F.Y.D. Investments Pty Ltd v Promptair Pty Ltd (No 2)
[2019] FCA 419
•26 March 2019
FEDERAL COURT OF AUSTRALIA
F.Y.D. Investments Pty Ltd v Promptair Pty Ltd (No 2) [2019] FCA 419
File number: SAD 391 of 2015 Judge: WHITE J Date of judgment: 26 March 2019 Catchwords: CONTRACTS – claim for a debt arising pursuant to the terms a contract – Applicants the owner and builder of a commercial building – Respondent the mechanical services contractor contracted to supply and install air conditioning equipment – Respondent supplied Air Handling Units (AHUs) which had not been approved by the Applicants’ engineer and which did not provide the “Air Off” temperature required – Applicants issued a Notice of Default and removed the work from the Respondent’s hands – claim in debt arising from contract.
Held: Notice of Default was ineffective as it included a direction by the Applicants to the Respondent to do acts which had not been required of it under the contract.
CONTRACT – claim for damages for breach of contract – the contract required that the Respondent install only AHUs which had been approved and which produced Air Off temperatures of 10°C – claim that the Respondent supplied non-approved and non-complying AHUs.
Held: breaches of contract established.
CONSUMER LAW – claim that the Respondent engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law by failing to disclose, when submitting progress payment claims, that the AHUs it had installed were not from the approved manufacturer – claim that Promptair implicitly represented that it had properly performed part of the contract.
Held: misleading or deceptive conduct claim established.
DAMAGES – claim that judgment should be entered against the Respondent for its proportionate liability only, on basis that the Applicants’ consulting engineer had contributed to the loss by breaching its contractual and tortious duty of care – claim unsuccessful.
CONSUMER LAW – claim by the Respondent (Cross‑Claimant) that Cross-Respondents had engaged in misleading and deceptive conduct in representing to it that the AHUs would meet the specified requirements – Cross‑Respondents did not attend the trial.
Held: Cross-Claimant entitled to judgment against the Cross-Respondents on the cross-claim.
Legislation: Australian Consumer Law ss 18, 236
Competition and Consumer Act 2010 (Cth) ss 87CB, 87CD
Corporations Act 2001 (Cth) ss 440D
Federal Court Rules 2011 (Cth) rr 5.22, 5.23
Development Act 1993 (SA) ss 67, 72
Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 8
Development Regulations 2008 (SA) reg 83
Cases cited: Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3
Arogen v Leighton [2013] NSWSC 1099; (2013) 278 FLR 245
Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2006] FCA 1427; (2006) 236 ALR 665
Bartley v Myers [2002] SASC 24; (2002) 83 SASR 183
BHP Coal Pty Ltd v O&K Orenstein & Koppel AG [2008] QSC 141
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673
Building Work Contractors Act 1995 (SA): DG Australia Pty Ltd v Alexander [2003] SASC 176
CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd (No 2) [2013] TASFC 10; (2013) 24 Tas R 10
CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
F.Y.D. Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1
Hart v JGC Accounting & Financial Services Pty Ltd [2015] WASCA 22; (2015) 47 WAR 582
Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159
Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125
Hunt & Hunt Lawyers v Mitchel Morgan Nominees Pty Ltd [2013] HCA 10, (2013) 247 CLR 613Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313
Janssen‑Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Jones v Stroud District Council [1986] 1 WLR 1141
Latteria Holdings Pty Ltd v Corcoran Parker Pty Ltd [2014] FCA 880; (2014) 224 FCR 519
Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust [1995] SASC 5006
Masters Dairy Ltd v Nagy [1998] FCA 907; (1998) 156 ALR 262
Mead Corporation v Carbonless Papers (Australia) Pty Ltd [2002] WASC 268
MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354
Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1
Naumann v Ford [1985] 2 E.G.L.R. 70
NRMA Ltd v Morgan [1999] NSWSC 407; (1999) 31 ACSR 43
Redding v Leen [1983] HCA 16; (1983) 151 CLR 117
Shrimp v Landmark Operations Ltd [2007] FCA 1468; (2007) 163 FCR 510
St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245
Tesrol Joinery Pty Ltd v CEFLA Scri [2005] NSWSC 528
The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
The National Insurance Co of New Zealand Ltd v Espagne [1961] HCA 15; (1961) 105 CLR 569
The Owners‑Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067
Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333
Ucak v Avante Developments Pty Ltd [2007] NSWSC 367
Walker Group Constructions Pty Ltd v Tzaneros
Investments Pty Ltd [2017] NSWCA 27; (2017) 94 NSWLR 108
Date of hearing: 20-23, 27 and 30 March, 11 August, 15 and 27 September, 24 October and 2 November 2017 and 1 February 2018 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 463 Counsel for the Applicants: Mr B Jenner (20‑23, 27 and 30 March 2017)
Mr M Livesey QC (11 August, 15 and 27 September 2017)
Mr M Livesey QC with Mr B Jenner (24 October and 2 November 2017 and 1 February 2018)Solicitor for the Applicants: Cleland Lawyers Counsel for the Respondent and Cross‑Claimant: Mr IC Robertson SC (20-23, 27 and 30 March, 27 September 2017 and 1 February 2018)
Mr RJ Whitington QC (11 August and 15 September 2017)
Mr M Bevliacqua (24 October and 2 November 2017)Solicitor for the Respondent and Cross‑Claimant: Minter Ellison Counsel for the Cross‑Respondents: The Cross‑Respondents did not appear ORDERS
SAD 391 of 2015 BETWEEN: F.Y.D. INVESTMENTS PTY LTD (ABN 87 142 247 032)
First Applicant
KYREN PTY LTD (ABN 34 008 263 527)
Second Applicant
AND: PROMPTAIR PTY LTD (ABN 91 085 959 011)
Respondent
AND BETWEEN: PROMPTAIR PTY LTD (ABN 91 085 959 011)
Cross-Claimant
AND: VEKAVENT PTY LTD (ABN 61 146 587 813) (and another named in the Schedule)
First Cross-Respondent
AND BETWEEN: PROMTAIR PTY LTD (ABN 91 085 959 011)
Cross‑Claimant
AND: KYREN PTY LTD (ABN 34 008 263 527)
Cross‑Respondent
JUDGE:
WHITE J
DATE OF ORDER:
26 MARCH 2019
THE COURT ORDERS THAT:
1.The matter be adjourned to a date to be fixed for the hearing of submissions with respect to interest, costs and the appropriate form of orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
WHITE J:
Introduction
[1]
The witnesses
[12]
Factual setting
[17]
The terms of the Contract
[21]
The First Specification
[31]
The approval of the AHUs
[47]
The installation of AHUs manufactured by ESAC
[69]
The commissioning and testing
[73]
Action to address the air conditioning issues
[75]
Issue of Notice of Default
[114]
The replacement of the AHUs
[125]
The cl 14.6 certificate
[126]
Non-compliance with the required Air Off temperature
[128]
The Applicants’ claim
[130]
The claim in debt
[133]
The content of the Notice of Default
[140]
Promptair’s Variation submission
[154]
The claim for breach of contract
[165]
5ASC [54.1]: Installing non-approved AHUs
[174]
5ASC [54.2]: Non-compliance with the specified cooling capacities
[193]
The requirement for an Air Off temperature of 10 degrees C
[198]
The inconsistency
[213]
Were all the installed AHUs non-compliant?
[218]
Were the AHUs fit for purpose?
[225]
The Applicants’ Variation submission
[229]
Conclusion on breach of contract
[235]
Damages for breach of contract
[236]
Clause 12.7
[238]
The position had Promptair performed the Contract
[242]
Impossibility of performance
[252]
Causation
[254]
A failure to mitigate?
[257]
Did Kyren suffer the loss?
[274]
Kyren’s liability to FYD
[279]
Third party subvention
[296]
The performance of Fläktwood AHUs
[310]
Betterment
[311]
Lucid’s fees
[316]
Kyren’s management, administration and building superintendent costs incurred in investigating defects and supervising remedial works
[332]
Relevant principles
[335]
Mr Samaras and Mr Kotzias
[339]
Mr Dally
[348]
Kyren’s overheads, preliminaries and profit margin on the AHUs replacement costs
[361]
Conclusion on damages for breach of contract
[366]
The misleading or deceptive conduct claim
[367]
Apportionment
[390]
Section 72 of the Development Act
[393]
Sections 87CB and 87CD of the CC Act
[399]
Apportionment with respect to Lucid
[406]
Apportionment with respect to Vekavent
[442]
ESAC and Kyren
[445]
Conclusion on the apportionment claim
[448]
The cross-claim against Vekavent and Mr Kärner
[449]
Conclusion
[460]
Introduction
The applicants, F.Y.D. Investments Pty Ltd (FYD) and Kyren Pty Ltd (Kyren) (together “the Applicants”), are the owner and builder respectively of the premises at 70 Franklin Street, Adelaide which were constructed between late 2011 and early 2013.
The premises comprise two towers, both of 16 levels. The Western Tower is disposed as Quest Apartments. The Eastern Tower is an office building with several commercial tenants. The present proceedings are concerned only with the Eastern Tower and it is convenient to refer to it in these reasons as “the Building”.
The respondent, Promptair was the mechanical services contractor to whom Kyren subcontracted the supply and installation of the mechanical services plant, including the air conditioning equipment. Promptair undertook its work in the period between September 2011 and January 2013, although it engaged in commissioning, testing and remedial work thereafter.
The Applicants seek damages from Promptair in respect of alleged shortcomings in the air handling units (AHUs) it supplied during the construction and in respect of certain conduct relating to the performance of its work. In particular, the Applicants allege that Promptair did not supply and install the AHUs which had been approved by its consulting engineer, Lucid Consulting Engineers (SA) Pty Ltd trading as Lucid Consulting Australia (Lucid), and that it was in breach of a number of its contractual obligations. These included obligations to use materials which were fit for their intended purpose and would be free of defects.
The Applicants sue on three causes of action:
(a) the enforcement by Kyren of a debt arising pursuant to the terms of its contract with Promptair;
(b)breach of Contract; and
(c)misleading or deceptive conduct.
Promptair brings a cross‑claim against Vekavent Pty Ltd (Vekavent) and its director, Mr Kärner (together the Cross‑Respondents). Vekavent is a supplier of mechanical services equipment. Promptair alleges that it placed the order for the particular AHUs which it installed in the Building in reliance on representations made by Mr Kärner which were misleading or deceptive. It seeks damages by way of indemnity from the Cross‑Respondents in respect of any amounts, including costs, which may be awarded against it in favour of the Applicants and, in addition, damages in respect of the costs incurred and the loss of profits it suffered in consequence of the inadequacy of the installed AHUs.
The Cross‑Respondents filed a defence to the cross‑claim in which they denied the allegations of misleading or deceptive conduct and denied any liability to Promptair. However, they did not take any part in the trial. By a letter addressed to the Court on 10 March 2017 (just over one week before the scheduled commencement of trial), Mr Kärner said that he would “not be appearing or taking an active role in the proceedings” and would abide the order of the Court, as he did not have the financial resources with which to participate in the trial.
Promptair had also commenced a cross‑claim against Kyren. However, the issues raised by that cross‑claim were resolved consensually, and Promptair discontinued the cross‑claim.
Administrators were appointed to Promptair on 14 March 2017, that is, six days before the scheduled commencement of the trial. Section 440D of the Corporations Act 2001 (Cth) then became applicable:
Stay of proceedings
(1)During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:
(a) with the administrator’s written consent; or
(b)with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
(2) Subsection (1) does not apply to:
(a) a criminal proceeding; or
(b) a prescribed proceeding.
However, it was common ground that Promptair is indemnified under an insurance policy with respect to all but a small part of the Applicants’ claims. The parties, including the administrators appointed to Promptair, consented to a grant of leave to the Applicants to proceed with the claim for which Promptair had indemnity. Kyren’s remaining claim, being that contained in para C of the Originating Application and pleaded in paras [60] to [62] inclusive of what is now the Fifth Amended Statement of Claim (5ASC), was not the subject of the grant of leave and was adjourned to a date to be fixed.
For the reasons which follow, I am satisfied that Kyren has established an entitlement to damages from Promptair in the sum of $944,033.50 and that Promptair is entitled to recover the whole of its liability, including costs, from the Cross‑Respondents.
The witnesses
The Applicants adduced evidence from 10 witnesses and Promptair from six. The evidence in chief of all witnesses was given by affidavit and was supported by a large amount of documentary material.
The parties accepted that each witness had given his evidence honestly and that the Court is not required to make assessments of credit. It must, however, assess the reliability of the evidence given by the witnesses when necessary. It is pertinent to note that at this stage the Applicants did not assert that the misleading or deceptive conduct it alleged against Promptair had involved dishonesty on its part or by its employees.
The Applicants’ witnesses were Mr Theodoros Samaras (sole Director and Manager of both FYD and Kyren), Mr Steven Kotzias (Kyren’s Project Manager), Mr Colin Dally (Kyren’s Building Superintendent at 70 Franklin Street), Mr Gregory Shubin (the Managing Director of Frigrite Mechanical Services Pty Ltd (Frigrite) who advised Kyren in relation to aspects of Promptair’s work and, for a short period while Mr Kotzias was on leave, acted as its Contract Administrator), Mr Travis Stanton (a mechanical engineer employed by Lucid), Mr Phillip Roach (a chartered building services engineer employed by Lucid) and Mr Pasquale Callisto (a building services engineer and Director of Lucid). In addition, the Applicants led evidence from three experts, Mr Sale, Mr Maynard and Mr Caleo. The affidavit of Mr Sale, a quantity surveyor, was received without him being required to attend for cross‑examination. Both Mr Maynard and Mr Caleo are building services engineers.
Promptair led evidence from Mr Peter Thornton (its Managing Director and a qualified air conditioning and refrigeration mechanic), Mr Darryl Stevens (Promptair’s General Manager), Mr Shaun Burgers (Promptair’s Senior Mechanical Engineer), Mr Damien Bennett (Promptair’s Estimator who had been involved in the preparation of its tender to Kyren) and Mr Craig Ullrich (Promptair’s Project Manager). Promptair also led evidence from one expert, Dr Michael Bellstedt, a consulting engineer. Mr Ullrich’s affidavit was received without him being required to attend to give evidence.
Promptair did not lead evidence from its former Project Manager, Mr Upton, who had a significant involvement in the process for the approval of the AHUs. He ceased to be an employee of Promptair in 2013.
Factual setting
In this section of the reasons, I set out the factual setting giving rise to the issues for the Court’s determination. The matters I record were, in the main, non‑contentious and, unless otherwise indicated, should be regarded as findings of fact.
FYD and Kyren are related companies as both are members of the group of companies controlled by Mr Samaras. That circumstance no doubt explains why there was no formal building contrct between the two entities.
On 17 March 2011, Kyren invited tenders for the provision, installation, commissioning and maintenance of the mechanical services (which included the air conditioning) for the construction of 70 Franklin St (the Project). Promptair submitted a tender on 15 June 2011. Kyren informed Promptair on 12 July 2011 that its tender of $8,681,200 inclusive of GST had been accepted but Kyren and Promptair did not execute their written contract (the Contract) until 25 January 2012.
Lucid was retained by Kyren as the Consulting Engineer for the Project and acted in that capacity in relation to the mechanical services, both before and after the execution of the Contract.
The terms of the Contract
In addition to its formal part, the Contract comprised documents entitled “Conditions of Contract” and “Contract Particulars” and other documents referred to in the Contract Particulars. These included the Mechanical Services Specification in a document entitled “70 Franklin St Office & Residential Development‑Mechanical Services Specification Construction Issue‑Project No: 4652 M.SPC” (the First Specification).
In the formal part of the Contract, Promptair bound itself to “to carry out and complete” its obligations in accordance with, amongst other things, the Conditions of Contract and the First Specification. By cl 2.2 it provided a number of warranties to Kyren to which it will be necessary to refer later. The scheduled date for practical completion was 10 January 2013.
Clause 9.1 of the Contract imposed obligations with respect to the workmanship with which the work was to be carried out, the materials to be supplied and with respect to compliance with the Contract itself, the Building Code and relevant standards. Again, it will be necessary to return to cl 9.1 as Kyren alleged that its provisions had been breached.
Clause 9.4 of the Contract obliged Promptair to test and commission all its work in a specified manner. Clause 9.4 provided (relevantly):
9.4 Testing
The Subcontractor must carry out all tests required by the Contract or directed by the Contract Administrator.
All tests are to be carried out in accordance with any procedure:
(a) set out in the Contract which may apply to the tests; or
(b)if no procedure exists, as reasonably directed by the Contract Administrator.
…
By cl 9.6 of the Contract, Promptair was bound, subject to paras (b) and (c), to correct all defects. The balance of cl 9.6 provided:
If, prior to the expiration of the Defects Liability Period for the Works or a Stage, the Contract Administrator discovers or believes there is a Defect the Contract Administrator may give the Subcontractor an instruction specifying the Defect and doing one or more of the following:
(a)requiring the Subcontractor to correct the Defect, or any part of it, and specifying the time within which this must occur; or
(b)requiring the Subcontractor to carry out a Variation to overcome the Defect, or any part of it, and specifying the time within which this must be carried out; or
(c)advising the Subcontractor that the Main Contractor will accept the work, or any part of it, despite the Defect.
In relation to the events with which this litigation is concerned, the Contract Administrator to whom this Clause referred was Mr Steven Kotzias, the Project Manager employed by Kyren.
Clause 11 of the Contract provided for variations. It did so in some detail by, amongst other things, authorising the Contract Administrator to issue a “Variation Price Request” to instruct Promptair to carry out a variation by a written document entitled “Variation Order” and to increase or decrease the contract price to take account of variations which were directed.
Clause 16.1 also concerned the topic of variation. It was concerned with the circumstance in which the Contract Administrator gave a direction, other than a Variation Order, which constituted or involved a Variation. It will be necessary to return to cl 16.1.
The Contract provided for a defects liability period of 12 months which was to commence on “the date of completion” (cl 1.1).
In the event of a default by Promptair in fulfilling its obligations under the Contract, Kyren could give a notice requiring the breach to be remedied (cl 14.2‑14.3). If Promptair failed to remedy a breach after being given such a notice, Kyren could take the work out of its hands (cll 14.4‑14.5). When that occurred, the Contract Administrator could, on the completion of the work, assess the cost incurred by Kyren and certify it as an amount due and payable by Promptair (cl 14.6). It will be necessary to return to cl 14 later in these reasons as Kyren relies on it for its claim in debt.
The First Specification
The First Specification was dated 1 August 2011. This was after Promptair had submitted its tender which, I infer, was based on the specification issued for tender purposes and dated 4 March 2011. It was not suggested that any changes to the specification between that on which Promptair tendered and the First Specification were material in these proceedings.
Lucid, in its capacity as Kyren’s Consulting Engineer, had prepared the First Specification, including the design of the mechanical services. That work was undertaken by its engineer, Mr Adcock, with the assistance of Mr Stanton. Mr Adcock left the Adelaide office of Lucid at the end of 2011 and thereafter Mr Stanton was the principal person within Lucid with responsibility for the Project.
The First Specification indicated that it encompassed “the provision of a Mechanical Services installation that satisfies all statutory legislative and code requirements and satisfies the general details herein”; the “installation, testing, commissioning, maintenance, service and warranty and all sundry and material items, whether mentioned in detail or not, required to complete the installation and place into working order”; and specified that Promptair was to undertake “full responsibility for the execution of the complete installation in accordance with the specification and drawings” (cl 1.1).
Clause 1.6 imposed the following “General Requirement” with respect to Materials Equipment and Workmanship:
Obtain approval for and maintain uniformity of the manufacturer and type of all materials and equipment. Use only new, current manufacture, first quality materials and equipment.
It was common ground that Promptair was required to obtain the approval of the material and equipment to which this provision referred from Lucid.
Clause 2.1, under the heading “Equipment Performance”, provided as follows (relevantly):
General
The Contractor shall be responsible for complying fully with this Specification and for ensuring that good trade practice is observed and that all work is completed in a tradesman‑like manner.
In particular, the capacities and outputs of the various items of installed equipment shall be not less than those specified and the Contractor shall balance air quantities and make all necessary adjustments to the plant to satisfy the Consulting Engineer that the installation meets the requirements of this Specification.
…
Tenderers are required to submit full manufacturer’s selection details of equipment offered at time of tender submission for approval. Identical equipment to that approved by the consulting engineer must be installed on site. Equipment will only be considered “equal approved” if it has been approved by the consulting engineer. Approval of equipment does not override the requirement to comply with the requirements of the specification.
Minimum Performance Requirements
The Contractor shall be fully responsible for the selection of plant to achieve the performance specified below. The Contractor shall guarantee the performance of all the systems installed under this Contract.
Continuous Operation
All plant selected and installed shall be capable of continuous reliable operation within the following extremes:
Maximum Temperature: 46 degrees C dry bulb plus full solar load
24 degrees C wet bulb
Minimum Temperature: 0 degrees C dry bulb
Electricity Supply: …
Minimum Performance Requirements
Air conditioning system capacities have been calculated to achieve the minimum performance requirement specified below:
External Ambient conditions:
Summer:Design day of maximum external ambient temperature 38.0 degrees C dry bulb/21.0 degrees C wet bulb plus full solar load
Winter: Ambient temperature 6.0 degrees C dry bulb
Internal Conditions:
Summer: Maximum 24 degrees C DB/50% RH.
Winter: Minimum 20 degrees C DB.
(Emphasis added)
As is apparent, this clause required tenderers to submit for approval “full manufacturer’s selection details of equipment”. Nevertheless, despite the approval, the successful tenderer remained obliged to comply with the requirements of the specification.
The AHUs were an integral part of the air conditioning system in the Building. The First Specification divided each level into three zones, north, central and south. Each zone had its own AHU, so that there were 48 AHUs in total.
In simplified terms, an AHU operates in the following manner. It takes air returning from the conditioned room or space (referred to as returned air) which has been mixed with fresh air from outside the Building (outside air). This mixture is referred to as the “Air On”. The Air On is then passed over a cooling coil inside the AHU which has the effect of cooling the air and, in most cases, dehumidifying it. The cooling coil achieves this effect because it contains chilled water (typically at around 4‑6°C) in tubes within the coil. When the air leaves the AHU, it is referred to as “Air Off” and its temperature as the “Air Off temperature”. The air is then supplied back into the room or space to be conditioned as “Supply Air”.
Clause 2.4 under the heading “Air Handling Units” contained detailed prescriptions with respect to the AHUs. It commenced with the statement that Promptair was to:
Supply and install chilled water only air handling units of manufacturer “GJ Walker” or “Carrier” or equal approved, complying with the following performance and construction criteria.
Performance criteria were specified separately in relation to each of the 48 AHUs. For each level, the criteria varied according to whether the AHU was to be located in the north, central or south zone. The performance criteria were not, however, uniform for all the corresponding zones on each level. The criteria for the units in each corresponding zone on Levels 2 to 5, and Levels 10 to 14 were identical, but the criteria for the zones at those levels differed from those for the corresponding zones at Levels 1, 7, 15 and 16. The performance criteria for the AHUs in the three zones at those Levels did not match the criteria for the AHUs on any other level. This gave rise to a submission to be addressed later in these reasons.
As it is not practical in these reasons to set out the performance criteria for all of the AHUs, I will do so only for the three AHUs to be located on Level 13:
Unit Designation AHU 13‑1 AHU 13‑2 AHU 13‑3 Unit configuration Cooling Only Cooling Only Cooling only Area Served Level 2 South Perimeter Level 2 Internal Level 2 North Perimeter Supply Air – l/s 860 2095 960 Return Air – l/s 675 1215 825 Outside Air – l/s 185 880 135 Estimated external Static Pressure – Pa 450 450 450 Total Cooling Capacity - kW 18.5 54.0 19.0 Sensible Cooling Capacity - kW 16.5 47.0 18.0 Entering Air Temp Cooling - °cbd 28.2 30.8 27.3 Entering Air Temp Cooling - °cwb 17.5 18.4 17.1 Chilled Water Entering Temp - °c 4.0 4.0 4.0 Chilled Water Flow Rate – l/s 0.73 2.14 0.75 Electrical Supply – A/Φ/V 2.4/3/415 5.9/3/415 2.4/3/415 Variable Speed Fan Yes Yes Yes (Emphasis in the original)
The specification for the “Supply Air” in these criteria is the aggregate of the specifications for the Return Air and the Outside Air. Of the elements in the performance criteria, “total cooling capacity”, “sensible cooling capacity” and the “chilled water flow rate” were the subject of attention in the evidence. As used in the evidence and submissions, “sensible cool capacity” refers to the capacity of the unit to lower the temperature within a space; “total cooling capacity” refers to the capacity of the unit to both lower the temperature and to remove moisture (humidity); and the “chilled water flow rate” refers to the system’s evaporator. Both the total cooling capacity and sensible cooling capacity are measured in kilowatts.
Clause 6.2 of the First Specification contained another specification which is important in this litigation. It specified that in relation to the 48 AHUs:
Maximum [cooling] will see the chilled water valves in the fully open position, leaving chilled water temperature setpoint of 4.0°C, design supply air temperature of 10°C and the VAV dampers fully open. …
(Emphasis added)
As already noted the supply air (“air off”) to which this clause refers is the air which leaves the AHU after it has been cooled.
As is apparent, the First Specification did not prescribe the precise AHUs to be supplied by Promptair. Instead, it identified the performance requirements of the AHUs and gave an indication of the required quality by reference to two well‑known Australian suppliers of air conditioners, GJ Walker and Carrier. Promptair had nominated Carrier AHUs in its tender.
The requirements for testing and commissioning were specified in cl 9 of the First Specification. Clause 9.1 provided (relevantly):
On completion of the work, commission the entire installation and put it into operation.
Carry out comprehensive pre‑commissioning, commissioning and quality monitoring in exact accordance with CIBSE Commissioning Codes or ASHRAE Commissioning Guideline 1‑1996 to satisfy Green Star Man‑2 Commissioning Clauses. … .
Clause 9.6 of the First Specification, under the heading “System Acceptance Tests”, commenced with the following:
Preliminary tests: When the installation is complete, commission the plant by putting it into working order and operating it for not less than the specified minimum running period. Make the adjustments necessary to achieve the required performance under continuous operating service conditions, including balancing, setting the controls, checking the operation of overload and safety devices, and correcting malfunctions. Record and submit the results.
Acceptance tests
Acceptance tests shall commence only when the preliminary test results demonstrate that the plant is ready for test … .
The approval of the AHUs
As already noted, the First Specification required Promptair to submit “full manufacturer’s selection details of equipment” for approval by Lucid. Strictly speaking, Promptair should have provided the equipment details with its tender and therefore before the award of the Contract to it. However, while Promptair indicated in its tender that it proposed particular models of AHUs manufactured by Carrier, Kyren by its Consulting Engineer, Lucid, did not give any approval until after the Contract had been executed. It was not suggested that anything turned on this.
Subsequently, and before the execution of the Contract, Lucid and Promptair realised that the First Specification contained inconsistent requirements. This was because the Air Off temperatures of 10° C could not be achieved in AHUs having the nominated values for “Total Cooling Capacity” and “Sensible Cooling Capacity”. Those values had to be higher if the required Air Off temperature was to be achieved. The inconsistency became apparent during the course of the process by which Promptair sought approval of the AHUs it would supply. The presence of the inconsistency was confirmed in the evidence by Mr Maynard and Mr Bellstedt. However, the inconsistency was resolved by Lucid’s approval of the data for the AHUs which allowed higher total and sensible cooling capacities than specified in the First Specification.
The process by which Promptair sought approval for the AHUs commenced on 23 August 2011 when Mr Upton (Promptair’s then Project Manager) provided Lucid with “Carrier tech data” for the AHUs. Mr Stanton, who was then Lucid’s Mechanical Services Engineer, responded by email later that day with a number of comments. These included “all coil air off temps are required to be 10 deg C”. Mr Stanton asked whether Carrier could “adjust the coil designs to suit”. In addition, Mr Stanton made a handwritten entry on the Carrier data with respect to the leaving air temperature details, namely, “must be 10°C. Increase coil capacity to achieve”. Mr Stanton provided the annotated Carrier data to Mr Upton, also on 23 August 2011.
A copy of the Lucid annotations on the Carrier data was provided by Mr Upton to personnel at Carrier.
In addition to seeking a quotation and technical data from Carrier, Mr Upton also sought technical data and a quotation for supply of the AHUs from the Cross‑Respondents. In preparing his response, Mr Kärner identified the inconsistency in the specification. He pointed it out to Mr Upton in his email on 30 August 2011 in which, in relation to the Carrier data, he said “[b]ased on sensible capacity I would say that leaving dry bulb from coil must be 12 deg C.”. That is to say, Mr Kärner was pointing out that if one adhered to the stipulated sensible cooling capacities in the performance criteria contained in cl 2.4, the dry bulb Air Off temperature would be 12°C.
On 30 August 2011, Carrier provided an updated specification and quotation to Promptair, but the data it supplied in support indicated that the Air Off temperatures on its proposed AHUs still exceeded 10°C. Promptair provided the specification to Lucid.
On 2 September 2011, Mr Upton provided to Mr Adcock and Mr Stanton at Lucid the “tech data” for AHUs manufactured by Fläktwood which he had received from the Cross‑Respondents. In his accompanying email, Mr Upton said:
Viekko from Flaktwoods is a very helpful Engineer and understands your requirements. We put their products into Tower 2 Waymouth street (5 star green) and were very impressed with the quality and performance.
On 6 September 2011, Mr Upton provided Mr Stanton and Mr Adcock with the technical data for AHUs manufactured by Daikin. Mr Upton said that Promptair itself had rejected the Daikin AHUs “based on earlier comments for alternative suppliers from Lucid”, that is, because the AHUs did not satisfy the required Air Off temperature.
On 8 September 2011, Mr Stanton gave his response to Mr Upton concerning the Carrier AHU data. His comments included:
Still have some leaving air temperatures are (sic) high. Units around the 10.1 and 10.2 are ok, but any higher will not be acceptable. … If the waterside rT and leaving air temps are difficult to get then could we get some indication of the factors limiting the performance we require?
As is apparent, by this email, Mr Stanton made explicit Lucid’s insistence on the requirement for Air Off temperatures of 10°C, although allowing for some minor tolerance.
Mr Stanton also responded to Mr Upton concerning the Fläktwood AHU data on 8 September 2011. He again remarked on the Air Off temperatures saying:
The Flaktwood units have a similar issue to the Carrier units. The air off temperatures are too high, up around 12 in most cases. … Could we please get reselections on the coil to achieve the 10.0 air off temp.
Again, Mr Stanton made express the requirement for adherence to the 10°C Air Off temperature even if that required the use of different coils. Mr Upton responded to Mr Stanton saying that he would obtain the requested reselections for the coils.
Mr Upton passed on Mr Stanton’s comments to Mr Kärner on the following day, saying (relevantly):
You are close with price and information, however the comments from Lucid confirm they want the 10C leaving temp (no greater than 6 delta T) and the 50pa maximum pressure drop across the coil.
We need supportive selections to reflect the above.
Mr Kärner responded by an email of 9 September 2011 saying:
This is interesting now as your sensible capacity goes up 15% and question is about Chillers. Do you have enough capacity?
Obviously the coil pressure drop will increase as well as extra rows must be added.
Thus, Mr Kärner again pointed out the inconsistency in the First Specification to Mr Upton, by indicating that the insistence on compliance with the Air Off 10°C requirement meant that the total sensible cooling capacity had to increase by 15%.
Later that same day, Mr Kärner sent an email to Mr Upton, saying (relevantly):
I can reach 10 deg C leaving, water delta 6 deg C and max 50 Pa with 4 row coils. This means that in many units you will have max. face area cooling coil arrangement. … .
On 14 September 2011, Mr Upton sent to Mr Adcock and Mr Stanton an email attaching “final selections from Fläktwoods for comment/approval”. The Air Off temperatures shown in the technical data for the 48 units varied between 8.7 and 9°C (wet bulb) and were uniformly 10°C (dry bulb).
Mr Stanton responded on 16 September 2011 by email, saying (relevantly):
The AHU selections look ok. I didn’t get the selections for Levels 9 up, but if these are anything to go by it looks like Fläktwood have made the necessary modifications to the coils.
I infer that, by his statement that he had not been able to get the selections “for Levels 9 up”, Mr Stanton meant that he had not been able to open the electronic attachments containing the data for Levels 9 to 16.
Mr Upton obtained further data from the Cross‑Respondents. Mr Kärner informed him in the accompanying email of 19 September 2011 that the data did not relate to Fläktwoods, although he did claim that it produced the same construction and technical details as Fläktwoods.
Mr Upton provided the data for Levels 9‑16 by separate emails on 20 September 2011. This data showed Air Off temperatures of 8.9°C (wet bulb) and 10°C (dry bulb) for the AHUs at those Levels. Mr Stanton responded later the same day informing Mr Upton that the AHU selections for these Levels “appear to [be] acceptable”. Mr Upton responded by email almost immediately, saying:
Thanks Travis.
At this point I believe that they are the only ones that will comply with the spec however I will endeavour to get the others in compliance if you are not happy to run with these.
Should you require any additional information please do not hesitate to contact our office.
Mr Stanton said that he gave his approval for the AHUs “on the basis that a 10 degree leaving air temperature was achieved by the Fläktwoods data”. The sequence of events just recorded, and in particular Mr Stanton’s insistence on compliance with this criterion, supports that evidence, and I accept it.
So also does the importance of the Air Off temperature of 10°C in achieving the desired building energy efficiency. Mr Stanton explained that importance as follows:
[16]The air-conditioning system installed at 70 Franklin Street is a state of the art low air temperature, induction variable air volume (IVAV), chilled water system with high energy efficiency. The high energy efficiency was needed in order for the Building to achieve a green star design rating, and a “5 star” NABERS (National Australian Built Environment Rating System) rating. The Building did achieve both these targets.
[17]The key to the high energy efficiency of the system is the use of low temperature supply air, leaving air handling units at 10° C. To achieve this water is chilled to 4°c by chiller units. The chilled water at 4 degrees is circulated through "coils" within the air handling units, and air is moved within the AHUs across the face of these coils to achieve an air off coil temperature of 10° C. The cooled air is then delivered through ducts to “zones” on each floor by a system of "dampers" within the air handling units connected to the air conditioning ductwork.
Accordingly, I am satisfied that Mr Stanton would not have approved the AHUs had the data indicated that a 10°C leaving air temperature could not be achieved. I am also satisfied that Mr Stanton gave his approval on the basis that the data provided by Mr Upton related to Fläktwood AHUs. That is what he and Mr Upton had been discussing and Mr Upton had said that he would get the “reselections” of the Fläktwood coils which Mr Stanton had requested. Unknown to Mr Stanton, the technical data supplied to him by Mr Upton did not relate to Fläktwood AHUs.
Although Mr Upton had been aware from at least 19 September 2011 that the data he had provided to Lucid did not relate to AHUs manufactured by Fläktwood but instead to AHUs manufactured by another entity (Egyptian Swedish Airconditioning Co (ESAC)), he did not inform Lucid of that circumstance. In all these circumstances, there is no difficulty in concluding (and I do), that Mr Stanton gave the approval in the email of 20 September 2011 on the basis of the representation to him that the “tech data” provided by Promptair for the purpose related to Fläktwood AHUs.
It is a matter of some significance in this litigation that the data for which Mr Stanton gave approval provided for total and sensible cooling capacities which exceeded those specified in the First Specification.
The installation of AHUs manufactured by ESAC
As can be seen, the chronology of events recorded above culminated on 20 September 2011 with Lucid approving the supply and installation of Fläktwood AHUs. Fläktwood is a Swedish manufacturer. It seemed to be common ground in the trial that in September 2011 Fläktwood was a well‑known reputable manufacturer of AHUs. This was confirmed by Mr Caleo, the Consulting Engineer called by the Applicants.
Promptair did not install Fläktwood AHUs. Instead, it installed the much cheaper AHUs manufactured by ESAC, an Egyptian manufacturer. It seemed to be common ground that, throughout the period relevant in this litigation, ESAC was not a well‑known manufacturer and, in particular, did not have a known reputation as a supplier of AHUs.
Mr Thornton, the Managing Director of Promptair, deposed to his having had an understanding in October 2011 on his return from leave that the AHUs were Fläktwood units. He said that he had derived that understanding from a discussion with Mr Upton. Mr Thornton also deposed that Mr Upton had told him at the time that Mr Kärner had been able to obtain a costs saving for the AHUs by obtaining them from Egypt, “direct from the factory”.
Promptair did not inform Lucid or Kyren that it had not installed Fläktwood AHUs, and this was not detected by Lucid until 1 April 2014. In his opening submissions provided in advance of the trial, counsel for Promptair conceded that it had not¸ before March 2013, provided any information to Lucid which disclosed that the technical data on which it had sought approval related to ESAC, and not Fläktwood, AHUs. On the third day of the trial, counsel for Promptair sought and was granted leave to amend its defence to admit the applicants’ allegations that it had engaged in misleading or deceptive conduct. I will return to this later.
The commissioning and testing
The Contract between Kyren and Promptair required Promptair to achieve practical completion by 10 January 2013. However, this was not achieved. It seems that the physical work of installation was completed by about January 2013, but the commissioning of the plant and equipment remained to be carried out.
Promptair commenced the steps contemplated by cl 9 for commissioning of the mechanical plant and equipment on about 17 January 2013. This involved the completion of both “Preliminary Tests” and “Acceptance Tests”. Various tests and commissioning work occurred over the ensuing months. Mr Thornton acknowledged that the commissioning was not completed because Promptair did not ever complete the Preliminary Tests.
Action to address the air conditioning issues
Problems with the air conditioning became apparent fairly early on in the commissioning process.
By email dated 21 March 2013, Mr Kotzias sought urgent action from both Lucid and Promptair. He pointed out that the Building Management System (BMS) was reporting temperature spikes at Levels 14‑16; that with increasing external air temperatures, the Air Off temperatures were 14 or 15°C (at best); and he queried whether there were shortcomings in either of the design or installation of the air conditioning system, including the AHUs.
This letter caused Lucid to review its design calculations and Promptair to check other aspects of the air conditioning system. In March 2013, Promptair upgraded the fans in all the AHUs. Lucid completed its review of the technical data by 27 March 2013 and, on the same day, informed Promptair that, on the basis of that review, it could not understand why the equipment “cannot hold conditions”. Mr Stanton concluded the email by saying “the Fläktwood tech data says we should have a little more capacity over and above the [base building] spec so we should have no issues getting 10°C air off on warm days”.
On 28 March 2013, Mr Upton informed Mr Stanton that Promptair would change the coils on some of the AHUs “as they are under spec and the tech data provided by the supplier”. During April 2013, the principal focus of the activities with respect to the air conditioning system appears to have been the replacement of coils in some of the AHUs. At the same time, other matters were explored and various adjustments were tried. I note, however, that, at least by 4 April 2013, Lucid was suggesting that “the currently installed undersized coils do not appear to be the issue”.
While these steps were continuing, on 2 April 2013, Katnich Dodd issued a Certificate of Occupancy under s 67 of the Development Act 1993 (SA) and reg 83 of the Development Regulations 2008 (SA), certifying that the Building was suitable for occupation. In doing so, Katnich Dodd were acting as a building certifier. The issue of the certificate had the effect that FYD could then allow the commercial tenants of the Building to take occupation.
It was common ground that both Kyren and Promptair had treated the date of the Certificate of Occupancy as the date on which completion was achieved.
Higher than required temperatures continued to be experienced in the building. There were numerous communications between Kyren, Lucid and Promptair concerning them. In a meeting on 2 April 2013, Promptair agreed to replace the cooling coils to the AHUs servicing the north zones on Levels 7 to 16.
Despite these and other attempts by Promptair to remedy the situation, the internal air temperatures remained too high. The stratagems adopted by Promptair included increasing the capacity of the water pumps, closing some of the return air slots within some rooms, reversing the chilled water flows, balancing some flow rates, and installing collars, blanking plates and different diffusers. In July 2013, Lucid recommended that the majority of the return air slots forming part of the light fittings be blanked off and that return air “egg crate” grilles be fitted. Numerous further checks and tests were undertaken. On 28 October 2013, Lucid provided a scope of works for the replacement of the plug fan assemblies in the AHUs for the north facing zones on Level 7 to 16. None of these stratagems solved the problem that the required internal air temperatures were not being achieved. As external temperatures increased in the 2013‑2014 summer, tenants in the building complained to Kyren about the internal temperatures. The BMS reports also showed that the AHUs were not always achieving a 10°C Air Off temperature. Promptair took further steps with a view to remedying the situation, including replacing further coils in the AHUs.
By a letter sent on 12 February 2014 (incorrectly shown as 12 February 2013), Mr Stanton notified Kyren of performance issues affecting the AHUs. He noted that a number of the AHUs were not capable of “achieving the design cooling coil air off temperature of 10.0°C, at the full design supply airflow rate, during peak cooling conditions”. He summarised the testing of the AHUs which Lucid had carried out on Levels 15 and 16 with a view to identifying the underlying reason. This was testing of the supply air flow rate, the chilled water flow rate, the controls, the air diffusion, and the short cycling. Mr Stanton then reported on testing of the AHUs on Level 16 carried out on 17 January 2014, a day on which the ambient external temperature reached 42.7°C. He included the results of that testing in a table which included (relevantly):
LEVEL 16 AHU 16‑1 AHU 16‑2 AHU 16‑3 Design Actual Design Actual Design Actual Air On Coil Temperature - °C db 27.7 29.4 30.4 29.2 25.6 29.5 Air Off Coil Temperature - °C db 10.0 14.5 10.0 13.6 11.2 13.2 (Emphasis added)
As can be seen, the Air Off temperatures for each of these AHUs well exceeded 10°C.
Mr Stanton concluded the letter with the following recommendation:
In light of the above findings, and based on the coil capacity issues identified from Levels 7 to 16 on the North Perimeter last year, our office recommends a full review be undertaken on the Base Building Air Handling Unit Coil Installations to identify defective cooling coils. Cooling coils that do not achieve the specified cooling capacity will be required to be replaced with cooling coils compliant with the Mechanical Services Contract Documentation.
As is apparent, Mr Stanton’s belief at that time was that the problem lay with the cooling coils.
By letter to Kyren of 26 March 2014, Mr Burgers acknowledged that the AHUs were not producing Air Off temperatures of 10°C. He attributed this to the inadequate cooling capacity requirements in the First Specification for which he contended Promptair was not responsible.
On about 1 April 2014, Lucid became aware that Promptair had not installed AHUs manufactured by Fläktwood. It notified Kyren that this was so by a letter dated 4 April 2014. After summarising the shortcomings concerning the AHU coils, Mr Callisto (Lucid’s director) continued:
Further to the above, we confirm having reviewed our project file for correspondence relating to the approval process for the air handling units and associated cooling coils. The various communications between Promptair and Lucid Consulting Australia indicate the following;
ŸAir handling units and cooling coils offered and subsequently approved were of Fläktwoods manufacture.
ŸThe approved selection data for each coil was based on a 10°C ‘air‑off’ temperature at the corresponding design ‘air‑on’ condition.
Fläktwoods manufacture[d] equipment is considered a reputable make of equipment, hence we are concerned that following a comprehensive coil selection and approval process, the installed cooling coils have not met the approved selection/performance data. A manufacturer of Fläktwoods good standing within the industry would also be concerned with the observed unsatisfactory performance of their equipment, and hence we sought to contact the supplier/manufacturer for comment.
We refer you to the attached correspondence from David Stark of Fläktwoods dated 1 April 2014, and Viekko Kärner of Vekavent Pty Ltd (an agent of Fläktwoods) dated 2 April 2014. Both suppliers have indicated they have no record of an order being placed by Promptair or any record of any delivery of equipment to 70 Franklin Street.
Mr Callisto concluded with a recommendation that an urgent meeting be held with Promptair.
Some polite but firm correspondence then ensued between Mr Samaras and Mr Thornton. These issues, and the issues arising from the inadequate performance of the ESAC AHUs, were discussed at a meeting of Messrs Thornton, Burgers and Hayter from Promptair and Messrs Stanton and Callisto from Lucid on 8 April 2014.
In early May 2014, Kyren and Promptair agreed that the latter would replace the coils to the AHUs at Level 13 so that their performance could be checked before Promptair proceeded with the replacement of the coils in all 48 AHUs. Lucid then approved the GJ Walker technical data for the replacement coils and Promptair installed them in the Level 13 AHUs in late May 2014.
These matters were the subject of extensive communications between Kyren, Lucid and Promptair. It is not necessary to record the detail of all of those communications presently.
On 13 June 2014, Mr Samaras sent an email to Mr Thornton, Promptair’s Managing Director, the content of which was as follows:
Hello Peter,
I have attached a letter outlining several items that need your attention although there are other minor outstanding items that also need attention!
From the Practical Completion Date it has been 15 months now and still there is substantial amount of work that needs to be completed urgently!
Kyren will not go through this summer chasing PromptAir to complete these items, the decision has been made.
The coil issue is a very big problem and we have one way or other (sic) we have been pestering Promptair all this time to resolve the non‑conforming coils with no success!
Since January’14 it has been almost 6 months and [we] have achieved almost nothing. Don’t forget P A ignored this problem for the previous 10 months.
I look forward to your response.
Cheers
Theo
In a letter accompanying the email, Mr Samaras put Promptair on notice as follows:
In accordance with section 6.6 Fit for Purpose, the mechanical services system delivered does not comply with the specified requirements [of the First Specification], therefore Final Completion cannot be granted.
Mr Samaras then listed 10 matters in which Promptair’s performance of its contractual obligations had been inadequate. Items 1 and 5 were:
1. Clause 2.4 “Air Handling Units”
Promptair has not supplied an approved brand and product. The unit brand supplied is non‑existent in Australia [and] the componentry unidentified throughout the project.
The product does not meet the specified:
a. Nominated cooling capacities to comply with the design criteria and supply temperatures
b. Correct counter flow cooling coils.
…
5.Clause 6.2 “Control Functions and Strategies”
The specified control strategies for the air handling units cannot deliver supply temperatures of 10 degrees due to incorrect air handling unit cooling coil selections and chilled water pipework arrangements.
(Emphasis in the original)
Mr Samaras then set out his expectations for the rectification of the shortcomings:
System Rectification
Under clause 9.6 of the contract, we hereby notify Promptair that the mechanical services system is incomplete. The system is not approved, not handed over and the DLP (defects liability period) is incomplete until the system is handed over to Kyren Pty Ltd in accordance with contract requirements.
We note the above works are extensive and require a detailed plan to be submitted by your office in order to approve the execution of works.
The plan needs to include:
1.Scope of work document of how Promptair Pty Ltd propose to rectify the above outstanding works and system defects in a[n] occupied building without affecting the working conditions of existing tenants (i.e. Noise, conditions, access, essential plant and equipment).
2.Program works schedule detailing all time lines required to complete the outstanding works and defects.
3.Approval by Lucid Consulting Australia Pty Ltd of the rectification plan.
4.Final testing and witnessing procedure of all outstanding works and defects by Lucid Consulting Australia Pty Ltd and Kyren Pty Ltd.
5.Extended warranties of all mechanical services plant and equipment for a full twelve (12) months of satisfactory operation to meet the specified performance criteria.
6.Continuation of the DLP period including the required service and maintenance requirements in accordance with the satisfactory operation of plant and equipment to meet the specified performance criteria for a full twelve (12) month period.
Mr Thornton, the Managing Director of Promptair, responded by letter dated 25 June 2014, saying (relevantly):
Clause 2.4 Air Handling Units
Whilst it is acknowledged that the particular brand of air handling units provided was not as per the Lucid specifications the product, with the new coil fitted, is capable of providing the capability as required. As you know, Promptair is in the process of changing coils for the air handling units and we have been in continual communication with you in respect of this. We are following the agreed plan whereby level 13 will be changed firstly as a model for the other levels.
…
Clause 6.2
We do not accept that “the specified control strategies for the air handling units do not deliver supply temperatures of ten degrees due to incorrect air selections and pipe work arrangements”. When the coils for the air handling units are changed this should alleviate any concerns. As agreed, coils will be changed on level 13 firstly, prior to change on other floors. Lucid will be asked to approve this work once completed through yourselves.
…
System Rectification
The defects liability period for this project expired on 2 April 2014. You are raising matters not received during the defect[s] liability period. The provision of a detailed plan as requested by you is not warranted.
We anticipate being in a position to complete the installation of new coils on level 13 (and as previously advised) by first week of July 2014 as long as access is available to us.
(Emphasis in the original)
Promptair installed new coils in the Level 13 AHUs in the week commencing 30 June 2014. Testing commenced on 3 July and continued on 7 and 11 July 2014. During June and July, it also tried a number of other stratagems.
By email on 24 July to Promptair’s General Manager, Mr Stevens, and copied to Mr Thornton, Mr Samaras raised the replacement of the ESAC AHUs:
This is becoming out of control and we need you[r] total input to this matter by the [close of] business today!
Kyren has been very reasonable with this matter and as far as we are concern[ed] you or Promptair needs to replace all these AHUs with the approved and recommended band!
This can’t keep on going as it has over the last several months.
There is a period of 3 months only that this work needs to be completed!!
Need your feedback today URGENTLY!!
(Emphasis in the original)
On 25 July 2014, Lucid (by Mr Roach) reported to Kyren that, despite the action taken to improve the performance of the AHUs installed by Promptair, they were “not fit for purpose and do not meet the requirements of the specification”. Mr Roach continued:
All attempts have been made to retain the existing units and modify their arrangement to produce the required duties. Unfortunately the attempts taken have not been successful and the only remaining option, that being the installation of a side inlet centrifugal fan (as originally specified) is available.
With the AHU performance being identified as an issue many months ago, this option is not available to be pursued since any further delays to the rectification of the installation will cause further discomfort to the tenants within the building with the summer period approaching.
It is also believed that further modifications to the existing AHUs, coupled with the necessity to modify the existing coils from parallel to counter flow will degrade their quality further.
The decision has therefore been made to highlight the AHUs as ‘non‑conforming’ and ‘not fit for purpose’ by the fact that they are unable to meet the specified design duties.
The full and complete replacement of all of the AHUs with units compliant with the contract specification is required.
Having not had a response to his email of 24 July, Mr Samaras sent a follow up email on 25 July. He informed Promptair that, if Kyren did not receive a satisfactory response, it would “place the program in place to replace all units at [Promptair’s] cost”. Mr Stevens responded later on 25 July. He informed Mr Samaras that Promptair was seeking data and equipment selection details from reputable manufacturers of AHUs but that the indications were that a 12 week delivery time was realistic irrespective of which brand of replacement AHUs was chosen.
Later on 25 July 2014, Mr Samaras informed Promptair that Kyren would assume control of the tender and equipment selection process, with a view to fast tracking it, and that Promptair would be responsible for the installation and onsite modifications necessary for the new equipment. Later that same day, Mr Thornton accepted Mr Samaras’ proposal providing that Kyren undertook the responsibility for payment of the replacement AHUs.
By email dated 26 July 2014 to Mr Thornton, Mr Samaras informed him that he would be absent on leave for the period 27 July‑28 September, but contactable by email and mobile phone. He told Mr Thornton that Kyren had engaged Lucid to undertake the tender process for the purchase of 48 replacement AHUs “in conjunction with the Project Manager Greg Shubin (Frigrite)”. Mr Samaras continued:
Frigrite will act as the Project Manager for the duration that I’ll be away and will review their position on my arrival. They will have full control to act for Kyren to mitigate all the events in regard to the Mechanical Outstanding matters.
By the same email. Mr Samaras rejected, in forceful terms, Mr Thornton’s suggestion that Kyren be responsible for meeting the costs of the replacement AHUs.
On 30 July 2014, Mr Stevens provided Mr Roach at Lucid with the technical data of both Carrier and Temperzone, noting that Carrier had a longer lead time for delivery and that, unlike Temperzone, it did not commit to achieving the desired 10° Air Off temperatures.
On 3 August 2014, Frigrite (by Mr Shubin) provided Lucid with a summary of the technical data for AHUs manufactured by Carrier, GJ Walker, Fan Coil Industries and Temperzone and of their compliance with the First Specification. He concluded that no single AHU complied in every respect with the requirements of the First Specification and sought Lucid’s advice as to the aspects of the specification which were negotiable.
By email of 7 August 2014 to Mr Shubin, Mr Roach said that the Temperzone AHUs would be acceptable. He proposed an in‑situ test of one unit before proceeding further.
On 8 August 2014, Frigrite (by Mr Shubin) accepted Temperzone’s quotation for the supply of 48 AHUs but on the basis that one AHU was to be installed on Level 13 and tested for one week before Temperzone proceeded with the remainder. One of the conditions which Mr Shubin attached to the acceptance was that “this purchase order to be novated to Promptair Pty Ltd”.
Subsequently, following the completion and testing of the Temperzone AHU which had occurred by 4 September 2014, Mr Shubin, in a letter sent on Frigrite letterhead, accepted on behalf of Kyren, Temperzone’s quotation for the supply of the remaining 47 AHUs.
On 11 August 2014, Frigrite (by Mr Shubin) had quoted a total price of $1,061,799 (excluding GST) for the replacement of the 48 AHUs. Mr Samaras provided that quotation to Mr Callisto and Mr Roach on 20 August 2014 and sought their confirmation that the offer was “within the Original Specification”.
By letter to Promptair dated 12 August 2014 on the Kyren letterhead, Mr Shubin (describing himself as “Project Manager”) informed it of Kyren’s selection of the Temperzone AHUs and that Promptair was required to replace the 48 AHUs “in order to meet the commercial terms of [its] contractual obligations for the project”. Mr Shubin attached a copy of Temperzone’s quotation and noted the requirement for it be “novated” to Promptair. He also attached the specification entitled “Mechanical Services Air Handling Unit Replacement Scope of Works Project No: 4652 M.SPC.002” dated 12 August 2014 prepared by Lucid (the Second Specification). Mr Shubin concluded by saying:
We seek Promptair Pty Ltd formal confirmation accepting the replacement of the forty‑eight (48) new air handling units documented by [Lucid] in accordance with the specified work program. This confirmation is required within seven (7) days of receipt of this letter.
The Second Specification differed from the First Specification in that Mr Roach, who prepared it, had removed the performance criteria for total capacity, sensible cooling capacity and chilled water flow rate. He said that he had done so because of the mistake in the First Specification and because these criteria were irrelevant to the selection of the replacement AHUs, they not being matters specified by the manufacturers. I accept Mr Roach’s explanation.
Mr Thornton responded to Mr Shubin on 14 August 2014, stating that Promptair would not take any further action on instructions from either Frigrite or Mr Shubin:
Greg
Promptair [is] not prepared to take any further action regarding the proposed scope of works via instruction from either Frigrite or yourself.
To date Promptair has never been provided with any formal notification from Kyren Group or Lucid that these works would be undertaken through your direction & instruction (as their PM) on their behalf (Frigrite & yourself are not recognised).
There has been no prior discussion, or consultation regarding this matter with Promptair.
As mentioned to Kyren on numerous occasions previously, (and we now confirm this to you) – unless an official Promptair purchase order number is raised to the supplier/s Promptair will not be accepting any form of purchase or payment of that purchase by others on Promptair’s behalf. This includes the related pricing that has been discussed, agreed and confirmed between the supplier/s and Promptair at the time.
In the light of Mr Samaras’ email to Mr Thornton of 26 July 2014 to which I referred earlier, Mr Thornton’s refusal to accept direction from Mr Shubin is puzzling. I infer that Mr Thornton had allowed the commercial rivalry between Frigrite and Promptair to colour his response.
In a long email to Mr Thornton of 18 August 2014, Mr Samaras made a “last request” that Promptair reconsider its position. He warned him that Kyren was prepared to engage others to do the whole of the outstanding work and then pursue Promptair for costs and damages. Mr Thornton responded on 20 August 2014 saying that Promptair would have one Temperzone AHU installed and tested before purchasing the remaining AHUs. On the following day, Mr Thornton sought information from Lucid as to the reasons for the changes in the Second Specification from the First Specification and information concerning whether it had ever been possible for Lucid’s Original Specification to be achieved. On the same day, in a letter to Mr Samaras, Mr Thornton questioned the need for the replacement of the AHUs but said that Promptair was willing to install the single unit available from Temperzone.
By email to Mr Thornton of 19 August 2014, Mr Samaras confirmed that Kyren had engaged Frigrite as Project Manager in order to see the building completed according to specification. He forewarned Mr Thornton that the costs which Kyren incurred in retaining Frigrite would be passed on to it.
By letter dated 22 August 2014, Mr Kotzias informed Mr Thornton that he had appointed Mr Shubin as his Contract Administrator’s Representative pursuant to cl 3.4 of the Contract.
Issue of Notice of Default
On 1 September 2014, Temperzone provided to Mr Shubin a quotation of $297,891 (including GST) for the supply of 48 replacement AHUs. At about the same time, a Temperzone AHU was installed in a zone on Level 13. After a minor adjustment, this was found to be satisfactory and Lucid approved the use of Temperzone AHUs as the replacement.
On the same day, Lucid prepared a third specification for replacement of the AHUs (the Third Specification). This specification contained data relating to the Temperzone AHUs and some variations from the Second Specification.
By a notice issued to Promptair on 5 September 2014, Kyren (by Mr Shubin) gave notice of default under cl 14 of the Contract. The notice asserted, in para [5], that Promptair was in breach of cll 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a)(ii), 9.1(b) and 9.1(c) of the Contract and specified the respects in which Promptair was said to be in non‑compliance. Clause 8 required Promptair to take action to remedy the breaches, as follows:
[8]Kyren, as the Main Contractor, requires Promptair as the Subcontractor to remedy the breaches of the Contract referred to in paragraphs 5 to 7 above within 14 days of receipt of this Notice of Default by acknowledging in writing that:-
[8.1]it will carry out, at its expense, each of the tasks specified in the attached remedial works specification of [Lucid] dated 1 September 2014 … which includes the approval of [Lucid] to the Temperzone Air Handling Units dated 4 September 2014. In this regard for the avoidance of doubt “at its expense” includes your agreement to reimburse Kyren for the cost associated with the supply identified in paragraph 9 below;
[8.2]it will carry out the task set out in Attachment 4 in accordance with the attached construction program (Attachment 5) and in this regard will ensure it has sufficient labour resources on site at all times to ensure the programme is met;
[8.3]it will remedy the defects identified in the Incomplete Defect Item List dated 28 August 2014 (attachment 2) and the Mechanical Services Defect Schedule dated 28 August 2014 (attachment 3) within 30 days.
[9]In relation to item 1.2, dot point 2 of the remedial works specification of [Lucid] dated 1 September 2014 (attachment 4), Kyren will supply the air handling units as per the attached quote of Temperzone Australia Pty Ltd quotation number 83763‑B dated 1 September 2014 (Attachment 6).
…
[13]Upon providing the written acknowledgement referred to paragraph 8 above you are directed to strictly comply with and undertake each of the tasks identified in Attachment 4 at the times identified in Attachment 5 and as nominated in 8.3 above.
(Emphasis in the original)
Attachment 4 in this notice was the Third Specification prepared by Lucid on 1 September 2014.
The Notice of Default was sent to Promptair by Kyren’s solicitors, Clelands Lawyers (Clelands).
Promptair responded to the Notice of Default with a short letter to Mr Shubin on 12 September 2014, in which it asserted, under cl 16.1(a) of the Contract, that the Notice of Default was a direction constituting a variation. It provided its formal response by two letters from its lawyers, MinterEllison. In the first, dated 19 September 2014 and addressed to Clelands, Promptair denied that it was in breach of the Contract as Kyren had asserted and gave reasons for that denial. The letter also asserted that the Notice of Default was not a valid notice. MinterEllison then said that Promptair was “prepared to accept the proposals set out in Clauses 8.1, 8.2 and 8.3 of the Notice of Default” subject to three “amendments” to cl 8.1 to which I will refer later. These contemplated that the remedial works which Promtpair considered appropriate would be included in a Notice of Variation, and therefore that Kyren may pay for them.
In the second letter (also dated 19 September 2014) addressed to Mr Shubin as Kyren’s Contract Administrator Representative, MinterEllison asserted that the Notice of Default of 5 September 2014 amounted to a direction constituting a Variation under the Contract. MinterEllison then made a claim for an increase in the Contract price pursuant to cl 16.1(b) of the Contract. The increase claimed was $745,826 (excluding GST). Mr Kotzias, as the Contract Administrator, rejected that claim.
MinterEllison also sent a third letter dated 19 September 2014. This was addressed to Mr Shubin. MinterEllison expressed the view that the counter‑proposal comprising the three “amendments” indicated the seriousness of Promptair’s intention to work with Kyren to resolve the issues. MinterEllison went on to say that Promptair’s willingness to undertake the works pursuant to the counter‑proposal was not contingent on Kyren agreeing to the claimed Contract price adjustment of $745,826. It was apparent, however, that Promptair’s willingness to do the work was contingent on Kyren’s acceptance of the three “amendments” to cl 8.1 in the Notice of Default.
By letter dated 30 September 2014, Mr Shubin, in his capacity as Contract Administrator Representative, extended the time for compliance by Promptair with the Notice of Default to 5 pm on 1 October 2014.
Mr Kotzias resumed as Contract Administrator on 1 October 2014 and notified Mr Thornton of that fact.
By notice to Promptair on 2 October 2014, Mr Kotzias notified it, pursuant to cl 14.4(a) of the Contract, that Kyren was taking the works specified in the Third Specification dated 1 September 2014 out of Promptair’s hands.
The replacement of the AHUs
Frigrite carried out the replacement of the ESAC AHUs with the Temperzone AHUs in October, November and December 2014. The replacement work was completed by 19 December 2014. The Applicants paid Frigrite a total of $1,020,476 (excluding GST) for that work, including the cost of installing the test Temperzone Unit in August 2014.
The cl 14.6 certificate
On 5 February 2015, Mr Kotzias as Contract Administrator, issued to Promptair a certificate under cl 14.6 of the Contract certifying the amount payable by it in respect of the work taken out of its hands at $1,074,394.50 (excluding GST) (the Certificate Sum).
Promptair did not pay that amount. There followed a series of meetings and communications and on 3 November 2015, the Applicant commenced the present proceedings.
Non-compliance with the required Air Off temperature
There is a considerable amount of evidence indicating that the AHUs installed by Promptair did not meet the Air Off 10°C requirement. Given some of the submissions made by Promptair, I list some of the evidence supporting that conclusion.
(1)in March 2013, the tenants at Levels 14‑16 in the building complained of excessive heat with temperatures in the range 25‑27°C. The Air Off temperatures for AHUs in the north zone on Levels 14‑16 were recorded at 14‑15°C at best;
(2)on 5 April 2013, Mr Stanton recorded the Air Off temperatures for the AHUs in the north zone at Levels 15 and 16 as being 11°C or greater;
(3)following the replacement of coils in the AHUs in the north zones at Levels 7‑16, testing at Levels 14‑16 revealed that the temperatures remained too high;
(4)on 8 October 2013, Mr Stanton noted that the Air Off temperature for AHU 16‑3 was 11°C (the parties had used Level 16 as a test case at this stage because it was the worst affected floor);
(5)in January 2014, Mr Dally, the Building Superintendent, reported that he was receiving complaints from the tenants on the 16th Floor almost daily;
(6)testing of the three AHUs at Level 16 on 17 January 2014 revealed Air Off temperatures of 14.5°C, 13.6°C and 13.2°C, respectively;
(7)in total, 18 AHUs were tested on 17 January 2014. Only four recorded an Air Off temperature of 10°C or less (but no result was recorded for three). Several of the test results were well in excess of 10°C;
(8)on 31 January 2014, Promptair (by Mr Ullrich) reported that the Air Off temperatures of Levels 1, 2, 3‑1, 4, 5, 7, 8‑1, 15 and 16‑1 were high but he also said “[g]enerally over half of the Southern AHUs are performing OK”. I note, however, that earlier on 31 January 2014, Mr Stanton had reported that the AHUs in the south zone were typically “not hitting the supply air temp off”;
(9)on 25 February 2014, Promptair (by Mr Burgers) proposed some adjustments to AHU 13‑1 which was then producing an Air Off temperature of 12°C. Mr Burgers noted that it had previously been 14‑15°C;
(10)testing on 3 March 2014 of the three AHUs at Level 13 with the modified coils in place revealed Air Off temperatures of 14.4°C, 13.8°C and 11.5°C respectively. It was following that testing that Promptair agreed to replace the coils with cooling coils manufactured by GJ Walker;
(11)testing of the AHUs at Level 13 on 7 July 2014 after the replacement of the coils revealed that they did not produce the required Air Off temperatures, even though the external conditions then were well below the design specification;
(12)on 23 July 2014, Mr Roach reported that testing of the modified AHUs on Level 13 had not demonstrated improvement in the Air Off temperatures. He then recommended that the replacement of the AHUs be explored; and
(13)many of the BMS records in evidence indicated that the required Air Off temperature was not being achieved.
The evidence indicates that much of the testing was carried out at Level 13 because, until July 2014, that Level was not occupied and both Kyren and Promptair had sought to minimise the disruption and inconvenience to the tenants occupying the other floors.
The Applicants’ claim
In the 5ASC, the Applicants claim a total of $1,074,394.50 for the cost of the remedial work as follows:
Frigrite $1,020,476.00 Mr Dally (Building Manager Supervision) $16,033.50 Lucid $37,885.00 Total (excluding GST) $1,074,394.50
In addition, the Applicants claim other amounts as part of their damages claim. These are:
Additional management, administration and Building Superintendent Costs
$200,300.00Additional fees to Lucid $69,220.25 Kyren loss of profit and overhead contribution $10,383.04 Additional Overhead, Preliminaries, and Profit Margin
$161,159.18Total $441,062.47
All of these figures are exclusive of GST.
This means that, putting GST to one side, the overall damages sought by Kyren in the 5ASC totalled $1,515,456.97.
The claim in debt
As already indicated, Kyren’s claim in debt arises pursuant to cl 14 of the Contract. That clause is concerned, amongst other things, with the consequences of default.
Clause 14.2 entitled Kyren, as the Main Contractor, to give a written notice to Promptair “under cl 14.4” in a range of circumstances in which Promptair was in default. Relevantly, those circumstances included:
(e)[Promptair’s failure] to use the materials or standards of workmanship required by the Contract;
…
(h)[Promptair being] otherwise in substantial breach of the Contract.
There is some infelicity in the numbering in cl 14, as it is apparent that the notice which cl 14.2 contemplated is, in fact, a notice under cl 14.3. That clause provided:
14.3 Contents of Notice of Default to Subcontractor
A notice under this clause 14.4 (sic) must be in writing and must state:
(a) that it is a notice under clause 14.4 (sic);
(b) the breach relied upon; and
(c)that the Main Contractor requires the Subcontractor to remedy the breach within 14 days of receiving the notice.
Clauses 14.4, 14.5 and 14.6 provided for the situation when Promptair failed to remedy the notified breach:
14.4 Consequence of the failure of the Subcontractor to remedy the breach
If the Subcontractor fails to remedy the breach the Main Contractor may by written notice to the Subcontractor:
(a)Take out of the Subcontractor’s hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to 14.6; or
(b) Terminate the Contract.
14.5Removal of work from the Subcontractor’s hands
The Main Contractor shall complete the work taken out of the Subcontractor’s hands and may:
(a)use materials, equipment and other things intended for the Contract; and
(b)without payment of compensation to the Subcontractor;
(i)take possession of, and use such of the construction plant and other things on or in the vicinity of the site as were used by the Subcontractor; and
(ii)contract with such of the subsubcontractor’s and Subcontractor’s consultants;
as are reasonably required by the Main Contractor to facilitate completion of the Contract.
If the Main Contractor takes possession of construction plant or other things, the Main Contractor shall maintain them and, subject to subclause 14.6, on completion of work, shall return such of them as are surplus.
The Contract Administrator shall keep records of the cost of completing the work.
14.6 Adjustment on completion of work taken out
When work taken out of the Subcontractor’s hands has been completed, the Contract Administrator shall assess the cost thereby incurred and shall certify as monies due and payable accordingly the difference between that cost (showing calculations therefore) and the amount which would otherwise have been paid to the Subcontractor if the work had been completed by the Subcontractor.
If the Subcontractor is indebted to the Main Contractor, the Main Contractor may retain construction plant or other things taken under subclause 14.5 until the debt is satisfied. If after reasonable notice, the Subcontractor fails to pay the debt, the Main Contractor may sell the construction plant or other things and apply the proceeds to the satisfaction of the debt and the costs of the sale. Any excess shall be paid to the Subcontractor.
The term “building work” in subs (1)(a) is defined in s 4 of the Development Act as follows:
“Building work” means work or activity in the nature of –
(a)the construction, demolition or removal of a building (including any incidental excavation or filling of land); or
…
(c)any other prescribed work or activity.
The term “building” is defined in s 4 to mean “a building or structure or a portion of a building or structure (including any fixtures or fittings which are subject to the provisions of the Building Code of Australia), whether temporary or permanent, moveable or immoveable, and includes a boat or pontoon permanently moored or fixed to land, or a caravan permanently fixed to land”.
As counsel for Promptair noted, there is no clear authority that mechanical services work of the type undertaken by Promptair falls within these definitions. Counsel also noted that it has been held that air conditioning works are not “building work” under the similar (but not identical) provisions in the Building Work Contractors Act 1995 (SA): DG Australia Pty Ltd v Alexander [2003] SASC 176.
This is an important issue and one on which the Court received submissions only from Promptair, as Kyren did not make any submissions at all with respect to the apportionment issue. In those circumstances, I am reluctant to express a concluded view and, for the reasons to follow, it is unnecessary to do so.
The second and third elements in s 72 of the Development Act are that the defect arises from the “wrongful acts or defaults of two or more persons” and that those persons would, apart from s 72, be jointly and severally liable for the damage or loss resulting from the defective work.
Sections 87CB and 87CD of the CC Act
Sections 87CB and 87CD of the CC Act provide:
87CB Application of Part
(1)This Part applies to a claim (an apportionable claim) if the claim is a claim for damages made under section 236 of the Australian Consumer Law for:
(a) economic loss; or
(b) damage to property;
caused by conduct that was done in a contravention of section 18 of the Australian Consumer Law.
(2)For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind).
(3)In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.
(4)For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1).
(5)For the purposes of this Part, it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died.
87CD Proportionate liability for apportionable claims
(1) In any proceedings involving an apportionable claim:
(a)the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss; and
(b)the court may give judgment against the defendant for not more than that amount.
(2)If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim:
(a)liability for the apportionable claim is to be determined in accordance with the provisions of this Part; and
(b)liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.
(3) In apportioning responsibility between defendants in the proceedings:
(a)the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law; and
(b)the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.
(4)This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.
(5)A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.
The term “damage” in these provision is a reference to the harm or loss suffered by the applicant, rather than to the amount of damages or the losses quantified: Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10, (2013) 247 CLR 613 at [23]‑[24].
It is not necessary to set out the terms of s 8 of the LR Act. It is not in identical terms to either s 72 of the Development Act or s 87CD of the CC Act, but its effect is (relevantly) the same.
The purpose of s 87CD was discussed by French CJ, Hayne and Kiefel JJ in Hunt & Hunt:
[16]The evident purpose of Pt 4 is to give effect to a legislative policy that, in respect of certain claims such as those for economic loss or property damage, a defendant should be liable only to the extent of his or her responsibility. The court has the task of apportioning that responsibility where the defendant can show that he or she is a “concurrent wrongdoer”, which is to say that there are others whose acts or omissions can be said to have caused the damage the plaintiff claims, whether jointly with the defendant's acts or independently of them. If there are other wrongdoers they, together with the defendant, are all concurrent wrongdoers.
[17]The purpose of Pt 4 is achieved by the limitation on a defendant's liability, effected by s 35(1)(b), which requires that the court award a plaintiff only the sum which represents the defendant's proportionate liability as determined by the court. For that purpose, it is not necessary that orders are able to be made against the other wrongdoers in the proceedings. Section 34(4) provides that it does not matter, for the purposes of Pt 4, that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died. Thus under Pt 4 the risk of a failure to recover the whole of the claim is shifted to the plaintiff.
(Citation omitted)
Thus, s 87CD and its Federal and State and Territory counterparts reflect a legislative policy that, in respect of claims for economic loss or property damage, respondents should be liable only to the extent of their own responsibility.
It is, however, important to note that s 87CD and its counterparts operate only in respect of wrongdoers, namely, persons who are themselves liable to the applicant: Shrimp v Landmark Operations Ltd [2007] FCA 1468, (2007) 163 FCR 510 at [59]; St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245 at [59]; Latteria Holdings Pty Ltd v Corcoran Parker Pty Ltd [2014] FCA 880, (2014) 224 FCR 519 at [16]. In the last of these cases, Mortimer J referred to Hunt & Hunt in which, at [91], Bell and Gageler JJ said:
To answer the description of “a person … whose acts or omissions (or act or omission) caused” that damage or loss or harm, C (in common with B) must be (or have been) legally liable to A for the damage or loss that is the subject of the claim. The reference in the definition to “acts or omissions (or act or omission)” is to one or more legally actionable acts or omissions. The reference in the definition to acts or omissions having “caused … the damage or loss that is the subject of the claim” is not, as has correctly been held, merely to causation in fact. “Questions of causation are not answered in a legal vacuum” but “are answered in the legal framework in which they arise”. The reference here is to causation that results, or would result, in legal liability.
(Emphasis in the original and citations omitted)
The authorities also indicate the importance of a proper pleading of a claim of proportionate liability. See, for example, Ucak v Avante Developments Pty Ltd [2007] NSWSC 367 at [35]; Hart v JGC Accounting & Financial Services Pty Ltd [2015] WASCA 22, (2015) 47 WAR 582 at [25]‑[26].
Apportionment with respect to Lucid
The basis for Promptair’s claim that a wrongful act or default of Lucid contributed to Kyren’s loss is pleaded in [12] of the Seventh Amended Defence. The plea commences with a claim that Lucid owed both a contractual and tortious duty of care to perform its work in accordance with the accepted professional standards of a competent consulting engineer, at [12.3]. Promptair then pleads that Lucid breached that duty of care in multiple respects. These turn on, or derive from, the inconsistency in the performance criteria contained in the First Specification. Thus, Promptair pleads that:
(a)Lucid’s preparation of the First Specification was defective because the combination of performance and construction requirements was not, in combination, technically achievable;
(b)Lucid wrongly rejected the technical data supplied by Promptair relating to the Carrier and Fläktwood AHUs on the basis that they did not meet the unachievable requirements in the First Specification;
(c)Lucid insisted upon strict compliance with the Air Off temperature requirement without issuing an addendum to the Specification so as to make that requirement technically achievable; and
(d)Lucid should not have approved the final Promptair submission but rather should have amended the specification so that “reputable local suppliers” could provide compliant AHUs.
These allegations are elaborated in the remaining subparagraphs within [12] and [13] of the Seventh Amended Defence.
I have already recorded some of the exchanges between Promptair and Lucid in the AHU approval process which occurred in August and September 2011. I will return to that topic shortly. For the moment, it is convenient to record that Kyren denied that there had been any breach of a duty of care by Lucid and, in the alternative, that any breach had been causative of its loss. At the heart of that denial was that Lucid had made it plain to Promptair that it was compliance with the required Air Off temperature which was essential and that Promptair had been aware of the inconsistency in the First Specification during the approval process. In fact, it had sought approval of AHUs in which the total cooling capacities and sensible cooling capacities exceeded those specified in the First Specification. That is to say, Kyren alleged that Lucid had addressed the issue raised by the inconsistency. It also pleaded that Lucid had not rejected Promptair’s proposed AHUs because they exceeded the specification for total cooling capacity and sensible cooling capacity.
In considering the claim which Promptair makes concerning the liability of Lucid, it is appropriate to keep in mind the allocation of the contractual responsibilities. Promptair had given the warranties contained in cl 2.2 of the Contract, set out earlier in these reasons. Specifically, it had accepted responsibility for complying fully with the Specification and for the selection of plant to achieve the specified performance (cl 2.1 of the First Specification). It had also agreed to guarantee the performance of the systems installed under the Contract and had accepted that approval of the equipment did not override the requirement for it to comply with the requirements of the First Specification (cl 2.1).
Earlier in these reasons, I recorded aspects of the process by which Lucid sought approval of the AHUs. It is appropriate to repeat some of that detail presently.
The process by which Promptair sought Lucid’s approval had commenced on 23 August 2011 when Mr Upton sent to Lucid “the Carrier tech data … for your comment/approval/rejection”. As noted earlier, Mr Stanton responded later the same day. He said that “all coil air off temps are required to be 10 deg C”. He did not make any comment on the total and sensible cooling capacities and concluded by asking whether Carrier could “adjust the coil designs to suit”. As noted earlier, Mr Stanton made a note on the Carrier data that the Air Off temperature had to be 10°C and suggested that the coil capacity be increased so as to achieve that.
At that time, Mr Upton was also communicating with Mr Kärner. By an email of 30 August 2011, Mr Kärner gave some comments on the compliance of the Carrier technical data with the criteria in the First Specification. His email included the statement “[b]ased on sensible capacity I would say that leaving dry bulb from coil must be 12 deg C”. In effect, Mr Kärner was pointing out the tension between the specified sensible capacity in the First Specification, on the one hand, and the Air Off requirement, on the other. Mr Upton did not pass that comment on to Lucid then, or at any other time.
On 29 August 2011, Mr Upton provided “revised Tech Data” for Carrier AHUs to Mr Adcock, Mr Stanton and to Lucid.
On 1 September 2011, Mr Kärner sent an email to Mr Upton saying:
I have finalized selections as above. These units will be not branded as FW but construction will be same as selection and drawings above. Hope this is ok as with FW Sweden factory the price will be too high vs. Carrier. Probably you will like to see at least similar to Carrier price.
On 2 September 2011, Mr Kärner provided Mr Upton with a quotation for the AHUs. The quotation was contained on ESAC letterhead, thereby indicating clearly that the quotation did not relate to Fläktwood units. On the same day, Mr Kärner provided Mr Upton with the technical data for Fläktwood AHUs.
I am satisfied that the abbreviation “FW” is a reference to Fläktwood. Mr Kärner was telling Mr Upton specifically that the AHUs which he had selected would not be Fläktwoods and that he had done that because of price considerations. He also told Mr Upton that the “construction” of the alternate AHUs would be the same as the “selection and drawings above” being, apparently, those relating to Fläktwood AHUs.
Despite having been informed that Mr Kärner’s selections were not Fläktwood AHUs, Mr Upton then sent the following email to Mr Adcock and Mr Stanton at Lucid on 2 September 2011:
Please find attached the tech data for the Fläktwood AHU’s. Viekko from Flaktwoods is a very helpful Engineer and understands your requirements. We put their products into Tower 2 Waymouth Street (5 star green) and were very impressed with the quality and performance.
Please let me know your thoughts on the attached data.
As is apparent, Mr Upton identified the data as relating to Fläktwood AHUs. He reinforced this by his reference to “Viekko from Fläktwoods”. It is also apparent that he sought to draw on the reputation of Fläktwood AHUs by reference to the previous use of them on another property.
By an email on 5 September 2011 to Mr Adcock and Mr Stanton, Mr Upton suggested the use of a plug fan instead of a belt driven fan. Mr Adcock informed Mr Upton later the same day that Lucid was interested in pursuing the use of plug fans and also told him that Mr Stanton would be responding later that same day concerning “the AHU tech data submitted to date”.
On 6 September 2011, Mr Upton sent to Mr Adcock and Mr Stanton technical data relating to Daikin AHUs but told him that Promptair had rejected those based on Lucid’s earlier comments. Mr Upton must have been referring to Lucid’s insistence on compliance with the Air Off 10°C temperature requirement as Mr Stanton’s statements on 23 August 2011 were the only comment provided to Promptair to that date.
On 8 September 2011, Mr Stanton provided a response to Mr Upton concerning the tech data for the Carrier units he had provided on 29 August 2011. Mr Stanton noted, amongst other things:
Still having some leaving air temperatures are high. Units around the 10.1 and 10.2 are ok, but any higher will not be acceptable.
Again, Mr Stanton made it clear that the Air Off temperature of 10°C was critical. He did not make any comment concerning the total cooling capacity or total sensible cooling capacities of the Carrier AHUs.
Also on 8 September 2011, Mr Stanton provided Lucid’s response concerning the Fläktwood AHUs (more accurately, what Mr Stanton thought were Fläktwood AHUs). He said:
The Flaktwood units have a similar issue to the Carrier units. The air off temperatures are too high, up around 12 in most cases. The airside statics and waterside statics are generally ok. Unit sizes ok.
Could we please get reselections on the coil to achieve the 10.0 air off temp.
A very pertinent communication for present purposes occurred on 9 September 2011. Mr Kärner responded to the information given to him by Mr Upton that Lucid require an Air Off temperature of 10°C by saying:
This is interesting now as your sensible capacity goes up 15% and question is about Chillers. Do you have enough capacity?
Obviously the coil pressure drop will increase as well as extra rows must be added.
As is apparent, Mr Kärner was pointing out that an Air Off temperature of 10°C could be obtained only if the total sensible cooling capacity was increased by 15%. Although informed of that fact, Mr Upton did not inform Lucid that that was so. However, as will be seen, he acted in accordance with the information he had received from Mr Kärner by seeking approval for AHUs with total cooling capacities in excess of those specified in the First Specification. He was entitled to do so by reason of the statement in cl 2.1 of the First Specification that “the capacities and outputs of the various items of installed equipment shall be not less than those specified”. It is evident that Mr Upton did not consider himself constrained by the cooling capacities specified in the First Specification.
Mr Upton responded to Lucid on 14 September 2011 with an email which commenced:
Please find attached final selections from Flaktwoods for comment/approval.
He attached the technical data for several AHUs. By a later email he attached further technical date describing these as “more of the AHUs selections”.
As is apparent, Mr Upton was representing that the technical data which he was providing related to Fläktwood AHUs. He must also have known that Mr Stanton understood that he was being provided with the technical data for Fläktwood AHUs because, on 16 September 2011, Mr Stanton responded to Mr Upton as follows:
The AHUs selections look ok. I didn’t get the selections for Levels 9 up, but if these are anything to go by it looks like Flaktwood have made the necessary modifications to the coils.
Are these the EC plug fans that we were potentially going to look at? If not do Flaktwood provide the VFD’s to these units sized for their fan motor’s? I know some suppliers do this separately which raises warranty questions if wrong sized VFD’s are fitted.
(Emphasis added)
It seems that Mr Upton provided a copy of Mr Stanton’s email of 16 September 2011 to Mr Kärner. In any event, by email on 19 September 2011, Mr Kärner reminded Mr Upton that the technical data did not relate to Fläktwood AHUs. He said:
I said before, these are not Flaktwoods AHU but produced same construction & technical details as Flaktwoods.
See catalogue about for ESAC units.
By the same email, he provided Mr Upton with a copy of the ESAC catalogue containing promotional material concerning ESAC.
Subsequently, after Mr Upton had provided the technical data for the AHUs at Levels 9‑16, Mr Stanton gave Lucid’s approval for the AHUs.
I am satisfied that he did so in reliance upon the information provided by Promptair, including the identity of the manufacturer and the technical data. There was no suggestion of any breach of professional duty by Lucid in that respect.
Mr Stanton had said, when insisting on compliance with the Air Off 10°C requirement, that it would be appropriate for Promptair to increase the coil capacity in the AHUs to achieve that result. Doing so increased the cooling capacity. Again, it was not suggested that there was any breach of professional duty by Lucid in that indication to Promptair.
Further, Lucid had by other means made it apparent to Promptair that it did not have to adhere to the specifications for total cooling capacity and total sensible cooling capacity. The technical data for the Carrier AHUs Promptair submitted on 29 August 2011 contained specifications for the cooling capacities which exceeded those in the First Specification. As noted earlier, when Mr Stanton provided his comments on the Carrier AHUs, he did not even refer to the specification of the cooling capacities. He indicated concern about only two matters, one of which was the data concerning the Air Off temperatures.
Mr Upton’s understanding that Lucid did not require adherence to the actual specifications for the total and sensible cooling capacities is also evident in the technical data he provided to Lucid on 14 and 20 September 2011 (said to be for Fläktwood AHUs, but in fact for ESAC AHUs). These contained specifications for “output” (said to be synonymous with total cooling capacity) which well exceeded the counterpart specifications in the First Specification. This was the data which was approved by Mr Stanton.
Kyren submitted, and I accept, that this evidence indicates that Lucid had indicated the way in which the inconsistency was to be resolved, and that Promptair had not been constrained by the inconsistent Specification for total cooling capacity and total sensible cooling capacity. As the evidence reviewed above indicates, Mr Kärner had pointed it out to Promptair; Mr Stanton had suggested increased coil capacities; and Promptair had sought approval of AHUs with increased cooling capacities.
In my view, when regard is had to the course of the approval process, the inconsistency in the First Specification does not have the significance which Promptair sought to attach to it. There was no breach of duty by Lucid in refusing approval for the Carrier or Fläktwood AHUs, as neither complied with the requirement for the Air Off temperature. Lucid was not obliged to issue an addendum to the First Specification because Promptair was capable of complying with it. Lucid’s approval of the AHUs on the data submitted by Promptair cannot reasonably be regarded as a breach of professional duty. On the contrary, it is evident that Lucid gave the submitted data appropriate scrutiny.
I add that some of the evidence which Promptair adduced from Dr Bellstedt concerned matters bearing on the liability of Lucid. There was a good deal of unanimity in the opinions of Mr Maynard and Mr Caleo, on the one hand, and of Dr Bellstedt, on the other. In those areas on which their opinions differed, I have generally preferred the opinions of Mr Maynard and Mr Caleo. I had the impression that their opinions were more practically based and, in any event, they had regard to the course of the approval process. Dr Bellstedt tended to focus more on the content of the First Specification without regard to the course of events during the approval process. In particular, Dr Bellstedt’s opinion overlooked that Promptair had not regarded itself as constrained by the cooling capacities specified in the First Specification. Dr Bellstedt’s opinion also failed to take account of the fact that some of the performance and construction criteria in the First Specification were described as minima.
I conclude that Promptair has not established any breach of professional duty by Lucid. Instead, it was Lucid which was misled by Promptair as to the identity of the AHUs which it was asked to approve. It was also asked by Promptair to approve AHUs on the basis of technical data which did not relate to the AHUs which it thought it was approving. Thirdly, Lucid had made it clear to Promptair that the critical consideration for its approval was the Air Off temperature of 10°C. It had not insisted on the AHUs having the exact total and sensible cooling capacities specified in the First Specification but had accepted, appropriately, that the AHUs could have greater cooling capacities than those specified.
Even if Promptair had established a breach of duty by Lucid, it does not, for the same reasons, establish that the resultant loss was in part caused by Lucid’s breach.
Promptair’s claim for an apportionment with respect to the liability of Lucid, whether under s 72 of the Development Act, s 8 of the LR Act or s 87CD of the CC Act fails.
Apportionment with respect to Vekavent
Promptair’s claim for an apportionment of its liability under s 72 of the Development Act having regard to the conduct of Vekavent faces the difficulty that it has not shown a basis on which Vekavent is legally liable to Kyren. Its defence did not include any claim to that effect, let alone plead the material facts supporting such a claim. Putting to one side those paragraphs in the Seventh Amended Defence in which Promptair makes the assertion that its liability should be apportioned having regard to the conduct of Vekavent, amongst others, the only other reference in the Defence is in [13.5] in which it pleads a series of events concerning its seeking of the approval for the AHUs. That subparagraph cannot reasonably be understood as containing allegations of Vekavent’s liability to Kyren, let alone of the material facts supporting it.
Quite apart from the pleading difficulties, Promptair’s submissions did not seek to show a basis upon which Vekavent could be legally liable to Kyren, as opposed to itself.
For this reason, Promptair’s claim for an apportionment by reference to the conduct of Vekavent fails.
ESAC and Kyren
Before leading the topic of apportionment, I mention that the Seventh Amended Defence also contained a claim of apportionment with respect to the alleged wrongful act or default of ESAC, at [79.2], and of Kyren itself, at [79.1] and [79.3].
Presumably, the claim with respect to Kyren was made on the basis that the proper claimant of damages was FYD. On the basis of my findings, that allegations falls away. I observe that Promptair did not address any submissions towards it.
Nor did Promptair address any submissions with respect to an apportionment on the basis of the conduct of ESAC. I took that claim to have been tacitly abandoned.
Conclusion on the apportionment claim
This means that Promptair’s claim that judgment should be entered against it for only a proportionate part of Kyren’s claim fails.
The cross-claim against Vekavent and Mr Kärner
As noted at the commencement of these reasons, although the Cross‑Respondents had filed a defence to Promptair’s cross‑claim, they did not appear at the trial.
An initial question in relation to Promptair’s cross‑claim against Vekavent is whether s 440D of the Corporations Act, set out at the commencement of these reasons, precludes Promptair from pursuing it, without the written consent of the Administrators or the leave of the Court. In his closing submissions, counsel for Promptair quite properly drew the Court’s attention to conflicting authorities on the question: Mead Corporation v Carbonless Papers (Australia) Pty Ltd [2002] WASC 268, on the one hand, and MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383, (2012) 202 FCR 354 and Arogen v Leighton [2013] NSWSC 1099, (2013) 278 FLR 245, on the other. In the latter two cases, it was held that a cross‑claim by a company in administration was not a “proceeding … relation to any of its property” to which s 440D refers. Arogen v Leighton appears to have been followed in CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd (No 2) [2013] TASFC 10; (2013) 24 Tas R 10.
Counsel for Kyren did not address any submissions to the issue. The solicitor for the Administrator who attended the Court when the issue of leave to proceed against Promptair had been raised took the view that s 440D did not apply to Promptair’s cross‑claim. In these circumstances, and given the national nature of the scheme of the CC Act, I consider it appropriate to follow the approach adopted in MG Corrosion and in Arogen v Leighton. Promptair does not require leave to proceed on its cross‑claim against the Cross‑Respondents.
Counsel for Promptair submitted that, by reason of the non‑attendance of the Cross‑Respondents at the trial, judgment should be entered for it against them pursuant to r 5.23 of the Federal Court Rules 2011 (Cth). That Rule operates when a party is “in default”. By r 5.22(c), a party is “in default” if a party fails to attend a hearing in the proceeding. Rule 5.23(2) provides for that circumstance:
(2) If a respondent is default, an applicant may apply to the Court for:
…
(c)if the proceeding was started by an originating application supported by a statement of claim, or if the Court ordered that the proceeding continue on pleadings – an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or
(d)an order giving judgment against the respondent for damages to be assessed, or any other order; or
…
As I understood it, Promptair sought orders under both subrr (2)(c) and (d).
It is established that the Court may grant relief under subr (2)(c) on being satisfied that the relief sought could be granted on the face of the pleading and without requiring evidence: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2006] FCA 1427, (2006) 236 ALR 665 at [45]‑[48]; CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170 at [18]‑[19].
The Amended Statement of Claim on the cross‑claim indicates that Promptair alleged misleading or deceptive conduct by the Cross‑Respondents. More particularly, Promptair alleges that Mr Kärner made four representations about the ability of the AHUs whose technical data he was supplying to satisfy the requirements of the First Specification. Those representations were made in Mr Kärner’s emails of 9, 13 and 14 September 2011 and in his provision of the technical specifications for the AHUs. Promptair alleged that each of these representations was false and misleading and made without any reasonable basis as the ESAC AHUs were not capable of producing the required Air Off temperatures and did not in fact do so.
By [16] of their filed Defence to the cross‑claim, the Cross‑Respondents asserted that each of the four representations pleaded by Promptair had been made in relation to future matters and that there had been reasonable grounds for them to make those representations at the time that they were made. This plea involved an implicit admission that the representations had been made.
In these circumstances, I am satisfied that, subject to a matter concerning the form of the judgment to be mentioned shortly, Promptair has an entitlement, in the requisite sense, to judgment under r 5.23(2)(c) against the Cross‑Respondents in respect of its liability to Kyren.
Promptair’s Amended Statement of Claim on the cross‑claim also includes a claim in respect of the costs which it itself had incurred in undertaking the various unsuccessful attempts to investigate, modify and adjust the AHUs so that they might achieve the Air Off temperature of 10°C and, in addition, a claim for the loss of profits it alleges it had suffered by not being able to undertake the work pursuant to the Third Specification. However, Promptair did not lead evidence of the damages it sought for these components. Instead, as I understood it, Promptair sought an order pursuant to r 5.23(2)(d) in respect of this aspect of its claim.
This gives rise to an issue concerning the form of the judgment to be entered in Promptair’s favour on the cross‑claim. I will hear submissions from the parties about that.
Conclusion
In summary, for the reasons given above, I am satisfied that Kyren is entitled to damages from Promptair in the sum of $944,033.50.
FYD’s claim in the proceedings should be dismissed.
Promptair is entitled to judgment against the Cross‑Respondents on its cross‑claim but I will hear submissions from Promptair as to the appropriate form of the judgment.
Before entering judgment, I will hear from the parties with respect to interest and costs and as to the orders to be made, including the appropriate orders in relation to the claims in [60] to [62] inclusive of the 5ASC, on which Kyren was not granted leave to proceed against Promptair.
I certify that the preceding four hundred and sixty-three (463) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White. Associate: .
Dated: 26 March 2019
SCHEDULE OF PARTIES
SAD 391 of 2015 Cross-Respondents
Second Cross-Respondent
VEIKKO KÄRNER
3
14
7