Macquarie Bank Limited v Meinhardt (NSW) Pty Limited

[2010] NSWSC 1228

CITATION:	Macquarie Bank Limited v Meinhardt (NSW) Pty Limited [2010] NSWSC 1228
HEARING DATE(S):	17/09/10, 20/09/10, 21/09/10, 23/09/10
JUDGMENT DATE :	30 September 2010
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	The plaintiff's claims under Trade Practices Act 1974 (Cth) made out. Duty of care case not made out.
CATCHWORDS:	Duty of Care
LEGISLATION CITED:	Trade Practices Act 1974 (Cth).
CATEGORY:	Procedural and other rulings
CASES CITED:	Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 259 ALR 616 CJD Equipment Pty Ltd v A and C Constructions Pty Ltd, [2009] NSWSC 1362 Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184 Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates [2010] NSWSC 1043 Kestrel Holdings Pty Ltd v APF Properties Pty Ltd (2009) 260 ALR 418 March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506 MGICA (1992) Ltd (Formerly MGCIA Ltd) v Kenny & Good Pty Ltd (1996) 140 ALR 313 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Perre v Apand Pty Ltd (1999) 198 CLR 180 Precision Products (NSW) Pty Ltd v Hawkesbury City Council (2008) 74 NSWLR 102 Rail Corporation New South Wales v Fluor Australia Pty Ltd [2009] NSWCA 344 Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515
TEXTS CITED:	F Trindade, P Cane, M Lunney, The Law of Torts in Australia (Oxford, 4th edition 2007) S Walmsley, A Abadee and B Zipser, Professional Liability in Australia (Thomson Lawbook Co, 2nd ed, 2007)
PARTIES:	Macquarie Bank Limited (Plaintiff) Meinhardt (NSW) Pty Limited
FILE NUMBER(S):	SC 2010/00059668
COUNSEL:	Mr M Elliott (Plaintiff) Mr I Roberts (Defendant)
SOLICITORS:	Minter Ellison (Plaintiff) DLA Phillps Fox (Defendant)

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

Einstein J

Thursday 30 September 2010

2010/00059668 Macquarie Bank Limited v Meinhardt (NSW) Pty Ltd

JUDGMENT – on liability

The proceedings

1 These proceedings are brought by Macquarie Bank Ltd [variously described as MBL or the bank] against Meinhardt (NSW) Pty Ltd. The plaintiff claims damages in tort and for breaches of the Trade Practices Act 1974 (Cth).

2 In 2005 Meinhardt operated an engineering business which provided certifications as to whether hydraulics works on building projects had been carried out in accordance with Australian Standards and project documentation.

3 During 2005 the bank was financing a project for the conversion of an industrial building at Marrickville to a strata-titled residential complex and to that end arranged for Meinhardt to be engaged to inspect and certify the hydraulics works on the project.

4 The bank’s case is that Meinhardt carried out that task in breach of the duty of care it owed MBL, and in the process also contravened s 52 of the Trade Practices Act.

5 The bank contends that as a result it suffered losses totalling $530,254.11. It seeks a judgment in this sum, together with interest and costs.

6 The claim once formed part of a larger set of proceedings that were commenced and case managed in this Court.

The issues

7 Without being exhaustive the central issues litigated were as follows:

i. Did the defendant owe the plaintiff a duty of care when preparing its reports on the hydraulic works on the project?

ii. If so, did the defendant breach that duty of care?

iii. Did the defendant contravene section 52 of the Trade Practices Act ?

iv. If the answer to either or both of 2 and 3 is “yes”, what is the quantum of the loss the plaintiff suffered?

v. If the answer to either or both of 2 and 3 is “yes”, is the liability of the defendant in respect of the loss (as determined in accordance with issue 4 above) to be limited on the basis that Vav’s Plumbing is a concurrent wrongdoer as alleged, and if so, in what amount?

Overview of the facts

8 In 2005 a property developer called Lexus Developments Pty Ltd (Lexus) was undertaking the Project through its related party builder, JLB Group Pty Ltd (JLB). MBL was the project financier.

9 In March 2005 MBL required Lexus to obtain a report from a hydraulics consultant certifying whether the hydraulics works that had been carried out to that point by the hydraulics contractor (Vav’s Plumbing) had been properly performed.

10 When Lexus indicated it had not been able to find a hydraulics consultant to attend to the task, MBL approached Meinhardt directly.

11 MBL told Meinhardt that the bank required an inspection report from an appropriately qualified hydraulic engineer as to whether the works had generally been completed in an acceptable manner in accordance with Australian Standards, regulations and project documentation, with any significant non-conformances to be listed together with recommended remediation.

12 Meinhardt responded with a quote, which MBL in turn passed on to Lexus.

13 Subsequently JLB sent a fax to Meinhardt requesting that it arrange for the site inspections in accordance with the previous discussions between Meinhardt and MBL.

14 Meinhardt then inspected the hydraulics works and reported that the workmanship was generally acceptable and stated: “no significant non-conformance with Australian Standards and Regulation is identified”.

15 Meinhardt confirmed in a subsequent fax that it had reviewed the service design drawings and documentation and the works appeared to be generally in accordance with the design intent.

16 MBL proceeded to provide finance and make decisions in relation to the Project on the basis that the hydraulics works were acceptable.

17 Some months later Lexus defaulted under the facility and MBL appointed receivers to Lexus. The Project thereafter proceeded in the hands of Lexus’ receivers and, consequentially, a new team that included a construction manager (Probuild) and a project manager (Gallagher Jeffs).

18 In November 2005 Gallagher Jeffs received a report from Harris Page & Associates (Harris Page), hydraulics engineers, indicating that the hydraulics work on the Project was defective.

19 Given that Meinhardt had previously certified to the contrary, a further opinion was obtained from Warren Smith & Partners (Warren Smith). Their report, dated 12 December 2005, confirmed that the hydraulics works did not comply with Australian Standards and was of a low quality.

20 With the defective hydraulics works having been discovered, Probuild recommended that the existing hydraulics works be removed and replaced. That recommendation was accepted by the receivers, and Vav’s Plumbing was replaced with Planet Plumbing, a new hydraulics contractor, who proceeded to remove and replace the existing hydraulics works and then complete the hydraulics works on the Project.

The negligence claim

Duty of care

21 Meinhardt puts in issue the question of whether it owed MBL a duty of care.

22 In the relatively recent decision of the New South Wales Court of Appeal in Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 259 ALR 616, Allsop P at [102] – [105] identified the material salient features which require consideration in the following terms:

102 This rejection of any particular formula or methodology or test the application of which will yield an answer to the question whether there exists in any given circumstance a duty of care, and if so, its scope or content, has been accompanied by the identification of an approach to be used to assist in drawing the conclusion whether in novel circumstances the law imputes a duty and, if so, in identifying its scope or content. If the circumstances fall within an accepted category of duty, little or no difficulty arises. If, however, the posited duty is a novel one, the proper approach is to undertake a close analysis of the facts bearing on the relationship between the plaintiff and the putative tortfeasor by references to the “salient features” or factors affecting the appropriateness of imputing a legal duty to take reasonable care to avoid harm or injury.

103 These salient features include:


(a) the foreseeability of harm;

(b) the nature of the harm alleged;

(c) the degree and nature of control able to be exercised by the defendant to avoid harm;

(d) the degree of vulnerability of the plaintiff to harm from the defendant’s conduct, including the capacity and reasonable expectation of a plaintiff to take steps to protect itself;

(e) the degree of reliance by the plaintiff upon the defendant;

(f) any assumption of responsibility by the defendant;

(g) the proximity or nearness in a physical, temporal or relational sense of the plaintiff to the defendant;

(h) the existence or otherwise of a category of relationship between the defendant and the plaintiff or a person closely connected with the plaintiff;

(i) the nature of the activity undertaken by the defendant;

(j) the nature or the degree of the hazard or danger liable to be caused by the defendant’s conduct or the activity or substance controlled by the defendant;

(k) knowledge (either actual or constructive) by the defendant that the conduct will cause harm to the plaintiff;

(l) any potential indeterminacy of liability;

(m) the nature and consequences of any action that can be taken to avoid the harm to the plaintiff;

(n) the extent of imposition on the autonomy or freedom of individuals, including the right to pursue one’s own interests;

(o) the existence of conflicting duties arising from other principles of law or statute;

(p) consistency with the terms, scope and purpose of any statute relevant to the existence of a duty; and

(q) the desirability of, and in some circumstances, need for conformance and coherence in the structure and fabric of the common law.


104 There is no suggestion in the cases that it is compulsory in any given case to make findings about all of these features. Nor should the list be seen as exhaustive. Rather, it provides a non-exhaustive universe of considerations of the kind relevant to the evaluative task of imputation of the duty and the identification of its scope and content.

105 The task of imputation has been expressed as one not involving policy, but a search for principle: see especially Sullivan v Moody at 579 [49]. The assessment of the facts in order to decide whether the law will impute a duty, and if so its extent, involves an evaluative judgment which includes normative considerations as to the appropriateness of the imputation of legal responsibility and the extent of thereof. Some of the salient features require an attendance to legal considerations within the evaluative judgment.

23 The present case – as explained below – is one in which the loss sought to be recovered is in the nature of pure economic loss. Accordingly, the principles that have been developed in relation to determining whether a duty exists in cases of this type must be considered. In particular, “[t]he principles concerned with reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant's knowledge of the risk and its magnitude” must be considered. However, “other policies and principles may guide and even determine the outcome”: Perre v Apand Pty Ltd (1999) 198 CLR 180 at [105] per McHugh J.

Turning to the evidence in detail in order to analyse the duty of care question

24 Since Macquarie did not engage Meinhardt, no contractual relationship existed between the parties. It cannot be said that Meinhardt owed Macquarie a duty of care on standard principles applying between professionals and their clients.

25 MBL claims pure economic losses, namely payments made to third parties that it is said would not, but for the alleged negligence, have been made, and delay costs said to have resulted. I reject the plaintiff’s submission that the claimed loss can be characterised as arising from damage to MBL’s property. MBL did not own the property in question and therefore any damage to that property caused by the alleged negligence was not damage to MBL’s property.

26 In cases, such as the present, where a third party, as opposed to a client, claims economic loss said to have been suffered by a professional breaching a duty of care, any contractual relationship that existed between the professional and client remains relevant: Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at [28]; S Walmsley, A Abadee and B Zipser, Professional Liability in Australia (Thomson Lawbook Co, 2^nd ed, 2007) at [6.485]. As was noted in Woolcock at [28], “[a]t the least, that contract defines the task which the builder or engineer undertook”. Thus the contractual framework between JLB and Meinhardt – namely the engagement of 26 April 2005, interpreted in context – must be borne in mind.

27 In the present case, it was foreseeable that if Meinhardt did not take reasonable care in its certification, MBL could suffer damage.

28 Meinhardt was able to exercise substantial and direct control in order to avoid the relevant harm, since the certification task lay within its control.

29 As was noted by the plurality in Woolcock at [23]:

… vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. “Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant.

See also [80] per McHugh J.

30 It is true, as the plaintiff submitted, that MBL did not have any hydraulic engineering expertise of its own. But this does not establish that MBL was vulnerable in the relevant sense. It is also true, as the defendant contended, that MBL could have engaged another party with relevant expertise to undertake a thorough inspection of the building – as MBL later did – in order to protect itself against potential negligence by Meinhardt. However, in the circumstances I do not think it is reasonable to have expected MBL to have engaged another expert shortly after Meinhardt performed its certification - whatever the scope of any such engagement - in order to protect itself against the possibility that Meinhardt’s certification was negligent.

31 But in my view there was at least one reasonable option open to MBL to contractually protect itself against any negligence of Meinhardt in its certification work. Namely, MBL could have required Meinhardt to provide a warranty to it for the fitness of the certification [either instead of or in addition to the implied warranty given to JLB].

32 The decision in Woolcock provides analogous support for this analysis. In Woolcock the defendant was an engineer who had designed the foundation for a building in which structural distress subsequently became apparent. The plaintiff had purchased the building from the original owner, and the sale contract did not include any warranty that the building was free from defect. Further there was no assignment by the vendor of the rights that the vendor may have had against others in respect of defects. At [31] the plurality drew on these two factors in finding that it had not been shown that the appellant could not have protected itself against the economic loss allegedly suffered. Similarly at [110]-[111] McHugh J held that such factors were amongst several reasons why subsequent purchasers of commercial buildings could protect themselves from the losses in question.

33 In the present case, MBL has not established that it was vulnerable in the relevant sense.

34 I accept that MBL relied upon Meinhardt to provide the certification it sought and preceded forward for some time on the basis of that certification. I further accept that Meinhardt assumed responsibility for the certification, to extent of its retainer. The precise extent of the retainer is outlined later in these reasons, in relation to the claim for misleading or deceptive conduct.

35 I accept in the circumstances, inter alia where MBL: was imposing the requirement of the relevant certification; obtained the quote itself; and sat behind the builder/developer as the financier of the project (thus having a large influence on how the project proceeded), that MBL can be taken to have been proximate in a relational sense to Meinhardt.

36 As has been made clear there was not an engagement between MBL and Meinhardt as client and professional.

37 The activity by Meinhardt was plainly one involving specialised knowledge.

38 It appears there was significant danger liable to be caused by Meinhardt’s conduct in that if the certification was negligently performed, and the hydraulics of the building were not complaint with relevant standards, the soundness of the building would be affected.

39 In my view Meinhardt should be held to have had constructive knowledge that if its certification was undertaken negligently that would cause harm to MBL as the project’s financial backer.

40 Indeterminacy of liability is not a significant issue here. The class of plaintiff includes MBL, who was clearly and substantially interested in the standard of the certification provided. It may also include JLB/Lexus, however this would not make the class indeterminate. Furthermore, were Meinhardt to be held liable in the way that MBL contends, the extent of its liability would not be indeterminate. Rather it would be calculated on a rational [albeit hypothetical] basis, essentially by comparing what would have happened had the certification been competent.

41 I do not see questions concerning imposition on the autonomy of individuals as being relevant here. Meinhardt was already under a contractual obligation to JLB to perform its certification with due care and skill [such a term being implied as a matter of course into contracts between professionals and their clients]. Furthermore, it was clearly in Meinhardt’s own interests to perform the certification with due care and skill. Thus, in the circumstances, I do not think that it restricts Meinhardt‘s right to pursue its legitimate interests to impose a duty to avoid causing economic loss to the project’s financier, MBL, whilst undertaking its certification.

Conclusion as to duty of care

42 As was explained above, MBL has not shown that it was vulnerable in the relevant sense and that is a key factor in establishing a duty of care where damages are sought for pure economic loss.

43 I accept the plaintiff’s submission that vulnerability is one of several relevant factors to be considered. But in my view the relevant authorities establish the substantial importance of that consideration. See here:

i. The above extracted passage from the plurality in Woolcock at [23], wherein vulnerability was described as an “important requirement ” in establishing a duty of care to avoid economic loss.

ii. The statement of McHugh J in Woolcock at [94]: “The better view in all cases - not merely building cases - is that the capacity of a person to protect him or herself from damage by means of contractual obligations is merely one - although often a decisive - reason for rejecting the existence of a duty of care in tort in cases of pure economic loss”.

iii. Precision Products (NSW) Pty Ltd v Hawkesbury City Council (2008) 74 NSWLR 102 at [105] per Allsop P: vulnerability as the “most important” of the salient features which will give rise to a duty to prevent economic loss;

iv. The obiter comments of MacFarlan JA in Rail Corporation New South Wales v Fluor Australia Pty Ltd [2009] NSWCA 344 at [130], that a lack of vulnerability would prevent recovery of pure economic loss in that case. But see the comments of Allsop P at [2] and Hodgson JA at [6].

v. CJD Equipment Pty Ltd v A and C Constructions Pty Ltd, [2009] NSWSC 1362 at [245] per McDougall J: “it is for a plaintiff, alleging a duty of care to avoid economic loss, to plead, particularise and prove vulnerability: specifically, why, in the circumstances of the particular case, it could not protect itself against the consequences of negligence on the part of the defendant”.

vi. F Trindade, P Cane, M Lunney, The Law of Torts in Australia (Oxford, 4 ^th edition 2007) at 467, wherein the authors cite Woolcock as authority for the proposition that: “a duty of care to avoid economic loss will not be owed to a person who could and should have taken steps to protect themselves from such loss and who, in this sense, was not ‘vulnerable’”.

44 The plaintiff sought to support its duty of care case by drawing an analogy to cases where an expert valuer is retained by a bank to carry out a valuation of a property - which is proposed to be provided as security to the bank in the event the bank approved a loan application - is found to owe a duty of care to a mortgage insurer who, if the bank approves the loan, provides a policy of insurance in favour of the bank. The plaintiff emphasised that: the valuer and insurer are not parties to any contract; the valuer is not and has no right to be paid by the insurer; and the insurer could get its own separate valuation, but does not. The plaintiff referred to my recent decision in Genworth Financial Mortgage Insurance Pty Ltd v Hodder Rook & Associates [2010] NSWSC 1043 at [15]ff; and also Kestrel Holdings Pty Ltd v APF Properties Pty Ltd (2009) 260 ALR 418 at [94].

45 In closing address the plaintiff utilised this analogy to contend that Meinhardt’s submissions, based heavily on vulnerability, could not be correct, because if they were a lack of vulnerability would prevent all such mortgage insurance cases in tort. In my view, this contention of the plaintiff overlooks the fact that in all cases where a duty of care is imposed in novel circumstances, the analysis is fact-specific. The present reasons, agreeing in general with the defendant’s submissions, do not elevate vulnerability to the level of an indispensable requirement in all such cases, whatever the facts.

46 However, in the circumstances of the present case, I conclude that MBL’s failure to prove vulnerability precludes it from establishing the relevant duty of care. Thus it is left to rely on the Trade Practices Act case.

The claim under s 52 of the Trade Practices Act

47 MBL further claims that Meinhardt contravened s 52 of the Trade Practices Act.

48 MBL pleads that having regard to what Meinhardt agreed to do and the terms of its subsequent certifications, through its certifications it represented that:

i. the hydraulics works then in place conformed with Australian Standards, regulations and Project documentation in all significant respects (alleged express representation);

ii. save for particular identified matters, the hydraulics works then in place were of an acceptable standard of material and workmanship (alleged first implied representation).

49 MBL further submits that if these representations were not statements of fact, they constituted expressions of expert opinion, carrying with them an implied representation that a reasonable degree of care and skill had been brought to bear in the preparation of the report and the opinions there expressed (alleged second implied representation).

To whom were the representations made?

50 In my view the defendant’s submission that Meinhardt did not make any representations to Macquarie, but rather made representations to JLB, which were then passed on to Macquarie by Lexus and Napier & Blakely, is not of substance. The submission flies in the fact of the fact that instructions were given by Ms Prior of MBL to Meinhardt, which were then incorporated into JLB’s retainer of Meinhardt. In the circumstances, Meinhardt should be held to have been aware that MBL would be considering and indeed relying upon the representations contained in its reports.

51 It is convenient to characterise the representations in question separately.

Alleged express representation

52 MBL submits that Meinhardt made the above outlined express representation of fact which was incorrect and thus misleading or deceptive.

53 An incorrect representation of past or present fact is the simplest form of misleading conduct: Walmsley, Abadee and Zipser, at [1.980].

54 It is trite law that, as noted by Lindgren J in MGICA (1992) Ltd (Formerly MGCIA Ltd) v Kenny & Good Pty Ltd (1996) 140 ALR 313 at 356, “[w]hether a statement is misleading and deceptive must be considered by reference to the statement as a whole and the context in which it is made” [citing Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199].

55 It is convenient to begin with Ms Prior’s email of 7 April 2005 to Mr Ian Gardner of Meinhardt, seeking a quote for the certification work. Ms Prior relevantly stated:

“As discussed, we may need to organise electrical and hydraulic inspections urgently…

We require inspection reports from appropriately qualified hydraulic and electrical engineers (2 no. – 1 each at rough in and fitoff stages) that the words have generally been completed in an acceptable manner in accordance with Australian Standards, regulations and the project documentation. If you identify any significant non-conformances, these should be listed with the recommended remediation.

The inspections do not need to cover every part of the project, but should be comprehensive enough to give you confidence that the works are generally to an acceptable standard. If significant non-conformances are identified, further visits may be required. …

56 Mr Gardner responded the following day with a quote and other information Mr Prior had requested.

57 Ms Prior forwarded Mr Gardner’s email on to Mr Renaud of JLB.

58 On 26 April 2005 Mr Renaud sent a fax to Mr Gardner in which he requested that Mr Gardner arrange for the site inspections that MBL had discussed with Meinhardt. As to the work to be performed by Meinhardt, Mr Renaud stated that: “The inspections are as per your discussions with Rebecca Prior (MBL)”.

59 On 10 May 2005 Meinhardt issued its certifications, which were immediately forwarded by JLB to MBL.

60 The hydraulics certification noted that Meinhardt had undertaken a site inspection on 9 May 2005 and stated, amongst other things, that:

i. “the report was in respect of the standard of material and workmanship of the installation”;

ii. “No significant non-conformance with Australian Standards and Regulation is identified”.

61 Meinhardt stated in a facsimile of 20 May 2005 that “further to our site inspections and reports on the Hydraulic and electric services … we have reviewed these services design drawings and documentation and advise … that the works to date appeared to be generally in line with the design intent”. This facsimile was addressed to JLB, but the evidence demonstrates that it was forwarded on 20 May 2005 to MBL.

The design documents available to Meinhardt

62 Meinhardt drew on the fact that its 10 May facsimile stated that certain schematic diagrams for cold water, hot water, gas and drainage were not available at the time of inspection. I do not accept that this inhibited Meinhardt’s ability to complete its report, since the evidence demonstrates that full specifications and drawings were delivered to Meinhardt on 13 May 2005 and Meinhardt issued its follow-up facsimile of 20 May 2005 which indicated it had reviewed the relevant drawings and documentation and advised that no issue arose.

Errors in the certification

63 It was agreed between the parties’ experts that any reasonably competent certifier in Meinhardt’s position would have identified and reported in early May 2005 that:

i. the cold water pipes that had been installed were the wrong size and breached the Australian Standard 3500.1 [Ex JR 1 section 1];

ii. the hot water pipes that had been installed either did not, or alternatively had not been shown to, comply with the Australian Standard 3500.4.2 [Ex JR 1 section 2]. [There is a subtle but inconsequential difference between the experts on the subject. Mr Matthews (expert retained by MBL) says the pipes were non-compliant. Mr Ledingham (expert retained by Meinhardt) says that having regard to the size of the pipes and the Australian Standard it would have been necessary to obtain proof from Vav’s Plumbing that calculations had been undertaken to confirm the pipes were adequate. The difference is immaterial because there is no suggestion Meinhardt ever sought or obtained such confirmation from Vav’s Plumbing, and both experts agreed that the fact that Meinhardt should have reported that the hot water piping was non-compliant.]

iii. the venting pipes that formed part of the sanitary pipework that was installed by Vav’s Plumbing did not comply with Australian Standard 3500.2 and project documentation [Ex JR 1 section 3];

iv. Vav’s Plumbing had not used priming fluid on the uPVC pipework, being fluid it was required by Australian Standard 2032 in order to ensure a correct bond and joint between pipes;

v. the sanitary pipes had not been secured in a manner required by Australian Standard 3500.2, being a standard which set out how pipes were to be secured in order to prevent the pipes from falling down or moving;

vi. the bracketing system for holding the hot water flow and return pipes in position was not in accordance with the requirements of the project documentation.

64 In the above list I have not included the experts’ views on the issue of lagging on hot water pipes. An initial document was tendered – Exhibit JR 1 – that was agreed and signed by the parties’ experts. Subsequently, a further eight page document signed by the experts was tendered, which stapled behind exhibit JR 1 became MFI D6. The subsequent eight pages was in the form of questions with separate answers entitled “Don Ledingham response” and “Conclave”. The parties agreed that the issue of the status of the subsequent eight pages – and the possibility of inconsistency between the Ledingham response and conclave agreement – only went to the lagging on hot water pipes issue: Transcript 23/9/10 at 26.45, 27.40-50. Ultimately, the subsequent eight pages in MF1 D6 are not in a form that can be readily utilised, and their status is not clear, despite the agreement between counsel. Accordingly, I have not placed any reliance on the subsequent eight pages, and have also refrained from utilising the part of Exhibit JR 1 which went to the issue of lagging on hot water pipes. The parties will be given an opportunity to address as to the status of the subsequent eight pages, if the issues concerned remain significant following these reasons: cf Transcript 23/9/10 at 28.10-15.

Characterising the representation in question

65 To recap, MBL alleges that Meinhardt on or about 10 May 2005 and 20 May 2005 made an express representation that the hydraulics works then in place conformed with Australian Standards, regulations and Project documentation in all significant respects, and this representation was incorrect.

66 The relevant statements by Meinhardt are the statement in the report of 10 May 2005 that “No significant non-conformance with Australian Standards and Regulation is identified”, and the further statement in the Facsimile of 20 May 2005 that “the works to date appeared to be generally in line with the design intent”.

67 It is important to note the precise terms of the instructions set out above in Ms Prior’s email of 7 April 2005. Meinhardt was required to certify that the works had “generally been completed … in accordance with Australian Standards, regulations and the project documentation”. Meinhardt was to list any significant non-conformances, with the recommended remediation. The instruction was qualified in the following terms:

The inspections do not need to cover every part of the project, but should be comprehensive enough to give you confidence that the works are generally to an acceptable standard. If significant non-conformances are identified, further visits may be required. …

68 I do not accept the defendant’s submission that a background of known risk - said to be established on the evidence – means the scope of the representations in question should be limited. This submission was not developed in any detail.

69 In my view, properly construed, Meinhardt’s instructions required it to review the hydraulics works in sufficient depth that it could certify the extent to which, in all significant respects, the project conformed with Australian Standards, regulations and project documentation, and further the extent to which significant non-conformities existed. It follows from this construction that a statement that no significant non-conformities were identified was the exact equivalent of, and therefore amounted to, stating that the project conformed in all significant respects.

70 Thus in my view, Meinhardt’s statements of 10 and 20 May 2005 – set out above - constituted a representation that the hydraulics works then in place conformed with Australian standards, regulations and project documentation in all significant respects. Plainly, given the non-conformities identified in the expert evidence, significant non-conformities existed at the time of Meinhardt’s certification. Therefore the said representation was false and thus misleading or deceptive.

71 It will be apparent that I do not accept a submission of the defendant which essentially seemed to be that the relevant non-conformities were not significant (and thus did not need to be reported). Here the defendant drew on the fact that Macquarie did not enquire as to what insignificant non-conformities may have existed, contending that the contractor (JLB) may have been able to explain why they were not significant.

First alleged implied representation

72 Meinhardt’s 10 May report stated it was “in respect of the standard of material and workmanship of the installation”. It stated, relevantly, “Cold water, hot water and gas have been roughed in for a number of units. The workmanship and work-in-progress is generally acceptable, except that high pressure polyethylene water pipes require fixing and support as per manufacturer’s recommendations to prevent water hammering”. It further stated: “Sanitary plumbing have been completed for a number of units. The workmanship and work-in-progress is generally acceptable.”

73 In the circumstances, I accept that Meinhardt’s reports of 10 and 20 May 2005 contained an implied representation that save for particular identified matters, the hydraulics works then in place were of an acceptable standard of material and workmanship.

74 The joint report of the parties’ experts noted inter alia the following defects which were not noted in Meinhardt’s certification:

i. that the cold water piping used had an internal minimum bore which did not comply with the relevant Australian Standard;

ii. Regarding venting in the sanitary stackwork:


a) As to the positioning of back vents on branch lines, the relevant Australian standard was not complied with. Additionally, item (e) of the Harris Page report stated that the local Sydney Water inspector viewed the installation as defective and asked for its removal and replacement. This work was done prior to Meinhardt’s inspection;

b) As to the way in which the vent pipers were connected to the central vertical stack, the relevant standards and contract requirements were not complied with. Further, the local Sydney Water inspector viewed the installation as defective and asked for its removal and replacement. This work was done prior to Meinhardt’s inspection;

c) As to the use of a single stack system, the project documentation required the use of a vented stacking system and this was not complied with. This work was done prior to Meinhardt’s inspection.

iii. Priming fluid was not used on the sanitary stackwork. The relevant Australian Standard required this be used on uPVC stackwork because it prepares and cleans the surfaces of the pipes and fittings to ensure a correct bond or joint. Further, it was accepted industry practice and a regulatory requirement that plumbers use pink priming fluid.

75 Having regard to such matters identified by the parties’ experts, I conclude that the representation by Meinhardt - that for save for particular identified matters, the hydraulics works then in place were of an acceptable standard of material and workmanship - was false and thus misleading or deceptive.

Second alleged implied representation

76 In MGCIA, cited above, at 356-357 Lindgren J accepted that in the circumstances an expert valuation report:

“conveyed representations, not only that the opinions expressed in them were held, but also (a) that the opinions were based on reasonable grounds; (b) that they were the product of the exercise of due care and skill; and (c) that they were, after making due allowance for their nature as opinions as to the market value of real estate as at a particular time, safe to be relied upon and not outside the range of latitude properly to be allowed to them.

77 Lindgren J noted, in relation to determining whether an expression of opinion conveys more than that the opinion is held:

Important considerations … are whether the person expressing the opinion knows, or should know, that another person will or may act in reliance on the opinion and whether the person expressing the opinion professes to have expertise in forming and giving opinions of the kind in question: Bateman v Slatyer , supra, at 559; Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 (Fed C of A, Gummow J) at 242; Brown v Australian Harvestore Products Pty Ltd (1989) ATPR (Digest) 46-051 at 53,180 (Fed C of A, von Doussa J); Harbour Agency at 50,593.

78 It is plain on the above facts that Meinhardt knew or should have known that MBL would or might have acted in reliance on its opinion, and further that Meinhardt professed to have expertise in forming and giving opinions of the kind in question.

79 I thus accept that Meinhardt’s statements of 10 May and 20 May 2005 conveyed representations that (a) the opinions were based on reasonable grounds; (b) they were the product of the exercise of due care and skill; and (c) they were safe to be relied upon and not outside the range of latitude properly to be allowed to them.

80 In view of the expert evidence, wherein the experts agree that in several respects Meinhardt’s certification did not identify matters that any reasonably competent hydraulics certifier in Meinhardt’s position would have identified, these implied representations were false and thus misleading or deceptive.

Causation in relation to the TPA claim

81 The three alleged representations have been found to be misleading or deceptive. It is convenient to treat with the issue of causation without distinguishing between the three representations, all of which are said to have arisen from the same documents [the facsimiles of 10 and 20 May 2005].

82 MBL seeks damages for the alleged breaches of s 52. Section 82 of the Act, which permits such an action for damages, refers to “a person who suffers loss or damage by conduct of another person that was done in contravention of” certain sections, including s 52. In Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 at 525 Mason CJ observed:

“the word [“by} clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & M H) Pty Ltd , except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act.”

83 Under March v Stramare (E & M H) Pty Ltd (1991) 171 CLR 506 causation is essentially a question of fact to be determined by reference to common sense and experience and one into which policy considerations and value judgments necessarily enter.

84 Meinhardt drew on the fact that Macquarie had not pleaded reliance on the said representations. MBL relevantly pleads that “by reason of the breaches pleaded [included the alleged contraventions of s 52] … the plaintiff has suffered loss and damage”. In my view this is sufficiently broad to encompass the contention that MBL relied upon the representations in question and consequently suffered loss and damage.

85 In Digi-Tech (Australia) Ltd v Brand (2004) 62 IPR 184 at [159] it was held that:

Persons who claim damages under s 82(1) on the ground that they entered into transactions induced by the misrepresentations of other persons must prove that they relied on such misrepresentations and, therefore, “by” that conduct, they suffered loss or damage.

86 Ultimately, as will now be explained, I accept that in continuing to pay out money in respect of hydraulics works, MBL relied on the misrepresentations made by Meinhardt. I accept, as strongly supporting this conclusion, MBL’s submission that had it known the true state of affairs as at the date of Meinhardt’s certifications, it would not have advanced moneys to enable JLB to pay Vav’s plumbing.

87 There is a temporal issue in this area, which the defendant submitted prevented MBL from showing actual reliance on the relevant representations, and is as follows. The minutes of a meeting 12 May 2005 record that MBL had decided to allow a drawdown on that date despite the relevant certifications being incomplete, in that they did not state that the relevant parts of the works were in accordance with the drawings and specifications for the project. This reflected that Meinhardt was only provided with full specifications and drawings on 13 May 2005. The drawings were part of the basis for Meinhardt’s further facsimile of 20 May 2005, stating that the works were generally in line with the design intent.

88 Relevantly, the minutes of 12 May 2005 recorded that Meinhardt had certified that the hydraulic services completed to date complied with all relevant statutory requirements. [It will be recalled that on 10 May 2005 Meinhardt had certified that no significant non-conformance with Australian Standards and Regulation is identified]. The minutes of 12 May 2005 further recorded that whilst MBL had agreed to process the drawdown of that date on the basis of incomplete certifications, JLB had agreed the completed certifications would be provided to MBL as a prerequisite to the next drawdown.

89 In my view the appropriate inferences to be drawn are as follows. In agreeing to allow the drawdown of 12 May 2005, on the basis of a partially completed certification, MBL relied on the representations that had as of that date been made to it by Meinhardt. These representations were contained in Meinhardt’s report of 10 May 2005, and as explained above, were:

i. The hydraulics works then in place conformed with Australian standards and regulations in all significant respects;

ii. Save for particular identified matters, the hydraulics works were of an acceptable standard of material and workmanship;

iii. The opinions were reasonably based and the product of due care and skill.

90 A further appropriate inference is that in advancing the next drawdown which occurred on 27 May 2005, and later draw-downs, MBL relied on these representations, and additionally the representation, made in Meinhardt’s facsimile of 20 May 2005, that the hydraulics works then in place conformed with project documentation in all significant respects. This inference is appropriate for two reasons. Firstly, a completed certification was made a prerequisite to the 27 May 2005 drawdown. Secondly, as outlined above, I accept that MBL only continued to allow draw-downs because it did not know the true state of affairs, and was instead relying on Meinhardt’s incorrect representations.

91 It can be seen that I do not accept the defendant’s submission that MBL could only establish indirect causation.

92 For the above reasons the trade practices cause of action is made out.

The way forward

93 The Court has not yet determined the questions which separate the parties concerning whether or not the plaintiff is entitled to any, and if so, what form of damages apropos the Trade Practices Act cause of action. This is principally because in a number of areas notwithstanding the parties’ written and oral submissions, the Court needs more assistance.

94 It will be necessary for each of the parties to supplement their existing submissions on damages following which the parties will be given an opportunity to briefly address from the bar table on these matters.

Rulings on Evidence

95 These rulings will be handed down following the final determination of all issues.

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