Theiss Pty Ltd and John Holland Pty Ltd v Parsons Brinckerhoff Australia Pty Ltd [2016] NSWSC 173

The recent decision of the Supreme Court of New South Wales in the matter of Theiss Pty Ltd and John Holland Pty Ltd v Parsons Brinckerhoff Australia Pty Ltd [2016] NSWSC 173 demonstrates how courts approach the difficult legal issue of which party or parties were likely responsible for a major structural collapse.

Background

• In early November 2005, part of the Lane Cove Tunnel (“the Project”) collapsed, causing many millions of dollars of damage to plant and equipment and nearby residential property. The collapse was described collectively by the expert witnesses in the case as “…a chimney-like progressive unravelling failure… chimneying occurs when a stable arch does not form in the roof of an excavation and the conditions exist for that failure to propagate…it occurs primarily because of low ground quality, adverse geological discontinuities and geometry…”.
• As head contractor in charge of design and construction, Theiss Pty Ltd and John Holland Pty Ltd (together, “TJH”) lost a substantial amount of money as a result of the incident. TJH sued a number of sub-contractors for damages, claiming each one had breached their respective contracts and was at least partially responsible for the collapse.
• The three defendants and their roles on the project were as follows:

1. Parsons Brinckerhoff Australia Pty Ltd and the entity formerly known as Parsons Brinckerhoff International (Australia) Pty Ltd (together “PB”) were named as first and second defendants respectively and had been responsible for designing the building work for the tunnel;
2. the entity formerly known as Pells Sullivan Meynink Ltd (“PSM”) was named as the third defendant and had been responsible for geotechnical engineering work including monitoring ground conditions in the excavated tunnels;
3. URS Australia Pty Ltd (“URS”) was named as the fourth defendant and had been responsible as the Independent Verifer to ensure PB’s designs were fit and adequate for known purposes.

• The defendants’ position was that the sole, or at least primary, cause of the collapse was various deficiencies in the construction procedures adopted by TJH. On the other hand, TJH maintained throughout the proceedings that the collapse occurred principally because the support design prepared by PB, as constructed by TJH, was inadequate having regard to the known geological conditions in the relevant portion of the tunnel.
• During the course of the hearing, TJH settled its dispute with both PB and URS. The terms of settlement were understandably not disclosed in the court’s judgment. Notwithstanding that settlement had been reached as between TJH and PB and TJH and URS, it was necessary for the court to consider the extent to which, if any, either of those parties was responsible together with PSM for the collapse.

Contract

• Before considering the facts surrounding the collapse and the elements of breach, causation and damage, it was necessary for the Court to firstly consider the contractual obligations each of the defendants had to TJH. In summary, the court found that:

1. PB was required to provide designs for tunnel excavation and construction on an ongoing basis, updated and amended as required in accordance with site conditions encountered during the tunnel drilling process;
2. PSM was required to observe and record ground conditions, advise PB as to the classification of the types of ground encountered throughout the tunnel drilling process and further advise PB as to the suitability of PB’s designs for tunnel construction having regards to the ground classification in the area surrounding any construction work; and
3. URS was to review PB’s design drawings and specifications, as provided to it from time to time by PB, to ensure that those documents had been prepared in accordance with correct procedures. It was not the role of URS to check the accuracy of tunnel design calculations.

• It is important to note that the role and functions to be performed by PSM were expressed in a general way in the primary subcontract documentation executed between TJH and PSM. Following execution of the subcontract documents, PSM prepared and submitted to TJH (and TJH adopted for the purpose of the Project) a Work Method Statement (“WMS”) which set out with more particularity the tasks to be carried out by PSM.
• Critically, one of the tasks identified in the WMS required PSM to notify PB if an existing design did not suitably address ground conditions in the area in which the design was to be constructed. The court held that the WMS had contractual effect because it assisted in defining the nature and extent of services to be provided by PSM.

Relevant Facts and Conclusions

• The ultimate issues in dispute were whether the design of the tunnel support construction in the relevant area was adequate and whether TJH had carried out the building work in accordance with the design and otherwise in accordance with proper industry practice.
• The relevant facts determined by the Court in relation to the area of the tunnel where the collapse occurred were, in short summary form, as follows:

1. PB proposed a design for construction at that location.
2. PSM reviewed PB’s design and, although it proposed some minor amendments, the overall outcome of PSM’s review was that PSM agreed and approved generally of PB’s design.
3. TJH carried out the actual tunnelling and construction work.
4. The ceiling of the tunnel collapsed and the cause of collapse could not be agreed between the parties.

• The Court reached the following conclusions:

1. TJH installed PB’s design in accordance with the relevant specifications and otherwise carried out its works in a proper manner and in accordance with required industry standards and practice (at least in the portion of the tunnel where the collapse occurred).
2. URS carried out its role of design review correctly, in the sense that it had reviewed the relevant drawings on the basis of the information provided to it by PB and determined that the drawings had been prepared accurately and in a professional way.
3. PSM accurately assessed the ground conditions in the relevant area of the tunnel.
4. The design of the tunnel ceiling and other structural support was not sufficient having regard to the surrounding ground conditions.
5. The most likely reason for the collapse was the inadequate design.

Breach of Contract

• A summary of the Court’s findings in respect of each of the defendants regarding the issue of breach of contract appears below:

1. URS – did not breach any of its contractual obligations.
2. PB – breached its contractual obligations to TJH, in that it failed to provide a design that was adequate having regard to the ground conditions actually encountered in the relevant portion of the tunnel.
3. PSM – breached its contractual obligations to TJH, in that, although it categorised the ground conditions correctly, it failed to properly assess the suitability of PB’s design having regard to the ground conditions in the relevant area of the tunnel.

Causation

• The Court found that, since URS had not breached its contractual obligations it could not contributed to the cause of the collapse. The Court further held that, since TJH had not departed from the design provided by PB in the relevant portion of the tunnel, TJH did not contribute to the cause of the collapse.
• The Court held that the cause of the collapse was the inadequacy of the design provided by PB. As stated by his Honour McDougall J at paragraph 498 of the judgment: “…there was a causal relationship between PB’s breach of its design duties and the collapse…[t]here is no explanation for PB’s decision to recommend a support design based on the use of rockbolts and shotcrete only, particularly when its design philosophy required passive support such as steel sets…”.
• Since it was PSM’s contractual duty to review and, if necessary, recommend amendments to PB’s design having regard to ground conditions actually encountered in the tunnel, the Court also found that PSM had contributed to the provision of the design and therefore the cause of the collapse. As stated by his Honour at paragraph 503 of the judgment: “…[the] purpose [of PSM’s obligations] was to ensure that the suitability of the designs was monitored continuously, so as to ensure (to the extent that proper professional performance of the parties’ contractual obligations could do) that the project met its design requirements…”.

Damages and Apportionment

• The Court awarded damages to TJH (as agreed between TJH and PSM) in the sum of $20.95m plus interest.
• In considering whether to apportion the damages between PSM and PB, his Honour observed at paragraph 513 of the judgment: “…[i]n terms of causal potency, each failure seems to me to be an independent and effective cause of the loss that followed…[h]ad PB adhered to its design philosophy and produced a design utilising passive support such as steel sets, then…the collapse would not have occurred…[h]ad PSM assessed the design in the light of the ground conditions encountered, it should have raised with PB the adequacy of the design…[h]ad PSM done so, it is likely that PB would have revised the support design to ensure that it was adequate…”.
• His honour went on to state at paragraphs 518 and 519 of the judgment: “…[i]n my view, accepting the primary responsibility of PB, the failure of PSM to perform its contractual obligations was, nonetheless, significant…[i]t is difficult to convert impressionistic views of comparative responsibility…to precise figures…[a]cknowledging as I have just done the inherent frailty of the process, my conclusion is that responsibility should be assigned 2/3 to PB and 1/3 to PSM…”.
• The damages were accordingly apportioned to be paid 1/3 by PSM and 2/3 by PB, with PSM being ordered to pay $6,983,333 plus interest.

Key Points

• The cause of the tunnel collapse was an inadequate support design. Although PSM’s role was not that of designer, it was nevertheless held to have contributed significantly to the cause of the collapse. PSM’s obligation to advise PB as to the adequacy of designs arose not out of the primary subcontract documentation but rather from a document prepared by PSM itself (the Work Method Statement).
• This decision of the Supreme Court is a timely reminder to any party to a construction contract to:

1. pay close attention to the obligations it must discharge under the contract, whether those obligations arise out of primary contract documents or other documents prepared in connection with the contract;
2. execute all contractual obligations in a proper and professional manner; and
3. be aware and act upon any obligation to inform another party as to the adequacy of a design or specification having regard to known site conditions and/or general industry practice.

• The facts of this case did not require the Court to deal with the interesting question of whether a party (for example, a subcontractor) upon becoming aware that a design is or may be inadequate is under any general obligation to inform any other party (for example, the head contractor) of the potential inadequacy.
• Our view is that any party to a construction contract that forms the opinion that a design or specification or other aspect of proposed building work may be inadequate or result in a defect may be under some obligation to inform other parties. Each circumstance will be unique and if you have any question or concern about any obligations you may have under a contract we are available to help you understand your options and the best way to proceed.

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