Best Care Foods Limited v Origin Energy LPG Limited - [2009] NSWSC 1134

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CITATION: Best Care Foods Limited v Origin Energy LPG Limited & Anor [2009] NSWSC 1134

HEARING DATE(S): 22/10/09

JUDGMENT DATE :
23 October 2009

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: See paragraph 26

CATCHWORDS: Case Management - Application to disallow party from relying on evidence

CATEGORY: Procedural and other rulings

CASES CITED: Aon Risk Services Australia Limited v Australian National University [2009] HCA 27

PARTIES: Best Care Foods Limited (Plaintiff)
Origin Energy LPG Limited (First Defendant)
Origin Energy Retail Limited (Second Defendant)
Vimchest Pty Limited (Second Cross Defendant to First Cross Claim)
Wesmartin Pty Limited (Cross Defendant to Second Cross Claim)

FILE NUMBER(S): SC 50170/05

COUNSEL: Mr ML Williams SC, Mr SA Lawrance (Plaintiffs
Mr BG Smith, Ms MA Kumar (Defendants)
Mr P Bennett (Second Cross-Defendant to First Cross)
Mr AP Coleman (Cross Defendant to Second Cross Defendant)

SOLICITORS: McCabe Terrill (Plaintiff)
HWL Ebsworth (Defendants)
Holman Webb (Second Cross Defendant to First Cross Claim)
Kennedys (Cross Defendant to Second Cross Claim)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 23 October 2009

50170/05 Best Care Foods Limited v Origin Energy LPG Limited (formerly Boral Gas (NSW) Pty Limited) & Anor

JUDGMENT

The notices of motion

1 There are three notices of motion before the court:

i. The first motion pursued by the plaintiff seeks leave to rely upon the reports of Mr Donnelly and Mr Kerruish;

ii. The second motion pursued by the defendants is for leave to amend the commercial list response of the first and second defendants;

a) the plaintiff from relying upon the report of Mr Kurruish dated 25 September 2009, or the expert opinion or reasoning expressed therein, to the extent that the report and opinions or reasoning expressed by Mr Kurruish are contrary to, inconsistent with, or differ from the opinions expressed in an expert report served by the plaintiffs in accordance with the consent orders of the court;

b) the plaintiff from conducting a case that the failure of the first stage regulator occurred prior to, and was the initiating cause of, the explosion the subject of the proceedings as a consequence of any mechanism other than the process of wadding of the ceiling disk causing it to deteriorate and fail over six to 12 months, as set out in the expert's report served by the plaintiffs;

c) the plaintiff from conducting a case that the failure of the first stage regulator occurred prior to, and was the initiating cause of, the explosion the subject of these proceedings as a consequence of the over filling of the LTG tank;

d) the plaintiff from being able to conduct a case that the first stage regulator occurred prior to, and was the initiating cause of, the explosion the subject of these proceedings, due to it being not fit for its proper purpose and/or not safe to use when supplied for any reason other than by virtue of the absence of other pressure protection on the first stage regulator;

The setting of the dispute

2 The defendant has sought to outline the relevant background leading to the current motions in the following way:

i. The proceedings arise out of a mixed LPG and dust explosion at the plaintiffs’ factory on 25.1.03. The factory sustained extensive damage.

ii. The plaintiff’s case against the defendants is premised on the subject explosion having been caused by the failure of the first stage LPG pressure reducing regulator (“FSR”).

iii. When in use LPG would leave the LPG Tank (“the Tank”) and enter the FSR. The FSR then regulated or reduced the pressure of the LPG down from about 825 kilopascals pressure (825 kPa) to between about 100 or 140 kPa.

iv. There was no over pressure protection (“OPP”) at the FSR, although it was integrated into other parts of the gas system. OPP is designed to protect the gas system if it becomes over-pressurised.

v. Post explosion, for reasons considered below, the plaintiff’s expert Mr Donnelley convinced WorkCover to first test the FSR. Testing showed it was not regulating pressure.

vi. If the FSR had failed prior to the explosion, in the absence of over-pressure protection at the FSR, the gas lines downstream of the FSR could have become “over-pressurised”. Over pressurisation occurs when the kPa level in the gas system is higher than the pressure rating of the equipment in the lines. Over pressurisation could cause items in the gas system with a pressure rating lower than the pressure in the gas lines to leak and allow free LPG to enter the factory.

vii. The lowest rated items of gas equipment in the gas system were the three 100 kPa gas filters, referred to below.

viii. The factory had three large gas fired appliances; the elevated dryer (“the Dryer”) and the steam boiler (“the Boiler”) were both in the Extruder building, and the biscuit baking oven (“the Biscuit Oven”) was in the Bakery building. The Extruder building and the Bakery building were serviced by separate gas lines which diverged near the Tank.

ix. The gas line emerging from the Tank included; a gas vapour outlet isolation valve “tank isolation valve”, the FSR, a pressure gauge, (significantly) a 100kPa rated gas line filter before the gas meter (“100kPa gas meter filter”) which was undamaged post explosion, and a gas meter before the separate lines diverged.

x. The Dryer had two 100kPa gas line filters in the system, which were part of the gas trains on the Dryer (“100kPa dryer filters”). After the explosion these were found to have been mechanically damaged in the explosion.

xi. The plaintiffs case against the defendants is that when the FSR failed and over pressurised the gas system, because they had the lowest rating in the gas system, one or other, or both, of the “O” rings on the 100kPa dryer filter lids were pushed out and allowed LPG to leak into the factory.

xii. The plaintiff’s case is that the LPG leaked from above the Dryer and down into the boiler room where it found an ignition source which started the explosion.

xiii. The defendants’ case is, inter alia, the argument that if the FSR failed, and if the gas system had become over pressurised to 825kPa, the 100 kPa gas meter filter would also have shown at least some signs of damage.

xv. As the plaintiff’s case is principally based on the fact that the FSR was found to have failed post explosion, and where the explosion would explain the failure of the FSR, the plaintiffs bear the onus of proof that the failure of the FSR was not caused by the explosion.

xvi. The plaintiffs bear the onus of proof that the explosion was caused by over pressurisation of the gas system.

xvii. The plaintiffs bear the onus of proof that one or other, or both, of the 100kPa dryer filters failed pre-explosion as a consequence of over pressurisation, and as the plaintiffs case is premised on post explosion evidence of failure of the 100kPa dryer filters, and the explosion would explain the failure of the 100kPa dryer filters, the plaintiffs bear the onus of proof that the failure of the 100kPa dryer filters was not caused by the explosion.

xviii. The plaintiffs bear the onus of proof that the uncontained LPG which entered the factory came from one or other, or both, of the 100kPa dryer filters.

xix. Explanations for an LPG leak inside the factory, and or boiler room, which are at least equally as likely as failure of the FSR, include; the plaintiffs failure to isolate the Tank, and failure to isolate gas appliances leading to a leak from the pipeline or from an item of gas equipment in the factory, including from an item damaged or destroyed in the explosion.

xxi. Mr Kerruish stated in his qualified report that he had considered that the damage to the FSR was caused by “ an upstream pressure wave ” travelling back up the pipe from the explosion.

xxii. To determine whether the FSR failed before and caused the explosion, or failed afterwards as a result of the explosion, requires a determination of the processes which lead to the mechanical failure of the FSR.

xxiii. That in turn requires a determination of which part of the FSR failed first, in particular whether it was the rubber, or polymer or nitrile “disc” or the metal alloy “disc holder” which failed first, and the metallurgical or material science explanation for the process of the failure.

xxiv. It is essential to understand the various parts of the FSR and their interactions as the expert evidence largely relates to the possible causes that could lead to failure of the different parts of the FSR, resulting in its eventual failure as observed post explosion.

xxv. A useful diagram explaining the structure and operation of the FSR “Principle of Operation” was first identified by Mr Kerruish. It is reproduced in many of the reports.

xxvi. The diagram accompanying the description of the “Principle of operation” identifies, inter alia, the metal “disc holder” and the “seat ring” or orifice. The diagram does attempt to identify the polymer “disc”.

xxvii. In the diagram the “disc” is represented diagrammatically by the black and white barber pole striped oblong of material to which the description “disc holder” appears to point. The “disc holder” is in fact the entire piece of metal connected to the “Lever” running to the disc. The metal pole comes to the disc from the right and forms a bottom underneath the disc. The disc holder then comes up around the sides of the disc, and although the diagram does not make this very clear the metal is then swaged, or bent in, around the top of the disc to hold it in place.

xxviii. The “seat ring” is the metal component around the area through which LPG travels, the “orifice”, and includes the metal ring against which the disc rests when there is no LPG flow.

xxix. Critical to the issues presently before the Court is that the plaintiffs have pleaded and particularised their case that the FSR failed due to “wadding” of the disc over a six to twelve month period due to the absence of maintenance.

xxx. Wadding is damage done to the rubber disc by repeatedly opening and closing on the metal seat ring or orifice. The plaintiff’s case was that wadding caused the disc to wad all the way through causing the ultimate failure of the FSR.

xxxi. The plaintiffs excluded by their particulars a case of negligent manufacture. That occurred in circumstances in which both parties were aware that the possibility of such a case had been raised.

xxxii. The defendants’ case in reply to the case conducted up to 22.9.09 is that the explosion caused the failure of the FSR in a single event in which the disc was forced against the seat ring causing the disc to break and then the disc holder to be broken immediately following the breaking of the disc in that single event.

xxxiii. The defendants’ case is that the observed failure mechanism of the disc and disc holder being broken in a single event commencing with pressure on the surface of the disc was due to a pressure wave back up the LPG pipeline when it was broken open by the explosion.

xxxiv. The plaintiff now seeks to conduct the case, of which both parties were always aware but the plaintiff consciously elected not to conduct, that the FSR failed when the metal disc holder failed because it was negligently manufactured out of an inappropriate material.

xxxv. The plaintiff now also seeks to conduct other alternative cases outside the pleadings and not previously identified, including for example that ice forming around the FSR was relevant to the failure.

xxxvii. Whilst liability for the absence of OPP is a significant issue, it is only relevant if the plaintiffs establish that the FSR failed and caused the explosion.

3 Not all of that suggested background is by any means accepted by the plaintiff.

The Court's Overview

4 Unfortunately the proceedings have already travelled through an extensive history having been delayed on a High Court leave application and for other reasons: for example a Coronial Court investigation.

5 The proceedings were listed for final hearing in early November of this year but that listing has been removed pending the outcome of the current motions.

6 The poignant motion is that pursued by the defendant seeking orders disallowing the plaintiff from conducting the above described cases.

7 In essence the defendant relies upon the recent decision of the High Court of Australia in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27 and contends that by reason of the forensic approach taken by the plaintiff to the proceedings the principled approach to the relevant discretion is to deny the plaintiff an entitlement to conduct the above-described cases.

Problems for the Court in connection with the complex litigation

8 There are occasions when, particularly in connection with very complex litigation, it becomes extraordinarily difficult for the Court [prior to the commencement of the final hearing and in case management mode] to determine whether or not a defendant's complaint that materials/witnesses which the plaintiff contends it will be entitled to call in reply, could never fit that description and could only be regarded as masquerading as reply evidence.

9 To my mind the current dispute exhibits exactly these problems. Of course the trial judge during the final hearing will be in a position to determine whether or not evidence sought to be called in reply is to be rejected or used to be admitted.

Directions timetable issues

10 To the extent that the materials put before the court in terms of the critical motion concern whether or not the plaintiff should be held to the directions timetable, there is another close issue which it is again difficult to adjudicate upon. This arises in relation to orders made by the List Judge on 15 May 2009 relevantly requiring the defendants to serve all evidence on liability and quantum by 3 July 2009 and requiring the plaintiffs to serve all liability evidence in reply to the defendant's evidence by 10 July 2009

11 The plaintiff has contended that it had misunderstood the position which obtained at the time those orders were made, it having been told that all of the defendant's liability evidence was already on and that the defendant was only putting together certain additional accounting evidence. In the result it appears that when the plaintiffs went out to Test Safe, [the laboratory where the materials were held] and saw that the defendants expert Mr Cox was the conducting further observations, the plaintiffs were taken by surprise.

12 In short the plaintiff does have a credible excuse for its conduct. Correspondence accordingly passed between the parties. Mistakes in communication do occur. Hence the degree of disputation concerning what the plaintiff has put as ‘a misunderstanding’ of the position seems to me to be fairly excusable. And to the extent that it matters, later correspondence suggests that the solicitors on both sides seemed to have been willing to accommodate one another's positions, at least to a considerable extent.

13 One must remember that this is very substantial litigation and that mistakes can occur where one side or the other misunderstands what they believed they had been told as to the evidence still to be adduced by the other.

The plaintiff's contention as to its case

14 The plaintiff continues to contend that the cause of failure of the regulator is not relevant to its case. The plaintiff's proposition is that its case is that there had to be a safety valve, over pressure protection which is put in place after the regulator, to protect against failure of the regulator for any cause. Its case is that regulators fail from time to time for various reasons, and that to guard against that possibility, Australian Standards and legislation and Fisher Controls International documents, require that over -pressure protection be fitted. Hence if the regulator breaks, there is a safety valve to shut the supply of gas or off.

15 The plaintiff puts its forensic position as follows:

i. it has pleaded as the material fact, a failure of the first stage regulator;

ii. it will be relying upon evidence as to the mechanism of the failure of the first stage regulator;

Release of Fisher Controls International Inc

16 The defendant contends that it has suffered irreparable prejudice by reason of the forensic approach taken by the plaintiff to the proceedings. This irreparable prejudice is said to have occurred by reason of the plaintiffs having given a release to Fisher Controls International in consideration of an offer from that company should such a release be given, to provide certain forms of assistance to the defendant. As I understand the position the extent of that is assistance was that the contact details of certain experts known to Fisher Controls were made available to the defendant.

17 Another of the difficult matters upon which to adjudicate concerns whether or not the defendant had telegraphed their intent to rely upon the report of Dr Corderoy whose report the defendants had in fact served: cf letter from the defendants’ lawyers to the plaintiff’s lawyers 14 September 2009-page 1002 volume 3 of Exhibit MAB.

18 The plaintiff has strongly contended that there can never have been any doubt but that Dr Corderoy's theory as to metallurgical failure was always a part of the defendant's case, that report having been served by the defendants in September 2008

19 A significant concession was made by the defendant's counsel during the hearing of the motions: namely that the defendants counsel was unable to say, one way or the other, whether or not the defendant would have joined Fisher Controls into the proceedings, had the defendant known that the plaintiff intended to run a metal failure case through Professor Hoffman.

20 There is no or no sufficient evidence from Mr Bowyer, the defendant solicitor or otherwise on the defendant side of the record, to the effect that the defendant relied upon anything the plaintiff did in terms of its forensic stance taken in the proceedings, as exercising their minds when they gave the release to Fisher Controls.

21 Further it seems apparent that the defendant took no action at all to join Fisher Controls as a cross defendant based on the report of Dr Corderoy, when they could have done so, he having apparently furnished to them the ammunition to the effect that Fisher Controls was negligent in the manufacture of the regulator. As the plaintiff contends, this may or may not have provided a defence to the claim: however it may have given the defendant an entitlement to contribution were it to able to establish something along those lines. Hence being in possession of Dr Corderoy's report before time expired has some significance in the current or dispute.

The affidavit made by Mr Curll

22 In an affidavit which is before the Court, the plaintiff's solicitor deposed as follows:

2. At the time I served Mr Donnelley’s first report, I had obtained the report of Professor Hoffman dated 30 March 2008. The reason why I did not serve Professor Hoffman’s report as part of the plaintiffs’ evidence in chief was that I thought adducing that evidence would unnecessarily add to the issues in the proceedings. I thought that report would unnecessarily add to the issues in the proceedings because the plaintiffs’ case did not depend on proving that the first stage regulator failed for any particular reason.

3. At the time I served Mr Donnelley’s first report, I was aware that one or more experts had formed the view during the WorkCover investigation and Coronial inquest into the explosion that the manufacture of the disc holder in the first stage regulator had been faulty. I did not believe that, by serving Mr Donnelley’s report and not serving Professor Hoffman’s report, the plaintiffs would be prevented from succeeding in the event that the Court found that the failure of the first stage regulator was connected with the disc holder being manufactured from an inappropriate material (or any other particular reason).

23 There was no cross examination of Mr Curll by the defendant on the motions. In any event the affidavit made on a sworn basis does at least give the Court some solace in terms of the notion that no explanation has been put forward for the plaintiff's conduct.

Conclusion

24 Whilst it is certainly the case that the recent decision by the High Court of Australia in Aon accepts that case management reflects the view that the conduct of litigation is not merely a matter for the parties, but is also one for the Court and the need to avoid disruptions in the courts lists with consequential inconvenience to the Court and prejudice to the interests of other litigants waiting to be heard; the just resolution of proceedings remains the paramount purpose of the overriding principle. Each case management application, and particularly an application which seeks debar a party from being conducted to allow a case, must be proved to the hilt. Albeit the defendants valiant attempts to persuade the Court of a forensic back-flip by the plaintiff in the materials which it seeks to rely upon 'in reply', there are to many uncertainties for the Court to uphold the defendant's contentions.

25 At the end of the day the litigation must go forward without the plaintiff being tethered in the fashion proposed by the defendant.

Orders

26 The Court orders that:

Defendants’ notice of motion dated 2 October 2009 seeking orders for the exclusion of expert evidence

1. The defendants’ notice of motion dated 2 October 2009 be dismissed.

2. Costs reserved.

Plaintiffs’ notice of motion dated 2 September 2009 concerning Mr Donnelly

3. The plaintiffs may rely upon the reports of Arthur Donnelly dated 9 April 2008 and 27 July 2009 at the trial of this matter.

4. The plaintiffs be permitted to rely on the report of Alan Kerruish dated 25 September 2009 in their case in chief.

5. Pursuant to r 31.28(1), the plaintiffs serve the report of Alan Kerruish dated 25 September 2009 on or before 26 October 2009.

6. The plaintiffs be permitted to rely on the reports of Professor Hoffman dated 21 September 2009, Professor Masri dated 24 September 2009 and Mr John Gardner dated 27 July 2009 in their case in reply.

7. Pursuant to r 31.28(1), the plaintiffs serve the reports of Professor Hoffman dated 21 September 2009, Professor Masri dated 24 September 2009 and Mr John Gardner dated 27 July 2009 on or before 26 October 2009.

8. the plaintiff pay the defendants costs of the notice of motion dated 2 September 2009.

Defendants’ notice of motion dated 8 September 2009 concerning amendment of the List Response

9. The defendants have leave to amend the Commercial List Response as set out in the proposed further amended Commercial List Response annexed to the affidavit of Michael Bowyer dated 9 September 2009.

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Citations

Best Care Foods Limited v Origin Energy LPG Limited [2009] NSWSC 1134

Cases Citing This Decision

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Cases Cited

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Statutory Material Cited

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Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27

CITATION:	Best Care Foods Limited v Origin Energy LPG Limited & Anor [2009] NSWSC 1134
HEARING DATE(S):	22/10/09
JUDGMENT DATE :	23 October 2009
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	See paragraph 26
CATCHWORDS:	Case Management - Application to disallow party from relying on evidence
CATEGORY:	Procedural and other rulings
CASES CITED:	Aon Risk Services Australia Limited v Australian National University [2009] HCA 27
PARTIES:	Best Care Foods Limited (Plaintiff) Origin Energy LPG Limited (First Defendant) Origin Energy Retail Limited (Second Defendant) Vimchest Pty Limited (Second Cross Defendant to First Cross Claim) Wesmartin Pty Limited (Cross Defendant to Second Cross Claim)
FILE NUMBER(S):	SC 50170/05
COUNSEL:	Mr ML Williams SC, Mr SA Lawrance (Plaintiffs Mr BG Smith, Ms MA Kumar (Defendants) Mr P Bennett (Second Cross-Defendant to First Cross) Mr AP Coleman (Cross Defendant to Second Cross Defendant)
SOLICITORS:	McCabe Terrill (Plaintiff) HWL Ebsworth (Defendants) Holman Webb (Second Cross Defendant to First Cross Claim) Kennedys (Cross Defendant to Second Cross Claim)