H M and O Investments Pty Limited v Ingram (No.2)

[2011] NSWSC 564

Supreme Court

New South Wales

Medium Neutral Citation:	H M & O Investments Pty Limited v Ingram (No.2) [2011] NSWSC 564
Hearing dates:	9 June 2011
Decision date:	09 June 2011
Jurisdiction:	Equity Division - Commercial List
Before:	McDougall J
Decision:	Order for reference out of certain questions.
Catchwords:	PRACTICE - reference out - in course of hearing in court - no question of principle.
Legislation Cited:	Civil Procedure Act 2005 Uniform Civil Procedure Rules
Category:	Procedural and other rulings
Parties:	H M & O Investments Pty Limited (First Plaintiff) Teach & Play Pty Limited (Second Plaintiff) Bradley Phillip Ingram (First Defendant) Glenda Louise Ingram(Second Defendant)
Representation:	Counsel: S A Gregory (Plaintiffs) G Curtin SC / J A English (Defendants) Solicitors: Owen Hodge Lawyers (Plaintiffs) TressCox Lawyers (Defendants)
File Number(s):	2009/297464

Judgment (ex tempore) - on reference out of questions

1. HIS HONOUR: In this proceeding the plaintiffs allege that the defendants made misrepresentations to the plaintiffs in connection with the sale of a business.

1. The defendants' business, which was the subject of the sale to the plaintiffs, included the manufacture and sale of playground equipment to kindergartens, child care centres and the like.

1. At the time the business was sold, and at the preceding times when negotiations for its sale were under way, there was an Australian Standard which applied to such playground equipment. That standard was AS4685.1/2004 (the standard).

1. There were other applicable parts of AS4685, but they are not relevant on the pleadings and particulars.

1. The misleading or deceptive conduct is said to consist in representations made by the defendants to the plaintiffs which we were incorrect or false, and thus misleading or deceptive. The alleged representations fall into three broad categories. The first relates to the design and manufacture of the playground equipment. The plaintiffs say that the defendants represented that the equipment was designed and manufactured so that it would both comply with and exceed the relevant requirements of the standard.

1. The second category of representation relates to the production process. The plaintiffs allege that the defendants represented that the defendants' production manager, Mr Nupier, ensured that the playground equipment was designed and manufactured so as to comply with the relevant requirements of the standard.

1. The third category of representation relates to the products that the defendants manufactured. The plaintiffs allege that the defendants represented that those products complied with the relevant requirements of the standard.

1. There is a substantial body of factual and expert evidence bearing on the truth or falsity of the representations at the time they were made. That evidence includes (but goes well beyond) the evidence of a Mr Gary Crellin, who was the quality assurance manager of a company, York Precision Plastics Pty Limited, which was associated with the plaintiffs; and evidence of experts on each side. Mr Crellin made measurements and observations of items of playground equipment, and conducted tests on them. He also made measurements and observations of the jigs on which the playground equipment was manufactured, and gives evidence of the cutting lists whereby, apparently, lengths of steel piping used in the manufacture of the playground equipment are cut to size.

1. The plaintiffs have retained as an expert Associate Professor David Eager. The defendants have retained as an expert Mr Clive Dodd. Each of those gentlemen gives extensive evidence, not all of which appears, at least to a mind which is not unduly familiar with the minutiae of the disputes, to go into the technical issues in question.

1. I repeat that the evidence on which the plaintiffs rely, to show the falsity of the alleged representations, goes beyond evidence of measurement and tests, and the opinions of the experts.

1. Associate Professor Eager and Mr Dodd met and produced a joint report. They were unable to agree on any matter of substance in dispute between them. I will return to this.

1. It appears from Mr Crellin's evidence, and from the evidence of other witnesses on whom the plaintiff relies, that some 100 or so different kinds of playground equipment were tested, and some 31 of those in Mr Crellin's opinion did not comply with the relevant requirements of the standard. In an attempt to ensure compliance, the plaintiffs, with Mr Crellin's advice, made modification to the jigs and to the cutting lists. The 31 items were retested. All that material is in evidence. That evidence is supplemented by numerous photographs.

1. A matter of specific concern under the standard is the question of head and neck entrapment. In summary, the relevant requirements of the standard are intended to ensure that if a child's body can get through an opening in an item of playground equipment then the child's head must be able to get through also. Thus, if an opening exceeds a stated size, (intended to represent the size of a child's body), it must be at least a certain greater size (intended to represent the size of the child's head). Compliance with those provisions of the specification was apparently tested by using probes, which are solid objects having the dimensions set out in the standard. If the smaller probe (representing the body) can get through an opening then so must the greater probe (representing the head).

1. The issues as to head and neck entrapment include, among others, whether the relevant provisions of the standard apply only at a certain height above a "standing surface." The parties are at issue as to what is "standing surface" in particular context, and how it is to be determined. They are also at issue as to the application, or applicability, of the relevant provisions of the standard where items of equipment are joined up (the modular design of the equipment is intended to facilitate this), so that one piece may be raised higher then it would stand on its own.

1. I would have expected that experts acting impartially and cognisant of and obedient to their primary duty to the Court would agree on alternative outcomes, as to compliance, depending on the view that the Court might take as to the proper construction and application of the standard. I do not know whether the experts thought to undertake that process. But the extent of their disagreements suggests to me some concern as to whether they were truly acting impartially or truly obedient to their duty to the Court. I express no concluded view on that because I have heard nothing from the experts, or of the circumstance in which they met. I will content myself with observing simply that the joint report is disappointing in the degree of conflict that it leaves unresolved.

1. It is apparent that the experts considered the observations, measurements and tests reported on by Mr Crellin. Again, I would have expected that they would have been able to agree, subject to the view that the Court might take on the underlying questions of principle, as to the outcome, or result, in respect of compliance flowing from those matters of Mr Crellin. Again, it is disappointing that they have not done so.

1. If the Court were required to investigate the question of compliance for itself, it would need to investigate and conclude on the minutiae of Mr Crellin's observations, measurements and tests, made and remade, and on what follows in terms of compliance or non-compliance with the standard. This would have to be done in respect of each of the 31 items of playground equipment which is said not to comply with the applicable provisions of the standard. In undertaking that task, as I see the evidence, the Court would also be invited to consider the observations, measurements and tests made by Mr Crellin, in respect of items of playground equipment that he concluded did comply with the standard.

1. In addition, the Court would be required to consider the minutiae of the details of construction of various jigs, and of the cutting lists, to which I have referred earlier.

1. Prima facie, it is not an appropriate use of Court time for the Court, bound by the rules of evidence and by procedural conventions, to investigate matters having a technical character which involve such a degree of detail. An analogy - admittedly imperfect - which comes to a mind is of a building case which involves multitudinous allegations of defective or incomplete workmanship. As in that case, so in the present, I think it is likely that a referee, who is not bound by the rules of evidence and who can proceed in such way he or she thinks appropriate, would be able to get through the material, and deal with the evidence, in a way that is far more time efficient than could be done in court. I am conscious, in particular, that referees may, if they think it appropriate, sit in conclave with the experts, in the absence of the parties' legal representatives, and attempt to hammer out areas of agreement, or at least to minimise areas of disagreement. For obvious reasons, that is not a process which a Judge of this Court, sitting as such, can undertake.

1. Those considerations are of particular relevance in the present case because it is apparent that if the Court is required to consider all the issues in dispute, it is unlikely - I would have said, in the extreme - that the hearing will finish in the time allotted. Indeed, it is unlikely that the hearing will finish even in that time and the additional part day which is available. It would impose on unconscionable burden of cost and complexity on the parties, and a very heavy burden on the Court, to have to come back to this matter, after the best part of two weeks of evidence, at some time in the future when the commitments of counsel and the exigencies of the list permit.

1. If the questions relating to compliance are excised and sent to a referee, that would shorten the time required for hearing of the remaining issues. In addition, because no conclusion on quantum of damages could be reached (assuming that it arises) until the referee has reported, questions relating to quantification of damages would be put off.

1. In those circumstances, I indicated yesterday that I would refer out what can be called broadly the question of compliance. I will return to the definition of that question.

1. As I have said, referring out the question of compliance, means of necessity that issues of quantification of damage can be put off until the after the referee's report is received and dealt with.

1. The Court will be able to deal with the remaining issues, including the questions of principle as to the basis on which damages (if they are to be awarded) should be assessed. It would not be necessary for the court to have an answer on the question of compliance to do that.

1. As I have indicated, I am conscious that a reference out will involve additional costs. However, I am also conscious that if the matter remains in the Court on all issues and does not complete in the available time, there will be substantial additional costs incurred in any event. In my view, bearing in mind the provisions of s 56 of the Civil Procedure Act 2005 (NSW), the balancing exercise which is required favours taking the course of reference out. I repeat that the referee would enjoy advantages that the Court does not.

1. The remaining questions are, first, to whom should the matter be referred and, second, what is the matter that should be referred.

1. As to the first question, the plaintiffs favoured reference to a referee with legal training, such as a retired Judge of this Court or a member of the inner Bar with experience in technical matters. Mr Gregory of counsel, for the plaintiffs, submitted that the nature of the questions that would arise were such that a legally trained person, assisted by appropriate submissions from the parties' legal representatives, would be able to deal with them efficiently. He indicated, in addition, that there might be questions of credibility raised which would better be dealt with by referee of the kind that I have indicated.

1. The defendants submitted that the question of compliance should be sent to an engineer.

1. Mr Curtin of Senior Counsel, who appeared with Ms English of counsel for the defendants, submitted that the issues were technical in nature and that an engineer sitting down with the experts, and having the benefit of all relevant evidence on the question of compliance, could come to a view quickly and cheaply and without the need of assistance from legal representatives.

1. In my view, the considerations to which Mr Gregory referred favour reference out to a person with legal qualifications and having the background that I have summarised. Inquiries undertaken by Mr Gregory's instructing solicitors have shown that the Honourable J M N Rolfe QC is available to conduct the reference, if asked to do so, on 17 and 20 to 23 June 2011. It is very hard to think that Mr Rolfe would not complete the reference within those four days; indeed, I think, he would finish it well short of those four days. Mr Gregory's solicitors also revealed that Mr Peter Taylor of Senior Counsel was available in the weeks commencing 4 and 11 July.

1. There is no doubt that, if a referee of the kind that I have indicated is to be appointed, then both Mr Rolfe and Mr Taylor are amply equipped, by reason of their qualifications and experience, to undertake the reference. In my view, bearing in mind the earlier availability of Mr Rolfe, he is an appropriate person to whom the reference should be addressed.

1. I am conscious that an engineer might have a greater familiarity with the technical issues arising under the standard. I am equally conscious, however, that Mr Rolfe's long experience, both at the Bar and as a Judge of this Court, and indeed since as a referee and arbitrator, equips him to manage the process of resolving disputes arising among experts.

1. Turning to the second question - the definition of the question of compliance - my initial view was that the question of compliance should be defined by reference to the pleaded case of misleading or deceptive conduct. The further amended statement of claim alleges, in paragraph 29, that by making the various representations that had been pleaded the defendants engaged in misleading or deceptive conduct, in essence because those representations were false at the time they were made. That is apparent from the particulars to paragraph 29. As I have said, my initial view was that a reference out of the questions arising under paragraph 29 of the further amended statement of claim would define the question of compliance with sufficient particularity.

1. Mr Gregory, however, submitted that the questions could be refined in the way that they had been put before Associate Professor Eager and Mr Dodd for the purpose of their joint report. That was done in a letter of 17 May 2011. The questions in general follow the pleaded case of misleading or deceptive conduct, but with some degree of expansion. I was at first attracted by the idea that the questions should be more narrowly defined than they are in paragraph 29 of the further amended statement of claim. However, on reflection, I think that the better course is to leave the matter to be referred to be defined by reference to the pleadings. First, that has the advantage that a referee such as Mr Rolfe will know to what it is that his attention is directed. Secondly, the referee will not be distracted by arguments as to the extent to which the questions do or do not reflect the pleaded case. Thirdly, and in any event, because the experts have addressed those questions, they will, one way or another, be before the Referee.

1. Accordingly, as I have indicated, I conclude that the question to be referred to the Referee should be the issues raised by paragraph 29 of the further amended statement of claim, including its particulars, but excluding from those particulars paragraph (j) and the defence thereto. Paragraph (j) should not be part of the reference because it inquiries whether an alleged marked increase in sales achieved by the defendant over specified years was due to compliance with the requirements of the standard. That is a matter that has been extensively canvassed in the evidence before me, which will no doubt be canvassed in the further evidence to be led before me, and which I will deal with.

1. I do not think it is appropriate to state that the reference should be conducted in the absence of legal representatives. The Referee will have power to consider and implement such manner of conducting proceedings under the reference as will lead to a just determination without undue formality and delay. I have no doubt that if Mr Rolfe thinks that the proceedings should be conducted without the benefit of legal representations, either in whole or in part, he will so direct.

1. The remaining question is as to the evidence that should be before the Referee. Because the plaintiffs put their case on non-compliance, not just based on the evidence that I have briefly summarised, but also on other matters arising from the evidence given by other witnesses, I think that the appropriate course is to do as Mr Gregory submitted and direct that, to the extent that it is relevant, the evidence taken before me on the hearing be evidence before the Referee.

1. The only remaining matter is to make an order under UCPR r 28.2 for the separate and prior determination, in court, of questions other than the question of compliance and the questions relating to quantification of damages.

1. Mr Curtin submitted a draft order for reference, which in substance can be amended to reflect what I have said. In those circumstances I direct the parties to bring in draft minutes of order at 10 o'clock tomorrow, 10 June 2011, to give effect to what I have said in these reasons.

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Decision last updated: 15 June 2011