Natcraft Pty Ltd v Det Norske Veritas
[2001] QSC 348
•27 September 2001
SUPREME COURT OF QUEENSLAND
CITATION: Natcraft Pty Ltd & Anor v Det Norske Veritas & Anor [2001] QSC 348 PARTIES: NATCRAFT PTY LTD ACN 010 592 775
(first plaintiff)
HENLOCK PTY LTD ACN 010 431 688
(second plaintiff)
v
DET NORSKE VERITAS ACN 000 749 708
(first defendant)
PETER COLLEY
(second defendant)FILE NO: SC No 7976 of 2000 DIVISION: Trial Division DELIVERED ON: 27 September 2001 DELIVERED AT: Brisbane HEARING DATE: 27 – 31 August 2001, 3 – 5 September 2001 JUDGE: Chesterman J ORDER: Judgment for the defendants with costs against the plaintiffs and Mr M J Althaus to be assessed on the standard basis CATCHWORDS: TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – DUTY OF CARE – WHERE ECONOMIC OR FINANCIAL LOSS – where plaintiffs entered into a contract with a builder for the construction of a catamaran – where the builder was obliged to construct a catamaran fit for inspection and granting of certificate of survey inspection from Department of Harbours and Marine – where builder engaged first defendant to approve drawings and to ensure the catamaran was built with the proper materials and workmanship to the approved drawings – where second defendant inspected the catamaran during construction – where plaintiffs engaged a naval architect to supervise the construction of the catamaran – where catamaran developed serious structural defects after only eight voyages – where the catamaran was not fit for Department of Harbours and Marine – role of a “classification society” – whether defendants owed a duty to the plaintiffs to ensure the catamaran built fit for Department of Harbours and Marine approval – whether defendants owed a duty to the plaintiffs to warn them the catamaran had not been built fit for Department of Harbours and Marine approval – whether plaintiffs relied upon the defendants to inform them of the defects – meaning of “vulnerability”
Caparo Industries Plc v Dickman [1990] 2 AC 605, cited/not followed
Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1, cited
De Pasquale Bros Pty Ltd v Cavanagh Biggs & Partners Pty Ltd [2000] 2 Qd R 461, cited
Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236, cited
Harris v Wyre Forest District Council [1990] 1 AC 831, cited
Marc Rich & Co A.G. v Bishop Rock Marine Co Ltd [1996] 1 AC 211, cited
Merret v Babb [2001] 3 WLR 1, cited
Mariola Marine Corporation v Lloyd’s Register of Shipping (The “Morning Watch”) [1990] 1 Lloyd’s Rep 547, cited
Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 75 ALJR 164, referred to
Perre v Apand Pty Ltd (1999) 198 CLR 180, followed
Smith v Eric S Bush [1990] 1 AC 831, cited
COUNSEL: The first and second plaintiff did not have legal representation; Mr M J Althaus appeared on their behalf with the leave of the court
Mr G A Thompson SC for the first and second defendant
SOLICITORS: The first and second plaintiff did not have legal representation; Mr M J Althaus appeared on their behalf with the leave of the court
Ebsworth & Ebsworth for the first and second defendant
CHESTERMAN J: In 1988 the plaintiffs formed a partnership which they termed “Island Adventures” the intended business of which was to carry tourists on day trips from Mackay to the attractive but unfrequented islands found in the seas south of the Whitsundays.
The first plaintiff is a company which is owned and directed by Mr Michael Althaus. At the time of the events relevant to the action he was the owner of a business which sold motor car tyres. He had no experience in operating a commercial passenger vessel or in providing entertainment to tourists. The venture was initially to be the first plaintiff’s but the second plaintiff joined in when Mr Althaus’s financial resources proved inadequate.
Until 16 August last the second plaintiff was a company owned and directed by Mr Dennis Connole, a chartered accountant who was Mr Althaus’s professional and business adviser. On 16 August Mr Althaus acquired Mr Connole’s shareholding in the second plaintiff for a nominal consideration. The transaction coincided with an intimation from the defendants that they may seek an order for security for their costs of defending the action. Neither plaintiff has any assets or income. The second plaintiff had been trustee for Mr Connole’s family trust but it relinquished that office when Mr Althaus acquired it.
The plaintiffs terminated their legal representation a day or so before the trial began. Mr Althaus applied for leave to appear for the companies and I gave it. Though without legal training Mr Althaus represented the plaintiffs with intelligence and organisation. He had the benefit of the preparation for trial undertaken by his solicitors and counsel so that the case was able to proceed relatively smoothly. Indeed Mr Althaus showed some skill as an advocate, remaining at all times polite though earnestly pressing his companies’ case.
The first defendant (“DNV”) is a classification society and one of the three biggest such societies in the world. Although formally a company incorporated pursuant to the Corporations Law it is an emanation of a Norwegian foundation established in 1864 to safeguard life and property at sea. According to its regional manager for Australia and New Zealand, Mr Dillenbeck, it does not have shareholders and does not make profits. Fees charged for its services are directed towards covering operating expenses and providing funds for research into ways of making seafaring safer.
At all times relevant to the action the second defendant was employed by DNV as a marine surveyor in its Cairns office. He is a qualified and experienced marine engineer.
The first requirement for the partnership was a boat to carry tourists to the islands and back to Mackay in comfort, and in a day. What was needed was a vessel both fast and stable so that she could ply the often rough waters between the islands and Mackay without having to reduce speed and without excessive motion.
Mr Althaus made inquiries and decided that the appropriate vessel was a 14.3 metre catamaran designed for a Cairns boat builder, Mantacat Pty Ltd (“Mantacat”) by naval architects, A.S.D. Marine Services Pty Ltd (“ASD”). The design was new and no boat of the type had been constructed. Mantacat proposed to build three catamarans of differing lengths to a similar design utilising a composition of fibreglass and kevlar in laminated layers to form the hull, deck and superstructure. Mr Althaus proved correct in his choice of boat design. The plaintiffs’ vessel, Sundancer, when built by Mantacat and put into service proved an excellent sea boat. Unhappily she developed serious structural defects after completing only eight voyages. A large crack developed in the hull and she took in a considerable amount of water. As well several large delaminations occurred in the hulls. She was lifted onto land adjacent to the harbour where she remained until sold to one of Mr Connole’s companies. The business of Island Adventures was wound up. It had made an operating loss of $48,000. Mr Althaus was obliged to sell his house to repay the money borrowed to build Sundancer and commence business.
Mantacat has also gone out of business. It had been directed by Paul D’Auria. He refused to attend court and give evidence. Both plaintiffs and defendants have attempted to justify their respective positions by reference to what Mr D’Auria was alleged to have said. He thus became a scapegoat for both sides. This phenomenon has posed obvious difficulties for fact finding in the absence of testimony from Mr D’Auria himself.
The construction of Sundancer was begun by Mantacat at its premises in Cairns in about September 1987. Work was protracted and appears to have gone forward spasmodically. She was launched in October 1988 and underwent sea trials on 4 November 1988. She was taken out of service in December. The circumstances out of which the plaintiffs’ case arises thus occurred over thirteen years ago. All the witnesses to the facts which are controversial had an interest in the outcome of the litigation, even if indirect. That consideration and the lapse of time have the result that I am unable unhesitatingly to accept the entirety of the testimony of any of these witnesses. Nevertheless the relevant facts have emerged with sufficient clarity to enable me to form an opinion as to the proper outcome of the litigation.
The essence of the plaintiffs’ case as pleaded is that:
“By an agreement made in or about October 1987 between the first plaintiff and Mantacat . . . (the latter) agreed that it would construct . . . one . . . catamaran . . . in accordance with . . . plans and specifications . . . (on) terms . . . that
(b)the vessel (should) be fit for . . . inspection and granting of a certificate of survey from the Department of Harbours and Marine (“H & M”)
(c)the vessel would be constructed in accordance with . . . rules . . . published by DNV
(e)so as to enable the vessel to meet (this) requirement . . . the vessel would be constructed under the supervision of (DNV) . . .”
And that:
“By reason of the foregoing the . . . defendants owed a duty to the plaintiffs to take reasonable care to ensure that:
(a)the vessel was constructed in accordance with approved plans . . . under the supervision of the (second defendant);
(b)the vessel was constructed in accordance with the rules . . . published by (DNV);
(c)the vessel was constructed in a good and workmanlike manner using proper and sufficient materials.”
The pleading misstates the tenor of the contract, which was in writing, and was made between the first plaintiff, not both plaintiffs, and Mantacat. Relevantly the contract provided that Mantacat should construct for the first plaintiff:
“One 15 metre Mantacat catamaran, in accordance with plans and specifications annexed . . . , such construction to be to a stage at which the vessel may be locked up, and equipped with a complete hull structure, deck, floors, superstructure, windows, engine beds, fuel tanks and water tanks and be fit for: -
(i) sea trials, to be conducted . . . off Cairns, and
(ii)inspection and granting of a certificate of survey from (H & M) to enable the vessel to carry 35 paying passengers by day, and accommodate 18 paying passengers overnight.”
The price to be paid for building the boat to lockup stage was $100,000. Engines and other mechanical and navigational equipment were to be supplied at the plaintiffs’ cost. They were to be installed jointly by the suppliers of the components and Mantacat.
The first plaintiff ‘s contract with Mantacat does not mention DNV. The plaintiffs did not contract separately with the defendants for the provision of any services in connection with the construction of Sundancer. Mantacat, however, engaged DNV for its own purposes which will be mentioned shortly. They did not include engaging DNV to ensure that it performed its contract with the first plaintiff. The plaintiffs’ case as developed was that they relied upon the defendants’ performance of their retainer with Mantacat to obtain a boat suitable for their purposes. Sundancer, when delivered, was not suitable. The plaintiffs claim the amount of their financial disappointment from the defendants as damages for negligence. The statement of claim does not identify any circumstances apart from the contract giving rise to a duty on the defendants to take care to prevent economic loss befalling the plaintiffs. One must turn to the evidence to see what substance there is in the plaintiffs’ case.
A convenient starting point is the description of DNV’s role, generally with respect to the classification of ships, and particularly with respect to Sundancer.
According to Singh and Colinvaux, British Shipping Laws Vol 13 Shipowners, (1967):
“The raison d’etre of a classification society is to grade ships into classes, and thereby provide an authentic record of the details of the building of the ship in relation to reliability while operating on the high seas.” (p 163)
The theme is expanded at p 167-8:
“The essential task of a classification society is to set technical standards for the construction of ships, which will meet the needs of the various interests concerned and will show no favour. Further, the society must help to maintain these standards. To do all this, it must watch carefully over the building of a ship and examine it at regular intervals throughout its service life. It must learn from the service performances of ships and place the technical knowledge so acquired at the disposal of the industry as a whole through the medium of its published rules. And it must be willing always to assess new designs, ideas, materials and techniques, to encourage those that have merit and to warn against those that have little or none.”
This description accords with the evidence of Mr Dillenbeck. He explained that classification is a process of verifying the standards of a ship against a set of requirements which are set out in the rules of the classification society. Relevantly for Sundancer they were DNV’s Rules for construction and certification of vessels less than 15 metres 1983 (“the Rules”). The independence of the classification society is maintained, by the society “sitting outside” the contractual relationship between ship builder and owner/purchaser. According to Mr Dillenbeck
“DNV is retained . . . by the (ship)yard or vessel manufacturers. By remaining outside the yard and owner relationship, DNV seeks to ensure that commercial considerations are not brought to bear on a surveyor’s . . . decisions made . . . with respect to a vessel.”
A means by which DNV is able to avoid that commercial pressure is the instruction it gives to its surveyors not to communicate with owners of vessels under construction on “any items relating to the vessel that may impact on the contractual relationship . . . (including) matters such as construction issues, financial issues and or delivery times. . . . because it is the yard’s responsibility to deliver the vessel in accordance with its contractual requirements . . .”
Typically a shipbuilder will submit to DNV a request for the classification of a ship to be built. DNV then indicates what documents, drawings and specifications, it needs for the task of classification. When these are provided DNV’s plan approval centre examines the documents to ensure that the proposed design and mode of construction meet the minimum standards as prescribed by the rules applicable to the vessel in question.
During construction a surveyor or surveyors employed by DNV will inspect the shipbuilders’ work and that of its suppliers and subcontractors. The purpose of these inspections is to be satisfied that the construction itself, the components used and the equipment installed accord with the drawings and specifications and meet the requirements of the rules. If DNV is so satisfied on completion, an appropriate classification will be assigned to the vessel proof of which will be the issue of a classification certificate.
This typical arrangement could no doubt be varied in a particular case by express agreement between the parties to a shipbuilding contract. However there is nothing in the evidence in this case to indicate that any different arrangement was made. There was no contract of any kind between plaintiffs and defendants. The contract between the first plaintiff and Mantacat does not refer to the defendants playing any role in the construction of Sundancer. It was not even a requirement of that contract that, when complete, the vessel comply with the Rules. There is nothing in the evidence to show that Mantacat agreed to build the boat to the satisfaction of the defendants or under their supervision. More particularly, there is no evidence that the plaintiffs conferred on the defendants any responsibility for workmanship or the suitability of materials or gave them any power to intervene in the construction process.
In the absence of such contractual rights and obligations the defendants could not interfere in the performance by Mantacat of its contract with the first plaintiff. They could not, as the plaintiffs allege, direct Mantacat’s workforce in the mode of construction, or direct that rectification work be effected, or prevent further work being undertaken until any existing deficiency had been overcome. All the defendants could do was to examine the drawings and construction details to which Sundancer was to be built to ascertain whether a boat built in accordance with those plans would be seaworthy, to inspect periodically to ascertain whether the boat was in fact built in accordance with the documents, and if satisfied of these things issue a certificate confirming the vessel had been built to the standards set out in its Rules.
One more thing needs to be said about ship classification. The process is too costly and complicated to be justified in the case of small vessels. Mr Dillenbeck explained that the risk is not that builders do not know how to build safe boats but that there is no agreed standard of design to which they should be built. To overcome this problem DNV (and, presumably, the other classification societies) developed a scheme called “type approval”. DNV approves a standard design submitted by a boat builder. It then inspects the boat yard to see if it is possible to build the type of vessel proposed at those premises. It selects at random one of the boats of the type built in the yard and inspects it to ensure that it has been built with the proper materials and workmanship to the approved plans. As well, if the construction involved novel materials DNV would require proof by way of test samples that the material had the requisite strength and other properties to produce a seaworthy vessel.
If type approval is granted the resulting certificate indicates that the boat is of a type the design of which is seaworthy and that the builder is capable of proper construction. It does not result in the individual certification of the seaworthiness of any particular boat in the type.
This process differs from individual survey of a vessel by a surveyor which results in a certificate of classification for that ship.
Mr D’Auria wished to obtain type approval for the three catamarans he proposed to build. To that end he contacted the defendants and engaged them to provide that service. It is likely that he intended the vessel that became Sundancer to be the prototype for the largest of the three types. In February 1987 the second defendant and Mr Peder Carlsen (who was in charge of DNV’s plan approval centre in Sydney) met Mr D’Auria in Cairns where they explained to him the type approval process. The next day the two DNV employees met the boat designer on the Gold Coast where they discussed some aspects of the design and requested copies of drawings. By a letter dated 30 March 1987 DNV quoted Mantacat a fee of $5,533 for the provision of services to obtain type approval. Of this, $3,090 was for approval of drawings and $1,040 for survey of hull construction and of equipment and fitout. In the event that certification of an individual boat was required a further fee of $1,106 would be charged. Drawings showing longitudinal hull construction details and cross sectional details were sent by ASD to DNV on 14 September 1987.
In August the second defendant was asked to attend Mantacat’s premises to observe the first stage of hull construction. A representative of the manufacturer of the construction material, Fibreglass International, was also present. The method of construction was this. The mould of the hulls was coated with gel-coat which was to form the outer surface of the vessel. On to that were laid layers of fibreglass matting, epoxy resin and kevlar. Each layer was bonded, or laminated, to the next. A layer of foam was then bonded to the fibreglass by adhesive and covered by more layers of fibreglass, resin and kevlar. The foam became the core of the structure. The total thickness of the hulls was just over 30 millimetres. Structural strength depended upon each layer remaining firmly bonded to its adjacent layers. The process is called lamination. Delamination occurs when the layers of laminate separate. It leads to loss of strength and rigidity in the structure.
The second defendant observed the laying up for about two hours. He was provided with information from the component supplier about the properties of its product. A test panel was made of the same materials and in the same manner as the hull was to be constructed. This was later sent to a reputable firm of engineers for testing. The second defendant returned to Mantacat’s premises (the address of which had changed) in November of 1987. The hulls were then complete but were still in the mould. He returned again about a month later when he saw that a number of beams had been added. These beams spanned between the hulls and provided support for the deck and superstructure. The drawings called for a number of frames to be moulded onto the inner side of the hull structures in several places to provide rigidity. Not all the frames had been installed on the occasion of Mr Colley’s third inspection.
It was in January of 1987 that Mr Althaus first considered Mantacat as the supplier of a boat for his venture. He travelled to Cairns twice to discuss possibilities with Mr D’Auria but no firm understanding was reached. In August 1987 Mantacat had, of course, commenced work on a prototype of its 15 metre catamaran. Mr D’Auria offered this boat to Mr Althaus, built to lockup stage, for the price of $100,000. Mr Althaus thought the offer “too good to refuse”, and the first plaintiff accepted it, eventually making the contract I have described.
Mr Althaus recalls a conversation with the second defendant which he says was critical to his decision to have the first plaintiff make the contract with Mantacat. He places it between 16 October and 5 November 1987 when he travelled to Cairns to speak to Mr D’Auria about motors and other machinery for the boat. He was told that the second defendant would be inspecting the boat that afternoon and that Mr Althaus could speak to him to gain “a better understanding of DNV’s involvement in the survey process”. Mr Althaus said he was reluctant to commit his company to the contract until he was satisfied that the boat when built would be approved by H & M for use as a commercial vessel. Accordingly he telephoned the local office of that department and spoke, he believed, to one Lyle Roberts who told him that H & M would permit the boat to carry passengers if DNV certified that it had been built according to its Rules.
Later Mr Althaus was introduced to Mr Colley. He asked whether he would have to pay for an H & M inspector to attend each time Mr Colley inspected the vessel. He was told by Mr Colley that government inspectors “would not know what they were looking at”, and “that when the vessel construction was finished and the sea trials completed he would certify in writing that the vessel had been constructed in accordance with DNV’s classification, and survey from (H & M) would follow that certification”.
Mr Althaus claims that, reassured by this statement, he signed the contract on behalf of the first plaintiff and paid a deposit of $77,000 which was to include the purchase of engines.
This conversation was put at the forefront of the plaintiffs’ case as indicating that they relied upon Mr Colley to procure the production of a seaworthy vessel from Mantacat. The defendants contend fiercely that Mr Althaus has invented the conversation. Mr Colley has no recollection of any conversation with Mr Althaus.
I am inclined to think the conversation occurred, though not in precisely the terms recounted by Mr Althaus, and I do not think it has the significance the plaintiffs attach to it. Mr Colley in fact provided some corroboration for it. He recalls being at the premises of Mantacat in November of 1987 when he received a telephone call from Mr Lyle Roberts “who asked if the drawings to which the vessel was being constructed had been approved by DNV”. Mr Colley telephoned Mr Carlsen in Sydney and was told the plans had been approved. It seems too much of a coincidence that Mr Roberts should ring Mantacat on the day of Mr Colley’s presence if the events described by Mr Althaus had not occurred. However I cannot accept the precise terms Mr Althaus recalls. That amounted to a warranty that the boat when finished would comply with the Rules and would be so certified. I do not believe Mr Colley would have said such a thing. It is, I think, likely that he said that if DNV certified that Sundancer had been built in accordance with its Rules H & M would accept the certification and issue its own permit. That was the reality. In the months that followed it was realised by the plaintiffs and Mantacat that the only practical way to achieve H & M approval was to first obtain certification by DNV.
Mantacat may have undertaken to build more boats than it had the capacity for. For that or some other reason little or no work was done on Sundancer. Monies advanced to Mantacat by the plaintiffs may have been spent in defraying Mantacat’s costs with respect to other boats. By the end of February 1988 Mr Althaus claims to have made several attempts to speak to the second defendant about the progress of work and the standard of construction of Sundancer. Mr Colley “continually refused to talk . . . saying it had nothing to do with me as his contract was only with Mantacat . . .”. In March 1988 Mr Althaus asked a friend, Mr John Powell, to travel to Cairns to check on progress. Mr Powell is a qualified diving instructor and boat master. It was intended that he should become the master of Sundancer when she was put into service. He observed some work being done on the boat which he thought was less than competent. He knew of the second defendant and spoke to him by telephone. He identified himself as the boat owner’s representative and said he had some questions about her construction. Mr Colley “did not really want to speak” to him but Mr Powell pressed on and asked if he was satisfied with the workmanship. Mr Colley said he was and confirmed that H & M would accept DNV’s certification. When Mr Powell returned to the boat yard Mr D’Auria told him that he was not to communicate with the second defendant and that questions about the boat were to be directed to the boat builder. Mr D’Auria rang Mr Althaus to complain that Mr Powell was “annoying” Mr Colley. He told Mr Althaus that he “should leave Colley alone completely”. Mr Althaus recalls other occasions on which Mr D’Auria complained “about us attempting to approach Peter Colley”.
Mr Powell was concerned that Mantacat could not complete the fitout to a satisfactory standard and was not sure that he was qualified to oversee that task. He therefore recommended to Mr Althaus that he engage a naval architect resident in Cairns who could provide on site supervision and the requisite skill. One of the reasons for Mr Powell’s recommendation was that the second defendant had made it clear that his relationship was with the builder and he was, at the least, reluctant to give the plaintiffs any advice about their boat. Mr D’Auria put forward the name of Mr Geoffrey Glanville, naval architect, as someone suitable to superintend completion of the vessel.
It is, I think, likely that the recommendation was accepted almost immediately although Mr Glanville was not appointed until late in April. In March, about the time of Mr Powell’s visit, Mr D’Auria told the second defendant that Sundancer was not to be the prototype for the 15 metre catamaran model and that Mr Colley was to have no further involvement with that boat. This was an odd development because Mantacat had contracted to deliver a boat fit for H & M approval and the only practicable means of obtaining such a survey was to first have the boat certified satisfactorily by DNV. Perhaps Mr D’Auria wished to save DNV’s fee in respect of a boat that would no longer be his prototype and was content to let the plaintiffs and Mr Glanville contend with H & M for approval. Mr D’Auria does appear to have been indifferent to his contractual obligations.
On 27 April 1988 Mr Glanville wrote to Mr Althaus:
“Subsequent to our telephone conversation, we have spent sometime in collating the outstanding requirements for completion of your project. . . . We suggest that a specification be prepared to cover all aspects of completion . . . The specification would address the basic items included in appendix 2 and contain sufficient detail to ensure that the final product will be to your satisfaction . . . We would be pleased to prepare all detail drawings as required for survey and as required by the boat yard for completion of the vessel . . . We would be pleased to obtain quotations for the outstanding items of equipment required and to evaluate and select the suppliers on your behalf. We could undertake a similar role in selecting contractors in conjunction with Mantacat.”
The second item in appendix 2 was “hull structure”. On 4 May 1988 Mr Glanville submitted a written quotation for the services he offered to provide. They included:
“iConsultations with survey authorities, and provision of all necessary certification.
i Preparation of a complete drawing package as required for survey, and for support of contractors.”
On 13 May 1988 Mr Althaus met with Mr Glanville and Mr D’Auria. They agreed upon a set of procedures by which Sundancer was to be finished. Mr D’Auria:
“Agreed to prepare quotations for . . . cost of DNV type approval . . .”
Not long after this Mr D’Auria told Mr Colley that the plaintiffs wanted DNV to survey their vessel. Although the evidence is sparse I think it must be the case that Mr Colley knew he and DNV were being asked to provide boat certification for a particular vessel and, despite the wording of the minute, type approval would not be sufficient. At the same time Mr Colley was engaged with Mantacat who wished to obtain type approval for its other designs. It is difficult, after so many years, to disentangle Mr Colley’s roles. By facsimile dated 25 May 1988 Mantacat advised Mr Glanville of the costs associated with “DNV type approval”, $3,277.80 for drawing approval, survey equipment and fitout, loading and stability and sea trial. A further $1,106 was to be paid if an individual survey was required. By facsimile of 30 May 1988 Mr Althaus agreed “to DNV charges of $3,277.80 for certification”. The amount, which would not have paid for the certification the plaintiffs needed, was to be paid to Mantacat, which alone retained the defendants. Mr Colley did not alter his declared position, that his responsibilities were to the builder.
A number of changes was made to the boat in the course of fitout. Originally she was to be powered by two engines, one in each hull located about mid length, connected conventionally to propellers beneath the stern by means of a shaft. They were replaced by stern drive units connected directly to steering propellers below the transom which had to be considerably strengthened to withstand the weight and thrust. To remain trim, weight had to be moved forward. This was done by locating fuel, water and sullage tanks in the bows. The overall displacement of the vessel increased by several tonnes, though there is debate about what the original displacement was to have been. Other changes were made the detail of which is unimportant. Each was the subject of a drawing prepared by Mr Glanville which was submitted to DNV and ultimately approved by it.
Other changes were made which were not the result of Mr Glanville’s designs. The builder omitted to insert a number of frames in the hulls and omitted a number of beams connecting the hulls and underlying the superstructure. At least one transverse and one longitudinal bulkhead were omitted. This latter was in the bow compartment and would have provided stiffening for the wave breaker located between the hulls on the underside of the main deck. This, the wave breaker, was the location of the major crack which occurred in service.
Mr Mierendorff, a marine surveyor, compiled a report for the plaintiffs on 19 December 1988 after he inspected the boat at Mackay. By comparing ASD’s drawings of the hull with the scantlings actually installed Mr Mierendorff noted the omitted structural members.
During his inspections Mr Colley also observed that not all the specified scantlings had been inserted. He drew Mr D’auria’s attention to this feature and asked him to provide drawings of the boat “as built”. When these were received they would have been sent to DNV’s plan approval centre in Sydney for examination. If the plans met the minimum requirements of the Rules Mr Colley would have inspected the boat to compare it with those plans. If satisfied that they accurately portrayed the built vessel then, subject to other requirements, a certificate of compliance with the Rules would have been issued.
Though requests were made on a number of occasions for the plans Mr D’Auria did not provide them. Eventually he told Mr Colley that they had been sent to DNV’s plan approval centre in Sydney. It appears that some plans were indeed sent there but were returned because they had been incorrectly presented. A later, more thorough, inquiry revealed that Mantacat had never delivered “as built” drawings to DNV.
Despite the wide extent of Mr Glanville’s retainer he confined himself to designing and supervising the supply and installation of machinery and fittings. The plaintiffs make no criticism of his work. It is, however, clear that he, as well as Mr Colley, understood that Sundancer could not be given a certificate of compliance with the Rules until DNV had received “as built” drawings and verified that they accurately depicted the finished product.
I accept Mr Colley’s evidence that although he was concerned about the missing scantlings he could not know that Sundancer, as constructed, did not satisfy the standards required by the Rules. Whether she did or not could only be assessed upon receipt and examination of the drawings of the boat as modified. Mr Glanville himself had misgivings about the boat’s strength but, like Mr Colley, could make no definitive assessment without the modified drawings.
After much delay Sundancer was launched towards the end of October 1988. Sea trials were scheduled for early November when Mr Colley was away on business. He deputed Captain Copeland, another marine surveyor in Cairns, to attend on his behalf. The boat performed well. Mr Althaus was anxious to proceed to Mackay and commence business. It is normally the marine surveyor who issues the certificate of classification or compliance but Mr Colley was away and Captain Copeland was not employed by DNV and was not authorised to issue a certificate on its behalf. Had Mr Colley been present he would not have issued a certificate despite the satisfactory sea trial because he had not received notice that the “as built” drawings had been approved, and he had not confirmed that the drawings accurately described the boat.
Mr Althaus was anxious to obtain a permit from H & M. He needed DNV’s certificate. Mr Glanville contacted DNV’s plan approval centre in Sydney and spoke to Mr Carlsen and/or Mr Lee. It is not possible to know what was said. Mr Carlsen died before the action was commenced and Mr Lee left for overseas some years ago and cannot be found. In any event on 4 November 1988, the day of the sea trials, Mr Lee faxed H & M:
“Regarding ‘Sundancer’ which has been on sea trials today. We are currently preparing to issue a DNV type approval certificate for this design, based on approval of drawings and documentation and successful completion of sea trials. Currently outstanding is our approval of the electrical installation due to late submission . . . Sea trials have been successfully completed.”
This was insufficient for the plaintiffs’ purposes and Mr Glanville got in touch with Mr Carlsen. As a result a more positive communication was sent by Mr Carlsen to H & M. It read:
“This is to verify that the boat ‘Sundancer´ a 14.3m Mantacat is constructed in accordance with approved plans for hull and machinery under supervision of our surveyor Peter Colley. Sea trials have been successfully completed yesterday. Final certificate will be issued when our head office has approved plans for electrical installations.”
The document was factually inaccurate. Mr Carlsen had no basis for asserting that the boat had been constructed in accordance with approved plans. Mr Colley would not have signed such a certificate in the circumstances. It was not part of Mr Carlsen’s duties to issue certificates of survey.
H & M accepted the communication in good faith and issued its permit to the plaintiffs. They rely upon it as showing that the defendants understood they had a responsibility to the plaintiffs to obtain the H & M permit.
Despite their pleading the plaintiffs’ case cannot be that the defendants were obliged to ensure that Mantacat built them a boat fit for H & M approval. As I have pointed out the defendants had no contractual power to bring about such an outcome and there is no other source for such a power. The defendants’ obligation was to Mantacat and was to inspect the boat during construction and, if she complied with the Rules, to issue a certificate to that effect.
The plaintiffs’ case must therefore be that the defendants had a duty to warn them that Sundancer was not so built.
The loss for which the plaintiffs seek to recover damages is economic loss. It had its origin in defects within the structure of the vessel. See De Pasquale Bros Pty Ltd v Cavanagh Biggs & Partners Pty Ltd [2000] 2 Qd R 461 at 474 (para 54) and the cases there discussed, and Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236 at 237-8 and 243.
Gaudron J pointed out in Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 75 ALJR 164 at 171:
“There are situations in which there is a duty of care to warn or take other positives steps to protect another against harm from third parties. Usually, a duty of care of that kind arises because of special vulnerability, on the one hand, and on the other, special knowledge, the assumption of responsibility or a combination of both. Those situations aside, however, the law is . . . slow to impose a duty of care on a person with respect to the actions of third parties over whom he . . . has no control.”
There is no clear principle which serves to determine liability for economic loss. See Perre v Apand Pty Ltd (1999) 198 CLR 180 at 194, 197 and 209. Probably all that one can say is that to determine whether a duty to take care to avoid economic loss to another should be imposed depends upon the presence of salient features in the relationship between the defendants’ action and the plaintiffs’ loss which in combination can be seen by reference to existing categories of liability for such loss to give rise to the existence of the duty. Features commonly to be considered are:
(i)whether the loss suffered was reasonably foreseeable or actually foreseen
(ii)whether the imposition of a duty of care would impose indeterminate liability on the defendant
(iii)whether the imposition of a duty would impose an unreasonable burden on the freedom of action of the defendant
(iv)whether the plaintiff was vulnerable to loss from the defendant’s conduct
(v)whether the defendant knew that his conduct could cause harm to persons such as the plaintiff
(vi)whether the defendant was “in control” of the activities which caused the loss.
“Vulnerability” refers to the capacity of a plaintiff to take steps to protect itself from the loss in question.
According to McHugh J in Apand (p 226):
“In determining whether the plaintiff was vulnerable an important consideration will be whether the plaintiff could easily have protected itself against the risk of loss by a protective action . . . Pecuniary losses are one of the ordinary risks of business . . . life. Business people frequently take . . . steps to minimise their business or economic losses. Taking these steps will often be a more efficient way of dealing with the risk of these losses than requiring defendants to have regard to the risk that others may suffer economic loss.”
Although the formerly popular concepts of “reliance” and “assumption of responsibility” have been criticised, it is still surely a useful starting point to consider whether a defendant assumed responsibility for the protection of the plaintiff against some particular foreseeable kind of economic loss, and whether it was reasonable for the plaintiff to rely upon what the defendant did or said.
Another relevant factor, and one which tends to restrict liability for economic loss is the existence and terms of the contracts between DNV and Mantacat, and between the first plaintiff and Mantacat. That this is a relevant consideration to the determination of the existence of a duty of care to avoid economic loss is made clear by the judgment of Gleeson CJ in Apand at 192-3. Although the matter was not addressed at length the evidence proves that DNV probably had the benefit of a clause in its contract with Mantacat which excluded liability altogether for negligence by itself or its servants or, in the event that it was liable, limited the amount of damages to the amount of the fee it charged for its services. The clause is in small print and may not be internally consistent, but it does attempt to confer a considerable benefit upon DNV in its dealings with Mantacat. That advantage would be lost should DNV be liable in tort to the plaintiffs with whom it did not contract. Moreover the first plaintiff was protected by the warranty it obtained from Mantacat that the boat, when completed, would be fit for an H & M permit. I would understand Gleeson CJ’s judgment to intimate that, at least ordinarily, a tortious duty to avoid economic loss should not be imposed where parties have by express contract provided for the consequences of the loss that ultimately occurs. Here, DNV contracted not be liable for any sum greater than the fees it charged Mantacat and the first plaintiff protected itself against loss by Mantacat’s contractual warranty. The postulated duty in tort would substantially alter these contractual arrangements.
The defendants also point out that the duty which the plaintiffs contend they were owed would impose on the defendants a greater obligation to inspect and test than DNV agreed to undertake by its contract with Mantacat and for which it was to be paid. The existence of such a duty is not lightly to be found.
It may also be the case that questions of policy intrude upon the legal question whether a duty of care should be held to exist. To the extent that “policy” considerations can be identified as relevant they would, in this case, discourage such a finding. The first is the point just discussed, that the first plaintiff had the protection of a contractual warranty given by Mantacat. Any loss suffered by the plaintiffs by reason of Mantacat not building a boat fit for an H & M permit to operate could be recovered as damages for breach of contract. The fact that Mantacat became insolvent is irrelevant. A tortious duty of care does not spring into existence because a contractual warranty turns out to be worthless. A second factor is that there is no real utility in imposing a duty on DNV to warn the plaintiffs of faulty construction. That fact would become apparent in the event that DNV declined to issue a certificate of classification which was practically necessary for the issue of the H & M permit. The true situation would be revealed to the plaintiffs without there being imposed on the defendants a separate duty to warn them.
The plaintiffs put reliance at the forefront of their case. Their argument was that they relied upon Mr Colley and DNV to inform them that there were defects in Mantacat’s workmanship. The evidence does not bear this out, nor does it support the corollary that the defendant knew they were being relied upon to prevent economic harm to the plaintiffs or that they assumed some responsibility to avoid that harm.
Mr Althaus stresses his conversation with Mr Colley in November 1987. He claims that he relied upon what Mr Colley said to make the decision to commit the first plaintiff to the contract with Mantacat. I do not accept the assertion. The tenor of the conversation was not (and could not sensibly have been) that the defendant would procure the delivery by Mantacat of a boat fit for H & M approval. It was, I am satisfied, no more than a description by Mr Colley of the usual procedures of inspection and classification where the builder complies with the Rules. No doubt Mr Althaus believed that Mantacat would satisfy DNV’s requirement, but that is not to say he relied upon DNV, rather than the builder, to bring about that result. Moreover Mr Althaus as good as conceded that he did not care whether Mantacat obtained DNV classification. His only concern was to have a boat that was approved by H & M for his business. How Mantacat achieved that, whether by DNV survey or otherwise was “up to (it)” (T124.1-10).
Mr Althaus also emphasises the fact that he attempted to contact Mr Colley on several occasions “to discuss the progress and standard of construction” of Sundancer. From this it is argued the defendants would have understood that the plaintiffs were relying upon Mr Colley’s efforts to produce a suitable boat. The evidence has the opposite effect. Mr Althaus revealed in his statement that
“(Mr Colley) continually refused to talk to (him) saying it had nothing to do with (him) as his contract was only with Mantacat and not (the plaintiffs)”.
In cross-examination he agreed that throughout late 1987 and early 1988 Mr Colley refused to speak to him. He gave no reason, according to Mr Althaus, but Mr D’Auria explained that the reason why Mr Colley would not speak to him was that DNV was contracted to Mantacat and his performance of that contract was no business of the plaintiffs. I would accept that Mr Althaus did attempt to speak to Mr Colley on one, or perhaps a very few occasions, but did not persist once he knew the reason for Mr Colley’s refusal to speak to him. I do not accept that Mr Althaus made persistent attempts through Mr D’Auria to speak to Mr Colley. There was no point once he knew that Mr Colley would not speak to him and the reason for his refusal. Mr Althaus concedes that he did not try to approach Mr Colley directly. There was no written communication between the plaintiffs and defendants about the latters’ role in inspecting and certifying.
The evidence of Mr Powell suggests that the plaintiff did not persist in trying to obtain from Mr Colley information about the building process. Mr Althaus’s statement was that he sent Mr Powell to Cairns “to try and get some confirmation in writing from Peter Colley that when DNV approval was given a Harbours and Marine survey would follow and also to find out if he was happy with the construction of the boat”. I think Mr Althaus is wrong in attributing the first motive to his request. It is inconsistent with his declared attitude that he did not care how Mantacat obtained the H & M permit and he had no reason to desire written confirmation that H & M would accept the DNV survey. That was the fact and it was not in doubt. Mr Powell’s recollection was that he was sent to Cairns only to “oversee what was happening with the vessel”. In any event Mr Powell did make contact with Mr Colley who was reluctant to speak to him because “he was engaged by the builder”. Partly because Mr Powell entertained doubts about Mantacat’s ability to finish the boat to an acceptable standard and partly because Mr Colley would not speak to him to discuss the question of construction or workmanship he advised Mr Althaus to engage a naval architect to oversee completion of the vessel.
These facts make it impossible to find that the plaintiffs relied upon the defendants to provide them with information or warnings about the construction of their vessel. An express refusal to discuss the vital topic is cogent proof that the defendants were not assuming any responsibility to provide information to the plaintiffs. The plaintiffs knew the situation. They cannot pretend to have relied upon Mr Colley to give them information when he told Mr Althaus and Mr Powell that the terms of his employer’s retainer with Mantacat precluded him from doing so.
Additionally, Mr Glanville’s engagement on the wide terms already noted cannot be reconciled with the plaintiffs’ asserted reliance on the defendants for the completion of a boat in satisfactory condition.
Nor is the plaintiffs’ case any stronger if one considers whether their “vulnerability” to the defendants’ carelessness should give rise to a duty to be careful. The plaintiffs would not have been vulnerable if they were in a position to protect themselves against the effects of Mr Colley’s negligence, assuming that he was negligent not to pass onto the plaintiffs information about quality of workmanship and the omission of structural members. See Apand para 120 per McHugh J and Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 para 100. Mr Glanville’s appointment makes it impossible to find that the plaintiffs were vulnerable in this sense. His services included the preparation of drawings of, inter alia, the hulls to obtain “necessary certification”. He was retained to protect the plaintiffs against deficiencies in the builder’s performance and because the plaintiffs knew they could not depend upon the defendants to warn them of any deficiencies. Mr Glanville noted what appeared to be a lack of structural integrity in the foredeck. In his statement Mr Glanville unfairly suggested that Mr Colley was indifferent to the demonstrated inadequacy of the deck. I expect the truth lies closer to what Mr Glanville wrote in his commentary to the draft statement (exhibit 74). This is that the two men discussed the lack of rigidity apparent in that deck. Mr Colley said that the adequacy of the design could only be ascertained after the as built drawings had been assessed by DNV. Mr Glanville by his own admission knew that the builder had not provided such drawings and feared that the builder lacked “understanding of structural design”. He could have, though he did not, prepare “as built drawings” for assessment by DNV.
Mr Glanville knew as much as Mr Colley. The plaintiffs were his clients. They were not vulnerable because of any lack of information. Mr Glanville could have told Mr Althaus about his concerns and how they could be addressed. The concerns were that in the absence of “as built” drawings there was uncertainty about the capacity of Sundancer to perform as required. The remedy was to obtain drawings from the builder or for Mr Glanville to undertake the task of preparing such drawings. The terms of Mr Glanville’s written retainer indicate that he was responsible for the provision of such information to the plaintiffs.
I do not think it necessary to discuss the other features which may be indicative of a duty to take care not to cause economic loss. Enough, I hope, has been said to show that the defendants were under no such duty. They made it clear they would not provide information about the boat’s construction. They did not in fact assume responsibility to the plaintiffs. Their refusal to discuss the topic made it unreasonable for the plaintiffs to believe they had undertaken such responsibility and unreasonable to rely upon the defendants to provide the information. Moreover the plaintiffs did not rely for information on the defendants but on the expert they themselves engaged. The appointment of that expert had the consequence that the plaintiffs were able to protect their position (to the extent that information could provide that protection) and were not relevantly “vulnerable”.
The same result occurred in two English decisions the reasoning in which cannot, however, be relied upon because of the different approach taken by English courts to the determination of liability for economic loss. That approach is to ask three questions:
(1)Was it reasonably foreseeable that the defendant’s conduct would be likely to cause harm to the class of persons of which the plaintiff was a member?
(2)Was there a sufficiently proximate relationship between plaintiff and defendant?
(3)If the answers to one and two are affirmative is it fair, just and reasonable to impose the duty?
This present rule was laid down by the House of Lords in Caparo Industries Plc v Dickman [1990] 2 AC 605 but, with the exception of Kirby J, it has not found favour with the members of the High Court.
The first of the English cases was Mariola Marine Corporation v Lloyd’s Register of Shipping (The “Morning Watch”) [1990] 1 Lloyd’s Rep 547. A yacht, Morning Watch, had been regularly surveyed by Lloyd’s. A little before the periodic survey was due the owners requested a special survey because they intended to sell her. A marine surveyor employed by Lloyd’s inspected Morning Watch and certified that when specified repairs had been effected, the yacht would retain her classification. The advertisement for sale represented that Morning Watch had always been maintained to Lloyd’s high standard and that she had passed her current special survey. The plaintiff offered to buy the vessel “as is, where is”. It did not see the certificate nor did it make an inquiry of Lloyd’s. The vessel had serious defects which had not been detected by the surveyor. The action for damages failed because the purchaser did not establish a relationship of sufficient “proximity” with the surveyor. There had been no contact of any kind between them, they had not paid the survey fees and the survey was not carried out for the benefit of any specific purchaser. Phillips J said (560):
“To accept the general proposition that Lloyd’s owes a duty of care to those foreseeably liable to suffer economic loss in consequence of reliance on the negligent classification of a vessel would be to make a substantial further advance in the law of negligence. For this reason I reject that general proposition.”
The English approach accords with the Australian to this extent: both agree that the foreseeability of economic loss resulting from a negligent act is itself not enough to give rise to a duty to avoid the loss.
Marc Rich & Co A.G. v Bishop Rock Marine Co Ltd [1996] 1 AC 211 was to the same effect. A ship carrying the plaintiffs’ cargo put into port because a crack had developed in her hull. A surveyor acting on behalf of a classification society inspected the damage and advised that, after specified repairs, the vessel should be seaworthy. The repairs were effected. A few days after resuming the voyage she sank with the loss of the cargo whose owners brought action against the classification society. There had been no contact whatever between those parties. They were not even aware that it had surveyed the vessel. The cargo owners had relied upon the ship owners to keep the vessel seaworthy. Lord Steyn, with whom Lords Keith, Jauncey and Browne-Wilkinson agreed, was prepared to hold that the defendant could reasonably foresee loss of the kind that occurred to the cargo owners and that there was a sufficient degree of proximity between the parties to give rise to a duty of care. However it was thought to be unfair, unjust and/or unreasonable to impose a duty of care because:
(a)the recognition of a duty would disturb the balance between the economic interests of ship owners and cargo owners established by international convention
(b)classification societies act for the “collective welfare of all those involved in maritime trade, including national governments which regulate conditions for such trade” and the recognition of a duty to particular participants in the trade may affect the willingness of classification societies to continue to provide their public service
(c)the recognition of a duty would complicate the existing “simple” system of settling cargo claims against ship owners.
These decisions are of no more than passing interest. An Australian court may not reason along those lines to its judgment. There is another difference. Both cases involve the allegedly careless issue of a certificate of seaworthiness. In neither case could the plaintiff allege that the certificate was a negligent statement made to it on which it relied, and a more indirect form of reliance was contended for. In the present case the plaintiffs’ claim that they should have been told that the surveyor would not issue a certificate. The plaintiff’s position would ordinarily be protected by the absence of the certificate. That factual difference appears to me to make the case a harder one for the plaintiffs.
There is in England a line of cases which might be thought relevant and which supports the plaintiffs. In that country surveyors and valuers are routinely engaged by building societies who advance moneys to assist with the purchase of houses. The purpose of the retainer is to ascertain the condition and value of the property to be bought so that the building society, which becomes the mortgagee of the property, knows whether it is prudent to make the loan. The valuer’s fees are paid by the mortgagee but the amount is passed onto the mortgagor/purchaser. The valuation report is shown to the purchaser who, it is conventional to find, relies upon it to make the decision whether or not to buy. This pattern of activity is mostly, if not entirely, limited to the purchase of moderately priced houses. The cases have uniformly held that the surveyors and valuers owe a duty to the prospective purchasers to conduct their survey/valuation with care so that should the house turn out to be defective the valuer is liable for the costs of repairs or the diminution in value from the price. The cases were most recently reviewed by the Court of Appeal in Merrett v Babb [2001] 3 WLR 1. Those authorities would seem to lend force to the plaintiffs’ contention that the marine surveyor, DNV, retained by the boat builder, should owe a duty to the purchaser of the boat who would foreseeably suffer loss if the inspections negligently failed to detect defects. Indeed the author of the chapter “Surveyors and Valuers” in “Professional Liability: Law and Insurance” in Lloyd’s Commercial Law Library noted indignantly at page 605 when discussing Marc Rich:
“It is notable that . . . where the House of Lords considered whether a marine surveyor could be liable for negligence to an non-client, the wealth of previous cases dealing with this point in the context of building surveys was not even mentioned.”
It cannot be that the House was ignorant of the cases. Two of the Law Lords who decided Marc Rich sat on the appeals which are the leading cases in this part of the law: Smith v Eric S Bush and Harris v Wyre Forest District Council both reported at [1990] 1 AC 831. The reason they were not thought relevant to the outcome in Marc Rich was, I suspect, that:
“The law relating to the duty of care owed by surveyors and valuers, who make inspections and reports of residential property on the instruction of building societies, to those who purchase the properties subject to a mortgage from the building society is a discrete part in a wider jurisprudence.”
Per May LJ in Merrett v Babb (at 7). The imposition of the duty occurs where the valuation fee has been paid by the purchaser, the valuer knows that the valuation will probably be relied upon by the purchaser in order to decide whether or not to buy the property and where the purchasers cannot afford the protection of their own valuation - per Lord Templeman [1990] AC at 847 and 852. Indeed the imposition of the duty appears to be a concession to the economically disadvantaged. Lord Griffiths said (859):
“It must . . . be remembered that this is a decision in respect of a dwelling house of modest value . . . I expressly reserve my position in respect of valuations of quite different types of property for mortgage purposes, such as industrial property, large blocks or flats or very expensive houses.”
The law properly protects the poor and the ignorant, but a legal principle which finds a duty to protect some but not others in a like situation depending only upon the wealth of the plaintiff is, in my opinion, of doubtful validity. Even its propounders were not prepared to allow it to operate in a commercial context involving a profit making chattel.
The outcome of this action should depend upon the principles that emerge in the judgments of the High Court. Little assistance is to be gained from the English authorities.
In my opinion the defendants were under no duty to warn the plaintiffs that the construction of Sundancer might not result in a boat suitable for their purposes. But if there were such a duty the plaintiffs would confront another difficulty. This is that there was no occasion for the performance of the duty. The postulated obligation was to warn that the boat would not be suitable for the plaintiffs’ purposes, but whether it was or not could not be ascertained until the builder delivered “as built” drawings for assessment and the boat was compared to the drawings. That never occurred. The defendants could not perform the duty to warn before they had knowledge indicating that a warning was appropriate. There could have been no breach of duty as the circumstances did not permit the defendants to perform the duty.
There is a like problem with respect to causation. As Mr Dillenbeck explained, until the time when the builder actually gave possession of the boat to the plaintiffs any deficiencies in structural workmanship could have been remedied. The defendants would not know until then that the boat would not meet its survey requirements. If delivered before the surveyors were satisfied that it had been properly built no certificate would issue. That would provide as cogent a warning as anything that might have been said directly by the defendants to Mr Althaus. Consequently, any breach of duty would not have produced any loss.
In fact, as I have described, DNV certified that, subject to the receipt of drawings depicting electrical layouts, Sundancer had been built in conformity with its requirements. The contents of the communication were a misstatement of fact. It was not known whether or not the vessel did comply with the rules. DNV had no basis in fact for its positive assertion. However this point need not be developed for two reasons. The first is that the plaintiffs make no complaint about the misstatement of fact in their statement of claim. The second, more fundamental reason, is that it did not cause the plaintiffs any loss. The interim certificate led to the issue of a permit by H & M which allowed the plaintiffs to commence their business. The plaintiffs did not act upon the misstatement to their detriment.
It is expected that a trial judge who finds against a plaintiff on the issue of liability will assess damages. In the present case it is not possible to do so. The claim for damages was put forward on the basis of the pleaded case that the defendants had a duty to ensure the adequate construction of their vessel. The amount claimed was calculated by a comparison of what their position would have been had they been given such a boat, and their actual position. This is akin to a claim for damages for breach of contract where the defendants had promised that Mantacat would deliver a suitable boat. This claim misconceives the true measure of the loss which the plaintiffs would have suffered had there been a breach of duty by the defendants. The duty was to warn. In breach of the duty there was no warning. The comparison called for is between what the plaintiffs would have done had the warning been given and their position in the absence of a warning. Because this point was not appreciated it was never made the subject of any evidence. It is not possible to find what Mr Althaus and his companies would have done had he been told sometime prior to the commencement of business that the boat was not suitable. A likely reaction was to have had the boat brought up to standard so as to prevent the loss of the money, about $600,000, which the plaintiffs had spent to that point. No attempt was made to prove what the cost of repair would have been when a warning should have been given or whether it increased afterwards, and if so, by what amount.
One possibility is that repairs would have been more expensive by the occurrence of the extensive delamination and that, in turn, was caused by Sundancer operating with insufficient frames and beams. On this view the damages would be the extra cost occasioned by repairing the delamination. The missing structural members would have had to be added whenever it was learnt they had been omitted. The cost of this item would remain constant. Not only is there no evidence of the cost of making good the delaminations, the evidence does not permit a definitive finding that they were the result of putting the boat into service with inadequate structural members. One might suspect that is the case but the evidence establishes there might have been other causes. One possibility was that the adhesive resin was defective. If that was the cause the defect was present though latent when the hulls were built. The delaminations would have occurred irrespective of the omitted frames and beams. Moreover the defect could not have been detected by a reasonably careful inspection. Another possible cause is the added weight of the boat brought about by the changes made by the plaintiffs to machinery and equipment. This may have overloaded the hull which was designed for a lighter displacement and so led to delamination. Again, whether or not Sundancer was properly built, the added weight for which the plaintiffs were responsible might have led to the same failures.
These problems need not be addressed at length. For present purposes it is enough to reveal that there is no evidentiary basis for an assessment of damages, should the plaintiffs had made out their case in negligence against the defendants.
The defendant sought an order for security for costs on the second day of trial. Although made very late, it was advanced on the basis that there had been a late change of circumstances to the second plaintiff. Its right of recourse against the estate of which it was trustee disappeared with its removal from that office a week before the trial commenced. The amount sought by way of security was reasonable and I made the order. The plaintiffs had difficulty in complying with it, especially as Mr Althaus was fully engaged in the conduct of the trial in Brisbane while his assets and affairs are still in Mackay. In the end he offered to be liable personally for the costs of the action should the plaintiffs be unsuccessful. The proposal was acceptable to the defendants and the trial proceeded on that basis.
There must be judgment for the defendants with costs to be assessed on the standard basis. The order must be against Mr Althaus as well as the plaintiffs.
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