Roo Roofing Pty Ltd v Commonwealth

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IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

MAJOR TORTS LIST

S CI 2015 03382

ROO ROOFING PTY LTD (ACN 092 931 676)	Plaintiff
MATSUH PTY LTD (ACN 105 461 818)	Second Plaintiff
v
THE COMMONWEALTH OF AUSTRALIA	Defendant

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JUDGE:

John Dixon J

WHERE HELD:

Melbourne

DATE OF HEARING:

23, 24, 26, 27, 30 April 2018
1-3, 7, 9-11, 14-17, 21-25, 28, 30, 31 May 2018
4, 7, 8, 12-15, 27, 28 June 2018

DATE OF JUDGMENT:

31 May 2019

(Rev 1 (4/6/19) – minor typographical errors)

CASE MAY BE CITED AS:

Roo Roofing Pty Ltd & Anor v The Commonwealth of Australia

MEDIUM NEUTRAL CITATION:

[2019] VSC 331

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NEGLIGENCE — Duty of care — Novel duty —Whether Commonwealth Government owed duty to businesses in a section of the economy to avoid economic harm to them when designing, implementing or administering government economic policy — Exercise by Commonwealth Government of executive power in the interests of good governance of Australia — Pure economic loss — Impact on core governmental functions — Supervening policy considerations — Conflicting duties — Consideration of salient factors — Foreseeability, vulnerability, knowledge — No duty owed.

NEGLIGENCE — Negligent misstatement — Announcement of government policy — Whether duty to take reasonable care in making announcements or to correct statements previously made — Whether reasonable reliance on announcements possible — Whether actual reliance.

TRADE PRACTICES — Whether design, implementation and administration of government policy constituted carrying on a business — Whether such conduct was in trade or commerce —Trade Practices Act 1974 (Cth) s 2A, 52.

CONTRACTS — Nature of agreement created by documents defining eligibility for participation for subsidy in Home Insulation Program — No contract of the type alleged — Repudiation.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Delany QC with Dr C Button, Ms C Van Proctor and Mr R Chaile	ACA Lawyers
For the Defendant	Ms R M Doyle SC with Ms R L Enbom, Mr L T Brown and Mr J Hooper	Australian Government Solicitors Office

TABLE OF CONTENTS

Introduction......................................................................................................................................... 2

The parties...................................................................................................................................... 2

The evidence.................................................................................................................................. 2

Findings of fact................................................................................................................................... 2

The Global Financial Crisis......................................................................................................... 2

The Australian response to the GFC.......................................................................................... 2

The design of the HIP — overview............................................................................................ 2

Preparatory work for the HIP...................................................................................................... 2

Choosing the initial model for the HIP — the Regional Model............................................ 2

The roll-out term for the Regional Model................................................................................. 2

Early implementation of the HIP................................................................................................ 2

Regulatory context........................................................................................................................ 2

Engagement with industry participants.................................................................................... 2

Phase 1 of the HIP......................................................................................................................... 2

The 1 July start date...................................................................................................................... 2

Knowledge and identification of risks...................................................................................... 2

A change in the model — the Direct Model.............................................................................. 2

The Project Control Group.......................................................................................................... 2

The need for proper installer training....................................................................................... 2

Phase 2 of the HIP......................................................................................................................... 2

HIP Guidelines Version 2............................................................................................................ 2

Rollout of the HIP......................................................................................................................... 2

Exhaustion of HIP funds.............................................................................................................. 2

Suspension of the HIP.................................................................................................................. 2

Impact of the HIP............................................................................................................................... 2

Choice of laws..................................................................................................................................... 2

Submissions................................................................................................................................... 2

Principles........................................................................................................................................ 2

Duty of care......................................................................................................................................... 2

Negligence..................................................................................................................................... 2

Definition of the duties....................................................................................................... 2

The test for the existence of a novel duty........................................................................ 2

The function or power subject to the duties.................................................................... 2

Supervening policy reasons........................................................................................................ 2

Other salient features.......................................................................................................... 2

Foreseeability.......................................................................................................... 2

Vulnerability........................................................................................................... 2

Knowledge.............................................................................................................. 2

Negligent misrepresentation............................................................................................................ 2

Negligent misrepresentation/misleading and deceptive conduct....................................... 2

The representation............................................................................................................... 2

The statements..................................................................................................................... 2

Misleading and deceptive conduct............................................................................................ 2

Carrying on a business....................................................................................................... 2

In trade or commerce.......................................................................................................... 2

Future matters...................................................................................................................... 2

Negligent misstatement............................................................................................................... 2

The pleaded case................................................................................................................. 2

Applicable principles......................................................................................................... 2

Contract claim..................................................................................................................................... 2

Issues in the contract claim.......................................................................................................... 2

Common questions relevant to contract.......................................................................... 2

Principles.............................................................................................................................. 2

The existence and terms of the contract........................................................................... 2

Was the contract for a fixed term?..................................................................................... 2

Altering the terms or withdrawing the offer................................................................... 2

Breach of duty..................................................................................................................................... 2

Common questions relating to breach....................................................................................... 2

Legal principles.................................................................................................................................. 2

Applicable law.............................................................................................................................. 2

Conflicting responsibilities......................................................................................................... 2

Further factual findings.................................................................................................................... 2

Evidence of the decision makers................................................................................................ 2

Kevin Rudd.......................................................................................................................... 2

Lindsay Tanner.................................................................................................................... 2

Dr Ken Henry....................................................................................................................... 2

Industry standards........................................................................................................................ 2

Unregulated nature of Insulation Industry..................................................................... 2

Standards and warnings..................................................................................................... 2

Installer deaths.............................................................................................................................. 2

Matthew Fuller..................................................................................................................... 2

Rueben Barnes..................................................................................................................... 2

Marcus Wilson..................................................................................................................... 2

Mitchell Sweeney................................................................................................................. 2

Government administration expert evidence........................................................................... 2

Phase 1 report....................................................................................................................... 2

Phase 2 report....................................................................................................................... 2

The defendant’s submissions on the experts generally................................................. 2

Precautions not adequately taken................................................................................................... 2

Administration and risk management....................................................................................... 2

Auditing................................................................................................................................ 2

No project planning and no co‑ordination...................................................................... 2

RFL.... 2

Prior industry practice........................................................................................................ 2

Use of foil during the HIP.................................................................................................. 2

Failure to act on warnings and advice about foil........................................................... 2

Training.......................................................................................................................................... 2

Mr Mulhall............................................................................................................................ 2

Dr McEwen........................................................................................................................... 2

Findings about training...................................................................................................... 2

Industry consultation................................................................................................................... 2

Consultation with the states........................................................................................................ 2

House fires..................................................................................................................................... 2

Causation............................................................................................................................................. 2

Common questions relevant to causation................................................................................. 2

Principles........................................................................................................................................ 2

Reasons for termination of HIP................................................................................................... 2

Jones v Dunkel submission............................................................................................................ 2

The counterfactuals....................................................................................................................... 2

Defendant’s contentions............................................................................................................... 2

Analysis.......................................................................................................................................... 2

Duration of the HIP........................................................................................................................... 2

Duration of HIP but for early termination................................................................................ 2

The size of the ‘pie’.............................................................................................................. 2

Average payment per installation.................................................................................... 2

The rate of installations...................................................................................................... 2

Roo Roofing and the duration of the HIP........................................................................ 2

Plaintiffs’ quantum............................................................................................................................ 2

Plaintiffs’ evidence............................................................................................................................. 2

The corporate group..................................................................................................................... 2

The appropriate basis of assessing loss........................................................................... 2

Hannam’s evidence....................................................................................................................... 2

Evidence in chief.................................................................................................................. 2

Cross-examination............................................................................................................... 2

Income from labour hire........................................................................................ 2

Rent........ 2

Service fees.............................................................................................................. 2

Consultants’ fees..................................................................................................... 2

Directors loan accounts......................................................................................... 2

Advertising and promotion.................................................................................. 2

Intercompany loan accounts................................................................................. 2

Freight & postage................................................................................................... 2

Plants and depreciation......................................................................................... 2

Credit.............................................................................................................................................. 2

Employees............................................................................................................................ 2

Discovery................................................................................................................. 2

Plants 2 and 3....................................................................................................................... 2

Excess stock.......................................................................................................................... 2

Reliance on duration of the HIP........................................................................................ 2

Expert evidence............................................................................................................................. 2

Roo Roofing — loss of profits........................................................................................... 2

Mr Gwynne.............................................................................................................. 2

Mr Jackson............................................................................................................... 2

Matsuh — loss of profits.................................................................................................... 2

Mr Gwynne.............................................................................................................. 2

Mr Jackson............................................................................................................... 2

Matsuh loss — excess stock............................................................................................... 2

Matsuh loss – Plant 2.......................................................................................................... 2

Matsuh loss – Plant 3.......................................................................................................... 2

Matsuh loss — costs thrown away.................................................................................... 2

Matsuh loss — loss of capital............................................................................................ 2

Gwynne................................................................................................................................. 2

Loss of goodwill..................................................................................................... 2

Loss on disposal of assets..................................................................................... 2

Jackson................................................................................................................................... 2

Answers to the common questions................................................................................................. 2

Annexure one...................................................................................................................................... 2

Part A: Dramatis personae........................................................................................................... 2

Part B: Acronyms........................................................................................................................... 2

HIS HONOUR:

Introduction

1. This proceeding is a group proceeding brought pursuant to Part IVA of the Supreme Court Act 1986 (Vic). The plaintiffs claim damages for losses said to arise out of one aspect of the fiscal stimulus program implemented by the defendant early in 2009 in response to the Global Financial Crisis (GFC), namely what became known as the Home Insulation Program (HIP).

The parties

1. From its incorporation in Queensland on 20 May 2008, Roo Roofing Pty Ltd (Roo Roofing) has carried on business as a roofing contractor and an installer of roofing insulation.

1. Matsuh Pty Ltd (Matsuh), incorporated on 9 July 2003 in Queensland, has carried on business under the name Cellulose Insulation Manufacturing Co (CIMCo) as a manufacturer of ceiling insulation, a business that commenced in 1978 and was purchased by Matsuh on its incorporation. Prior to the termination of the HIP, CIMCo’s main customer was a related party that installed insulation for consumers.

1. Both Roo Roofing and Matsuh are companies of which Matthew James Hannam (Hannam) is a director.

1. Other companies in Hannam’s group of companies as at February 2009 and following included Environmentally Safe Natural Insulation Pty Ltd (ESNI). This company was incorporated in 2003 and carried on business as an installer of insulation, including as a contractor to other insulation companies and as a wholesaler of insulation products. Over 90% of ESNI’s business was retrofitting insulation in established homes. ESNI ceased trading on 31 December 2012, was then put into administration and is now in liquidation. ESNI is not an eligible participant in the group proceeding.

1. Roo Roofing:

(a)        was registered on the HIP ‘installer provider register’ on 24 June 2009;

(b)        submitted 75 work orders pursuant to the HIP between 14 August 2009 and 13 April 2010, each of which were the subject of payments by the Commonwealth;

(c)        was paid $97,553 by the Commonwealth in respect of the work orders it submitted during the period of operation of the HIP; and

(d)       continues to trade subsequent to the termination of the HIP.

1. The plaintiffs identified the group members to whom the proceeding relates to be persons or corporations falling within one or more of the following sub-groups (collectively referred to as the ‘Insulation Industry’); being persons who, at material times, either carried on business in Australia and/or were incorporated in, citizens of, or resident in Australia.

1. The first sub-group was defined in the pleadings as owners, being persons who owned or partly owned a business directly or indirectly in their capacity as one or more of shareholder or unitholder, or as a beneficial owner of shares or units, that guaranteed some or all of the debts and obligations of such businesses being an installer business, a manufacturer business and/or a supplier business that installed, manufactured and/or supplied insulation in a home or homes in Australia between sometime after 3 February 2009 and 19 February 2010 (the relevant dates) and pursuant to the terms of the program that was renamed the HIP on about 2 September 2009. Such persons were either pre-existing owners who owned or partly owned a business on or before 3 February 2009 (owners) or new owners who owned or partly owned a business that commenced on or after 3 February 2009 and who suffered loss as a result of the early termination of the HIP on 19 February 2010 and who remain or will become legally entitled to commence and maintain a claim against the defendant in respect of that loss.

1. The second sub-group was installers, being persons who operated a business that installed insulation in a home or homes in Australia between the relevant dates and pursuant to the terms of the HIP. Again, that group could consist of pre-existing installers and new installers, depending on whether they commenced to operate their business prior to or after 3 February 2009. This category of group members was limited to installers who suffered loss as a result of the early termination of the HIP and who remain or will become legally entitled to commence and maintain a claim against the defendant in respect of that loss.

1. The third sub-group was manufacturers, being persons who operated a business that manufactured insulation or insulation products for retrofitted installation in a home or homes in Australia between the relevant dates. Again, this category includes both pre-existing and new manufacturers who suffered loss as a result of the early termination of the HIP and who remain or will become legally entitled to commence and maintain a claim against the defendant in respect of that loss.

1. The final sub-group was suppliers, persons who operated a business that supplied as a retailer or wholesaler and/or distributor of insulation or insulation products for use in retrofitted installation in a home or homes in Australia between the relevant dates. Again, there are two subcategories being pre-existing suppliers and new supplies who suffered loss as a result of the early termination of the HIP.

1. On 3 December 2007, Prime Minister Kevin Rudd and his ministry, including Julia Gillard as Deputy Prime Minister, Wayne Swan as Treasurer, Lindsay Tanner as Minister for Finance and Peter Garrett as Minister for the Environment, were sworn in.

1. The Prime Minister and Ministers Gillard, Swan and Tanner constituted the Strategic Priorities and Budget Committee of Cabinet (SPBC). This Cabinet committee was the defendant’s principal decision making body in respect of the HIP. Dr Ken Henry, in his role as both Treasury Secretary and as a member of the Board of the Reserve Bank, was a senior advisor to, and a regular participant in meetings of, the SPBC in respect of the government‘s response to the events with which this proceeding is concerned.

1. The government departments and public servants advising the SPBC and otherwise involved in the design, implementation and administration of the HIP will be identified shortly.

1. The plaintiffs relied on four distinct causes of action as a basis for seeking damages or statutory compensation orders against the defendant. First, the plaintiffs alleged that the defendant owed them a duty to take reasonable care to avoid economic harm to them in the design, implementation and administration of the HIP. Secondly, the plaintiffs contended that the defendant owed them a duty to take reasonable care in making statements about the HIP or alternatively a duty of care to correct statements once it became aware that such statements were misleading. Thirdly, the plaintiffs alleged that the defendant engaged in conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive in breach of s 52 of the Trade Practices Act1974 (Cth). The fourth cause of action claimed that the defendant repudiated a contract that had come into existence between the plaintiffs and the defendant.

1. I have determined that the defendant did not owe the duty of care alleged against it and that the causes of action in negligence and negligent misrepresentation fail. Further, the defendant was neither carrying on a business nor engaging in conduct in trade or commerce and its activities that are the subject of investigation in this proceeding were not amenable to regulation under the Trade Practices Act. Finally, there was not a contract in the form alleged by the plaintiffs that was repudiated by the defendant when it terminated the HIP.

1. Those findings require that the proceeding be dismissed, which is the judgment that will be entered in favour of the defendant.

1. After setting out my findings of fact in relation to the defendant’s activities and conduct that were the subject of investigation at trial, I will explain my reasons for dismissing each of these causes of action.

1. I then turn to examine the issues raised on the question of breach of duty, which involves returning to make further, more detailed, findings of fact. After expressing my reasons for concluding that had the plaintiffs persuaded me that the defendant owed them a duty of care, it would have breached that duty of care, I examine the issue of causation. The plaintiffs did not persuade me that their claimed losses were caused by the defendant’s conduct.

1. I have also made findings in relation to the losses claimed by the plaintiffs. This exercise involved firstly identifying the period that the HIP would have run but for early termination, and then examining the particulars of loss advanced by the plaintiffs to express findings as to quantum.

1. These reasons conclude by identifying my answers to the common questions stated by the parties.

1. Finally, I have included as an appendix the schedule provided by the plaintiffs that identifies firstly the names and functions of the key personnel referred to throughout the evidence, and secondly a list of the abbreviations that have been adopted throughout these reasons.

The evidence

1. The evidence at trial was primarily documentary. It was supported by oral evidence from different categories of witness. The primary witness for the plaintiffs was their managing director, Hannam. At an early stage in the proceeding Enviroflex Pty Ltd (Enviroflex) had been the lead plaintiff. Enviroflex had participated in a Commonwealth compensation scheme and, in that context, had granted the defendant a release. Subsequently it was excluded from the group in the proceeding by definition. Enviroflex’s general manager, also a director and shareholder, Mr Andrew Arblaster (Arblaster) also gave evidence. He had been an office bearer in the Cellulose Insulation Trade Association (ACIMA) and following the HIP, a director of Installation Australasia. Mr Dennis D’Arcy (D’Arcy) was the CEO of the Insulation Council of Australia and New Zealand (ICANZ). Mr Peter Ruz (Ruz) had been the national marketing manager employed by CSR Bradford (CSR), the marketing manager for Fletcher Insulation Pty Ltd (Fletchers) and an active participant in ICANZ.

1. Mr Anthony Plevey (Plevey), a training specialist, was relevantly employed by EE-Oz Training Standards Australia (EE-Oz). Mr Malcolm Richards (Richards) was the CEO of Master Electricians Australia (MEA). Mr Stewart was the proprietor of an insulation installation business, Insul-Safe.[1] Mr Hook was the Co-ordinator-General for South Australia.

   [1]Mr Stewart was deceased and his evidence came from statements made to the Royal Commission.

1. The plaintiff also called Mr Matthew Levey (Levey), who was a policy adviser in the office of Minister Garrett and the former Prime Minister Kevin Rudd. In that category the defendant called evidence from former Minister Lindsay Tanner, Dr Ken Henry and the former Commonwealth Co-ordinator-General Mr Mike Mrdak (Mrdak). The defendant called the following witnesses in relation to the circumstances of installer deaths: Christopher McKay, Benjamin McKay, Nicholas Lindsay (Lindsay) and Gavin Thompson (Thompson). On issues concerning training for installers, the defendant also called Dr Melissa McEwen (Dr McEwen) and Mr Brendan Mulhall (Mulhall).

1. The plaintiffs submitted that the defendant’s failure to call certain witnesses was relevant. The missing witnesses were Ms Robyn Kruk (Kruk), Mr Kevin Keeffe (Keeffe), Mr Martin Hoffman (Hoffman), and Mr William Kimber (Kimber), all senior public servants involved with the HIP. This submission is considered in due course.

Findings of fact

The Global Financial Crisis

1. In 2008, the world experienced a Global Financial Crisis (GFC). Advanced economies experienced an unprecedented 7.5% decline in real Gross Domestic Product (GDP) during the fourth quarter of 2008 and economic output continued to fall almost as fast during the first quarter of 2009. On 15 September 2008, Lehman Brothers, a large global financial services company based in the United States, filed for reorganisation under the bankruptcy laws of the United States. On 28 and 29 September 2008, the United Kingdom (UK) and European governments bailed out several major financial institutions including Bradford and Bingley (UK), Fortis Bank (Benelux), Dexia (Franco‑Belgian), Hypo Real Estate (Germany), and Glitnir (Iceland). The Irish Government guaranteed the deposits of six major banks.

1. In early October 2008, there was an unprecedented co-ordinated cut in interest rates by the United States Federal Reserve, European Central Bank and four other major OECD central banks. As at 10 October 2008, the world economy was entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s. The situation was exceptionally uncertain and subject to considerable downside risks. The immediate policy challenge was to stabilize financial conditions, while nursing economies through a period of slow activity and keeping inflation under control.

1. The Australian and New Zealand economies were slowing down noticeably, after prolonged economic expansions driven by commodity and housing booms. Real GDP growth in Australia was projected to fall below potential, to about 2.5% in 2008‑09 from 4.25% in 2007. From 12 October 2008, the Australian Government guaranteed bank deposits in Australian-owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies for a period of three years.

1. By November 2008, Australian equity prices had fallen by approximately 50% from their peak a year earlier. As at 15 November 2008, there were serious challenges to the world economy and financial markets. On 15 November 2008, the G20 held its first ‘Summit on Financial Markets and the World Economy’ in Washington DC. The G20 participants issued a declaration which referred to ‘serious challenges to the world economy and financial markets’. The G20 agreed that immediate steps were needed to restore growth, avoid negative spill overs and support emerging market economies and developing countries. This included the use of fiscal measures to stimulate domestic demand to rapid effect.

1. In January 2009, the OECD rated Australia’s Business Confidence Index at 97.18%. This was the lowest BCI for Australia since November 1974 when it was at 95.89%. The volume of world trade in the three months to January 2009 was 40% lower than the previous three months.

1. By 3 February 2009,            many advanced economies around the world were in recession, with the IMF forecasting a collective budget deficit of 7% of GDP for advanced economies. The world was in the worst economic crisis since the Second World War and decisive action was required in response to the global recession.

1. On 28 January 2009, the IMF predicted that output in advanced economies would contract by 2% in 2009, the first annual contraction since the Second World War. On 3 February 2009, as a result of the sharp deterioration in global economic conditions, the Treasurer and the Minister for Finance released an ‘Updated Economic and Fiscal Outlook’ which set out the Australian Government’s revised fiscal strategy, and updated economic forecasts and key fiscal aggregates.

1. By March 2009, world growth had fallen from 3.8% in the June quarter of 2008 to -2.8% in the March quarter of 2009. In seasonally adjusted terms, Australia’s GDP increased by 0.4% in the March quarter. On 4 March 2009, the Australian Bureau of Statistics (ABS) announced that, in seasonally adjusted terms, Australia’s GDP decreased by 0.5% in December 2008.

The Australian response to the GFC

1. On 14 October 2008, the Prime Minister and the Treasurer announced the first round of economic stimulus as a policy response to the GFC called the ‘Economic Security Strategy’. The government determined there was a need to introduce a fiscal stimulus package urgently.

1. Dr Ken Henry explained the policy advice that prompted this response. Dr Henry had monitored the emerging developments in the GFC. In September 2007 there was a run on a bank in the UK, the first in 150 years, caused by the quality of sub-prime mortgages and derivatives written on sub-prime mortgages and the bank’s exposure to them. Dr Henry considered that the risks of greater financial instability and the risk of recession affecting Australia were large and became acutely concerned after US authorities allowed the collapse of Lehman Brothers on 15 September 2008. The global financial system might simply freeze, starving Australia of international capital.

1. To address this crisis the government announced that they would guarantee the entire liability of the Australian banking system and a sizable fiscal stimulus program of $10.4 billion, designed so that much of the stimulus would occur before the end of the calendar year. The general components of the stimulus package were cash payments to lower income households designed to encourage the funds paid over to be spent. Dr Henry explained that, having experienced the recession in the 1990s, it was important to avoid a fiscal response that was too slow to have any of the desired effect. In 2004, Treasury undertook modelling analysis of earlier responses to recession that emphasised the need to immediately inject a large fiscal stimulus into the economy. It was noted that infrastructure programs carried implementation delay when speed was of the essence.

1. At a joint press conference held by the Prime Minister and the Treasurer, the Prime Minister described the GFC as: ‘[t]he economic equivalent of a rolling national security crisis’. The Treasurer said that:

We are in the midst of the worst financial crisis ever to confront the modern market economy. And the sooner that governments act to protect their people the better. … The situation is moving very fast, and it does require decisive … action. And decisive action requires a fiscal stimulus.

1. The Prime Minster reiterated:

It is very important to act early and decisively. If you are to learn anything from economic history it is this: at a time when economies need stimulus support, don’t leave it too late. There are critical messages and lessons to be learned from history here, which is act decisively, act responsibly and act early. And we have done that and we are acting ahead of the curve, looking to where our economic circumstances would be well into next year.

1. Minister Tanner, in evidence, recalled very strong advice that the government should act quickly and get money flowing into the economy quickly. He described his memories of the stimulus package in the early 1990s that took several years to take effect and he readily accepted advice that it was important to move quickly.

1. The government designed the Economic Security Strategy to support continued positive growth in the Australian economy, strengthen the national economy and to provide practical support for Australian households given the risk of a deep and prolonged global economic slowdown. It contained five key elements, including nation building.

1. The High Court considered the government’s first fiscal stimulus package in Pape v Commissioner of Taxation (Pape).[2] French CJ, Gummow, Crennan and Bell JJ assessed the exercise of the Commonwealth’s executive power in response to the GFC to be valid.

   [2](2009) 238 CLR 1 (‘Pape’).

1. Economic circumstances continued to deteriorate, necessitating a second set of stimulus measures. Dr Henry stated:

By early 2009 we in the treasury anyway had formed the view that an Australian recession was highly probable, almost notwithstanding any action that was taken, that we should nevertheless advise the Australian government to do a lot more in an effort to ensure that the recession which we expected to occur, that the recession would be shallow, and that it would not persist for too long.

1. Treasury identified building and related trades as part of the economy that was particularly vulnerable in the very early part of an economic downturn. Dr Henry’s advice was that the government needed to avoid implementation lags that would have the fiscal impact of a stimulus package being felt in the Australian economy once it had already started to recover. Treasury proposed a package designed to plug a gap in aggregate demand; it being its assessment that a big gap in aggregate demand would present itself in 2009 and that in subsequent years the Australian economy would from 2010 start to recover.

1. Mr Rudd, speaking generally, identified two sets of policy issues that underpinned the government’s interest in the HIP. The first policy issue, which predated the global financial crisis, was a commitment to energy efficiency in order to reduce greenhouse gas emissions. During the course of 2007–08 measures for renewable energy and a price on carbon were contemplated, and the government was developing an effective national energy efficiency strategy. During 2008, Minister Garrett’s environment department had developed an ‘energy efficient homes’ strategy. The government’s response to the global financial crisis that hit around the second week of October 2008 was the second set of policy considerations. Cabinet debated a range of measures necessary to stimulate the economy.

1. As one of those measures, the HIP drew on pre-existing work on the energy efficient homes program, which dovetailed the interests in reduction of carbon emissions with providing useful employment opportunities in a relevant area of the economy by insulating people’s homes.

1. In January 2009, Cabinet directed that the proposal for what became the HIP be further considered and developed by the public service in consultation with industry, and return to Cabinet for further and final consideration. The Department of Environment undertook developing a proposal for the HIP that was to commence on 1 July 2009. Cabinet was not advised of any safety risks affecting either workers or householders when the matter came back for final consideration in June 2009.

1. Dr Henry expressed his concern when the HIP was first raised with him as a possible fiscal stimulus measure, to be:

Whether the package could be implemented in a sufficiently timely manner, and the key consideration there was the capacity of the industry to be able to implement the package; Did we in Australia have sufficient quantities of insulation material to be able to implement the package? Was the workforce sufficiently large to be able to implement the package, those sorts of things, those were the foremost considerations in my mind.

1. Dr Henry stated that his intention was to achieve maximum stimulatory effect and a stimulatory measure was less likely to receive his support if industry capacity was not present, or had there been considerable delay in accessing capacity to roll out the HIP.

1. Minister Tanner recalled the advice that a second stimulation package of considerably greater magnitude was required and that at some point the HIP became one of the options on the table. He identified the features of the HIP that made it a suitable candidate for consideration as part of a fiscal stimulus package. It was important to ensure that the money being pumped into the economy would be spread relatively widely across different sectors, including the particular sectors most likely to contract quickly such as construction and retail. Further, it was important that it would flow to the most likely people to be retrenched as a result of an economic contraction. Mr Tanner recalled Dr Henry’s advice to the SPBC — that it was important to move quickly and that to engender confidence in the economy, money needed to be moving and be seen to be moving — was delivered with strong emphasis.

1. Mr Tanner was not advised of any safety risks arising from the HIP. The only risk that he recalled being discussed was the capacity of industry to provide the raw material because there were only two local manufacturers, a concern that ultimately was satisfied. He accepted that a beneficial impact of the HIP in terms of greenhouse gas emission reductions was understood and identified as a benefit. He was not aware of any encouragement by the government to industry to invest, beyond the mere announcement of the HIP. Mr Tanner accepted that the objective of setting Australia up for a low carbon future was a twin goal, with economic stimulus, of the HIP.

1. In February 2009, the Treasurer and the Minister for Finance published an updated Economic and Fiscal Outlook Statement. The Ministers explained that the outlook for the global economy had deteriorated sharply, stating ‘[t]hese are exceptional circumstances and fiscal policy must take a strong role in supporting the economy’.

1. The update confirmed that the government had decided to deliver a $42 billion Nation Building and Jobs Plan to boost the economy. This fiscal strategy was described as using additional spending to deliver timely, targeted and temporary stimulus, with the clear objective of other budget priorities and new policy proposals being met through a reprioritisation of existing expenditure.

1. The Ministers stated:

The plan is a rapid response to deteriorating global economic conditions … doing nothing is not an option. It is becoming increasingly apparent that, while still important, monetary policy action alone will not be sufficient to restore growth in demand within a reasonable time period. The government’s swift action ensures that fiscal policy, along with monetary policy, is targeted at supporting economic growth and jobs.

1. The objective was to add directly to aggregate demand through direct government investment in the economy, by well-designed discretionary fiscal policy implemented quickly. The Ministers explained that measures needed to be implemented swiftly so that the boost to demand occurred when it was most needed, which meant including measures that take effect in the first half of 2009.

1. The Ministers cautioned that such boosts to the economy also needed to be capable of falling away over time, and to cease operation when no longer needed, as locking in long term spending may pose risks for inflation and interest rates and the government’s budget position. Further, spending needed to be carefully targeted to maximise GDP growth, capture spare capacity caused by the global recession and add to investment in the long-term drivers of growth and productivity.

1. One element of the Plan was the Energy Efficient Homes Program (EEHP) that would deliver free ceiling insulation for Australian homes, and would help to tackle climate change. It was expected the insulation program would create a significant number of new Australian jobs that required limited retraining, enabling the benefits to the community to be realised quickly.

1. The EEHP was one of a series of policy measures designed to respond to an economic emergency. Two policy imperatives were to be achieved by its implementation:

(a)        the economic goal of creating fiscal stimulus to combat the effects of the GFC; and

(b)        the social or environmental goal of reducing energy use and greenhouse gas emissions.

1. Witnesses expressed differing recollections as to the relative weight attributed to these policy imperatives in the decision to implement the HIP. Mr Rudd recalled that the government’s commitment to energy efficiency predated the GFC, and that was clearly so. Dr Henry noted the double benefits of the HIP. However, for him the key consideration behind the EEHP was its impact on aggregate demand, that is, its contribution to the fiscal stimulus. Dr Henry observed:

Let me put it this way: were it not for the global financial crisis and the need to find fiscal stimulus measures, I don’t know, maybe this program would have been considered by government at some stage, but it would not have been considered by government in February 2009.

I am satisfied that the economic role of creating fiscal stimulus was the dominant policy imperative and the capacity of the program to meet that objective was the primary focus in any assessment of the program’s performance.

1. On 3 February 2009, Prime Minister Rudd and Treasurer Swan launched the Nation Building and Jobs Plan, an economic stimulus package spending $42 billion which incorporated six elements:

(a)        the Building the Education Revolution program;

(b)        a one-off tax bonus to low and middle income families, workers and students;

(c)        funding for public and community housing and Defence Force personnel housing;

(d)       small business temporary tax breaks;

(e)        funding for local community infrastructure; and

(f)         the Energy Efficient Homes Program, which in turn comprised:

(i)         the Homeowner Insulation Program;

(ii)       the Low Emissions Assistance Plan for Renters (LEAPR); and

(iii)      the Solar Hot Water Rebate Program.

1. The PM and Treasurer stated that the world was ‘caught in the worst economic crisis since the Second World War, a crisis that has delivered recessions in the United States, the UK, Japan and the Eurozone’ and that ‘the global recession has already pushed the Budget into deficit, even before policy action is taken’ and ‘decisive action is now required to strengthen the Australian economy in these circumstances… In the midst of this global recession it would be irresponsible not to act swiftly and decisively to support jobs and invest in nation building’.

1. The published media release, ‘Energy Efficient Homes – Ceiling Insulation in 2.7 Million Homes’ recited the dual purposes for which the EEHP was established, namely ‘to support jobs and set Australia up for a low carbon future’ and to ‘support the jobs of tradespeople and workers employed in the manufacturing, distribution and installation of ceiling insulation during a severe global recession’. The EEHP was also designed to ensure households receive support to take practical action to reduce energy use and save on energy bills.

1. The media release continued that, for the dual purpose of supporting jobs in the industry and reducing carbon emissions, ‘the Rudd Government will install free ceiling insulation in around 2.7 million Australian homes.’ Relevantly it stated:

For a time-limited period of two and a half years, from 1 July 2009 owner-occupiers without ceiling insulation will be eligible for free product and installation (capped at $1,600) simply by making a phone call.

As an interim arrangement, from today and until 30 June 2009, eligible owner-occupiers who install ceiling insulation in their homes will be able to seek reimbursement (up to $1,600) after the program commences. The Government estimates 2.2 million owner-occupied home will benefit from this program.

1. And, in relation to the Low Emissions Plan for Renters:

To help [rental] households lower their emissions and save money on energy bills, the Government will also double the rebate available under the Low Emissions Plan for Renters for landlords to install insulation in their rental properties – from $500 to up to $1,000 – from today until 30 June 2011.

1. Arblaster saw this media release when Mr Kevin Herbert (Herbert) forwarded it to him. No other witnesses gave evidence that they had viewed or were aware of the media release or fact sheet.

1. Mrdak, the Commonwealth’s Coordinator-General in respect of these fiscal responses, described the second stimulus package as a mixture of short, medium and long-term measures. The short-term measures were immediate cash payments into the economy. The medium-term measures were implemented over six to twelve months and designed to maintain confidence, particularly amongst employers, and demand across the economy. Among the medium-term measures were the School Buildings program, the Social Housing program and the EEHP. The longer-term measures were largely infrastructure programs that were designed to ensure sustained demand when the economy geared up to a higher level of activity. Those measures were intended to operate over the ensuing three to four years.

1. The Nation Building and Jobs Plan was designed to provide an immediate boost to economic growth of around 0.5% of GDP in 2008–2009 and around 0.75% to 1% of GDP in 2009–2010. It would temporarily add to the budget deficit but did not lock in permanent increases in government spending. The stated purposes of the Nation Building and Jobs Plan were to:

(a)        respond to the severe global recession;

(b)        support up to 90,000 jobs in 2008–2009 and 2009–2010; and

(c)        provide a boost to economic growth of around 0.5% of GDP in 2009 and around 0.75% to 1% of GDP in 2009–2010.

1. These objectives were to be achieved by a combination of Commonwealth-funded expenditure programs via the states and territories, such as the three-year $14.7 billion Building the Education Revolution, and by direct payments by the Commonwealth to Australian households and citizens. Cash injections into the economy were focused on bolstering continuous spending. Other measures focused on building prosperity were targeted at employment, particularly in sectors like construction and building materials. Treasury recognised that in this sector of the economy much production of materials was domestically based, such that a stimulus package was beneficial for a significant proportion of the workforce substantially affected by the economic downturn.

1. Key Components of the Nation Building and Jobs Plan were as follows.

Underlying cash balance impact
2008-09	2009-10	2010-11	2011-12	Total
Building prosperity for the future
Building the Education Revolution	-987	-8,624	-5,109	0	-14,720
20,000 Social and Defence Homes	-260	-4,274	-1,794	-312	-6,640
Energy Efficient Homes	-39	-1,540	-1,544	-736	-3,859
Small Business and General    Business Tax Break	0	-840	-1,350	-515	-2,705
Black Spots, Boom Gates and    Community Infrastructure	-480	-410	0	0	-890
Sub-total	-1,766	-15,687	-9,797	-1,563	-28,813
Supporting jobs now
Tax Bonus for Working    Australians	-6,950	-1,201	0	0	-8,151
Single-income Family Bonus	-1,273	-147	0	0	-1,420
Farmer’s Hardship Bonus	-20	0	0	0	-20
Back to School Bonus	-2,347	-271	0	0	-2,618
Training and Learning Bonus	-413	-98	0	0	-511
Sub-total	-11,004	-1,717	0	0	-12,721
Total Stimulus Package	-12,770	-17,404	-9,797	-1,563	-41,534

1. Although the Nation Building and Jobs Plan had six elements, this proceeding involves just one component, the EEHP. The HIP was in turn, one of three components to the EEHP.

1. The Nation Building and Jobs Plan identified the HIP as ‘the $2.7 billion insulation program [that] will result in insulation for up to 2.2 million homes (capped at $1,600 per house) over three years’. According to the ABS, in October 2008, 5.08 million Australian dwellings had insulation, with between 65,000 and 70,000 retrofitted insulation installations taking place in Australia per year on average.

1. The HIP was, from the outset, described as ‘time limited’ and subject to a budget of $2.7 billion. The interim or Phase 1 payments would be a reimbursement of expenditure first made by Australian households. In Phase 2, the Commonwealth would provide ‘free product and installation’ to Australian households.

1. On 3 February 2009, the Prime Minister and the Treasurer identified the key policy elements of the HIP to be:

(a)        The HIP would commence on 1 July 2009 and would run for a time limited period of two and a half years.

(b)        In the meantime, an interim rebate arrangement would be in place from 3 February 2009 to 30 June 2009.

(c)        Free ceiling insulation would be installed in around 2.7 million Australian homes (comprising 2.2 million owner-occupied homes and approximately 500,000 rented homes).

(d)       Owner-occupiers without ceiling insulation would be eligible for a free product and installation (capped at $1,600) simply by making a phone call.

(e)        An increase in the subsidy to landlords who install insulation in rental properties under the LEAPR to $1,000 from that date.

(f)         As an interim arrangement until 30 June 2009, eligible owner-occupiers who installed ceiling insulation in their homes would be able to seek reimbursement (up to $1,600) after the program commenced.

1. At this time, each of the states and territories had their own established:

(a)        public service structures for the design, implementation and administration of government programs on a state/territory wide basis;

(b)        offices/agencies with specified roles and responsibilities for such matters as the regulation and oversight of building and construction activity and standards and occupational health and safety; and

(c)        offices/agencies with responsibility for fair trading and consumer affairs.

1. On 5 February 2009, the Council of Australian Governments (COAG) endorsed the Nation Building and Jobs Plan and agreed to new national oversight and coordination arrangements to maximise the timely and effective delivery of the Plan. This endorsement was formalised by a National Partnership Agreement (NPA). The NPA, while providing for State delivery of certain key aspects of the Plan, did not agree on any role or responsibility for the states in the delivery of the HIP or specify any communication or co-ordination function between the Commonwealth and the states in respect of the development and implementation of the HIP. The NPA contemplated that Phase 2 of the HIP would be designed, implemented and administered by anticipated cooperation between the Commonwealth and states and territories.

1. The Departments involved in the design, implementation and administration of the HIP were the:

(a)        Department of Prime Minister and Cabinet (PMC);

(b)        Office of the Coordinator-General (which had been established on 2 February 2009 within PMC) (OCG);

(c)        Department of Education, Employment and Workplace Relations (DEEWR); and

(d)       Department of Environment, Water, Heritage and the Arts (DEWHA), which ultimately had primary responsibility for the HIP.

1. During January 2009, DEWHA commenced initial design of the EEHP. Initially, there were two schemes in operation; the ‘Homeowner Insulation Program’ and LEAPR. By 1 September 2009, the two schemes had been rolled into one program re-titled the Home Insulation Program or HIP. On 18 February 2009, the Appropriation (Nation Building and Jobs) Act (No’s 1 and 2) 2008-2009, which allocated money to DEWHA for, among other things, the HIP, was assented to.

The design of the HIP — overview

1. The HIP was initially designed to be implemented as a regional brokerage business model, by which large and experienced firms in the Insulation Industry would be engaged by the defendant to effect installations, or to sub-contract others to do so, on a regional basis by contracts which made provision for such businesses to manage and be responsible for supervision of installers, the training of them, mechanisms for occupational health and safety and general performance of the works (Regional Model).

1. In late March and early April 2009, the defendant varied the model and introduced a model by which householders would engage directly with installer businesses on a Commonwealth register, and the installer would be paid directly by the defendant for the cost of the work, up to the $1,600 ceiling (Direct Model).

1. Under the Direct Model, the defendant set the terms for entry into the register and payment for installations, which required consideration of the necessary and appropriate training and qualifications of installers. This was by reason of the huge scope of industry expansion needed to deliver the program. A large part of the installer workforce would not come to the industry with any prior experience or understanding of the installation of insulation.

1. Up to late March 2009, DEWHA proceeded on the basis that Phase 2 delivery would use the Regional Model, and it consulted with industry on this basis. The change in delivery model to the Direct Model, contrary to the views of DEWHA, was a change to a model favoured by the OCG and public servants in PMC. The change removed experienced industry participants from a head contractor role. Decisions as to the product to be used for a particular application and as to training and qualifications for installer participation would have been made by that head contractor.

Preparatory work for the HIP

1. Stepping back to trace the evolution of the HIP, as Mr Rudd noted in his evidence, throughout 2008 the defendant sought to identify appropriate schemes for improving household energy consumption.

1. This work, and statements in relation to this work, included:

(a)        a strategic review of the Australian Government’s Climate Change Program;

(b)        roundtable discussions concerning household energy efficiency;

(c)        a Green Paper in relation to Carbon Pollution Reduction;

(d)       the announcement of energy efficiency measures for households and small to medium enterprises; and

(e)        the preparation of memoranda within PMC recommending a National Energy Efficiency Strategy.

1. On 2 October 2008, COAG agreed that energy efficiency programs would be resolved by December 2008 and implementation of the energy efficiency strategy would be finalised by June 2009. On 15 October 2008, costings for an energy efficient measure for a four-year period were provided to an Assistant Secretary, and another colleague, within DEWHA.

1. By 7 November 2008, DEWHA’s intention was to develop a co-ordinated package with the states and territories in implementing a sustainable homes assistance package. On 28 November 2008, officers within PMC prepared a ‘Taskings’ document that, among other things, asked DEWHA to provide options for a program to install insulation in under-insulated Australian homes. On 29 November 2008, COAG agreed that the determination of streamlined roles and responsibilities under the National Energy Efficiency Strategy should be deferred for consideration until early 2009.

1. On 1 December 2008, DEWHA internally distributed a document entitled ‘Insulating Australian Homes Plan’ (IAHP) which discussed an option of installing insulation costing up to $1,500 per household, with the total cost of insulation averaging $1,200 over five years (2009 to 2014). The IAHP would support the installation of insulation in the 4.68 million uninsulated and under-insulated homes at a total cost estimated to be approximately $5.61 billion over five years. The Plan noted that the ‘current insulation installation network has additional capacity at the moment, however would have to expand and create new jobs if the government aimed to have all uninsulated houses insulated’ but that this was ‘a relatively straightforward matter as installers do not require extensive training and can be brought on line quickly’.

1. On 12 December 2008, the Secretary of PMC sought a briefing for the Prime Minister on what a Commonwealth initiative, like the energy efficiency program prepared by the Victorian Government, would look like. The draft brief, dated 18 December 2008, recommended that any energy efficiency package should be delivered jointly with COAG. The brief stated:

joint delivery would improve the effectiveness of the package by leveraging existing state delivery networks. This would be an important benefit for the Commonwealth. A key area where this may be advantageous would be the delivery of energy efficiency audits. The majority of jurisdictions have existing audit programs in place. Audits have the capacity to drive significant improvements in energy efficiency through behavioural change, and a cooperative approach to delivery that utilises these existing programs may allow for a significant increase in the number or intensity of audits that could otherwise be delivered.

1. The brief noted that while joint delivery with the states may delay implementation compared to Commonwealth-only delivery, benefits to be gained far outweighed any delays in program commencement. However, no final, or acknowledged, version of this draft brief emerged at trial and its status was uncertain.

1. On 18 December 2008, DEWHA participated in a teleconference about lessons learned from the UK WarmFront scheme, noting that lessons for Australia to consider included developing national standards, and that interaction with states and territories would be essential. The UK body offered guidance in relation to program design, however there was no evidence that this offer was taken up. On 12 January 2009, DEWHA briefed PMC with a list of existing state and territory household energy efficiency programs, including the energy efficiency rebate program implemented in Victoria known colloquially as the VEET scheme.

1. On 19 January 2009, PMC provided papers to the SPBC in relation to the national energy efficiency strategy. The papers related to a proposal to announce a national energy efficiency strategy, costing $3.7 billion over two years and planned to commence on 1 July 2009. The papers stated that the Insulation Installation Network may require expansion, which will not be a major obstacle as installers do not require extensive training. Further, the papers stated that DEWHA would be responsible for managing delivery of the project and noted that further work on a detailed submission was anticipated for consideration before the March COAG meeting. The papers recorded that there was no business case assessment/formal risk assessment of the proposal.

1. On 19 January 2009, Levey, an advisor to Minister Garrett, noted a conversation with Minister Garrett that recorded the need to prepare a ‘one and a half to three pager’ that, among other things, would ‘identify risks, like can training happen in time’.

Choosing the initial model for the HIP — the Regional Model

1. By 21 January 2009, DEWHA was examining the feasibility of the EEHP and had developed an initial design. DEWHA public servants briefed Minister Garrett about implementation challenges, the challenges presented by fast and large scale roll-out, and the need to ensure that DEWHA had adequate resources. The Department of Finance was concerned about whether the HIP package could be delivered over two years and sought further clarification from PMC on its costings and assumptions.

1. On 23 January 2009, the SPBC directed that officials develop an Energy Efficient Homes Program for consideration. PMC asked DEWHA to provide potential designs and delivery models, with risk assessment and a suite of costings, for a program presumed to run from 1 July 2009 on a two-year roll-out assuming an average cost per installation estimated at $1,200. DEWHA was instructed not to contact industry and to keep the information internally confidential.

1. On 24 January 2009, DEWHA told the Department of Finance that delivery of the program over two years might not be achievable due to the possible lack of industry capacity to either produce the insulation and/or to install the material. DEWHA noted that PMC, ‘as the lead agency’, had asked DEWHA not to talk with the industry about capacity as ‘it might raise expectations’ and DEWHA had not found any other source of information to assess industry capacity. DEWHA was assuming that the program would split Australia into numerous regions, approximating the market, with a separate contractor/provider for each region who would employ local installers to carry out the work.

The roll-out term for the Regional Model

1. On 25 January 2009, DEWHA finalised its paper for delivery of the HIP. It included a risk assessment. The paper, entitled ‘Energy Efficiency Homes Program: Implementing the Insulation Component’, referred to the ‘boom/bust nature’ of the HIP. It identified that ‘the ability of the industry to respond, particularly on the manufacturing’ was ‘questionable’. It stated that there were ‘significant political risks’ if the Insulation Industry was required to shed the ‘substantial workforce required to deliver’ the HIP over two years when the market ‘slumps to current levels’. Further, it recommended the delivery of the HIP over five years (instead of two) because it would provide significant benefits for the industry and Australian households. A more realistic expansion of the industry was likely with a five-year program that would provide adequate time for the industry to adjust and respond to the changes in the market and to make longer-term business decisions.

1. The paper expressed concern about the feasibility of delivering the HIP over a two‑year period, stating that there were significant risks associated with tight timeframes for the implementation of major programs and that tight procurement oversight and regular reporting would be required to meet the deadline of 1 July 2009.

1. DEWHA recommended that a ‘regional roll out’ model could be tested and improved in consultation with industry before full roll out across Australia. DEWHA had consulted and were aware of earlier insulation schemes in Victoria and England. Public servants had noted the lessons from such schemes.

1. The Prime Minister was subsequently briefed by PMC, as was the SPBC, with a paper that recommended that the HIP be rolled out over a two-year period at a total cost of $2.8 billion (inclusive of departmental expenses). The brief also stated that its ‘final design’ was ‘to be settled between the Prime Minister, the Treasurer, the Minister for Finance and Deregulation and the Minister for the Environment, Heritage and the Arts prior to announcement.’ What was significant was that the key decision-making body for the design of the HIP was the SPBC.

1. The briefing to the Prime Minister and the SPBC identified the only risks of the HIP as being: the ability of the industry to respond to the HIP, the fact that a ‘rapid expansion’ creates a risk that the industry will need to shed the ‘substantial workforce required to deliver’ the two-year option, the potential for costs to increase significantly, and the potential for insulation to be installed without weather stripping or sealing significant gaps so as to limit its effectiveness. The briefing did not identify inadequate installer training or installer/household safety as risks.

1. PMC had consulted industry prior to the endorsement by SPBC of the two-year rollout. Ruz stated in evidence that he informed PMC that the industry had the capacity to insulate 2.7 million homes in two and a half years, based on his knowledge of both local and international manufacturing capacity.

1. Although the brief departed from the view held by DEWHA and the Department of Finance as to the program term, it made clear that the HIP would be delivered by the Regional Model. It stated:

It is proposed that a series of implementation regions (up to fifteen) be identified by DEWHA and a lead delivery entity be selected through an open tender process to ensure that the assistance can be delivered consistently across the region. It is expected that the lead entity would then implement detailed delivery arrangements with other organisations/businesses in specific locations to ensure coverage of the whole region. The suggested regional approach would allow bulk procurement and sourcing to occur at a regional level. This would limit the administrative issues surrounding bulk procurement by the Commonwealth, while maximising benefits for regional economies and ensuring involvement of multiple industry players.

1. On 28 January 2009, the SPBC approved the HIP with a two-year roll out in two phases, with Phase 2 to commence on 1 July 2009. However, a few days later, the defendant announced a two and a half year rollout.

1. From 3 February 2009, DEWHA was the department responsible for the design, implementation and administration of the HIP. On that date, David Tune (Tune) from PMC emailed his departmental colleagues, Dickson and Johnston, stating:

DEWHA will need to move very quickly on implementing the new EE measures, particularly the insulation element for owner/occupiers. It seems to me that a very early meeting with the relevant industry group will be needed to emphasise the need for them to ramp up supply urgently and to take them through the proposed implementation arrangements.

1. Tune appeared anxious about DEWHA’s capacity to administer the HIP, remarking that although DEWHA had portfolio responsibility, PMC will ‘need to stay close to it’ including by attending ‘the meeting with industry groups and be closely involved in developing the detailed implementation plan’.

Early implementation of the HIP

1. The HIP commenced formally on 1 July 2009 (Phase 2). Prior to that, between 1 February 2009 and 30 June 2009, an interim scheme was in place (Phase 1).

1. The defendant estimated the cost of ceiling insulation installation in an average sized house at $1,200, which was probably a generous estimate. From 3 February 2009 until 1 November 2009, the defendant set the maximum sum at $1,600 per house, which was probably consistent with its fiscal stimulus objective. From midnight on Sunday 1 November 2009, the maximum sum was set at $1,200 per house.

1. During Phase 1 from 6 February 2009, the Commonwealth paid rebates (capped at $1,600 per installation) to householders after they had engaged an installer, obtained eligible insulation for their home and paid for the service. Participation in Phase 1 was limited to existing Insulation Industry participants after DEWHA had made an assessment of eligibility. DEWHA engaged temporary contractors to process claims for rebates under Phase 1.

Regulatory context

1. At the time that the HIP was being designed and implemented, there were, among others, a number of documents that were intended to guide appropriate and responsible decision-making and policy implementation by government departments. These documents included:

(a)        ‘Implementation of Programme and Policy Initiatives: Making Implementation Matter’, which was published jointly by PMC and the Australian National Audit Office in 2006 to establish best practice guidelines for the effective delivery of government programs;

(b)        ‘Contemporary Government Challenges, Building Better Governance: Delivery Performance and Accountability’, which was published by the Australian Public Service Commission in 2007 and which set out principles for good governance, including the way in which departments take decisions and implement government programs;

(c)        ‘Some Better Practice Principles for Developing Policy Advice 2001’, which was published by the Australian National Audit Office in 2001, which applied to DEEWR and which set out best practice guidelines for properly advising the government in the course of delivering a government program;

(d) sections 10 and 13 of the Public Service Act1999 (Cth), which set out the APS Values and Code of Conduct, each of which contained requirements that must be met by every public servant employed in the APS and stipulated that the public service works collaboratively to achieve the best result for the Australian community and the government and provides frank honest and timely advice to the political executive based on the best available evidence;

(e)        the Australian Policy Handbook, which emphasised delivery of policy (as opposed to promises) and encouraged public servants to be proactive, including by reaching informed defensible assessments; and

(f)         the ‘APS Values and Code of Conduct in practice’ (published by the Australian Public Service Commission) which guided compliance with the APS Values and Code of Conduct.

1. As at February 2009, in relation to government guidelines:

(a)        the provisions of the Public Service Act 1999 (Cth) provided, among other things, for APS values, an APS code of conduct, a Public Service Commissioner and the issuing of Public Service Commissioner directions;

(b)        the then current and/or available better practice guidelines listed on the Australian National Audit Office website included:

(iv)      ‘Administering Regulation’ (March 2007);

(v)        ‘Implementation of Programme and Policy Initiatives: Making Implementation Matter’ (October 2006);

(vi)      ‘Developing and Managing Contracts: Getting the Right Outcome, Paying the Right Price’ (February 2007); and

(vii)     ‘Some Better Practice Principles for Developing Policy Advice’ (November 2001);

(c)        the Commonwealth Public Service Commission had published various guides and advices, including:

(i)         ‘Delivery Performance and Accountability’;

(ii)       ‘Policy Implementation Through Devolved Government’;

(iii)      ‘Working Together: Principles and Practices to Guide the Australian Public Service’; and

(iv)      ‘Building Better Governance’.

1. In relation to the regulation of the Insulation Industry:

(a)        South Australia was the only state that had specific regulatory requirements concerning the licensing of insulation installers;

(b)        the existing VEET scheme in Victoria incorporated mandatory training for installers; and

(c)        there were no rules or regulations or any established Australian Standard that specifically governed the safe installation of foil insulation. The only standard (discussed below) dealing with insulation was AS 3999‑1992, entitled ‘Thermal insulation of dwellings — Bulk insulation requirements’ (1992 Insulation Standard) and it dealt only with bulk insulation.

1. As at February 2009, in relation to insulation in Australia:

(a)        there were approximately 270 businesses in Australia which carried on the business of installing roof insulation in domestic premises (both in pre-existing and new houses);

(b)        approximately 60% of Australian houses had ceiling insulation;

(c)        approximately 200,000 new and existing houses were fitted with ceiling insulation each year, of which approximately 25% were retrofit installations;

(d)       the home insulation installation industry in Australia was growing at about 5% per year;

(e)        the share of the retrofit insulation market for each product type was approximately: glass wool 65%, rock wool 5%, polyester 15%, cellulose 15% and wool <0.5%;

(f)         the regulation of electricians and builders was a matter of state legislative competence;

(g)        state and territory legislation governed the circumstances and entitlements pursuant to which a person might undertake electrical work;[3]

[3]Construction Occupations (Licensing) Act 2004 (ACT); Home Building Act 1989 (NSW); Electrical Contractors and Workers Act (NT); Electrical Safety Act 2002 (Qld); Plumbers, Gas Fitters and Electricians Act 1995 (SA); Occupational Licensing Act 2005 (Tas); Electrical Safety Act 1998 (Vic); Electricity (Licensing Regulations) 1991 (WA).

(h)        states and territories legislation provided as to those persons who could undertake home building work (with some exceptions, for example, under a certain monetary value) and provided for registration and/or licensing of such persons;[4]

[4]Construction Occupations (Licensing) Act 2004 (ACT); Home Building Act 1989 (NSW); Building Act (NT); Queensland Building and Construction Commission Act 1991 (Qld); Building Work Contractors Act 1995 (SA); Building Act 2000 (Tas); Building Act 1993 (Vic); Building Services (Registration) Act 2011 (WA).

1. Dr Hird also referred to labour costs including redundancy and notice of termination costs. This discussion was hypothetical as it was plain from Hannam’s evidence that he used casuals, contractors and related parties precisely to avoid the plaintiffs incurring sunk costs of this sort. Dr Hird’s analysis of start‑up costs was based upon industry publications and was not related to any business carried on by the plaintiffs.

1. I am satisfied that in relation to the specific claims of Matsuh in the proceeding concerning excess stock, plant and other costs thrown away and loss of capital that Drs Williams and Mayraz correctly identified that the question of whether Matsuh incurred sunk costs responding to the HIP was a matter of proof requiring careful scrutiny in each case. I now turn to that analysis.

Matsuh loss — excess stock

1. The experts agreed that any loss suffered by Matsuh on the disposal of excess stock on hand at the date of suspension of the HIP could be calculated having regard to:

(a)        the cost of that stock;

(b)        cancellation fees paid;

(c)        the proceeds from sale of excess stock; and

(d)       the IIAP payment received.

1. The experts did not agree as to the value of excess stock and the proceeds of sales of that excess stock. Matsuh’s balance sheet as at February 2010 stated that the value of stock on hand was $332,397. The stock on hand value at 30 June 2010 was $199,491.

1. Gwynne was given the following instructions regarding excess stock:

(a)        as at the date of the suspension of the HIP, the excess stock that had been paid for was as recorded in Matsuh’s raw material inventory account for the year ended 30 June 2010 totalling $382,691;

(b)        following the suspension of the HIP Matsuh incurred a cost of cancelling forward orders of stock not yet paid for of $30,000 (inclusive of GST), paid to Redox Chemicals Pty Ltd on about 30 June 2010;

(c)        Matsuh incurred financing costs in respect of the excess stock on hand from the date of the suspension of the HIP until the stock was disposed of in approximately June 2012;

(d)       Matsuh incurred rental costs of storing the excess stock until June 2012 of approximately $1,000 per month;

(e)        Matsuh sold a portion of the excess stock for $31,205, and the rest of the excess stock on hand was destroyed or disposed of with no return;

(f)         Matsuh had on hand, as at February 2010, Boric acid and Borax with a value of $666,508, ‘bags & fasteners’ with a value of $18,000 and paper with a value of $16,600, totalling $701,108; and

(g)        Matsuh received an IIAP payment of $101,552 in respect of stock holdings at the date of the suspension of the HIP.

1. There was no real dispute that Matsuh was able to make $155,430 from selling cellulose acquired for free from other businesses after the termination of the HIP. Gwynne and Jackson were in disagreement as to both the evidentiary basis for the asserted value of stock on hand, and the way this value should be used. Jackson noted that Gwynne’s use of add-backs, including of part of the value of stock on hand instructed, resulted in a significant increase in the profit percentage (from 56% to 75%).

1. Initially, Gwynne observed that the value of raw materials stated on Matsuh’s balance sheet was $332,397 as at February 2010. He concluded that direct costs were overstated to the extent of the difference, resulting in an understatement of profit and a resulting add‑back of the difference. In his supplementary report this position changed. He was advised that the value of stock on hand as at 19 February 2010 was $422,918 and his calculation of adjusted gross profit was changed accordingly, to reflect the difference of $90,000 between the instructed value of stock on hand and the value of stock disclosed on the financial statements. In light of the altered instructions Gwynne calculated the loss suffered by Matsuh on disposal of stock on hand as follows:

Matsuh Pty Limited
Loss on Disposal of Excess Stock
Stock on hand at Suspension of HIP	422,918
Add: Cancellation fee re Borax	27,273
Total Stock & Adjustments	A	$450,191
Proceeds from Sale of Stock	30,805
IIA Payment Received	101,552
Total Proceeds & Compensation	B	$132,357
Net Loss on Disposal / write-off	C = A - B	$317,834

1. Gwynne was not troubled by the discrepancy between the values of stock on hand. He observed:

in my experience, it is not uncommon that small businesses adjust for the value of stock holdings at the end of a financial year, rather than on a monthly basis. Therefore, a discrepancy between the instructed value of stock on hand at the suspension of the HIP and the value as recorded on the balance sheet of the company is itself not evidence of the instructed value being incorrect.

1. In final submissions the plaintiffs clarified the position on stock:

Matsuh had raw materials on hand and ordered in the amount of $701,000 when the HIP was terminated and it made an IIAP claim on that basis (and received 15% of the value of that stock). The stock on hand (raw materials), (excluding ordered stock which could be cancelled for a cancellation fee), as at February 2010, was $422,918.

1. Jackson summarised Gwynne’s instructions, in the joint experts report:

Date	Actual Stock on hand	Stock ordered and contracted and not yet delivered	Total Stock
A	B	C = A + B
19-Feb-10	$422,918	$278,138	$701,056
30-Apr-10	$366,058	$279,504	$645,562
30-Jun-10	$382,691	-	$382,691

1. Jackson was critical of the discrepancies in value, and the way in which Gwynne treated these discrepancies, for two main reasons.

1. First, the instructed sums contradicted Matsuh’s balance sheet. Jackson took the view that while Matsuh is a small private company, given the size of its operations and expected performance, he would expect that ‘appropriate books and records would have been maintained’. Absent substantiation to the contrary, Jackson considered the financial records to be the most reliable basis of any claim. He would also expect consideration of Matsuh’s tax return to determine how the entries were recorded for tax purposes. I agree that Matsuh had an apparently experienced internal accountant and also used a firm of external accountants.

1. Second, it is inappropriate to add-back the difference, as Gwynne did, because it contradicted Matsuh’s balance sheets. Moreover, Jackson considered Gwynne’s methodology was sensitive to such add‑backs.

1. Jackson also considered that the proceeds of sale of free cellulose by Matsuh should have been set off against the excess stock figure. Hannam was able to mitigate Matsuh’s losses in this way. He assessed, on the basis of Matsuh’s financial records, that Matsuh held $332,397 of stock at the end of February 2010, and $199,491 at the end of June 2010.

1. Jackson also opined that a number of further considerations were relevant when assessing this head of damage, being:

(a)        the timing of the purchased stock;

(b)        ageing of the stock on hand; and

(c)        the nexus of the stock on hand to the HIP.

1. The defendant submitted that Hannam’s explanation for why the figures in Matsuh’s financial records are incorrect should be rejected. It was not supported by the evidence.

1. First, the evidence of the cancellation fee was sparse, and, apart from Hannam’s evidence, consisted of a sole email in ambiguous terms.

1. Second, Jackson did not see any verification that the free cellulose stock was not included on the stock inventory. He considered the only evidence of the value of stock on hand was that contained in Matsuh’s financial records.

1. The defendant submitted that I could only be satisfied that Matsuh’s held stock claim is, at its highest, $44,061. Further, this should be discounted as it is likely that some stock would have remained at the conclusion of the HIP in any event, and it is only that stock held because the HIP was terminated early that can be claimed.

1. Given the unsatisfactory state of the evidence about these matters, I am not persuaded that Matsuh has established any loss on this basis.

Matsuh loss – Plant 2

1. Plant 2 was intended to dramatically increase Matsuh’s production capacity, from the existing plant’s capacity of 50-60 bags of cellulose per hour to 300-350 bags per hour. It was not in dispute that Plant 2 was ordered before the HIP, but both the cost of the plant and how it was treated in Matsuh’s financial records were uncertain and confused. As the defendant submitted, Plant 2 was irrelevant because it was ordered before the HIP was announced, and was not able to be installed during the HIP because to do so would require the shutdown of Matsuh’s existing plant for two to three weeks. There was no suggestion this position could have changed, and it was unaffected by the early termination of the HIP. Matsuh’s commercial decision was that such a shutdown was not in its interests. No loss was suffered on account of Plant 2 by reason of the early termination of the HIP.

Matsuh loss – Plant 3

1. Hannam said he purchased Plant 3 for $425,000. It was intended to be a temporary plant while Plant 2 was installed and then sold off. It was delivered around the very end of February or start of March 2010. Hannam described it as designed for quick assembly and installation. Plant 3 had a similar production capacity to Plant 1 of about 40-60, 12.5kg bags per hour, depending on the quality of the raw materials.

1. Plant 3 was, in the event, assembled in preparation for the commencement of the REBS program. It was partially installed, tweaked, then ultimately decommissioned. It has not been used or sold as scrap.

1. Gwynne was instructed that:

(a)        Plant 3 was ordered and payments were made on the basis of the Commonwealth’s assurances that the HIP would continue;

(b)        Matsuh intended to install and commence operating Plant 3 prior to decommissioning Plant 1 and during the installation of Plant 2;

(c)        Plant 3 would have had a similar operating capacity to Plant 1; and

(d)       Plant 3 would have been operation by the end of February to mid-March 2010.

1. These assumptions can only be regarded as established as a basis for Gwynne’s calculations if I was persuaded to accept Hannam’s evidence of these matters. As I have stated above, I was not so persuaded. That is the first reason why Matsuh has not proved a loss in respect of Plant 3.

1. Initially Gwynne observed that Plant 3 was purchased for $425,369, and instead of being capitalised as an asset, it was partly recorded against the ESNI loan account ($135,277) and the remainder ($290,142) was recorded against cost of sales, resulting in direct costs being overstated between July and September 2009 by that remainder amount, causing an understatement of profit.

1. Later Gwynne was provided with further evidence regarding the purchase and payment for Plant 3, namely:

(a)        copies of invoices from Muller Fabrications, being progress claims for the construction of a paper-shredding plant; and

(b)        copies of ANZ Bank statements for Matsuh for the period 1 July 2009 to 30 June 2010 from which he identified payments recorded as ‘Transfers to Muller Fabricatio’;

1. When reviewing the ANZ bank statements, Gwynne identified additional payments to Muller Fabrications of $77,627 (excluding GST) allocated against miscellaneous income, and $7,636 (excluding GST) which could not be identified in Matsuh’s accounting records. If these payments had been incorrectly allocated to revenue and direct costs, he considered a further adjustment to Matsuh’s gross profit calculation would be required. In cross‑examination, he observed that including these sums would bring the total apparently paid for Plant 3 to a little over $500,000, but he was not able to explain these additional payments.

1. Jackson distinguished between two classes of payments said to be made with respect to Plant 3. First, payments totalling $290,142, initially recorded on the balance sheet as finished goods, were transferred to cost of goods. Second, payments totalling $135,227, made from January 2010, were recorded against a loan account with ESNI.

1. As to the first class of payment, Jackson opined that the accounting treatment adopted did not reflect the purchase of a fixed asset, and there was no apparent reason why a fixed asset had been classified as finished goods and not plant and equipment. In the ordinary course, he expected that the purchase of a plant would be recorded as an asset which would be reflected on the fixed asset register. I pause to observe that classification as finished goods suggested an intention to sell the plant, which was consistent with Matsuh’s proposal for acquisition of it. Jackson considered its relationship to the HIP was non-existent or tenuous. Further, Jackson opined that he was not able to observe that this sum was in fact for a plant, nor was there evidence that substantiated that the plant was purchased in stages, or whether the payments were for discrete items or purchases.

1. Jackson concluded that it was inappropriate to add-back the cost of Plant 3, absent contemporaneous evidence that it was in fact purchased and was incorrectly recorded in accounting records. That is, absent evidence to the contrary, the accounting records and financial statements should be taken at face value. I agree. I am satisfied that Plant 3 was a separate investment decision. I do not accept that it was intended to be a temporary plant producing material for use by Matsuh in the HIP.

1. Several further matters with respect to Plant 3 can be noted. First, there were only two invoices in evidence said to relate to Plant 3:

(a)        an invoice dated 15 January 2010 for $87,500, described as ‘Progress payment for construction of paper shredding plant’; and

(b)        an invoice dated 24 March 2010 $43,750, described ‘Progress payment for paper shredding plant’.

1. These two invoices, totalling $119,318, are part of the $135,227 that Mr Gwynne did not incorporate into the claim in respect of Plant 3, as it was reallocated to the intercompany loan account between Matsuh and ESNI. On that basis, Gwynne had no evidence of invoices that substantiate the sum claimed of $290,142.

1. Second, Gwynne summarised the payments made to Muller Fabrications in a table:

Date	Payment inc of GST	GST	Payment ex of GST	Allocated to Finished Goods	Notes
14/07/2009	42,000	3,818	38,182	y
29/07/2009	42,000	3,818	38,182	y
12/08/2009	42,000	3,818	38,182	y
28/08/2009	42,000	3,818	38,182	y
03/09/2009	8,400	764	7,636	May be part of coding to raw paper supplies
03/09/2009	34,750	3,159	31,591	y
10/09/2009	43,060	3,915	39,145	y
18/09/2009	47,510	4,319	43,191	y
29/09/2009	25,836	2,349	23,487	y
21/10/2009	47,510	4,319	43,191	Allocated to misc sales
27/11/2009	18,940	1,722	17,218	Allocated to misc sales
27/11/2009	18,940	1,722	17,218	Allocated to misc sales
18/01/2010	87,500	7,955	79,545	y
17/03/2010	17,500	1,591	15,909	y
05/05/2010	43,750	3,977	39,773	y
$561,696	$51,063	$510,633

1. This summary indicated that:

(a)        $467,906 of the total payments to Muller Fabrications that appear from the records provided were allocated to ‘Finished Goods’ in Matsuh’s financial records;

(b)        $85,390 were allocated to ‘Miscellaneous Sales’ in Matsuh’s financial records; and

(c)        it is not clear how $8,400 was allocated, however Gwynne noted it may be raw paper supplies.

1. The defendant challenged Hannam’s evidence regarding Plant 3 in a number of ways.

1. First, the defendant questioned the evidence of the existence of Plant 3. Apart from the two invoices identified above, there was no other documentary proof of Plant 3 and its purchase price, such as a contract, manual, or photos. Gwynne’s evidence, in the form of his summary of payments made to Muller Fabrications, was $135,000 greater than the asserted purchase price for Plant 3. Hannam’s explanation of this as the purchase of unidentified ‘associate equipment’ was unsatisfactory.

1. Second, the defendant queried the plausibility of Plant 3’s purchase price and production capacity in light of the evidence regarding Plant 2. Namely, Plant 3 cost three times as much as Plant 2, yet had one sixth the production capacity. Hannam’s explanation that Plant 2 was produced ‘on the cheap’ was unsatisfactory and unverified from an independent source. I reject it.

1. Third, Hannam had always intended to sell Plant 3, for $160,000, and so much was demonstrated in the document ‘Cellulose Plant Sale Proposal’. The defendant submitted the explanation for Hannam’s apparent intention to make a significant loss on Plant 3 in a short period of time was implausible. Hannam suggested that Plant 3 would be used to help set up Plant 2, but he also said that Plant 3 was to operate together with Plant 1, and both would need to cease operating to install Plant 2. How the purchase of Plant 3 could be ‘worthwhile’ was a mystery.

1. The defendant submitted I could not be satisfied Plant 3 was purchased, let alone purchased for the amount the plaintiff claimed. Even if satisfied as to those matters, and I accept the defendant’s submission, I could not conclude that the purpose of the acquisition of Plant 3 was associated with the HIP or defeated by its early termination. No loss was shown to be sustained on account of Plant 3.

Matsuh loss — costs thrown away

1. The experts agreed that it was appropriate to identify any costs that were incurred but wasted by regard to the actual costs Matsuh incurred in reliance on the HIP with no enduring benefit. The experts also agreed that Matsuh’s accounting records would be an appropriate source of documentation that would show the relationship between costs for wages, repairs and contractors, and the HIP. Gwynne was instructed that relevant parts of Matsuh’s records had been destroyed in a fire. The experts also agreed that the appropriate loss period for this claim was 19 February to 22 April 2010 (the date on which it was announced the REBS would not proceed), although initially Gwynne was instructed to extend the period until 30 June 2010.

1. However the experts did not agree on those items that could be properly described as costs thrown away.

1. Gwynne identified four items within costs thrown away, totalling $409,285. These were wages for skeleton staff in the amount of $47,535, contractor payments in the amount of $31,850, repairs and maintenance in the amount of $39,758 and Plant 3 in the amount of $290,142.

1. Plant 3 has been considered and I need not address it further.

1. The plaintiffs instructed Gwynne that between 19 February 2010 and 30 June 2010 20 staff members were kept on as skeleton staff ‘in readiness for the recommencement of the HIP and to continue receiving stock deliveries (that which could not be cancelled), organise the warehouse, and load the “fire sold” stock to opportunistic customers’.

1. Secondly, he was instructed that $31,850 was paid between 19 February 2010 and 30 June 2010 to contractors to maintain the factory machinery in readiness for the recommencement of the HIP. Jackson noted that this sum appeared to relate to purchases from AI Secure Pty Ltd. To properly understand this claim would require inspection of supporting documentation that was not in evidence.

1. Thirdly, following certain comments made by Jackson, Gwynne’s revised estimate of repairs and maintenance expenses was $124,398.00 or $15,500 per month.

1. Jackson was critical of this claim.

1. First, of the estimated repairs and maintenance costs, more than $76,000 was attributed to payments to ‘AU Sparky’, said to be on invoices issued between 1 July 2009 and 30 June 2010. Only repairs and maintenance costs incurred after cessation of the HIP were wasted because manufacturing did not recommence. Jackson identified only two invoices that totalled $2,548 which were incurred after 19 February 2010. Jackson identified an additional $20,746 relating to ‘AU Sparky’ within the total sum attributed to repairs and maintenance, said to be invoices dated between 21 August 2009 and 21 December 2009. Those claims should also be excluded as they were before the termination of the HIP and were not wasted.

1. Further, Gwynne identified and listed the invoices issued by AU Sparky. The invoices were billed to ESNI. The plaintiffs submitted the invoices did not reflect the relevant parties in the transaction and AU Sparky Pty Ltd was requested to update and reissue the above invoices into the correct entity name. It did not do so. The bald assertion regarding the correct entity to be billed contradicts the face of the document. Moreover, the MYOB file showed that the invoices were paid in the following transactions:

02/03/2010	ESNI Loan Account	24,310.05
23/03/2010	ESNI Loan Account	15,000.00
31/03/2010	Matsuh Bank Account	24,990,06
07/04/2010	ESNI Loan Account	20,000.00
Total paid	84,300.11

1. The ‘repairs and maintenance’ claim also included invoices made out to CIMCo from JR & DH Hannam for $9,905, of which $9,383 was described as ‘Materials supplied to 30/06/10 for repairs to lifted slabs and external footpath caused by storm and flash flooding’. When in cross-examination Hannam was asked how this expense could be attributed to the early cessation of the HIP, he argued that if there hadn’t been so many trucks on the concrete as a result of the increase in traffic from the HIP, the concrete wouldn’t have been susceptible to damage from flood. This claim is also rejected.

1. A preliminary problem with the calculation of these losses was that assessment was based on the period 19 February 2010 to 30 June 2010, when it was known from 22 April 2010 that REBS would not proceed.

1. Further, Matsuh’s decision to maintain staff in anticipation of the commencement of the REBS was a business decision made independently of the early termination of the HIP. Either way, its rationale expired on 22 April 2010 with the decision that the REBS would not proceed. The plaintiffs did not contend that the defendant was negligent in failing to implement the REBS as announced.

1. That said, I have in any event rejected the sunk cost claimed for disposal of stock, the plant and other costs thrown away.

Matsuh loss — loss of capital

1. The experts agreed that any loss of capital suffered by Matsuh could be calculated by identifying actual capital loss that had a direct nexus to the early termination of the HIP. The experts also agreed that any capital loss associated with Plant 1 should not be included. However, the experts did not agree on the items of lost capital.

Gwynne

1. Gwynne identified three items of lost capital:

Matsuh Pty Limited
Loss of Capital – Revised Calculation
Low	High
Loss of Goodwill	0	50,000
Loss on Disposal of Assets	186,667	186,667
Loss on 3rd Plant	290,142	290,142
Total Loss on Capital	$476,809	$526,809

Loss of goodwill

1. Gwynne was instructed that goodwill formed part of the purchase price paid by Matsuh in about 2003. Matsuh’s balance sheet recorded $50,000 as an intangible asset, being goodwill. Gwynne concluded that as Matsuh no longer operated as a manufacturer of cellulose the value of the business, and consequently its goodwill, had been lost. However, Gwynne noted that part of that value may have been lost in any event if the HIP had continued, as a result of a decrease in industry activity and demand. Gwynne concluded that he could not determine the value of loss of goodwill, and so provided a range of values up to the maximum recorded value.

Loss on disposal of assets

1. The loss on disposal of assets referred to the written value of manufacturing plant in Matsuh’s 2010 depreciation schedule. Gwynne inferred that this plant was scrapped or disposed of for no consideration.

Jackson

1. Jackson again considered that further substantiation and clarification was required for this claim. In particular substantiation and clarification was required of:

(a)        the purchase price of plant and equipment in the claim;

(b)        the treatment of accumulated depreciation;

(c)        whether the plant and equipment has no sale value, including confirmation that it has not been sold, or sold in part; and

(d)       whether the loss of value has a direct nexus to the early termination of the HIP, as opposed to being a result of a management intention to sell or wind down the plants in any event.

1. In relation to the loss on disposal of assets, Jackson considered it was not apparent what that plant value represented. That is, which of Plants 1, 2 or 3, or a combination of which, was incorporated within that value.

1. I was not persuaded that Matsuh established that it suffered the capital loss claimed either at all or in the sum alleged or that any such loss was induced by or related to the HIP.

Answers to the common questions

Question 1: Was there a contract of the kind and with the terms alleged in [24] to [26] of the Third Further Amended Statement of Claim (3FASOC) and at [2(d)] of the Reply between the Commonwealth and any of the installers?

No.

Question 2: Did the termination of the Home Insulation Program (HIP) by the Commonwealth constitute repudiation of the contract(s) alleged in the 3FASOC?

It was not necessary to answer this question in the context of the answer to Question 1. That said, I would answer ‘No’.

Question 3: Did the Commonwealth owe a duty to any or all of the Owners, Installers, Manufacturers and/or Suppliers to take reasonable care to avoid economic harm to them in the design, implementation and administration of the HIP?

No.

Question 4: If yes to Question 3, what was the applicable standard of care, with respect to such a duty, owed to each of the Owners, Installers, Manufacturers or Suppliers?

Assuming that Question 3 had been answered ‘Yes’, a reasonable person in the defendant’s position would have foreseen that its conduct in the design, implementation, or administration of the HIP involved a risk of injury in the form of pure economic loss to the plaintiffs, or a class of persons including the plaintiffs, in the event of a sudden, or unexpected, premature termination of the HIP. A reasonable person in the defendant’s position would have taken precautions to mitigate that risk in response to foresight of it. To the extent that the applicable standard of care is defined by reference to prudent precautions, such matters are referred to in my reasons and my response to Question 5.

Question 5: Did the acts and/or omissions of the Commonwealth in the design, implementation and administration of the HIP fall below the applicable standard of care in any of the ways alleged in [37] of the FASOC?

Assuming, contrary to my finding, that the defendant owed the duty of care the subject of Question 3 to any or all of the Insulation Industry to take reasonable care to avoid economic harm to them, Question 5 could be answered ‘Yes’. However, I state my response by reframing the question to some extent. The defendant, by its acts and omissions in the design, implementation and administration of the HIP, unreasonably failed to take precautions to mitigate the risk that the plaintiffs might suffer economic loss through participation in the HIP if it was suddenly terminated earlier than was expected by the Insulation Industry. In particular, it failed to exclude the use of RFL products in response to the knowledge it acquired concerning the safety risks that would be posed by the use of that product in the HIP. Further, the defendant failed to implement or properly institute procedures to monitor and manage the risks associated with the use of RFL in the HIP. The defendant’s response, in terms of the precautions identified by the plaintiffs to that risk, was not negligent in respect of the matters identified in parts (a), (b), (e) and (f). The defendant breached the assumed duty of care in respect of the precautions identified by the plaintiffs to that risk in parts (c) and (d).

Question 6: If yes to question 5, was the Commonwealth’s early termination of the HIP without warning the result of negligence by the Commonwealth in the design and / or implementation and / or administration of the HIP ?

Had the answer to Question 3 been ‘Yes’, Yes.

Question 7: Are the merits of the adoption (or change or abandonment) of government policy a non-justiciable matter as alleged in [32(c)] of the Defence?

It is not necessary to answer this question.

Question 8: Was any economic harm suffered by the Plaintiffs and group members the result of a policy decision made by Cabinet in the national interest to terminate the HIP in February 2010 and/or the result of business or investment decisions made by the Plaintiffs and group members as alleged in [40] to [42] of the Defence?

This question is ambiguous. Any economic harm suffered by the Plaintiffs in the nature of the loss claimed in the proceeding was the result of both a policy decision made by Cabinet in the national interest to terminate the HIP in February 2010, and business or investment decisions made by the Plaintiffs. On a but for inquiry, the answer is Yes. Presuming the question enquires after legal causation, the answer is No. Any economic harm suffered by the Plaintiffs was not caused by that policy decision.

Question 9: Did the Commonwealth:

(a)engage in the conduct, or any of it, pleaded in [5], [6], [8], [12] and [12A] of the 3FASOC (‘the representations’);

(b)      if yes to any part of question 9(a):

(i)by engaging in that conduct, did the Commonwealth represent to the Owners, Installers, Manufacturers, and Suppliers or any of them, that it would not reconsider its decision to operate the HIP until the ‘Expiration Date’ as alleged in [43] of the FASOC?

(ii)did the Commonwealth make the representations in order to encourage the Owners, Installers, Manufacturers and Suppliers or any of them to invest or continue to invest as alleged in [44] of the FASOC?

(a) Yes, (b)(i) No, (b)(ii) No.

Question 10: If the representations were made, did the Commonwealth owe a duty to any or all of the Owners, Installers, Manufacturers and/or Suppliers to take reasonable care in making the representations or in correcting them?

No.

Question 11: Did the Commonwealth owe a duty to take reasonable care to any of the Owners, Installers, Manufacturers and/or Suppliers in making or announcing or to correct announcements of government policy as alleged in [49] of the Defence?

No.

Question 12: To the extent the representations are found to have been made, were those representations:

(a)       negligently made (as alleged in FASOC [55]);

(b)not corrected as soon as practicable thereafter, such that the failure to correct was negligent (as alleged in FASOC, [56])?

No.

Question 13: If the answer to question 12(a) or (b) is yes, was it reasonable for the Plaintiffs or any of the group members to rely upon the representations?

No, and the second plaintiff did not do so.

Question 14: Was the Commonwealth, through the HIP, engaged in ‘carrying on a business’, as alleged in FASOC, [3D] to [3F], within the meaning of section 2A of the Trade Practices Act 1974 (Cth)?

No.

Question 15: Did the Commonwealth make the alleged representations or any of them in trade or commerce?

No.

Question 16: If the Commonwealth made the alleged representations or any of them:

(a)by doing so, did the Commonwealth engage in conduct that was misleading or deceptive or likely to mislead or deceive;

(b) were the representations or any of them:

(i)       representations with respect to future matters;

(ii)representations made by the Commonwealth in the absence of reasonable grounds and thereby constituting conduct that was misleading or deceptive or likely to mislead or deceive (FASOC, [59A])?

Not necessary to answer.

Question 17: Did the Group Members voluntarily assume an obvious risk that the HIP would be terminated if there was a change in government policy, as a result of which the Commonwealth is not liable in negligence to the Plaintiffs or Group Members (Defence, [57A])?

Not necessary to answer.

Question 18: Did the decision by Cabinet to terminate the HIP constitute the materialisation of an inherent risk, as a result of which the Commonwealth is not liable in negligence to the Plaintiffs or Group Members (Defence, [57B])?

Not necessary to answer.

Question 19: Were the acts and omissions of ‘the employers’ one of the causes of the decision by the Commonwealth to change government policy (Defence, [57D (b)])?

No.

Question 20: Did any duty of care arise on the part of the Commonwealth to prevent unlawful conduct by ‘the employers’ (Defence, [57D(d)])?

No.

Question 21: Are any losses alleged to have been suffered by the sub-group ‘Owners’ reflective losses and, therefore, not recoverable in the proceeding?

Not necessary to answer.

Annexure one

Part A: Dramatis personae

Name	Description
Arbib, Mark	Senator who was involved with the HIP in his capacity as Parliamentary Secretary for Government Service Delivery (February to June 2009) and Minister Assisting the Prime Minister on Government Service Delivery (June 2009 to October 2010)
Arblaster, Andrew	General manager and shareholder in Enviroflex Pty Ltd, which was an installer during the HIP (witness)
Barnes, Reuben	Installer who died on 18 November 2009
Belka, Kathy	Assistant Secretary, DEWHA
Brunoro, Beth	Director, DEWHA
Carter, Ross	First Assistant Secretary, DEWHA
Coaldrake, Margaret	External risk assessment consultant with Minter Ellison. Consulting
Cox, Simon	Employed within PMC and the Office of the Coordinator-General
D’Arcy, Dennis	CEO of ICANZ during the HIP. ICANZ was the industry body representing the major manufacturers of glasswool and rockwool insulation products in Australia, CSR and Fletchers (witness)
Dickson, Rhondda	Branch Head, Industry Infrastructure and Environment Division within PMC
Forbes, Malcolm	Acting Deputy Secretary, DEWHA
Fuller, Matthew	Installer who died on 14 October 2009
Garrett, Peter	Minister for Environment
Gillard, Julia	Deputy Prime Minister at the time of the HIP and a member of the Strategic Priorities Budget Committee, of Cabinet
Hannam, Matthew	Director of the first and second Plaintiffs (witness)
Herbert, Kevin	Employed by ACIMA at the time of the HIP. ACIMA was the industry body representing approximately 10% of the Insulation Industry, all of which installed and/or manufactured cellulose insulation
Henry, Ken	Secretary of the Department of Treasury 2001 – 2011 (witness)
Hoffman, Martin	First Assistant Secretary, PMC
Hoitink, David	Seconded to DEWHA to provide both legal and non‑legal advice.
Hook, Rodney	South Australian Coordinator-General at the time of the HIP
Horvat, Natalie	An advisor in PMC
Hughes, Aaron	Director of Project Resources, DEWHA
Johnston, Chris	Director of Climate Change, PMC
Keeffe, Kevin	Assistant Secretary, DEWHA and the ultimate project manager for the HIP
Kent, Avril	Director of Project Management, DEWHA
Kimber, William	Director of Program Design and Delivery, DEWHA
Kruk, Robyn	Secretary, DEWHA
Leake, Janine	External strategic project management consultant
Levey, Matthew	An advisor in Minister Garrett’s office. (witness)
Lindsay, Nicholas	Director of Titan Insulations Pty Ltd, employer of Mitchell Sweeney (witness)
McEwen, Melissa	Director of the Industry Skills Council and Industry Engagement Team within the industry engagement branch of DEEWR (witness)
McKay, Benjamin	Employee QHI Installations Pty Ltd, employer of Matthew Fuller (witness)
McKay, Christopher	Employee of QHI Installations Pty Ltd, employer of Matthew Fuller (witness)
Mrdak, Mike	Commonwealth Coordinator-General during the HIP. (witness)
Mulhall, Brendan	Director and Principal of Brendan Mulhall & Associates Pty Ltd trading as BMA Consulting (witness)
Plevey, Anthony	Employee of EE-Oz Training Standards Australia (witness)
Rashleigh, Greg	Owner of All Seasons Insulation, which was an installer of cellulose insulation and a member of ACIMA.
Richards, Malcolm	CEO of the Electrical and Communications Association Industrial Organisation for Employers Queensland and Master Electricians Australia Limited (witness)
Rudd, Kevin	Prime Minister and a member of the Strategic Priorities Budget Committee of Cabinet (witness)
Ruz, Peter	Director of ICANZ who also worked for Fletchers as its National Marketing Manager (witness)
Stewart, Peter (deceased)	Owner and director of Insul-Safe Pty Ltd, which installed cellulose insulation and was a member of ACIMA
Swan, Wayne	Treasurer and a member of the Strategic Priorities Budget Committee of Cabinet
Sweeney, Mitchell	Installer who died on 4 February 2010
Tanner, Lindsay	Minister for Finance and Deregulation and a member of the Strategic Priorities Budget Committee of Cabinet (witness)
Tannous, Anthony	Executive General Manager of CSR
Thompson, Gavin	Senior Electrical Safety Inspector at the Electrical Safety Office of Queensland (witness)
Tune, David	Acting Secretary, PM&C
Wiley-Smith, Mary	Assistant Secretary, DEWHA
Wilson, Andrew	Reported to Mr Mrdak within the Office of the Coordinator-General.
Wilson, Marcus	Installer who died on 21 November 2009

Part B: Acronyms

ABCB	Australian Building Codes Board
ACIMA	Australian Cellulose Insulation Manufacturers’ Association
AFIA	Aluminium Foil Insulation Association
BMA	Brendan Mulhall & Associates Pty Ltd
CIMCo	Cellulose Insulation Manufacturing Co
COAG	Council of Australian Governments
CPSISC	Construction and Property Services Industry Skills Council
CSIRO	Commonwealth Scientific and Research Organisation
DEEWR	Department of Education, Employment and Workplace Relations
DEWHA	Department of the Environment, Water, Heritage and the Arts
EEHP	Energy Efficient Homes Package
EE-Oz (now E-Oz)	ElectroComms and Energy Utilities Industry Skills Council Ltd (now ElectroComms and Energy Utilities Industry Training Council)
ESO	Electrical Safety Office (Queensland)
FARIMA	Fibreglass and Rockwool Insulation Manufacturers Association
FISP	Foil Insulation Safety Program
GFC	Global Financial Crisis
HIA	Housing Industry of Australia
HIP	Home Insulation Program
HIPIPS	Home Insulation Program Industry Payment Scheme
HISP	Home Insulation Safety Program
IAHP	Insulating Australian Homes Plan
ICANZ	Insulation Council of Australia and New Zealand
IMAA	Insulation Manufacturers’ Association of Australia
LEAPR	Low Emissions Assistance Plan for Renters
MBA	Master Builders Australia
MEA	Master Electricians Australia
NECA	National Electrical and Communications Association
OCG	Office of the Coordinator-General
PCG	Project Control Group
PIMA	Polyester Insulation Manufacturers Association
PMC/PM&C	Department of the Prime Minister and Cabinet
QHI	QHI Installations Pty Ltd
REBS	Renewable Energy Bonus Scheme
RFL	Reflective Foil Laminate
RTO	Registered Training Organisation
SPBC	Strategic Planning and Budget Committee
TITAN	Titan Insulations Pty Ltd
VEET	Victorian Energy Efficiency Target scheme

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