The High Court’s recent decision in CPB Contractors Pty Ltd v WSP New Zealand Ltd [2024] NZHC 640 will be of significant interest to designers, contractors, and principals in construction projects. The case arose out of a conventional contracting structure for design in construction projects, but disputes under this structure rarely come before the courts. Of particular interest is the Court’s finding on whether designs must comply with the Principal’s Requirements where the contract is silent on this point and whether damages should be assessed by an expectation measure of loss.

CPB claimed against WSP for breach of contract alleging that WSP’s pavement design failed to comply with the Principal’s Requirements. The Court ruled in favour of CPB on all issues, finding that:

1. WSP was contractually obliged to provide tender designs that complied with the Principal’s Requirements;
2. CPB was entitled to recover its loss on the basis of an expectation measure, based on what its tender price would have been if WSP’s design had been compliant; and
3. CPB’s claim was neither excluded by the exclusion clause, nor time barred.

This brief summarises the Court’s findings on the key issues in dispute and our reflections on the result. The case provides some useful lessons when contracting and engaging in litigation.

Case summary

In 2014, NZ Transport Agency Waka Kotahi commissioned CPB to design and construct the upgrade of Auckland's southern motorway between the Manukau and Papakura off-ramps. CPB engaged WSP to execute the tender design work under a tender services agreement (TSA). The TSA required WSP to provide designs that were "relevant to the tender" and "necessary...to submit" the tender however, the TSA did not include an express clause requiring the designs to comply with the Principal’s Requirements (PRs).

WSP made a miscalculation in its tender pavement design which meant the tender designs WSP provided did not meet the PRs (at [5]), despite WSP's belief at the time of submission that they did (at [59]). This miscalculation led to CPB incurring additional costs in undertaking redesign and rectification work to comply with the PRs, for which it was not paid.

1. Did the TSA require WSP to provide designs that met the Principal’s Requirements? 

Yes – while it was accepted that the TSA did not contain an express clause requiring compliance with PRs (at [115]), the Court found that the correct interpretation of the TSA was that WSP would provide tender designs that complied with the PRs.

The Court held that, with regard to the parties’ background knowledge, the PRs were deeply embedded within the parties’ understanding as being minimum specifications to be observed throughout the tender design process and the subsequent IFC design process. Design services that failed to meet the Principal’s minimum specifications for tender designs could not reasonably have been regarded as having relevance to the tender. The PRs were described as providing a baseline of the design services WSP was contractually obliged to provide. One witness described them as the “rules of the game” (at [128]).

By providing designs that were not compliant with the PRs, WSP breached its contract with CPB.

2. What was the appropriate measure of loss for the breach of contract?

The parties disagreed on how CPB’s loss should be calculated.

CPB’s approach was to first, adjust WSP’s tender designs to the minimum extent necessary to make them compliant with the PRs. Second, CPB accounted for the design adjustments’ effects on the tendered construction timetable. Then, CPB re-priced its tender using the same method and inputs it used to derive its original tender price.

WSP argued that there was no evidence that CPB actually incurred additional costs during construction to correct any deficiency in WSP’s tender design. WSP argued that CPB’s counterfactual design was not constructed, that the delay referred to by CPB’s delay expert did not occur, and that CPB’s cost expert did not assess CPB’s actual costs. As such, WSP submitted that CPB had not suffered loss.

The Court held that in this case the proper approach to calculating contractual damages is the plaintiff's loss of bargain (i.e. its expectation interest). This meant the Court assessed CPB’s position as if WSP had complied with the PRs and awarded CPB the difference in price between what it in fact tendered based on WSP’s non-compliant design and what it would have tendered had WSP provided a compliant design.

The Court noted that hypothetical assessment of the expectation interest is frequently the only proper means of assessment. Recourse to the actual costs of constructing an IFC design that was not tendered would contradict the commercial reality of the tender process. Any difference in the hypothetical tender price and the actual price of construction, positive or negative, was a risk for CPB.

3. Was CPB’s claim caught by the exclusion clause, or time-barred?

No – clause 15.16 stated that WSP would be liable for "reasonably foreseeable claims, damages, liabilities, ... losses or expenses caused directly by the breach" but excluded indirect, consequential or special loss, or loss of profit. WSP’s maximum liability was limited to five times the Service fee.

The Court found that CPB’s claim was not excluded by clause 15.16 of the TSA and that: 

• CPB’s claimed loss arose directly from WSP’s breach.
• CPB’s actual losses and restitution interest damages were no more direct than its expectation interest damages.
• CPB’s claim was for lost revenue, rather than lost profit.

WSP argued that CPB’s amended statement of claim amounted to new causes of action and was time-barred under the Limitation Act 2010. The Court held that the essential nature of CPB’s claim was unchanged and was not time-barred.

Our view

The finding that WSP’s tender design was required to comply with the PRs will probably be unsurprising to many – the description of these as being “the rules of the game” reflects how PRs are regarded in the industry. However, to avoid the uncertainty (and scope for contractual interpretation issues) that arose in this case, parties may wish to specify whether the consultant’s design services are required to comply with the PRs at each stage of design. On its face, the measure of damages based on a hypothetical expectation measure of loss (rather than actual loss) may seem unusual. However, this is a recognised measure of loss and the Court’s explanation of why it was appropriate in this case is well-reasoned. The Court commented that WSP’s refusal to engage with CPB’s assessed tender price was unhelpful. It is a risky litigation strategy for a defendant to not engage with a plaintiff’s method of calculating quantum.

The Court’s comments on the Limitation Act 2010 and fresh causes of action are consistent with recent case law in the defective building space.

MinterEllisonRuddWatts has extensive experience advising consultants, designers, contractors and principals on construction related contracts and projects. Please contact us if you have any questions or would like to discuss how the implications of this case might impact your organisation.

This article was co-authored by Harriet Aimer (Solicitor), William Turner (Solicitor) and Oscar Read (Law Clerk) from our Construction and Infrastructure team.