significant thermal degradation due to overheating or piling, or both.

[180] It is sufficient to conclude that the metallurgical reports support the conclusion that parts of the grate were subject to overheating that led to thermal softening of parts, including the November 2008 T-bars. They further support the conclusion that the T-bars were exposed to elevated temperatures for prolonged periods of time. More generally, the metallurgical reports support the conclusion that the thermal softening led to significant thermal degradation, that the degradation through overheating was progressive and cumulative, and continued until the 5 July 2010 damage. For present purposes, the metallurgical reports in relation to the November 2008 T-bars, and more generally, support the conclusion that overheating was occurring before handover.

[181] In an email dated 1 September 2008 sent to Mr Stirling and copied to Mr Rossner, Keith Harvey of CBH stated:

"We are getting some grate temperatures being in permanent alarm. Today 3 are running 325 [°C] and I've seen hotter (highest found was a few days ago 368 [°C]..." (emphasis added)

[182] Later on 1 September 2008, Mr Stirling replied to Mr Harvey's email, copying Mr Rossner, Mr Heese and CBH's "Project Condong" email address. Mr Stirling responded (emphasis added):

"The idea of the thermocouples is to provide an indication of the temperature distribution rather than absolute temperatures & while measurements > 350°C are a concern, high individual temperatures are more worrying in that there may be indicating a fire inside the grate. Assuming the thermocouples are still intact & reading correctly (measured temperatures drop with load, all the thermocouples rise & fall in unison?) we should try to keep the operating temperatures as low as possible. Easier said than done. Is it possible to slow the grates down to get a thicker ash bed which should help insulate the grate internals? Is there any indication of a high undergrate air temperature? Nominal design temperature at MCR with design fuel is around 280°C. Increasing the AH recirc flow should help to reduce the undergrate air temperature & hopefully grate steel temperatures.

Overall the alarm points as set should be maintained. Roughly the yield strength of carbon steel will reduce to around 70% at about 425°C. Operating this high is a problem however with scaling & as such we should keep the temperature below about 375°C. If the temperature remains above 375°C for too long (say 30 - 45 minutes) we should look at reducing load / increasing undergrate airflow to try & bring them back down. Under no circumstance should we exceed 425°C." (emphasis added)

[183] The defendants submit that the significance of these 1 September 2008 emails should not be overstated and that they do not establish that the overheating problem that Mr Harvey had identified was not later resolved. However, the evidence does not establish that the overheating problem was resolved, let alone that the cause of the overheating was identified and rectified by CBH and Downer.

[184] The email chain continued and involved emails on 19 November 2008 between Mr Stirling, Mr Heese and a Paul McCullough from CBH. These emails, together with the evidence of the operators to which I will shortly turn, indicate that overheating of the grate and alarms remained an issue in November 2008 and prior to handover.

[185] On 19 November 2008, Mr Stirling sent an email to Mr Heese and copied the "Project Condong" email address, stating that "I've previously advised Keith & crew (see below) that operation was acceptable up to around 375°C".

[186] That same day, Mr McCullough, who was a design engineer at CBH, reported to Mr Stirling and Mr Heese, copying David O'Connor and the "Project Condong" email address, that after a recent visit by Mr Ironside, there had been a request from the operators to increase the grate high temperature alarms. Mr McCullough proposed increasing "the PH alarm from 320 to 330°C" and noted that "our design limit was 340°C". Setting the alarm at 10°C below this was said to give "some operating margin". Mr McCullough noted that his request to increase the alarm settings was contrary to Mr Stirling's September 2008 advice to Mr Harvey, but suggested that it was still acceptable.

(a) during commissioning overheating was not really experienced;

(b) he was unaware of alarms going off regularly during commissioning; and

(c) he could not recall being told by any CBH employees or any operators during commissioning that they were experiencing alarms going off as an "ongoing broad continuous problem".

I will return to the extent to which Mr Stirling was in a position to personally observe overheating during commissioning after considering the evidence of individuals who were.

[188] Mr Rossner, to whom the 1 September 2008 email was copied, gave evidence that:

(a) he had no recollection of the email;

(b) he could not say how regularly the phenomenon Mr Harvey had observed had occurred; and

(c) regular triggering of grate temperature alarms was not something that was brought up in the commissioning shift logs.

I will return to the documenting of overheating and alarms in logs, and also Mr Rossner's role during commissioning.

[189] The CBH email chain between 1 September 2008 and 19 November 2008 does not support the conclusion that overheating was a problem that occurred only early in the commissioning phase. It indicates that it was a problem that occurred in late 2008 and close to the handover. The response of CBH was to raise the temperatures at which alarms triggered rather than address the underlying cause of the overheating.

Expert evidence about the emails and the metallurgical reports

[190] As to the 375°C temperatures mentioned in the email, Dr Dixon agreed that such a reading from thermocouples on the structural steel would mean that the moving parts, like T-bars, would be experiencing temperatures higher than 375°C, and that these would be temperatures where those elements would start degrading.

[191] Mr Lowry confirmed his view that the long-term overheating of grate components caused the grate failure. He explained that the metallurgical reports indicate that the long-term overheating occurred over months and years, not a matter of hours. He indicated that the metallurgical reports showed progressive thermal overheating and degradation.

[192] According to Mr Lowry, the grate failure occurred due to long-term overheating with the "grate being overheated basically from day 1". He also said that the failure was "just waiting to happen because... this grate was being overheated for such a long time". Mr Lowry explained that the metallurgical evidence of the T-bars from 2008 and 2009 indicated a long-term progression of overheating. He said that the pictures of the T-bars in the First Aurecon Report showed that they were bent and warped in a way which indicated bending by overheating, rather than by a heavy weight or mechanical deformation.

[193] Dr Dixon considered that damage caused by overheating was irreversible and that the overheating process was continuous. The damage to the grate components "would have occurred over a period that included multiple instances of prolonged and excessive overheating", with the metal deterioration occurring cumulatively over time. He agreed that "[t]he damage was... occurring intermittently over a long period".

[194] Grate components including grate clips, T-bars, skid shoes and chain links could progressively and cumulatively deteriorate over time from overheating. The cumulative effect of overheating would eventually lead to a failure point. Dr Dixon agreed that the First Aurecon Report indicated the November 2008 T-bar had been exposed to elevated temperatures for prolonged periods of time, and that progressive damage from overheating was occurring before practical completion (when Downer and CBH were in control). Dr Dixon also agreed that the Second Aurecon Report (in respect of a T-bar that had been removed in December 2009) indicated the occurrence of progressive damage from multiple overheating events.

[195] Relevantly, Dr Dixon accepted that the statement in his second report that no overheating had occurred to the grate components, including the T-bars, for at least the first 15 months of operation, was incorrect based on the First Aurecon Report.

[196] Reports that Mr Ironside provided to CBH before handover dated 19 April 2008, 5 May 2008 and 25 October 2008 identified problems being experienced with piling of bagasse, unburnt fuel and piling generally.

[197] Mr Ironside's 25 October 2008 report referred to increased grate temperatures.

[198] Also, in his 2019 witness statement Mr Ironside refers to his observations during the period from March 2008 to September 2011 and recalls more DCS alarms on high grate temperatures at Broadwater compared to Condong.

[199] Mr Ironside's evidence at trial was that he had a positive recollection of grate temperatures being in alarm at Broadwater both before and after handover.

[200] The evidence of various witnesses supports the conclusion that overheating was a problem both before and after handover. As to the period before handover, Mr Timms was trained as a No 1 Operator during the commissioning period. When asked about alarms during commissioning, he stated:

"I can remember that the grate temperatures went off regularly because it was like a piercing sound. It was very annoying. I even recall coming in and - one day coming in and the volume had been turned down during commissioning, which I thought was odd. Because they were there to alert you, and somebody had got - somehow manipulated the volume switch so that you didn't hear them."

[201] The defendants submit that the evidence given by the plaintiffs' witnesses, particularly Mr Timms, about alarms and high grate temperatures during the commissioning process was vague and general. I disagree, Mr Timms' witness statement at [61] - [76] gave satisfactory evidence about the frequency of alarms, piling and the steps taken by CBH to address these matters. His evidence included discussions that he had with employees of NSWSMC about the softening of the volume of the alarms. Under cross-examination, he described the alarms as a "piercing sound" that "went off regularly" from high grate temperatures. He went on to describe conversations that he had with CBH personnel about these matters. He gave further evidence about conversations with CBH personnel regarding alarms during commissioning in his re-examination.

[202] Mr Timms was an impressive and thoughtful witness. There was no sense in his evidence that he was exaggerating or embellishing the problems of overheating and the frequency of alarms during the commissioning period. Understandably, given his forthright and honest manner, there was no suggestion put to him during his cross-examination that he was exaggerating or embellishing matters. I found his evidence on this aspect, and his evidence in general, honest and reliable. I do not accept that his evidence about grate temperatures, overheating and alarms during commissioning was vague. This was an important period during Mr Timms' work life. It also was a stressful period and I consider that he has a sound recollection of events.

[203] Neither Mr Timms nor the other witnesses called by the plaintiffs suggested that alarms were constantly sounding during the period prior to handover or thereafter. His evidence does, however, establish that overheating, frequent alarms and piling were problems during commissioning. His evidence did not suggest that these problems were resolved before he went on leave in August 2008. The evidence that I have already addressed, including the chain of CBH emails dated between 1 September and 19 November 2008 and Mr Ironside's October 2008 report, suggest that problems with high temperatures and alarms continued. This includes entries in CBH shift logs that identified instances of mounding or piling on the grate and, more importantly, entries about alarms. For example, on 19 September 2008, a CBH shift log reported that:

"Grate Temperatures in some locations were noted to be in alarm or elevated in the early morning and this may be the result of ash product (rocks etc) on the grate and poor air distribution!"

[204] This log was sent to Mr Rossner, Mr Stirling and Mr Heese. A week later the shift log for 26 September 2008 reported: "Stopped Grates due to high Temp".

[205] On 31 October 2008, Mr Heese sent an email stating that "[t]he grate is being run at its minimum speed and higher grate temperatures are still being observed".

[206] Paul Stanley-Jones was initially employed as a No 2 Operator and then became a No 1 Operator of the Broadwater boiler. His evidence included the training that was provided by CBH and Downer and problems that were experienced with the boiler during the commissioning period. I found his evidence reliable. He gave evidence that CBH operators would manually adjust air settings, such as undergrate air settings, during commissioning. This would get more air underneath the fuel and burn it, and they would also slow the fuel feeders. Mr Stanley-Jones recalled that CBH instructed the operators to do this. For example, he gave evidence of an entry he made in a document entitled "Boiler & Ash Plant Checks" on 29 August 2008. The entry recorded "mounding" (i.e., piling) of fuel on the grate and CBH's instruction to "Report. Slow/Stop relevant feeder(s), Inc U/G". He explained that this meant the No 2 Operator was to report the mounding to the No 1 Operator, and that No 1 Operator was to slow or stop the feeders and use the DCS to open the undergrate air damper. This would increase undergrate air.

[207] David Ellis was a No 1 Operator at the plant and employed by NSWSMC. During the commissioning period he and a shift superintendent, Gavin Dann, were seconded to and employed by Downer. Mr Ellis gave evidence about the operation of the boiler before and after handover. He said that alarms were "frequently going off during commissioning". Although he said he had no "specific memories" in that regard, he confirmed in re-examination that "[t]here wouldn't have been a shift go by that we wouldn't have had some type of an alarm". I understood this evidence to refer to temperature alarms. I accept his evidence that he had a "positive recollection" of these alarms frequently going off during commissioning.

[208] Mr Dann remembered seeing undergrate temperatures on the DCS being displayed in red (as opposed to green) and in alarm with an audible alarm "fairly often, during commissioning and after handover". He gave evidence that "during the whole commissioning process we were always experiencing [bagasse] combusting on the grate, not... being in suspension". He described it being "a constant concern" that required him to constantly inspect the grate for piling.

[209] Mr Dann also recalled that during the commissioning and training period, the boiler was run in manual quite often, and if it was allowed to run in automatic, fuel would pile on the grate because it was not combusting.

[210] It is well to recall that, amongst the NSWSMC staff, only the operators who were being trained by CBH and Downer were in the control room for extended periods during commissioning. Other NSWSMC employees may have been allowed to enter the control room on rare occasions prior to handover.

[211] Regan Sawatzki was employed by NSWSMC as the chief engineer at the plant. He gave evidence that NSWSMC's operators and other employees were "continually having issues with [grate metal temperature sensors] being in alarm". This seemed to be "whenever we had piling". In a clarifying statement, his evidence appears to relate to the period of "on-the-job training which was before handover". Mr Rojo, who was the maintenance engineer at the plant, gave evidence that the grate was "in an overheated condition all the time - or the alarm was - was on".

[212] I previously noted that certain employees of CBH or Downer infrequently visited the Broadwater plant during commissioning because they were based in Brisbane (for example, in the case of Mr Stirling) or mainly at the Condong plant (in the case of Mr Heese). Nonetheless, Mr Heese recalled alarms occurring during commissioning at Broadwater.

[213] As for Mr Stirling and Mr Rossner, the emails about grate temperatures and resetting alarms suggest that both of them were made aware of this issue on 1 September 2008 and that Mr McCullough's email of 19 November 2008 advised Mr Stirling that high grate temperatures and alarms remained a problem. Mr Rossner could not recall the 1 September 2008 email and could not say how regularly the overheating and alarm problems that Mr Harvey reported occurred. He said that regular triggering of grate temperature alarms is not something that was brought to his attention in the commissioning shift logs. However, this is not to say that grate temperatures and alarms were not a problem.

[214] Mr Stirling's visits to the site were infrequent. Others directly involved in the commissioning process would have been expected to deal with these operational problems. He accepted that he was infrequently in the control room. As noted, Mr Harvey from CBH was not called to give evidence about these matters. Mr Stirling could not recall being told during the commissioning phase that alarms going off was an "ongoing broad continuous problem". However, his recollection in this regard may be fallible given the passage of time and his other responsibilities. The 19 November 2008 email that he received from Mr McCullough suggests that overheating remained a problem immediately prior to handover and was addressed by resetting trigger points for alarms.

[215] The CBH logbooks during the commissioning period, like the NSWSMC logbooks that followed handover, did not often record when high grate temperatures were being experienced and alarms were being triggered. For example, despite Mr Harvey reporting in his 1 September 2008 email that some grate temperatures were "in permanent alarm" and reporting high grate temperatures, the CBH shift log for that day did not refer to high grate temperatures or alarms. Nor did the NSWSMC shift log for that day refer to those things. As I will discuss in connection with overheating after handover, and consistent with the evidence of operators like Mr Timms, alarms were not recorded in handwritten logs. They were a signal of overheating and the problem had to be addressed. If the overheating was due to piling, it had to be addressed by operators, as best they could, in different ways. This would have been the approach both before and after handover. Another reason that neither CBH nor NSWSMC may have adopted the practice of making entries in a manually created log of high grate temperatures and alarms being triggered is that the DCS would have had an "alarm log". Mr Stirling gave evidence that there was recording capability in place during commissioning.

[216] In summary, I accept the evidence of the witnesses called by the plaintiffs, particularly operators and superintendents like Mr Timms, Mr Stanley-Jones, Mr Ellis and Mr Dann, and also engineers like Mr Sawatzki and Mr Rojo, about overheating problems and alarms before handover. That such problems existed and persisted is reflected in the CBH email chain.

[217] Evidence of overheating, particularly overheating that coincides with excessive piling, does not establish that there was constant overheating of the grate. One would expect alarms to trigger and, depending upon the extent of overheating, to sound on occasions during commissioning and thereafter. However, one would not expect alarms to trigger as frequently or as regularly as the evidence indicates they did during commissioning and testing if there was not a significant overheating problem.

[218] One aspect of the defendants' submissions rests on the proposition that Mr Barrett advanced that during commissioning, "everything is being adjusted" as part of achieving stable operations. Mr Barrett was CEO and Managing Director of CBH during the relevant period, was responsible for a number of different projects, was infrequently at Broadwater and spent most of his time at an office in Brisbane. During the relevant period, he was not supervising the commissioning and testing of the plants on a day-to-day basis and was not directly involved in operating the Broadwater plant. However, I accept the general proposition that during commissioning, adjustments were being made and that, particularly during the early phase of commissioning, problems with overheating and alarms may have been more frequent than during the final stage of commissioning when things had been adjusted. The problem with this argument is that the evidence does not support the conclusion that problems of overheating, piling and alarms being triggered were addressed and resolved by CBH, such that they ceased to be problems by November 2008. On the contrary, the evidence indicates that these problems continued until handover. Adjusting alarms so they did not trigger so frequently did not address the problem of overheating that triggered the alarms. Turning down the volume of alarms that sounded (as distinct from heat alarms that appeared on the screen) did not address the underlying cause of the overheating.

[219] The evidence does not establish that elevated grate temperatures and regularly activated grate temperature alarms were resolved prior to handover. As appears from the next section, overheating continued to be a problem after handover.

[220] I find that overheating of the grate was a significant problem before handover.

[221] Problems with overheating of the grate continued after handover and until the reverse operation of the ATO Damper was rectified. For example, Mr Timms, who worked at the Broadwater boiler until he retired in July 2016, said that although there was piling after the ATO Damper was fixed, it was not to the same degree and there was none of the "extreme heat" as experienced before. After the reverse operation of the ATO Damper was fixed, there were only small piles that were manageable. According to Mr Timms, before the ATO Damper was fixed, "alarms went off very, very frequently daily" and after it was corrected, the "alarm went off more rarely". He went on to explain:

"the actual boiler ran a lot more like it should in automatic, and you weren't on the edge of your seat trying to deal with unruly piling and unruly swings... [Y]ou still did have little issues, but they were manageable, not sort of nightmare material of trying to drive a truck with only three wheels type of thing."

[222] Another operator, Mr Stanley-Jones, said that after the ATO Damper was corrected, the boiler operated "like a different boiler". In fact, it operated like a new boiler. He found a "dramatic reduction in the frequency of fuel piling on the grate, lower grate temperatures, far less frequent alarms, less blockages in the submerged ash conveyor system from unburnt fuel, less feeder chokes and better combustion". The "trend lines" on the DCS were a lot straighter and within the operating parameters.

[223] The defendants again make the point that just as there were no records from the DCS retained or produced from the commissioning period, none appear to have been kept for the period after handover. The plaintiffs have not explained whether the DCS recording capability, including an alarm log, was turned off, or, if not, why those records were not available and disclosed. Mr Stirling could not say whether the DCS was actually recording data at the time of handover or not. Therefore, in determining issues about overheating after handover, as with overheating before handover, DCS data is not available. Some DCS screenshots were available but, as Mr Lowry explained, "screenshots are a moment in history about how the unit was operating". For documentary evidence, the parties therefore must rely upon the presence or absence of logbook entries, with the limitations that I have already mentioned. They did not purport to be a complete record of overheating, piling, or alarms.

[224] I turn to the evidence of witnesses. Again, I place particular reliance upon the evidence of operators and other individuals who had daily exposure to the boiler's operation. While the shift books occasionally recorded problems with overheating or piling, the evidence indicated that these problems were so frequent that they had to be promptly addressed by operators. The operators would not record each instance of piling or the occasions when alarms would go off. They were occupied in addressing the problem as best they could. For example, Mr Stanley-Jones explained during his cross-examination that he did not have the practice of logging grate alarms, but would inform his "Rover" (the No 2 Operator) to inspect the grate and, if the alarm was not resolved or was a continuing problem during that shift, Mr Stanley-Jones would inform the supervisor. If it was something that meant that the operators could not get the system out of alarm and back under control, they might inform the supervisor, but generally they would not do so.

[225] Mr Timms explained that only occasionally would he have made a record in the shift books and that probably would have been when the sensors were not working. This was because the grate alarms going off was "a daily thing". He explained that to log every time a grate alarm went off:

"you'd probably need a full [indistinct] folder to say grate temperature went off at 7 o'clock, grate temperature went off at 7.15, grate temperature went off at 7.21, and so forth. Then you might just, at the end of the shift, put, 'experienced high grate temperatures'. So you might only record it the once."

[226] Mr Sawatzki confirmed that the logbooks would not record whenever alarms went off. Instead, things like "grate piling" or "fuel piling" might be noted in the logs rather than grate temperatures or alarms. Against the background of grate temperature alarms that occurred prior to handover, Mr Sawatzki regarded grate temperature alarms as part of the normal operation of the boiler. He explained that "the EPC contractor [a reference to Downer and CBH] wasn't concerned about it. So I didn't deem it as being something that was of concern".

[227] As already noted, Mr Ellis, who was a "No 1 Operator", gave evidence about alarms "frequently going off during commissioning". When asked about the fact that he had no specific recollections of alarms for grate temperatures in the period after commissioning, he explained that they "would have most certainly had alarms but I cannot recall the specific alarm events". He went on to explain:

"There wouldn't have been a shift go by that we wouldn't have had some type of an alarm. We would not have documented every alarm that went off."

[228] He explained that the alarms that he was talking about were grate overheating alarms. Mr Dann recalled alarms "fairly often, during commissioning and after handover".

[229] The prevalence of overheating and the frequency of grate overheating alarms being triggered is reflected in Mr Rojo's evidence that he did not think he had to raise the issue with his superiors because "[t]here was a lot of discussion around it" and "[i]t wasn't something that you - that you had to identify".

[230] This and other evidence tends to confirm that overheating remained a significant problem after handover. Operators responded to it as best they could.

[231] The defendants' Operating Procedures Manual contemplated that piling would occur as part of the operation of the boiler. It addressed instabilities and problems during combustion. The causes of some instabilities were able to be rectified by an operator, but others required "tripping of the boiler". As for the problem of "Large pile burning on the grate", the manual advised:

"Bias back the problem feeder, temporarily decrease grate speed and increase undergrate flow to burn the pile off. Alternatively break-up the pile using an air lance..."

[232] The evidence indicates that the operators followed these practices to address excessive piling on the grate and consequent overheating which was apt to trigger alarms. Some operators, like Mr Timms, were reluctant to use the alternative method of using an air lance. However, others had their No 2 Operator use an air lance to address piling. Mr McLennan used air lances when he was a No 2 Operator.

[233] Mr Stanley-Jones said that fuel piling was a common occurrence both before and after handover. When he was a No 2 Operator he would use air lances to blow the fuel piles to the back of the grate to redirect fuel to different parts of the grate. Sometimes, if the piling was bad, he would be air lancing for three to five hours. Mr Stanley-Jones became a No 1 Operator in mid-February 2010. He recalled that air lancing was undertaken at the boiler after the handover and prior to 2010.

[234] Other operators were reluctant to adopt the practice of air lancing and used the other means identified in the Operating Procedures Manual to address excessive piling. Mr Lowry explained that air lancing was a very dangerous operation because the No 2 Operator has to physically open up the doors and put the air lance in. Some sugar mills now do not allow it because of occupational health and safety issues. Mr Sawatzki confirmed that air lancing was adopted by operators prior to the July 2010 damage but agreed that there were workplace health and safety concerns about using it. He was certain that air lancing was used prior to July 2010.

[235] I will separately address the other techniques used, including decreasing grate speed and increasing undergrate airflow to burn the pile off, in the context of other submissions by the defendants about the adequacy of the operators' actions.

[236] Presently, it is sufficient to observe that operators used a variety of techniques to address problems of overheating, including overheating that was the result of excessive piling.

[237] I have already noted Mr Rojo's evidence that operators were not asked to record every time that the grate was overheating. Instead, operators were required to address problems like piling. He did not think that he had to raise the issue of overheating with his superiors because there already was a lot of discussion around it and it was not something that he had to identify. This leads to the fact that the incidents of grate temperature alarms were treated by Mr Sawatzki (and possibly others) as part of the normal operation of the boiler that had not been a matter of concern to the defendants during commissioning, which he did not "deem" as being something of concern.

[238] Alarms being triggered was not perceived to be a problem that was caused by a defective piece of equipment that needed to be replaced and entered into the maintenance system as a job that needed to be attended to. Overheating of the grate and alarms did not stop the plant. These regular events were not recorded in the maintenance system for which Mr Rojo was responsible. He explained:

"...it's like do you continue to put the same job in the job system when you know that everyone on the sites - or the engineering teams and production teams are trying to resolve the issue? It was just a known fact that we were - we had issues there that we were trying to resolve continuously without a job in the system."

[239] The defendants' submissions note that during the two-year Defects Liability Period, a total of 134 defect notices were served on them and for each of them, CBH and Downer either "closed them out" or explained to NSWSMC why the alleged defect could not be closed out, including that it was not one for which they were liable. Mr Sawatzki accepted that defect notices are a good record of problems that are encountered and the responses of Downer and CBH. Clearly, the plaintiffs were aware of their entitlement to ask Downer and CBH to remedy defects in the Broadwater plant and availed themselves of this opportunity. The defendants' submissions make the good point that it is therefore remarkable that the plaintiffs did not raise a defect notice about overheating that led to frequent grate temperature alarms being triggered. They submit that if the overheating and alarms were as frequent as the plaintiffs' evidence suggests, it is unthinkable that those issues would not have featured in defect notices.

[240] As noted, the problem of overheating was known to Mr Sawatzki and also to Mr Rojo, whose evidence described the matter as being "outside the operational parameters that we expected". Mr Rojo regarded the matter as a serious one and made "quite a number of notes of it". However, he did not raise the issue with his superiors because he did not think he had to raise it.

[241] The plaintiffs' evidence does not contain a clear explanation as to why ongoing issues with overheating did not feature in a defect notice. The problem was not a known defect in a part such as a defective pump. However, in a more general sense, the overheating that necessitated frequent responses by operators was something that did not meet the plaintiffs' expectations. That was qualified to some extent by Mr Sawatzki's impression that grate temperature alarms being triggered was considered a part of the normal operation of the boiler and something that CBH and Downer were not concerned about. Mr Rojo understood that his superiors were aware of the issue and it was not his role to issue defect notices.

[242] Overheating, piling and grate alarms sounding as a result of either or both of them seemed to have been treated by NSWSMC employees as part of the normal operation of the plant and something that had to be addressed by operators in accordance with the training that they had been given and the Operating Procedures Manual. Still, while the issue was not as specific as a broken or defective part, the issue was a performance issue that arose during the Defects Liability Period.

[243] The absence of a defect notice directed specifically to overheating of the grate does not mean that overheating was not an issue that was addressed in communications between the plaintiffs and the defendants after handover and before the July 2010 damage. For example, there was a roundtable discussion with representatives of the plaintiffs, including Mr Sawatzki, on or about 17 April 2009, where overheating was discussed. Mr Cole of CBH was present at the discussion that reached an agreement that the grate T-bars needed to be replaced. Questions were asked of Mr Cole that he could not answer but which he said he would pass onto CBH. The questions included what the cause of bending was. Another was whether the T-bars were overheating, causing them to sag in the areas that were closest to the centre of the grate. On 20 April 2009, Mr Cole prepared a report about the roundtable discussion that had involved engineers from both organisations, Mr Dann and himself. His report noted that the T-bars were bending and sagging. He reported that several theories were tossed around, including overheating. Because Mr Cole could not give any qualified answer, he referred the matter back to the CBH design department.

[244] These discussions and communications occurred at around the time of Defect Notice #69 in relation to the Broadwater grate T-bars. The matter of overheating causing bending and sagging in the T-bars would have been referred to Mr Stirling. CBH responded to Defect Notice #69 by saying that the joint venture operated the boiler and the plant "with out-of-specification fuel & thereby caused damaged to the plant". It went on to recommend that the plaintiffs replace distorted T-bars and undertake a trial run of the grate. These steps were to be carried out under the direct supervision of CBH to the joint venture's account. Its other recommendation was to eliminate or minimise fuel contamination.

[245] This response, and others like it, arise in a later legal context about misleading representations that are alleged to have been conveyed by the defendants in their responses to various defect notices. The present point is that the plaintiffs' representatives in April 2009 raised with the defendants a suggestion that the sagging of T-bars was attributable to overheating. The defendants were aware of an overheating issue and did not investigate whether the overheating was attributable to a defect in the plant that it had constructed, commissioned and tested. They did not investigate such a cause, including whether the overheating and alarms that occurred prior to handover had the same cause. Instead, they attributed defects in the T-bars to the plaintiffs' use of out-of-specification fuel.

[246] The absence of a defect notice that referred specifically to overheating suggests that overheating was not as common as the plaintiffs' submissions suggest. That said, the evidence that I have canvassed at some length establishes that overheating was a significant problem both before and after handover.

The defendants' argument that the plaintiffs responded to overheating

[247] Part of the defendants' response to the plaintiffs' case about overheating and alarms after handover is to point out that the NSWSMC operators did what was expected of conscientious operators in response to alarms. To some extent, this response does not align with a different aspect of the defence which seeks to attribute the July 2010 damage to incorrect operation of the boiler and incorrect use of undergrate air. I will return to that topic in the course of considering alternative causes of overheating that are suggested by the defendants. In the present context, the defendants note that conscientious operators like Mr Timms did not ignore alarms when piles formed on the grate, causing grate temperature alarms to trigger. For example, he would speed up the grate to "get that bad fuel off the grate" and once the temperatures had come back into range, reduce the speed on the grate. It was appropriate for operators to take that or similar action to address overheating. The defendants' submissions make the point that the operators appear to have known what was required of them to respond. Also, Mr Lowry agreed that, if there had been high grate temperature alarms, operators could open the undergrate dampers to get more undergrate air, and open the damper controlling the flow of bypass air to the undergrate.

[248] Overall, the defendants submit that overheating and alarms were less frequent than the evidence relied upon by the plaintiffs suggests and even if they were as frequent as Mr Timms and other operators say, the operators responded in ways that were able to bring the temperatures back under control.

[249] If this argument is not accepted, the defendants contend that the plaintiffs' employees ignored alarms and did not respond to their warnings. The defendants argue that if the alarms were as persistent and frequent as the plaintiffs now contend, it is akin to someone continuing to drive a car when there is a warning light on the dashboard.

[250] The evidence of the plaintiffs' witnesses does not lead me to conclude that they ignored warnings and alarms. On the contrary, and in accordance with one part of the defendants' submissions, conscientious operators responded to alarms by taking the steps that were expected of them, including steps identified in the Operating Procedures Manual. If the overheating was associated with excessive piling, then steps were taken to address the piling problem.

[251] Overheating of the grate was a significant problem both before and after handover.

[252] This is reflected in the evidence of individuals who remember it, such as operators and others who were onsite like Mr Sawatzki and Mr Rojo.

[253] That overheating was a problem before handover is evident in CBH's emails between 1 September and 19 November 2008. That metal parts of the travelling grate were overheated is supported by the metallurgical reports that reported that T-bars, including the November 2008 T-bars and the May 2009 T-bars, were "exposed to elevated temperatures for prolonged periods of time". The metallurgical reports describe a process of significant and progressive thermal degradation.

[254] The metallurgical reports support the conclusion that overheating was a significant problem, both before and after handover, and continued until the ATO Damper's reverse operation was corrected.

[255] Overheating and piling was addressed by operators by a variety of means. The defendants were not unaware of the problem of overheating, because it was raised with them at a roundtable on or about 17 April 2009 and they received both the First and Second Aurecon Reports that referred to degradation of T-bars and grate clips from exposure to elevated temperatures for prolonged periods of time.

[256] The fact that regular overheating prior to handover was not recalled by people who rarely were onsite and in the control room to observe it does not detract from the evidence of individuals who were there, working shifts and doing their best to address the issue. After handover, representatives of Downer and CBH were rarely onsite, and people like Mr Stirling and Mr Rossner had even less opportunity to personally observe overheating, excessive piling and grate heat alarms being triggered.

[257] Overheating was not the subject of a defect notice and, in retrospect, perhaps it should have been. If it had been, the defendants' position probably would have been the same as its response to other defect notices, and as their position remains, namely that overheating was the result of poor biofuel or poor operating procedures. This was their response to Defect Notice #69 dated 21 April 2009, in relation to T-bar sagging.

[258] The frequency of overheating of the grate after handover exceeded the expected frequency of overheating under normal operating conditions, where occasional piling and resultant overheating might be expected to trigger a grate heat alarm.

[259] After handover, operators had to identify the source of overheating if they could, and take steps to correct it. The fact that conscientious operators like Mr Timms were able to take steps to address overheating of the grate and reduce grate temperatures does not mean that regular overheating did not have its consequences. It did. Overheating of the grate through reduced undergrate airflow had consequences. Piling had the consequences explained by Dr Dixon and others, of overheating the grate in the location of the pile. Overheating of the grate both before and after handover exposed parts like T-bars and grate clips to temperatures in excess of 375°C. As Dr Dixon explained, a temperature of 375°C (a figure mentioned in CBH's email chain between 1 September and 19 November 2008), as reported from a thermocouple on the structural steel, would mean that the moving parts like T-bars would be experiencing temperatures higher than 375°C, and these would be temperatures where those elements would start degrading. That this occurred both before and after handover is confirmed by the metallurgical reports.

[260] I conclude that moving parts on the grate, like T-bars and chain links, were exposed to elevated temperatures for prolonged periods of time, both before and after handover.

[261] I conclude that overheating occurred frequently both before and after handover. There is no evidence that overheating to the extent that occurred at Broadwater was experienced to the same extent at Condong. In fact, the evidence is that Condong did not experience overheating and piling to the extent experienced at Broadwater.

[262] The fact that overheating occurred at Broadwater, both before and after handover, suggests that it was not attributable to something that was done only after handover, for example, the use of different fuel or different operating techniques.

[263] For reasons to be developed, I am not persuaded that the matters nominated by the defendants made a significant contribution to overheating and the resultant failure on 5 July 2010 of a chain link that led to the July 2010 damage.

[264] Operators did what they were trained to do to address problems of overheating and excessive piling. What they did was not sufficient to undo the consequences of the reverse operation of the ATO Damper that deprived the grate of cooling air, reduced combustion of unburnt fuel on the grate and led to increased piling. The result was that the moving parts on the grate were exposed to elevated temperatures for prolonged periods, degraded and one of them eventually failed on 5 July 2010.

[265] The parties' respective contentions on the issue of causation were previewed at the start of these reasons. It is convenient to summarise them at this point. This arises against the background of having addressed the defendants' contention that overheating was not as frequent as the plaintiffs' witnesses suggested. I found that it was a regular occurrence both before and after commissioning, and occurred more frequently than would have been expected if the boiler operated as intended. Overheating and piling problems were more frequent at Broadwater than at the practically identical Condong boiler.

[266] The plaintiffs' central contention on causation is that air was diverted or "robbed" from the undergrate area in favour of the oil burner, because the ATO Damper was significantly more open than it should have been and because airflows to the oil burner and the undergrate area were derived from the same source. This diversion of undergrate air meant that there was insufficient undergrate air to cool the grate components. It also meant that there was insufficient undergrate air to efficiently combust the fuel that was in the furnace or to dry any moisture in unburnt fuel. This led to significant piling of fuel on the travelling grate, which exacerbated the overheating that arose from undergrate air being diverted.

[267] The grate was subjected to prolonged overheating at temperatures that were greater than would have been experienced if the reverse operation of the ATO Damper had not deprived the grate of undergrate air. In addition, piling was greater and more frequent than it would have been and therefore harder to manage.

[268] Mr Lowry explained that, unlike others, the grate was not water-cooled. It was air-cooled. This made the reduced undergrate airflow particularly significant for overheating. Mr Lowry's evidence was that:

(a) the air that was diverted from the undergrate due to the reverse operating ATO Damper would have otherwise been used for cooling the grate and combusting fuel on the grate;

(b) the lack of cooling air flowing to the undergrate, due to the reverse operating ATO Damper, led to the overheating of grate components and, ultimately, the July 2010 damage;

(c) the reverse operating ATO Damper reduced combustion air flowing to the undergrate, which contributed to an increase in the formation of piles of fuel both in terms of number and extent; and

(d) the excessive piling was a symptom of reduced undergrate airflow.

(a) the overheating of the grate was caused by piling of fuel;

(b) the reduction of undergrate airflow would contribute to the formation of piles; and

(c) the reverse operating ATO Damper, which resulted in reduction of undergrate air, contributed to the overheating.

[270] He also said, in contrast to his written reports, that thermal damage was occurring prior to practical completion and over a prolonged period, as was evident in the metallurgical evidence. This "strongly" pointed to the fact that the reverse operating ATO Damper caused the overheating.

[271] Mr Ironside concluded shortly after the July 2010 damage that the reverse operating ATO Damper was "probably the single most important reason for the high grate temperatures" and that its correction "has resulted in correcting possibly the single biggest factor that caused grate damage".

[272] The plaintiffs contend that this contemporaneous opinion should not be downplayed because:

(a) he had significant knowledge about biofuel boilers and significant expertise in boiler tuning;

(b) he had the benefit of being involved (both during commissioning and after handover) with tuning of the boiler, and of having observed the boiler's operation on numerous occasions over a couple of years; and

(c) he had the benefit of an experiment he conducted where he transitioned fuel from bagasse to wood chip and observed that, with the reverse operating ATO Damper corrected, piling was controlled as were high grate temperatures.

[273] Mr Ironside subsequently altered his views. However, during the trial, he said that it was both "plausible" and "possible" that the reverse operating ATO Damper was the cause of the overheating and high grate temperatures, and that it was "plausible" and "possible" that it could have had a significant or detrimental impact in terms of overheating.

[274] While there was a disagreement between Mr Lowry, Dr Dixon, Mr Stirling and Mr Ironside between the precise reduction ("delta") of airflow to the undergrate (ranging between 21 t/hr to 41 t/hr), the plaintiffs say that the more reliable range is between 35 t/hr and 41 t/hr. Mr Lowry's calculation yielded a reading of 41 t/hr and Dr Dixon's (revised) calculation yielded a 35 t/hr reading. Dr Dixon stated that, from an engineering standpoint, both his and Mr Lowry's figures were comparable.

[275] Mr Lowry's evidence was that, whatever calculation method is used, the results indicated that a significant amount of air had been diverted from the undergrate and it did not change his opinion that the reverse operating ATO Damper was the cause of the overheating and July 2010 damage.

[276] Prolonged overheating, including the overheating effects of excessive piling when and where it occurred, led to degradation in softer metal components on the moving parts of the grate. This led to the eventual failure of a part of the moving grate on 5 July 2010.

[277] No similar problem of overheating and excessive piling occurred at the Condong boiler where the ATO Damper was correctly oriented.

[278] The correction in August 2010 of the reverse operation of the ATO Damper improved the boiler's performance and reduced the frequency of overheating and piling to a significant extent.

[279] Finally, the plaintiffs submit that the overheating and consequent failure was not due to the alternative causes suggested by the defendants.

[280] I have already addressed the defendants' submissions that overheating before and after handover was not as frequent as the plaintiffs' witnesses and submissions suggest.

[281] The defendants contend that the reverse operation of the ATO Damper was not a substantial cause of the July 2010 damage.

[282] They submit that the following four factors together caused the overheating of the grate:

(a) piling that was not attributable to a lack of undergrate air;

(b) rocks and bad fuel;

(c) boiler operators stopping the grate and operating it at the wrong speed; and

(d) incorrect use of undergrate air.

[283] The defendants submit that the piling of unburnt fuel on the travelling grate allowed hot spots to develop underneath the piles. Fuel at the bottom of a pile was exposed to undergrate air, allowing a lean flame to form that burns hotter than normal fire on the grate.

[284] More generally, piles are barriers that disrupt the intended flow and even distribution of undergrate air.

[285] The defendants agree with the plaintiffs that significant piling did occur in the Broadwater boiler. However, they say that piling during commissioning was irregular, usually the product of poor fuel and was not typified by "excessive, extremely large" piles. These problems were resolved during commissioning.

[286] In response, the plaintiffs say that the evidence of Mr Rossner (on which the defendants primarily relied) was of limited value given that Mr Rossner was primarily based at Condong. I agree. The evidence that I have canvassed about overheating and piling suggests that piling occurred at Broadwater before handover, was not an isolated occurrence, and was not resolved by the time of handover.

[287] Next, the defendants contend that the evidence does not support the plaintiffs' argument that piling after handover resulted from insufficient undergrate airflow. Instead, the defendants point to evidence suggesting that the angle at which fuel was blown into the boiler was responsible for the excessive piling:

(a) Dr Dixon reported that the angle of the pneumatic distributor plates - which determine the trajectory of fuel blown into the furnace - was more important than undergrate airflow in the causation and prevention of grate piling. In his view, the trays should be set at an optimised angle and then never altered.

(b) There was evidence that the angle of the trays was "experiment[ed]" with by the boiler operators between Mr Ironside's visits to Broadwater to fine-tune the boiler.

(c) There was evidence that, at some point prior to the July 2010 damage occurring, the trays were adjusted to point upwards at "negative 20" degrees. Mr Lowry thought this to be an "unusual" adjustment and Dr Dixon thought such an adjustment would be "a disaster for piling on the grate" and would start causing "piling straight away".

[288] The defendants also note that Mr Timms and Mr Sawatzki acknowledged that problems with piling persisted even after the ATO Damper's operation was corrected. These issues required further boiler and turbine shutdowns.

[289] In response to these points, the plaintiffs say:

(a) there was no evidence that the pneumatic distributor plates were set at negative 20 degrees on 5 July 2010;

(b) the relevant Plant Outage Report stated that setting was used "in the past" with no time period identified;

(c) it may be that the setting of negative 20 degrees occurred during the commissioning period when Mr McLennan noted that different plate angles were being experimented with;

(d) the Operating Procedures Manual indicates that manual adjustment of the distributor plates might be necessary;

(e) Mr McLennan suggested that plate angle experimentation ceased towards the end of commissioning;

(f) Dr Dixon actually stated that incorrectly set plates and pneumatic distributor pressure cause "piling straight away", and this evidence was limited to burning woodchip; and

(g) Mr Timms' evidence was that piling occurred, but not to the same degree, once the ATO Damper was reinstalled, and Mr Sawatzki's evidence was about wet fuel and not the conditions after the ATO Damper was corrected.

[290] The defendants submit that the evidence suggests that the 5 July 2010 damage occurred because of events that occurred on that day, which arose because of things the plaintiffs did, and not from prolonged overheating that led to the degradation and eventual failure of a metal part in the grate.

[291] This suggested cause is not supported by the weight of evidence, much of which I have already discussed. The evidence supports the conclusion that there was significant and frequent overheating of the grate. The metallurgical reports support the conclusion that thermal damage occurred over a prolonged period, including prior to handover. The evidence does not support the conclusion that the pneumatic distributor plates were set at a 20-degree angle on 5 July 2010. The plaintiffs' submissions on this point, which I have summarised above, should be accepted.

[292] The expert evidence, including the evidence of Mr Ironside and Dr Dixon during their cross-examination, supported the conclusion that the reverse operation of the ATO Damper caused overheating.

[293] Dr Dixon acknowledged that the evidence "strongly" pointed to the reverse operating ATO Damper causing the overheating and Mr Ironside acknowledged that it was both plausible and possible that it did. Mr Lowry's expert evidence, which I generally accept, supports the conclusion that the reverse operating ATO Damper led to overheating of grate components, reduced combustion air flowing through the undergrate, and thereby contributed to an increase in the formation of piles. Excessive piling was a symptom of reduced undergrate airflow.

[294] The evidence does not lead me to conclude that the failure and damage on 5 July 2010 was suddenly caused by overheating that was due to something that the plaintiffs did on that day. The part that failed and caused the grate chain to stop operating and substantial grate damage, probably had been subjected to prolonged overheating and was already degraded.

[295] One does not need to resort to the metaphor of the straw that broke the camel's back. One can simply say that prolonged overheating, possibly in conjunction with piling in a specific location, broke the chain link. Because of a protracted process of degradation, it was the weakest link.

[296] Subject to a consideration of the defendants' suggested alternative causes, the reverse operation of the ATO Damper is, in my view, a plausible and indeed probable cause of overheating of the grate, thermal damage to certain moving parts of the grate and the eventual failure of one such part on 5 July 2010.

[297] I turn to consider the defendants' competing arguments that the reverse operation of the ATO Damper was not a substantial cause of the damage, and that other matters caused the overheating. In doing so, I should make the obvious point that the defendants do not have the onus of proving alternative causes. The plaintiffs have the onus of proving that the reverse operation of the ATO Damper was a substantial cause of the grate failure and damage that occurred on 5 July 2010.

Alternative causes of overheating suggested by the defendants

[298] Piling refers to the presence of fuel on the grate that is not burning properly. The defendants submit that the piling of unburnt fuel on the travelling grate allowed hot spots to develop underneath the piles. Fuel at the bottom of a pile was exposed to undergrate air, allowing a lean flame to form that burns hotter than normal fire on the grate.

[299] Because piling can cause hot spots to develop, it is to be avoided. Also, piled fuel on the grate impedes the flow of undergrate air that is designed to help cool the grate as it moves along.

[300] The evidence establishes that significant and excessive piling occurred at the Broadwater boiler. The defendants submit that piling during commissioning was irregular, and usually the result of poor fuel. It was not characterised by "excessive, extremely large" piles. They also submit, in reliance upon Mr Rossner's witness statement, that there were only ever "isolated instances" of piling which were resolved. However, Mr Rossner's evidence about the resolution of instances of isolated piling was struck out. His recollection about the extent and frequency of piling at Broadwater comes with its limitations. Prior to November 2008, Mr Rossner worked as Construction Manager for both plants and was primarily at Condong in this role, working as the site manager there and assisting the Broadwater Site Manager, Mr Hughes. He was the Broadwater Site Manager from November 2007 to November 2008, supervised the final construction of the plant and worked as CBH's Commissioning Manager from about August 2008 until November 2008.

[301] He had a team of people reporting directly to him including CBH operators such as Peter Smith, Keith Harvey and Warren Tillitzki, an engineer who assisted with the remaining commissioning activities and a maintenance crew. The Broadwater boiler achieved practical completion on 21 November 2008, after the fuel handling plant was commissioned. After it achieved practical completion, Mr Rossner was no longer involved in the project. I accept that as part of his role between August and November 2008, Mr Rossner observed the boiler's operation. He would visit the control room regularly but had other tasks to perform in commissioning the co-generation plant. He was not directly involved in the operation of the boiler or in training the operators in the control room or elsewhere. Like others, if he needed to enter the control room, he had to check with the operators and could only enter it if permission were granted by CBH's lead operator. Therefore, Mr Rossner had a far more limited opportunity than the CBH operators and the NSWSMC operators who were being trained by them to monitor and observe piling and what was done to rectify it.

[302] The defendants make the point that Mr Sawatzki was unable to recall when piling began to occur. They submit that if there had been a significant problem with piling during commissioning, he would have been expected to have a clear recollection of it. However, Mr Sawatzki was not an operator and was also excluded from the control room and the site during the commissioning period. Also, the evidence that I have already canvassed about overheating prior to handover is relevant to piling during that period. This is because the diversion of undergrate air can affect combustion, lead to unburnt fuel piling on the grate or wet fuel not being dried, and the resultant piling can lead to overheating.

[303] The evidence that I have previously discussed supports a finding that piling was not an isolated problem during commissioning. For example, Mr Timms gave evidence about the high grate temperatures and alarms going off during the commissioning period when CBH personnel like Mr Smith, Mr Harvey and Mr Tillitzki were present. Mr Timms said that the CBH personnel did not explain why high temperatures were being experienced. He said that they did not do so because:

"[i]t was obvious that there was piling on the grate which is going to create heat when the fuel burns off, because it's not meant to pile. It's meant just to not even sit on the grate. It's meant to fire on the way down in suspension."

[304] I am not satisfied that piling was an irregular or isolated event prior to November 2008. CBH operators, like Mr Harvey, were not called as witnesses to say that it was. I prefer the evidence of the plaintiffs' operators and other onsite personnel to the recollection of Mr Rossner about the frequency of overheating and piling.

[305] The defendants submit that the predominant cause of piling was not the reverse operation of the ATO Damper, but the manner in which plates on the fuel spreaders were set up at the time of the damage on 5 July 2010. The evidence does not sustain their contention that the spreader plates were set in a "significantly down direction" of negative 20 degrees or even at a significant upwards direction (negative 20 degrees being an upward direction). Such an extreme angle may have been set at one stage during the commissioning period. Mr McLennan recalled that different fuel plate angles were experimented with. The evidence about changes to the settings is extensive and it is unnecessary for me to detail it. Much of it is summarised at [238] - [257] of the plaintiffs' submissions. Shortly stated, the Operating Procedures Manual indicated that adjustments to settings might be required during operation because of the wide variety in fuel quality. The plates would need to be positioned at an angle that produced the best combustion, having regard to the fuel that was being injected through the chute and the type of fuel. In simple terms, the angle of the spreader plates, together with the pressure at which fuel is forced, determine the trajectory of the fuel that flows into suspension within the furnace. As Dr Dixon explained, if the spreader plates were not set up correctly, then that would promote piling. He said, "when you change to woodchip, particularly if the spreader plates aren't correct, and the spreader pressures aren't correct, you will start getting piling straight away". Therefore, as Mr Dann said, the angles that Mr Ironside arrived at during a visit "were never set and forget".

[306] A suggestion that the distributor plates may have been set at negative 20 degrees during commissioning and when different plate angles were being experimented with does not lead to the conclusion that they were at that angle a few years later on 5 July 2010. Mr McLennan suggested that the plate angle experimentation ceased towards the end of the commissioning. The evidence does not support the conclusion that the plate angles were at negative 20 degrees or anything like it on 5 July 2010. If they were at such an extreme angle that day, one might have expected it to be recorded by the personnel, including the CBH personnel, who inspected the plant shortly after the damage.

[307] The evidence does not support the defendants' contention that the predominant cause of piling was the direction in which the plates on the fuel spreaders were set at the time of the damage on 5 July 2010. The evidence does not support the conclusion that the angle of the spreader plates or the air pressure settings that governed the direction in which fuel was sprayed into the furnace made a substantial contribution to piling on that day and caused the July 2010 damage.

[308] To return to the general topic of piling, some instances of piling are to be expected as part of the operation of a boiler of the kind that was constructed at Broadwater and at Condong. As noted, overheating and piling was a bigger problem at Broadwater than at Condong. After the reverse operation of the ATO Damper at Broadwater was corrected, there continued to be problems with piling and on some occasions the boiler and the turbine would have to be shut down as a precautionary measure. However, the piling after correction of the ATO Damper was less than it had been before. Mr Timms explained, "my life became much easier after they fixed that". The evidence indicates that excessive and frequent piling was a problem before the reverse operation of the ATO Damper was corrected and that piling became less of a problem after that. This is reflected in the evidence of the operators that after the reverse operation of the ATO Damper was corrected, the boiler was much easier to operate and performed like a new boiler.

[309] Finally, on the topic of piling, the frequent occurrence of piling and piling in excessive amounts is not an answer to the plaintiffs' case on overheating and causation. Piling is part of their case. Their case is that piling was a problem before and after handover. Their case is that the lack of sufficient undergrate air not only overheated the grate through lack of cooling but contributed to piling because air that should have been available to aid combustion of fuel in suspension was diverted through the ATO Damper, reducing the efficient combustion of fuel and leading to unburnt fuel piling on the grate. It also reduced the amount of air that was available to dry any wet fuel. The piling of unburnt fuel on the grate might give the impression of being wet fuel that had not burnt in suspension. Unburnt fuel at the bottom of a pile would burn hotter than normal fire on the grate and contribute to overheating of the grate. Excessive piling, in turn, created a barrier to the intended flow of undergrate air for the purpose of combustion of fuel in suspension. This would tend to increase piling.

[310] The issue is not so much about piling but whether the piling that occurred at the Broadwater boiler was attributable to a lack of undergrate air. For the reasons already given, there is a plausible case that it was. It will be necessary to further consider possible alternative causes of overheating and piling, as well as the expert evidence about the amount of undergrate air that was diverted as a result of the reverse operation of the ATO Damper. As already previewed, that expert evidence indicates that a significant amount of air was diverted because of the reverse operation of the ATO Damper.

[311] In this section I have addressed and not accepted the submission by the plaintiffs that the predominant cause of the piling was the manner in which the plates on the fuel spreaders were set up at the time of the damage on 5 July 2010. I also have concluded that excessive piling is a major part of the plaintiffs' case on the cause of overheating of grate components that led to the grate failure on 5 July 2010. The plaintiffs' case is that the excessive and frequent piling that was observed by operators and others was one of the consequences of the reverse operation of the ATO Damper.

[312] Because biofuels like bagasse and wood products have an agricultural source, the presence of rocks, gravel and dirt is inevitable. Rocks and gravel of different sizes were present in the biofuel at Broadwater and at Condong. The EPC Contract provided for an allowable component of "ash" in the fuel. For bagasse, the ash range was 4-15 percent and for wood fuel it was 0.3-5 percent. The term "ash" was not defined in the EPC Contract but those with knowledge and experience in biofuel-fired boilers, including Dr Dixon and Mr Lowry, accepted that such material forms part of the "ash". The evidence suggests that the fuel used had ash, including rocks, that fell within the contract specification, at least after the early stages of commissioning when some problems were encountered and addressed.

[313] The plant was designed to cope with ash, including rocks and other extraneous unburnt material. This included a hopper for what the contract described as "undergrate riddlings", a submerged ash conveyer, and a skip bin at the Broadwater plant for "oversize ash" that came from the travelling grate.

[314] During the initial commissioning of the Broadwater plant, rocks were found that did not simply come from the agricultural fuel. The hardstand from which the fuel was reclaimed was not designed with a concrete base. As a result, loaders would collect an amount of rock. Remediation was undertaken by the plaintiffs in relation to the stockpile. This included altering the bottom of the bucket loader, and this significantly reduced the amount of rock. This action was initiated in or around March 2008. Mr Rojo said that this reduced the levels about which CBH were initially concerned.

[315] Nevertheless, some level of rock, gravel or other kinds of "ash" were an inevitable part of the biofuels. The EPC Contract required the ash handling system to be designed for an additional 50 percent ash burden above the maximum in the range stated in the fuel specification. There was evidence that the fuel specification in the EPC Contract was complied with. Fuel was supplied and paid for on a "dry ash free basis" and each truck load was sampled.

[316] Nevertheless, the presence of rock and gravel in the fuel and on the grate was an ongoing issue. Overall, the evidence gave the impression that there were occasions when the presence of rocks became a bigger issue, with the skip bin filling more quickly on occasions and needing to be emptied more often.

[317] Some level of ash on the grate was anticipated and in fact expected as a means of insulating the grate from excessive heat. Mr Lowry's evidence was that if there were soil or rocks in the fuel, they would settle on the grate before being discharged into the hopper and, while on the grate, would help protect it from furnace radiation. Mr McLennan, an operator, also described the rocks and gravel as insulators and did not think that they had blocked the undergrate airflow.

[318] There was, however, evidence about the potential for rocks and gravel to block pinholes in the grate tiles. Mr Timms said that if there were "an awful lot" of rocks and gravel it would block "an amount" of the air, particularly if it were really fine sand or gravel. He did not say, however, that "an awful lot" of such materials was a common, let alone constant, problem.

[319] To similar effect, Mr Ellis accepted that rocks and gravel could block the pinholes and could enter between the T-bars. He thought this would hinder fuel burning. While saying that this "could" occur, he did not say how often it did in fact occur.

[320] Mr Dann accepted that gravel or a rock could block a pinhole but thought that this would depend on the air pressure, the weight of the rock, and its depth. He said that "you would inherently get some air through it, around it" because it would not give it "a really tight seal" around the pinhole.

[321] The system was designed so that rocks and gravel that went between the grate clips would drop through to the riddlings hopper beneath the grate. This was the evidence of Mr Stanley-Jones, an operator who said that the grate was designed for rocks and gravel to fall through and generally they did without partly blocking the airflow. Mr Fletcher, an engineer, also explained that rocks and gravel were unlikely to block the airflow between the clips because the vibration of the travelling grate would cause any rocks or gravel to fall through gaps.

[322] The evidence from Mr Fletcher and from employees who worked with the boiler recognised that depending upon the nature and size of the rock, gravel or sand that sat on the grate, it could block a pinhole in one of the grate tiles. Mr Moller also observed that any blocking of airflow from rocks and gravel between grate clips would be "minor" and "fairly small compared to the gaps around the... T-bars and... all the other space for the air to filter through the grate".

[323] Mr Sawatzki recognised that rocks and gravel in the fuel can block the pinholes on the travelling grate but he went on to explain that this depended on the size of any gravel particle. The starting point is that the grate was intended to be operated in accordance with the manual to have a thin layer of ash across it and the undergrate air would "percolate through the ash layer". To like effect, it could percolate through rocks that are "small particles of ash" because the rocks are not completely sealed. Mr Sawatzki's evidence about this was logical and persuasive. The extent to which ash might block a pinhole or a larger space at the edge of a tile depends upon the size of the particle. A gravel particle is larger than smaller ash particles and so its interface with the area is smaller and allows the air to percolate through. He used the analogy of pouring water through a bucket of gravel or a bucket of sand, with water passing through a bucket of gravel more easily.

[324] The evidence about rocks and gravel concerned two distinct effects. The first may be described as mechanical. The second, which I have been canvassing, concerns the extent to which rock or gravel might impede airflow. A considerable amount of evidence related to the former. For example, Mr Stirling gave evidence that the plant was not designed to handle the volume of rock that went through it and that though smaller rocks could pass through, larger rocks had the potential to cause mechanical damage both within the feeders and distributors, but also when they fell onto the grate. Mr Barrett gave evidence that debris was present in chains and drives, and accumulated onto frames and other structural parts of the grate. There was also the potential for erosion and damage away from the grate and in the ash system. These mechanical effects of what the defendants allege was out-of-specification fuel appeared in responses to certain defect notices.

[325] The present issue is a different one and concerns the effect of rock and gravel on airflow. As noted, it was possible for rocks and gravel, depending upon the size of the particle, to block some pinholes in the grate clips. However, the evidence explained that this would depend upon the size of the rock and some air would still get around a rock that did not give a tight seal to the pinhole. The blocking of pinholes would not stop air filtering through gaps around the T-bars and other spaces around the tiles that were larger than the pinholes.

[326] Mr Ironside, who visited both the Broadwater and Condong plants before and after handover, did not attribute the presence of rocks in fuel as a cause of overheating problems at Broadwater. He did not do so at the time, and he did not do so in his witness statements.

[327] Dr Dixon, who was called by the defendants, did not attribute rocks or fuel contamination as the cause of overheating, despite being briefed with material about these matters, including defect notices. He referred to alleged poor fuel quality in later reports and noted that rocks would cause mechanical issues. However, when he gave evidence at trial and was asked why he did not identify rocks as a cause of the overheating and grate failure, he responded, "Because I didn't believe that it was".

[328] The evidence did not establish that the amount of rock and gravel in the fuel exceeded the specification in the EPC Contract. I have had regard to the evidence and the parties' submissions about the sample analyses that occurred in early 2008. The plaintiffs' submissions establish that at least some of those samples were taken from Condong, not Broadwater. There is no fuel sample analysis that post-dates May 2008. This tends to suggest that the presence of rocks was initially a significant problem but became less of a problem. The high figure recorded in one early-2008 study quoted by Mr Stirling is explained as being based on weight.

[329] In summary, an excessive amount of rocks or gravel presented as a problem in early 2008 due to a problem with the hardstand and steps were taken to address this. Those steps significantly reduced the amount of rock in the fuel.

[330] The design of the boiler anticipated that there would be rocks, gravel and other extraneous unburnt material in the fuel. The amount of rock or gravel in the fuel would vary from time to time depending upon the source of the fuel. Operators would notice this and it would necessitate the skip bin being emptied more frequently than at other times.

[331] The presence of rocks in the fuel had the potential to cause mechanical damage to parts of the grate and other parts of the boiler system. The presence of rocks, gravel and sand had the potential to block pinholes in the grate tiles. Larger rocks were less likely to do so. Pinholes were not the only means by which undergrate air would pass through the grate. There were larger gaps around the tiles and at the ends of the tiles. If some pinholes were blocked there were still spaces for the air to flow through.

[332] The expert evidence does not support the conclusion that the presence of rocks caused overheating. I accept that evidence. I conclude that the presence of rocks was not a cause of overheating and the subsequent grate failure. The presence of rocks had other consequences because, on occasions, the grate would be stopped for a short period to allow the skip bin to be removed. I address that aspect later.

[333] Rocks were present in the fuel at Condong and there is some evidence that the presence of rocks was worse there than at Broadwater. This was Mr Ironside's recollection. If, as the defendants' submissions suggest, the presence of rocks made a significant contribution to overheating, then one would have expected a similar process of overheating to have been experienced at the Condong plant where as many, if not more, rocks were present in the fuel. The evidence does not indicate that the Condong plant experienced the same overheating as occurred to the grate at Broadwater. As Mr Forsyth, who worked as a Number 1 Operator at the Condong plant, stated, during the relevant period he was not aware of any significant grate damage or overheating events having occurred at Condong.

[334] I conclude that the presence of rocks and gravel in the fuel was something that the Broadwater plant was designed to deal with. I am not persuaded that the presence of rocks and gravel contributed to any significant extent to the overheating of the grate at Broadwater that resulted in the failure and damage in July 2010. The evidence which I prefer, including the expert evidence, indicates that it did not contribute to overheating.

[335] Piling may be the result of poor-quality fuel. In Mr Stirling's experience, piling is "more a function of the fuel quality than anything else".

[336] One problem may be "wet fuel". However, the EPC Contract allowed a high percentage of moisture in the fuel. For bagasse the specification was 44-53 percent moisture and for wood fuel it was 20-50 percent moisture.

[337] Wet fuel of varying moisture contents was an expected part of the normal operation of the boiler when using fuels likes bagasse. The boiler was designed so that any wet bagasse would be dried out by the undergrate airflow and burn on the grate. If any wet woodchip was fed into the boiler then, as Mr Fletcher indicated, the hot air coming through the grate would do a "wonderful job" of drying out the wood for the purposes of combustion.

[338] The term "bad fuel" is associated with bagasse with a high moisture content. The term "wet fuel" may be used to describe fuel that has the high moisture content allowed in the specifications. Dr Dixon, Mr Stirling, Mr Ironside and Mr Heese agreed that bagasse at the upper end of the fuel specification range would generally be described as "wet bagasse".

[339] Entries may be found in logbooks to "wet fuel", but that does not necessarily mean that the fuel was outside of the contractual moisture specification. This was agreed in the joint expert report. An observation by an operator, or an entry in a logbook by an operator, to wet fuel or bad fuel is likely to be prompted by an observation of piling and an assumption that the piling is due to wet fuel.

[340] Mr Stirling accepted that it would be easy for a boiler operator to conclude that fuel piling on the grate was caused by poor-quality or wet fuel if they assumed that the airflows indicated on the DCS screen were correct.

[341] Mr Lowry's evidence was that fuel with the high moisture content provided for in the moisture specification of the EPC Contract requires a high undergrate air temperature and airflow to achieve stable combustion and to dry the fuel. Dr Dixon agreed with the points that Mr Lowry made in this regard in their joint expert report.

[342] It follows that if the undergrate airflow was less than required, fuel that was within the contractual specification may not "flash off" and be dried in the boiler as part of the combustion process. Instead, it might clump, form piles and not dry out on the grate. Notes of "wet fuel" in the logs may not have been written if there were sufficient undergrate air, because the boiler would have been able to combust or burn that fuel.

[343] Previously I have described in general terms the frequency and extent of piling that was observed by operators and others at the Broadwater mill. The defendants' submissions helpfully quote some of the evidence about piling in support of the contention that the overheating experienced on the Broadwater grate was due to piling, rather than to any underlying deficiency in the boiler itself. However, I do not accept that this conclusion follows. If there were a deficiency in the boiler itself, particularly in the respects in which undergrate air was diverted through the ATO Damper without anyone knowing this to be the case, then one would expect increased piling and, in turn, overheating.

[344] There is no doubt that there was excessive and frequent piling at the Broadwater boiler. Sometimes the grate would go into alarm without piling. Mr Timms' recollection, however, is that on most occasions it was piling that caused the alarms. Some witnesses gave vivid descriptions of the height of piling. The evidence, including Mr Fletcher's evidence, establishes that piles prevent the flow of air through the grate. Mr Moller's recollection is that piling occurred for at least two hours a day. The defendants are correct to submit that this body of evidence lends weight to the contention that overheating experienced on the grate was due to piling. However, it should be added that any reduction in undergrate airflow would raise the temperature of the grate to in excess of what it would have been had the air not been diverted through the ATO Damper and, therefore, the overheating effects of piling would be in addition to the overheating effects of insufficient, cooling undergrate air.

[345] In short, there is no dispute that piling occurred frequently and led to overheating of the grate.

[346] The present issue is whether the piling can be attributed to "bad fuel" in the sense of fuel that exceeded the allowable percentage of moisture, rather than the deprivation of undergrate air. It is possible that both contributed to piling and consequential overheating.

(a) the EPC Contract allowed for a high percentage of moisture in the fuel;

(b) wet fuel was a normal and expected part of the operation of the boiler; and

(c) fuel with a high moisture content requires a sufficiently high undergrate airflow for the fuel to burn in suspension or, if it does not burn in suspension, to be dried out and burn on the grate.

Incidentally, the undergrate air was warm air, but far cooler than the temperature of the grate and so it still achieved the purpose of cooling the grate from the extreme temperatures to which the grate was exposed in the boiler.

[348] Observations and entries by operators about bad or wet fuel are an interpretation that piling is occurring because the fuel is wet. Such an interpretation is made on the assumption that there is no underlying deficiency in the boiler, that the airflows are as indicated, and that secondary air dampers and the ATO Damper are open to the extent indicated by the DCS. They do not prove that the apparently wet fuel that is forming a clump or a pile is excessively wet and outside the allowable moisture specification. Such observations are consistent with fuel not drying and combusting in a way that it would if the dampers were open to the degree indicated on the screen.

[349] Fuel with the allowable moisture specification for this boiler required a high undergrate airflow to dry the fuel and achieve stable combustion.

[350] The defendants' contentions about bad fuel raise two familiar questions. One is why the kind of extreme and frequent piling that occurred at the Broadwater boiler did not occur at the practically identical Condong boiler that used similar biofuels. The second question is why, after the correction of the reverse operation of the ATO Damper at Broadwater, did the boiler's operation appear so different to operators.

[351] To be clear, some piling from fuel with a high moisture content was to be expected. Occasional piling will occur as anticipated by the Operating Procedures Manual. Operators are taught how to respond to it. However, the piling that was experienced at the Broadwater boiler before the failure in July 2010 was far greater in size and frequency than might have been expected from the normal operation of the plant. It was far greater than was experienced at Condong.

[352] There is an argument that the piling and overheating experienced at Broadwater was due to "bad fuel" rather than the system being deprived of undergrate air due to the reverse operation of the ATO Damper. However, observations of piling and assumptions that were made at the time that the piling was due to bad or out-of-specification do not prove that the assumptions were correct.

[353] The evidence that I have so far considered does not permit me to conclude that "bad fuel" in the sense of fuel that was outside of the relevant specifications made a significant contribution to the extreme and frequent piling that was experienced at Broadwater.

[354] My conclusion about that matter depends upon further consideration of the effects of the ATO Damper operating in reverse, including evidence from experts that the reverse operation of the ATO Damper would have reduced the undergrate airflow by a substantial amount. If this is the case, it may explain why, despite using fuel that was within specification, the undergrate airflow was insufficient to dry the fuel, achieve stable combustion, and avoid piling and overheating.

[355] The defendants argue that another cause of overheating was that the grate was stopped on occasions, or operated too slowly, or on other occasions was run too fast.

[356] The plaintiffs respond that the evidence does not support these conclusions. They point out that:

(a) changing the speeds on the grate was something that the CBH Operating Procedures Manual stated should be done and that, during training, the operators were told that speeding up the grate was a way to deal with fuel piling; and

(b) any stopping of the grate, for example, to allow the ash skip bin to be emptied, was for a short time, a small fraction of the time it would take for the grate to slowly rotate. It would not have made any significant contribution to overheating.

[357] The grate is slow-moving. It takes hours to rotate. One way to address combustion, overheating and piling is to adjust the speed of the travelling grate. Grate speed was something that the No 1 Operator could change, but only within the parameters of the control system that were set by an instrument technician or control system engineer.

[358] The system contemplated that operators would change the grate speed to suit conditions.

[359] The Operating Procedures Manual stated that the grate "should be slowed or even stopped for a period" if "significant quantities of unburnt fuel" were exiting the conveyor. There was evidence that the grate was stopped during the commissioning period when high grate temperatures were experienced. The manual contemplated that the grate could be slowed to allow piles to burn off. There is evidence that the defendants adopted this approach during commissioning. For example, Mr Heese in a 31 October 2008 email that commented on Mr Ironside's 25 October 2008 report stated:

"The grate is being run at its minimum speed and higher grate temperatures are still being observed."

[360] The defendants and Mr Ironside also recognised speeding up the grate as an option to deal with piling. This response appears in CBH's training slides and in reports. Increasing grate speed was something that was done during commissioning by the defendants' operators to deal with piling. Mr Timms gave evidence that the CBH operators instructed him to speed up the grate to deal with fuel piling, and Dr Dixon accepted that this was an acceptable way to move piles of fuel off the grate.

[361] Running the grate at a lower speed could assist in building up an ash layer that had an insulating effect. Mr Lowry and other witnesses referred to that practice. Mr Lowry observed, however, that it could be difficult to achieve the required ash layer in certain conditions, and Mr Ironside agreed with that view.

[362] In a report prepared after the July 2010 damage and dated 2 September 2010, Mr Ironside recommended running the grate at a lower speed and suggested that the Broadwater operators were running it at too high a speed. This was the report in which he identified the reverse operating ATO Damper as being the "single biggest factor" that caused the grate failure. He did not nominate a high grate speed as the cause of the damage. He did so in a 2019 witness statement. Dr Dixon's first report did not identify grate speed as an issue, but it became an issue because of Mr Ironside's 2019 opinion. Dr Dixon's second report did not dispute Mr Lowry's view that a high grate speed would not, of itself, cause extensive overheating.

[363] There was evidence that operating the grate at too high a speed could lead to piles because there would be insufficient time for the fuel to burn. Mr Fletcher gave this evidence. However, this does not mean that increasing the grate speed will have a detrimental, overheating effect. Instead, it may mean that unburnt fuel comes off the end of the grate, has to be recovered and may overload the ash recovery process.

[364] The better view is that increasing the grate speed or even running the grate at a higher speed will not cause significant overheating. It was something that the defendants recommended might be done to deal with piling. Mr Timms' evidence was that if the grate was moving too slowly, it could cause piling and the grate to overheat. Dr Dixon accepted that increasing the grate speed was an acceptable way to move piles of fuel off the grate. So did Mr Lowry as a means of keeping the boiler running properly.

[365] If, on occasions, the grate was slowed to address a problem with piling and to allow unburnt fuel to be burnt off, then this was something that was suggested as a possible response by the defendants' Operating Procedures Manual to reduce piling.

[366] The thrust of the defendants' submissions about grate speeds is not that the plaintiffs' operators adopted the practice of operating the grate too slowly. Rather, it is that they tended to have the grate moving too quickly or, on occasions, stopped it altogether. I have addressed the suggestion that having the grate moving too quickly might not allow sufficient time for the fuel to burn and even cause overheating. The overheating contention is not supported by the evidence at trial, including the evidence of Mr Lowry and Dr Dixon. If, on occasions, the grate was slowed to burn off unburnt fuel, then this was in accordance with the defendants' recommended procedures. That practice was intended to reduce piling and consequent overheating. The defendants do not submit that adopting this practice, as required, caused overheating. They do not submit that the grate was consistently run at too slow of a speed.

[367] If the grate was stopped on occasions, then it was to empty the skip bin. If the grate was stopped, it was not for a long period.

[368] Practices differed in relation to stopping the grate. Mr Timms said that it was something that he never did because stopping the grate could cause piling. He explained that there was no need to stop the grate in order to empty the skip bin. He would keep the grate running and there might be a couple of shovelfuls of gravel that could be scooped up by the No 2 Operator when the skip bin was returned. He could not recall any instruction or policy requiring the grate to be stopped in order to empty the skip bin.

[369] The evidence did not indicate any consistent practice in this regard. Relevant evidence is summarised at [200] - [210] of the plaintiffs' submissions, and I will not repeat it. In summary, the evidence was that if the grate had to be stopped to empty the skip bin then that would take between five and 10 minutes. One operator, Mr Stanley-Jones, recalled that it was something that was done "in the very early days", but the practice stopped not long after handover. Other evidence showed that the practice of stopping the grate occurred during commissioning, but later the operators would try to keep the grate moving, even if this meant that some gravel ended up on the ground.

[370] The evidence differed as to how frequently the skip bin had to be emptied. The frequency depended upon the quality of the fuel. The bin would fill more quickly if there were high quantities of ash, including rocks and gravel. As noted, many operators did not stop the grate to enable the skip bin to be emptied. However, if they did it would be for a period of about five to 10 minutes. Even if there was such a stoppage period every few hours, it was a relatively short period. If the bin had to be emptied less frequently, say, every five to six hours, the five or 10 minutes was an even smaller fraction of the hours it took the grate to travel. If, as the defendants allege and some of the evidence indicates, the plaintiffs' operators tended to have the grate operating at a high speed so as to avoid piling, the period of any stoppage would be accounted for by the faster movement of the grate.

[371] The expert evidence does not support the conclusion that stopping the grate had a significant effect on overheating. Mr Lowry explained that at a minimum grate speed of 1.5m per hour, it would take nearly six hours for a grate clip to move from the rear to the front of the furnace. Mr Stirling agreed that it could take hours for the grate to move a couple of metres. Therefore, stopping the grate for a short period to allow the skip bin to be emptied would not cause overheating. Dr Dixon "mostly" agreed with this view in the joint report, and at trial stated that stopping the grate for 10 minutes was not "a major factor in overheating". According to Dr Dixon, if a pile of fuel was sitting on the grate, stopping the grate would not have an effect.

[372] In summary, the practice of stopping the grate was not common after handover. Rather than stop the grate, operators like Mr Timms preferred to have any gravel that accumulated during the five or 10 minutes that the bin was being emptied shovelled up and put in the bin upon its return. If, however, the grate was stopped by an operator to allow the bin to be emptied, then it would be stopped for a short period of, say, between five and 10 minutes. This was a short period compared to the time it took for the grate to move and had no significant effect on overheating.

[373] While, as Mr Stirling said, "any time you stop the grate is not a good thing", the evidence indicates that the grate was not stopped frequently and when it was, it was for a short time. In fact, the practice of stopping the grate was more prevalent before handover than after it. I conclude that the evidence about stopping the grate, including its purpose and duration, does not support a finding that stopping the grate had a significant effect on overheating.

[374] Finally, and although it does not relate directly to the speed of the grate or stopping the grate, the defendants' submissions include a reference to the fact that piling was more significant at Broadwater than at Condong. This was Mr Sawatzki's evidence. The defendants point to evidence that the operators' approach to piling at Broadwater differed from that at Condong where air lancing was used more frequently. Air lancing was used at Broadwater before July 2010, but it tended to be regarded by some operators as an unsafe practice. Therefore, the operators at Broadwater who did not use air lancing would, according to Mr Sawatzki, "stop the feeders, shut the boiler down and try and burn it off". If this is so, then it was the procedure that the defendants' Operating Procedures Manual suggested. Air lancing was mentioned as an alternative. The evidence of Mr Stanley-Jones and Mr McLennan was that air lancing was used at Broadwater to reduce piling and this was done before July 2010. Mr Stanley-Jones' evidence included lancing for three to five hours on occasions. Mr McLennan used lancing when he was a No 2 Operator or Rover.

[375] In summary, operators were expected, within parameters, to adjust the speed of the grate to deal with changing conditions including piling. They did so, and the evidence does not lead me to conclude that changing the speed of the grate from time to time to suit conditions, or stopping it for short periods to enable the skip bin to be emptied, contributed to overheating of the grate that, in turn, caused the July 2010 damage.

[376] The defendants submit that the evidence tells against the suggestion that a lack of undergrate air was a significant operational issue. They developed two arguments in this context.

[377] The first is that the operators were aware of the significance of undergrate air and were able to take steps to cool the grate when piling occurred, so that the temperatures returned to normal operating limits. They contend that if there was overheating, it was caused by the operators' failure to take steps to return the grate to the correct operating temperature.

[378] The second argument, which I will refer to as "the design argument", is that the boiler was designed so that it is "over aired" and was designed so that the grate did not overheat, even when the ATO Damper was open and the oil burner was operating.

Manual operation and attempts to correct overheating

[379] As discussed, the Operating Procedures Manual instructed operators about what should be done to address piling. It stated:

"Bias back the problem feeder, temporarily decrease grate speed and increase undergrate flow to burn the pile off."

[380] The operators were aware of the need to respond to piling with undergrate air. They were able to monitor the level of undergrate air on the DCS and, if piling occurred, to take the steps that the manual indicated. This included increasing undergrate air by opening the undergrate air damper. The operators were aware of the importance of undergrate airflow.

[381] At this point, it is worth recalling that the system was designed to operate largely automatically based upon the DCS controlling the flow of air, the flow of fuel and other aspects of the system. The operators were there to intervene if problems occurred with overheating, piling or other problems. The system was, however, designed on the basis that the DCS was generally better at monitoring operations and responding to conditions than an operator.

[382] Just as too little air can affect efficient combustion, too much undergrate air does not aid burning in suspension and it can exacerbate piling. An operator, like the automated system, has to balance the flow of air into the furnace through undergrate air and secondary air dampers. As Mr Ironside explained, "unless you get the undergrate air velocities lower and sufficient secondary air to create a circulating fireball... unless you get that rotation, you will get piles".

[383] Therefore, a competent operator would have to carefully judge the amount of undergrate air that was needed for its essential purposes and not inject too much undergrate air lest it jeopardise the preferred location of the circulating fireball, impair efficient combustion and lead to piling.

[384] The defendants' essential point is that the operators could take steps, including by adjusting the undergrate air dampers, to cool an overheated grate.

[385] The fact that operators could and did take steps to address overheating and piling by, among other things, increasing the flow of undergrate air, does not mean that overheating problems were not common or that the steps the operators took were effective to avoid the short- and long-term consequences of overheating and piling.

[386] The defendants submit that the evidence suggests that the operators "were able to keep the grate temperature within limit by adjusting the undergrate air damper". This argument tends to merge steps that were available to address overheating and their effectiveness. The defendants submit that the operators were able to cool the grate when overheating and piling occurred so that temperatures returned to normal operating limits. The evidence suggests that this is what they tried to do and often were able to do. For example, Mr Dann gave evidence of strategies that were tried to cool the grate including increasing undergrate air. Mr Stanley-Jones gave evidence about adjusting the undergrate air dampers. Mr Ironside reported on 9 May 2010 that operators at Broadwater used more undergrate air than would be applied by the automated system to deal with piling on the grate.

[387] If these kinds of steps were effective, then an overheated grate would return, after some time, to within an acceptable limit. How long this would take and what damage may have been done in the meantime, are different matters. Also, these overheating and piling events were not uncommon. The evidence previously canvassed indicates that overheating and excessive piling were regular and frequent problems. They were apt to cause deterioration in metal parts, if only in locations where there was excessive piling, for however long it took to address the problem, bring the problem under control and remove the piling.

[388] The evidence establishes that operators tried to cool the grate when it was overheated and that, by a variety of means, they either were able to eventually return temperatures to normal operating limits or, if they were unable to do so, would take more drastic action by "tripping the boiler". This evidence does not, however, establish that they were able to keep grate temperatures within their limits. They were able to return them to within limits.

[389] The defendants' next argument is that if the operators were not able to keep the grate temperature within limits, then the cause of the overheating was the operators' failure to take steps to return the grate to the correct operating temperature. I am not persuaded by this submission. It does not follow that overheating was the result of the operators' failure to take steps that were available to them. If there was overheating, the steps taken by the operators to rectify the problem, including by adjusting the undergrate air damper, might return the grate to within normal operating limits. It does not mean that the overheating did not have consequences or was able to be rectified quickly enough to avoid its consequences. If it be assumed for the purpose of argument that the reverse operation of the ATO Damper was a significant cause of overheating, then overheating occurred despite steps taken by operators to address the problem. The operators were unable, even with the aid of manual adjustment of undergrate air, to avoid the consequences of overheating. It does not mean that they failed to take steps designed to return the grate to normal operating temperatures.

[390] Finally, and noting the evidence about the need to ensure that airflows create a circulating fireball, an excessive amount of undergrate air might adversely affect combustion, prevent the circulating fireball from being in the proper location, and unintentionally increase piling and overheating. Therefore, the fact that operators were able to adjust undergrate airflows does not mean that increasing undergrate airflow in response to piling was a simple process that was bound to be effective in reducing an already overheated grate. If successful, these kinds of adjustments and other measures would eventually return grate temperatures to normal operating limits.

[391] Dr Dixon explained that the boiler was designed to operate and not overheat when the ATO Damper was open, so as to permit air to flow to the oil burner when it was in operation. However, this does not address the issue of overheating when the oil burner was not in operation, which was most of the time. The fact that the automated system allowed the ATO Damper to be open when the oil burner was in operation, and without the grate becoming overheated, does not address the situation when the oil burner ceased to be used. The boiler was designed so that the oil burner was not operating for most of its operation. The system assumed the ATO Damper to be almost fully closed during such times. This design feature says little about how the boiler operated when, contrary to that assumption, the ATO Damper was almost fully open.

[392] Next, the defendants rely upon some of Mr Stirling's oral evidence, to the effect that the boiler is designed so that the fuel is "over aired". He said that "there's still a lot of air in that furnace" and that "[t]he fuel is over aired for a purpose" such that it "must always have been seeing enough air to burn". What Mr Stirling meant by the fuel being "over aired" was not clear. The defendants submit that he was making a distinction between that situation and there being merely sufficient air, such that any reduction in it leads to a problem. Mr Stirling may have been referring to a matter addressed in Dr Dixon's third report which is associated with the issue that I have recently discussed. This refers to the effect of over-airing during start up and low-load operation, when the oil burner is in operation. During this time, the grate receives a cooling airflow and is designed to not overheat. If so, then the point is the same one, namely, that this aspect of the boiler's design does not address the sufficiency of undergrate cooling air during most other times, including when the oil burner was not in operation and when the automated system operated on the false assumption that the ATO Damper was almost fully closed, but it was in fact almost fully open.

[393] If Mr Stirling's evidence was about the sufficiency or adequacy of undergrate and secondary air during the boiler's normal operation when the oil burner was not being used, then I am not sure what he meant by "over aired". The evidence, including the evidence of Mr Ironside, is that there should be adequate undergrate air so that, in conjunction with secondary air, there is a circulating fireball. Inadequate (as well as excessive) undergrate air may cause a problem.

[394] In short, the evidence does not suggest that the boiler was "over aired" with more undergrate air than was required. The evidence indicates that the reverse operation of the ATO Damper deprived the boiler of undergrate air and led to overheating. The design arguments are not persuasive.

[395] In advance of the trial, the defendants contended that the Broadwater boiler operators repeatedly "de-tuned" the boiler and adopted poor operating practices, including by incorrectly setting the secondary air dampers and incorrectly setting the biofuel distribution plates.

[396] I have previously addressed the allegations that the pneumatic fuel distribution plates were incorrectly oriented and that this was directly responsible for piling on 5 July 2010 that caused the failure. Those allegations are not sustained by the evidence. The evidence indicates that the plates were adjusted, as was expected, to suit the biofuel being used. There is no satisfactory evidence that they were set at the kind of extreme angle on 5 July 2010 that the defendants suggest.

[397] As to secondary air dampers, the defendants' final submissions do not press any contention that the operators incorrectly set them. The evidence in relation to secondary air dampers and their adjustment is summarised at [213] - [237] of the plaintiffs' submissions. That evidence supports the conclusion that it was appropriate to change secondary air settings to operate the boiler and to suit the fuel characteristics. The issue is not raised as an alternative cause in the defendants' final submissions and it fell away during the course of the trial. I accept the evidence, including Mr Lowry's opinion, that the secondary air damper settings did not cause the overheating and grate failure.

[398] I should add that following investigations into the July 2010 damage, Mr Ironside concluded that the reverse operation of the ATO Damper was the most important reason for high grate temperatures and the grate damage. By 2019, however, he resiled from that view and asserted that incorrect settings to the secondary air dampers significantly contributed to the grate damage. This allegation was opened at the trial and raised in the cross-examination of operators. However, despite the store that the defendants placed on this allegation before the trial, the evidence did not support it. For example, Mr Heese noted in an internal CBH email on 31 October 2008 that CBH did not have a problem with supervisors and operators adjusting the secondary air or pneumatic distribution dampers from the settings that Mr Ironside set at his previous visit. This was "normal operating practice", and operators were expected "to be able to change the settings to suit the firing conditions".

[399] In summary, adjusting secondary air dampers to suit prevailing conditions and the type of fuel being used was something that operators were expected to do. The contention that the Broadwater operators should not have adjusted secondary air dampers between Mr Ironside's visits was unsustainable. The secondary air damper settings adopted by the Broadwater operators did not cause or significantly contribute to the grate failure.

The effect of the ATO Damper operating in reverse

[400] This issue has been discussed. Simply put, the air that was diverted from under the grate due to the reverse operation of the ATO Damper would have been used to cool the grate, combust fuel in suspension or on the grate, and, if required, dry fuel. Dr Dixon agreed that the reduction of undergrate airflow would contribute to the formation of piles. He also agreed that the reverse operation of the ATO Damper would result in a reduction of undergrate air and contribute to overheating. During his cross-examination, Dr Dixon fairly, and I should say in a way that reflected well on his role as an independent expert, departed from some of the views that he had expressed in his reports. He accepted that the thermal damage that occurred prior to practical completion, as evident in the metallurgical reports, strongly pointed to the conclusion that the reverse operating ATO Damper caused the overheating.

[401] Mr Ironside's initial view, as expressed in a report after the damage, was that the reverse operation of the ATO Damper was "probably the single most important reason for the high grate temperatures". He concluded that the "discovery of the mal-operation of the air to oil damper at Broadwater Mill and its subsequent correction has resulted in correcting possibly the single biggest factor that caused grate damage". The views that Mr Ironside expressed at the time were based upon having spent extensive time working with operators at both Broadwater and Condong. The opinion that he expressed at the time was based upon his personal observations and experience, including an experiment he conducted transitioning fuel from bagasse to woodchip. He observed that, with the correction of the reverse operating ATO Damper, piling was controlled, as were high grate temperatures.

[402] Mr Ironside adopted different views by the time he gave a witness statement in 2019. His reasons for changing his opinion were explored in cross-examination. Mr Ironside accepted, in his evidence at trial, that it was both plausible and possible that the reverse operation of the ATO Damper was the cause of the overheating and high grate temperatures. This was not a casual concession. In a number of places in his oral evidence, he acknowledged the force of the case that the reverse operation of the ATO Damper had a significant and detrimental effect in overheating.

The quantity of undergrate air that was diverted

[403] On any view, a significant quantity of undergrate air was diverted from the undergrate to the oil burner because of the reverse operation of the ATO Damper.

[404] In their joint report, Dr Dixon and Mr Lowry agreed that the amount of air diverted from the undergrate to the oil burner due to the reverse operation of the ATO Damper was 41 tonnes per hour (t/hr). They also agreed that, when the boiler was operating at its maximum continuous rating ("MCR"), there was a 31 percent shortfall of undergrate air. When the boiler was burning wood and operating at 70 percent of its MCR, there was a shortfall of 53-69 percent of undergrate air.

[405] Dr Dixon and Mr Ironside accepted that a shortfall in undergrate airflow would be exacerbated when the boiler was operating at lower loads and that the detrimental effect of the reverse operating ATO Damper would be greater at lower loads.

[406] The figures in the joint report were based on Mr Lowry's calculations that were contained in his first report. In particular, he calculated that the airflow through the oil burner when the ATO Damper was 85 percent open was 59 t/hr, and that the airflow was 18 t/hr when the ATO Damper was 15 percent open. The difference between these two figures (referred to in the evidence and submissions as "the delta") is 41 t/hr.

[407] To arrive at this figure, Mr Lowry used a flow methodology based on the "FD Fan Outlet Flow Element" ("FE1") recorded on the Broadwater air balance test results ("the Flow Methodology"). Dr Dixon agreed that the Flow Methodology was an appropriate methodology and that Mr Lowry's assumptions for the calculation of 41 t/hr were reasonable.

[408] Mr Stirling also agreed that the Flow Methodology was an appropriate methodology to use and that it was reasonable to assume the flow metre data was correct. He also had no trouble with Mr Lowry's calculations. Only in his re-examination did Mr Stirling raise the possibility that the FE1 reading was high.

[409] The oil burner manufacturer's airflow characteristic curve was not available to Mr Lowry when he did his first report and when Mr Lowry and Dr Dixon prepared their joint report. During the second week of the trial, Dr Dixon produced a supplementary statement dated 9 June 2022 that calculated the delta based on a different methodology, "the Burner Curve Methodology" based on the Broadwater air balance test. He accepted, during his cross-examination, that the delta that he calculated was in error and accepted that a revised calculation using the correct figure for 15 percent would provide a delta of 35.27 t/hr, not the 31.13 t/hr that he calculated. Dr Dixon accepted that from an engineering perspective, a delta figure of 35.27 t/hr is comparable with the figure of 41 t/hr.

[410] As to the Burner Curve Methodology, Mr Lowry did not consider it to be as reliable as the Flow Methodology that he had used because the Burner Curve was based on a theoretical estimate of airflow based on the oil burner manufacturer's experience, rather than the actual measured flow at the FD Fan outlet at Broadwater.

[411] Neither party seeks to rely on calculations made by Mr Ironside in his 2019 witness statement. Mr Ironside accepted during his cross-examination that his calculations on airflow were unreliable.

[412] Mr Stirling was not an independent, expert witness. Two paragraphs of his second witness statement dated 17 March 2022 that purported to calculate airflows at Broadwater and at Condong based on air balance tests were objected to, and the defendants agreed they should be struck out of his statement. During the trial, the defendants delivered a supplementary statement by Mr Stirling dated 31 May 2022 that reproduced these calculations and explained them and his methodology. Over the plaintiffs' objections about the prejudice this late material occasioned them and their lawyers during the trial, I allowed the evidence to be received.

[413] Mr Stirling explained that he performed pressure drop/flow calculations of the supply ducting, damper and oil burner to estimate the effect of the ATO Damper's reverse operation using a variety of methods. He performed his calculations "using a compressible flow, losses method for the as built air ducting system corrected for the as measured air balance tests for Broadwater and Condong". Mr Stirling's Burner Curve calculations were based on duct fabrication drawings, in-house design methods, and data from the oil burner manufacturer and the available air balance test results. His method was to plot airflows on damper characteristic curves for Condong and Broadwater.

[414] For Condong, the estimated flows were 13.303 t/hr (or alternatively 11.2 t/hr) at 15 percent open and 43.4 t/hr (or 43.058 t/hr) at 85 percent open. This produced a delta of 29.7 t/hr (or 32.3 t/hr). The slight differences appearing in parentheses were explained in Mr Stirling's evidence.

[415] As for Broadwater, again using two different methods, he calculated the airflows at 15 percent open and at 85 percent open. At 15 percent open, the figure was 24.708 t/hr (or 25.8 t/hr) and at 85 percent open, it was almost 47 t/hr. This resulted in a delta of 22.3 t/hr (or 21.2 t/hr), depending upon the different methods.

[416] It emerged that the smaller delta that Mr Stirling arrived at for Broadwater, compared to Condong, assumed a misalignment in the Broadwater ATO Damper, such that when the damper control was set at 0 percent open, it appeared to be leaking 30 percent of the total ATO Damper airflow.

[417] Mr Stirling's opinion was that the Condong characteristic graph, which was based on the ATO Damper not operating in reverse and not being misaligned, represented the airflow that would have been expected with a properly operating ATO Damper at Broadwater that was not misaligned. He assumed that the Broadwater damper was misaligned as well as operating in reverse. He accepted that if it were not misaligned, it would have a similar airflow at 15 percent open to that at Condong and one would expect similar airflows at Broadwater and Condong.

[418] Mr Stirling's opinion was that the reverse operation of the ATO Damper had a limited effect on airflow and no significant impact on the temperature of the grate at Broadwater.

[419] Mr Stirling's calculations, and his opinions that were based on them, made an assumption that even if the ATO Damper at Broadwater were not operating in reverse and were set at 0 percent open, it would allow a substantial flow of air. He assumed that it was vastly in excess of the small amount of air that flowed through the Condong ATO Damper when it was set to 0 percent open (other evidence adopted a figure of 4 percent or less of airflow).

[420] Mr Stirling assumed that the difference between the air balance tests at Condong and at Broadwater (once account was taken of the reverse operation of the ATO Damper at Broadwater), was because the blades of the ATO Damper at Broadwater were misaligned.

[421] Mr Stirling's new evidence opened up debate, cross-examination, and submissions about how to quantify the effect of the reverse operation of the ATO Damper when set at 15 percent on the DCS but which, due to the reverse operation of the ATO Damper, should have shown that it was 85 percent open. Much of that discussion and argument proceeded on the basis that the assumption there was a significant misalignment of the damper plates at Broadwater was correct. However, that assumption has not been proven and so these arguments largely fall away.

[422] There is no direct evidence of such a misalignment. None was found in investigations after the incident or at any time over the last 12 years. There is no evidence in support of the assumption. It relies on what might be inferred from the way in which columns of the air balance test for Broadwater were completed in hand. However, Dr Dixon's supplementary evidence suggested a convincing explanation for this. Simply put, the person completing the air balance test for Broadwater seems to have entered results in the wrong column for the results at 25 percent MCR, 50 percent MCR, 75 percent MCR and 100 percent MCR. Dr Dixon's fourth report, being his statement dated 9 June 2022, observed that "there is confusion in the Air Balance Test data when the Broadwater data is compared to the Condong data, as shown on the Air Balance Test Sheet". The confusion is explicable by entries for Broadwater being made in the wrong column. Dr Dixon made suitable adjustments. As he noted, this meant that if the Broadwater ATO Damper was open to 100 percent, it produced a differential pressure of 1.59 kPA and the corresponding Condong differential pressure was 1.49 kPA. He observed that the two numbers are very close, which would be expected for "two near-identical boiler components".

[423] More generally, if one corrects for the mistaken recording of figures in the wrong column of the air balance test and takes account of the reverse operation of the ATO Damper at Broadwater, the figures for Condong and Broadwater are fairly close, as one would expect them to be.

[424] The "misaligned blades" assumption that was the subject of cross-examination of Mr Stirling and discussed in the parties' submissions is an unproven assumption. It rests on an apparent transcription error by the unknown transcriber of the Broadwater air balance tests.

[425] The better view is that when actually fully closed (which would appear as 100 percent open on the DCS screen), the Broadwater ATO Damper only allowed a very small amount of air through since the seal was not completely airtight. When fully opened (but appearing as 0 percent open on the DCS screen), it would allow a similar amount of air through as the fully opened ATO Damper at Condong.

[426] Because the "misaligned blades" theory is unproven, it is unnecessary to address in detail submissions that assumed that the Broadwater blades were misaligned. It is sufficient to observe that the issue is one of causation: the effect of the ATO Damper being installed and programmed so that it operated in reverse, and what the effect of that was during the boiler's operation. This was when the ATO Damper was set on the DCS at, say, 15 percent and was understood to be open only to that extent, but was in fact open to 85 percent.

[427] At that point, the effect of any misalignment of blades would be insignificant. This was described in evidence and submissions by reference to curves that appeared in reports and exhibits. Simply put, if there had been a misalignment it might have had a significant effect when the blades were supposed to be completely closed (assuming the reverse operation had been corrected). However, when the ATO Damper was open to 85 percent (or 90 percent) any misalignment would have had an insignificant effect. Prior to the correction of the reverse operation, this would have been when the DCS recorded the ATO Damper to be open by 15 percent (or 10 percent). In such a situation, the bulk of the diverted air would be going through a practically open ATO Damper and into the furnace. Any misalignment of the blades would not have a significant effect when the blades were so far open.

[428] Rather than reproduce curves on graphs and extend these reasons by trying to describe them and the evidence about them, an analogy with a familiar feature may make the point. If the blades in a louvre window are misaligned, they may have an effect when the louvres are supposed to be closed but cannot be completely closed because of the misalignment. The misalignment will allow breeze in. But, if the louvres are already wide open, the misalignment has little effect. The same applies to the blades of the damper. If there had been a misalignment, it would have made very little difference when the ATO Damper at Broadwater was supposed to be 15 percent open but was in fact 85 percent open.

[429] Had the assumption about misalignments been proven, then other issues would have arisen in relation to Mr Stirling's methodology and calculations. There is a substantial question about the accuracy of the data he relied upon in calculating the quantity of diverted airflow using data from performance tests.

[430] Mr Stirling noted that the data was from installed field instruments and that his calculations were "subject to measurement error". During cross-examination he accepted there were discrepancies in the figures for the steam flow and water entering the boiler during the non-crush performance test at Broadwater that would not ordinarily be expected. He accepted "absolutely" that there were "inherent errors in measuring the temperature in the flue gas" and possibly in the air temperatures. As for discrepancies in the temperature readings in the performance test documentation, Mr Stirling indicated that "it's inherently difficult to measure temperatures in the gas ducts" and that there is "a certain amount of uncertainty" when using such temperatures for calculations. He referred to a process of averaging, but accepted that one of the problems with his use of the performance test data was that the use of air heater bypass temperature data would give different calculations.

[431] More fundamentally, for reasons given by Mr Lowry, the figure that Mr Stirling arrived at of 19 t/hr for the air heater bypass airflow in his first statement based on air heater bypass flow data and a PD airflow design valve, is difficult to accept. This was Mr Stirling's estimate of the amount of air that could be going to the undergrate or to the ATO Damper. Mr Lowry explained that Mr Stirling was essentially saying that this amount was going through the oil burner during the performance test. However, Mr Stirling's other calculation had arrived at 46 t/hr. As Mr Lowry observed, "there's a dilemma here that these numbers just don't add up and the only conclusion I can come to is that the information that he's used to do his calculations is very inaccurate".

[432] Mr Lowry explained that various measurements derived from the performance test data, as recorded on the DCS, were determined to be very inaccurate. He counselled against putting too much credence on Mr Stirling's calculations because the numbers are "only as good as the information you put into the calculation". I accept that there is a need for caution in relation to Mr Stirling's calculations based on the Burner Curve Methodology.

[433] In short summary, calculations that Mr Stirling and other witnesses did arrived at figures in excess of 40 t/hr when the ATO Damper at Broadwater was actually 85 percent open. His figure was almost 47 t/hr and Mr Lowry's was 59 t/hr. These differences are attributable to a different methodology. These contrast with the 19 t/hr figure arrived at by Mr Stirling for the air heater bypass airflow based on performance test data. It is hard to reconcile the figures and this suggests that some of his calculations were based on unreliable data. However, it is unnecessary to resolve that issue.

[434] The calculations based on the Condong air balance tests give a useful guide to airflows when the ATO Damper does not operate in reverse.

[435] On any view, and even adopting the unproven assumption that the blades of the ATO Damper at Broadwater were misaligned as well as being programmed so that they operated in reverse, the reverse operation of the ATO Damper diverted a significant amount of air away from the undergrate.

[436] Depending upon the methodology used, the quantity of air diverted by the reverse operation of the ATO Damper varies from 21 t/hr to 41 t/hr. On any view, this was a significant amount of undergrate air. The calculations of Mr Lowry and the corrected calculations of Dr Dixon produce figures of 35.2 t/hr and 41 t/hr, which Dr Dixon described as being comparable from an engineering perspective. If the misaligned blades assumption is discarded, then one performs calculations of the kind that were made by Mr Lowry, based on a sound methodology, and arrives at a delta in the vicinity of 40 t/hr.

[437] It is possible that the FE1 reading was high (a matter raised for the first time by Mr Stirling in his re-examination). If one instead adopts the Burner Curve Methodology and adopts Dr Dixon's figures, one arrives at a delta of 35.2 t/hr.

[438] The evidence of the quantity of undergrate air that was diverted supports a figure based upon the calculations undertaken by Mr Lowry and the later calculations undertaken by Dr Dixon. This arrives at a delta of between 35 and 41 t/hr.

[439] In summary, the reverse operation of the ATO Damper allowed a significant amount of air into the furnace when the DCS was set at 15 percent but the damper in fact was 85 percent open. The diverted air had the various and compounding effects on the operation of the boiler for which the plaintiffs contend. If it had been open only 15 percent, then far less air would have been diverted from the undergrate and allowed to enter the furnace through the almost fully open ATO Damper. Had the ATO Damper at Broadwater not operated in reverse, then it would have performed in a similar way to the ATO Damper at Condong.

[440] I conclude that the quantity of undergrate air that was diverted as a result of the reverse operation of the ATO Damper was significant.

The greater effect of the reverse operation when the boiler was not in full load

[441] The shortfalls that were calculated by Mr Lowry and Dr Dixon assumed the boiler was operating at its MCR. Their joint report agreed that when the boiler was operating at its MCR, there was a 31 percent shortfall of undergrate air.

[442] When the boiler was burning wood and operating at 70 percent of its MCR (the full load for wood), there was a shortfall of 53-69 percent of undergrate air.

[443] Dr Dixon and Mr Ironside accepted that a shortfall in undergrate airflow would be exacerbated when the boiler was operating at lower loads and that the detrimental effect of the reverse operating ATO Damper would be greater at lower loads. Dr Dixon also accepted that there were many times that the boiler was not operating at 100 percent MCR for a variety of reasons.

[444] These conclusions are important because the reverse operation of the ATO Damper would have had a greater effect when burning wood (or a mixture of wood and bagasse). Also, if the operators responded, as they were trained to and did, to overheating or piling by reducing the output of the boiler or "dialling back" the fuel input load, then the shortfall of undergrate air would be more significant than when the boiler was operating at 100 percent MCR. The shortfall in the undergrate air would be more pronounced because of the lower load.

[445] As noted, the performance tests and the reliability tests were undertaken using bagasse, not wood. The use of wood or a mixture of wood and bagasse presented operational challenges. At any period when the boiler was using wood, the detrimental effect of the reverse operation of the ATO Damper would be increased. The boiler was using wood, or perhaps a mixture of wood and bagasse, at the time of the 5 July 2010 damage.

[446] The defendants point to the absence of a reliable and scientifically-controlled test of the effect of the reverse operation of the ATO Damper. Apart from some basic tests that Mr Rojo conducted, the plaintiffs did not conduct tests to measure the effect of the reverse operation. Mr Lowry was not asked to conduct such tests. His evidence was that it would have been possible to conduct them, even after the reverse operation had been corrected, without harming the boiler or the grate.

[447] Such a controlled experiment would have been a way to test the effect of the reverse operation of the ATO Damper and verify or contradict the impressions of operators and others, including Mr Rojo, that correcting the reverse operation made a big difference.

[448] The defendants' solicitors asked the plaintiffs to facilitate such testing being carried out, but they declined to do so. The plaintiffs' solicitors responded in various letters in late 2018 that the proposal to reverse the operation of the damper carried an unacceptable risk that may immediately affect the boiler's stability and lead to a loss of production. They said that their clients' Engineering Team had determined that the risk of doing the proposed reversal test was too high. This position was reiterated along with the proposition that such a test would not simulate the same conditions as previously occurred in July 2010. Their final position was that the owners of the plant did not want their assets endangered as a result of the reversal test and that such testing would not occur.

[449] The defendants submit that there is no evidence to support the proposition that the plaintiffs' concerns were well-founded. Mr Sawatzki's evidence was that he was unaware that the defendants had asked that such testing be conducted. The plaintiffs did not seek advice from Mr Lowry. The plaintiffs, nevertheless, dispute that their apprehension about such tests being carried out was unreasonable. They rely upon the fact that operating the boiler with the ATO Damper in reverse had previously caused significant damage to the grate. They also point to the fact that the defendants had previously offered to come to the site to fix the damper but only on the condition that they obtain a full release from the plaintiffs' claims. The last point relates to a different and unreasonable demand for a full release at a different time. It does not relate to the conditions under which testing might have been conducted in 2018 or 2019. The fact that, according to the plaintiffs, the boiler had been damaged due to repeated overheating while the ATO Damper was operating in reverse did not, in my view, make it reasonable to not negotiate appropriate conditions for a test.

[450] To my simple way of thinking, it would have been open to arrange testing with the ATO Damper open to, say, 85 percent in circumstances in which the grate was not dangerously overheated, to then close the damper to, say, 15 percent, and to monitor what effect that had on reducing the grate temperature. Such a test might not replicate ordinary operating conditions. However, the evidence from Mr Lowry is that it would be possible to safely conduct tests to ascertain the effect of the reverse operation, even after the reverse operation had been corrected.

[451] I should add that it would have been possible for the defendants to apply to the Court for orders facilitating a properly-conducted test under safe conditions, and the Court might have fashioned an order based on expert opinion that included the provision of a suitable indemnity by the defendants against loss. The defendants did not seek such an order after the plaintiffs stated, in a letter dated 19 December 2018, that testing would not occur.

[452] The point remains, however, that it did not fall to the defendants to disprove the plaintiffs' case by conducting tests. The onus remains upon the plaintiffs to prove their case on causation.

[453] I accept the defendants' submission that the Court should take account of the fact that the plaintiffs did not attempt to carry out the kind of scientifically-controlled tests that would have supported their case that the reverse operation of the ATO Damper caused overheating, and declined to allow the defendants to access the plant to conduct their own tests. The defendants are correct to cite Lord Mansfield's maxim in Blatch v Archer that:[2]

"...all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted."

[454] I do not infer that the plaintiffs declined to negotiate suitable arrangements for testing to occur because they knew that such testing would disprove their case. The evidence does not incline me to draw such a serious, adverse inference. The evidence does, however, permit me to conclude that the plaintiffs did not act reasonably in ruling out the proposal to conduct a reverse effect test. The plaintiffs may have believed that such a test carried an unacceptable risk, however, that view was not seemingly informed by the advice of their own senior milling engineer and, if they had sought the advice of Mr Lowry at the time, he would have advised that it was possible to conduct such a test safely.

[455] The absence of scientifically-controlled testing undertaken by the plaintiffs and the plaintiffs' refusal to allow the defendants to undertake such testing weakens the plaintiffs' case on causation.

[456] The result is that the plaintiffs have to fall back on the elements that I have previously discussed including:

(a) the observations of boilermakers and others, including Mr Ironside, about the effect that the correction of the reverse operation of the ATO Damper had on the boiler's performance;

(b) the evidence of the experts; and

(c) Mr Rojo's informal tests.

[457] In reaching the opinions that he did in his 2 September 2010 report about the effect of the reverse operation of the ATO Damper, Mr Ironside had the benefit of observing the plant transition from bagasse to woodchip. With the reverse operation having been corrected, piling was controlled, as were high grate temperatures.

[458] A number of operators noticed that the boiler operated very differently and that it was much easier to manage after the ATO Damper was corrected. I have previously quoted Mr Timms' evidence about the differences with temperatures and piling. Mr Ellis said that after the ATO Damper was corrected it was a "different boiler". Mr McLennan said that he was "able to operate the boiler with a lot more ease" and could not recall any significant overheating events after the ATO Damper was corrected. Mr Stanley-Jones said that it was "like [operating] a new boiler", with a dramatic reduction in the frequency of fuel piling, lower grate temperatures and far less frequent alarms. Mr Moller said that the boiler operated "as a different boiler which was much easier to manage and piling was reduced significantly in build up and in frequency".

[459] Mr Rojo said that after the reverse operation was corrected, there were fewer overheating issues, which he observed "straight away", and grate temperatures were "substantially better". He referred to temperature reductions of up to 60°C, being the difference between the grate temperatures that he recalled were commonly experienced before the ATO Damper's reverse operation was corrected and grate temperatures afterwards. I have regard to the cross-examination of Mr Rojo about the basis for his recollection of a 60°C difference. The quantification comes with an element of imprecision, but supports the conclusion that there was a substantial reduction in grate temperatures after the reverse operation was corrected.

[460] I accept the consistent evidence of operators and others who were present at the site, like Mr Rojo and Mr Moller, that after the ATO Damper was corrected, the boiler operated very differently, with lower grate temperatures, far less frequent alarms and less frequent piling.

[461] A separate matter to this body of evidence and Mr Rojo's recollection of a 60°C temperature reduction, is Mr Rojo's evidence of a number of informal tests that were conducted to determine the effect of the reverse operation of the ATO Damper. Mr Rojo recalled tests being undertaken after the reverse settings were corrected, in which the damper was closed so that "all air was going to the boiler undergrate". This was done to see what the resultant reductions would be in grate temperature. The outcome of the test was reported in a document prepared by Bruce Duncombe which reported that the undergrate temperature reduced up to 30°C in 30 minutes.

[462] The defendants submit that these test results should be given no real weight for two reasons. The first is they were not conducted under controlled conditions. The second is that Mr Rojo was said to have conceded that certain calculations he performed were incorrect. But the relevant calculations were in relation to airflow, not reduced grate temperatures. Still, Mr Rojo's reverse effect tests were not scientifically controlled and I accept the defendants' submission that they should not be given any real weight.

[463] Some care is required in assessing the evidence about grate temperatures and air temperatures. There is a difference between grate temperatures and undergrate air temperature.

[464] Evidence of the kind given by Mr Rojo about a 60°C reduction in grate temperatures, and other evidence given by operators about a reduction in grate temperatures, provides a general indication about the temperatures that certain parts of the grate would be experiencing. This is because the reported grate temperatures relate to temperatures recorded on thermocouples that are situated on structural steel parts of the grate. Other parts of the grate would be experiencing higher temperatures. For example, Mr Ironside gave evidence that grate tiles would be experiencing far higher temperatures, possibly 50°C to 100°C hotter than items beneath the tiles where the thermocouples were located. Dr Dixon agreed that the T-bars would be hotter than the structural steel and that the temperature readings from the thermocouples would not give an exact temperature of the T-bars. He agreed with Mr Lowry's evidence that, in normal operation, grate clips would be on average 50°C to 100°C hotter than the temperatures measured on grate support structures. Mr Stirling also accepted that the components like T-bars that are closer to the grate would be hotter than components that were further away from the grate clips.

[465] These issues relate to grate temperatures and the cooling effect of undergrate air that has a substantially lower temperature. A separate issue is the quantity of that cooling air.

[466] Mr Lowry explained, by reference to Newton's laws of thermodynamics, that it is possible to get a cooling effect with an airflow at a high temperature (as from a fan) or from a low temperature with less airflow (as in an air conditioner). Both air temperature and the quantity of flow are therefore relevant. The other experts agreed with these general propositions.

[467] So much may be accepted. A more controversial issue is Mr Lowry's evidence that the effect of a lower quantity of cooling airflow was that grate clips experienced temperatures 100°C to 200°C higher than would have been experienced if there had been the correct amount of airflow. Mr Lowry indicated that he had not done the complex calculations required to arrive at such a figure, and that this evidence was based on his "back of the envelope calculations using... well-known formulae for heat transfer". I am unwilling to rely upon these "back of the envelope calculations". The plaintiffs did not instruct Mr Lowry to perform the necessary calculations so that they could be presented in a report and tested. Therefore, I do not rely upon the figures that he mentioned.

[468] I return to the general issue of overheated grates.

[469] The alarms that warned of an overheated grate were based on thermocouples on the structural steel parts. The alarms were programmed to sound based on an average of the temperature readings. Individual readings on the DCS screen would turn red when they went into alarm. Therefore, one part of the grate may be very overheated due to piling or some other cause without the alarms sounding.

[470] In any event, the triggers for alarms were increased by CBH in late 2008. This was during the period of performance and reliability testing. CBH noted in Mr Stirling's email of 19 November 2008 that the grate temperature limits had been raised "on the advice of Downer". Mr McCullough recorded the same day that his request to increase alarm settings was contrary to Mr Stirling's advice.

[471] Mr Rossner accepted that the only reason that CBH engineers were discussing increasing the temperature point at which alarms would trigger was because the alarm was going off regularly.

[472] Mr Barrett accepted that at the time there were tensions between Downer and CBH over the project and that liquidated damages claims by the principal were in play. CBH were responsible for the boiler commissioning and Mr Barrett could only speculate about why the grate temperature limits were raised "on the advice of Downer". A reasonable inference is that Downer wished the boiler to pass tests that were required for practical completion and to avoid an increasing claim for damages for the project's delay.

[473] There also was evidence that once the individual temperature reading on the DCS went into alarm, whether at the 330°C or 360°C point, the actual temperature above that the grate metal reached was not recorded once it exceeded 370°C. The maximum value on the DCS was 370°C. Therefore, a grate temperature well in excess of 370°C would not be reported to the operators. The plaintiffs only learned of this in late 2010 or early 2011.

[474] Leaving aside the alarm issue and what raising the alarm points may indicate about the temperatures being regularly recorded on thermocouples prior to handover, there was evidence about the temperatures at which grate parts like T-bars and chains on the moving parts of the grate would degrade.

[475] Dr Dixon's first report advised that when grate temperatures were in alarm (at greater than 330°C) the top level of the grate components, particularly the grate clips, could have been experiencing excessively high temperatures and progressive deterioration of the material condition would have been occurring.

[476] It will be recalled that Mr Stirling's email of 1 September 2008 advised his CBH colleagues that the yield strength of carbon steel will reduce to around 70 percent at around 425°C. The metallurgical reports advised that the maximum service range for the cast iron grate clips was 300-400°C and they had been exposed to temperatures of between 500 and 700°C.

[477] Mr Stirling's evidence was that grate clips are designed to handle exposure to temperatures in the 500°C to 600°C range. By comparison, other parts of the grate that were not directly exposed to combustion were designed and capable of withstanding temperatures of approximately 375°C for a period of about 30 to 45 minutes, with a maximum temperature of 425°C. The grate T-bars and chains operate at a temperature between the clips and the internal structural steel on which the thermocouples are located. Mr Stirling accepted that these items are made out of low-carbon steel and he did not contest what was said in the metallurgical reports about the T-bars and chain links. This included the Second Austpower Report which stated that the mechanical properties of plain carbon steel of the kind that the chain links were made "fall away very quickly when temperatures are elevated above 350°C".

[478] Presently, I shall leave to one side what the metallurgical reports state about T-bars and chain links being exposed to elevated temperatures for prolonged periods of time. Other evidence about overheating before and after handover, the frequency with which alarms were triggered, grate temperatures and alarms before and after the reverse operation of the ATO Damper was corrected, and the temperatures to which T-bars and chains would have been exposed when the grate was overheated and alarms were triggered, lead to the conclusion that T-bars and chains were exposed to excessively high temperatures over a prolonged period, both before and after handover, and progressively deteriorated.

[479] The metallurgical reports support this conclusion. For example, the Second Austpower Report dated 11 August 2010 stated in relation to the chain link that failed:

"It is highly likely that the failure event was assisted by elevated temperatures that reduced the strength of the link arms and pins."

[480] The defendants submit that the plant would not have passed performance and reliability tests conducted in late 2008 if the reverse operation was having a significant effect and causing overheating and alarms to be triggered.

[481] I disagree. As I have found, overheating and alarms were a problem before handover. The CBH email chain between 1 September and 19 November 2008 shows that the defendants decided to address that problem by increasing the alarm settings so that alarms were not triggered so frequently, rather than addressing the underlying cause of the overheating. The defendants were under time pressure and facing liquidated damages claims. It was important for them to ensure that the plant passed the specified tests so that practical completion under the EPC Contract could occur and the operation of the plant could be handed over to the plaintiffs.

[482] The defendants' experienced operators were able to carefully manage the boiler's operation so that it passed the required tests. Incidentally, they were able to have the plant pass the tests by using predominantly fresh bagasse fuel. Very little woodchip was available to be used during the test period. The evidence is that, prior to handover, only "a couple of truckloads" of woodchip were used in tests. Wood products posed a greater problem for overheating because they burnt on the grate rather than in suspension, as bagasse mostly did.

[483] The fact that the boiler was able to pass performance and reliability tests does not mean that the grate did not overheat prior to handover. It does not mean that the grate was not consistently at a higher temperature than it would have been had it not been deprived of undergrate air as a result of the reverse operation of the ATO Damper. The fact that the boiler passed tests does not mean that it did not also overheat on regular occasions and trigger alarms. It means, instead, that overheating was responded to by the defendants' operators before handover, as it was after handover by the plaintiffs' operators. The operators did what they could to return the grate's temperature to an acceptable level. But during this time the grate was overheated. I have found that there was regular overheating prior to handover.

[484] Overheating does not necessarily lead to an immediate, catastrophic grate failure. Depending upon the frequency and the extent of overheating it may mean, however, that metal parts start to degrade and eventually fail.

[485] Metallurgical testing of parts that were examined in November 2008 and May 2009 showed degradation, and it took until July 2010 for elevated temperatures over a long period to have their cumulative and progressive effect.

[486] The performance tests and the reliability tests require separate consideration.

[487] Crush and non-crush performance tests were carried out at both Condong and Broadwater on different dates in August and September 2008. Each performance test ran for four hours with data collected from installed instruments and specialised test equipment.

[488] The four-hour performance tests were to determine the overall efficiency of the boiler.

[489] The tests were undertaken by the Sugar Research Institute ("SRI"), with the defendants' personnel assisting to operate the boiler and the plaintiffs' engineer able to analyse the test results.

[490] As already discussed in the context of Mr Stirling's calculation of airflow quantities based on the performance test data, questions arise as to the accuracy of the data and measurements that were used in his calculations. These inaccuracies were accepted by Mr Stirling under cross-examination, who pointed out that one takes averages over a period to "try and flatten out these little lumps and bumps in the data".

[491] Mr Stirling's calculations were relied upon by the defendants to contend that there were no significant differences in the measured efficiency of the boilers at Broadwater and Condong, and no significant differences in the final exit gas temperatures, and that one would expect these differences if the ATO Damper was affecting the boiler's performance.

[492] One response to this is the one earlier addressed about the inaccuracy of the data.

[493] Another given by Mr Lowry in his oral evidence is that the tests at each boiler were not done under the same conditions. He stated that the argument assumed that the Broadwater plant had been set up exactly the same way as the Condong plant and was firing the same fuel for the performance tests. The point about different fuel may be addressed to some extent by submissions made by Mr O'Shea QC in his oral address about the potential calorific value of the fuel being calculated in order to arrive at a calculated gross boiler efficiency. However, Mr Lowry's more general point about comparing the results of performance tests and final exit gas temperatures is that there are "a lot of other factors that come in to make up the efficiency and also what the back-end temperature is going to be". This point should be accepted based on his experience.

[494] Another reason to have reservations about the weight that can be attributed to differences or the lack of substantial differences between performance test results is the unexplained difference between the tests that were performed at Condong on consecutive days, namely 18 and 19 August 2008. Mr Stirling could not explain the substantial difference between his calculated bypass flows (approximately 35,000 for each of the three tests on 18 August and approximately 25,000 for each of the two tests on 19 August) or the substantial difference between the measured final exit gas temperatures (124.3°C, 125.7°C and 124.9°C on the first day, and 114.8°C and 113.2°C on the next day).

[495] These unexplained differences support Mr Lowry's point about the inaccuracy of the measurements and the data that is used in the calculations, and also the existence of many other factors that affect calculations of overall efficiency and exit gas temperatures.

[496] Therefore, although in theory one would expect different efficiency percentages and different exit gas temperatures at Condong and at Broadwater because of the reverse operation of the ATO Damper, the performance tests at those boilers on different days do not disprove the plaintiffs' case. In practice, the measurements and data are inaccurate, averaging some measurements does not remove these inaccuracies, the boilers are tested on different dates and under different conditions, and even if one were to assume identical fuel was used, many other factors come into the efficiency calculations. These include by whom the boiler is operated and how the boiler is set up during the four-hour tests. The unexplained differences between the performance tests at Condong highlights the limitations on using data from performance tests to draw any conclusions about what may be affecting performance and calculated efficiency percentages.

[497] The reliability test differs from the handling tests that were undertaken at Broadwater between April and August 2008 (which were to see that equipment and operational methods were suitable) and the performance tests that each took four hours on 21 August and 27 September 2008.

[498] The reliability test required CBH and Downer to operate the plant for 30 consecutive days to ensure that the Equivalent Availability Factor ("EAF") of the plant was equal to or better than a guaranteed value of 90 percent. This test is concerned with overall output and the boiler's availability.

[499] The fact that the boiler passed the reliability test with an EAF of 93.9 percent does not address what Downer's experienced operators and engineers did to achieve this result or the heat of the grate during the 30-day period.

[500] It does not prove that the grate did not operate at high temperatures during this period, just as it did after handover.

[501] The NSWSMC operators were able to maintain output after handover for long periods without being required to shut down the boiler. In that sense, they ensured that the boiler was a reliable and available source of power.

[502] The fact that the defendants were able to pass a 30-day reliability test says very little about the long-term effect of operating the boiler in the defective condition it was delivered.

[503] Finally, the 30-day reliability run in October 2008 used predominately fresh bagasse. This means that the test did not encounter the difficulties associated with burning wood on the grate when the detrimental effect of the reverse operation of the ATO Damper is more pronounced.

[504] In summary, the fact that the plant was able to pass performance and reliability tests does not mean that overheating was not a problem that occurred before handover. It was a problem and it continued to be a problem.

[505] I have previously summarised and discussed the metallurgical reports that were admitted into evidence, by agreement, for all purposes.

[506] The defendants note that the First and Second Aurecon Reports recorded that the tested parts had been overheated, but that no conclusion can be drawn from them about the source of the overheating. The metallurgical reports do not purport to identify a source of overheating, and it is doubtful whether it was the task of the metallurgists to do so. In retrospect, both the plaintiffs and the defendants could have done more to follow up on what was said in those reports about overheating and to investigate the source of the overheating.

[507] As noted, the source of the overheating was investigated, to some extent, in the days and weeks that followed the July 2010 damage, with certain conclusions being reached in a Plant Outage Report that followed discussions between the parties. Mr Ironside thought that the reverse operation of the ATO Damper was the principal cause of the overheating and failure. However, the investigation was not as thorough as it might have been and seemingly did not collect all of the data that might have been obtained at the time.

[508] The source of the overheating that was reported upon in the four metallurgical reports, including reports that were prepared after the July 2010 damage (the First and Second Austpower Reports), has been more thoroughly investigated in the course of this proceeding. This includes appropriate reliance upon the metallurgical reports. As discussed, the First and Second Aurecon Reports record that the November 2008 and May 2009 T-bars were exposed to elevated temperatures for prolonged periods of time.

[509] The metallurgical reports do not establish that all parts of the grate, namely parts that were not examined by the metallurgists, were degraded to the same extent as the parts that were examined. The plaintiffs' case about overheating, piling and degradation of moving parts of the grate does not depend upon such a finding. The metallurgical reports indicate that overheating and degradation of the moving parts of the grate (that were exposed to higher temperatures than structural parts of the grate) occurred before handover. The reports allow for the inference to be drawn that other moving parts that were not examined were made from the same materials as those that were, and that at least some of them were subject to similar overheating prior to handover. They also allow, in conjunction with other evidence, for the inference to be drawn that moving parts of the grate were overheated and exposed to elevated temperatures, including by regular and excessive piling both before handover and in the 19 months that followed handover, leading up to 5 July 2010.

[510] The metallurgical reports do not, on their own, identify the source of the overheating that subjected parts to elevated temperatures for prolonged periods of time. They do, however, suggest that parts were subject to temperatures in excess of their recommended maximum service temperature range. For example, grate clips tested on 6 August 2010 suggested that a temperature gradient of between 500°C and 700°C was experienced across the clip "for prolonged periods". The examined clips were exposed to temperatures that "well exceeded" the recommended maximum service temperature range for such clips, being 300°C to 400°C.

Differences between the Broadwater and Condong plants

[511] The boilers at Broadwater and Condong were practically identical. The plant at Broadwater had a different arrangement for the recovery of rocks. Condong had a secondary conveyor system to separate rocks and gravel from other ash and convey them to a bin. At Broadwater there was only a large bin beneath the ash plant conveyor system that rocks and gravel would fall into. That difference does not, however, account for the very different operation of the respective boilers. I have previously addressed the short time that was taken to empty the skip at Broadwater.

[512] Rocks were encountered in the fuel at both plants. Build-up in rock material was responsible for mechanical damage to T-bars on the grate at the Broadwater boiler and damage to the grate in March 2009. However, there is no evidence that rocks and other non-combustible material in the fuel were at higher levels at Broadwater than at Condong. As previously noted, there was evidence of rocks in the fuel at Condong. For example, Mr Heese reported to Mr Stirling on 10 April 2008 that the presence of rocks was worse at Condong than it was at Broadwater. This accords with Mr Ironside's recollection.

[513] Mr Forsyth was a boiler operator at Condong. He worked there during commissioning in 2007 and until 2021. His uncontested evidence was that whilst Condong experienced piling after handover, he and other NSWSMC operators would address it by reducing the load on the boiler, by reducing the load on the turbine and by using air lances to break up piles. They would reduce individual feeders at the location of the pile and increase the undergrate airflow to have more air flowing from underneath and through the grate. Mr Forsyth's evidence was that the boilers at Broadwater and Condong are virtually the same. At Condong, he and other operators had issues with fuel piling and fuel quality (for example, bagasse being too wet). He described these as "minor issues" because the operators were able to manage them using the strategies and operating practices that he describes in his statement, and which I have summarised.

[514] Mr Forsyth's evidence is that the ATO Damper at Condong was set up by CBH to automatically open to 10 percent when the oil burner was not in use. The ATO Damper at Condong was correctly installed and programmed, and so when the DCS screen displayed that it was 10 percent open, it was in fact 10 percent open.

[515] During the period prior to August 2010 that the ATO Damper at Condong was operating, as designed, but the ATO Damper at Broadwater was operating in reverse, Mr Forsyth was not aware of any significant grate damage or overheating events having occurred at Condong.

[516] Despite the practically identical boilers at Condong and Broadwater operating during the same period, using the same kind of biofuels that included rocks, the boiler at Broadwater experienced frequent overheating and excessive piling. The overheating and piling experienced at Broadwater was far greater than was experienced at Condong.

[517] While the operators at Condong may have used air lancing more frequently than the operators at Broadwater did prior to July 2010, operators at both plants used techniques that they were taught, and which appeared in the Operating Procedures Manual that the defendants provided. As already noted, in one part of the defendants' submissions they note that operators at Broadwater were able to cool the grate when piling occurred, so that the temperatures returned to normal operating limits, and that one way they did so was to regulate the undergrate air by manual operations that increased the undergrate air in response to piling.

[518] The defendants note that an analysis that Dr Dixon undertook on certain DCS records show no substantial difference between Broadwater and Condong. Dr Dixon's analysis does not, however, establish that over the relevant period between the commissioning of Broadwater in 2008 and the grate failure in July 2010, the two boilers operated the same. His analysis necessarily was undertaken on the basis of the very limited DCS records that were available. They compare snapshots rather than long-term performance and operations. The whole of the evidence establishes that overheating was a far greater problem at Broadwater than at Condong.

[519] The differences experienced in the operation of the boilers at Condong and Broadwater prior to July 2010 suggest that the grate overheating experienced at Broadwater was due to the reverse operation of the ATO Damper at Broadwater. This is because the only significant difference between the boilers at Condong and Broadwater was that the ATO Damper at Broadwater operated in reverse until that was corrected in August 2010.

[520] Overheating and grate temperature alarms being triggered were regular occurrences at the Broadwater boiler both before and after handover. The plaintiffs' case is not that grate temperature alarms were constantly being triggered. Their case is that the reverse operation of the ATO Damper at Broadwater deprived the grate of cooling undergrate air, so that the temperature of the grate was higher than it should have been if the ATO Damper had not operated in reverse. Their case is that the deprivation of undergrate air impeded efficient combustion of biofuels in suspension and on the grate, and led to piling. The overheating of the grate, including overheating that resulted from piling, had a progressive and cumulative effect on moving parts of the travelling grate. That this occurred is evidenced in the metallurgical reports that concluded that parts were exposed to elevated temperatures for prolonged periods of time and suffered significant thermal degradation. They experienced temperatures that exceeded their recommended service temperature range.

[521] The boiler at Broadwater, like the identical boiler at Condong, was a complex system that depended upon the automated DCS to regulate the input of fuel and air. The automated system at Broadwater wrongly assumed that the ATO Damper was almost closed when it was, in fact, wide open. The boiler operators and engineers, including Mr Ironside, made the same assumption. This was a reasonable assumption to make, particularly when the boiler was in operation around the clock, the oil burner was not in use, and both the DCS screen and the exterior physical gauge showed the ATO Damper to be almost closed, as intended.

[522] Because operators and others reasonably assumed that the ATO Damper did not operate in reverse and reasonably assumed that readings about the percentage it was open were correct, they were inclined to interpret piling as being the result of bad fuel or wet fuel. Also, the defendants' personnel, similarly not assuming that the ATO Damper was operating in reverse, were inclined to attribute problems with the boiler's operation to bad fuel or operator error.

[523] Operators at Broadwater did their best in difficult circumstances to address overheating and piling by manually overring the automated system, and by doing things they were trained to do. This included reducing the input of fuel, altering the speed of the grate and increasing undergrate airflow to burn the pile off. On occasions they also used the alternative of air lances to break up a pile.

[524] Part of the defendants' case before trial was that problems with overheating and piling at Broadwater were attributable to "poor operational practices" by operators at Broadwater. However, allegations that the plaintiffs' operators incorrectly "de-tuned" the boiler and incorrectly set the secondary air dampers were not pressed in final submissions. The defendants' final submissions were that overheating and grate temperature alarms could be dealt with by the operators at Broadwater, and that they were. They submitted that the operators were able to keep the grate temperatures within limits by adjusting the undergrate air temperature. An alternative submission was that the cause of the overheating was the operators' failure to take steps to return the grate to the correct operating temperature.

[525] The evidence establishes that the Broadwater operators did respond to overheating, alarms being triggered and piling. They did so with some success in the sense that, usually, they were able to bring grate temperatures back within limits after some period of overheating. However, the frequency of overheating, including overheating caused by piling, led to accumulating and progressive degradation of moving metal parts in the grate that were exposed to temperatures substantially in excess of the temperatures recorded on thermocouples situated on structural parts of the grate.

[526] The reverse operation of the ATO Damper deprived the grate of significant quantities of undergrate air. As a result, there was insufficient undergrate air to cool the grate, achieve efficient combustion of biofuels and, if required, dry any wet biofuels. The actions of operators were not enough to avoid damage being done to parts of the grate while they were overheated and experiencing temperatures that degraded them.

[527] Overheating and excessive piling was a significant operational problem at Broadwater. By contrast, during the same period, far fewer overheating events occurred at Condong. Piling was not a significant problem at Condong and the size of piles meant that the operators at Condong were able to manage them more easily. The main difference between the operation of the boilers at Condong and Broadwater was that the boiler at Condong did not have its ATO Damper operating in reverse throughout the relevant period, prior to July 2010.

[528] The correction of the reverse operation of the ATO Damper at Broadwater had a noticeable difference on its operation, with overheating and piling being less frequent and being able to be managed in the same way that those problems had been managed at Condong.

[529] The expert evidence, including appropriate concessions made by Dr Dixon and Mr Ironside during the course of their oral evidence, establishes that the reverse operation of the ATO Damper is a plausible and probable cause of overheating of the grate. I generally accept the expert opinion of Mr Lowry as to the effect of the reverse operation of the ATO Damper, but do not act upon his "back of the envelope" calculations as to temperature differences.

[530] The alternative causes of the July grate damage that were raised by the defendants for consideration are not persuasive. Piling was one consequence of the flawed installation and programming of the damper, not an alternative cause of overheating and consequential, progressive degradation of metal. Overheating of the grate was caused, in part, by piling. Excessive piling occurred because the reverse operation of the ATO Damper deprived the boiler of undergrate air and caused air that should have aided combustion by entering the furnace through the grate to enter, instead, through the open ATO Damper. This was apt to affect the combustion ball and reduce efficient combustion in suspension. It also reduced the amount of undergrate air that was available to burn fuel on the grate.

[531] The presence of rocks, gravel and other forms of ash in the biofuel was something that the boiler was designed to deal with. Rocks in the fuel caused mechanical damage to parts of the grate. However, the evidence does not support the conclusion that the presence of rocks and gravel made a significant contribution to overheating of the grate. What appeared to be bad or wet fuel may have been fuel that was within specification but which did not burn as it should have because of the effect of the ATO Damper operating in reverse. In any case, the boiler specified fuel with a high level of moisture. I accept Mr Lowry's evidence that fuel with high moisture content requires a high undergrate airflow to dry the fuel and achieve stable combustion.

[532] The operators, in accordance with their training and the Operating Procedures Manual, adjusted the speed of the travelling grate on occasions to cope with problems of overheating and piling. Sometimes the grate was stopped for short periods, typically for less than 10 minutes, to allow the skip bin to be emptied. Neither this practice, which was an anticipated part of the design of the boiler, nor adjustments to the speed of the grate, had a significant, detrimental effect on overheating.

[533] The operators at Broadwater, like the operators at Condong, adjusted the undergrate air dampers to increase undergrate airflow as a means of reducing overheating and piling when it occurred. However, the steps that the operators at Broadwater took were not enough to prevent damage being done by overheating of the grate.

[534] Overheating of the grate caused damage to metal parts. Excessive temperatures were regularly experienced over a long period. This led to the degradation of metal parts and the eventual failure of a chain link that led to major damage to the grate on 5 July 2010.

[535] The damage to the grate that occurred on 5 July 2010 was the result of progressive degradation of metal parts caused by overheating that commenced during commissioning of the boiler. It was not the result of the position in which fuel spreaders were set on 5 July 2010.

[536] The main cause of the grate failure on 5 July 2010 was overheating of the grate during 2008, 2009 and 2010. Regular overheating caused accumulating and progressive deterioration of metal parts. One such part, a chain link, failed on 5 July 2010. The defendants' alternative theory of the cause of that failure is unconvincing.

[537] The parties agree that the grate failure that occurred on 5 July 2010 was the result of overheating. The reverse operation of the ATO Damper was a substantial cause of that overheating and the grate failure on 5 July 2010.

As at 20 January 2010, could the plaintiffs have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse?

[538] As previewed at the start of these reasons, this is the second major issue on liability.

[539] Disputes arose between the parties. Some related to delays in the completion of the project at Broadwater. The first plaintiffs claimed liquidated damages of $14.8 million under the EPC Contract for delay against the first and second defendants. They also claimed $1.4 million in relation to a fire protection claim. The first and second defendants claimed $27.5 million for a security of payment claim and $10 million for associated claims.

[540] Their disputes were settled on the basis of a deed that was executed on 20 January 2010. This was several months before the grate failure in July 2010 and before the plaintiffs discovered in August 2010 that the ATO Damper operated in reverse.

[541] The settlement resolved the first plaintiffs' claims for liquidated damages under the EPC Contract, and resolved the first and second defendants' claims against the first plaintiffs. Clause 8 concerned the release of the first and second defendants' claims. Clause 9 concerned release of the first plaintiffs' claims. Clause 9(a), which was subject to clause 9(b), contained a release. Clause 9(b) provided that the release under 9(a) did not:

"(i) include Claims relating to any matter of which the Principal, as at the date of execution of this Deed:

(B) could not have become of aware by the making of reasonable enquiries..."

[542] There is no contention that the first plaintiffs' claims in this proceeding are not related to the reverse operation of the ATO Damper. The defendants accept that they are.

[543] The defendants accept that because the third plaintiff is not a party to the Settlement Deed, it does not release the first and second defendants from any claims that it has.

[544] The defendants accept that the evidence does not support a finding that the first plaintiffs were actually aware that the ATO Damper operated in reverse as at 20 January 2010.

[545] The issue, therefore, is whether, as at 20 January 2010, the first plaintiffs could have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse.

[546] The defendants contend that the plaintiffs were put on enquiry by certain matters, and could have become aware that the ATO Damper operated in reverse by making reasonable enquiries. They rely on the following matters:

(a) the differential pressure indications on the DCS screen;

(b) the frequency of alarms and the importance of those alarms;

(c) the First and Second Aurecon Reports and the investigations they recommended, which were not undertaken;

(d) the performance testing documents, including the air balance tests;

(e) comparisons with performance at Condong; and

(f) in light of the above matters, that testing of the kind that ultimately led to the diagnosis could have been conducted earlier.

(a) the differential pressure reading on the DCS screen was not sufficiently labelled or was incorrectly labelled and the plaintiffs' operators were not trained as to that reading;

(b) alarms occurring during commissioning and prior to handover had not put the defendants on notice that the ATO Damper was operating in reverse;

(c) the recommendations in the First Aurecon Report regarding elevated temperatures would not have revealed that the ATO Damper was operating in reverse, and the Second Aurecon Report post-dated the Settlement Deed;

(d) the defendants' air balance tests were either not in the possession of the plaintiffs at the time the Settlement Deed was entered into, or, if they were included in 24 volumes of hardcopy documents, it was not reasonable to expect the plaintiffs to go searching for them without having been put on notice of some reason to review them;

(e) apart from the air balance tests, the defendants have not identified what other performance testing documentation they say would have revealed to the plaintiffs that the ATO Damper was operating in reverse; and

(f) that testing could theoretically have been conducted prior to 21 January 2010 is not to the point.

[548] More generally, the plaintiffs point to the circumstances in which the defendants, during commissioning and prior to handover, and Mr Ironside both before and after handover, did not suspect, as a result of what appeared on the DCS screen or for any other reason, that the ATO Damper was operating in reverse and causing overheating. The plaintiffs argue that it was not reasonable for them to suspect such a thing and to conduct enquiries that would have revealed it.

[549] Clause 9(b)(i)(B) of the deed uses the words: "could not have become aware by the making of reasonable enquiries". What is reasonable is a question of fact to be objectively assessed and answered by reference to what could have been reasonably expected from the first plaintiffs in the circumstances and in their position as Principal. The plaintiffs cite numerous authorities in support of this contention, and the defendants do not submit to the contrary. In different legal contexts, the meaning of "reasonable enquiries" requires consideration of all of the circumstances in the case, including the relationship between the parties and sources of information.[3]

[550] The circumstances include the fact that Downer and CBH are experts in constructing and commissioning power plants, that the EPC Contract required them to design, engineer, procure, construct, test and commission the Broadwater plant, and that the testing should have ensured that the ATO Damper operated as intended, rather than in reverse. This would include testing at a time when the damper blades of the ATO Damper were capable of being physically inspected by the defendants, and tests like the air balance tests.

[551] A related matter that bears upon the reasonableness of any enquiry by the plaintiffs and what it may have revealed is that, after the blades of the ATO Damper were enclosed in a duct, they were not capable of physical inspection by the plaintiffs that would have identified the damper blade position. There were no external indicators or shaft markings to indicate the position of the damper blades inside the air duct. Also, maintenance inspections by the plaintiffs in accordance with the Maintenance Procedures Manual would not have revealed the fact that the ATO Damper operated in reverse. It was not possible for the plaintiffs to check the orientation of the damper blades using the external indicating scale to see the percentage the ATO Damper was open because the indicating scale itself was incorrect.

[552] The defendants are correct to submit that the issue is whether, in the circumstances, the first plaintiffs could have become aware of the ATO Damper's reverse operation by the making of reasonable enquiries. The issue is not what might have been apparent to the defendants' engineers, employees and consultants (including Mr Ironside) during commissioning and thereafter. Still, the fact that the defendants and Mr Ironside did not suspect, let alone detect, that the ATO Damper was operating in reverse is relevant to the issue of what could have reasonably been expected from the first plaintiffs in the circumstances.

[553] As for the defendants' operators and engineers, who were onsite and directly involved in the testing and commissioning process, they had control of the day-to-day operation of the boiler over many months and were very experienced in the field. The defendants correctly submit that the tasks that they had during commissioning should not be conflated with the responsibilities of the first plaintiffs. Also, the timing is different since the commissioning process ended in November 2008 and the relevant time as to when the plaintiffs could have become aware by the making of reasonable enquiries is as at 20 January 2010.

[554] No point is raised by the first plaintiffs that they were in the position of owners of the plant and not directly engaged in its operation, being a matter that was undertaken by the third plaintiff. Therefore, I shall proceed on the basis that matters that were known to NSWSMC's employees could have been ascertained by the first and second plaintiffs during the relevant period by the making of reasonable enquiries.

[555] As for Mr Ironside, he was involved both during commissioning and after handover with the tuning of the boiler, and had vast experience with such a boiler's operation. He observed the Broadwater boiler's operation and the Condong boiler's operation on a number of occasions over a few years. He worked (to use his words) "side-by-side" with the operators and spent most of his time onsite with them where he was able to observe them and advise them about the operation of the boiler. Mr Ironside was not onsite all the time. Instead, he visited on occasions and informed himself about the boiler's operation. He fine-tuned the boiler and provided written reports about issues in relation to its performance.

[556] His opportunity to gather information was different to that of the plaintiffs' onsite employees. Nevertheless, the fact that Mr Ironside did not notice in the course of his investigations and inspections, including the time he spent monitoring the DCS, that the ATO Damper operated in reverse, is relevant to the issue of whether the first plaintiffs could have become aware of this fact by making reasonable enquiries on the basis of information known to them. For example, Mr Ironside was analysing and adjusting the boiler for three days in May 2009 and did not detect anything that made him think that the ATO Damper was a problem or that airflows through it warranted investigation. He was there because the operators were having difficulty operating the boiler in automatic. He was onsite for a further three days in September 2009 looking at the DSC screen "[a]ll the time". Again, he did not detect that excess air was going through the oil burner. One reason for that is that the oil burner was not in use and no occasion to monitor changes in the ATO Damper arose. But the point is that nothing he saw on the computer screen or elsewhere put him on notice that the ATO Damper operated in reverse. If Mr Ironside, with his vast experience, did not notice matters in relation to the differential air pressure, as shown on the DCS screen, then it is hard to see why operators and other employees of the plaintiffs with less technical skill, experience and training than he had, should have done so.

[557] The defendants concede that the plaintiffs' operators may, initially, have been reasonably entitled to have expected that the ATO Damper had been installed, programmed and tested by the defendants and did not operate in reverse. However, they say that they would not have acted reasonably by ignoring signs or indicia requiring investigation in the event that they were presented to them in the course of operating the boiler.

The differential pressure reading on the DCS screen

[558] The defendants concede that the plaintiffs' boiler operators were not trained to test whether the ATO Damper operated in reverse. They submit, however, that boiler operators like Mr Timms and Mr McLennan possessed the skills to identify signs that it was operating in reverse. This is because they monitored the DCS screen during their shifts and understood matters such as differential pressure.

[559] The plaintiffs refer to a substantial body of evidence about what is referred to as "the windbox differential pressure reading" on the DCS screen. They are correct to submit that it was not sufficiently labelled or was incorrectly labelled. The way it was labelled led engineering witnesses like Mr Fletcher and Dr Dixon to assume it was a reading for an oil burner windbox atomised steam compressed air supply. After the discovery of the reverse operation of the ATO Damper, it was labelled differently with an airflow reading. The Broadwater operators were not trained about the windbox differential pressure reading.

[560] The fact that some operators may have understood, if they had occasion to reflect on it, that the DCS displayed the differential pressure across the ATO Damper does not mean they had occasion to monitor that reading in the ordinary course of their work. To the extent they have ever had an occasion to look at the reading on the DCS screen, it was one of many readings that appeared on many different screens. The oil burner was only generally engaged for start-ups and, even then, it operated in automatic mode. Start-ups were rare. The operators were trained by the defendants about the automated nature of the oil burner system and the ATO Damper. The Training Manual advised that the ATO Damper "is automatically controlled to maintain the required differential pressure over the full load range". Similar statements were made in Mr Stirling's PowerPoint training slides for operators. Mr Timms explained that the ATO Damper worked in "automatic mode". Unlike other boilers that he had previously operated at Broadwater, the oil burner on the defendants' system was "part of an automated system". The ATO Damper "wasn't touched" and was run in "automatic".

[561] In summary, the oil burner system was rarely used and, on the occasions it was used, it was an automated system. The NSWSMC operators were not expected to operate it manually. There is no suggestion that, on the occasions the oil burner was used, it did not fire the system. The NSWSMC operators were entitled to assume that the automated system maintained the required differential pressure. They did not have occasion to monitor its operation by checking what some of them may have understood was a differential pressure reading. They had a reasonable expectation that the figures on the screen in relation to the percentage opening of the ATO Damper, and the readings on what some of them understood to be the differential pressure readings, were accurate. Their expectations were reasonable in circumstances in which the defendants had constructed, commissioned and tested the plant, including the oil burner system and the ATO Damper.

[562] The differential pressure reading for the ATO Damper on the DCS screen could not have been a matter of any significance to the plaintiffs' boiler operators and other employees because they were not required to have any real regard for that reading from amongst the many other recordings on the screen that were relevant to the daily operation of the boiler. The differential pressure reading on the DCS screen did not put them on enquiry that the ATO Damper was operating in reverse. Incidentally, differential pressure readings on the DCS screen did not lead the defendants' operators, engineers or consultants (including Mr Ironside) to suspect that the ATO Damper was operating differently to how it should have. The differential pressure readings on the DCS screen were not matters that could have led the plaintiffs' employees, by the making of reasonable enquiries, to become aware that the ATO Damper operated in reverse.

[563] Alarms being triggered was a sign of overheating. Overheating and alarms were a feature of the boiler's operation both before and after handover. As previously discussed, they were treated as an expected part of the boiler's operation, both by the operators and by other employees. For example, Mr Sawatzki, based upon his observations during commissioning, deemed it to be part of the normal operation of the boiler. During commissioning, the defendants' representatives did not suggest to the plaintiffs' representatives that the overheating and alarms which I have found occurred warranted investigation. The aim was to bring overheating under control and reduce grate temperatures.

[564] The plaintiffs' Broadwater operators' training and experience before handover made them regard overheating and alarms as part of the boiler's normal operation, and something to be addressed by them by a variety of means. Overheating and alarms were not matters that, in the circumstances, made it reasonable for the plaintiffs to pursue enquiries as to whether the overheating and alarms were due to an error in the way in which the boiler had been constructed or an error in its commissioning.

[565] Further, it is likely that if the plaintiffs had made enquiries of the defendants prior to 20 January 2010 as to whether overheating and alarms were due to a defect in the construction, commissioning and testing of the plant, the defendants would have responded that the boiler had been properly constructed, programmed and tested, and that the overheating was due to piling, that, in turn, was caused by out-of-specification or bad fuel, or poor operating practices by NSWSMC's operators.

[566] The First Aurecon Report dated 22 July 2009 suggested further testing and to conduct a comparison of grate clips. It is not apparent what the first plaintiffs did in response to it. Mr Rojo had been involved in collating the information necessary to obtain the First Aurecon Report.

[567] The Second Aurecon Report dated 21 January 2010 post-dates the Settlement Deed so is not relevant to the present issue. It was provided to the defendants, and some communications occurred between Mr Rojo from NSWSMC and Mr Heese from CBH in relation to it. Neither party treated the metallurgical reports as something that required further investigation.

[568] To the extent that the First Aurecon Report provided evidence of overheating, and assuming that further testing would have confirmed this, the fact of overheating was something that was well-known by the plaintiffs' operators and engineers by virtue of their daily experience. Overheating was something that the defendants' engineers and operators knew about by virtue of their experience during commissioning of the boiler. As with the previous topic in relation to overheating and alarms, this is familiar territory. The plaintiffs' operators tried to address the problem. If, as a result of the First Aurecon Report, they had raised the issue of overheating with the defendants during this period, the defendants probably would have responded that overheating was associated with piling, and that excessive piling was caused by bad fuel or poor operational practices. The information that was available to the plaintiffs would not have led them to enquire into matters associated with the programming and testing of the boiler, including the programming and testing of the oil burner and the ATO Damper. The plaintiffs reasonably assumed that the oil burner and the ATO Damper had been properly commissioned and tested. It was reasonable to not pursue further enquiries in relation to that matter as a result of the First Aurecon Report.

Performance testing documents, particularly the air balance tests

[569] Apart from the air balance tests, the defendants do not identify what other performance testing documents they contend would reveal to the plaintiffs that the ATO Damper was operating in reverse. For the reasons that follow, I doubt that the air balance tests were in the possession of the first plaintiffs as at 20 January 2010, but if they were provided to the plaintiffs as part of a 24-volume Manufacturer's Data Report ("MDR"), it would not have been reasonable for the plaintiffs to try to locate them without having a reason to do so. For the reasons already canvassed, the plaintiffs were not put on enquiry that there was something wrong with the operation of the ATO Damper, let alone that it operated in reverse.

[570] Mr Heese gave evidence late in the trial that he recalled personally delivering the 24-volume MDR. This was the first time that such evidence was given. His earlier witness statement did not refer to any personal delivery by him but said that "we arranged for the delivery of hard copies of the MDRs in boxes to each site". He said in that statement that he "would not have given approval to send the Broadwater MDR to Cape Byron/NSWSMC" (emphasis added) unless the documents were complete and that "the Broadwater MDRs were issued by Downer to Cape Byron/NSWSMC". He acknowledged during cross-examination that this evidence was incorrect.

[571] Mr Heese had a recollection of taking the hardcopy documents to the Broadwater site, that the documents included the air balance tests and that he delivered the 24 folders to the office of the superintendent, Mr Coffey, at both Broadwater and Condong.

[572] The fact that Mr Heese's 17 March 2022 witness statement did not refer to his personal delivery is not well-explained. In fact, his witness statement is inconsistent with personal delivery. I accept that Mr Heese has a genuine and honest recollection of delivering a large number of volumes to the office of the superintendent.

[573] The plaintiffs called evidence from Mr Andrews that the plaintiffs are not in possession of the 24 volumes. One inference is that, whilst having been delivered to the superintendent (Mr Coffey), the documents were not provided to the plaintiffs or were not stored by them where one would expect them to be stored at Broadwater. The personal delivery issue only arose in 2022. Mr Andrews could not give evidence about document storage practices dating back to 2008. One possibility is that the documents were stored at Broadwater but went missing. However, this seems unlikely. As the defendants submit, the fact that Mr Andrews could not find them does not prove they were not delivered in 2008.

[574] The defendants point to the practical importance of delivering the relevant documents, either in hardcopy or electronic form, to the plaintiffs at the time of practical completion. The system does not record that the documents were transmitted electronically. The plaintiffs' former superintendent was not called to give evidence that Mr Heese's hand-delivery did not occur. That said, Mr Heese and the defendants did not keep any record, even in the form of a simple receipt, that the 24 volumes had been delivered. If delivery of the documents was important for practical completion, one would have expected some record of delivery. Mr Heese accepted in his evidence that if the 24 volumes were hand-delivered to the first plaintiffs there should have been a receipt and a record made on Teambinder or some other document of their delivery. None was produced and the defendants do not explain why no record of delivery had been located, despite the searches.

[575] Mr Heese impressed me as an honest and generally reliable witness. One possibility is that he recalls delivering MDR data to Condong and has confused such an occasion with a delivery to Broadwater. He may have delivered other documents to Broadwater and be unreliable in his recollection. His statement indicates that the boiler commissioning and testing documents were compiled by CBH, and that other MDRs about fabrication and erection of the boiler were within Downer's domain. It reads as if all of the MDRs were to be issued by Downer to the plaintiffs. A real possibility is that Mr Heese personally delivered the CBH volumes to Downer (at Broadwater or another site), not to the plaintiffs.

[576] I am not convinced that Mr Heese's recollection about personally hand-delivering the 24 volumes to the plaintiffs is reliable, given the passage of time and the absence of any documents recording such a delivery. However, if Mr Heese is correct and he personally delivered those volumes to the superintendent, they may not have been delivered to the plaintiffs. If they were and have somehow gone missing over the last 14 years, then the issue is whether it was reasonable for the plaintiffs to try to locate the air balance tests prior to 20 January 2010.

[577] I am not persuaded that it was. The plaintiffs had no reason to do so on the basis of anything that was ascertained by them as a result of the data appearing on the DCS screen or for some other reason. Neither the defendants nor Mr Ironside suggested to them prior to 20 January 2010 that some aspect of the boiler's operation warranted a review of the 24 volumes of MDR documents or a review of the air balance tests in particular. The plaintiffs were entitled to assume that the air balance tests had been properly conducted as part of testing of the boiler and that, more generally, the oil burner and the ATO Damper had been inspected and tested during commissioning and found to be working, as designed.

[578] In summary, if the plaintiffs did have possession of the 24 volumes of MDR material, including the air balance tests, prior to 20 January 2010, then those documents were not matters that reasonably would have put the plaintiffs on enquiry. The circumstances did not make it reasonable for the plaintiffs to go combing through those 24 volumes in the hope that, somewhere amongst them, they might find a reason to explain why the boiler was prone to overheating.

[579] The defendants point to the fact that there was a difference in combustion between Broadwater and Condong and that Mr Sawatzki knew of this. However, as with the other matters that I discussed in this context, the fact that Broadwater experienced more frequent overheating and piling than Condong does not, without more, explain why by making reasonable enquiries as to those differences, the plaintiffs could have become aware that the ATO Damper operated in reverse.

[580] The defendants accept that the plaintiffs' employees may, initially, have been reasonably entitled to have expected that the ATO Damper had been installed, programmed and tested by the defendants and did not operate in reverse. However, they submit that the plaintiffs would not have acted reasonably in continuing to have this belief, "by ignoring signs or indicia requiring investigation in the event that they were presented to them during the course of operating the boiler". I accept this general proposition. However, its application depends upon the relevant signs or indicia.

[581] For the reasons already given, differential pressure indications on the DCS screen were not such as to indicate to an operator that the ATO Damper was operating in reverse. The plaintiffs' operators and other employees were entitled to reasonably assume that the oil burner and the ATO Damper had been correctly installed, did not operate in reverse, and that the percentage figures on the DCS screen were accurate about the extent to which the ATO Damper was open.

[582] If the relevant sign is overheating, then overheating (and any reported degradation of metal reported upon in the First Aurecon Report) was something that warranted attention. It was given attention by the plaintiffs doing their best to follow procedures to avoid overheating and by reducing overheating when it was observed or triggered alarms. Overheating had been a problem before handover, and it continued to be a problem. Nothing the defendants said or did before handover, or thereafter, was apt to place the plaintiffs on enquiry that overheating was due to a defect in the construction or commissioning of the plant. On the contrary, the defendants were inclined to attribute problems to poor quality fuel or operator error. The differences between Condong and Broadwater might have been due to superior skills or better performance by the operators at Condong.

[583] In the circumstances, differences between the performances of Condong and Broadwater did not make it reasonable for the plaintiffs to undertake a review of the performance test data from 2008. There certainly were no signs or indicia that pointed to a problem with the ATO Damper. It was not unreasonable for the plaintiffs to assume that the ATO Damper had been installed, programmed and tested by the defendants so that it operated the same way at Condong and Broadwater and did not operate in reverse.

[584] At the time the first plaintiffs entered the Settlement Deed, they knew that their operators were experiencing problems with overheating of the grate, and the First Aurecon Report suggested that the overheating had caused thermal degradation of parts that had been taken from the boiler. Overheating might be the result of piling. Piling at Broadwater with a greater frequency than occurred at Condong had a number of potential causes. They included matters that featured in responses by the defendants to defect notices, such as out-of-specification or bad fuel and operator error. Mr Ironside did not detect a problem with the ATO Damper or suggest that overheating and piling at Broadwater warranted further investigation by the plaintiffs, including an investigation into the construction and commissioning of the boiler. Instead, Mr Ironside made recommendations about what needed to be done to improve the boiler's performance.

[585] Consideration of what could have reasonably been expected from the first plaintiffs in the circumstances and in their position in the period leading up to 20 January 2010 and as at that date, should not be affected by hindsight bias. This is a recognised bias that should be avoided in making ex post facto assessments of what steps would have been reasonable at an earlier time, knowing what one now knows about the cause of loss and damage.

[586] The sustaining of major damage to the boiler on 5 July 2010 and its consequences for the operation of the co-generation plant triggered an investigation to identify the root cause of the grate failure. Representatives of the plaintiffs and the defendants were involved in these investigations and, as part of this process, had discussions with a number of individuals.

[587] Prior to the July 2010 grate failure, the plaintiffs' personnel and others had reasonably assumed that the Broadwater Boiler was constructed the same as the Condong boiler. They had previously investigated the complaints by CBH about rocks in the fuel, and made modifications and taken steps to develop procedures to manually intervene to address mass piling incidents. Apart from some slight differences between the plants, Mr Rojo and others like him assumed that the boiler operation and controls at both plants were identical.

[588] The boiler operators from Condong had come to the Broadwater plant to try to figure out what was different and why overheating was occurring at Broadwater.

[589] After the July 2010 grate failure, a member of the investigation team, Bruce Duncombe, provided Mr Rojo with photographs taken at Condong. These included photographs of the damper position at Condong. Mr Rojo then set the Broadwater damper in the same position at 12 percent and realised that it was "back to front to the one in the Condong photograph". This was when he realised that the Broadwater damper was "mechanically set up different to the Condong one". He then organised pressure testing to investigate the actual position of the damper.

[590] Before that discovery, Mr Rojo and other employees of the plaintiffs did not have a reasonable basis to assume that the two plants had been constructed and commissioned so that the ATO Damper at each operated differently. It was reasonable to assume that the damper and the controls were installed and programmed so that they operated identically.

[591] The sustaining of major damage set in train an enquiry that discovered a hypothesis that no one had suspected. It was practically unthinkable. This was that the defendants not only installed and programmed the damper so that it operated in reverse, but that they did not detect its reverse operation by physical inspection before the ducts were closed, during testing when its reverse operation was revealed in the air balance tests, or during commissioning. It was only after a catastrophic event that the reverse operation of the ATO Damper was discovered, and even then it was something of a chance discovery by Mr Rojo.

[592] Before the July 2010 damage, it was reasonable for the plaintiffs to assume that the ATO Damper at Broadwater was physically set up and programmed to operate the same way as the same damper at Condong. It was only after the damage that the improbable cause was discovered, and the plaintiffs undertook their own stroke and air pressure testing. They also received the air balance tests from Mr Heese and conducted a comparison of the air balance tests for Condong and Broadwater. It was then that they discovered that the ATO Damper was operating in reverse. Before then, the plaintiffs did not have occasion to try to locate the air balance tests.

[593] Prior to 21 January 2010 the plaintiffs were not on notice, by virtue of the differential pressure indications on the DCS screen or from the other matters raised in the defendants' submissions, that the ATO Damper at Broadwater operated in a reverse fashion to the ATO Damper at Condong and that the defendants had failed to detect this during the commissioning and testing of the Broadwater plant.

[594] Prior to 21 January 2010, they did not have a reasonable basis to suspect that the ATO Damper operated in reverse. Overheating at Broadwater was a problem that was addressed by the plaintiffs and their operators. The plaintiffs engaged Mr Ironside to tune the boiler and he did not suspect that the ATO Damper operated in reverse. He did not have reasonable grounds to suspect this. The defendants responded to complaints about the Broadwater boiler and their responses included allegations of the presence of excessive rocks, out-of-specification fuel and operator error. If, prior to 21 January 2010, the plaintiffs had formally complained about overheating at Broadwater, the defendants probably would have attributed overheating to similar causes. This was their position after 2014 when the proceeding was filed and came on for trial, and it is likely to have been their response to any formal complaints about overheating in 2009 and in the first three weeks of 2010.

[595] In considering whether, by making reasonable enquiries, the plaintiffs could have become aware of the ATO Damper's reverse operation before 21 January 2010, one should avoid hindsight bias.

[596] During his cross-examination, Mr Rojo was asked questions about differential pressure, and the proposition was put to him that anyone who had paused for a moment and thought about that would have realised it back in 2008. Mr Rojo was not sure whether that was a question, and then responded that, "with the benefit of hindsight, yes, we certainly would've". He went on to explain:

"I guess, when you find a damper - a mechanical damper back-to-front, your Honour, it's - you - everything else starts to make sense around it."

[597] After major damage is suffered, and its cause is discovered, it becomes easier to say that operators should have looked at a part of the DCS screen that they had no particular reason to look at during normal operations, realised that it recorded something about differential pressure, and reached some conclusion about the operation of the ATO Damper. It was unreasonable to expect the operators to do so. In fact, it was unreasonable for someone as skilled, experienced and knowledgeable as Mr Ironside to detect, from the DCS screen, or from any other source of information, that the ATO Damper was programmed so that it operated in reverse.

[598] For the reasons developed at the start of these reasons and explored in greater detail in this section, it was practically unthinkable that the defendants would install and program the ATO Damper at Broadwater so that it operated in reverse, then fail to detect its reverse operation during the initial testing and commissioning of the oil burner and the ATO Damper, then fail to detect its reverse operation during commissioning and testing of the boiler as a whole, including by ignoring the air balance tests that revealed that it operated in reverse.

[599] I have considered the matters that the defendants suggest should have put the plaintiffs on a course of enquiry and that, by reasonable enquiry, the plaintiffs could have diagnosed that the ATO Damper operated in reverse. I am not persuaded that those matters would, by a process of reasonable enquiry, have led to such a diagnosis at the relevant time.

[600] I conclude that as at 20 January 2010, the plaintiffs could not have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse.

(a) in constructing and programming the boiler so that the ATO Damper operated in reverse, the first and second defendants breached the EPC Contract; and

(b) in testing the boiler and not identifying that the ATO Damper operated in reverse, the first and second defendants breached the EPC Contract.

[602] This makes it unnecessary to quote at length the relevant terms of the EPC Contract. They appear in the pleadings and at Appendix F to the plaintiffs' submissions, and breaches of relevant terms are discussed at [317] - [345] of those submissions. It is sufficient to record that:

(a) the relevant terms include a general obligation to "execute and complete the Work Under the Contract";

(b) that work includes the performance of all work and services required for the design, engineering, procurement, construction, commissioning, testing and delivery of the works in accordance with the contract;

(c) the contract included an array of technical requirements that included testing and specific technical requirements in relation to dampers and the Distributed Control System;

(d) clause 3.4(a) warranted that the Contractor would exercise "due skill, care and diligence in the execution and completion of the Work Under the Contract";

(e) clause 3.4(g) contained a warranty to execute and complete the works so that when completed, the works shall be fit for their stated purpose;

(f) the contract anticipated a design life of 25 years; and

(g) clause 3.4(h) contained a warranty that the defendants had carried out all reasonable investigations and enquiries.

[603] I find that the first and second defendants did not execute and complete the "Work Under the Contract". As at 21 November 2008, the works had not been completed. The works had not been tested and completed as required by the contract. The works and services required for commissioning, testing and delivery of the works in accordance with the contract had not been completed. Instead, the ATO Damper operated in reverse, and this was the defective state in which the works were delivered.

[604] Simply put, the first and second defendants did not execute and complete the "Work Under the Contract" so that it was complete as at 21 November 2008.

[605] The works were delivered in a state whereby the reverse operation of the ATO Damper meant that the works were not "reasonably capable of being used for their intended purposes" (in terms of the definition of "Practical Completion"). They were not fit for their stated purpose (in terms of clause 3.4(g)).

[606] The defendants contend that the works were fit for their purpose, and point out that the boiler operated according to its purpose for 18 months. They contend that the July 2010 damage was ultimately caused, not by any failure in the testing or completion of the works, or their fitness for purpose, but by factors for which the plaintiffs were responsible. I have separately addressed those matters. However, even if I had concluded that the plaintiffs were partly responsible for the loss or damage sustained in July 2010, that would not detract from the fact that the works were not completed so as to be fit for the works' stated purpose. In any case, the cause of loss and damage should not be confused with the fact of breach.

[607] As noted, the contract included terms that required the first and second defendants to exercise due skill, care and diligence in the execution and completion of the "Work Under the Contract". However, their breaches of contract include breaches that did not depend on proof of a failure by them to exercise reasonable care and skill.

[608] The defendants accept that if the plaintiffs establish that they have breached a contractual obligation to ensure that the works were fit for their purpose and tested and completed, as required, or establish some other breach that does not require proof of a failure to take reasonable care, then no issue of apportionment/contributory negligence arises under the relevant apportionment statute. That relevant statutory provision is s 9(1) of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW). The defendants' concession in that regard follows from authorities that have interpreted similar statutory provisions.[4]

[609] The plaintiffs claim compensation for misleading or deceptive conduct in contravention of the then operative s 52 of the Trade Practices Act 1974 (Cth) ("TPA"). The relevant pleaded conduct centres on three matters. The first is the installation and operation of the system so that it gave incorrect readings on the DCS screen about the openings of the ATO Damper. The second is the non-disclosure of the air balance tests. The third is what are alleged to have been representations made between 2009 and 2010 by representatives of the first and second defendants about the cause of certain damage to the grate at Broadwater.

[610] The relevant representations in 2009 relate to the first and second defendants' responses to certain defect notices to which I will return. The relevant conduct in 2010 post-dates the 5 July 2010 damage and relates to a report that was written by Mr Cole. The various communications in the form of responses to defect notices are alleged to have represented that the cause of damage to the grate in 2009 was use by the plaintiffs of poor (or out-of-specification) biofuel, or biofuel contamination, or poor maintenance and operating procedures. These alleged representations are pleaded to be incorrect because the relevant damage was not caused by those matters and, instead, is pleaded to have been caused by the incorrect installation of the ATO Damper.

[611] The defendants respond that they did not make the alleged representations and, in any event, the things that they represented were true.

[612] The defendants also submit that the plaintiffs' final submissions on alleged misleading or deceptive conduct include many matters that are not pleaded as part of the relevant conduct, and the plaintiffs should be limited to their pleaded case. I agree.

[613] Their pleadings rely on what are said to be expectations of the plaintiffs about the first and second defendants' performance of their contract. They also plead matters that are said to have been within the first and second defendants' knowledge or "means of knowledge", namely that the readings on the DCS screen about percentage openings were incorrect and deceived the boiler operators.

[614] I am not satisfied that at any material time, including when the responses were sent to defect notices in the first half of 2009, or even when Mr Cole prepared his initial report on 6 July 2010, that the defendants knew the ATO Damper operated in reverse. Insofar as the plaintiffs allege that the defendants knew that the ATO Damper operated in reverse and, by failing to disclose this fact, engaged in misleading or deceptive conduct, their case is not proven.

[615] Silence can constitute misleading or deceptive conduct in circumstances where there is a reasonable expectation that relevant facts will be disclosed. However, there can be no reasonable expectation of disclosure where the defendants are unaware of the matter allegedly not disclosed by them.[5] The plaintiffs' submissions refer to the fact that in April 2008 Mr Timms was instructed by one of CBH's personnel, most likely Mr Harvey, to note that the ATO Damper control was working in reverse. The evidence does not establish what CBH did to address this problem. That said, the evidence does not establish that, in the period leading up to handover, Mr Harvey or anyone else from CBH who was aware of the problem in April 2008 thought that the problem had not been rectified. A reasonable inference is that they thought it had. Therefore, the evidence does not establish that at any relevant time either before or after handover the defendants knew that the ATO Damper operated in reverse and did not disclose this fact to the plaintiffs.

[616] The plaintiffs' case on misleading or deceptive conduct relies on certain contextual matters pleaded in paragraphs 8 and 9 about the defendants' competence and experience in the field of waste-fired co-generation power plants. They also plead that those matters and the terms of the EPC Contract gave rise to a reasonable expectation on the part of the plaintiffs that the first and second defendants would install and test the plant so that the DCS screen would accurately reflect the position of the ATO Damper or, if it did not, that the first and second defendants would disclose that fact to the plaintiffs before practical completion. These matters may be relevant to a reasonable expectation of disclosure. They do not prove, however, that the defendants knew of the reverse operation of the ATO Damper and that the DCS screen was inaccurate in its recording of the percentage the damper was open.

[617] The fact that the air balance tests, if properly interpreted by the first and second defendants, showed that the ATO Damper was operating in reverse does not mean that the defendants interpreted them properly and knew of that fact. They seemingly did not know that fact and therefore were not required to disclose it to the plaintiffs. Therefore, the fact that they did not inform the plaintiffs of the results of the air balance tests until August 2010 did not constitute misleading or deceptive conduct.

[618] Misleading or deceptive conduct does not require an intention to mislead or deceive. However, mere non-fulfilment of a contractual promise does not, without more, constitute misleading or deceptive conduct.

[619] Many of the plaintiffs' submissions about the course of conduct that is said to constitute misleading or deceptive conduct resemble submissions made about the respects in which the first and second defendants breached their contractual duties or a non-contractual duty of care, including a failure to carry out appropriate testing and interpretation of the air balance tests. Those breaches of duty should not be equated with misleading or deceptive conduct.

[620] The "course of conduct" relied upon in the submissions relied upon 11 matters and travels beyond the plaintiffs' pleaded case. Even then, the course of conduct outlined in the submissions is said to have falsely conveyed the impression that the problems being experienced at the Broadwater plant were unrelated to a defect in the construction and testing of the plant, including the DCS. But this kind of alleged representation is only pleaded to have conveyed "the Contractor's Representations". That third part of the pleaded case relates to representations alleged to have been conveyed by responses to defect notices, not misleading or deceptive conduct through silence and non-disclosure.

[621] Paragraph 32 pleads that the first and second defendants installed the ATO Damper in November 2007. That date is not admitted. But the conduct in installing the ATO Damper is not singled out as conduct that was in itself misleading or deceptive. It would be hard to say the act of installing the damper was, since any incorrect readings on the DCS screen were the result of incorrect programming and then negligent testing of the system. The defective operation of the boiler as a whole, including wrong information on the DCS screen, is not self-evidently misleading or deceptive conduct of the first and second defendants, and the proposition that it was is neither pleaded nor articulated in the plaintiffs' submissions.

[622] Ultimately, the first two parts of the pleaded case come down to the contention that at no time prior to the handover, or at any time prior to August 2010, did the first and second defendants disclose to the plaintiffs that the ATO Damper was operating in reverse to the percentage open readings on the DCS screen, such that undergrate air was being diverted to the oil burner. A related submission (not clearly pleaded) is that at no time prior to the handover did the first and second defendants notify the plaintiffs that the overheating being experienced was, or may be, due to defects in the construction and testing of the boiler. The plaintiffs have not proven that the first and second defendants knew that the ATO Damper was operating in reverse and that overheating was due to defects in the construction and testing of the boiler. To prove misleading or deceptive conduct in such a case, it is not sufficient to prove that the first and second defendants should have known these things, and would have known them, if they had properly performed their contractual obligations.

[623] The third part of the plaintiffs' case on misleading or deceptive conduct is centred on "the Contractor's Representations", as pleaded in paragraph 38. As noted, all the relevant representations, save for one that post-dated the 5 July 2010 damage, are alleged to have been conveyed in writing in the first and second defendants' responses to certain defect notices. Paragraph 38 pleads that these representations related to the cause of "the Broadwater Damage". But the 2009 responses to defect notices necessarily relate to damage that pre-dated the 5 July 2010 damage, including damage to chains, a bent drive shaft on the southern grate and distortion to the grate racks or T-bars.

[624] Defect Notice #63 dated 17 February 2009 concerned alleged defects to biomass feeders. The defendants responded that they believed that the cause of the excessive wear was out-of-specification fuel, as discussed in previous correspondence. Defect Notice #65 dated 18 February 2009 concerned damage to a furnace expansion joint and the response was that this "could have been caused by unburnt bagasse accumulating on the ledge of the furnace front casing. This area should be kept clean at all times and this is deemed a housekeeping responsibility, and not covered under any warranty".

[625] Defect Notice #69 dated 21 April 2009 concerned T-bars. It is important to record at this point that the travelling grate suffered substantial damage in March 2009. CBH representatives inspected it and observed that the spacing between the T-bars was filled with rocks and gravel, that the T-bars were misaligned, and this caused the grate clips to sit in a "waved formation". They concluded that the damage had been sustained due to foreign material, such as rock, building up. The response to Defect Notice #69 stated this position. It attributed the damage to out-of-specification fuel, recommended replacement of distorted T-bars, and recommended that the joint venture eliminate or minimise fuel contamination and regularly "exercise the grate zone dampers to minimise build up".

[626] Defect Notice #87 dated 25 May 2009 related to damage to a scrubber rod deck and a spraywater system failure that the defendants attributed to use of fuel with high rock loadings. This was a problem with high wear in the ash system.

[627] Defect Notice #88 concerned a chain that was said to have bent and cracked pins. The defendants attributed this to out-of-specification fuel and reiterated their response to Defect Notice #69 in saying, "we believe the root cause of the damage to the T-bars is the foreign matter in the fuel, causing either direct obstruction of the grate or continual long-term damage".

[628] Defect Notices #91, #95 and #97 were sent in June 2009. One response alleged a fault in the fuel changeover, another alleged that there were defects or anomalies in the control system about which the joint venture was aware. The final one related to a boiler furnace expansion joint that had been overheated. CBH reiterated its responses to Defect Notices #91 and #95 and said, "The boiler was operated outside the limits when this incident occurred".

[629] Of these eight responses to defect notices, only one specifically referred to overheating. Most related to mechanical damage. One related to an accumulation of unburnt bagasse in an area that the defendants said should have been kept clean. Three referred directly or indirectly to alleged operating errors.

[630] As already discussed, certain damage to parts of the grate had a mechanical cause, namely the presence of rocks. Damage sustained in April 2009 was attributable to a different cause, namely a slipping torque that the plaintiffs' representatives had not reset.

[631] The damage that is referred to in a number of the defect notices seemingly was caused by the presence of rocks that caused excessive wear to feeders or damage to chains and T-bars. The April 2009 damage was caused by operator error and in the course of investigating it, CBH's representatives identified rocks and gravel caught between grate clips and mechanical damage. The plaintiffs have not established that the damage referred to in the defect notices was caused by the incorrect installation of the ATO Damper, rather than by rocks or operator error. There is one possible exception in that a sagging T-bar may have been caused by overheating, by mechanical forces, or by both. But most of the March 2009 damage was mechanical and so the response to Defect Notice #69 was not misleading. Insofar as the defendants' responses to the defect notices asserted their belief as to the cause of the damage, the plaintiffs have not established that the persons responsible for those responses did not have such a belief. The evidence indicates that they did.

[632] The plaintiffs have not established that the responses in the defect notices were misleading or deceptive or that they in fact misled the plaintiffs.

[633] The final alleged part of the conduct which is alleged to constitute "the Contractor's Representations" concerns a report that Mr Cole prepared initially on 6 July 2010 in response to the 5 July 2010 damage that attributed it to the operation of the grate and fuel quality. It is unnecessary to quote relevant parts of the report. This alleged representation post-dated the damage and is irrelevant to the causal chain that the plaintiffs plead. In short, they allege that, in reliance on the Contractor's Representations, NSWSMC operated the co-generation plant being unaware of the reverse operation of the ATO Damper and trusting in the accuracy of the readouts on the DCS and the position of the lever and reading on the actuator. They say that had they known of the reverse operation of the ATO Damper prior to 5 July 2010, they would have taken reasonable steps to prevent it. It is unnecessary to pursue this causal chain argument. The present point is that a representation that was made after 5 July 2010 cannot form part of it and explain how the July 2010 boiler damage could have been avoided had the representation not been made.

[634] Finally, I should add that the plaintiffs' submissions refer to communications that occurred around 17 April 2009 following a roundtable discussion. However, nothing said at that meeting or in communications that followed it are pleaded as being one of "the Contractor's Representations". I decline to rely on that matter as part of the plaintiffs' pleaded case on misleading or deceptive conduct.

[635] In summary, representations that are alleged to have been conveyed about the cause or causes of earlier damage to the boiler in 2009 have not been shown to be incorrect. Insofar as responses to defect notices represented something about the defendants' belief as to the cause of damage, the evidence does not establish (nor is it pleaded) that the defendants' personnel did not have that belief at the relevant time.

[636] The plaintiffs' pleaded case on misleading or deceptive conduct is not established.

Did the first and second defendants also owe the first plaintiffs a duty of care in tort?

[637] The plaintiffs plead that by reason of certain facts, the first and second defendants owed each of the plaintiffs a duty to exercise reasonable care and skill in constructing, testing and commissioning the Broadwater plant. The third plaintiff does not press a claim for breach of a duty of care that was allegedly owed to it.

[638] The current defence does not plead that no non-contractual duty of care was owed by the first and second defendants to the first plaintiffs. Instead, it alleges that amendments to paragraph 73 of the plaintiffs' pleading in the further amended statement of claim filed on 31 October 2017 included a new cause of action for which the relevant limitation period, current at the date the proceeding was started, had ended prior to 31 October 2017. The defendants plead that the Court has not granted leave to make amendments to include a new cause of action and, in the premises, the amendments that pleaded the new cause of action ought to be struck out. No application to strike out was made by the defendants, but nor did the plaintiffs respond to this plea by applying before the trial for leave to amend under rule 376 of the Uniform Civil Procedure Rules 1999 (Qld).

[639] Instead, the plaintiffs submit that no new cause of action was introduced in the further amended statement of claim. Alternatively, if certain amendments introduced a new cause of action then they now seek a grant of leave because the new cause of action arises out of substantially the same facts as the cause of action for which relief had been sought. They say that it is appropriate to allow the amendment in circumstances where the defendants did not apply to disallow the amendment and the parties proceeded to trial on the basis of the plaintiffs' pleaded duty of care claim.

[640] Despite not having pleaded that no duty of care, as alleged in paragraph 73, was owed to the first plaintiffs, the defendants contest that a concurrent duty of care was owed to the first plaintiffs. They characterise the first plaintiffs' claim as one for "economic loss" or "pure economic loss". They rely upon Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288[6] and other authorities concerning the existence of a duty of care in respect of economic loss flowing from latent defects. However, the first plaintiffs' claim is not for pure economic loss or the economic loss of replacing a defective part. It is for physical damage to the first plaintiffs' property and certain consequential losses, not solely for economic loss.

[641] It therefore differs from cases in which the claim is solely one for economic loss, such as Woolcock Street Investments Pty Ltd v CDG Pty Ltd[7] and Brookfield Multiplex.[8] The relevant distinction is between a claim for damage to person or property (including economic loss that is consequential upon such damage) and pure economic loss. Cases like Woolcock Street Investments and Brookfield Multiplex involve claims for economic loss as distinct from damage to property. The gist of the claim in such a case is the economic loss that is suffered as a result of buying a building that is defective and not as valuable as it would have been without that defect. This is not such a case.

[642] The first plaintiffs' claim is for damage to property and certain consequential losses. The main claim is for the cost of repairs to damage done to their property as a result of the defective operation of the ATO Damper. Therefore, I do not accept the defendants' submission that a duty of care is not owed and that the existence of a duty of care is determined by principles that govern recognition of a duty of care in cases of pure economic loss.

[643] A point remains that, depending upon its terms, a non-contractual duty of care should not be permitted to outflank the contractual regime that the parties negotiated in relation to the builder's obligations. But such an argument is not advanced by the defendants, presumably because the duty of care contended for in paragraph 73 of the plaintiffs' pleading is practically identical to the contractual duty of care to exercise "due skill, care and diligence in the execution and completion of the Work Under the Contract". This, therefore, is a case of concurrent and practically identical duties of care in contract and in tort. There is no reason why, in principle, they should not co-exist.[9]

[644] The substantive point about the coexistence of concurrent duties was not argued by the defendants and little more need be said about it. The pleaded tortious duty is not so inconsistent with the contract that, in accordance with ordinary principles, the parties must be taken to have excluded a remedy in tort. In fact, the "Indirect Loss" provision limits recovery in negligence, which is some recognition in the contract of a concurrent duty in tort. The defendants, in an earlier defence, alleged that the first plaintiffs were capable of protecting themselves by the terms of the contract from the consequences of any want of reasonable care by the first and second defendants. This may be true, and they did so by including an express warranty to that effect. In the circumstances, an ability to contract for such protection is not sufficient to exclude a concurrent tortious duty. Those circumstances include the fact that the first and second defendants were capable of protecting themselves from a concurrent tortious duty or to limit its consequences, and they did so in the "Indirect Loss" provision.

[645] I return to the question of whether leave was required to make some of the amendments made in the further amended statement of claim filed 31 October 2017. By way of background, before the amended pleading was filed, Douglas J struck out parts of the pleading that alleged that a duty of care was owed and granted leave for the plaintiffs to re-plead. I do not accept that it fell to the defendants to apply under rule 379 to disallow the amendments. If leave was required, then leave should have been sought.

[646] The relevant amendments included some additions to paragraph 72 of the pleading to allege vulnerability and the defendants' knowledge of their vulnerability. The amendments that are the focus of the defendants' submissions are amendments to paragraph 73 that relied upon earlier amendments including amendments to paragraphs 33A and 33B concerning the air balance tests.

[647] The principles governing amendment under rule 376 after a relevant limitation period has ended are well-settled. They are summarised in Menegazzo v Pricewaterhousecoopers (A firm)[10] and in Firstmac Ltd v Hunt & Hunt (A firm).[11]

[648] There is a distinction between an amendment that introduces a new cause of action and one that does not. The distinction may involve questions of degree. Not every amendment that adds to or alters the facts should be regarded as an amendment that raises a new cause of action.

[649] In this matter, the particular amendments that are the focus of the defendants' submissions, and that inserted new facts, refer to the air balance tests. Arguably, they were additional facts that did not introduce a new cause of action. They were pleaded in the context of the misleading or deceptive conduct claim and concerned matters that the defendants allegedly knew and that gave rise to a reasonable expectation on the part of the plaintiffs that the first and second defendants would construct, test and commission the plant so that the readings on the DCS were not misleading.

[650] If, however, the addition of those new facts did introduce a new cause of action for negligence, then the new cause of action arose out of substantially the same facts as an existing cause of action. This is not a case in which the earlier pleading was a "hopelessly general" one so as to make it easy to contend the proposed amendments arise out of substantially the same (hopelessly general) facts.[12] The existing pleading already pleaded in considerable detail what the defendants knew or ought to have known in the course of conducting tests and trials.

[651] As to the discretion to grant leave, the effect of granting leave is to defeat possible reliance upon a limitation defence. However, the rule envisages such an outcome in an appropriate case.

[652] Prior to the relevant amendments, the defendants were on notice that the existing causes of action concerned their conduct in installing the ATO Damper, programming it, and conducting tests and trials during the commissioning period. As noted, the existing claims for breach of contract and misleading or deceptive conduct concerned many of the same factual matters that were raised in paragraph 72 and in other parts of the pleading, including the defendants' knowledge of the results of the air balance tests. The defendants did not suggest that had the amendments been made sooner, they would not be prejudiced now by an inability to call witnesses or evidence. They do not suggest that forensic decisions were made and would have been different if leave to make the amendments had been sought in late 2017 or early 2018.

[653] In my view, it is appropriate to grant leave to make the amendments that were made on 31 October 2017. If those amendments do introduce a new cause of action, they arise out of substantially the same facts as a cause of action for which relief had been sought, the parties proceeded to trial on the basis that those facts were in issue and the discretion to grant leave should be exercised so that the real issues between the parties are determined. These include what had always been a claim for breach of a non-contractual duty of care. To the extent that the duty of care pleaded in paragraph 73 of the pleading filed on 31 October 2017 and subsequent pleadings is broader than the duty of care pleaded in paragraph 73 of the statement of claim filed on 20 November 2014 and in the amended statement of claim filed 5 June 2017, it aligns with a contractual duty of care that has always been pleaded. It does not open new factual issues or require additional evidence.

[654] Therefore, I grant leave pursuant to rule 376(4) to make the amendments that were made by the further amended statement of claim filed 31 October 2017.

[655] I also grant leave to the defendants to reinstate in their defence their substantive defences to the negligence claim. Such leave was sought during oral submissions on 1 September 2022 in the event I granted leave to the plaintiffs under rule 376(4). The plaintiffs did not oppose leave being granted to the defendants in such an event.

[656] As noted, a contractual duty that is not based on a duty to exercise reasonable care and skill is not subject to apportionment for contributory negligence under the NSW apportionment statute. The duty to execute and complete the works so that, when completed, they were fit for their stated purpose, is not subject to a contributory negligence defence. By contrast, the contractual duty in clause 3.4(a), namely to exercise "due skill, care and diligence in the execution and completion" of works is subject to a defence of contributory negligence under the NSW apportionment statute. So too is the concurrent non-contractual duty pleaded in paragraph 73, namely a duty "to exercise reasonable care and skill" in constructing, testing and commissioning the plant.

[657] The plaintiffs' written submissions note that the current defence does not plead in response to the negligence claim any alleged failure to take reasonable care or reliance on the apportionment statute, despite this being pleaded in an earlier version of the pleading that was filed on 3 August 2017. These defences were removed when the pleading was amended on 15 December 2017. The defendants do plead in response to the misleading or deceptive conduct claim that any loss or damage was suffered partly as a result of each plaintiff's failure to take reasonable care and the damages should be reduced, pursuant to s 82(1B) of the TPA, to the extent the Court thinks just and equitable, having regard to the plaintiffs' share in the responsibility for the loss or damage. The defendants also plead in response to the breach of contract claims that, because of the matters referred to in paragraphs 27(d)(ii) and 38 of the defence, any damage was suffered partly as a result of the plaintiffs' failure to take reasonable care and that, in light of the definition of "wrong" in s 8 of the NSW apportionment statute, the Court ought to reduce any damages to the extent to which the Court thinks just and equitable, having regard to the plaintiffs' share in the responsibility for the damage.

[658] The contributory negligence pleas to the negligence claim were only omitted after the negligence plea was struck out by Douglas J. There is no forensic reason why the defendants would omit such a defence to a negligence claim but rely upon it in answer to claims for breach of contract and for misleading or deceptive conduct. It is important to resolve the real issue in dispute. For the same reason that I allowed the defendants to reinstate their substantive defence to the tortious duty of care plea, I grant leave for them to reinstate their contributory negligence plea. The plaintiffs are not prejudiced by such an amendment because they face an identical plea in response to other causes of action.

[659] The following consideration of contributory negligence relates to causes of action for breach of contract founded on clauses 3.4(a) and (c) of the EPC Contract and for breach of the duty of care pleaded in paragraph 73 of the plaintiffs' pleading. The first and second defendants accept that they breached the EPC Contract:

(a) in constructing and programming the boiler so the ATO Damper operated in reverse; and

(b) in testing the boiler and not identifying that the ATO Damper operated in reverse.

The evidence establishes breaches of, among other clauses, clauses 3.4(a) and (c) of the contract. The same acts and omissions that constituted a breach of clause 3.4(a), constitute a breach of the non-contractual, concurrent duty of care.

[660] Section 9 of the NSW apportionment statute applies if a person suffers damage as a result partly of the claimant's failure to take reasonable care. It allows damages recoverable in respect of the "wrong" of the defendant to be reduced to such an extent as the Court thinks just and equitable having regard to the claimant's share in the responsibility for the damage.

[661] The making of an apportionment on this basis involves the comparison both of culpability (the degree of departure from the standard of care of the reasonable person) and of the relative importance of the acts of the parties in causing the damage.[13]

[662] The defendants submit that a number of factors suggest that the reverse operation of the ATO Damper was not particularly important in causing the July 2010 boiler damage. They submit that despite the damper operating incorrectly from the outset, the July 2010 damage did not occur for more than two years and that the grate operated without damage for extended periods between April 2008 and April 2009 and between May 2009 and July 2010. They also point to what reports compiled shortly after the July 2010 damage recorded as other factors that contributed to the July 2010 boiler damage.

[663] These submissions are not persuasive. For reasons that have been canvassed at considerable length, the 5 July 2010 grate failure and damage was the result of progressive deterioration and the eventual failure of an already degraded chain link that had been overheated. Its failure caused other chains on the northern grate to fail, progressively distorting the grate and causing it to stop moving. That resulted in widespread damage to grate parts, some of which melted. The fact that it took until 5 July 2010 for a chain link to fail and damage to occur, does not detract from my earlier finding that the reverse operation of the ATO Damper caused the July 2010 damage. It was the most important cause of the damage.

[664] The Plant Outage Report was authored by Mr Duncombe. The Root Cause Analysis Workshop was conducted on 17 August 2010 and made findings based upon information and somewhat limited investigations. I have regard to them, but base my findings on causation on the far more extensive lay and expert evidence that is in this proceeding. The workshop on 17 August 2010 occurred before Mr Rojo's discovery on 25 August 2010 that the ATO Damper at Broadwater had been installed and set up so that it operated in reverse. The subsequent report of the workshop concluded that the incorrect operation of the ATO Damper was the primary cause of the grate failure problems at Broadwater and noted that since the damper's operation had been corrected, control of undergrate air temperatures had been achieved. It reported that once Mr Ironside had corrected the operation of the damper "the differences between Condong and Broadwater air heater and UG air systems have disappeared, i.e. the two air systems are basically identical in design and operation". Therefore, even contemporaneous reports identified the reverse operation of the ATO Damper as the primary cause of the damage.

[665] As to comparative culpability, some matters pleaded by the defendants have fallen away, for example, allegations that the operators incorrectly operated secondary air distribution systems. I shall concentrate on the matters relied upon in the defendants' written submissions, but have considered the matters that are pleaded.

[666] As to the general allegation that the plaintiffs ought to have been aware of the incorrect operation of the damper by the making of enquiries that were reasonable in light of the matters that are pleaded (a matter pleaded in paragraph 27(d)(ii) of the defence), I have addressed these matters above in the context of the contractual release issue. That issue relates to matters about which the plaintiffs could have been aware by the making of reasonable enquiries as at 20 January 2010. I adopt the same findings in response to the matters pleaded in paragraph 27(d)(ii) of the defence. I turn to the more specific matters relied upon in the defendants' submissions.

[667] The defendants submit that the plaintiffs had in their possession, but failed to act upon, the recommendations in the Aurecon Reports.

[668] The First Aurecon Report recommended a comparison between a used and an unused grate clip. The Second Aurecon Report recommended a review of operating procedures to determine how to correct the cause of elevated temperatures on the chain grate. The plaintiffs sent both reports to the defendants, which did not make any suggestion about the cause of overheating. Further, the plaintiffs' operators, personnel and consultant were doing what they could, based on what they knew, to address overheating.

[669] The defendants submit that it would have been possible for the plaintiffs to conduct investigations into what was causing the overheating to the parts identified in the Aurecon Reports.

[670] As discussed, the two Aurecon Reports confirmed the occurrence of overheating. However, the fact of overheating, both before and after handover, was no surprise. The metallurgical reports did not identify the source of overheating. In hindsight, more could have been done. Further metallurgical testing of other parts may have reported that other parts had been overheated.

[671] Mr Rojo did, however, provide copies of both Aurecon Reports to Mr Heese of CBH. Mr Heese advised Mr Rojo on 5 March 2010 that the material analysis seemed to be in line with the defendants' specification for the clips. Mr Heese did not advise that further metallurgical tests should be undertaken or that the plaintiffs should undertake an investigation into the cause of the overheating.

[672] The defendants' submissions do not indicate what further metallurgical tests would have revealed. If I assume, for the purposes of argument, that they would have showed similar signs of overheating to the overheated parts that had earlier been examined, then it would have served to confirm the long-standing problem of overheating of the grate.

No formal request for the defendants to investigate

[673] The defendants point to the fact that the plaintiffs knew that excessive piling had occurred on the grate and that temperature alarms were regularly being triggered, but did not formally request that the defendants investigate these issues. This is correct. There does not appear to have been a formal request. However, the fact of overheating was conveyed to the defendants in the Aurecon Reports and a roundtable held on or about 17 April 2009, that was attended by representatives of CBH and representatives of the plaintiffs, discussed overheating. Mr Sawatzki's evidence is that overheating was discussed at that "round table discussion". A report that Mr Cole of CBH prepared after the roundtable recorded that several theories were "tossed around" about what could be causing the bending and sagging in T-bars, including overheating and that Mr Cole could not give a qualified answer. On 17 April 2009, Mr Cole sent an email to Mr Heese about this matter and said that he had agreed to pass on questions to CBH. One question was:

"Are the T-Bars overheating causing them to sag in the areas of the tee Bars closest to the centre of the grate?"

[674] Therefore, the evidence establishes that the plaintiffs did raise the issue of overheating with the defendants and the defendants agreed to consider whether overheating was causing the T-bars to sag. There was, however, no formal request for the defendants to investigate overheating.

[675] As to the causal potency of the plaintiffs' failure to formally request the defendants to investigate overheating and piling, the responses to defect notices, including Defect Notice #69 that had been sent at about the time of the roundtable discussion in April 2009, suggest that the defendants would have attributed problems of overheating and excessive piling to out-of-specification biofuel, the presence of rocks in the fuel, and failures by the operators at Broadwater to follow operating procedures. I have canvassed these issues in connection with causation issues. Shortly stated, the appearance of piles of what seemed to be wet fuel does not necessarily mean that the fuel's moisture content was outside of the specification. The deprivation of undergrate air is a reason why the fuel did not dry and combust, but piled on the grate. Rocks and gravel in the fuel, sometimes in substantial quantities, was responsible for mechanical damage to parts of the grate but did not make any significant contribution to overheating. The operators took steps that they were trained to undertake. Therefore, a more formal request to the defendants to investigate overheating and piling probably would have resulted in the same positions being adopted by the parties. The plaintiffs would have continued to do their best to address overheating and piling when it occurred, continuing to assume that the ATO Damper did not operate in reverse and that the readings on the DCS screen and on the physical indicator were accurate readings of the extent to which it was open. The July 2010 damage would not have been avoided.

Operating the grate at a higher speed than recommended

[676] As previously discussed, one approach to the problem of piling was to speed up the travelling grate. The evidence of the operators, which I accept, does not establish that the grate was operated at a consistently high speed or a consistently low speed. The April 2009 damage was due to a clutch that was slipping and had not been reset, which led to the grate being subjected to excessive torque. As to general operating conditions, the evidence indicates that the operators, on occasions, slowed or sped up the grate to address problems with piling. This is something that they were trained to do. The expert evidence does not establish that speeding up the grate caused the overheating.

[677] The defendants submit that the operators failed to shut down the boiler immediately upon the initial damage occurring on 5 July 2010, thereby exacerbating the extent of the ultimate damage.

[678] The sequence of events on 5 July 2010 is the subject of a substantial body of evidence which is summarised at [494] - [503] of the plaintiffs' submissions. It is unnecessary to detail all of it. On the afternoon of 5 July 2010, Mr Timms was the No 1 Operator. Alarms were sounding, indicating that the grate was running at a high temperature. He became concerned about the condition of the grate and asked his No 2 Operator to check it. There were piles on the grate. Mr Timms alerted NSWSMC personnel that he was going to shut down the boiler because he was concerned about high temperatures and piling. A controlled shutdown then occurred on Mr Sawatzki's instructions. When Mr Sawatzki looked at the grate through the viewing window, he could see that the grate was physically out of place.

[679] The controlled shutdown took about an hour and 50 minutes to allow the boiler to be safely shut down. Mr Sawatzki explained in his evidence that the shutdown had to be in a controlled manner over a period of time for safety reasons, and also for environmental reasons connected with a sudden shutdown of the mill.

[680] The defendants point to the cross-examination of Mr Lowry who accepted that whilst the boiler continued to operate as the operators took steps to close it down, the damage that was initially caused would have become worse. Mr Lowry referred to the operators shutting down the system properly and that it is normal practice to shut the unit down in a controlled manner because "it's the safe way of doing it". In the same passage of evidence, Mr Lowry identified the "root cause" of the failure being that a chain in the grate had broken. As earlier indicated, I accept his evidence and other evidence that identifies the mechanism of failure on 5 July 2010 as being a chain link that was already weakened by prolonged overheating, failing. That led to other failures and a distortion of the grate's operation. The personnel of NSWSMC responded to the matter by undertaking a controlled shutdown. That response was necessary for safety reasons and accorded with normal practice. The fact that during the controlled shutdown, parts of the grate suffered further damage was not the result of a failure by the NSWSMC personnel to take reasonable care.

[681] The reverse operation of the ATO Damper led to overheating of the grate over a long period and the grate failure that occurred on 5 July 2010. The reverse operation of the ATO Damper was the primary cause of the grate failure. As discussed in my consideration of causation issues, other matters nominated by the defendants as a substantial cause of the failure either did not contribute or made no significant contribution to the July 2010 damage.

[682] Certain matters are relied upon by the defendants in the specific context of contributory negligence.

[683] Avoiding hindsight bias, it is possible that the plaintiffs could have done more in response to the ongoing problems with overheating and piling, including the overheating that was recorded in the Aurecon Reports. They might have made a formal request to the defendants to investigate those matters. They did, however, provide the Aurecon Reports to the defendants and asked the defendants in April 2009 whether sagging of the T-bars was the result of overheating.

[684] If the defendants had formally requested an investigation or delivered a defect notice in relation to overheating and excessive piling, then the response of the defendants probably would have been similar to the responses that the plaintiffs received to defect notices before and after the roundtable discussion about overheating in April 2009. The defendants probably would have attributed overheating to out-of-specification biofuel, rock contamination or poor operating procedures by operators at Broadwater. They may have attributed the greater problems with overheating and piling at Broadwater compared to Condong to alleged differences in the skills and expertise of operators at each plant.

[685] If the plaintiffs had done more in response to the recommendations in the Aurecon Reports, or formally requested the defendants to investigate overheating and piling, the outcome probably would have been the same. Providing the Aurecon Reports to the defendants and raising issues of overheating at the April 2009 roundtable did not prompt the defendants to recommend that the plaintiffs conduct an investigation or commission the defendants to conduct an investigation. It did not prompt the defendants to suspect there was a problem with the operation of the ATO Damper in allowing "tramp air" into the boiler and depriving the boiler of undergrate air. The defendants did not investigate such a cause for overheating and piling, and did not suggest to the plaintiffs that they should do so. The defendants did not review the air balance tests that were in their possession and did not suggest to the plaintiffs that the plaintiffs should comb through 24 volumes of performance results to find what might be causing the problems.

[686] For the reasons given in relation to each matter, I decline to conclude that the matters relied upon by the defendants establish a failure by the plaintiffs to take reasonable care. If I had, then a comparison of the relative importance of the omissions of the parties in causing the July 2010 damage would have concluded that the first and second defendants' breaches of relevant contractual duties of care and the concurrent tortious duty of care were the overwhelming cause of the damage.

[687] As for a comparison of the parties' respective culpabilities, namely the degree of departure from the standard of care of the reasonable person, the culpability of the defendants would be far greater than any culpability of the plaintiffs. The conduct of the defendants in constructing and programming the boiler so that the ATO Damper operated in reverse involved a gross departure from the standard of care to be expected of engineers who held themselves out to have the skill and care that they professed to have and who warranted to exercise due skill, care and diligence in the execution of the works. That departure is compounded by their lack of care in testing the boiler and not identifying that the ATO Damper operated in reverse. How the defendants installed and programmed the ATO Damper so that it operated in reverse and then failed to detect its reverse operation during testing and commissioning remains unexplained.

[688] The plaintiffs tried to address problems of overheating and piling that were the result of the ATO Damper operating in reverse. In retrospect, they might have formally asked for the defendants to investigate the problem but that would not have made much of a difference. The evidence suggests that the plaintiffs' operators did what they were trained to do and did their best, in difficult circumstances, to address regular episodes of overheating and piling.

[689] The root cause of the July damage was the reverse operation of the ATO Damper.

[690] If I had concluded that the plaintiffs had failed to take reasonable care in one or more of the respects alleged by the defendants, then I would have reduced each plaintiff's damages by no more than 10 percent, having regard to the plaintiffs' share in the responsibility for the damage.

[691] Earlier I decided the factual issue of causation and found that the reverse operation of the ATO Damper was a substantial cause of the overheating that caused the grate failure on 5 July 2010.

[692] No issue of causation in law (or what State civil liability legislation describes as the "scope of liability" element of causation) arises. I had the benefit of very helpful analyses in the parties' submissions of causation for a breach of contract, causation in relation to a non-contractual duty of care, and causation for a contravention of the prohibition on misleading or deceptive conduct in the TPA. The defendants submit, correctly, that the question in relation to each of the claims is whether the reverse operation of the ATO Damper was the cause of the occurrence of the 5 July 2010 damage, or at least made "a material contribution" to it.

[693] In the circumstances, I shall simply observe that:

(a) it is not necessary for a plaintiff to establish that the relevant breach of contract was the sole or exclusive cause of the loss claimed. It is sufficient if, in the circumstances of the case, the breach of contract materially contributed to the loss;[14]

(b) a defendant's breach of contract will be a cause of the loss, notwithstanding that there may be other concurrent causes;

(c) factual causation is generally determined by the application of the "but for" test, but it is not the exclusive test of factual causation;[15]

(d) in this case, the same issues of causation apply to breaches of contract and breaches of non-contractual duty of care; and

(e) the question of whether conduct is a cause of loss or damage is to be determined by a value judgment, having regard to the particular legal context, and issues of causation in relation to a statutory cause of action are necessarily affected by the subject matter, scope and purpose of the legislation.

[694] Because of my findings in relation to an alleged contravention of the TPA by misleading or deceptive conduct, it is unnecessary to discuss the case law about issues of causation that are embedded in the word "by" in s 82 of the TPA. In a case involving reliance upon alleged representations, issues of reliance may form part of a consideration of factual causation. I adhere to what I wrote in Westpac Banking Corporation v Jamieson[16] about factual causation and causation in law in that legal context. The case law in relation to s 82 establishes that it is not essential that the contravention of the TPA be the sole cause of the loss or damage to satisfy s 82. It is sufficient if the contravening conduct was a cause.

[695] Returning to the breaches of contract and breach of the concurrent non-contractual duty of care that I have found, each was a cause of the 5 July 2010 grate damage and the loss that resulted from it. The reverse operation of the ATO Damper made a material contribution to the loss and damage.

[696] Suggested alternative or additional causes have been considered in my discussion of factual causation and also in the context of contributory negligence. The defendants do not submit that any additional cause or contributing factor was such as to give rise to a "scope of liability" or "causation in law" issue, namely that the first and second defendants' breach of contract or breach of non-contractual duty should not be regarded, in law, as a cause of the July 2010 damage or the losses that flowed from it despite having, in fact, caused that damage.

Are the contractual breach claims statute-barred?

[697] The defendants plead a limitation defence to the causes of action for breach of contract. They contend that any breaches of the EPC Contract occurred when the ATO Damper was installed (prior to May 2007) and therefore those causes of action were brought after the six-year limitation period imposed by s 14(1)(a) Limitation Act 1969 (NSW) expired. The proceeding was commenced on 20 November 2014.

[698] The plaintiffs respond that this was an entire contract to complete works, and that the limitation period runs from the date of practical completion, and not from any earlier date when the defective part was installed. They rely upon the principle that under an entire contract to complete works, the limitation period for defects runs from the date of completion, or purported completion, and not from any earlier date when that part of the works, the subject matter of the defects, was carried out. This principle is stated in Keating On Construction Contracts.[17]

[699] The resolution of the limitation issue rests on the relevant contractual obligation. The authorities identify a distinction between an obligation simply to carry out works by, for example, constructing or installing something, and an obligation to "carry out and complete" works in accordance with the contract. An obligation to "carry out and complete" works in accordance with contractual conditions means that, if the works are not completed in accordance with the conditions, there is, at that point, a breach of duty.[18] As Lord Clark observed in Agro Invest Overseas Ltd v Stewart Milne Group Ltd:[19]

"The obligation may be viewed as dual, in the sense that it creates a duty both to carry out, and separately, to complete, the works in conformity with the contract."

[700] In such a case, the fact that there was an earlier breach in not carrying out the works in accordance with the conditions is, for the purpose of a limitation defence, "neither here nor there; a duty to complete the works in accordance with the contract conditions means that... completion is a point in time at which breach can occur".[20]

[701] The present issue is not concerned with the breach of an obligation to execute works, being a breach which may be said to have ongoing consequences until the date of practical completion. Depending upon the facts, a breach of an obligation to execute works may have been remedied or the defect may remain at the date of completion. The present issue is whether the relevant contractual obligation is one to "carry out and complete" the works. This directs attention to the terms of the contractual obligation that is alleged to have been breached or found to have been breached.

[702] Clause 2.1 of the EPC Contract provides that:

"[the Principal] and Contractor agree to carry out and complete their respective obligations to each other under and in accordance with: (a) the attached General Conditions of Contract; and the other Contract Documents referred to in Annexure A to the attached General Conditions of Contract." (emphasis added)

[703] Clause 3.1 of the General Conditions provides that the "Contractor shall execute and complete the Work Under the Contract" (emphasis added). Clause 3.4(a) obliged the Contractor to exercise due skill, care and diligence in the "execution and completion of Work Under the Contract" (emphasis added).

[704] Clause 3.4(g)(i) of the General Conditions provides that the Contractor warrants to the Principal that it:

"shall execute and complete the Work Under the Contract so that the Works, when completed, shall... be fit for their stated purpose as specified in the Contract." (emphasis added)

[705] "Work Under the Contract" is defined in clause 2.1 to mean "the Works" and:

"any other work which the Contractor may be required to execute under the Contract including the provision of all Constructional Plant, plant and equipment and the performance of all work and services required for the design, engineering, procurement, construction, commissioning, testing and delivery of the Works in accordance with this Contract." (emphasis added)

"the whole of the work to be executed in accordance with the Contract and to be handed over to the Principal, including but not limited to all equipment to be provided, all cogeneration plants to be constructed and any variations provided for by the Contract." (emphasis added)

[707] The EPC Contract defined "Practical Completion" and provided in clause 35.2 that upon "the Date of Practical Completion the Contractor shall give possession of the Works to the Principal". Other contractual definitions, such as the meaning of "Project", serve to confirm that the project entailed the design, construction, commissioning and handover of the Works on the Broadwater site.

[708] The relevant contractual breaches that have been proven by the plaintiffs include a failure to complete the Work Under the Contract in accordance with the contract's general conditions and other contract documents that were incorporated into the EPC Contract. They include a failure to "execute and complete" that work so that the works "when completed" were fit for their stated purpose (clause 3.4(g)(i)) and a failure to exercise due skill, care and diligence in "the execution and completion" of the "Work Under the Contract" (clause 3.4(a)).

[709] As noted, the plaintiffs rely upon Keating On Construction Contracts in which the learned authors state:

"[16-026] Where a contractor is liable under an entire contract to complete works, the limitation period for defects runs, it is submitted, from the date of completion or purported completion, and not from any earlier date when that part of the works, the subject matter of the defects, was carried out [Tameside Metropolitan BC v Barlow Securities Group Ltd [2001] EWCA Civ 1; [2001] BLR 113 CA; The Oxford Partnership v Cheltenham Ladies College [2006] EWHC 3156; [2007] B.L.R. 293, TCC]."

[710] One of the authorities cited, Oxford Architects Partnership v Cheltenham Ladies College,[21] has been applied in later decisions. Oxford Partnership concerned the provision of architectural services. Ramsey J observed that a distinction is to be drawn between the position of a contractor and the position of a professional such as an architect. The following was stated in relation to the position of a contractor:[22]

"The position of a contractor of course depends on the terms of the Contract but generally there is an obligation to 'carry out and complete' the works. Thus, there will be a cause of action for a failure properly to complete the work by the date for completion. In those circumstances a cause of action will accrue right up to Practical Completion if the contractor fails to complete the works properly, see Chitty on Contracts (29th edition) paragraph 28-054 and Keating on Construction Contracts (8th edition) paragraph 15-012."

[711] The parties cited Swansea Stadium Management Company Ltd v City & County of Swansea in which O'Farrell J stated: [23]

"It is well-established law that a cause of action for a breach of a construction contract accrues when the contractor is in breach of its express or implied obligations under the contract. Where, as in this case, there is an obligation to carry out and complete the works, the cause of action for a failure to complete the works in accordance with the contract accrues at the date of practical completion..." (emphasis added)

[712] Oxford Partnership was followed in Agro Invest. In that case, Lord Clark observed:[24]

"It is plainly correct, as was submitted on behalf of SMG, that the concept of practical completion cannot be used to place a gloss on the language of the statutory provisions; that language expresses the law and must be applied. However, it is equally obvious that for the purposes of the statute an act, neglect or default, in a case such as the present, takes place when the breach of duty founded upon occurs. In relation to SMG, the case is based on breach of contract. The contract between Agro and SMG states, as is common in many construction contracts, that SMG were to 'carry out and complete' the works in accordance with the contractual conditions. Accordingly, if the works were not completed in accordance with the conditions there was at that point a breach of duty. The obligation may be viewed as dual, in the sense that it creates a duty both to carry out, and separately, to complete, the works in conformity with the contract: see Guinness plc v CMD Property Developments Ltd 76 BLR 40; Hunt v Optima (Cambridge) Ltd EWHC 681 (TCC); 148 Con. L.R. 27. Whether this means that there was also an earlier breach in failing to carry out the works in accordance with the conditions is for present purposes neither here nor there; a duty to complete the works in accordance with the contract conditions means that, in the contract with SMG, completion is a point in time at which breach can occur (see The Oxford Partnership v The Cheltenham Ladies College [2006] EWHC 3156; [2007] BLR 293). Thus, I reject SMG's contention that the date of practical completion is not relevant. On the contrary, it is directly relevant to the date of the alleged breach of contract by SMG." (emphasis added)

[713] Lord Clark discussed an earlier authority which was said to be entirely consistent with "practical completion being a point in time at which there will be a breach of contract if the works are not in conformity with the contractual requirements".[25]

[714] The defendants submit that Agro Invest should be treated with caution for two reasons. First, Scottish law is based, in part, on Roman law, and is not identical to the approach taken in this jurisdiction or in England and Wales. Second, the Scottish limitation statute has different provisions about the extinction of obligations, and when an obligation to make reparation for loss is treated as having become enforceable.[26] However, the relevant part of the opinion of Lord Clark in Agro Invest that I have quoted is not founded on a principle of Roman law and follows English authority, namely Oxford Partnership. It does not turn on the application of s 11 of the Prescription and Limitation (Scotland) Act 1973 (UK). It relates instead, to matters of general principle about when the breach of an obligation to "carry out and complete" may occur.

[715] The parties refer to other authorities, but it is not necessary to dwell upon them. They concern different facts and different obligations. Some of them turn on whether the relevant breach was a failure to carry out the work. It is unnecessary to consider the issue of whether a so-called "temporary disconformity" may amount to a breach of contract. Depending on the circumstances, the carrying out of defective work that is subsequently remedied may amount to a breach.[27] The remediation of a defect prior to completion may give rise to a question of what loss is suffered as a consequence of the "initial breach".[28] A failure to remedy a past breach of an obligation to carry out works may not necessarily mean that there has been a further breach of the contract.[29]

[716] The authorities upon which the plaintiffs rely establish that a later breach of a contractual obligation may give rise to a separate cause of action. Those authorities, including Oxford Partnership and Agro Invest, recognise the possibility that a breach of an obligation to "carry out and complete" work may occur earlier than the date of practical completion, for example, when work is carried out in a way that creates a defect. They also recognise that the completion and delivery of works in a defective state (the defect not having been detected or remedied) may constitute a breach of the obligation to "complete" the work in accordance with the contract, and that such a breach accrues on the date of completion or purported completion.

[717] The relevant contractual obligations in this case are to "carry out and complete" or "execute and complete". The obligation may be viewed as dual, in the sense that it creates a duty both to carry out, and separately, to complete, the works in conformity with the contract.[30]

[718] The fact that there may have been an earlier breach of the duty to carry out the work when the ATO Damper was installed does not answer the plaintiffs' point that a later breach of the obligation to carry out and complete the works occurred when the first and second defendants did not complete the works in accordance with the contract on the date of completion.

[719] A breach of the relevant obligations to carry out and complete the works occurred on the date of completion or purported completion. This included the breach of the specific obligation in clause 3.4(a) to exercise due skill, care and diligence in the "execution and completion" of the Work Under the Contract and the breach of the specific obligation in clause 3.4(g)(i) to execute and complete the Work Under the Contract so that the works, when completed, were fit for their stated purpose. The cause of action for breach of those obligations accrued on the date of completion or purported completion, namely 21 November 2008. The proceeding for breach of contract was brought within time.

[720] The first plaintiffs claimed against the first and second defendants damages in the amount of $3,067,838 for:

(a) breaches of the EPC Contract;

(b) breach of the non-contractual duty of care to exercise reasonable care and skill in constructing, testing and commissioning the boiler; and

(c) misleading or deceptive conduct in contravention of the TPA,

that caused repair and business interruption losses.

[721] The third plaintiff (NSWSMC) claimed against the first and second defendants damages of $322,111 for:

(a) breach of an alleged duty of care to exercise reasonable care and skill in constructing, testing and commissioning the plant; and

(b) misleading or deceptive conduct in contravention of the TPA,

[722] The third plaintiff did not press its claim for breach of a duty of care.

[723] The plaintiffs did not succeed in establishing a contravention of the TPA.

[724] The first plaintiffs' claims for breach of contract and breach of a non-contractual duty of care (negligence) are subject to a defence that relies upon the "Indirect Loss" provisions of clause 48.4(a) of the EPC Contract. That clause provides that the first and second defendants shall not be liable to the first plaintiffs for "Indirect Loss" (as defined in clause 2.1 of the contract). It excludes liability whether for breach of contract or negligence.

[725] Subject to a pleading point about the first and second defendants' reliance upon this provision in answer to the first plaintiffs' claim for negligence, the first plaintiffs acknowledged that the "Indirect Loss" provisions apply to their business interruption claim.

[726] The pleading point raised in the plaintiffs' written submissions in reply falls away. An earlier plea by the defendants of the "Indirect Loss" clause in answer to the first plaintiffs' negligence claim was deleted from later editions of the defence, only because the plaintiffs' negligence pleading was struck out. The plaintiffs having applied in the course of submissions for any leave that was required under rule 376 to rely upon their pleaded claim for negligence, counsel for the defendants in oral submissions indicated that if I granted leave to the plaintiffs to rely on their currently pleaded claim for negligence, the defendants would seek leave to reinstate those parts of the defence that pleaded substantive defences to the negligence claim. At the hearing on 1 September 2022, I indicated that seemed only fair and senior counsel agreed. Therefore, I formally grant leave to rely upon those parts of paragraph 69 and 71 that were struck-through. This includes pleas in paragraph 69(b) as to why the defendants deny that a duty of care was owed to the first plaintiffs, reliance upon the "Indirect Loss" clause and contributory negligence pleas.

[727] Because the first plaintiffs accept that the "Indirect Loss" clause provides a defence to their claims for breach of contract and negligence in relation to economic loss, the focus of my consideration is upon the first plaintiffs' claims for repair costs.

[728] For completeness, I will return to their other heads of loss that would only have been able to be recovered had they succeeded in establishing a contravention of the TPA.

[729] The first plaintiffs also bring a claim against the third defendant (DEDI). This claim alleges that DEDI is liable because it failed to comply with its obligation to guarantee the first and second defendants' observance of their obligations under the EPC Contract, and also failed to indemnify the first plaintiffs for loss suffered by reason of the first and second defendants' breaches of that contract. I shall return to the issue of DEDI's liability after addressing the quantum of the first plaintiffs' claims for loss and damage.

[730] The amounts claimed by all three plaintiffs may be summarised as follows:

Interim repair costs (including NSWSMC engineering support)

Final repair costs (including NSWSMC engineering support)

[731] In proof of loss and the quantum of loss, certain documents were tendered in the course of the trial pursuant to s 1305(1) of the Corporations Act 2001 (Cth). Documents admitted into evidence under s 1305 are prima facie evidence of the matters stated or recorded in those documents.[31]

[732] The defendants correctly submit that documents relied upon by the plaintiffs to prove repair costs or other losses and that are admitted into evidence under s 1305, do not necessarily prove the loss or their quantum. They correctly submit that the admission of documents under s 1305 into evidence "is not the end of the court's consideration of whether the plaintiffs' losses have, in fact, been proven".

[733] The defendants did not lead any evidence on quantum. They submit, however, that matters raised in cross-examination of some of the plaintiffs' witnesses, when considered alongside the documents tendered as prima facie evidence under s 1305, mean that the plaintiffs have failed to prove certain claims relating to repair costs and revenue losses.

[734] In total, the plaintiffs claim $2,230,447 as costs of repairs. Of that, the defendants dispute an amount of about $287,714. The disputed costs are consumable and labour costs.

[735] The defendants do not challenge the quantum of the repair losses claimed by the plaintiffs. Instead, they dispute the necessity and reasonableness of certain repair costs. They rely primarily on certain shortcomings in the evidence of Mr Tallon.

[736] Mr Tallon is employed by NSWSMC as an accountant for the Broadwater mill. His evidence included the costs of repairs and expenses incurred by NSWSMC.

[737] In August 2011, Mr Tallon in his role as Mill Accountant collated the details of costs incurred by NSWSMC from 5 July 2010 to 31 July 2011 to repair the boiler as a result of the 5 July 2010 damage. He collected this information by generating reports from NSWSMC's computerised accounting system. These reports are "Major Items Reports" that were tendered in the course of the trial pursuant to s 1305(1) of the Corporations Act 2001 (Cth).[32] The Major Items Reports concern supplies of items associated with repairs linked to the 5 July 2010 boiler damage.

[738] According to the defendants, Mr Tallon "didn't go behind that information". He did not "make enquiries of the engineers who had access to the system" or ask them about the process of decision-making.

[739] Mr Tallon agreed that, as a general proposition, the integrity of a set of accounts is only as strong as the data that is entered into it. Upon being asked whether he could ensure that the data entered into the accounting system was not "garbage", Mr Tallon responded that "you've got to rely on your staff, you've got to rely on those that are approving these requisitions... [T]hey're qualified people", and that he did no more than "assume" they had got it right.

[740] The defendants submit that Mr Tallon conceded in cross-examination that he could not say whether the labour costs claimed by the plaintiffs were either reasonable or necessary. They also submit that Mr Tallon could not say, in relation to the consumable costs claimed by the plaintiffs, whether they were:

(a) incurred for things ordinarily bought in the ordinary course of business and used for that purpose. This is because Mr Tallon had not compared the usual costs of those items to the plaintiffs against the costs of repairs; or

(b) necessary.

[741] As to these consumable costs, the defendants focused in cross-examination on the purchases of a Dolphin torch (costing about $9.70), earplugs (costing about $32/pair) and a large number of beige rigger gloves (costing about $3.70/pair). Earplugs and gloves were bought for use by the mill's employees from time to time regardless of the boiler damage. Mr Tallon was taken in particular to 25 pairs of gloves being bought on 14 July 2010. Mr Tallon could not say whether as many as 25 people were working on the boiler repairs, or whether there were "some of the workers who want to just get gloves for the sake of getting gloves".

[742] The plaintiffs submit that, while Mr Tallon made such concessions in his evidence, there was other evidence about repair costs that supplements Mr Tallon's evidence. Mr Sawatzki gave evidence about the need to carry out repairs and the process of carrying them out, including the repairs carried out in each relevant month.

[743] Mr Sawatzki gave evidence that he coordinated the repair work to the boiler. He kept details of the repairs that were carried out from 5 July 2010 to 14 February 2011 in notes that he prepared on the boiler grate outages. He referred to an Excel spreadsheet that was prepared to include all "material damage costs incurred as a result of the incorrect installation of the [ATO Damper]". He confirmed that he "assisted to collect and supply the data for the repairs and reinstatement costs" and confirmed they are correct and accurate. He also referred to five Major Items Reports, confirming that they relate to the scope of grate repairs.

[744] In his supplementary evidence, Mr Sawatzki provided considerable detail about the repairs that were carried out in July 2010, set out the various costs of those repairs in the relevant Major Items Report for July 2010, and concluded that he had "no reason to doubt the accuracy or reasonableness" of those costs. Mr Sawatzki gave similarly structured evidence in relation to the remaining Major Items Reports relating to August 2010, September 2010, October 2010, November 2010, December 2010, February 2011, March 2011, April 2011 and May 2011.

[745] The plaintiffs further note that the Major Items Reports referred to in the evidence of both Mr Tallon and Mr Sawatzki show that specific, individualised repairs were allocated particular job numbers, and that labour and consumables costs were individually assigned to those job numbers (and therefore individual repairs). From this, the plaintiffs say the evidence shows that there were processes to properly capture the costs of repairs and these processes allowed Mr Sawatzki to be confident in having "no reason to doubt the accuracy or reasonableness" of the costs as outlined in the Major Items Reports.

[746] Mr Sawatzki was not cross-examined on his evidence about the necessity and reasonableness of the disputed repair costs.

[747] The plaintiffs also rely on Mr Welch's evidence to bolster Mr Tallon's evidence. Mr Welch is the company secretary of NSWSMC and held that position, as well as being the company secretary of the second plaintiff, at the time of the July 2010 damage. Among other things, Mr Welch gave evidence on matters relevant to the plaintiffs' claimed losses and quantum and referred in his witness statement to an Operation and Maintenance Agreement ("Agreement") between the second plaintiff (as part of the Sunshine Electricity Joint Venture) and NSWSMC. Clause 7 of the Agreement, and subclause 7.4 in particular, regulated the provision of invoices by NSWSMC to the first plaintiffs. Mr Tallon gave evidence that the first plaintiffs were invoiced costs by NSWSMC, including labour and consumables costs, in accordance with the terms of the Agreement. In this way, the first plaintiffs paid or had an obligation to pay those invoices.

[748] I conclude that, on the totality of the evidence, the plaintiffs' claims for the disputed costs of repairs have been proven. The defendants framed their submissions as if Mr Tallon were the only source of evidence about the necessity and reasonableness of the labour and consumables costs incurred in the boiler repair process. This is not so. While Mr Tallon himself could not attest to the accuracy of the data inputs in the accounting software used to generate the Major Items Reports, he relied on staff, in particular "those that are approving these requisitions", to accurately input that data. Mr Sawatzki is one such person who Mr Tallon relied upon, and given Mr Sawatzki's role in coordinating the boiler repairs, reasonably so. Mr Sawatzki's evidence is that there is no reason why the data reflected in the Major Items Reports would not accurately reflect the actual costs incurred in the repair operations, as opposed to costs incurred in the course of day-to-day business. It is possible, for example, that some of the workers wanted "to just get gloves for the sake of getting gloves" rather than because they were necessary and reasonable for the carrying out of repairs. However, the evidence is that incurred costs were assigned to specific repair jobs, were approved and were invoiced correctly, and that all relevant processes and procedures were complied with by NSWSMC. The evidence is that, while Mr Tallon could not vouch for the accuracy of the data entered into the accounting software, Mr Sawatzki could. The evidence of Mr Sawatzki on this point was not challenged by the defendants in cross-examination. The Major Items Reports are prima facie evidence of the matters contained within them. While that is only the starting point for evidence admitted under s 1305, the whole of the evidence does not lead me to a different point. I find that the plaintiffs' claims for the costs of repairs have been proven.

[749] The first plaintiffs' claims for breach of contract and negligence against the first and second defendants are limited by the EPC Contract's "Indirect Loss" provisions. Clause 48.4(a) of Volume 1 of the EPC Contract provides:

(i) any liability of the Contractor under clauses 36 and 44.10A;

(ii) any liability of the Contractor in cases of fraud or wilful misconduct by the Contractor of its employees or agents;

(iii) any liability of the Contractor for any losses or damages for which the Contractor is entitled to an indemnity and payment is made to it or on its behalf under any policy of insurance required to be effected by the Contractor under this Contract (or which is effected by the Principal under clause 21.2); and

(iv) any liability of the Contractor for any losses or damages for which the Contractor would have been entitled to an indemnity and payment would have been received if it had effected the insurances required to be effected by the Contractor under this Contract,

the Contractor shall not be liable to the Principal for Indirect Loss."

[750] "Indirect Loss" is defined by clause 2.1 of the EPC Contract to mean:

"loss of profits, loss of use, loss of contracts, loss of sales or damages from failure to supply electricity, damages from obligations regarding the receipt of fuel, loss of sales or damages from failure to supply steam, or for any indirect, special or consequential damages arising out of or in connection with this Contract regardless of whether liability is based on any breach of contract, tort (including negligence), indemnity, warranty, statute, or any other basis of liability"

[751] The application of exclusion and limitation clauses depends on the intention of parties and involves a question of construction of the specific contract at hand. The defendants relied on the High Court's oft-quoted statement of principle that:[33]

"the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity."

[752] The defendants also referred to authority for the proposition that the same approach applies to clauses excluding liability for indirect or consequential loss.[34] The plaintiffs do not contest the defendants' summary of the relevant principles.

[753] The plaintiffs concede that, insofar as their revenue loss claims are derived from breach of contract, clause 48.4 operates to exclude them from being recovered. They also accept that clause 48.4 operates to exclude liability for "Indirect Loss" based on tortious claims, including negligence. So much is clear from the text of clause 2.1. The plaintiffs' submissions in reply noted that the defence, as currently pleaded, did not rely on clause 48.4 to exclude liability in tort. They noted that previous versions of the defence did plead their case on this basis but that this has been subsequently removed. However, for the reasons given earlier, I grant leave to the defendants to reinstate those substantive defences. Therefore, the "Indirect Loss" provision excludes liability in contract and in tort for the first plaintiffs' claim for revenue losses.

Judgment for the first plaintiffs against the first and second defendants for repair costs

[754] The first plaintiffs should have judgment against the first and second defendants in the amount of their proven repair costs, namely $2,107,152.

[755] As discussed, the other heads of loss claimed by the first plaintiffs and NSWSMC's claims would only have assumed practical significance if the plaintiffs had succeeded on their claims for misleading or deceptive conduct in contravention of the TPA.

[756] The parties agree that clause 48.4 does not prevent the first and second plaintiffs from recovering losses arising from misleading or deceptive conduct. However, the plaintiffs have not proven their misleading or deceptive conduct claims.

[757] For completeness, having considered the evidence and the parties' submissions, I should address proof of the loss and damage that might have been recovered for non-repair costs.

[758] The defendants take issue with various aspects of the evidence of Mr Welch and Mr O'Shea in relation to the plaintiffs' claims for these economic losses. Some factual context about these claims should be given.

[759] In May 2005, the first plaintiffs and Country Energy, a statutory state-owned corporation constituted under the Energy Services Corporation Act 1995 (NSW), entered into an Embedded Generator Connection Agreement ("EGCA").

[760] By the time of handover of the Broadwater mill in November 2008:

(a) the plaintiffs had entered into an Amended and Restated Energy Transfer Agreement ("AETA"); and

(b) the first plaintiffs and Delta Electricity, another statutory state-owned corporation constituted under the Energy Services Corporation Act 1995 (NSW), had entered into an Amended and Restated Power Purchase Agreement ("APPA").

The amended and restated agreements were materially similar to original agreements entered into in May 2005 alongside the EGCA.

[761] The steam produced by the Broadwater boiler was designed to be used for, and was in fact used for, three different purposes, namely:

(a) the operation of the Broadwater mill, with the steam being supplied by the first plaintiffs to the third plaintiff pursuant to the AETA;

(b) the generation of electricity to be used to power the Broadwater mill, with the electricity being supplied by the first plaintiffs to the third plaintiff pursuant to the AETA; and

(c) where there was excess electricity, the transportation of that electricity to the local electricity grid for the first plaintiffs to generate income.

[762] The income generated from the transport of excess electricity to the grid took three forms, being:

(a) Time Weighted Average Price ("TWAP") revenue paid by Delta Electricity pursuant to the APPA for each megawatt of power exported to the local grid;

(b) payments from the sale of Renewable Energy Certificates ("RECs"). RECs are saleable credits awarded to accredited renewable energy generation facilities, like the Broadwater co-generation plant, that use eligible fuels certified under the Renewable Energy (Electricity) Act 2000 (Cth). Pursuant to the APPA, the first plaintiffs sold all of its RECs to Delta Electricity to trade on the open market; and

(c) payments for Transmission Use of System ("TUOS") fees made by Country Energy to the first plaintiffs under the EGCA. The Broadwater co-generation plant was connected to the electricity distribution network owned and operated by Country Energy. The electricity provided by the Broadwater co-generation plant to Country Energy removed the load from the transmission network and reduced the distance that generation needed to be sent into the regions. TUOS fees are payments made to account for these benefits.

[763] The first plaintiffs claimed lost income under each of these three heads of loss. They are tabulated above, and I will refer to them as the "Revenue Loss Claims". The plaintiffs' economic loss claims (also referred to as business interruption losses) are not limited to the Revenue Loss Claims, and include:

(a) the costs of steam and incidental costs of electricity that were incurred by NSWSMC to replace the steam that would have been generated at Broadwater had the July 2010 damage not occurred;

(b) the additional labour costs incurred by NSWSMC in paying staff to assist in the Broadwater boiler repair works and to work in the Engineering Stores Department; and

(c) the additional costs of transporting sugar cane to facilities at Harwood and Condong for processing because it could not be processed closer by at Broadwater.

[764] The defendants' written submissions appeared to limit their criticisms to the evidence in respect of the Revenue Loss Claims only.

[765] The defendants submit that, to the extent that the plaintiffs rely on Mr Welch's evidence to prove the quantum of their Revenue Loss Claims, those claims should be rejected.

[766] As mentioned above, Mr Welch was the company secretary of both the second plaintiff and NSWSMC at the time of the July 2010 damage and continues to act in that capacity for NSWSMC. In those roles he had access to both the second plaintiff's and NSWSMC's books and records.

[767] Mr Welch's evidence was that, after the July 2010 damage, the first plaintiffs undertook a detailed investigation process to determine the sum of the business interruption claims under the joint venture's insurance policy resulting from that damage. These business interruption claims are the Revenue Loss Claims.

(a) the electricity exported from the Broadwater co-generation plant was recorded in "Quasar reports" maintained by NSWSMC. Mr Welch was not involved in generating the Quasar reports but knew that they were generated from software purchased for this purpose. He was aware that monthly Quasar reports from July to December 2010 were generated and believed that they would have been provided to the second plaintiff;

(b) Delta Electricity paid the first plaintiffs for the electricity received from the Broadwater and Condong plants pursuant to invoices issued to them by the first plaintiffs. Although he could not recall, Mr Welch believed that Delta Electricity generated the invoices from their data resources that recorded the electricity that they received. His role involved ensuring that the amounts in the invoices were receipted by the second plaintiff from Delta Electricity. Mr Welch identified invoices for the calendar months January to October 2010, but could not locate invoices for November to December 2010;

(c) the first plaintiffs would share equally in the monthly TWAP revenue;

(d) the TWAP price is determined by Delta Electricity in accordance with the APPA; and

(e) Mr Welch had been shown a document named "Table of TWAP and electricity sales for the period July 2010 to February 2012" in preparing his evidence. He did not recall previously seeing that table but believed it likely would have been prepared by Delta Electricity for the first plaintiffs for the purposes of their insurance claim. The document is a spreadsheet that summarises the monthly TWAP revenue paid to the first plaintiffs for the period July 2010 to February 2012.

[769] In relation to payments from the sale of RECs:

(a) Delta Electricity would pay monthly invoices issued by the first plaintiffs to it regarding REC sales revenue;

(b) Mr Welch believed that either one of the first plaintiffs generated the REC sales revenue invoices issued to Delta Electricity from spreadsheet data that Delta Electricity provided from their data resources recording the amounts of electricity received. His role involved ensuring that the amounts in the invoices were receipted by the second plaintiff from Delta Electricity. Mr Welch identified invoices for the months February, March, May, and July to November 2010, but could not locate invoices for April, June and December 2010;

(c) the REC sales revenue invoices note RECs for the Broadwater co-generation plant and whether the RECs were generated from bagasse or wood fuel (bagasse RECs being more valuable);

(d) the first plaintiffs would share equally in the monthly REC sales revenue;

(e) Mr Welch had been shown a document named "Table of Average REC Price based on RECS sold July 2010 to January 2011" in preparing his evidence. He did not recall previously seeing that table but believed it likely would have been prepared by Delta Electricity for the first plaintiffs for the purpose of their insurance claim. The document is a summary of RECs sold over the period July to December 2010 in order to determine the average price of both bagasse and wood RECs;

(f) Mr Welch identified the 2010 annual reconciliation of RECs that was submitted to the Office of the Renewable Energy Regulator. He was not personally involved in submitting the reconciliation but believed that it would have been submitted by a David Coucill. As the company secretary for the second plaintiff, Mr Welch was aware of this and other such annual REC reconciliations;

(g) the first plaintiffs, for their insurance claims, prepared an analysis determining the ratio of RECs registered to electricity exported. While Mr Welch was not involved in its preparation, he identified the relevant document;

(h) fuel usage at the Broadwater plant can be identified from both "Broadwater Boiler Fuel Inventory Reports" and regulator reports from the Office of Renewable Energy. Mr Welch identified, but was not involved in the preparation of, Broadwater Boiler Fuel Inventory Reports for the months July 2008 to June 2010. He also identified, but was not involved in the preparation of, a Broadwater Boiler Fuel Accounting Report showing fuel usage on a weekly basis from the week ending 4 July 2010 to the week ending 12 December 2010; and

(a) TUOS payments are governed by Schedule 9 to the EGCA;

(b) Country Energy is the only entity with all necessary data to perform TUOS payment calculations;

(c) Mr Welch's role involved ensuring that the amounts in the TUOS statements were receipted by the second plaintiff from Country Energy. Mr Welch identified TUOS statements for the months July to November 2010, but could not locate the TUOS statement for December 2010; and

(d) the first plaintiffs would share equally in the monthly TUOS payment revenue. TUOS statements would be issued to each of the first plaintiffs. Each plaintiff's TUOS statement would only reflect that plaintiff's half share.

[771] The defendants say that Mr Welch's evidence regarding TWAP revenue is deficient in that:

(a) he did not generate the Quasar reports himself, did not know how the software functioned, did not operate it himself, and assumed the software was compliant;

(b) he did not independently verify the data contained in the Quasar reports with Delta Electricity, and did not conduct an independent analysis of the data representing the TWAP revenue paid and received for electricity sales between July 2010 and February 2012;

(c) he could not attest to the accuracy of the data contained in the July to December 2010 Quasar reports; and

(d) in respect of the "Table of TWAP and electricity sales for the period July 2010 to February 2012", he could only say that it was a document that he was shown, he could not remember seeing it before and he did not create it.

(a) the defendants did not tender any evidence suggesting that the documentation referred to by Mr Welch was inaccurate;

(b) Mr Welch explained that the Quasar software was purpose-specific software for capturing megawatt generation data and was not some "two bob piece of software". He was not required to operate the software himself or verify that it was compliant before giving evidence about the Quasar reports that were generated from that software and maintained by NSWSMC. The defendants did not adduce evidence that the software was not operated correctly or was not compliant;

(c) Mr Welch indicated in cross-examination that he had no basis to say that the data contained in the Quasar reports was wrong; and

(d) Mr Welch did not need to independently verify or analyse data in circumstances where he was confident that the data had originated from Delta Electricity, and confident in Delta Electricity's ability to accurately generate and distribute that data.

[773] According to the defendants, Mr Welch's evidence regarding REC sales revenue is deficient in that:

(a) Mr Welch was unsure as to the source of all data he relied upon;

(b) Mr Welch could not be sure of the data's accuracy; and

(c) in respect of the "Reconciliation of Base Data for Financial Model" document, Mr Welch did not actually know that the first plaintiffs prepared it or that it was prepared for the insurance claim, and could not explain what the ratio in the document showed and meant.

[774] In response, the plaintiffs submit in respect of the "Reconciliation of Base Data for Financial Model" document that:

(a) although Mr Welch did not know that the first plaintiffs had prepared it, due to his role, he received and accepted the document from the commercial manager who was responsible for submitting the reconciliation for the RECs;

(b) Mr Welch's evidence was that the document was "extracted for the insurance claim" because it was "the standard monthly return that was completed every month"; and

(c) Mr Welch explained the ratio as being a calculation of "REC created divided by the export to grid after and [sic] maximal loss factor", a division calculation.

[775] The defendants also assert the following deficiencies in Mr Welch's evidence in general and say the Court should take them into account when assessing the Revenue Loss Claims:

(a) Mr Welch purported to give evidence as to fuel savings but in cross-examination, without explanation, conceded that that evidence was wrong;

(b) Mr Welch purported to give evidence as to additional cane transportation costs, but could not explain the ordinarily incurred transportation costs;

(c) Mr Welch conceded that he had prepared certain labour cost figures for the insurance claim that were incorrect due to a lack of care and that there may be more mistakes in his calculations;

(d) Mr Welch gave evidence about additional steam costs incurred but conceded that he had no basis to suggest that the figures given were based on actual steam and electricity required or the basis of estimates used; and

(e) Mr O'Shea identified errors in figures provided to him by Mr Welch.

(a) that the defendants misunderstood Mr Welch's oral evidence about fuel savings, which accords with his written statement;

(b) that Mr Welch only undertook calculations to specifically identify the additional costs of cane transportation and that these calculations are not impugned;

(c) that Mr Welch's additional labour cost figures were incorrect but were adjusted downwards to account for a rainfall event that had occurred but had been accidentally left unaccounted for. Also, the reduced figure is the amount claimed against the defendants and the insurer's loss adjuster did not find any other inaccuracies. The defendants have not pointed to evidence of any other mistakes or their potential significance;

(d) the evidence relating to additional steam costs that is said to be missing was provided by Mr Moller, who was not cross-examined on that evidence; and

(e) the inaccuracies referred to relate to Mr Welch's additional estimated transport costs arising as a result of the July 2010 damage. While Mr Welch refers to costs of 0.09c and 0.13c for wear and tear of tyres and repairs and maintenance respectively, the calculation in the worksheet prepared by Mr Welch at the relevant time actually (and correctly) applies $0.09 and $0.13. These errors were of no significance.

[777] Overall, the defendants' point is that Mr Welch's evidence is of little value when he "accepted he had no knowledge of the veracity of the figures" relevant to his evidence, "conceded that he had not made attempts to verify the figures" relevant to his evidence, agreed that some of his evidence was "patently wrong", and he was responsible for providing incorrect information to the insurer. His evidence was said to be "perfunctory" and "relied upon by the plaintiffs in an attempt to clothe figures about which he knew very little with the ostensible authority of a certified practising accountant".

[778] I find that Mr Welch made some limited errors in the figures that were provided to the insurer. These errors were admitted and explained, and were corrected well before the trial commenced. The quantum of the plaintiffs' claim has been checked by a loss adjuster who could not find other inaccuracies. The errors do not have a substantial bearing on the quantum of the plaintiffs' claim, nor do they affect the value of Mr Welch's evidence more broadly.

[779] Mr Welch accepted the abstract proposition that he might have made more errors. This may be seen by some to demonstrate a lack of confidence in his calculations and ability. However, I view this acceptance as exhibiting a lack of _over_confidence. I do not find that Mr Welch's evidence was "perfunctory" or "patently wrong". This is especially the case where the loss adjuster did not find any other errors in Mr Welch's figures that were provided for assessing the quantum of the plaintiffs' insurance claim.

[780] The defendants' primary submission is that Mr Welch failed to independently verify the data contained in the Quasar reports, the TWAP revenue and REC sales revenue invoices, and the TUOS statements. This raises a similar issue as to how Mr Tallon relied on those who entered data into the accounting software when generating the Major Items Reports. Mr Welch relied on other people and processes to correctly input the data that related to the Revenue Loss Claims.

[781] He relied on the Quasar reporting software to accurately measure and record electricity export data. There is no evidence to suggest that this evidence is not the kind of specialist software described by Mr Welch. He relied on Delta Electricity to accurately generate data for the purposes of the TWAP revenue and REC sales revenue receipts. He similarly relied on Country Energy in relation to the data they used to generate TUOS statements. He relied on the commercial manager who was responsible for submitting the reconciliations for RECs. There is no evidence to suggest that there were errors in the documents, created or generated by others, upon which Mr Welch relied. Mr Welch's role involved ensuring that the amounts in the invoices and TUOS statements were receipted by the second plaintiff from Delta Electricity and Country Energy respectively. There is no evidence that he failed in this capacity.

[782] In the circumstances, it was not necessary for Mr Welch to independently verify the source data from which the Revenue Loss Claims have been derived. The evidence is that Delta Electricity and Country Energy had the better access to information and no matters were raised to suggest that their information should be doubted. Mr Welch was entitled to rely on the accuracy of that information.

[783] The defendants' secondary submission is that possible errors in evidence in other areas (e.g., in fuel savings, additional transportation costs, additional steam costs) tarnish Mr Welch's evidence on the specific topics of the Revenue Loss Claims. I do not accept this submission in circumstances in which Mr Welch did not generate the data from which the Quasar reports, the TWAP revenue and REC sales revenue invoices, and the TUOS statements, were generated. It is hard to see how evidence of Mr Welch's errors gives rise to an inference that the evidence regarding amounts which were not calculated by him might be incorrect. Further, any errors made by Mr Welch in information relevant to the insurance claim were limited, and were corrected by the loss adjuster such that the plaintiffs' claim reflects the corrected information.

[784] Mr O'Shea is an independent forensic accountant employed by KordaMentha. He was instructed by the plaintiffs to produce an expert report as to the quantum of the plaintiffs' business interruption losses.

[785] The defendants' overall point is that, while not criticising Mr O'Shea's professional skills, the Court should not accept his opinions as accurate evidence "to the extent that Mr O'Shea has been asked to provide opinions on lost revenue".

[786] The defendants say that his opinions in this regard were based upon assumptions that have not been proven and the documents on which he relied were incomplete, inaccurate or of doubtful provenance. The defendants outline 14 issues that they take with Mr O'Shea's opinions. For the sake of accuracy, I will mostly adopt the language used by the defendants in their submissions to summarise these contentions:

(a) first, Mr O'Shea accepted that he has no expertise in energy generation nor the valuation of energy traded, and he did not purport to give expert evidence about those matters;

(b) second, insofar as he purported to give opinions about losses of revenue and increased costs incurred by the plaintiffs, he did so on the assumption that the revenue and costs would move proportionately, but accepted that there was nothing available to him that would suggest that assumption was actually true;

(c) third, he did not purport to have undertaken an audit of the underlying data upon which he had relied, but had assumed the data provided to him was accurate and complete;

(d) fourth, he accepted (as was appropriate) that to the extent that the information he had relied upon was not accurate or complete, his opinions may differ from those expressed in his report;

(e) fifth, he identified information necessary to respond to the question he had been asked but with which he had not been provided, he explained:

"I think primarily when we're looking at economic loss we generally like to look at budgets and forecasts. This identifies cost drivers. It also provides insight as to what the company was envisaging they would be doing. When we're looking at, I guess, management accounts and financial information we like to put the loss in the context of the business to see if it does look realistic or unrealistic, and I think that was primarily the documents, I guess, we were - we were looking that were absent."

(f) sixth, he said that there were "discrepancies" and unexplained differences in the material he had received, in particular with the management accounts with which he had been provided, and there were "document limitations" and he "had to sort of piece together documents";

(g) seventh, he said that he had not included any amount for TUOS lost revenue, because he did not have the documents or data necessary to assess a driver for the additional TUOS revenue;

(h) eighth, he was not able to form an independent view of the losses of the third plaintiff;

(i) ninth, he had been provided with two, significantly different, sets of profit and loss statements, about which he had no basis for ascertaining which was correct, with the consequence that he could not place any real weight upon them, and could therefore only use them for a qualitative purpose and not for a quantitative purpose;

(j) tenth, although he asked for an explanation for the difference, none was provided by the plaintiffs;

(k) eleventh, the fact that receivers had been appointed to the business added another dimension which raised further questions about accepting those documents at face value;

(l) twelfth, in his report, he had drawn conclusions based on assumptions he had not been able to verify (and, which the defendants submitted, had not otherwise been proved);

(m) thirteenth, that he had relied upon and assumed the correctness of documents exhibited to Mr Welch's statement; and

(n) fourteenth, Mr O'Shea was not given access to comprehensive and accurate documentation, and it is difficult to understand why access to such documentation was not given in order to prepare his opinion, in circumstances where this proceeding was commenced in 2014, and it concerns events that occurred only a few years before that.

[787] The plaintiffs responded to a number of these points:

(a) to the third point, the plaintiffs say that Mr O'Shea had only not verified the underlying data used to create the relevant books of account to the extent that the documents relied upon were not invoices or primary source documents. The evidence was that Mr O'Shea's opinions were based on primary source documents: the plaintiffs refer to the example of Mr O'Shea relying on the TWAP revenue invoices rather than the "Table of TWAP and electricity sales for the period July 2010 to February 2012" summarising the invoice data;

(b) to the fifth point, the plaintiffs say that the quoted transcript portion does not include the final line: "What that meant is we had to adopt a particular approach and couldn't adopt its own approach". The plaintiffs say that of the two valid approaches that Mr O'Shea could have used (the "but for versus actual" and "incremental" approaches), the lack of budget and forecast information prevented Mr O'Shea from using the "but for versus actual" approach. However, Mr O'Shea explained that "in this circumstance this is one of the rare sort of types of losses where an incremental approach may actually work as well";

(c) to the sixth point, the plaintiffs say that Mr O'Shea explained that any discrepancies he located were not relied upon much, if at all, and that primary source documents were more heavily relied upon. Evidence about documents that were "piece[d] together" due to "document limitations" was taken out of context. Mr O'Shea said that:

"I wouldn't have given an opinion as to whether I thought this was the loss. Obviously, it's based on assumptions, but you know, when you look at the loss at a whole and the calculation, I think those three are, you know, relatively satisfied in this circumstance."

(d) to the seventh point, the plaintiffs say that despite not including an amount for lost TUOS revenue, Mr O'Shea acknowledged that there would have been some loss that, by its nature, would have been difficult to quantify. He gave some evidence as to its nature:

"So my understanding is TUOS is really a maximum/minimum element. So maximum/minimal means that if you reach a certain maximum, you get a certain value. Now they obviously achieved a maximum and minimum during the months of which these events occurred. So whether this additional production of this electricity would have resulted in a higher maximum or a lower minimum or would have adjusted those factors is unclear to me."

(e) to the eighth point, the plaintiffs say that he was able to form a view as to NSWSMC's losses because the information he had available was supported by specific assumptions that were in the nature of "business knowledge as opposed to an expert coming in". The plaintiffs rely on the evidence of Mr Welch, Mr Moller and Mr Sawatzki regarding NSWSMC's losses;

(f) to the twelfth point, the plaintiffs say that the assumption that Mr O'Shea had been unable to verify referred to by the defendants involved the "minimum bagasse penalty payment" (a compensation payment from NSWSMC to the first plaintiffs for additional wood costs if bagasse of a minimum fibre content was not provided as boiler fuel). Mr O'Shea confirmed in re-examination that it was capped, so he assumed that the payment would not go any higher than the cap; and

(g) to the fourteenth point, the plaintiffs say that the absence of certain documentation that might have been provided to Mr O'Shea has been explained, namely that those documents could not be located.

[788] In oral submissions the defendants stated that there was "an unreliability in the underlying recordkeeping of the plaintiffs". For example, they rely on the existence of "two [differing] sets of books of account".

[789] I find that the information that was provided to Mr O'Shea was lacking in a variety of respects. The defendants made appropriate criticisms about the absence of certain information, in particular, the two different sets of books of account. The evidence throughout this trial has been that the plaintiffs', in particular the first plaintiffs', record-keeping practices leave a lot to be desired. Mr Welch's evidence included that certain TWAP revenue and REC sales revenue invoices, and TUOS statements, could not be located. I accept that explanation. Presented with an incomplete picture, Mr O'Shea was required to make a number of assumptions and to pick and choose between various, often conflicting, sources of data to conduct his analysis. I take into account those weaknesses and acknowledge that Mr O'Shea is not an expert in energy generation or valuation of energy traded.

[790] Mr O'Shea's expert report nonetheless contains a useful analysis of the plaintiffs' claims. He relied on primary source documents where he could. These included, relevantly, the available TWAP revenue and REC sales revenue invoices and TUOS statements (being the ones that Mr Welch referred to). He relied on primary source documents over secondary sources where data conflicted between them.

[791] Mr O'Shea did not shy away from the fact that he had to "piece together documents" due to "document limitations". He also could not verify data in the instances there were no primary source documents to rely upon. Mr O'Shea accepted that if the evidence that he was provided with and relied upon was inaccurate, his conclusions may well have changed. He was not an advocate for the plaintiffs. His concessions were considered, reasonable and readily given.

[792] Despite these matters and the lack of clear or available information in certain instances, Mr O'Shea was able to give an opinion about the loss. He was relatively "satisfied in this circumstance" about the calculations made and conclusions drawn, despite the assumptions he was required to make. The absence of sufficient budgets and forecasting documentation prevented him from conducting his analysis on a "but for versus actual" approach. However, his view was that the "incremental" approach, which may not be suitable in most cases, "may actually work as well" when dealing with the "rare" types of losses that this case deals with. Mr O'Shea did not place much, if any reliance on the plaintiffs' management accounts.

[793] In the circumstances, and having regard to the report's limitations, I am prepared to act on Mr O'Shea's report in coming to a conclusion about the quantum of the plaintiffs' business interruption losses.

[794] I use the term economic loss claims to refer to the first plaintiffs' claimed revenue losses and NSWSMC's claimed expenditure apart from repair costs, being the three entries in the table that I have prepared. The shortcomings in the plaintiffs' proof of their economic loss would not result in their being denied compensation for those losses if compensation were to be awarded. Substantial losses for these kinds of claims were suffered.

[795] The plaintiffs' poor documentation of some parts of their claims would not necessarily warrant a discounting of the amounts claimed. The deficiencies in documentation and proof were addressed by Mr O'Shea's work and analysis. A discount would not necessarily be applied because it is open to conclude that losses in the amounts claimed probably were suffered. Still, had I been required to award compensation for the economic loss claims, I would have discounted the claimed amounts by 10 percent because of the imprecision in some parts of the plaintiffs' proof of quantum.

[796] The first plaintiffs and the third defendant (DEDI) entered into a Deed of Guarantee. The Deed contains two separate and distinct obligations. First, in clause 1, there is an unconditional guarantee to the first plaintiffs of the "due and punctual performance... and observance by the Contractor of all of its obligations under the Contract". Second, there is a separate undertaking in clause 2 to indemnify the first plaintiffs. Clause 7 of the Deed is a conventional provision by which the guarantor "waives any right it has of first requiring the Principal to commence proceedings or enforce any other right against the Contractor or any other person before claiming under this Guarantee and Indemnity".

[797] A difference between the obligation imposed by clause 1 and the obligation imposed by clause 2 is that the latter depends "on receipt of written demand from the Principal". Clause 1 does not condition the guarantee obligation contained in it upon receipt of a written demand. It is the kind of guarantee where, upon default of the relevant primary obligation, the person having the benefit of the guarantee can sue the guarantor for damages for breach of contract.[35]

"As a separate undertaking, the Guarantor unconditionally and irrevocably agrees that, on receipt of written demand from the Principal, it will indemnify the Principal against all losses, damages, costs (including legal costs on a full indemnity basis and the costs of enforcing this Guarantee and Indemnity), expenses or otherwise which may be incurred by it by reason of: (a) any default on the part of the Contractor in performing and observing the agreements and provisions on its part contained in the Contract; or (b) an obligation the Contractor would otherwise have under the Contract being found to be unenforceable. The Principal need not incur expense or make payment before enforcing his right of indemnity." (emphasis added)

[799] Clause 2A of the Deed imposes specific requirements about the demand:

"Any demand required to be served on the Guarantor by clause 2 must:

(ii) specify the nature of the breach or failure by the Contractor or unenforceability; and

[800] In addition, clause 11 of the Deed, which imposes further requirements, states:

"All notices, requests, demands, consents, approvals, agreements or other communications to or by a party to this Deed:

(a) must be in writing signed by an authorised officer of the sender..."

[801] The solicitors for the plaintiffs sent a demand letter dated 7 May 2013. It referred to the loss and damage claimed. It made a demand on DEDI for indemnity for such loss and damage. DEDI pleaded that the May 2013 demand letter was not a demand made by the Principal (as required by clauses 2A and 11(a) of the Deed). Its reasons included the fact it was formally written on behalf of Sunshine Electricity Management Pty Ltd, it included losses allegedly suffered only by the third plaintiff, and that it was not signed by an authorised officer of the Principal. The plaintiffs submit these complaints ought to be rejected and, in the alternative, submit that if the May 2013 demand letter was not a valid demand, a valid demand was made on 23 June 2022 by letter that was signed by a director and authorised officer of each of the first plaintiffs. That letter made demand on DEDI in respect of the first plaintiffs' losses that are claimed in this proceeding.

[802] A liability under clause 2 may only arise after the demand is made, but the obligation is to indemnify against all losses, damages and costs (including legal costs on a full indemnity basis and the costs of enforcing the guarantee and indemnity) by reason of the default of the Contractor.

[803] There seems no issue, in the circumstances, that DEDI is liable for breach of the obligation in clause 1 of the Deed to guarantee the due and punctual performance and observance by the Contractor of its obligations under the Contract, and also is liable under clause 2 of the Deed to indemnify the first plaintiffs for the loss and damages that were incurred by the first plaintiffs by reason of the first and second defendants' default in performing and observing the provisions of the EPC Contract. The first plaintiffs made demand on DEDI in respect of the first plaintiffs' losses in this proceeding.

[804] An issue remains as to the first plaintiffs' costs. The indemnity given in clause 2 of the Deed refers to costs "including legal costs on a full indemnity basis and the costs of enforcing this Guarantee and Indemnity". However, no written demand was made for those costs, those costs are yet to be proven and the demand did not specify the payment required to be made. The defendants submit that while clause 2 permits an entitlement to indemnity costs that might be sought for costs incurred prior to the demand, judgment for such costs cannot presently be given.

[805] The plaintiffs' oral submissions approached the matter on the basis that the question of costs, including indemnity costs in the exercise of a discretion, is a matter to be argued. Because a contractual provision of the kind contained in clause 2 of the Deed may be relevant to an order as to costs (as distinct from judgment based on a contractual indemnity against legal costs on a full indemnity basis), this seems a convenient course.

[806] Accordingly, the first plaintiffs should have judgment against the third defendant in the same amount as the judgment to which they are entitled against the first and second defendants, namely $2,107,152.

Directions about form of judgment, interest and costs

[807] Upon publication of these reasons, I will direct the plaintiffs to bring in draft minutes of judgment that should be first shown to the legal representatives of the defendants. I will formally enter judgment when the matter is next before the Court in early 2023 according to, what I expect will be, an agreed form of order. The issue of interest should be agreed, if possible.

[808] Given the intervention of the court vacation, I will list the matter to formally give judgment at a time and date to be fixed in the first week of the court year, namely the week commencing 30 January 2023. At the same short hearing, I will make directions about written and oral submissions on costs, and any issue as to interest on the judgment sums.

[809] At the start of these reasons, I wrote that this is a case about boilermakers, boiler operators and a boiler. But in many ways it is a tale of two boilers. One that operated as it was supposed to. Another that was defective and never operated as it was supposed to until the defect was corrected.

[810] The boiler at Condong operated mainly in automatic mode, with manual overrides by operators to deal with occasional episodes of overheating and piling of unburnt fuel on the grate. The boiler at Broadwater experienced frequent overheating of its grate, both before and after handover, because of the reverse operation of its ATO Damper.

[811] The long-term exposure of parts of the moving grate to excessive temperatures progressively degraded them. Eventually, on 5 July 2010, a grate chain failed, causing other chains on the northern grate to fail, distorting the grate and causing it to stop moving. After that, some parts of the grate sustained further damage during a controlled shutdown of the boiler.

[812] The root cause of the July 2010 grate failure was the reverse operation of the ATO Damper that deprived the grate of a significant quantity of undergrate air that was supposed to cool it and aid efficient combustion. Instead, the grate overheated because of reduced air and excessive piling of unburnt fuel. The grate overheated when there was no piling. But piling made the overheating problem worse. It prevented undergrate air from travelling into the boiler and created "hot spots" on parts of the grate. The overheating and the hot spots from piling degraded T-bars and chains that sat just below the grate tiles. The degradation and eventual failure of a chain link resulted in the July 2010 damage.

[813] An independent expert described the July 2010 grate failure as something that was "waiting to happen".

[814] The defect in the Broadwater boiler was corrected in August 2010 when the ATO Damper was programmed to operate as it should always have, and the Condong boiler always did.

[815] Before then, the operators at Broadwater had to deal, as best they could, with overheating and piling. This included manual overrides of a boiler that should usually be in automatic mode.

[816] The effects of the reverse operation of the ATO Damper meant that personnel at Broadwater had to operate the boiler in manual mode more than they otherwise would have. During commissioning and testing, CBH's experienced personnel encountered overheating and piling. Mr Dann recalled that during that period, the boiler was run in manual quite often, and if it was allowed to run in automatic, fuel would pile on the grate because it was not combusting. The same necessity to frequently operate the boiler by using manual overrides arose after 21 November 2008, when the plaintiffs' operators took over. In early 2009, Mr Ironside observed that the Broadwater operators had difficulty when the boiler was operating in automatic.

[817] The Broadwater operators faced a difficult task in responding to overheating and piling. Piling can become suddenly worse when an automated system detects a loss of output and increases the quantity of fuel to compensate. Broadwater operators would respond by reducing the load, increasing the flow of undergrate air, slowing or speeding up the travelling grate as the circumstances required, or having an operator air lance piles. But these measures were not enough to prevent the long-term consequences of overheating in degrading the moving parts of the grate.

[818] An added problem was that when the boiler was operating at lower loads, the detrimental effect of the ATO Damper operating in reverse would be greater. When the boiler was operating at its maximum continuous rating, there was a 31 percent shortfall of undergrate air due to the reverse operation of the ATO Damper. When it was burning wood and operating at 70 percent of its maximum continuous rating, there was a shortfall of between 53 and 69 percent of undergrate air.

[819] Overheating and piling often was worse when the boiler had to use wood products instead of the fresh bagasse that the defendants used during the performance and reliability tests in late 2008. As the independent expert, Mr Lowry, and others explained, when wood rather than bagasse is being used as fuel, it burns on the grate rather than in suspension, and the grate becomes hotter than if there had just been radiation coming from a suspension fire.

[820] The boiler was using wood products as fuel when the grate failed on 5 July 2010.

[821] In the investigations that followed the 5 July 2010 damage, a maintenance engineer from NSWSMC made a chance discovery. By comparing photos of the Broadwater and Condong boilers, he noticed that the Broadwater ATO Damper looked different, and that the Broadwater damper was "mechanically set up" differently to the Condong damper. He organised pressure tests and discovered that the ATO Damper at Broadwater had been installed and programmed so that it operated in reverse to the way it was supposed to operate.

[822] The plaintiffs' employees could not have been reasonably expected to discover that fact before the July 2010 damage occurred. Because the boiler ran almost continuously on biofuels, they rarely had occasion to use the oil burner to start the boiler. During the boiler's continuous operation on biofuels, they did not need to adjust the ATO Damper or pay attention to readings about how far open it was. They, and an experienced consulting engineer, reasonably assumed that the readings on the DCS screen and on the physical scale were accurate. They were not to know that when the readings were 15 percent open, the ATO Damper was 85 percent open. They assumed that the ATO Damper and the DCS had been correctly installed, programmed and tested. Quite reasonably, neither the plaintiffs' personnel nor the consulting engineer went looking for air balance tests that the defendants undertook in 2007. They reasonably assumed that the defendants had done the tests and that the readings on the screen were accurate.

[823] In April 2009, when the plaintiffs raised a question about overheating as a possible cause of damage to T-bars in the grate, the defendants did not tell them to search for the defendants' 2007 air balance tests or suggest that the overheating might be caused by a defect in the works that the defendants had completed. The defendants did not search for the air balance tests in order to answer the plaintiffs' question.

[824] After the reverse operation of the ATO Damper was discovered by Mr Rojo in late August 2010, the damper was programmed by Mr Ironside so that it operated properly for the first time.

[825] The Broadwater operators noticed that the boiler performed like a different boiler. There were far fewer overheating and piling events. The boiler started to operate like the Condong boiler always had.

[826] Around this time, Mr Ironside, an experienced consulting engineer, concluded that the reverse operation of the ATO Damper was the most important reason for higher grate temperatures and the grate damage. He was correct.

[827] To this day, the defendants have not explained how they came to construct and program the Broadwater boiler so that the ATO Damper operated in reverse, then not identify that it did from their 2007 air balance tests or some other test they undertook in 2007. They have not explained why, having detected and logged in April 2008 that the ATO Damper operated in reverse, they did not correct its reverse operation.

[828] At purported practical completion of the contract on 21 November 2008, the first and second defendants delivered a defective boiler. They therefore breached their contract in not completing the works so that, when completed, the boiler was fit for its purpose. They breached other contractual obligations and a non-contractual duty of care that obliged them to exercise due skill, care and diligence.

[829] During 2009 and the first half of 2010, it may have been easy for some to assume, not knowing that the ATO Damper operated in reverse and deprived the grate of essential undergrate air, that the different performances of the Broadwater and the Condong boilers were because the operators at Broadwater were not so good or failed to follow procedures to combat overheating and piling. After the July 2010 damage, when fingers were being pointed, these allegations were made by the defendants. They were made in this proceeding. Before the trial, the operators were wrongly accused of resetting secondary air dampers in a way that "de-tuned" the boiler that Mr Ironside had tuned. That allegation was not persisted in since the evidence disproved it. Adjusting the secondary air dampers was what operators were expected to do to deal with changing circumstances and different fuel. It was what the operators at Condong did.

[830] The Broadwater operators did what they were trained to do and did so in difficult circumstances to minimise, as best they could, overheating and piling.

[831] Also, before July 2010, not knowing that the ATO Damper operated in reverse, it may have been easy to assume that problems with piling at Broadwater were the result of "bad fuel". The boiler was designed to deal with biofuels that had a high moisture content and a certain level of impurities like rocks, stones and other ash that did not burn.

[832] On occasions, there may have been "bad fuel" in the sense of out-of-specification fuel, just as, on occasions, there may have been bad fuel at Condong. But often, what appeared to operators and others at Broadwater to be bad fuel, sitting unburnt on the grate, was not bad fuel. It was a bad boiler that was not installed and programmed to supply the quantity of undergrate air that was required to burn fuel in suspension or on the grate. As a result, piles of what appeared to be bad fuel built up.

[833] Rocks and gravel in the fuel caused some mechanical problems. The boiler was set up so that rocks and other ash that could not be reclaimed by the ash converter were dumped in a skip. Sometimes the grate was stopped for five or 10 minutes to allow the skip to be emptied. But more often, the operators did not stop the grate to allow this to happen, with rocks and gravel that fell on the ground during that short time being shovelled into the skip upon its return.

[834] Rocks in the fuel feeder, the grate and other parts of the plant contributed to wear and tear and, on some occasions, mechanical damage to the grate's T-bars. But rocks did not make a significant contribution to grate overheating. Dr Dixon and Mr Lowry agreed about that, and I accept their expert opinions.

[835] In defending the proceeding, the defendants alleged that at the time of the 5 July 2010 damage, the fuel distributor plates were set at an excessive angle of 20 degrees. But there was no evidence that the plates were at such an angle. The evidence was that the plates and the other parts of the fuel feeder were set in a way that sprayed fuel into the boiler to best achieve combustion. The theory about a sudden piling event occurring on 5 July 2010 as the result of misaligned feeder plates remains an unproven theory.

[836] The lay and expert evidence that I have accepted and discussed in great detail establishes that the reverse operation of the ATO Damper was a substantial cause of the overheating that caused the grate failure on 5 July 2010.

[837] Mr Lowry's evidence, and also the evidence that Dr Dixon gave at trial, establish this cause. Dr Dixon had earlier assumed that overheating was not a problem before handover, based on the absence of recording of overheating in certain logs. But there was abundant evidence at the trial that overheating was a problem before handover, and Dr Dixon accepted that the metallurgical reports supported this conclusion. He made appropriate concessions in his oral evidence. This is the professional approach to be expected of an independent, expert witness. Still, one admires it when one sees it.

[838] My conclusion that the reverse operation of the ATO Damper was the substantial cause of the overheating that caused the grate failure on 5 July 2010 does not simply rest upon my acceptance of the evidence of independent, expert witnesses. It also rests on evidence that overheating of the grate was a significant problem both before and after handover. It rests on the fact that after the damper was corrected, the Broadwater boiler operated like a different boiler, and like the boiler at Condong operated, where overheating and piling was fairly rare.

[839] In late 2008, when the defendants were under pressure to complete, they knew about overheating at Broadwater. They did not investigate the cause of the overheating, and seemingly failed to recall what they knew in April 2008 about the reverse operation of the ATO Damper. Instead, the problem of overheating and frequent alarms was addressed by raising the alarm points so that alarms would not sound so frequently. This was done by CBH "on the advice of Downer" which was then, to use an informal expression, "on the hook" for a multi-million-dollar liquidated damages claim for delay.

[840] When those and other claims were settled on 20 January 2010, the plaintiffs were not aware of the reverse operation of the ATO Damper, and could not have become aware, by the making of reasonable enquiries, that the ATO Damper operated in reverse. Therefore, the Disputes Resolution Deed did not release claims made by the first plaintiffs in this proceeding relating to the reverse operation of the ATO Damper.

[841] Their claim for breach of contract, as well as their claim for breach of a concurrent duty of care in tort, were brought within the limitation period.

[842] The plaintiffs' claims for misleading or deceptive conduct have not been proven.

[843] The third plaintiff (NSWSMC) did not press a case that it was owed a duty of care by the first and second defendants. It did not have a claim in contract. Its claim for misleading or deceptive conduct having failed, it is not entitled to judgment for the losses it proved.

[844] The "Indirect Loss" provision in the contract excludes certain categories of economic loss. It applies to both the contract and negligence claims brought by the first plaintiffs. The first plaintiffs proved repair costs of $2,107,152, and therefore are entitled to judgment in that amount.

[845] The third defendant is liable pursuant to guarantee and indemnity obligations that it assumed in a Deed of Guarantee in favour of the first plaintiffs. Therefore, the first plaintiffs are entitled to judgment against the third defendant.

[846] I will formally pronounce and enter judgment in a form to be submitted on a date to be fixed, not before 30 January 2023, and make directions that day about submissions in relation to interest on the judgment sums and costs.

[847] In conclusion, two boilers were supposed to operate the same way. They did not because the ATO Damper at the Broadwater boiler operated in reverse, and deprived the boiler of undergrate air that was required to cool the grate and aid combustion. The reverse operation of the ATO Damper caused the July 2010 damage which cost the first plaintiffs more than $2,000,000 to repair. It caused other loss and damage, but the defendants are not liable for these amounts because of a contractual provision that excluded their liability for "Indirect Loss".

[848] I have considered a large body of evidence and submissions. Reduced to a few sentences, the tale of two boilers is fairly simple. The two boilers were supposed to operate the same way. The only real difference between the two boilers was that the ATO Damper at Broadwater was defective. It was installed and programmed so that it operated in reverse, but no one discovered this fact until it was too late and the July 2010 damage had been done. When the defect was corrected, the two boilers operated the same way, and as they should always have. Downer and CBH's breach of contract and breach of a duty of care in tort caused the July 2010 damage.

[1] Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 at 960.

[2] [1774] EngR 2; (1774) 98 ER 969 at 970.

[3] Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506; [2010] NSWCA 69 at [85]- [87].

[4] See BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141; French v QBE Insurance (Australia) Ltd (2011) 58 MVR 214; [2011] QSC 105 at [162]. The same approach has been applied in relation to s 9 of the NSW Act.

[5] Elevate NSW Pty Ltd v Canada Bay Private Hospital Pty Ltd (2019) 138 ACSR 186; [2019] FCA 1248 at [84]- [90].

[6] (2014) 254 CLR 185; [2014] HCA 36.

[7] [2004] HCA 16; (2004) 216 CLR 515 at 529-530 [19]- [21].

[9] See generally J Gardner and J Murphy, Concurrent Liability in Contract and Tort: A separation thesis (2021) 137 (1) LQR 77.

[10] [2016] QSC 94 at [39]- [53].

[11] [2018] QSC 258 at [16]- [26] ("Firstmac").

[13] Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 59 ALR 529 at 532-533.

[14] Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd [2019] VSCA 74 at [86]; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 357-358.

[15] Siegwerk Australia Pty Ltd (in liq) v Nuplex Industries (Aus) Pty Ltd (2016) 334 ALR 443; [2016] FCA 158 at [66].

[16] [ 2016] 1 Qd R 495; [2015] QCA 50 at [99]- [103].

[18] Agro Invest Overseas Ltd v Stewart Milne Group Ltd [2018] CSOH 120 at [101] ("Agro Invest").

[21] [2006] EWHC 3156.

[23] [2018] EWHC 2192 at [57].

[26] The relevant provisions are quoted in one of the decisions considered in Agro Invest, namely the decision of the Outer House Court of Session in Huntaven Properties Limited v Hunter Construction (Aberdeen) Limited [2017] CSOH 57 at [42].

[27] Owners of Strata Plan 80458 v TQM Design & Construct Pty Ltd [2018] NSWSC 1304 at [190]- [194].

[29] See the statements of general principle in Larking v Great Western (Nepean) Gravel Ltd (in liq) [1940] HCA 37; (1940) 64 CLR 221 at 236-238 about a failure to remedy a past breach.

[31] The operation of s 1305 has been considered in a number of cases including Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229. I also briefly considered the section in an interlocutory ruling in this matter: Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Limited & Ors [2022] QSC 182.

[32] See Cape Byron Power 1 Pty Ltd & Ors v Downer Energy Systems Pty Limited & Ors [2022] QSC 182.

[33] Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510-511.

[34] Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26; (2008) 19 VR 358 at 388-389 [92]- [93].

[35] Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 255; Filmana Pty Ltd v Tynan [2013] QCA 256 at [38].