Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd (in liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2010 04249

FULTON HOGAN CONSTRUCTION PTY LIMITED	Plaintiff
V
GRENADIER MANUFACTURING PTY LIMITED (In Liquidation) AND OTHERS	Defendants

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JUDGE:	ALMOND J
WHERE HELD:	Melbourne
DATES OF HEARING:	3, 6, 7, 10 to 13, 17 to 20 and 24 to 27 October 2011, 2, 3, 4, 7 to 9, 14 to 17 November 2011
DATE OF JUDGMENT:	23 August 2012
CASE MAY BE CITED AS:	Fulton Hogan Construction Pty Limited v Grenadier Manufacturing Pty Limited
MEDIUM NEUTRAL CITATION:	[2012] VSC 358

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Torts — Negligence — Failure of coating applied to the trusses and handrails of a footbridge — Whether the failure of the coating was caused or contributed to by poor application practice by the second defendant or other contractors — Whether the failure of the coating was caused or contributed to by defective product manufactured by the third defendant.

Evidence — Opinion — Expert evidence — Whether an expert can adopt the reasoning and conclusions of subordinates in writing an expert report.

Damages — Goods and services tax (GST) — Whether an award of damages should include GST paid by the plaintiff to third parties as a consequence of rectifying the property damage — Whether damages awarded for loss arising from property damage constitute supply for the purposes of GST — Where the plaintiff is registered for GST purposes and entitled to receive an input tax credit.

Damages — Economic loss in tort and contract from failure to take reasonable care — Concurrent wrongdoers — Proportionate liability — Wrongs Act 1958 (Vic) Pt IVAA, s 24AH.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P J Hayes and Ms K J Le Faucheur	Cornwall Stodart
For the Second Defendant	Mr J J Isles and Mr D J Cole	Acquaro & Co
For the Third Defendant	Mr P J Cosgrave SC and Ms B Lim	Norris Coates

TABLE OF CONTENTS

Questions for determination............................................................................................................ 4

Expert evidence................................................................................................................................... 5

Challenge to expert evidence of Dr Garnys.............................................................................. 5

Other expert evidence................................................................................................................ 11

Question 1 - What were the characteristics of the failure of the coatings on the trusses and the handrails?........................................................................................................................................... 13

Question 2 - Were the coating products used on the project defective?................................ 20

Question 3 - If yes to question 2, did the defective coating products cause or contribute to the failure of the coating on the trusses and handrails?.................................................................................... 20

Dr Garnys..................................................................................................................................... 20

Mr Eccleston................................................................................................................................. 41

Mr Haig......................................................................................................................................... 50

Mr Cook........................................................................................................................................ 56

Mr Pellegrino............................................................................................................................... 61

Complaints history..................................................................................................................... 71

Reformulation of product.......................................................................................................... 73

Age of batch and circumstances of warehousing................................................................... 74

Wattyl’s failure to disclose relevant documents.................................................................... 75

Withdrawal of product from the market................................................................................. 75

Conclusion on question 2 and question 3............................................................................... 76

Question 4 - Was the Wattyl coating system properly applied in accordance with the Wattyl product specifications (a) by Cox to the trusses; and (b) by other contractors to the handrails?..... 78

Application to the trusses.......................................................................................................... 85

Application to the handrails...................................................................................................... 87

Question 5 – Was the Wattyl coating system properly applied in accordance with the specifications under the SEITA agreement, the Danfab agreement and the Cox agreement (a) by Cox to the trusses; and (b) by other contractors to the handrails?............................................................................ 88

Question 6 – If no to question 4 or question 5, did such application cause or contribute to the defects in (a) the trusses; and (b) the handrails?........................................................................................... 90

Standard of workmanship......................................................................................................... 99

Question 7 – If two or more of the defendants caused or contributed to the loss or damage, how is liability to be apportioned between the defendants?............................................................. 105

Question 8 – What is the extent of the loss and damage suffered by Fulton Hogan (a) in relation to the trusses; and (b) in relation to the handrails............................................................................... 108

Category A: Site management and supervision, facilities.................................................. 110

Delay period............................................................................................................................ 110
Labour costs during the delay period...................................................................................... 112
Off-site overheads.................................................................................................................... 115
Other items claimed under Category A.................................................................................. 115
Duplicated claims................................................................................................................... 116

Category B: Damages from 16 January 2009......................................................................... 116

Liquidated damages................................................................................................................ 116
Retention of $80,000 by SEITA in lieu of Fulton Hogan warranty....................................... 117

Category C: Transport of truss for repairs, rectification works and redundant works.. 119

Coating repairs....................................................................................................................... 121
Additional transport costs...................................................................................................... 121
Additional engineering costs.................................................................................................. 121
Redundant works due to the coating failure........................................................................... 122
Invoice 0122 from North Fitzroy Constructions Pty Ltd....................................................... 125

Do damages awarded for loss arising from property damage constitute supply for the purposes of GST?............................................................................................................................................ 127

Question 9 - Did Cox give a warranty to SEITA and Fulton Hogan with respect to the costs and expenses incurred in repairing any defects to the trusses?.................................................... 130

Conclusion....................................................................................................................................... 131

HIS HONOUR:

In April 2008, the plaintiff, Fulton Hogan Construction Pty Limited (“Fulton Hogan”), contracted with the Southern and Eastern Integrated Transport Authority (“SEITA”) to construct, supply and install a footbridge over the Burwood Highway at Vermont South in Victoria.

Fulton Hogan subcontracted the work to the first defendant, then trading as Danfab. One aspect of the work involved applying a protective coating to the trusses and handrails of the footbridge. The protective coating was intended to provide a 25 year period of corrosion protection to the footbridge.

Danfab engaged the second defendant, Cox Coating Pty Limited (“Cox”), to carry out coating works on the trusses. During the period December 2008 to January 2009, Cox coated the trusses with a coating system using paint products manufactured by the third defendant, Wattyl Australia Pty Limited. Soon after application, the coating on the trusses exhibited signs of failure.

During the period from late 2008 to mid-2009, other contractors[1] applied the same coating system to the handrails of the footbridge. Soon after application the coating on some of the handrails exhibited signs of failure.
[1]Such as DH Corrosion Pty Ltd. These other contractors are not parties to this proceeding.

The coating system used in each case comprised a first coat of Wattyl Galvit EP100 primer (made up of EP100 Parts A and B), a second coat of Wattyl Epinamel EB600 and a third coat of Wattyl Poly U750 (collectively the Wattyl coating system).

It was common ground at trial that the Wattyl coating system was a suitable coating system for the purpose of coating the trusses and handrails; and that there was a failure of the Wattyl coating system as applied to the trusses and some of the handrails. The central issue in the proceeding was whether the failure of the coating system was caused by defective products manufactured by Wattyl or by poor application practice by Cox or other contractors.

Questions for determination

The following questions arise for determination:

(1)What were the characteristics of the failure of the coatings on the trusses and the handrails?
(2)Were the coating products used on the Burwood footbridge project defective?
(3)If yes to (2), did the defective coating products cause or contribute to the failure of the coating on the trusses and the handrails?
(4)Was the Wattyl coating system properly applied in accordance with the Wattyl product specifications
(a)by Cox to the trusses; and
(b)by other contractors to the handrails.

(5)Was the Wattyl coating system properly applied in accordance with the specifications under the SEITA agreement, the Danfab agreement and the Cox agreement
(a)by Cox to the trusses; and
(b)by other contractors to the handrails.

(6)If no to (4) or (5), did such application cause or contribute to the defects in the coatings on
(a) the trusses; and
(b) the handrails.
(7)If two or more of the defendants caused or contributed to the loss or damage, how is liability to be apportioned between the defendants?
(8)What is the extent of the loss and damage suffered by Fulton Hogan
(a)in relation to the trusses; and
(b)in relation to the handrails.

(9)Did Cox give a warranty to SEITA and Fulton Hogan with respect to the costs and expenses incurred in repairing any defects to the trusses?

Expert evidence
Challenge to expert evidence of Dr Garnys

On issues of liability, the parties relied extensively on evidence given by expert witnesses. Fulton Hogan relied on the evidence given by Dr Vyt Garnys who is the Managing Director and Principal Consultant of CETEC Pty Ltd, a science and technical risk management consultancy.

During the trial, Wattyl, through its counsel, made a wide ranging and sustained attack on Dr Garnys and submitted that the Court should not rely on Dr Garnys as an expert on matters to do with the Galvit product specifically and the coating system generally.

First, Wattyl challenged his expertise. It was submitted that Dr Garnys’ area of expertise was unrelated to three layer coating systems in which the primer is a zinc-rich primer and that he had no expertise or experience in relation to zinc-rich primers and their characteristics.

Counsel for Fulton Hogan submitted that the challenge to Dr Garnys’ expertise was premised upon a field so narrow as to be meaningless and ignores the fact:

(a)that the process of considering and determining whether the EP100 product is defective is an analytical one which requires a scientific examination into its chemical composition;
(b)that Dr Garnys’ doctorate from the University of New South Wales is founded in the discipline of analytical chemistry; and
(c)that Dr Garnys was a consultant analytical chemist with broad experience in conducting chemical analysis of industrial coatings and is a member of the Australian Corrosion Association.

In short, it was submitted that Dr Garnys was a highly qualified and experienced scientist.

Dr Garnys was academically well credentialed, with a Bachelor of Science degree with honours from the University of Western Australia in the field of chemistry and a PhD from the University of New South Wales. He had over 30 years of technical experience, having been consulted in areas including product and process failure investigations and corrosion prevention and management.

Dr Garnys had been involved in about 30 major coating investigations over the last 25 years and minor investigations much more frequently. Over twenty of the major coating investigations had involved the performance of painted coatings on various surfaces. He had conducted investigations over 10 years in relation to multi-layer epoxy coatings for the State Government of Queensland, which involved a close examination of properties of epoxy and polyurethane coatings including issues of adhesion, composition and structure. At the time of the trial, he was involved in a multi-layer coating system investigation. Dr Garnys said during the trial that he was very familiar with epoxy coatings.

Dr Garnys gave evidence that whilst he did not have particular qualifications on protective coatings, he had presented academic papers in respect of protective coating issues in multi-layer coating systems. He was a member of the Australian Corrosion Association which examines coatings and the protection and corrosion of the underlying substrates and said that this was of great interest to him. He was also a member of the Australian Chemical Institute and under its auspices regularly discussed coatings and chemicals and their analysis. He was a member of the Australian Institute of Mining and Metallurgy and regularly read its journals and kept up with what coatings do and can do. Finally, Dr Garnys gave evidence that he owns and runs a science and technology investigation organisation and that “all of these things are par for the course for our work”.

It is clear from the evidence that Dr Garnys had a particular interest in indoor air quality and the properties of materials used in the built environment and that he did not hold himself out as an expert in multi-layer coating systems using a zinc-rich primer. His previous experience relating to the failure of zinc-rich primers involved durability issues and other problems, not specifically a cohesive failure.[2] In my view, this does not disqualify him from being able to engage in an analytical examination of the subject matter adequately for the purpose of this proceeding and to express an expert opinion in relation to the failure of the coating system.[3] I accept that Dr Garnys had adequate expertise for the purpose of expressing an opinion in this case.
[2]This is perhaps not surprising. According to Dr Garnys, cohesive failure within a coat is very rare unless there is a formulation or a mixing issue.
[3]The only independent expert who gave evidence of having particular expertise in zinc-rich coatings was Mr Eccleston.

Second, Wattyl submitted that the Court should not rely on Dr Garnys’ evidence on the basis that he had spent only ten minutes on a site examination, did not do much investigative work himself but relied on other people’s work and because he did not look at issues to do with application and had no experience with regard to matters of application.

It is true that Dr Garnys relied on investigative work carried out by his colleague Dr Robert Schiller. Dr Garnys readily conceded that Dr Schiller had attended the site for longer than he had for the purposes of carrying out the investigation. Dr Garnys gave evidence that he attended the site for “probably less than half an hour, 10 minutes” to see the areas that Dr Schiller had worked on and to gain first-hand knowledge of what the area looked like, not to re-inspect the whole site and trusses.

Dr Schiller made observations and collected paint samples at the site visits referred to in the CETEC report of December 2010. These sampling locations were documented photographically. After the samples were brought back, Dr Garnys and Dr Schiller examined them and discussed the mode of failure. Within a week of collection of the samples, Dr Garnys attended the site with Dr Schiller to have a look at the defects. During the site visit, Dr Schiller showed Dr Garnys where the samples came from and where the observations were made.

I do not accept that the Court should ignore the evidence of Dr Garnys in relation to what was observed on site and any conclusions drawn by him from site observations. A short visit is better than no visit.[4] Further, the site visit took place after Dr Garnys had been briefed by Dr Schiller and had seen the samples and photographs of the delaminated areas. In that sense Dr Garnys went to the site prepared. Despite the brevity of his visit, Dr Garnys had the opportunity to observe the delamination phenomenon and could see that the Galvit primer was adhering to the steel substrate of both the trusses and the handrails, even though the emphasis of the work of Dr Schiller and Dr Garnys was on scientific analysis at the laboratory.
[4]Cf Wattyl’s expert Mr Haig did not attend the site.

Dr Garnys explained that he and Dr Schiller worked as a team with only one person taking samples in order to avoid duplication of work.

Although Dr Garnys took some casual measurements of dry film thicknesses from the trusses, he said he did not report on these measurements because other people had already taken measurements. For example, Mr Athol Stone of Macspec Inspection Pty Ltd had taken 209 readings on the west side of the truss and 315 readings on the east side of the truss. Likewise, Mr Peter Dove of GHD Pty Ltd and Mr Don Bartlett of CTI Consultants Pty Ltd both took extensive dry film thickness measurements. Sensibly, all parties agreed that the measurements contained in these reports could be relied on for all purposes. In Paino v Paino,[5] the New South Wales Court of Appeal noted that factual information in an expert’s report may be sourced from a party, from empirical investigations or other data sources and that an expert need not amass all factual data on which an opinion is to be expressed. That is a task which can be delegated. In this context, in ASIC v Rich,[6] Austin J said:

But it is necessary for the expert who is the author of a report to apply his or mind to the analysis and reasoning processes that his or her subordinates have developed, so that when the report is finalised, the whole of the reasoning and conclusions that it contains have been adopted as the expert’s own reasoning and conclusions.

[5][2008] NSWCA 276 [66], [67] (Hodgson and McColl JJA (Young CJ in dissent but agreeing on this point)).

[6](2005) 53 ACSR 110, 184 [329].

In this case, the CETEC report of August 2009 was a report signed by Dr Schiller and Dr Garnys. Dr Garnys’ attention was drawn to the opening words of the August 2009 report: “I have written this report”. It was suggested that Dr Schiller (and not Dr Garnys) was the author of the report, and that as the principal of CETEC, Dr Garnys’ signature may simply have been indicative of him taking responsibility for the report rather than authorship. Dr Garnys said that it was incorrect to suggest that Dr Schiller was the sole author. Dr Garnys said:

Well I know it’s incorrect. Dr Schiller does not have the analytical insights that I do have and neither does he have the years of experience that I have. On the other hand he has experience that I don’t have. So that’s why we decided to do it jointly because we saw it was a complex report.

Dr Garnys gave evidence that the engagement was with CETEC and that he and Dr Schiller took this case on and that the report was written jointly with his input.

I accept Dr Garnys’ evidence. Further, to the extent that the CETEC report of August 2009 represents the work of Dr Schiller, I find that Dr Garnys had applied his mind to Dr Schiller’s analysis and reasoning processes so that the reasoning and conclusions in the report were adopted as Dr Garnys’ own reasoning and conclusions.

I am satisfied that he can properly claim to be the joint author of the August 2009 report.

Third, Wattyl submitted that Dr Garnys did not carry out the analysis work because the CSIRO operated the scanning electron microscope (“SEM”). I do not accept that it follows that Dr Garnys did not do this investigative work. As Dr Garnys explained, the scanning electron microscope is CSIRO property and both the operator and the person sitting beside the operator can see the screen. Dr Garnys gave evidence that he would direct the operator “where to turn the knobs and what to look at. It’s a team effort. We work on a two chair system...” and “we sit alongside the operator and guide the operator as to where to look”. Dr Garnys stated that “it’s extremely important to do that because the operator doesn’t know the background or what to look for, so you're basically telling him where to direct his instrument and field a view”.

Dr Garnys took the same approach with infrared investigation using the spectrometer, where he operated ‘side by side’ with the technician.

In my view, it would be wrong to say that because Dr Garnys sat alongside a technician operating equipment under his direction, that Dr Garnys has not as a matter of substance carried out the investigative work himself. It was not suggested that Dr Garnys would not be in a position to direct the technician to vary the conditions to optimise the relevant SEM image or infrared spectrum.

Fourth, Wattyl submitted that Dr Garnys took a limited approach to the investigation because he undertook no systematic examination of whether there was overcoating and no examination of remedial work to the trusses, that he was unable to comment on verifying observations made in Mr Stone’s report about dry spray; that he was unable to comment on the blasting process; that he had not found areas lacking in protective coatings or pockets exhibiting corrosion; that he had seen some orange peeling but could not say how much; that he had not examined the mounting plates on the handrails; that he had not detected inadequate coating thicknesses in places and that he had looked at Cox’s Quality Assurance records but did not do a detailed analysis of compliance or non-compliance with what he saw; and that he did not address issues of design or examine the substrate. It was also submitted that he lacked experience and expertise in application matters.

In my opinion, Dr Garnys confined himself to areas within his expertise and the limits of his brief. He did not profess expertise that he did not have; he was not an applicator and did not profess to be an applicator. Whilst he gave evidence that the footbridge did not look as though it had a mirror finish or that it was a uniform job, he said that CETEC was not retained to give an opinion in relation to issues of the design of the footbridge or the distribution of coating thicknesses and details of applicator technique. Dr Garnys declined to answer questions beyond his expertise. This is what one would expect of an experienced independent expert. I find that Dr Garnys’ evidence should not be rejected on these grounds.

Other expert evidence

Cox relied on the evidence of Mr Gerry Eccleston, Senior Materials Scientist employed by CSIRO in its Manufacturing and Infrastructure Technology Division. Mr Eccleston has a Diploma of Applied Chemistry from Swinburne Institute, a Post-Graduate Diploma of Water Science from Chisholm Institute and a Master of Applied Science from RMIT on the subject of zinc-rich coatings.

Wattyl relied on the evidence of:

(a)Mr Jim Haig, a Materials Scientist employed by Uniquest Pty Ltd. Mr Haig has a Bachelor of Applied Science (Applied Chemistry) and a Post Graduate Diploma in Environmental Studies (QUT). Mr Haig is also a National Association of Corrosion Engineers Coating Inspector Level 1 and has held positions on an Australian Standards Committee for Site Testing of Protective Coatings and the technical working group of the Australian Paint Approvals Scheme.
(b)Mr Mark Dromgool, a Mechanical Engineer specialising in protective coatings, paint, tank linings and the corrosion control of steel and other metal substrates and concrete bodies, paints and coatings. Mr Dromgool is the Managing Director of KTA-Tator Australia Pty Ltd, Protective Coatings Engineers and Consultants. Mr Dromgool is an accredited Protected Coating Specialist[7] and an ACA Certified Coatings Inspector and a NACE Level 3 Coatings Inspector.[8] Mr Dromgool is a member of the Society for Protective Coatings (SSPC), the National Association of Corrosion Engineers (NACE International) and a member of the Australasian Corrosion Association (ACA).
(c)Mr David Cook, an Industrial Analytical Chemist employed by Wattyl. Mr Cook has a Bachelor of Science (Technology) (UniNSW) and a Graduate Certificate in Surface Coating Technology (TAFE).

[7]With SSPC (the Society for Protective Coatings USA) and NACE (National Association of Corrosion Engineers USA).

[8]ACA (Australasian Corrosion Association) and NACE (National Association of Corrosion Engineers USA).

Before the trial, Dr Garnys, Mr Haig, Mr Dromgool and Mr Cook attended a conclave of experts and subsequently compiled a joint report of experts.[9] Mr Eccleston did not attend the conclave and was not a signatory to the Joint Report.
[9]Joint Report of Dr Garnys, Mr Haig, Mr Dromgool and Mr Cook dated 20 October 2011 (“Joint Report”).

During the trial, Dr Garnys, Mr Eccleston, Mr Haig, Mr Dromgool and Mr Cook gave evidence concurrently.

By agreement between the parties, several additional expert reports were admitted into evidence without the authors being required to attend court; namely a report of Mr Peter Dove of GHD Pty Ltd dated 23 January 2009, a report of Mr Don Bartlett of CTI Consultants Pty Ltd dated 10 February 2009 and two reports of Mr Athol Stone of Macspec Inspection Pty Ltd dated 27 May 2009 and 9 June 2009 respectively. Accordingly, these individuals were not subjected to cross-examination on their reports.

Question 1 - What were the characteristics of the failure of the coatings on the trusses and the handrails?

On this question, it is necessary to determine whether the failure of the coating on the trusses and handrails was a cohesive failure, an adhesive failure or a combination of both.

Dr Garnys gave evidence that there was a cohesive failure of the Galvit EP100 primer. He said that the delaminated paint flakes that were received or observed at the site showed similar colour characteristics on the internal faces of delamination suggesting that the failure had occurred within the paint layer rather than between paint layers. When examined microscopically in the laboratory, the paint had the texture of being ripped apart, with residual grey paint material left on the substrate and on the underside of the delaminated paint flakes.

Cohesive failure in this context means failure within a single layer of paint whereas adhesive failure could occur at the boundary between two layers, whether they were the same or different coatings. Had there been an adhesive failure between coats of similar materials, Dr Garnys said that there would be subtle differences in appearance which are able to be recognised in the field and without a microscope. In particular, there would have been differences between the two delaminated sides and it would be possible to see the characteristics of the surface of the first coat. Had contaminants caused adhesive failure between coats of similar materials, it would be possible to see residual contaminants on the coating.

Mr Eccleston also gave evidence that the failure appeared to be a cohesive failure. When removing samples from the trusses at the site for laboratory analysis he found that the underside of the coating that he had removed was grey and the material left on the steel substrate was also grey indicating that the primer was still there. Mr Eccleston took measurements on the steel surface of the trusses and found that a coating remained on that surface. The variability of the coating on the steel substrate and on the underside of the coating that he had removed indicated a rough surface rather than a smooth surface. According to Mr Eccleston, a smooth surface would have been an indication of two layers losing adhesion. For there to be an adhesion failure between two coats of the primer, Mr Eccleston would have expected a more uniform coating on the steel substrate. Subsequent observation under an optical microscope confirmed that the surfaces on the underside of the paint flakes were fairly rough, consistent with a cohesive failure rather than an adhesive failure.

Mr Haig said that for him to be satisfied that in fact there had been a cohesive failure he would need to demonstrate that the residue left on the steel surface was exactly the same material as present on the disbonded flakes. In the Joint Report, Mr Haig stated that the absence of surface preparation impressions or traces of another coating led him to believe that the failure was cohesive rather than adhesive but that this would not preclude a largely adhesive failure between layers of EP100.

Mr Haig gave evidence that in three of seven paint samples that he examined, he observed a disbondment between two coats of the primer in that two layers were present on some of the samples but not on other parts of the samples. Mr Haig said he saw evidence of adhesive failure in some places as well as evidence of cohesive failure, but ultimately stood by the opinion he had earlier expressed in the conclave of experts that this was a cohesive rather than an adhesive failure.

Wattyl also relied on the conclusion expressed in the first report of Mr Haig where he refers to finding multiple layers of Galvit EP100 during his SEM examination. Mr Haig said, ”that adhesive failure was a significant contributor, and by adhesive failure I mean between coats of EP100”. Mr Haig gave evidence that “in many cases the samples that I was supplied with had at least two coats of the EP100 (Galvit primer) and that disbondment commonly occurred between those two layers”. When asked how many instances of adhesive failure he had observed in the samples, Mr Haig said that at least three of the samples (which included truss and handrail samples) displayed signs of multiple coats. Mr Haig was then asked by Dr Garnys whether a particular SEM image in his report showed multiple layers, to which he replied that that image did not show multiple layers, but then took the Court to an SEM image of a paint sample taken from the truss which he said was indicative of multiple layers of EP100. In his oral testimony, Mr Haig said that there was a subtle discontinuity which was indicative of two layers of EP100 to the left hand side of the photograph. This is to be contrasted with his written testimony. In the commentary relating to the same photograph in Mr Haig’s report of 7 July 2011 Mr Haig states, “This sample also showed several plaques of zinc oxidation within the Galvit EP100 layer” and makes no reference to multiple layers.[10]
[10]Emphasis added.

It is clear from the photograph that there is an irregular parting between the zinc oxide plaques. According to Mr Eccleston, this photograph shows the splitting of the zinc with corrosion products forming in the split. Mr Eccleston disagreed that the photograph was indicative of two separate layers. He said that he would be looking for two definite layers and would expect there would be some sort of line between them indicating the two layers. I prefer Mr Eccleston’s evidence on this point.

In my opinion, Mr Haig’s evidence is problematic on this issue in other respects. Whilst he gave evidence that there were multiple coats of primer in three out of the seven paint samples that he examined, Mr Haig did not identify which of the other samples had multiple coats of primer.

Dr Garnys was unable to distinguish whether the Galvit primer was applied in one or multiple coats. In addition, the area of discontinuity observed by Mr Haig was approximately 0.2 millimetres across which, as Dr Garnys observed, is an exceptionally small area compared to the areas of peeling paint.

In the Joint Report, Mr Dromgool stated that he considered that the characteristics of the failure of the coating system was a disbondment through or within the thickness of the EP100 primer, but he was not able to say whether this was caused by a cohesive failure (within a single applied layer) or between successive applications. Mr Dromgool said it did not really matter as the constituents of the layer itself had failed.

Mr Cook was unable to express an opinion on this issue. He said that all he had to look at were paint flakes, being the zinc layer and the other coatings, that what he saw were stuck together and that there was no failure between the two coatings in the samples provided to him.

In a National Technical Complaint Form Lab Report completed by Mr Paul Pellegrino, Technical Services manager of Wattyl, Mr Pellegrino stated in relation to the trusses (painted by Cox), that cross-hatch adhesion results were reasonable throughout both trusses and that the failure was clearly occurring within the Galvit EP100 zinc-rich primer layer. In a National Technical Complaint Form Lab Report completed by Mr Pellegrino in relation to handrails (painted by DH Corrosion), Mr Pellegrino stated that inspection clearly confirmed splitting of the zinc-rich primer.

Wattyl submitted that Dr Garnys had in fact described an adhesive failure in the CETEC report of December 2010. This submission was based upon a statement of observations made by Dr Schiller, who had made a site inspection and had observed “(t)he coating failure had involved delamination from the Wattyl Galvit EP100 primer coat” and subsequent similar instances of usage of the word “from”, including reference to “delamination of the Wattyl Epinamel EB600 from the Wattyl Galvit EP100”.[11] It was submitted that the words speak for themselves.
[11]Emphasis added.

I am not persuaded by this submission. In my view, the words relied upon are generally descriptive of the delamination phenomenon but do not precisely define it. The submission focuses too heavily on the use of the word “from” and ignores the fact that all of the samples of delaminated paint collected by Dr Schiller show a greyish coating on the underside. It ignores the results of analysis of a sample selected for analysis using a scanning electron microscope, which confirmed that the underside of the delaminated sample showed different characteristics to the top side and led to the conclusion that the underside was likely to be the primer coating. It also ignores the observation that further work on the other samples was likely to confirm the presence of a zinc-rich layer (Wattyl Galvit EP100) on the underside of the delaminated coating. Further, it ignores the conclusions expressed in the CETEC Report of August 2009 as follows:

The coating failure comprised a delamination phenomenon. The examination of delaminated coating through electron microscopy and infrared analysis has confirmed that the underside of the delaminated coating was Wattyl Galvit EP-100.
For this situation to arise coating failure must had [sic] occurred within the Wattyl Galvit EP-100 coating layer. That is the primer coating layer has split or separated within itself leaving a layer attached to the steel substrate and another layer bound to a subsequently applied coating (eg Wattyl Epinamel EB600).

In my view, these passages, read fully and in their context, describe a cohesive failure in the layer of Galvit EP100.

Wattyl also relied on the additional expert reports of Mr Dove, Mr Bartlett and Mr Stone in support of the case of adhesive failure.

In relation to Mr Dove’s report, Wattyl relied on the results of a “pull-off” test which produced an adhesion failure at the interface between the coating and the steel substrate on the south truss. This test involves attaching a dolly to the coating using glue, which is allowed to cure. The dolly is then pulled off the coating using a hydraulic jack. The test is designed to be destructive. In the instance relied on by Wattyl, a pull-off force of 9.6 megapascals was recorded. There is nothing in Mr Dove’s report to say whether that pull-off force was a reflection of good adhesion or poor adhesion and Mr Dove was not called to give evidence.

Mr Cameron Cooper, a Paint Inspector and Quality Assurance Officer for Cox, gave evidence that he did not believe there was an Australian Standard for the expected pull-off reading but that by reference to American Standards, given the thickness and generic make-up of the coating, suggested that there should be a minimum pull-off force of 5 megapascals and that the relevant figures for the pull-off tests exceeded that minimum pull-off force.

In the circumstances, I am not assisted by Mr Dove’s test result in determining whether the delamination phenomenon was a cohesive failure or an adhesive failure. However, I note that Mr Dove expresses the opinion that the weakness in the coating was within the epoxy zinc layer and that failures of the top coat over zinc-rich coatings almost always result from cohesive failure or splitting of the zinc film. Mr Dove states that the failure is revealed when appreciable zinc film sections are found still adhering to the underside of a delaminated film and to the steel substrate. In my view, that is a fair description of what occurred in this case.

Wattyl also relied on the observations of Mr Bartlett in support of the existence of adhesive failure in the coatings on the trusses. In particular, Wattyl relied on the following passage:

The failure of the coating system is occurring within the zinc epoxy primer layer. The cause of the very poor adhesion of the coating system on the North Truss is not resolved but the grossly excessive zinc epoxy is likely to have been a key factor, as this heavily pigmented coating is unlikely to have the cohesive strength of a coating of similar generic type with less pigment.

Mr Dromgool gave evidence that adhesion failure is an overarching term which is used globally and that all the tests to determine whether there is adhesive or cohesive failure are called adhesion tests. Mr Eccleston said he assumed the reference to “very poor adhesion” in Mr Bartlett’s report should be to “cohesion”, because he did not see any evidence of the coating disbonding from the steel substrate and further, that the reference in the second sentence to the cause of the “very poor adhesion” should be to “cohesion” because it follows from the first sentence. Dr Garnys said he believed that references to adhesion in Mr Dove and Mr Bartlett’s reports were described incorrectly. Having regard to the evidence of Mr Dromgool, Mr Eccleston and Dr Garnys on this point, and in the absence of the authors of these reports, I consider it likely that Mr Bartlett and Mr Dove were speaking in general terms about the adhesion issue without focusing on whether the failure of the coating system was technically adhesive or cohesive.

Wattyl also relied on the observations of Mr Stone. In his report of 9 June 2009, Mr Stone states that he carried out over 70 adhesion tests over a wide area of the north truss and found that adhesion of coatings to 80% of this truss had failed. He then observes that:

[f]ailure of the coating system is occurring within the zinc epoxy primer (zinc splitting) … Having stated the above, four adhesion tests failed where the original Pre-weld Primer (Wattyl Sigmaweld) is still evident on some areas of the top chords [sic] and does not have any evidence of a blast profile…

It appears to me from the passage reproduced above, that Mr Stone was drawing a distinction between a cohesive failure, i.e. where he observed zinc splitting, and an adhesive failure in the four tests where the Galvit primer failed to adhere to the substrate thus exposing the original pre-weld primer. I note that Dr Garnys and Mr Eccleston each had the advantage of examining the trusses on site and making field observations. In addition, Dr Garnys examined the handrails on site. Although he conceded that he spent a short time on this examination he saw “sheets (of paint) coming off” and adhesion (of the Galvit primer to the substrate). Subsequent measurement of samples from the handrails showed delamination within the layer of (Galvit) primer leaving a residue representing less than 40% of the originally intact layer of primer on the steel substrate and the remaining primer on the back of the delaminated paint samples. This indicated that the primer coating had separated.

Mr Cooper supervised the application of the primer on the trusses. He gave evidence that only one coat of primer was applied to the trusses. This evidence correlates with the daily inspection reports completed contemporaneously by Mr Cooper during December 2008 which record that one coat of primer was applied.

It is possible that there was some adhesive failure between multiple layers based on Mr Haig’s observations on three out of seven sample flakes, but considering the evidence as a whole, particularly the lay evidence of Mr Cooper and the contemporaneous records that show that only one coat of primer was applied to the trusses, in my assessment this is unlikely to have been the mechanism of widespread failure of the coating, at least on the trusses.

On the basis of the lay and expert evidence I am satisfied on the balance of probabilities that the predominant characteristic of the failure of the Galvit EP100 primer on both the trusses and the handrails was a cohesive failure within a single zinc-rich primer layer rather than an adhesive failure from the substrate or between layers.

Question 2 - Were the coating products used on the project defective?
Question 3 - If yes to question 2, did the defective coating products cause or contribute to the failure of the coating on the trusses and handrails?
Dr Garnys

In the CETEC report of December 2010, Dr Garnys refers to the analysis of delaminated coating samples taken from the trusses (samples 68402, 68403 and 68404) and from the handrails (samples 68508 and 68509).

Dr Garnys stated that visual observation, electron microscopy and infrared studies indicated that the topside and underside surfaces of the delaminated coating were not the same and that it was likely that the underside surface was Galvit EP100 primer. Further sampling took place on sections of handrails (coated by other contractors) which had delaminated for the purposes of determining coating thicknesses by optical microscopy in the laboratory. The coating thickness (of primer) remaining on the steel substrate was measured at the site of removal of the delaminated coating pieces. Dr Garnys observed that areas of delaminated coating were apparent and were identical to the other coating failures already reported.

The coating thickness measurements showed that the Galvit primer had been applied near to but less than the dry film thickness limit of 75 microns recommended in the Wattyl “Specification information” for Galvit primer when it is used under thick, rigid epoxy systems. Where the coating had delaminated, the thickness of Galvit primer remaining on the substrate represented “perhaps less than a third of the original intact layer thickness.[12] Dr Garnys reported that it was not possible to distinguish between the two upper coats being layers of Wattyl Epinamel EB600 and Wattyl Poly U750.
[12]In three out of four measurements the thickness of the primer remaining on the substrate represented less than one third. In one instance the thickness was slightly more than one third (38%).

Dr Garnys observed that the delamination failure occurred prior to the material entering service. In the case of the protective coating system applied to handrails at DH Corrosion, the delamination occurred soon after application of the intermediate coat (Epinamel EB600) and before application of the top coat (Wattyl Poly U750). Dr Garnys noted that more than one applicator had been involved with the application of the protective coating system on the steel substrate, yet the same delamination phenomenon had arisen.

Dr Garnys concluded that the Wattyl coating system was not of merchantable quality for the following reasons:

(1)     The product information indicates an unapplied new product life of 12 months … the used Galvit EP-100 Part A (Batch C60132971) was tested on 5^th October 2006 with a water content of 0.030%, and maximum viscosity and drying times indicting early signs of deterioration even in 2006.
(2)     The electron microscopy results below show metallic zinc spherules of 0.2 to 5 micron diameter with high oxygen to carbon to ratios of almost 50% indicating likely oxidation or hydration thus weakening the zinc to resin bond and evidence of poor mixing
(3)     The infrared analysis shows evidence of hydration and visible carbonation of the zinc and possibly incomplete cure.
(4)     The Coating thickness measurements show Galvit EP100 coating thicknesses within the 75 micron specification of 58 to 73 micron and a very uniform delaminated coating of 45 micron on the underside of the epoxy second coat. This indicates a uniform soft delamination irrespective of total coating thickness from 320 to 628 micron even in recent coats. These coats could be easily peeled apart even without delamination indicating incomplete cure well beyond the specified times. This is not characteristic of brittle shear due to varying stresses from topcoats of varying thicknesses.

Subsequently, in the Joint Report compiled following the expert witness conclave held on 23 September 2011, Dr Garnys stated:

· that his examination of the Wattyl coating system on site indicated a weakness in the paint flakes that had delaminated or had been recently applied to handrails in continuing to adhere as a system.

· there were islands of zinc corrosion products within the delaminated layer.

· there was no evidence of colour from the underlying primer or metal.

· that since samples of the original were not made available to him, he was unable to compare the material on the delaminated paint flakes to the specified composition.

· that with more detailed examination of the Galvit primer “bulk material” within the flake he observed the presence of zinc oxidation on each zinc particle.

· that following an examination of the original coloured FTIR data[13] there was evidence of no more water in the retained batches of the applied material than there was with new product.

· the quality control sheet indicated the increased age and some performance at the limits of specification.

· the panel of Galvit EP100 applied by Wattyl and left to cure outside by Wattyl showed failure.

[13]Provided to Dr Garnys on 23 September 2011 by Mr Cook of Wattyl.

Dr Garnys concluded “that there may be some deficiencies in the supplied WCS”.

At trial, Dr Garnys elaborated orally on the site observations which he said tended to indicate that there was an inherent defect. Dr Garnys said that there was a bubbling and breakage of the film; that is, a visual separation of the film in the case of the handrails which indicated a problem which was most unusual; that there was a similar appearance of both coats when the layers were peeled off; that his colleague Dr Schiller had showed him photographs and described exactly how the layers were removed and Dr Garnys was informed there was almost no strength between the layers; that there were upturned corners of delaminated flakes which was not assisted which Dr Garnys described as “spontaneous delamination”; and that there was no evidence of the coating “having come off from the steel” nor any evidence of a pink or reddish primer coat on the steel.

As to the indicator of zinc corrosion products within the delaminated layer, Dr Garnys said in relation to the handrails that the samples showed no surface evidence of zinc carbonate, but did show little specks within the coating when looked at by electron microscope. In relation to the trusses, there were areas which Dr Garnys described as “islands” which were relatively large covering several square centimetres. These were samples of white zinc oxide which accumulated in some of the failed areas but were still coated and still covered by the top coats until they were peeled back and revealed. Dr Garnys said:

If you like, there’s a blister, and when the blister was cut open and revealed then within that blister there would be some areas which were just straight grey, and not contaminated in this way. Other areas had quite pronounced amounts of the oxidation product. It was subsequently identified as zinc oxidation product and not any other contaminant.

Using a scanning electron microscope in “forward and back scatter” modes enabled Dr Garnys to look at the surface of the material and see the spherules of zinc and the resin between them. In back scatter mode, the scanning electron microscope highlighted the heavier elements (e.g. zinc) as opposed to the lighter elements (e.g. carbon and oxygen) and he saw on the surfaces of the spherules a “grading away from brightness into greyness that was suggestive of surface contamination”.

Dr Garnys then looked at the infrared spectrum which was used primarily to examine the resin component. When Dr Garnys looked at the ratio of oxygen to carbon in the cohesively failed zinc coating, he saw that the oxygen to carbon ratio was higher in the delaminated area than it was on the top surface, namely the Epinamel-EB600 layer. Dr Garnys observed that there was more oxidation product within the delaminated layer than would be considered to be normal, referencing everything to the top layer. Dr Garnys said he was unable to reference the delaminated material against a sample of the same batch material, because a sample of the same batch material was not provided even though it had been requested.

Taking account of the rapid delamination, the appearance of the delamination, the visual microscope observation, the electron microscope work and the infrared work together and (at that stage) in the absence of any data from the manufacturer other than the application sheets, Dr Garnys deduced there was a high probability that the Galvit EP100 material was deficient.

From time to time whilst giving evidence concurrently the experts had an opportunity to ask each other questions. During such questioning Dr Garnys accepted that a normal zinc-rich product would have some component of zinc oxide; that although the perfect formulation would have no zinc oxide, normal industrial practice would be to have a product which would contain some oxidation. Dr Garnys said he did not know what the specification or ideal amount is for the Galvit EP100. Dr Garnys also accepted that if disbondment had occurred some time before the inspection, the zinc particles would have continued to oxidise during the time before inspection of the surface of the disbondment. Dr Garnys accepted that assuming disbondment had taken place for some time, then given the presence of moisture and air, there would be an accumulation of white carbonate deposits. However, Dr Garnys said in many cases where this disbondment had occurred there was no evidence of any break in quite a heavy strong surface coating, and that he did not observe any entry point for water, so the disbondment under those conditions would be in a dry condition and any water which may have been there in the absence of a break in the coating would have been coming “somehow from within the product”.

Dr Garnys conceded that he had not examined the interior of any of the Galvit primer layers by removal of the surface layer or by cross-section. Dr Garnys said that the edge was looked at for the purpose of thickness measurement and he used the infrared technique to press against the body of the material, which allowed him to get some insight into the combination of the surface and the body of the material. Dr Garnys gave evidence that he didn’t cross-section the material in any systemic manner. When asked whether he would accept that the spherules within the thickness of the Galvit primer layer were not in fact corroded, Dr Garnys said he would have to rely on other people’s evidence as CETEC did not have evidence as to what was actually within the layer. Dr Garnys conceded that the comparison of oxygen level between the disbonded Galvit primer surface and the top side of the disbonded flake was a comparison between the Galvit layer and the much higher epoxy resin content material in the epoxy layer of the surface coating.

In relation to the infrared work, Dr Garnys accepted that the formulation of the Galvit primer contained amongst other things clay which contain hydroxy-groups and bound water, and epoxy resin which contains hydroxy-groups. In those circumstances, it was suggested that in a weak spectrum, as would be obtained from a highly filtered zinc product, the presence of these hydroxy-groups would make it very difficult to be definitive about the presence of water. Dr Garnys said that he was comparing spectra which gave him good information and accepted that with epoxy there was already a residual signal in the top coat, but that he saw a very much accentuated residual signal in the underlying coat which he considered to be abnormal for the surface that he was expecting to see. In this context, Dr Garnys accepted that he had not compared the new Galvit primer to samples of Galvit primer taken from the failed surfaces.

Dr Garnys also accepted that the disbonded surfaces of the trusses could have suffered from oxidation, hydration and carbonation between the time of disbondment and analysis. Dr Garnys said that some of the material was “sort of fresh when it was peeled, others had the white zinc oxide, zinc carbonate, but not in the handrails; on the handrails there was rapid delamination and no evidence of this crusting of abnormal amounts of – or visible amounts of zinc carbonate and zinc oxide on the surface”.

Wattyl submitted that Dr Garnys’ evidence of “spontaneous delamination” of the coating of the trusses and of “bubbling and breakage of the film on the handrails” was not referred to in the August 2009 CETEC report and was unreliable secondhand evidence which should not be accepted.

I do not accept the thrust of this submission. It is correct to say that these expressions are not found in the August 2009 CETEC report, but Dr Garnys makes it plain that he is using his own words to describe the phenomenon of apparent spontaneous delamination on the trusses which he observed on site. This is objectively supported by the upturned layers of material in at least one of the photographs in the joint CETEC report.

Similarly in the case of the description of “bubbling and breakage” of the film on the handrails. This is objectively supported by a photograph and caption which indicates that the coating on the handrails was removed by cutting using a Stanley knife which “revealed a lifted edge that could be freely peeled away from the primer coating”. The observation that the cut “revealed a lifted edge” suggests to me that the coating was bubbling underneath the overcoating and that the primer film had already delaminated underneath such that it could be freely pulled away.

It follows that I do not accept that Dr Garnys misinterpreted or embellished Dr Schiller’s comments of what he observed on site.

Wattyl submitted that the Court should reject Dr Garnys’ statement that there were “islands” of zinc corrosion products within the delaminated layer on the trusses on the basis that Mr Haig had established by examination of a cross-section of the interior of the Galvit primer flakes that “there was no evidence of inconsistency through the material and no evidence of contamination through the material that would be indicative of defective product”.

In relation to the trusses, there may be no real dispute as to the location of the zinc carbonate deposits. Dr Garnys refers to zinc oxide which accumulated in some of the failed areas which were still covered by the top coats. I understand from this evidence that Dr Garnys was referring to an accumulation of zinc corrosion products in the delaminated primer layer. Once the paint flake was removed it appears that the deposits were visible on the surface of the Galvit primer on the flake. I accept that Dr Garnys’ description of the corrosion which he saw as “islands” of zinc corrosion products is not inconsistent with Mr Haig’s explanation that isolated plaques of deposits of corrosion products which he saw were on the surface of the Galvit primer.

This is to be contrasted with Dr Garnys’ evidence that he observed no surface evidence of zinc carbonate on the samples from the handrails but did observe “little specks within the coating when looked at by electron microscope”.

Wattyl submitted that the Court should not accept Dr Garnys’ statement in the Joint Report that there was no evidence of colour from the underlying primer or metal where the coating had delaminated.

I do not accept this submission. Dr Garnys’ statement is expressly referenced to the observations he made on site. I accept the accuracy of these observations. Dr Garnys did not purport to have comprehensively examined the steel substrate, nor did he purport in this respect to extrapolate beyond the areas he examined. That said, and as previously noted above, Dr Garnys acknowledged that evidence of Sigmaweld primer was found in some locations by others.

Wattyl referred to Dr Garnys’ statement in the Joint Report that he observed the presence of zinc oxidation on each zinc particle and further to Dr Garnys’ evidence of observations made using the electron microscope that “[w]e saw on the surfaces of the spherules a grading away from brightness into greyness that was suggestive of surface contamination”. Wattyl contended that this evidence effectively confirmed Mr Haig’s finding that the contamination of the Galvit primer was a surface contamination and not a contamination throughout the zinc particles which would be suggestive of inherent defects.

In my opinion, this overstates the position. Dr Garnys was using an electron microscope in “back scatter” mode which, as he said, enabled the surface of the material to be examined highlighting the heavier elements. On the basis of that examination, Dr Garnys said he saw a grading away from brightness into greyness that was suggestive of surface contamination. Dr Garnys conceded that he did not cross-section the material and did not have evidence as to what was actually within the layer. He said he would have to rely on “other people’s evidence” on that issue. However, it does not follow, and Dr Garnys did not concede, that the spherules within the thickness of the Galvit primer were not contaminated by corrosion.

Wattyl submitted that Dr Garnys conceded that an examination of the spectra and data provided by Mr Cook of Wattyl at the conclave of experts indicated that there was evidence of no more water in the retained batches of the applied material than there was in the new product. I accept that Dr Garnys made this concession.

Wattyl submitted that the four reasons given by Dr Garnys for expressing the opinion that the Wattyl coating system was not of merchantable quality in the CETEC report of December 2010 should not be accepted.

Wattyl challenged Dr Garnys’ first reason which related to the age, water content, viscosity and drying time of the batch of Galvit primer used on the trusses. With respect to the water content reading in the Galvit Part A batch manufactured on 5 October 2006, Dr Garnys conceded that the water content of 0.03% referred to in the CETEC report was incorrect and that the correct reading for the water content of the batch was 0.01% which was well within the acceptable range. In the circumstances, Dr Garnys accepted that the Dean and Stark water content measurement for the batch could not be relied on to support the statement that there were early signs of deterioration in the Galvit primer in 2006. Nevertheless he maintained that the issue of water content was still a relevant consideration.

In relation to the Brookfield viscosity reading of the Galvit EP100 of 24,000 CP (in a range 19,000-24,000 CP) measured in 2006 at the time of manufacture, Dr Garnys noted that the viscosity measurement was right at the limit of the specification. It was suggested to Dr Garnys that the usual procedure in paint manufacture is to manufacture the paint to a higher viscosity than required under the specification so that it can be subsequently “let down” with solvent to the required level. Dr Garnys said he was not aware of the practice of this particular paint manufacturer and what its criteria are. He was not able to comment on whether it was usual procedure in paint manufacture to manufacture paint to a higher viscosity than required under the specification. Mr Eccleston agreed that it was the usual procedure. No evidence was called by Wattyl to say whether it adopted this practice with respect to its paint manufacture generally or with respect to the Galvit primer.

As to drying time, Dr Garnys noted that the drying time of one hour was at the limit of specification of 0.00-1.00 an hour. Subsequent information provided during the conclave of experts indicated that, at Wattyl, the drying time is typically reported within 15 minutes. In the circumstances, Dr Garnys said he did not know whether the recorded drying time of one hour means 1.25 or 0.75 of an hour. Dr Garnys maintained his view that, absent the water content figure, there was still a strong indication that the product was at the upper end of its specification at the time of its manufacture. In his opinion, from a quality control point of view, this should have required some attention; that the reading indicated a marginal acceptance of the product and that if he was quality controlling the process he would be concerned about the quality of the product.

According to Dr Garnys, another indicator that the product was not of merchantable quality was that the product was old. The CETEC report of December 2010 states that the Wattyl product information (for Galvit EP100) indicated an applied new product life of 12 months. This is not strictly accurate. Under cross-examination, Dr Garnys accepted that the product information for Galvit EP100 states that the product has a shelf life of “at least 12 months”. Mr Pellegrino noted, correctly, that the nominated shelf life was not expressed as a maximum and that the product had a “good life expectancy”, although he did not say how long that was. Whilst acknowledging that the product life as indicated by Wattyl as being potentially greater than 12 months, Dr Garnys nevertheless gave evidence that for this type of system, extended storage was a likely indicator of problems and from his knowledge of these systems, products aged over 12 months were a concern. Despite challenge, Dr Garnys maintained his position that the age of the product, the high level of viscosity and drying time were indicators that the product was not of merchantable quality.

Whilst Dr Garnys’ opinion with respect to these indicators is not determinative, it should not, in my view, be rejected, but should be taken into account with the totality of other indicators. Dr Garnys showed a willingness to adjust his opinion as new information came to hand. He was responsive to questioning but firmly maintained his position that the attributes of the Galvit primer (age, viscosity and drying time) were indicative of potential problems and was one of the four reasons listed in the CETEC December 2010 report in support of his opinion that the Wattyl coating system was not of merchantable quality.

Wattyl challenged Dr Garnys’ second reason, namely his conclusion that the SEM results showed “metallic zinc spherules of 0.2 to 5 micron diameter with high oxygen to carbon… ratios of almost 50% indicating likely oxidation or hydration thus weakening the zinc to resin bond and evidence of poor mixing”. Wattyl submits, and I accept, that the conclusion reached in the SEM analysis in the CETEC report is that the underside of the delaminated coating contained Galvit primer and that the delamination occurred within the Galvit primer layer. In addition, the chemical profile of the Galvit primer was analysed by Dr Garnys and was shown to comprise 9% oxygen and 20% carbon giving an oxygen to carbon ratio of almost 50%. The chemical profile of the topside coating (Epinamel EB600) was shown to comprise 10% oxygen and 54% carbon giving an oxygen to carbon ratio of almost 20%. Dr Garnys concluded that the higher oxygen to carbon ratio in the Galvit primer indicated likely oxidation or hydration thus weakening the zinc to resin bond, and was evidence of poor mixing. In my view, this conclusion is problematic in the absence of a reference sample of non-defective Galvit primer, as there is no evidence to suggest that the oxygen to carbon ratio of almost 50% was not a normal attribute of non-defective Galvit primer.

Accordingly, I am unable to give this reason any weight.

Wattyl submits that Dr Garnys’ third reason, namely that the infrared spectroscopy analysis shows evidence of hydration and visible carbonation of the zinc and possibly incomplete cure should not be accepted on two grounds.

First, it was submitted that the analytic technique of infrared spectroscopy is unreliable. In the December 2010 CETEC report, Dr Garnys noted that the “peak intensities in the infrared spectra can be unreliable as this parameter is influenced by the physical presentation of the sample in the analysis since the surface reflectance technique has been used.” Other experts gave evidence to the same general effect.

Mr Eccleston agreed that to do the infrared analysis it is necessary to have a sampler which has a small polished diamond facet of about a millimetre in diameter. The technique involves pressing the sample against the sampler. Mr Eccleston conceded that the small area sampled is liable to provide misleading spectra if there is contaminant on the sample or if the sampler is placed against an unrepresentative area of the sample. Mr Eccleston accepted that the operator would tend to have a look at the spectrum itself to see whether or not it was the expected spectrum and, if not, then the sampler was probably in the wrong spot and re-sampling would occur. Eccleston said, “So you’d have a basic idea of what you’re looking for so if you’re looking at a epoxy zinc primer and you got a spectrum of zinc oxide you know you’ve got it in the wrong spot so you’d just move it, essentially.” Mr Eccleston agreed that infrared analysis is a bit of a “hit or miss” operation which depends on knowing what one is expecting to see and to match that with whatever sample is being examined. Mr Eccleston agreed that the zinc particles in the paint are opaque to infrared radiation and produce no infrared spectra. Mr Eccleston agreed that the zinc oxide (corrosion products) would provide some spectra. It was suggested to Mr Eccleston that because the zinc was such a high percentage component of the paint in this case, that the spectrum obtained would be weak and noisy. Mr Eccleston said that this would depend on the instrument being used; the sampling time could be extended to account for the noise and there are noise cancelling algorithms built into the instrument. It was suggested that the interpretation of weak or noisy spectra is unreliable and potentially misleading. Mr Eccleston said that the spectrums he saw in this case were not particularly noisy but were fairly good.

Mr Haig noted the shortcomings of the infrared analysis technique in his report of 7 July 2011, including the chance of misleading spectra due to contamination or an unrepresentative area in the small field of view of the polished diamond facet, zinc corrosion products forming after sampling, the high percentage of zinc as a component in the paint resulting in a weak and noisy spectra, the possibility that the normal constituents of EP100 may contain hydrates and carbonates as part of the formulation or as normal reaction products and that oxides, hydrates or carbonates might have come from corrosion of the Sigmaweld primer.

Having regard to the weight of expert opinion as to the potential unreliability of infrared analysis, the results of the analysis needs to be viewed with a degree of caution. It seems that the reliability of results is likely to be dependent upon the quality of the instrument and the skill and experience of the operator in knowing what to expect and in adjusting the sampling process to ensure that the potential for obtaining misleading spectra is minimised.

Second, and more fundamentally, Wattyl submits that Dr Garnys goes beyond the conclusion reached in the CETEC report with regard to hydration and visible carbonation of zinc.

In this context, Dr Garnys explained the reasoning underlying his analysis as follows:

the infrared doesn’t tell you a lot about the zinc metal at all, it tells you about the zinc oxidation products and tells you about the organic system, if you like, that is there, that was meant to bind the zinc together. Left on their own as a powder obviously the zinc has not [sic] strength, it will come apart and the resin is added to bind all these little spheres together. Obviously the least amount is added to give us the maximum amount of zinc which is there for corrosion protection. When you looked at the ratio of oxygen to carbon in the cohesively failed – in other words the failure within the zinc coating, we saw that the oxygen to carbon ratio was higher in the delaminated area as it was on the top, the top surface, which was the other surface that we had that the – the 600 layer. So we would expect that the resin system which had not dissimilar epoxy resin formulations would have not dissimilar carbon to oxygen ratios when you looked at that component within the layer, as looking at it on the top layer…
…
The bottom line is that we saw that there was more oxidation product within the – within the layer than what would be considered to be normal for a normal western (sic) system which was – the only reference we had at the time of course was the top layer, so we were referencing everything to the top layer. The key reasons for doing this work was (a) to distinguish that the split layer was indeed zinc-rich, which would indicate that it is the EP100 material and not some other material. It was not to generate a comparison for specification, so we were not looking to see whether in fact the material that had been supplied was some way different from the specification, we didn’t have that information, we asked for it and we were not supplied with the same batch material, or any batch material which was purported to be the same, so we couldn’t do a reference…

Both Mr Haig and Mr Cook said, in effect, that Dr Garnys’ comparison of high oxygen content in the Galvit primer with a different material was an invalid comparison. Specifically, Mr Cook said that the Galvit primer, a pure epoxy, was a different resinous compound to the Epinamel EB600 which was an epoxy ester. In Mr Cook’s opinion, this would not give a valid comparison because it was a comparison between two different systems.

Mr Eccleston agreed that it was preferable when trying to draw conclusions about the level of oxidation of the product to compare non-defective Galvit primer on the one hand with “defective” Galvit primer on the other.

Obviously it is preferable to compare a sample of like products. Dr Garnys had requested a sample of the same batch of Galvit primer or any batch of Galvit primer purporting to be the same material to make a direct comparison but this was not provided. Of the independent experts only Mr Haig was provided with a sample by Wattyl. In the absence of direct comparison, Dr Garnys made a comparison he was able to make in the circumstances. Dr Garnys’ point seemed to be that the systems, though different, were sufficiently similar to make comparison meaningful. However, in my view, there was not sufficient information available to Dr Garnys to make anything other than an educated guess that the difference was significant. Whilst there was agreement that there was a difference, it was not possible on the information available to draw any firm conclusions. Without evidence of the respective properties of the products, it is not possible to know whether a meaningful comparison can be made, despite the differences. In the circumstances, I can give no weight to Dr Garnys’ conclusions with regard to the extent or significance of the hydration and visible carbonation of the zinc based on the comparison made, though I do accept Dr Garnys evidence that the infrared spectra shows hydration and possible carbonation. In this regard, Mr Eccleston agreed that the infrared charts show hydration and possible carbonation of the zinc.

Wattyl made submissions to the same effect with regard to Dr Garnys’ conclusion that the infrared analysis shows “possibly incomplete cure”.

This conclusion was based on Dr Garnys’ assessment that the ratio of the amine to hydrocarbon on the infrared charts of the Galvit primer (EP100) compared with the Epinamel (EB600) were vastly different, suggesting to him that the amine was a “massive component” of the EP100 and above the normal ratio for curing. Dr Garnys said that he did not know whether the amine was a “massive component” of the Galvit primer or whether he would expect the ratio of amine to hydrocarbon to be vastly different in the resin used for the Galvit primer as compared to the top coat. Mr Cook gave evidence that it depends on which hardener was used as some hardeners have a higher hydrocarbon content. Mr Cook said he was not familiar with the formulations and that he believed the formulation of hardeners were different.

Mr Eccleston, who routinely carried out infrared analysis, was unable to determine from the infrared charts how they showed the possibility of incomplete cure.

In my opinion, Dr Garnys’ evidence that the infrared charts showed the possibility of incomplete cure is of no probative value. Without information about the hydrocarbon content of the hardener used on the Galvit primer which might account for the different ratios observed by Dr Garnys, I cannot be satisfied that the infrared charts reveal the possibility of incomplete cure.

Wattyl submitted that the disbonded surfaces upon which Dr Garnys carried out his analysis could have suffered from oxidation, hydration and carbonation between the time of disbondment and the time of analysis. It is noted that the failures occurred from about January and February 2009 and the truss samples were collected in July 2009.

Dr Garnys conceded these possibilities; in particular, he said this could have occurred in relation to some of the truss samples, namely where the paint had peeled away but not where the material was “fresh when it was peeled” and not in the case of handrails where there was rapid delamination and no evidence of crusting or visible amounts of zinc carbonate and zinc oxide on the surface.

Mr Eccleston also accepted that it was possible that material corroded between the time it failed cohesively and the time it was examined. Mr Eccleston accepted the proposition that in order to draw conclusions about the oxidation, the hydration or the carbonation of a sample, it was necessary to note the state of the sample at the time of disbondment and compare it to the state of the sample at the time of analysis.

Doubtless some corrosion products may have been produced after delamination where the Galvit primer was exposed to the atmosphere for several months from the time of delamination until the time the sample was taken. However, Dr Garnys said in many cases there was no evidence of a break in the coating.

Clearly, there was potential in this case for the Galvit primer to have suffered some corrosion during the period between when it failed and when it was examined by reason of exposure to the atmosphere. However, I accept Dr Garnys’ assessment that this would not apply to the “fresh” material from the trusses nor to the material used in the handrails which rapidly delaminated.

Wattyl submits that Dr Garnys’ fourth reason, namely that the coating thickness measurements showed the Galvit primer coating thicknesses within the 75 microns specification of 58-83 microns and a very uniform delaminated coating of 45 microns on the underside of the epoxy second coat, should be disregarded. Dr Garnys said this indicates a uniform soft delamination irrespective of total coating thickness from 320 to 628 microns. Dr Garnys found that recent coats could be easily peeled apart even without delamination, indicating incomplete cure well beyond the specified times and that this was not characteristic of brittle shear due to varying stresses from top coats of varying thicknesses. Wattyl submits that Dr Garnys’ conclusion should be rejected because it is unknown who carried out the measurements and the measurements were carried out only at four locations on the handrails (and not on the trusses), yet Dr Garnys asserts that an identical delamination phenomenon had occurred on the trusses and handrails. Wattyl submits that this is purely speculative. Wattyl also submits that Dr Garnys has no practical experience with coating applications and cannot comment on the mode of application or whether the application was properly done. In substance, it was submitted that Dr Garnys’ investigation was so limited in its scope that he cannot convincingly rule out application as the cause of delamination from the incomplete cure he allegedly saw.

Dr Garnys did not carry out the measurements himself and could not positively say whether the measurement was performed by Dr Schiller or by someone at DH Corrosion. Dr Garnys inferred that his colleague, Dr Schiller, made the measurements. I accept that this is likely. The discussion about coating thickness measurements indicates that Dr Schiller returned to the premises of DH Corrosion on 7 September 2009 to inspect the steel handrail panels with the aim to determine the film thickness of the Galvit primer that had been applied to the substrate. Measurements were made using a PosiTector 6000 coating thickness gauge supplied by DH Corrosion.

Redundant works due to the coating failure

Fulton Hogan claims the costs which relate to rotating the truss on site for installation in late April 2009, splicing the trusses together in early May 2009. This work involved traffic management expenses, scaffold hire, lifting and rotating the truss to provide access for the splicing process, working platforms, splicing materials and labour. In late May 2009, jacking equipment, crane and transport equipment for jacking and skating the structure was required for the intended bridge lift.

Wattyl submitted in substance that, given the history of the coating problems on the trusses, there was no reasonable basis for Fulton Hogan to decide that the trusses were ready to lift into position on 27 May 2009. Wattyl submits that Fulton Hogan should not be able to recover the cost of making abortive plans concerning the trusses in light of the history of difficulties with the coatings and submitted there was no evidence that the coatings had materially improved to the point where Fulton Hogan and the client SEITA would have been satisfied to erect the trusses in their then current state; that Fulton Hogan was not justified in making contractual arrangements to organise the erection of the trusses; and that such arrangements should not have been made at all or only on a conditional basis so that they could be cancelled without financial penalty.

On this issue, Mr Carecos gave evidence that this part of the claim related to work which was done in anticipation of putting the truss into position before that work was cancelled. Mr Carecos conceded there were obvious problems with the coating on the trusses from the time they came to site in January 2009; that attempts were made to solve the problem with various investigations by experts and that concerns were being expressed by the client SEITA in early February 2009. He accepted that a decision was not taken until late May 2009 to completely re-coat the trusses. In response to the suggestion that this decision should have been taken sooner, Mr Carecos said:

That’s clearly not the way we looked at it at the time. We wanted to give our painter every opportunity to remedy the product. We were getting advice that was different to that from our painter… he [Mr Tanti] was indicating that the painting of the truss was acceptable and he could remedy it… it was certainly a difficult process, there’s no doubt, and we had a number of people telling us different things. But at the end of the day we needed to provide the opportunity to the installer to remedy the product, and simply removing it – you know, making the decision to remove it straight away I believed was the incorrect decision to start with. Now, as it turned out, the product did fail and we had to do it. But I don’t necessarily agree with the – with your assertion that we should have made that decision earlier.

On the specific issue of whether there was a proper basis in May 2009 to go ahead and arrange for the lifting and installation of the trusses over the highway, Mr Carecos said:

We certainly had to make a call that – we had to make a call on when we wanted to erect – erect these trusses and we certainly made that call and made provisions in case, you know, we could get it to a situation where they were acceptable…so I guess what I’m saying is that we had to make preparations a fair way in advance to lift these trusses. They could not happen a week beforehand, we had to get approval from road authorities, from SEITA itself and therefore we had to make those preparations quite a way in advance for that lift to occur.

As to the suggestion that at the time these arrangements were made Fulton Hogan did not have any reasonable basis to think that the trusses would be a in state satisfactory to erect over the highway, Mr Carecos said:

No, that’s not correct. My – my view of the world was that we were in a position to be able to correct the truss at that stage. That was my state of mind… right up until we made the decision to re-coat the truss…SEITA were also not directing us.

In summary, Mr Carecos said that all the costs claimed were incurred, and denied they were incurred prematurely in the circumstances. He said that arrangements for the lifting of the trusses would generally be made at least four weeks or up to two months in advance.

Mr Riha gave evidence that Fulton Hogan decided on 27 May 2009 or thereabouts that it was not going to go ahead with the lifting of the truss and it was going to re-coat both trusses.

Mr Riha gave evidence as to the lead up to late May when the trusses were scheduled to be lifted as follows:

So the preparation is quite extensive, it’s quite a big logistical exercise. As far as procedures in the lift itself, safe work method statements, and the procedural side of things needs to be ironed out. All the guys need to go through risk assessment workshops so everyone understand the risks involved, there is also a fair amount of logistics in just confirming craneage and transport, because they’re items that are not regular, or not regularly in the industry, you need to book those in advance to make sure you’ve got access to that equipment… I would suggest a minimum of three or four weeks given that notification as to public and community as far as the closure goes and it might be up and – the reality is they will probably notify and talking to OD group well in advance, probably a couple of months in advance and would have locked in dates I would say a minimum of three weeks in advance, maybe four.

Under cross-examination, Mr Alsop agreed that between 6 January and 27 February 2009 there were numerous meetings between representatives of Fulton Hogan, Danfab, Wattyl and Cox regarding the failure of the coating; that there were a number of inspections and reports were compiled; that spot repairs were being undertaken during the period; that as at 27 February 2009 Wattyl had prepared a repair specification and that repairs were being undertaken to the truss which remained on site and the truss which had been taken back to Cox’s premises; and that as at mid-April 2009, it was anticipated that the spot repairs might have worked with a view to the truss being installed some time in early to mid May 2009. Mr Alsop also accepted that installation of the truss over a public highway was not an easy task requiring a considerable degree of time and planning to get all of the appropriate approvals and organising cranes and labour and occupational health and safety and VicRoads approval.

On this issue, I accept the evidence of Mr Carecos, Mr Riha and Mr Alsop. In my opinion, Fulton Hogan, in conjunction with its client and the painting contractor, made genuine attempts to resolve the issues with delamination of the coating which included attempting repairs following a repair specification prepared by Wattyl. Presumably Wattyl thought the defects were repairable when it provided the repair specification to Cox.

With the benefit of hindsight, it may have been better to immediately strip the trusses of all coatings and re-coat the trusses with coating products supplied by another manufacturer as ultimately occurred. But at the time the decision was made, Fulton Hogan obviously did not have the benefit of hindsight. With one exception, in my opinion all the expenses were reasonably incurred notwithstanding they proved to be redundant. The exception relates to the fee for cancellation of a photographer. Whilst I understand that Fulton Hogan would want to photograph the lifting event, in my opinion it was an elective expense which Fulton Hogan is not entitled to recover.

Invoice 0122 from North Fitzroy Constructions Pty Ltd

In final submissions, Wattyl stated that it should not be liable for form work removal said to have been carried out by North Fitzroy Constructions Pty Ltd, on the basis that it was not clear from the relevant invoice precisely what work had been carried out or when.

The relevant invoice is dated 25 January 2009 and refers to works having been completed at the site and refers to the supply of labour and tools to install the deck to the truss. It includes a hiring charge for “Superslims” for the period 12 January 2009 to 25 January 2009. The details of the invoice were entered into Fulton Hogan’s journal entry under “FHC Victoria East Civil Burwood Highway Pedestrian”.

There is some lack of precision. I note that the claim is only with respect to parts of invoices rendered by North Fitzroy Constructions Pty Ltd for large amounts (Part 122 day works $19,053.34 and Part 127 day works and materials $34,595.20). Mr Riha has extracted from the total of $53,648.54, a component for removal of the deck formwork before transportation of truss B to Cox for repairs, allowing $8,000 for that component. Mr Riha allowed the same amount for re-installation of the formwork after the truss was returned to the site, again a component from much larger invoices (Part 139 day works and materials $15,589.40 and Part 141 day works and materials $27,357.70 or a total of $42,946.00). Whilst this claim does involve some matters of judgment and degree, I accept Mr Riha’s evidence that he had reviewed all of the invoices relevant to the coating issue and satisfied himself that they were part of the claim after speaking to relevant personnel. It was not suggested by Wattyl that it was not necessary to remove the truss decking formwork before truss B was transported back to Cox’s premises or that the decking formwork would not have to be re-installed after the truss was returned to the site. In addition, I note that Wattyl’s expert Mr Alsop did not suggest that this was an unnecessary or unreasonable expense. In my opinion, Wattyl is liable for the decking formwork removal and re-installation costs. I propose to allow this item.

Wattyl also submitted that Fulton Hogan should not be able to recover the cost of removal and reinstatement of cladding panels. This relates to the claim for removal of architectural panels by Access Platforms Systems Pty Ltd and their reattachment in September 2009. Wattyl submitted that the condition of the trusses was such that it was premature and unreasonable to put the external panels on before the coating was satisfactorily completed and that if the panels had not been put on until the truss coatings were completed and ready for cladding then there would have been no need to reattach the panels.

I do not accept that it was premature and unreasonable to attach the cladding panels when they were attached. Again, Wattyl’s submissions are made with the benefit of hindsight. Genuine efforts were being made to avoid delays on the project and it was not unreasonable to carry out these works. Fulton Hogan were not to know that delamination, even in areas which had been repaired using a repair specification recommended by Wattyl, would continue. Again, I note that Wattyl’s expert Mr Alsop did not say that these works were premature, unnecessary or unreasonable. I propose to allow this item.

Do damages awarded for loss arising from property damage constitute supply for the purposes of GST?

Fulton Hogan seeks an order for damages of $1,896,887.72 inclusive of $145,685.74 to allow for GST.

Wattyl contends that any damages awarded to Fulton Hogan should be exclusive of any allowance for GST for two reasons: first, that neither an award of damages or payment by a judgment debtor of a judgment sum constitutes a “supply” and therefore does not attract a GST under the provisions of the A New Tax System (Goods and Services Tax) Act1999 (Cth) (“GST Act”);[41] secondly, the plaintiff had failed to prove an entitlement to have GST included.
[41]A New Tax System (Goods and Services Tax) Act1999 (Cth).

Section 9-5 of the GST Act provides:

Taxable supplies
You make a taxable supply if:
(a) you make the supply for consideration; and
(b)the supply is made in the course or furtherance of an enterprise that you carry on; and
(c) the supply is connected with Australia; and
(d)you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.[42]

[42]A New Tax System (Goods and Services Tax) Act1999 (Cth) s 9-5.

Senior counsel for Wattyl referred to and relied upon Ruling GSTR 2001/4, which states that ‘supply for consideration’ is determined by three criteria. There must be a supply, there must be a payment and there must be a sufficient nexus between the supply and the payment.[43] In Ruling GSTR 2001/4, the Commissioner of Taxation concludes that neither a court ordering a party to pay damages pursuant to a judgment,[44] nor the extinguishment of a judgment debt by its payment by a judgment creditor constitutes a supply for GST purposes.[45]
[43]Ruling GSTR 2001/4, 4-5 [21].
[44]Ibid 11 [56]-[60].
[45]Ibid 12 [67].

Counsel for Fulton Hogan submitted that compensation was being sought for what was ultimately a supply of services where GST was paid for those services, so GST should be included in the award of damages. Counsel for Fulton Hogan referred to Peet v Richmond (No 2), where Hollingworth J stated with reference to Ruling GSTR 2001/4, that:

payment made under a court order can constitute consideration for an “earlier supply”. Whether there is a sufficient nexus for a court order to constitute consideration for the earlier supply is a question of fact in each case. The fact that payment is made by compulsion under a court order rather than in the ordinary course of commercial dealings does not affect the liability to GST.[46]

[46]Peet v Richmond (No 2) [2009] VSC 585, 16 [76].

Although Peet v Richmond (No 2) involved a quantum meruit award for services rendered at an earlier point in time, it was submitted that in this case, orders made by the Court would constitute consideration for an 'earlier supply' and so may give rise to a GST liability.

Wattyl submitted that Peet v Richmond (No 2) is distinguishable on the facts in that it involved a quantum meruit claim where the plaintiff had provided goods or services to the defendant and no payment had been made. In that case, the plaintiff had sought an allowance for GST to be included in the order because otherwise the award of damages would have been diminished by 1/11^th which was less than the court intended due to GST needing to be remitted.[47]
[47]Ibid 15 [73].

Wattyl submitted that Fulton Hogan has already paid to third parties the amounts which it now seeks to recover as damages, including GST. It was submitted that, due to the usual practice of businesses routinely setting off GST collected against GST paid, unless there was evidence to the contrary, the Court should infer that Fulton Hogan has already claimed an input tax credit in respect of the GST amounts it paid. Counsel submitted that the only evidence that Fulton Hogan had not claimed GST related to an amount of $40,437.72 (exclusive of GST) owed to Cox, since it denied liability for these payments. Wattyl submitted that an amount which included GST paid would result in double recovery of that component of the claim.

I agree that Peet v Richmond (No 2) is materially distinguishable. As a consequence of the defective coating Fulton Hogan had to pay third parties for goods and services plus GST with respect to those goods and services. I accept that in the ordinary course, Fulton Hogan would have received an input tax credit to the extent of the GST it had paid against the GST it collected on services it had supplied to third parties. Without the delamination of the coating, Fulton Hogan would not have needed to pay the GST on those goods and services and would not have received an input tax credit equal to that payment. In my opinion, it is reasonable to infer, and I do infer, that Fulton Hogan has already been compensated by the input tax credit it would in the ordinary course have received equivalent to the GST paid. Damages are compensatory; they are to recompense the plaintiff for loss suffered in paying third parties for goods and services. I accept that if damages were awarded for an amount equivalent to the GST component already paid, then Fulton Hogan would be doubly compensated.[48]
[48]See also Gagner Pty Ltd Trading As Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413, 25 [151] and Merringtons Pty Limited v Luxottica Retail Australia Pty Ltd [2006] VSC 525, 12-13 [40]-[41].

I further accept Wattyl’s submission that the only evidence that Fulton Hogan had not claimed GST is with respect to the amount of $40,437.72 (exclusive of GST) currently owed to Cox but unpaid. Fulton Hogan has denied liability for these payments. I have already allowed 95% of the costs of these repairs ($40,437.72 by .95 or $38,415.83) as part of the claim under category C above. In my opinion, an allowance for GST must be included in the award of damages with respect to this amount as Cox has an outstanding entitlement to the payment of GST of $3,841.58 for these repair costs. It follows that I propose to allow $3,841.58 for this item and that no allowance should be made for GST already paid.

In final submissions, counsel for Fulton Hogan contended that there was no notice that this legal issue would be raised and that, unlike in Peet v Richmond (No 2), the plaintiff had not had ‘ample opportunity’ to address the matter. In the circumstances, counsel for the plaintiff submitted that a declaration could be made that any GST awarded in damages and remitted within a certain period of time by the Commissioner of Taxation be refunded to the defendants.[49] Having specifically claimed an entitlement to an allowance for GST as a component of its loss and damage, Fulton Hogan always had the burden of making out this aspect of its case at law. Save with respect to the unpaid repair costs, it has failed to make out its case on this issue. No request for an adjournment was requested by Fulton Hogan to enable it to further consider the matter or to make additional legal submissions. As a matter of discretion I decline to make the declaration sought.

Question 9 - Did Cox give a warranty to SEITA and Fulton Hogan with respect to the costs and expenses incurred in repairing any defects to the trusses?

[49]Relying on the formulation of Peet v Richmond (No 2) [2009] VSC 585, 17 [82].

Pursuant to terms of settlement entered into between Fulton Hogan and Cox, Cox agreed to provide Fulton Hogan with a warranty “correctly addressed to Fulton Hogan in accordance with the format already communicated to Cox by Fulton Hogan and to Fulton Hogan’s satisfaction”.

Subsequently, Fulton Hogan provided a warranty and indemnity to SEITA and SEITA accepted the warranty and indemnity on the terms and conditions set out in a Deed of Warranty and Indemnity. Clause 2 of the Warranty and Indemnity is in the following terms:

(a)Cox Coatings represents and warrants that the application of the paint coating system applied to the Bridge pursuant to the terms of the Contract will not breakdown, corrode or fail (other than due to fair wear and tear), due to application, for a period of twenty five years commencing form the date of this deed (Warranty Period).
(b)If, during the Warranty Period, as a result of the application of the coating system it corrodes, breaks down or fails, Cox Coatings will promptly repair any relevant areas identified by SEITA as affected by the corrosion, breakdown or failure (as the case may be), at no cost to SEITA, or fully indemnify SEITA for its costs and expenses incurred in repairing the affected areas as a result of any application deficiencies.

Mr Tanti of Cox gave evidence that he signed the Cox warranty and said that the warranty was for workmanship. I agree. By its terms, the warranty covers break down, corrosion or failure of the paint coating system as a result of any application deficiencies. It follows that the warranty does not cover costs and expenses incurred in repairing defects due to failure of the materials used to coat the trusses.

Having regard to my earlier findings as to proportionate liability, Cox is required to indemnify Fulton Hogan under the Cox warranty for the extent of 5% of the loss and damage suffered by Fulton Hogan with respect to the trusses.

Conclusion

In this case, I have found that the batch of Wattyl Galvit EP100 primer used by Cox to coat the trusses on the footbridge was, on the balance of probabilities, defective and caused widespread delamination of the coating which ultimately necessitated re-blasting and re-coating of the trusses. Some delamination of the coating applied by Cox was attributable to inadequate preparation of the substrate on the trusses and by making due allowance, I have apportioned liability 5% to Cox and 95% to Wattyl.

In relation to the handrails, there is insufficient evidence to determine whether the defects to the coatings on 11 out of 149 handrails was caused by defective product or poor application practice by other contractors.

Accordingly, Fulton Hogan has proven liability with respect to the trusses but not with respect to the handrails. The proven loss and damage with respect to the trusses may be summarised as follows:

A.Site management and supervision facilities: (less disputed water charge $296.70) SUB-TOTAL……………….	$ 687,666.00 $ 687,369.30
B. Amounts withheld Liquidated damages ($195,000) Amount withheld in lieu of warranty ($80,000) SUB-TOTAL……………….	$ 185,000.00 $ NIL $ 185,000.00
C. Transport of truss for repairs, rectification works, redundant works (less claim for photography $ 200.00) (plus component for unpaid repairs $38,415.83) (plus GST on unpaid repairs $ 3,841.58) SUB-TOTAL………………	$ 305,954.28 $ 348,011.85
D. Blasting and painting of trusses	$ 314,095.34
E. Reinstallation of cladding and decking truss form work etc	$ 59,329.50
F. Handrail coating repairs	$ NIL
TOTAL:	$1,593,805.83

Having regard to the apportionment of liability, Cox shall pay $79,690.29 (or 5%) of the proven loss and damage and Wattyl shall pay $1,514,1115.54 (or 95%) of the proven loss and damage.

[2012] VSC 358

23 August 2012