H INFRASTRUCTURE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) v WORLEY NEW ZEALAND LIMITED [2022] NZHC 1316

H INFRASTRUCTURE LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) v WORLEY NEWZEALAND LIMITED [2022] NZHC 1316 [3 June 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-154[2022] NZHC 1316IN THE MATTER of a claim for breach of a Pre-BidConsultancy Agreement dated 19 October2015BETWEEN H INFRASTRUCTURE LIMITED (INRECEIVERSHIP AND IN LIQUIDATION)PlaintiffAND WORLEY NEW ZEALAND LIMITEDDefendantHearing: 19 – 23 and 28 July 2021Appearances: K M Quinn and S A Rankin for PlaintiffC L Bryant, G J Luen and K Kyung for DefendantJudgment: 3 June 2022JUDGMENT OF PETERS JThis judgment was delivered by Justice Peters on 3 June 2022 at 4.50 pmpursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate: ...................................Re-delivered at 11 am on 23 August 2022Solicitors: Heimsath Alexander, AucklandHesketh Henry, AucklandCounsel: K M Quinn, AucklandS A Rankin, AucklandContentsBackground .......................................................................................................... [3]PBCA [6]Designs [10]Tender [16]Post-acceptance [18]Claim [26]Personnel and sale [27]Issues .................................................................................................................. [32]Summary of parties' cases on liability [36]Relevant provisions of the Pre-Bid Consultancy Agreement [39]Tender services — Schedule 2 [45]Discussion [55]Does cl 20.5 exclude Worley's liability?........................................................... [60]Discussion [69]Damages ............................................................................................................ [74]Evidence [80]Counterfactual [83]1(a) — mooring piles [85]4 — gangway landing structural change to barge [93]11 — ballast to hull [99]14 — painting of mooring items [105]16 — on-site installation of new items associated with gangway and truss [112]Overheads [124]Contributory negligence ................................................................................ [132]Result ............................................................................................................... [141]Interest and costs [147][1] The plaintiff, H Infrastructure Ltd (in receivership and liquidation) ("HIL"),sues the defendant, Worley New Zealand Ltd ("Worley"), to recover losses it says itincurred as a result of a breach of warranty by Worley, that warranty being containedin a Pre-Bid Consultancy Agreement ("PBCA") executed in October 2015.[2] Worley denies any breach and relies on several affirmative defences, includingthat HIL was contributorily negligent. Worley also counterclaims and/or seeks a setofffor a sum that HIL accepts is due to Worley for services rendered.Background[3] In September 2015, the New Zealand Defence Force ("NZDF") issued aRequest For Tenders ("RFT") for the construction of a seamanship training aid("STA") to be moored at the Devonport Naval Base in Auckland. Included in theNZDF tender documentation was the Royal New Zealand Navy's User RequirementDocument ("URD"). Tenderers were required to submit a fixed price tender for thedesign and construction of the STA by 4 December 2015. Any tender was to be inaccordance with the URD.[4] The STA was to be a barge fitted out with infrastructure or equipmentcommonly found on a Navy vessel, to enable the training of naval cadets in a safe, "onthe water", environment. Accordingly, the RFT required the STA to provide formatters such as a platform for the "swimmer of the watch", a "VEST Davit" for thelaunching and recovery of small craft; a "pilot ladder"; and an "accommodationladder". As I have said, the STA was to be moored at the naval base, and it is themooring arrangement that Worley initially proposed and then altered that has led tothis litigation.[5] On learning that the RFT was to be issued, Worley asked HIL if it wished tosubmit a tender, with HIL as head contractor and Worley, an engineering firm, itsdesign consultant. The two companies had worked together previously. HIL agreedto submit a tender. There is no dispute that Worley had expertise in designing marinestructures, and that this was one reason HIL agreed to proceed.PBCA[6] On 22 October 2015, Worley sent HIL a draft of the PBCA, which Worley itselfhad already executed. The draft was largely based on an earlier agreement betweenthe parties in relation to a different project. HIL executed the PBCA on 27 October2015.[7] The PBCA set out the services which Worley would provide to HIL prior toHIL lodging its tender, and the terms on which Worley would do so. Worley's maintask pre-tender was to provide a design of the STA incorporating the infrastructure towhich I have referred and showing how the STA would be moored. Worley was alsoto provide a "Material Take Off" ("MTO") comprising a list of the materials andquantities required to enable HIL to price its tender on the basis of the design. Theagreed fee for Worley's services under the PBCA was $27,400 excluding GST.[8] The PBCA provided for Worley to work exclusively with HIL (cl 2); set outthe services Worley was required to provide and warranties it gave (cl 3 andschedule 2); committed the parties to work with each other if HIL was the successfultenderer; and made provision for the circumstances in which Worley would be liableto HIL (cl 20).[9] If HIL's tender was successful, there would then be another contract betweenHIL and Worley recording the services that Worley would provide in the post-tender,construction phase of the project, and the terms on which it Worley would do so. Indue course, this agreement became a "Professional Services Agreement" ("PSA")between the parties.Designs[10] In October 2015, Worley provided HIL with four designs for the STA. Thedesigns showed the layout of the STA, with the required equipment and infrastructure,and it also showed how the STA was to be moored. One of the four designs showedthe STA moored to a "truss". The other three provided for the barge to be moored totwo piles, one at each side of its bow ("two-pile solution"). The two-pile solutionprovided for the barge to be attached to the two piles by detachable "sleeves" whichwould enable the barge to move up and down the piles with the tide.[11] HIL expressed a preference for two of the designs, each including the two-pilesolution.[12] Following this, on or about 26 November 2015, Worley provided HIL withfurther designs of the two preferred options and an MTO.[13] On 27 November 2015, Worley provided HIL with a proposal setting out theservices it would provide and the investigations it would undertake, as well as itsproposed fee of $337,400 (excluding GST), in the construction phase of the project,that is if HIL's tender was successful. It was necessary to settle Worley's fee and theservices it was to provide prior to lodging the tender, so that the bid could be priced.[14] That same day Worley also provided information for HIL to include in itstender, commenting on its design and its advantages, assumptions that Worley hadmade, and a table of "Risks". Worley did not, however, identify a risk to a possiblechange in the mooring design.[15] Construction of the barge was to be carried out by South Pacific Industrial Ltd("SPIIND") which HIL had engaged for that purpose. On 1 December 2015, SPIINDprovided HIL with its quote for constructing the barge according to Worley's design.Tender[16] HIL submitted its tender on 4 December 2015, including Worley's two conceptdesigns, both showing the barge moored by the two-pile solution. The only differencebetween the concept designs was that one had the barge moored to the east, and theother to the west. Annexed to this judgment is a detail from one of the concept designsincluded in the tender which shows how the barge was to be moored.[17] On 24 March 2016, NZDF informed HIL that it was the preferred contractorfor the project. On 19 May 2016, NZDF issued a formal acceptance of HIL's tenderand, on 14 July 2016, NZDF and HIL entered into a Design and Build ConstructionContract for the STA. Amongst other things, this provided for the detailed design ofthe STA to be completed by 26 August 2016.Post-acceptance[18] By this time, HIL and Worley had entered into the PSA to which I have referredabove.[19] On 10 August 2016, Worley, now embarked on detailed design work, advisedHIL that its "analysis is showing the mooring/pile loads for the barge are higher thanwe were initially anticipating". Worley said it had been "trying to reduce the pile loadsby various means ... [but that] the loads have not come down enough. They are stilltoo high to make the current pile/fender sleeve work. The pile sizes would beunrealistically large."[20] Essentially, this advice was a reference to the results of a "dynamic mooringanalysis" that Worley had commenced. This was one of the investigations both partiesunderstood that Worley would undertake in this phase of the project. It is importantto note, however, that Worley undertook the analysis by reference to wind and wavedata identified in the URD which formed part of the tender documentation.[21] By its analysis, Worley had determined that the loads that the waves wouldexert on the mooring piles in the two-pile solution would be too great, making itnecessary to change the manner in which the barge would be moored. Worley advisedthat its new design provided for the barge to be moored or attached to a truss, whichitself would be moored to two piles. This mooring arrangement was more complex,and more expensive to construct and maintain than the two-pile solution. It is commonground that the changed mooring arrangement also carried with it some other,consequential, changes.[22] The revised design was provided to NZDF, following which there was a periodof consultation between HIL, NZDF, and NZDF's consultants, the BusinessIntelligence Group.[23] NZDF agreed to the new design on 6 October 2016, following which Worleyprovided HIL with a final design of the mooring truss arrangement. The STA wasmoored in accordance with that design.[24] The project was completed in about September 2018. HIL was issued with acertificate of practical completion on 14 September 2018.[25] A photograph of the truss as installed, or almost installed, is also annexed tothis judgment.Claim[26] On 9 December 2016, HIL put Worley on notice that it considered Worley hadbreached the PBCA and that its loss as a result of the breach was not less than$700,000. Worley replied on 21 December 2016, rejecting any liability.Personnel and sale[27] Mr Samuel Hooper-Smith, HIL's project manager for this contract, left HIL inJune 2016. Mr Sarwindar Sandhu became the project manager after Mr Hooper-Smithresigned. Mr Sandhu remained as the project manager until December 2017 when heleft to take up a position with another firm.[28] Prior to this, HIL had sold its most significant assets, including several projects,to Downer EDI Ltd ("Downer"). This sale took place on 31 March 2017. As part ofthe transaction, Downer assumed the employment of HIL's staff, includingMr Sandhu, as of that date.[29] The STA project was not one sold to Downer but was retained by HIL, or itsowner, McConnell Group. That said, McConnell Group and Downer had agreed thatDowner would provide resources and services to enable completion of the project.Hence Mr Sandhu's continued involvement.[30] Mr Rory Bishop was HIL's general manager between November 2014 andMarch 2017. Mr Bishop had become more closely involved in the project when themagnitude of the change from the two-pile solution to the truss design was understood.Mr Bishop resigned from HIL at the time of the sale to Downer. He and two colleaguesat HIL then established their own business, Alta Consulting ("Alta"). To ensure acomplete retention of key personnel, McConnell Group engaged Alta to see the projectthrough. Hence Mr Bishop's continued involvement.[31] A receiver was appointed to HIL in late-November 2019 and a liquidatorappointed on 11 December 2019. HIL commenced these proceedings on 3 February2020, seeking damages for breach of contract. The damages comprise costs HILincurred, or alleges it incurred, as a result of the change from the two-pile solution tothe truss design. Subject to liability, Worley accepts some of these changes and itemsof expense. However, several are in dispute as to causation and/or quantum.Issues[32] The first issue is whether Worley breached a warranty or warranties in thePBCA.[33] Worley denies doing so. If I find against Worley on that point, as I do, theissues to be considered are:(a) whether cl 20.5 of the PBCA precludes any recovery by HIL;(b) if not, quantum; and(c) whether HIL was contributorily negligent.[34] It is common ground that cl 20.4 of the PBCA caps Worley's maximumliability under the PBCA at $1,000,000. If I were to find that HIL was contributorilynegligent, it would be necessary to consider whether Worley's maximum liability is$1,000,000 prior to or post any deduction that might be necessary on that ground.[35] Worley counterclaims or seeks a set-off in respect of the balance of fees due toit, being $120,081.01. HIL accepts that this sum is due to Worley.Summary of parties' cases on liability[36] There is no dispute that the two-pile solution in Worley's tender design couldnot be used to moor the barge, as the wave loads that would have been exerted on thepiles were too great.[37] The issue as to liability is whether Worley was in breach of warranty byproviding that design for inclusion in HIL's tender. HIL's case is that it was.[38] Worley's case is that it was not in breach of warranty as the PBCA required itto produce a "concept" design, and it did so. Worley also submits that HIL knew thatit had not undertaken the investigations required to arrive at a final design; that HILknew this both from the relatively modest fee Worley had charged under the PBCAbut also because HIL knew detailed investigations would only take place if and whenNZDF awarded HIL the contract. Worley's case is that how the barge was to bemoored was within the scope of change which could reasonably be expected after theseinvestigations took place.Relevant provisions of the Pre-Bid Consultancy Agreement[39] The critical provisions of the PBCA for present purposes are cls 3.1 and 3.3,and several provisions of schedule 2 which set out the tender services Worley was toprovide.[40] Turning first to cls 3.1 and 3.3 of the PBCA, cl 3.1 imposed an obligation onWorley to use due skill, care and diligence in executing and completing the tenderservices. In cl 3.3 Worley warranted certain matters. I shall focus on cl 3.3 asMr Quinn, for HIL, rested HIL's case on this provision.[41] The recitals to the PBCA, and cl 3.3 are as follows:RECITALS(A) The New Zealand Defence Force, NZDF (the Principal) has issued arequest for tender (RFT) for the Seamanship Training Aid Waterside:Devonport Naval Base (the Project) which will comprise of designand construction and fit-out of a marine based training environment,built within NZDF real estate, which will replicate the Royal NewZealand Navy (RNZN) fleet equipment configurations to the extentthat the principles of seamanship training are suitably similar to theoperational environment.(B) [HIL] has agreed to submit a response (Tender) to the Principal's RFT.[HIL] wishes to engage [Worley] to prepare aspects of the Tender.(C) If [HIL's] Tender is successful, [HIL] will enter into a design and buildcontract with the Principal for the performance of the Works and willappoint [Worley] to provide design consultancy services to [HIL]under a further agreement (Consultancy Agreement) in accordancewith clause 11.(D) The Parties hereby agree as follows....3.3 [Worley] warrants to [HIL] that:(a) it will carry out the Tender Services in accordance withSchedule 2;(b) [it will] promptly comply with all reasonable directions which[HIL] may give in relation to the Tender Services;(c) [it will] perform the Tender Services in full compliance withthe Principal's Requirements; and(d) it will comply with all relevant laws, standards, codes andapprovals and quality requirements.[42] Clauses 3.3(a), (b) and (c) refer to the "Tender Services". Clause 3.3(c) alsorefers to the "Principal's Requirements", the Principal being NZDF. Clause 1.1 of thePBCA defines these terms as follows:1Tender Services means the work to be performed by [Worley] under thisAgreement as described in Schedule 2.Principal's Requirements means the scope of work and technical criteriaprovided by the Principal for the Project and any documents or standardsincorporated into, or referred to therein.[43] It is common ground that the Principal's Requirements are those in the URD.[44] Project is defined in recital A, quoted above.1 "Project" is not defined.Tender services — Schedule 2[45] Between them, counsel relied on the following provisions of schedule 2:1. BACKGROUND[NZDF] have invited [tenders] for the design and construction andfit-out of [a] waterside training facility at Devonport Naval Base withassociated access and training facilities. [HIL] will tender for theProject on a design/build basis. [Worley] as our design consultant willbe subcontracted to produce tender documentation for the newtraining facility and subject to agreement will be contracted to providethe final design for the Project....3. DELIVERABLES[Worley] shall:Provide, in a timely manner in accordance with the Tender programmeagreed between the Parties (time being of the essence) a preliminarytender design for the following elements of the Project:(i) Proposal of a tender design solution of an integratedSeamanship Training Aids (STA) Waterside Capability, whichwill suit Royal New Zealand Navy (RNZN) user requirements(reference to User Requirements Document – SeamanshipTraining Aids – Phase Two Waterside) which shall include:a. Marine pilingb. Floating pontoon/s including all fixtures and fittingsc. Jetty or Landing including railings...(iv) Provide the preliminary tender design deliverablescontemplated at paragraph (1) above for inclusion in theTender. This shall include (but not limited to) designassumptions, concept/preliminary designs....(vii) Identify risks and opportunities for [HIL] as part of theconforming Tender....3.1. Requirements for functional requirements brief[Worley] must:...(c) develop the Tender Design details for [HIL] in accordancewith the approved functional requirements brief and scopesufficient to allow [HIL] to:(i) prepare estimates of quantity and understand thenature of work;(ii) allow costs, risk and constructability to be identified,assessed, optimised and priced;...(d) make its own independent evaluation of the adequacy,suitability and completeness of the Information Documentsand Principal's Requirements for the purposes of enabling[Worley] to perform its obligations to [HIL];(e) advise [HIL], prepare documents and provide the Tender Services forthe Project based on its Principal's Requirements for the purposes ofthe Project or the preparation of the Tender, and will in the course ofso doing advise [HIL] in writing of that evaluation and provide a riskmatrix in a form acceptable to [HIL]. Such risk matrix may be subjectto development and change in consultation and agreement with [HIL];...[46] HIL's submits that the effect of cls 3(a) and (c) of the PBCA, coupled withcls 3(i) and (iv) of schedule 2, was to require Worley to provide a tender design whichcomplied with, or which would "suit", the URD and which was to include provisionfor marine piling, the barge itself, and the landing.[47] HIL submits that Worley breached this warranty or warranties because thedesign it provided proposed a mooring that could not withstand the environmentalloading requirements specified in the URD.[48] HIL also contends that cls 3(a) and (c) of the PBCA, coupled with cls 3(vii)and 3.1(c), required Worley to provide a tender design which would allow HIL toidentify, assess and price, amongst other things, risks associated with the design. HILsubmits Worley's design did not allow for this.[49] Worley's case is that it did not breach the warranties it gave. Worley's case isthat it was required by cl 3(i) of schedule 2 to provide a "preliminary tender design"for the specified elements and this is to be distinguished from a final design for theproject.[50] Worley also relies on a prior agreement between the parties, reached throughtheir representatives, in advance of the execution of the PBCA. Worley submits thatthe effect of this agreement was to require Worley only to determine "approximations"of matters such as the lateral loading from the environment to the mooring, and theapproximate size of the mooring piles. Worley submits that it is clear from this prioragreement that the warranty in cl 3.3 of the PBCA should not be construed as awarranty that the tender design would withstand the environmental loads specified inthe URD.[51] Ms Bryant, for Worley, also submits that NZDF's request for tenders invitedtenderers to submit "concept" designs, in the sense of the New Zealand ConstructionIndustry Council design guidelines. Under those guidelines, a concept design isreferred to as suitable for the "ideas" phase of a project.[52] One of Worley's witnesses, Mr Stanley Cowdell, gave evidence supportingWorley's submission in this respect. Mr Cowdell is an experienced marine engineer,based in Canada. He gave evidence relevant to aspects of HIL's damages claim.However, he also gave evidence as to the degree of reliance a contractor, such as HIL,should place on a concept design, and the allowances or contingencies or provisionalsums a prudent tenderer would include when submitting a tender.[53] In giving this evidence, Mr Cowdell referred me to the Association for theAdvancement of Cost Engineering International ("AACE") classification system.Mr Cowdell put Worley's tender design as within "class 5" or, at best, an early"class 4". What this classification boils down to is that Worley's tender design couldnot be relied on in any way as accurate.[54] Mr Cowdell's evidence was relevant to many issues in dispute but, with respectto him, this aspect of his evidence was not relevant. The AACE classification systemis not one in common use in New Zealand, is subject to regular revision and, as Iunderstood it from Mr Quinn's cross-examination of Mr Cowdell, it is concerned with"process industries" and particularly chemicals and petrochemicals. I put thatevidence to one side accordingly. The focus must be on the terms of the contract theparties agreed.Discussion[55] I accept Worley's submission that both parties understood furtherinvestigations were to take place if and when NZDF accepted HIL's tender. I alsoaccept that these investigations included a dynamic mooring analysis; that this was acomplex exercise; and that both parties expected the tender design would be developedas the project proceeded.[56] However, liability for breach of warranty is strict and, whatever may have beenanticipated, Worley is liable to HIL if it breached any warranty it gave. The point ofthe warranty is to give an absolute assurance.[57] I am satisfied that by cls 3.3(a) and (c) of the PBCA, and cl 3(i) of schedule 2,Worley warranted that it would provide a preliminary tender design for the STA whichwould meet ("suit") the URD and the specified elements. I am satisfied that by thosesame provisions of the PBCA, and cl 3.1(c) of schedule 2, Worley also warranted thatit would develop the tender design details sufficiently to allow HIL to identify andprice costs, risks, and construction. Worley did not do either. The two-pile solutionWorley proposed did not meet or suit the URD as it would not withstand the waveloading at the site. Nor did Worley develop the tender design details sufficiently toallow HIL to identify and price costs and risk.[58] This is not to say that every change or development in Worley's tender designwould put it in breach of warranty. However, in this instance, the change wasfundamental and to a critical part of the design. I am satisfied such a change did putWorley in breach.[59] Given that, I turn now to Worley's first affirmative defence, which is that HIL'sclaim is excluded by cl 20.5 of the PBCA.Does cl 20.5 exclude Worley's liability?[60] HIL seeks to recover what is referred to as the "base value" of costs it claimsit incurred as a result of the change in the tender design. It also seeks to recoveradditional percentage sums of each base value for on-site and off-site overheads.[61] Worley submits that any recovery is barred by cl 20.5 of the PBCA. If it iswrong in that, it contends that at the very least the recovery of overheads is barred bycl 20.5.[62] Clause 20 of the PBCA provides:20. Indemnities20.1 [Worley] shall indemnify [HIL] from and against claims, actions orproceedings, and any loss, damages, costs (including legal costs) andexpenses, to the extent arising from [Worley's] negligent performanceof its obligations under this Agreement or a material breach of thisAgreement.20.2 [Worley] shall indemnify and save harmless [HIL] against any claimsor liability in respect of breach of Clause 19 by [Worley] in relation toIntellectual Property Rights of a third party, including all legal or otherexpenses incurred by [HIL] in or about the defence or settlement ofany infringement claim, by reason of any act or omission of [Worley],its servants or agents in connection with the Agreement, the TenderServices or otherwise.20.3 The liability of [Worley] under any indemnity in this Agreement willbe reduced proportionally to the extent that a negligent act or omissionor breach by [HIL], its agent or employees has caused or contributedto the relevant loss, damage or liability.20.4 [Worley's] maximum aggregate liability arising under or inconnection with this Agreement shall not exceed the greater of five(5) times the Fee or one million dollars ($1,000,000.00).20.5 Neither Party shall be liable for any loss of use, data, production,profit, income, business, contract or anticipated saving, financing costor increase in operating costs, or any other economic loss, or for anyspecial, indirect or consequential loss or damage suffered by the otherParty.[63] Worley submits that HIL's claim is not within cl 20.1. Worley submits thatcl 20.1, and cl 20.2 for that matter, are confined to proceedings in which Worley isrequired to indemnify HIL from a claim brought by a third party. Clause 20.4 appliesto cap Worley's liability in respect of such a claim.[64] In addition, Worley submits that HIL's claim is excluded by cl 20.5 as it is aclaim for "loss of ... profit", alternatively "any ... other economic loss". If it is wrongin that, it submits that at the very least HIL's claim for on-site and off-site overheadsis barred by the exclusion in cl 20.5 of "any ... increase in operating costs".[65] Worley submits that the purpose of cl 20.5 is to reflect that HIL, as tenderer,has the ability to protect itself from such losses. This HIL might do by "tagging" itstender to notify that its price assumes a particular state of affairs, or by inclusion ofprovisional sums or a substantial contingency. On the other hand, Worley, as HIL'ssubcontractor, is unable to protect itself in this way.[66] HIL submits that its claim is for losses directly resulting from Worley's breachof warranty. It is not a claim for lost profit, nor "other economic loss". Although thislatter phrase might appear wide-ranging, it must be construed in the context of cl 20.5as a whole. HIL submits that the types of loss to which cl 20.5 refers are indirect orconsequential losses, not direct loss as sustained in this case. If the phrase "othereconomic loss" is to be construed as broadly as Worley proposes, it would beunnecessary to refer to the preceding categories of loss such as loss of profit, income,business and so on. If the phrase "other economic loss" is not construed narrowly,Worley could never be liable to HIL for failing to carry out its obligations under thePBCA.[67] HIL also submits the reference to "increased operating costs" in cl 20.5 coversindirect losses such as changes in the cost of labour or exchange rate movements, notoverheads.[68] HIL also submits that Worley's proposed construction of cl 20.5 is inconsistentwith the scheme of cls 20.1 to 20.4, which necessarily anticipate Worley being liableto HIL. On Worley's case, the indemnities in cls 20.1 and 20.2, and the cap in cl 20.4would be redundant, and lead to a commercially absurd result.22 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432; affirmedin Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] NZCCLR 17 at[89].Discussion[69] I do not accept that the base value of the losses for which HIL claims isexcluded by cl 20.5. I accept that the position with regards to overheads is moredifficult but, in my view, that claim fails for a different reason.[70] First, I accept HIL's submission that Worley's construction of cl 20.5 isinconsistent with the scheme of cl 20 as a whole. Of course, it is not necessary for thecontract to make express provision for Worley's liability to HIL but, in my view,cl 20.1 does so. Clause 20.1 provides for Worley to indemnify HIL for "loss, damages,costs and expenses" arising from Worley's negligence or material breach. This partof cl 20.1 apt to cover the losses in this case.[71] As to cl 20.5, I do not consider this is a claim for "loss of profit". That phraseis to be construed as actual profit that HIL would have anticipated, not the increasedcost and expense for which it claims. I also accept HIL's submission that "othereconomic loss" is coloured by the preceding examples. Those examples, such as lossof use, business, financing costs and so on, are all, as HIL submits, indirect losses.[72] HIL's claim for overheads, particularly off-site, is more difficult. It may bethat Worley is correct that they are properly to be treated as an operating cost withincl 20.5. Ultimately, however, I am not required to decide this point because I do notconsider HIL's claim for overheads is proved, for the reasons set out below.[73] It follows that I am satisfied that HIL's claim, at least for its base value, fallsoutside cl 20.5.Damages[74] HIL claims for losses it contends it sustained as a result of the change from thetwo-pile solution to the truss design. As I have said, it claims a base value, being thedirect cost incurred, plus sums for overheads.[75] Worley does not dispute causation or the quantum claimed as the base valuefor items 6, 9, 10, 13, 17, and 19. The combined base value of these items is $342,751.[76] This leaves items 1(a), 4, 11, 14, and 16, and the claim for overheads.[77] Worley challenges both causation and the quantum of the base value claimedfor items 1(a) and 11.[78] Worley does not dispute causation for items 4, 14, and 16 but disputes thequantum of the base value claimed.[79] Worley contends that HIL has not proved its claim for overheads.Evidence[80] HIL's principal evidence in respect of its damages claim was from Mr GaryTeear, an engineer with special expertise in moorings, and a quantity surveyor,Mr Mark Revis.[81] Mr Cowdell gave evidence for Worley in respect of causation but, with theexception of item 16, not quantum. The evidence of Mr van der Veen, the navalarchitect within the Worley Group involved in the day-to-day aspects of the project, isalso relevant on some items.[82] Mr Cowdell is a highly experienced engineer, who has been involved in a widerange of marine related projects. Mr Cowdell has a connection with Worley, in thathe sold his business, Westmar Consultants Inc, to Worley Parsons Canada ServicesLtd in 2008, and he continued with Worley Parsons until 2011. Thereafter,Mr Cowdell formed an advisory firm and he has practised as a consultant since.Despite his prior connection to the Worley Parsons Group, Mr Cowdell, as with all theother witnesses, gave his evidence fairly and I am satisfied that he, like them, hasconsiderable expertise in his field.Counterfactual[83] Before I address the items in dispute, I should refer to a submission byMs Bryant that HIL has not identified a "counterfactual", being what HIL contendsWorley should have done differently, and the consequences that would have ensuedhad Worley proceeded accordingly.[84] There is nothing in this point. As Mr Quinn submits, HIL is not required to doany such thing. Worley warranted its tender design would suit NZDF's requirementsand URD, and it did not. Worley is thus liable for the damages HIL sustained as aresult of its breach.1(a) — mooring piles[85] HIL claims a base value claim for this item of $102,053. The issue to beresolved is causation.[86] The tender design provided for the barge to be moored to two piles to be16 metres in length, 762 millimetres in diameter, and with a 16 millimetre thick casing.[87] As it turned out, two substantially larger piles were installed. The base valueHIL claims for this item is calculated on the basis of piles of 22 metres in length,726 mm in diameter, and with a 32 mm casing. It also includes the cost of a necessarychange from the previously anticipated installation methodology, suitable for theshorter piles initially provided for. As it happened, even longer piles were required —one of 26.5 metres and one of 33 metres — but no claim is made in respect of that.[88] Mr Revis's evidence was that the increased pile length, casing thickness, andthe change in installation methodology were all caused by the change in the tenderdesign.[89] Worley's witnesses dispute this. The evidence of Mr van der Veen andMr Cowdell is that Worley did not have information pre-tender which showed theoffshore geotechnical conditions. NZDF made this information available after it hadaccepted HIL's tender. This information revealed that an increase in the pile lengthsand the extent of their penetration into the seabed was required. Thus Ms Bryantsubmitted that the change in pile lengths and the more complex installation therebyrequired was not caused by the change to the tender design. Longer piles, even withthe two-pile solution, were always going to be required.[90] HIL does not accept that Worley did not have sufficient information,pre-tender, to ascertain that the length of the piles it specified was inadequate. NZDFprovided HIL with data as to the onshore geotechnical conditions on 21 October 2015,and HIL provided this to Worley on the same date. Thus Worley had this informationprior to providing its tender design. HIL submits that Worley ought to have inferredfrom the onshore data that bedrock was substantially lower than Worley had assumed.I accept that submission. Mr Cowdell himself accepted that Worley's 16-metre longpiles were "aggressive" given the inferences to be drawn from the onshore data.[91] Regardless, fundamentally HIL's case is that Worley is liable for the additionalcost as the increased pile length was a significant change to its warranted tenderdesign. I accept that submission. In my view, the longer piles and the more complexinstallation method they required were part and parcel of the new design. Even if Iam wrong in that, and longer piles were always going to be required, I take Mr Revis'spoint that the increased cost cannot simply be put down to development of the design.The increase was very substantial. I note also that the risk of such a substantialincrease was not notified to HIL.[92] I accept HIL's claim for this item accordingly.4 — gangway landing structural change to barge[93] HIL claims a base value of $96,438 for item 4.[94] Mr Revis's evidence was that this item is for additional works required to thefront of the barge caused by the introduction of the truss, as well as a revised gangwaylanding arrangement on the barge itself.[95] Mr Cowdell accepts that the base value of the connection between the truss andthe barge fall to Worley, the base value of these costs being $48,480.29. However,Mr Cowdell does not accept that the costs of the revised gangway landing resultedfrom the change to the tender design. Mr Cowdell's evidence was that the landingchanged as a result of a change in the orientation of the gangway. This change was tohave the gangway orientated diagonally, as opposed to perpendicular, to the shore, andit occurred prior to any revision of the mooring arrangement.[96] This is correct. The change to the orientation of the gangway was notified inJune or July 2016, prior to any proposed change to the mooring arrangement.[97] Mr Cowdell's evidence was that it was this change to the orientation of thegangway, and not the revised mooring arrangement, that necessitated a revision to thegangway landing platform on the barge.[98] Mr Quinn submits that Mr Cowdell's evidence does not engage withMr Revis's on this point. With respect, it does, but Mr Revis did not answer orcontradict Mr Cowdell's evidence on this issue. Given that, I am unable to award theentire sum claimed. I award Mr Cowdell's $48,480.29 accordingly.11 — ballast to hull[99] HIL claims a base value of $166,690 for steel ballast required to keep the bargein trim when moored. This ballast was not provided for in the tender design and norwas it priced in the tender itself. There is no dispute, however, that the need for ballastwas foreshadowed, with that ballast to depend on the ultimate weight of the barge.This weight could be expected to be adjusted in the detailed design and constructionphase of the project. In short, the need for ballast was anticipated but how much of itand where it would be located on the barge could only be known once the detaileddesign was settled.[100] As it turned out, adjustments to the barge, some required by NZDFpost-contract, meant that considerable ballast was required to keep the barge in trim.It is not in dispute that the barge was also required to bear the weight of one arm ofthe truss and, accordingly, a portion of the ballast ultimately included was due to thatadditional weight. The issue to be determined is just how much of that ballast was dueto the additional weight.[101] Mr Sandhu and Mr Revis's evidence was that all of the ballast was due to thechange to the tender design. With respect to them, this evidence is plainly incorrect.[102] Mr Cowdell's evidence was that the changes to the barge itself post-tender,unrelated to the change in the mooring, increased the weight of the barge, and that thevast majority of the permanent ballast installed was required as a result of thesechanges. In addition, Worley contends it should not be liable for steel ballast, whichis an expensive option, as opposed to concrete or sand.[103] In his closing submissions, Mr Quinn appeared to accept that HIL could notmaintain its claim for the cost of all of the ballast. He proposed that I allow half thesum claimed. This was on the basis that, in his evidence, Mr van der Veen said that"At most, half the cost of the removable ballast is related to the truss arrangement".[104] In the circumstances, I am not persuaded that the change to the tender designbrought about the need for as much as half the ballast installed. Mr Cowdell'sevidence was that, on its own, the change contributed to only a modest percentage ofthe required permanent ballast. Mr Cowdell's estimate was five to 10 per cent at most.Accordingly, I allow 10 per cent of the sum claimed.14 — painting of mooring items[105] I have included item 14 in the list of items for which Worley accepted causationbut denied quantum. On the evidence, however, there was no serious dispute as toquantum.[106] HIL claims a base value of $89,632 for the cost of painting the truss andassociated mooring items introduced in the revised design. Mr Revis's evidence wasthat the structures associated with the truss arrangement required painting with anti-corrosion paint if they were to withstand the marine environment. It was commonground that anti-corrosion measures were required. Moreover, NZDF requested thatthose measures should be the painting that was carried out.[107] Initially HIL claimed $145,215 for the costs of this item. However, onMr Revis's analysis, this cost was reduced to $89,632, that being the base value sumnow claimed.[108] In his evidence-in-chief on this point, Mr Cowdell accepted that the costsclaimed resulted from the change to the mooring concept, that is accepted causation,and he also accepted that Mr Revis's revised cost of $89,632 (in fact that cost plusoverheads bringing the total to $106,712) appeared "to be a more reasonable value".Thus Mr Cowdell did not dispute quantum.[109] In his evidence-in-chief, Mr Van der Veen complained that Worley had notspecified special anti-corrosion paint for the truss, but rather had proposed that"sacrificial" anodes be fixed to the truss and piles, this being a cheaper alternative.[110] The gist of Ms Bryant's closing submissions on this point was that HIL shouldnot have painted the various items but ought to have adopted the anodes said to havebeen included in the Worley design. However, Mr van der Veen did not say what thecost would have been and there was no other evidence on the point.[111] I allow HIL's claim for the sum of $89,632 in respect of item 14. There is nodispute that anti-corrosion protection was required for the truss and associated parts.Mr Cowdell did not dispute that painting was an appropriate response nor the quantumclaimed. If Worley wished to propose the cost of the anodes to which it referred as asubstitute, it needed to provide the requisite evidence. It also needed to confront, andit did not, the obvious conflict between Mr Cowdell's evidence on the point andMr van der Veen's. Lastly, I am not persuaded that there is any merit in Worley'scriticism of HIL for acceding to NZDF's request for paint. NZDF's expectations whenit awarded the tender to HIL had been sorely disappointed, and the cause of thatdisappointment was Worley's omissions. If NZDF specified painting on the changeto the truss design, HIL was not well placed to argue the point.16 — on-site installation of new items associated with gangway and truss[112] HIL claims a base value of $361,616 for costs associated with the installationof the truss and gangway. This is the sum HIL paid SPIIND for this work, or at leastthat is what appears from a Payment Schedule that HIL issued under the ConstructionContracts Act 2002.[113] There is no dispute that additional work was rendered necessary by the changeto the tender design but there is a dispute as to quantum. In particular, Worley contendsthat HIL has not proved that the sum claimed related only to the installation of thetruss and related changes to the gangway, nor that the sum claimed is reasonable forthe work done.[114] The starting point is that in January 2017, after receiving the detailed drawingsfor the truss, SPIIND made a variation claim to HIL for the installation and associatedwork of $178,266.49.[115] HIL did not accept this price and the parties proceeded on a "measure andvalue" basis, with SPIIND to be paid for time and materials. In response to questionsfrom Ms Bryant, Mr Revis accepted that, in the usual course of events, this wouldmean that SPIIND could be expected to keep detailed time sheets of the work done,and also that the site manager could be expected to maintain a schedule of the workdone on site each day. However, no such time sheets or schedules were available toMr Revis, let alone Worley, if indeed they were ever kept.[116] The best information that Mr Revis had as to SPIIND's work is a summary ofits day works between 22 November 2017 and 30 April 2018, the costs on this totalling$299,987.37. Mr Revis acknowledged to Ms Bryant that, absent the time sheetsreferred to in the previous paragraph, he could not make any comment on this claimor what precisely it covered. Nor had HIL informed Mr Revis of the reason for thedifference between this sum and the base value claimed of $361,616.[117] Given this, Mr Revis adopted an alternative, "build up", method to assess thereasonableness of HIL's claim. This entailed Mr Revis drawing on HIL's constructionprogramme and, after making various adjustments, arriving at the number of workingdays (63), that he estimated was associated with the installation work. Mr Revis thencalculated a daily rate for the crew he thought would be required, and estimated sumsfor disbursements, and the cost of plant and equipment. On this basis, Mr Revis'scalculation of the base value costs associated with item 16 is $364,013, and thus heconsiders HIL's claimed base value of $361,616 to be reasonable.[118] In cross-examination, Mr Revis accepted that his 63 working days includedprovision for installing items that HIL was no longer pursuing or which could not beattributed to the change in the tender design.[119] On my reading of Mr Revis's evidence, although the number of days to bededucted on this ground might be relatively modest, any reduction would also reducethe other components of Mr Revis's build-up.[120] This claim is the only one on which Mr Cowdell expressed an opinion as toquantum. Mr Cowdell's evidence was that the time necessarily involved in a claimfor such an amount must have substantially exceeded that which he would haveaccepted in the absence of further information. Mr Cowdell's evidence was that theclaim seems disproportionally large for the task at hand.[121] Mr Quinn criticised Mr Cowdell's evidence on this point, on the ground that itis speculation. Mr Quinn submits that Worley has produced no independent evidenceto suggest this cost is overstated and that HIL's evidence is sufficient to prove thequantum of this item on the balance of probabilities.[122] As Mr Cowdell said, any speculation in Worley's criticisms derives from HIL'sfailure to provide the information necessary to prove a substantial part of its claim. Itis reasonable for Worley to seek that information so as to satisfy itself that all the workundertaken was for the installation of the truss and gangway alone, and also that thesum claimed is reasonable. Mr Revis's exercise does not prove either of these matters.[123] In the circumstances, I am not satisfied HIL has proved the claim in full. Giventhat, I shall allow the next best evidence of the base value of this item which I considerto be SPIIND's original $178,266.49.Overheads[124] HIL claims 12 per cent of the base value for on-site overheads, and then6.3 per cent on the combined "base value and on-site overhead" sum for off-siteoverheads.[125] Worley disputes liability for these items. Fundamentally, its submission is thatWorley has not proved this part of its loss.[126] Mr Revis's evidence was that he considered HIL entitled to recover on-siteoverheads associated with managing and implementing the change to the truss design.Mr Revis's 12 per cent is the percentage sum included in HIL's tender, and Mr Revisadopted it accordingly. Mr Revis's 6.3 per cent for off-site overheads is a proportionof HIL's tender provision of 13 per cent for off-site overheads and profit combined.Mr Revis said that this percentage figure derived from Mr Geoffrey Hunt, previouslypresident of McConnell Ltd and the Chief Executive Officer of the Hawkins Group ofcompanies prior to the sale to Downer. Mr Hunt's brief of evidence was admitted byconsent but it does not touch on this issue in any detail.[127] Mr Revis accepted that he had applied these percentages as proxies for anyinvestigation of what actual cost had been incurred.[128] HIL's claim for overheads is complicated by its transaction with Downer.There is no evidence of any payment from HIL to Downer for Mr Sandhu's services,or that of any other personnel. Mr Revis was unable to say whether Downer hadcharged HIL for the provision of Mr Sandhu, or any other member of staff. As forAlta, it provided its services on a fee paying basis. However, Mr Revis's evidence isthat he had advised HIL not to pay Alta's fee, because Alta had not provided anytimesheets to support the sum it claimed.[129] In his closing submissions, Mr Quinn maintained that the percentages claimedwere reasonable and that HIL must have continued to incur costs for on-site andoff-site overheads, notwithstanding absence of any evidence of payment to Downer orAlta or anyone else.[130] Ms Bryant submits that Mr Revis's percentages bear no relation at all to actualcost and that, in the absence of evidence of payment from HIL, whether to Downer orAlta or anyone else, HIL cannot prove its loss.[131] Leaving aside cl 20.5 for the moment, I accept that in the usual course of eventson-site and off-site overheads are a cost capable of recovery and that a reasonablepercentage might be allowed for, in place of a "line by line" analysis of actual cost.The difficulty in this case is that there is no evidence of an actual cost to HIL. Thereis no evidence before me of what staff HIL retained, if any, and how it administeredthe project. Absent that evidence, I accept Worley's submission that HIL has notproved this item of loss, and I decline its claim for overheads accordingly.Contributory negligence[132] Worley's second affirmative defence is that HIL was contributorily negligentand that such loss as HIL has suffered is the result, in part or in whole, of its own fault.[133] Section 3 of the Contributory Negligence Act 1947 provides:3 Apportionment of liability in case of contributory negligence(1) Where any person suffers damage as the result partly of his own faultand partly of the fault of any other person or persons, a claim inrespect of that damage shall not be defeated by reason of the fault ofthe person suffering the damage, but the damages recoverable inrespect thereof shall be reduced to such extent as the court thinks justand equitable having regard to the claimant's share in theresponsibility for the damage:provided that—(a) this subsection shall not operate to defeat any defence arisingunder a contract:(b) where any contract or enactment providing for the limitationof liability is applicable to the claim, the amount of damagesrecoverable by the claimant by virtue of this subsection shallnot exceed the maximum limit so applicable.[134] Worley contends that, although it submitted a design that could not be built,HIL knew that further investigations were required "to verify the design", and that itfailed to take "basic precautions" to protect itself against the risk of a change.[135] Worley's case on this issue is that HIL should have submitted its tender,appropriately tagged or qualified, to accommodate the possibility of a substantialchange in tender design and, at the very least, HIL should have allowed a substantiallygreater contingency than the 2.4 per cent HIL reserved to itself. Had the tender beenso tagged or qualified, a claim to NZDF for a variation might have been possible.[136] In response, HIL submits that Worley did not notify it in advance of it lodgingthe bid that the mooring design might change so fundamentally. Nor was a change ofsuch magnitude reasonably foreseeable. As Mr van der Veen acknowledged in hisevidence, Worley itself did not contemplate that the design it had proposed wouldprove to be so deficient. Mr van der Veen's evidence was that Worley considered thataspect of its design "settled".[137] HIL also notes that, on 11 November 2015, it asked Worley to inform it of anydesign risks. Worley did notify some risks, but it did not notify a risk to any changeto the mooring arrangement. Had it done so, HIL states that it would have madeprovision for the risk, and indeed it did so in respect of other risks identified by Worley,and by other third parties, SPIIND and Hauraki Piling.[138] I do not accept Worley's submission that HIL was contributorily negligent infailing to make provision in its tender for such a fundamental change in the mooringdesign. I accept HIL's submission that it was incumbent on Worley to notify of therisk. That it did not do so, and on Mr van der Veen's evidence did not consider itlikely, speaks for itself. If Worley did not anticipate the risk of a change, let alone oneso fundamental, it is not clear to me how HIL could be expected to have done so.[139] Worley may be correct that HIL's contingency of 2.4 per cent was too modestin the circumstances. Again, however, it is not clear to me that any greatercontingency, which I accept might have been prudent, would have had a significantimpact on the loss that was sustained. The nature of the risk which came to pass inthis case was such that it had to be notified expressly to NZDF and it was for Worleyto put HIL on notice of that possibility.[140] It follows that I am not persuaded of any contributory negligence on HIL's part.Accordingly, the issue referred to in [34] above therefore does not arise.Result[141] For the reasons given above, I am satisfied that Worley breached the warrantiesit gave in cl 3.3 of the PBCA.[142] I am also satisfied that HIL's claim, at least for the base value sum, is notexcluded by cl 20.5 of the PBCA.[143] I allow HIL's claim for the base value of items 1(a) and 14, and part of its claimfor the base value of items 4, 11 and 16, all in the sums referred to in [85], [111], [98],[104] ($16,669), and [123]. These sums, together with that referred to in [75], total$777,851.78.[144] I decline HIL's claim for overheads.[145] HIL was not contributorily negligent[146] Worley has a setoff of not less than $120,081.01.Interest and costs[147] This judgment does not determine awards of interest or costs. The parties willwish to make submissions on these items. HIL should file and serve its submissionswithin, say, two weeks or such longer time as it requires. Worley should file and serveits submissions within, say, two weeks thereafter.Peters JTwo-Pile SolutionTruss