Narellan Pools Pty Ltd v Huntsman Chemical Company Australia Pty Ltd
[2010] FCA 267
FEDERAL COURT OF AUSTRALIA
Narellan Pools Pty Ltd v Huntsman Chemical Company Australia Pty Ltd [2010] FCA 267
Citation: Narellan Pools Pty Ltd v Huntsman Chemical Company Australia Pty Ltd [2010] FCA 267 Parties: NARELLAN POOLS PTY LTD and NARELLAN FRANCHISE PTY LTD v HUNTSMAN CHEMICAL COMPANY AUSTRALIA PTY LTD File number: NSD 190 of 2006 Judge: EDMONDS J Date of judgment: 25 March 2010 Catchwords: TRADE PRACTICES – consumer protection – s 52 Trade Practices Act 1974 (Cth) – whether representations by the respondent were misleading or deceptive or likely to mislead or deceive – s 51A(1) Trade Practices Act 1974 (Cth) – representations as to future matters – whether the respondent had reasonable grounds for making them – s 53(a) Trade Practices Act 1974 (Cth) – whether the respondent’s conduct in making representations falsely represented that the goods supplied were of a particular standard, quality, grade, composition or have had a particular previous use.
HELD: that the representations were misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth); that the respondent’s conduct in making them also contravened s 53(a) of that Act.
CONTRACT – breach of contract – s 19(1) Sale of Goods Act 1923 (NSW) – fit for purpose – whether the goods supplied by the respondent were fit for the purpose expressly made known to the respondent by the first applicant – s 19(2) Sale of Goods Act 1923 (NSW) – merchantable quality – whether goods bought by description from the respondent, which dealt in goods of that description, were of merchantable quality – causation – whether the cause of the damage were the goods supplied by the respondent.
HELD: that the goods supplied by the respondent were the cause of the damage; that the goods were not fit for the purpose which the first applicant expressly made known to the respondent when it was a condition of the contract implied by s 19(1) of the Sale of Goods Act 1923 (NSW) that the goods would be fit for that purpose; that the goods were not of merchantable quality, in circumstances where they were bought by description from the respondent, which dealt in goods of that description, when it was a condition of the contract implied by s 19(2) of the Sale of Goods Act 1923 (NSW) that the goods would be of merchantable quality.
Legislation: Trade Practices Act 1974 (Cth) ss 51A, 52, 53(a)
Sale of Goods Act 1923 (NSW) ss 19(1), 19(2)Cases cited: Downey & Anor v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 cited
McGrath & Anor v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230 cited
Ting & Anor v Blanche & Anor (1993) 118 ALR 543 applied
Tranquility Pools and Spas Pty Ltd vHuntsman Chemical Company Australia Pty Ltd [2008] NSWSC 58 citedDates of hearing: 27, 28, 29, 30 and 31 October 2008,
17 and 18 December 2008,
7, 8 and 9 April 2009,
1 June 2009Date of last submissions: 1 June 2009 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 183 Counsel for the Applicants: Mr M Lee with Mr R Potter Solicitor for the Applicants: Marsdens Law Group Counsel for the Respondent: Mr GA Sirtes SC with Mr T Maltz Solicitor for the Respondent: DLA Phillips Fox
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 190 of 2006
BETWEEN: NARELLAN POOLS PTY LTD
First ApplicantNARELLAN FRANCHISE PTY LTD
Second ApplicantAND: HUNTSMAN CHEMICAL COMPANY AUSTRALIA PTY LTD
Respondent
JUDGE:
EDMONDS J
DATE OF ORDER:
25 MARCH 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.On or before 22 April 2010 the parties bring in draft short minutes of order fixing a timetable for the further conduct of the proceeding. In the event that the parties are unable to agree on or before 22 April 2010, each side bring in draft short minutes of order fixing a timetable for the further conduct of the proceeding.
2.The matter be listed for further directions on Friday 23 April 2010 at 9.30 am.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 190 of 2006
BETWEEN: NARELLAN POOLS PTY LTD
First ApplicantNARELLAN FRANCHISE PTY LTD
Second ApplicantAND: HUNTSMAN CHEMICAL COMPANY AUSTRALIA PTY LTD
Respondent
JUDGE:
EDMONDS J
DATE:
25 MARCH 2010
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
Background
The first applicant (‘Narellan’) is a fibreglass swimming pool manufacturer in Australia and, amongst other things, is in the business of researching, designing, manufacturing, marketing and selling fibreglass shells for use as swimming pools (‘fibreglass pools’). The second applicant (‘Narellan Franchise’) trades as part of the Narellan group of companies and is responsible for, inter alia, the management of a franchise scheme for the sale and distribution of fibreglass pools manufactured by Narellan.
The respondent (‘Huntsman’) is in the business of manufacturing and selling, amongst other things, industrial resins. Huntsman has the use of vinyl ester technology developed by Ashland Inc (‘Ashland’), a United States based chemical manufacturer, by virtue of a licence agreement entered into between Huntsman and Ashland in or about 1986. Many of the products developed by Huntsman are based on, even if only loosely, Ashland’s formulations.
In or about October or November 2000, Narellan, through Mr Douglas Turner, approached Huntsman, through Mr Malcolm Holden, who was the New South Wales Sales Manager for Huntsman, as to the possibility of obtaining a low styrene emission vinyl ester resin for use in the production of its fibreglass pools as a back-up to Derakane, the Fiberglass International (‘FGI’) product, it normally used. Such resins are used in applying the ‘tie layer’ of a pool mould or what is also known as the corrosion barrier or the vinyl ester layer. It is used to wet out glass fibres in order to create a solid mass of fibreglass. Its application comes after the application of the gelcoat or cosmetic layer and before the application of the first structural or polyester layer.
Huntsman, through Mr Holden, indicated that it had a vinyl ester resin which would be suitable for such use and that laboratory tests for water resistance and failure had been completed. Mr Holden undertook to get a sample to Mr Turner. Approximately three weeks later, Huntsman delivered a tin containing 3 to 5 kg of Hetron 942/35 PAS resin (‘Hetron 942’) to Narellan to enable Mr Turner to conduct a hand laminate test (‘the testing sample’). Mr Turner also used part of the testing sample to conduct production testing which lasted about 14 days. Relevantly, ‘Hetron’ refers to the brand name of the resin; ‘35’ indicates the percentage of styrene in the resin; and PAS: ‘P’ stands for promoted; ‘A’ stands for amine boosted; and ‘S’ stands for summer grade – for use in summer. Hetron 942 is a vinyl ester resin made up of two other vinyl ester resins, Hetron 914 and Hetron 922, both of which are based on Ashland’s technology.
In or about late November or December 2000, a sample batch of approximately 200 kg of Hetron 942 (‘the production sample’) was delivered by Huntsman to Narellan. Between 10 and 11 January 2001, Narellan manufactured two pools and one spa (nos. 7775, 7777 and 7781) using the production sample. The production of these three shells using the production sample was uneventful.
On 5 February 2001, Mr Turner, on behalf of Narellan, placed an order for three tonnes of Hetron 942. Pursuant to this order, on 26 February 2001, Huntsman manufactured 6.83 tonnes of Hetron 942 as Batch 053109001 (‘Resin 942’). Huntsman supplied 3 tonnes of Resin 942 to Narellan on 2 March 2001 (‘the March Supply’). The March Supply was exhausted by Narellan in the production of fibreglass pools. In September 2001, Huntsman (again through Mr Holden) offered to supply Narellan with the balance (3.83 tonnes) of the Resin 942. Narellan was informed that the balance had been re-tested and remained within Huntsman’s specification limits. A further 3.83 tonnes was delivered to Narellan on 14 November 2001 (‘the November Supply’). The November Supply was also exhausted by Narellan in the manufacture of fibreglass pools. The total quantity of Resin 942 supplied was used as resin in the tie layer of these pools; according to Narellan exclusively in the tie layer of 61 pools and, by reason of the mixing of Resin 942 with Derakane on changeover from or to Resin 942 during the manufacture of a pool shell, together with that other resin in the tie layer of 17 pools (‘mixed resin pools’).
Huntsman has never supplied any of its Hetron 942 to any pool manufacturer before or since the deliveries to Narellan referred to in [5] and [6] above, nor has Hetron 942 been used in manufacturing swimming pools outside Narellan’s premises.
In 2003, Narellan received a complaint regarding a fibreglass pool manufactured with Resin 942. Upon further investigation, Narellan discovered the pool had osmosis and was manifesting cracks, blisters and cobalt stains. Further complaints were received by Narellan relating to other pools manufactured with Resin 942 which were all exhibiting osmosis. Out of the 61 pools identified by Narellan as having been made exclusively with Resin 942 in the tie layer, at least 33 (8027, 8033, 8034, 8036, 8037, 8041, 8042, 8043, 8045, 8046, 8047, 8048, 8050, 8051, 8052, 8055, 8058, 8753, 8756, 8757, 8759, 8973, 8978, 8981, 8983, 8985, 9002, 9008, 9009, 9012, 9015, 9016, 9017) are said by Narellan to have failed due to the incidence of osmotic blistering. Such blistering occurs when water penetrates through the gel coat and mixes with water soluble materials found in the fibreglass layers beneath it. Huntsman maintains that evidence regarding the failure of pools 8033, 8037, 8048, 8052, 8055, 8985 and 9016 has not been adduced although, in the case of pool 8037, the consensus of the experts would seem to be that it has failed (Ex. 8; second conclave report, App 1, p 8; see [94] below). Out of the 17 pools identified by Narellan as being mixed resin pools, at least two (8980 and 8999) have failed.
Scope of the Present Hearing
On 15 August 2007, I ordered, pursuant to O 29 r 2 of the Federal Court of Australia Rules 1976 (‘the Rules’), that the question of liability be determined separately and before any determination as to damages to be fixed on a later occasion in the event the applicants are successful on that question. Accordingly, the hearing was confined to issues of liability, including the question of whether the alleged breaches and contraventions have occurred, and the applicants’ entitlement to declaratory relief.
THE CLAIMS AND PLEADINGS
In their Amended Application (‘AA’) filed 17 October 2008 the applicants seek damages from Huntsman for breach of contract, negligence and for contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘TPA’) as well as declaratory relief, that Huntsman has engaged in conduct towards the applicants which is misleading and deceptive.
On the same day, the applicants’ senior counsel made it clear that the action in negligence was abandoned and so much is reflected in the applicants’ Amended Statement of Claim (‘ASC’) also filed that day. The ASC also reflects at para 36 that the applicants rely on alleged contravention of s 53(a) of the TPA, as well as s 52; but that, contrary to the AA, only Narellan claims damages for breach of the two supply contracts. So much is consistent with the basis upon which, on 14 October 2008, pursuant to O 6 r 8 of the Rules, I granted leave to add Narellan Franchise to this proceeding, namely, that its claim was confined to that of a party who had suffered loss by Huntsman’s alleged contraventions of the TPA.
The applicants, in paras 23 – 26 inclusive of the ASC, pleaded:
‘23.Before [Narellan] commenced using the Resin 942 in the manufacture of swimming pools, there were no failures or defects with the pools manufactured by [Narellan] in anyway related to the resin then utilised by [Narellan].
24.Save for one instance in respect of a pool manufactured in 2000 (against a total of over 16,000 pools produced) defects of full osmosis have only occurred in the pools manufactured by [Narellan] using the Resin 942.
25.Upon the discontinuance of the use of the Resin 942 in production in January 2002, [Narellan] has experienced no failure due to osmosis in the product of fibreglass swimming pools.
26.At all material times, the only variable changed by [Narellan] in the production of swimming pools was the use of the Resin 942. There was no change in the methodology utilised in the production of swimming pools.’
In its Amended Defence (‘AD’), Huntsman does not admit the allegations in paras 23, 25 and 26. Nor does it admit in answer to para 24, that Narellan has only suffered defects of ‘full osmosis’ save for one instance in respect of a pool manufactured in 2000 against a total of over 16,000 pools produced. It denies the balance of the allegation in para 24 and says, by Narellan’s own records, pool failures have been reported in pools manufactured not using Resin 942.
Those matters which Huntsman did not admit were never put in issue either by way of leading evidence to the contrary, in cross-examination of Narellan’s witnesses, in particular Narellan’s managing director, Mr Christopher Meyer, or by way of submission. In short, they are not in dispute. What is disputed, and hence denied by Huntsman in response to para 24 of Narellan’s ASC, is Narellan’s allegation that defects of ‘full osmosis’ have only occurred in the pools manufactured by Narellan using Resin 942. According to Huntsman, Narellan’s own records put lie to this.
The Representations
The applicants have pleaded three sets of representations (collectively ‘the representations’).
The First Representations
In para 9 of the ASC it is pleaded that in or around November 2000, Huntsman represented to Narellan that:
‘a.Hetron 942/35 epoxy vinyl ester resin would be suitable for use by [Narellan] in use in the construction of fibreglass swimming pools;
b.Adequate laboratory tests for Hetron 942/35 epoxy vinyl ester resin had been completed.’
The first representations are alleged to have been made by Mr Holden for Huntsman to Mr Turner of Narellan in November 2000. The representation pleaded in para 9a is admitted by Huntsman. Huntsman, obliquely, put in issue Narellan’s reliance on the representation but neither Mr Meyer nor Mr Turner were challenged on their evidence of reliance, nor was any evidence led by Huntsman to disprove that reliance. In my view, it is not open on the evidence before me to find that the representation in para 9a of the ASC, while admitted by Huntsman to have been made, was not relied on by Narellan. On the contrary, I find that it was relied on by Narellan.
The representation pleaded in para 9b is denied by Huntsman.
Mr Turner’s evidence in chief on the para 9b representation was that Mr Holden had said to him:
The laboratory tests for our resin for water resistance and failure had been done.
This evidence was not challenged in cross-examination; indeed, he was not asked any questions on the subject. Moreover, Mr Holden was not called by Huntsman. Nevertheless, Huntsman submitted that this evidence does not go far enough; it does not amount to a representation that ‘adequate laboratory tests … had been completed’. I cannot agree. Having regard to the primary function of the tie layer in which the resin was to be used – to prevent ingress of water (and any other chemicals dissolved in pool water) which could compromise the integrity of a fibreglass pool; to the context in which Mr Holden made the statement – to a prospective customer which would carry out non-laboratory testing of the product prior to placing a manufacturing order; and to Huntsman’s admission that it made the representation in para 9a, I am of the view, and so find, that the words which Mr Turner deposed Mr Holden used, do amount to a representation that adequate laboratory tests were carried out and that the product passed those tests.
Huntsman put in issue whether Mr Turner, and through him, Narellan relied on the representation in para 9b of the ASC. First, it submitted that Mr Turner relied on his own testing to satisfy himself as to the suitability of the product. Second, that he, Mr Turner, was too experienced to rely on the sales pitch of Mr Holden.
Mr Turner’s evidence as to the testing he carried out is contained in both of the affidavits (Ex 3) he swore for the purpose of this proceeding. In his affidavit of 5 December 2006 (‘first affidavit’), he deposed:
‘13. I undertook the standard production testing, which is to test:
a) Gel time.
b) Wet out.
c) Exertherm [sic]14.The production and factory testing that was in place for the resins was as follows:
a)Gel time – this is the time it takes for the chemical reaction to take place and the resin to turn to a jelly like state;
b)Thixotropy – if the resin runs out of the glass fibres after sprayed and holds up on a vertical panel as it should
c)Wetability – whether or not the resin wets out the glass fibres (however, the type of glass also plays a large part in this process);
d)Cure time – the length of time it take [sic] from Gel time to Peak Exotherm (the highest temperature).
e)Peak Exotherm – the highest temperature reached after the Gel time.
15.The handling characteristics of the resin was [sic] very good and I made the decision to use this vinyl ester as a back-up for FGI products.
16.After the testing was complete, I was satisfied the resin would be suitable and I placed the first order with Mal.
17.The factory and production resin testing that I carried out is ad hoc and only gives a guide as to how resins react while in production. Fit for purpose testing formulas come from the resin supplier’s laboratory.’
In his affidavit of 2 October 2008 (‘second affidavit’), Mr Turner deposed:
‘4.I refer to paragraph 12 of my first affidavit. What happened in relation to the sample was this: in about October or November 2000, Huntsman delivered a tin containing 3 to 5kgs of Hetron 942-35 PAS resin (Hetron 942) to Narellan Pools to enable me to conduct a hand laminate test. This test is conducted by:
(i)Pouring the Hetron 942 into a container;
(ii)Adding catalyst to the container;
(iii)Pouring the mixture over a fibreglass base and rolling it out.
The hand laminate test is a visual test, the purposes of which is to get a rough idea of whether the Hetron 942 coats the fiberglass [sic] and wets out the glass fibers [sic]. The Hetron 942 appeared to wet out the glass fibers [sic] and the laminate appeared to cure within a reasonable time.
5.I also used part of the 3 to 5kgs of Hetron 942 to conduct the production testing referred to in paragraphs 13 and 14 of my first affidavit. The production tests on the 3 to 5kgs of Hetron 942 lasted about 14 days.
…
7.The factory and production resin testing gives a guide as to how resins initially react while in production. I did not chemically test the Sample Hetron 942. I did not have such facilities and, in any event, as noted in paragraph 11 of my first affidavit, Mr Holden had advised me that laboratory testing had been conducted and the Sample Hetron 942 satisfied those tests.
8.In February 2001, I again spoke with Mr Holden. To the best of my recollection, during that conversation, words to the following effect were said:
Me:“Mal, I have tested the sample batch in production and it appears OK.”
Mr Holden:“It is a very good resin product and will be excellent for Narellan. Will you be ordering some?”
Me: “Yes. I will send you over an order.”’
On Huntsman’s submission that Mr Turner relied on his own tests and not those of Huntsman, Mr Turner was not asked any question about the tests carried out by him. Nor was he asked any questions about what he said at para 7 of his second affidavit. Indeed, as Narellan submitted in support of a finding of reliance:
‘Not a single question was asked of Mr Turner concerning this representation including whether or not he relied upon it … In those circumstances, it is difficult to see how a submission can be maintained that there was insufficient evidence of reliance …’
On Huntsman’s submission that Mr Turner was too experienced to rely on the sales pitch and ‘puffery’ of Mr Holden, again it was not put to Mr Turner that his experience meant that he relied on nothing said by Mr Holden.
Consequently, as well as finding that the representation in para 9b of the ASC was made by Huntsman through Mr Holden to Narellan through Mr Turner, I am also of the view that the evidence supports a finding of reliance by Narellan on that representation, and I so find.
The Second Representations
In para 11 of the ASC it is pleaded that from on or around 5 February 2001 until the use of the Resin 942, Huntsman represented to Narellan that:
‘a.the Hetron 942/35 epoxy vinyl ester resin which was to be (and from 26 February 2001 had been) manufactured and was proposed to be supplied (“Resin 942”) was suitable for use by [Narellan] in the construction of fibreglass swimming pools.
b.the Resin 942 proposed to be supplied to [Narellan] was the same as the Resin 942 supplied to [Narellan] in the Sample.’
It is alleged that the second representations were express or implied or partly express and partly implied; to the extent they were express, it is alleged that Mr Holden on behalf of Huntsman represented to Mr Turner on behalf of Narellan the second representations in the circumstances set out in para 8 of his second affidavit; to the extent they were implied, it is alleged that they were made by the offer of the supply in circumstances where Huntsman knew the purpose for which the Resin 942 was to be used and that it had previously supplied the Sample. Additionally it is alleged that the second representations were continuing representations as, until the time of the use of the Resin 942, Huntsman had not communicated any fact inconsistent with the second representations in circumstances where if such a fact existed Narellan was entitled to expect that such information would be conveyed to it.
Both representations in paras 11a and 11b are denied by Huntsman.
Huntsman accepted in its submissions that the representation in para 11a was ‘almost identical’ to that in para 9a, which it admitted having made. Moreover, the representation in para 11a is pleaded on the same facts as a continuing representation. As an express representation, reliance is placed on para 8 of Mr Turner’s second affidavit (see [22] above). Mr Turner was not asked any questions concerning the conversation he had with Mr Holden in February 2001 deposed to in that paragraph and, as noted in [19] above, Mr Holden was not called by Huntsman. In these circumstances, I am unable to comprehend why I should not find that the representation was made, and I so find.
For the same reasons outlined in [17] above in relation to the representation in para 9a of the ASC, I also find that the representation in para 11a was relied upon by Narellan in deciding to order the March Supply.
There is no issue that the ‘Sample’ referred to in para 11b (and para 12b) of the ASC is a reference to both the testing sample (see [4] above) and the production sample (see [5] above). It is also common ground that there was no express representation in the form of a statement by Mr Holden to Mr Turner that the March Supply would be ‘the same’ as the Sample.
Huntsman submitted that because of the imprecision and ambiguity of the pleaded expression ‘the same’, the Court ought not find that Huntsman made any implicit representation other than that the resin supplied would, like the Sample, be Hetron 942 and not some other kind of vinyl ester resin. But such a concession, in my view, necessarily involves a finding that a representation was made that the constituent elements of the March Supply and the November Supply would be the same as the constituent elements of the Sample. Huntsman submitted that they were, by reference to a table, prepared from data taken from production sheets. As Narellan submitted, it is beyond dispute that what was delivered to Narellan by the March Supply and the November Supply was not what was stated on the production sheet for Hetron 942. The experts agreed that the Resin 942 contained 450 kg of unknown substance, which Huntsman could only speculate as being more Hetron 922 or 914 not recorded by the operator; and that it contained 2,000 kg of a substance with an infra-red signature consistent with terephthalate, although Huntsman consistently maintained that it was not open to the Court to find that it was delivered to Narellan containing that contaminant. A finding was also open on the evidence that the March Supply, as well as the November Supply which was admitted to be out of ‘spec’, was likely to be out of ‘spec’ at the time of the fabrication of the March 2001 pools. These are matters to which I return later in these reasons. For present purposes, it suffices that I find, contrary to Huntsman’s AD (para 11.2), that the representation in para 11b was made.
I also find that the representation in para 11b was relied upon by Narellan. At para 13 of his second affidavit, Mr Turner deposed that:
‘I would not have placed the orders for the supply of any of the Hetron 942 if I had of known that the Hetron 942 was not made from the same constituent elements as the Sample … It never occurred to me that this would not be the case as I thought this was the whole point of obtaining a sample.’
He was not challenged on this evidence; indeed, he was not asked any question concerning the matter. Huntsman submitted that Mr Turner placed no reliance on the Sample as he did not chemically test it. However, Mr Turner did not test the Sample chemically because he relied on Mr Holden’s representation that Huntsman had completed adequate laboratory testing; moreover, he did not have the facilities to chemically test the Sample.
The Third Representations
In para 12 of the ASC it is pleaded that from 19 September 2001 until the use of the Resin 942, Huntsman represented to Narellan that:
‘a.the balance of the Resin 942 which had not been supplied was suitable for use by [Narellan] in the construction of fibreglass swimming pools;
b.the balance of the Resin 942 proposed to be supplied to [Narellan] was the same as the Resin 942 supplied to [Narellan] in the Sample;
c.the balance of the Resin 942 which had not been supplied had been retested and was still “in spec”.’
It was alleged that the representations pleaded in paras 12a and 12c were partly express and implied; to the extent they were express, it is alleged that they were made in writing in a facsimile from Mr Holden to Mr Turner on 19 September 2001; to the extent they were implied, it is alleged that they were made by the offer of supply of the balance of the Resin 942 in circumstances where Huntsman knew the purpose for which the balance of the Resin 942 was to be used and that it had previously supplied the Sample and the March Supply for that purpose. It is alleged that the representation pleaded in para 12b was implied in that it was made by the offer of supply of the Resin 942 in circumstances where Huntsman knew the purpose for which the Resin 942 was to be used and that it had previously supplied the Sample. It is also alleged that the third representations were continuing representations as until the time of the use of the Resin 942, Huntsman had not communicated any fact inconsistent with the third representations in circumstances where if such a fact existed, Narellan was entitled to expect that such information would be conveyed to it.
The representation pleaded in para 12a is admitted by Huntsman. Huntsman made no substantive submission denying Narellan’s reliance on the representation and for the same reasons outlined in [17] above in relation to the representation in para 9a of the ASC, I also find that the representation in para 12a was relied upon by Narellan in deciding to order the November Supply.
The representation pleaded in para 12b is denied by Huntsman. For the same reasons given in [32] above for my finding that, contrary to Huntsman’s AD (para 11.2), that the representation in para 11b was made, I also find that, contrary to Huntsman’s AD (para 12.2), the representation in para 12b was made. For the same reasons given in [33] above, I also find that the representation in para 12b was relied upon by Narellan.
In its AD, Huntsman answered Narellan’s pleading in para 12c in the following terms:
‘[S]ave that it admits that by facsimile dated 19 September 2001 that Mal Holden of Huntsman stated that the 3.8MT balance of the resin had been retested and was in specification, denies the allegations contained in paragraph 12c.’
In its written submissions, Huntsman admitted making a representation in the terms alleged in para 12c; it also admitted that it was not the case that it was ‘in spec’:
‘Huntsman admits that it made a representation that the second batch of Hetron, supplied in November 2001, was ‘in spec’, when this was not the case.’
Moreover, in the face of Mr Turner’s unchallenged evidence at para 14 of his second affidavit, where he deposed that:
‘I would not have placed the order for the supply of the remaining Hetron 942 in November 2001 if I had known that the balance of the Hetron 942 had not been retested and was not still “in spec”. Reliability and suitability of the resin was a key factor in any purchasing decision for materials to be used in the production process.’
unsurprisingly, Huntsman made no submission that the representation was not relied upon by Narellan in deciding to order the November Supply.
Nevertheless, Huntsman argued that there was no causal link between that conduct and the loss suffered as:
1.There was no direct evidence that being out of ‘spec’ caused failures;
2.there was an equal spread of failures across both supplies suggesting that the cause was something else.
I return to these matters later in the reasons.
Misleading and Deceptive Conduct
The applicants plead that the representations were misleading or deceptive or likely to mislead or deceive at the time they were made:
‘32. As to the first representations, as
a.the Resin 942 was not suitable for use in the construction of fibreglass swimming pools by [Narellan];
b. adequate laboratory tests for the Resin 942 had not been completed.
33. As to the second representations, as
a. the Resin 942 was not suitable for use by [Narellan];
b.the Resin 942 manufactured on 26 February 2001 and supplied by [Huntsman] in the March Supply was not the same in material respects as in the Sample.
34. As to the third representations, as
a. the balance of the Resin 942 was not suitable for use by [Narellan];
b.the balance of the Resin 942 manufactured on 26 February 2001 and supplied by [Huntsman] in the November Supply was not the same in material respects as in the Sample;
c.the balance of the Resin 942 supplied had been retested and [sic] but was not still “in spec” at the time of supply.’
In its AD, Huntsman denied the allegations in paras 32, 33 and 34 of the ASC. I deal with the issues raised by these pleadings at [178] – [181] of these reasons.
Representations as to Future Matters
In para 35 of the ASC, the applicants pleaded that the representations in paras 9a, 11 and 12a of the ASC are representations as to future matters; that at the time of making them Huntsman did not have a reasonable basis for making them; and that the applicants rely on s 51A of the TPA. In their written submissions, the applicants confined the reference to para 11 as being a reference to para 11a only.
In its AD, Huntsman denied the allegations in para 35 of the ASC, but made no response in its written submissions to the applicants’ reliance (in their written submissions) on s 51A with respect to the representations in paras 9a, 11a and 12a of the ASC. There can be no doubt that these representations are all representations with respect to future matters. In the case of paras 9a and 11a, the representations are made with respect to a product, Resin 942, to be manufactured in the future, for future use in the manufacture of fibreglass pools and, in the case of para 12a, the representation is made with respect to the suitability of Resin 942 for future use in the manufacture of fibreglass pools.
Section 51A of the TPA relevantly provides:
‘(1)For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2)For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.’
In McGrath & Anor v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230 the Full Court drew together the authorities on s 51A(2). Emmett J stated at [44]:
‘[44] Under s 51A(1) of the Trade Practices Act, a representation is to be taken to be misleading if it is a representation with respect to any future matter and the maker of the representation does not have reasonable grounds for making the representation. Under s 51A(2), the maker of the representation with respect to any future matter is to be deemed not to have had reasonable grounds for making the representation unless it adduces evidence to the contrary. However, if evidence is adduced by a representor to the effect that the representor had reasonable grounds for making the representation, the deeming provision will not operate. Where the representor adduces such evidence, it is then a matter for the Court to determine, on the balance of probabilities in the ordinary way, whether or not the representor had reasonable grounds for making the representation.’
See too Allsop J at [191] and [192] where his Honour analyses what Keane JA (with whom Williams JA and Atkinson J agreed) said in Downey & Anor v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 at [126] – [129].
Narellan pointed out that, significantly, Huntsman had not asserted in its AD any reasonable ground or grounds to justify the making of the future representations that Hetron 942 and, more specifically Resin 942, would be suitable for use by Narellan in the construction of fibreglass pools, nor was any evidence lead in chief that specifically identified such grounds. According to Narellan, Huntsman simply made no attempt to engage on this issue and therefore these representations are presumed to be misleading: Ting & Anor v Blanche & Anor (1993) 118 ALR 543 at 552 – 553 (Hill J). In my view, that must be a correct application of the operation of the section in the circumstances.
Leaving aside this point, Narellan submitted that, in any event, in relation to each future representation the evidence established that there was in fact no reasonable ground for making that representation. Dealing with each in turn:
Representation 9a – Hetron 942/35 epoxy vinyl ester resin would be suitable for use by Narellan in the construction of fibreglass swimming pools:
(a)As at November 2000, when the representation was made, there was no product in existence (not even a trial batch) to base the representation that it would be suitable for use in fibreglass pools. Dr Graham Durrant, an organic chemist employed by Huntsman, said that:
‘Some time in late 2000, I received a request from Malcolm Holden … Mr Holden told me that Narellan requested a vinyl ester resin with a low styrene content and asked that I develop one.
(Ex F, 14 July 2008 at [10])’(b)Dr Durrant admitted in cross-examination that until tests had been done it was not reasonable to make such a prediction as to suitability let alone one which was unqualified as to its terms (T 135.14). The representation was made in November 2000. The evidence makes plain that the Resin 942 was not manufactured until 26 February 2001 and not tested (for viscosity etc) until 27 February 2001 (Ex 11, pp 105 and 111). The lack of reasonable grounds for making the unqualified representation is evident.
Representation 11a – the Hetron 942/35 epoxy vinyl ester resin which was to be (and from 26 February 2001 had been made) manufactured and was proposed to be supplied (“Resin 942”) was suitable for use by Narellan in the construction of fibreglass swimming pools:
(c)Once the Resin 942 had been manufactured, it contained 400 kg to 450 kg of unidentified contaminant and it was not reasonable to make a future representation that the Resin 942 was suitable for this use. At T 130.5, Dr Durrant agreed with the proposition that he would want to be sure that he knew what the components of Resin 942 were, before saying to somebody that it was fit for any particular purpose; he was not sure nor was anyone at Huntsman. It follows axiomatically that the unqualified representation was simply incorrect as the failure to have in place measures to ascertain with some certainty the components (including ensuring accurate component batch numbers) were not in place.
(d)The Resin 942 was not the same as the Sample and had not been tested (save for the quality assurance (‘QA’) tests of viscosity etc) as to fitness for purpose (Resin 942 having never been used in the manufacture of fibreglass pools).
Representation 12a – the balance of the Resin 942 which had not been supplied was suitable for use by [Narellan] in the construction of fibreglass swimming pools:
(e)The same submissions apply as to Representation 11a above;
(f)Added to the above is that as at September 2001, Huntsman knew that the Resin 942 had failed a QA test on 6 May 2001 (Ex 11, p 106) and then prior to delivery in November, it had failed another QA test on 6 October 2001 (Ex 11, p 110). No serious contention can be made that the representation had a reasonable basis.
I agree with the submissions in [48] above.
Contract
Narellan’s pleading in contract was in the following terms:
‘37.Prior to, and at the time of making the contracts, [Narellan] expressly made known to [Huntsman] the particular purpose for which it would require Resin 942, namely the production of fibreglass swimming pools (“the purpose”), so as to show, as was the fact, that [Narellan] relied upon the skill and judgment of [Huntsman], and the goods were of a description which it was in the course of [Huntsman’s] business to supply.
38.In the premises, it was a condition of the contracts implied by section 19(1) of the Sale of Goods Act 1923 (NSW) (“SGA”) that the resin supplied would be fit for the purpose.
39.Further and in the alternative, the Resin 942 was bought by description from [Huntsman] who dealt in goods of that description.
40.In the premises, it was a condition of the contracts implied by section 19(2) of the SGA that the Resin 942 supplied would be of merchantable quality.
41.In breach of the contracts, the Resin 942 supplied was:
a. not fit for the purpose; and/or
b. not of merchantable quality.’
In its AD, Huntsman answered in the following terms:
‘a. In answer to 37, [Huntsman]:
(i)admits [Narellan] expressly made known to [Huntsman] the particular purpose for which it required resin 942, mainly production of fibreglass swimming pools;
(ii)cannot admit the purpose for which such information was imparted;
(iii)admits that the resin constituted goods of a description which it was in the course of [Huntsman’s] business to supply;
(iv)denies the balance of the allegations contained therein.
b.In answer to 38, [Huntsman] admits that it was a condition of the contracts that the Hetron 942 supplied by [Huntsman] to [Narellan] would be reasonably fit for the purpose of being used in the production of fibreglass swimming pools, but otherwise denies the allegations in 38.
c.In answer to 39, [Huntsman] admits that the Hetron 942 was bought by [Narellan] by description from [Huntsman] who dealt in goods of that description but otherwise denies the allegation contained in 39.
d.In answer to 40, [Huntsman] admits that it was an implied condition of the contracts with [Narellan] that the Hetron 942 supplied would be of merchantable quality but otherwise denies the allegations contained in 40.
e.[Huntsman] denies the allegation contained in 41.’
I deal with the issues raised by these respective pleadings of Narellan and Huntsman at [182] below.
THE HEARING
The hearing, originally set down for 23 October 2008 with an estimate of seven days, ran for 16 days. It commenced on 27 October 2008 with final submissions being made on 1 June 2009. Four of those days were taken up with interlocutory applications and indeed one of those applications, which I deal with in [63] to [73] below, was largely responsible for the hearing going over until June of last year. I do not find this at all satisfactory for a Court which aspires to optimise case management efficiency but, in the interests of the administration of justice, I felt compelled to accord the parties reasonable time within which to deal with such new developments as they arose and to accommodate, as best I could, the unavailability of counsel on dates which the Court had available. This inevitably prolonged the period over which the hearing occurred and is to be regretted particularly as, with the benefit of hindsight, I doubt that the forensic opportunities which these delays allowed the parties to pursue have made any difference to the outcome of the case.
The Applicants’ Case in Opening
In opening, it was contended on behalf of the applicants that although superficially complex, on close examination the liability phase of the proceeding was straight forward: in illustrating this proposition, reference was made in opening to ‘nine key facts’ which, when taken together, would be determinative of the case. In written submissions filed at the conclusion of the hearing, it was submitted that each of these ‘key facts’ had been proved (subject to slight variation of two of them to take into account developments subsequent to the opening) and remained determinative of all liability issues. They were put as follows:
‘1.Narellan has manufactured over 16,000 pools essentially without incident save for the pools manufactured with Resin 942.
2.Narellan’s manufacturing processes were such “as to avoid incorrect resin application and/or contamination”.
3.Huntsman has never supplied any of its Hetron 942/35 epoxy vinyl ester resin to any manufacturer before or since and only the Sample and the Resin 942 have ever been used in manufacturing swimming pools.
4.The Resin 942 (unlike the Sample) was all made in highly unusual and inadequately explained circumstances over three days.
5.The composition of the Resin 942 is uncertain because (a) “of an amount of 400 to 450kg that cannot be accounted for” and (b) because of a question as to the origin of components used.
6.The Sample (which was used successfully) “differed in composition from” the Resin 942 (which was used highly unsuccessfully).
7.A “signature” of a component consistent with terephthalate resin was present in the tie layers of affected pools; its origin is “unknown” and its presence in the tie layer is a contaminant and because of its location is unlikely to be present by reason of poor manufacturing technique.
8. The Resin 942 was supplied in two supplies and used (as resin in the tie layer):
a.exclusively in 62 pools …
b.together with another resin in 15 pools …
9.Of the pools that have failed to date all were pools in which Resin 942 was used in whole or in part.’
It goes without saying that Huntsman does not agree that the evidence establishes all of those ‘key facts’. Moreover, Narellan submitted that the evidence supports a finding that, contrary to ‘key fact’ 8, Resin 942 was used exclusively in 61 pools and together with another resin in 17 mixed resin pools (see [8] above). The variances in the total number (78/77) and the component numbers (61/62 and 17/15) have no substantive significance to the issue of liability.
Narellan, in opening, then referred to a number of documents which were said to be ‘the critical documents in the case’ and ‘give some flesh’ to the ‘key facts’ in [53] above. These included:
1.A two page document dated 8 February 2001 (Ex 11: 25, 26) containing:
1.1Approval for the manufacture of Hetron 942 PAS by Dr Durrant, the organic chemist employed by Huntsman;
1.2A number of the characteristics or properties of Hetron 942 PAS including its storage life, retest time and retest properties;
1.3Instructions as to its formulation for a total yield of 4,770 kg, and process details.
2.It is clear from the Revision No on the first page of this document that no manufacturing instructions had previously been issued for this product.
3.A document dated 16 February 2001 (Ex 11: 34) headed ‘TEST INSTRUCTION’ for Hetron 942 PAS containing certain specifications, including those for cone and plate viscosity, Brookfield viscosity, screen test, gel time and exotherm time.
4.A document dated 16 February 2001 (Ex 11: 103) headed ‘FINISHED PRODUCT SPECIFICATION’ for Hetron 942 PAS containing similar specifications.
5.The production sheet for the Resin 942 (batch 053109001) (Ex 11: 105) bearing date 26/02/01, bearing reference MI No. 53584 (the same as on the documents in (1), (2) and (3) above), the ‘–0’ after the MI No. signifying that this is not a revision and the notation ‘Narellan’ in handwriting in the right hand top corner. My attention was drawn to the following aspects of this sheet:
5.1The reference to the batch number for the Hetron 914 – 07001 – corresponds with the batch number of a production sheet dated 12/02/01 for Hetron 914 (Ex 11: 101).
5.2There was no batch number specified for the Hetron 922 or the Aerosil 202.
5.3The amounts of Hetron 914 (3,000 kg) and Hetron 922 (1,260 kg) and the amounts of the other components used correspond with a yield of 4,770 kg of Hetron 942 as shown on page 2 of the document in (1), yet only 3,000 kg of Hetron 942 was ordered, but 6,830 kg was produced.
5.4The sheet bears the notation: ‘Xtra adds put in : GC’.
5.5The sheet also indicates that the following ‘batch adjustments’ were made:
·300 litres of styrene were added over and above the 300 litres specification for a yield of 4,770 kg of Hetron 942.
·Four drums of Hetron 914 and three drums of Hetron 922 were added over and above the 3,000 kg of Hetron 914 and 1,260 kg of Hetron 922 specifications for a yield of 4,770 kg of Hetron 942.
6.It was common ground between the experts, Professor George for the applicants and Professor Shanks for Huntsman, that despite these batch adjustments, there was another 400 – 450 kg of material, to yield 6,830 kg of Resin 942, which simply cannot be accounted for.
6.1During the course of these batch adjustments, the gel time, the cone and plate viscosity and the Brookfield viscosity were out of specification at various times.
6.2The sheet also bears the notation ‘Ready’ and ‘Passed by Technology’.
6.3The initials of three operators appear on the sheet – PK, GC and TS – but none were called to give evidence.
7.A two page document headed ‘TEST RESULT MAINTENANCE’ of the Resin 942 (batch 053109001; spec code 53584) (Ex 11: 115, 116). It showed a ‘DATE TESTED’ of 27 February 2001. There followed, numbered (2) to (8), the results of various tests of the product and, significantly for present purposes, a failure in respect of (6), gel time test – 40 as against a specification range of 30 – 35.
8.A document headed ‘NON ROUTINE TESTING REQUEST’ for the Resin 942 (batch 053109001) remaining at Huntsman’s premises after the March Supply (Ex 11: 106). According to the document the test was done on 6 May 2001. It showed that the Resin 942 was out of specification for Brookfield viscosity – 33 as against ‘FPS SPEC’ of 20 – 30.
9.A similar document to (6) (Ex 11: 110) to the Resin 942 (batch 053109001) date tested 6 October 2001. It showed that the Resin 942 was out of specification for cone and plate viscosity – 5.4 as against ‘FPS SPEC’ of 3.5 – 4.0 – as well as for Brookfield viscosity – 40 as against ‘FPS SPEC’ of 20 – 30.
10.A facsimile dated 19 September 2001 from Mr Holden of Huntsman to Mr Turner of Narellan (Ex 11: 153) which reads:
‘Dear Doug,
You may recall that back in March this year, Narellan Pools baught [sic] 3 haz boxes of HETRON 942/35 (vinyl ester with 35% styrene monomer content) summer grade at $5.00/kg FIS ex GST.
When we made this batch of vinyl ester we had left over 3.8MT or 4 haz boxes and the product has been retested and is still in spec. Is it possible for Narellan to take the balance of this stock (400kg of which, would be set aside at no charge for the pending Polgran trial)? Our current price for this vinyl ester is $4.85/kg FIS ex GST.
Best Regards,
(Signature)
Mal Holden’
11.A facsimile dated 17 October 2001 from Mr Holden to Mr Turner (Ex 11: 155) which reads:
‘Dear Doug,
Confirming, that we have 4 haz boxes or 3830kg of the above vinyl ester in stock left over from the March trial and our price is $4.85/kg FIS ex GST. Could you please consider taking 3 haz boxes asap and the remaining haz box we’ll hold over for the Polgran trial.
On the subject of the Polgran trial, I understand that Rick Wilson asked if you would be able to have the boom mounted to save time when both Barry Hutchison and Rick install your new Polgran Unit.
Best Regards,
(Signature)
Mal Holden’
12.The same facsimile as in (9) (Ex 11: 157) bearing the notation ‘Resent 12/11 with attached certificate of analysis’.
13.The certificate of analysis referred to in the notation on the document in (10) (Ex 11, 158) bearing the date Nov. 9, 2001 showing the results of the testing of the Resin 942 (batch 053109001) carried out on 27 February 2001 (not the results of the two subsequent tests carried out on 6 May and 6 October 2001). The results set out in this certificate are the same as the results recorded in the document in (5) above save that the gel time specifications are now shown as 30 – 40 rather than 30 – 35 resulting in a pass for a result of 40 rather than a failure.
The Lay Evidence
Mr Christopher Myer
Mr Christopher Meyer, the managing director of Narellan, gave evidence on its behalf. Four affidavits of Mr Meyer were read, the first sworn on 5 December 2006, the second on 11 August 2008 and the third on 23 October 2008. The first three were marked Ex 1. The fourth affidavit was sworn on 29 October 2008 and was marked Ex 4. Mr Meyer was cross-examined at some length over a wide range of matters the subject of his affidavits, but vigorously cross-examined on three particular subjects:
(1)His evidence that seven Narellan production sheets – those for pools 8999, 9004, 9006, 9009, 9010, 9008 and 8975 – mistakenly identified the resin used in their tie layer as FCM/Derakane/SPV 6003 resin.
(2)His evidence as to the sequence of production of a number of pools, particularly in relation to pools 9000, 9004 and 9005.
(3)His evidence as to alterations that were made to Narellan’s production sheets.
I was impressed by Mr Meyer as a witness both in the manner and content of his responses to questions put to him in cross-examination, some of which were long and because of that, tinged with ambiguity and uncertainty; and in his overall demeanour in dealing with questions which carried the ‘barb’ of an attack on his truthfulness and integrity. I have no hesitation in accepting him as a witness of truth according to his oath.
His evidence, that on the face of the production sheets for pools 9004, 9006, 9009, 9010, 9008 and 8974 there was a usage excess of FCM/Derakane/SPV 6003 resin and a usage shortfall of Resin 942, in paras (17) – (30) of his second affidavit sworn 11 Augusts 2008, was never put in issue and, in the absence of contrary evidence, I accept it as a sound basis for his conclusion that the six production sheets wrongly identified FCM/Derakane/SPV 6003 as the resin used in the tie layer of those pools rather than Resin 942; as I do that the production sheet for pool 8999 wrongly identified the tie layer resin as FCM/Derakane/SPV 6003 rather than as mixed resin.
I also accept as sound the basis upon which Mr Meyer, in his fourth affidavit of 29 October 2008, deduced the sequence of production of some ten pools, including 9000, 9004 and 9005. In order to arrive at the sequence, each production sheet was analysed for stated completion date, batching by colour, production book date, gelcoat application date and identity of each operator. Mr Meyer created a spread sheet (Ex 4: 30) bringing together these factors for all the pools involved to see more easily the information when collated together. He was cross-examined on this document and shown an alternative schedule of production sequence as an aide memoir. In effect, he was invited to agree that on the information available, contrary to his sequence, pool 8999 (before pool) actually came before pool 9007. However, the alternative schedule did not include a column for ‘date completed’ and, when all other factors were equal, this information was taken into account by Mr Meyer. In re-examination, Mr Meyer noted that pool 9007 left the factory on 19 January and 8999 left on 21 January, so Mr Meyer’s original sequence was not undermined in any way by cross-examination. Moreover, it was confirmatory of the answer he gave to interrogatory 1A, filed 3 June 2008 (Ex 4: 9 – 19).
The other subject on which Mr Meyer was vigorously cross-examined was on the fact that some production sheets were altered or crossed out in places. Mr Meyer explained in cross-examination why production sheets were altered. Pools were re-allocated to different customers during production if circumstances changed for any reason. For sensible commercial reasons, details originally allocated on a production sheet would change so as to minimise delays in production and facilitate efficiency in the manufacturing process.
It was put to Mr Meyer that he had reconstructed the date on the production sheet for pool 9004 as the yellow copy was changed from 20 to 21 January 2002 and the white copy (which was copied in the applicants’ bundle) was still dated 20 January. Mr Meyer did not resile from his explanation that his sequencing in the interrogatory was based on the yellow copies, being the carbon copy that remained in the production book (the white is removed and placed on the customer file). When the original production book was called for with the yellow copy for 9004, it is clear that the date on that sheet had been changed to 21 January (after removal of the white copy, which does not bear the alteration in pen).
Finally, on this subject, in cross-examination Mr Turner gave evidence that he wrote on a number of production sheets. Indeed, Mr Turner accepted that on occasion he had cause to make alterations to those production sheets. It was never put to Mr Turner that he fabricated entries on those production sheets to suit the convenience of Narellan’s case. In short, I accept the evidence of Mr Meyer as to the reasons why alterations were made to the production sheets and why some alterations made to the yellow copy of the production sheets did not appear on the white copy torn from that book (compare Exs. B and 2). I reject out of hand any suggestion that Mr Meyer altered any copies to suit the convenience of Narellan’s case.
Interlude
It is convenient at this stage to refer to a development which occurred on the morning of the fourth day of the hearing when Mr Meyer was being cross-examined on his fourth affidavit (Ex 4) sworn the day before. Senior counsel for Narellan informed the Court that a document had come into the hands of his instructing solicitors, through Professor Robert Shanks, the expert called on behalf of Huntsman, which indicated that Ashland had tested a cut out section of pool 9008 – one of the seven pools the production sheets for which, according to Mr Meyer’s evidence, wrongly identified the resin used in the tie layer as FCM/Derakane/SPV 6003 and being one of three of such pools which had failed – and that the conclusion reached as a result of that testing was that the resin used in the tie layer of pool 9008 was Hetron 942. This document was not discovered nor, on this occasion, did senior counsel for Narellan suggest it should have been. However, he sought an adjournment until the following morning to enable his client to determine the course or courses it should pursue. The adjournment was not opposed by senior counsel for Huntsman who conceded that the newly discovered document suggests ‘that where Mr Meyer has said a production record is wrong there is now some third party corroboration for it’.
When the hearing resumed the following morning, senior counsel for Narellan informed the Court that a number of other documents had been ‘uncovered’ which clearly demonstrated that Huntsman had not properly complied with its obligations of discovery. Whether that be right or not, the parties had agreed certain orders, compliance with which were designed to overcome perceived deficiencies in the discovery process to date, as well as to extend the timetable for the further hearing of the matter. On that occasion, I made the following orders:
‘1.The solicitor for [Huntsman] file and serve an affidavit by 4:00 pm on Monday, 3 November 2008 deposing to the matters identified by counsel for [Huntsman] at page 81 of the transcript of the proceedings on 28 November 2008.
2.The applicants have leave pursuant to Order 27A rule 2 to issue a subpoena to produce documents upon Professor Robert Shanks returnable at 9:00 am on 11 November 2008.
3.[Huntsman] have leave pursuant to Order 27A rule 2 to issue a subpoena to produce documents upon Professor Graeme George returnable at 9:00 am on 11 November 2008
4.The calls on the applicants’ outstanding notices to produce dated 24 November 2008 and 30 November 2008 be adjourned to 9:00 am on 11 November 2008.
5.[Huntsman’s] solicitors to notify the applicants’ solicitors in writing by 7 November 2008 whether [Huntsman] has in its possession or control or is able to procure such documents from Ashland Inc. and/or Ashland Chemical Company specified in the schedule to this order.
6.[Huntsman] file and serve a verified list of documents giving discovery in accordance with Order 15 rule 2(3) by 7 November 2008 in relation to any further discoverable documents.
7.The proceedings be adjourned for further hearing with an estimate of three days to 10:15 am on 17 December 2008.
8.Liberty to restore on 2 days’ notice.
9.Costs occasioned by the adjournment on 30 October 2008 and any costs thrown away by the further adjournment on 31 October 2008 and further discovery be reserved.
SCHEDULE
One copy of any document recording any communication between Ashland Inc. and/or Ashland Chemical Company, its servants and agents (Ashland) and [Huntsman], its servants and agents and/or Professor Robert Shanks, referring to:
1.Any resin supplied by [Huntsman] to [Narellan].
2.Any test carried out by Ashland on the Resin 942 supplied by [Huntsman] to [Narellan].
3.Any swimming pool manufactured by [Narellan].
4.Any test carried out by Ashland on any swimming pool (or sample from such pool) manufactured by [Narellan].
5.Discovery of documents between [Narellan] and [Huntsman] in these proceedings.’
As contemplated by the terms of the orders I made on 31 October 2008, the matter came back before me on 11 November, and again on 18 November 2008 to deal with issues arising out of compliance with those orders.
Professor Shanks produced various documents in response to the subpoena issued to him. Huntsman prepared a table of those documents so produced in respect of which it claimed legal professional privilege, in reliance upon which it denied Narellan access.
Huntsman produced various documents in response to Item 3 of Notice to Produce dated 22 October 2008, which required the production of –
‘One copy of any document recording any communication between [Huntsman] its servants or agents and Ashland Inc and/or Ashland Chemical Company its servants or agents referring to:
a. The Resin 942 and/or
b. any resin supplied to [Narellan] by [Huntsman];’
Huntsman also prepared a table of those documents so produced in respect of which it claimed legal professional privilege, in reliance upon which it denied Narellan access.
Huntsman also produced various documents in response to Item 1 of Notice to Produce dated 30 October 2008, which required the production of –
‘[O]ne copy of any document recording any communication between [Huntsman] its servants or agents (including its solicitors) and Professor Shanks and/or RMIT University referring to:
a.the Resin 942; and/or
b.any resin supplied to [Narellan]; and/or
c.this proceeding and/or the evidence or proposed evidence of Professor Shanks; and/or
d.communications between Professor Shanks and Ashland Inc. and/or Ashland Chemical Company or its servants or agents.’
Huntsman also prepared a table of those documents so produced in respect of which it claimed legal professional privilege, in reliance upon which it denied Narellan access.
For its part, Narellan denied Huntsman’s claims and contended further that if the relevant documents were, at the time they were brought into existence, privileged, that privilege had been waived. It sought access to all documents produced in response to the three mandatory processes.
On 20 November 2008 I heard argument on the access issue by reference to the following evidence: the tables referred to in [66] to [68] above (Ex 2A); the affidavit of Mr John Goulios sworn 18 November 2008 and annexures (Ex 1); the affidavit of Professor Shanks sworn 19 November 2008 and attachments (Ex 2); other documents tendered by Huntsman (Ex 3); the affidavit of Mr Noel Godfrey sworn 19 November 2008 (Ex 4); and various documents tendered by Narellan (Exs. A, B, C and D). Mr Goulios, Professor Shanks and Mr Godfrey, called on behalf of Narellan, were all cross-examined. I reserved my decision on the access issue.
On 15 December 2008, I granted Narellan access to the following documents:
(1)The documents referred to as items 3 and 7 in the table of documents produced by Professor Shanks in respect of which privilege was claimed by Huntsman;
(2)all the documents referred to in the table of documents produced by Huntsman, in response to para 3 of the Notice to Produce dated 22 October 2008, in respect of which privilege was claimed by Huntsman; and
(3)the documents referred to as items 1, 3, 4, 5, 6, 11, 12, 16 and 21 in the table of documents produced by Huntsman, in response to para 1 of the Notice to Produce dated 30 October 2008, in respect of which privilege was claimed by Huntsman.
At the time, I indicated that I would publish my reasons for the orders I made at the time of pronouncing judgment in these proceedings; I did, however, proffer the following two observations:
(1)First, that I was not satisfied that the evidence put forward and relied upon by Huntsman established that the documents in respect of which I granted Narellan access were privileged.
(2)Second, that I was not satisfied that the evidence put forward and relied upon by Narellan established that Huntsman waived privilege in the communications contained in the other documents referred to in the tables, and Narellan did not put that privilege in issue.
On reflection, I have come to the view that these two observations say it all and I do not think there is any utility in detailing the underlying reasons for my lack of satisfaction, on either Huntsman’s privilege claim, or on Narellan’s waiver claim with respect to those documents to which Huntsman’s privilege claim was not put in issue.
Mr Douglas Turner
Mr Douglas Turner was Narellan’s production manager from 1999. He subsequently assumed the position of production director. Two affidavits of Mr Turner were read (Ex 3), the first affidavit and the second affidavit (see [21] above). He was cross-examined. The significance of his evidence in chief has already been dealt with in [17] to [25] above and an aspect of his evidence in cross-examination was referred to in [62] above.
I accept Mr Turner’s evidence. He responded to the questions put to him in cross-examination directly and in a forthright and efficient manner.
Mr Ian Boniface and Mr Paul Wickham
Both these gentlemen were laminators and sprayers in Narellan’s factory at the relevant times. A short affidavit from each, both sworn 28 October 2008 (Exs 5 and 6 respectively) was read in which each deposed to having been shown the production sheets for pools 9009, 9008, 9004, 9006, 9010 and 8975. Each deposed:
‘Although my name appears on some of the sheets, I have no recollection at all of either these documents or the events which took place at the time they were made in 2001.’
Neither was cross-examined.
Dr Graham Durrant
Dr Graham Durrant, an organic chemist employed by Huntsman gave evidence on its behalf. Three affidavits of Dr Durrant were read, the first sworn on 14 July 2008, the second affirmed on 2 March 2009 and the third affirmed on 2 April 2009. They were collectively marked Ex F. Dr Durrant was cross-examined but his credit was not put in issue.
Dr Durrant was the person at Huntsman responsible for the development of Hetron 942 PAS for Narellan in late 2000 based on preliminary work he had done back in the middle of 1999 in developing a low styrene emission vinyl ester resin in connection with attempts to secure business from another swimming pool manufacturer, and based on Ashland’s formulations for its low styrene emission vinyl ester resin called, Hetron 942/35.
In his affidavit of 14 July 2008 Mr Durrant made the following observations on what he called ‘the Batch Adjustment Section of the Run Sheet (the bottom half)’ (Ex 11:105) – see [55.7] above:
‘47Ordinarily for a resin to be suitable for use in the manufacture of swimming pools, it requires a low Cone and Plate Viscosity, meaning that it is “thin” enough to run through a spray gun, and a high Brookfield Viscosity, meaning that it will be able sit without draining on a vertical mould.
48The specification for the Cone and Plate Viscosity recorded on the Run Sheet is 3.5 to 4.0. The units of measurement of viscosity are Poise (P). The specification for the Brookfield Viscosity is 20 to 30.
49There are seven columns of results recorded for both the Cone and Plate Viscosity and the Brookfield Viscosity. It is not until the last recorded results of 4.0 and 29 respectively that the Hetron942PAS was within specification for these properties as the first three Cone and Plate Viscosity Results and the first six Brookfield Viscosity results were too high.
50The only way in which the Brookfield viscosity could have been lowered is if something with a lower Brookfield viscosity was added. I suspect that additional base resin, such as Hetron 914 or Hetron 922, was added and by oversight not recorded on the Run Sheet resulting in the unaccounted for 410 kg. Both Hetron 914 and Hetron 922 have a lower Brookfield viscosity than Hetron 942.’
And in cross-examination he gave the following evidence (T134):
‘Yes, and you know Narellan contend that it had a manufacturing process which hadn’t produced problems with osmotic blistering prior to the deliver of this material, save in one instance. You understand that – you will have to verbalise your answer, sorry?---Yes.
And you understand that Narellan also contend that after the use of this material and in the period between the delivery of the two supplies, when they also used other resins, there was also no problem with osmotic blistering. You understand that?---That's what I've been told.
And of course this product has never ever been used before or after, so there’s no track record of it being used successfully, correct?--- No.
And we have here, as you’ve conceded, a resin 942 which is uncertain in its composition as to 450 kilograms and there’s some questions about the manufacturing process, correct?---Yes.
Now, I know – and I’m not asking you to express any opinion about what is scientifically certain. I’m not asking you say definitely one way or the other what caused this problem. Do you understand?---Yes.
What I’m asking is that when you draw, as a chemist, all these factors together, although you can’t be certain, it’s more likely than not that something in what was delivered as a result of this manufacturing process caused the problem.
MR SIRTES: Well, I object to that, your Honour. Delivery is more likely than not – it’s very difficult ---
MR LEE: No.
HIS HONOUR: Well, I’ll allow the question.
THE WITNESS: Based on those statistics it looks – probably, yes.’
Dr Durrant’s evidence in cross-examination was that the variance between the amount that was proposed to be produced (4,770 kg), and what in fact was produced (6,830 kg)w was ‘less than ideal’, ‘not good’, ‘[substandard], if you like’ and that even today, there was ‘doubt’ as to what precisely was in the 6,830 kg. His evidence was that it was important in and accepted by the industry that a customer of a corporation such as Huntsman would have regard to whether or not a product was ‘in spec’ in ascertaining whether or nor it purchased the product; that it was ‘a flaw in [Huntsman’s] system, which it [was] not in his power to correct’, to quote a test-result which subsequent testing showed to be false. He conceded that this was ‘not good’; and that to so quote when subsequent testing had shown the product to be ‘out of spec’ was ‘misleading’.
Mr Noel Godfrey
Mr Noel Godfrey is the General Manager (Commercial) of Huntsman and gave evidence on its behalf. Two affidavits of Mr Godfrey were read, the first sworn on 14 July 2008 and the second on 3 April 2009. They were collectively marked Ex FA. Mr Godfrey was cross-examined but his credit was not put in issue.
His evidence in chief did little to contribute to a resolution of the issues between the parties save to resolve the tension between the ‘date tested’ dates appearing on Ex 11; 115, 166 as between ‘27 February 2001’ and ‘1010302’, which Mr Godfrey clarified as ‘..… a reference to the date the results were put into the computer system, namely 2 March 2001’. The test itself was carried out on 27 February 2001.
In cross-examination Mr Godfrey acknowledged that the production sheet for the Resin 942 (Ex 11:105) incorrectly records its composition; that it contained 450 kg of unidentified material that was not in the sample; and that on 19 September 2001, Huntsman (through Mr Holden) told Narellan something that was incorrect and misleading – that the residue of the Resin 942 was still ‘in spec’.
Mr Peter Anthony Knight
Mr Peter Anthony Knight, who has been a plant operator with Huntsman since 1992, gave evidence on its behalf. An affidavit of Mr Knight sworn 3 April 2009 was read and marked as Ex FB. He deposed to a number of matters including the Batch Sheet for the Resin 942 [Ex 11:105], identifying some of the handwriting thereon and one of the initials signing off on entries, ‘PK’, as his own. He was cross-examined, but nothing of significance to a resolution of the issues between the parties emerged.
Mr Terrence John Sharland
Mr Terrence John Sharland, who also had been a plant operator with Huntsman since 1992 and had recently moved to a new position, gave evidence on its behalf. An affidavit of Mr Sharland sworn 3 April 2009 was read and marked Ex FC. He too was able to identify his handwriting and initials as one of four people (including Mr Knight) who had worked on the production of the Resin 942 on or around 26 February 2001. Significantly, Mr Sharland’s evidence was that the total period of manufacture of the Resin 942 was around three days. He was able to make these observations by ‘working out the shifts of the guys who worked on the manufacture of the batch as set out on the batch sheet’. He too was cross-examined but nothing of significance to a resolution of the issues between the parties emerged.
The Expert Evidence
Narellan called expert evidence from Professor Graeme Allan George, Professor of Polymer Science at the School of Physical and Chemical Science, Queensland University of Technology, Brisbane, Queensland. Seven reports (together with annexures) of Professor George dated 28 March 2007, 14 April 2008, 4 August 2008, 24 November 2008, 10 December 2008, 15 December 2008 and 16 December 2008 were tendered and marked Ex 7.
Huntsman called expert evidence from Professor Robert Shanks, Professor of Polymer Science at the School of Applied Sciences, Royal Melbourne Institute of Technology, Melbourne, Victoria. Four reports (together with annexures) of Professor Shanks dated 11 July 2008, 12 December 2008, 13 February 2009 and 27 February 2009 were tendered and marked Ex G.
Two conclave reports prepared by Professor George and Professor Shanks dated 11 August 2008 and 3 March 2009 were tendered and marked Ex 8.
The Conclave Reports
The first conclave report, that of 11 August 2008, relevantly reads as follows:
‘2. Points of Agreement:
2.1 Blistering in Narellan Pools
2.1.1 There is a high incidence of blistering in pools where Hetron 942 has been used in the tie layer.
2.1.2 Blisters occur in the tie layer close to (within ~100µm) but not including the gelcoat (shown by microscopic examination of the pool cutouts taken around the blister)
2.1.3 Blisters form where there are glass fibres present in the tie layer
2.1.4 Blisters in a tie layer may form when there are water soluble materials (either present initially or formed by the action of water) and/or poorly bonded fibres
2.1.5 There is no evidence for blisters deep in the tie layer or in the structural laminate of any pool sections examined
2.1.6 The blisters examined are on the order of 1 cm in diameter.
2.1.7 The nature of the blistering is similar for all pool samples examined (ie. not dependent on gelcoat composition).
2.1.8 There is evidence that there is a layer of vinyl ester resin and wet-out glass fibres against the gelcoat in a region of tie layer away from the blisters.
2.2 Composition of tie layer in pools fabricated with Hetron 942
2.2.1 The tie layer of a blistered Narellan pool analyzed by Ashlands and independently by Prof George, by infra-red micro-spectrophotometry, exhibited a peak which gave evidence for the presence of a terephthalate resin as well as a vinyl ester resin within the tie layer.
2.2.2 This has been confirmed by spectral comparison with a spectrum of the known terephthalate resin in the structural layer.
2.2.3 Spectral subtraction has shown that this terephthalate resin was present in the tie layer of blistered pool 8036, made with Hetron 942 resin, and not pool 8031 which was not made with Hetron 942 resin.
2.2.4 The origin of the terephthalate resin in the tie layer is unknown.
2.2.5 Measurement of the relative amount of terephthalate compared to vinyl ester resin shows that within error the amount appears constant across the tie layer.
2.3 Specification and composition of Hetron 942 resin delivered to Narellan Pools
2.3.1 The composition of Hetron 942 resin, batch 05310911, is uncertain because of an amount of 400 to 450 kg that cannot be accounted for in the production (run) sheet.
2.3.2 Examination of several run sheets has indicated to us that it was normal practice to record only the final test data in the last column.
2.3.3 This practice appears to have been followed in the case of batch 053109001 of 26-Feb-01 so that the amount of 400 to 450 kg extra resin and/or styrene cannot be accounted for as the necessary extra material to achieve specification.
2.3.4 Examination of the production sheet shows that the gel time was probably not measured after the final addition of three drums of Hetron 914, but it is not possible to determine whether this is significant.
2.3.5 The gel time specification is agreed to be 30 to 40 min.
2.3.6 The resin supplied in the second delivery was out of specification for viscosity (both cone and plate, and Brookfield).
2.3.7 There is no significant difference between the incidences of failure (37 %) for the second delivery compared with the first delivery (35 %) of Hetron 942 resin.
2.3.8 Extra additives were included in the production (possibly after the addition of one drum and then two drums of Hetron resins, based on the proportion of additives added) to allow for the accelerator and stabiliser components.
2.3.9 The production batch of 26-Feb-01 differed in composition from the trial batch of 17-Nov-00, because of the extra resin and additives.
2.3.10 The thixotrope level in the production batch of 26-Feb-01, following addition of extra resin, approached the value in the trial batch of 17-Nov-00.
2.2.11 The differences in styrene concentration between the trial and production batches are not believed to be a factor in the formation of blisters.
2.4 Fabrication procedure for Pools at Narellan Pools
2.4.1 From separate site visits conducted by both experts, the pool fabrication procedure was such as to avoid incorrect resin application and/or contamination by having a separate work station for each layer of the pool construction process.
2.4.2 Spraying of resin and glass fibres and consolidation of resin and glass fibres was in accordance with expectations. Resin thickness was intermittently checked with a depth gauge.
2.4.3 The production records show an apparent wide difference between time of fabrication for different pools that could be construed as an indication of excessive time between depositing successive layers. However there is no correlation between these figures and incidence of failure.
2.4.4 We have been advised that the time taken between depositing the gelcoat and tie layer is less than 24 hours, but this is not recorded on the production sheets.
3. Points of disagreement
In the following section, the points of disagreement are presented as separate position statements which give each expert's opinion on the evidence and any moderation of the points of agreement in Section 2 which is felt to be appropriate.
3.1 Position of Professor George.
The evidence is presented in more detail in my Reports of 12 July 2004, 28 March, 2007 and 14 April, 2008. The important points and interpretation of the evidence from these reports are summarized below.
3.1.1 The statistics of failure of pools fabricated by Narellan Pools with Huntsman Hetron 942 resin Batch 053109001 point to a fundamental problem with the resin as supplied in the two deliveries of March and November 2001. The failure rate of these pools was 34% compared to an industry accepted standard achieved by Narellan of <1 % when using resin other than this batch of Hetron 942.
3.1.2 Three units (pools or spas) were fabricated with a Trial batch of 197 kg of Hetron 942 (Batch 238-034) manufactured by Huntsman in November 2000 and none of these have failed. In contrast, 77 units were manufactured with tie layer resin containing (either totally or partially) Hetron 942 resin of Batch 053109001 of 6830 kg. Of these, 28 units or 36% have failed by blistering of the tie layer.
3.1.3 Examination of production and Quality Assurance (QA) records for this batch of resin (053109001) point to it differing significantly from the trial batch of resin (238-034) in composition and compliance with the Huntsman specification for this resin.
3.1.4 The production sheet for Batch 053109001 shows that what was originally intended to be a batch of 4770 kg had become a batch of 6830kg through addition of extra resin and styrene because the resin could not readily be brought into viscosity specification. This may be linked to the contaminant discussed in 3.1.5 below, but was exacerbated by the fact that the Manufacturing Instruction No 53584 for batch 053109001 had a level of thixotrope (Aerosil 202) viscosity modifier that was 36% higher than used in the trial batch. The attempts to bring the resin into specification resulted in the addition of extra resin so the ratio of Hetron 922 to Hetron 914 changed as did the content of stabilizers, accelerator etc. (In spite of the addition of further additives, these were still ≥20% below what had been used in the trial batch).
3.1.5 Further, there is an amount of 400 to 450 kg of unknown material that has been added as part of this process of adjustment or was an unknown contaminant at the beginning of the batch. There is strong evidence that the Hetron 942 resin in the tie layers of pools fabricated by Narellan contains a contaminant which is a terephthalate resin. This is manufactured by Huntsman as a laminating resin and it may be the unknown extra material in 2.2.2 above. The fact that it is seen in uniform concentration through the tie layer of all pools analyzed by IR micro-spectrophotometry suggests that it has not arisen due to interpenetration from the laminate during fabrication, but was originally present in Batch 053109001. In addition, the levels of contaminant in all pools examined appears to be similar.
3.1.6 Inspection of the factory of Narellan Pools has shown that it is not possible for laminating resin to contaminate the tie layer resin. The Hazcons delivering the resin are sealed and tapped into directly. The work stations and spray equipment for the tie layer are separated and not used for laminating.
3.1.7 The QA records of Huntsman show that the resin as supplied by Huntsman to Narellan in the second delivery in November 2001 was outside viscosity specification and no adjustment had been made by them prior to delivery. Further, Huntsman advised Narellan that it was in specification and provided a QA sheet from the original production and not the QA data that had been generated on the resin actually delivered.
3.1.8 By using the Huntsman QA data for viscosity as measured on the resin batch 053109001 at manufacture and during storage, it may be determined that it drifted quite quickly out of specification such that it is likely to have been at the upper limit of, or just outside viscosity specification at the time that Narellan fabricated the first pools with this batch in March 2001.
3.1.9 The sum of these composition and performance differences between the trial batch 238-034 and the production batch 053109001 would have been to provide a material with different microscopic wetout properties when used to make pools by Narellan in the usual way. Further the contaminant will have compromised the integrity of the vinyl ester resin and its inherent resistance to hydrolysis (since a terephthalate resin has inherently lower hydrolytic resistance than a vinyl ester resin).
3.1.10 For the above reasons, the Hetron 942 resin batch 053109001 when used as a tie layer by Narellan Pools did not have the necessary quality or performance characterisitics [sic] to provide pools with resistance to osmotic blistering.
3.2. Position of Professor Shanks
My observations, testing and interpretation is presented in my reports of 6 October 2004 and 15 July 2008. Information from these reports is included in the points of agreement and some further points are raised in this section.
3.2.1 Hetron 942 was a special low styrene content vinyl ester resin based on Ashland Hetron 942/35. Cone-plate and Brookfield viscosity measurements, performed by Huntsman Chemicals, aim to predict the performance in a spray gun and upon subsequent consolidation. The behaviour of Hetron 942 in spray application, with glass fibres, may be different from the behaviour of other vinyl ester or unsaturated polyester resins.
3.2.2 No comparable low styrene content vinyl ester resin is known to me to be available from Huntsman Chemicals or their competitors. I am not aware of Narellan Pools, previously or at the time of using Hetron 942, using an alternative low styrene content resin.
3.2.3 The trial batch was submitted to the normal quality control tests. I am unaware of any more rigorous performance testing being carried out by Huntsman Chemicals or Narellan. The basis on which the trial batch was accepted and upon which Narellan decided to proceed with order of a production batch has not been revealed.
3.2.4 The trial batch was used in preparation of three pools. There was no reported blistering. On the basis of the overall incidence of blistering of 36 % this would suggest that one pool of the three prepared from the trial batch should blister. The sample size of three pools, however, is insufficient to attribute significance to the observations of the three pools.
3.2.5 The gel coat and tie layer of sampled failed pools were readily separated, mainly along the interface. This indicates poor fibre wet-out by the resin or incomplete consolidation of the resin-fibre glass mixture in the vicinity of the gel coat-tie layer interface.
3.2.6 Incomplete cure of the Hetron 942 in the tie layer, prior to spraying the structural layer, was not supported by inspection nor observed in tests such as Barcol Hardness.
3.2.7 The source of contamination by terephthalate is unknown. The normal procedures of Huntsman Chemicals and Narellan Pools would avoid such contamination. The resin batch prepared prior to Hetron 942 PAS was Aropol 6433PAS that consists of Hetron FR992H, a vinyl ester resin, and an ortho-phthalate resin (Annex 7). Terephthalate resin was not present in the prior batch. Further, it is unknown whether an impurity of terephthalate would lead to blistering.’
(Emphasis added)
Huntsman submitted that if the dominant scientific explanation of the pool failures is a gross contamination by terephthalate (at 30%), as the latest expert reports suggest, the evidence does not allow the Court to form any view as to the source of the contaminant. Each of the parties’ evidence provides exculpatory explanations, no more plausible than the other, denying themselves as the source of the contamination. Industrial sabotage is just as possible as any other available explanation.
Narellan advanced reasons why the terephthalate could not have been added by it, thereby implicating Huntsman. Huntsman’s evidence emphatically establishes that the contaminant could not have been added during the manufacturing stage, for a number of reasons:
(1)As Narellan was at pains to demonstrate at the outset of the hearing, 450 kg of material is not accounted for on the Production Sheet of Batch 053109001. The balance of the 6,830 kg are wholly accounted for and Narellan has no basis to suggest otherwise. There is no avenue for terephthalate to constitute up to 30% of the mixture (i.e. over 2,000 kg);
(2)the manufacturing process at Huntsman was careful and regulated albeit not perfect. Even though 450 kg of material has not been identified, this is not of great moment because the copious testing of the pool samples has never revealed that, other than the terephthalate, some other unaccounted for additive (not otherwise reflected in the Production Sheet) was mixed into the Hetron. Moreover, for the reasons advanced by the Huntsman technicians, there would be no ability to have mixed terephthalate into the mixture at the manufacturing stage;
(3)the Production Sheet makes plain that no terephthalate was entered into the mixture in the quantities identified by the experts;
(4)if around 2,000 kg of terephthalate was added to the mixture there would have been in excess of 8,000 kg of Hetron 942. There was not. Huntsman delivered only 6,830 kg of Resin 942.
Huntsman submitted that if the Court is unable to find that Huntsman created the contaminated product Narellan is unable to establish that any of the pool failures have been caused by Huntsman. The product used by Narellan was not Hetron 942 – it was an unauthorised hybrid resin that was part vinyl ester, part polyester resin, with its own properties (gel time, etc.) and characteristics. Huntsman made no representations about this formulation in the same way that Huntsman made no representations about any of the ‘one before-one after’ hybrid Derakane/Hetron pools.
Huntsman further submitted that Narellan’s exculpatory explanations denying how the terephthalate contaminated the Hetron 942 is largely founded on the contention that in 2001 Narellan’s manufacturing processes prevented cross-contamination taking place. Unlike Huntsman’s premises, where raw materials were not stored anywhere near the manufacturing precinct, Narellan stored and used terephthalate in close proximity to its vinyl ester resin. The potential for such contamination was far more physically proximate in Narellan’s premises than at Huntsman’s. The calibre of evidence that suggests that in 2001 Narellan’s factory premises were configured to make such cross-contamination impossible or unlikely is poor.
In conclusion on this point, Huntsman submitted that if, as the expert’s agree, the terephthalate contamination may have been partially responsible for the blister formation and the Court cannot (and ought not) attribute any finding to Huntsman as the source of the contamination, it is not clear how Huntsman can be held liable for any damage caused by the use of a product it made no representations about or contracted to sell (i.e. the hybrid contaminated product).
The ‘Out of Specification’ argument
Huntsman submitted that the argument raised by Professor George that the Resin 942 was `out of spec.’ (specification) by the date of delivery of the second batch on November 2001 is a distraction because on Narellan’s case the failures are equally distributed between the pools made in March 2001 and those made when the Hetron was ‘out of spec’ in November 2001. Professor George confirmed this during the following exchange during cross-examination:
‘Q. So the fact that the November batch was out of spec does not seem to suggest that it was responsible for any of the pool blisters to the extent that the same problems seems to manifest themselves in the March batch?
A. Yes, it would be an issue which would not be a correlation in that sense.’
For that reason, the argument offers no explanation for the March blistering and detracts from any argument that the November 2001 batch of Hetron caused pool blistering because it was not within specification.
The ‘hydrophilic thixotrope’ argument
Huntsman submitted that this argument by Narellan served to demonstrate the length it is prepared to go in these proceedings to hatch any argument, absent any proper evidential foundation, that may have the slightest possibility of impugning the quality of the Resin 942. Narellan, in submitting that there is sufficient evidence on the balance of probabilities that a hydrophilic thixotrope was added to the Hetron 942, adopts a selective approach to the sweep of evidence on this topic.
Much emphasis is placed by Narellan on Professor Shanks’ notes taken at a meeting with Huntsman on 7 June 2004. Professor Shanks was cross-examined on this issue not once, but twice, with each attempt failing to secure anything even vaguely approaching an admission by Professor Shanks that he was advised by Huntsman that a hydrophilic thixotrope was used as an element of Resin 942 at the relevant time. Indeed, this would have been contrary to the evidence given by Dr Durrant that it was not.
The uncontroverted evidence of Dr Durrant and Mr Knight relegate this submission to the category of an absurdity that ought be rejected as having no basis at all. The Court ought also note the position of the experts on this issue at para 2.1.9 of the Second Conclave Report which relegates the theory to the obscurity it deserves.
The ‘Hetron FR992H was added’ argument
This theory was floated for the first time in the Second Conclave Report at para 2.1.8. Narellan has devoted roughly five pages in its submissions to promoting this theory including, for good measure, an attack on Professor Shanks partiality in relation to a theory that both he and Professor George consider to be bunkum. Again, Narellan’s devotion to a theory rejected by its own expert demonstrates the scatter gun approach adopted to impugn the quality of Resin 942 even despite the experts themselves rejecting it as being ‘extremely unlikely’ – perhaps the most strident language adopted by them in all of their reports (joint and separate).
The ‘450 kg contaminant’ argument
Narellan submitted that in the absence of any explanation as to the identity of the missing ingredient the Court ought infer ‘that this contaminant may well have been in some way responsible for the failure of the Resin 942’.
Huntsman submitted that there are a few obvious problems with this argument. First, Narellan has no basis to describe the missing 450 kg additive as a ‘contaminant’. Merely because there was a failure to notate one of the additives that was added in the process of reaching a product that fell within specification does not establish that any contaminant was added. It is far more probable that the missing 450 kg was either an additional drum of 914, or 922 or styrene. Secondly, the absence of the additive’s identity precludes the Court – and precluded the experts – from expressing any view that the mystery additive was responsible for the pool blisters.
What is the most satisfactory explanation of causation?
Huntsman submitted that if the pool failures are not the result of a gross (30%) contamination by terephthalate (as the experts now suggest), then the unshaken expert evidence of Professor Shanks is that the most likely explanation of the pool failures is that Narellan did not adjust its manufacturing method to accommodate a low styrene resin.
It is agreed that Narellan’s manufacturing processes did not change and this may have been the precise cause of the problems.
It was a product that Professor Shanks believes may have had different rheological (i.e. physical) properties to Derakane, and may have needed to be treated differently. Professor Shanks says that Narellan had to recalibrate its manufacturing method to accommodate such a resin.
The theories advanced by Narellan are largely inconsistent with a defective product and more consistent with a fabrication and quality control problem associated with Narellan using a new product for the first time having never used a low styrene vinyl ester resin product.
The Court was invited to consider the lack of experience that Narellan had in working with the Hetron 942 product. The evidence on this topic was as follows:
(1)Mr Meyer accepted, during cross-examination, that the spray gun operators were liable to error. He conceded that an operator put too much vinyl ester resin into one of the Seaspray 10 pools;
(2)Narellan had a very lengthy and apparently close working relationship with FGI (who supplied Derakane). The form of the Production Sheets was prepared by Narellan in conjunction with FGI;
(3)FGI had been supplying Narellan with vinyl ester resin for a number of years;
(4)when Narellan ordered the low styrene Hetron 942 it had never before used a low styrene vinyl ester resin;
(5)other than in March and November of 2001, Narellan otherwise used the FGI product;
(6)when Jamie started spraying the vinyl ester resin in March 2001, that was the first experience he had in applying that product.
The Court will recall that in one of the Production Sheets it described the vinyl ester resin as ‘Hetron Shit’. Of course, no definitive meaning can be attributed to this derogatory description but the spray gun operator was plainly not satisfied with the physical properties of Resin 942. It was only purchased, according to Mr Turner, as a back up for the principal use of Derakane. It was a product that no one at Narellan had any experience in working with.
Findings going to Causation
I have already made a number of findings of fact by way of background: see [1] to [8] inclusive above; in relation to the representations as pleaded: see [16] – [39] inclusive, and [48] above; in relation to what Narellan claims are ‘the critical documents in the case’: see [55] above; and in relation to Mr Meyer’s evidence: see [58] – [62] inclusive above. Some of these findings are relevant to the issue of the cause of the osmotic blistering; but the lack of evidence going to the precise or exact cause of the blistering, mandates a closer and wider scrutiny of such evidence as exists, with a view to enabling the Court to make appropriate findings upon which to found its conclusions.
Whether only Resin 942 Pools have failed?
My acceptance of Mr Myer’s evidence as providing a sound basis (see [58] above) for his conclusions that the production sheets for pools 9004, 9006, 9009, 9010, 9008 and 8975 wrongly identify FCM/Derakane/SPV 6003 as the resin used in the tie layer of those pools rather than Huntsman’s Resin 942; and that the production sheet for pool 8999 wrongly identifies the tie layer resin as FCM/Derakane/SPV 6003 rather than as mixed resin; as well as the consensus of the experts (Ex 8; second conclave report, pp 1, 2 and App 1, p 8; see [95] above) that contrary to Narellan’s production records, pools 8980, 8999, 9008 and 9009 were manufactured with ‘Hetron 942 (batch 053109001)’, in other words, Resin 942 and not Derakane resin from FGI, leads me to find that pools 9004, 9006, 9009, 9010, 9008 and 8975 were manufactured with a tie layer of Resin 942 contrary to Narellan’s production records; and that pools 8980 and 8999 were not manufactured with a tie layer of Derakane/SPV 6003 resin but, contrary to Narellan’s production records, were mixed resin pools.
It is not in dispute, and I find, that of the eight pools referred to in [158] above, four (pools 8980, 8999, 9008 and 9009) have failed in the sense of manifesting osmotic blistering.
As noted in [8] above, Narellan has identified 61 pools as having been made exclusively with Resin 942. Apart from pools 9004, 9006, 9009, 9010, 9008 and 8975 this was not disputed by Huntsman and in the face of my first finding in [158] above, I find that all 61 pools identified by Narellan as having been made exclusively with Resin 942 were so made.
Again, as noted in [8] above, Narellan has identified 17 pools as being mixed resin pools. Apart from pools 8980 and 8999, this was not disputed by Huntsman and in the face of my second finding in [158] above, I find that all 17 pools identified by Narellan as mixed resin pools were mixed resin pools.
Again, as noted in [8] above, Narellan has identified 33 of the 61 pools referred to in [160] above as having failed due to the incidence of osmotic blistering. While Huntsman did not dispute the failure of 26 of these pools, it maintains that evidence regarding failure of seven pools (8033, 8037, 8048, 8052, 8055, 8985 and 9016) has not been adduced, although, in the case of pool 8037, the consensus of the experts would seem to be that it has failed. Accordingly, for the purposes only of the limited issue of liability, I find that at least 27 of the 61 pools referred to in [160] above have failed due to the incidence of osmotic blistering.
Again, as noted in [8] above, Narellan has identified two of the 17 pools referred to in [161] above as having failed due to the incidence of osmotic blistering. This was not disputed by Huntsman and accordingly I find that at least two of the 17 pools referred to in [161] above have failed due to the incidence of osmotic blistering.
The consensus of the experts (Ex 8; second conclave report at pp 1, 2; see [95] above) that infra-red (FT – IR) analysis of the tie layer of the retained samples of pools fabricated by Narellan from batch 053109001 of Hetron 942, performed by Ashland Chemicals as well as separately by Professors Shanks and George, shows a prominent signature at 730cm-1. The experts concur that infrared analysis of the tie layer of pools fabricated by Narellan using Derakane resins does not show the signature and this may be used to differentiate pools that have been manufactured using Derakane resin from those using Hetron 942 resin of batch 053109001 or, in other words, Resin 942. By recourse to this analysis, the experts concurred on the results set out in Appendix 1 on p 8 of the second conclave report and, in consequence, I find that none of the pools there listed which had a tie layer composed, from FT – IR analysis, of Derakane failed due to the incidence of osmotic blistering whereas all of the pools there listed which had a tie layer compound, from FT – IR analysis, of Resin 942 failed due to the incidence of osmotic blistering.
In the face of the findings in [158] and [164] above, I find that no pool with a tie layer manufactured with Derakane/SPV6003 resin has failed due to the incidence of osmotic blistering and that all pools that have failed to date due to the incidence of osmotic blistering have a tie layer manufactured with Resin 942 or are mixed resin pools.
On the basis of the foregoing findings, I find that to date 44% of pools which have a tie layer manufactured with Resin 942 have failed due to the incidence of osmotic blistering and that 12% of mixed resin pools have similarly failed.
The fact that only 44% of Resin 942 pools have failed
Huntsman, in its submissions, made much of the statistic, that ‘only about 40%’ of Resin 942 pools have failed, by reference to the corresponding statistic that: ‘Sixty percent of the pools constructed with Resin 942 have been blister free since 2001/early 2002’. Huntsman submitted that this fact cannot be reconciled with Narellan’s case that the Resin 942 was inherently unsuitable for the construction of fibreglass pools. Assuming the submission is not made ‘tongue in cheek’, on its own the statistic is meaningless. First, it conveniently avoids all future failures. Second, a further six pools are alleged to have already failed (see [162] above), and while Huntsman did not concede this on the state of the evidence, if it transpires to be so, the failure rate for Resin 942 pools will be over 54%; and into the future the failure rate can only increase. Third, it avoids the finding at [165] that no pool with a tie layer manufactured with Derakane/SPV 6003 resin has failed due to the incidence of osmotic blistering.
A Fabrication Problem?
Huntsman submitted that the fact that 60% of the pools have not (yet) suffered any failures strongly points to a fabrication problem, not a constitutional deficiency with the Resin 942. This submission has no evidentiary foundation whatsoever. That aside, assuming a constitutional deficiency in the Resin 942 caused the pool failures, without knowing the precise constitutional deficiency which was the cause (and it is beyond argument that the Resin 942 had more than one potential constitutional deficiency), it is not possible to make any meaningful prediction as to what failure rate might be expected. Assuming a fabrication problem caused the pool failures, without knowing the precise fabrication problem which was the cause, it is not possible to make any meaningful prediction as to what failure rate might be expected.
If it is not common ground, then it is not disputed by Huntsman that Narellan’s manufacturing record over many years is essentially without incident; it has manufactured many thousands of fibreglass pools which, save for the pools the subject of this proceeding, have invariably maintained their integrity. It was not put to any of Narellan’s lay witnesses that the osmotic blistering was due to Narellan’s manufacturing processes or techniques and it was common ground between the experts that Narellan’s pool fabrication procedure was such ‘as to avoid incorrect resin application and/or contamination’ (see [90] above: [2.4] of first conclave report; and [95] above: [2.2.2] of the second conclave report). In the course of his cross-examination, Professor George was asked some questions going to Narellan’s fabrication process (at T 39 (07.04.09)):
‘The other important factor, that is, the fabrication process, was based upon a site visit on 1 March 2007 and assumptions that you have been asked to make about the quality of the fabrication process?‑‑‑From my instructions.
Yes. In your reports, you have devoted no analysis, can I suggest to you, to considering the details of the fabrication process to assess how they may have contributed to the blistering?‑‑‑Correct. Your Honour, could I elaborate?
Please do?‑‑‑When one is examining a set of data where people have moved from one resin to another, one makes an assumption that they have kept the same operating procedure, so that if you have the operators operating in the usual way, and we move from one resin to another then back to it again, and we only see the failure occurring when they have changed the resin, then it is a reasonable assumption that the fabrication procedure has not changed over that period. If there were some features of that resin that meant that the fabrication procedure that was usually used did not work, then yes, you may have a problem with the wet through and the wet out of the resin - of the glass by the resin.
If you were using a different kind of vinyl ester resin, with different rheology, it may be necessary to recalibrate or reconsider the particular fabrication processes that you have deployed; correct?‑‑‑I can’t comment on that.’
Professor George was cross-examined at some length over his alleged failure to devote any analysis in his reports to considering various aspects of the fabrication process. Some of these aspects are referred to in Huntsman’s written submissions at [137(6)] above. The underlying premise of the questioning process was that because Resin 942 and Derakane are different products, it could not be assumed that the process of their application in the fabrication process should be the same; and Narellan had no experience of ever having applied Resin 942. This conveniently ignores the fact that Narellan had successfully applied the production sample to three shells. But more importantly, the falsity of the assumption has no evidentiary foundation. Neither Professor George nor Professor Shanks expressed a view, individually or in conclave, that suggested that Resin 942 called for different application procedures than Derakane in the fabrication process. Nor did Dr Durrant. Certainly nothing along those lines was ever conveyed by Huntsman to Narellan at any relevant time.
Having regard to the matters referred to in [168] to [170] above, I am satisfied that the fabrication procedures at Narellan were not the cause of the pool failures and that the cause lies elsewhere.
The Terephthalate Mystery
This matter has its provenance in the points of agreement of the experts at [2.1] of the second conclave report, in particular [2.1.1] to [2.1.6] (see [94] above). At [2.1.5] the experts agree:
‘The estimated level of contaminant, if it is assumed to be a terephthalate resin, is around 30% which would be over 2000 kg.’
Huntsman’s description of it as a ‘mystery’ goes not so much to the identity of the contaminant, although the experts agreed it was ‘uncertain’ ([2.1.5]), but to how it got there in the quantity it did. Huntsman contended that it was not open for the Court to find that Huntsman tipped it in and in the absence of such a finding, or a finding as to how the contaminant got there in the quantity it did, then whatever caused the blistering, it was not Hetron 942; it was something else. According to Huntsman, as a matter of legal analysis, it may be seen as some form of novus actus interveniens which breaks the claim of causation.
It is clear from a number of ‘the critical documents in the case’, referred to by Narellan in opening, in particular those referred to at [55(1), (3), (4) and (5)] above (Ex 11: 25, 26, 34, 103, 105) that the Resin 942 was not manufactured in accordance with Huntsman’s own specifications as prepared and approved by Dr Durrant. These specifications contemplated a yield of 4,770 kg of Hetron 942 per batch comprising 3,000 kg of Hetron 914 and 1,260 kg of Hetron 922 as well as other components in their quantities there listed. Only 3,000 kg of Hetron 942 was ordered by Narellan so that if the Resin 942 had been manufactured according to Huntsman’s own specifications to yield 4,770 kg of Hetron 942, that would have been more than sufficient to fill Narellan’s order. No explanation was forthcoming from Huntsman as to why 6,830 kg of Resin 942 was produced nor, apart from what was, or was not, recorded on the production sheet for Resin 942, the identity of the components of the additional quantity of 2,053 kg. The production sheet records that an additional four drums of Hetron 914, an additional three drums of Hetron 922 and an additional 300 litres of styrene were added but it was common ground between the experts, Professors George and Shanks, that despite these batch adjustments, there was another 400 – 450 kg of material, to yield 6,830 kg of Resin 942, which simply cannot be accounted for. Moreover, having regard to other patent deficiencies in the recordings made on the production sheet for the Resin 942, e.g., the absence of batch numbers for the Hetron 922 and Aerosil 202, and in the absence of Huntsman calling any of the operators responsible for the manufacture of the Resin 942, in particular GC and PK, I have significant reservations about the extent to which reliance can be placed on the production sheet for the Resin 942 as to the identity of the batch adjustments which were made and which resulted in an over-yield of some 2,053 kg. My reservations in this regard assume a greater importance, and indeed significance, in the face of the agreement of the experts, Professors George and Shanks, in the second conclave report that pools manufactured with the Resin 942 all have an infra-red signature that is consistent with a terephthalate impurity level of around 30% (see [95] above), namely, 2,049 kg (cf., 2,053 kg) of the total yield of 6,830 kg.
Accepting the agreed view of the experts that: ‘Narellan has procedures in place to ensure that contamination cannot occur’ ([2.2.2] of second conclave report); and that: ‘Huntsman has procedures in place … reducing the risk of contamination’ ([2.2.3] of that report), the fact remains that for the reasons referred to in [174] above, the production sheet for the Resin 942 is sufficiently doubtful in terms of its reliability and accuracy, that in the absence of evidence from those operators responsible for making the batch adjustments and writing up the production sheet, it is open for me to find, and I so find, that it does not properly record batch adjustments of over 2,000 kg.
For these reasons, and accepting, as I do, Narellan’s submissions set out at [113] above, I am satisfied, on the balance of probabilities, that the source of the contaminant in the quantity agreed by the experts is to be found in Huntsman’s manufacturing process, rather than in some intervening act or default on the part of Narellan in the course of its fabrication procedures.
CONCLUSION ON CAUSATION
For all the foregoing reasons, and notwithstanding that the evidence does not permit me to find the precise constitutional deficiency or deficiencies in the Resin 942 that caused the osmotic blistering, I am satisfied, on the balance of probabilities, that the cause of that blistering in pools manufactured by Narellan was the use of Resin 942, either alone or mixed with another vinyl ester resin, in the ‘tie layer’ of those pools.
TRADE PRACTICES ACT
I return to consider Narellan’s pleadings at [32] – [34] set out at [41] above, that:
(1)The first representations – which I found at [17] and [25] above were made by Huntsman and relied upon by Narellan;
(2)the second representations – which I found at [29], [30], [32] and [33] above were made by Huntsman and relied upon by Narellan;
(3)the third representations – which I found at [36], [37], [38] and [39] above were made by Huntsman and relied upon by Narellan,
were misleading or deceptive, or likely to mislead or deceive at the time they were made.
In the face of the conclusion in [177] above, I find that each of the first representations, the second representations and the third representations were misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the TPA.
I have already made findings at [43] – [49] inclusive above that Huntsman did not have reasonable grounds for the making of such of the first, second and third representations as are pleaded at paragraphs 9(a), 11(a) and 12(a) of Narellan’s ASC. In consequence, they are taken, by s 51A(1) of the TPA, to be misleading.
In the face of the conclusion in [177] above, and the findings at [16] – [39] above, Huntsman’s conduct in making the first, second and third representations also contravened s 53(a) of the TPA, as pleaded in para 36 of Narellan’s ASC, which relevantly prohibits a corporation, in trade or commerce, in connection with the supply of goods from falsely representing that the goods are of a particular standard, quality, grade, composition or have had a particular previous use.
CONTRACTS
In the face of the conclusion in [177] above, I find that Huntsman breached its contract with Narellan for the supply of 3,000 kg of Hetron 942 in March 2001 and its contract with Narellan for the supply of 3,830 kg of Hetron 942 in November 2001 by reason that the Resin 942 supplied was:
(1)not fit for the purpose which Narellan expressly made known to Huntsman it required the Hetron 942, namely, the production of fibreglass pools, when it was a condition of the contracts implied by s 19(1) of the Sale of Goods Act 1923 (NSW) (‘SGA’) that the resin would be fit for that purpose; and
(2)not of merchantable quality, in circumstances where the Resin 942 was bought by description from Huntsman, which dealt in goods of that description, when it was a condition of the contract implied by s 19(2) of the SGA that the Resin 942 supplied would be of merchantable quality.
ORDERS
I will order the parties to bring in draft short minutes of order to fix a timetable for the further conduct of the proceeding. In the event that the parties are unable to agree, I will order that each side bring in draft short minutes of order to fix a timetable for the further conduct of the proceeding.
I certify that the preceding one hundred and eighty-three (183) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. Associate:
Dated: 25 March 2010
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