Rediscovered 1951 plan, key to Warragamba Dam dispute

By Sonya Kroon, partner, and Carla Weatherer, associate, HWL Ebsworth Lawyers

Background
Abigroup and the Catchment Authority entered into a contract for the construction of a new spillway at the Warragamba Dam, 60km west of Sydney, to minimise the risk of flooding and damage from heavy rain.
Under the contract, Abigroup was required to excavate down to a solid rock base, and refill with cement-stabilised fill, to the level necessary to support the spillway.
Abigroup took the risk with regard to unknown ground conditions and errors in the specifications and contract documents. Any increase in the cost of both excavation and the amount of fill required was to be borne by Abigroup.
Tenderers were entitled to go on site and carry out their own investigations; but there was no opportunity for them to do so.
The tender documents provided by the Catchment Authority included a geotechnical report that indicated the rock level at the site. The report also stated that, “No plans are available of this embankment or of any outlet pipe” (an outlet pipe was laid in the creek in the early part of the original construction).
Based on the tender documents, Abigroup allowed for the excavation, removal and replacement of 24,300m³ of material from site. The additional excavation and fill was about 180,000m3.
Almost a year after entering into the contract, the Catchment Authority discovered a plan issued in 1951, that indicated that the rock level was substantially lower than represented in the geotechnical report. This meant that the extent of fill required was greater than Abigroup had assessed in its tender, which resulted in a large cost increase for Abigroup.
The officer responsible for preparing the tender was not aware of the 1951 plan at the time the tender was prepared.
The dispute
Abigroup went to court to recover its increased costs, and argued that:
•    If the 1951 plan had been available at tender, Abigroup would have been able to determine the actual rock level, and would have known that the excavation depth required would be significantly more;
•    It would have realised that the Catchment Authority’s geotechnical information was inaccurate, and either sought further information or tendered on a different basis than it did;
•    The Catchment Authority’s conduct (in stating that there were no plans available) was misleading and deceptive and in breach of section 52 of the Trade Practices Act 1974 (Cth). In those circumstances, the contract clauses relating to Abigroup’s acceptance of risk for ground conditions, did not apply.
The Catchment Authority argued:
•    That Abigroup had accepted the risk of unknown ground conditions and errors in the tender documents; and
•    The contract was for a lump sum and therefore Abigroup was not entitled to claim its extra costs.
The Court of Appeal said that the statement by the Catchment Authority that “no plans are available for this embankment or any outlet pipe” was misleading and deceptive because plans did in fact exist and should have been disclosed. Abigroup recovered approximately $7.45m in additional costs.
The fact that the Catchment Authority may not have been aware of the existence of the 1951 plan at the time of tender was not relevant. A failure to disclose documents may be considered misleading and deceptive under the Trade Practices Act even if it was “accidental”.
Conclusion
Principals should be careful not to make misrepresentations (accidental or otherwise) as to the existence or content of documents. They must ensure that all information relating to site conditions, in particular the existence of documents that provide that information, are not misrepresented to contractors.
A principal may not be able to rely upon a clause in a contract allocating risk to the contractor, if the principal has engaged in misleading and deceptive conduct, if that induces the contractor to enter into the contract, or prejudices the contractor in its tender.