CPB Contractors Pty Ltd v WSP New Zealand Ltd [2024] NZHC 640

CPB Contractors Pty Ltd (CPB) contracted with WSP New Zealand Ltd (WSP) under a tender services agreement (TSA) to put together a tender in respect of a Waka Kotahi (NZ Transport Agency) project for the upgrade of Auckland’s southern motorway between the Manukau and Papakura off-ramps (the Southern Corridor Improvement Project (the Project)). WSP provided designs for CPB’s tender in relation to the construction of the pavement of the motorway and other roads.

After Waka Kotahi had accepted CPB’s tender, it became apparent that WSP’s pavement design did not comply with Waka Kotahi’s design requirements (Principal’s Requirements).

CPB suffered an overall loss of $42 million on the Project. Between $12 million to $15 million of this loss represented spending on the Project’s pavement that had not been allowed for in the tender.

CPB alleged that, due to WSP’s breach/negligence, WSP’s pavement tender design failed to comply with the Principal’s Requirements. CPB assessed its loss attributable to WSP’s breach to be $5,308,666.77. This represented the difference between CPB’s tender price and that which CPB would have submitted had WSP’s pavement design complied with the Principal’s Requirements.

At trial, WSP belatedly accepted that its tender pavement design was not compliant with the Principal’s Requirements but resisted the claim on the basis that:

• It was not contractually obliged at the tender stage to provide a design that complied with the Principal’s Requirements.
• CPB suffered no loss attributable to any breach by WSP, or alternatively liability for CPB’s loss was excluded.
• The claim was time barred in any event.

The decision raises issues in relation to:

• Contractual interpretation.
• Assessment of damages arising from design errors at tender stage.
• Application of an exclusion clause.
• Limitation Issues.

Under the TSA, WSP undertook to provide CPB with designs which were “relevant to” the tender and “necessary” to submit the tender.

The TSA did not, however, contain an express clause specifically requiring that WSP’s design comply with the Principal’s Requirements.

The Court referred to the decisions of Vector Gas v Bay of Plenty Energy, Firm PI 1 v Zurich Insurance and Bathurst Resources v L & M Coal Holdings, noting that contractual interpretation is an objective task which gives primacy to the words in the contract, but also recognises the importance of the broader commercial context.

The starting point for the Court was to look at the background knowledge of the parties as to what needed to be designed. The Court considered that both CPD and WSP clearly understood that Waka Kotahi required designs that complied with its Principal’s Requirements. Critically, a WSP witness acknowledged that the Principals’ Requirements provided the ‘rules of the game’. So, both parties fully understood that the Principal’s Requirements provided the minimum specifications to be observed throughout the tender design process.

Unsurprisingly, the Court had no difficulty determining that ‘properly interpreted’ the TSA required WSP to provide tender designs that complied with the Principal’s Requirements.

CPB sought to recover its hypothetical lost bargain (i.e. its ‘expectation interest’), so that it would be put in that position it would have been in had the contract been performed (i.e. WSP had provided a compliant design).

Based on expert advice, CPB quantified the difference between the tendered price and the price that it would have submitted had WPS provided a compliant design, as being approximately $5.3 million.

WSP argued that this approach was incorrect, as:

• There was no evidence that CPB actually incurred any additional costs to correct WSP’s defective tender design, so CPB had suffered no loss attributable to WPS’s breach.
• CPB’s counterfactual design did not reflect what had actually been constructed, so CPB’s claimed loss was purely hypothetical.

Critically, WSP’s quantity surveyor refused to undertake the same hypothetical exercise, concentrating instead on the costs CPB had actually incurred.

The Court determined that:

• The hypothetical assessment of the expectation interest is frequently the only proper means of assessing loss in this context.
• The refusal of WSP’s expert to engage with CPB’s assessed tender price was unhelpful.
• The actual cost of constructing the pavements was irrelevant. Once CPB’s tender was successful, it was entitled to be paid its tender price and only that price.
• Given the significant difference between CPB’s tender price and the next lowest tender bid (about $67.5 million) there was no risk that Waka Kohati may have rejected CPB’s tender price based on a compliant pavement design.

Critically, based on the Court’s analysis, CPB would have been entitled to recover the same damages even if it had made a profit on the project.

The TSA contained a reasonably standard limitation clause, which relevantly provided:

Where a Party breaches this Agreement, the liable Party is liable to the other Party for reasonably foreseeable claims, damages, liabilities (including any liability of the other Party to a third party), losses or expenses caused directly by the breach. The liable Party shall not be liable for the other Party’s indirect, consequential or special loss, or loss or profit, however arising, whether under contract, in tort or otherwise

WPS argued that liability was excluded, as:

• CPB’s claim was not caused directly by the breach.
• CPB’s only possible remedy was for loss of profit, which was specifically excluded.

The Court determined that CPB’s claim was not excluded as:

• CPB’s loss arose directly from WSP’s breach. To suggest otherwise, would render meaningless WSP’s agreement to provide CPB with design advice compliant with the Principal’s Requirements.
• CPB’s claim was for lost revenue, not for lost profit, with the Court noting:

Given the scale of CPB’s eventual losses, both overall [$42 million] and in respect of pavements and surfacing [$12m – $15m], no amount of that lost revenue could, after the event, now be correctly described as lost profit.

CPB filed its Statement of Claim just one month short of six years from the date WPS provided its defective design.

CPB subsequently filed two Amended Statements of Claim.

WSP argued that CPB’s Amended Statement of Claim amounted to new causes of action and was therefore time-barred under the Limitation Act 2010.

CPB responded that the amended pleadings simply further particularised WSP’s failure to comply with the Principal’s Requirements. So, the amended claim was not ‘essentially’ different from the original claim.

Consistent with recent defective building cases, the Court determined that the essential nature of CPB’s claim was unchanged and it was therefore not time-barred.

The key takeaway from this decision is that plaintiffs are entitled to choose any legitimate measure to quantify their loss. A defendant (and their experts) should engage with the plaintiff’s method of calculating quantum. To do otherwise, as here, invites disaster.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.