Key Points:

Contractors should be aware of their contractual obligations, particularly when involved in a project with a complex contract document suite.

A recent NSW Supreme Court decision demonstrates a court's approach to apportioning blame where multiple parties in a public private partnership (PPP) were involved in a tunnel collapse (Thiess Pty Ltd and John Holland Pty Ltd v Parsons Brinckerhoff Australia Pty Ltd [2016] NSWSC 173).

During construction in 2005, part of Sydney's Lane Cove Tunnel collapsed. The collapse required urgent stabilisation work, with tonnes of concrete being poured into the area of collapse. The collapse and stabilisation work resulted in extensive loss of property and property damage.

The parties in a PPP structure

The project was contracted under a PPP where the government agency engaged the private sector entity under a project deed to fund, design, construct, operate and maintain the twin road tunnels.

As is common with a PPP contracting model, the obligations of the private sector entity under the project deed were backed down to its contractors in a series of downstream documents that were on substantially the same terms as the project deed. Many of the terms of these downstream documents were defined by reference to the upstream documents.

A joint venture between Thiess Pty Ltd and John Holland Pty Ltd (TJH) was engaged by the private entity as the D&C Contractor under a D&C Deed. TJH carried out construction, which included excavation and support installation works. To assist with performing its other obligations under the D&C Deed, TJH engaged designers and geotechnical engineers under separate downstream agreements. The designers were responsible for preparation of the structural design works on an ongoing basis and the geotechnical engineer was responsible for, among other things, monitoring ground conditions during excavation.

The consultancy agreement between TJH and the geotechnical engineer described the services to be performed in "general terms". The geotechnical engineer particularised its role, and the role of others, through the preparation of a work method statement. This document was later adopted and issued by TJH and was found by the court to have contractual effect as it prescribed the standard established and required by TJH for the provision of services by the geotechnical engineer and others.

An independent verifier was engaged under a separate project agreement between the government agency, the private entity, TJH and others to ensure the designers" designs were fit for purpose, having regard to whether they were prepared in an adequate and professional manner.

After the collapse, TJH brought proceedings against:

  • its designers (Parsons Brinckerhoff Australia Pty Ltd and ACN 006 475 056 Pty Ltd (formerly Parsons Brinckerhoff International (Australia) Pty Ltd));
  • its geotechnical engineer (ACN 061 447 621 Pty Ltd (formerly Pells Sullivan Meynink Ltd (in liq)); and
  • the project's independent verifier (URS Australia Pty Ltd).

TJH settled its claims with its designers and the independent verifier before judgment.

In its case against the geotechnical engineer, TJH claimed the geotechnical engineer breached its contractual obligations by failing to review and report on the suitability of the designers" designs in light of the changing ground conditions in the tunnels.

The geotechnical engineer denied liability, claiming the tunnel collapsed due to inadequate design by the designers and negligent construction by TJH.

Who's to blame?

In order to determine the liability of the geotechnical engineer, and notwithstanding the commercial settlement already reached between TJH, the designers and the independent verifier, the court was required to consider the liability of all defendants as the geotechnical engineer claimed TJH's claims were "apportionable", as required by section 34 of the Civil Liability Act 2002 (NSW).

Examining each party's contractual obligations, the court held that both the designers and the geotechnical engineer were independently liable. TJH was held not to have been negligent in its construction as it did not depart from the designers' design in the area of the tunnel which collapsed.

The designers

Justice McDougall found that primary responsibility should rest with the designers as its design had "fundamental and serious deficiencies". The designers recommended a support design based on rockbolting and shotcreting, in ground conditions where its own documented design philosophy required passive support techniques such as steel sets. Justice McDougall found this to be a breach of the designers' obligations in respect of its designs and construction phase services that had a definitive causal relationship to the collapse.

The geotechnical engineer

The geotechnical engineers were also found to be responsible for the collapse.

The purpose of the project's observational approach to design was to require continual reassessment of the adequacy of the designs in light of the ground conditions actually encountered. This meant that the geotechnical engineer's role extended beyond assessing ground conditions and, where necessary, required the geotechnical engineers to suggest modifications to the support design for the conditions. Thus if the ground conditions proved to be substantially worse than predicted, one might expect the recommended support type to be the more capable.

Justice McDougall held that had the geotechnical engineer assessed the design in light of the ground conditions encountered, it should have communicated this to the designer, which would have likely resulted in the designers correcting the designs. He found there was no evidence to suggest that the geotechnical engineer undertook any assessment of the suitability of the support in the conditions encountered and predicted to continue.

The independent verifier

TJH alleged that if the independent verifier carried out its contractual obligations properly, it would have found the designs to be inadequate. However, the court found that it was not within the independent verifier's contractual scope to act as a checking or proof engineer ‒ ie. the independent verifier was not obliged to check the accuracy of tunnel design calculations.

The court was not satisfied that the independent verifier failed to use reasonable care to satisfy itself that the design for the tunnel had been prepared adequately or professionally. Accordingly, the independent verifier had not breached its contractual obligations of verification.

Defence of "widely accepted competent professional practice"

Justice McDougall noted the availability of the statutory defence under section 5O of the Civil Liability Act which set the standard of care. Thus, if the professional's conduct was of a kind that would be widely accepted as competent by rational peer professional opinion, then it would not fall short of the standard of care. However neither the geotechnical engineer nor the designer made this defence out.

The "inherent frailty of the process" of apportionment

Justice McDougall remarked that "even if each breach of duty was an effective cause, it does not follow that their contributions were equally potent. Assessment of causal potency requires more than an analysis of causation."

Applying the approach in Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492, Justice McDougall held that apportioning liability between wrongdoers involves two elements:

  • a comparison of the culpability of each wrongdoer; and
  • their "causal potency", ie. the importance of each wrongdoer's acts in causing the damage.

The court held that although the designers were primarily responsible, the geotechnical engineer's failure to perform its contractual obligations (and how this failure caused the collapse) was nonetheless "significant".

The court acknowledged that converting views of comparative responsibility to figures is a difficult process that can give a "misleading semblance of certainty and precision to what is very much a matter of judgment and balance". In light of this acknowledgment, the court found the designers to be two-thirds liable and the geotechnical engineer one-third liable for total damages of $20.95m plus interest. While the designer previously settled with TJH, the geotechnical engineer was required to pay TJH $6.98m plus interest.

How does this affect you?

Contractors should be aware of their contractual obligations, particularly when involved in a project with a complex contract document suite, for example:

  • the obligations of a party under its main contract of engagement may refer to other documents or defined terms in other contracts (such as upstream documents); and
  • other detailed or prescriptive documents prepared in connection with the contract (such as work method statements) may have contractual effect and help define the content and nature of a party's obligations.

Parties performing design involving an observational approach have dynamic responsibilities that need respond to conditions encountered.

Parties engaging independent verifiers to ensure fitness for purpose of designs and/or construction should not assume these responsibilities extend to proof engineering unless this is expressly included in the contractual scope.