Medical Device Technologies Pty Ltd v Health Administration Corporation

[2024] NSWCA 142

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Medical Device Technologies Pty Ltd v Health Administration Corporation [2024] NSWCA 142

Hearing dates:

21 and 22 March 2024

Date of orders:

11 June 2024

Decision date:

11 June 2024

Before:

Payne JA at [1];
Stern JA at [409];
Harrison JA at [410]

Decision:

(1)   Appeal dismissed.

(2)   Appellant to pay the respondent’s costs.

Catchwords:

CONTRACTS — express terms — incorporation of terms — whether purchaser’s standard terms and conditions incorporated by reference into contract

CONSUMER LAW — sale of goods — respiratory ventilators — whether purchaser made known particular purpose for which ventilators were required — whether there was an implied condition as to fitness for purpose — whether ventilators were suitable for use in any clinical setting

CONSUMER LAW — misleading or deceptive conduct — whether vendor made misleading or deceptive representations — whether vendor provided purchaser user manual as an intermediary or principal

Legislation Cited:

Competition and Consumer Act 2010 (Cth) Sch 2 ss 18, 29, 236

Health Administration Act 1982 (NSW)

Sale of Goods Act 1923 (NSW) ss 19, 37, 38

Supreme Court Act 1970 (NSW) s 75A

Cases Cited:

Ashford Shire Council v Dependable Motors Pty Ltd (1960) 104 CLR 139

Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2020) 278 FCR 450; [2020] FCAFC 130

Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54

Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61

Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Campomar Sociedad, Limitada v Nike InternationalLimited (2000) 202 CLR 45; [2000] HCA 12

Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441

David Jones Ltd v Willis (1934) 52 CLR 110

Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82; [1984] FCA 180

Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1

Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49

Henville v Walker (2001) 206 CLR 459; [2001] HCA 52

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216; [1978] HCA 11

Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26

Manchester Liners Ltd v Rea Ltd [1922] 2 AC 74

Noone (Director of Consumer Affairs Victoria) v Operation Smile (Australia) Inc (2012) 38 VR 569; [2012] VSCA 91

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44

Scenic Tours Pty Ltd v Moore [2018] NSWCA 238

Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8

Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177

Tre Cavalli Pty Ltd v Berry Rural Co Operative Society Ltd [2013] NSWCA 235

Texts Cited:

RL Chatburn, “Computer control of mechanical ventilation” (2004) 49(5) Respir Care 507

Category:

Principal judgment

Parties:

Medical Device Technologies Pty Ltd (appellant)
Health Administration Corporation (respondent)

Representation:

Counsel:

J Clarke SC; T Kane (appellant)
D Studdy SC; C Ernst (respondent)

Solicitors:

Johnson Winter Slattery (appellant)
Gilbert + Tobin (respondent)

File Number(s):

2023/214615

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Commercial List

Citation:

[2023] NSWSC 602

Date of Decision:

07 June 2023

Before:

Stevenson J

File Number(s):

2020/268161

HEADNOTE

[This headnote is not to be read as part of the judgment]

In April 2020, the respondent, Health Administration Corporation, negotiated the purchase of “Shangrila 510S Integrated Respiratory Work Station” ventilators from Medical Device Technologies Pty Ltd, the appellant. The Ventilators were manufactured by Beijing Aeonmed Co., Limited. The respondent’s medical adviser, Dr Morris, reviewed technical information about the Ventilator, including a User Manual supplied by the appellant, and on the strength of this review, recommended the Ventilator be acquired. In April 2020, the respondent entered two agreements with the appellant to purchase 348 Ventilators for $20.79 million. The respondent paid half the purchase price ($10.395 million) and the appellant delivered the Ventilators.

After delivery, the respondent conducted several rounds of testing and found the Ventilators did not meet performance requirements identified in the User Manual. On 7 September 2020, the respondent purported to reject the Ventilators, terminated the agreements and demanded the appellant refund the $10.395 million.

Proceedings were commenced in the Supreme Court Commercial List. The primary judge, Stevenson J, found in favour of the respondent. A notice of appeal was filed, as were notices of contention. On appeal, the issues were:

1. In relation to s 19 of the Sale of Goods Act, did the respondent make known to the appellant the particular purpose for which it purchased the Ventilators?

2. Did the respondent rely on the appellant’s skill and judgment?

3. Was the Ventilator fit for purpose?

4. Was the respondent entitled to reject the Ventilators, or had they already been accepted under ss 37 and 38 of the Sale of Goods Act?

5. Were the respondent’s purchase terms incorporated into the agreements?

6. Did the appellant adopt or endorse the User Manual?

7. Was the User Manual misleading and deceptive?

(viii)    Did reliance on the misrepresentations cause the respondent loss?

The Court held (Payne JA, Stern and Harrison JJA agreeing at [409] and [410] respectively), dismissing the appeal:

On issue (i):

1. Section 19(1) can be engaged where each of the provision’s requirements is satisfied by a different person acting on the corporation’s behalf such that the individual who communicates the particular purpose is not the same individual who relies on the seller’s skill and judgment: [126]-[129].

   Ashford Shire Council v Dependable Motors Pty Ltd (1960) 104 CLR 139 considered.

2. Section 19(1) requires the buyer to show the seller would reasonably have understood, from the buyer’s communications, that the buyer was relying on the seller’s skill or judgment. Reliance will seldom be express: [118]-[126].

   David Jones Ltd v Willis (1934) 52 CLR 110; Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49; Scenic Tours Pty Ltd v Moore [2018] NSWCA 238; Tre Cavalli Pty Ltd v Berry Rural Co Operative Society Ltd [2013] NSWCA 235; Manchester Liners Ltd v Rea Ltd [1922] 2 AC 74; Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 cited.

3. The particular purpose may be general or ordinary. It may be inferred from the circumstances: [143]. The respondent’s purpose for purchasing the Ventilators was to treat patients with COVID-19 in a clinical setting: [144]-[155].

   David Jones Ltd v Willis (1934) 52 CLR 110; Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49 cited.

4. The respondent did not knowingly purchase a lower performing ventilator. The respondent communicated its purpose to the appellant and relied on the appellant’s skill and judgment in concluding the Ventilators could be used for this purpose: [156], [348]-[351].

On issue (ii):

1. Without access to the Ventilators themselves, Dr Morris was reliant upon information supplied by the appellant to decide whether the Ventilator was suitable for the respondent’s purpose: [163]-[166].

2. The appellant did not merely pass on the User Manual, but endorsed its contents. The appellant sold the Ventilators as principal and not agent for Aeonmed: [167], [361]-[365].

On issue (iii):

1. The Ventilator was not fit for purpose because it lacked four functions necessary for treating patients with COVID-19 in a clinical setting. Those functions were: the ability to pre-set tidal volume; a volume control mode; a pressure control mode; and reliable oxygen concentration: [349]-[351].

2. The ability to “pre-set” tidal volume implies the use of a dedicated function: [196]-[200]. However that function was labelled, there was uncontradicted evidence that the complicated procedure necessary to set tidal volume rendered the Ventilator unfit for purpose: [202]-[214].

3. The Ventilators lacked automatic volume control and pressure control functions which all modern ventilators have: [249]-[269], [304]-[310]. Even if the Ventilator could be described as functioning in an “open loop”, that is, with an operator maintaining volume control or pressure control, the Ventilators were not fit for purpose because anything less than automatic functionality was unsuitable for clinical use: [262]-[281], [304]-[310].

4. Problems with oxygen concentration shown during clinical testing reflected serious shortcomings of the Ventilators: [329]-[330], [338]-[345]

On issue (iv):

1. The respondent’s “reasonable opportunity” to examine the Ventilators, within the meaning of s 37 of the Sale of Goods Act, had not elapsed when the respondent rejected the Ventilators. There was therefore no deemed acceptance under s 38: [184]-[185].

On issue (v):

1. The respondent’s purchase order containing a hyperlink to additional terms and conditions was not a counteroffer and the linked terms were not incorporated. From the parties’ communications, from the context of a global ventilator shortage and from the respondent’s deposit payment, it was clear that, for each of the two agreements, the parties intended to create a binding contract when the appellant’s offer was accepted, on the terms contained in that offer: [45]-[94].

On issue (vi):

1. The appellant provided the User Manual to effect a sale on its own account, not as agent for Aeonmed. By providing the Manual during negotiations, the appellant represented the Ventilators operated as stated in the Manual: [359]-[365].

On issue (vii):

1. The representations were directed to the respondent or, more favourably for the appellant, in a general sense to members of a class, being clinicians responsible for operating ventilators: [135].

2. The User Manual was misleading and deceptive in that it represented that it was possible to pre-set tidal volume, operate in volume and pressure control modes, and achieve reliable oxygen concentration on the Ventilator: [367]-[369]

3. Members of the class would reasonably have understood the representation that tidal volume could be “pre-set” to mean that, as in all modern ventilators, tidal volume could be pre-set quickly at the push of a button: [197]-[201].

4. Volume and pressure control modes were reasonably understood in 2020 to mean automatic functions. Nothing in the appellant’s communications or in various international standard documents suggested that the relevant class should assess the Ventilator’s functions with a different norm in mind: [261].

5. It was misleading and deceptive to represent that the Ventilator was intended for use in the common ward and ICU. Although the User Manual described the Ventilator as primarily an emergency transport ventilator, a member of the relevant class, upon reading the entire relevant representation, would understand the device to be suitable for use in the ICU or common ward: [370]-[387].

On issue (viii):

1. The appellant’s submission that there was no reliance on the misrepresentations should be treated as a submission that the causal nexus between the misrepresentation and the pleaded damage was lost, for the purposes of Competition and Consumer Act 2010 (Cth) Sch 2 s 236: [388]-[389]. Dr Morris reviewed the User Manual’s description of the Ventilator’s functions and relied on the accuracy of that information when recommending the Ventilators for purchase. There was no break in the causal nexus between the User Manual’s misrepresentations and the respondent’s loss: [390]-[395].

Judgment

1. PAYNE JA: In April 2020, as part of the New South Wales Government’s response to the COVID-19 pandemic, the respondent, the Health Administration Corporation, a NSW government corporation established under the Health Administration Act 1982 (NSW), entered into two agreements (“the Agreements”) with Medical Device Technologies Pty Ltd, the appellant, to purchase a total of 348 “Shangrila 510S Integrated Respiratory Work Station” ventilators (“the Shangrila Ventilators” or simply “the Ventilators”) for a total of $20.79 million. The Shangrila Ventilators were manufactured in China by Beijing Aeonmed Co., Limited (“Aeonmed”), and were to be imported into Australia by the appellant.

2. On 27 and 30 April 2020, the respondent paid the appellant $10.395 million of the $20.79 million purchase price and, subsequently, the appellant caused the Shangrila Ventilators to be delivered to the respondent.

3. The respondent then conducted several rounds of technical and clinical testing on the Shangrila Ventilators. At the heart of this appeal are the primary judge’s findings that the Shangrila Ventilators did not meet basic performance parameters, rendering them unfit for use on COVID-19 patients in NSW in any clinical setting.

4. On 7 September 2020, the respondent, by its solicitors, purported to reject the Shangrila Ventilators, terminated the Agreements and demanded that the appellant refund the $10.395 million paid on 27 and 30 April 2020. The Shangrila Ventilators have never been used. Proceedings were commenced by the appellant in the Commercial List of the Supreme Court.

5. On 7 June 2023, the primary judge, Stevenson J, delivered judgment, finding that the respondent was entitled to terminate the Agreements, that the appellant was obliged to refund the $10.395 million to the respondent, and that the respondent was under no obligation to pay the balance otherwise owing under the Agreements. On 28 June 2023, the primary judge entered judgment for the respondent in the sum of $11,746,194.22, comprising $10.395 million plus interest.

6. As I will explain in greater detail below, the primary judge relevantly found that:

1. The respondent failed to establish that its Purchase Order Terms and Conditions were incorporated into the Agreements.

2. The respondent established that the Shangrila Ventilators were not fit for purpose within the meaning of s 19 of the Sale of Goods Act 1923 (NSW).

3. The respondent established that the appellant engaged in misleading or deceptive conduct within the meaning of Sch 2 s 18 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law, which I shall refer to as the ACL).

7. For the reasons that follow, the appeal should be dismissed with costs.

Relevant facts

8. In this part of the judgment, I set out the facts I have found for the purposes of the appeal under s 75A of the Supreme Court Act, referring where appropriate to my conclusions about facts challenged by either party. By grounds 1 and 2 of its notice of contention (“NoC”), the respondent challenged the primary judge’s findings about the terms of the contract in a way which, if correct, would obviate the need to address much of the appeal (see at [114] for the NoC). For that reason, I will deal with those grounds of the NoC in this part of the reasons.

Ventilator technology and the Shangrila Ventilator

9. A ventilator is a piece of equipment which delivers positive air pressure to a patient in order to support or replace their breathing. A ventilator ensures that the pressure of gas (oxygen and air) is reduced and blended according to the fraction of inspired oxygen, expressed as FiO₂, which is set by the operator of the ventilator.

10. Aeonmed manufactured two different ventilators: the Shangrila Ventilator and the VG70 Ventilator. It was common ground that the Shangrila Ventilator has less functionality than the VG70 Ventilator. The appellant contended that the Shangrila Ventilator was properly characterised as an “emergency transport” ventilator purchased by the respondent in the context of the crisis occasioned by the COVID-19 pandemic. The respondent’s position throughout the litigation was that, whether or not the Shangrila Ventilators can be characterised as “emergency transport ventilators”, they were acquired for use in clinical settings, to treat patients with COVID-19. The respondent contends that testing of the Ventilators revealed basic defects in functionality which rendered the Shangrila Ventilators unfit for use in any clinical setting.

Events leading up to the Agreements

11. The events leading up to the Agreements are described by the primary judge at [28]-[155] of the primary judgment and are not disputed on appeal.

12. Early in the pandemic, and faced with a global shortage of ventilators, the respondent’s personnel began a search for ventilators from outside its normal supply channels. By late March 2020, various of the respondent’s staff, as well as medical professionals seconded to the task, were communicating with ventilator suppliers about possible acquisitions.

13. On 26 March 2020, the appellant contacted the respondent. This was the first time the parties had dealt with one another. The appellant described itself as the exclusive Australian distributor of both the Shangrila Ventilator and the VG70 Ventilator. It is unnecessary to say anything further about the VG70 Ventilator.

14. Over the following month, various employees of the appellant communicated with various employees of and secondees to the respondent. These communications included technical information about the Shangrila Ventilator and its specifications, which the respondent relied upon in deciding to purchase the Ventilators.

15. It is useful to summarise some of the key individuals and documents involved in this course of communication and the decision to purchase the Ventilators.

Key individuals

16. The following personnel of the appellant were involved in the communications about the Ventilator:

1. Mr James Bellas, the appellant’s Contract Sales and Marketing Manager: Mr Bellas was the first representative of the appellant to contact the respondent, which he did in an email on 26 March 2020.

2. Mr Lee Gannon, Sole Director of the appellant: Mr Gannon forwarded technical information to representatives of the respondent, and also gave his own assurances about the Ventilator’s functions and purpose.

17. The following agents of the respondent were involved in the communications:

1. Mr Rod Treadwell, Executive Director, Procurement: Mr Treadwell was the first of the respondent’s representatives to be contacted by the appellant. He engaged in initial discussion about the Ventilator before delegating discussions to other staff.

2. Ms ‘Kia’ Akua Addai-Aboagye, Category Manager, Strategic Procurement Services.

3. Dr Richard Morris AM, staff specialist in anaesthesia at St George Hospital: Dr Morris joined a Technical Advisory Group established to develop an initial testing and simulation testing regime for ventilators that had not previously been used in NSW hospitals. It was on Dr Morris’ recommendation, after a “desktop review”, that the respondent decided to purchase the Ventilators.

4. Mr Rodney Zanetic, an engineer in the respondent’s Medical Equipment Unit: Mr Zanetic communicated with representatives of the appellant, received information from them, and passed that information on to other affiliates of the respondent, including Dr Morris. Mr Zanetic was involved in deciding what ventilators were to be purchased. He participated in the “desktop review” of the Shangrila Ventilator which ultimately led to the respondent’s decision to enter the Agreements.

5. Ms Susan ‘Susie’ Giddey, the Associate Director of Strategic Procurement.

6. Ms Rachel Hanigan, the Chief Procurement Officer of the NSW Rural Fire Service: Ms Hanigan joined the respondent’s COVID-19 taskforce to manage and coordinate the response of NSW government agencies to the pandemic.

7. Dr Nhi Nguyen, intensive care specialist at Nepean Hospital: Dr Nguyen was an advisor to the State Health Emergency Operations Centre, a body established to oversee clinical operations in NSW hospitals during the pandemic and facilitate procurement of medical equipment.

1. Ms Teresa Kusnadi, Category Officer, Strategic Procurement Services.

2. Ms Donna Bonser, Site Supervisor, Purchasing, Supply Chain Operations.

Key documents

18. For ease of reference, I will adopt the names given by the primary judge to the key documents that described the functionality of the Shangrila Ventilator.

1. “MDT Shangrila Brochure”: this brochure was sent via email from Mr Bellas to Mr Treadwell on 26 March 2020. The MDT Shangrila Brochure was entitled “Fighting against COVID-19”. It did not contain any detailed technical specifications. Under the heading “Working Scenarios”, the MDT Shangrila Brochure stated the uses of the Ventilators included “Ward, Emergency Department, Sub–acute Care Unit”. The MDT Shangrila Brochure was notable because it represented that the Ventilator had “conventional volume control”. The only other document to make that explicit claim was the Allied Scientific Shangrila Brochure which I describe below. On 30 March 2020, Mr Bellas also emailed the MDT Shangrila Brochure to Ms Addai-Aboagye.

2. “RAPP Shangrila Brochure”: the respondent ultimately acquired VG70 Ventilators from another supplier, RAPP Australia Pty Limited (“RAPP”). On 26 March 2020, Mr Simon Lloyd from RAPP emailed Ms Addai-Aboagye. The email contained hyperlinks, including to another brochure concerning the Shangrila Ventilator. This brochure was entitled “Shangrila 510S Emergency Transport Ventilator” and showed the Ventilator in a bag attached to a gurney alongside two “emergency” personnel. This brochure contained technical specifications of the Shangrila Ventilator and described it as a “Multi-functional Emergency Transport Ventilator”.

3. “MDT Shangrila Technical Data Brochure”: on 30 March 2020, Mr Bellas attached to his email to Ms Addai-Aboagye a Shangrila “Technical Data” sheet that set out such data and also stated “Shangrila 510S Integrated Respiratory Work Station is customized to save more lives in the global outbreak of COVID-19 pandemic”.

4. “EC Certificate”: Mr Bellas also attached to his email of 30 March 2020 to Ms Addai-Aboagye a document headed “EC Certificate, Full Quality Assurance System, Directive 93/42/EEC on Medical Devices (MDD), Annex II excluding (4)” dated 16 July 2016 which stated, of Aeonmed:

“The Certification Body of TÜV SÜD Product Service GmbH declares that the aforementioned manufacturer has implemented a quality assurance system for design, manufacture and final inspection of the respective devices / device categories in accordance with MDD Annex II. This quality assurance system conforms to the requirements of this Directive and is subject to periodical surveillance. For marketing of class III devices an additional Annex II (4) certificate is mandatory...”

5. “Shangrila in a Bag Brochure”: this brochure was found online by Mr Zanetic. It depicted the Shangrila Ventilator in a bag. This brochure contained technical specifications similar to those in the RAPP Shangrila Brochure and the MDT Shangrila Brochure. It did not contain any express statement to the effect that the Shangrila Ventilator had conventional volume control. It stated:

“Shangrila 510S is a universally used model. Not only for emergency ventilation, but also it is suitable for ideal transport ventilation. The circumstances include on-site emergency treatment, pre-hospital transport, inter-hospital transport, and even intra-hospital transport.”

6. “Allied Scientific Shangrila Brochure”: this brochure was found online by Mr Zanetic. It was in the same form as the MDT Shangrila Brochure but, unlike that brochure, did not bear Aeonmed’s logo at the bottom right-hand corner of the front page. Rather, it bore the logo of “Allied Scientific Pro”, evidently another purported distributor of Aeonmed products. This brochure was in the same form as the MDT Shangrila Brochure and it also represented that the Ventilator had “conventional volume control”.

7. “User Manual”: the user manual for the Shangrila Ventilator was provided, on request, to the respondent by Mr Gannon on 21 April 2020.

The search for an adequate ventilator

19. Mr Bellas, on behalf of the appellant, first contacted the respondent on 26 March 2020. At the same time, Mr Lloyd from RAPP was also in discussions with representatives of the respondent about the possibility that his company would supply the Ventilator. On 30 March 2020, Ms Addai-Aboagye sent copies of Mr Lloyd’s emails, including the RAPP Shangrila Brochure, to Mr Zanetic.

20. On 30 March 2020, the appellant’s managing director Mr Gannon emailed Ms Addai-Aboagye and attached the MDT Shangrila Brochure that Mr Bellas had sent Mr Treadwell on 26 March 2020. This was the third separate occasion the MDT Shangrila Brochure had been sent by the appellant to the respondent. Mr Gannon said in his email: “…AEONMED has offered 300 Shangrila - Bedside for delivery in late June. These units have been specifically designed for the Coronavirus Pandemic and used in Wuhan”.

21. On 3 April 2020, the Therapeutic Goods Administration (“TGA”) approved the Shangrila Ventilator for use in Australia and stated that its intended purpose was to be:

“… mainly used in the emergency rooms of hospitals, transfer after operations, field and occasions where first-aid or transfer is needed for care of adult, paediatric, infant patients weighing at least 3.5kg.”

22. On 20 April 2020, Mr Gannon wrote in the following terms to Ms Hanigan, Mr Zanetic and others:

“We have just been contacted by our AEONMED manufacturer and they have confirmed they can obtain 48 Shangrila 510S Ventilator in May from a local distributor who is willing to sell his product. The acquisition will be through AEONMED and all factory warranties and insurances honored. The amount would be higher than standard factory pricing. AEONMED want this to be very clear, this is not standard practice and preferences is through normal order processes.

These are available in May 2020.

$67500 (1 Yr Warranty) - Confirmed

$90,000 (5 Yr Warranty) - Just awaiting confirmation on warranty amount and whether AEONMED will also allow for us to purchase an additional warranty. This price should be very close.

Once again, we need a quick response to obtain these units. These units will go quickly due to the delivery time of May.” (Emphasis in original.)

23. Ms Hanigan called Mr Gannon and had a conversation. The terms of that conversation were in dispute before the primary judge. The primary judge accepted Mr Gannon’s account and there is no challenge to that finding:

“[Mr Gannon] said: The Shangrila units are an emergency ventilator. They are not intended for ICU. If NSW Health wants to acquire ventilators suitable for the ICU, the VG70 ventilator would be suitable. MDT has 200 Shangrila units which it can obtain from our AEONMED distributor and its distributors.

[Ms Hanigan] said: We are trying to source ICU ventilators like the VG70, but I will put this forward.”

24. RAPP’s quotation for the Shangrila “Emergency Transport Ventilator” was at a unit price of $15,615 (excluding GST). The price that the respondent ultimately agreed to pay the appellant for the Shangrila Ventilators was considerably more than this price: $67,500 per unit for the first 148 units and $54,000 per unit for the second 200 units. Demand for ventilators outstripped supply at that time.

The respondent’s review of the Ventilator

25. On 15 April 2020, Dr Morris suggested to Mr Zanetic that a standard be adopted to assess ventilators to be used in NSW during the pandemic. Dr Morris suggested the TGA guidelines as the standard for locally made ventilators. Mr Zanetic agreed that guidelines should be adopted “to base our decisions on” and that he had been using “the ICU mid and high acuity technical requirement [the respondent] published in 2018 for the Ventilator tender”. Dr Morris replied, agreeing with Mr Zanetic’s suggestion and saying that Mr Zanetic’s proposal looked “more detailed than the TGA and could be combined with the TGA minimum standards nicely”. Guidelines in the form suggested by Mr Zanetic were used by the respondent to conduct a “desktop review” of the Shangrila Ventilator.

26. On 20 April 2020, Mr Zanetic wrote to Dr Morris and Dr Nguyen:

“Please find attached a ventilator for review. Product brochure, TGA submission and technical assessment. This appears to be a purpose built emergency transport ventilator pending TGA approval. I have copied the evaluation summary below…”

27. I agree with the primary judge’s finding that the “product brochure” to which Mr Zanetic referred was the RAPP Shangrila Brochure, which Mr Lloyd from RAPP had sent Ms Addai-Aboagye on 26 March 2020 and which Ms Addai-Aboagye had sent Mr Zanetic on 30 March 2020.

28. In the “evaluation summary” included in Mr Zanetic’s email there were a number of entries which indicated that review was required as the relevant matter was “not clear in current documentation”.

29. On 21 April 2020, Dr Morris replied:

“I can’t find a user manual or more specs on the web to clarify these queries. Otherwise it looks like it has the modes we are interested in. You might ask for the manual if you want to take this one further.”

30. Mr Zanetic replied:

“Attached is the only other document that I can find. I will reach out and request a user manual.”

31. The primary judge correctly found that the “other document” to which Mr Zanetic referred was the Shangrila in a Bag Brochure.

32. Dr Morris replied:

“Based on this document. The airway pressure alarms are covered. The inspiratory times will also be okay because the rate and I:E ratios available mean you would cover that range. The MV [minute volume] monitor would give you an alarm if the tidal volume was not achieved or over achieved.

So i think it is fine.”

33. Around this time, Mr Zanetic located the Allied Scientific Shangrila Brochure online.

34. Also on 21 April 2020, Ms Hanigan wrote to Mr Gannon:

“Health [the respondent] do wish to proceed with the S510s & have requested the user manual. Can you please provide?”

35. Mr Gannon replied a few minutes later, providing the User Manual and stating:

“As requested, please find attached the User Manual and TGA approval for the Shangrila 501S Ventilator.

Please noted MDT will be developing a User Video and app on the arrival of the units and putting in place a training program is required by owners/user of the equipment.

This morning AEONMED has also advised that:

1. 50 units are available in June (Shangrila 510S)

2. 50 units are available in July (510S)

These are in addition to the first 50 we have offered in May and are through the same supplier which has agreed to sell.

Additional Information of Interest

We are also bringing in another 300 units for the Federal Government in June.

…

Timings are tight and the market is still moving quickly, a little slower than last week though. Once NSW has indicated they are fully committed we will provide a formal quote and guarantee of supply for all units.”

36. Ms Hanigan then wrote to Mr Zanetic requesting that he review the User Manual as soon as possible.

37. Mr Zanetic replied to Ms Hanigan “I will send through for clinical assessment”. Mr Zanetic then wrote to Dr Morris, attaching the User Manual:

“We have managed to source the user manual for the 510S and there is the possibility to secure 100 of these units so the team would like to move fairly quickly on this one. Are you able to perform a review and let me know if there is anything that changes your assessment?”

38. The primary judge found that Mr Zanetic did not rely on anything in the User Manual to change his “initial assessment” of the Shangrila Ventilator and there is no challenge to that finding.

39. The respondent’s reliance on the User Manual was proven by Dr Morris. Two and a half hours later, Dr Morris replied:

“Having looked at the brochure I am happy that it now satisfies all the requirements.”

What documents were before Dr Morris during his desktop review?

40. The primary judge was correct to conclude that Dr Morris consulted and relied upon the User Manual when conducting the desktop review. By ground 4 of its NoC (see at [114]), the respondent challenges the finding that Dr Morris did not also rely on the MDT Shangrila Brochure during the desktop review. Below, I give reasons why that ground should not be upheld (see at [396]-[404]).

The decision to purchase the Shangrila Ventilators

41. Based on what was said in the User Manual, together with the RAPP Shangrila Brochure, Dr Morris concluded that the Shangrila Ventilator satisfied “all the requirements”, and that although the Shangrila Ventilator did not have all of the features of an intensive care ventilator that would be “nice to have”, it had the features that “[he] regarded as must have”.

42. Mr Zanetic then wrote to Ms Hanigan on 21 April 2020:

“I’ve had feedback from the clinical team that they are satisfied with the 510S to proceed further.”

43. The primary judge found that it was not clear which particular person at or on behalf of the respondent made the decision to purchase the Ventilators.

44. However, the primary judge was satisfied that the decision to purchase was based on Dr Morris’ conclusion that the Shangrila Ventilator “now satisfies all the requirements”. There is no challenge to that finding.

Were the Purchase Order Terms and Conditions incorporated into the Agreements? – Grounds 1 and 2 NoC

45. After the respondent decided to purchase the Ventilators from the appellant, the parties’ representatives began negotiating the purchase Agreements. The primary judge made detailed findings about these Agreements. The respondent challenges several of those findings by grounds 1 and 2 of its NoC,

46. It is necessary to set out my findings concerning the course of dealings that culminated in the first and second Agreements before considering grounds 1 and 2 of the NoC.

The First Agreement

47. On 21 April 2020, Mr Gannon wrote to Ms Hanigan:

“As requested, please find the attached quote for 148 Units.

We await your PO, this arrangement is in place and we need to ensure timings and payment approvals are quick.”

48. On 21 April 2020, Mr Gannon provided Ms Hannigan with a quotation which specified that the total amount due was $9.99 million for 148 Shangrila Ventilators. The quotation read:

“Shangrila 510S Integrated Respiratory Workstation (1 Year Warranty)

(Units available in late May 48 Units, late June 50 Units, and late July 50 Units)

Payment Terms:

Payment of 50% by COB Monday 27 April 2020

Payment of the balance of unit prices on delivery of units payable with 7 days (This would be three payments)”

49. The primary judge correctly concluded that, by providing its quotation, the appellant made an offer to sell the 148 Shangrila Ventilators to the respondent.

50. The appellant contends that, by sending an email in reply on 22 April 2020, the respondent accepted the offer the appellant made in its 21 April 2020 quotation. The respondent’s 22 April 2020 email was sent by Ms Kusnadi. The subject line to that email read:

“PO 37879543 from NSW Health to secure stock of 148 units ventilator”

51. The email read:

“My colleague, Rachel [Hanigan] has been in contact with you in regards to purchase of 148 Ventilator unit.

Please kindly use PO 37879543 for this, a copy of the PO will follow later today or tomorrow.

Can you please kindly advice about payment arrangement needed as per your email below?

Susie Giddey (from HealthShar) cc’d on this email will advise where the delivery of the units will need to be delivered to”

52. At this stage, it is clear that the respondent contemplated that the appellant would be proposing payment terms. The appellant replied a few minutes later:

“Payment is as per terms on the quote provided. We require 50% payment by the latest Monday 27 April 2020, sooner would be great if possible,

Once we receive formal PO we will submit a corresponding invoice.”

53. The primary judge found, again correctly, that this email shows that there was still no mutual assent as the appellant was reiterating its requirement, stated in the quotation, that the respondent pay half the purchase price by 27 April 2020, which was a matter not yet agreed. The email also shows that, at this stage, the appellant contemplated it would receive a purchase order before it sent its invoice. That is not what happened.

54. About an hour later, Ms Kusnadi sent Mr Gannon an email:

“To arrange for the payment – can you please kindly issue me tax invoice (not proforma) and have the following so I can pass to our accounts

1. Bill to: HealthShare NSW Acc Payable , c/o Parramatta

2. Please include the ETA on the tax invoice (for rolling delivery)

3. Make a reference of the PO number i.e. 37879543”

55. Later on 22 April 2020, Mr Gannon replied, attaching a tax invoice (dated 22 April 2020) directed to the respondent for $9.99 million.

“As requested, if you need any changes please advise.

The critical date is the first payment by Monday 27 [April] 2020.

We are a little more flexible with others.”

56. The invoice stated:

“Payment of 50% by COB Monday 27 April 2020

Payment of the balance of unit prices on delivery of units payable with 7 days (This would be three payments). ETA for each delivery 30 May - 48 Units, 30 June - 50 Units and 30 July - 50 Units.

NSW Purchase Order: 37879543”

57. Details of the appellant’s bank account followed. I agree with the primary judge’s conclusion that Mr Gannon’s statement that “if you need any changes please advise” shows that mutual assent had still not been achieved. Mr Gannon was referring to when payment of the balance of the purchase price would be made. The invoice proposed that such payment be made within seven days of the three proposed delivery dates. Mr Gannon was saying that the appellant was flexible, that is, amenable to further negotiation, about that matter. Thus, I agree with the conclusion of the primary judge that there was still no final agreement on terms.

58. About 24 hours later, on 23 April 2020, Ms Bonser for the respondent sent Mr Gannon an email, which read “Please see attached PO:37879543” and which attached the respondent’s Purchase Order for 148 Shangrila Ventilators for $9.99 million.

59. Ms Bonser made no reference to Mr Gannon’s statement about the appellant being “flexible” about when the second half of the purchase price would be paid. I agree with the conclusion of the primary judge that Ms Bonser’s note comprised the respondent’s acceptance of the offer made in the appellant’s 22 April 2020 invoice.

60. The Purchase Order provided:

“All goods or services are to be supplied in accordance with our terms and conditions, which can be viewed under “Purchase Order Terms and Conditions” at start="61">

The hyperlink in those words provided access to the respondent’s Purchase Order Terms and Conditions.

On 27 April 2020, the respondent paid the appellant $4.995 million, being half the amount in the 22 April 2020 tax invoice.

The Second Agreement

63. Late on 23 April 2020, several hours after Ms Bonser’s email sending Mr Gannon the Purchase Order under the First Agreement, Mr Gannon wrote to Ms Hanigan, stating that a Mr David Mellick had:

“… advised another deal[er] is looking to sell an order which is due to August 2020 for Shangrila 510S. The amount will be between 100 to 300 units, not yet confirmed. The Netherlands is looking to take 100-200 units of the amount and is in front of me. AEONMED believes that 100 to 200 units could be available. They have asked whether we would like to make a formal request of the seller.

Can you advise whether you wish to acquire more units and whether you wish for us to proceed with a request? Timing’s a little tight.”

64. Ms Hanigan replied the following day, 24 April 2020:

“Thanks so much for the update.

We are interested in the 510s, are you able to request pricing & terms?”

65. Ms Hanigan was there inviting Mr Gannon to advise the respondent about the “terms” on which the appellant would supply those further Shangrila Ventilators to the respondent. There is no suggestion in Ms Hanigan’s enquiry that the respondent itself was proposing the terms of any such supply, let alone that any such supply would be on the basis of the respondent’s Purchase Order Terms and Conditions.

65. On 29 April 2020, Mr Bellas from the appellant wrote to Ms Hanigan at the respondent:

“We have had AEONMED advise they could have a dealers stock of 200 units, deliverable 100 July 100 August.

The 200 cannot be separated and need to be ordered as combined lot.

If this is of interest we will request pricing, as AEONMED has asked us to put all offers to our clients.”

67. Ms Hanigan replied, saying that she was “seeking urgent feedback/approval”.

68. Mr Bellas replied:

“The delivery schedules would be 65 June 65 July 70 in August at a price of $54,000Aus each, due to volumes purchased and timing.

Approval and payment of the 50% would be required by noon tomorrow. Our representative in AEONMED has worked hard to get this pricing.”

69. On 30 April 2020, Ms Hanigan wrote to Mr Bellas:

“Can we please have a tax invoice for these, I am waiting on the final decision any minute but want to be able to move swiftly if it’s a yes.”

70. Mr Bellas replied that the invoice was “on its way”.

71. A short time later, on 30 April 2020, at 10.42am, Mr Gannon wrote to Ms Hanigan:

“Please find attached invoice for your consideration. We understand you are still in approval process for these units, but if approved this will assist with the speed of processing.”

72. The attached invoice was for 200 Shangrila Ventilators for an amount of $10.8 million.

73. The invoice for 200 units at a total price of $10.8 million read:

“Shangrila 510S Integrated Respiratory Workstation (1 Year Warranty)

(Units available in June 66, July 66 and August 68)

Payment Terms:

Payment of 50% by COB Monday 30 April 2020

Payment of the balance of unit prices on delivery of group units payable with 7 days (This would be three payments)”

74. Several hours later, at 2.25pm, Ms Kusnadi wrote to Mr Gannon and Mr Bellas with the subject line “PO 37879498 from NSW Health to secure 200 ventilator”:

“Please use PO 37879498 for confirmation of order of 200 ventilator as per correspondence between you and Rachel [Hanigan]. A copy of the PO will follow tomorrow

Susie Giddey will advise the location where it needs to be delivered to”

75. Like Ms Kusnadi’s email of 22 April 2020 at [50]-[51] above, this email was headed with the Purchase Order number followed by the words “to secure” the relevant number of Shangrila Ventilators. However, Ms Kusnadi made no enquiry on this occasion about the “payment arrangement needed”. This is because, consistently with its 22 April 2020 invoice, the appellant had clearly stated its “Payment Terms” in its invoice delivered several hours earlier, being 50% payment by close of business that day and the remaining balance within seven days from the delivery date.

76. At some time on 30 April 2020, after the delivery of that email, and before close of business, the respondent paid the appellant $5.4 million “pursuant to the terms of invoice #000211”.

77. On 1 May 2020, Ms Bonser sent Purchase Order 37879498 to the appellant. This purchase order was in the same terms as the purchase order delivered by the respondent on 23 April 2020 and, in the same way, referred by hyperlink to the Purchase Order Terms and Conditions.

78. The Shangrila Ventilators were in fact delivered to the respondent between 16 June 2020 and 15 July 2020.

Submissions

79. By ground 1 of its NoC, the respondent submitted that the Purchase Order Terms and Conditions hyperlinked in the email which made the Purchase Order were incorporated into both Agreements to purchase Ventilators. By ground 2 of the NoC, the respondent submitted the primary judge should have found that the appellant breached the Purchase Order Terms and Conditions, and was on that basis obliged to refund the respondent’s $10.395 million.

80. The respondent’s case before the primary judge and by ground 1 of its NoC was that Ms Bonser’s 23 April 2020 email delivering the Purchase Order constituted a counteroffer by the respondent, as the Purchase Order Terms and Conditions were hyperlinked in that email and contained terms additional to those proposed by the appellant in its invoice. The respondent contended that it was incorrect to characterise Ms Bonser’s email as acceptance, because her email contained the additional terms. Rather, the respondent argued before the primary judge that Ms Bonser’s 23 April 2020 email was the relevant offer, incorporating the Purchase Order Terms and Conditions, and the appellant accepted that offer by its conduct, in particular by delivering the Ventilators.

81. On appeal, the respondent’s submission was that the contract was a synthesis of terms and conditions contained in different documents. The respondent contended that there was no inconsistency between the terms upon which it relied and the appellant’s terms, and that it did not need to demonstrate that every term in the Purchase Order Terms and Conditions was incorporated. The Purchase Order Terms and Conditions were standardised and did not address price – they were intended to apply alongside the appellant’s terms and contained terms additional to those proposed by the appellant.

82. The respondent submitted that the primary judge focused too narrowly on offer and acceptance analysis and did not consider the respondent’s argument that appellant had signalled assent to the Purchase Order Terms and Conditions by its conduct, including delivering the Ventilators while not raising any objection to the Terms and Conditions, even though it had not expressly assented to those terms.

83. The respondent submitted that it was inherently improbable that the parties chose not to impose any explicit condition that the Ventilators would be suitable for use in a clinical environment, which would be the outcome if the Terms and Conditions were not incorporated. It also contended that the entitlement to test the Ventilators demonstrates that there were terms as to the functionality of the Ventilators. The respondent further submitted that reasonable parties would have expected that it would be the respondent who would propose key terms given the importance of the transaction.

84. The respondent submitted that the primary judge impermissibly relied on post-contractual conduct by referring to an enquiry made to the appellant by a representative of the respondent to “request pricing & terms” from Aeonmed, quoted above at [64]. Even if post-contractual conduct were admissible, the respondent submitted that the totality of post-contractual conduct, particularly the right to test the Ventilators, supports the respondent’s contention that the Purchase Order Terms and Conditions were incorporated.

85. Finally, the respondent argued that even if the Purchase Order Terms and Conditions did not apply to the first Agreement because the bargain had been concluded before they were sent, the terms nonetheless applied to the second Agreement.

Conclusion on grounds 1 and 2 of the NoC

86. The primary judge rejected the respondent’s arguments about the Terms and Conditions, principally on the basis that if no contract was formed until, at the earliest, delivery of the first batch of Ventilators on 16 June 2020, and perhaps not until final delivery on 31 July 2020, the respondent would have had no legally enforceable commitment from the appellant to deliver any Ventilators. Further, on 27 April 2020, the respondent paid the appellant $4.995 million for those Ventilators. Acceptance of the respondent’s case would also mean that, had the appellant been unable to supply any Ventilators, the respondent, not having a contract on which to sue, would have been obliged to seek restitutionary relief to recover the $4.995 million.

87. Even though the respondent now seeks to distance itself from the “acceptance by delivery” submission, the primary judge’s findings are correct. Viewed objectively, the respondent must have, by Ms Bonser’s 23 April 2020 email, accepted the appellant’s offer and formed a binding contract. This is the only conclusion consistent with the respondent soon thereafter paying millions of dollars for the Ventilators.

88. To resolve this issue, I need not decide whether or not the appellant had a reasonable opportunity to access the hyperlink in the Purchase Order and consider the Purchase Order Terms and Conditions. Rather, the critical question, as the primary judge correctly held, is whether, looking at the matter objectively, reasonable people in the positions of the parties would have understood that the Purchase Order Terms and Conditions, referred to at the foot of the Purchase Order and accessible by hyperlink, were intended to be incorporated into either Agreement and that sending the Purchase Order would constitute a counteroffer.

89. I have concluded that reasonable people in the position of the parties would not have thought the appellant and the respondent intended this result. It is obvious from the parties’ communications leading up to 23 April 2020, from the overall circumstances of a global shortage of ventilators during the pandemic, and from the urgent need for the respondent to secure a supply of ventilators, that the respondent intended on 23 April 2020 to reach a binding agreement to purchase the 148 Shangrila Ventilators. The respondent intended to obtain a commitment from the appellant with binding contractual force that the appellant would supply the 148 Shangrila Ventilators, and to do this before it paid the $4.995 million.

90. Further, during the negotiations, the respondent made no suggestion that the purchase would be on the respondent’s terms. On the contrary, the respondent asked the appellant to state the “payment arrangement needed” and to issue a tax invoice (not a pro forma document) “to arrange for the payment”. Nor are grounds 1 and 2 of the NoC established by the respondent’s submission that the contract was a synthesis of terms and that the right to test the Ventilators demonstrated that the parties agreed to additional terms concerning the functionality of the Ventilators. A reasonable business person in the position of the parties would have concluded the contract was on the terms that the respondent asked the appellant to provide, and took binding effect on those terms when Ms Bonser sent her email of acceptance on 23 April 2020. I do not accept that the Purchase Order Terms and Conditions, hyperlinked in that email, should objectively be understood as applying alongside the terms in the appellant’s invoice.

91. The primary judge correctly found that post contractual conduct was admissible in considering whether the contract had already been formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]. Ms Hanigan’s enquiry quoted at [64] would have been unnecessary had she thought that the Purchase Order Terms and Conditions governed the first Agreement. Of course, Ms Hanigan’s subjective state of mind is not relevant to the question of determining the terms of the first Agreement. But the primary judge was correct to conclude that this enquiry, viewed by an objective bystander, supported the conclusion that the parties did not intend the Purchase Order Terms and Conditions to be incorporated into the first Agreement.

92. I also agree with the primary judge that that the Purchase Order Terms and Conditions were not incorporated into the Second Agreement. I find that by providing its invoice to the respondent on 30 April 2020, the appellant made an offer. I agree with the primary judge that Ms Kusnadi’s email of 30 April 2020 constituted acceptance of that offer. Ms Kusnadi’s email made clear that it was only necessary for the appellant to use the Purchase Order number “for confirmation” of the order made by the respondent in the correspondence between Mr Gannon and Ms Hanigan, being the “correspondence between you and Rachel”.

93. I find that the respondent made the payment on 30 April 2020 with the intent of securing a contractually enforceable promise from the appellant to deliver the 200 further Ventilators. I agree with the primary judge that by the time Ms Bonser sent the appellant the Purchase Order on 1 May 2020, the Second Agreement had already been formed and the respondent had paid the appellant the 50% payment of $5.4 million. The sale was on the terms proposed by the appellant in its invoice, and did not incorporate the terms hyperlinked in Ms Bonser’s Purchase Order of 1 May 2020.

94. Grounds 1 and 2 of the NoC should be rejected.

Delivery and testing of the Shangrila Ventilators

95. The appellant caused the Shangrila Ventilators to be delivered to the respondent between 16 June 2020 and 15 July 2020. As the Shangrila Ventilators were delivered, the respondent arranged for technical testing by Dr Andrew Cook. Dr Cook is a Projects Engineer and Technical Specialist in Clinical Engineering employed by the South-Eastern Sydney Local Health District. He is a biomedical engineer. Dr Cook’s role was to provide a recommendation to the Technical Advisory Group of clinical staff. The purpose of the testing was to determine the functionalities of the Shangrila Ventilators.

96. Dr Cook conducted technical testing on two of the Ventilators delivered to him by the appellant for that purpose on 1 July 2020. With the assistance of Mr Zanetic, Dr Cook conducted a second round of technical testing on two different ventilators on 30 July 2020. Dr Cook conducted a further round of technical testing on 14 August 2020. The difficulties Dr Cook encountered with the Shangrila Ventilators when considering the contested functions of the Shangrila Ventilators during those three phases of testing play an important part in this case.

97. On 10 August 2020, Dr Jonathon Gatward, an Intensive Care Specialist at Royal North Shore Hospital, supervised further clinical testing of the Shangrila Ventilators. A number of nurses, doctors and equipment officers at Royal North Shore Hospital were selected as assessors in a clinical test of the Shangrila Ventilators. The assessors were given a number of tasks to perform on the Ventilators, simulating clinical situations. In those simulations, the role of the “patient” was represented by a sophisticated breathing simulator often used in clinical testing, the Ingmar ASL 5000 Breathing Simulator.

Rejection of the Ventilators and termination of the agreement

98. By 21 August 2020, the respondent produced a report which the primary judge referred to as the “CPG Report”. I will do the same. The CPG Report reviewed the technical and clinical testing I have just described and concluded:

“The Shangrila 510S ventilator does not perform adequately according to the modes of ventilation described in the specifications in the User Manual. The usability of the device and the delays in alarms leads to a risk of confusion in operating the device and safely responding to emergencies. The problems in setting basic Volume Control ventilation will require excessive training and supervision by experienced staff to enable safe use to manage critically ill patients. The User Manual is poorly written and not adequate for safe use of the device. Overall, the performance of this ventilator is not adequate for use in the contemporary ICU setting or in potential surge wards during the COVID pandemic response.”

99. On 21 August 2020, Ms Giddey sent a copy of the CPG Report to Mr Gannon, stating:

“The Shangrila 510S ventilator has failed to operate in accordance with the operations manual.

The results of the ventilator testing are currently being reviewed by senior staff within NSW Health and we will come back to you shortly.”

100. On 1 September 2020, the respondent prepared a “Brief for the SHEOC Controller” which sought approval to “cancel” the purchase orders for the Shangrila Ventilators. That document then described the main issues as being:

“1) Tidal volume in Volume Controlled mode is inconsistent depending on lung compliance, i.e. ventilator cannot maintain a consistent tidal volume during lung compliance changes. This is inconsistent with typical ventilator operation. This is not consistent with the supplier’s operation manual.

2) Ventilator triggering appeared to be inconsistent, i.e. at some points the ventilator was spontaneously triggered [and] at other times the ventilator could not be triggered by the lung simulator.

3) FiO2 measured values inconsistent with O2 set values. Differs by up to 40%.

4) The clinical test team were unable to complete the Pre-Use check as the manual lacks clarity.”

101. On 7 September 2020, the respondent, by its solicitors, wrote to the appellant formally rejecting the Shangrila Ventilators, purporting to terminate the Agreements and demanding the return of the $10.395 million the respondent paid to the appellant on 27 and 30 April 2020.

Commencement of the proceedings

102. On 6 October 2020, the appellant commenced proceedings in the Commercial List. The respondent filed a cross-summons, seeking declarations that it was entitled to terminate the Agreements and to damages.

The expert evidence

103. In addition to their various officers and employees, as well as clinicians involved in the decision to purchase the Ventilators, the parties each relied on evidence of a biomedical engineering expert.

104. The respondent adduced expert evidence from Mr Matthew Jones, who has over 20 years’ experience in biomedical engineering and a particular familiarity with how ventilators work and how they are tested prior to clinical use. Mr Jones has developed protocols to test up to 50 different models of ventilators and has personally tested or supervised the testing of between 1,000 and 2,000 ventilators. The primary judge found Mr Jones to be a thoughtful and careful witness who was endeavouring to express his opinions honestly and with care. For the purposes of this rehearing under s 75A of the Supreme Court Act 1970 (NSW), I approach Mr Jones’ evidence in the same way.

105. The appellant’s expert witness was Dr Bruce Barkalow, who has over 40 years’ experience in biomedical engineering and regularly provides consulting services to hospitals, medical device companies, legal firms and insurance companies in the United States. Dr Barkalow conducted his testing of the Ventilators in January 2022. The primary judge found that Dr Barkalow was a thoughtful and careful witness who did his best to give his honest opinions based on his analysis of the Ventilator’s functionality. For the purposes of the s 75A Supreme Court Act re-hearing I approach Dr Barkalow’s evidence in the same way.

Conclusions of the primary judge

The Shangrila Ventilator’s deficiencies

106. On the critical issues concerning the operation of the Shangrila Ventilator, the primary judge concluded at [524] that:

1. it is possible to pre-set tidal volume on the Shangrila Ventilator, although not at the press of a button, and only with some difficulty;

2. the Shangrila Ventilator does have volume control, but not conventional volume control, that is, volume control which maintains volume in the face of changes in a patient’s pulmonary impedance;

3. the Shangrila Ventilator does not operate in pressure control mode as stated in the User Manual; and

4. the Shangrila Ventilator does not reliably, accurately or efficiently deliver the fraction of inspired oxygen in accordance with the ranges specified in the User Manual, or at all.

107. These findings are at the heart of this appeal.

Conclusions of the primary judge

108. The primary judge made the following findings on the two cases advanced by the respondent.

The Sale of Goods Act case

109. In relation to the case under s 19 of the Sale of Goods Act, the primary judge found:

1. the respondent made known to the appellant a particular purpose;

2. the particular purpose identified was the use in a clinical setting to treat patients with COVID-19;

3. in providing the User Manual and the MDT Shangrila Brochure to the respondent, the appellant endorsed the content of those documents;

4. the respondent relied upon the contents of the User Manual in deciding to purchase the Shangrila Ventilators; and

5. the four deficiencies affecting the Shangrila Ventilator (set out at [106] above) combined to compel the conclusion that the device was not fit for purpose for use in a clinical setting to treat patients with COVID-19.

110. His Honour held, and the appellant did not dispute, that because of these findings, the appellant was obliged to refund the $10.395 million the respondent had paid to it.

The misleading or deceptive conduct case

111. In relation to the misleading or deceptive conduct case (under Sch 2 s 18 of the ACL) the primary judge found:

1. The appellant represented that the Ventilators would function in accordance with the specifications in the User Manual:

1. the making of this representation was implicit from its provision to the respondent of the User Manual;

2. the primary judge rejected the submission on behalf of the appellant that it provided the User Manual to the respondent as an intermediary and without itself making any representations as to its contents;

3. the primary judge found that the Shangrila Ventilators did not function in accordance with all of the specifications in the User Manual, particularly in relation to the oxygen concentration function and that this representation was false and thus misleading or deceptive; and

4. his Honour found that the respondent relied on this representation to enter the Agreements.

2. The appellant represented to the respondent that the Ventilators are capable of delivering FiO₂ of between 40%-100% with ±20% accuracy:

1. the primary judge found this representation arose from the User Manual; and

2. the Shangrila Ventilator was not capable of reliably delivering FiO₂ of between 40%-100% with ±20% accuracy.

112. The primary judge found that Dr Morris relied on statements made in the User Manual as part of his consideration during the desktop review. His Honour’s conclusions that the appellant’s conduct was misleading or deceptive were sufficient to support the relief granted.

Grounds of appeal

113. The notice of appeal (“NoA”) contained the following grounds:

Section 19 of the Sale of Goods Act

1   The primary judge:

a. erred in finding that the Respondent made known to the Appellant a particular purpose for which the Shangrila Ventilators were required by the Respondent, for the purposes of s 19 of the Sale of Goods Act (other than that, in substance, the ventilators would be used as ventilators) (Judgment [485]);

b. erred in finding that the Respondent did, through Dr Morris and for the purposes of s 19 of the Sale of Goods Act, rely on the Appellant’s skill or judgment when deciding to purchase the Shangrila Ventilators (Judgment [516]);

c.   in the alternative to (a) and (b), and to the extent that the Respondent relied upon the Appellant’s skill and judgment (which is denied), ought to have found that it was understood by the Respondent, and any such reliance by the Respondent, was limited to the knowledge or expectation that the Shangrila Ventilators would operate in accordance with the User Manual;

d. ought to have found that there was no implied term under s 19 of the Sale of Goods Act, on the basis that the Respondent did not make known to the Appellant the particular purpose for which the Shangrila Ventilators were required so as to show that the Respondent relied on the Appellant’s skill and judgment for the purposes of s 19( 1) of the Sale of Goods Act, and ought to have found that as a matter of fact the Respondent did not rely upon the Appellant’s skill and judgment;

e. further, or in the alternative, erred in finding that the Respondent had not, at any material time prior to giving notice to the Appellant that the Respondent intended to reject the goods, accepted the goods pursuant to sections 37 and 38 of the Sale of Goods Act.

Pressure control

2   The primary judge erred in finding that the Shangrila Ventilators did not operate in pressure control mode as set out in the User Manual and MDT Shangrila Brochure (Judgment [369], [524](c)).

Oxygen concentration

3    The primary judge erred in finding that the Shangrila Ventilators did not reliably, accurately or efficiently deliver a fraction of inspired oxygen in accordance with the ranges specified in the User Manual (Judgment [405]-[407], [524](d), [526], [545], [558]).

4    Alternatively to ground 3, even if the Respondent established that one or some of the Shangrila Ventilators did not reliably, accurately or efficiently deliver a fraction of inspired oxygen in accordance with the ranges specified in the User Manual (which is denied), the primary judge erred in finding that this applied to all of the Shangrila Ventilators purchased by the Respondent.

Tidal volume

5    The primary judge:

a. erred in finding that the manner in which tidal volume could be pre-set on the Shangrila Ventilators was a shortcoming of the ventilators for the purposes of the Respondent’s claim under s 19 of the Sale of Goods Act (Judgment [523][524](a));

b. having regard to his finding that tidal volume could be pre-set on the Shangrila Ventilators, which is consistent with the User Manual, ought to have found that the Shangrila Ventilators were not unfit for the particular purpose claimed by the Respondent for the purposes of s 19 of the Sale of Goods Act (to the extent a particular purpose was conveyed, which is denied).

Volume control

6    The primary judge:

a. erred in finding that the volume control functionality on the Shangrila Ventilators was a shortcoming of the ventilators for the purposes of the Respondent’s claim under s 19 of the Sale of Goods Act (Judgment [523][ 524](b));

b. having regard to the finding that the Shangrila Ventilator operated in a type of volume control, which is consistent with the User Manual, ought to have found that the Shangrila Ventilators were not unfit for the particular purpose claimed by the Respondent for the purposes of s 19 of the Sale of Goods Act (to the extent a particular purpose was conveyed, which is denied).

Fitness for purpose

7 The primary judge erred in finding that the Respondent’s claim for breach of an implied term arising by reason of s 19 of the Sale of Goods Act relied upon the “four factors” described at Judgment [524], having regard to the pleaded case under the Further Amended Commercial List Cross-Claim Statement at [31A], and the facts pleaded at [28](a).

8    The primary judge erred in finding that the Shangrila Ventilators were not reasonably fit for the purpose of being used in any clinical setting for the treatment of patients with COVID-19 (Judgment [524]-[528]).

Misleading or deceptive conduct

9    The primary judge erred in finding that by the provision by the Appellant to the Respondent of the manufacturer’s User Manual, the Appellant represented that the Shangrila Ventilators would function in accordance with the specifications in the User Manual (Judgment [543]-[544]).

10    To the extent that the Appellant represented to the Respondent that the Shangrila Ventilators would function in accordance with the specifications in the User Manual (which is denied), the primary judge ought to have found that the Shangrila Ventilators operated in accordance with the User Manual, on the bases set out above in grounds 2 to 6 above.

11    The primary judge erred in finding that to the extent it was represented that the Shangrila Ventilators could be used in common wards, ICU or other clinical settings, that they were not fit for that purpose (Judgment [554]-[555]), and the Appellant refers to grounds 2 to 8 above.

12    The primary judge:

a.    erred in finding that the Appellant relied upon those representations pleaded to have been made by the Appellant to the Respondent with respect to which it was found that there had been reliance (Judgment [547], [559]);

b.    ought to have found that the Respondent did not rely on any representation made by the Appellant.

13 The primary judge ought to have found that the Respondent’s claim based on section 18 of the Australian Consumer Law failed, and ought to have dismissed that claim.

Respondent’s Notice of Contention

114. The NoC filed for the Respondent contained the following grounds:

1 The primary judge should have found that the First Agreement and the Second Agreement entered into by the parties in respect of the supply of ventilators were governed by the Purchase Order Terms and Conditions (Judgment, [221], [226]).

2    The primary judge should have held that the respondent was in breach of the terms of the First Agreement and the Second Agreement, and was thereby entitled to a refund of the monies it had advanced to the appellant in respect of the ventilators.

3    The primary judge should have found that the ventilators:

a.    could not be ‘pre-set’ because they could not be pre-set to a nominated tidal volume via a single tidal volume setting (Judgment, [300], [302]); and

b. did not have a ‘volume control’ function (Judgment, [324]) and that these were further reasons for which the ventilators did not comply with the condition implied by section 19 of the Sale of Goods Act 1923 (NSW) as to fitness for purpose (in addition to the reasons identified at Judgment [524]-[528]).

4 The primary judge erred in finding that the respondent did not rely on representations conveyed in the MDT Shangrila Brochure and that for this reason those representations did not contravene sections 18, 29(1)(a) and/or 29(1)(g) of the Australian Consumer Law (ACL) (Judgment, [540], [541], [542] and [556]).

5    The primary judge should have found that the representations conveyed by the statements in the User Manual that:

a.    the ventilators were ‘intended to be used in the common ward, ICU, outside the hospital and intra-hospital transport’;

b.    the ventilators ‘can deliver volume control ventilation’; and

c. the tidal volume on the ventilators can be pre-set, contravened sections 18, 29(1)(a) and/or 29(1)(g) of the ACL (Judgment, [553]).

Appellant’s Notice of Contention

115. Somewhat unusually, the appellant filed a NoC containing the following ground:

In the alternative to the primary judge’s finding that provision of the Purchase Order by the Respondent to the Appellant bespoke the Respondent’s acceptance of the offer made by the Appellant (J [194]-[195]), and hence the Respondent’s Purchase Order Terms and Conditions did not form part of the contract between the parties (J [216]-[217], [221]), the primary judge ought to have found that there was acceptance by the Respondent of the Appellant’s offer by the sending and receipt of the email from Teresa Kusnadi on behalf of the Respondent on 22 April 2020 with subject line “PO 37879543 from NSW Health to secure stock of 148 units ventilator”, and hence the Respondent’s “Purchase Order Terms and Conditions” did not form part of the contract between the parties.

116. The contingent hypothesis upon which the appellant advanced this NoC was that Grounds 1 and 2 of the respondent’s NoC succeeded. As I would reject Grounds 1 and 2 of the respondent’s NoC it is unnecessary to say any more about the appellant’s NoC.

Relevant legal principles

117. Neither party contended that the primary judge stated or acted upon the wrong legal principles. To explain my conclusions, however, it is necessary to set out the relevant legal principles in a little detail.

Sale of Goods Act

118. Section 19(1) of the Sale of Goods Act provides as follows:

“(1)    Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose”

119. This provision is engaged only where the buyer conveyed their particular purpose to the seller “so as to show that the buyer relies on the seller’s skill or judgment”. The Privy Council’s advice in Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49 analyses the requirements of a South Australian statute in essentially the same terms in the following way (at 60):

“It is clear that the reliance must be brought home to the mind of the seller, expressly or by implication. The reliance will seldom be express: it will usually arise by implication from the circumstances ….”

120. Similarly, in Manchester Liners Ltd v Rea Ltd [1922] 2 AC 74 at 90, Lord Sumner said of a UK statute in essentially the same terms:

“This warranty, though no doubt an implied one, is still contractual; and, just as a seller may refuse to contract except upon the terms of an express exclusion of it, so he cannot be supposed to consent to the liability which it involves unless the buyer’s reliance on him, on which the liability rests, is shown, and shown to him. The tribunal must decide whether the circumstances brought to his knowledge showed this to him as a reasonable man or not; but there must be evidence to bring it home to his mind before the case for the warranty can be launched against him.” (emphasis added)

121. Lord Diplock explained in Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 at 506:

“The key to [the cognate English provision] is reliance — the reasonable reliance of the buyer upon the seller’s ability to make or select goods which are reasonably fit for the buyer’s purpose coupled with the seller’s acceptance of responsibility to do so. The seller has a choice whether or not to accept that responsibility. To enable him to exercise it he must be supplied by the buyer with sufficient information to acquaint him with what he is being relied upon to do and to enable him to appreciate what exercise of skill or judgment is called for in order to make or select goods which will be fit for the purpose for which the buyer requires them.”

122. A buyer need not show that all they relied on was the seller’s skill or judgment. The buyer need only show that their reliance on the seller’s skill or judgment was a substantial part of why the buyer entered the transaction. As Lord Sumner said in Manchester Liners Ltd at 90:

“The section does not say that the reliance on the seller’s skill or judgment is to be exclusive of all reliance on anything else, on the advice, for example, of the buyer’s own experts, or the use of his own knowledge or common sense. Indeed it would never be possible to be sure that the element of reliance on the seller entered into the matter at all unless the buyer made some statement to that effect. It follows that the reliance in question must be such as to constitute a substantial and effective inducement which leads the buyer to agree to purchase the commodity …”

123. That statement of law was approved in David Jones Ltd v Willis (1934) 52 CLR 110 by Rich J at 120 and McTiernan J at 129.

124. Factual reliance is often a matter of inference. In Tre Cavalli Pty Ltd v Berry Rural Co-Operative Society Ltd [2013] NSWCA 235 at [95] Gleeson JA, with whom McColl and Leeming JJA agreed, said:

“Reliance by the buyer on the seller will seldom be express, it will usually arise by implication from the circumstances. In the case of a purchase from a retailer the reliance will be generally inferred from the fact that a buyer goes to the shop in the confidence that the retailer has selected his stock with skill and judgment. It is immaterial whether the retailer be the manufacturer or not, and there is no need for the buyer to specify in terms the particular purpose for which the buyer requires the goods. The particular purpose will generally be clear because it is the only purpose for which anyone would ordinarily want the goods (see Grant v Australian Knitting Mills Ltd at 60).”

125. In addressing the question of reliance, Sackville AJA writing for this Court said in Scenic Tours Pty Ltd v Moore [2018] NSWCA 238 at [217] (an appeal was allowed, but not on this point):

“The Sale of Goods Act 1893 (UK) (1893 Act) and its Australian counterparts provided that where a buyer expressly or impliedly made known to the seller the particular purpose for which the goods were required, so as to show that the buyer relied on the seller’s skill and judgment, there was an implied condition that the goods were fit for that purpose. The test of whether the buyer had relied on the seller’s skill and judgment was whether in all the circumstances a person in the position of the seller would have realised that his or her skill and judgment was being relied on. While the questions of particular purpose and reliance were distinct they were closely related and were often considered together.” (footnotes omitted)

126. Cases involving corporate entities raise additional questions if a range of different individuals act on the corporation’s behalf. Where a corporation is the buyer, it may be that the agent, employee or officer who expresses the company’s “particular purpose” is different from the agent, employee or officer who relies on the seller’s skill and judgment, and is different again from the agent, employee or officer who makes the decision to purchase the goods on the company’s behalf. It is clear that s 19(1) can be engaged even when each of the provision’s requirements is satisfied by a different individual acting on the corporation’s behalf.

127. In Ashford Shire Council v Dependable Motors Pty Ltd (1960) 104 CLR 139, the Privy Council dealt with the sale of a tractor. The buyer was Ashford Shire Council. The Council’s agent, Mr Bowman, discussed the tractor’s technical specifications with a representative of the seller, Mr Corney. Mr Bowman wrote a report to the Council, recommending the tractor for purchase. The report made no mention of the conversation between the agent and the seller’s representative. After reading this report, the Shire Clerk, Mr Heywood, and the Council President, Mr Black, made the decision to purchase. The Judicial Committee said:

“Such general statements of the law do not deal with the position of a buyer who acts through agents or servants as a corporation must do. There is no doubt that the making known to the seller of the buyer’s particular purpose may take place during negotiations which precede the making of the contract of sale and that there need be no reference to this in the contract itself. What is necessary is that the buyer shall contract in reliance on what took place during the negotiations, and that his reliance at the time when the contract is made “is a matter of reasonable inference to the seller and to the Court” (per Lord Sumner in Manchester Liners Ltd v Rea Ltd (1922) 2 AC 74, at p 90). If the agent who conducts the negotiations is the same person as the agent who makes the contract on behalf of the buyer there is no difficulty. But the case where they are different persons has to be considered. In the present case Mr Bowman conducted the negotiations on behalf of the appellant and Mr Heywood made the contract on its behalf. The question is whether it is necessary that the former should have made the latter fully aware of what took place during the negotiations before the latter agent made the contract.”

128. In proving the Council’s reliance, it was enough in that case that one agent relied on the seller’s skill or judgment, while other agents carried out the transaction. The Board gave two reasons for this conclusion:

1. Mr Bowman relied on the seller’s assurances when making the report; Mr Black and Mr Heywood in turn relied on this report when deciding to purchase the tractor, and therefore indirectly relied on the seller’s skill or judgment.

2. All three men – Mr Bowman, Mr Black and Mr Heywood – were agents of the Council; none of them was the Council itself. Because of that, it was enough that Mr Bowman relied on the seller’s skill or judgment, while different agents carried out the purchase.

129. Contrary to the appellant’s submission, nothing in the language of s 19(1) requires that the person who conveys the buyer’s purpose is the same person who, in fact, relies on the seller’s skill and judgment. Proof of the buyer’s reliance on the seller will seldom be express; it will usually arise by implication from the circumstances. The question is whether the seller would reasonably have understood, from the buyer’s communications, that the buyer was relying on the seller’s skill or judgment.

338. I agree with the primary judge that the testing results in the evidence before him “bespeak a serious shortcoming in the Shangrila Ventilators”. I would reject ground 3.

339. The appellant’s ground 4 complains that, even if the respondent established that one or some of the Shangrila Ventilators did not reliably, accurately or efficiently deliver a fraction of inspired oxygen in accordance with the ranges specified in the User Manual, the primary judge erred in finding that this applied to all of the Shangrila Ventilators purchased by the respondent.

340. This is a point without merit. The idea that the respondent needed to test some greater number of the Shangrila Ventilators to satisfy its burden was not put below and should not be entertained now.

341. If it was the appellant’s case that the Shangrila Ventilators were fit for purpose and that the testing was somehow selective or inaccurate that should have been put to the experts, including the appellant’s expert Dr Barkalow. It was not.

342. I would reject ground 4.

Grounds 7 and 8 - Fitness for purpose

346. The appellant complained that:

1. Ground 7: the primary judge erred in finding that the Respondent’s claim for breach of an implied term arising by reason of s 19 of the Sale of Goods Act relied upon the “four factors” described at [524] of the primary judgment, having regard to the pleaded case under the Further Amended Commercial List Cross-Claim Statement at [31A], and the facts pleaded at [28](a); and

2. Ground 8: the primary judge erred in finding that the Shangrila Ventilators were not reasonably fit for the purpose of being used in any clinical setting for the treatment of patients with COVID-19.

347. The appellant submitted that the “four factors” described at [524] of the primary judgment, which were key to the finding against the appellant, did not form part of the respondent’s pleaded case. I have explained in addressing Grounds 5 and 6 of the NoA why these pleading points should be rejected.

348. The appellant contends that the “four factors” found by the primary judge do not mean the Shangrila Ventilators cannot be used in any clinical setting. The appellant submitted that the Shangrila Ventilator could be used as a transport ventilator, for weaning a patient off ventilation, or in a case where no better alternative was available in an ICU.

349. As I have earlier said, the question of fitness was answered as at the date the Agreements were entered. The primary judge was correct to find that whilst there is some use to which the Shangrila Ventilator could be put, for example, as a transport ventilator taking a patient to other areas of the hospital, the “particular purpose” which the respondent had for the Ventilator, and which was communicated to the appellant, was treating COVID-19 patients in a clinical setting, which included an ICU setting or a ward or “surge” setting. The primary judge concluded that the Ventilator was unfit for this purpose because of the combined force of the following four factors:

1. it was possible to pre-set tidal volume on the Shangrila Ventilator, although not at the press of a button, and only with some difficulty;

2. the Shangrila Ventilator did have volume control, but not conventional volume control, that is, volume control which maintained volume in the face of changes in a patient’s pulmonary impedance;

3. the Shangrila Ventilator did not operate in pressure control mode as stated in the User Manual; and

4. the Shangrila Ventilator did not reliably, accurately or efficiently deliver the fraction of inspired oxygen in accordance with the ranges specified in the User Manual, or at all.

350. For the reasons I have given in dealing with grounds 2-6 of the NoA and 5(b) and 5(c) of the NoC, the correct findings about the Ventilator’s functionality were:

1. It was not possible to pre-set tidal volume on the Shangrila Ventilator at all, because there was no dedicated functionality, such as a button or dial, which would allow tidal volume to be set in advance;

2. The Shangrila Ventilator had no volume control mode, of the automatic kind required for modern clinical use, because the only way oxygen volume could be maintained was by the regular intervention of an operator;

3. The Shangrila Ventilator had no pressure control mode, of the automatic kind required for modern clinical use, because the only way oxygen pressure could be maintained was by the regular intervention of an operator; and

4. The Shangrila Ventilator does not reliably, accurately or efficiently deliver the fraction of inspired oxygen in accordance with the ranges specified in the User Manual, or at all.

351. There was, however, no error shown in the conclusions of the primary judge the Shangrila Ventilators were not reasonably fit for the particular purpose for which they were purchased, treating patients with COVID-19 in a clinical setting.

352. I would reject grounds 7 and 8.

Misleading or deceptive conduct - Grounds 9 to 13

353. Given his dispositive conclusions about the Sale of Goods Act case, the primary judge dealt only briefly with the misleading or deceptive conduct case.

The representations relied on

354. The primary judge dealt with each of the pleaded representations separately. Only five of the eight pleaded representations are relevant to the arguments the parties make on appeal.

The representations entitling the respondent to relief

355. The primary judge found that the two following representations were conveyed, misleading and caused loss, entitling the respondent to relief:

1. Representation 1: The Ventilators would function in accordance with the specifications in the User Manual:

1. the primary judge found that in closing written submissions, the appellant accepted that the making of this representation was implicit from its provision to the respondent of the User Manual.

2. the primary judge rejected the appellant’s submission that it provided the User Manual to the respondent as an intermediary and without itself making any representations as to its contents.

3. the primary judge found that the Shangrila Ventilators did not function in accordance with all of the specifications in the User Manual, particularly in relation to the oxygen concentration function, and that this representation was false and thus misleading or deceptive.

4. his Honour found that the respondent relied on this representation in deciding to enter the Agreements.

2. Representation 2: The Ventilators are capable of delivering FiO₂ of between 40%-100% with ±20% accuracy:

1. the primary judge found that this representation was expressly made in the User Manual.

2. the primary judge found that the Shangrila Ventilators were not capable of reliably performing in this way. For that reason, the statement made in the User Manual to this effect was misleading or deceptive.

3. his Honour found that Dr Morris relied upon this statement in the User Manual as part of his consideration during the desktop review.

The representations not entitling the respondent to relief

356. The primary judge found, for various reasons, that six of the eight pleaded representations did not entitle the respondent to relief. By its NoC, the respondent challenges aspects of the primary judge’s reasoning on three of those representations:

1. Representation 3: The Ventilators have a conventional volume-controlled ventilation mode and can reliably provide precise tidal volume:

1. the statement the subject of this alleged representation was made in the MDT Shangrila Brochure, and thus also in the Allied Scientific Shangrila Brochure. The primary judge found that the Shangrila Ventilators did not have “conventional” volume control and that the statements in these brochures were not correct, and thus misleading or deceptive.

2. the primary judge found that Dr Morris did not rely on any document provided to the respondent by the appellant which stated that the Shangrila Ventilator had “conventional” volume control. Dr Morris did not have the MDT Shangrila Brochure when he conducted his “desktop review”, and the appellant did not provide the respondent with the Allied Scientific Shangrila Brochure. Mr Zanetic found it online. When making his decision concerning the Ventilators, Dr Morris had the RAPP Shangrila Brochure and the Shangrila in a Bag Brochure. There were no statements in those two brochures that the Shangrila Ventilators had “conventional volume controlled ventilation mode” or that they could reliably provide “precise tidal volume”.

2. Representation 4: The Ventilators are intended to be used in common wards and ICUs:

1. the primary judge found that this representation arose by reason of the statement in the User Manual as to the “Intended Use” of the Shangrila Ventilators.

2. the complete statement made in the User Manual included that the Shangrila Ventilator is “intended to be used in the common ward, ICU, outside the hospital and intra-hospital transport”.

3. his Honour found that, as Mr Gannon said in his 1 May 2020 email to Ms Hannigan, the Shangrila Ventilator was not a “full ICU ventilator”.

4. the primary judge found that this statement did not qualify what was stated in the User Manual.

5. his Honour concluded that this representation was not false. The Shangrila Ventilators were intended to be used “in common wards and ICU”. The problem was they were not fit for that purpose.

3. Representation 5: The Ventilators can deliver volume control ventilation and the tidal volume on the Ventilators can be pre-set:

1. the primary judge found that the representation arose from statements made in the User Manual.

2. the primary judge concluded that the Shangrila Ventilators did have a volume control function and that tidal volume on the Ventilators could be pre-set.

357. In upholding grounds 5(b) and 5(c) of the NoC, I have explained why the primary judge erred in finding that representation (5) above was not misleading or deceptive. Dr Morris plainly relied upon that representation.

358. The respondent’s remaining submissions on the misleading or deceptive portion of its NoC are directed to representations (3) and (4) above.

Ground 9

359. By ground 9, the appellant contended that the primary judge erred in finding that, by providing the User Manual to the respondent, the appellant made the alleged representations in that User Manual. The appellant submitted that it did not adopt or endorse the representations in the User Manual.

360. The appellant accepted that by providing this material containing specifications, it was representing that those specifications were the manufacturer’s specifications, and also implicitly conveying that the appellant believed those specifications to be correct and did not know of facts which gave it reason to doubt their accuracy. The appellant’s case was that it made no difference that the appellant represented itself as the exclusive distributor of the Ventilator.

Consideration of ground 9

361. The primary judge found that the appellant did not pass on to the respondent the User Manual on a “for what it’s worth” basis. The appellant was no “mere conduit”. A reasonable person in the respondent’s position would have understood that the appellant had “adopted or endorsed” the accuracy of the User Manual.

362. These findings were correct. The appellant does not challenge the finding of the primary judge that it provided the User Manual to the respondent. The appellant was acting as a principal in its dealings with the respondent. It was aiming to conclude a contractual relationship with the respondent, not as the agent for Aeonmed, but on its own account, for which it would be paid millions of dollars. The appellant represented itself as the exclusive distributor in Australia of the Shangrila Ventilators.

363. It would have been obvious to Mr Gannon and Mr Bellas that the respondent would rely on the contents of the User Manual as accurately and comprehensively explaining how the Shangrila Ventilator was to be used and what its functionality was. The provision of the User Manual was for the obvious purpose of effecting a sale of those Ventilators to the respondent. By providing the User Manual during the course of the negotiations for the sale of the Shangrila Ventilators, the appellant represented to the respondent that the Ventilators had the specifications stated in the User Manual.

364. The primary judge was plainly correct to conclude that by providing the User Manual the appellant adopted and endorsed its contents. The primary judge was also correct to reject the suggestion that any relevant analogy existed between the appellant, as the seller of the Shangrila Ventilators, and an internet search engine the subject of the Google litigation in the High Court or the real estate agent the subject of Butcher v Lachlan Elder. Unlike a real estate agent, the appellant handed over the User Manual as principal, rather than agent for a principal, in pursuing its own commercial purpose. Unlike a search engine, the appellant provided the respondent the User Manual to induce the respondent to enter into a commercial transaction, in circumstances where a reasonable person would have understood that the respondent would rely on the User Manual in determining the functionality of the Ventilators.

365. Ground 9 should be dismissed.

Ground 10

366. By ground 10 the appellant contends that, for the purpose of the misleading or deceptive conduct claim, the Ventilators operated in accordance with the User Manual and were not unsuitable for any clinical setting, meaning that the User Manual was not misleading or deceptive. The appellant’s arguments for why the Ventilators operated in accordance with the User Manual were essentially the same arguments it made, on the Sale of Goods Act claim, for why the Ventilators were fit for purpose (see Grounds 2-6).

Consideration of Ground 10

367. In considering grounds 2 to 6 of the NoA, as well as grounds 5(b) and 5(c) of the NoC, I have explained my findings about which aspects of the User Manual were misleading or deceptive. In particular:

1. the User Manual represented that it was possible to “pre-set” tidal volume, meaning there was a dedicated functionality, such as a button or dial, which would allow tidal volume to be set in advance: see at [188]-[218];

2. the User Manual, in representing that the Ventilator had “volume control”, represented that it had automatic volume control, and not volume control that required the regular intervention of an operator (so called “open loop” volume control): see at [219]-[282];

3. the User Manual, in representing that the Ventilator had “pressure control” function, meant only automatic pressure control, and not pressure that required the regulator intervention of an operator (so called “closed loop” pressure control): see at [283]-[311]; and

4. the User Manual represented that the Ventilator could deliver FIO₂ at a specified rate with plus or minus 20% accuracy: see at [312]-[345].

368. Each of these representations was misleading or deceptive, because, as I have explained, the evidence showed that the Ventilator had the following technical shortcomings:

1. the Ventilator had no dedicated functionality for pre-setting tidal volume; rather, setting tidal volume was possible only by manipulating other variables, in a complicated and indirect procedure;

2. the Ventilator had no volume control mode at all, since an operator’s regular input was required to control volume function, and there was no automatic volume control mode;

3. the Ventilator had no “pressure control” mode, since an operator’s regular input was required to control pressure function, and there was no automatic pressure control mode; and

4. the Ventilator was unable to deliver FIO₂ at a specified rate with plus or minus 20% accuracy.

369. Because of these findings, I reject ground 10.

Ground 11 NoA and Ground 5(a) NoC – User Manual and “intended use”

370. Both parties challenge parts of the primary judge’s findings about the User Manual’s representations about the Ventilator’s “intended use”.

371. The User Manual stated:

“Shangrila510S ventilator is mainly used in the emergency rooms of hospitals, transfer after operations, field and occasions where first-aid or transfer is needed, for care of adult, pediatric, infant patients weighing at least 3.5 kg.

The Shangrila510S Ventilator is intended to be used in the common ward, ICU, outside the hospital and intra-hospital transport. The ventilator conforms to the principle of simple and easy operation requested for emergency equipment. It can be used by many medical units and clinical offices at all levels to perform emergency treatment for accident affairs, such as first-aid center, ambulance, anesthesia unit, chest surgery, cranial surgery, respiratory unit, various large mines, factories, swimming places.” (emphasis added)

372. Below, the respondent submitted that this passage was misleading or deceptive insofar as it represented that the Ventilator was intended for use in “the common ward” or the ICU.

373. The primary judge found that this representation was conveyed to the respondent in terms, and was not qualified by, for example, Mr Gannon’s statement that the Ventilator was not a “full ICU ventilator”. However, his Honour was not persuaded that the representation was misleading or deceptive, finding that the Ventilator really was “intended” for use in a common ward or ICU. The problem his Honour said, was that the Ventilator was not fit for that purpose. Both parties challenge aspects of this finding.

Ground 11 NoA

374. Ground 11 may be dealt with briefly. By this ground, the appellant complained about the finding that the Ventilator was not “fit” for its intended use, namely in common wards or ICUs. That finding was made in a single short sentence, and appears simply to reiterate the primary judge’s conclusion on the Sale of Goods Act claim. It is not accompanied by additional reasoning. It does not appear to be directed to the misleading or deceptive conduct claim.

375. Nor did the appellant challenge this finding with independent submissions. Instead, to make good ground 11, it repeated its submissions on grounds 2 to 8 of the NoA. I have explained why I reject those submissions in dismissing each of grounds 2 to 8 above.

376. It follows that ground 11 must also be dismissed.

Ground 5(a) NoC

377. By ground 5(a) of the NoC, the respondent argues it was an error to find the User Manual was not misleading or deceptive in describing the Ventilator as “intended for” use in common wards or the ICU.

Submissions on ground 5(a) NoC

378. In this finding, the primary judge appeared, the respondent said, to focus on the appellant’s subjective intentions: since the appellant subjectively “intended” the Ventilator to be used in common wards or ICUs, the User Manual made no relevant misrepresentation. This approach, the respondent submitted, was wrong. The phrase “intended use” should instead be understood objectively. By that phrase, the respondent said, the User Manual referred to the use to which the Ventilators could actually be put.

379. If, however, the primary judge was right that “intended use” was the use the appellant subjectively intended, then in the respondent’s submission, there was still error. That was because, on the appellant’s own case, the subjective understanding of the appellant’s employees and agents was that the Ventilator was not fit for use in the ICU and were primarily for emergency use.

380. The appellant submitted that the relevant representation must be read in context of the whole passage extracted from the User Manual above at [371]. In particular, the User Manual said the Ventilator was “mainly” used in “emergency rooms of hospitals, transfer after operations, field and occasions where first-aid or transfer is needed”. In that context, the appellant said, it was clear that the User Manual represented that the Ventilator was an emergency ventilator.

381. Further, even if the representation was misleading, the appellant submitted that the respondent neither pleaded nor established that they relied on this representation.

Consideration of ground 5(a) NoC

382. The respondent’s submissions should be preferred. The User Manual was a technical document, the purpose of which was to specify the Ventilator’s features and limitations. The appellant provided the User Manual to the respondent so that it could decide whether to purchase the Ventilator. In those circumstances, a reasonable member of the relevant class would read the User Manual’s statements about “intended use” as objective descriptions of the purposes for which the Ventilator was suitable. Dr Morris and a member of the relevant class would not understand a statement of “intended use” as a representation that the appellant had a particular use in mind for the Ventilator. That is because the appellant’s subjective intentions were largely irrelevant to the transaction. Dr Morris and a member of the relevant class, in deciding whether to acquire the Ventilator, would be interested in the range of uses, objectively assessed, which the Ventilator had. That is how the phrase “intended use”, in the User Manual, should be understood.

383. The respondent’s second submission is also persuasive. The appellant’s own case was that the appellant’s employees and officers did not intend the Ventilator to be used in the ICU or common ward. Several of the primary judge’s findings are to the same effect. For example, the primary judge accepted that Mr Gannon told Ms Hanigan that the Ventilators were not intended for use in the ICU: see, eg, at J [519]. It was inconsistent with these findings to then hold that the appellant subjectively intended the Ventilator for ICU or common ward use.

384. Neither of the appellant’s replies are compelling. It is true that, in context, the User Manual describes other uses for the Ventilator beyond ICU and common ward use, and says the Ventilator is “mainly” used in emergency settings. Those statements do not, however, dilute the bald assertion that the Ventilator is “intended for use” in common wards or the ICU. Even if the User Manual represented the Ventilator was primarily an emergency model, a reasonable member of the relevant class would still, upon reading the whole extract at [371] above, conclude that the device was suitable for use in the ICU or common ward.

385. Nor do I accept the appellant’s submission that the respondent neither pleaded nor proved reliance on this aspect of the User Manual. The representation was contained within the User Manual. The respondent pleaded, and the primary judge found, that Dr Morris relied on the User Manual when deciding whether to recommend the Ventilator for purchase. There was no need to separately plead or prove reliance on this particular representation.

Conclusion on ground 5(a) NoC

386. The primary judge should have found that, by saying that the Ventilator was “intended for use” in common wards or the ICU, the User Manual was making a representation about what situations, objectively assessed, the Ventilator was suitable to be used in. That representation was misleading or deceptive. As I have explained, the Ventilator was not suitable for clinical use in an ICU or common ward.

387. I would uphold ground 5(a) of the NoC. It follows that representation 4 set out at [356] above was misleading or deceptive.

Ground 12 NoA and Ground 4 NoC – “Reliance” and causation

388. The primary judge made various findings, for the purpose of the misleading or deceptive conduct claim, about which of the appellant’s representations the respondent relied on. The primary judge concluded that, through Dr Morris, the respondent relied on representations made in the User Manual, but not those made in the MDT Shangrila Brochure.

389. There may be some reason to think that, in a claim for damages under s 236 of the ACL, the question is not whether the plaintiff relied on the relevant misrepresentation, but simply whether the misrepresentation caused loss: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [143] per Gummow, Hayne, Heydon and Kiefel JJ. Nonetheless, the primary judge’s findings on reliance reflect the case that was pleaded below. The relevant grounds and submissions on appeal are also framed in terms of “reliance”. However, as Leeming JA explained in CBRE (v) Pty Ltd v City Pacific Ltd (in liq) [2022] NSWCA 54; 365 FLR 45 at [74] (Bell CJ and Brereton JA agreeing), it may be possible to understand a submission that there was no reliance on a misrepresentation as a submission that the causal nexus between the misrepresentation and the pleaded damage was lost, for the purposes of s 236. That is the approach I will adopt here.

Ground 12 NoA – Reliance on the User Manual

390. By ground 12 of the NoA, the appellant submitted that, even if it did make the representations in the User Manual, the respondent did not “rely” on them. It was submitted that Dr Morris did not rely on the User Manual, and to the extent that he did, it was because he assumed it was an accurate Aeonmed technical document, not because it was endorsed by the appellant.

Consideration of Ground 12

391. The appellant’s contention is that Dr Morris (and therefore the respondent) did not understand the User Manual to reflect any endorsement by the appellant that the Ventilator met the stated specifications. In substance, that submission assumes that the appellant did not, by providing the User Manual to the respondent, represent that the contents of the User Manual were accurate or could be relied upon. I have earlier rejected that submission in dealing with ground 9 (see at [359]-[365]).

392. The primary judge was correct to conclude that Dr Morris relied on the representations in the User Manual, including as to pressure control and oxygen concentration. Dr Morris’ own evidence was that, following his review of the User Manual, he formed the view that the Ventilator would be suitable for use in clinical settings during the COVID-19 pandemic. Dr Morris reviewed the technical information contained in the User Manual and relied on that information as an accurate description of the functionality of the Ventilators, which he had not used before.

393. Dr Morris gave evidence that the most important elements in the documentation for the purposes of his review were: the modes of ventilation; the displays; the technical specifications; the types of peripheral and consumable equipment required; and the troubleshooting features. That information included warranties about the Ventilator’s pressure control mode and FiO₂ capabilities. Both pressure control and oxygen concentration were mandatory features in the list of requirements by reference to which Dr Morris conducted the review.

394. As Dr Morris relied on the User Manual in deciding to recommend the Ventilator for purchase, there was no break in the causal nexus between the User Manual’s misrepresentations and the respondent’s loss.

395. I would reject ground 12.

Ground 4 NoC – “Reliance” on the MDT Shangrila Brochure

396. By ground 4, the respondent challenged the primary judge’s finding that Dr Morris did not consult and therefore did not rely on the MDT Shangrila Brochure when doing his desktop review. That brochure, it will be recalled, was the only document provided by the appellant which represented the Ventilator had “conventional volume control” and could provide “precise tidal volume”. It was therefore the only material that, on the respondent’s case, conveyed representation (3) (as set out above at [356]). The primary judge should have found, the respondent argued, that Dr Morris relied on that misleading representation.

Submissions on ground 4 NoC

397. The respondent’s case was that, properly construed, Dr Morris’ evidence was that he had the MDT Shangrila Brochure before him, and that evidence was never challenged. The respondent further submitted that the appellant admitted, in its response to the respondent’s pleadings, that Dr Morris consulted the MDT Shangrila Brochure, and that its submissions to the contrary only came in closing.

398. The appellant’s main submission on this ground was that Dr Morris was mistaken about which brochure he had before him. It said Dr Morris lacked independent recollection about the documents he consulted and was otherwise an unreliable historian. The appellant relied on the primary judge’s findings that Mr Zanetic did not provide the MDT Shangrila Brochure to Dr Morris, saying this supported an inference Dr Morris did not have the MDT Shangrila Brochure before him at all. The appellant also denied that it admitted that Dr Morris consulted the MDT Shangrila Brochure: the admission particularised paragraphs of Dr Morris’ first affidavit which described the documents Mr Zanetic emailed to Dr Morris. This could not, the appellant said, be an admission that Dr Morris relied on the MDT Shangrila Brochure, which Mr Zanetic never emailed to Dr Morris.

Dr Morris’ evidence

399. In an affidavit, Dr Morris gave evidence that he conducted his review by consulting the User Manual and what he called the “COVID-19 Brochure”:

“8   Around the time I was conducting the desktop review, I was also provided with the brochure which appears at pages 2 to 3 of Exhibit RWM-3, in this affidavit I refer to that document as the COVID-19 Brochure.

…

10   I read the User Manual and the COVID-19 Brochure in full during the desktop review. The most important elements in the documentation for the purpose of my review were the modes of ventilation, the displays, the technical specifications, the types of peripheral and consumable equipment required and the troubleshooting section. I also reviewed the diagrams and images of the ventilators which are contained in the User Manual and the COVID-19 Brochure.”

400. The brochure in question was an exhibit to Dr Morris’ affidavit, and that bundle of exhibits was in evidence. The brochure included in that bundle was the “MDT Shangrila Brochure”. As the appellant correctly pointed out, however, the MDT Shangrila Brochure was not one of the two brochures Mr Zanetic sent to Dr Morris. While Dr Morris accepted that the only two brochures he had received by email were not the MDT Shangrila Brochure, he also explained:

“A. […] My comment was that there was, in that case, a third brochure that I also looked at for the same product again, and it was on a stand.

….

A. […] That’s what I mean about the alternate brochure. I think it is included, the third brochure is included in my affidavit, and I may have taken that brochure off the web myself.

Q. You can’t now recall when you got that brochure?

A. No.”

401. Dr Morris in cross-examination could not remember how he obtained the brochure and he left open the possibility that he downloaded the brochure from the internet.

402. There is no dispute that the appellant sent the MDT Shangrila Brochure to Mr Zanetic. The question is whether the misrepresentations in the MDT Shangrila Brochure reached Dr Morris because the appellant sent the brochure to Mr Zanetic. If he received those misrepresentations some other way, for example by downloading an online brochure, then the appellant is not responsible for the misrepresentations.

403. Because of Dr Morris’ evidence in cross-examination, the respondent did not prove that what Dr Morris received was the MDT Shangrila Brochure.

Conclusion on ground 4 NoC

404. In light of Dr Morris’ acceptance that he may have taken the brochure he considered “off the web myself”, I would reject ground 4 of the NoC. The primary judge was correct to find that the respondent was caused no loss by representation 3, since that representation was conveyed by the MDT Shangrila Brochure only.

Conclusion on misleading or deceptive conduct

405. For the reasons I have given in addressing grounds 9 to 13 of the NoA and grounds 5(a), 5(b) and 5(c) of the NoC, I have found the respondent was entitled to succeed on four of the five representations in issue on appeal (as set out at [355]-[356]). In summary, the primary judge was correct to find for the respondent on representations (1) and (2) and also should have found for the respondent on representations (4) and (5). His Honour was correct, however, to find against the respondent on representation (3), which was conveyed but did not cause the respondent’s loss.

Respondent’s NoC

406. In light of the extensive nature of the appellant’s challenge to the findings of the primary judge and the extensive nature of the respondent’s notice contentions, and in accordance with Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] and Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49 at [8], I have dealt with all grounds of the respondent’s NoC. To summarise:

• Grounds 1 and 2: I rejected these grounds at [45]-[94];

• Ground 3(a): I rejected this ground at [210]-[214];

• Ground 3(b): I rejected this ground at [273]-[276];

• Ground 4: I rejected this ground at [396]-[404];

• Ground 5(a): I upheld this ground at [377]-[387];

• Ground 5(b): I upheld this ground at [277]-[280]; and

• Ground 5(c): I upheld this ground at [215]-[216];

Conclusion and proposed orders

407. I would reject each ground of appeal and would uphold grounds 5(a), 5(b) and 5(c) of the appellant’s contentions, and dismiss the remainder of the NoC. The appeal must therefore be dismissed.

408. For the foregoing reasons I propose the following orders:

1. Appeal dismissed.

2. Appellant to pay the respondent’s costs.

409. STERN JA: I agree with Payne JA.

410. HARRISON JA: I agree with the orders proposed by Payne JA for the reasons his Honour has given.

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Decision last updated: 11 June 2024