Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners International Ltd & Anor

Damages for breach of contract and negligence must be caused by the defendant’s wrongdoing and must not arise from an independent cause. Where concurrent causes exist, the claimant must establish the defendant’s causal contribution, while the defendant must prove any positive case that the loss would have occurred in any event.

A claimant repairing damage is afforded considerable latitude. The defendant bears the burden of proving that the chosen method was unreasonable and caused identifiable additional loss.

A contractual claimant may in principle recover loss suffered by a third-party group company where the claimant did not receive the performance contracted for and the third party would otherwise be left without a remedy. Recovery remains limited to genuine, quantifiable loss.

The claimant sought damages from the defendants, consulting engineers responsible for the design of foundations at a power station in the Philippines. Two foundations beneath Boiler Unit 1 settled during steel erection. Remedial works followed, including dismantling and re-erecting the steelwork.

The action followed earlier judgments establishing contractual and tortious duties owed by the defendants to CEPAS, the claimant’s predecessor, and breach in the design and verification of the foundation assumptions. The present hearing concerned damages, including delay, liquidated damages, acceleration, insurance, time-related costs and rectification costs.

The central issues were causation, the reasonableness of remedial decisions and settlements, recovery of losses incurred by SCC, and the effect of the project insurance arrangements.

1. Causation and delay. The consequences of the foundation failure were not the dominant, proximate or operative cause of the delay to commencement of the plant reliability trials. Other delays, including civil works, the cooling-water system and transmission arrangements, were independent and materially greater. The claim for delay-related losses therefore failed.
2. Critical-path analysis. The critical path is the sequence of activities whose durations determine overall project duration. There may be more than one critical path. Windows analysis is a useful tool, but retrospective analysis must extend to the contractual milestone in issue and must include relevant activities throughout the project. The claimant’s expert analysis, which ended before commencement of the reliability trials, was materially flawed.
3. Remedial works. The defendant bears the burden of proving that a claimant acted unreasonably in repairing damage. In the circumstances, the decision to dismantle and re-erect the steelwork was reasonable, having regard to safety, possible movement and technical difficulties. The direct rectification costs were recoverable in principle, subject to exclusion of an unrelated item.
4. Third-party losses. CEPAS could in principle recover losses incurred by SCC because the defendants had contracted to provide designs for use by SCC and SCC otherwise lacked a direct claim. The principle did not permit an uncovenanted profit. The claimant nevertheless failed to prove that the global settlements, delay payments and acceleration payments represented genuine loss caused by the defendants.
5. Settlements. A settlement must be shown to be reasonable and referable to a loss for which the defendant is liable. The settlements were global, insufficiently analysed, partly based on an erroneous five-month delay and did not properly separate boiler-related losses from other causes. They were therefore irrecoverable.
6. Disposition. All claims failed except the rectification claim, assessed at US$1,450,888. After credit for insurance monies, the claim was dismissed.

The judgment records earlier first-instance judgments on preliminary issues and liability, with the Court of Appeal varying one preliminary issue and upholding the liability judgment. Those earlier decisions were not the subject of determination in this damages judgment.