SPX FLOW TECHNOLOGY NZ LTD v GAS 1 LTD [2017] NZHC 2049

SPX FLOW TECHNOLOGY NZ LTD v GAS 1 LTD [2017] NZHC 2049 [25 August 2017]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYCIV-2014-412-000024[2017] NZHC 2049BETWEEN SPX FLOW TECHNOLOGY NEWZEALAND LIMITEDPlaintiffAND GAS 1 LIMITEDDefendantHearing: 4-24 August 2016Appearances: I Thain and I Scorgie for the PlaintiffH McIntosh and H MacFarlane for the DefendantJudgment: 25 August 2017Reissued: 9 October 2017JUDGMENT OF NATION JContentsBackground2The term sheet variation settlement16The claims and counterclaims..26Gardians' claims.30Gardians' claim for $2,147,200 for misrepresentation inducing Gardians'entry into the term sheet agreement..30Gardians' claim for SPX's failure to remedy building defects.65Claim for extra cleaning costs.68Gardians' claim for additional employment costs in bringing performance ofplant up to required standard..75Undisputed counterclaim amount96SPX's claim for unpaid contractual sums98Summary of the parties' positions....98Gardians' complaints as to SPX's failure to remedy building defects afterterm sheet variation.............111Gardians' complaints as to SPX's failure to deal with processing issues asrequired by the term sheet variation118SPX's performance from term sheet variation to end of 2012/2013 season.118SPX's performance over the winter shutdown period..145The evidence of Mr White, dairy project engineer for SPX154The move towards changing the term sheet variation168Changes to the term sheet variation184Post 1 August 2013 progress.204Performance of the plant.204Plant and processing issues..,.252Conclusion as to what SPX personnel had achieved with the processingplant when they left the site in September 2013.285Contractual recognition of the need for a mid-run CIP288Contractual developments314Submissions and determination350Summary of closing submissions.350Phase 1.353Waiver353The agreement to make reasonable adjustments to the payment schedule362Implied terms as to reasonable adjustments...373Phase 1 – deemed performance of Phase 1 test.....376Phase 2.425Phase 3.444Mackay v Dick..444Waiver456FIDIC – clause 12.2 and deemed performance..471Agreement to make reasonable adjustments to the payment schedule..476Phase 4.478Conclusion as to Phases 1 to 4 payments.483Performance security.484Summary.491Background..492SPX claims...500Phase 1...501Phase 2...506Phase 3...508Phase 4...510Reasonable adjustments...512Conclusion on SPX's claim......515Performance bond516Gas 1's claims..518Gas 1's claim for misrepresentation..518Gas 1's claim for wage and salary costs incurred in having plant perform atthe required level520Gas 1's claim for additional cleaning costs522Gas 1's claim for cost of fixing construction defects.524Costs and interest.525Conclusion..526[1] Over recent years, some New Zealand-based companies have generatedsignificant profits exporting dairy products. This has encouraged heavy investment insimilar businesses. As these proceedings show, such investment, often associated withsignificant borrowings, is not for the faint-hearted. That is particularly so where theinvestment has been associated with the production of infant milk formula. Thetechnology and expertise required in milk processing factories is expensive andsophisticated. Supply of the required milk to the factory at the appropriate time iscrucial. The markets are demanding and can be impacted by events over which theprocessor has no control. These were all factors that affected the economic fortunesof the defendant and its investment in an infant formula milk plant built for them bythe plaintiff. As it turned out, they also had consequences for the plaintiff.Background[2] The plaintiff is SPX Flow Technology New Zealand Limited (SPX). Thedefendant is now Gas 1 Limited but was formerly known as Gardians Limited. In thisjudgment I refer to it as Gardians.[3] SPX is effectively owned by SPX Corporation, whose headquarters are inCharlotte, North Carolina in the USA. It is a global supplier of specialised engineeringsolutions for the food, beverage, power and energy, and industrial markets.[4] The SPX/Anhydro team was a team of specialists, particularly in powderprocessing, spray drying and evaporation. The Anhydro business is based inCopenhagen, Denmark.[5] Gardians was a joint venture company between the Sutton Group of Aucklandand Grant Paterson interests of Southland. Brent Sutton and Grant Paterson weredirectors of Gardians. The Patersons were substantial dairy farmers in Southlandwhile the Suttons had food processing businesses based in Auckland. Their combinedinvestment in the Clydevale factory near Balclutha was $60 million.[6] SPX and Gardians entered into the contract for the milk processing plant on 29September 2011. The contract comprised a number of documents, including theInternational Federation of Consulting Engineers' (FIDIC) general conditions. It wasfor construction of the plant building as well as for the supply and installation of aspecialised infant formula processing plant. The civil building work wassubcontracted to Hawkins Construction Limited. There were separate contractualarrangements between Gardians and third parties for the supply of utilities (water,electricity, steam) and the powder packing plant. The contract price was $42,944,000.[7] The contract specifications required that:The plant will in full operation, produce 3.415 tonnes per hour of 21.5 hoursper day of infant formula powder (IF1), based on 56% total solids in theconcentrate feed. This is based on the guaranteed capacity but the plant iscapable of more than 3.8T/hr of Infant Formula if dehumidified air is addedin future.[8] There was provision for delay damages at 0.25 per cent of the contract priceper week of delay, capped at five per cent of the contract price, ie $2,147,200. Thespecified time for completion of construction of the plant was 27 October 2012 whena Taking Over Certificate (TOC) was to be issued (allowing for certain minoromissions and defects). The plant began processing milk commercially on 29 October2012.[9] Part of the contract price was for the Anhydrous Milk Fat (AMF) plant. TheAMF plant was an integrated but non-essential part of the factory.[10] The AMF payment due under the contract was $3,000,000, to be paid ininstalments as follows:• January 2013 $500,000• August 2013 $1,000,000• February 2014 $1,500,000[11] The remainder of the contract price was to be paid with an initial advancepayment of 10 per cent, monthly progress payments through the course of the workstotalling 80 per cent, a five per cent payment on successful completion of productiontests and the remaining five per cent payment on issue of the TOC.[12] By late 2012, significant issues had developed between the parties. There weredelays with the building work carried out by Hawkins which led to delays in thetrialling and completion of the plant for the 2012/2013 season.1 There were issuesover the quality of the infant milk powder produced over that season. There werecomplaints over the appearance of the finished factory.[13] Mr Sutton said the combination of the delayed start to the first productionseason and the ensuing quality problems led to a major loss in revenue for that season.Gardians was unable to take the raw milk that it had contracted to buy and insteadincurred significant costs in arranging for that milk to go to another factory. Mr Suttonsaid that, because the whole project had been debt-funded, the lack of the expectedrevenue stream in that first season put the company under serious debt pressure. Hebelieved Gardians had never really recovered financially from its poor start.[14] Mr Ryan was the group general counsel for SPX and largely responsible forthis contract. He said that, despite the language in the contract linking delay damagesto the TOC, by early 2013 Gardians believed it was entitled to damages based oninterim milestones in the construction programme.[15] SPX was aware of the complaints being made by Gardians. SPX consideredapproximately $6.7 million of the contract price was outstanding. It considered itstesting of the plant, in order to optimise the quality of the product, had been prejudicedby changes which Gardians had made in the recipe for the infant milk formula. It alsoclaimed there had been problems in the quality of the milk supply which had impactedon its ability to ensure the plant produced product to the required standard.The term sheet variation settlement[16] The matters then in dispute were resolved through an agreement dated 8 March2013 (the term sheet agreement). One of the terms of the term sheet agreement wasthat it was in full and final settlement of all matters between the parties as to additionalcosts incurred and payments to be made between Gardians and SPX in respect of the1 The period from about August until May when milk is being produced and available forprocessing.contract. It thus settled Gardians' claim to delay damages or damages for defects, andSPX's claim for immediate payment of the outstanding amounts of the contract price.The settlement recorded in the term sheet agreement was acknowledged in a formaldeed of variation of the contract completed on 27 March 2013 (the variation deed). Irefer to the terms of the settlement, as recorded in both documents, as "the term sheetvariation". Mr Sutton said both parties saw the variation deed at the time as drawinga line under what had gone before.[17] The term sheet variation set out the parties' obligations to the extent they hadagreed to vary the original contract.[18] Clause 6 of the variation deed obligated the parties to: work collaboratively and in good faith to deliver a world class nutritionalplant that can be used as a globally recognised reference site achieving thebest practice and highest sustainable outputs achievable from the plant.[19] Gardians had to make an immediate payment of $2,100,000. The balance dueunder the contract was to be paid in accordance with four subsequent phases.[20] Phase 1 required SPX to do all things necessary to achieve output and run timesprovided for in the contract. Those outputs and run times were to be based on currentrecipes and product specifications for growing up milk powder (GUMP), follow-onand infant formula. They were 3.41 metric tonnes per hour (mt/hr) / 21.5 hours perday / 3 consecutive days / 1 clean in progress (CIP) run.2 This referred to the outputfrom the plant over 21.5 hours of operation per day for three consecutive days.[21] Terms were set for the parties to work together so SPX could carry out the testsnecessary to show the outputs and run times had been achieved. Upon achievementof those rates, the Phase 1 criteria, Gardians had to immediately pay $700,000 plusGST. If rates of 3.00 mt/hr had been achieved for infant formula and SPX reasonablydetermined that capital improvements were required to achieve an infant formulaoutput of 3.41 mt/hr for the required run time, those improvements were to be SPX'scost.2 Clean in progress, also referred to as a mid-run flush.[22] Under Phase 2, SPX and Gardians agreed there would be a complete shutdownof the plant following the end of the 2012/2013 season for up to seven weeks duringJune and July 2013. During that time, a number of improvements would beimplemented, including the installation of a dehumidification plant at Gardians' cost.The improvements were to be variations to the contract, the scope and cost of whichwere to be mutually agreed. Upon completion of these improvements and all items ofrectification of construction defects, Gardians was immediately to pay to SPX the sumof $700,000 plus GST.[23] Phase 3 was reflected in the particulars of contract, as amended, as follows:The following shall be defined as Phase 3 and the definition of Contract Worksshall be amended accordingly:"From the earlier of:(a) the completion of the Contractor's Phase 2 Obligations; and(b) 1 August 2013,for a period of 6 months (the end of which is defined herein as the Completionof the Phase 3), the Contractor will provide a full time site presence for aperiod of 6 months with an incentivised team and will use its best endeavoursto optimise Plant to achieve the following Performance Targets for thefollowing products (Phase 3 Performance Targets). For the avoidance ofdoubt, the Phase 3 Payment is not conditional upon the Plant achieving thePhase 3 Performance Targets.Product Performance TargetGump 4 metric tonne per hour / 21.5 hours per day / 3consecutive days/1 CIP runFollow On 4 metric tonne per hour / 21.5 hours per day / 3consecutive days/1 CIP runInfantFormula4 metric tonne per hour / 21.5 hours per day / 3consecutive days/1 CIP runThese outputs and run times will be based on the Current Recipes and theproduct specifications set out in the SPX Quotation NZ0111018.6.The tests to demonstrate the outputs and run times will be conducted on datesagreed by Contractor and Employer and the Plant will be under theContractor's control for the purpose of such tests (Phase 3 Tests).The Employer will work collaboratively with the Contractor for successfulcompletion of the tests, but testing dates are to be designed as to not adverselyimpact on commercial production commitments of the Employer for the 2013dairy season.The tests are to be designed to minimise the risk of product downgrades as aresult of or following the tests.The initial term sheet agreement had also referred to SPX using its "best endeavoursto achieve targeted outputs".[24] On completion of Phase 3, Gardians was to pay SPX $678,000 plus GST.[25] In the variation deed, the parties acknowledged Gardians had paid the first$500,000 plus GST of the contract price for the AMF plant. Phase 4 effectivelyrequired Gardians to pay $2,500,000 plus GST for the AMF plant at the end of theearliest six month period "following the expiry of the optimisation phase during whichthe plant is capable of operating at the optimised levels as configured during theoptimisation phase using the current recipes".The claims and counterclaims[26] SPX claims $4,578,000 as the amount due for the balance of Phases 1 to 4payments.[27] SPX obtained and provided to Gardians a performance security issued by theANZ Bank for 10 per cent of the contract price, ie $4,294,400. SPX seeks adeclaration that it is entitled to have the performance security returned to it inconjunction with any judgment it obtains against Gardians or, in the alternative, whenit pays any amount that Gardians is entitled to on its counterclaim.[28] Gardians counterclaims damages of $2,147,200 for an alleged breach of s 9Fair Trading Act 1986. Gardians says it was induced to enter into the term sheetvariation and to give up an entitlement to delay damages of $2,147,200 by amisrepresentation as to the operational capacity of the plant.[29] Gardians claims SPX breached its obligations to provide a plant that couldconsistently achieve the output and run times required by the contract and the termsheet variation. Gardians also says the contract and term sheet variation required SPXto remedy construction defects, and it failed to do so. Gardians claims $185,610.37for the loss suffered from such breaches and a corresponding declaration that SPX wasin breach of contract in such ways.Gardians' claimsGardians' claim for $2,147,200 for misrepresentation inducing Gardians' entry intothe term sheet agreement[30] Gardians pleaded:When negotiating the term sheet and variation deed SPX represented to[Gardians] that:(a) the operational capacity of the Plant could exceed the originalrequirements of the Contract, such that it could reliably produceapproximately 4.0 metric tonnes per hour, for 21.5 hours per day, inrespect of various desired nutritional products; and(b) in consideration for the Terms Sheet and Variation Deed, and in particularfor [Gardians'] forbearance to sue under clause 8.7 of the Contract andthe Particulars of Contract for delays in completion, SPX wouldcomplete, test and hand over the Plant on that basis.[31] By way of particulars, Gardians alleged these representations were made orallyin meetings or by telephone between Mr Sutton and Mr Horan of SPX.[32] I must first determine whether a reasonable person in Gardians' situation, thatis with the characteristics known to SPX or of which SPX ought to have been aware,would have likely been misled or deceived by SPX's statements.3[33] Mr Sutton's evidence was that, during the negotiations leading to the term sheetagreement, SPX said it had the expertise and resources to get the plant to the Phase 3targets, namely, an output of 4 mt/hr. Mr Sutton said Gardians would not havecompleted the variation deed without that representation.[34] Mr Brett Murdoch was the general manager of SPX and had a managementsupervisory role as the Clydevale project proceeded through 2011 to 2013. He was3 Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].involved in negotiating and agreeing the term sheet agreement signed on 8 March2013. He said the objective of 4 mt/hr was discussed with Brent Sutton as a "sensibleobjective for an optimised plant with some tags perhaps some plant improvementsand such like". He considered it a sensible objective "with the other optimisations andplant improvements", given SPX had nearly achieved that capacity. He thought therewere one or two perceived plant bottlenecks that could be addressed but saidoptimisation of big factories continues for years and can require software changes,small process changes, changing the plant with changed recipes and changes in pumps.He said, in short, everything may have to change to get optimum performance.[35] Both Gardians and SPX compromised claims that both might have pursuedthrough the settlement recorded in the term sheet variation. Whatever may have beensaid to Mr Sutton before he signed the variation deed, the obligations which SPXaccepted and which were the basis on which Gardians entered into the settlement wereas set out in the term sheet agreement and the subsequent variation deed. It was clearfrom those documents that the target of 4 mt/hr was an aspirational target for bothparties to work towards and there was no assurance that the plant would be capable ofoutput at that level. This was expressly stated in the variation deed.[36] Consistent with that, the output required under Phase 4 was not 4 mt/hr butwhatever rates had been achieved during Phase 3. In the variation deed, as to Phase4, SPX and Gardians agreed:The parties acknowledge that the intent is that the Plant will continue toperform at the rates achieved in the Phase 3 tests for the products listed aboveusing the Current Recipes and the product specifications set out in the SPXQuotation NZ0111018.6 (regardless of whether these rates are lower or higherthan the Phase 3 Performance Targets) (Phase 3 Optimised Rates) for acontinuous period of at least 6 months using the Plant as configured for thePhase 3 Tests.[37] It was also clear from the term sheet agreement and the variation deed that bothparties would have to work collaboratively towards achieving output at that targetedlevel. Phase 3 followed on from Phase 2 which contemplated further investment inthe plant, particularly by Gardians who would have been responsible for the majorcost of a dehumidifier, around $3 million. Gardians thus accepted that SPX was notlegally committed or bound to ensure the plant was capable of an output at the targetedlevel.[38] In his brief of evidence, Mr Sutton said that, at the time of the term sheetvariation, he did not understand that capital upgrades were required for the plant andat Gardians' cost. Mr Ryan said, and I accept, this was specifically discussed in thenegotiations and then recorded as part of Phase 2 in the term sheet agreement and thevariation deed.[39] Having regard to all the evidence, I find that, with the term sheet variation,SPX agreed that, with the further allocation of its resources to the project, the plantwould be able to produce the particular products, according to the existing recipes forthose products, to the extent referred to for Phase 1 in the term sheet variation. Thishad to be achieved with the plant as designed and built under the original contract.The parties were, however, to use their best endeavours to have the plant produce morethan the Phase 1 requirements, ie 4 mt/hr, but it was agreed, to do that, it might benecessary to make some capital upgrades to the plant. If that was necessary and didhappen, such upgrades would be at Gardians' cost or as mutually agreed.[40] A reasonable person in the shoes of Mr Sutton would have known that, withthe term sheet variation, there was uncertainty as to what might be achieved inimplementing Phase 3. They would also have understood SPX was not guaranteeingthat at the end of Phase 3 the plant would be capable of producing at 4 mt/hr.[41] I thus do not accept that SPX made a misrepresentation as to the plant havinga 4 mt/hr capacity in the way Gardians alleges in its counterclaim or in the way ofwhich Mr Sutton spoke.[42] Gardians has also failed to prove that, to the extent there was a representationas to the plant being potentially capable of producing at 4 mt/hr, such representationwas false. The representation was as to what the plant could be capable of achievingwith further optimisation and potential investment.[43] Gardians led evidence from Mr Stuart Berry, an expert in the operations ofplants such as that at Clydevale. From October 2011 to December 2012, Mr Berrywas contracted to the BNZ to act as a financial auditor in respect of the SPX/Gardiansconstruction contract because it was debt-funded. He was responsible for reviewingand approving for payment the monthly contract invoices submitted by SPX toGardians.[44] From January 2013 to April 2014, Mr Berry was project engineer for Gardians.In conjunction with SPX's Mr Gary White, he prepared the processing action list, "thesnag list", that the parties were to work on over the winter shutdown period and whenthe plant was recommissioned at the beginning of season 2.[45] Mr Berry considered that, to achieve production at 4 mt/hr, there would haveto be capital upgrades to the mix pasteuriser and evaporator. There would also needto be significant changes to the process operations, such as, amongst others, shorteningthe time for batch preparations, increasing the batch total solids to the evaporator andimproving the inlet air humidity control by installing a dehumidifier. Mr Berryacknowledged that 4 mt/hr "might be theoretically possible" with a dehumidificationplant in place, coupled with the changes to processing procedures.[46] Gardians decided not to invest in the dehumidification plant during 2013 andin 2014 when it still owned the plant. On 2 September 2013, Mr Berry advisedGardians that Phase 3 changes should only be considered in season 3, the season thatwould start in August 2014.[47] Mr Peter Brady is a management and operations consultant specialising in thedairy food industry. He was engaged by Gardians as an interim CEO at the plant frommid-2013 and continued working for them, either at the plant or remotely, until theend of March 2014. He said in his evidence that, when he was engaged by Mr Sutton,he was told of all the problems with construction in the plant during the first season.However, when he arrived at the plant, he understood that Gardians' directors andemployees were coming to the 2013/2014 season confident that numerousconstruction defects had been remedied by SPX over the winter shutdown and thatrecommissioning of the plant with the SPX experts on site would be a success.[48] On 30 September 2013, Mr Brady reported to Mr Sutton and Mr JamesShortall, Gardians' commercial manager, as to what would be required to produce "4tonne per hour whole milk capacity". He said the dryer currently had capacity toincrease to 4 mt/hr. He referred to some bottlenecks in other parts of the plant andmade suggestions as to how the system could be operated to increase capacity. Itappeared from his report that the only plant change required to achieve that capacitywould be the installation of a system to take a blend of certain products continuously.Mr Brady did not speak of it as requiring a major investment but said it would require"some validation work from SPX/Anhydro".[49] Mr Brady prepared a detailed report for Mr Johns of 8 February 2014 settingout the scope of works that would be required to increase capacity to 4 mt/hr. MrJohns was then the plant manager. In his report, Mr Brady did not suggest the plantwould be incapable of achieving that output.[50] On 20 February 2014, Mr Sanderson, Gardians' process manager who wasassisting the Sutton Group when they were looking to bring in an equity partner,advised senior managers that, with no modifications to the current plant, he believedthe dryer powder output for all specifications could be increased to 3.6 mt/hr. He saidthis future target rate was contingent on favourable drying conditions. Installation ofdehumidification for the incoming dryer plant air would enable consistent dryerthroughput all year round. He said initial investigative scoping work for theinstallation of the dehumidification was conducted by SPX in early 2013, but that afull analysis of equipment, civil and services requirements was required to obtain afull picture of total project costs. He considered that an increase of dryer output to the4 mt/hr target would require capital investment to achieve throughput increases toplant equipment upstream of the dryer.[51] On 16 December 2013, Mr Shortall prepared a report for a consultant. Thereport was considered by Mr Brady who added his comments. The report said that theplant currently had a maximum capacity of 3.4 mt/hr. It said that, with additionalcapital expenditure and some further optimisation of the plant, the capacity of the plantcould be increased to around 4.0 mt/hr.[52] In 2014, the plant was sold to Danone Asia Pacific Holdings Pte Limited(Danone), part of an international business with considerable expertise and experiencein the establishment and management of milk processing plants, including thoseproducing infant formula. Danone took over ownership of the plant on 31 July 2014,and between July 2014 and July 2016 has carried out significant work at the plant,including the capital upgrade of the evaporation plant and installation of adehumidification plant in January 2016. The evidence of Mr Andrew Johns, managerof the plant for Danone, was that certain individual components of the plant weredesigned to handle an output rate of 4 mt/hr but there were bottlenecks in the overallproduction process which Danone had to address. Some of those bottlenecks werestill outstanding but, with significant capital expenditure and installation of a newspecialised plant, Danone had come close to achieving 4 mt/hr output.[53] Gardians has also not established that it suffered any loss as a result of or "by"SPX's conduct.4[54] Mr Sutton was a sophisticated and experienced businessman. His notes on thedocumented communications he received show that he read and understood the detailof those documents. I do not accept that either he or anyone else in Gardians was orcould have been misled by a misrepresentation from SPX in the way that Gardiansalleges.[55] Gardians' counterclaim for $2,147,200 was based on an entitlement to delaydamages which it claims it had under the original contract (0.25 per cent of the contractprice of $42,944,000) up to the contractual limit of five per cent of the contract priceof $2,147,200, ie 20 weeks. It claimed the delay was from the first milestone forperformance of the contract, the plant receiving first product on 1 or 5 August 2012.Gardians says it had an entitlement to those delay damages from 1 or 5 August 2012to the date the term sheet agreement was executed, 8 March 2013 (31 weeks).Alternatively, it argued entitlement was from the time for completion set out in theparticulars of contract, 27 October 2012, to execution of the term sheet agreement (19weeks), on which basis the claim would have been for $2,039,840.4 Red Eagle Corp Ltd v Ellis, above n 3 at [29].[56] In submissions, Mr McIntosh said that, but for the alleged misrepresentationover the 4 mt/hr capacity, an increase in production to that level (or even close to it)would have allowed Gardians to recoup its first season losses. He said it was becauseof this and based on that representation that Gardians entered into the term sheetagreement and forewent delay damages payable by SPX. For the reasons discussed, Ihave held there was no misrepresentation over this. Had that been the basis on whichthey entered into the term sheet variation, Gardians would have made the investmentsrequired to have the plant producing at 4 mt/hr in the 2013/2014 season. They did notdo so.[57] Under s 43 of the Fair Trading Act, if there had been a misrepresentation on aclaim for damages, it would have been for the Court "to do justice to the parties in thecircumstances of the particular case and in terms of the policy of the Act".5[58] Gardians had not established that it had a claim for delay damages to the extentof $2,147,200 at the time the term sheet agreement was entered into. Under the FIDICcontract, any entitlement to delay damages only began from the contractual time forcompletion, 27 October 2012. Gardians began commercial production of nutritionalformula powder at the plant on 29 October 2012. There were issues as to whether theproblems in producing out of specification product were then contributed to, in part,through Gardians' decision to manufacture product with recipes different from thoseon which the contract had been based.[59] SPX claimed that liability for indirect or consequential losses was excluded bya term of the contract.6 SPX was also claiming that substantial sums were due to itunder the contract. It wanted to be confident as to the basis on which it would be paidthe balance which it claimed was due to it under the contract and the terms on whichsuch payment would be made. The term sheet agreement acknowledged that theparties had been in dispute over these matters when the term sheet agreement wascompleted.5 Red Eagle Corp Ltd v Ellis, above n 3.6 See [94] below.[60] With that agreement, Gardians obtained SPX's commitment to the allocationof significant resources in terms of personnel, expertise and materials to fulfil its termsheet obligations, immediately so in respect of Phases 1 and 2. Gardians obtained thebenefit of that continued commitment and realised the value of it with its sale of theplant to Danone.[61] In all these circumstances, had I found there had been a misrepresentation inthe way claimed by Gardians, to do justice between parties, I would have assessedtheir entitlement to damages on the basis the misrepresentation would have beenincorporated into the term sheet agreement and would have required SPX to meet theobligations it had in respect of that term. I would have held that Gardians had notestablished that it suffered any loss by reason of SPX's failure to meet such a term inthe agreement because:(a) Gardians had not made the investment in the dehumidifier or the otherimprovements which the parties anticipated would be necessary to achievethe increased capacity;(b) Gardians had agreed that, during the 2013/2014 season, SPX shouldconcentrate its efforts on achieving the required quality of products ratherthan increasing productive capacity to even the Phase 1 requirements;(c) the plant had processed all milk that was available to it; and(d) Gardians sold the plant to Danone without any evidence that the priceobtained was less because of any alleged failure to have the plant capableof producing product at the rate of 4 mt/hr.[62] Mr Thain, for SPX, also submitted that Gardians may not have been entitled toclaim damages on this basis because the contractual provisions as to such a paymentwere for payment of a penalty rather than a genuine pre-estimate of the loss that wouldbe caused to Gardians if there was delay. Were it the latter, Gardians would have hadto prove its actual loss and the Court would allow damages only for the loss which hadbeen established.77 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand, (5th ed, Lexis[63] Under cross-examination, Mr Sutton accepted that the formula for delaydamages was not a genuine pre-estimate of loss. Mr Sutton and Gardians have saidthey considered that, because during the first season the plant was not producing infantformula product of the required standard, they did suffer losses in excess of the amountclaimed by delay damages. However, in the term sheet agreement, they acknowledgethat their claim for such a loss was disputed. As it needed to be, the focus of evidenceat the trial was on what happened after the term sheet agreement was entered into. Notsurprisingly, Gardians has not proved what actual losses it suffered during the firstseason, nor to what extent any such losses were caused by SPX's breaches of contract.[64] There is now some suggestion that the former distinction between provisionfor liquidated damages and penalties may not be as determinative as it was formerlyheld to be.8 However, I do not need to reach any conclusion on this defence toGardians' counterclaim. For the other reasons discussed, Gardians fails on its claimfor $2,147,200 for misrepresentation.Gardians' claim for SPX's failure to remedy building defects[65] Gardians' claim is for $185,610.37 for SPX's failure to complete constructionof the plant, as required by the contract, the term sheet agreement and the variationdeed. During the hearing, it accepted the challenges SPX had made to a claim for$40,000 for lagging on steam and condensation pipes and $15,000 paid to a consultant,Dr Chris Bloor.[66] Through counsels' submissions, SPX accepts liability for $65,339. This waslargely for the cost of remedying yellow wall paint and floor coatings. With Gardians'agreement, the work was not carried out during the 2013 winter shutdown period andremained outstanding when the plant was sold.[67] Of the adjusted claim for $185,610.37, various amounts remain in dispute. Inow deal with those.Nexis, Wellington 2016) at [21.2.6].8 Cavendish Square Holidngs BV v Talal El Makdessi; ParkingEye Ltd v Beavis [2015] UKSC 67,[2015] 3 WLR 1373.Claim for extra cleaning costs[68] Gardians claims $12,000 for costs incurred through additional time spent byGardians' staff removing equipment in order to clean, which it says was madenecessary by inadequate design.[69] On 13 February 2014, Gardians' outgoing operations manager, Mr CharlieWilliams, provided Mr Johns with a report on the plant, identifying defects in the civilbuild of the plant which he considered needed to be addressed, together with what heconsidered were some areas of concern as to process design. The only mention ofadditional cleaning work resulting from design was in relation to the micro-additionarea having a wet scrubber attached to remove fine particles from the air. Mr Williamssaid the extraction duct above the tip-funnel became encrusted with this dust and thebuild-up became a risk. He suggested it could be possible to install a spray-ball intothe extraction duct to clean the surface. He noted this would have to be done by SPXand Gardians.[70] I accept the submission made for SPX that, while it might be possible toimprove a design to make it easier to operate a plant, that does not mean the actualdesign of the plant was not as contracted for. Mr Johns accepted that, if the plant hadbeen designed differently, some of the cleaning time would have been shorter.[71] With the settlement recorded in the term sheet variation, Gardians acceptedthat the TOC should be deemed to have issued as at 27 October 2012. With the issueof the TOC, Gardians accepted the factory and plant had been provided as per theoriginal contract but with SPX obliged to rectify "minor defects" of which it had beengiven notice as required by the contract.[72] At times, after the term sheet variation was concluded, complaints were madeby Gardians' personnel that in various ways the plant could have been designed better.Some of the evidence from Mr Brady and Mr Berry was to the same effect. I do notconsider there is any basis on which SPX can be liable for damages or be denied whatis due to it as a matter of contract on such a basis.[73] Gardians accepted that SPX had built and made available to it for operation theplant and factory that it was contractually required to supply in return for payment.There was potential for the processing operations at the plant to be improved withimprovements or changes to what had been built. The parties however recognised thatsuch improvements would require a variation to the original contract, except for thoseimprovements that might be required to achieve the output criteria in Phase 1.[74] Gardians has not established that it incurred cleaning costs of $12,000 as aresult of SPX breaching any contractual obligation it had to Gardians.Gardians' claim for additional employment costs in bringing performance of plant upto required standard[75] Gardians claims $105,600 for the cost of bringing the performance of the plantup to the contracted standard. The claim was for the cost of employing three staff for40 hours per week for 16 weeks, at a cost of $55 per hour.[76] For reasons which I later discuss in detail, I find that by 27 September 2013the plant was capable of performing to the standard required by the term sheetvariation and to the standard required by Gardians.[77] With a new plant, producing nutritional milk powder products from raw milk,and achieving and maintaining optimum performance of the plant and processingprocedures, was always going to be demanding and would take time. With the termsheet variation, SPX committed significant resources and personnel to assist in thisprocess of optimisation through until 27 September 2013. At that point, theperformance of the plant in the production of nutritional powder products was to therequired standard. Gardians agreed there was no point having SPX continue to assist,with the plant producing only whole milk powder (WMP). At that time, both SPX andGardians anticipated the plant would be producing nutritional products later in thatsecond season and SPX would again assist with this. For its own commercial reasons,Gardians had the plant continue to produce WMP for nearly all of the balance of thesecond season.[78] On 29 April 2014, Gardians agreed to sell the plant to Danone. After 27September 2013, Gardians never asked SPX to further assist with the optimisation ofplant performance.[79] From then on, as was to be expected, it was for Gardians, as the owner andoperator of the plant, to analyse the precise nature of the milk coming to the plant,monitor precisely the way the plant was performing, analyse the precise nature andquality of the powder produced, and to make the detailed adjustments and settingchanges that were required to further optimise plant performance and to maintainperformance at an optimum level.[80] The term sheet variation required Gardians and SPX personnel to workcollaboratively on all of this, which they did through until 27 September 2013 when itwas agreed SPX personnel should leave the site. Gardians has not proved that itincurred any salary or wage costs after that date as a result of any breach of contractby SPX.[81] Mr Johns was operations manager of the plant from February 2013 to 31 July2014 when he took up that position under Danone ownership. Mr Johns said this claimwas for the commitment and hours put in by his management team to ensure the plantcould meet the requirements of expected performance. His calculation was for 16 x40 hour weeks but that was only an estimate. Mr Johns had included consultancy feesfor Dr Bloor of $15,000, paid in the winter of 2013, as costs relating to claimed plantperformance defects but, as ultimately reflected in the reduction of Gardians' claim,$10,000 of that was for training and nothing to do with the plant.[82] Mr Aaron Sanderson said he was the plant process manager for Gardians fromApril 2012 to 1 August 2014 when he became production manager of the plant forDanone. He said that, as process manager for Gardians, he had 28 staff reporting tohim and together they were responsible for the production operations at the plant. MrMichael Byrne was the assistant process manager and Mr Sanderson's second-in-charge at the time the plant was a Gardians business.[83] Mr Sanderson said that, for much of the first half of the 2013/2014 season, theplant primarily produced WMP which enabled Gardians to focus on further processtroubleshooting and optimisation.[84] Although the plant was designed so it could operate on product for 21.5 hoursa day, in the early part of the 2014 season when nutritional products were beingproduced, it was taking all milk available and on product for significantly less than21.5 hours. I thus infer that staff would have had additional time to work onoptimisation of the plant at no extra cost to Gardians.[85] Mr Sanderson said that, from late 2013 and early 2014, he was aware theowners of the plant were considering selling part of the Gardians business. In February2014, he was asked by Mr Johns to prepare a current and future plant capacitysummary statement for senior management. He said that, once the deal with Danonewas signed, Danone personnel began to work alongside Gardians' people at the plantto give them a better understanding of the asset they were acquiring, and to identifyimprovements and additions that Danone would need to make over the next wintershutdown for the plant to be able to produce Danone's own infant formulas from thestart of the next season. He said he was asked to contribute to a list of proposed capitalprojects.[86] Mr Sanderson did not give any specific evidence as to additional hours he hadto work or as to additional remuneration he received because of the alleged contractualdefaults by SPX over and above whatever his normal remuneration would otherwisehave been.[87] Mr Johns only began working at the plant in February 2014, taking over fromthe interim CEO and the outgoing operations manager, Mr Williams. At that time, asfar as production was concerned, the demands on Gardians' personnel must have beenless as a result of the decision to concentrate on processing WMP rather thannutritionals. Senior managers must also have been significantly involved in preparingfor the sale.[88] The project engineer, Mr Berry, said he ended his contract in early 2014because by then he could see there was not much more he could usefully do in thecircumstances. The plant was by then running much better than before, although heconsidered it needed some major capital improvements in order to reach its potential.However, he understood that Gardians was no longer in a financial position to fundsuch improvements and that the owners were looking to sell the business.[89] A report to the Board of December 2013 noted that Mr Williams (the operationsmanager) and Ms Tania Williams (the quality and laboratory manager) had bothresigned, with Mr Williams to leave in February 2014 and Ms Williams in March 2014.[90] All this would suggest that, after Mr Johns took up his position in February2013 through until 31 July when the sale to Danone was settled, Gardians committedfewer resources to improving the operation of the plant rather than more.[91] Mr Johns has not identified how the work, supposedly covered by this claim,related to SPX's obligations under the term sheet agreement and variation deed.Witnesses did have criticisms to make as to defects in the original design but, as partof the term sheet settlement, Gardians had accepted it had taken over the plant asdesigned on 27 October 2012. The settlement, as recorded in the term sheet agreementand variation deed, was in full and final settlement of "additional costs incurred andpayments required to be made between Gardians and SPX in respect of the contract".[92] The evidence of Mr Johns and Mr Sanderson does not prove, on the balance ofprobabilities, that Gardians incurred salary or wage costs of $105,000 in excess ofwhat it would have otherwise had to pay for people at management level working forGardians at the plant as a result of what it claimed were SPX's breaches of contract.[93] It was a term of the variation deed that the instrument was additional to, anddid not supersede, the term sheet agreement. It said, if there was any ambiguity orconflict between the variation deed and the term sheet agreement, the term sheetagreement would prevail to resolve such ambiguity or conflict. The variation deedalso stated that, except as expressly varied by the deed, the provisions contained in thecontract were confirmed and were to remain in full force and effect.[94] SPX also denied liability for this part of the counterclaim relying on a conditionof the contract as follows:Consequential DamagesUnder no circumstances whatsoever shall [SPX] be liable to [Gardians] forany indirect or consequential damages, including but not limited to lostgoodwill, lost resale profits, work stoppage, impairment of other goods, lossof product or raw materials or otherwise and whether arising out of breach ofany express or implied warranty, breach of contract, tort, negligence orotherwise, except only in the case of personal injury where applicable lawrequires such liability.[95] I do not consider Gardians' claim for any of the $185,610.37 would have beencovered by that exclusion clause. Gardians' claim, which I have held it has not beenable to prove, was a claim for direct damages, not indirect or consequential damages.I therefore reject this part of SPX's argument.Undisputed counterclaim amount[96] Through Mr Thain's submissions, SPX accepted that Gardians has a validcounterclaim for $65,339. I have assumed that includes the allowance of $2,671.12as part of the claim for steam plate trap replacement at $5,342.25. Gardians'counterclaim was for $185,610.37. From that amount has to be deducted disallowedclaims for:One-half of the cost of the steam trap replacement $ 2,671.12Claim for cleaning costs $ 12,000.00Additional wage costs $105,600.00Total $120,271.12[97] Adjusting for the disallowed claims on the figure for Gardians, thecounterclaim that has been established is for $65,339.SPX's claim for unpaid contractual sumsSummary of the parties' positions[98] SPX's claim is for the total of $4,578,000 which Gardians agreed to pay byway of the Phases 1 to 4 payments provided for in the term sheet variation.[99] The term sheet variation required the parties to work "collaboratively and ingood faith". The plant had to be capable of producing the specified product of thequality required by the contract and at the quantities referred to in the term sheetvariation. To achieve that production, there had to be a supply of milk to the plant atthe required levels and at appropriate times. Gardians' staff had to do the workrequired of them at the plant but SPX had to provide its particular expertise andresources to assist Gardians' staff as they trialled and tweaked the plant to achievemaximum efficiency. With the term sheet variation, SPX assured Gardians of acontinuing major commitment to the relationship and to the plant using staff not justfrom New Zealand but also some of their most experienced and highly qualifiedSPX/Anhydro personnel from Denmark.[100] Under Phase 1, it was anticipated that, with both parties doing what wasrequired of them, the plant would process milk and produce the specified product tothe extent required, without further major capital investment. With the parties workingcollaboratively, SPX would be able to carry out the necessary completion tests todemonstrate the plant was performing as required. On that happening, SPX would bepaid $700,000.[101] In essence, SPX says it did all that was required of it but the production targetswere changed for the 2013/2014 season. Payment of the $700,000 for Phase 1 was nolonger conditional on satisfactory completion testing as originally provided for in theterm sheet variation. Satisfactory performance of Gardians' new production schedulewas to be the new test. In any event, the new production schedule, continuingproduction of WMP and the sale of the plant to Danone made it impossible for SPX tocarry out Phase 1 completion tests. Therefore, SPX contends that any requirement forSPX to complete the Phase 1 test was waived.[102] Under Phase 2, payment of a further $700,000 was due on satisfactorycompletion of reconstitution trials, completion of mutually-agreed improvements tothe contract works as variations to the contract and rectification of specificconstruction defects as listed in the second schedule to the variation deed.[103] There is no issue that SPX carried out the required reconstitution trials. SPXsays that, to the extent it was required to make any improvements to the contractworks, it did so. SPX says it completed all the construction rectification work requiredof it except for what was required to deal with yellowing of the original wall/ceilingpaint finishes and wet process floor defects. SPX says the parties agreed to defer thatwork. Because Gardians sold the plant, SPX never had the opportunity to do this workand its obligations in this regard should be brought into account through Gardians'counterclaim to the extent of $65,339. SPX says it did all that was required of it as toPhase 2 so that it was entitled to payment of the further $700,000.[104] As to Phase 3, SPX says Gardians did not give SPX the opportunity to do thework that would otherwise have been required of it in the optimisation phase. Throughselling the plant, Gardians prevented SPX from being able to do so. SPX saysGardians cannot rely on its default in this regard to avoid payment of the Phase 3 sumof $678,000.[105] SPX says that, under the term sheet variation, $2,500,000 was payable sixmonths following the expiry of the optimisation phase. SPX says that, with the saleof the plant to Danone on 31 July 2014, it was clear Gardians did not require SPX todo anything further with regard to Phase 4, so that the further $2,500,000 would havebeen due no later than 31 January 2015, being six months after 31 July 2014.[106] Gardians says there were numerous defects with the plant and buildings whichhave never been fixed, as was contractually required of SPX. Gardians says SPX didnot provide a plant having the capacity to consistently produce output and run timesof 3.41 mt/hr, 21.5 hours per day, in respect of various products. In that regard, itparticularly emphasised the allegation that the plant was unable to run for 21.5 hoursper day without having to stop for cleaning (referring to a mid-run flush or CIP).[107] Gardians says it did not have to make any further payments to SPX until SPXhad carried out the completion tests originally required under Phase 1, proving that theplant was able to consistently produce specified product of the required quality and inthe required quantity. It had not done so.[108] Gardians admitted that its use of the plant after 27 September 2013 preventedSPX taking further steps to achieve quality targets for nutritional products and to carryout quality testing in respect of such products. However, it asserts that this wastemporary and did not relieve SPX of its contractual obligations, such that SPX is notentitled to the Phase 1 payment of $700,000.[109] As to Phase 2, Gardians admitted SPX had carried out the requiredreconstitution trials and ultimately acknowledged SPX had no outstanding obligationsto make improvements to the plant. However, Gardians denied SPX had remedied allbuilding defects, so Gardians did not have to pay the Phase 2 $700,000.[110] Gardians admits that its decision to begin production of WMP in September2013, its then continuing production of WMP and its sale of the plant to Danone at theend of April 2014, prevented SPX's team from taking steps to further optimise theoutput and run times in pursuit of Phase 3 output targets. Gardians accepts that itagreed all SPX staff should leave the plant on or around 27 September 2013 but saysthis did not constitute any contractual variation or settlement of outstanding issues.Gardians thus claims that SPX has not met its obligations under either Phase 3 or Phase4 and is therefore not entitled to the payments due under such phases.Gardians' complaints as to SPX's failure to remedy building defects after term sheetvariation[111] Phase 2 of the term sheet variation required SPX to rectify a number of defectsarising out of the building contract, the "hit list". It was incorporated into the variationdeed as the second schedule. The work was to be done during the winter shutdownperiod between 1 June and 31 July 2013.[112] Mr Berry prepared a report dated 12 February 2014 as to how the contract withSPX had progressed generally. He said it was based on his role as project auditor forthe BNZ from November 2011 to November 2012, his presence on the production sitefrom January 2013 as Gardians' project engineer and information provided byoperations management during the initial production start-up. He was also dealingwith SPX as to day-to-day coordination, and doing the final inspections and sign-offfor the Hawkins activities.[113] Mr Berry noted that a building completion hit list, referring to 300 items, hadbeen generated in October/November 2012. A Hawkins' site supervisor was on siteorganising the completion of minor items at the end of the 2012/2013 season and hewas organising teams to be on site for the winter shutdown. He noted that, during thewinter shutdown, Hawkins had 30 staff on site completing these items.[114] Mr Berry said that all items on the "hit list" were signed off by Gardians on 12August 2013 except for yellowing of paint on walls and poor floor finishes in the wet-process areas. In closing submissions for Gardians, Mr McIntosh accepted Gardiansand SPX agreed to defer work to deal with these problems so it would not interferewith production in the second season. That sign-off occurred because Hawkins wasgoing off-site and Gardians was about to start production again. Mr Berry said the listhad no further life after that point.[115] It was Mr Brady's understanding that, when he was engaged as interim CEOby Gardians from mid-2013, the construction defects from the 2013/2014 season hadbeen remedied over the winter shutdown period.[116] Mr White from SPX was responsible for ensuring that items on the various listswere addressed. He confirmed with Mr Berry that all items on the list of generalbuilding and civil work defects had been attended to with the exceptions of issues withyellowing paint and wet-process floor defects which they agreed would be addressedat a later date.[117] Consistent with all of that, there were no issues over building defects workdiscussed at the meeting of Gardians and SPX representatives which took place on 24September 2013 in anticipation of SPX shortly moving away from the site.Gardians' complaints as to SPX's failure to deal with processing issues as required bythe term sheet variationSPX's performance from term sheet variation to end of 2012/2013 season[118] Mr Sutton said he oversaw the plant from origination through to the sale of thebusiness to Danone in July 2014. He said that for months after the variation deed wassigned, Gardians continued to experience the same lack of commitment fromSPX/Anhydro as he said it had experienced before the term sheet variation. He saidthat this lack of commitment resulted in SPX/Anhydro personnel not being back at theplant in time to resolve continuing production problems. Their presence was all toolate to avoid problems that had arisen through Gardians having to redirect milk supplyto another factory, with the result that the 2012/2013 season finished and the milksupply ran out before Phase 1 targets had been achieved.[119] Mr Sutton said that while, by the end of 2013, the plant was running muchbetter, it still had major construction, plant and design defects that would cost Gardiansmillions of dollars to resolve. He said Gardians had never released SPX from itsobligation to run the plant for three consecutive days on each nutritional formula. Hesuggested that SPX had never required Gardians to make the plant available for suchtests because it knew the plant could not achieve the 21.5 hour-three day run timetargets, irrespective of the metric tonnage being produced per hour.[120] It is apparent from Mr Sutton's communications with SPX in March, April andMay that he did not consider SPX was providing on-site personnel and resources toassist in improving the operation of the plant in a way which was consistent with the"good faith" of the agreement.[121] On 19 April 2013, Mr Sutton emailed SPX senior managers expressing concernat work outstanding at the plant and complaining that Gardians could not see anyadditional resources being applied to the plant prior to the end of the dairy season.Included in the complaint was advice that Gardians had approached another companyto see "what resources they are able to offer".[122] In an email of 20 April 2013, Mr Sutton acknowledged SPX's prompt responseto this email. He said he also appreciated "Denmark's attention". That would havebeen a reference to the involvement of the Anhydro team from Copenhagen.[123] Although Mr Sutton acknowledged the positive and prompt response fromSPX to his complaining email of 19 April 2013, in his email of 20 April 2013 hereferred to the way one-third of their milk had to be diverted to another dairy companydue to lateness of the start-up and breakdowns, failure to reach daily production targetsand 30 per cent of product being out of spec. These complaints related to pre-termsheet agreement settlement issues.[124] In an email of 28 April 2013, while Mr Sutton thanked SPX for the supportGardians had received over the last few weeks and acknowledged the improvementsthat had been made, he referred to problems he said it was continuing to have as aresult of the late completion of the building and commissioning. At the same time, hereiterated Gardians' need for SPX's continuing support and commitment for the start-up next season in approximately August 2013.[125] On 6 May 2013, Mr Sutton emailed a detailed letter to senior people withinSPX complaining of the way Gardians was being treated and saying "we have beentreated appallingly". The email included a detailed account of issues that had arisenduring 2012. Mr Sutton was concerned that Anhydro personnel, who had been on siteat the end of April and who were to be there until the end of May, were going to beleaving before then. SPX did attempt to respond to these complaints proactively, notleast through Mr Michael Demchy, a senior general manager with SPX, becomingdirectly involved.[126] In an email of 23 May 2013, Mr Sutton said the departure of Anhydropersonnel and poor plant performance was going to be costly. He suggested it wasgoing to have ramifications that would have to be discussed between the lawyers. Hecomplained of issues they were having with the plant, referring back to his email of16 April 2013 which had referred to problems Gardians had encountered during 2012.[127] The variation deed was signed off and dated 27 March 2013. On the same day,SPX issued an invoice for $2,100,000. One of Mr Sutton's complaints was that theterm sheet agreement was signed and SPX paid in March but that the Anhydroengineers did not arrive until about five weeks afterwards, when the milk supply wasnearly finished. I find Anhydro staff were on site almost immediately after thevariation deed was signed and Gardians paid the $2,100,000.[128] On 19 March 2013, Mr Williams, the operations manager for Gardians, wascommunicating with senior people at Gardians as to information which Gardians wasto provide to Anhydro prior to them arriving. On Tuesday 26 March 2013, MrMurdoch advised Mr Sutton and others at Gardians that the Anhydro people would bearriving "on Thursday morning" (ie 28 March 2013). One of the engineers, MrMortensen, was on site around the end of March 2013 and reported on progress thatwas being made in improving sidewall appearances of infant formula production. Twoof the Anhydro people had to return to Denmark for personal reasons but theycontinued assisting with the plant from Denmark.[129] Under cross-examination, Mr Sutton confirmed that, in April and May, theplant was processing all the milk that was available to it. Gardians also admitted inthe pleadings that during April and May 2013 Gardians and SPX were doing thereconstitution trials required as part of Phase 2. The reconstitution trials involvedmaking nutritional powders without raw milk, using powder and adding water insteadof taking milk. Mr Sutton also accepted there were people from SPX on site in Apriland May 2012 and they made helpful discoveries, changes and adjustments to the plantwhich led to better results for the last few runs before the winter shutdown.[130] Mr Berry accepted he had been correct in saying in his report of 12 February2014 that SPX engineers had been on site from 22 March 2013. Two Anhydroengineers were on site from 25 March for three weeks. Three Anhydro engineers wereon site from 17 May until 31 May. Mr Berry referred to production runs being carriedout with raw milk and reconstituted milk over this latter period to determine theoperational conditions for the dryer and evaporator, and the engineers creating anextensive list of issues with the dryer operation which had to be changed over thewinter period. Mr Berry worked on that list in conjunction with SPX people.[131] Mr Sutton was critical of the fact Mr Murdoch, SPX's New Zealand manager,was not on site at that time. It is apparent from the documented communications that,although based in Auckland, Mr Murdoch was in regular contact with SPX personnelat the plant, he responded promptly to issues raised with him by Gardians, referredthose concerns to others within SPX for advice or action, and otherwise responded ina timely way to Gardians.[132] Mr Sanderson was the production manager at the plant responsible for theplant's daily operations when it was owned by Gardians. It was his evidence that, bythe end of the first season, with the Anhydro specialists on site, major improvementshad been made to both the plant and the processes so that it could, by then, run muchmore efficiently and reliably.[133] Mr Demchy was General Manager-South East Asia and Oceania and Food andBeverage Systems Engineering Director-Asia Pacific for the SPX flow businessduring 2012 and 2013. His involvement began, in the main, after the term sheetvariation had been negotiated. He said that in mid-March 2013 SPX arranged forspecialist engineers from SPX's Anhydro-brand team in Denmark to travel to the plantto assist with optimising the process on the evaporator and spray dryer in the plant.Mr Demchy said that equipment was key to the plant's operation. It was Anhydro-branded equipment that had been supplied and installed during the construction periodin 2012 by members of the Anhydro team.[134] Mr Demchy said the work required of SPX as part of Phase 1 was part-waycompleted at the end of the 2012/2013 season with the plant getting close to producinga number of the products to the extent required by the term sheet variation.[135] One of the witnesses for Gardians was Mr Shortall, who is Mr Sutton's son-in-law. He was the commercial manager for Gardians from January 2012 through to thesale of the plant in July 2014. On 19 July 2013, he provided a report to Mr Sutton andMr Paterson. That document summarised the key issues Gardians faced over the firstseason and how those issues had been resolved. Mr Shortall's report covered thediffering products the plant had to produce and referred to progress that had been madewith the assistance of SPX/Anhydro as the 2012/2013 season came to an end.[136] That report was provided to Deloitte for submission to the BNZ in support ofa request for further working capital. Mr Sutton said the report was prepared by MrShortall in conjunction with Gardians' Chief Financial Officer, Wayne Caskie. Heaccepted the information in the document was accurate and not misleading in any way.[137] For standard infant formula, Mr Shortall reported the major issue for season 1was solution appearance.9 As to that, Mr Shortall noted that a major issue with a dryerblockage had been resolved with a software sequencing change by Anhydro during thelast week of April 2013.[138] As to side wall appearance,10 Mr Shortall's report said "after arrival of Anhydrosupport on 15 May saw successful runs. Product was produced in spec for SA(sidewall appearance) over last four production runs of season".[139] The report noted that further plant changes were underway during the off-season to further improve solution appearance and bulk density.11[140] Mr Shortall's report on premium infant formula indicated there had beenproblems with dryer blockages as with standard infant formula. There had been adeterioration in solution appearance as a result of changes which the Anhydro teammade to profiles in attempts to reduce dryer and cyclone blockages. This required areversion back to earlier settings. Mr Shortall's report noted "last four production runsin May all in spec after Anhydro made successful changes across both IF specs".[141] As to standard follow-on, his report said there had been early production issuesbut these were resolved by February 2013. As to premium follow on, Mr Shortallnoted "production runs have generally been good with virtually all product in spec atend of season".[142] For standard GUMP, Mr Shortall noted the major issues had been thermophile(plant issue) and sensory (formulation issue). As to sensory issues, he noted therewere major improvements in taste resulting from changes to the formulation on 6March 2013, and there would be changes to the formulation for season 2 to providebetter taste and reduce the risk of off-flavours. He said there were no major issues9 The appearance of a solution once the infant formula had been mixed in the bottle, a qualityobviously of considerable importance to purchasers of the product and thus to importers and toGardians as the manufacturer and exporter of the product.10 The appearance of residue on a container after the mixed infant formula had been used or pouredout of the container.11 The latter refers to the extent to which the powder settles within the tin after packaging. This isof importance to consumers who do not want to have purchased less in quantity than appeared tobe appropriate from the size of the tin.with dryer blockages and solution appearance with this product but said thatcontamination problems with thermophiles had occurred with the lifting of productionruns in December 2012 leading to the downgrading of product. For premium GUMP,similar issues arose as for standard GUMP. Mr Shortall said that changes were madeto the formulation at the end of the 2012/2013 season (around April/May 2013) andother changes had since been made and implemented.[143] Mr Shortall's report of 19 July 2013 explained how losses had arisen in thefirst season and, in each case, said the issue had been resolved. His summary statedhow all quality and plant issues had been resolved and how all of this had been withAnhydro support.[144] The evidence satisfies me that SPX did all that was required of it under theterm sheet variation agreement between the time that agreement was finalised and thebeginning of the winter shutdown period on 1 June 2013.SPX's performance over the winter shutdown period[145] On 10 May 2013, Mr Berry prepared his list of suggested plant changes forconsideration. He noted they were items that could be improved or changed toimprove the operation of the plant and make the operators' jobs easier in relation tosafety and quality issues. He said some of the items would be relatively easy toimplement while others would require some engineering. He categorised the changesas either "need to have" or "nice to have". He introduced these latter items with thenote "these would be outside the SPX scope of supply".[146] The items were considered by SPX who indicated whether or not the itemswere ones that Gardians would have to pay for or were SPX's responsibility. Mr Berryaccepted that SPX provided prices for a number of items which were Gardians'responsibility, such as providing mobile working platforms. Those were never takenup by Gardians. Mr Berry accepted that Mr White was correct in saying there were anumber of items which SPX considered Gardians should pay for but which SPX infact carried out at their own cost.[147] Mr Berry also accepted Mr White's evidence that SPX generated its own listof improvements but the list included items which Gardians had suggested. He hadno reason to doubt Mr White's evidence that they had completed all required items onthat list.[148] Mr Berry also said that he had prepared a master list including items that bothparties had agreed should be attended to, "the snag list".[149] Mr Berry recorded that, from the end of June until the end of July 2013, SPXengineers were on site to action items on the snag list. He referred to the regularweekly review meetings of Gardians personnel with the SPX engineer and senior SPXmanagement, and the agreements reached as to the way production was to proceed inthe new season.[150] On 28 August 2013, Mr Berry said in emails that SPX had completed its actionslist and Hawkins had completed its building defects list. On 28 August, he saidGardians had been pleased with both the presence of the SPX engineers on site andthe progress made at improving product quality.[151] One improvement which the parties recognised might assist in achievingincreased capacity at the plant was the installation of a new dehumidifier. That wasrecognised in the term sheet variation. It was also recognised that, if this investmentwas to be made, it would be at Gardians' cost.[152] On 9 May 2013, Mr Berry advised Mr Sutton that he had discussed theeconomics and wisdom of making this investment with someone from SPX. Theadvice had been to delay a decision about the installation of such a device until dryeroutput had been optimised. Mr Berry agreed that by May 2013 a decision had beenmade not to proceed with a dehumidifier. On 27 June 2013, Mr Sutton and Mr Berryagreed the issue of a dehumidifier should be parked. Mr Berry agreed that, at thattime, the economics of the whole situation were such that this further investment onGardians' part was not justified.[153] On 20 June 2013, Mr Sutton complained to SPX that SPX had failed to giveGardians the advice and assistance they needed in deciding whether or not to makethat investment. This disconnect, between the way in which the operators of the plantand engineers from SPX and Anhydro appeared to be working collaboratively at theplant, and the attitude which Mr Sutton was displaying towards SPX at anowner/director level, had been evident in April/May 2013. It was to resurface againin September 2013, as evidenced by Mr Sutton's email of 17 September 2013.The evidence of Mr White, dairy project engineer for SPX[154] The main evidence I received from SPX, as to the engineering and technicalsupport they provided to the plant at the end of the 2012/2013 season and then through2013, was from Mr White. He is a dairy project engineer, with a Bachelor of Sciencewith Honours in Chemical Engineering from Swansea University, Wales. He hasworked as a project manager and process engineer for over 35 years in New Zealand,the USA and the United Kingdom. Before 2011, he had been employed as a projectmanager and process engineer for BW Murdoch Limited. This was the companywhich was sold to SPX in 2011. That business had done a considerable amount ofwork designing processing solutions for dairy companies such as Fonterra. One of thefirst projects Mr White worked on for SPX was the Gardians plant near Balclutha.[155] Between July and November 2011, Mr White was involved in formulating thedesign concept and preparing process specifications for the plant. At the end of theconstruction period in October 2012, he worked on site at the plant to overseeprocesses during the initial commissioning. He was on site until December 2012 buthad to leave because his wife was seriously ill. He returned to work at the plant inMay 2013. He worked on the plant daily from then until SPX's work for Gardians atthe plant finished at the end of September 2013. He was involved with product trialsand optimisation works in May, rectification of defects and the making ofimprovements to the plant when it was shut down in June and July, and then the re-commissioning of the plant with product testing and optimisation through to the endof September 2013.[156] Mr White spoke of the particular challenges they faced with this project duringthe 2012/2013 season. These related to the way the operation of the plant had to copewith changes to product recipes, and the difficulties faced in having the opportunity tooptimise the performance of the plant for one particular product because of thepressure Gardians was under to process all milk that it was committed to taking, whichit could more easily do in producing GUMP rather than infant formula.[157] Gardians also had very few of their own experienced plant operators on siteduring the commissioning stages. SPX engineers therefore found they had to assistwith the actual running of the plant more than with other projects with which they hadbeen involved. This was probably something they should have expected givenGardians was a start-up company and it was a greenfields project.[158] When Mr White returned to the plant in May 2013, he knew that an agreementhad been reached in March but he was not concerned with the commercialarrangements. He knew that SPX was to optimise the plant for production of agreedrecipes and also to rectify defects and make improvements to the plant during theplanned shutdown period of June and July at the end of the dairy season.[159] Mr White said Anhydro engineers came on site to work on optimising plantperformance before the planned shutdown on 1 June 2013. He said May 2013 was notthe best time to optimise the plant because of the nature of the milk supply howeverSPX did carry out trials during that time.[160] Mr White said he worked with Gardians' project engineer, Mr Berry, to preparethe "Gardians action list, a list of mainly process related matters which SPX, includingthe Anhydro team and Gardians, were to address". This was the "snag list".[161] Mr White sent his list of suggested improvements to Mr Berry on 31 May 2013.The way Mr Berry and Mr White were working was consistent with their taking acollaborative approach to improving the performance of the plant, as required by theterm sheet variation.[162] The impression I had from Mr White's evidence was that he was not concernedwith the commercial arrangements between Gardians and SPX. His whole focus wason getting the plant to perform at the optimal level. He said he had a good relationshipwith Gardians' people. He also spoke of his relationship with Gardians' factorymanager, Charlie Williams, in ways that suggested they worked cooperatively incoping with the commercial demands which the plant faced. Mr Sanderson ofGardians said he had enjoyed working with Mr White. He considered him to betrustworthy and a very knowledgeable process engineer.[163] Mr White said that, before the winter shutdown, they had worked out whatimprovements they would make to the plant. Agreement was reached over these items.He provided Mr Williams with his list of what they were going to work on and whathe hoped would be achieved. These improvements were not capital intensive andprimarily involved tweaking of the systems.[164] After May 2013, Mr White reported mainly to Mr Demchy. He said that, if hecould persuade Mr Demchy that there would be real enhancements to the plant withouttoo much expense, Mr Demchy would approve him making those improvements atSPX's cost. He continued to work on making improvements over the shutdown periodand when the next season began at the end of July/August 2013. That work continuedthrough to 24 September 2013 during which Mr White was working closely with MrBerry. He considered that by 24 September they had shown the plant was capable ofproducing at the capacity required by the contract, and quality, in terms of bulk densityand side wall appearance of infant formula, had improved significantly and was at alevel with which Gardians was satisfied.[165] Mr White prepared a report as to what had been achieved by that time. Heacknowledged SPX had not had the opportunity to assess the extent to which qualityand capacity could be maintained consistently. This was because of the particularproduction runs that Gardians required and the limited ability they had to testproduction of the more difficult infant formulas for any sustained period. He said thata meeting of around 24 September involving himself, Anhydro personnel and Gardianspeople, had been positive and that Gardians seemed satisfied with the improvementsthat had been made.[166] Mr White impressed me as someone with considerable expertise andexperience in managing plants and the production process to achieve optimumperformance. He gave his evidence in a straightforward way and did not appear to beconcerned as to the commercial consequences that might flow from what he had tosay.[167] The progress and efforts of SPX, as apparent from Mr Berry's evidence, MrShortall's report for Deloitte and the evidence of Mr White, was in marked contrast tothe attitude which Mr Sutton displayed to SPX over these months.The move towards changing the term sheet variation[168] On 14 June 2013, Mr Sutton emailed SPX. The letter began by referring to theseason ending June 2013 as being "a complete disaster for Gardians". It referred tothe damage and losses it had suffered as a result and concluded with the statement "webelieve that the outcome of this start-up requires further urgent discussion betweenboth companies senior management".[169] SPX responded to this with a letter of 17 June 2013 in which it outlined how ithad responded to Gardians' concerns, issues it was addressing during the shutdownand what it would be doing to ensure a successful recommissioning on 1 August forthe next season. Coupled with that were proposals as to how the remaining paymentsdue under the agreement should be made.[170] In an email of 20 June 2013, Mr Sutton suggested that, without waiver of anyrights, the parties enter into good-faith, open discussions about the Phases, the criticaldeliveries, the dates which SPX could achieve and the payments that would follow onagreed parameters that both parties believed would be achievable. Mr Sutton said that,with this letter, Gardians was looking to delay payment to SPX.[171] Mr Demchy and Mr Horan of SPX met with Mr Sutton and Mr Paterson on 26June 2013. Mr Berry also participated, by phone. Mr Sutton subsequently circulatedminutes from that meeting. They indicated that SPX accepted it had to meet itscontractual requirements, that it needed the opportunity to prove that thebatching/evaporator/dryer systems would meet the required throughputs of 3.41 mt/hrfor 21.5 hours/day for three consecutive days for each formulation, and that it expectedprompt payment of the balances that would be due in terms of the term sheet variation,but that the precise dates would have to be renegotiated and would be performance-based. No one from Gardians suggested that there would be any change to the recipesor the products which had to be produced.[172] As Mr Demchy explained, after the shutdown it would have taken a lot ofcoordination between SPX and Gardians to restart the plant and have a programme inplace, along with the raw ingredients, the people and everything that was required tomake the specified batches on consecutive days.[173] It was explained to me that the quality of the powder produced can be affectedby the quality and characteristics of the milk when it is supplied to the factory. Thecharacteristics of the milk change over the season. At the beginning of the season, themilk is likely to be higher in colostrum and have a slightly different chemicalcomposition. Milk powders with the best functional properties are produced frommid-season milk. Some big manufacturers find it easier to produce a consistentproduct through starting with milk reconstituted from skim milk powder. TheGardians plant was using raw milk which meant there was potential for a greatervariance in the quality of the powder being produced. Mr Demchy explained that, tomake improvements to the way the plant operated, it was necessary to set the plant upin a particular way, do a production run, analyse the results, agree to anotherproduction run, perhaps change some of the plant set up and then finally analyse thoseresults. There was the potential for making gains without making major changes tothe processing plant. Mr Brady gave similar evidence.[174] On 26 June 2013, it was agreed that SPX would draft a start-up plan for all ofthis. For reasons which became apparent, it never did this.[175] On 5 July 2013, Mr Sutton emailed Mr David Wilson, President, Global Foodand Beverages Systems of SPX. His email referred to various issues with theprocessing plant and asked for SPX's response as to what it was doing about them. Itconcluded with the assertion that, towards the end of the previous season, as SPXAnhydro pushed the plant in an attempt to reach 4 mt/hr, an amount of product wasmade out of spec. He said it was not in Gardians' interests to continue the start-upphase of recommissioning the plant with a view to maximising throughput. He saidGardians would prefer the plant to run at below 3.4 mt/hr in order to prove that productcan be produced within specification and, once that was achieved, to workcollaboratively to increase throughput.[176] That email had no regard to the way Mr Berry, Mr Williams and other Gardiansand SPX people were constructively and collaboratively working their way throughthe snag list for the processing system, or the discussions that had taken place over the"nice to have" enhancements that would have been at Gardians' cost. The assertionthat, in the previous season, SPX had been pushing the plant to reach 4 mt/hr and thathad caused product to be out of spec, was not consistent with any other evidence thatI heard or have read.[177] In his email, Mr Sutton attributed the need to concentrate on quality rather thanquantity to problems that had occurred in the first season. This did not accord with allthat had been achieved in remedying those problems at the end of the 2012/2013season and during the winter shutdown as reported by Mr Shortall for Deloitte and theBNZ.[178] I consider that, with his email of 5 July 2013, despite the term sheet variation,Mr Sutton was seeking to position Gardians so that it could, one way or another, try toavoid paying the balance that had been due under the original contract.[179] On 11 July 2013, Mr Demchy emailed Mr Sutton noting that Gardians hadprovided proposed recipes for the new season for standard IF and GUMP which weresignificantly different to the recipes referenced in the deed of variation. Mr Demchysaid that SPX would be drafting the start-up schedule and performance testing planbased on the 27 March 2013 recipes, and it would not be offering any performance oroperational guarantees for the new recipes.[180] On the same day, Mr Demchy emailed Mr Sutton and said he had been toldGardians was proposing to start up the plant making whole milk. He said that, if theplant was used to produce WMP in the next season, production of that milk powderwould not be covered by any contractual guarantee. He also advised that there couldbe additional costs incurred in having the plant run on this product rather than thoseagreed to in the contract and the term sheet variation.[181] Mr Demchy's emails of 11 July 2013 were copied to Mr Berry. Mr Berryadvised Mr Sutton that SPX would be relying on the contract and that it would onlywork/commission the plant on the formulations specified in the contract, WMP notbeing one of them. He said SPX would not be interested in having its engineeringresources sitting watching WMP being manufactured. He advised Mr Sutton:Gardians has to show that its intent is to give SPX all opportunities to provethat its plant can meet the required contract specifications otherwise Gardianscould be shown to be in fault and an out is open to SPX – SPX has done "allendeavours" to meet the contract requirements.[182] Mr Sutton's response to Mr Berry was to say:SPX have cost us dearly and we have advised the extent. I believe we shouldgo into the negotiations requiring them to commission the plant on our newformulations. If, as a result, they reduce the dryer output, then let's see.[183] I am satisfied, from their evidence and the documents, that Mr Demchy andMr Ryan of SPX were concerned that, with Gardians' proposed changes, it would beimpossible for SPX to complete the SIF and PIF trials required by the term sheetvariation. Furthermore, they understandably did not want SPX to have to commit itstop technologists and provide support to Gardians for Phase 3 six months optimisationif SPX could not carry out the trials required to obtain payments that would otherwisebe due under the term sheet variation.Changes to the term sheet variation[184] There was a high level meeting between SPX and Gardians' representatives on30 July 2013. Mr Sutton and Mr Paterson were involved for Gardians. Mr Ryan andMr Demchy were involved for SPX.[185] Mr Ryan said that it was made clear at the commencement of the 30 July 2013discussions that, with Gardians requiring a significant change in the productionschedule, the provisions of the term sheet as to SPX being able to carry out the requiredtests for the six formula products as provided for in the term sheet variation would nolonger apply.[186] I accept the evidence of Mr Ryan and Mr Demchy that SPX's concern, asexpressed at the meeting, was that it be able to prove the plant could achieve thealready agreed requirements so that it could complete its involvement with the projectand be paid the balance due to it under the contract. I also accept their evidence thatSPX remained committed to working with Gardians to complete whatever wasrequired on the project and was willing to continue working collaboratively withGardians to do that. Mr Ryan said they offered for SPX to come back and do additionaloptimisation work with Gardians when Gardians resumed running infant formulas.[187] I also accept their evidence that Gardians' people discussed their plan to moveto WMP and indicated that their reason for doing so was driven by milk supply andother commercial issues. Consistent with Mr Sutton's earlier communications, Iaccept that he and Mr Paterson made it clear that Gardians wanted SPX to follow itsnew production schedule using its new formulations, and to focus on the quality of theproducts rather than output volumes. As stated by Mr Demchy, Gardians wanted onlya short production run for formula products because it was going to move to WMP. Ialso accept that, during the meeting, Mr Sutton and/or Mr Paterson said Gardiansmight not have the right milk supply for SPX to carry out the tests required under theterm sheet variation.[188] Both Mr Demchy and Mr Ryan accepted that they did agree to work withGardians' new recipes and a new production schedule but that this was on the basistheir doing so would be in place of their having to carry out the Phase 1 testing as aprecondition to obtaining payment. A new agreement would be reached as to thetiming and basis for the remaining payments. Consistent with that and subsequentcorrespondence, Mr Ryan agreed to put forward specific proposals as to how thepayments should be made.[189] Mr Ryan accepted the proposition, put to him under cross-examination, thatwhat was agreed to at the meeting "as regards payment terms" was what lawyerswould call "an agreement to agree".[190] As Mr Ryan put it under cross-examination, when they sat down for thosemeetings, rather than have a production schedule that was based on 3.41 mt/hr plusrun times and doing the specific formulas of long continuous runs of three or moredays, Gardians' proposal was:We are going to have a very specific production schedule and if you guys goand do that production schedule then we are going to make reasonable changesto the payments.[191] Mr Ryan accepted the accuracy of the observation made by representativesfrom Deloitte, who had been at the meeting:In the next few days they [SPX] were to agree with Gardians a productionschedule for the season which would determine what products would be runin the first month or so. In 3-4 weeks [SPX] expect to document a revisedterm sheet outlining the various commitments and plans.[192] Mr Ryan was adamant that he considered, after the 30 July meeting, anarrangement had been reached whereby SPX would work on the production planinstead of giving formal notice to Gardians under the contract allowing SPX to carryout Phase 1 testing. He considered the parties "had a deal".[193] Mr Demchy said that, as he understood it, both parties had agreed to work onthe basis Gardians' new recipes and new production schedule were going to replacethe Phase 1 requirements in the term sheet. He said, if Gardians had said they stillrequired SPX to achieve the run times and outputs stated in the term sheet, then SPXcould not and would not have agreed to the type of production schedule that Gardianswas proposing. To have done so would have meant that SPX could never have closedthe contract.[194] Mr Demchy was adamant that, with SPX agreeing to Gardians' change ofapproach, Gardians agreed there would be reasonable adjustments to the terms forfinal payment to SPX, and that Mr Ryan had made it clear that SPX's agreement toGardians' change of approach was conditional on this. He said that he was sure of thisbecause Mr Ryan and Mr Demchy had both come to New Zealand to meet withGardians specifically to avoid a situation where SPX would have to invest more timeand expensive resources into the project in running with their new productionschedule, without any way to actually get paid in any particular timeframe.[195] Under cross-examination, Mr Sutton accepted that SPX had agreed to workwith the new recipes and Gardians had agreed there would be reasonable adjustmentsto the payment terms because the performance schedule gave SPX no opportunity toprove the Phase 1 outputs and run times.[196] Mr Ryan said that, in hindsight, it would have perhaps been better for SPX tohave refused to accept these changes but he said the term sheet agreement required theparties to work together collaboratively and in good faith. Refuting the changes wouldnot have helped what was already a difficult and deteriorating relationship.[197] Mr Sutton, in his evidence, did not contradict the evidence given by SPXwitnesses as to how the recipes and production schedule for the 2013/2014 seasonchanged. He also did not dispute Mr Ryan's and Mr Demchy's evidence as to thepositions which each party took in the 30 July meeting. He claimed the changes were,in large part, due to the quality and out-of-specification issues Gardians hadexperienced from the previous season. He explained Gardians' move to producingWMP: Gardians had planned to move to a 50/50 split between nutritionals and WMPat the end of the 2012/2013 season because it had lost some customer demand due toquality problems with the nutritionals in that earlier season, and to ensure it used upall of its contracted milk supply. Gardians also wanted to ensure that at least somerevenue was coming into the company and to allow time to see if there were in factquality issues arising from the first production of nutritionals with the improved plantand changed formulas.[198] Mr Sutton said that initially Gardians had planned to switch to WMPproduction in September 2013 for about four weeks and then go back to nutritionals,returning to WMP production again around the start of 2014. He said that almost allof Gardians' nutritional customers were based in China and, after the Fonterrabotulism scare in August 2013, the whole Chinese market for New Zealand infant milkpowder temporarily shut down. Gardians was therefore forced to bring the secondWMP production timing plan forward and to continue with it full time after September2013 until well into 2014.[199] Mr Sutton did not dispute that SPX had taken the positions as described by MrRyan and Mr Demchy. However, he said that, SPX was contractually entitled torequire Gardians to run the plant for three consecutive days on each nutritional formulafor the purpose of commissioning, but SPX never gave them such notice. He said, hadthey done so, Gardians would have had to choose to either switch back to formulaproduction for that purpose or breach the contract, and relieve SPX of its obligation.[200] Mr Sutton said there was no formal agreement reached in the meeting of 30July 2013 to vary the variation deed. He said any formal change to the deed wassomething still to be agreed in the future.[201] On 31 July 2013, there was another meeting at the Clydevale plant. Thoseattending for SPX included Mr Ryan and Mr Demchy. The representatives forGardians were Mr Berry, Mr Williams and other senior people managing the operationof the plant. The meeting was about the technical detail of what had to be done inaccordance with the production schedule which had been discussed at the earliermeeting. Under the schedule, the plant would be recommissioned running WMP from12 August 2013. SPX would not have any opportunity to run the plant for threeconsecutive days at 21.5 hours per day on any one of the infant formula, follow-on orGUMP products types. Rather than run times and output specified in the term sheet,SPX was to focus on achieving the quality requirements for the products. Theproduction schedule also showed that the plant would move to producing only WMPfrom 22 September 2013.[202] Mr Ryan said that he had a short "wrap-up" meeting with Mr Sutton, MrPaterson and their lawyer the day after the production meeting. He said there was thena commitment to the production plan and that they were going to adjust the paymentschedule.[203] I am satisfied that in the meetings of 30 and 31 July 2013 Gardians and SPXagreed that the Phase 1 payment of $700,000 would no longer be conditional onsatisfactory completion tests as provided for in the term sheet variation. In return forSPX making its resources and personnel available to assist in implementing the newproduction schedule, the parties were to agree on when the term sheet variationpayments would be made and the criteria for payment. I refer to the agreementsreached out of these meetings collectively as the 30 July 2013 agreement.Post 1 August 2013 progressPerformance of the plant[204] Mr Demchy said, and I accept, that it was agreed SPX would be leaving thesite soon after 23 September 2013. With the plant then to produce only WMP, it wasagreed SPX would not be able to further optimise production of infant formula. MrDemchy said that, at that stage, the plan was "that SPX would return later, in or aroundNovember or December, to further optimise for the other products", once Gardians'production schedule allowed for that. SPX left the site on 27 September 2013.[205] I accept Mr Demchy's evidence that, although the production schedule allowedfor some nutritionals to be produced at the beginning of the season, this did not providean opportunity for "product optimisation". There was little opportunity forconsecutive runs of the same product.[206] Under cross-examination, Mr Brady accepted that during August andSeptember there was limited opportunity to work on improving the quality of infantformula because the production run often allowed a limited time for production of oneproduct. Mr Brady also accepted that, at the start of the season, in August andSeptember 2013, the plant was processing all the milk that was available to it. It wasonly from when the season started in August to 22 September that the plant wasworking to produce nutritionals. He accepted that, with the plant being repositioned,some time would have been required to optimise the making of the required product.He confirmed that his criticisms of the way the plant was operating were not as to itsability to produce to the required specifications but its ability to do so consistently.[207] Mr Brady also explained that, especially as to bulk density, production of out-of-spec product on occasions is not necessarily an insurmountable problem. Wherethat occurs, the out-of-spec product can be reworked with whatever is required for itto accord with the required specifications but this must be done within a limited time,generally up to a maximum of three months, so that the flavour has not changed.[208] On 22 September 2013 the plant moved to producing WMP. Mr Bradyaccepted that there was then definitely no opportunity to optimise processes for theproduction of nutritionals.[209] Mr Berry explained that, during the 2013/2014 season, they had enough milkcoming in to carry out testing on three consecutive production runs for some, but notall, of the products. The milk coming in was over 100,000 litres but to test GUMPrequired 200,000-300,000 litres and they would not have been able to do three days ofcontinuous production. Infant formula required just 70,000 litres of milk daily butGardians could not run three consecutive day runs using just 70,000 litres of milkbecause the plant was committed to take over 100,000 litres and they could not divertthe surplus milk to another manufacturer.[210] He accepted that it was difficult to measure plant capacity when productionwas not being tested on a repetitive 24-hour basis. He also accepted that it is onlythrough running repetitive cycles of the same production that there is the opportunityto pick up, and then solve, anomalies in the operation of the plant.[211] SPX/Anhydro assisted with the recommissioning of the plant which began on1 August 2013. There were production schedule meetings involving both SPX andGardians personnel on 9 August and 14 August 2013. There is no suggestion in thenotes of those meetings that there were significant concerns from either side as to theway matters were progressing.[212] On 28 August 2013, Mr Berry advised the solicitors for Gardians that SPX hadcarried out the actions it had promised to do. He said "[t]o date Gardians has beenpleased with the presence of the SPX engineers on site and the progress made inimproving the product quality".[213] In an email to Mr Sutton of 16 September 2013, Mr Berry said the emphasishad been on improving quality and this had been achieved. This was consistent withproduction schedule meeting notes of 10 and 17 September 2013. Mr Berry saidproduction rates had also been slowly increasing with confidence in quality, with anaverage of a 10 per cent increase so the production on GUMP, which at the start of theseason had been 3.11 mt/hr, was at 3.4 mt/hr on 16 September.[214] Mr Brady prepared a report as to "Gardians end August 2013 observations".In his concluding general comments, he said "quality systems very good, plant has theability to be world class".[215] There was a meeting between the parties' representatives on 24 September2013. Mr Brady, Mr Williams and Mr Berry attended for Gardians. Mr White, MrSchoenfeldt and Mr Ohrt from Anhydro attended for SPX.[216] Mr White's recollection of the meeting was that it was positive; the Gardiansrepresentatives were pleased with what had been achieved during the winter shutdownand to date. He said it had already been established that the formula products couldbe made in specification and at the required volume but it was also anticipated that theplant and its operation would continue to improve through a further period ofoptimisation with SPX on site. He said it was assumed that Gardians would look tofind a two to three week window for this to happen, preferably in late November orearly December. There was also discussion around the next visit being conditional onan agreement being reached at management level resolving the issue of payment toSPX for the work it had already done. This was consistent with minutes produced byMr Ohrt after the meeting. His minutes of the meeting recorded appropriate qualityparameters that had been achieved for S-GUMP and P-GUMP, S-FO and PFO, andSIF and PIF. Mr Brady made amendments to those minutes but did not alter what hadbeen recorded as having been achieved; he just added a note that, on occasions,production had been outside the range recorded in the minutes.[217] On 11 October 2013, Mr White sent to Gardians a detailed report entitled"Plant remedial work and performance report for infant formula process at GardiansLimited May-September 2013". In it, he detailed off-season plant and processimprovements that had been made. He said there was a full action list in a separatedocument in which each item was signed off by Gardians upon completion or closure.He summarised what had happened on the recommissioning of the plant at the end ofJuly, mentioning some problems that had been encountered and how Gardians andSPX had dealt with them. He produced a comprehensive record showing the qualityand quantity of various products produced from 18 August 2013 through to 12September 2013.[218] Mr White said the table indicated "the considerable improvement achieved forSIF bulk density (and also that for PIF) whilst maintaining a generally acceptablesidewall appearance". He said that an improvement to sidewall appearance for S-GUMP could also be seen. Capacity was close to or at the required value for everyproduct. In the report, he identified the CIP turnaround times for different parts of theplant, which were important to the overall production capacity. One of those was theintermediate wash for the evaporator which he noted as being at 1.5 hours. He saidthe report indicated the CIP turnaround times were within the required limits.[219] Mr White's conclusion as to what had been achieved between May andSeptember 2013 was:The data in this report indicate that to all intents and purposes, for each productand on a routine basis, the plant:• Can achieve the powder capacity• Can achieve the specified bulk density• Can achieve the specified sidewall appearanceIt has also been shown that the plant can be cleaned and returned to productionwithin the required time constraints.[220] Mr Berry did not contradict the conclusions which Mr White had come toregarding side wall appearance and bulk density. He accepted that improvements hadbeen made but said there had been batches and part-batches which failed for side wallappearance and bulk density. He did not suggest that either capacity or qualityrequirements could not be met. He also accepted Dr Bloor's opinion that the resultsshowed the plant was "technically capable" of producing product meeting thespecification but reaffirmed that his concern was with consistency. Mr Berry acceptedthat the individual plant components all met their expected turnaround times but saidthe plant could not achieve 21.5 production hours per 24 hours because of the need fora mid-run CIP, as if this meant there was a fundamental defect in the system. I discussthis further below.[221] In his evidence, Mr Berry confirmed that, with the proposed schedule changes,it was not going to be possible to carry out the acceptance-type trials required underthe deed of variation. He confirmed that, after SPX left in September, he had nocommunication with any SPX people because issues had gone outside the Clydevalesite. He had no indication from Gardians' management of where the contract wasgoing.[222] Mr Brady, for his part, did not disagree with SPX's assertion that the plant hadproduced an output of 3.41 metric tonne per hour at times over season 2 in the twoways they had used to measure capacity. However, he said he would have measuredcapacity in a different way.[223] As to that, Dr Bloor said that, in his 26 years of experience, he had never seenproduction capacity measured in the way advanced by Mr Brady. I note that, incriticising the method referred to by Dr Bloor, Mr Brady said the method adopted was"usually used as an indicator of performance only". The term sheet variation referredto the required output as an objective measure of performance.[224] It became apparent that Mr Brady's reason for saying the plant could notproduce at the required capacity was that production of nutritionals at the required ratecould not be achieved without an intermediate CIP.[225] On 5 December 2013, Mr Shortall emailed senior people within Gardiansincluding Mr Paterson and Mr Sutton saying that, because of poor sales withnutritionals in China, it would be difficult to justify returning to nutritional production.While WMP did not provide the required return, it did provide short-term strategiccash flow management, delaying the need for shareholder fund injections. Mr Bradywas later to confirm that he understood the plant had moved to making WMP becausethe market for infant formula from New Zealand dried up overnight as a result of thebotulism scare.[226] On 15 January 2014, Deloitte prepared a report for the directors of SuttonGroup Limited, Gardians and for the BNZ. The report referred to the way the plantwas primarily producing WMP during the second season. Deloitte noted that, at thattime, the key issue was the lack of demand for nutritionals product following theFonterra botulism scare and uncertainty over the impact of new pending regulationchanges in China. This had led to a delay in the return to nutritional production. MrSutton accepted this was an accurate assessment of the situation.[227] Deloitte also reported that issues in the first season, which had led to productnot meeting customer expectations, had been resolved and the plant was nowproducing product to specifications and meeting customer expectations. It also saidSPX/Anhydro had been providing support during the August/September 2013 periodand Gardians' management was confident the plant was capable of producingnutritional products at or sufficiently near specification.[228] Both Mr Shortall and Mr Sutton accepted that the statements in that report weretrue.[229] The monthly management report for March 2014 reported that all milk wasallocated to WMP production because there was no demand for nutritionals and allmilk available in April was to be allocated similarly. The March report saidshareholders had contributed $2.3 million in February and March and were forecast tobe providing $13.4 million over April to July.[230] Dr Bloor works as a dairy industry systems consultant to New Zealand,Australian, European and USA dairy industries. He is highly qualified academicallywith degrees in engineering and science, and a PhD in technology from MasseyUniversity. His extensive experience indicates his expertise has been well recognisedwithin the dairy industry in New Zealand and Australia. He had previously beenengaged on a consultancy basis by Gardians in January and February 2014. He gaveevidence as an expert for SPX on several issues.[231] It was Dr Bloor's evidence that the results achieved in August and September2013, as recorded by Mr White, showed that, with the exception of SIF, at least onewhole day's production of powder from each product type had met the requiredspecification. He also said the SIF results indicated that at least part of the run on 15September 2013 met both the bulk density and side wall appearance specifications atthe same time, indicating the plant was technically capable of producing Gardians'new recipes within specification.[232] Dr Bloor explained why recommissioning a modified plant to new productsinevitably takes time, involves trial and error, can take many months and involves somany variables that it is never possible to simply adopt "standard" settings to achievethe desired results. He considered the production schedules that Gardians required forAugust and September 2013 gave only limited opportunity for test runs on each of theproducts. He considered the results achieved were in line with his extensiveexperience with milk powder and infant formula plants in several countries. Theyshowed the plant was technically capable of meeting requirements but that it needed"fine tuning" to achieve consistent performance.[233] Dr Bloor explained why it is common that during a production run, a smallquantity of powder, usually less than one hour's production, from the start and end ofeach production run will fail to meet specification and be set aside for use in theproduction phase in a different way later on. He explained why, with the productionschedules that Gardians required for August and September, there was limitedopportunity for test runs on each of the productions and, when there were test runs,they were quite short with a lot of chopping and changing of formula product andultimately the change to producing just WMP.[234] Dr Bloor said the other performance measure was the hourly production rateof 3.41 mt/hr. The average rate achieved was a little less but the emphasis was thenon powder quality. He considered that the minor increase required to achieve the targetcould have been easily achieved through a minor increase in the total solids ofconcentrate supplied to the dryer.[235] It was Dr Bloor's opinion that the results from August and September 2013showed the plant was capable of making the products to Gardians' new recipes withinspecification and at an "acceptable output rate of 3.41 tonnes per hour". He consideredthe fact it did not achieve that rate could be explained by the limited time availableand the need to relearn some of the products following formulation changes.[236] Dr Bloor also analysed the production schedule and records of production inthe period after SPX left the plant. He considered production results from October2013 to May 2014 showed the plant was producing WMP at a rate of 3.41 mt/hr formore than 21.5 hours. He said extended runs on infant powders were never attemptedover this time but that the performance on WMP strongly suggested there were noprocess design deficiencies that would have prevented long runs on infant powders.Because the 21.5 hour runs were never attempted on infant formula, follow-on andGUMP products, there was no conclusive evidence that hourly production rates couldbe achieved on those products. However, he considered the results achieved in Augustand September 2013 indicated that, with increased operator experience, the requiredcapacities would have been achievable.[237] Dr Bloor acknowledged that reports did indicate that, over that time, there wereoccasions when bulk density results were out of specification and this was to an extentwhich was greater than when SPX were in attendance.[238] Dr Bloor did not consider any deficiencies resulted from any defects in theplant. He considered they could probably be explained through challenges that arosewith natural variations in milk composition, challenges posed by changes in weatherconditions, a need to fine-tune certain components to achieve a greater production,and the relative inexperience of many of the staff who had to operate the plant andwho need one to two years to develop the skills particularly needed to make stickynutritional powders such as GUMP, FO and IF powders.[239] Dr Bloor considered that the challenges the workers faced in this sense weretypical of what applied in plants with which he had been involved as a consultant andas a training provider in New Zealand, Australia, Germany, the Netherlands and othercountries.[240] Dr Bloor said the process of optimising plant performance after it had beeninitially commissioned could take anything from perhaps a period of weeks, where theproduct being produced was a relatively straight forward one, to a couple of seasonsto get it to a point with which everybody is reasonably comfortable. He also said that,typically, the larger operators like Fonterra, Nestle and Danone, want to take over theplant once they know it can perform the processes required of it and there are nomaintenance issues that need to be remedied. They then want to do the fine-tuningthemselves.[241] In a number of respects, Dr Bloor's opinions were not accepted by Mr Brady,who emphasised in his evidence that the plant was not capable of producing nutritionalformulas at the required rate of 3.41 mt/hr or consistently to the required quality. Tothe extent there were differences between Dr Bloor and Mr Brady, I preferred theevidence of Dr Bloor for a number of reasons.[242] Dr Bloor's opinions as to what the plant had achieved in terms of quality andcapacity were generally more consistent with what had been recorded in documentedexpressions of opinion at the time than was the case with Mr Brady.[243] Both Dr Bloor and Mr Brady were expressing opinions as to what had beenachieved against the term sheet agreement criteria. Mr Brady said in evidence that,when he had been at the plant, he had only been aware of the term sheet variation ingeneral terms and had not read the documents.[244] Mr Brady commented on the productive capacity of the plant on the basis ithad to be capable of running for 21.5 hours without a mid-run flush. He said this waswhat he understood the contract required and went so far as to say he had not seen anydocuments to suggest otherwise. If that was the case, the judgments he made werebased on a misunderstanding or ignorance as to what the contract and term sheetvariation did require and as to what was in the documents.12[245] Mr Brady's criticism was essentially about the ability of the plant to performconsistently at the required levels. In his evidence as briefed, he did not adequatelyrecognise how SPX's ability to show the plant could perform consistently was limitedby both the production schedule which Gardians put in place at the beginning of thesecond season and its decision to continue producing WMP rather than return toproducing nutritionals as had originally been contemplated.12 See discussion at [288]-[313].[246] Mr Brady also failed to acknowledge the extent to which, once SPX had leftthe plant as agreed on 27 September 2013, performance of the plant and what wasactually achieved was largely dependent on the work done by Gardians' plant staff andmanagement.[247] Mr Sanderson was aware from late 2013 and in early 2014 that a potential saleof at least part of the business was in the offing. In late January 2014, he showedDanone representatives over the site. In February 2014, he prepared a plant capacitysummary for the new operations manager, Mr Johns. In that report, he referred to theplant having the capacity to run for 21.5 hours.[248] On cross-examination, Mr Sanderson accepted that his calculations of capacityassumed the plant would operate for 20 hours per day after allowing four hours dailyfor total CIP down time. This was consistent with the plant processing for 21.5 hoursa day, including 1.5 hours for a mid-run flush.[249] Mr Berry also accepted he had recorded the plant as operating 19.5 to 20 hoursdaily, excluding time for either of the two CIPs. On 14 February 2014, Mr Bradyreported to Mr Shortall that "the plant currently has a maximum capacity of 3.4 tonnesan hour assuming operation 20 hours per day or an average of 19.2 hours per day".Those reports indicated the plant was capable of achieving the required outputallowing time for both the mid-run CIP and the end-run CIP.[250] On 15 December 2013, Mr Shortall sent Mr Brady a two page summary of theGardians' plant and how it operated. Mr Shortall asked for Mr Brady's comments. Heresponded accordingly the following day with his comments recorded, consistent withhim having considered the document carefully and in detail and his making changeswhen he considered it was necessary. He took no exception to the summary whichread:The Gardians plant was commissioned in October 2012, near the peak of themilking season and during its first season of operations was affected by start-up issues. The start-up issues resulted in a portion of production over thatseason that did not meet customer expectations. Some of these issues relatedto poor sensory (taste and smell) outcomes for the products and as a resultsome nutritional product was required to be sold for low value uses. Gardiansno longer holds any inventories relating to season one production. In seasontwo, these issues have been resolved and the plant is producing product tospecifications and meeting customer expectations.[251] Under cross-examination, Mr Sutton accepted that SPX worked hard on theplant over the 2013 winter shutdown and by mid-September had completed most ofthe then listed items. He believed it was correct that during August and September2013 the Anhydro teams were, at times, able to produce the nutritionals in spec at orclose to 3.4 mt/hr which he said was encouraging.Plant and processing issues[252] The construction defects hit list was signed off on 12 August 2013.[253] As to processing issues, SPX had its own list of actions that it would attend toover the winter shutdown period and after the term sheet variation. The list had beenprepared in conjunction with Gardians' people, including Mr Berry. On 28 August2013, Mr Berry told Gardians' lawyers that SPX had carried out the actions it hadpromised to do, referring specifically to completing the SPX actions list.[254] In his remedial work and performance report for May to September 2013, MrWhite said the remedial works were detailed in an action list. They includedmechanical modifications and software changes. Optimisation of the plant'sperformance was mainly concerned with improving product quality, processingcapacity and CIP turnaround time. The primary focus was to be on product quality.He said various remedial works were undertaken in accordance with a list of defects(known as the "action list"). In his report, there was a table of the major worksundertaken, including the reasons for it. In his evidence, Mr Berry accepted that MrWhite's summary came from the list generated by both SPX and Gardians. Mr Berrysaid he had no reason to doubt that SPX had completed all that was on that list.However, he said that was a list which SPX worked on independently of himself andGardians.[255] Mr Berry had also prepared a master list of matters to be attended to, the snaglist. These items were discussed by Gardians and SPX people on site with commentswhen appropriate. Mr Berry and an SPX engineer, Ms Yvonne Brooks, formalised thedocument as a spreadsheet to enable regular sign off of items on the list.[256] On 18 August 2013, Mr White emailed Mr Williams and Mr Berry. He referredto this list and identified four matters that he said were the only outstanding matters tobe attended to over the winter shutdown. Mr Berry noted that none of these itemswere still outstanding, at least by 26 November 2013.[257] On 23 September 2013, Mr Berry sent an edited version of the list to Mr Suttonand Gardians' lawyers with a note that it showed the matters completed. He said itwould be signed off when documented information as to various aspects of the plantand processing had been handed over.[258] Mr Ohrt's version of the minutes from the meeting of 24 September 2013recorded "snag list is almost completed with a few issues still to be addressed.Gardians expressed satisfaction with the effort of SPX NZ in getting the snagscompleted". Under the heading "Agreed next steps and schedules", Mr Ohrt indicatedSPX was to "issue performance report and revised snag list and plan for completion".There was no dispute as to that being a correct record of what was agreed at themeeting.[259] On 25 September 2013, Mr Ryan of SPX emailed Mr Sutton. Mr Ryan said heunderstood the plant would soon be moving to WMP and SPX wanted an agreementabout payment concluded before it committed further resources to future infantformula processes. Mr Sutton referred that email to Mr Brady with the comment thatSPX saw the situation differently than Gardians did. He asked Mr Brady to urgentlyprovide Gardians' lawyers with a list of outstanding issues to be addressed by SPX.[260] Around that time, Mr Brady made amendments to the minutes of the 24September 2013 meeting so that they referred to some specific issues about plantperformance as matters which were still to be attended to. Mr Thain cross-examinedMr Brady and Mr Berry carefully as to how these amendments came about. With thefurther evidence that emerged, I consider that these amendments did not reflect whathad been said at the meeting but related to matters which Mr Brady wished to put inissue at that time, justifying his additions on the basis that they reflected concerns thathad been raised at about that time outside the meeting. Mr White was annoyed at thechanges that had been made to the minutes and did not consider that the amendedminutes were consistent with the views which Gardians' representatives had expressedat the meeting. There was no evidence that the amended minutes had been acceptedor approved by the SPX people who had attended the meeting.[261] One of the items which Mr Brady added under the heading "Agreed next stepsand schedules" was evaporator heat treatment changeover from 1 to 2 and vice versa.This related to a potential improvement that could be made to the plant to allow achange to the heat treatment system for milk, to avoid having to interrupt milk supplyto the evaporator and thus a break in production.[262] In Mr White's report as to remedial work and performance in the period Mayto September 2013, SPX reported "prior to and at the start of product commissioning,Stean (SPX) investigated the mid-run changeover between evaporator heat treatmentunits". After replacing a faulty pressure transmitter (two temperature probes hadalready been replaced and repiped over the winter) and, after altering some of thecontrols software, the changeover was commissioned successfully. This was furtheroptimised later in September 2013.[263] Mr Brady did not accept this correctly summarised the position. He consideredthat because of this the plant was not working as it should. He said that it was becauseof this there had to be the mid-run CIP and they had to limit their processing runs to amaximum of 12 hours. As I discuss below, SPX was contracted to build a plant thatwould operate on that basis. Mr Brady accepted that, with the mid-run CIP, there wasno need for them to keep working on trying to avoid intermittent problems with thechangeover.[264] Mr Brady's other amendments to the minutes highlighted a need forconsistency and referred to some other processing issues which he said had to beaddressed. The amendments did not otherwise refer to any defect in the plant.[265] Mr Ohrt's version of the minutes included, at the end under the heading"miscellaneous", "it is a precondition for next visit that agreed payment related currentvisit has been concluded between Gardian and SPX management". Mr Brady initiallymade no change in relation to that item but told Mr Sutton on 26 September that, whenMr Ohrt mentioned payment, he and the Gardians' people "straight away said that thispayment was not part of site discussions". He asked Mr Sutton if he had any concernswith his response to the changes he had made to the minutes. That last item wasremoved from Mr Ohrt's version of the minutes around that time.[266] In his evidence as briefed, Mr Brady said there was an ongoing problem at theplant with the blocking of cyclones which frequently caused loss of production timeand product. He agreed that, when asked by Mr Sutton around 26 September to adviseGardians' solicitors about outstanding issues in relation to the plant, he made nomention of this problem. He also accepted there was no mention of cyclone blockagesin the minutes of the final site meeting on 24 September 2013. Problems with thecyclone blockages had also been mentioned in the snags list as matters that had to beaddressed during the winter shutdown. Mr Berry had signed off that item as havingbeen attended to, along with nearly all other items on the snags list. On 29 November2013, Mr Brady emailed Mr Henrik Schoenfeldt of SPX and noted "we are stillproducing whole milk and this has been going along well, some cyclone blocks, butminimal now".[267] Under cross-examination, in connection with issues over thermophiles, MrBrady accepted that what he considered were problems with the plant could have beenavoided if "a duplex premix pasteuriser had been included as part of the plant". Theinclusion of such a system had been discussed during finalisation of the contract. Theinclusion of a duplex premix pasteurised system would have required a variation tothe contract. Gardians had decided against it.[268] In his evidence as briefed, Mr Berry said that, in September 2013, the majorcivil works not attended to were:• Access to top of cyclones• Evaporator pre-heater changeover• Instrumentation on the dryer• Civil works, referring to four particular items.[269] With regard to access to the two top of cyclones, Mr Berry was referring tosome addition being made to the plant outside what was required with the originalplans as accepted by Gardians with the contract and with the issuing of the TOC.[270] The issue over the evaporator pre-heater changeover referred to the issue whichI have just discussed above.[271] There was no detailed evidence as to what was involved with the problem overinstrumentation on the dryer. There was no evidence as to how this affectedprocessing. In the third schedule to Gardians' counterclaim, a claim was made forcosts incurred with an engineering company in moving the original concentrate tankinstruments which Gardians said had been initially installed in the wrong tanklocation. A claim was made for costs of $4,329 with it being claimed that expense hadbeen incurred in winter 2013. If a problem over this had been fixed during the 2013winter, it would not have been a matter that SPX had to attend to when it left the siteon 27 September 2013.[272] As to the civil works, Mr Berry said remediation of civil defects was completedafter the 2012/2013 winter shutdown except for issues relating to yellowing of thewhite painted internal walls in certain areas, the yellowing and staining of theprotective floor coatings in some process areas, what he considered were problems asa result of the poor design of the heating, ventilation and airconditioning system andinadequate sealing of cladding on the ingredients tower, which allowed birds andinsects to enter. In his evidence as briefed, Mr Berry said there was no willingness bySPX/Hawkins to resolve those issues.[273] Under cross-examination, Mr Berry accepted that it had been agreed with SPXthat dealing with the paint and floor issues would be deferred so that the work requireddid not interfere with production.[274] As to cladding, Mr Berry said the cladding of the ingredients tower was notadequately sealed to the adjacent warehouse roof, allowing birds and insects to getinside the cladding. This resulted in further insect contamination when birds diedwithin the cladding. I accept that, given the importance of hygiene in a processingplant, although these problems did not relate to the processing area, this would nothave been a good look and accordingly needed to be fixed. Although Mr Berry saidin his evidence there was no willingness by SPX/Hawkins to resolve the issue, he alsoreferred to attempts to seal the gaps as not having been successful. Mr Berry prepareda report as to the problem on 24 August 2013, including photographs. Ms Brooks ofSPX was asked to take up the issue with Hawkins. There was no evidence that it waslater raised as a defect which SPX was asked to fix. In Gardians' counterclaim, theonly alleged loss that might have related to this was a claim for $1,055 for bird-guardson three silos. In the third schedule to Gardians' counterclaim, this cost was said tohave been incurred in winter 2013.[275] Mr Berry had confirmed that, as at 12 August 2013, the only two remedialworks items on the hit list as to construction defects that had not been completedduring the winter shutdown period were the yellowing of the walls and wet processfloor defects. In his evidence, he said the list of construction defects that had to befixed had no further life after the list had been signed off on 9 August 2013.[276] In cross-examination, Mr Berry was taken to the snags list spreadsheet whichhe had prepared with Ms Brooks, where he had signed off items as they were attendedto. On that list, the only items which appeared to be still outstanding as at 26November 2013 related to:• H-Vac heat exchanger;• lagging and review of the steam system;• capacity of the mix pasteuriser;• the time taken for final wash; and• an issue with evaporator valves and changeovers of the heat treatmentunits.[277] Mr Berry accepted the list indicated his assessment as to what items were stilloutstanding as at 26 November 2013.[278] Mr Berry confirmed that SPX did not accept the lagging and steam systemreview was its responsibility under the contract. Mr Berry explained that, under thecontract, SPX was responsible for the design, installation and commissioning of theservices within the building. However, its responsibility began at the edge of thepowder building and did not include the system by which steam was brought from theboiler house to the building. Mr Berry confirmed, as at May 2013, SPX had notaccepted that such was its responsibility. Gardians did not make an issue of this at anytime before SPX left the plant in September 2013.[279] Mr Berry accepted that Gardians agreed to defer issues over the mix pasteuriserbecause it wanted to concentrate on producing powder in spec and mix pasteurisersettings would only become an issue if it was attempting to produce at more than 3.4mt/hr.[280] Mr Berry accepted that it had been agreed to defer further work with regard tothe time taken for the final wash and to await a report which Gardians was obtainingfrom Orica over this part of the process.[281] I have previously discussed the issue mentioned with the evaporator valves andchangeovers of the heat treatment units. It was noted on the list that "Gardians wasworking on this". Mr Berry accepted this was a long-term project. There was noquick-fix and SPX was not required to do any more work in this regard.[282] The H-Vac heat exchanger was used in part to control air pressure withindifferent parts of the plant. This was important from a hygiene perspective. Gardianscomplained that this part of the plant was not as efficient as it needed to be.[283] There was no evidence that the exchanger was not as designed or contractedfor. It was part of the plant taken over by Gardians as at 27 October 2012. There wasno evidence that Gardians ever altered, repaired or replaced it or any part of it. It wasnot a defect that SPX was required to fix as part of the hit list. There was no evidencethe alleged deficiencies in the exchanger diminished the productive capacity of theplant.[284] Danone settled the purchase of the plant on 31 July 2014 with the H-Vac heatexchanger still being used and had not made any change to it as at August 2016.Conclusion as to what SPX personnel had achieved with the processing plantwhen they left the site in September 2013[285] I am satisfied that SPX had worked collaboratively with Gardians to ensurethat the plant was capable of producing the infant formula products required by theterm sheet variation to the quality required and to the extent of 3.41 mt/hr, and that itwas well capable of doing this for 21.5 hours a day if that included the time for a mid-run flush or CIP. I am also satisfied that, in providing continuing assistance toGardians as required by the term sheet variation, SPX had done all that had been askedof it.[286] Although SPX demonstrated the plant was capable of the output required aspart of the Phase 1 variation, with its new production schedule, Gardians had agreedthis was not essential. Although Mr Berry and Mr Brady suggested that the plant wasnot capable of consistently producing the required product to the required standard,the evidence did not demonstrate this was because of any inadequacy in the supportwhich SPX/Anhydro had provided or that it was because of any underlying problemwith the plant and the way it had been set up by SPX. With its new productionschedule, Gardians had also made it impossible for SPX to demonstrate that the plantcould produce the specified product at Phase 1 volumes over a sustained period.Gardians had made it impossible for SPX to carry out the completion tests that were apre-condition in the term sheet variation to payment of $700,000.[287] I accept, however, that the plant could perform at this level only with a mid-run flush or CIP included with the potential 21.5 hours of production. Ultimately, theonly real criticism that Mr Berry and Mr Brady made of the way the plant performed,as established both before and after SPX left the site, was that, because of the way itwas set up, it could not operate for 21.5 hours without a break in processing for thatmid-run CIP. Gardians argues that it was because of this alleged failing that SPX neverprovided to it the plant with the capacity and performance capability required by thecontract and the term sheet variation. SPX says the contract and the term sheetvariation both allowed for the 21.5 hours processing time to include a break for themid-run flush.Contractual recognition of the need for a mid-run CIP[288] Mr White's evidence was that, in September 2013, the plant could definitelyrun for 21.5 hours but that was with a mid-run short wash or CIP during that 21.5hours. Mr White explained this was to take care of micro-organisms, harmful bacteriathat have not been killed by the pasteuriser and commonly known as thermophiles.They become dormant when heated up to the pasteurising temperature but, if theywork their way through the plant, they later collect on fouled surfaces and in the idealtemperature they start to grow again. He explained that, to keep these micro-organisms down, they normally had a mid-run wash on the pasteuriser and also on theevaporator which incorporated heating surfaces for the milk that was being processed.[289] A full wash involved a rinse followed by a caustic wash, then a rinse and anacid wash and then finally another rinse. The mid-run wash was with only onechemical, normally caustic, and for a shorter duration in order to keep down the micro-organisms and to remove some of the fouling, just to keep everything under control sothe plant could be back up and running again in short order.[290] Mr White said that a mid-run flush would normally take around 1.5 hours. Ithad been taking longer than that during the first season and shortening the time it tookwas one of the things they worked on during the off-season. Mr White said there wasno specified time within which the mid-run CIP should be completed but by September2013 the mid-run CIP was being completed within 1.5 hours, which he described as a"perfectly standard time".[291] Mr Sanderson said they started using the mid-run CIP as their production runslengthened during the original plant commissioning process around October 2012.They initially started with short runs and had a full CIP at the end of those runs. Asthe runs increased, they implemented mid-run CIPs. He thought the reason was thatthey understood there was a particular maximum run length they should operate theplant for to keep the thermophile specification at the necessary level.[292] In his evidence for Gardians, Mr Berry said SPX had guaranteed the productionhours per day would be 21.5 hours drying time. He said this could not be achievedwith the evaporator having to be cleaned twice daily and the best that had beenachieved was 19 hours per day. Mr Berry accepted that he had assumed the contractualobligation on SPX was to have the plant working for 21.5 hours without any downtimefor a mid-run flush or CIP.[293] SPX's position is that its contractual obligation was to have the plant capableof running for 21.5 hours per day, that 21.5 hours to include the time required for amid-run flush or CIP.[294] The contract signed on 29 September 2011 included various documents,including the employer requirements specification. One of those was that the plantwould, in full operation, produce 3.415 mt/hr at 21.5 hours per day of infant formulapowder.13 The contract also included the SPX quotation as added to and amended bycorrespondence.[295] In correspondence to Mr Koekemoer of 30 August 2011 and 10 September2011, SPX had made it clear that the ability to do a mid-run CIP was necessary toaddress the growth of thermophiles during a production run. In relation to testingcriteria, they specified that the run times for the pasteuriser and evaporator of 21.5hours had to include time for a mid-run CIP.[296] Mr Koekemoer was the engineer responsible for the project on behalf ofGardians. He responded to that correspondence with a letter of 23 September 2011 inwhich he referred to the testing criteria for the process as set out by SPX. His response,as highlighted, was as follows:• pasteuriser run time between CIP hours 21.5 (includes mid-run CIP) -agreed;• evaporator run time hours 21.5 (includes mid-run CIP) - agreed;13 See para [7] above.[297] Gardians argues that the contract should not be interpreted according to whatwould appear to be the plain meaning of this correspondence because an allowancefor a mid-run flush was inconsistent with the contractual requirement that the plant becapable of producing 73.4 tonnes per day. It was also said to be inconsistent with thetotality of correspondence around this issue, and evidence from Mr Murdoch for SPXindicated that it might not have been necessary to run the plant with a mid-run flush.[298] In his evidence, Dr Bloor explained that, with a plant producing commodityWMP with no particular emphasis on thermophile requirements, it would be commonto run an evaporator/dryer combination for 22 continuous hours and then clean it. Withother products, where thermophile build-up could be no more than 300 units per gram,it would not be possible to achieve the required quality towards the end of a 21.5 hourrun without having done a mid-run flush. For that reason, a mid-run flush was normalfor products with a tight microbiological requirement. Such products included allinfant-type products and follow-on and GUMP products.[299] Mr Berry explained how, because of thermophile action, the industry norm wasfor evaporators to operate daily for 19.5 to 20 hours with an intermediate clean of 90to 120 minutes, and a long clean at the end of the day of 120 to 150 minutes. Mr Berrysaid big milk powder plants typically have more than one evaporator so the dryer canrun continuously. On that premise, he considered this plant was never capable ofoperating 21.5 hours out of 24. He also said the mix pasteuriser unit had its ownthermophile issues potentially requiring a CIP after only 10 hours. To avoid this, asecond pasteurisation unit would have been necessary.[300] Mr Berry was referred to correspondence from SPX of 10 September 2011.That correspondence indicated that the inclusion of a "duplex pre-mix pasteurisersystem" would have to be the subject of a variation to the contract and that, to achieve21.5 hours of operation per day, a mid-run flush would be used. Mr Berry acceptedthat SPX had identified before the contract was signed that with only one mixpasteuriser there would be a need for a mid-run flush.[301] Mr Berry also accepted that, due to thermophile action, the industry norm forevaporators was to run for a maximum of 14 hours, for a CIP intermediate clean totake from an hour and a half to two hours and then to operate for another six to eighthours before a long-term clean of two to three hours. He was willing to accept that itwould be reasonable to allow for an initial 14 hours of operation and then another sixhours, a total of 20 hours, leaving four hours for the mid-run CIP and main CIP. Thesewere the turnaround times which Mr White said Gardians and SPX had been able toachieve at the beginning of the 2013/2014 season. Mr Berry accepted that, consistentwith this, the plant had been able to operate for 19.5 to 20 hours, excluding the timefor two CIPs.[302] I am satisfied SPX had made it clear, during the contract negotiations and asrecorded in correspondence, that the plant which it had designed and which Gardianswas contracting for would have to be able to operate for 21.5 hours a day but that 21.5hours was to include the time required for a mid-run flush or CIP.[303] I do not accept that the ordinary and plain meaning of the wording which wasto allow the plant for 21.5 hours per day, including a CIP, should be displaced, for thereasons submitted by Mr McIntosh.[304] Mr Shortall said in evidence that he had not appreciated the contract documentsallowed for a mid-run flush or CIP as part of the 21.5 hours per day processing untilMr Murdoch pointed this out to him in January 2013. His evidence indicated heaccepted this was the position.[305] The term sheet agreement as to Phase 1 said:[T]he parties agree that SPX will do all things necessary to achieve thefollowing output and run times as was provided for in the Contract:• Gump 3.41 metric tonne per hour / 21.5 hours per day / 3consecutive days / 1 CIP run;• Follow-on 3.41 metric tonne per hour / 21.5 hours per day / 3consecutive days / 1 CIP run; and• Infant formula 3.41 metric tonne per hour / 21.5 hours per day / 3consecutive days / 1 CIP run.[306] As to Phase 3, the targeted outputs using current recipes for the optimisationphase were:• Gump 4 metric tonne per hour / 21.5 hours per day / 3consecutive days / 1 CIP run;• Follow-on 4 metric tonne per hour / 21.5 hours per day / 3consecutive days / 1 CIP run; and• Infant formula 4 metric tonne per hour / 21.5 hours per day / 3consecutive days / 1 CIP run.[307] Gardians argued that, if the contract did originally allow for a mid-run flush inthe 21.5 hours, this changed with the term sheet agreement when the reference to "1CIP" must have been a reference to the major clean that would take place each dayoutside the 21.5 hours for which the plant had to run.[308] Gardians argued that it is unlikely that the reference to one CIP in the termsheet agreement was a reference to a mid-run flush because it was not what Gardianshad originally wanted. Gardians argued there was no evidence as to why there wasthis reference to 1 CIP in the term sheet agreement. If the term sheet agreement wasto allow for two cleans over the day then that would have been expressly referred toin the agreement. Significantly, the expression "as provided for in the contract" wasnot repeated with regard to Phase 3.[309] There was no evidence from any Gardians witness to explain why or how thereference to "1 CIP" came to be included in the term sheet agreement. Mr Ryan wasadamant that the term sheet agreement was never intended to change SPX'scontractual obligations as to the output or run time of which the plant was to be capableand there had been no discussion about or any intention to change the contractualposition over a mid-run CIP. Mr Ryan's recollection was that the wording used in theterm sheet agreement was deliberately copied over from the wording used incontractual documents.[310] With Phase 1, SPX was committed to doing what was necessary to have theplant be able to operate in terms of the original contractual requirements. On achievingthat, it was to be paid $700,000. In that context, the reference to 1 CIP in the termsheet agreement was consistent with it having been a term of the original contract thatthere would be a mid-run flush within the 21.5 hours the plant was to operate eachday. As to Phase 3, the term sheet agreement did not refer to "output and run times aswas provided for in the contract", but this was consistent with the Phase 3 targets beingonly aspirational targets and not outputs required by the original contract.[311] I am thus satisfied that SPX's contractual obligation under both the contractand the term sheet agreement was to provide a plant that was able to operate for 21.5hours per day but with that time to include a mid-run flush/CIP.[312] Consistent with that, Mr White and other SPX personnel worked closely withGardians' staff to reduce the time that the mid-run flush would take without there beingany suggestion that SPX's obligation was to have the plant able to operate for 21.5hours without any mid-run flush or CIP.[313] I note also that, in the 2013/2014 season, Gardians had a standard form recordof daily meetings held each morning Monday to Friday for production people,management and SPX personnel if they were there. That form had a section for down-time report which included a section for both a mid-run CIP and an end-run CIP.Contractual developments[314] On 25 August 2013, Mr Berry emailed Mr Sutton, Mr Paterson and Gardians'solicitors saying the production plan for late September through to November wouldnot allow SPX the opportunity to carry out capacity tests on any of the infant formulas.He said that if SPX was not given the opportunity to carry out these tests within acertain period, it could request a sign-off of the contract. He said Gardians should behaving discussions with SPX on how to overcome this issue and that the Anhydro teamwould be leaving in three weeks.[315] There was a meeting of Gardians' managers on 28 August 2013 to discuss MrBerry's advice. After that meeting, Gardians' solicitors emailed Mr Ryan enquiring asto when they would receive SPX's proposal "around the implementation of the mattersdiscussed at the meeting" of 30 July 2013.[316] On 9 September 2013, Mr Ryan sent Gardians' solicitors an email withproposals for milestone payments. Under cross-examination, Mr Ryan accepted thatthe letter was written in an attempt to obtain Gardians' agreement to its proposals, noton the basis they already had a new deal. Those proposals involved:Milestone Description Amount DatePhase 1 Completion of civil works associatedwith 2013 winter shut-down$700,000 Due at signingPhase 2 Completion of re-commissioning trialsto confirm that the formulas meetspecification (trials to occurSeptember 12-22 per agreedproduction plan). The focus on site isquality, not volume, so the parties willagree that the required outcome of thetrials to trigger payment is powderquality across each recipe togetherwith an operationally acceptablevolume$700,000 23 September 2013Phase 3 Plant will run whole milk productfrom approximately 23 September –15 November. SPX-Anhydro willreturn to site to provide additionalsupport from 15 November to 6December to help transition the plant$678,000 6 December 2013Phase 4 AMF plant payment #1 $1,000,000 28 February 2014Phase 5 AMF plant payment #2 $1,500,000 30 April 2014[317] On 17 September 2013, Mr Sutton enquired of Mr Berry as to whether therehad been any response to his email of 25 August regarding the need to allow SPX theopportunity to carry out production tests. In response, Mr Berry said production ratesfor the trials were not determined, as this was to be agreed to by Gardians' directors.[318] Mr Sutton's response to this was significant. In an email copied to Gardians'solicitors, Mr Berry, Mr Paterson and Mr Brady, Mr Sutton said:Should we have a conference call so we are all on the same page? In my viewGardians have incurred substantial losses in season 1 which need not haveoccurred if SPX Anhydro had shown the same commitment as Season 2.We can't let SPX Anhydro off the hook re additional capacity either.As Stuart [Mr Berry] and Peter [Mr Brady] are on site with Anhydro we needto have a common story that we stick to?[319] Although SPX did not know this at the time, Gardians had made a request forfunding from the BNZ in a document dated 29 July 2013. Consistent with Mr Sutton'sattitude in that email, the budget provided with that request did not allow for anypayments to SPX in the next 12 months.[320] On 21 September 2013, Mr Ryan emailed Gardians' solicitor following up themilestone proposal that he had sent on 9 September. He said that he understoodproduction on site was continuing to go very well but some of the key project stafffrom both parties would soon be departing. He said it would be in their best mutualinterests to solve the payment question so that a support schedule could be establishedwhile the key parties on site were available.[321] In his minutes of the 24 September 2013 meeting, Mr Ohrt had said that"agreed payment related to current visit" was a precondition for SPX's next visit tothe plant. Gardians' people made amendments to these minutes and circulated thechanges within Gardians.[322] The reference to payment being required before SPX people were back on sitewas deleted. In relation to that, Mr Brady advised others within SPX that Mr Ohrt hadmentioned payment but Gardians' representatives "straight away said that thispayment was not part of site discussions".[323] On 25 September 2013, Mr Ryan emailed Gardians' solicitors noting the planthad now finished infant formula production for four to six weeks and would run WMP.He wrote "presumably Gardians will be looking for SPX-Anhydro support to restartthe infant formula process and I would like to have an agreement concluded beforeSPX commits resources for this programme".[324] On 30 September 2013, Gardians' solicitors emailed SPX responding in detailto Mr Ryan's proposal of 9 September 2013. The letter expressed a view as to whathad been required under the term sheet variation and asked for SPX's view as to "theachievement or otherwise of these commitments". It also sought confirmation as to"what steps are being taken and which of these SPX believes have been satisfied". Itgave notice of, what they considered to be, a number of outstanding defects relatingto the performance of the plant and said that Gardians had been asked "to complete afull schedule of outstanding defects as they stand". The lawyers said they expected tohave this within five to seven working days. They suggested that, under the originalcontract agreement of 29 September 2011, the defects notification period expired on27 October 2013. They expected to give notice of outstanding defects before that time.[325] Mr Ryan said that it seemed to him Gardians was stalling, as though it had beenexplicitly directed to continue to raise issues and delay payment. Mr Ryan wasjustified in making that assessment.[326] Mr Ryan was justifiably concerned that, in this letter asking for SPX's positionon whether it had met its commitments under the term sheet variation, there was noacknowledgement that it had been agreed those commitments had changed as a resultof the 30 July 2013 discussions.[327] The evidence and record establishes that, over the period after the term sheetvariation was entered into, SPX had made a considerable effort and investedsignificant resources into meeting the obligations it had under the term sheet variation.It had worked closely and collaboratively with Gardians to confirm what was requiredof it and had made sure that Gardians was aware of what had been achieved in allareas.[328] There was little disagreement over this prior to SPX leaving the site. Againstthat background, the correspondence from Gardians' lawyers indicated that Gardianswas going to be difficult and uncooperative over making any of the payments that wererequired in terms of the term sheet variation, payments which were due in terms of theoriginal contract and not specifically for the resources and assistance which SPX hadcontinued to provide over that period. The correspondence from Gardians' lawyersreflected not the actual progress that had been achieved after March 2013 but MrSutton's view, as expressed in his email of 17 September 2013, that "Gardians hadincurred substantial losses in season 1 which would not have occurred if SPX Anhydrohad shown the same commitment as Season 2" and that it was not to be "let off thehook".[329] Consistent with this, Gardians also made no constructive proposals as towhether or when they would make any of the Phases 1 to 4 payments required by theterm sheet variation and the original contract.[330] On 1 October 2013, Mr White sent Mr Demchy the minutes of the 24September 2013 meeting, as redrafted by Gardians, noting that, if the final documentwas compared with the minutes prepared by Mr Ohrt, they would provide "a goodinsight into Gardians' current attitude". I accept Mr White's evidence that theamended minutes did not reflect the positive way in which Gardians' representativeshad recognised the efforts and commitment demonstrated by SPX up to the time ofthat meeting. In combination with the letter from Gardians' solicitors, it must haveindicated to SPX that it was going to be difficult to obtain payment of what itconsidered was due under the original contract and the term sheet variation.[331] Mr Brady was CEO for Gardians at the time of the September 2013 minutes.I accept Mr Demchy's evidence that, when the minutes were brought to his attentionby Mr White, Mr Demchy and others within SPX were concerned, and that MrDemchy conveyed his concerns to Mr Brady but was told that Mr Brady's mandatewas to concentrate on production and not to become involved in the commercialarrangements.[332] On 11 October, Mr White circulated to Gardians and SPX his report as to allSPX had achieved during May to September 2013.[333] On 14 October 2013, Mr Ryan responded by email to the 30 September 2013letter from Gardians' lawyers. He contended "SPX has met its obligations under Phase1, Phase 2 and Phase 3 and is entitled to receive payment for these milestones". Hesaid the parties should also review and discuss the appropriate timing of payment forthe AMF plant. He stated the defects list had been signed off by Gardians on 12 August2013 and responded to the complaints made by the lawyers as to further claimeddefects which had to be remedied. He stated SPX was not contractually bound toprovide advice as to what was required to achieve 4 mt/hr. He indicated the partiesmight jointly address this but payment issues needed to be resolved first.[334] On 23 October 2013, Mr Brady sent to Mr Shortall and Mr Berry a summaryof what was worked through with SPX/Anhydro on operational and next steps forthem to deal with when they visited. In doing that, he noted Gardians had expressedsatisfaction with the effort of SPX in getting the snags completed. He noted thesuggestion had been that the next visit should focus on further optimising bulk densityand sidewall appearance for all products and that there needed to be a survey of whatwas needed to achieve 4 mt/hr powder capacity.[335] On 25 October 2013, Gardians' solicitors gave notice that it was seeking a sixmonth extension of the defects notification period pursuant to clauses 2.5 and 11.1 ofthe general conditions of contract. The solicitors stated:Our client considers that it is entitled to a six month extension of the defectsnotification period. The basis upon which our client considers that it is entitledto this extension is that the plant cannot yet be used for the purposes for whichit is intended by reason of certain defects.[336] This was an assertion without any merit. As Mr Ryan observed in his evidence,the plant had been in commercial production for the second season since about 14August 2013.[337] On 4 November 2013, Mr Ryan responded by email demanding payment forall sums due in terms of Phases 1 to 3 of the term sheet variation and requiring paymentof the outstanding AMF payment of $2,500,000 by 27 March 2014.[338] It was suggested in cross-examination of Mr Ryan that the letters he wrote toMr Sycamore, the lawyer for Gardians, did not assert that a new agreement had beenreached in the meeting of 30 July 2013. I do not accept that is what the correspondencefrom Mr Ryan indicates. Mr Ryan's letters were consistent with him believing that anagreement had been reached to vary obligations under the term sheet variation. Hisproposals of 9 September 2013, concerning the timing and basis for the furtherpayments, involved significant changes to the term sheet variation agreement. Theproposals provided for trial tests as part of the early season production plan.[339] In his email of 4 November, Mr Ryan argued there had been a waiver of rightsthrough the discussions that took place on 30 July 2013 and that Gardians wasestopped from asserting certain rights it had under the term sheet variation.[340] He argued SPX had been precluded from carrying out the original Phase 1 tests.He also said:Furthermore, the spirit of the agreement was for SPX to meet Gardians'performance requirements and the SPX and Gardians teams on-site at thefacility collaborated to create the production run schedule and measurementcriteria that SPX has met since August. The parties agreed to pursue high-quality, saleable product at sustainable production levels and that is what SPXdelivered.[341] Mr Ryan said SPX had incurred considerable expense in improving and thensuccessfully recommissioning the plant. SPX had stayed in careful contact withGardians' leadership throughout the process and delivered the production schedulethat Gardians requested. Mr Ryan said that SPX wanted payment issues resolvedamicably and quickly but reserved the right to pursue remedies "through themechanisms in the agreement".[342] On 12 November 2013, Mr Sutton emailed Mr Brady and said Gardians neededto advise SPX of the likely start-up date for nutritionals.[343] In an email of 3 December 2013, Mr Shortall advised a consultant whomGardians had engaged that Gardians and SPX were in dispute over whether SPX hadmet its Phases 1 to 4 obligations, although noted that SPX had completed the Phase 2criteria.[344] On 5 December 2013, Mr Shortall sought approval from Gardians' Board tonot return to producing nutritionals.[345] On 16 December 2013, the lawyers for Gardians emailed Mr Ryan contendingthat SPX had not met its obligations under Phases 1 to 3 and was therefore not entitledto payment for those milestones.[346] The lawyers concluded by saying that Gardians was committed to reaching asolution with SPX "in terms of the outstanding matters, including work to becompleted the remaining payments [sic]". They suggested a telephone conference todiscuss the matter. Mr Ryan did not take up that invitation or a similar invitation atthe end of a letter from Gardians' lawyers of 29 January 2014. Given the way Gardianswas denying liability to make any payments and suggesting that further work fromSPX would be required as a condition of their receiving any payment, SPX wasjustified in thinking that nothing constructive would be achieved through furtherdiscussion.[347] On 20 December 2013, a director of SPX wrote to Gardians noting that,because the TOC was issued as at 27 October 2012, the defects notification periodexpired on 27 October 2013. He contended Gardians had been required to issue aperformance certificate no later than 24 November 2013 and to return the performancesecurity to SPX to avoid SPX continuing to incur bond charges. He asked for the issueof the performance certificate and the return of performance security.[348] In a response of 29 January 2014, Gardians refused to issue the performancecertificate or to release the performance security on the basis SPX had not remediedoutstanding defects.[349] On 18 February 2014, SPX filed their claim against Gardians in the High Courtin Dunedin. Although the contract between the parties provided for mediation andarbitration, neither party sought to take advantage of such processes. The documentsfor a Gardians Board meeting in March 2014 confirmed Mr McIntosh had beenappointed as counsel. Gardians was preparing a response and counterclaim. Theyfiled a statement of defence and counterclaim on 16 April 2014. Neither party claimedthere had been any cancellation of their contract.Submissions and determinationSummary of closing submissions[350] In closing submissions, Mr Thain summarised his submissions as to whyGardians was obliged to make all payments due under Phases 1 to 4 of the term sheetvariation, as follows:3.1 The final requirement for completion of Phase 1 was either done orwaived by [Gardians], or it was in any event deemed to have beencompleted by operation of the terms of the Contract at the expiry of theDefects Notification Period;3.2 Phase 2 was very substantially completed. To the extent that mattersremained outstanding, final completion was waived by [Gardians], notlater than when it sold the Plant. [Gardians] is limited to its counterclaimfor costs it actually incurred in remedying outstanding defects; and3.3 The requirement for completion of Phase 3, and therefore Phase 4, waswaived by [Gardians], not later than when it sold the Plant.[351] Alternatively, Mr Thain submitted that the evidence established that, throughthe 30 July 2013 agreement, the parties agreed that, in light of the new productionschedule, there would need to be reasonable adjustments to the milestones forpayments to SPX. He submitted that, where parties had agreed an objective standard,a court, if satisfied the parties intended to be legally bound, can apply that standard tofill in a gap left by the parties themselves.14 He argued the reasonable adjustmentswhich the Court should implement had to take account of the fact that Gardiansrequired a new production schedule and the move to WMP would at least postponeand might prevent SPX from meeting the conditions for payment. Reasonableadjustments could be made, having regard to the existing contract terms and legalprinciples.[352] In summary, Mr McIntosh for Gardians submitted:(a) the only applicable contractual terms were those set out in the contract,term sheet agreement and variation deed. There was no subsequentvariation of those terms by either agreement, conduct or estoppel.14 Electricity Corp of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 (C) at[61]-[62].(b) SPX has not satisfied the requirements for payment under Phases 1 to 4.SPX had not completed Phases 1 and 2 and therefore, by definition, hadnot begun Phase 3. Phase 4 was payable only on completion of Phase 3so was not payable either.(c) Events prior to and during season 2 did not release SPX from thecontractual requirements for payment under Phases 1 to 3 (and thereforePhase 4), because:(i) SPX did not prevent Gardians from doing what it was legally requiredto do through either a breach of contract or in a way that would estopGardians from being able to rely on its contractual rights;(ii) there was no basis for the operation of any other estoppel or waiverso as to entitle SPX to payment;(iii) SPX could not establish that it would be unconscionable for it to bedenied payment where SPX could and should have given notice underthe contract to carry out the Phase 1 tests and/or referred the matter toadjudication; and(iv) there is no quantum meruit pleading that would enable the Court todetermine a fair fee for the work that SPX did post the term sheetvariation.Phase 1Waiver[353] SPX pleaded that, if it did not meet the requirements for the Phase 1 paymentas set out in the term sheet variation, this was because Gardians breached itsobligations to allow SPX to take the necessary steps to achieve the relevant Phase 1targets. It pleaded that Gardians waived any requirement for SPX, and/or preventedSPX from doing any more than it did, to discharge its Phase 1 obligations and/orachieve any relevant Phase 1 targets. SPX accordingly pleaded Gardians was estoppedfrom relying on SPX's alleged non-performance of obligations to avoid making thePhase 1 payment. SPX claimed this waiver arose by conduct, in particular, Gardians:(a) requiring SPX to follow the new production schedule;(b) representing to SPX that, with SPX working on the new productionschedule, reasonable adjustments would be made to the terms for payment;(c) in September 2013 converting the plant to produce solely WMP;(d) agreeing to sell the plant to a third party in April 2014; and(e) selling the plant on 31 July 2014.[354] In his closing submissions, Mr Thain addressed waiver and estoppel primarilyin relation to Phase 3. As the summary of his submissions showed, SPX still relied onthis in relation to Phase 1. Mr McIntosh dealt with it fully as an issue in relation toPhases 1, 3 and 4.[355] Gardians said that, to make such a claim essentially in estoppel, SPX mustshow that:(a) a belief or expectation has been created by Gardians;(b) SPX has reasonably relied on that belief or expectation;(c) SPX has or will suffer detriment; and(d) it would be unconscionable for Gardians now to depart from the belief orexpectation created.[356] Gardians submitted that none of those elements had been made out.[357] In relation to Phase 1, I am satisfied that, with the 30 July 2013 agreement,SPX agreed to work on the new production schedule at the beginning of season 2 whenit knew this would not allow it to carry out the Phase 1 tests. In recognition of this,Gardians represented to SPX that SPX would not have to perform those tests to obtainthe Phase 1 payment or otherwise prove the plant could perform in the manner requiredwith the Phase 1 tests. I am satisfied that SPX relied on that representation in notinsisting that Gardians make the plant and milk available and make the otherarrangements that would have enabled SPX to carry out the Phase 1 tests, when theplant was producing nutritionals at the beginning of season 2.[358] I am satisfied that SPX has suffered and will suffer detriment if thatrepresentation is not honoured in that, relying on it, SPX committed significantresources to assisting Gardians with production at the plant without payment for thatwork at the beginning of season 2. As a result, SPX has suffered further significantdelay in obtaining payment of the $700,000, being an outstanding portion of what wasdue for the plant which it provided to Gardians and which Gardians took over on 27October 2012.[359] I am also satisfied that Gardians represented that SPX would not have to showthe plant could meet the output requirements originally contained in the term sheetvariation or carry out tests proving that it could meet the original term sheet variations.It did that firstly by continuing with WMP production after November 2013 andthrough not asking SPX to come back during season 2 to further optimise the plant inproduction of nutritionals, and then by selling the plant to Danone. I find that SPXreasonably relied on the representations made through such conduct in not seeking anopportunity to carry out Phase 1 tests. They will of course suffer detriment if, as aresult, they are not able to obtain payment of the $700,000 for Phase 1.[360] I am satisfied it would be unconscionable for Gardians now to depart from thebelief or expectation created. With its representation that the Phase 1 tests would nothave to be carried out, Gardians obtained the effective support of SPX and theSPX/Anhydro personnel in August and early September 2013. With that support, theplant performed to a level of which Gardians was able to take advantage in selling theplant some months later to Danone.[361] In all these circumstances, I am satisfied that Gardians is estopped from relyingon SPX's failure or omission to complete Phase 1 tests to deny payment of the Phase1 $700,000.The agreement to make reasonable adjustments to the payment schedule[362] I have found that, in consideration of SPX agreeing to assist Gardians with theoptimisation of the plant in connection with the new production schedule, Gardiansagreed that the Phase 1 tests required with the term sheet variation would not have tobe carried out and would no longer be a requirement for the Phase 1 payment. I alsofind the parties agreed to agree on reasonable terms as to when and on what basis thePhases 1 to 4 payments would be made, and that there would be reasonableadjustments to the payment schedule.[363] As Mr McIntosh acknowledged, Mr Sutton accepted in cross-examination thatan agreement to make reasonable adjustments was reached. However, he submittedMr Sutton's evidence should not be taken to mean what he said and all he wasindicating was that he was agreeing to negotiate about adjustments. I do not interprethis evidence in this way. He had agreed to agree on reasonable adjustments. It wasonly because of that Mr Demchy and Mr Ryan agreed to dispense with the Phase 1tests which would otherwise have been carried out at the beginning of the season 2.[364] Gardians denies there was an intention to be bound by the 30 July 2013agreement. I do not accept that. The matter was of such importance and of such value,that I am well satisfied that Mr Sutton for Gardians and Mr Demchy and Mr Ryan forSPX knew and intended that, with the 30 July 2013 agreement, they had a legallybinding agreement to make reasonable adjustments to the payment schedule. Bothparties acted in accordance with a legally binding agreement having been reached.Gardians embarked on the new production schedule and SPX committed significantresources to assisting with that schedule.[365] Mr McIntosh submitted that SPX was really alleging bad faith on the part ofMr Sutton but there was no pleading as to this in its statement of claim. Given thebackground to the situation as at 30 July 2013, what transpired later and the statementmade by Mr Sutton in his internal email of 17 September 2013, Mr Sutton andGardians may have been determined to not make any payments in accordance with anagreement to make reasonable adjustments to the payment schedule. I am neverthelesssatisfied Mr Sutton did agree to make reasonable adjustments and he understood andexpected that to be legally binding, so there would have to be some other underlyinglegal justification based on their pre-existing contract for not making such payments.That is how Gardians responded to SPX when SPX demanded payment of the Phases1 to 4 payments.[366] On 28 August 2013, Gardians' solicitors asked SPX for its proposals as to whatthe new arrangements were to be and said they would record the agreed arrangementsin a deed.[367] In Electricity Corp of New Zealand Ltd v Fletcher Challenge Energy Ltd,Blanchard J for the Court of Appeal said:15The intention of the parties, as discerned by the Court, to be bound or not tobe bound should be paramount. If the Court is satisfied that the partiesintended to be bound, it will strive to find a means of giving effect to thatintention by filling the gap.[368] The Court said it agreed with Professor McLauchlan:16... that "an agreement to agree will not be held void for uncertainty if theparties have provided a workable formula or objective standard, or amachinery (such as arbitration) for determining the matter which has been leftopen". We also agree with him that the Court can step in and apply the formulaor standard if the parties fail to agree or can substitute other machinery if thedesignated machinery breaks down.It will be a matter of fact and agree in each case whether the gap left by theparties is simply too wide to be filled.Where the intention to contract is found to have existed, the Court may supplyan omission by implying a term.It follows that merely because an important term is deferred to be settled on afuture occasion, that does not mean that there is no intention to be bound. Insuch circumstances, provided the Court is satisfied that the parties did intendto enter immediately into a contractual relationship, it will do its best to finda means of giving effect to that intention by determining, if possible, theoutstanding matter.15 Electricity Corp of New Zealand Ltd v Fletcher Challenge Energy Ltd, above n 14, at [60].16 At [62]-[64], [66].[369] For Gardians, Mr McIntosh referred to the Court of Appeal's statements inFletcher Challenge where it referred to Kirby P's remarks in Coal Cliff Collieries PtyLtd v Sijehama Pty Ltd as to the caution which the court should exercise beforeimposing reasonable adjustments as to essential matters which have not been agreedbetween the parties.17[370] I note however that the Court of Appeal suggested that it may be beyond theability of the Court to fill the gap in expressed terms where those matters "have notbeen agreed upon and are not determinable by recourse to a mechanism or to a formulaor agreed standard". Kirby P said:18It will be a matter of fact and degree in each case whether the gap left by theparties is simply too wide to be filled. The Court can supplement, enlarge orclarify the express terms but cannot properly engage in an exercise ofeffectively making the contract for the parties by imposing terms which theyhave not themselves agreed to and for which there are no reliable objectivecriteria.[371] In this instance, the Court is being asked to make reasonable adjustments forthe criteria and timing for payments due under the term sheet variation. In consideringwhat adjustments are reasonable, the Court can have recourse to the documentsassociated with the term sheet variation, FIDIC and all the documents that made upthe original contract. These provide reliable objective criteria, agreed to by the parties,against which the Court can decide what would have been the reasonable terms of anew agreement to deal with the situation that developed after the new agreement wasreached on 30 July 2013.[372] The parties also had a mechanism in the existing contractual arrangements fordetermining what the reasonable adjustments should be. Part 20 of FIDIC would haveenabled any dispute, as to what the reasonable adjustments for payment should be, tohave been determined by arbitration. Neither party has sought to take advantage ofsuch provisions, a further reason why it is appropriate for the Court to deal with thesituation in a way that could have been achieved through arbitration.17 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWL 1.18 At 20.Implied terms as to reasonable adjustments[373] Against the objective criteria of pre-existing contractual arrangements and thedetailed "matrix of facts"19 from which the new agreement arose, this Court shouldgive effect to the 30 July 2013 agreement. The Court can do so by holding, as I do,that, with the 30 July 2013 agreement, Gardians agreed that:1. with SPX being unable to carry out Phase 1 tests at the beginning of season2, Gardians would make the Phase 1 $700,000 payment when, throughproduction of nutritionals at the beginning of that season, it had beendemonstrated the plant could produce GUMP, follow on and infantformula at or close to the standard required by the contract and with theplant able to operate for 21.5 hours per day, including one mid-run CIP;2. with SPX having completed the reconstitution trials required at the end ofthe first season and it having been decided not to make any improvementsto the plant by way of variations to the contract, Gardians would pay toSPX the $700,000 for Phase 2 forthwith but with Gardians to have a creditfor the estimated cost of any defects which were still to be fixed when theplant moved into season 2 production;3. the Phase 3 payment would be made after SPX had a team working at theplant for six months after 1 August 2013, committed to further optimisingthe plant so as to increase output to whatever level could be achieved,given Gardians' preference to have production focus on quality rather thanoutput, and its decision not to invest in further major improvements to theplant. This is with the proviso that, if Gardians decided that suchassistance would not be required, payment of this $678,000 would bemade as soon as that decision had been made;4. the Phase 4 payment of $2,500,000 would be made no later than 31January 2015, being six months after the Phase 3 payment would have tobe made.19 Electricity Corp of New Zealand Ltd v Fletcher Challenge Energy Ltd, above n 14, at [54].[374] As discussed further below, SPX did establish that the plant could operate inthe manner required to satisfy the first of the implied terms. On that basis, SPX wasentitled to payment when it was agreed on 24 September 2013 that SPX would thenbe leaving the plant;[375] With the first of those terms implied into the 30 July 2013 agreement, SPX isentitled to judgment for the Phase 1 payment.Phase 1 – deemed performance of Phase 1 test[376] In closing submissions, Mr Thain argued that, with the 30 July 2013 agreement,Gardians and SPX agreed that satisfactory performance of the plant in the productionof nutritionals at the beginning of the 2013/2014 season would be the trigger for thePhase 1 payment. The plant had met the new agreed criteria so that payment of thePhase 1 $700,000 was then due. SPX pleaded that satisfactory performance of thenew production schedule at the beginning of season 2 was the new agreed Phase 1trigger.[377] However, SPX also submitted that, if results from the plant's performance onnutritionals with the new production schedule was the new test, even if performancedid not meet the required standards, it would be deemed to have done so applyingclause 12 of FIDIC. Those clauses provided for deemed satisfaction of tests if andwhen Gardians failed to provide an opportunity for SPX to carry out further tests toshow the plant could meet the required standards.[378] Mr McIntosh, for Gardians, accepted that the new production schedule did notallow for the original Phase 1 testing. However, he said there was never any agreementthat satisfactory performance of the new production schedule would be the new test.He said there was never any agreement between the parties that SPX would not haveto do the Phase 1 testing required by the variation deed and Gardians denied that it hadever waived the requirement for that test.[379] I accept that SPX have not established, on the balance of probabilities, thatsatisfactory results from the new production schedule were to be treated as satisfactoryperformance of the after-completion tests required as part of Phase 1, entitling SPX toimmediate payment of $700,000, although it would have been reasonable for Gardiansto agree to this, as reflected earlier in this judgment.[380] In his proposals as to new arrangements for payment, as set out in an email of9 September 2013, Mr Ryan proposed that the results of the performance of the plantwhen it was on nutritionals should have the same effect as satisfactory performance ofthe Phase 1 tests would have, but I accept this was his proposal rather than an attemptto record an agreement already reached.[381] However, that is not the end of the matter. If the requirements for SPX toperform the Phase 1 tests were not waived or varied by the agreement to agree onreasonable adjustments to the payment schedule (as I have already held was the case),then the parties' obligations and rights with regard to Phase 1 testing, as set out inFIDIC, become relevant. Mr Thain addressed me carefully in relation to those. Hissubmissions were presented on the basis it had been agreed the new productionschedule was the new Phase 1 tests but his submissions would remain relevant if, asGardians asserts, SPX was always under an obligation to complete the Phase 1 testsas set out in the term sheet variation to obtain the Phase 1 payment.[382] SPX referred to clause 12.2 of FIDIC. Clause 12.2 stated:If for any reasons not attributable to the contractor (SPX) a test aftercompletion on the works or any section cannot be completed during thedefects notification period (or any other period agreed upon by both parties)then the works or section shall be deemed to have passed this test aftercompletion.[383] It was a term of the variation deed, at clause 3.1, that:Except as expressly varied by this deed, the provisions contained and impliedin the contract are confirmed and continue and remain in full force and effect.[384] Pursuant to the variation deed, the schedule of "payments and payment" fieldin the particulars of contract was amended so that "on the [Gardians' contract] engineerbeing satisfied that each of the Phase 1 tests has been performed in accordance withthe performance targets, the employer will pay the contractor NZ$700,000 (plusGST)".20[385] Pursuant to clause 2.3, "the test on completion" and "test after completion"fields in the particulars of contract were amended to provide for the Phase 1 tests. Thevariation deed then set out the output and run times which SPX was to achieve, basedon the recipes being used as at 27 March 2013 and product specifications set out inSPX quotation NZ0111018.6. The deed then went on:The tests to demonstrate the outputs and run times will be conducted on datesagreed by Contractor and Employer and the Plant will be under theContractor's control for the purpose of such tests.The Employer will work collaboratively with the Contractor for successfulcompletion of the tests, but testing dates are to be designed as to not adverselyimpact on commercial production commitments of the Employer for the 2013dairy season.The tests are to be designed to minimise the risk of product downgrades as aresult of or following the tests.If the Contractor acting reasonably determines that capital improvements arerequired to achieve the infant formula product output and run time (Phase 1Improvements), it will notify the Employer and the Employer can elect toeither:(a) pay to the Contractor the Phase 1 Payment defined below; or(b) shut down the Plant for such time as is the shortest time necessary for theContractor to make (at its cost) the Phase 1 improvements.[386] Tests on completion are defined in clause 1.1.3.4 of the FIDIC generalconditions of contract as the specified, agreed or instructed tests which are carried outbefore the works (ie the plant) are taken over by the employer (ie Gardians).20 Clauses 2.4 and 2.4.3.[387] "Tests after completion" means the tests (if any) which are specified in thecontract and which are carried out under clause 12 after the works, or a section (as thecase may be), are taken over by the employer (ie Gardians).[388] Gardians submitted the tests provided for in Phase 1 were not necessarily testsafter completion, as that term is used in the FIDIC contract. Mr McIntosh referred toother clauses in FIDIC which indicated "tests on completion" could be carried outwhen the employer is in control of the plant.21[389] I have read those clauses. It would not be consistent with them to find that atest, as to how a plant was performing in its second season of commercial productionand approximately two years after a TOC has been issued and the plant is fully underthe control of the employer, could be a "test on completion" in terms of FIDIC.[390] Mr McIntosh submitted the tests required of SPX should not be treated as testsafter completion because they were not expressly referred to in that way in the termsheet variation documents. They did not have to be for FIDIC to apply. When theterm sheet variation was entered into, the parties incorporated into their settlement theterms of the contract, including FIDIC, except to the extent they were varied by theterm sheet variation. Furthermore, pursuant to cl 2.3 of the variation deed, the Phase1 tests were expressly incorporated into FIDIC by reference to the "test on completion"and "test after completion" fields in the particulars of contract.[391] Mr McIntosh submitted the tests to be carried out under Phase 1 could not betests after completion because the Phase 1 tests contemplated that, in carrying outthose tests, the plant would be under the control of SPX. This was not what wascontemplated in a test after completion as referred to in FIDIC. I reject that argument.[392] The tests provided for in the term sheet variation contemplated that the plantwould be under the control of SPX only to the extent required to carry out the tests.Except to the extent of being able to carry out the tests, the plant remained under thecontrol of Gardians. For that reason, the term sheet variation required Gardians towork collaboratively with SPX for successful completion of the tests and the testing21 Clauses 7.4, 9.4, 10.1, 10.3.dates were to be designed so as "to not adversely impact on commercial productioncommitments of Gardians for the 2013 dairy season".[393] Gardians had already taken over the plant when the parties entered into theterm sheet variation and agreed that the TOC was to be issued as at 27 October 2012.The variation deed expressly incorporated the terms of FIDIC to the extent they wereconsistent with the term sheet agreement and variation deed. Therefore, the tests tobe conducted as part of Phase 1 were "tests after completion", as dealt with in Part 12of the FIDIC contract.[394] Clause 12.1 of the contract detailed the obligations which Gardians and SPXwould have to facilitate and carry out the tests after completion. If SPX did not carryout the tests at the prescribed time, Gardians could carry out the tests and SPX wouldhave had to accept Gardians' readings as to the result of those tests.22[395] The particulars of contract specified that the defects notification periods wereto run from the date of the TOC. The periods were 12 months for each of thespecialised plant and building services, and six months for the balance of the buildingworks.23 Because the TOC was issued as at 27 October 2012, the date for the end ofthe defects notification period for the specialised plant was 27 October 2013.[396] By a solicitor's letter dated 25 October 2013, Gardians purported to extend thedefects notification period by six months to 27 April 2014.[397] Under FIDIC clause 11.3, Gardians would have only been entitled to anextension if and to the extent that the plant could not be used for the purposes forwhich it was intended by reason of a defect or damage. In fact, this plant could readilybe used for its intended purpose. It was used for that purpose during the first season,and again for at least part of the second season beginning in August 2013.[398] Gardians submits that its insistence on the new production schedule andconversion of the plant to produce WMP and/or the sale of the plant to Danone should22 Clause 12.1.23 Particulars of contract subclause 1.1.3.7.not be seen as having prevented SPX from being able to perform Phases 1 and 3,because it had always been recognised that Phase 1 testing was not to adversely impacton commercial production commitments and was to minimise the risk of productdown-grades. It was anticipated that all Phases 1 and 2 improvements would havebeen completed by the start of season 2 and the Phase 3 tests would occur on mutuallyagreed dates.[399] I reject those arguments. It was fundamental to the term sheet variation andthe contract that the plant had to have the capacity to produce specific products andthat SPX had to prove and be given the opportunity to prove in a specific way that theplant could meet those criteria. Consistent with the collaborative way in which bothparties agreed to work, SPX was to have regard to Gardians' commercial productioncommitments in arranging how and when the required tests would be carried out. Theterm sheet variation did not permit Gardians to avoid its obligations under the termsheet variation and to prevent SPX obtaining the Phase 1 payment by insisting thatproduction proceed in a way that did not allow for the necessary optimisation of theplant and an opportunity for SPX to carry out the required tests. Nor could Gardiansavoid its obligations by having the plant make just WMP when the parties had agreedthat, to obtain the Phase 1 payment, SPX had to prove that it was capable of processingother specified products.[400] The term sheet variation contemplated that SPX would have performed itsPhases 1 and 2 obligations by the start of season 2 but Gardians does not suggest thatSPX had repudiated the contract with the modest delays that occurred. Gardians'personnel at the plant were continuing to work collaboratively with SPX through intothe start of season 2. There was no evidential basis for Gardians to suggest that it wasbecause of the delay that occurred that Gardians insisted on the new productionschedule. The move to producing WMP and to not return to the processing ofnutritionals in November 2013, as earlier anticipated, was because of outsidecommercial factors entirely unrelated to SPX's performance of its Phases 1 and 2obligations.[401] There was also no evidence that Gardians' commitment to the new productionschedule resulted from a decision not to make improvements to the plant over thewinter shutdown period. In any event, Gardians had agreed that no Phase 2improvements would be made to the plant.[402] Gardians also submitted that the adoption of the new production scheduleshould not be seen as preventing SPX from carrying out the tests because theproduction schedule was implemented at a time when SPX had not, during the firstseason, shown that it could meet Phase 1 performance targets. There were, it says,good commercial reasons for Gardians to want to avoid problems that it alleged hadoccurred during season 1. Gardians argued SPX had not completed the Phase 1 testsat the end of season 1, could not sensibly have requested or completed Phase 1 tests atthe beginning of season 2 and would not have returned to the plant in November 2013even if the planned return to nutritional production had proceeded at that time.[403] I reject all those submissions. As was apparent from Mr Shortall's report forDeloitte and what was actually achieved in August and early September 2013,Gardians was of the view by 30 July 2013 that problems which had arisen in season 1had largely been resolved and the plant would be capable of producing product of therequired quality and an acceptable quantity. I am satisfied that SPX would havereturned to the plant in November 2013 to assist with both further optimisation and,had it been necessary, further testing provided there had been some indication fromGardians that Gardians would make the Phases 1 and 2 payments without delay.[404] Gardians also argued that its agreement to sell the plant did not prevent SPXfrom meeting its obligations because SPX:(a) was not ready, willing and able to return to the plant to complete any ofthe Phases;(b) had demanded full payment from Gardians and had ignored Gardians'invitation to negotiate; and(c) had elected not to utilise dispute resolution or arbitration clauses.[405] Gardians says that all this amounted to repudiatory conduct on the part of SPXand the evidence showed that SPX had no intention of returning to the plant afterSeptember 2013 unless Gardians agreed to pay in full or part.[406] I reject those arguments. I am satisfied the way in which SPX performed afterthe term sheet variation was entered into showed it was committed to meeting itscontractual obligations in terms of all Phases.[407] It made demand for payment of all Phases 1 to 4 payments but only after thecommunications to it from Gardians indicated that Gardians was not willing to makeany payments to SPX for either Phases 1 or 2 where SPX had already done the workrequired of it and Gardians, with its production schedule, had made it impossible forSPX to carry out Phase 1 tests during season 2 up to that point.[408] As at 24 September 2013, SPX had been anticipating it would return to theplant to complete further optimisation work. In his email of 9 September 2013, MrRyan indicated SPX would return to the plant provided reasonable adjustments wouldbe made as to the outstanding payments. Gardians had agreed, with the 30 July 2013agreement, that it would make such reasonable adjustments.[409] I consider the letter of 4 November 2013 demanding payment of all Phases 1to 4 sums and the later commencement of proceedings were steps taken in response toconduct and communications from Gardians indicating it was not willing to make anyof those payments. I find the proceedings were commenced not to inevitably bringthe relationship between SPX and Gardians to an end but to ensure that Gardians metits contractual obligations before SPX committed further resources to doing what wasthen required of it.[410] I am satisfied that, if Gardians had been willing to pay at least the Phase 2payment, with some adjustment for the outstanding paint and floor work and if, aswould have been reasonable, Gardians had given a firm indication that it would makethe Phase 1 payment without undue delay, SPX would have returned to the plant tohelp with the anticipated transition to nutritionals in November 2013 if that had beenrequired, and carry out further Phase 3 optimisation work.[411] On all the facts in this case, I am satisfied that it was Gardians who decided tomove to the new production schedule at the beginning of the 2013/2014 season, aschedule which made it impossible for SPX to carry out the Phase 1 tests. It was alsoGardians who decided during that season not to return to the production of nutritionalsin any way that would have enabled completion tests to be carried out. It further madeit impossible for SPX to carry out those tests through selling the plant to Danone.[412] Gardians argued that, for clause 12.2 to come into play, SPX had to give noticethat it insisted on having the opportunity to carry out the tests, and it never did. I donot accept that argument. In many situations, such notice would have to be given forthe contractor to establish that the contractor's inability to complete the after-completion tests was attributable to the employer. In the circumstances of this case,the giving of such a notice was not required for that reason because it has beenestablished that SPX's inability to complete the after-completion tests was due toGardians' decisions: to proceed with the new production plan at the beginning ofseason 2, continue with production of just WMP and sell the plant.[413] Mr McIntosh also submitted clause 12.2 cannot be used by SPX in this waybecause clause 12.2 was not referred to in the pleadings and nor did Mr Ryan rely onFIDIC in this way in his correspondence in late 2013 when SPX demanded payment.[414] I accept there was nothing specific in SPX's amended statement of claim or incorrespondence which is part of the common bundle indicating that SPX was relyingon the FIDIC contract in this way. That does not, however, disentitle it to rely onFIDIC in the way it did in closing submissions.[415] Both SPX and Gardians relied on terms of the original contract includingFIDIC, the term sheet agreement and the variation deed, in making their submissionsas to what their obligations or entitlements were. Satisfactory performance of thePhase 1 tests was obviously of considerable commercial significance to both parties.It was to be expected that their obligations and entitlements with regards to such testsshould be set out comprehensively and appropriately documented. I find that theywere, with the tests being "tests after completion" as referred to in FIDIC.[416] In its amended statement of claim, SPX alleged that Gardians made itimpossible to carry out the Phase 1 tests through adopting the new productionschedule, being unable to supply the required milk for extended product runs,converting the plant to produce solely WMP and sale of the plant. So, the evidentialissues relevant to the application of FIDIC 12.2 were addressed extensively at trial.[417] Mr McIntosh submitted SPX should not succeed on this basis because noevidence had been called as to the construction of the deed or around the context inwhich it was entered into. I reject that submission. There was considerable evidenceas to the context in which the term sheet variation was entered into.[418] There was no dispute as to what the parties had agreed to in the term sheetagreement and the variation deed. FIDIC is a comprehensive document which, withrelated correspondence and other related documents, comprehensively set out theparties' obligations and entitlements. This is not a situation where further evidenceoutside the documents would have been relevant to determining the parties'obligations and entitlements.[419] The Court here had evidence as to the context in which the term sheet variationwas entered into. That part of the contract was entered into in a commercial contextwhen the agreement reached and the particular wording of the documents providedcertainty as to what that agreement was. It is the text of the documents which remainscentrally important so the Court's focus in the circumstances of this case had to be onthe ordinary and natural meaning of the term sheet variation and its constituentdocuments.24 On reading those documents, it cannot be said there are issues ofambiguity or uncertainty. Consistent with what Tipping J said in Vector, the evidenceof Mr Sutton would have been of no relevance if it was to be called to do no more thanprove what individual parties subjectively intended or understood the words to mean.2524 Firm PI 1 Limited v Zurich Australian Insurance Limited T/A Zurich New Zealand [2014] NZSC147 at [62], [63] and [88].25 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5 at [19]-[21].[420] I do not consider Gardians have been prejudiced in the sense of being deniedthe opportunity to call relevant evidence through FIDIC clause 12.2 not beingspecifically referred to in the SPX statements of claim.[421] Mr Berry was Gardians' project engineer when the term sheet variationsettlement was reached and through until March 2014. In August 2013, he understoodand told the directors that they had a contractual obligation to give SPX theopportunity to carry out the Phase 1 tests, satisfactory performance of which entitledit to the Phase 1 payment.[422] I thus find that, for reasons not attributable to SPX, a test after completion onthe plant could not be completed either during the defects notification period or at anytime during the second season. Applying clause 12.2 of the contract, the plant isdeemed to have passed the tests originally required as a condition for the Phase 1payment.[423] If then, as Gardians asserts was the case, there was never any agreementreached to do away with the Phase 1 term sheet variation tests, Gardians had to makethe plant and milk available, and do everything else that was required for SPX to beable to carry out such tests. It failed to do so. By virtue of clause 12.2, the plant wasdeemed to have passed the test after completion. SPX has proved that thesecircumstances existed when Gardians decided not to return to production ofnutritionals and to have the plant continue to produce just WMP in early November2013. They certainly existed when Gardians agreed to sell the property to Danone on29 April 2014.[424] I find that SPX had met all its Phase 1 contractual obligations and is entitled tothe Phase 1 payment.Phase 2[425] SPX and Gardians worked on what Phases 1 and 2 required at the same time.[426] As Mr Thain submitted, there were three components to Phase 2 for paymentof $700,000 of the outstanding amount of the contract price:(a) reconstitution trials;(b) implementation, as variations to the contract works, of mutually agreedimprovements; and(c) rectification of specific construction defects listed in the second scheduleto the variation deed.[427] There was no dispute that SPX had carried out the required reconstitution trials.[428] I agree with SPX's submission that what the parties meant and intended by"improvements" was not the remediation of a defect but a "change to the employer'srequirements of the works", as, for example, the installation of a dehumidificationplant would have been.[429] SPX has established that there were no agreed improvements outstanding as at27 September 2013 when SPX left the site, which would have amounted to variationsto the contract.[430] In written submissions, Mr Thain correctly submitted that the only constructiondefects work not completed related to the paint and floor issues. He initially submittedthat, because Gardians had agreed to defer that work, it should not be entitled to anyadjustment on the amount due under Phase 2. He submitted there was no proof thatGardians had incurred any costs or losses on account of those items. In furthersubmissions, he accepted that, because those items had not been attended to by 31 July2013 as required by the term sheet variation, and because SPX accepted that Gardiansshould succeed on its counterclaim in respect of these matters and one other modestamount to the extent of $65,339, SPX was entitled to recover $634,661 under Phase2.[431] In his submissions for Gardians, Mr McIntosh accepted that it appeared noPhase 2 improvements were in fact agreed to be implemented and that the onlyconstruction defects not attended to related to the paint yellowing and floor issues.[432] Mr McIntosh said it was agreed that these matters would be dealt with at somelater time which suited everyone or perhaps during the next shutdown.[433] Mr McIntosh submitted that SPX was not entitled to the Phase 2 paymentbecause the variation deed required Gardians to pay SPX $700,000 plus GST when itwas "satisfied" that the last of the contractor's Phase 2 obligations (which included therectification of outstanding defects as listed in the hit list), had been performed.[434] Mr McIntosh submitted this requirement should not be seen as just "a technicalone" because completion of these items was part of achieving a "world-class"nutritional plant which was what the parties had committed to. The Phase 2 paymentwas, he contended, in the nature of a retention sum and Gardians did not want to beput to the trouble of fixing outstanding matters itself.[435] Mr McIntosh also submitted there were other construction defects notified inthe amended minutes of 24 September 2013 and the list provided to SPX throughGardians' solicitors which SPX never attended to. He submitted SPX should not beentitled to recover an adjusted amount of the Phase 2 payment in the absence of aquantum meruit claim.[436] Mr Thain emphasised that the Phase 2 payment had to be made by SPX not inconsideration of SPX doing more than Gardians had originally contracted it to do butas a part payment for the plant which Gardians had taken over and begun operatingcommercially on 29 October 2012.[437] Mr Thain submitted SPX was entitled to the adjusted Phase 2 payment, havingregard to cl 11.4 of the FIDIC contract and the principle of substantial performance.2626 Hoenig v Isaacs [1952] 2 All ER 176 (CA), per Denning LJ: the first question is whether, on the trust construction of the contract, entire performance wasa condition precedent to payment. It was a lump sum contract, but that does not mean that entireperformance was a condition precedent to payment. When a contract provides for a specific sumto be paid on completion of specified work, the courts lean against a construction of the contractwhich would deprive the contractor of any payment at all simply because there are some defectsor omissions. The promise to complete the work is, therefore, construed as a term of the contract,but not as a condition. It is not every breach of that term which absolves the employer from hispromise to pay the price, but only a breach which goes to the root of the contract, such as anabandonment of the work when it is only half done. Unless the breach does go to the root of thematter, the employer cannot resist payment of the price. He must pay it and bring a cross-claimfor the defects and omissions, or, alternatively, set them up in diminution of the price. The measureis the amount which the work is worth less by reason of the defects and omissions, and is usuallycalculated by the cost of making them good.See also Laws of New Zealand Contract, at [277].[438] Through FIDIC Part 11, particularly 11.4, the parties had agreed that non-rectification of a defect by SPX would be dealt with by way of an adjustment to theamount due under the contract, based on the cost of rectification; it would not entitleGardians to withhold a greater sum that might otherwise be due under the contract.[439] In relation to these outstanding defects, the contractual arrangements alsoincluded the agreement reached between Gardians and SPX that, in the continuingcollaborative way in which the parties were to work when season 2 began, rectificationof these items would be deferred.[440] With the term sheet variation, SPX and Gardians had agreed that it was theitems in the hit list, schedule 2 to the variation deed, that had to be attended to. Therewas no provision requiring SPX to rectify further defects that might emerge aftersigning the variation deed. In any event, on the evidence, I do not accept that thereference to an alleged defect in the plant, as referred to in Gardians' amended minutesof the 24 September 2013 meeting, or the letter from Gardians' lawyers of 25 October2013, was notification to SPX that these were construction defects which SPX wasrequired to fix. Mr Berry, the project manager for the plant, was not aware that SPXwas being asked to attend to such matters. I find that these matters were referred tosimply in an attempt to justify Gardians' refusal to pay any part of what was due toSPX under the term sheet variation.[441] I consider the reference in the variation deed to the Phase 2 payment being duewhen SPX had completed the last of SPX's obligations under Phase 2 had beencompleted, was a provision as to the timing of payment relating to completion of theobligations in Phase 2 in general terms. In the context of all the contractualarrangements between the parties, I do not consider rectification of each individualitem in the Phase 2 hit list was a condition precedent to SPX being able to recover$700,000 of what it was accepted was due to it in terms of the original contract pricefor the plant which Gardians had acquired. The doctrine of substantial performancepermits SPX to recover $700,000 subject to an adjustment of $65,339 on account ofGardians' counterclaim.[442] SPX had done everything required of it under Phase 2 by 12 August 2013.Payment of $634,661 was then due.[443] Payment of $634,661 was also required then in accordance with the parties'agreement to agree on reasonable adjustments to the payment schedule as alreadydiscussed.Phase 3Mackay v Dick27[444] The Phase 3 portion of the outstanding contract price amount was $678,000.Commencing on 1 August 2013, for a period of six months, SPX was to have a full-time site presence. Its team was to use best endeavours to optimise the plant to achieveoutput and run times of the plant on specific nutritional formulas using Gardians'recipes as they were at the time of the term sheet variation. As discussed, the statedperformance target was 4 mt/hr with a run time of 21.5 hours per day/1 CIP. Actuallyachieving those targets was not a condition for payment. The variation deedanticipated that there would be tests to demonstrate the outputs and run times. Oncompletion of Phase 3, including those tests, Gardians was to pay SPX $678,000.[445] SPX emphasised that the Phase 3 payment was not a payment in return forSPX's Phase 3 work. It was part of SPX's pre-existing contractual entitlement, theprice for the plant which Gardians had taken over on 27 October 2012, was using againfor commercial production in season 2 and which, in due course, was to be sold toDanone.[446] SPX said, and I accept, the Phase 3 optimisation, including the tests, could notbe done by SPX without cooperation from Gardians. In particular, it was necessaryfor Gardians to use its plant and milk supply to make nutritional formula powders overlong run times for a six month period. SPX said this obligation was implicit from thenature of Phase 3 itself.27 Mackay v Dick (1881) 6 App Cas 251 (HL).[447] SPX said payment of $678,000 plus GST was to be made on completion of theoptimisation phase involving SPX to have a full-time site presence for a period of sixmonths so that the period potentially came to an end six months from 1 August 2013,ie 1 February 2014.[448] The contractual arrangements required both SPX and Gardians to do what wasnecessary to implement the optimisation phase. In its submissions, SPX adopted thestatement of Lord Blackburn in Mackay v Dick: 28I think I may safely say, as a general rule, that where in a written contract itappears that both parties have agreed that something shall be done, whichcannot effectually be done unless both concur in doing it, the construction ofthe contract is that each agrees to do all that is necessary to be done on his partfor the carrying out of that thing, though there may be no express words tothat effect. What is the part of each must depend on circumstances.[449] SPX submitted, and I accept, that the obligation was not only implicit from thenature of Phase 3 but actually explicit in cl 6 of the term sheet and cl 21(a) of thevariation deed where it was agreed the parties would "work collaboratively and ingood faith to deliver highest sustainable outputs achievable from the plant".[450] Gardians argued that Phase 1 was not completed or tested so that Phase 3optimisation could not start at the beginning of season 2 as contemplated by the termsheet variation. Gardians argued that SPX did have a full-time presence on site withincentivised team members from August 2013 but that was a continuation of Phase 1and was not for the optimisation purposes envisaged as part of Phase 3, ie to take theplant from 3.41 mt/hr towards 4 mt/hr. In any event, SPX did not continue with suchassistance for six months. Gardians submitted that SPX could not be entitled to thePhase 3 payment when it did not carry out any of that work.[451] Gardians submitted it was unrealistic to consider Phase 3 was a Mackay v Dicksituation. Gardians submitted Phase 3 could only take effect when Phase 1 had beencompleted and Phase 1 output targets had been achieved. Mr McIntosh submitted thatneither party was able or willing to carry out the optimisation phase and neither wasin that space. Mr McIntosh acknowledged that, if Phase 1 had been completed, the28 Mackay v Dick, above n 27, at 263.Mackay v Dick situation might arise but he submitted this had not happened withGardians temporarily using the plant to make WMP and SPX not having sought theopportunity to do what was required of it for optimisation.[452] Mr McIntosh said Gardians was not suggesting that, through Mr Ryan'scorrespondence, SPX was repudiating the contract as to Phase 3 but said the realitywas that SPX did demand all the Phases 1 to 4 payments. In the statement of claim,SPX had pleaded that Gardians' conversion of the plant to produce solely WMPprevented SPX's team from taking the optimisation steps required. After that, SPXhad made no offer to return to the plant to carry out its part of the optimisation phase.[453] Gardians also argued that its decision to have the plant continuing to make justWMP in November 2013 could not release SPX from its Phase 3 obligations becauseGardians' decision to stay on WMP production had not been communicated to SPX.[454] I accept this was a Mackay v Dick situation. The statement of Lord Watson inMackay v Dick is directly in point. He said:29The Respondents were only entitled to receive payment of the price of themachine on the condition that it should be tried at a proper working faceprovided by the Appellant, and that on trial it should excavate a certain amountof clay or other soft substance within a given time. They have been thwartedin the attempt to fulfil that condition by the neglect or refusal of the Appellantto furnish the means of applying the stipulated test; and their failure being dueto his fault, I am of the opinion that, as a question with him, they must be takento have fulfilled the condition.[455] I find Gardians did make it impossible for SPX to fulfil what was required ofit to obtain the Phase 3 payment, so that conditions for the Phase 3 payment must betaken as having been fulfilled.Waiver[456] SPX claimed that Gardians, by its conduct (as particularised above), waivedthe requirement for SPX to provide the on-site optimisation and for the Phase 3 teststo be conducted.29 Mackay v Dick, above n 27, at 270.[457] I find that Gardians did, by its conduct, waive the requirement for SPX toprovide the on-site optimisation and for the Phase 3 tests to be conducted. It waivedthose requirements through:(a) adopting the new production schedule for August and September 2013with its new recipes, the emphasis to be on quality rather than achievingeven the Phase 1 outputs;(b) having the plant make just WMP at the end of September 2013;(c) agreeing with SPX that there was no point in it remaining at the plant after24 September 2013;(d) not making any proposals, even as to the Phases 1 or 2 payments, afterreceiving SPX's requests for payment and for arrangements over this to beconcluded so that SPX could return to the plant in November when it hadbeen anticipated it would be able to assist with further optimisationconnected with renewed production of nutritionals;(e) continuing with just WMP production in and after November 2013; and(f) agreeing on 29 April 2014 to sell the plant to Danone and through settlingthat sale on 31 July 2014 without, in the interim, paying or offering to payany of the outstanding portion of the contract price for the plant, asrepresented in the Phases 1 to 4 payments.[458] I find that, as a result of that conduct, SPX reasonably believed it was notrequired to complete Phase 3 optimisation or Phase 3 tests. In doing so, it relied onthe representations that had been made by Gardians through its conduct. SPX thenacted to its detriment in not insisting the plant be made available to it and Gardians doeverything else necessary for SPX to assist with optimisation work. For the reasonsalready discussed, I am satisfied it would be unconscionable for Gardians to now denySPX the Phase 3 payment on the basis SPX had not done what was required of it underPhase 3.[459] Mr McIntosh also argued that, if there was a waiver with regard to Phase 3,SPX's claim was for damages, not a debt. He argued that SPX had not establishedwhat loss it had suffered through being unable to complete Phase 3. He argued that,had SPX returned to the site to do the Phase 3 work, it would have incurred significantcosts in doing so. It has avoided incurring those costs.[460] I reject that argument. On satisfaction of Phase 3 requirements, SPX wasentitled to payment of $678,000 outstanding on the contract price for the plant. Thatentitlement was a debt due to it. It was entitled to payment of that sum as soon asPhase 3 requirements had been met, not as payment for the work that would have beeninvolved in Phase 3. That is the loss it has suffered through being unable to satisfy therequirements of Phase 3, requirements which were waived by Gardians.[461] I do not consider there was any communication or conduct on the part of SPXwhich would have released Gardians from its obligations to make any of the Phases 1to 4 payments. SPX's performance after the term sheet variation, in the context of thedifficult relationship it had with Gardians at director/owner level, indicated it alwaysaccepted it had to meet its contractual obligations. I am satisfied that, right throughuntil 31 July 2014, SPX would have remained willing to do so had there been any realindication from Gardians that Gardians was willing and able to make the paymentsrequired of it.[462] I consider that remained the situation even after it had filed these proceedingsclaiming the balance of what was due to it under the contract.[463] Mr Berry, Gardians' project engineer, prepared a report of 12 February 2014with his review as to how the whole contract between the parties had proceeded andwhat had eventuated with regard to the term sheet variation. In his report he said Phase3 started 1 August 2013 and was a continuation of the production improvement trials.He noted that the last two SPX engineers left on 25 September 2013 and three Anhydroengineers were on rotation from 25 July to 23 September 2013. In that report, heconfirmed SPX/Anhydro engineers and senior SPX management agreed that SPXneeded to come back for the next infant formula runs to complete the optimisation.He said the phase of increasing production to 4 mt/hr had not been started.[464] Mr Berry had advised Gardians on 2 September 2013 that Gardians shouldonly consider making the changes necessary to achieve 4 mt/hr in season 3, that is theseason that would start in August 2014. He had also said that the changesSPX/Anhydro had made in early 2013 were a good basis for the operators to increasecapacity in the next season.[465] It was apparent from the 30 July 2013 agreement, the minutes of the 24September 2013 meeting and correspondence to Gardians from Mr Ryan that, ifGardians had made the Phases 1 and 2 payments, as SPX reasonably required of it,and if Gardians returned to producing nutritionals in November, SPX would havereturned to the plant to assist with further optimisation.[466] I have already found that Phase 1 was effectively completed with satisfactoryperformance of the plant in connection with the new production schedule at thebeginning of season 2 and Gardians keeping the plant on WMP in November 2013.Even if there had been no communication over the decision to stay on WMP inNovember 2013, the reality was that Gardians had made it impossible for SPX tocontinue with further optimisation of the plant through its decision to stop producingnutritionals and to stay on WMP during the 2013/2014 season. Although at one pointGardians suggested SPX might have to do further work to be entitled to any of thePhases 1 to 4 payments, I find that was simply to further stall payments Gardians wasobliged to make. Gardians did not do or say anything to indicate that it in fact requiredSPX to carry out such work. It had been agreed between Gardians and SPX that therewas no point in SPX personnel remaining at the plant after it went off nutritionalsduring September 2013.[467] Gardians submitted that not only did SPX not offer to return to carry out anoptimisation phase but, in correspondence, Mr Ryan had contended the purpose ofPhase 3 had already been achieved. That was the reality as far as these parties wereconcerned.[468] With the adoption of the new production schedule for season 2, Gardians chosenot to then do anything required of it in relation to ensuring the plant could achieve anoutput of 4 mt/hr. As far as production of nutritionals was concerned, the emphasiswas to be on quality rather than achieving the Phase 1 output requirements. Gardianshad thus communicated to SPX that it did not require SPX to do any work onincreasing the capacity of the plant to produce nutritionals at 4 mt/hr. Consistent withthat, it agreed there was no point in SPX remaining at the plant once it moved intoproducing WMP. With that decision, and with Gardians continuing to have the plantstay on WMP and not asking SPX to return on further optimisation of the plant inconnection with the production of nutritionals, the reality was that SPX had assistedwith the optimisation of the plant to the extent Gardians required of it.[469] With the way Gardians responded to SPX's proposals as to payment ofamounts which SPX claimed were due under the term sheet variation and withGardians keeping the plant on WMP, SPX would reasonably have inferred thatGardians was not wanting it to return and work with it on further optimisation of theplant.[470] With Gardians agreeing to sell the plant to Danone on 29 April 2014, with milkproduction then tailing off at the end of the season and with Gardians focusing onworking with Danone to have the plant ready for settlement of the sale, there was thenneither need nor realistic opportunity for SPX to be working on further optimisationof the plant to meet Gardians' Phase 3 aspirations. There was certainly no opportunityfor SPX to do anything under Phase 3 after the sale to Danone settled on 31 July 2014.FIDIC - clause 12.2 and deemed performance[471] In closing submissions, Mr Thain did not submit that SPX could rely on FIDICto obtain the Phase 3 payment. He did, however, submit for SPX that, in terms ofFIDIC, the Phase 3 tests would have been tests after completion. If that was so, cl12.2 would have applied if that was necessary for SPX to recover payment.[472] Gardians submitted the Phase 3 tests would not have been FIDIC "tests aftercompletion" for the reasons already advanced in respect of Phase 1 but also becausePhase 3 was not part of the original contract.[473] I accept that the Phase 3 tests were FIDIC tests after completion.[474] SPX and Gardians were in a continuing contractual relationship where therewere variations to the original contract. They agreed in the variation deed that theterms of the original contract, including FIDIC, would continue to apply to the extentthey were not inconsistent with the term sheet variation.[475] For the same reasons that applied as to Phase 1 tests, applying FIDIC cl 12.2,the Phase 3 tests would be deemed to have been completed and satisfied.Agreement to make reasonable adjustments to the payment schedule[476] Payment of the Phase 3 $678,000 also had to be made, certainly no later than31 July 2014, in accordance with Gardians' agreement that it would make reasonableadjustments to the payment schedule as set out above.[477] I accept the submission for SPX that Gardians was liable to make the Phase 3payment no later than when ownership of the plant was transferred to Danone on 31July 2014. At that point, Gardians had put itself in a position where it could no longerhave performed what was required of it as to the Phase 3 payment.Phase 4[478] The Phase 4 instalment of the outstanding contract price of $2,500,000 wassimply the passing of six months during which the plant was capable of performing atwhatever optimised level was achieved in Phase 3. Gardians argued that, for the Phase4 payment to be due, the plant had to be capable of operating at the optimised levelsas conferred during Phase 3 so that payment was dependent on completion of Phase3.[479] There was no contractual guarantee in the variation deed that, with Phase 3,the plant would be producing 4 mt/hr. Gardians never did what was required of it tohave the plant capable of an output at that level and, as at September 2013, wassatisfied with the output achieved then of, or close to, 3.4 mt/hr. In thesecircumstances, I consider that the requirement for Phase 4 would have been satisfiedif the plant had been retained by Gardians and had been capable of producing at thelevels which Gardians had accepted for the six months from 1 August 2013. Gardianscould not operate the plant at that level because it settled the sale of the plant on 31July 2014. The Phase 4 payment was for the AMF plant which was part of whatGardians had taken over on 29 October 2012.[480] I find that SPX had done what was required of it to be entitled to the Phase 4payment. If Gardians' obligation to pay was conditional on completion of Phase 3,that condition was waived with the waiver of Phase 3 obligations.[481] I accept the submission for SPX that the Phase 4 payment fell due no later thansix months after the latest possible date on which Gardians' waived the Phase 3requirement, ie 31 January 2015 being six months after 31 July 2014.[482] Gardians was also required to pay this $2,500,000 no later than 31 January2015 in accordance with its obligation to agree on reasonable adjustments to thepayment schedule.Conclusion as to Phases 1 to 4 payments[483] On each of the above pleaded and accepted grounds, SPX is entitled tojudgment for the Phases 1 to 4 payments in the total sum of $4,512,661 plus GST.Performance security[484] In accordance with conditions of the original contract, SPX obtained andprovided Gardians with a performance security for Gardians' benefit. Theperformance security was issued by the ANZ Bank in the amount of $4,294,400, being10 per cent of the contract price.[485] Under FIDIC clause 4.2, the performance security was to remain in place until21 working days after the last day of the defects notification period. It was to bereturned to SPX for cancellation at the ANZ bank after issue of the performancecertificate. On 20 December 2013, SPX made demand on Gardians to issue theperformance certificate and return the performance security. Gardians refused to doso.[486] Gardians submitted that SPX would not be entitled to release of theperformance security until SPX had satisfied any liability it might have on Gardians'counterclaims but acknowledged the merits of this head of claim would follow themain claims.[487] As at 20 December 2013, the amount due on Gardians' counterclaim wassignificantly less than the amount due to SPX, even for just the Phase 2 payment.Gardians had taken over the plant with the TOC deemed to have issued as at 27October 2013.[488] By 20 December 2013, SPX had done all that Gardians required of it in relationto Phases 1 and 2. By then, Gardians had made the decision to continue with WMPproduction and no further work was required of SPX in relation to Phases 3 and 4.The performance certificate should have been issued to SPX at that time and theperformance security returned.[489] In its amended statement of claim, SPX sought an order requiring the issuingof a performance certificate as at 24 November 2013 and an order requiring Gardiansto return the performance security to SPX. SPX is entitled to such orders but, in thecircumstances, the performance certificate should be issued as at 20 December 2013.[490] SPX also sought judgment in the sum of the bond charges incurred by SPX.SPX did not call any evidence as to what those bond charges were but there is proofin the documents that such charges were incurred. Mr Ryan confirmed that suchcharges had been incurred. Mr McIntosh submitted that issues of interest and costsshould be dealt with post-judgment and I will deal with those issues in that way. Thebond charges are in the nature of interest and it is appropriate that the claim in relationto them be dealt with as part of the claim for interest.Summary[491] In the following summary, I reiterate the various findings made in thisjudgment in terms of the defendant "Gas 1 Limited" (Gas 1), as Gardians is nowknown.Background[492] In 2011, SPX contracted with Gas 1 to build a milk processing plant atClydevale near Balclutha at a cost of some $43 million, due for completion on 27October 2012. The first season production at the plant started in October 2012.[493] During the first season, there was a dispute between SPX and Gas 1. SPX saidit was entitled to payment of some $6.7 million of the contract price. Gas 1 was sayingit had suffered significant losses as a result of delays in the construction of the plantand the quality of the powder produced from the plant. It said it had a claim under thecontract for delay damages.[494] This dispute was settled in full through a term sheet agreement and associatedvariation deed in March 2013. In accordance with that settlement, Gas 1 made animmediate payment to SPX of $2,100,000. A further $4,578,000 of the originalcontract price was to be paid to SPX under four phases.[495] Under phase 1, SPX experts were to work with Gas 1 at the plant at the end ofseason 1 and over the winter shutdown to ensure that the plant could process milk andproduce specified infant formula milk powders, according to specified recipes, at arate of 3.41 mt/hr with the plant to be producing for 21.5 hours a day, including timefor a mid-run clean.[496] Gas 1 had to cooperate with SPX to enable SPX to carry out tests for each ofthe specified products over three days to prove that the plant could perform at therequired level. On satisfactory completion of those tests, Gas 1 was to pay SPX$700,000 plus GST.[497] With Phase 2, SPX had to remedy construction defects with the plant, carry outreconstitution trials and make agreed capital improvements to the plant at Gas 1's cost.On completion of those matters, SPX was entitled to a payment of a further $700,000plus GST.[498] Under Phase 3, SPX was to provide a further six months' assistance, beginning1 August 2013, with the aim of increasing the output from the plant to 4 mt/hr. At theend of that period, Gas 1 was to pay SPX a further $678,000 plus GST.[499] Under Phase 4 Gas 1 was to pay SPX the balance of $2,500,000 plus GST fora particular part of the Clydevale plant, such payment to be made six months after theend of Phase 3 optimisation.SPX claims[500] SPX sued for each of the Phases 1 to 4 amounts which Gas 1 had refused topay.Phase 1[501] As to the Phase 1 payment, Gas 1 argued that SPX was not entitled to thispayment until it had satisfactorily completed the required Phase 1 tests. It had neverdone so and the plant was never capable of performing at the required level.[502] Held: Gas 1 waived the requirement for those tests by:(a) at the beginning of season 2, requiring SPX to assist with a newproduction schedule where there was only a short run on nutritionalsand where SPX had neither the opportunity to carry out furtheroptimisation of the plant on a sustained basis nor opportunity to carryout the Phase 1 tests;(b) having the plant produce just WMP after 22 September 2013 and thenkeeping the plant on WMP through most of season 2; and(c) agreeing to sell the plant to Danone in April 2014 and settling that saleon 31 July 2014.[503] At the start of season 2, when the plant was on nutritionals, SPX had shownthat the plant was capable of producing powder of the required quality and to thequantity then required by Gas 1.[504] If, contrary to that conclusion, Gas 1 had not waived the requirement forcompletion of the original Phase 1 tests, then the terms of the original contract betweenthe parties were to be applied. Through the new production schedule, having the planton WMP and the sale of the plant to Danone, Gas 1 had made it impossible for SPXto carry out the Phase 1 tests. In those circumstances, applying the terms of thecontract, those tests were deemed to have been satisfied.[505] On either basis, Gas 1 had to make the Phase 1 payment.Phase 2[506] As to Phase 2, Gas 1 argued that it did not have to pay all or any part of thePhase 2 $700,000 until all building defects had been remedied. There were two defectsoutstanding with regard to the paint and floor coatings so this threshold for paymenthad not been met.[507] Held: Having regard to all the contractual arrangements, including theagreement to defer work in relation to these items, this was not a situation where SPXwas required to fix all building defects before receiving the Phase 2 payment. SPXwas entitled to payment of the $700,000 but with an adjustment for the $65,339 whichit accepted should be brought into account against this claim because of work requiredof SPX which was still outstanding when SPX left the plant in September 2013.Phase 3[508] As to Phase 3, Gas 1 argued SPX was entitled to payment of the $678,000 onlywhen it had met Phase 1 requirements. It argued that those Phase 1 obligations hadnot been met and SPX had never assisted with the further six months optimisation withthe aim of increasing the capacity of the plant to 4 mt/hr.[509] Held: SPX had met the Phase 1 requirements. In the circumstances, underPhase 3 it was required only to assist with optimising performance of the plant at suchlevels as had been achieved with Phase 1. For SPX to do that, Gas 1 had to make theplant available to it to do so, and had to have the plant producing nutritionals ratherthan WMP. Gas 1 had not done what was required of it to enable SPX to meet anyobligations it had in this regard. Gas 1 had also waived the need for SPX to providethis assistance through its commitment to the new production schedule, its decision tostay on WMP and the sale of the plant to Danone. To the extent satisfactorycompletion of Phase 3 tests might have been required as a condition for the Phase 3payment, the terms of the contract could be applied so that any such tests were deemedto be satisfied.Phase 4[510] The Phase 4 payment of $2,500,000 was to be made six months after SPX'sperformance of its Phase 3 obligations. Gas 1 argued that SPX had never done whatwas required under Phase 3 so SPX was not entitled to the Phase 4 payment.[511] Held: Gas 1 had waived the need for SPX to carry out further Phase 3optimisation. With settlement of the sale to Danone on 31 July 2014, nothing furthercould be required of SPX with regard to such optimisation. Accordingly, the Phase 4payment had to be made to SPX by 31 January 2015 at the latest.Reasonable adjustments[512] With regard to all the Phases 1 to 4 payments, SPX claimed that Gas 1 requiredSPX to work with it on a new production schedule at the beginning of season 2. Thisprevented SPX from carrying out the Phase 1 tests as originally envisaged.Recognising this and in return for SPX's cooperation, Gas 1 agreed it would makereasonable adjustments to the payment schedule.[513] Gas 1 said that any such agreement was not intended to be legally binding andits only commitment had been to negotiate over such terms.[514] Held: In all the circumstances, there was an agreement to agree on reasonableadjustments. There was an intention to be bound by such an agreement. In theparticular circumstances, with the Court being able to have regard to all the contractualarrangements that had been made between the parties and the full matrix of facts, itwas appropriate for the Court to give effect to the agreement reached by implying therevised terms for payment which were reasonable. The Court implied terms thatrequired Gas 1 to make each of the Phases 1 to 4 payments as set out above, which ithad failed to do.Conclusion on SPX's claim[515] SPX was accordingly entitled to judgment against Gas 1 in the sum of$4,512,661 plus GST.Performance Bond[516] It was a term of the original contract that SPX provide a performance bondsecuring any obligations it might have had to Gas 1 for any non-performance on itspart of the contract between the parties. It had been entitled to the release of that bondas at 24 November 2013. Gas 1 had refused to make this possible when asked to doso on 20 December 2013.[517] Held: Gardians was ordered to deliver up the required documents to SPX toenable it to obtain the release of this bond. SPX was also entitled to judgment for theinterest it had paid for that bond in the period after 20 December 2013.Gas 1's claimsGas 1's claim for misrepresentation[518] Gas 1 claimed $2,147,200 under the Fair Trading Act on the basis that, withthe March 2013 settlement, it had been induced to give up an entitlement to delaydamages of $2,147,200 through a representation from SPX that the plant would havethe capacity to produce powder at the rate of 4 mt/hr.[519] Held: There was no misrepresentation as alleged. SPX had said it would workwith Gas 1 to enable the plant to process 4 mt/hr but this was on a best endeavoursbasis only and that increase was likely to be achieved only with significant furthercapital investment in the plant by Gas 1. Gas 1 has not proved that suchrepresentations, as were made, were untrue. Gas 1 could not have relied on themisrepresentation it alleged in entering into the March 2013 settlement. Even if it had,it had not proved that it had suffered any loss as a result. It would not necessarily havebeen entitled to delay damages. In season 2, the plant had processed all the milk thatwas available to it. Gas 1 had not attempted or done anything to increase the capacityof the plant beyond 3.41 mt/hr. It had sold the plant in 2014 without there being anyevidence that the price obtained for the plant was less because of its then outputcapacity.Gas 1's claim for wage and salary costs incurred in having plant perform at therequired level[520] Gas 1 claimed $105,600 for additional wage and salary costs it had incurredduring season 2 in working on the plant to have it perform at a level that SPX wascontractually required to achieve.[521] Held: At the beginning of season 2, SPX had shown the plant was capable ofperforming at the level required of it, both in terms of quantity and the quality ofpowder produced. For nearly all of season 2, after SPX had left the plant, Gas 1 hadit producing WMP rather than nutritionals so there was little opportunity to work onfurther optimisation. Gas 1 agreed to sell the plant to Danone at the end of April and,from then on, was primarily working with Danone to ensure the plant was capable ofproducing the powder required by Danone. Gas 1 had not proved that it had incurredthe claimed costs in remedying shortcomings in SPX's performance.Gas 1's claim for additional cleaning costs[522] Gas 1 claimed $12,000 for additional cleaning costs incurred as a result ofdefects in the plant.[523] Held: Gas 1 had not proved there were such defects. Rather, it complainedthere was an aspect of the plant which could have been designed better but the plantwas as it had contracted for and as it had taken over at the end of October 2012. Anycosts incurred by Gas 1 in this regard were not the result of any breach of contract onthe part of SPX.Gas 1's claim for cost of fixing construction defects[524] Of the amount Gas 1 claimed for the cost of remedying defects that were SPX'sresponsibility, SPX accepted that, when SPX left the plant in September 2013, furtherwork was still required to deal with paint and floor coating problems that had emerged.SPX and Gas 1 had agreed to defer that work so that it would not interfere withproduction in season 2. SPX accepted that the work was nevertheless still outstandingand agreed that it should be brought into account against SPX's claims to the extent of$65,339.Costs and interest[525] The Court reserved issues as to interest and costs for further consideration.Conclusion[526] Gardians is now named Gas 1 Limited. There is judgment for SPX FlowTechnology New Zealand Limited against Gas 1 Limited on both the claims andcounterclaims in the sum of $4,512,661 plus GST.[527] I make an order requiring Gas 1 Limited to issue the performance certificatereferred to in FIDIC as at 20 December 2013 and a further order requiring Gas 1Limited to forthwith return the performance security referred to in FIDIC to SPX FlowTechnology New Zealand Limited.[528] Leave is reserved to SPX to seek any further orders that may be required togive effect to this judgment.[529] Issues as to interest and costs are reserved. If the parties are able to resolvethese by agreement, a memorandum is to be filed within four weeks as to the amountsfor which judgment is to be given. If no such agreement is reached, SPX is to file amemorandum within six weeks as to what it seeks. Gas 1 is to file a memorandum inresponse within eight weeks. Unless either party indicates they seek to be heardfurther in relation to this matter, I will deal with interest and costs on the basis of suchmemoranda.Solicitors:DLA Piper, AucklandH McIntosh, Barrister, WellingtonVan Aart Sycamore, Dunedin.