Supreme Court New South Wales

• Medium Neutral Citation: CH2M Hill v State of NSW [2012] NSWSC 963
• Hearing dates: 03/07/2012, 04/07/2012, 05/07/2012, 09/07/2012, 10/07/2012, 12/07/2012, 16/07/2012, 17/07/2012,18/07/2012, 19/07/2012, 24/07/2012, 01/08/2012, 02/08/2012; further written submissions received 06/08/2012, 08/08/2012, 09/08/2012.
• Decision date: 24 August 2012
• Jurisdiction: Equity Division - Technology and Construction List
• Before: McDougall J

Decision

Judgment for defendant with costs.

• Catchwords: [CONTRACT] - building and construction - whether defendants breached contractual duty of care - whether breach of specific design criteria - whether defendants design of the works was in accordance with best engineering practices - whether defendant complied with contractual duty of care - whether defendant engaged in misleading and deceptive conduct by representing it would provide design services properly - whether rectification works unreasonable.; [EQUITY] - assignments - whether valid assignment - whether genuine commercial interest.; [DAMAGES] - contract - calculation of indirect costs - whether plaintiff is entitled to recover damages for corporate overheads - whether assessment of loss includes rectification works.; [TORTS] - duty of care - whether defendant owed the plaintiff a duty of care - whether duty of care more extensive than the obligations under the express retainer.; [PROCEDURE] - application for leave to amend - whether amendment propounded was so deficient as to be embarrassing - whether proposed pleading is likely to cause significant prejudice.
• Legislation Cited: Law Reform (Miscellaneous Provisions) Amendment Act 2000 (NSW); Civil Procedure Act 2005 (NSW); Practice Note SC Eq 3
• Cases Cited: AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No.3) [2008] VSC 315; Astley v Austrust Limited (1999) 197 CLR 1); Banabelle Electrical v State of New South Wales [2005] NSWSC 714; Bulk Materials (Coal Handling) Pty Ltd v Compressed Air and Packaging Systems (NSW) Pty Ltd (1997) 14 BCL 109; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Pty Ltd [2008] NSWCA 243; Commonwealth Bank of Australia v Hamilton [2012] NSWSC 242; Equuscorp Pty Ltd v Haxton (2012) 86 ALJR 296; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; HSD Co Pty Ltd v Masu Financial Management Pty Ltd [2008] NSWSC 1279; Jones v Dunkel (1959) 101 CLR 298; Ucak v Avante Developments [2007] NSWSC 367; Thiess Watkins White Constructions Ltd v The Commonwealth (1992) 14 BCL 61
• Texts Cited: Proportionate Liability in Construction Litigation" (2006) 22 BCL 394
• Category: Principal judgment
• Parties: CH2M Hill Australia Pty Limited (Plaintiff); State of New South Wales (Defendant)
• Representation: Counsel: M Christie SC / L Shipway (Plaintiff); J Simpkins SC / D Talintyre (Defendant); Solicitors: Norton Rose (Plaintiff); Clayton Utz (Defendant)
• File Number(s): 2009/326148

Judgment

1 HIS HONOUR: In July 2004, Sydney Water Corporation (Sydney Water) made a "design and construct" agreement (the head contract) with Barclay Mowlem Construction Limited (BM) and CH2M Hill Australia Pty Limited (CH2M) in joint venture. The joint venture was known as CHBM Water, and I will refer to it in these reasons as "the joint venture" or "CHBM". Under the contract, CHBM was required to design and construct an upgrade of Sydney Water's sewerage treatment plant facility (STP) at West Camden. The project was often referred to (inevitably and not inappropriately) as the WC project.

2 On 1 March 2005, CHBM contracted (the design contract) with what was then the Department of Commerce of the State of New South Wales (DOC), that DOC would supply design services in relation to three earthen lagoons that formed part of the STP upgrade. DOC provided a design in which the lagoons were lined with a geosynthetic clay liner (GCL) overlaid for protection by reinforced concrete panels.

3 In February 2007, following heavy rains earlier that month, the lagoons suffered significant damage. CHBM alleged that the damage occurred because of deficiencies in the design provided by DOC. DOC says that its design was adequate, and that the damage occurred because of deficiencies in construction.

4 CHBM decided to rebuild the lagoons using a different design, supplied by Parsons Brinckerhoff Australia. There is a dispute as to the rebuilding. DOC says that the damage sustained in February 2007 could have been repaired, adequately, short of rebuilding. CHBM took the view, and CH2M now says, that rebuilding was necessary.

5 In December 2009, BM assigned to CH2M (the assignment) all its right in claims against DOC arising under the design contract.

6 CH2M sues the State of New South Wales to recover damages for what it says are DOC's breach of express and implied obligations under the design contract, for breach of alleged common law duties of care (including an alleged duty to warn of issues affecting the longevity of the works) and for misleading or deceptive conduct. The claim raises not only the failure of the lagoons in February 2007, but also what are said to have been inherent deficiencies in DOC's design that meant, according to CH2M, that the lagoons would not have performed as required over their design life of 50 years, thus justifying the decision to rebuild.

The real issues in dispute

The (agreed) statement of issues

7 At the start of the hearing, Mr Simpkins of Senior Counsel, who appeared with Mr Talintyre of counsel for DOC, provided a statement of what he said (then) were the real issues in dispute. Mr Christie of Senior Counsel, who appeared with Mr Shipway of counsel for CH2M, agreed that those were the real issues arising on the "pleadings". I set out, with some minor and insubstantial amendments, that statement of issues:

Breach of contract

1. Whether the terms pleaded at paragraphs C7 and C8 of the Technology and Construction List Statement [TCLS] were implied terms of the contract made with the Defendant on 1 March 2005 [the Contract].

2. Whether as designed, the Tanks (as defined in the TCLS) did not have a design life of 50 years because:-

(a) The Embankments were liable to become saturated with water or other liquid;

(b) Water or other liquid was liable to collect in the interface between the Embankment and the Bentofix liner;

(c) Voids were likely to form between the Embankment and the Bentofix liner, and any such voids would facilitate the collection of water at the interface and the entry of water into the Embankments;

(d) When the Embankments were saturated with water or other liquid, or when water or other liquid was present in the interface between the Embankment and the Bentofix liner, the Embankments, the Bentofix liner and/or the concrete slabs were liable to suffer damage or destruction during normal use;

(e) The Embankments did not possess an adequate factor of safety [TCLS paragraph C13].

3. If so, whether the following provisions of the Contract were breached:-

(a) Clauses 2 and 3 of the Contract;

(b) Clauses 8.1, 8.4, 9.1 and Schedule 2 of Annexure B;

(c) Annexure C;

(d) Clauses 3 and 4 of Annexure D;

(e) An implied term that the Defendant would provide a design that was fit in all respects for its intended purpose.

4. Whether the design of the Tanks failed to accord with best engineering principles and practices in that:-

(a) The Defendant failed to undertake an appropriate geotechnical analysis;

(b) The Defendant failed to take account of, or include measures to prevent, the formation of voids between the fill in the Embankments and the Bentofix;

(c) The Defendant failed to take account of the potential sources and behaviour of water or other liquid and the manner in which it might interact with or affect the Tanks or the Embankments;

(d) The Defendant failed to take adequate account of or include adequate measures to prevent the entry or accumulation of water or other liquid in the Embankments or in the interface between the Bentofix liner and the Embankments;

(e) The Defendant failed to include adequate measures to drain or otherwise remove water or other liquid that might accumulate:

(i) In the Embankments;

(ii) At the interface between the Embankments and the Bentofix;

(f) The Defendant failed to specify an appropriate method for installation of the Bentofix;

(g) The Embankments had a factor of safety of less than 1.5 for a permanent case and less than 1.3 for a temporary case;

(h) The Defendant failed to provide an appropriate earthworks specification [TCLS paragraph C16].

5. Whether the drawings and specifications provided by the Defendant failed to contain adequate detail of drainage requirements during and after construction [TCLS paragraph C17].

6. If either or both 4 and 5 are answered in the affirmative, whether the following provisions of the Contract were breached:-

(a) Clauses 2 and 3 of the Contract;

(b) Clauses 8.1, 8.4, 9.1 and Schedule 2 of Annexure B;

(c) Annexure C;

(d) Clauses 3 and 4 of Annexure D;

(e) An implied term that the Defendant would provide a design that was fit in all respects for its intended purpose.

7. Whether the absence of a leachate collection system from the design was a breach of:-

(a) Clauses 2 and 3 of the Contract;

(b) Clauses 8.1, 8.4, 9.1 and Schedule 2 of Annexure B;

(c) Annexure C;

(d) Clauses 3 and 4 of Annexure D;

(e) An implied term that the Defendant would provide a design that was fit in all respects for its intended purpose[TCLS paragraph C19; Technology and Construction List Response (TCLR) paragraph 6(z), (aa), (bb) (cc) (dd) and (ee)].

8. Whether tanks constructed according to the design could not have been emptied temporarily in order to be taken off-line for maintenance without breaching the applicable performance requirements [TCLS paragraph C21].

9. If so, whether the following provisions of the Contract were breached:-

(a) Clauses 2 and 3 of the Contract;

(b) Clauses 8.1, 8.4, 9.1 and Schedule 2 of Annexure B;

(c) Annexure C;

(d) Clauses 3 and 4 of Annexure D;

(e) An implied term that the Defendant would provide a design that was fit in all respects for its intended purpose.

10. Whether tanks constructed according to the design would have allowed sewerage to enter the groundwater beneath the site and escape the bounds of the site [TCLS paragraph C23]

11. If so, whether the following provisions of the Contract were breached:-

(a) Clauses 2 and 3 of the Contract;

(b) Clauses 8.1, 8.4, 9.1 and Schedule 2 of Annexure B;

(c) Annexure C;

(d) Clauses 3 and 4 of Annexure D;

(e) An implied term that the Defendant would provide a design that was fit in all respects for its intended purpose.

12. Whether the Defendant failed to give notice immediately to the Joint Venture upon discovering the presence of errors, omissions or defects in documents prepared by it [TCLS paragraph 31].

13. If so, whether the Defendant breached clause 9.5 of Annexure B of the Contract.

14. Whether the Defendant:-

(a) Failed to ensure that its design for the tanks was not susceptible to damage or destruction during the course of construction;

(b) Provided a design for the tanks that was susceptible to damage or destruction during the course of construction;

(c) Failed to warn the Joint Venture of the risk of damage to or destruction of the tanks during construction or of appropriate measures to minimise that risk [TCLS paragraphs C33 and 35].

15. If so, whether the Defendant beach:-

(a) Clauses 8.1 and 9.5 of Annexure B;

(b) The implied term pleaded at paragraph C8.

16. Whether the Plaintiff constructed the tanks in reliance upon, and according to, the Design [TCLS paragraph C37].

17. Whether in consequence of the breaches of the Contract (or any of them):-

(a) The tanks were defective;

(b) The Tanks were not fit for purpose;

(c) The Plaintiff was delayed and disrupted in completing the tanks [TCLS paragraph C38].

18. Whether on 11 and 12 February 2007 rainfall occurred which, by reason of defects in the design of the tanks, destroyed them or rendered them unusable [TCLS paragraph C44].

19. Whether any breach of the Contract caused the Plaintiff and, and if so what, loss and damage [TCLS paragraphs C47 to C53; TCLR paragraphs 13(e), 13(f), 13(g), 13(h), 13(i), 13(n), 16(a), 16(b), 16(d), 17(d), 17(e), 17(f), 17(g), 17(h), 17(i), 31, 38(a), 38(b), 47, 48].

Negligence

20. Whether the Defendant owed the Plaintiff a duty of care:-

(a) To provide a design that contained no material defects and was fit for purpose;

(b) To provide a design that would satisfy the requirements imposed upon the Plaintiff by the Head Contract and would not cause the Plaintiff to breach any of the requirements of the Head Contract;

(c) To provide a design that would not cause the Plaintiff to suffer loss and damage if and when the Plaintiff built the tanks according to the Design;

(d) When advised by SWC or the Joint Venture that the defects existed or might exist in the tanks arising from defects in the design to promptly carry our appropriate enquiries and assist the Plaintiff to eliminate the defects or reduce them to an acceptable level;

(e) To provide a design for the tanks that ensured that they were not susceptible to damage or destruction during the course of construction;

(f) To warn the Joint Venture with all due expedition of any material risk of damage or destruction during construction and advise of appropriate steps to minimise it [TCLS paragraphs C56 and C57].

21. Whether the Defendant breached such duties (if owed) or any duty to provide the Services with due professional skill and care [TCLS paragraphs C58 to C61].

22. Whether any breach of such duty or duties caused the Plaintiff any, and if so what, loss and damage [TCLS paragraphs C63 to C65; ; TCLR paragraphs 13(e), 13(f), 13(g), 13(h), 13(i), 13(n), 16(a), 16(b), 16(d), 17(d), 17(e), 17(f), 17(g), 17(h), 17(i), 31, 38(a), 38(b), 47, 48].

Misleading and deceptive conduct

23. Whether the Defendant made the representations pleaded at paragraph C66 of any of them [TCLS paragraph C66].

24. Whether the representations, if made, were misleading and deceptive.

25. Whether any of the representations, if made, were relied upon by the Plaintiff.

26. Whether any such conduct caused the Plaintiff and, and if so what, loss and damage [TCLS paragraph C69; ; TCLR paragraphs 13(e), 13(f), 13(g), 13(h), 13(i), 13(n), 16(a), 16(b), 16(d), 17(d), 17(e), 17(f), 17(g), 17(h), 17(i), 31, 38(a), 38(b), 47, 48].

Assignment

27. What is the legal effect of the Deed of Assignment made 23 December 2009 [TCLS paragraph 5].

8 It will be necessary to go to some paragraphs of the list statement, and to some provisions of the design contract, to give content to that statement. It should also be noted that there is a dispute as to the extent of the issue comprised within issue 27: the effect of the assignment. Again, it will be necessary to refer to the relevant pleadings to deal with this dispute.

The pleadings

9 As I have said, the pleaded case for CH2M alleged breaches of contract, breaches of a common law duty of care, and misleading or deceptive conduct, on the part of DOC in connection with its provision of the design. I think it is fair to say that, in final submissions, Mr Christie accepted that if his client could not make out its case based on the express terms of the contract, then it was unlikely that it could succeed on the other bases.

10 Mr Simpkins submitted, in any event, that where the parties had entered into a detailed written contract, which provided specifically for the rights and obligations of each, there was no reason for the law to impose any duty of care that went further than the express obligations imposed on DOC by the design contract.

11 It is a little difficult to understand issue 1. Paragraph 7 of CH2M's contentions allege some eleven terms of the design contract. Each of those is said to be an express term, and is particularised by reference to a specific contractual document (as one might expect, the design contract comprised a large number of different documents). It may be, although I am unsure even after final closing submissions, that the real issue is:

(1) do the terms pleaded arise on the proper construction of the particularised portion of the contract?

(2) Alternatively, what is the proper construction and operation of the terms particularised?

(3) Again alternatively, perhaps some combination of the two preceding issues.

12 Likewise, the terms pleaded in para 8, are said, in the first instance, to be express terms, and again are particularised by reference to the specific contractual documents. To the extent that the terms are express, it is possible that the issue is intended to raise the questions to which I have just referred. However, the terms are also said to be, in the alternative, implied; and (at least to as to those alleged implied terms) would give rise to the issue asserted as the first issue.

13 As to issues 2, 4, 5, 7, 8, 10, 12, 14, 16, 17, 18, 19, 20, 21, 22, 23, 26 and 27, the references to paragraphs of the pleadings is intended, as I understand it, to indicate where it is that those issues arise. It is not necessary to go to the pleadings to understand those issues.

14 As to issue 3 (and again, as to the terms of the contract referred to, by reference to paras 7 and 8 of the list statement, in issue 1): I shall return to the relevant terms of the design contract.

15 I return to issue 27, relating to the assignment.

16 Paragraph 5 of the list statement (with its particulars) alleges:

On or about 22 December 2009, BM assigned to the plaintiff all BM's right, title and interest in all claims that BM has against DOC in connection with the Contract.

Particulars

Agreement between BM and the plaintiff dated 22 December 2009.

17 Paragraph 5 of the list response (in each of its articulations, including the amended list response filed by leave on 26 July 2012) alleges, in answer, that:

The State does not admit paragraph 5 of CH2M's Contentions.

18 Paragraph 5 of the contentions is a composite allegation setting out what CH2M says is both:

(1) the making of the assignment, or the fact of its making; and

(2) the legal effect of the assignment.

19 Thus, the non-admission pleaded in reply could be taken to traverse both the fact of making the assignment and its legal effect.

20 In their final written submissions for DOC, Mr Simpkins and Mr Talintyre devoted some 26 detailed paragraphs to an attack on the validity or effect of the assignment, on a number of bases. One basis was that CH2M either did not have, or had not shown that it had (the onus resting upon it), a genuine commercial interest in the subject matter of the assignment.

21 Mr Christie protested, with some force (and some justification) that these arguments had not been flagged either by the list response or by the way in which issue 27 was stated. He submitted, correctly, that the opening submissions for DOC made no reference at all to issue 27.

22 I think that Mr Christie's submission is correct. The non-admission could be dealt with simply, by proving in a formal way the agreement to assign, and tendering a copy. Once that was done, CH2M would have satisfied its onus of showing that there had been an agreement by which, in terms, the assignment alleged was made.

23 It would then be a matter of construction of the agreement, so proved, as to whether it had the effect for which CH2M contended by para 5 of its contentions: namely, that it amounted to an assignment to CH2M of "all BM's right, title and interest in all claims that BM has against DOC in connection with the" design contract.

24 Section 56 of the Civil Procedure Act 2005 (NSW) requires parties and their legal representatives to seek to identify the real issues in dispute, and to resolve those real issues as justly, quickly and cheaply as the nature of the case allows. The days of trial by ambush, or surprise, are over. The court requires of parties and their legal representatives that they articulate fully and clearly the issues for trial. That is an essential aspect of contemporary civil litigation; and characterising the litigation as "commercial" does not alter this. See Allsop P (with whom Beazley and Campbell JJA agreed) in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Pty Ltd [2008] NSWCA 243 at [160] to [163].

25 Practice Note SC Eq 3, which deals with proceedings in the commercial list and the technology and construction list, specifies, among other things, that a defendant's contentions in its list response should "avoid formality", "admit or deny the allegations the plaintiff makes", "state the allegations the defendant makes including adequate particulars of those allegations" and "identify the legal grounds for opposite to the relief claimed".

26 In this case, para 5 of the list response neither admits or denies the allegation in question, and thus does not conform with para 11 of the practice note. Nor does it include, either by way of pleading or by way of particulars, details of the material facts underlying the arguments raised in the closing written submissions. Further, it could be said, it does not identify the legal grounds now for opposition to the relief sought, insofar as the entitlement to that relief is said to depend on the assignment.

27 I have qualified this last statement ("it could be said") because the closing submissions for DOC appear to accept (at [628]) that "CH2M was able to sue to recover for itself without any assignment". If, by that, DOC meant to concede that CH2M was entitled to full recovery of damages claimed to have been suffered by itself and BM in joint venture, then the arguments go nowhere because they do not suggest that the matters raised afford any ground of opposition to the relief claimed (by way of damages) in the summons. However, in his final oral submissions, Mr Simpkins said that no such concession was intended or made.

28 This leads to another point, which was raised with counsel in the course of submissions. BM and CH2M were joint venturers, no doubt pursuant to some form of joint venture agreement. As joint venturers, they made the head contract with Sydney Water, to carry out the STP upgrade works to Sydney Water's requirements as specified in that head contract. As joint venturers, they made the design contract with DOC, for DOC to perform the design services specified, to the standards specified, in that contract.

29 Thus, at a level of some generality at least, if by reason of DOC's breaches of its obligations under the design contract, BM and CH2M as joint venturers suffered loss under their head contract with Sydney Water, it may well be the case that in law each of them was liable to Sydney Water for the full extent of that loss (subject of course to the general principle against double recovery). Equally, it may be, each of them is entitled to recover the full amount of any losses caused by DOC (again, with the same limitation).

30 If that is the reasoning underlying the rather cryptic last sentence (of [628] of DOC's submissions), then it is a matter that can be addressed.

31 However, in my view, in circumstances where DOC had not flagged in any way the arguments as to lack of genuine commercial interest that it raises in its closing written submissions, and where CH2M has been deprived of the opportunity to meet those arguments by way of evidence, I think that the interests of justice dictate that the court should not entertain the unheralded arguments.

32 Thus, I propose to confine issue 27 to:

(1) the proper construction and effect of the assignment; and

(2) the proposition tentatively advanced at [29] above.

33 In any event, it is possible to state some fundamental issues more shortly. There are a number of specific aspects of the design provided by DOC, and the work undertaken by CHBM, that are the subject of criticism. An understanding of those specific criticisms will enable these fundamental issues to be more readily understood. To understand those criticisms, it is necessary to know a little more about the design and the works. Accordingly, I shall give what I hope is a non-contentious summary of the design provided by DOC, of the works undertaken by CHBM, and of the mechanism of the failure following the rains in February 2007, and then return to the fundamental issues of design and performance.

Factual background

34 DOC's design provided for sewage to be treated by a process known as "intermittent decanting and aeration" (IDEA). That process was to be carried out in two lagoons, known as intermittent decanting and aeration lagoons (IDALs; known respectively, as IDAL 1 and IDAL 2). The IDALs were linked to another lagoon known as the "equalisation basin" (EB).

35 For obvious reasons, it was necessary to ensure that the contents of the three lagoons could not escape into the surrounding soil. Thus, DOC specified that the lagoons should be lined with a GCL which had very low permeability. The upper surfaces of the GCL (i.e., the surfaces facing into the lagoons) were protected from damage by overlying reinforced concrete panels. Those panels were cast in situ over the GCL. The lower surfaces of the GCL were laid on the underlying earthen subgrade. The zone, or "interface", between the exterior surface of the GCL and the subgrade was referred to as, among other things, the "transmissive zone".

36 The locale where the works were carried out sloped generally from the south-west to the north-east. The lagoons were to be constructed partly in cut and partly in fill. CHBM engaged another firm of engineers to design the cut and fill operations. No criticism is made of that design.

37 It appears to be common ground that, either as a matter of design or as a matter of construction (or, perhaps, both), the entry of moisture behind the GCL (i.e., into the underlying subgrade) should be prevented so far as possible. To jump ahead for a moment: the mechanism postulated for the failure that occurred, following heavy rain in February 2007, is that water did penetrate behind the GCL, building up hydrostatic pressure which the concrete panels could not contain, and thus caused those concrete panels to heave and crack. The concrete panels were not designed or intended to restrain such forces; and in the ordinary way, if the lagoons were full, the very substantial pressure imposed by their contents on the panels and underlying lining would help to restrain movement.

38 When the failure occurred, IDAL 2 and the EB were, if not completely empty, certainly not full to their intended operating levels. However, IDAL 1 did contain water up to the lower limit (about 3.7 metres) of its operating level.

39 The design provided by DOC did not in terms provide for any seal around the perimeter around the lagoons. As I understand it, DOC says that:

(1) proper placing of the GCL (which DOC says was an aspect of construction, not of design) required the use of an "anchor trench" which would have provided perimeter sealing in any event; and

(2) once the works were completed, there would be a pavement between and around the lagoons, butting up to the concrete kerbs of the lagoons and separated from those kerbs by an expansion joint, which again would have acted as a seal.

40 Nor did DOC's design provide for any underdrainage or leachate collection system. It appears to be common ground that if underdrainage or a leachate collection system of adequate capacity had been installed, either would have operated, among other things, to collect moisture moving through the embankments and to carry it away from the lining. As I understand it, DOC says that neither underdrainage nor a leachate collection system was necessary, because:

(1) if the earthworks were properly constructed, and the GCL were properly installed using an anchor trench as recommended by the manufacturer, there would be minimal water entry into the earthen embankments;

(2) when the works were completed and the pavements were constructed as I have indicated, this would further minimise the entry of moisture;

(3) in any event, there was minimal risk of accumulation of groundwater because of the location of the site and its height above the permanent water table;

(4) it was CHBM's responsibility, as contractor, to take appropriate measures to protect the works from rain and stormwater during construction;

(5) as to leachate: the permeability of the GCL (if properly installed) was so low that the transmission of liquids from the lagoons through the GCL to the earthen embankments would be minimal, and anything that did permeate would drain naturally; and

(6) further, and in any event, the underlying rock was heavily fractured, and any moisture collecting in the embankments would drain away naturally.

41 The GCL that was chosen, known as Bentofix X 2000, comprised a layer of bentonite clay sandwiched between two thin lining membranes. Bentonite is a form of clay which, when wetted, expands substantially. When such a GCL is properly laid, the wetted and swollen bentonite forms a barrier which is highly impermeable to the transmission of moisture. DOC had used the basic design in other projects which, so far as the evidence shows (and it will be necessary to return to the sufficiency of this evidence), were operating in a satisfactory manner.

42 Because Bentofix GCL is a flexible membrane, the effectiveness of which depends very much on its integrity, care is required when it is being placed and when (as here) it is being overlain by cast in situ concrete panels. It is important that the GCL be placed according to the manufacturer's recommendations, and that it not move until the concrete has set. One of the recommended ways of ensuring that the GCL does not move (adapted to the facts of this case) is to construct an anchor trench around the perimeter of the embankments. The upper ends of the GCL panels that line the embankments are placed in the anchor trench, and the anchor trench is then backfilled. Although the reason for doing this is to ensure that the GCL does not move during the construction process, the anchor trench will also act as a barrier against the entry of moisture into the embankment behind the GCL.

43 The design provided by DOC did not specify that an anchor trench be used. It stated that the GCL should be laid in accordance with the manufacturer's requirements. It is common ground that those requirements indicated the use of an anchor trench. However, CHBM did not construct an anchor trench. Instead, at the top of the embankments, it drove spikes through the GCL, with a view to securing it while the processes of construction were carried through to completion.

44 CH2M says that DOC should have specified an anchor trench as part of the design. DOC says that the use of an anchor trench is a construction issue, and that it did what was required by referring to the manufacturer's requirements. It says, further, that in any event it was poor workmanship to secure the GCL by spiking it in the way that CHBM did.

45 DOC says, further, that CHBM failed adequately (in accordance with the relevant specification) to compact the earthen embankments, and to provide surface drainage during construction so as to keep surface water away from the GCL.

46 There is another issue relating to design. This issue arises out of the extensive expert investigations that have been conducted. CH2M and DOC each retained an expert in the field of GCLs: Professor Carl H Benson (retained by CH2M) and Professor Kerry Rowe (retained by DOC). It appears to be common ground that those gentleman are, if not the world's leading experts in the field, then certainly within the class of leading experts in that field. Professors Benson and Rowe produced individual reports, and collaborated to produce joint reports.

47 Professor Benson postulated a mechanism known as "cation exchange". Bentonite is a clay, the principal component of which is a compound known as sodium bentonite. As its name suggests, that is a compound where the positive ions (or cations) are sodium ions. It appears to be recognised that if liquids containing calcium (or for that matter magnesium) cations come into contact with sodium bentonite, the calcium ions (for simplicity, I will concentrate on those only) will preferentially replace the sodium ions, thus converting the compound to calcium bentonite. Calcium bentonite is far less reactive than sodium bentonite: it does not swell so much in the presence of moisture.

48 Thus, if the process of cation exchange occurs to any substantial extent, the GCL will become more permeable because the highly reactive sodium bentonite will be converted to less reactive calcium bentonite, thus reducing the capacity of the composite liner to swell in the presence of moisture. As I have said already, it is the ability of the composite liner to swell in the presence of moisture that is responsible for its low permeability.

49 Professor Benson was of the view that the design, requiring the placement of wet concrete over the GCL liner, would produce an environment that was rich in calcium cations. Thus, in his view, it would facilitate cation exchange and would necessarily diminish the impermeability (or increase the permeability) of the GCL. In short, in Professor Benson's view, the design was such that, necessarily, the impermeability of the GCL would be compromised. Professor Rowe accepted that the process of cation exchange would be likely to occur, and that to the extent that it did, it would compromise the impermeability of the GCL. However, he differed from Professor Benson as to the extent to which this would happen, and, in consequence, as to its significance.

50 Associated with the problem of cation exchange is the question of "wet/dry cycling". Professors Benson and Rowe agreed that if the sodium bentonite in the GCL were alternately wetted and dried out, it would (during and as a result of the drying process) develop cracks and fissures that would not be completely closed when it was next wetted. The presence of those cracks and fissures would further compromise the impermeability of the GCL.

51 The operation of the IDALs required that, most of the time, they would be kept filled to within their operating levels of 3.7 metres to 4.7 metres. Professors Benson and Rowe agreed that such drying out as occurred when the level fluctuated between those limits was unlikely to cause problems. However, the performance criteria required by Sydney Water to be met stipulated that either of the IDALs should be able to be taken out of service, for up to two weeks, for maintenance, without affecting the functioning of the plant overall. It was Professor Benson's view (and I do not think that Professor Rowe controverted this) that if an IDAL were emptied accordingly, for two weeks, during a period of warm weather, then there was a real likelihood that the bentonite in the GCL would dry out, and thus give rise to the problem of cracking or fissuring.

52 As to the EB: it was not intended to be kept, more or less permanently, full of liquid between specified levels. Thus, it might be thought, the problem of wet/dry cycling might affect the EB in any event.

53 For present purposes, the significance of the debate relates to the design. CH2M says that the process of cation exchange was sufficiently well known, when the design was prepared, to suggest that a design involving the placing of wet concrete over a GCL containing sodium bentonite would have the risk of compromising the impermeability of the GCL. Thus, it says, the design was inherently defective. This is one of the factual bases for CH2M's "failure to warn" case.

54 DOC challenges the proposition that the process of cation exchange was sufficiently well known, in 2004 and following when its design was produced, to constitute a danger that a competent designer should take into account in preparing a design. It says, in any event (based on Professor Rowe's evidence and on its own practical experience), that to the extent that process of cation exchange occurred, or might occur, it did not damage the impermeability of the GCL sufficiently to explain the failure that occurred following the February rains, and would not affect adversely the long-term serviceability of the lagoons.

55 I interpose to note that, on CH2M's case, the problem of cation exchange (either alone or in conjunction with wet/dry cycling) would have affected the long term functionality of the lagoons to a point where they were unlikely to meet what, it said, was Sydney Water's requirement for a 50 year lifespan. That is one of the reasons why, after the failure in February 2007, CHBM decided in any event to rebuild the works completely to a different design.

56 DOC points to other designs that it prepared, using concrete panels cast in situ over GCL liners, which it says were properly constructed, have not failed and are showing no signs of failure.

Some fundamental issues as to design and construction

57 Stripping aside the verbiage of the pleadings, the fundamental alleged defects in the design are:

(1) failure to specify an anchor trench or some other effective form of perimeter seal;

(2) failure to specify underdrainage of some form; and

(3) failure to guard against the risk that the GCL could not perform its function, to the required standard, because of the process of cation exchange.

58 In addition, CH2M alleges that DOC failed to give any, let alone any proper, warning to CHBM of the risk that the works might fail, or that the works constructed according to DOC's design might not see out their expected lifespan. The warning issue relates both to the works during the course of construction and to the works when completed. It is based on the proposition that there was a high risk of, or vulnerability to, instability, because of the likelihood that excessive moisture would permeate and render unstable the earthworks.

59 The fundamental construction defects alleged against CHBM (and, thus, against CH2M) are:

(1) failure to install the GCL using an anchor trench, thus facilitating the entry of moisture behind the GCL;

(2) securing the GCL using spikes, thus permitting moisture to enter and move through the bentonite layer;

(3) failure to construct and maintain adequate surface drainage during the construction process, thus allowing water to collect and enter into the embankments:

(4) failure to compact the earthworks properly, thus facilitating the movement of water through the embankments; and

(5) failure to protect the GCL from the elements after it was laid and before the protective concrete panels were poured.

60 For the purposes of analysis, I propose to concentrate on those fundamental issues relating to design and construction.

The application for leave to amend

61 It will be noted that the statement of issues propounded by DOC and accepted by CH2M contained no reference to proportionate liability. This was raised in the course of Mr Simpkins' opening. He said that he would give it consideration.

62 That consideration matured into an application for leave to amend which was notified in the evening of Friday, 6 July 2012 (a non-sitting day: as were all Fridays of the weeks allocated for hearing, at the request of the parties). The application was raised in court on Monday, 9 July 2012 (the fourth day of hearing) and was by agreement postponed until the evidence was finalised.

63 At the conclusion of the oral evidence (lay and expert), debate on the application took place: on the 11th day of the hearing, 24 July 2012. By then, the proposed amendment, in so far as it sought to raise proportionate liability, had been somewhat refined.

64 The contentious issue of proportionate liability was sought to be raised by para 71 of the amended list response:

71. In further answer to the whole of CH2M's Contentions the State says, and it is the fact that:-

(a) The claims made by CH2M are apportionable claims within the meaning of section 34(1) of

the Civil Liability Act 2002 [the CLA] and 87 CB of the Trade Practices Act 1974 [the TPA];

(b) If the Joint Venture suffered any loss or damage, by reason of the matters pleaded and

particularised herein BM was a concurrent wrongdoer in respect of any loss or damage

suffered by CH2M Hill and CH2M Hill was a concurrent wrongdoer in respect of any loss or

damage suffered by BM in that they each owed to each other a duty to exercise all due care

skill and diligence in and about the performance of the works;

(c) In the premises, if the State has any liability to the Joint Venture, its liability is limited by

section 35 of the CLA and sections 87CD and 82(1)(b)of the TPA to an amount reflecting

the proportion of the loss or damage that the Court considers just having regard to the extent

of the State's responsibility for the damage or loss, after excluding the proportion of the

damage in relation to which there has been contributory negligence.

65 It will be seen that the thesis proposed by the amendment was that each of BM and CH2M owed the other, and breached, a duty to exercise reasonable care in relation to the performance of the works under the head contract (a broad but sufficient paraphrase of para 71(b)). Thus, DOC sought to allege, BM was a concurrent wrongdoer in respect of any loss or damage sustained by CH2M; and CH2M was, likewise, a concurrent wrongdoer in respect of any damage sustained by BM.

66 The basis on which the foundational "duty" was alleged to exist was not made clear either in the original version of para 71 or in the final version on which DOC moved.

67 It may be assumed that the joint venture relationship between BM and CH2M was governed by some contract. One would expect such a contract, made between substantial and sophisticated parties in the field of civil engineering and infrastructure works, to contain provisions that each of them thought necessary to protect itself against the risk of default (of the kind raised in para 71) on the part of the other. Thus, one would expect any "duty", in respect of such default, to be a matter of contract.

68 In those circumstances, it is very difficult to see why the law would impose some common law duty of care going beyond whatever duties were imposed by the joint venture agreement.

69 DOC did not allege a duty of care imposed by the joint venture agreement, nor did it refer to that agreement, so as (for example) to allege that there were common law duties of care corresponding to whatever contractual duties, in respect of performance of works by the joint venture, each of BM and CH2M undertook to the other.

70 Paragraph 71 provides no hint of the material facts which might be relied upon to support the proposition that each of the joint venturers owed to the other some duty of the kind sought to be alleged by it.

71 Writing extracurially, I have said that a defendant pleading a proportionate liability defence should disclose (in relation to the alleged concurrent wrongdoer) the cause of action and damage "in at least as detailed a manner as would be required of any initiating process for such a cause of action". Thus, among other things, I said that it was necessary for the basis of the cause of action to be identified: by reference to some underlying contract, or by reference to (for example) a common law duty of care. See "Proportionate Liability in Construction Litigation" (2006) 22 BCL 394 at 400. Similar propositions have been advanced, with greater authority, by judges at first instance in many cases. I refer, by way of example only, to the decision of Rothman J in HSD Co Pty Ltd v Masu Financial Management Pty Ltd [2008] NSWSC 1279 and the decision of Hammerschlag J in Ucak v Avante Developments [2007] NSWSC 367.

72 On any view, para 71 does not achieve that degree of specificity. As I have said, no hint is given of the basis on which the "duty" is said to arise. It cannot be said that para 71 exposes, with appropriate "clarity, precision and openness" the issues that CH2M would have to face. (The quotation comes from the reasons of Allsop P in Baulderstone Hornibrook Engineering v Gordian Runoff, cited at [24] above).

73 Thus, in my view, the proposed pleading was likely to cause significant prejudice to CH2M. That prejudice would arise, if leave to amend were granted, because CH2M would be left to defend a case, the factual basis of which was entirely unpleaded, in circumstances where (no doubt) DOC would seek to support its case by reference to whatever in the evidence might be thought to lend it some aid.

74 Further, it is in my view not without significance that, with the agreement of DOC, debate on the application for leave to amend was postponed until after the oral evidence for each party had been completed. I accept that if leave had been granted, it would have been open to CH2M to apply for some adjournment, and to reopen its case. But even if such an application were made, and granted, there would be delay and expense.

75 It could hardly be said that DOC pleaded, as it did, on the basis of some inadequate understanding of the legal position, or of the defences that might be available to it. The arguments that hitherto it had chosen to raise were:

(1) that its design was not in any relevant way defective;

(2) in any event, even if its design were in some way defective, the sole cause of loss was defective construction undertaken by BM and CH2M in joint venture; and

(3) in the further alternative, any damages for which it might be liable should be reduced by reason of contributory negligence on the part of BM and CH2M.

76 The considered decision (as I take it to be) of DOC to rest its defence on those bases is reflected in the statement of issues propounded by it at the start of the hearing. That statement of issues does not suggest any question of proportionate liability.

77 In substance, there were two distinct reasons for refusing the application for leave to amend. The first was that the amendment propounded was so deficient as to be embarrassing, and thus not one that the court should sanction by leave. The second was that even if some more suitable amendment might have been propounded (and the question of insufficiency of the pleading was raised when the topic of amendment was first pressed in court on 9 July 2012), the kinds of prejudice that would be caused to CH2M by granting the amendment, at the time and in the circumstances when it was pressed, were sufficiently substantial as, of themselves, to justify the decision to refuse leave to amend.

78 It may be accepted that refusal of the application could leave DOC in a position of some disadvantage, if the first and second of its arguments summarised at [75] are not accepted. That disadvantage would be intensified if the court were to conclude that contributory negligence was not available to reduce any award for damages for breach of contract, because any breach established was not of a term conditioned upon the use of reasonable care. (See the Law Reform (Miscellaneous Provisions) Amendment Act 2000 (NSW), and in particular s 9 of schedule 1 to that Act; and cases such as Commonwealth Bank of Australia v Hamilton [2012] NSWSC 242 at [324] to [331]. If the statute did not apply, then the common law position - that contributory negligence is not available - would apply: Astley v Austrust Limited (1999) 197 CLR 1).)

79 Accepting, as I do, that refusal of leave to amend to raise proportionate liability may occasion real disadvantage to DOC, that nonetheless seems to me to be a necessary result of the way in which, with advice of the highest quality, it conducted the proceedings right up until the time of opening submissions.

80 In those circumstances, balancing the competing prejudices as best I can and taking into account the other factors that I have mentioned, I concluded that the application for leave to amend, in so far as it sought to raise proportionate liability in the manner propounded by para 71 of the draft amended list response, should be refused.

Relevant terms of the design contract

81 The design contract is documented in a "consultancy agreement" made on 1 March 2005. I do not propose to set out all the provisions of that agreement, and of the documents called up by or incorporated into it, that are referred to in the pleadings. Instead, I propose to focus on the specific provisions that were the subject of the parties' closing submissions.

82 DOC began to provide consultancy services well before 1 March 2005. However, nothing turns on this; it is common ground that, whenever the services may have been provided, their provision was governed by the terms of the design contract, as properly construed.

83 The background to the consultancy agreement was summarised in the recitals:

A. CHBM Water has entered into an agreement with SYDNEY WATER CORPORATION (hereinafter referred to as "the Principle") with respect to the Project. The nature of the agreement is set out in Annexure A.

B. The Consultant has held out and represented to CHBM Water that it has the necessary skills, experience, resources and professional competence to carry out and successfully complete certain Services in a timely manner in accordance with the Agreement.

C. In reliance upon the aforesaid representation of the Consultant, CHBM, Water wishes to engage the Consultant to furnish certain Services for the Project. Such services include but are not limited to those as set out in the Consultant's proposal No. 040012 dated 23rd February 2004.

D. The Consultant has agreed to accept such engagement upon and subject to the terms and conditions described and contained in this Agreement.

84 By cl 1, CHBM engaged DOC "to furnish certain Services for the Project". By cl 2, DOC warranted "that it will well and faithfully execute the Services in accordance with the Agreement".

85 Clause 4 specified the documents that should "be taken to be the Agreement" and their order of precedence. Of relevance are:

Annexure A - details of agreement;

Annexure B - general conditions of contract;

Annexure C - CHBM's standards for the Project;

Annexure D - Consultant's Services;

Annexure E - Amendments

86 Clause 8 of Annexure B (the general conditions of contract) set out DOC's obligations. Clause 8.1 is of prime importance. I set it out:

8.1 Consultant's Services

The Consultant shall provide Services pursuant to the Agreement in a proper, thorough, skilful and professional manner with all due expedition. The Consultant shall submit progressively to CHBM Water, as applicable, all documents required under the Agreement in sufficient time to enable CHBM Water and, where relevant, the Principal and Authorities to approve such documents for each phase of the Project by the Dates for Completion set out in Schedule 1 or as extended pursuant to the provisions of clause 20 hereof.

The Consultant's Services shall comply with:

The requirements of Annexure C: Brief;

All relevant Authorities, legislation, regulations and building codes;

Australian Standards;

CHBM Water's Standards for the Project as set out n Annexure D; and

The requirements of Annexure E: Consultant's Services

Without limiting the generality of the foregoing, the Consultant's Services shall provide effective, efficient and economical solutions to satisfy the performance objectives and other requirements set out in the Brief. Where appropriate, the Consultant shall provide details of alternative proposals that satisfy these objectives and requirements.

The Consultant shall ensure the adequacy of its services and shall make whatever further enquiries are necessary to satisfy this obligation and shall report to CHBM Water on any further investigations or information required which the Consultant cannot obtain from its own enquiries and which are reasonably necessary to ensure the adequacy of its Services as soon as such requirements become known to the Consultant.

Minor services not expressly mentioned which are necessary for the satisfactory completion and performance of the Services shall be carried out without adjustment to the Consultancy Fee.

87 It is common ground that there was no brief, either as Annexure C or otherwise; that CHBM's standards were annexed as C; and the consultant's services document was Annexure D.

88 Clause 2 of Annexure D (the annexure specifying the scope of services to be provided by DOC) defined the physical limits of the work. Nothing of present significance turns on that.

89 Clause 3 specified certain "Design Inputs". I set it out:

3. Design Inputs

Contract Documents (DS-304.5.9, DS-505, DS-506, DS-310, DS-1001.3,45, DS-512, DS-310, DS-311, DS-1001.6, DS-1003)

CHBM Water Tender as Consolidated

Sydney Water Corporation isolation requirements

Site visits as necessary to establish design approach

Work is to be done in accordance with DS-300, DS1001 and DS1100 and other appropriate parts of the specification and Addenda.

90 Clause 4 of that annexure specified "Tasks and Design Outputs".

91 So far as is relevant, cl 4 included the following:

The scope of work includes:

Preparation of layout drawings for IDEA and equalisation tank and pits to "Issued for Construction" status.

...

Civil and earthworks design for the IDEA tanks. Road works and landscaping will be by others.

Review of geotechnical reports and advice for additional geotechnical if required.

Structural design for IDEA and equalisation tanks and pits

Structural details for IDEA and equalisation tanks and pits

92 CH2M had pleaded that it was a term of the design contract that the design would be "fit in all respects for its intended purpose". Particulars were given of various provisions of the contract, including of the head contract; and in the alternative, the term was said to be implied.

93 DOC's pleading denied that alleged term. However, in final submissions, Mr Simpkins accepted that there would be at least an implied term of the design contract that the design to be provided by DOC pursuant to it would be fit for the purposes that it was required to serve, as those purposes had been made known to DOC. It is thus unlike necessary to consider whether (for example) some of the individual paragraphs of cl 8.1 of Annexure B on their proper construction give rise to such an obligation in any event.

94 There was little controversy as to the proper construction of cl 8.1. However, there was some controversy as to the proper construction and application of certain provisions of the various design specifications, on which CH2M relied.

95 I turn to the provisions of the design specification on which CH2M placed particular reliance.

96 DS-304.5.9 dealt with "operational security requirements for the" IDALs. It stated:

DS-304.5.9 Page 30

Clarification to the operational security requirements for the bioreactors

Line 1399 Add 2

Delete: "The new IDEA tanks shall be designed so that one aeration tank (either the existing MLE tank or one of the new IDEA tanks) can be taken off-line for maintenance without breaching performance requirements." Replace with: "The new IDEA tanks shall be designed so that one aeration tank (either the existing MLE tank or one of the new IDEA tanks) can be taken off-line for maintenance for a period of two (2) weeks without breaching performance requirements. The load may be spread over the remaining operational units in proportion to their capacity. Such maintenance will be scheduled to avoid low operating temperatures."

97 DS-502.3, relating to the design of earthworks, stated, among other things:

DS-502.3 Design of Earthworks

Any structure, including any building, used for purposes as described anywhere in the whole of this Contract and constructed as part of the Works shall, over the design life of the Works, not suffer any deterioration other than through normal wear and tear or other means beyond the Contractor's control.

...

Design of earthworks shall be in accordance with the Specification and best engineering practices and with AS3798 and or other Australian Standard relevant to the portion of Works under consideration.

...

The Contractor shall adhere to the standard of compaction specified in the various areas and stages of the Works. Foundations are required to provide adequate structural support without excessive settlement for the various components of the Works, including pipelines.

The following details shall be amongst those included on the Contractor's drawings, and/or contained in a separate specification prepared by the Contractor for construction of the Works:

...

(c) Drainage requirements during and after construction.

98 DS-504.4 required the installation of a leachate collection system. It is unnecessary to set out this part of the specification, because it was common ground that Sydney Water had agreed to the deletion of this requirement from the head contract; and, hence, from the ambit from the design of the design contract.

99 DS-1102 dealt with "design life". It provided:

DS-1102 DESIGN LIFE

All equipment shall be designed and constructed to have a working life of at least 15 years, working 24 hours a day, 365 days a year. Valves and pipework shall be designed and constructed of materials that shall have a design life of 30 years. Structures such as concrete and steel shall be designed and constructed of materials that shall have a design life of 50 years and be maintenance free for 50 years.

Some issues as to construction of the design contract

100 It appeared to be common ground that, by reason of DS-304.5.9, DOC was made aware that its design (assuming proper construction) must enable one IDAL to be taken off line for maintenance for up to two weeks. At least implicit in this, and certainly a matter of general understanding, was that this would involve the IDALs' standing empty for most if not all of the period of maintenance.

101 I am not sure if, at the end, it was CH2M's case that DOC was obliged, as part of its earth work design obligations by reference to DS-502.3, to specify "[d]rainage requirements during and after construction".

102 There is no doubt that, to the extent that permanent drainage was required as a feature of the earthworks and other parts of DOC's design, DOC was (or would have been) required to design that permanent drainage. No doubt, that is why Mr Guy Boncardo (the principal engineer in charge of DOC's design team) specifically turned his mind to the question of underdrainage, and decided that it was not needed.

103 The question of temporary drainage during construction is governed by various provisions of the General Specification. It did not appear to be in doubt that, by reference to some of those provisions, it was CHBM's responsibility to manage surface drainage, to keep the site free of water and to repair any damage resulting from the failure to protect the works from water. Further, it appeared to be common ground between the various experts that, as a matter of construction practice, it was the responsibility of CHBM as contractor carrying out the works to manage stormwater during the course of construction. Indeed, it was CH2M's case that CHBM's site personnel had attended diligently to that task.

104 There was controversy as to the proper construction of DS-1102. Mr Christie submitted that, on its proper construction, the earthworks and their associated structures (excluding valves and pipe work) were required "to have a design life of 50 years and be maintenance free for 50 years".

105 Mr Simpkins accepted that, generally, the phrase "such as" is used to indicate that the examples following it are not exhaustive of the general case or proposition preceding it (see for example Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at [71] to [77]). But in this case, he submitted, the particular examples following that phrase were exhaustive of the preceding general proposition.

106 I do not think that this is the proper construction of DS-1102. In my view, it falls into two parts. One part (which itself is subdivided into two further parts) deals with "equipment". The other part deals with "structures". Between them, "equipment" and "structures" are exhaustive of the works to be performed under the head contract. In the context of the design contract, those two categories of works are exhaustive of the elements that were to be the subject of DOC's design.

107 The general requirement in relation to equipment is "a working life of at least 15 years, working 24 hours a day, 365 days a year". However, in the case of "valves and pipe work", there is a requirement for "a design life of 30 years".

108 It is not controversial to say that DS-1102 was intended to apply to the whole of the works to be performed by CHBM under the head contract; or that the same view of its operation applies, making appropriate changes, to the scope of services to be provided by DOC under the design contract. Thus, as having I have said, the residual category of "structures" must be taken to be everything in the works (or the relevant part of them) that is not "equipment" or "valves and pipe work" (assuming, for the moment, that the latter may or may not be a subset of the former).

109 On this basis, the requirements for a design life of, and freedom from maintenance for, 50 years would relate to everything which was not either "equipment" or "valves and pipe work". Thus, the 50 year requirements would apply, among other things, to the earthworks forming the lagoons.

Hydrostatic testing

110 There was a question as to the permissible leakage rate through the lining structure. CH2M suggested that relevant provisions were contained in:

(1) Australian Standard AS 3735 (setting out standards for concrete structures that retain liquids); and

(2) guidelines issued by the then Environmental Protection Authority for the protection of waters (the EPA Guidelines).

111 Clause DS - 505.22.3 of the design specifications required the lagoons to undergo hydrostatic testing, substantially in accordance with cl 7.3 of AS 3735, before they were put into service. In substance, that test method requires that:

(1) the lagoons be filled with clean water at the rate of 2 metres (in height) every 24 hours; and

(2) the water be retained in the lagoons for 7 days, and its level be recorded at 24 hour intervals.

112 DS - 505.22.3 (and AS 3735) required that testing be performed during still conditions.

113 If the leakage rate, as measure by that test method, exceeds what is called the "allowable leakage limit" then leaks are to be found and rectified and a further test is to be carried out.

114 The allowable leakage limit is calculated in a way that is said to make allowance for evaporation and rainfall. It is said to be, over the period of the test, 1/500 (0.002%) of the average depth of the full tank at the start of testing, or 10mm.

115 The evidence of Professors Benson and Rowe was that, for the IDALs, the allowable leakage limit could be expressed as 0.3mm per day. It is I think fair to say that this method of testing, even bearing in mind the need to allow for rainfall and evaporation, must be attended with some degree of imprecision.

116 The question of construction that was argued was whether the relevant requirements of AS 3735 applied over the life of the lagoons, or whether it was a performance criterion to be met once, and once only: before the lagoons were put into service.

117 Mr Christie submitted that if the relevant provisions of the contracts (the head contract and the design contract) were not so construed, there would be some absurd outcomes. He gave the dramatic example of a lagoon passing the test on one day and springing massive leaks the next.

118 Mr Simpkins submitted that the requirements meant what they said: that there was a one-off requirement to pass the test before the lagoons were put into service. What happened thereafter, he said, was governed by considerations of fitness for purpose (it was in this context that Mr Simpkins made the concession, as to fitness for purpose, to which I have referred at [93].)

119 In my view, it is not appropriate to construe the relevant provisions of the specification as requiring ongoing compliance with the requirements of AS 3735. To my mind, that part of the specification is intended to set a standard which must be met before the lagoons are put into service, being a standard which (one would think) the parties considered to be a sufficient assurance of satisfactory performance over the longer term.

120 The provision should not be taken in isolation. It is to be read in context with other provisions of the contracts, including the requirement that structures have a design life of, and be maintenance free for, 50 years. It is also to be read in the context that it was obvious that surrounding lands, and the environment more generally, must be protected from excessive leakage of the liquids contained in the lagoons.

121 More specifically, DS-505.22.3 appears in the specification dealing with all aspects of civil and building works. DS-505 covers "concrete structures". It sets out in detail the procedures to be followed in relation to all aspects of those parts of the works that involve concrete. In that context, DS-505.22 takes as its subject "acceptance testing".

122 DS-505.22.1 says that "[c]oncrete is considered not acceptable if the following performance requirements are not met". It would seem to follow that concrete meeting all those requirements is "acceptable". Once concrete is found, or considered, to be "acceptable", then, one might think, the work of DS-505.22 was done.

123 DS-505.22.2 sets out the "acceptance criteria" for the strength of the concrete; and likewise, rejection criteria.

124 DS-505.22.3 deals with hydrostatic testing of structures that retain liquids.

125 DS-505.22.4 deals with "surface finish"; and DS-505.22.5 requires a detailed survey to be carried out and documented of all concrete structures, with various details noted.

126 The structure of DS-505.22 generally, and of DS-505.22.3 in particular, suggest very strongly that it is concerned with establishing measures of performance that must be satisfied before the particular part of the works will be accepted.

127 There are real problems in the way of accepting Mr Christie's construction. As a matter of practicality, the only way of ensuring that the IDALs met the AS 3735 standard throughout their lives would be to empty them, clean them down, and then subject them to the test. Whilst the contracts contemplated that the IDALs might be emptied for up to two weeks for maintenance, they certainly did not indicate that, in addition, they might be emptied for at least seven days for testing. Yet unless this were done, there would be no way of knowing whether in fact the requirement would be met. Why would the parties stipulate for an ongoing standard of performance when, in practice, compliance with that standard could not be monitored effectively?

128 In my view, the proper construction of the relevant provisions, in context, is that:

(1) the lagoons were required to pass a hydrostatic test, conducted in the specified way, before they were put into service; and

(2) thereafter, and for their design lives of 50 years, they were required to be, and to remain, fit for purpose.

129 In this context, I take into account (as is clear from the documents available both to the parties and to the court) that the requirements of AS 3735 were far more stringent than the requirements of the EPA guidelines. According to Professors Benson and Rowe, the EPA guidelines would permit leakage at a rate about 50 times greater than the maximum allowable leakage rate under AS 3735. The parties (both to the head contract and to the design contract) should be taken to have been aware of these matters when they made their contracts.

130 To my mind, given that the function of the liners was to inhibit the leakage of liquids from the lagoons into the surrounding countryside with consequent environmental damage, the magnitude of the disparity between the two requirements suggests that the parties thought the more stringent requirement would provide appropriate assurance of ongoing compliance with the less stringent requirement.

131 Thus, I conclude, it was not a requirement of the design contract that the design should provide for lagoons that would at all times during their 50 year life spans meet, or be capable of meeting, the standard of impermeabilty derived by reference to AS 3735.

132 I note that the debate between the parties proceeded on the basis that the lagoons were "concrete structures" for the purposes of DS-505. However, the concrete structures involved in the lagoons were the panels cast over the GCL, and the kerbs at the crest of the lagoons. The function of the panels was to protect the GCL from damage in the ordinary course of operation of the lagoons. The function of the kerbs was to finish off the structures at ground level, and to provide constructed elements between which road pavements could be installed. The task of retaining liquids was allocated to the GCL.

133 But since the parties appeared to accept that DS-505.22.3 was relevant to the lagoons, I shall do likewise. In any event, the introductory words of the clause (which stipulate individual testing for "all liquid retaining structures, including portions of the structures"), may have the effect that the distinction, in terms of liquid retention, between GCL lining and the overlying concrete panels is irrelevant.

Evidentiary matters

Rulings on evidence

134 From time to time during the hearing, I ruled on the admissibility of evidence and indicated (with the consent of the parties) that I would give reasons later.

Mr Tozer's evidence as to the size of V drains

135 One of the matters in issue between the parties was the extent to which the works carried out by CHBM had made adequate allowance for the diversion of surface water away from the works. CH2M's case was that V drains (sometimes called "swales") had been constructed at various parts of the works. One part of the works on which particular attention was placed during the hearing was the area of the central embankment between the two IDALs. In general terms, that embankment ran from west to east. Again in general terms, the land sloped generally from the west to the east. Thus, if rain fell to the west of the works, it would be expected to flow towards the east.

136 CH2M's evidence was that a diversion drain had been constructed to the west of the IDALs, running generally north to south. The purpose of that drain was to intercept surface water moving down from the west and carry it away to the north or the south of the IDALs: out of harm's way. However, it was clear that there was a break in that north/south drain, at approximately the location of the central embankment. Thus, any surface water that travelled down from the west between the two sections of the north/south drain could flow along the embankment.

137 A number of CH2M's witnesses, including specifically Mr Steven Benn, gave evidence of a V drain constructed along the central embankment. Mr Benn was an employee of BM who had worked on the project first as a mechanical engineer, with particular responsibility for piping, and then as construction manager.

138 Mr Benn was (and other witnesses were) cross-examined by reference to photographs. The cross-examination was intended to elicit a concession that, so far as the photographs showed, there was no V drain visible in any relevant location. It is fair to say that the great majority of photograph to which the witnesses were taken did not appear to show any V drain. Whether or not that is significant is a different matter, because at least one witness suggested that, having regard to the position from which and time of day at which the photographs were taken, relatively shallow depressions in the earth works would not be recorded.

139 Be all that as it may, Mr Benn was cross-examined on 5 July 2012: day 3 of the hearing. The matters covered in his cross-examination included the location and size of the V drains. At T174 he identified a depression that he said was a V drain in the central embankment, and said ("guessing") that it was of the order of 50 to 100 mm deep.

140 One of the experts called by DOC was Mr Barry Tozer. Mr Tozer is a consulting construction engineer of great experience. His evidence covered questions of alleged construction defects; delay; and costs of rectification.

141 CH2M likewise called experts dealing with those matters. One of them was Mr Jonathan Shahady. Mr Shahady's evidence dealt with construction issues.

142 Messrs Tozer and Shahady conferred, and produced a joint report (dealing with construction issues) dated 18 June 2012.

143 Messrs Tozer and Shahady were called to give evidence, in a concurrent session, on 19 July 2012: day 10 of the hearing. At the outset of Mr Tozer's evidence in chief, Mr Simpkins sought by leave to ask "a few additional questions... arising out of some evidence that Mr Benn gave".

144 Mr Simpkins took Mr Tozer to the passage of Mr Benn's evidence to which I have referred and asked about the sufficiency of a V drain of the order of 50 to 100mm deep. Mr Tozer said, (T 526.38-.43) that:

... my calculations of what would be a reasonable drainage depth, v drain depth and width, is that it should be at least 150mm deep and at least 6 to 8 metres wide. The one in the photograph as Mr Benn suggests is probably less than that.

145 Mr Tozer then said (T 526.49-527.1) that his calculation was based on:

... the assumption that the relevant storm event was an event with a two year return period at that site.

146 It appeared, in the course of the concurrent evidence session, that Mr Shahady had not been given any notice of this evidence and had not had any opportunity of verifying, on the assumptions stated, Mr Tozer's calculations (or, for that matter, of considering the validity of the assumptions). Mr Shahady said that it was the assumptions that were important (T538.4-.7):

... the calculation is based on assuming the amount of water that needs to be caught in order to run through the drain. There is no evidence and there is no, we had no ability to establish the volume of water that we had to calculate.

147 I accept that it was not until Mr Benn gave evidence, on 5 July 2012, of the dimensions (as he recalled them) of the V drain, that any attempt could be made to assess the sufficiency of the V drain that Mr Benn described. I note, in case it is unclear, that this evidence was given responsively, in the course of cross-examination; it was not forced on the cross-examiner; nor was it evidence led (with or without leave) in chief.

148 It does not appear from the evidence when Mr Tozer was asked to make the calculations, or when he did so. Nor does it appear why, in the 14 days that elapsed between Mr Benn's evidence and the concurrent session of Messrs Tozer and Shahady, Mr Tozer had not been able to discuss the sufficiency of the V drains with Mr Shahady.

149 In circumstances where the opposing expert had not been given any opportunity to verify the assumptions, and where no explanation was offered of the failure to do so, I rejected the evidence. I took into account not only the matters mentioned but also the fact that, as the evidence stood, the court had no way of knowing whether the critical assumption - as to "the amount of water that needs to be caught in order to run through the drain" - was factually sound.

150 Thus, the court was not offered any basis on which it could assess the validity of Mr Tozer's opinion as to the size of the drain required. An opinion based on an unproven assumption has evidentiary value only if the court abdicates its function and accepts uncritically that opinion.

Mr Tozer's further report of 20 July 2012

151 As will be apparent from what I have said already, one of the key questions in dispute in this case is the requirement for a perimeter seal around the lagoons, to prevent the entry of moisture behind (or below) the GCL. Professor Benson was cross-examined on this, as part of his concurrent evidence session with Professor Rowe. Professor Benson said (and illustrated by a sketch which was admitted into evidence) that it would be possible to build a wedge or a notch of some form around the top of the embankment, constructed "with some type of sealant... that blocks the liquid flow" (T384.4-.7).

152 Mr Tozer was asked to cost a detail of the kind sketched by Professor Benson. He did so, by a supplementary report dated 20 July 2012 which was given to CH2M that day (although apparently "after ... the close of business"). I admitted that report into evidence, over Mr Christie's objection.

153 CH2M had its own costing expert: Mr Griffith.

154 I do not understand why it would have been difficult for Mr Griffith to consider the detail, and the costing, between 20 and 24 July 2012. The costing did not depend on any assumptions other than those sketched out by Professor Benson in the course of his cross-examination. In those circumstances, if the late tender of the report did generate some degree of prejudice (and I do not find that it did), that was prejudice that CH2M could have overcome quite simply by giving the report to Mr Griffith and asking him to comment on it.

155 I should point out also that Mr Tozer estimated that the cost of building the plug would add some two weeks' delay on the critical path. Again, that was material that could have been put to Mr Shahady and he could have been asked to express a view on it. Messrs Shahady and Tozer had agreed on many programming issues, and each had the agreed "as built" program. It was not suggested that (for example) there was insufficient material in the report for Mr Shahady to understand it; or that Mr Shahady had other commitments that would have prevented him from looking at the question.

Miscellaneous objections to expert evidence

156 DOC produced voluminous objections to (among other things) CH2M's expert evidence. Those objections extended not only to the individual reports produced by CH2M's experts, but also to joint reports in which those experts had participated.

157 Many of the objections were dealt with by a procedure that does not need to be recounted. The objections which were pressed were, by consent, deferred until after the relevant experts had given evidence. That course was taken so that counsel could address, in the course of final submissions, on those objections which were pressed. No submissions were put in support of the objections.

158 In many cases, the objections were put on the basis that there was no factual support for a particular assumption (or on a number of bases including that one). One would have expected this proposition to be addressed in final submissions if the question was thought be of any significance. I have to say that if counsel did not think the matter worth pursuing in submissions then I see no reason why the court should go where counsel did not.

159 Others of the objections that were pressed, were pressed on the basis that the witness had not demonstrated a process of reasoning to support a particular conclusion (or on a number of bases including that one). Again, in circumstances where the question was not picked up in final submissions, I see no reason to venture where counsel did not. In this particular case, the fact that the opinions were the subject of debate between the relevant experts seems to me to suggest that if the "opposing" expert had thought the question to be significant, and the opinion to be unsupported by reasoning, he would have said so. None of the experts seemed to me to be reticent in expressing opinions.

160 A related objection specified, as a basis for the objection, that the opinion was not based on the specialised knowledge of the witness. The same comments apply.

161 In circumstances where counsel did not avail themselves of the opportunity to put particular submissions on the objections, I do not propose to rule on them. So far as I can see, none of the residual opinions to which objections are pressed bears in any (let alone any significant) way on the resolution of the real issues as to design and construction that I have identified. No doubt, that explains why counsel did not feel the need to deal with the objections in the course of oral submissions.

162 In short, even if each of the objections were ruled on and upheld, CH2M's case, on the real issues in dispute, would not be affected in any way.

Jones v Dunkel submissions

163 Each of the parties made submissions, based on Jones v Dunkel (1959) 101 CLR 298 and subsequent cases, concerning the failure of the other to call witnesses who were said to have been capable of giving relevant evidence. For example, CH2M did not call many of the personnel involved in the construction of the works and in investigations undertaken into the standards of workmanship, both before and after February 2007. DOC did not call the engineers who actually performed the great bulk of the design work, or who verified the design. For reasons that I hope will become apparent, it is not necessary to deal with those criticisms.

Credibility

164 In broad terms, it seems that, within the joint venture, CH2M had responsibility for design, and BM had responsibility for construction. However, as between the joint venture parties on the one hand and Sydney Water on the other, both joint venture parties were jointly and severally liable to Sydney Water on all obligations of the joint venture under the head contract.

165 For convenience, I will in general refer to relevant employees as employees of the joint venture. Strictly speaking, this is inaccurate. CH2M employed its own staff, including engineers, for design purposes. BM employed its own staff, again including engineers, for construction purposes. Each joint venturer provided its staff to the joint venture as required (although internal documents suggest that CH2M did not provide adequate levels of staffing resources for its design obligations). But in some cases (of which this is one), convenience trumps strict accuracy.

166 CH2M called as witnesses of fact in its case:

(1) Mr Benn, to whose role, and some of whose evidence, I have referred already;

(2) Mr Ted Malan, who was the contracts manager for the West Camden project, and who for a time had acted as project manager;

(3) Mr Murray Simpson, who was the design manager for the WC project, and in that role managed the design process between Sydney Water and CHBM on the one hand and CHBM and its design consultants on the other; and

(4) Mr Richard Trapp, who had been the project manager following Mr Malan's acting tenure of that position.

167 No direct attack was made on the credibility of any of those witnesses. Each of them impressed me as someone seeking to give truthful evidence to the best of his ability. I accept each of them as a witness on whose evidence, so far as it goes, I can place reliance.

168 DOC called as a witness of fact Mr Guy Boncardo. Mr Boncardo is, and at the relevant time was, a principal engineer in the waste water services branch of what was at the relevant time DOC (but now has another name). He was the head of DOC's design team. There were aspects of Mr Boncardo's evidence that caused me some concern. However, since what I perceive to be the key aspects of Mr Boncardo's evidence are either unchallenged, or supported by other evidence, or plainly correct, I see no need to expand on such concerns as I felt.

169 I referred to the five witnesses in question having given evidence "of fact". Of course, each of them is an engineer, and the evidence that each of them gave (Mr Boncardo in particular) dealt with matters of professional expertise. But none of them was called as an independent expert. Their primary role was to give content to the facts in relation to the design process and the facts in relation to the construction process, to the extent that either party saw fit to put those matters before the court.

170 There were other witnesses who gave evidence of fact by affidavit and were not cross-examined. It goes without saying that, to the extent that it is relevant, I accept that evidence so far as it goes.

171 In relation to the experts, I should note that whilst each of them was tenacious of his position (as that position had been refined in the conclave process), nonetheless I formed the view that each of them was seeking to give independent expert evidence, and that each of them, in doing so, was fully cognisant of, and sought to perform, his duty to the court.

172 Thus, the expert evidence is to be assessed according to its intrinsic merits, not by reference to some notion of credibility.

Issues relating to the anchor trench

173 The issues relating to the anchor trench are:

(1) the alleged failure on the part of DOC to specify an anchor trench or any other form of effective perimeter seal;

(2) the undoubted failure of CHBM to install the GCL using an anchor trench; and

(3) the undoubted method of installation in fact chosen by CHBM, namely, which included securing the GCL during installation by spiking it to the subgrade.

174 The primary question, in relation to the anchor trench issues, is whether it was incumbent on DOC, as part of its design, to specify the use of anchor trenches as part of the construction process: specifically, in relation to the laying of the GCL; or whether CHBM should have used an anchor trench in any event.

175 DOC's "for construction" design drawings issued on 11 April 2005 show, among other things, a schematic arrangement of the GCL as underlying the concrete panels on the interior walls of the embankment and, at the top of the embankment, extending away from the concrete panels in a horizontal direction. They do not show any detail that could be understood as an "anchor trench". However, each drawing makes it clear that this is "shown diagrammatically only" and that the GCL is to be installed "to manufacturer's guidelines".

The Bentofix guidelines

176 The GCL specified was "Bentofix X 2000 or equivalent." The supplier, Geofabrics Australia Pty Ltd, issued guidelines. As they were current at the time, those guidelines contained a number of comments that are relevant to the issues, extending beyond the anchor trench issues. For the sake of convenience, I will set out the relevant extracts from the guidelines at this point.

177 Towards the beginning of the guidelines, the point is made that:

... the performance of the GCL is dependant on the quality of its installation. It is the installer's responsibility to follow these guidelines and the project specifications and drawings whenever possible.

178 The guidelines deal with the way in which rolls of Bentofix should be unloaded and stored before use. They make it clear that Bentofix should be protected from moisture before use.

179 The guidelines specify that preparation of the subgrade "is critical to the system's performance". They state:

6.1 Earthen Subgrades

The surface upon which Bentofix will be deployed should conform to the following:-

The subgrade should be firm and unyielding (typically compacted to >90% density), without abrupt elevation changes, and be proof rolled with a smooth drum roller immediately prior to deployment of the panels. The subgrade should not be disturbed or rutted by the equipment deploying the rolls or other traffic. No foreign matter or stones loose on the surface or penetrating out of the subgrade >10mm should be allowed. The engineers approval of the subgrade needs to be obtained immediately prior to roll deployment.

180 In relation to anchor trenches, the guidelines state:

6.3 Anchor Trenches

Anchor trench and slope stability considerations should be assessed by the Design Engineer.

As a general guide:-

An Anchor trench should be used at the top of slopes steeper than 7H: 1V. (see Figure 16 for a typical anchor trench detail).

The anchor trench should be constructed free of sharp edges or comes and maintained in a dry condition. The Bentofix panels should be placed down the front face and along the base of the anchor trench. The base of the anchor trench should not contain large gravel or loose material and the trench backfill material should be compacted.

181 The guidelines also deal with the weather conditions for installation. What the guidelines say confirms the importance of keeping the Bentofix dry:

7. WEATHER CONDITIONS FOR INSTALLATION

Light rainfall should not effect the installation of Bentofix provided deployed panels are covered and confined by 300mm of cover soil (or equivalent) within 2 hours of first exposure to the light rain. Heavy direct raindrop impact should be avoided. The Bentofix panels can be covered during heavy rainfall events with a tarpaulin or plastic sheet if there is not enough time to complete soil cover placement.

Avoid placing Bentofix in areas where water is ponding unless panels can be confirmed immediately (with 300 mm cover soil or equivalent).

182 To divert a moment from the process of quotation: the guidelines make it plain that Bentofix should be protected from water as much as possible, and that, once laid, it should be promptly covered (with earth, or whatever covering material is specified).

183 The guidelines also make it clear that the Bentofix should not be subjected to heavy traffic:

8. BENTOFIX GCL PLACEMENT

...

Bentofix should only be trafficked by light, low tyre pressure vehicles (no tracked vehicles).

Rolls must be laid without folds on the subgrade with a standard overlap of 300 mm in both the longitudinal and transverse direction. For longitudinal or "Edge" overlaps, the blue coloured line on the underside of the panels can be used to ensure the correct overlap width. The edge of deployed or previously placed panels needed to coincide or match with the visible blue line on the roll being deployed.

...

No trafficking or walking should occur over the overlap region. The overlap must also be free from folds and foreign matter (eg. Soil). Any soil particles on the laps must be swept away carefully.

184 Section 11 of the guidelines deals with "installation on slopes". It recommends that the Bentofix panels be laid perpendicular to the slope. That was done in the IDALs. However, the Bentofix lining in the EB was laid transversely.

185 The guidelines include as figure 16 a "typical anchor trench" detail. It is not necessary to set out that detail. However, in terms of item 6.3 (which I have set out above), the use of an anchor trench was recommended in this case because the interior slope of the earthen walls greatly exceeded the ratio 7H:1V. (It was 3H:2V.)

186 Sections 13 and 14 of the installation guidelines confirmed the importance of protecting the Bentofix from (among other things) rain, and damage by traffic or other causes, after installation.

187 Section 13 provided that where Bentofix was not covered with cover soil immediately after laying, "a temporary layer of plastic should be laid to protect [it] from prematurely hydrating...".

188 Section 14 (which is of particular relevance where the Bentofix is to be covered by soils rather than concrete) provided, among other things, that a cover soil layer at least 300 mm thick should be placed over the Bentofix each working day immediately after the laid panels had been inspected. It provided, further, that the Bentofix should not "be trafficked directly" and that precautions should be taken "to minimise traffic volume over deployed material". Those precautions might include "additional protection measures" such as "a sand layer of at least 300 mm" or, in more severe cases, "a minimum road base thickness... of 600 mm".

189 Thus, the position reached, upon issue of the "for construction" design, was that Bentofix X 2000 or an equivalent GCL was specified for use, and was to be laid in accordance with the manufacturer's guidelines. In the case of Bentofix, and having regard to the slope of the earthen walls of the lagoons, those guidelines indicated that an anchor trench was to be used to secure the upper extremities of the Bentofix during installation.

190 Those guidelines suggested, further, that Bentofix should not be laid and left uncovered and exposed to the elements; and that it should not be trafficked heavily.

The functions of an anchor trench

191 The expert evidence confirmed that a distinction should be drawn between the use of an anchor trench as part of the construction process on the one hand, and, on the other, the specification of an anchor trench to serve as a perimeter seal. Messrs Shahady and Tozer agreed that responsibility for the former lay with the contractor, and that responsibility for the latter lay with the designer. Professor Benson's evidence was, in substance, that an anchor trench was primarily a construction detail, but that it could serve as a perimeter seal in an appropriate case. He added that, hitherto, he had not known of an anchor trench being specified as an element of a design, to provide perimeter sealing.

192 In this case, DOC's design made it clear that the installation of the GCL was a matter for CHBM to attend to, in accordance with the manufacturer's installation guidelines. It is clear that the "for construction" design drawings did not specify any detail for stabilising or securing the GCL at the top of the embankments.

RFI 014

193 On 12 April 2005, CHBM sent a request for information, RFI 014, to DOC. The request stated:

To keep the Bentofix liner in position during placement we need to excavate a trench on top of the embankment, see detail below. Can you please revise this detail?

194 The "detail" was an attached sketch equivalent, at least as a concept, to the trench shown in Figure 16 of the Bentofix Guidelines. The sketch showed, schematically, the Bentofix placed on the slope and, at the top of the slope, extending into (down the side of and along the base of) an anchor trench some 400 mm wide and 200 mm deep. That anchor trench was shown to be backfilled. (The detail also showed the roadway, which was to be paved, butting up against the concrete kerb with some form of sealant between them.)

195 DOC replied on 13 August 2005. So far as is relevant, the reply stated:

As we specify in our drawings, for installation details of Bentofix liner contact the manufacturer. Please make sure that the liner be [sic] always above the top water level.

196 It is apparent that both CHBM and DOC treated the matter as a construction issue, not as a design issue; specifically, not as a design issue relating to sealing around the perimeter of the lagoons.

197 DOC's response was the subject of a CHBM internal email which stated, relevantly:

DOC are okay about the bentofix details if they satisfy the suppliers [sic] requirement. The proviso is to ensure the top of the lip is above the water level which it looks like to me.

198 Further internal CHBM emails stated, in relation to RFI 014, that:

proposed trench that is going to lock Bentofix into position during concrete pour looks adequate.

I think we need to respond to site seeing this is acceptable and ask them to note on site working drawings for WAE.

199 Again, there is nothing in this which suggests that CHBM regarded the matter as anything other than a construction issue. Nor is there anything in this material to suggest that CHBM understood, from what had passed between it and DOC, that DOC had "approved" the detail. On the contrary:

(1) DOC had confirmed what was stated on the design: that the installation should be in accordance with the manufacturer's guidelines; and

(2) the view that the anchor trench "looks adequate" was one expressed internally, by Mr Panche Tasevski of CHBM to Mr Simpson, also of CHBM, in an email of 15 April 2005.

200 After this exchange of emails, CHBM prepared a "process procedure" for the installation of the GCL. That document was sent in draft by Mr Lennart Tenten of CHBM to Mr Mike Alaeddin of Sydney Water on 11 May 2005. Mr Alaeddin replied two days later, on 13 May 2005. Mr Alaeddin marked up the document that Mr Tenten had sent him.

201 Section 5.2 of that document, as marked up by Mr Alaeddin (his markings are showed underlined) reads as follows:

5.2 Anchor Trenches

To keep the liner in position during laying an anchor trench on top of the embankment should be excavated (what is the details of this trench i.e depth, width? The manufacturer brochure requires this to be determined by the Design Engineer and the design engineer says as per manufacturer requirements. See section 6.3. Please clarify? Or the liner should be pined down into the ground (This is not in accordance with manufacturers instructions? The issued for construction drawings clearly states that the bentonite sheets are to be installed in accordance with the manufacture's requirements. If you want to deviate from the manufacture's requirements then their and the design package Manager is required. This issue was raised with you previously. In the absence of such approval the requirement of the manufacturer's will apply as required in the drawings). The trench need to be backfilled and compacted in accordance with the required specifications. This is ok but isn't prudent to say what is this requirement is?

202 The GCL was installed during May 2005. During installation, the GCL panels were secured by pinning rather than by the use of an anchor trench. There is no suggestion that DOC (or, for that matter, Geofabrics) was consulted about this before or during the installation process.

203 Mr Shahady gave the following evidence (T554.26 - .50):

SIMPKINS: Do you agree that the insulation [sic; clearly "installation"] of GCL requires care?

WITNESS SHAHADY: I'd agree with that.

SIMPKINS: Do you agree that the manner in which you stabilise or fix the GCL to an embankment during installation is an important aspect of the construction activity?

WITNESS SHAHADY: Yes, I would agree to that.

SIMPKINS: And would you agree that a competent and careful contractor would ensure that the method of stabilisation or fixing of the top of the embankment was dealt with appropriately, and I will come back to what that means in a moment, but dealt with appropriately before the installation was completed and not after?

WITNESS SHAHADY: Yes, I'd agree with that.

SIMPKINS: So is this right: That in your professional judgment, if someone was installing a GCL and there was an element of doubt about whether it should be an anchor trench or whether it should be pinned or some other alternative adopted, such a contractor would sort that out before - during installation and not afterwards?

WITNESS SHAHADY: Yes, I'd agree with that.

204 The only thing that CHBM "sorted out", either before or during the installation of the GCL, was the use of an anchor trench to secure it during the installation process. Its attempts to "sort out" the alternative method, of pinning, only occurred after the event.

205 CHBM prepared a "quality verification check sheet" for the installation of the GCL. The date of preparation of that document is uncertain, although in two places "Feb 05" and "02/05" are stated.

206 The check sheet sets out some eight steps in the installation process. One of those, step 6, is:

Pin bentofix panel to top edge of embankment with starter bars.

207 It is clear that the check sheet was used during the installation process: a version dated 30 May 2005 has initials against item 6 under the heading "checked by".

208 CH2M's evidence did not deal with the check sheet (either as to when and by whom it was created or as to when and by whom item 6 was checked).

209 At this time (May 2005), internal reports of CHBM suggest that the joint venture was losing money on the STP upgrade contract. It is open to infer that CHBM chose to secure the GCL, during construction, by pinning rather than by the more expensive option of constructing an anchor trench, so as to save both time and money.

RFI 048

210 On 23 June 2005 (by which time, it appears, the GCL panels had been laid in the lagoons), CHBM prepared a further RFI, RFI 048. The RFI stated:

We want to change the top detail of the embankment of the Idal and the equalisation basin as per attached sketch. We have discussed this proposal already with DOC.

Can you please confirm?

211 The attached sketch showed what was described as "embankment typical section" with concrete panels overlying the GCL. The diagram stated, referring to the GCL:

Bentofix X2000 or equal.

(Shown diagrammatically only. Install to manufacturer's guidelines.) Top level of the Bentofix line shall be above TWL in tank.

212 The sketch also showed the GCL laid out horizontally at the top of the earthen embankment to a distance of 600mm. It did not indicate that this section of the GCL was to be pinned.

213 However, it is clear that the purpose of the RFI was not to discuss the method of installation of the GCL, but, rather, a change to the kerb detail. That is apparent because:

(1) by the time the RFI was sent, the GCL had been laid; and

(2) Mr Simpson, who discussed the RFI with Mr Boncardo, said in his affidavit of 16 September 2010 (para 133) that when he discussed the RFI with Mr Boncardo, he asked whether it was "okay to delete the kerb extension by adjusting the embankment top" to form a kerb as shown in the sketch forming part of RFI 48.

214 According to a note made by Mr Simpson on the RFI, Mr Boncardo said:

Okay providing there is 100 mm above the road level to prevent rubbishing [sic] washing into tanks. He will reply formally later today.

215 It cannot follow from any of this that Mr Boncardo somehow approved a method of installation of the GCL that showed it laid out horizontally at the top of the earthen embankment. There was no suggestion that this was a construction detail; on the contrary, the requirement to install according to the manufacturer's guidelines was clear. Mr Simpson does not suggest that Mr Boncardo's attention was drawn to this aspect of the GCL. Nor does Mr Simpson suggest that he discussed with Mr Boncardo the way in which the GCL had in fact been held in place whilst it was being laid. Mr Boncardo was asked to approve a change to the kerb detail. He did so, on a stated condition. No greater significance can be attributed to this exchange between CHBM and DOC.

216 It is however clear that CHBM remained aware of the need to obtain some sort of approval for the installation method that had in fact been adopted. That concern no doubt reflected continuing discussions between Sydney Water and CHBM. For example, on 1 July 2005, Mr Alaeddin wrote to CHBM stating:

...

The manufacture's instructions you have provided to us require the following:

(a) Construct a key at the top by excavating a suitable trench along the horizontal edge at top end of the batter.

(b) Bentonite lining sheets are subjected only to light rain.

As you are aware the requirements of item (a) are not met for works carried out to date and or where bentonite-lining sheets were placed and ready for placement of reinforcement of concreting. Accordingly it would be necessary for the manufacturer and or the designer to confirm in writing that the requirements referred to under item (a) is unnecessary on this job.

With respect to item (b), you are aware that significant rain did occur on site on 30.06.05 and the night before. This has resulted in saturating the installed bentonite lining sheets with water. This is contrary the manufacturers advice. Consideration should also be given to the fact that the installed sheets will be trafficked by workers involved in installing reinforcement and or concrete lining of these panels by walking on them and or placing of ladders and or other equipment necessary to complete the works. The combined effect of water and trafficking by workers as well as ladders is likely to impact on the performance of these sheets when subjected to testing during commissioning process, unless advised otherwise by your designer and or the manufacturer.

...

217 Shortly before Mr Alaeddin wrote that letter, representatives of Geofabrics had gone on site. On 15 July 2005, CHBM wrote to Geofabrics:

With regard to your recent site visit of the 28th June, we have been asked by Sydney Water to provide a written letter from yourselves confirming the issues discussed.

The key point of the discussion were,

That the top of bank anchorage trench detailed in your installation manual is applicable to installations were the bentonite lining has no other support or protection and that in the circumstances of a concrete support and protection layer being placed over the bentonite liner, the contractor is free to design their own temporary fixing detail to allow concrete to be placed.

In light of the recent heavy rains it is still appropriate to use the bentonite liner after it has become saturated after being placed in its permanent location provided that the saturated liner is not moved, trafficked or damaged in any way prior to placement of concrete.

Your cooperation on this matter would assist with the closing out of a couple of quality control issues raised by Sydney Water.

Should you need to discuss this further my contact number is 0409 654 360.

218 There seems to have been a further site meeting on 27 July 2005.

219 On 2 August 2005, Geofabrics wrote to CHBM, in relation to the issues raised by Sydney Water:

Further to our site meeting on the 27th July 05 our comments on the two main issues discussed are as follows:

1. Anchorage of the Bentofix during loading

It is essential that the Bentofix have sufficient anchorage to stop sliding during the loading process (placement of concrete in this case). This is normally provided by a typical anchorage trench or other engineered methods of anchorage. From the inspection carried out the use of pins fixed to the Bentofix on the crest of the slope appears to be holding without the requirement of the trench. The critical time is obvious during concrete placement and it is an installation risk that Barclay Mowlem needs to assess.

Once the concrete is set then the risk is removed and the Bentofix is performing the water proof function it was intended to.

2. Saturation of Bentofix prior to placement of concrete

Bentofix can perform its waterproofing properties once saturated provided it is not moved, trafficked, contaminated or damaged in any way prior to placement of the concrete. Care needs to be taken to make sure the Bentonite paste or powder has not been removed from the overlaps. If the overlaps have been disturbed, new Bentofix paste should be re-applied or the section removed and replaced with a new section. The critical areas are the floor of the ponds where the water can sit for long duration. These areas need to be checked and reassessed with the view of repairing or replacing.

220 CHBM provided a copy of that letter to Sydney Water on 5 August 2005. On 8 August 2005, Sydney Water replied:

I refer to your letter reference 0901/Root.0200.0200/KLEW/000544 dated 5.8.05 and received by me via email on 8.8.05 and comment as follows:

1. Comment made by the manufacturer is noted. We have no objection to comment by the manufacturer on the basis that CHBM Water are accepting all risks arising from non installation of the anchorage including but is not limited specified durability and design performance.

2. As regard to comment 2 the manufacturer clearly stated that the "Bentofix can perform its water proofing properties once saturated provided it is not moved, trafficked." As pointed to you in my privily correspondence in regard to above subject the bentonite liner was trafficked by CHBM Water workers during concrete placement of adjacent slabs. As a result I believe the condition imposed by the manufacturer in regard to trafficking is not met and therefore SWC concern in regard to this matter remains unresolved.

221 It is clear that the GCL was not installed in accordance with the manufacturer's guidelines. In the conditions that pertained on site (a batter steeper than 7H: 1V), the guidelines indicated ("as a general guide") the use of an anchor trench to retain the GCL. Of course, those guidelines stated, in addition, that the "anchor trench and slope stability considerations should be assessed by the Design Engineer". To the extent that RFI 014 can be considered as seeking assessment by DOC, what it sought assessment of was an anchor trench detail that appeared to correspond to Geofabrics' installation guidelines. DOC was not consulted in relation to the alternative proposal to secure the GCL by pinning it. DOC gave no approval to that proposal.

222 The letter of 2 August 2005 from Geofabrics to CHBM says no more than, when inspected, the anchor pins appeared to be holding the GCL in place. However, it stated, further, that it was necessary to prevent the GCL from moving whilst the concrete was placed, and that this was "an installation risk that [BM] needs to assess".

223 That letter does not constitute any kind of approval. It says only that the method of securing adopted by CHBM appeared to be working, but that it needed to be monitored when the concrete was being poured.

224 It might also be noted that the letter confirms that the GCL had been exposed to the weather for some time before the protective concrete panels were poured.

225 Thus, I conclude:

(1) compliance with the manufacturer's guidelines for the installation of the GCL would have required the use of an anchor trench unless DOC advised to the contrary;

(2) CHBM did not comply with those guidelines, because it did not use an anchor trench to secure the GCL;

(3) DOC's approval to what CHBM in fact did was neither sought nor given; and

(4) at most, after the event (of laying the GCL), the manufacturer, Geofabrics, did no more than indicate that if the pins held whilst the concrete was being poured, they would have achieved the purpose of preventing the GCL from moving during that process.

226 Further, the use of spikes to anchor the GCL meant that it was susceptible to moisture penetration. However, I think, the real problems of moisture penetration (and, hence, of wet/dry cycling) arose not so much from the presence of spikes, but because the GCL was left exposed to the elements for a considerable time after installation and before the concrete protective panels were poured.

227 The failure to secure the GCL in accordance with the recommended method, that is, using an anchor trench, was critical. Although the anchor trench was intended to secure the GCL and not to provide perimeter sealing, the uncontested evidence of Professors Benson and Rowe is that if an anchor trench had been used as indicated in the manufacturer's guidelines, the entry of water behind the GCL as a result of the heavy rains in February 2007 would not have occurred. The anchor trench, properly constructed, would have performed the incidental function of a perimeter seal.

228 I conclude that the failure to install the GCL using an anchor trench was a departure from DOC's design that was not approved by DOC. It was a departure for which, relevantly, CHBM bore sole responsibility.

Alleged construction defects: surface drainage, protection of the GCL and compaction of the embankments

229 It is convenient to deal with these alleged construction defects at this point because, in my view:

(1) the work was defective in the respects alleged; and

(2) those defects, combined with the installation defects that I have just dealt with, played a critical part in the events leading to the failures of the lagoons following the heavy rain of February 2007.

Surface drainage during construction

230 As I have said, CHBM was obliged, by the terms of the head contract, to maintain adequate site drainage, and to protect the works from, among other things, rainfall and stormwater damage, during the course of construction. To the extent that it is relevant, those contractual obligations are consistent with general construction practice, which, according to the experts, would place responsibility for those matters on the contractor.

231 The evidence of the witnesses of fact called by CH2M was that CHBM did maintain a system of site drainage. In particular, to the north of the IDALs, there was a V drain running from north to south, which discharged into a gully at its northern end. There was a V drain running from west to east between the two IDALs. The north-south V drain would not catch all surface water coming onto the site from the west, because, as I have said, it had a break in its central section.

232 The evidence of, in particular, Messrs Benn and Trapp was to the effect that the surface drains were always present during the process of construction, and that they were maintained according to need. It was accepted that the drains would be damaged in the course of construction (for example, if heavy equipment passed over them). But, Messrs Benn and Trapp said, when damage occurred, it was repaired.

233 The evidence was, further, that attempts were made to minimise the impact of heavy equipment by providing a gravel wearing course.

234 There was no evidence as to the size of the V drains, save for Mr Benn's guestimate to which I have referred above, that they may have been 50 to 100 mm deep. Nor was there any evidence of the extent of drainage that one might expect to see on a site such as this, taking into account relevant factors such as the extent of the catchment area and the volumes of rainwater that might be deposited on that catchment area from time to time. Indeed, there was no evidence as to the sort of rainfall event that a designer should take into account. (For the reasons I have given, even if Mr Tozer's evidence had been admitted, it would have proved his assumptions, but not whether they were valid in practice.)

235 Messrs Benn and Trapp were cross-examined by reference to photographs. DOC relied on what it said was the fact that there were no photographs showing drainage. A number of things may be said about this, apart from the obvious point that it does not follow, from the fact that some photographs do not show drainage, that there was no drainage.

236 The first point is that a photograph would only show drainage if the photographer wished to record it (or to record a feature of the site where drainage was present), and took the photograph in appropriate conditions.

237 The second point relates to those appropriate conditions. A relatively shallow and wide drain is unlikely to show up in a photograph unless there is sufficient transverse light to throw its features into relief. In other words, the capacity of the lens to gather, and the recording medium (film or digital) to capture, details of a drain depends very much on the time of day at which the photograph is taken and the angle, relative to the sun (assuming it to be a sunny day) from which it is taken.

238 The third point is that there were photographs which were identified as showing drains.

239 For the reasons I have given, I accept each of CH2M's witnesses of fact as a witness on whose evidence I can rely. It follows that I accept the evidence of those witnesses as to the existence and maintenance of site drainage during construction.

240 There is no evidence, one way or the other, as to the adequacy of the site drainage system that was employed. Nor is there evidence as to how that adequacy might be assessed. However, it should not be assumed that site drainage alone could deal with all problems of rainfall and stormwater. As Professor Benson said, during a heavy rainfall event, water will pond, for a relatively short time, regardless of the capacity and efficacy of the drainage system. That I take to be common knowledge; it is certainly a matter of common observation and common sense.

241 Thus, protection of the works from rainfall and stormwater did not end with the provision (assuming it to be the case) of adequate drainage. First, that would not prevent all ponding of water, even if only for a short time. Secondly, there were areas of the works (including, in particular, the placed but uncovered GCL) that could not be protected by drainage.

242 Adequate protection of the works required, in addition to proper drainage, at least:

(1) effective measures to prevent temporary standing water from penetrating into the earthen embankments and behind the GCL; and

(2) protection of the GCL, after installation but before the concrete panels were cast, from the effects of rainfall.

243 The first point is self-evident. So, I think, is the second; which in any event is confirmed by Geofabrics' installation guidelines.

Failure to protect the GCL and works

244 The best evidence on these topics comes from the records of CHBM: in particular, records of investigations made in 2006, 2007 and 2008.

245 As to protection of the GCL from the elements: I have referred already to material which shows that the GCL was not covered with a protective layer (of earth, plastic sheeting, or anything else) after it was laid and before the protective concrete panels were poured. An employee of CHBM, Mr Adam Schwab, became involved after cracking and lifting was observed in some concrete panels in the lagoons, and after the EB failed its hydrostatic test in late May 2006. Mr Schwab commenced investigations into the EB in the first half of July 2006. He carried out investigations into construction aspects of the project.

246 In an email of 31 July 2006 to Mr John McLaren of CHBM (copied to Mr Malan), Mr Schwab said, among other things:

Installation was not in accordance with suppliers instructions (it must be laid and covered up within 48 hrs). The liner was left exposed generally for 3-12 weeks and photos show that it was

handled poorly. The supplier suggested it be pulled out and replaced, which does not appear to have been done. The liner was likely compromised by being wet and having workers walk on it during installation of slab reinforcement, thus causing the thinned areas of the membrane where bentonite was be squeezed under foot or under reo chairs. I'll be looking for any similar construction problems in the IDAL's [sic]

247 Mr McLaren replied the same day. He said, among other things:

I am keen for us to position DOC as much as possible to take design responsibility for the "upgraded" basin [i.e., the EB].

248 As I read Mr McLaren's comment in context, he was suggesting that DOC should be involved in the design process for changes that were then in contemplation for the EB.

249 Mr Schwab prepared an "Investigation Report" dated 11 August 2006. That reporting is damning. I set out some extracts of Mr Schwab's conclusions, prefaced by his statement of his sources of information (which indicates that he had conducted a thorough investigation and review):

2. Sources of Information

The sources of information have been:

· conversations with site personnel

· review of current site conditions

· review of design

· comparison of design to construction

· review of materials used in construction

· review of construction records

· site investigations (digging of test pits & analysis of water samples)

· discussions with a geotechnical engineer

· some hypothesising

· discussions on the construction plant commissioning programs

· evaluation of solutions

· evaluation of products & discussions with suppliers

· discussions with the client regarding a HDPE liner

6.2.2. Laying (Time Sequence)

The sketch below illustrates the sequence of laying Bentofix fabric for the Equalisation Basin:

· Most of the Bentofix was laid by 1/8105 (pink), with the longest exposure of the pink

area being 30 days, prior to the last slab pour for this fabric on 3018/05.

· The fabric in blue was laid before 31/10/05 and photos show it saturated with water, poorly handled, and with construction materials on it. This fabric was subject to rain of approximately 180mm over 2/12 months, prior to concrete slabs being poured on it during the period 15/11/05-2/12/05.

6,2,3, Protection & Handling

The fabric has not been protected in accordance with the supplier's installation guidelines.

Site photos and concrete pour records show that sections of fabric at the southern end of the basin were left exposed for a minimum of 25 days (slabs #86 & #88) to a maximum 126 days (slab #1), during which rainfall was recorded at the site.

Photos taken 31/10105 (see below) show water pooled on the fabric, and that it has not been handled in accordance with the supplier's advice prior to overlying slabs being poured. It has

been moved, and various objects have been placed on it such as ladders and building debris.

SWC provided a letter to CHBM Water dated 1f7105 concerning handling of the fabric during construction of the IDAL basins, prior to the date of the photos taken of the Equalisation Basin.

The opinion of Geofabrics Australia was sought regarding the integrity of the fabric and advice received from Phil Phillips by letter dated 2/8/05 (in relation to the IDAL Basins) that:

· "Bentofix can perform its waterproofing properties once saturated provided that it is not moved. trafficked, contaminated or damaged in any way prior to placement of the

concrete.

· "The critical areas are the floor of the ponds where the water can sit for long duration.

These areas need to be checked and reassessed with the view of repair or replacing.

· Comments from site personnel are that the liner was not replaced. Site diaries by D. McPherson (supervisor or the IDAL & Equalisation Basin construction) for the period 10/6/05

to 2112/06 make no reference to the condition of the Bentofix fabric or whether it was replaced.

Further information was obtained from Warren Hornsey of Geofabrics (e-mail 10/8/06) that:

o [If the Bentofix is wet prior to the concrete pour it will expand] " ... To approx 15mm if not covered with a confining layer. The real risk is that if the product is left unconfined and saturated for a period of greater than 24 hours that the two geotextile layers, which hold the bentonite in a reasonably stable position,

will delaminate (pull apart)."

o " ... If the clay moisture content is greater than 100% , which one would expect given the conditions described above, the clay will become highly plastic and will tend to flow away from pressure points".

Subsequent construction activities are likely to have compromised the fabric. The installation of reinforcement chairs, reinforcement mesh and the pouring of concrete all would have involved workers walking on it, causing pressure points and thinning on the fabric by squeezing the wet bentonite.

It is likely that the product characteristics have been compromised through poor handling and protection, particularly in the southern end of the basin beneath floor slabs 1,26,27,28,29,30,32,45,49,51,52.

250 On 16 August 2006, Mr Schwab sent an email to Mr Malan which included a draft letter to Sydney Water. That draft letter observed, among other things, that the movement in the concrete slabs in the lagoons was likely to have resulted from "shrinkage of the Bentofix fabric, after it was initially hydrated prior to installation of the concrete slabs". As Mr Schwab said, "[t]he fabric in the southern end of the basin was subject to such conditions" (i.e., hydrated by rainfall).

251 CH2M did not call Mr Schwab. Nor did it make any attempt either to explain away his observations and opinions, or to suggest that they should not be given weight. In my view, those opinions are, as I have said, damning of CHBM's work practices that they describe.

252 A letter of 26 September 2006 from CHBM to Sydney Water (signed by Mr Trapp) is illuminating. It commences:

The EQ Basin and IDAL tanks have been constructed in accordance with NSW Department of Commerce designs. Construction records have confirmed compliance with the design

criteria for both earthworks and concrete structures. CHBMWater have subsequently conducted hydrostatic testing of IDAL NO.1 which has successfully passed the water retaining criteria. Embankment stability has been verified and found to have an adequate factor of safety. CHBMWater considers that the structures are fit for purpose and that they will meet the design life. Subject to rectification works at the EQ Basin, CHBMWater will be

requesting to SWC that these structures be brought online with sewage flows in order to commence process commissioning.

CHBMWater has identified a number of construction defects in the above structures and as part of its quality control system has developed process procedures to methodically carry out

rectification works under strict quality guidelines in accordance with manufacturer's literature and advice from site inspections by them.

Poor earthworks compaction

253 Mr Jay Brown of CHBM reported to a number of people, including Messrs Malan and Trapp, by email of 7 October 2006. Mr Brown drew attention to poor workmanship, including in relation to the earthworks:

· We need to recognize that if this heats up for DOCS [sic] their insurers will bring into play the poor workmanship aspect and

quality control on the embankments. We need to not bury our heads in the sand and think that there is not a problem.

Adam noted on his limited research into the EQ basin poor compaction and deleterious material that should not have been

there. The earthworks QC is bad. We need to concentrate on how we defend that position and it may mean taking it

round into a workmanship claim to the insurance policy ultimately and proving that it has no baring on the design

deficiency argument.

254 At some stage, CHBM notified a claim to its insurance brokers. The brokers employed a firm of "chartered loss adjusters and engineers" to investigate. In a report dated 12 February 2007, the loss adjusters stated among other things that:

(1) there was evidence to suggest "that compaction around the structures was not to specification";

(2) there was "a series of defects in workmanship around the various structures, including the overflow structure and the outlet structure";

(3) it was possible that the wetting and consequence swelling of the GCL had caused the slabs to crack and move; and

(4) it was possible "that some damage of [sic] the bentofix lining may have occurred as a result of rainfall and/or inappropriate work methods carried out during the construction".

255 In a further report of 25 February 2008, the loss assessors, referring to consultants' reports that they had received, referred to deficiencies in design and construction which was said to have led to the failure of the EB:

Both the SMEC and J & K reports highlight a number of deficiencies in the design and construction of the tanks, which directly led to the tanks' failure. These defects include the following:

1. Embankment Fill - A large section of the central embankment between the two IDAL tanks and a section of the embankment between the IDAL tanks and EQ basin was found to be poorly compacted. The actual compaction was significantly less than that of the specification. The poorly compa was susceptible to settlement, which would have been fatal overall performance of the tanks. The rectification of this would tlaVe required the removal and replacement of fill in a properly compacted manor. This could

not have been carried out without the effective demolition of the tanks and their reconstruction.

2. Bentofix Lining - There is evidence to suggest that the Bentofix lining, being the waterproof lining within the tank, was not laid in accordance with the manufacturer's recommendations, including the way the Bentofix was laid, the confining slab requirements and the detailing of the Bentofix. It was also found that steel spikes were found to be protruding through the Bentofix in some areas and, as was known in the EQ basin, the detailing of the Bentofix around penetrations and the like was not properly carried out.

This would have required the reconstruction of the Bentofix lining.

3. Embankment Stability - As was known well before the rainfall events of 2007, the embankment stability for rapid draw-down situations was of concern. Subsequent testing of the soils has, in the consultants' opinion, confirmed that the design of the tank was not satisfactory in relation to those rapid drawn-down situations, producing an unsatisfactory factor of safety.

This would have required either a complete redesign of the embankment batters or the installation of a sub-lining water-collection system. Both of these solutions would have required the complete reconstruction of the tanks.

There are a number of other deficiencies in the design and construction of the tanks, which are also highlighted in the consultants' reports, copies of which are attached to this letter for your reference.

256 I note, among other things, that the report suggests that the use of steel spikes to hold the GCL in place before the concrete slabs were poured was not in accordance with proper practice.

Significance of inadequate compaction

257 One of the experts called by DOC, Professor Nasser Khalili, gave it as his opinion that if the earthen embankments had been inadequately compacted, and if during heavy rain stormwater was able to penetrate through the surface of the embankments, it would travel preferentially through areas of low compaction, creating "rat holes" or "swallow holes". There were photographs in evidence, taken after the heavy rain in February 2007, which showed the presence of substantial holes in the surface of the earthen embankments immediately adjacent - butting up - to the concrete kerb. Whether or not those holes should be described as "rat holes", bearing in mind their size, is a matter that need not be explored. The facts are that:

(1) the holes were substantial; and

(2) the holes were adjacent to areas of the IDAL where the concrete panels had heaved, cracked and failed.

258 CH2M resisted the proposition that water could create holes (whether for rats, swallows or otherwise) in the embankment. One of the grounds of resistance was that it would be necessary for the soil that, hypothetically, was washed away to go somewhere. There seem to be two answers to this. The first is that, to the extent that there were voids or area of low compaction, there would in any event be some space for the soil to travel. The second, and more compelling, answer is that after the failure following the heavy rain of February 2007, there was observed a substantial "plume" in IDAL1. It is obvious, from photographs, that this was a "plume" of soil particles that had been carried up from under the base of the IDAL and into the water within it.

259 The plain inference from the evidence (including, in particular, the photographs) is that during and following the heavy rain in February 2007, holes were formed in the embankments between the lagoons, and ponded storm water was able to enter those holes and travel behind the GCL. That water traveled preferentially through areas of poor compaction, and was able to spread to some extent transversely behind the panels. If the GCL had been laid using an anchor trench, the ingress of water by that means would have been prevented.

260 Professors Benson and Khalili agreed (the latter having performed the calculations) that to cause the deflection and cracking that were observed in the concrete panels of the lagoons, the panels would need to move between 20 and 25mm, and that this would happen if about 700 to 710 litres of water accumulated at the base of the panels (and if the supply of water into the area behind the panels was replenished from surface water, so that the energy lost in penetrating through the subgrade would be replenished).

Other defects in construction

261 Professor Khalili identified (including by reference to photographs) other defects in construction. Those defects include a failure to trim the subgrade so that it was free of sharp protrusions. If the subgrade contained sharp protrusions, it was likely to penetrate and damage the GCL. The investigations carried out by CHBM appear to confirm that the subgrade preparation had been inadequate in this manner also.

262 However, in the event, nothing in particular seems to turn on this particular construction issue.

Failure to specify underdrainage

263 It is CH2M's case that:

(1) the exercise of reasonable care required that DOC specify underdrainage for the lagoons;

(2) if underdrainage had been specified, it would have been constructed (obviously enough, before the construction of the lagoons proceeded to completion); and

(3) if underdrainage had been constructed, it would have relieved the buildup of pressure behind the GCL during and following the heavy rains of February 2007, and thus averted the failure of the panels.

264 CH2M does not suggest that DOC should have specified underdrainage, to protect the works from the buildup of water behind the GCL during construction. In other words, CH2M does not suggest that DOC should have had in mind, and designed against, the possibility that water might enter behind the GCL during construction. Its case on this point is, rather, that underdrainage was required as an element of the final design, to ensure that the structures would meet their serviceability and design life requirements; and that, incidentally, they would have been protected from failure in the events that happened.

265 As to this last point: it was the joint view of Professors Benson and Rowe that, if an underdrain had been installed, it would have prevented the catastrophic failure of the lagoons that occurred following the heavy rain of February 2007.

Why and when is underdrainage needed?

266 The failure that occurred was caused by the buildup of water behind the liner, generating sufficient pressure to displace the concrete panels to the point of cracking. However, assuming proper construction practice, nowhere near that volume could have built up behind the liner. It was Professor Rowe's view, which I accept, that assuming proper construction of the embankments, preparation of the subgrade, laying of the GCL and casting of the concrete panels, the transmissive zone would have been no more than microns to one millimetre thick.

267 The problem against which underdrainage is intended to guard is that water will enter the embankment and wet the soils, causing them to expand. Water could enter the embankment either from the surface (if there is no adequate drainage and sealing), or from the natural passage of groundwater from higher points to the west of the IDALs, or by seepage out of the IDALs.

268 The parties called geotechnical experts. CH2M called Dr Peter Redman. DOC called Professor Khalili and Dr Brian Burman. Those experts prepared a joint report. They agreed on a number of matters, including, relevantly for present purposes, the following:

We agree for groundwater to be a problem a number of factors need to co-exist: these are the presence of groundwater at a sufficient elevation, storage and supply capacity and the presence of interconnected gaps behind the panels.

We agree that for the swell to be a problem there would need to be clay subgrade, wetting up of the clay and variation in the swell response to produce a differential movement affecting the lining system. We agree that clay subgrade exists in the eastern half of IDAL1 and over a lesser part of IDAL2. The Douglas Partners boreholes indicate thicknesses of up to 1.3m.

We agree that there is the potential for swell movement of up to about 20 to 40mm embankments where underlain by a clay subgrade. Near the toe of the embankment a differential movement could be expected at the construction joints. These will be less than the maximum movements experienced by each panel (BCB considers that it would be significantly less).

We agree that for local instability near the toe of the embankment to be a problem there would need to be saturation near the toe, no cohesion in the embankment materials, with some excess pore pressure and little resistance from the concrete panel.

...

269 The disagreement between the geotechnical experts can be stated reasonably simply. Dr Redman thought that there was insufficient geotechnical evidence to justify the exclusion of underdrainage and that:

Even though the rates of groundwater seepage are difficult to quantify in my experience it is good engineering practice to include provision in the design to control such a source of water because of the risks of uplift and/or local instability near the toe of the embankment.

In my opinion a competent designer would not rely on the natural ground to act as an under-drain and would allow for the control of such seepages by the provision of subsoil drainage beneath the Tanks including at the toe of the embankment slopes.

270 Professor Khalili and Dr Burman took the view that, if groundwater was to be a problem, then it would be necessary:

(1) for all the factors identified at [268] above to be present; and

(2) for a lagoon to be emptied at the time when all those factors were in existence: because, when the lagoons were full, the water pressure would restrain sufficiently any pressure developing at the toe of the embankment by reason of the swelling of any clay material at that location.

271 I set out the summary of their views:

BCB, NK: We agree that it was reasonable based on these observations for a competent designer to conclude that groundwater would not be a material factor in the design because the coincidence of the factors noted above coinciding with a period of maintenance is judged to be very unlikely.

We accept it is important that excess water pressures do not coincide with the need to empty the tanks for maintenance albeit that such works are understood to be at decade intervals or even less frequently. If water from natural sources were to be an issue then they would have active at those infrequent times and to be unrecognized by operating personnel. Given the lack of evidence for any, let alone any significant natural source and topographic constraints noted above, the likelihood of adverse uplift pressures is minimal.

Drainage of the pavement in the long term would be an issue even if the PGR scenario was assumed to be realistic because external water pressures would be ineffective while the IDALs were in operation and could only possibly become a problem during infrequent maintenance and that would require the coincidence of the postulated adverse drainage conditions, intense rainfall, ponding of water, empty tanks and the presence of significant interconnected gaps between the panels and the embankment face.

272 I note, further, that Professor Khalili and Dr Burman expressed the view that the nature of the rock underlying the site was such that it would act as a natural drain. That was because (as Dr Redman agreed) the underlying rock was heavily fractured. However, as Dr Burman accepted:

(1) a substantial part of the IDALs - he put it at about 30% - and all of the EB were constructed in fill rather than in cut (i.e., directly onto the underlying, fractured, rock); and

(2) the fill, properly compacted, would be less permeable than the underlying rock.

273 In addition, even if it were correct to rely on the (assumed) fact that the IDALs would be filled to within their operating levels for the greater part of their working lives:

(1) it was a requirement of the head contract, imported into the design contract, that it must be possible to empty one IDAL and leave it to stand empty for up to two weeks for the purposes of maintenance; and

(2) in contrast to the IDALs, the operation of the EB would involve its being constantly emptied and filled.

274 Thus, it would not be safe or proper design to rely on the restraining pressure of the contents of the lagoons to counteract the effects of any swelling of whatever clay materials there might be beneath the lagoons.

275 Professor Benson (whose design expertise is beyond question) gave evidence that proper design required the inclusion of a drainage system. Professor Rowe did not controvert that evidence. Nonetheless, it is not uncontroverted evidence: the opinion of Professor Khalili and Dr Burman was to the contrary of Professor Benson's.

Geotechnical investigations of the site

276 I start by observing that the drawings prepared for Sydney Water by Connell Wagner, made available to CHBM and by CHBM to DOC, showed underdrainage.

277 Coffey Geotechnics Pty Ltd (Coffey) conducted geotechnical investigations for Sydney Water, and prepared a preliminary report. That preliminary report was provided by Sydney Water to CHBM, and by CHBM to DOC.

278 Coffey said that the objectives of its investigation were:

... to provide initial information on subsurface conditions, a preliminary geotechnical model and general discussion with recommendations on relevant technical aspects such as excavation conditions, suitable retaining wall and footing types, foundation and retaining wall design parameters.

279 The investigations carried out including geophysical surveys and the drilling of bore holes. Drilling was conducted using augers, and in addition core samples were taken. The preliminary reports stated, in relation to groundwater:

3.3 Groundwater

Groundwater was not observed while auger drilling in the boreholes. Water was used as a drilling fluid during

coring and groundwater could not be monitored.

...

4.3 Groundwater

Groundwater inflows into excavations will be dependent on a number of factors, including groundwater level, size, location and depth of excavation, permeability and defects in the rock mass (e.g. fractures) intersected by the excavation. We would anticipate that in a geological and topographic setting such as this, seepage into the excavation will occur through the fill, fissures in the residual soil and from joints and bedding planes in the

shale.

The permeability of features in the residual soil and rock is likely to be low, hence while seepage could occur into excavations, inflow rates are likely to be low. It should be possible to control such inflows by installing a collection system of sumps and pumps in the base of the excavation.

280 It should be noted that Section 3.3 occurs (as one might think) in Part 3 of the preliminary report, which is headed "Results and Interpretation". Section 4.3 appears in Part 4 of the report, which is headed "Discussion and Recommendations".

281 Section 4.3 of the report raises at least as a possibility that there might be seepage into the excavation, but (if it were to occur) at "rates... likely to be low". That cannot be read as a statement that seepage is something that will, or will probably, occur. Equally, it is not a statement that seepage will not occur.

282 DOC requested further geotechnical investigation (as, pursuant to the design contract, it was entitled to do, and required to do if it thought that further investigation was warranted). The investigation required include:

· Drilling of nine boreholes at the locations shown on the marked up plan.

· Depth of boreholes to be (minimum):

- RL74.00 at the IDALs

- RL75.00 at the Equalisation Basin

- 3m minimum depth for any borehole.

· Preparation of detailed logs of each borehole, including Material Classification , Soil

grouping, location of standing water table and groundwater ingress.

· Standard penetration testing within each representative soil group logged - no less

than 2 x SPT tests per borehole.

283 CHBM retained Douglas Partners Pty Ltd. Douglas Partners provided some "preliminary information" on December 2004. CHBM passed that preliminary information on DOC. The material included borehole logs. No free groundwater was recorded in those borehole logs.

284 Douglas Partners provided a more substantial report in January 2005. CHBM gave that report to DOC on 24 January 2005.

285 That report showed that Douglas Partners had drilled boreholes where requested, using auger drilling to rock and then core drilling into the bedrock.

Following auger refusal on rock, the bores were advanced into the bedrock using NMLC diamond core drilling techniques to obtain continuous core samples of the bedrock. Rock core samples were returned to the office where the cores were photographed and logged by an experienced engineering geologist Point load strength index tests were carried out on the competent samples of the rock core to allow estimation of the unconfined compressive strength.

Groundwater observations were recorded during auger drilling of test bores. The use of water for rock coring precluded any further meaningful groundwater measurement within cored test

bores during the investigation. A standpipe was installed at BH1 to provide a means of measuring the water level at a later date if required.

286 There is no evidence that the standpipe was ever checked to see if it showed the presence of any groundwater flow.

287 In commenting on the results of drilling, Douglas Partners stated:

Groundwater was not encountered during auger drilling of the bore holes.

288 Some general notes attached to that report state:

Ground Water

Where ground water levels are measured in boreholes,

there are several potential problems;

· In low permeability soils, ground water although

present, may enter the hole slowly or perhaps not at all

during the time it is left open.

· A localised perched water table may lead to an

erroneous indication of the true water table.

· Water table levels will vary from time to time with

seasons or recent weather changes. They may not be

the same at the time of construction as are indicated in

the report.

· The use of water or mud as a drilling fluid will mask any

ground water inflow. Water has to be blown out of the

hole and drilling mud must first be washed out of the

hole if water observations are to be made.

More reliable measurements can be made by installing

standpipes which are read at intervals over several days,

or perhaps weeks for low permeability soils.

Piezometers, sealed in a particular stratum, may be

advisable in low permeability soils or where there may be

interference from a perched water table.

289 There is no evidence that standpipes were installed and observed (apart from that referred to at [286] above, as to which there was no evidence of observation) or that piezometers were installed for the purpose of detecting groundwater. (Piezometers were installed under the lagoons to detect leakage, but that is a different matter.)

290 Douglas Partners supplied a further, supplementary, report in early February 2005. That too was given to DOC. The purpose of that report was to deal with "the engineering comments requested in the DOC brief". The only reference made to groundwater in that supplementary report was in relation to batter slopes, where the reports stated that the indicated safe batter slopes might not be applicable "where groundwater seeps from the cutface". DOC asked CHBM to monitor for seepage for the cutfaces. Mr Simpson conferred that there was no observation made of any such seepage in the process of construction.

291 As an aside, I note that the supplementary report stated, in relation to compaction requirements, that:

The nature and purpose of the proposed structures warrants tight compaction control on embankment, floor and filled areas.

To drain or not to drain?

292 Mr Boncardo's reasons for deleting for underdrainage may be summarized as follows:

(1) there was no evidence of groundwater shown in the Coffey or Douglas Partners geotechnical reports;

(2) the area where the lagoons were to be constructed was "relatively high" above the surrounding flood plain;

(3) the lowest point of the lagoons (RL 76.04 metres above AHD) was above both the 1 in 100 year and probable maximum flood levels specified in DS - 304.4 (RL 71.2 metres and RL 75.5 metres above AHD respectively); and

(4) the fractured nature of the bedrock where the lagoons were to be constructed would provide natural drainage in any event.

293 The last reason was one given by Mr Boncardo in his oral evidence. It was not stated in his affidavit. I had the impression that it was something that Mr Boncardo had taken into consideration after the event, when he learnt of the views of the geotechnical experts. But since some of those geotechnical experts refer to this feature of the site as a reason supporting the deletion of underdrainage, it is necessary to take it into account.

294 I add, in relation to Mr Boncardo's reasoning, that he did not think that there was a likelihood of any significant seepage from the lagoons into the surrounding soils. That view was based on DOC's experience with STPs that it had designed for other locations, some of which, Mr Boncardo said, were comparable in terms of geology to the WC site. DOC had used GCLs to line the lagoons in those other projects, overlain by protective concrete panels, and had had no reports of failure or inadequate performance. Thus, Mr Boncardo said:

(1) he was satisfied that seepage would not be a problem; and

(2) for this reason, a leachate collection system could be deleted from the design.

295 Of course, if a leachate collection system had been installed, it would have served the incidental purpose of helping to carry away transient groundwater that might accumulate around the lagoons. But no one suggested that a leachate collection system should be installed for this purpose only.

296 The experience with other STPs should not be regarded as conclusive. None of those plants had been operating for anything like the 50 year design life required of the WC plant. Further, no tests had been conducted to see if in fact the rate of seepage was as low as Mr Boncardo assumed it to be. His view seems to have been based on the fact that no problems of seepage had been reported.

297 In those circumstances, whilst reported problems of seepage should have acted as a warning, the absence of reported problems of seepage does not seem to me to have great significance.

298 However, as I have said, not all of the IDALs were to be constructed directly into bedrock. On Dr Burman's estimation, about 30% of the IDALs were underlain by fill. On any view, the whole of the EB was underlain by fill. It was common ground between the geotechnical experts that the impermeability of the compacted fill was higher than the impermeability of the natural fractured bedrock.

299 Professor Benson gave it as his opinion that it was incumbent on a competent designer to include a drainage system. His reasons for that opinion appear to be:

(1) there is a risk that water may infiltrate, either through the soils or from service water, "into the vadose zone (region between the ground service and the groundwater table)";

(2) a competent designer would consider the impact of such water infiltration on the physical stability of structures such as the lagoons;

(3) he saw no such analysis in DOC's documents; and

(4) "exclusion of a pressure relief system without conducting any analyses to evaluate potential modes of failure that may result by [sic] the exclusion, or the risk of failure, is a serious shortcoming".

300 In short, as appears from para 5.26 of Professor Benson's first report (dated 30 September 2010), a drainage system was required unless analysis were carried out to show that it was not required.

301 Professor Benson amplified this in his oral evidence by the analogy of a seatbelt (T359.41-.45):

WITNESS BENSON: All sorts of pressure, yes. You have to really go through a check list. You put a pressure relief system in to prevent unintended water pressures, and if you take it out, you need to make sure that all the sources of pressure are accounted for. It's like taking off your seat belt, right. You better make sure you have all the other safety features in place.

302 Mr Boncardo accepted that it would have been necessary to provide underdrainage if groundwater had been discovered in the course of geotechnical investigation (T219.39-.42). However, he said, if the presence of groundwater was (I interpolate, no more than) "suspected", then the inclusion of underdrainage was "a question of judgment and it's the possibility of that occurrence" that required assessment (T219.50). He accepted that he had not asked Douglas Partners to report on "the probability of... occurrence" of groundwater in the future (T220.1-.2).

303 As to this last point: Mr Simpkins submitted that DOC was entitled to take comfort from the Douglas Partners report dealing with construction issues. That was so, he said, because "it would be when advising about construction requirements that a geotechnical consultant that had conducted investigations... would include any advice about a perceived groundwater risk" (closing written submissions at [72(b)]). However, in relation to construction requirements, Douglas Partners advised on the questions that were raised with them. As Mr Boncardo acknowledged, those questions did not deal with groundwater. Thus, the absence of comment as to groundwater is not significant, and could not bear the weight that Mr Simpkins sought to put on it.

304 Mr Christie placed great stress on the fact that Professor Benson's opinion was uncontested by Professor Rowe. But it was not entirely uncontested. Nor is it correct to say, as Mr Christie submitted, that the two relevant design experts were Professors Benson and Rowe. Professor Khalili and Doctors Burman and Redman also gave evidence relevant to the question of whether underdrainage was necessary.

305 Dr Redman pointed out, correctly, that the geotechnical investigations undertaken by Coffey and by Douglas Partners were undertaken at times of low rainfall. Thus, he said, their observations could not be taken as suggesting that groundwater would never be present. This is undoubtedly correct, at least as a matter of common sense.

306 I do not think that Professor Khalili and Dr Burman had a different view, at the level of principle. However, their view was that even if groundwater did travel towards the site, by reason of heavy rainfall, it would not cause a problem. They gave at least two reasons for this.

307 Dr Burman pointed out that, because the slope of the site was generally from west to east, with the ground to the west of the site being higher than the site and the ground to the east of the site being lower, one would expect any infiltrating groundwater, caused by heavy rainfall, to come from the west. Dr Redman, I think, agreed with this. At the western end of the site, as Dr Burman pointed out, transient groundwater would meet the western face of the IDALs. Because the underlying rock was there heavily fractured, it was Dr Burman's view that any transient groundwater meeting the IDALs would drain away, and would not cause a problem further downstream. Again, I think, Dr Redman accepted this view.

308 Transient groundwater passing through the area of the central embankment (between the two IDALs) would not be intercepted and drained away. Thus, there was still potential for this groundwater to travel to the eastern ends of the IDALs and, more importantly, to the EB (which lay to the east of the IDALs). The "unprotected" part of the site to the west (i.e., the part where the north - south drain was interrupted) was relatively small compared to the total length of that drain. The drain, if properly constructed and maintained, would have intercepted the great bulk of transient groundwater traveling down from the west of the site.

309 The second reason was that, in general, transient groundwater would follow the groundwater contours, along the plane of the bedrock. Thus, to the extent that groundwater was not diverted away at the western faces of the IDALs, it would be likely in any event to pass under the eastern end of the IDALs and under the EB.

310 Dr Burman said, referring to observations that had been made of a deep excavation adjacent to the IDALs, the base of which was much lower than the base of the IDALs, that the regional groundwater table at the time was probably between 16 and 20 metres below the base of the IDALs.

311 As I understand it, Dr Redman did not dispute this view. However, he said, the risk was not so much from the regional groundwater table but what he called a "perched water table" that might develop during times of heavy rain, above the regional groundwater table.

312 Dr Burman identified "a prime location where you might expect to find a perched water table" at a location identified, by reference to a deep borehole, as "DBH 4". That location is to the south of the IDALs. It is at the foot of a steep embankment, down which one might expect surface water to flow. However, Dr Redman said "that in fact surface water at that location will be taken away quite effectively" (T486.21), which I understand to indicate that it was unlikely to flow down into, or to create, a perched water table.

313 More generally, as to the likelihood of groundwater (excluding from the IDALs), Professor Khalili and Doctors Burman and Redman stated, in their joint report:

In relation to natural sources we agree that it is not possible to quantify the rates of supply for groundwater based on the available geotechnical data. We agree that there was no groundwater

recorded during the Coffey investigation to depths of 3 to 4m in March and July 2003 or in the Douglas investigation at depths generally between 2 and 7m in November-December 2004.

We would expect that shallow groundwater would respond to shorter term climatic influences and may be expressed as ephemeral perched water sources. The regional groundwater response would be expected to vary over longer time cycles.

There is information from the 14 June 2006 report of Consulting Earth Sciences of the presence of groundwater at varying depths outside of the Tanks. In location 4 to the south of IDAL2 it appears

the groundwater was about 3.2-3.5m below the base of the IDALs when measured on 22 May 2006.

314 To the extent that they are relevant, observations made at the site before and after remediation works were carried out (which was during May to October 2007) recorded no indication of groundwater.

315 It is important to note that CH2M's criticism of DOC's approach to the design was based on the evidence of Professor Benson. As I have said, the principal plank in Professor Benson's reasoning was that if an important safety feature such as underdrainage were to be deleted, it would be necessary to carry out checks adequate to show that the integrity and safety of the structures would not be compromised. He said that he had found no evidence in the documents provided to him that such checks had been carried out.

316 Underlying this aspect of Professor Benson's evidence were the results of modeling and experiments that he had carried out. The modeling involved the use of a software program that, as I understand it, simulated the effect of water pressure behind structures such as those in question. The experiments consisted of building a bench-scale model of an embankment wall, complete with earthen subgrade, GCL and overlying concrete panel, and testing the entry of water, and the effects thereof, in various ways.

317 Certainly in the case of the bench experiment, and I think also in the case of the computer modeling, what was simulated and tested for was the effect of water entry from the top of the structure. Translating that to the IDALs and the EB, what was simulated was surface water entry from behind or under the kerbs and into the transmissive zone between the subgrade and the underside of the GCL.

318 If there had been a perimeter seal (including, in the present case, if the GCL had been installed according to the manufacturer's guidelines, by the use of an anchor trench) then Professor Benson's modeling would have been irrelevant. However, as Professor Benson pointed out, it would still be necessary to ensure that water would not collect behind the panels by other means; and, in this context, "surface water... [is] just one mechanism that water flows by" (T359.34).

319 It cannot be suggested that DOC was obliged to provide a design that guarded against every risk, no matter how remote the risk and how expensive the provision of the guard. Its obligations included the provision of "effective, efficient and economical solutions to satisfy the performance objectives and other requirements set out in the Brief". In pursuit of that obligation, DOC was obliged "to provide details of alternative proposals that satisfied these objectives and requirements". (In each case, the quotation comes from cl 8.1 of the general conditions forming part of the design contract.)

320 Thus, although the Connell Wagner concept provided by Sydney Water to CHBM, and by CHBM to DOC, specified underdrainage, DOC was not obliged to include underdrainage in its design. It would only be required to do so if it was necessary to satisfy the performance objectives and other requirements set out in the brief, and if there were no (equally effective and efficient and more economical) proposals that would do so.

321 In essence, CH2M's case is that underdrainage is necessary because it has not been show not to be necessary. That seems to me to transfer the onus of proof. It is CH2M that alleges breach of contract. CH2M must show that it was a breach of relevant provisions of the design contract for DOC to provide a design that did not include underdrainage. It cannot satisfy that onus by saying, in substance, that DOC has not justified its decision to do so. But that, in short, is the criticism that Professor Benson makes of DOC's design.

322 The reasons that Mr Boncardo gave for omitting underdrainage have not been said to be irrational. Mr Christie criticised Mr Boncardo's opinion that groundwater had not been demonstrated at the site, saying that neither the Coffey preliminary report nor any of the Douglas Partners reports went so far. That is correct, in the sense that to the extent that any of those reports dealt with groundwater, they said no more that that it had not been detected during the testing that was carried out.

323 However, it was the somewhat inconclusive nature of the Coffey preliminary report that led Mr Boncardo to require further geotechnical testing. That in turn produced the three reports of Douglas Partners.

324 There has been no challenge to Mr Boncardo's view that the site stood well above the flood plain. Nor has there been any challenge to his view that the lowest point of the excavations would be some metres above the highest point of the one in one hundred and maximum probable flood levels referred to in the design specification (which of course formed part of the "Brief").

325 Even if I were to conclude, contrary to Mr Boncardo's oral evidence, but in accordance perhaps with his affidavit evidence, that he did not have in mind, at the time he recommended the deletion of underdrainage, the fractured nature of the underlying bedrock, that does not make it irrelevant. There is unanimous support from the geotechnical experts for the proposition that, at least to the extent that the lagoons are underlain directly by bedrock, it will (as Dr Burman said) act as a natural drain. There is some dispute between them as between as to the efficacy of this natural drainage. However, I think, Dr Burman's analysis, described at [307] to [309] above, is convincing.

326 Equally significant, in this context, is the view of Dr Burman, apparently shared by Dr Redman, that the likelihood of a perched water table developing at the point "DBH4" to the south of the IDALs, is remote. That point is one where surface water will be channeled in times of heavy rain. But any water that collects will, on Dr Redman's view, drain away; it will not form or add to a perched water table.

327 Thus, there remain two factors to be considered. One is that part of the IDALs and all of the EB are underlain not by bedrock but by compacted fill. The other is that Dr Burman's reasoning, which as I have said I find convincing, does not necessarily apply to the area between the IDALs.

328 Nonetheless, in relation to both these factors, Professor Khalili and Dr Burman were of the view that such groundwater as penetrated between the IDALs would be likely to follow the natural slope, and to drain away to the east. Thus, Dr Burman said (and Dr Redman did not disagree) that "the upper transient groundwater would follow the groundwater contours... and... would be disposed of through the natural underdrainage system" (see the longer answer commencing at T483.29; in particular, at .40-.42, .48-.49).

329 Further, Dr Redman did not say that groundwater would be experienced, in sufficient quantities and at such locations, as to pose a threat to the stability of the lagoons and the embankments. Taken at its highest, his evidence was to the effect that:

(1) the absence of groundwater, as shown by the investigations carried out and subsequence observations up to and including 2007, did not mean that groundwater would not be experienced over the 50 year design life of the lagoons;

(2) this was so, a fortiori, where the geotechnical observations had been made during a period of extremely low rainfall;

(3) the general topography of the area where the STP was located meant that it was likely that groundwater would flow through the site from west to east;

(4) there was a risk, notwithstanding the fractured nature of the underlying bedrock, that a perched water table might develop; and

(5) there was a risk that if such a perched water table did develop, it might not drain away before it caused damage, particularly in areas where the lagoons were founded on compacted fill rather than on bedrock.

330 I accept the logic of Dr Redman's evidence, as I have summarised it. But it does not follow that the design was defective. I repeat that DOC was not obliged to provide a design that took account of, and guarded against, all possibilities of harm, no matter how remote. Its obligation was to provide what might be summarised as cost effective solutions that would achieve the design objectives - including, of course, a 50 year maintenance free service life for the lagoons. As Mr Boncardo in effect said (see at [302] above), that requires an assessment of the remoteness of the risk.

331 In this case, I conclude that the risk of accumulation of groundwater, in quantities sufficient to threaten the stability and durability of the lagoons, was remote to the point where the decision to exclude underdrainage was justified. I accept that the detailed analyses made by the geotechnical experts provide more, in the way of support for this view, than the analysis by Mr Boncardo at the time. But the question is not so much whether Mr Boncardo's reasoning was insufficient, or defective; but, rather, whether his design decision was correct. To put it another way, the question is whether an experienced and competent designer, exercising reasonable care and taking into account known and likely circumstances, could have made the decision to delete underdrainage.

332 On balance, I prefer the evidence of Professor Khalili and Dr Burman to that of Dr Redman, to the extent that there is a disagreement. In truth, the areas of disagreement are limited. Professor Khalili and Dr Burman think that the risk of damage is so remote as to justify the exclusion of underdrainage. Dr Redman thinks that it is not.

333 One factor taken into account by Professor Khalili and Dr Redman is what in their view is the unlikely concatenation of conditions that would be necessary to occur to bring about a real risk of failure. Those conditions are:

(1) the accumulation of sufficient groundwater;

(2) the softening of the fill at the toe of the embankment; and

(3) the emptying of a lagoon (i.e., removing the restraining pressure that the liquid within the lagoon would exert against heaving of the concrete panels).

334 For convenience, I repeat both areas of agreement from the joint report of the three geotechnical experts and the comment that Professor Khalili and Dr Burman make as to the coincidence of those factors:

[1. Agreement.]

We agree that for groundwater to be a problem a number of factors need to co-exist: these are the presence of groundwater at a sufficient elevation, storage and supply capacity and the presence of interconnected gaps behind the panels.

We agree that for for swell to be a problem there would need to be clay subgrade, wetting up of the clay and variation in the swell response to produce a differential movement affecting the lining

system. We agree that clay subgrade exists in the eastern half of IDAL1 and over a lesser part of IDAL2. The Douglas Partners boreholes indicate thicknesses of up to 1.3m.

We agree that there is the potential for swell movement of up to about 20 to 40mm embankments where underlain by a clay subgrade. Near the toe of the embankment a differential movement could be expected at the construction joints. These will be less than the maximum movements experienced by each panel (BCB considers that it would be significantly less).

We agree that for local instability near the toe of the embankment to be a problem there would need to be saturation near the toe, no cohesion in the embankment materials, with some excess pore

pressure and little resistance from the concrete panel.

[2. The views of Professor Khalili and Dr Burman.]

BCB, NK: We agree that it was reasonable based on these observations for a competent designer to conclude that groundwater would not be a material factor in the design because the coincidence of the factors noted above coinciding with a period of maintenance is judged to be very unlikely.

We accept it is important that excess water pressures do not coincide with the need to empty the tanks for maintenance albeit that such works are understood to be at decade intervals or even less frequently. If water from natural sources were to be an issue then they would have active at those infrequent times and to be unrecognised by operating personnel. Given the lack of evidence for any, let alone any significant natural source and topographic constraints noted above, the likelihood of adverse uplift pressures is minimal.

Drainage of the pavement in the long term would not be an issue even if the PGR scenario was assumed to be realistic because external water pressures would be ineffective while the IDALs

were in operation and could only possibly become a problem during infrequent maintenance and that would require the coincidence of the postulated adverse drainage conditions, intense rainfall, ponding of water, empty tanks and the presence of significant interconnected gaps between the panels and the embankment face.

335 As Dr Burman said it in the course of his oral evidence (T494.24-.26):

... the combination of conditions, which themselves might not be improbable, results in an end result which becomes improbable. The compounding of probabilities.

336 I have referred more than once to the criticism of the views of Professor Khalili and Dr Burman, based on the proposition that part of the IDALs, and all of the EB, were constructed over fill rather than bedrock. Inherent in this criticism is the proposition that the compacted fill is "impermeable". It is of course more impermeable, or less permeable, than the fractured bedrock. So much was common ground. However, the real question is whether it is impermeable to the extent that it will prevent the drainage of any groundwater that collects, and thus enable upward force to be exerted on the GCL and overlying concrete.

337 One of the assumptions made by the geotechnical experts for the purposes of their analysis was that the subgrade was impermeable. Professor Khalili specifically made that assumption because it was the most conservative assumption (i.e., an assumption as to a condition which would most favour the retention rather than the deletion of underdrainage).

338 Dr Burman made the same assumption, for the same reason. However, he said (T495.8-.9):

... I would add that I think the assumption of an impermeable subgrade is, itself, improbable.

339 The significance of this is that if, as Dr Burman appears to think, the compacted subgrade is not highly impermeable, then it would still permit water to drain away. Thus, as I understand this aspect of Dr Burman's evidence, his view as to the real - life permeability of the subgrade is such as to render even what he and Professor Khalili characterise as the improbable combination of circumstances unlikely to cause harm, because a necessary underlying assumption is itself unlikely to be satisfied. To put it another way, if Dr Burman's view as to the permeability of the subgrade is correct, the combination of factors that he and Professor Khalili identify as necessary before any problem could arise will not be likely to have harmful consequences.

340 I accept Dr Burman's characterisation of the improbability of the assumption of an impermeable subgrade. That opinion was given during a concurrent evidence session. Dr Redman was one of the concurrent expert witnesses. To my observation, whenever anything was said which Dr Redman thought to be wrong, or doubtful, or to require rebuttal, he was prepared to offer his views. I do not say this critically. The concurrent session was conducted (as were all the concurrent sessions) courteously and professionally. Nonetheless, each of the witnesses appeared to me to respond in detail, and with reasons, whenever he thought it was appropriate to do so.

341 Thus, if Dr Redman had a different view of the impermeability of the subgrade, I think it likely that he would have expressed it. That he did not disagree seems to me to justify acceptance of Dr Burman's opinion on this point.

342 Taking into account the whole of the evidence (and I have dealt only with what I perceive to be its salient and relevant aspects), and taking into account that Professor Benson's criticism of the decision to delete underdrainage is not that it has been shown to have been unjustified but, rather, that it has not been shown to have been justified, I conclude that DOC was not required, in the performance of its obligations under the design contract, to specify underdrainage to deal with groundwater.

343 Unfortunately, that conclusion does not exhaust the topic of underdrainage. Although Professor Khalili and Doctors Burman and Redman appeared to treat the issue of underdrainage as relevant to the issue of groundwater, Professor Benson maintained that it was necessary to take into account also the flows and possible intrusion of surface water. At this point, the questions in relation to underdrainage and the questions in relation to the provision of a perimeter seal intersect.

344 Mr Boncardo dealt with the design decision to specify a GCL lining for the lagoons at various places in his principal affidavit (sworn 13 May 2011). It is clear, from that affidavit, that:

(1) Mr Boncardo was well aware of the characteristics of GCLs in general, and of Bentofix X 2000 in particular;

(2) in Mr Boncardo's view, GCL had two functions: "both to retain liquid within the [IDALs and EB] and to prevent the movement of water into the embankment and base to the extent that saturation could occur, with the potential to cause buoyancy and slab panels lifting and embankment instability when the [IDALs and EB] were emptied" (para 97);

(3) Mr Boncardo knew that GCLs required anchoring and support, in particular when installed on slopes;

(4) he knew also that the various manufacturers or suppliers of GCLs specified anchor trench designs as a means of anchoring and support, although details of their particular designs differed;

(5) in Mr Boncardo's opinion, anchor trenches serve two purposes: first, to anchor and support the GCL during installation; and secondly, "to reduce the potential for infiltration or passage of surface water (i.e., rainfall) behind the GCL" (para 123); and

(6) Mr Boncardo was aware of the contents of the installation guidelines provided by Geofabrics and by other manufacturers or suppliers of GCLs.

345 Mr Boncardo said, and I accept, that the reason for stating only that the GCL should be installed "to manufacturer's guidelines" was to accommodate what he knew were the somewhat different guidelines of the various manufacturers or suppliers, given that CHBM could have chosen some product other than, but equivalent to, Bentofix X 2000.

346 Mr Boncardo was given to understand (by CHBM), before the Bentofix was laid, that a representative of the supplier would attend site to supervise the installation if necessary (para 130, referring to minutes of a site meeting held on 11 April 2005 which he received and read). Mr Boncardo understood from this, not unnaturally, that CHBM "would install the GCL in accordance with the guidelines published by the manufacturer".

347 When Mr Boncardo received RFI 014, he understood from it (as it indicates clearly) that CHBM "was proposing to install the GCL in a way that "was generally consistent with the Bentofix manufacturer's requirements, which I understood at that time... require an anchor trench at" the crest of the embankment (para 131).

348 As I have noted already, DOC's response to RFI 014 was to refer CHBM back to "the manufacturer". Mr Boncardo said that the reason for doing this was "that the precise shape and dimensions of the anchor trench were a matter for the manufacturer... to confirm" (para 132).

349 I do not think that those aspects of Mr Boncardo's evidence were challenged; and in any event, I accept them. They are consistent with what I would expect from an engineer of Mr Boncardo's great experience, and they conform with what in my view is common sense.

350 It follows from those aspects of Mr Boncardo's evidence that he expected that DOC's design would be followed, and that the GCL would be secured at the top of the embankments by anchor trenches for each of the lagoons. It follows, further, that Mr Boncardo understood (and intended) that this would have not only the primary effect of anchoring the GCL during installation process, but also the important secondary effect of reducing the potential for surface water to infiltrate behind the GCL. As to this latter point: the view of Professors Bensons and Rowe is that it would do more than reduce the possibility; it would negate it.

351 I accept, further, that Mr Boncardo had no understanding, at any relevant time, that this aspect of DOC's design would be varied, or that, by deletion of the anchor trench, the secondary function of protecting against infiltration of water would be lost.

352 It is clear that the installation of the GCL using an anchor trench, with the top of the GCL above top water level in the lagoons, would effectively prevent the infiltration of surface water behind the GCL. Thus, it would serve as a perimeter seal. Accordingly, whilst I accept Professor Benson's evidence that, in considering the need for underdrainage, it is necessary to consider the availability of water from all sources, nonetheless I conclude that the provision of an anchor trench would have meant that surface water could be excluded as a source of water in the embankments.

353 For those reasons, I conclude that DOC did not breach its obligations under the design contract by producing a design which did not include underdrainage.

Perimeter sealing

354 For the reasons that I have given, I conclude that DOC was entitled to proceed on the basis that its design, if followed, would have included an effective perimeter seal. That is because the installation of the GCL using an anchor trench would have provided such a seal.

355 Accordingly, there was no reason for DOC to specify some other form of perimeter seal.

356 I have not overlooked that Mr Boncardo thought, in any event, that there would be a sufficient perimeter seal because the areas between the lagoons would be paved, with the paving butting up to the concrete kerb (with a flexible filler between them). The underlying design intent was that rain water would travel from the centre to the edges of the pavement, and be collected in what was in effect a gutter between the pavement and the kerbs of the lagoons. It would then be carried away because of the natural (although slight) slope in the pavement.

357 The slope in the pavement was so slight that it is likely that, particularly during heavy rain, surface water would have ponded against the kerb of the lagoons for some time. That however would only be a problem if there were cracks in the filler between the pavement and the concrete kerbs. Criticism was made of this aspect of the design, because it was said that:

(1) cracking was likely, if not inevitable; and

(2) the efficacy of the seal would be compromised to the extent that there were such cracks.

358 I accept that, as the pavements expanded and contracted (as they would do in the ordinary way), it is likely that cracks would develop in the flexible filler. However, it has not been shown that cracks would develop to the extent that they would pose a serious threat to the functional integrity of this method of sealing the embankments from rainwater.

359 Further, as Dr Burman said, I would expect Sydney Water, as the operator of the STP, to have a program for inspection and maintenance of the plant. A properly designed inspection program should detect and repair significant cracking.

360 It may be said that it is not good design to create a risk of damage, and to rely on the operator to guard against that risk through inspection and maintenance. But here, again, there would need to be a combination of factors to make the problem significant.

361 First, there would need to be cracks of sufficient extent to permit the ingress of substantial quantities of surface water (bearing in mind the position agreed between Professors Khalili and Benson that of the order of 700 litres of water would be necessary to create sufficient pressure to cause deflection and cracking of the concrete panels at the toe of the embankment).

362 Secondly, that cracking must remain unobserved, or if observed unrepaired, until a significant rainfall event occurred.

363 Thirdly, there would be needed a rainfall event of sufficient magnitude to cause water to stand or pond against the kerbs.

364 Fourthly, the rainfall event must be such, either as to intensity or duration or both, to mean in effect that there was standing water for sufficient time for water to penetrate the cracks in sufficient quantities to have the potential to cause damage.

365 Fifthly, as with the underdrainage issue, those four conditions would need to coincide closely with the emptying of a lagoon, so that the restraining pressure of the contents of the lagoon was removed.

366 In those circumstances, I do not think that the chosen method of perimeter sealing was inadequate, or that the decision to pursue perimeter sealing by this means resulted in a breach of DOC's design obligations.

367 But even if I were wrong in this, and if it should be held that the risk of cracking was such as to pose a real threat to the integrity of the embankments, nonetheless I conclude that it is a non-issue, simply because the sealing function should have been served by the anchor trenches that, as DOC indicated, should have been installed.

368 For the reasons I have given already, DOC intended, and was entitled to expect, that there would be perimeter sealing in any event, through the anchor trenches that were to be (and should have been) installed.

Cation exchange

369 The court was treated to a substantial quantity of expert evidence dealing with this topic. It is common ground between Professors Benson and Rowe that cation exchange will occur when sodium bentonite is placed in an environment where there are freely available calcium cations. That means:

(1) there must be calcium cations in the environment adjacent to the sodium bentonite; and

(2) there must be moisture present in sufficient quantities to facilitate the process of cation exchange.

370 Professor Benson said that those conditions would be met when the wet concrete (a substance rich in calcium cations) was placed over the GCL. Professor Rowe agreed that these conditions would be conducive to the process of cation exchange.

371 Professor Benson said that in circumstances where the lagoons were filled with water (and of course other substances), the process of cation exchange would continue, even after the concrete had cured fully, because water would be available at the interface between the concrete panel and the GCL. Professor Rowe did not share Professor Benson's opinion as to the extent to which cation exchange would continue.

372 The disagreement, as to the ongoing rate of cation exchange, was based on differing views as to the presence of moisture at the interface between the concrete and the GCL. It was common ground that the flexible filler between the individual concrete panels was not (and was not intended to be) watertight. Thus, water could pass through that flexible filler. However, Professors Benson and Rowe agreed that when concrete was laid over a GCL containing sodium bentonite, the concrete and the GCL effectively bonded together. Thus, Professor Rowe was of opinion that, even allowing that water could penetrate through the joints between the panels, nonetheless it could not penetrate to any great extent into the interface between the concrete and the GCL, having regard to the bonding to which I have referred.

373 If it were necessary to express a concluded view on this point (and I have to say that I feel more than usually diffident at having to choose between the views of two such eminent experts), I would prefer Professor Rowe's view. That is because, to the extent that common sense is relevant, it suggests that it would be unlikely for water to penetrate to any great extent into what was described as being a close bond between the concrete and the upper layer of the GCL.

374 Further, as Professors Benson and Rowe agreed, cation exchange could take place between the sodium bentonite in the GCL and the underlying subgrade, to the extent that there was calcium - containing material in that subgrade and that moisture was present. It appeared to be common ground that the natural clays would contain some calcium, although there was disagreement as to the extent of its abundance in those clays. Further, of course, water would need to be present to facilitate the process of cation exchange. Professor Benson appeared to think that the water present in the clays at the time of compaction would be sufficient. Again, I think, Professor Rowe did not agree.

375 On the view that I have come as to the proper construction of DS-505.22.3 (see at [110] to [131] above), it was not necessary that the lagoons should comply with the requirements of AS 3735 over the whole of their design lives. It was however necessary that, over that time, they should meet the EPA guidelines as to the maximum permissible leakage rate.

376 Professor Benson calculated, on various assumptions (not all of which have been shown to be appropriate), that over the life the GCLs, their permeability might increase. At the outset, as required by AS 3735, the maximum permissible leakage rate was 1.3mm per day (Professors Benson and Rowe agreed on this). Professor Benson calculated that, over the 50 year design life of the lagoons, this leakage rate might increase to 5.5mm per day. However, Professor Benson calculated (and Professor Rowe agreed), the maximum leakage rate permitted under the EPA guidelines was 52mm per day.

377 Thus, even if the process of cation exchange occurred to the extent suggested by Professor Benson, it would not increase the permeability of the GCL to a point anywhere near sufficient to create a risk that leakage would exceed the amount allowable under the EPA guidelines.

378 Putting the matter in terms of contractual obligations, the projected maximum leakage rate would be nowhere near a rate that would demonstrate that the design was not fit for its purpose, or serviceable without maintenance over a 50 year life span.

379 I have dealt with the matter in terms of Professor Benson's calculations because they are, from CH2M's perspective, the more favourable. I should however note that Professor Rowe produced different calculations which showed much lower leakage rates over the life of the lagoons.

380 It is extraordinarily difficult for a court to conclude in favour of one expert rather than another, where:

(1) each expert is among the leaders in the world in the particular field of expertise;

(2) each expert gives what the court perceives to be frank and truthful evidence to the best of his ability;

(3) the evidence depends on assumptions which the court entirely lacks the expertise to judge; and

(4) in any event, the area of expertise is abstruse.

381 Each of those requirements is satisfied in the present case.

382 Nonetheless, were it necessary to do so, I would accept Professor Rowe's calculated leakage rates in preference to Professor Benson's. That is because Professor Rowe's leakage rates are calculated not on the basis of assumptions which require justification, but by reference to the results of testing that he has carried out, over some period of time, in conjunction with a student or research associate, Mr Hosney. Although those practical experiments have not continued for long enough to model the behaviour of the liners over the specified 50 year design life, nonetheless, so far as they go, they provide a factual foundation for Professor Rowe's calculations.

383 Professor Benson did not criticise the design or methodology, or for that matter the results, of the experiments. He said, and I accept, that they had not continued for long enough to provide any realistic modeling of the performance of the lagoons over a 50 year period. Nonetheless, they provide the only factual evidence that is available.

384 Thus, as I have said, Professor Rowe's evidence being based on factual observations, I would if necessary accept it on this point in preference to the evidence of Professor Benson.

385 There was some debate as to the extent to which a designer in DOC's position should have been aware of, and where necessary guarded against the results of, the mechanism of cation exchange. Professor Benson's evidence satisfies me that the process had been known for sufficiently long, and publicised in a sufficient number of journals and elsewhere, to make it available to a competent designer. I am persuaded further, not withstanding Dr Burman's protestations, that a competent designer in DOC's position should have kept itself abreast of the literature in areas relevant to its design, and that if DOC had done so, it would have become aware of the phenomenon.

386 In fact, I think, Mr Boncardo was aware of the process of cation exchange. Whether or not his design team were I do not know, because the relevant designers did not give evidence. In the absence of that evidence, I would infer, were it necessary to do so, that they were aware of the process.

The assignment

387 The result of the conclusions that I have expressed is that the plaintiff's claim must fail. Thus, it is unnecessary to consider the issues as to the assignment, or the extended debate as to whether (in the absence of an effective assignment) CH2M could in any event recover the whole of the loss sustained by the joint venture as a result of any breach of contract on the part of DOC.

388 In those circumstances, I will do no more than say that, in my view, the assignment was valid. It is clear that an assignment of a bare right of action may be upheld where the assignee has a genuine or substantial commercial interest in the suit. See Gummow and Bell JJ in Equuscorp Pty Ltd v Haxton (2012) 86 ALJR 296 at [79].

389 The liability of BM and CH2M to Sydney Water under the head contract was joint and several. Assuming (against my conclusions above) that their breaches of that head contract flowed at least in part from breaches by DOC of its obligations under the design contract, that joint and several liability would in my view be sufficient to give CH2M a sufficient interest to support the assignment.

390 I add, further, that if I had concluded that DOC did breach its obligations under the design contract, and cause loss to the joint venturers thereby, but that the assignment was not valid, I would have given favourable consideration to an application for leave to join BM, even at this late stage, so that the claim would not fail for want of parties. But again, that is hypothetical.

Damages

391 On the view to which I have come, it is not necessary to deal with the question of damages. Nor is it possible to express even tentative or preliminary conclusions. Consideration of the question of damages requires, as a starting point, identification of the breach of duty, and then of the consequences of that breach of duty.

392 In this case, there was a contest as to whether repair of the embankments would have been sufficient (as DOC said), or whether (as CH2M said) the design was so deficient as to require that the works be demolished and reconstructed according to a different design.

393 On the view to which I have come, DOC's design was not deficient in any way. If, however, it were concluded that the design was deficient, it would be necessary to consider the nature of that deficiency and whether it could be made good in the process of repair, or whether it was so great as to require demolition and reconstruction.

394 I do not think that it is either appropriate or helpful to speculate on those matters.

395 Further, any consideration of damages would raise the question of contributory negligence. For the reasons indicated at [78] above, that is only relevant if the breach of design obligation is in substance a breach of a duty of care, even though contractual in origin. Once that is dealt with (and assuming that it is dealt with against CH2M), it would be necessary to consider the respective contributions of CHBM and DOC to the loss. Again, that would require close attention to the precise breach of obligation and its consequences.

396 Again, I think it neither appropriate nor helpful to speculate on those matters.

397 However, what were said to be questions of principle in relation to assessment were raised. I said, in the course of the hearing, that I would if necessary decide those questions of principle, and then (if the parties could not agree on the outcome) send the question of damages out to a referee for assessment should it be necessary to do so.

398 The suggested questions of principle related to:

(1) the basis on which indirect costs should be calculated; and

(2) whether any damages assessed should include an allowance for corporate overheads.

399 It might be thought that the difference between the subject of indirect costs on the one hand, and corporate overheads on the other, is elusive: given that in a number of cases the expression "indirect costs" appears to be used as synonymous with "corporate overheads". However, in this case:

(1) the expression "indirect costs" was used by both experts, Messrs Griffith (for CH2M) and Tozer (for DOC) to refer to project costs other than, or excluding, "direct costs associated with the execution of the work" (to quote Mr Griffith at T568.40); and

(2) the expression "corporate overheads" was used to refer to offsite standing overhead costs.

400 In short, as I understand it, the distinction that it was made is between onsite, or project-specific, standing or overhead costs on the one hand, and offsite corporate overhead costs on the other.

401 Mr Griffith explained in more detail the concept of indirect costs, as he and Mr Tozer used that expression (T569.1-.9):

WITNESS GRIFFITH: In all my reports where I've used to indirect costs I refer to on site indirects and they are costs such as managers, the administration staff on the proposal, the site establishment. Costs which you need to run the project which are not associated with any particular direct activity, any particular direct construction activity. So the majority of those costs are staff costs your overhead or sometimes called unproductive staff. They are people who are there looking after the whole of the project rather than being involved at the work face on any specific job.

402 Mr Tozer said that he agreed "in principle" with that classification, or distinction (T570.15-.19). However, he said, it was necessary to go to the project records to see how the particular costs were coded, to understand how they should be classified (T570.20-.28).

403 As the concurrent evidence session involving Messrs Griffith and Tozer proceeded, it seemed to me that the distinction between onsite productive and non-productive costs (the latter being "indirect costs" in the jargon of this case) became less one of principle and more one of impression; or, perhaps, more one of fact.

404 Having reviewed the whole of the evidence given in concurrent session, on the topic of indirect costs (and having reviewed the underlying reports and joint report), I have concluded that there is no real question of principle that is capable of being isolated or identified, and resolved. Had it become necessary to consider the question of quantification of damages, I would have left this aspect of the process of quantification at large, for the referee to deal with.

405 Corporate overheads (being the offsite costs necessarily incurred by a contractor to sustain the whole of its business operations) are relatively well-understood. As has been said, the concept of corporate overheads "represents the contribution of the project to the general overheads of the contractor for all its business activities. ... it is part of the expense of conducting the... business, which expense is incurred whatever happen to a given project". (See Byrne J in AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No.3) [2008] VSC 315 at [10].)

406 As Giles J pointed out in Thiess Watkins White Constructions Ltd v The Commonwealth (1992) 14 BCL 61 at 77, a claim in respect of corporate overheads is really a claim for loss of opportunity: loss of the opportunity to make, and earn profit under, another contract. Thus, the entitlement to recover corporate overheads depends on showing, among other things, that the contractor did not have sufficient resources, or flexibility, to enable it to take other work notwithstanding the problems in the subject contract.

407 In Banabelle Electrical v State of New South Wales [2005] NSWSC 714, I referred to what Giles J said in Thiess Watkins White, and to what his Honour had said (to similar effect) in Bulk Materials (Coal Handling) Pty Ltd v Compressed Air and Packaging Systems (NSW) Pty Ltd (1997) 14 BCL 109 at 133 - 135. At [142], I drew from those cases the proposition that "it is in principle wrong to make an allowance for recovery of an offsite (or head office, or fixed) overhead, or loss of profit, unless there is a basis for concluding that they could have been recovered or earned through the performance of other profitable work... where the effect of... delay is to prevent the contractor from undertaking other profitable work".

408 I remain of that view. Further, I remain of the view that the entitlement to corporate overheads is not just a question of principle, but is entirely fact-dependent. It must be shown that the breach of contract for which damages are claimed resulted in, among other things, the loss of opportunity to undertake profitable work, from which further work corporate overheads could have been defrayed.

409 The submissions for CH2M asserted that DOC's "breaches of contract and negligence resulted in the Project taking longer than it would otherwise have taken" (written closing submissions at [270]). This is correct, having regard to the joint report of the programming experts, Mr Marinovich (called for CH2M) and Mr Tozer.

410 Those submissions said, further, that the question of causation (whether DOC's breaches of contract prevented "CH2M" from earning corporate overheads on another project") should be dealt with by a referee (at [278]).

411 Whilst I accept in principle that if the question of recovery of corporate overheads requires decision, then it ought be referred to a referee, I do not accept that CH2M should have a further opportunity to put on evidence to deal with the question of causation. Any submissions to be put to a referee (or, for that matter, to the court) should be based on the evidence that has been adduced. I take that view, because this matter was originally set down for hearing on all issues. DOC was entitled to expect (as was the court) that CH2M had put on all its evidence on all issues, including causation and quantification of damages.

412 In circumstances where the parties have addressed on the question, and where DOC has put a submission that there is no evidence of loss of the opportunity to undertake other profitable works from which corporate overheads might have been defrayed, it would in my view be inconsistent with the requirements of s 56 of the Civil Procedure Act to permit CH2M to take advantage of what has happened, and to seek to improve its case on this point.

Conclusion and orders

413 It follows from what I have said that DOC did not breach its obligations under the design contract in the ways alleged by CH2M. Further, the failures of the lagoons that occurred in February 2007, following the heavy rains of that month, were caused by various deficiencies in CHBM's performance of its construction obligations, including specifically its unjustified omission of an anchor trench to secure the GCL, and the poor and uneven compaction of the embankments. The prolonged exposure of the GCL to the elements before the concrete panels were cast over it also played some part.

414 Accordingly, the proceedings should be dismissed. I make the following orders:

(1) Order that the proceedings be dismissed.

(2) Order the plaintiff to pay the defendant's costs.

(3) Direct that any application for a special or further order as to costs be made by notice of motion filed and served, together with its supporting affidavit, within 14 days.

(4) Order that the exhibits be handed out.

**********

Decision last updated: 27 August 2012