Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2012 0185

PROTEC PACIFIC PTY LTD (ACN 009 534 552)	Appellant
v
STEULER SERVICES GmbH & Co KG	Respondent

S APCI 2012 0186

BHP BILLITON OLYMPIC DAM CORPORATION PTY LTD (ACN 007 835 761)	Appellant
v
STEULER SERVICES GmbH & Co KG	Respondent

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JUDGES:	TATE, SANTAMARIA and KYROU JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	29 & 30 April, 11 & 12 June 2014
DATE OF JUDGMENT:	17 December 2014
MEDIUM NEUTRAL CITATION:	[2014] VSCA 338
JUDGMENTS APPEALED FROM:	BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322; BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [No 2] [2011] VSC 659; BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Industriewerke GmbH [No 3] [2012] VSC 414 (Habersberger J)

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TRADE PRACTICES – Misleading and deceptive conduct – Whether manufacturer made representation to purchaser that a high density polyethelene product was suitable for use as a long term containment liner for concrete solvent extraction tanks at mine – Pre-existing choice of product – Whether any reliance – Whether representation misleading or deceptive – Whether any misleading conduct caused loss – Proof of alternative transaction – Whether fire requiring replacement of liner was a supervening event – Method of assessing damages – Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, applied – Henville v Walker (2001) 206 CLR 459, Abigroup Contractors Pty Ltd v Sydney Catchment Authority [No 3] (2006) 67 NSWLR 341, distinguished – Trade Practices Act 1974 (Cth), ss 52 and 82.

SETTLEMENT – Whether settlement of proceedings between mine owner and installer of the liner was objectively reasonable – Absence of evidence from lawyers – Whether trial judge was obliged to assess for himself whether the settlement sum was reasonable – Lack of proof of elements of cause of action compromised – Unity Insurance BrokersPty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603, BNP Paribus v Pacific Carriers Ltd [2005] NSWCA 72, applied.

CONTRACT – On-site Service Agreement for installation of the liner – Whether trial conducted without distinguishing between different Protec entities – Whether reliance by installer on any misrepresentation by manufacturer when entering the On-site Service Agreement – Whether agreement contained warranty about suitability of the liner.

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APPEARANCES:	Counsel	Solicitors
For the Appellants	Mr P J Riordan QC with Mr I H Percy	K & L Gates
For the Respondent	Mr R C Macaw QC with Mr F J J Tiernan QC	Hunt & Hunt

TABLE OF CONTENTS

*Introduction and summary* ………………………………………………………	1
*The supply and installation of Bekaplast lining* …………………………….	6
(1) The expansion of the Olympic Dam ………………………………...	6
(2) The selection of Bekaplast HDPE …………………………………...	9
(3) Difficulties in installing the lining …………………………………	15
(4) Leaks in the tanks …………………………………………………...	16
(5) The first and second fires …………………………………………...	19
*Litigation procedural history* …………………………………………………...	21
*The first stage of the split trial – representations and reliance* …………….	23
*The second stage of the split trial – causation, loss and quantum* ………….	26
*Costs* ………………………………………………………………………………..	30
*The BHP appeal – Steuler’s contentions and BHP’s grounds of appeal* …….	31
*The Protec appeal – Protec’s grounds of appeal and Steuler’s contentions*	37
The BHP appeal …………………………………………………………………..	41
*Was the third representation made by Steuler to Protec and WMC?* ……….	41
(1) 23 April 1997 facsimile ……………………………………………..	46
The finding that the third representation was made ………….	46
The repetition of the third representation by Protec …………..	66
(2) 20 May 1997 post-tender meeting ………………………………….	70
(3) 4 July 1997 telephone conversation ………………………………...	76
(4) Conclusion on the third representation …………………………….	88
*Did WMC rely on the third representation in entering into the OSS Agreement?* ………………………………………………………………………...	89
(1) The pre-existing independent choice of HDPE …………………….	91
(2) WMC and Protec’s witnesses on reliance ………………………….	110
(3) Conclusion on reliance ……………………………………………..	122
*Was the third representation misleading or deceptive?* ………………………	122
(1) What did BHP have to prove in relation to unsuitability? …………	122
(2) Error in analysis of claim of failure within 12 months or by date of second fire? ………………………………………………………….	128
(3) What was the evidence of failure of the Bekaplast HDPE before the second fire? ………………………………………………………....	131
(4) What was found after the second fire? ……………………………...	150
Inspection by Dr Peggs …………………………………………..	150
Inspection by Rohringer …………………………………………	155
The state of the HDPE liner in May 2002 ………………………	157
Subsequent findings of Dr Peggs ……………………………….	158
The findings of Dr Schiers ……………………………………….	162
Other expert opinions in the Joint Experts’ Report …………...	167
(5) Was Bekaplast HDPE unsuitable due to likely premature failure? ...	170
Chemical resistance charts ……………………………………….	175
The opinions of Dr Peggs and Dr Scheirs ………………………	181
Equilibrium ………………………………………………………..	192
Samples 14 and 15 ………………………………………………...	194
Application of Medtel v Courtney ………………………………..	197
(6) Conclusion on unsuitability ………………………………………..	205
*Did Steuler’s misleading conduct cause WMC loss?* …………………………	207
(1) Did WMC fail to prove what it would have done had it not been misled? ……………………………………………………………..	233
(2) Did the second fire mean that any HDPE lining would have been replaced? ……………………………………………………………	244
(3) Did the second fire mean a FRP lining would have been replaced? ..	247
(4) If the liner had to be replaced, was Steuler relieved of the consequences of its misleading conduct? …………………………..	257
(5) Was there no loss for which Steuler could be liable? Was the replacement of the lining due to a supervening event? …………….	270
(6) Conclusion on proof of loss …………………………………………	282
*Which was the correct approach to damages - Steuler’s or WMC’s?* ……….	282
(1) The different approaches ……………………………………………	283
(2) The categories of claim ……………………………………………...	284
(3) Did WMC’s loss include all losses incurred in installing the defective liner? ……………………………………………………...	291
(4) Conclusion on approach to damages ……………………………….	297
Costs ………………………………………………………………………………	297
*Conclusion on the BHP appeal* ………………………………………………….	297
The Protec appeal ………………………………………………………………..	298
*Principles relating to recovery of a settlement amount* ……………………..	298
*State of the pleadings and other circumstances at the time of settlement* …	304
*Terms of settlement* ……………………………………………………………….	309
*Events consequent upon the settlement* ………………………………………...	312
*Protec’s case at trial* ……………………………………………………………..	316
*Decision below* ……………………………………………………………………	318
*Protec’s grounds of appeal and Steuler’s contentions* ………………………..	320
*Grounds 1, 2 and 3 : Reasonableness of the settlement amount and the significance of the absence of evidence from Protec’s lawyers* ………………	320
(1) Para (b), Ground 3: Failure to apply objective test of reasonableness	320
(2) Para (c), Ground 3: Court in best position to determine reasonableness ………………………………………………………	321
(3) Paras (d) and (f), Ground 3: Absence of evidence from Protec’s lawyers ……………………………………………………………...	323
(4) Para (e), Ground 3: Judge left to speculate about what informed the settlement …………………………………………………………...	329
*Ground 4: Should the judge have found the settlement amount to be objectively reasonable?* …………………………………………………………..	330
*Ground 5: Should the judge have assessed for himself the reasonable settlement amount?* ……………………………………………………………...	330
Ground 5A: Alternatively, did the OSS Agreement include a term that the lining shall be a tough, durable and chemically resistant system which shall withstand the site operating conditions to give long term protection?	332
*Grounds 6 and 7: Costs* …………………………………………………………..	342
*Contention 1: Was the trial conducted on the basis that there was no distinction between Protec and Protec NSW?* …………………………………	343
*Contentions 2(a) and 3: Did the judge ignore the submission that Protec did not rely upon Steuler’s representations in entering the OSS Agreement?*	345
*Contentions 2(b) and 3: Did the judge ignore the submission that Protec’s loss of $15 million was not caused by reliance upon Steuler’s representations?* …………………………………………………………………..	349
*Conclusion on the Protec appeal* ………………………………………………	353
*Orders* ……………………………………………………………………………..	353
Schedule 1 (Glossary) ……………………………………………………………	354
Schedule 2 (Diagram of Solvent Extraction Plant) …………………………..	356
Schedule 3 (Location of First Fire in Solvent Extraction Plant) ……………	357
Schedule 4 (Location of Second Fire in Solvent Extraction Plant) ………..	358

TATE JA
SANTAMARIA JA
KYROU JA:

Introduction and summary

Section 52 of the Trade Practices Act1974 (Cth) (‘the TPA’) prohibited conduct of a corporation, in trade or commerce, that was misleading or deceptive or likely to mislead or deceive.[1] Relevantly, to make out a claim for damages under s 82 of the TPA,[2] by reason of a misleading or deceptive representation inducing entry into a contract, it was necessary to prove that (1) the impugned representation was made; (2) to the plaintiff; (3) which the plaintiff relied on by entering into the contract; and (4) which caused the plaintiff (5) loss.[3] Each of these elements is in contest in these appeals.
[1]Section 52 provided: ‘A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’. Section 52 was included within Part V of the TPA, the consumer protection provisions. The TPA was replaced by the Australian Consumer Law on 1 January 2011. The Australian Consumer Law forms Schedule 2 to the Competition and Consumer Act 2010 (Cth). The former s 52 of the TPA is substantially reproduced in s 18 of the Australian Consumer Law. However, the conduct complained of occurred well before 2011 and is governed by the TPA.
[2]Section 82(1) of the TPA provided: ‘A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention’. The substance of the former s 82 can now be found in s 236 of the Australian Consumer Law.
[3]See Gould v Vaggelas (1984) 157 CLR 215, 236; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 526–7 [95] (‘Marks’); Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304.

These two appeals arise in the following circumstances. BHP Billiton Olympic Dam Corporation Pty Ltd (‘BHP’) has appealed against orders made by a judge in the Trial Division of this Court that there be judgment in favour of Steuler Industriewerke GmbH (‘Steuler’),[4] (the ‘BHP appeal’).[5] The orders gave effect to the judge’s findings that, although Steuler, as defendant, had contravened s 52 of the TPA by making a misleading and deceptive representation to WMC (Olympic Dam Corporation) Pty Ltd (‘WMC’),[6] as plaintiff, which WMC had relied on, the reliance on the representation had not caused any loss. Steuler responded to the appeal by relying upon a Notice of Contention putting in issue whether the representation was made, to whom it was made, the question of reliance, whether the representation was misleading or deceptive or was negligently made, and whether the judge erred in failing to find there was no loss for which Steuler could be liable.
[4]A Notice of Change of Name of party was filed on 16 December 2013 advising that Steuler Industriewerke GmbH changed its name to Steuler Services GmbH & Co KG on 23 December 2010.
[5]Appeal No S APCI 2012 0186. The orders appealed against were made on 13 September 2012, following the publication of reasons for judgment on 7 August 2009, 16 December 2011 and 13 September 2012. Reasons were published separately as a result of dividing the trial into two parts, broadly between issues of representations and reliance, on the one hand, and causation and loss on the other. A later hearing was held on costs. The three judgments are: BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322 (‘R1’); BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH[No 2] [2011] VSC 659 (‘R2’); and BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH[No 3] [2012] VSC 414 (‘R3’).
[6]For the reasons discussed at [6] below, a reference to ‘BHP’ is to be taken to include a reference to ‘WMC’ and vice-versa; we refer to WMC separately from BHP where relevant.

Protec Pacific Pty Ltd (‘Protec’) has appealed against orders dismissing Protec’s claim against Steuler seeking to recover the amount of $15 million, being the amount for which Protec settled a proceeding against it by WMC (the ‘Protec appeal’).[7] Steuler also responded by a Notice of Contention contesting findings made against it by the judge.
[7]Appeal No S APCI 2012 0185. These orders were also made on 13 September 2012.

The appeals were heard together, as were the two proceedings below. (For convenience, a Glossary of important defined terms is attached as Schedule 1 below).

In summary, the representation the judge found to have been made by Steuler to WMC and Protec, in April, May and July 1997, was that a high density polyethyelene (‘HDPE’) product manufactured by Steuler, Bekaplast HDPE, was suitable for use as a long term containment membrane, or liner, for concrete tanks forming part of the solvent extraction plant at the Olympic Dam mine in Roxby Downs in South Australia (the ‘third representation’).[8] This representation was the only one of three representations alleged that the judge found was both relevantly made and separately relied upon.[9]
[8]How exactly the third representation was to be expressed was much debated. This is discussed further below. See, eg, [108]–[115].
[9]The three representations are set out at [108] below. For a summary of the procedural history of the litigation see [63]–[74] below.

The mine was then owned by WMC, a subsidiary of a large public company, Western Mining Corporation Ltd, for the mining of copper and uranium.[10] In 2005 after the transactions at issue had been concluded, WMC became a subsidiary of BHP Billiton Ltd, and was re-named BHP Olympic Dam Corporation Pty Ltd, (as above ‘BHP’). The judge found that, in contravention of s 52 of the TPA, the third representation was misleading and deceptive in that Bekaplast HDPE was not suitable for its intended use. He also found that the third representation was made negligently in breach of Steuler’s duty of care to WMC and Protec. He found that WMC relied on the third representation in entering into an agreement for the supply of Bekaplast HDPE for its concrete solvent extraction tanks at Olympic Dam and that Protec had relied on the third representation in agreeing to install Bekaplast HDPE for WMC in those tanks. However, he found that, despite the unsuitability of Bekaplast HDPE for the intended purpose, its use had not caused WMC loss because two fires had occurred, and the second fire, as a supervening event, had resulted in WMC replacing the Bekaplast HDPE liners with fire retardant material, which it was obliged to do for fire safety and insurance purposes.[11] Moreover, he held that WMC could not prove what it would have done had it not chosen Bekaplast HDPE as a liner for its concrete tanks and it was thus unable to prove its loss. Furthermore, while WMC and Protec had reached a compromise to resolve the proceeding between them for a settlement amount of $15 million, the judge was not persuaded that the settlement amount was reasonable. He concluded that Protec could not prove that the settlement amount of $15 million represented a loss that could be causally attributed to Steuler.
[10]R1 [1] and [3].
[11]The judge described the second fire as a ‘supervening event’ in R2 [215] (see also R2 [40]) but the observations he made in the first judgment, especially at R1 [658], provide the basis for Steuler to raise Contention 5 (see [100] below). This is discussed in [678]–[702] below.

We would dismiss the appeals.

In respect of the BHP appeal, we have reached the following conclusions:

(1) Steuler did not make the third representation to WMC (or to Protec).

(2) On the hypothetical assumption that, contrary to our primary conclusion, Steuler did make the third representation to WMC, we have concluded that, while WMC had already chosen HDPE as its preferred choice of liner material, independently and through a protracted consultative process, there was evidence, albeit meagre, that had the third representation been made, WMC would have relied upon it in awarding the bid to Protec and in entering into the On-Site Service Agreement (the ‘OSS Agreement’) with Protec for the installation of HDPE.[12]
[12]The OSS Agreement is discussed at [40]–[42], [834]–[863] below.

(3) In any event, the third representation was not misleading or deceptive in that:

(i) the HDPE lining system (of which the Bekaplast HDPE liner was a part) did not fail within 12 months of the copper solvent extraction (‘CuSX’) trains and the uranium solvent extraction (‘USX’) trains going into service and had not failed as at the date of the second fire on 21 October 2001;

(ii) as of the date of the second fire, the HDPE lining system was performing its function as a containment liner;

(iii) it was not established that the HDPE lining was unsuitable.

(4) Had the third representation been made, relied upon, and been misleading or deceptive, while this would have led to replacement of the Bekaplast HDPE liners (as the judge found), WMC was unable to prove its loss because:

(i) it was unable to prove that it was worse off by using the Bekaplast HDPE liner than it would have been if the third representation had not been made and it had entered into an alternative transaction. Had Steuler been unwilling to confirm the suitability of Bekaplast HDPE the most likely alternative transaction WMC would have entered into was with Beltreco Ltd (‘Beltreco’) for the installation of its HDPE liners. The Beltreco liners would also have required replacement, on the assumption (otherwise rejected) that HDPE was unsuitable. It was speculative to infer that had WMC chosen Beltreco, it would have had a cause of action based on a contravention of s 52 of the TPA against it. Without proof of loss the Court could not infer that WMC had suffered prejudice or disadvantage even had it been misled by Steuler;

(ii) in any event, the Bekaplast HDPE liners would have needed to be replaced due to the second fire which was a supervening event;

(iii) had WMC not been induced to procure Bekaplast HDPE but to choose the Beltreco option, it would have needed to replace the Beltreco liners due to the second fire;

(iv) WMC would not have been in a position to modify rather than replace the liners at less cost than it otherwise sustained because this would involve accepting the past hypothetical that WMC would have chosen fibre reinforced polymer (‘FRP’) over HDPE when this was unlikely. We consider that even if a FRP liner had been chosen initially, it would have required replacement rather than modification to ensure it was fire-retardant and conductive.

(5) Had there been a need to calculate damages, the correct approach to damages was Steuler’s.

In the BHP appeal, we leave for a separate hearing the costs consequences of the conclusions we have arrived at, including the consequences for the costs orders made below.

In respect of the Protec appeal, we would dismiss the appeal by reason of the following conclusions:

(1) As Protec had not adduced evidence to establish that it had assessed the legal merits of WMC’s claim against it or how the settlement amount of $15 million was arrived at, the judge had correctly found that Protec had not demonstrated that the settlement amount was reasonable.

(2) The judge had correctly concluded that the OSS Agreement did not include a warranty by Protec about the suitability of the Bekaplast HDPE.

In the Protec appeal, we also leave for a separate hearing the costs consequences of the conclusions at which we have arrived.

The supply and installation of Bekaplast lining[13]

(1) The expansion of the Olympic Dam

[13]What follows is a summary of the relevant events. Greater factual detail is provided under the relevant contention or ground of appeal.

In July 1994, a major expansion was planned to the mining operations at Olympic Dam, including an extension of the copper and uranium solvent extraction plant.[14] The expansion project came to be referred to as the Olympic Dam Expansion Project (‘OEP’), part of which included construction of a new solvent extraction (‘SX’) area for the processing of copper (‘Cu’) and uranium (‘U’).[15] Concrete tanks formed part of the processing train. These tanks needed to be lined to protect the concrete from corrosive process solutions used in the extraction process.
[14]R1 [71].
[15]At times these definitions are avoided and the complete words are used, depending on the context.

During the period July 1994 to April 1997, WMC engaged internationally recognised companies, Krebs, Davy John Brown Pty Ltd (‘DJB’) and Fluor Daniel Pty Ltd (‘Fluor Daniel’) to undertake studies, provide reports and carry out design work with respect to the proposed expansion of the Olympic Dam copper and uranium solvent extraction plant.

There was an integrated management team formed for the purposes of the OEP. The team comprised WMC as the client and operator, Fluor Daniel as the Structural and Mechanical Engineers and Bechtel Australia Pty Ltd (‘Bechtel’) as the Project Managers. Bechtel was responsible for the procurement of all materials for the OEP. Thiess Contractors Pty Ltd (‘Thiess’) was responsible for construction of the SX mixer/settler tanks.

The work undertaken by DJB and Fluor Daniel included providing advice and design work with respect to the lining of the tanks in the proposed USX and CuSX trains.

The trains were made up of settler tanks and mixer tanks (sometimes referred to as mixer boxes). Within each of the two copper trains there were five settler tanks, each with an attached mixer box. In the uranium train there were eight settler tanks, each with an attached mixer box.[16]
[16]R1 [30]. See the diagram of the solvent extraction plant at Schedule 2 below.

WMC also prepared its own Pre-feasibility Study (June 1995), Feasibility Study (March 1996) and Optimisation Study Report (October 1996), relating to the OEP, including consideration of the type of liner to be installed in the tanks.

Krebs had recommended in July 1994 that the concrete settler tanks should be lined with FRP and that the mixers be constructed of free-standing FRP.[17]
[17]There was an extensive process by which WMC made the decision to opt for HDPE in the settler tanks and ultimately also in the mixer tanks and against the use of FRP. We discuss this below at [233]–[261].

From March 1996 onwards WMC proceeded upon the basis that the settler tanks in both the copper and uranium trains were to be lined with HDPE. However with respect to the mixer tanks, there were differing views as to whether stainless steel or FRP lining should be used.

By early April 1997 WMC made a decision to use HDPE lining in the mixer boxes as well as in the settler tanks.

WMC prepared a scope of work and pricing schedule for HDPE lining and an engineering specification for the HDPE lining of the USX and CuSX tanks.

In early April 1997, WMC distributed a Bid Request document to prospective tenderers inviting them to respond to the proposal for the design, manufacture, supply and installation of HDPE linings for the concrete tanks in the SX plant. The Bid Request incorporated the engineering specification that recorded the selection of HDPE as the lining material for the USX and CuSX tanks. The prospective tenderers included Protec as well as Beltreco. Under cl 1.5.4 of the Bid Request, Protec was required to confirm that the lining material was suitable for a service life of 20 years exposed to certain identified chemicals, either individually or in combination, at 55°C.[18] Clause 1.5.4 reads as follows:
[18]R1 [18], [108]-[113]. Clause 1.5.4 was included in section 1 of the Bid Request, the Scope of Work and Pricing Schedule.

Seller shall confirm that the lining material selected is suitable for a service life of 20 years exposed to the chemicals listed below, individually or in combination.
A)       Sulphuric Acid   180      g/L                at 55°C
Ferric (Fe³⁺)            20       g/L
Copper (Cu²⁺)  5         g/L
Chloride (C^-)  3        g/L

B)        Kerosene  90       %                   at 55°C
Aldoxime or Tertiary Amine           10       %
Chloride (CI^-)  3         g/L
H₂ SO₄ Entrainment

The judge regarded cl 1.5.4 as central to what he described as the first of three representations alleged.[19] He found that while Steuler warranted to Protec that Bekaplast HDPE complied with cl 1.5.4, Protec never certified to WMC that Bekaplast HDPE so complied.[20] There was thus no reliance by WMC on this representation.

(2) The selection of Bekaplast HDPE

[19]R1 [384](a). The three representations are set out at [108] below.

[20]R1 [419].

Protec had been in the corrosion protection business since 1982. In early 1997, Protec was negotiating towards a co-operation agreement with Steuler. They recognised Olympic Dam as a possible source of work. Steuler had submitted a ‘prequalification questionnaire’ for OEP faxed on 24 October 1996. This was one of many possible Australian projects where they might work co-operatively.[21]
[21]Others included the Pasminco Century Project, Murrin Murrin and the ICI Project.

Steuler was, among other things, the developer and manufacturer of the Bekaplast lining system. This system used plastic sheets, either HDPE, polypropylene (‘PP’), polyvinylidene fluoride (‘PVDF’) or polyvinyl chloride (‘PVC’) with a defined number of conical anchor studs on one side. The studded side of the sheet is placed in concrete or grout to line a tank. If embedded in concrete, the liner is ‘fully fixed’. If the grouted method is used, the liner remains a fixed liner (albeit not fully fixed) in contrast to a loose liner. HDPE, including Bekaplast HDPE, can be welded together by thermoplastic extrusion welding, which is a specialist welding technique. Steuler marketed Bekaplast as corrosion protection lining material. The Bekaplast technology had been in use for approximately 20 years as at 1997.

Steuler entered into a Co-operation Agreement with Protec Pacific (NSW) Pty Ltd (‘Protec NSW’) on 1 April 1997. Protec NSW is a separate company from Protec, having been incorporated in Tasmania on 15 July 1993 whereas Protec had been incorporated in Tasmania on 2 April 1982.[22] The managing director and majority shareholder of both Protec and Protec NSW was Howard Smith.[23] Business would be conducted using one or other corporate vehicle. Around 1997 Protec NSW was the primary company actively engaged in business.[24] The evidence was that effectively from 1 July 1998 all of the trading activities of the Protec group were transferred to Protec.[25]
[22]R1 [312]–[313].
[23]R1 [4].
[24]R1 [323]. Smith gave evidence that between January and July 1997 business was conducted under the corporate vehicle of Protec NSW. Although Smith would sometimes use ‘Protec Pacific P/L’ in documents and letters, the judge noted (at R1 [317]) that in April 1997 there was no Protec company under that name. It would appear that in 1997 Protec Pacific Pty Ltd was called Protec Pacific (Tas) Pty Ltd and did not change its name back to Protec Pacific Pty Ltd until May 1998: see R1 [312].
[25]R1 [336], [341].

The question of which was the correct entity involved in the relevant events, Protec or Protec (NSW), and in particular which entity entered into relevant agreements, became a live issue at trial and was re-agitated on the Protec appeal. Protec was the named party in both proceedings. The judge found that Steuler, WMC, and Protec had all acted for some years, during the course of the proceedings, as if Protec and not Protec NSW was the correct entity, including by means of allegations and admissions made in the pleadings. He determined that Protec had disentitled itself from taking the defence that it had not been the entity actually involved in the relevant events.[26] This issue is discussed below.[27] With that qualification in mind, reference can continue to be made generally to ‘Protec’ in much of the discussion of the factual background.
[26]R1 [382].
[27]See [867]–[875] below.

Protec received the Bid Request document from WMC on or about 11 April 1997. The due date for the response was 17 April. However, after WMC sent out an amended Bid Request document on about 15 April 1997, the response date was extended to 28 April.

On 17 April 1997 Protec forwarded the bulk of the Bid Request document to Steuler. Protec informed Steuler that it needed responses to its queries by close of business on Wednesday, 23 April 1997 (German time) so that it had enough time to prepare and lodge the Tender Bid. Protec completed its Tender Bid with assistance from Steuler.[28]
[28]R1 [117]–[118].

As part of Steuler’s quality control standard ISO 9001, it checked with its laboratory that the proposed Bekaplast product was suitable for the intended application. Steuler did not have a sample of the proposed process solution to be used in the SX plant at Olympic Dam. In any event, the short response time meant that no scientific testing could be undertaken. Steuler made its assessment based on the results of a three month testing program it had conducted several years earlier in respect of another solvent extraction plant which primarily used kerosene in its process solution.[29]
[29]R1 [119]–[121].

Protec submitted its Tender Bid on 27 April 1997. It said it would supply Bekaplast HDPE, that is, an anchored fixed liner rather than loose liner. Loose liner had been called for in the Bid Request document with respect to the settler tanks.[30] Protec’s Tender Bid was to provide Bekaplast HDPE (a fixed liner) with 256 knobs per m².[31] The liner was to be embedded in the concrete and would thus be fully fixed.
[30]See [131], [192] below.
[31]There was considerable discussion between Protec and Steuler about the number of knobs to be used on the Bekaplast liner with Steuler warning Protec that 100 knobs per m² would severely deform the Bekaplast when immersed in 55°C liquid: see R1 [125]. This is discussed below at [119]–[120].

Protec included information from Steuler about Bekaplast in its Tender Bid. Protec did not provide Steuler with a copy of its Tender Bid.

Apart from the Protec Tender Bid, three other Bids were received, including a Bid from Beltreco. Beltreco would also have supplied HDPE lining. Beltreco’s supplier was Serrot Corporation (‘Serrot’).[32]
[32]R1 [136]-[137].

A post-tender meeting was held between WMC, Steuler and Protec on 20 May 1997 attended by three WMC/OEP personnel. The people attending on behalf of WMC/OEP included Mark Starcevich (a mechanical engineer employed by Fluor Daniel and involved in the OEP), Len Matheson (a civil engineer employed by Fluor Daniel and involved in the OEP), and Keith Blizzard. Blizzard was a procurement specialist who worked for Bechtel. There were two representatives from Steuler, Michael Steuler, the managing director of Steuler and the great grandson of the founder of Steuler, Georg Steuler, and Walter Lähne, the head of Steuler’s export department. Smith attended, representing Protec.

Starcevich made notes of the meeting which were an important contemporaneous record (the ‘Starcevich notes’).[33] It was at this meeting that it was clarified that the Protec Tender Bid was for Bekaplast HDPE with a thickness of 5 mm for the mixer boxes (Type A tanks) and 3 mm for the settler tanks (Type B tanks). The judge accepted that the Starcevich notes supported the contention that it was implicit in what Michael Steuler was saying about the type of liner being offered that he was representing that Bekaplast HDPE lining was suitable as a long term containment membrane for the concrete solvent extraction tanks at Olympic Dam;[34] that is, he was implicitly making the third representation. The judge found that Steuler made the third representation to both WMC and Protec at the 20 May 1997 meeting.[35] He also found that there were other occasions on which Steuler made the third representation either to WMC or to Protec.[36]
[33]R1 [138]-[139].
[34]R1 [477].
[35]Ibid.
[36]The other occasions included a facsimile of 23 April 1997 from Matthias Walschburger (Steuler) to Smith (Protec) (R1 [440]) and a phone conversation on 4 July 1997 between Walschburger and Smith (R1 [503], [507]). See below [119]–[163], and [188]–[221], respectively.

The judge further found that, at the meeting on 20 May 1997, Steuler had represented to WMC and Protec that Bekaplast HDPE lining systems supplied and manufactured by Steuler had been installed in a solvent extraction plant in another part of the world and had been in satisfactory service for more than 20 years.[37] This was described by the judge as the second representation.[38] This was the singular form of the second representation.[39] He found that it had also been made on another occasion.[40] He held that the second representation had not been separately relied upon by WMC; rather, it simply reinforced the third representation.[41]
[37]R1 [434].
[38]R1 [384](b).
[39]The more generalised form of the second representation was that Bekaplast HDPE lining systems supplied and manufactured by Steuler had been installed in solvent extraction plants in other parts of the world and had been in satisfactory service for more than 20 years. See [108] below.
[40]The judge found that the second representation was also made in the facsimile of 23 April 1997 from Walschburger (Steuler) to Smith (Protec): R1 [434].
[41]R1 [529]. This was in effect conceded by BHP before the judge. See [228] below.

A similar post-tender meeting was held with representatives of Beltreco/Serrot.[42] At that meeting Starcevich (Fluor Daniel) recorded that Beltreco expressly confirmed their lining was suitable for use with the process solution.
[42]R1 [137].

The OEP technical assessment was that both tenders were acceptable and that the contract should be awarded on commercial considerations. Blizzard (Bechtel) made the final choice, essentially on price. That is, Blizzard recommended Protec to his superiors and drafted a letter to OEP’s Project Director, Rolf Scherrer (WMC), in the name of Rob McCulloch (Bechtel) (Project Manager, Process Facilities), recommending Protec, which McCulloch signed. Scherrer accepted the recommendation. Protec was the lowest bidder.[43]
[43]R1 [139]–[141].

After further discussions with Protec, WMC awarded Protec the HDPE lining purchase order in mid July 1997 and Protec placed its first supply order with Steuler for the required Bekaplast on 15 July 1997.[44] It was conceded at the trial that the Purchase Order (the ‘Purchase Order’) was entered into between WMC and Protec NSW on 16 July 1997 (the ‘Purchase Order Agreement’).[45]
[44]R1 [143].
[45]R1 [356]. Purchase Order No 4000–MRE–2456–MAC.

The Purchase Order Agreement contemplated that a separate site installation agreement would be entered into. This became the OSS Agreement.[46] It was envisaged that Protec would be on site by August 1997. However, Fluor Daniel required a change in the proposed precast concrete tank fabrication which delayed commencement and also resulted in further negotiation of the scope of work.[47]
[46]The Purchase Order and its relationship with the OSS Agreement are discussed at [834]–[849] below.
[47]R1 [147]–[149]. On 31 March 1998 an agreement was reached between WMC and Protec (the Revised Off-Site Material Supply Agreement) to split the original contract so that the supply of Bekaplast HDPE lining would be subject to a purchase order and installation would be dealt with by way of an on-site service agreement: R1 [334].

The Purchase Order Agreement was revised upward in April 1998 but the OSS Agreement with WMC was not finalised until June 1998.[48] Protec started work on site on 24 June 1998.[49] The judge found that the OSS Agreement was entered into by Protec, and not by Protec NSW.[50]

(3) Difficulties in installing the lining

[48]A final form of the OSS Agreement was re-signed by Smith on 21 July 1998: R1 [166]-[167], [376].

[49]R1 [168].

[50]R1 [372].

Protec had not installed a Bekaplast HDPE lining prior to the OEP. Its Tender Bid provided that an experienced technical representative from Steuler would spend four to six weeks in Australia at the commencement of the works. Steuler’s supervisor, Gerhard Pabst, arrived on site on 5 July and left on 28 July 1998. As between Protec and Steuler, Protec decided whether, and for what duration, a supervisor and welders from Steuler were on-site at the SX area of the OEP. This was a cost consideration for Protec. In the OSS Agreement between WMC and Protec, WMC did not require Steuler to be party to the Agreement, did not require that Steuler perform any of the installation work, and did not require that the work be approved by Steuler.

Protec experienced many problems with the installation of the lining. Neil Pearson, Protec’s Contracts Manager who was also Protec’s work supervisor on site for the OEP, conceded that Protec had completely underestimated the demands of the project. In a facsimile to Smith on 4 November 1998, Pearson said:

Protec Pacific have totally underestimated the competencies necessary to complete this project. The complexities required of HDPE extrusion welding were far greater than Protec anticipated, I believe Protec is at fault and I believe Steuler is at fault.
The least experienced German welder we have on site has more experience, ability, competency and knowledge than the Protec team combined. Even then, that welder still requires direction from Gerhard.

In short, Protec arrived at this most difficult & complex (logistics & personnel) construction site with no practical or relevant experience, no effective technical expertise, no experienced welders, no experienced welding supervisors & absolutely no clear indication of what was required to provide leak free linings.
The short time that G. Pabst spent with us was, in hindsight, totally insufficient to impart to us enough knowledge, technical information and experience to enable us to complete our job in an acceptable manner.
The experience that Protec brought with it to site was unsuitable & inadequate for this particular site. The workshop experience in no way reasonably prepared us for the fabrication of leak free liners in this construction environment.
This project requires a very high level of technically competent and experienced supervision. We are unable to provide that experience and technical base. We as a company, do not have the expertise to complete this project unaided.
My statement that Pabst is pointing out defects to my ‘untrained eye’ is in essence correct. The level of competency required for leak free HDPE extrusion welding is most definitely far superior to that which we collectively have as a company.[51]

[51]R1 [177].

Some of the problems arose from factors beyond Protec’s control, for example, the lining swelled at high environmental temperatures and then contracted at cooler temperatures. This made thermoplastic welding more difficult. In addition, there was defective construction in the concrete tanks and the leak detection system was poorly designed. Other problems arose from the incompetence of Protec’s welders and the failure of Protec to comply with the requirements of the Bekaplast installation manual when installing the liner.

Protec had insufficient experienced, competent workers. In mid-October 1998 Protec sought more assistance from Steuler. Steuler sent eight of its experienced welders and another supervisor to the site. The work was expected to be completed within four months, but was incomplete at the end of 1998.[52]

(4) Leaks in the tanks

[52]R1 [172], [174], [178]–[180].

When the tanks were hydro-tested in 1998 they leaked. WMC sought Steuler’s advice in relation to repairing the defects. Widerstein (Steuler) suggested overstripping the welded joints in the liner with strips of smooth HDPE material in both the USX and CuSX tanks. The HDPE ultimately used by WMC for overstripping was not supplied by Steuler. During February and March 1999 repairs were still being carried out. There was limited Steuler representation on site between April and July 1999. Edgar Widerstein, a Steuler welding supervisor, was present for all of that time.

By letter dated 11 February 1999, Maurice Malcolm (OEP) and Jon Weir, WMC’s Senior Process Metallurgist, wrote to Michael Steuler advising that Widerstein’s performance of instructing other welders had been ‘outstanding’.[53] Weir was the WMC employee responsible for the hydromet[54] (which included the CuSx and USX plants) and had been responsible for providing the information for cl 1.5.4 of the Bid Request. Weir and Malcolm stated that without Steuler’s experienced welders ‘the welding would have continued to be a failure’. Widerstein’s evidence was that he ‘lacked authority to both direct those welding or working in the tanks and to enforce appropriate standards of workmanship’.
[53]R1 [181].
[54]In late 1996 Weir was allocated solely to responsibility for the hydromet area.

The tanks in the USX train went into service and were exposed to the process solution, including kerosene, from about mid-April 1999. Further overstripping work with a smooth non-Steuler HDPE lining was carried out in the tanks in the CuSX trains in May 1999.

In May 1999 problems continued with persistent leaking in the CuSX tanks when they were hydro-tested. The first uranium tank was also subsequently taken off-line, cleaned and drained and then inspected by a Steuler engineer and Sales and Project Manager, Ralf Modes, in early June 1999. He observed:

[S]wellings (bubbles), partly approx. 1 cm high, in the Bekaplast between the knobs. The location of the bubbles was mainly on a line along the max. filling level. But also in vertical direction, near welding joints, these bubbles were found.[55]

[55]R1 [216].

WMC sought advice from two expert geosynthetic consultants, Dr Ian Peggs (I-Corp International Inc, Florida, USA) and Mike Sadlier (Geosynthetic Consultants Australia) about the proposed overstripping work. Both experts commented upon the potential for HDPE to absorb process liquids which might affect its performance. Dr Peggs recommended chemical resistance tests on any possible alternatives to HDPE.[56] Sadlier recommended that the only way WMC could assess how the HDPE behaved with the process solutions would be to ‘initiate a well controlled long term series of exposure tests that involves carefully weighed and identified samples which are immersed in the more extreme locations in the tanks’.[57]
[56]R1 [197].
[57]R1 [208].

Modes was given copies of the reports of both Dr Peggs and Sadlier to review.[58]
[58]R1 [214].

By a facsimile dated 29 May 1999 WMC’s Chief Civil and Structural Engineer for OEP, Jeremy Folwell, reported to WMC’s Manager of Engineering for OEP, Michael Softley, on the comments made by Dr Peggs and Sadlier. Folwell recommended that the loose liner on the overflow weirs ‘be removed and replaced with studded sheet which is grouted into position’ and that they should ‘initiate immersion testing to assess organic absorption. The tests should include weight change and also dimensional and strength changes with progressive exposure’.[59] There was no such testing undertaken by WMC.[60]
[59]R1 [211].
[60]Ibid. There had not been any immersion testing by WMC before tenderers were invited to bid.

On 5 June 1999 Protec informed WMC that it was withdrawing its labour because it had not been paid. Protec left the site on 21 June 1999.[61] Steuler’s two remaining welders left soon after and Widerstein, Steuler’s supervisor, left the site at the end of July 1999, with the knowledge and agreement of WMC.[62] In June 1999 WMC authorised the expenditure of $5.5 million to undertake the overstripping repairs, weir capping rectification and modification to the adjustable weirs.[63]
[61]R1 [226]–[237].
[62]R1 [249].
[63]R1 [243].

In July-August 1999 there were continuing problems with leaking tanks. The USX area was shut down for major leak repairs during August 1999.[64] Both Protec and Steuler were aware of these issues.
[64]R1 [243]–[257].

It would appear that the tanks in the CuSX trains went into service in August/early September 1999.

(5) The first and second fires

On 23 December 1999 there was a fire in the CuSX plant area which damaged eight tanks in the tank farm near the SX train.[65] The attached plan shows the location of this first fire.[66] It was decided that all eight damaged tanks be relined with FRP as part of the remedial works, in part because of the problems with leaks in the HDPE lined tanks.[67] The decision was made against a background of a history of repairs to the Bekaplast HDPE-lined tanks in the SX area.
[65]R1 [268].
[66]See Schedule 3 below.
[67]R1 [588]–[589].

In June 2000, Steuler informed Protec that its own laboratory testing showed there may be problems with Bekaplast HDPE when exposed to Shellsol 2046.[68] There was concern that Shellsol 2046 contained a lot of aromatic compounds which could cause swelling at the surface of a HDPE liner.
[68]R1 [276]. This information was contained in an email dated 8 June 2000 from Thomas Gebhard, a Steuler Sales Engineer, to Smith (Protec), where Gebhard said that Bekaplast ‘will’ swell with Shellsol 2046. See [395] below.

There were very few leaks in the USX and CuSX tanks between January 2000 and October 2001. WMC’s Refinery and Hydromet Management Report for July 2001 stated that both copper and uranium production was ahead of budget for year to date. It was a record uranium production for the month. This picture was repeated in August and September 2001.[69]
[69]R1 [279].

On 21 October 2001 there was a second major fire in the SX area which closed the SX area down and destroyed the tank farm area.[70] The tanks in the CuSX and USX trains were not damaged. However the SX plant was taken out of operation. The process solution remained in the SX tanks for over four months.[71] By about February 2002 WMC decided to replace the HDPE in the CuSX and USX tanks with FRP.[72]
[70]R1 [280]. Schedule 4 below illustrates where the second fire occurred.
[71]It was argued by Steuler on the BHP appeal that this was relevant to what Dr Peggs eventually saw in the tanks in 2002.
[72]R1 [283].

In April 2002 WMC notified Steuler of its intention to replace the Bekaplast HDPE.[73] In that month experts for each of the parties inspected the HDPE lining in two tanks of the USX area before it was removed. It was not possible to inspect the liner in the other USX tanks or in the tanks in the copper trains.
[73]R1 [285].

WMC’s expert, Dr Peggs, provided a report in September 2002 concluding that the liner was irreparable.[74]
[74]R1 [597].

In November 2003, Dr Peggs provided a further report in which he concluded that, on the basis of further testing, HDPE was ‘unsuitable for long term containment of kerosene-based solutions’ irrespective of whether it contained aromatics.

Litigation procedural history

Protec commenced proceedings against WMC on 19 June 2000 (the ‘WMC proceeding’).[75] Protec sought the balance of monies alleged to be owing by WMC for the supply and installation of the lining. WMC counterclaimed alleging defective work and seeking the cost of repairs.
[75]Proceeding No 5797 of 2000.

WMC added Steuler as the second defendant to its counterclaim in December 2001. It also amended its defence and counterclaim against Protec. In both pleadings WMC alleged various false and misleading representations about the design and qualities of the Bekaplast lining.

In June 2002, WMC amended its counterclaim to allege that the Bekaplast HDPE lining was unsuitable and would have to be replaced.[76] This was the first time an allegation of unsuitability was raised.[77] Steuler’s defence of July 2002 alleged that the damage caused to the Bekaplast HDPE was a result of the use of Shellsol 2046 which contained aromatics.
[76]R1 [300].
[77]R1 [11].

On 30 April 2004, Protec filed a writ against Steuler claiming damages for negligent misstatement (the ‘2004 Writ’) but did not serve the Writ.[78] Protec did not disclose the existence of the 2004 Writ to either WMC or Steuler.
[78]Proceeding No 5724 of 2004. R1 [13].

In December 2004 Steuler’s new defence to WMC’s counterclaim no longer maintained the defence based upon the impact of aromatics in kerosene but continued to assert that based on testing for an earlier project there was no basis for any concern that the Bekaplast HDPE might not be suitable for the intended purpose. The new defence introduced allegations that to the extent that there were failures in the Bekaplast HDPE, they were due, amongst other things, to the far greater occurrence of swelling damage in the mixer tanks attributable either to increased temperature of the medium and/or chemical reaction brought about by the introduction into the mixer tank of sulphuric acid and other substances, and to defective welding by Protec.

In 2004 and 2005 WMC and Steuler filed various expert reports on the issue of the suitability of HDPE for the intended purpose. In early 2006 there was a conference of experts leading to a Joint Experts’ Report (‘JER’) dated 7 February 2006.

On 10 March 2006 Protec and WMC entered into an initial deed of settlement by which they settled their respective claims for an ‘all in’ amount of $15 million. Protec agreed to consent to the entry of judgment in favour of WMC for that amount. The deed was conditional upon Protec being successful in an application to serve the 2004 Writ on Steuler out of time (the ’Conditional Deed’).[79] The application was unsuccessful and accordingly, the settlement did not come into effect.[80]
[79]R1 [14]. This is discussed in greater detail at [771]–[772] below.
[80]R1 [14]. Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2007] VSC 93, [58].

On 31 May 2007 WMC, Protec and Smith entered into a new deed of settlement pursuant to which Protec consented to judgment being entered against it in the sum of $15 million (the ‘Final Deed’).[81] The terms of the Final Deed are set out below.[82] Relevantly, under the Final Deed, Protec agreed to issue proceedings against Steuler, such proceedings to be conducted by WMC and by solicitors and counsel nominated by WMC. In consideration of the settlement of the litigation, WMC agreed to pay all costs of the proceedings against Steuler and to indemnify Protec, Smith and Protec’s employees against any award of costs made against them in favour of Steuler. Protec agreed that any amount of damages, costs and interest awarded to it in the new proceedings against Steuler would be applied in satisfaction of the judgment sum of $15 million. Protec agreed to give WMC a charge and WMC agreed to return to Protec a bank guarantee dated 23 May 2002 in the sum of $175,865.08 (the ‘Bank Guarantee’). The return of the Bank Guarantee was not contingent upon any payment by Protec to WMC.
[81]R1 [16].
[82]See [775]–[776] below.

There was no specific obligation in the Final Deed requiring Protec to pay the $15 million by any particular date, or at all.

As a consequence of the settlement between Protec and WMC, consent judgment was entered against Protec in the WMC proceeding.[83] The only outstanding issue was WMC’s counterclaim against Steuler. WMC became, in effect, the plaintiff in the proceedings and the title and name were amended accordingly.[84] As WMC had become a subsidiary of BHP Billiton Ltd in 2005,[85] BHP became the named plaintiff.
[83]In proceeding No 5797 of 2000.
[84]R3 [4].
[85]See [6] above.

Protec commenced its proceeding against Steuler on 16 July 2007, (the ‘Protec proceeding’)[86] alleging that it entered into the OSS Agreement with WMC in reliance upon representations made by Steuler to Protec, including the third representation of Bekaplast HDPE’s suitability or fitness for purpose.[87]
[86]Proceeding No 7268 of 2007.
[87]Protec’s claim against Steuler is set out in greater detail at [777] below.

Protec alleged that as a result of the misleading and deceptive representations and/or negligence of Steuler, it suffered loss, namely its liability to WMC for $15 million.

The first stage of the split trial — representations and reliance

The trial was split into two, the first addressed the issues of what representations were made, whether they were relied upon and whether they were false. The second addressed questions of causation and loss and damage, and quantum.[88]
[88]The first hearing is described as ‘the liability hearing’ in the grounds of appeal but this is not entirely accurate as the issues of causation and loss were not determined until the second hearing. Where possible we prefer to speak of the first and second hearings. The implications of the split trial are discussed at [694]–[701] below.

At trial the expert evidence centred on the suitability of HDPE when used with kerosene (being the major component of the process solution). Various experts conducted or commissioned different scientific tests. The judge found the test results were of little probative value. He ultimately accepted the opinion of WMC’s two expert witnesses, Dr Peggs and Dr John Scheirs,[89] an expert in the chemistry of polymers,[90] that HDPE was susceptible to swelling and reduction in strength when exposed to kerosene, particularly at elevated temperatures. He found that, accordingly, the Bekaplast HDPE lining was not suitable for its intended purpose.[91]
[89]The spelling of Dr Scheirs’ name varied amongst the documents but his signature indicated that the proper spelling was ‘Scheirs’.
[90]Dr Scheirs was the principal of ExcelPlas Polymer Technology and Testing, which specialises in compositional analysis and failure analysis of polymers: R1 [54].
[91]R1 [617], [620], [624].

WMC and Protec were thus both successful in establishing the falsity of the third representation.[92]
[92]R1 [507], [620]–[621], [624].

The result was that WMC and Protec established that in reliance on the third representation, WMC chose to use Bekaplast HDPE and entered into the OSS Agreement with the result that Bekaplast HDPE linings were installed. As mentioned above,[93] relevantly, the making of the third representation was found to contravene s 52 of the TPA, and was made negligently in breach of Steuler’s duty of care to WMC and Protec.[94]
[93]See [6] above.
[94]R1 [530]–[624], [686].

Steuler submitted that any loss was not caused by any contravention. Steuler put this on a number of bases:

(1) it submitted that the supervening reason for the replacement of the liner after the second fire was fire safety and insurance requirements imposed on WMC;[95]

(2) it relied on the fact that some of the repairs to the Bekaplast HDPE were caused by the poor workmanship of Protec and others;[96]

(3) it argued that it was unnecessary to replace all of the lining in all of the mixer/settler tanks; at most only the lining of the mixer boxes required replacement.[97]

[95]R1 [647].

[96]R1 [659].

[97]R1 [664].

As for the first submission, in the first judgment the judge observed that the decision to replace may have been brought forward by the opportunity presented by the second fire but that did not mean that the contravening conduct (being the false and misleading representation about suitability) was not a cause of WMC’s loss, which would have resulted at some time without the second fire occurring.[98] He saw ‘no reason not to accept the sworn evidence of … Softley, Folwell and Schell[99] that concerns about the suitability of the HDPE due to continuing problems with swelling and leaks were a factor in the decision to replace it with FRP’.[100] These observations and their consistency with the judge’s ultimate finding that WMC could not prove its loss is discussed below.[101]
[98]R1 [658].
[99]Jason Schell was a metallurgical engineer for WMC and was involved with the solvent extraction plant, amongst other areas of the OEP, from 1995.
[100]R1 [658].
[101]See [695]–[701] below.

The second and third submissions were deferred to the second hearing.[102]
[102]R1 [659]–[665].

The judge deferred to the second hearing any conclusion on the liability of Steuler to Protec with respect to its claimed loss of $15 million arising from the settlement.[103] However, he rejected various initial arguments advanced by Steuler against the reasonableness of the settlement of $15 million in respect of a claim of potentially $45.8 million, and he noted that, given the costs saved by Protec in settling when it did (both with respect to the risk of costs to be paid if Protec was unsuccessful and the costs avoided by not having to prepare for trial), this might be ‘a persuasive argument in favour of the reasonableness of the settlement’.[104]
[103]R1 [666]–[677].
[104]R1 [676]. See further [786]–[789] below.

The second stage of the split trial — causation, loss and quantum

After the first hearing and prior to the commencement of the second hearing, WMC gave notice of intention to amend its particulars of loss to delete the claim for cost of replacing the Bekaplast HDPE lining with FRP. An amendment was allowed[105] the effect of which was that the claim was reduced to:
[105]On 9 April 2010.

(1) the cost of supply and installation of Bekaplast HDPE;

(2) the cost of rectification and repair of the Bekaplast HDPE; and

(3) the cost of removal of the Bekaplast HDPE and preparation of the tanks in readiness for installation of FRP (including payments to the major contractor Ron Gee Enterprises and other contractors).

The effect of this amendment was, as the judge observed, to substantially reduce the quantum of WMC’s overall claim from about $55 million to

$30 million and to dispense with the issue of betterment.[106]

[106]R2 [11]. BHP had been seeking to cover the cost differential of the two liners, because the second liner was more expensive, less some allowance for betterment (that is, unearned or excess increase in value: Peter E Nygh and Peter Butt (eds), Butterworths Australian Legal Dictionary, Butterworths (1997)). However, when BHP amended its claim to exclude the cost of the new liner, the issue of betterment disappeared: see R2 [11], [58].

The central issue in the second stage of the split trial was identifying the amount of loss or damage, if any, WMC suffered as a result of Steuler’s contravening conduct.[107] The issue was: Could WMC, as the plaintiff, prove that the loss or damage it alleged was caused ‘by’ the contravening conduct, pursuant to s 82 of the TPA?
[107]R2 [13].

WMC submitted that Steuler was liable under s 82 for all of the costs claimed because, as a result of being misled about the suitability of Bekaplast, WMC had ‘gone down the wrong path’.[108]
[108]R2 [17].

Steuler’s primary overarching argument was that WMC could not recover any damages because:

(1) it had not established what it would have done if Steuler had not engaged in misleading conduct;

(2) thus WMC could not demonstrate the required comparison between the situation brought about by the contravening conduct and the situation as it would have been without the contravening conduct; and

(3) therefore WMC could not prove that it had suffered any detriment as a result of Steuler’s misleading conduct.[109]

[109]R2 [19].

The judge accepted Steuler’s submission.[110] BHP appeals this finding.
[110]R2 [35].

Steuler’s second overarching argument was that even if one could speculate about what course WMC might have followed in the absence of misrepresentation, WMC would still have replaced the lining following the second fire in October 2001 because of the need to install a fire retardant and conductive lining in order to reduce the risk of further fire and to obtain insurance for the SX plant.[111]
[111]R2 [22].

The judge found that even if HDPE had been installed by Beltreco and it was operating satisfactorily, WMC would have decided to replace it after the second fire with a fire retardant and conductive lining.[112] Therefore, WMC would have suffered no loss because it would still have incurred the costs of installing the first lining, removing it and preparing for the installation of a new lining after the fire.[113] He found that WMC had not been able to prove its claim that it had suffered loss or damage by conduct of Steuler in contravening s 52.[114] He also found that the claim in negligence failed for similar reasons.[115]
[112]R2 [40].
[113]Ibid.
[114]R2 [50].
[115]Ibid.

The position, according to the judge, would also have been the same if WMC had chosen to install FRP in the first instance because the lining it would have installed would also not have been fire retardant and conductive.[116]
[116]R2 [49].

Evidence was given by a WMC witness, Ron Gee, that FRP could be modified to make it fire retardant and conductive at a cost less than replacement cost. However, Gee said (and Steuler’s expert agreed) that this modification work could not be performed in accordance with the requirements of WMC standard equipment specification STSP-61 Rev 1. This was the specification which governed the replacement lining work on the SX tanks after the second fire. The judge also relied on an expert report tendered by Steuler, from Peter Groch,[117] an engineer, to the effect that an initial FRP lining could not have been modified to meet the new fire prevention requirements.[118] The judge found that WMC would not have been prepared to modify the tanks both because the concrete and all the layers could not be spark tested and because it was not prepared to take a short cut in circumstances where there had been two serious fires at the SX plant.[119]
[117]Groch was the Operations Manager of RPC Technologies Pty Ltd, a leading Australian supplier of corrosion resistant, structural FRP fabrications, piping and ducting systems, acid resistant heavy duty linings and specialist composite products.
[118]R1 [42]–[44], [48]. See the further discussion of the issue of the relevant technical specification (STSP-61 Rev 1) at [625]–[653] below.
[119]R2 [46]–[48]. See the further discussion of the issue of spark testing at [630]–[632], [639] below.

Notwithstanding that he found that WMC had not proved any loss, the judge proceeded to assess the damages that would be awarded if he was wrong on liability. WMC’s approach was that it could recover all of the costs it had incurred in installing and removing the first lining (‘WMC’s approach’). Steuler submitted that the correct approach was to ascertain the reasonable costs which had been incurred as a result of the unsuitability of the Bekaplast lining (‘Steuler’s approach’).[120] The judge accepted Steuler’s approach.[121] BHP appeals this finding.
[120]R2 [52].
[121]R2 [215].

After analysing the evidence, the judge assessed the claim using Steuler’s approach at about $6.070 million.[122] On the basis of WMC’s approach, the sum awarded would be at about $12.251 million.[123]
[122]R2 [213].
[123]R2 [212].

With respect to the $15 million loss alleged by Protec by compromising WMC’s claim against it, the judge found that it was a fatal omission for Protec to fail to lead evidence from its legal advisers about the course of the negotiations leading to the settlement, or the reasoning which led to the settlement, or the matters that were taken into account.[124] The judge found that, as a consequence, Protec failed to prove that the settlement was reasonable and thus failed to make ‘out its case that the quantum of its loss and damage caused by … Steuler was $15 million or any other sum’.[125] Protec appeals this finding.
[124]R2 [233].
[125]R2 [233]–[234]. See further [790]–[791] below.

Costs

In support of their application for costs below, BHP and Protec submitted before the judge that the first hearing determined clearly dominant or separable issues upon which they were successful which justified an award of costs in their favour. They argued that they had successfully established that Steuler had engaged in misleading or deceptive conduct in contravention of the TPA and that they were induced by that conduct to purchase Bekaplast HDPE and to enter the OSS Agreement, and that they should recover costs against Steuler for its wrongful conduct.[126] The judge rejected the submission and concluded that Steuler should be awarded its costs of both proceedings at least on a party and party basis.[127]
[126]R3 [28].
[127]R3 [44]–[51].

Steuler sought special costs orders based on seven offers of settlement. Offers one to five were found either to be ineffectual as offers or it was not unreasonable for WMC and Protec to have rejected them.[128]
[128]R3 [71], [75], [78]–[79], [91]-[92], [95].

The judge found that WMC and Protec acted unreasonably in not accepting offer six or seven.[129] As a consequence, Steuler was awarded costs in each proceeding on a party and party basis up to and including 10 April 2008 and thereafter on an indemnity basis.[130] BHP and Protec seek leave to appeal the special costs orders.[131]
[129]R3 [109], [119].
[130]R3 [121], [122].
[131]As mentioned at [9] and [11] above, the question of costs is deferred for a separate hearing.

The BHP appeal ‑ Steuler’s contentions and BHP’s grounds of appeal

Steuler’s contentions in the BHP appeal focused upon the findings with respect to the making of the third representation, the issue of reliance, and causation and loss.[132]
[132]It may appear surprising that Steuler challenged the findings made on causation and loss given that they were in its favour. However, it considered that the judge could have gone further and ruled out any loss suffered by WMC as possibly being attributable to Steuler.

Steuler contended[133] that the judgment should be affirmed by reason of matters which were not decided below, or were decided erroneously below:
[133]The contentions and the grounds of appeal have been adapted in light of some of the abbreviations already adopted in the judgment.

Contention 1: The judge erred in finding that the third representation was made by Steuler to Protec and WMC.[134]
[134]We accept Contention 1. See [107]–[225] below.

Contention 2: The judge erred in finding that WMC relied upon the third representation in entering into the OSS Agreement in July 1998.[135]
[135]We reject Contention 2. See [227–[321] below.

Contention 3: The judge erred in finding that the third representation was misleading or deceptive and was negligently made.[136]

Contention 4: The judge erred in failing to find there was no loss for which Steuler could be liable in circumstances where, at the time of the second fire, WMC had not suffered loss and the need to replace the liner was attributable to the requirement that WMC reduce or eliminate the risk of fire at the solvent extraction plant by having a fire retardant and conductive liner.[137]

Contention 5: The judge erred in failing to find that notwithstanding the alleged conduct by Steuler which contravened the TPA, and was negligent, the replacement of the HDPE tank lining was due to a supervening event, namely WMC’s need to meet its occupational health and safety and other statutory obligations regarding fire safety at the solvent extraction plant.[138]

[136]We accept Contention 3. See [322]–[532] below.

[137]We accept Contention 4. See [678]-[702] below.

[138]We accept Contention 5 (in so far as it is relevant). See [678]–[702] below.

Contentions 4 and 5 invited scrutiny of parts of the judge’s reasoning upon which BHP also sought to focus. BHP challenged the judge’s findings on causation, loss and quantum.

In its Notice of Appeal, BHP relied on the following grounds, many of which raised inter-related issues:

A. Causation

Ground 1: The judge erred in finding that WMC had not proved that it had suffered any loss because it did not prove what it would have done had it not been misled. He so erred because the uncontradicted evidence was that WMC would have installed either HDPE or FRP linings.[139]
[139]R1 [528], R2 [30] and [36]; R2 [35]. We accept that the reasoning challenged in Ground 1 was incorrect but we support the conclusion the judge reached that WMC could not prove its loss. See [603]–[611] below.

Ground 2: The judge erred in finding that the failure by WMC to prove which of the two linings it would have chosen meant that it failed to prove it had suffered any loss.[140]
[140]R2 [37]. We accept that the reasoning challenged in Ground 2 was incorrect but we support the conclusion the judge reached that WMC could not prove its loss. See [603]–[611].

Ground 3: The judge found that if WMC had established that if the Beltreco option had been chosen and HDPE linings installed WMC would have suffered no loss on this scenario because it would have installed an unsuitable HDPE lining. He was in error in so finding because if WMC had done so it would have had a claim against Beltreco for breaches of similar warranties and sections of the TPA and the same loss as claimed against Protec and Steuler.[141]
[141]R2 [38]. We reject Ground 3. See [608]–[611] below.

B.HDPE lining

Ground 4: The judge found that if Beltreco had installed HDPE lining it would have been replaced (rather than modified) by WMC with a fire retardant and conductive lining as a result of the second fire (the first proposition).
Ground 5: The judge erred in making the finding referred to in Ground 4 because:
(a) the first proposition was never pleaded;
(b) the first proposition was never contended for by Steuler;
(c) the first proposition was contrary to the uncontradicted evidence of WMC's witness Softley;
(d) the first proposition was never put in cross-examination to any of WMC's witnesses;
(e) the first proposition was not supported by any evidence;
(f) the onus of establishing the first proposition was on Steuler.[142]
[142]We reject Grounds 4 and 5. See [612]–[621] below.

C.       FRP lining
Ground 6:The judge erred in finding that, if WMC had installed a FRP lining in 1997, it would have replaced it with a fire retardant and conductive FRP lining (the second proposition).[143]
[143]R2 [41].
Ground 7:     The judge erred in making the finding referred to in Ground 6 because:
(a)      the second proposition was never pleaded;
(b) the second proposition was never put in cross-examination to any of WMC's witnesses;

(c)       the onus of establishing the second proposition was on Steuler.
Ground 8:The judge erred in finding that after the second fire the FRP lining could not be modified to make it fire retardant and conductive. The uncontradicted evidence of WMC's witness Gee was that a FRP lining could have been modified to make it fire retardant and conductive.[144]
[144]R2 [46]–[48].
Ground 9:      The judge found that Steuler's witness, Groch, answered (in the negative) the question whether the initial FRP lining could have been modified to meet the new fire prevention requirements. He erred in coming to this finding because:
(a)      Groch’s expert report did not deal with this question;
(b) the specification STSP-61 Rev 1 referred to in Groch’s report was for the removal of HDPE lining and replacement with a fire retardant, conductive FRP lining (the judge had previously found that WMC’s reason for removing the lining was because of the unsuitability of the HDPE);[145]
[145]R1 [658].
(c) the said specification was not one for the modification of a non-fire retardant, non-conductive FRP lining into a fire retardant and conductive FRP lining.

Alternatively, the judge erred in accepting the evidence because Groch did not state any basis for his purported conclusion that the initial FRP lining could not[146] have been modified to meet the new fire prevention requirements.[147]
[146]While Ground 9 was drafted without the word ‘not’ appearing before ‘have been modified’, BHP must have intended to use the word ‘not’ as Ground 9 begins by reciting that Groch answered in the negative the question whether a FRP lining could have been modified.
[147]R2 [43].
Ground 10: The judge found that, because it was not possible to spark test the concrete, WMC would have removed the old FRP liner and replaced it with a new FRP liner.[148] He erred in coming to this finding because:
[148]R2 [46].
(a) spark testing the concrete was not a requirement of the specification;[149]
[149]R2 [49].
(b) it was not pleaded that spark testing the concrete was critical to the achievement of a fire retardant and conductive FRP liner;
(c) it was not put to any WMC witness that WMC would not have chosen to modify a FRP liner to make it fire retardant and conductive;
(d) there was no evidence that spark testing the FRP liner related to the achievement of a fire retardant and conductive liner (the evidence of Gee and the submissions of Steuler was that spark testing only related to FRP adequacy);
(e) he wrongly assumed that specification STSP-61 Rev 1 would have been the applicable specification if WMC had chosen to so modify a FRP liner;
(f) he failed to have regard to the uncontradicted evidence of Gee that modifying existing FRP to make it fire retardant and conductive would achieve the intent of the requirement for fire retardance and conductivity called for by the specification;
(g) he misunderstood the evidence of Groch on this issue, as referred to in Ground 9; alternatively he erred in accepting it;
(h) he failed to have regard to the uncontradicted evidence of Gee that there would have been a cost saving of at least 50 per cent if the FRP liner had been so modified;
(i) he failed to have regard to the fact that the onus was on Steuler of proving that the loss, resulting from the established unsuitability of the HDPE liner, would have occurred in any event as a consequence of the need to make a FRP liner fire retardant and conductive.[150]
[150]We reject Grounds 6-10. See [622]–[653] below.

Ground 11: The judge erred in finding that, as a matter of law, if WMC had decided to replace the liner in any event, Steuler was relieved of the consequences of its contraventions of the TPA.[151]
D.Quantum of damages

Ground 12:    The judge erred in adopting Steuler’s approach and calculating the amount of damages WMC would have received in the sum of $6,070,630.40 as opposed to adopting WMC’s approach and calculating the amount of damages at $12,251,537.43;[152]
Ground 13:    The judge erred in finding that the correct approach in calculating WMC's alleged loss was to ascertain the reasonable costs which had been incurred by WMC as a result of the unsuitability of the Bekaplast (HDPE) lining (Steuler’s approach) rather than the recovery of all of the costs WMC had incurred by reason of it being induced to install the first lining (WMC’s approach);[153]
Ground 14:    In preferring the adoption of Steuler’s approach, the judge erred in failing in assessing damages to ensure that Steuler, as the wrongdoer, and not WMC, bore the burden of any uncertainty in its calculation.[154]

[151]We reject Ground 11. See [654]–[677] below.

[152]R2 [215].

[153]R2 [52], [57].

[154]We reject Grounds 12–14. See [705]–[736] below.

E.        Costs[155]
Ground 15:    The judge erred in finding that the liability hearing was not a clearly dominant or separable issue upon which WMC and Protec were successful.[156] In the exercise of his discretion, he should have made an order that Steuler pay WMC’s costs of the liability hearing.
Ground 16:    The judge erred in finding that WMC acted unreasonably in failing to accept the sixth settlement offer;[157] and the seventh offer[158] and was therefore liable to pay Steuler’s costs on an indemnity basis after 10 April 2008.[159]
[155]As mentioned at [9] above, we leave the costs consequences of this judgment on the BHP appeal, and of the judgment below, for a separate hearing. Grounds 15 and 16 would thus await that hearing.
[156]R3 [28], [44]–[51].
[157]R3 [97]–[110].
[158]R3 [111]–[119].
[159]With respect to the grounds of appeal on costs, BHP recognised that it requires leave to appeal the orders made, pursuant to s 17A(1) of the Supreme Court Act1986.
The Protec appeal — Protec’s grounds of appeal and Steuler’s contentions

Protec submitted that, although Steuler sought to distinguish between Protec and Protec NSW in the first hearing, it did not seek to maintain that distinction at the second hearing because there was no issue to which the distinction was relevant. When Steuler sought to re-agitate the question of whether Protec had relied on Steuler’s representations in entering into the OSS Agreement, the judge said that, as he had already found in favour of Protec in relation to reliance, the matter could not be re-argued.

Protec also submitted that, at the time of settlement, it acted reasonably in deciding to proceed on the basis that it was not going to be able to avoid liability to Steuler by seeking to shift liability to Protec NSW. Protec contended that the judge’s interlocutory ruling of 17 May 2007[991] was relevant to, and supported, that decision.
[991]See [773] above.

It is not necessary for us to decide whether the judge was correct in stating that the parties conducted both proceedings on the basis that no distinction was to be drawn between Protec and Protec NSW. This is because, for the reasons set out above[992] and below,[993] any reliance by Protec on Steuler’s representations in entering into the OSS Agreement could not result in liability by Protec to WMC under that agreement based on the unsuitability of the Bekaplast HDPE material.

Contentions 2(a) and 3: Did the judge ignore the submission that Protec did not rely upon Steuler’s representations in entering the OSS Agreement?

[992]See [848]–[862] above.

[993]See [895] below.

Read with Contention 2(a), Contention 3 alleges that the judgment below should be affirmed on the ground that Protec did not rely upon Steuler’s representations in entering into the OSS Agreement.

Relevantly, in the first judgment, the judge made the following findings:

(a) Steuler made the first representation to Protec but Protec did not make that representation to WMC.[994]
[994]R1 [384](a), [419].

(b) Steuler made the second representation to Protec NSW; Protec NSW repeated the representation to WMC; and Steuler also made the representation directly to WMC.[995] However, the second representation may not be sufficient to make out WMC’s case independently of the third representation; the second representation ‘simply reinforced the third representation’.[996]
[995]R1 [356], [379], [384](b), [434], [528].
[996]R1 [529].

(c) Steuler made the third representation to Protec NSW; Protec NSW repeated the representation to WMC[997] and Steuler also made the representation directly to WMC.[998]
[997]R1 [356], [379], [384](c), [490], [503]–[506].
[998]R1 [356], [379], [384](c), [440], [477], [503], [505], [528].

(d) WMC relied on the third representation made by Steuler and Protec NSW in deciding to enter into the OSS Agreement.[999]

(e) Notwithstanding that the second and third representations were made to Protec NSW and not to Protec, Protec could rely on them. This was because Protec was a member of an identifiable class — namely, the companies in the Protec group through which Smith chose to operate — to whom Steuler knew or ought reasonably to have known the representations would have been communicated for a purpose that would be very likely to lead Protec to enter into contractual arrangements with WMC in reliance on the representations.[1000]

(f) Protec relied on the second representation, to some extent, and the third representation made by Steuler in deciding to enter into the OSS Agreement.[1001]

[999]R1 [356], [508](b), [528]–[529].

[1000]R1 [379]–[380].

[1001]R1 [508](a)(ii), [527].

In the same judgment, the judge also made the following findings:

(a) Any warranty or representation was made by Protec NSW (not Protec) to WMC.[1002]
[1002]R1 [356].

(b) Save for the fact that Protec was precluded from distinguishing between itself and Protec NSW, Protec could have successfully defended the WMC proceeding because:

(i) Protec would not have been liable under the OSS Agreement because that agreement dealt with installation and did not contain any representation or contractual warranty about the suitability of the Bekaplast HDPE product;[1003] and
[1003]R1 [311], [325], [381]–[382], [673]–[674]. See the discussion under Ground 5A, above.

(ii) Protec would not have been liable under the Purchase Order Agreement because Protec NSW, rather than Protec, was the party to that agreement.[1004]

(c) Protec was precluded from distinguishing itself from Protec NSW in the WMC proceeding. The fact that Protec placed itself in a position whereby it could not successfully defend the WMC proceeding was a consideration to be taken into account when considering the reasonableness of the $15 million settlement amount.[1005]

[1004]R1 [311], [325]–[326], [381]–[382], [672].

[1005]R1 [382].

On the Protec appeal, Steuler submitted that the judge’s findings set out above[1006] were tantamount to a finding that WMC and Protec did not rely on the third representation in entering into the OSS Agreement. Steuler contended that if the third representation was made, WMC and Protec NSW relied on the third representation only in entering into the Purchase Order Agreement.[1007]
[1006]See [878] above.
[1007]Steuler asserted that this contention is supported by the judge’s findings in the first judgment at [311], [325], [356], [379], [382], [670]–[674].

Steuler also submitted that the representations were not relevant to the OSS Agreement and did not play any part in influencing either WMC or Protec to enter into that agreement because:

(a) The third representation related to the suitability of the lining material for the CuSX and USX tanks within the hydromet plant;

(b) If the third representation was made, it was made during the period between April and July 1997, prior to the making of the Purchase Order Agreement, and no such representations were made after July 1997;[1008] and

(c) The judge correctly found that any representations were made by Steuler to Protec NSW,[1009] not Protec, and that the OSS Agreement related to installation, not to the supply of the material.[1010]

[1008]See n 997 above.

[1009]See n 1000 above.

[1010]See n 1003 above.

Protec disputed Steuler’s contention that the judge made contradictory findings about whether Protec entered into the OSS Agreement in reliance on Steuler’s suitability representations. Protec contended that the judge’s findings that Steuler’s representations were directed to Protec NSW, that Protec NSW entered into the Purchase Order Agreement and that Protec’s liability did not arise from a breach of a term of the OSS Agreement were not inconsistent with a finding that Smith, on behalf of Protec, entered into the OSS Agreement and proceeded with the HDPE lining works at the Olympic Dam site in reliance on Steuler’s representations. Protec contended that, but for Protec entering into the OSS Agreement and undertaking the works, it would not have incurred any liability to WMC.[1011]
[1011]R1 [527], [679]–[681]. Protec relied upon Marks (1998) 196 CLR 494, 512–13 [42]; Gates (1986) 160 CLR 1, 12; and Henville v Walker (2001) 206 CLR 459, 502 [132], 509 [162], 510 [166].

Protec submitted that in support of the judge’s finding that it entered into the OSS Agreement in reliance upon Steuler’s third representation was Smith’s evidence that he did not have the knowledge to enable him to make any assessment of the suitability of the Bekaplast HDPE lining material and that he relied entirely on Steuler’s representations about the suitability of that material.

In our opinion, when the judge’s reasons are read as a whole, it is clear that he found that Protec relied on what he characterised as Steuler’s third representation in entering into the OSS Agreement. On the basis that Steuler made that representation — which we have rejected — a review of the evidence indicates that the judge’s finding on reliance was warranted.

It follows that Contention 3, insofar as it relies on Contention 2(a), is not made out.

However, a favourable finding in relation to reliance is not in itself sufficient to establish that Protec was liable to WMC under the OSS Agreement and that, consequently, Steuler was liable to Protec. We will return to these matters below.

Contentions 2(b) and 3: Did the judge ignore the submission that Protec’s loss of $15 million was not caused by reliance upon Steuler’s representations?

Read with Contention 2(b), Contention 3 alleges that the judgment below should be affirmed because, even if the Court were to find that Protec relied on Steuler’s representations in entering into the OSS Agreement, Protec’s claimed loss of $15 million was not caused by such reliance.

It was common ground that in order for Protec to succeed in its TPA claim against Steuler, Protec had to prove that it entered into the OSS Agreement in reliance on Steuler’s alleged misleading conduct (namely the alleged misrepresentations) and that there was a causal relationship between the act of reliance and the loss claimed by Protec, namely, the $15 million settlement amount.

Steuler submitted that there was no causal relationship between any reliance by Protec on Steuler’s representations in entering into the OSS Agreement and the settlement amount because WMC’s loss, which it claimed against Protec, was not caused by its entry into the OSS Agreement. Rather, so it was said, based on the judge’s findings, WMC’s loss was caused by the falsity of the third representation made by Protec NSW to WMC, in reliance upon which WMC entered into the Purchase Order Agreement.

Steuler also relied on the following findings of the judge:

(a) The second and third representations related to the suitability of the Bekaplast HDPE lining material. They were made by Protec NSW (rather than Protec) to WMC and WMC relied upon the third representation in entering into the OSS Agreement.[1012]

(b) The OSS Agreement did not contain warranties or representations about the suitability of the Bekaplast HDPE lining material but was an agreement to install that material.[1013] WMC had already selected the Bekaplast HDPE lining material by the time it entered into the Purchase Order Agreement under which Protec NSW agreed to design, supply, package, deliver and install that material.

[1012]See n 999 above.

[1013]See n 1003 above.

Steuler submitted that Protec did not make the third representation to WMC and therefore, although the judge held that WMC relied on the third representation in entering into the OSS Agreement, there was no connection between such reliance and the claimed loss of $15 million. Accordingly, so it was said, if the representations made to WMC are the basis for the claimed loss, Protec did not make them; and if the basis for the claimed loss was WMC’s reliance on the third representation in entering into the OSS Agreement, the alleged falsity of the third representation about the suitability of the Bekaplast HDPE lining material could not found a claim for breach of contract by WMC against Protec because that agreement related only to installation of the material and contained no obligations about its suitability.

Steuler contended that — based on the judge’s findings which it otherwise challenged — WMC relied on the third representation made by Protec NSW in entering into the Purchase Order Agreement and suffered loss because, contrary to the third representation, the Bekaplast HDPE material was unsuitable.[1014] Accordingly, so it was said, WMC’s loss in respect of which it agreed to accept $15 million on the terms set out in the Final Deed, was WMC’s reliance on the making by Protec NSW of the third representation between April 1997 and July 1997 and which culminated in WMC and Protec NSW entering into the Purchase Order Agreement.
[1014]R1 [621].

Protec submitted that there was a causal relationship between its reliance on Steuler’s second and third representations in entering into the OSS Agreement and the incurring of liability to WMC. Protec listed the following factors supporting its potential liability to WMC:

(a) At the time of the settlement, Protec could not rely on the defence that the second and third representations were made to WMC by Protec NSW rather than by Protec because Protec had been prevented from taking that point by the judge’s interlocutory ruling dated 17 May 2007.[1015]

(b) The representations were made by Smith at a time when he was acting on behalf of both Protec and Protec NSW and therefore the better view is that Protec was also liable to WMC.[1016]

(c) Regardless of whether Protec made the second and third representations to WMC, WMC’s claim was also based on a breach of the OSS Agreement. At the time of the settlement, Protec faced a substantial risk that it would be found liable under that agreement. The fact that the judge found that cl 7 of Annexure H to the OSS Agreement did not constitute a warranty was a matter upon which minds could differ.

[1015]See Protec Pacific Pty Ltd v WMC(Olympic Dam Corporation) Pty Ltd [No 2] [2007] VSC 152.

[1016]Protec relied on Rafferty v Madgwicks (2012) 203 FCR 1, 54–5 [218]–[221].

According to Protec, the existence of a risk that it could be found liable to WMC under the OSS Agreement, which WMC and Protec entered into in reliance upon Steuler’s representations, meant that there was a sufficient causal relationship between those representations and Protec’s loss. The judge properly found, so it was said, that Protec was in this position as a result of Steuler’s false and misleading representations.[1017] Protec submitted that differences of opinion about the degree to which Protec was at risk of liability did not go to the existence of causation but rather to the reasonableness of the settlement amount of $15 million.
[1017]R1 [382].

Finally, Protec complained that the allegation of lack of causation was not relied upon by Steuler at trial and that, had Steuler taken the point below, WMC could have conducted its case differently. Protec submitted that if the Court permitted Steuler to raise the point on appeal, it would seek to rely upon Ground 5A of its notice of appeal.

In our opinion, for the reasons discussed above,[1018] the contention that the OSS Agreement imposes an obligation on Protec in relation to the suitability of the Bekaplast HDPE material is not reasonably arguable. Accordingly, we agree with Steuler’s submission that, on the basis that it has been established that WMC and Protec relied upon what the judge found to be Steuler’s second and third representations in entering into the OSS Agreement, any unsuitability of the Bekaplast HDPE material could not found any contractual liability by Protec to WMC.
[1018]See [848]–[862] above.

Accordingly, Contention 3, insofar as it relies on Contention 2(b), is made out.

Steuler’s Contention 4, which repeated Contentions 1 and 3 in the BHP appeal, has been dealt with already.[1019]
[1019]See [107]–[225], [322]–[538] above.

Conclusion on the Protec appeal

The Protec appeal will be dismissed.

Orders

We shall order that both the BHP appeal and the Protec appeal be dismissed and reserve the question of costs of the appeals (including the costs below) for a separate hearing.

---

SCHEDULE 1

GLOSSARY

nAME/tERMS	dETAIL
2004 Writ	Writ filed by Protec against Steuler on 30 April 2004; writ not served
Bank Guarantee	Bank guarantee dated 23 May 2002 provided by Protec to WMC
Bechtel	Bechtel Australia Pty Ltd
Bekaplast HDPE	A Steuler lining system using HDPE with conical anchor studs to provide corrosion protection
Beltreco	Beltreco Ltd
BHP	BHP Billiton Olympic Dam Corporation Pty Ltd (formerly WMC)
BHP appeal	Appeal No S APCI 2012 0186 brought by BHP against Steuler
Citect	Citect Data Management System
CCD	Counter-current decantation
Conditional Deed	Deed of Settlement between Protec and WMC dated 10 March 2006; settlement did not take effect
Cu	Copper
CuSX	Copper Solvent Extraction
DJB	Davy John Brown Pty Ltd
EW	Electrowinning
Final Deed	Deed of settlement between Protec and WMC dated 31 May 2007
Fluor Daniel	Fluor Daniel Pty Ltd
FRP	Fibre Reinforced Polymer
HDPE	High Density Polyethylene
JFE	Justification for Expenditure
JER	Joint Experts’ Report dated 7 February 2006
OEP	Olympic Dam Expansion Project
OIT	Oxidative induction time
OSS Agreement	On-Site Service Agreement between Protec and WMC – June/July 2008
PLS	Pregnant leach solution
PP	Polypropylene
Protec	Protec Pacific Pty Ltd
Protec appeal	Appeal S APCI 2012 0185 brought by Protec against Steuler
Protec NSW	Protec Pacific (NSW) Pty Ltd
Protec proceeding	Supreme Court Proceeding No 7268 of 2007
Purchase Order Agreement	Agreement constituted by the terms of the Purchase Order
Purchase Order	Purchase Order dated 16 July 1997 issued by WMC to Protec NSW
PVC	Polyvinyl chloride
PVDF	Polyvinylidene fluoride
R1	BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [2009] VSC 322
R2	BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [No 2] [2011] VSC 659
R3	BHP Billiton (Olympic Dam) Corporation Pty Ltd v Steuler Industriewerke GmbH [No 3] [2012] VSC 414
Revised Off-Site Material Supply Agreement	Revised Off-Site Material Supply Agreement between WMC and Protec dated 31 March 1998
Serrot	Serrot Corporation
Starcevich notes	Notes of 20 May 1997 meeting
Steuler	Steuler Services GmbH & Co. KG (formerly Steuler Industriewerke GmbH)
Steuler’s approach	Steuler’s approach to quantification of WMC’s alleged loss or damage
SX	Solvent extraction
SX tanks	Solvent extraction concrete tanks
Thiess	Thiess Contractors Pty Ltd
TPA	Trade Practices Act 1974 (Cth)
U	Uranium
USX	Uranium Solvent Extraction
Vinidex	Vinidex Tubemakers Pty Ltd
Westminer	Westminer Insurance Pte Ltd
WMC	WMC (Olympic Dam Corporation) Pty Ltd (became BHP)
WMC’s 2006 Claim Document	Second amended defence and sixth amended counterclaim against Protec and third amended counterclaim against Steuler filed by WMC on 5 June 2006
WMC proceeding	Supreme Court Proceeding No 5797 of 2000
WMC's approach	WMC's approach to quantification of its alleged damages claim

SCHEDULE 2

DIAGRAM OF SOLVENT EXTRACTION PLANT

SCHEDULE 3

LOCATION OF FIRST FIRE IN SOLVENT EXTRACTION PLANT

SCHEDULE 4

LOCATION OF SECOND FIRE IN SOLVENT EXTRACTION PLANT

[2014] VSCA 338

17 December 2014