Siegwerk Australia Pty Ltd (In liq) v Nuplex Industries (Aust) Pty Ltd

[2016] FCA 158

FEDERAL COURT OF AUSTRALIA

Siegwerk Australia Pty Ltd (in liquidation) v Nuplex Industries (Aust) Pty Ltd [2016] FCA 158

File number:	VID 339 of 2009
Judge:	BEACH J
Date of judgment:	29 February 2016
Catchwords:	CONTRACT – breach of contract – supply of epoxy resin for use in lacquer – use of lacquer for inner lining of tuna cans – non-compliance with contractual standard – substitute product – corrosion of cans – causation – whether substitution causally linked to corrosion – “common sense” notion of causation – scientific analysis of causation – polymer chemistry – expert evidence – scientific literature – inference of factual causation from increased risk – reverse onus – “onus of exculpation” – circumstantial case – causation not established
Cases cited:	ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1 Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 Betts v Whittingslowe (1945) 71 CLR 637 BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268 Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152 Chand v Commonwealth Bank of Australia [2014] NSWSC 708 Coastwide Fabrication & Erection Pty Ltd v Honeysett [2009] NSWCA 134 Flounders v Millar [2007] NSWCA 238 Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd (2009) 254 ALR 273 Henville v Walker (2001) 206 CLR 459 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613 March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196 Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635 Programmed Total Marine Services Pty Ltd v Ship Hako Endeavour (2014) 229 FCR 563 Ramsey v Annesley College [2013] SASC 72 Reg. Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262 Travel Compensation Fund v Tambree (2005) 224 CLR 627 Watts v Rake (1960) 108 CLR 158 Wenham v Ella (1972) 127 CLR 454
Dates of hearing:	20, 21, 22, 23 April and 15 May 2015
Registry:	Victoria
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Commercial Contracts, Banking, Finance and Insurance
Category:	Catchwords
Number of paragraphs:	464
Counsel for the Cross-Applicant:	Mr A J Kelly QC with Mr E Gisonda
Solicitor for the Cross-Applicant:	Wotton Kearney
Counsel for the Cross-Respondent:	Mr S Donaldson SC with Ms S Ross
Solicitor for the Cross-Respondent:	Sparke Helmore Lawyers

ORDERS

VID 339 of 2009
BETWEEN:	SIEGWERK AUSTRALIA PTY LTD (IN LIQUIDATION) Cross-Applicant
AND:	NUPLEX INDUSTRIES (AUST) PTY LTD Cross-Respondent

JUDGE:	BEACH J
DATE OF ORDER:	29 February 2016

THE COURT ORDERS THAT:

1.The cross-applicant file and serve within 7 days of the date hereof short submissions (three pages only) and draft proposed orders to give effect to these reasons, including on the question of costs.

2.The cross-respondent file and serve within 7 days of the receipt of the cross-applicant’s submissions, short submissions (three pages only) and draft proposed orders to give effect to these reasons, including on the question of costs.

3.Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1. The hearing before me has involved the re-trial of a causation question under a cross-claim by Siegwerk Australia Pty Ltd (In Liquidation) (Siegwerk) against Nuplex Industries (Australia) Pty Ltd (Nuplex).  This issue has required me to investigate the interface between contract law and the subtleties of polymer chemistry concerning the causal consequences of the supply by Nuplex to Siegwerk of an epoxy-phenolic resin not conforming to the contractual specification by reason of the substitution of the epoxy component.

2. Visy Packaging Pty Ltd (Visy) was the applicant in the principal claim.  It manufactured tuna cans with ends that had ring-pull ends or “easy open ends” (EOEs).  Siegwerk was the manufacturer of a lacquer, code 650814, that it supplied to Visy for Visy to use in the manufacture of such cans.  The lacquer was applied to the internal surface of the cans and EOEs by Visy so as to provide a protective coating between the contents of the can and the internal can surface.  This was intended to prevent degradation of the internal surface by the corrosive action of the contents.  Nuplex supplied resin to Siegwerk to use in the manufacture of the lacquer.  Once the cans were manufactured by Visy, the cans were supplied by Visy to Port Lincoln Tuna Processors Pty Ltd (PLTP), who filled the cans with varieties of tuna products using tuna supplied to it predominantly by Simplot Australia Pty Ltd (Simplot).  The filled cans were then delivered back to Simplot, who sold them to distributors for supply to the retail market.

3. On 25 July 2004, internal corrosion was observed on the score line of the EOEs.  Corrosion was detected after a minimum of four to six weeks of the cans being filled by PLTP.  In some cases, the corrosion made its way from the inside of the can to the can exterior.  When this occurred, the contents of the cans leaked and spilled out, spreading the corrosion to other cans.  As a consequence, there were two product recalls by Simplot of its products from the retail market.  These occurred in August 2004 and in January 2005.  Initially the recalls were confined to tuna in zesty vinaigrette, but the recalls were then extended to tuna in brine as well as in lemon and cracked pepper.

4. Visy settled claims that were made against it by paying $6,105,786 to Simplot and $1,630,000 to PLTP.  Visy then sued Siegwerk.  In August 2010, Siegwerk settled the claim made against it by Visy for $2,250,000.  It has sought to recover that sum from Nuplex under its cross-claim against Nuplex.

5. Siegwerk’s claim against Nuplex has been for breach of contract, being a toll manufacturing and supply agreement dated 30 June 1999 (tolling agreement).  It is alleged that the resin supplied by Nuplex to Siegwerk did not conform to the contractual specification and was a or the cause of the corrosion.  The tolling agreement was “designed to foster a long term trading relationship, based on mutual trust and co-operation” as is stipulated on its face.  Terms of the tolling agreement provided, inter alia, that:

   (a)Nuplex would manufacture and sell the Products (being the relevant resin) in compliance with the agreed specifications;

   (b)Nuplex would not change, alter or modify the composition of the Products without prior written agreement from Siegwerk;

   (c)Nuplex warranted that the Products would be manufactured in accordance with the agreed specifications and would promptly notify Siegwerk and give it full particulars of any breach of which it became aware.

6. Under the tolling agreement, an epoxy-phenolic resin, designated as 3490EP, required for the formulation of the lacquer was the product to be supplied by Nuplex to Siegwerk.  Siegwerk then mixed the 3490EP with six additional ingredients to produce the lacquer for Visy, code 650814.  3490EP made up approximately 93% of the lacquer.  Pursuant to formulation and process instructions provided by Siegwerk to Nuplex, 30% of the 3490EP formula was to be the epoxy resin, DER669E.  The instructions stated: “DER669E must be sourced from DOW (Germany)”.  The instructions had been changed in May 2000 to emphasise the requirement that the supplies of DER669E had to be sourced from Germany.  The change was apparently made because companies such as Dow often supply products from more than one location, and manufacturing processes could differ between plants.

7. An epoxy resin is a polymer consisting of macromolecules each containing epoxide groups.  An epoxide group is a form of cyclic ether.  Simplistically, an oxygen atom is joined to two carbon atoms (each a part of an alkyl group) in an equilateral triangle.  The backbone for each macromolecule is a hydrocarbon chain consisting of a number of repeating units (small molecules) known as monomers.  These macromolecules are created by the process of polymerisation, which process may occur naturally (although not usually for an epoxy resin) or synthetically, involving the joining of the monomers by covalent bonding (to be distinguished from both ionic bonding and hydrogen bonding, the latter involving lesser and different electrostatic interactions than ionic bonding).  Each chain (itself a macromolecule) may be of variable length depending upon the number of monomers joined together.  Macromolecule chains may be linked together end to end or “linearly” to form a longer chain or “laterally” so that two chains are what are described as “cross-linked”, usually through hydrogen bonding or covalent bonding.  A macromolecule chain may have one “line” of monomer units or may be a “line” with various branches (forks) of the monomer units; the descriptions of “line” or “linearly” are not completely accurate given the twisting and coiling in three dimensions.  The length and three dimensional architecture of the polymer (the mixture of all macromolecules), including its propensity or capacity for cross-linking, will affect its physical properties such as melting and boiling temperatures, viscosity, impact resistance, chain mobility, strength, hardness, and so on.  For ease of reference I will just use the term “polymer” to refer to these macromolecules singularly and collectively.  An epoxy resin may be combined with other reactants, such as phenol, which may act as hardeners or curatives.  The polymer (epoxy resin) in the present case had the following chemical structure (with the repeating monomer unit (n times) shown in brackets):

8. From June 2003 to February 2004, Nuplex supplied to Siegwerk 20 batches of 3490EP, 13 of which had been formulated using Epikote 1009 (Epikote) instead of DER669E.  Epikote was an epoxy resin manufactured by Shell Chemical Co, rather than DOW.

9. On 6 April 2004, Nuplex asked Siegwerk whether Epikote could be used to refurbish stock by blending it with DER669E.  Siegwerk responded that customer approval through trials on the manufacturing line and pack testing would need to be done to prove the fitness for use of Epikote.  At this time, Nuplex did not say that it had been using and supplying Epikote during the period June 2003 to February 2004.

10. At the first trial of this matter before Gray J, Nuplex conceded that it had breached the tolling agreement by the substitution.  But Gray J held that there was insufficient evidence to establish that the substitution was causally linked to the damage to the cans of tuna.  On his analysis, the theory that the causal chain could be traced to a difference in molecular weights between Epikote and DER669E had not been established.

11. On appeal, the Full Court constituted by Perram, Dodds-Streeton and Robertson JJ ((2013) 305 ALR 412) set aside Gray J’s decision and ordered a new trial on the sole issue of whether the substitution of Epikote for DER669E caused the corrosion in the cans. I have conducted that retrial. The Full Court did not impose any restraints on how I was to conduct that retrial. I have reached the same ultimate conclusion as Gray J but on the evidence adduced before me, including evidence adduced before Gray J that was retendered before me. But it must be said that the parties’ analysis and the expert evidence on the retrial has been considerably more sophisticated than it was in the original trial.

12. It is convenient to divide the analysis into the following sections:

    (a)Background facts ([13] to [25]);

    (b)Siegwerk’s case thesis ([26] to [64]);

    (c)Legal principles ([65] to [88]) including:

    ·General principles of causation in contract law;

    ·The nature of the contract;

    ·The “onus of exculpation”;

    ·Expert evidence;

    ·Causation in a circumstantial case;

    (d)Evidence relevant to circumstantial case ([89] to [191]);

    (e)Analysis of circumstantial case ([192] to [223]);

    (f)The parties’ experts ([224] to [242]);

    (g)Scientific concepts ([243] to [270]);

    (h)The scientific questions ([271] to [382]);

    (i)The scientific literature ([383] to [447]);

    (j)Conclusions on scientific evidence ([448] to [452]);

    (k)The combination of the circumstantial case and scientific evidence ([453] to [462]);

    (l)The result ([463] to [464]).

    Background facts

13. It is appropriate to set out further background primary facts contained in Siegwerk’s evidence and submissions which for the most part were not in dispute and in any event have been established.

14. A standard practice in the can manufacturing industry employed by Visy was to undertake a program of testing and approval to any product offered by one of its suppliers before that product was incorporated into a process of manufacture of Visy’s cans.  Following the testing and approval processes, any subsequent formulation of the product needed to comply with the sample provided for testing and approved by Visy and its customer, PLTP.  Usually, any proposed departure from that approved specification would require that the parties undertake a test program of the new proposed specification.

15. In April 2000, Siegwerk provided Nuplex with the process instructions for the formulation of 3490EP; as I have explained earlier, these were changed in May 2000.  From June to August 2000, Nuplex made trial batches of 3490EP.  In May 2001, Nuplex made a first batch of 3490EP for use in Visy customer trials.  In February 2002, Nuplex finalised its permanent production process for 3490EP.  In 2001, Siegwerk began producing a lacquer using the code 650772.  Both Visy and PLTP had variously run in-line production tests and pack trials of the sample lacquer.  Interim approval for use of the lacquer was given in July 2001.

16. In April 2002, Siegwerk was given the formulation for a new lacquer 650814, to replace lacquer 650772.  The new formulation differed from lacquer 650772 in that it changed the aluminium paste component from Metana Superfine to Silveral 7NL.  There was an issue before me as to whether the aluminium paste influenced the performance of the coating.  I will return to this later.  Siegwerk went through a regime of customer approval including supplying samples of the coating for testing and approval by Visy and PLTP.  Approval of lacquer 650814 was given for use on can bodies in June/July 2003.  In September 2003, Visy commenced commercial production of cans using lacquer 650814 on can bodies.

17. Until October 2003, Visy also used a lacquer supplied by PPG Industries Australia Pty Ltd (PPG) on its EOEs.  In October 2003, Visy commenced commercial production of cans using lacquer 650814 on both can bodies and EOEs, and ceased using the PPG lacquer from that time.

18. Visy manufactured its EOEs at its processing plant in Coburg.  The internal surfaces of the EOEs were given two coats of lacquer.  The EOEs had a score line which was to allow more easily for the opening of the can by manipulating a tab that was riveted on to the face of the EOEs.  The score line was stamped out using a 100 tonne score tool press and an anvil.  Once the score line had been stamped, the tab or ring pull was affixed.  Visy assigned a specific can code to the entire quantity of EOEs produced in any run.

19. Visy did not maintain stocks of the lacquer to be applied to its cans and EOEs.  Visy placed orders for the lacquer from Siegwerk on an “as required” basis, with delivery taking place as soon as possible after the orders were placed.  Visy rotated its stock of lacquer on a “first-in first-out” basis.  Apparently, Visy used the drums of lacquer usually within a few weeks of delivery by Siegwerk.  The lacquer was supplied to Visy in 200 litre drums.  Each drum had a batch number.  In sequential order (first-in first-out), the drum contents were poured into a holding tank that had a storage capacity of about 100 litres.  Visy kept this tank filled at no less than 40 litres.  Once the holding tank had fallen to that level it would be topped up with more lacquer.  The consequence was that lacquer from different drums became mixed together.  Consequently, by using drums in sequential order, Visy mixed compliant lacquer with what has now been established as non-compliant lacquer and applied it to the cans and EOEs.

20. From June 2003 to February 2004, Nuplex substituted Epikote for DER669E in 13 of 20 batches of 3490EP that it supplied to Siegwerk in that period.

21. After corrosion of the cans coated with lacquer 650814 was first discovered in July 2004, Visy, Siegwerk and PLTP undertook directly or indirectly a number of investigations.  From August 2004, Visy identified:

    (a)the can codes of batches that were thought to be suspect;

    (b)batch numbers of the lacquer 650814 that had been poured into the holding tank when those EOEs had been coated;

    (c)the date on which the two coatings of lacquer had been applied by Visy.

22. In September 2004 and during the course of those investigations, Siegwerk sent an email to Visy that identified certain batch numbers of 3490EP used to formulate batches of lacquer 650814 that had been applied in coatings of cans considered to be suspect.  At the time, Siegwerk assumed that Nuplex had complied with the process instructions and used the specified ingredients when formulating batches of 3490EP.  The fact of substitution was not revealed until May 2010.

23. The investigations and reports obtained by Visy, Siegwerk and PLTP included the following:

    (a)First, an analysis of the tuna and vinaigrette that had been filled in the cans in 2004 found that the level and type of acid in the contents of the cans was satisfactory and typical of that found in the tuna in vinaigrette products.

    (b)Second, there was an analysis of the manufacturing and coating quality control records at Visy.  The purpose was to examine whether Visy had manufactured the cans to specification and had applied the correct film weights.  The analysis apparently confirmed that manufacturing had occurred at Visy in accordance with its specifications.

    (c)Third, there was what Siegwerk described as a root cause analysis to assess whether the tooling used to “stamp out” the EOEs was defective.  The analysis apparently concluded that there was no physical evidence discovered in the tooling system for the conversion system to be the cause of the corrosion problem.  Further, the coating tests apparently showed that the Siegwerk lacquer demonstrated evidence of the coating breakdown under the score line of a significant nature.  I note at this point that Mr Hnilo stated in his report that he was not a lacquer or coating expert and the test conducted on the old vs new lacquer by itself proved nothing.

    (d)Fourth, trials were conducted in which the cans were filled and then subjected to accelerated testing under standard storage conditions and evaluated after three months’ and six months’ storage.  The trials showed that a number of Siegwerk coated EOEs leaked from the score region after six months’ storage.

24. According to Siegwerk, these investigations were supportive of its causation thesis advanced before me.

25. It was accepted by the parties that Epikote was used in, inter alia, the following batches of 3490EP (as set out in the table):

Suspect Cans (Can Code)	Coating dates by Visy	Siegwerk Lacquer Batch Number	Date Received by Siegwerk (Nuplex Delivery docket)	Nuplex 3490EP Batch Number	Ingredient of 3490EP
4009	5 December 2003	590112	1 October 2003	309024	Epikote
4022	5 December 2003	590112	1 October 2003	309024	Epikote
4043	5 December 2003	590112	1 October 2003	309024	Epikote
4062	21 January 2004	594406	16 December 2003	311034	Epikote
4082	4 February 2004	597954	19 January 2004	401011	Epikote
4086	21 January 2004	594406	16 December 2003	311034	Epikote

Siegwerk’s case thesis

1. Mr Anthony Kelly QC for Siegwerk has presented a sophisticated argument for causation relying upon both a circumstantial case and on scientific evidence in the field of polymer chemistry.  But I should say at this point that neither aspect of Siegwerk’s case has discharged its onus of establishing causation.  Further, even treating both aspects of its case together, with one aspect said to fortify the other and vice versa, I am still not satisfied that Siegwerk has discharged its onus.  Let me also make one other point clear given the problematic nature of the scientific evidence and the equivocacy of the interpretation of the facts said to support the circumstantial case.  I am not making a definitive finding that the substitution was not a or the cause.  Rather, my conclusion is that Siegwerk has not shown on the balance of probabilities that the substitution was a or the cause of the relevant damage to the cans.  In other words, I am not finding one way or the other whether the substitution was a or the cause.  I do not need to declare a state of objective reality on causation.  Rather, Siegwerk has not established its causation thesis on the balance of probabilities.  Let me elaborate on Siegwerk’s thesis in its two complementary dimensions.

   (a)       Circumstantial case

2. As to its circumstantial case, it has identified the following central features, which when taken together give rise so it is said to a reasonable and definite inference of causation.

3. First, Visy, PLTP and Siegwerk conducted trials of lacquer formulated with 650814.  Those trials demonstrated that the lacquer did perform to a satisfactory standard.  Siegwerk has particularly referred to Test Pack 659 that it says confirmed that 650814 continued to perform to a satisfactory standard after 18 months’ storage at 38°C.  But as I will explain later, there is an issue concerning the absence of testing on ends and whether the testing generally was comprehensive on that aspect.

4. Second, DER669E made up 30% of EP3490, which made up 93% of the lacquer.

5. Third, there had been no experience of failure of the lacquers formulated by PPG or Siegwerk respectively that 650814 had replaced.  It says that the lacquer 650814 was to be identical to the PPG lacquer.  I note that lacquer 650814 was not identical.  Moreover, I note that some PPG lacquer failed in filling trials.

6. Fourth, cans coated with the lacquer and filled by PLTP with tuna products failed by corrosion through the score line within weeks of being filled.

7. Fifth, the lacquer formulated with Epikote was used to coat cans in the period that immediately preceded the corrosion.  Certain batches of lacquer formulated using Epikote were identified during the course of those investigations and were traced back to the cans filled by PLTP.  I note though that cans using DER669E also failed.

8. Sixth, the collaborative investigations undertaken by Visy, Siegwerk, PLTP and Simplot were said to have “comprehensively identified and excluded” all other modes of failure.  That description is exaggerated.  But at this point I am just setting out Siegwerk’s thesis.

9. Seventh, Siegwerk would not have supplied lacquer to Visy for use by PLTP and that lacquer would not have been applied to EOEs unless and until that lacquer had been proved to perform to a satisfactory standard under accepted storage conditions.  I note that such a proposition does not directly establish causation.

10. Eighth, it is said that treating the commercial use and application of lacquer that had been formulated with Epikote as a proxy for standard industry testing conditions, the lacquer failed comprehensively from corrosion.  It would have been rejected.

11. Ninth, post recall tests conducted by Visy, PLTP and Siegwerk using a wide range of 650814 lacquer from retained samples showed that corrosion occurred.  But as I have noted, cans using DER669E also failed.

12. Tenth, it is said that Nuplex has not discharged the “onus of exculpation” that it bears to establish that the corrosion would have occurred in any event.  I should say now that I reject the concept of an “onus of exculpation”.  Nor, it is said, has Nuplex disentangled the multitude of causative factors from its breach.  But the premise for that argument also fails as it has not been established that this is a multiple causes case, with one of the causes being linked to Nuplex’s breach of the tolling agreement.

13. Generally, Siegwerk has contended that on the combined weight of the whole of the circumstances, it is demonstrated that EOEs coated with lacquer containing Epikote failed from corrosion.

    (b)      Scientific case

14. Siegwerk has also put its case based upon scientific evidence, which it says fortifies its circumstantial case.  It asserts that such evidence establishes that as a matter of polymer chemistry, substitution caused the corrosion of the cans.  Polymer chemistry is a subset of organic chemistry, the latter ranking with physical chemistry and inorganic chemistry as the three main disciplines of chemistry with physical chemistry being the most fundamental.

15. First, the experts agreed, and I accept, that the cans failed because there was a loss of integrity (cracking) of the epoxy-phenolic coating (lacquer) on the inside of the cans under the score line of the EOEs that allowed the contents of the cans to come into contact with the steel of the cans.  So, internal corrosion of the EOEs was the failure mechanism.

16. Second, it was agreed, and I accept, that when making 3490EP for Siegwerk, Nuplex substituted the resin Epikote for DER669E in various batches of resin (see the schedule being exhibit N4).  Siegwerk has contended that differences in the properties of these two resins included that:

    (a)the molecular weight of DER669E was higher than the molecular weight of Epikote;

    (b)DER669E contained a greater proportion of high molecular weight chains;

    (c)DER669E had a broader molecular weight distribution;

    (d)the epoxy equivalent weight (EEW) of DER669E was higher than the EEW of Epikote; and

    (e)the glass transition temperature (Tg) of DER669E was higher than the Tg of Epikote.

17. Third, Siegwerk has contended that the consequence of these differences in the properties of the epoxy resins was that if DER669E was used as an ingredient in formulating a lacquer, the formulator was able to produce a more flexible coating whilst using less cross-linker.  Siegwerk’s proposition tied to the amount or ratio of cross-linker is a technical issue that I will address later.  I will also return to the question of physical differences when I later discuss relevant distribution curves for the spread of molecular weights.

18. Let me elaborate on the concept of “flexibility” at this point.  The experts agreed, and I accept, that during the scoring process the can coating is subjected to a variety of stresses being tensile stresses, compressive stresses, flexural stresses and shear stresses.  Greater flexibility enables the coating to withstand some of these stresses.  It has been suggested that “formability” is a better word to use when describing the ability of the can coating to withstand all of these stresses as well as having the appropriate adhesive properties.  In these reasons, I will use the term “flexibility”, but to be taken to encompass the capacity to deal with all such stresses.  I will deal with adhesive properties separately.

19. Siegwerk has contended that it is well-known in the coatings industry that higher molecular weight epoxies impart greater flexibility to cross-linked coating films than lower molecular weight epoxies.  It is said that there is a broad understanding in materials science that the higher the molecular weight of the epoxy resin before cure, the higher the flexibility after cure (with appropriate cross-linker levels and with other factors being equal).  It is said that equally, the published literature and polymer chemistry theory all indicate that a decrease in molecular weight gives poorer flexibility in the situation under consideration.

20. Generally, Siegwerk has contended that the presence of higher molecular weight epoxy chains is of particular importance because:

    (a)it improves flexibility;

    (b)it improves adhesion and allows elastically effective chains during the cross-linking to be formed;

    (c)it improves the elastic effectiveness of the chains;

    (d)it provides for more flexible epoxy films;

    (e)it serves to widen the window of operability of the epoxy-phenolic coating system;

    (f)it makes the coating less susceptible to stress corrosion cracking;

    (g)it generates entangling, thus allowing the formulator to use less cross-linker so as to achieve the same level of flexibility; and

    (h)it increases strength and toughness properties.

21. More specifically, it is said by Siegwerk that the higher Mw and Mz (I will explain these and other variables referred to in this section later) of DER669E made it much more suitable for Visy’s can coating requirements and that substituting Epikote resulted in a less flexible and less fabricable coating film, and moved the coating to the edge of the “window of operability and beyond”.  I note that the expert report of Dr Frank Jones of 12 November 2014 used the language of “sometimes beyond”.

22. Further, the Tg of DER669E was higher than the Tg of Epikote.  The value Tg measures the mobility of the polymer segments and more particularly how readily the polymer segments can follow the rate of deformation.  All else being equal, Siegwerk contended that a lower Tg results in a looser structure and a loss of mechanical strength, yield stress, and less toughness.

23. Fourth, Siegwerk has contended that because the formulator of a coating that had DER669E as an ingredient would have been able to produce a more flexible coating whilst using less cross-linker, there would have been more hydroxyls left over to provide for better adhesion of the coating.  Its thesis was as follows.  Generally speaking, a larger number of higher molecular weight molecules improves flexibility and adhesion in can coatings.  As the resin molecular weight goes up, the number of repeating units is increased.  Every repeating unit contains a hydroxyl; I should note that the descriptions “hydroxyl” and “hydroxy” are used interchangeably in the field, but I am content to adopt the former as the experts have done in this case.  All the hydroxyls are used either for crosslinking or for adhesion to the container surface via hydrogen bonding.  The longer the chain, the more hydroxyls are available for crosslinking and adhesion.  Higher Mw epoxy molecules have a greater number of hydroxyl groups on the longer chains.  The higher thermal properties of the longer chain and the greater number of hydroxyls also allows for the use of less cross-linker for corrosion protection, leaving more hydroxyls to provide better adhesion.  In the present case Siegwerk contends that there was on average a difference of about 6.6 hydroxyls per chain between the two resins.  This entailed, so it was said on the arithmetic (which I will pass by), that for every ten polymer chains of DER669E, it would take 11 chains of the Epikote to have the same number of hydroxyls.  Although one ends up with the same amount of hydroxyls, in the case of the Epikote it had shorter chains with fewer (about 10% fewer) hydroxyls, leaving a 10% less chance of having the correct cross-linked density and the correct adhesion for the system if one resin was changed for the other.  If there were fewer hydroxyl groups to use for cross-linking or for adhesion and the ratio of cross-linking agent was kept the same, then the properties of the epoxy, either as a cross-linker or to adhere, were reduced.

24. Fifth, Siegwerk referred to tests that were conducted by Nuplex using free-standing films that it had prepared from 3490EP intermediate.  Nuplex’s results showed that the films made from DER669E had:

    (a)a lower sol fraction than the films made from Epikote;

    (b)a higher cross-link density than the films made from Epikote; and

    (c)a lower Mc than the films made from Epikote.

25. But Siegwerk asserted that the value of Nuplex’s results was limited.  I will return to this later.

26. Sixth, Siegwerk contended that in any event even if the results of the film testing were valid, when taken together with the earlier test results that measured the molecular weight of the respective epoxy resin samples, they demonstrated that there was a difference in the cross-linking ability of DER669E and Epikote and that the substitution of Epikote for DER669E would have upset a formulation that was optimised for maximum flexibility and adhesion.  Siegwerk elaborated on this aspect in the following terms.

27. It was said that the higher Mc of Epikote reflected the reduced cross-linking capacity in the Epikote resin.  It was said to be reasonable to assume that the 3490EP recipe was formulated for optimal flexibility and that it was highly unlikely the Mc was not at the appropriate level required for optimal flexibility and that substitution with Epikote, with its short molecule fractions and absence of high molecule fractions, would just happen to bring Mc to its optimal value.  In addition, by causing cross-link density to go down and Mc to go up, it was said that Nuplex introduced more defects into the network structure, being undesirable ends and wasted cross-links i.e. cross-links that were too close together to be effective.

28. Further, Siegwerk said that a can coating formulator must balance conflicting properties such as flexibility (favoured by high Mc), hardness (favoured by low Mc), resistance to steam and hot fish oils and acids (favoured by low Mc), and an ability to slide through track work during the filling process (favoured by low Mc).  It was asserted that a coating with an Mc that is too high would be far too soft and would have inadequate resistances; the support for this proposition is problematic in its generality.  So, Siegwerk asserted, whilst in theory a higher Mc might translate to higher flexibility, the optimisation of the cross-linking for formability remained most important.

29. Further, it was said that a successful epoxy can coating film depends not only on flexibility but also on adhesion, toughness and other factors.  Adhesion and flexibility are both important for coating formulation, and the combination of the two “needs to be right”.  Further, an under cross-linked coating can have a high Mc but not be very tough.  With epoxy resins, under cross-linking can lead to the material becoming weak and brittle, assuming some of the attributes of the uncross-linked epoxy.  An example was the under cross-linked films studied by Nuplex which were bendable but fractured readily under tensile stress.

30. Generally, it was said that optimisation of a coating formulation is always dealing with multiple parameters that need to be on an acceptable level.  More cross-linker produces a harder film, and the lower the leachables, the better the solvency.  But there is a point where flexibility suffers.  An optimised formulation is not an optimum for all parameters.  It is always a compromise that is manageable towards all critical parameters.

31. It was said that for a given resin, the coating flexibility varies with changes in cross-linker level.  An optimum cross-linker level must be determined for maximum flexibility.  If a cross-linker level is too low or too high, it can reduce coating flexibility for a given resin.  It was said that the generally accepted trend that coating flexibility increases with epoxy molecular weight is true if one uses the optimum cross-linker level for each resin.

32. In summary, it was said that whilst substitution of Epikote for DER669E increased Mc, it probably would have increased it out of the range for optimum performance.  Substitution of Epikote into the Siegwerk formula it is said upset the “carefully established balance” of molecular weight and cross-linker, thus compromising film properties including flexibility.  It is said that the lacquer formula was “very carefully optimised” to have the right amount of cross-linker for DER669E and because of its higher molecular weight, DER669E was more capable of entanglement and therefore required less cross-linker.

33. Siegwerk also emphasised that relatively small changes in formulation could have large effects on the effective cross-link density.  In addition, small changes in effective cross-link density could have large effects on coating performance.

34. Seventh, Siegwerk asserted that resins of the type in question (type-9) made from different manufacturers were not drop-in equivalents.  Epoxy resins are broadly classed according to their molecular weight ranges, for example, types 4, 7 or 9.  More specifically it was said that Epikote was not a drop-in equivalent for or interchangeable with DER669E even though they were both type-9 resins.  There were physical property differences between them, they historically did not perform the same in coatings and they were not interchangeable.  It was said that resins that may bear similarities in physical and chemical properties may still not be equivalent in high performance coatings applications.  It was said that this is the reason why specific resins are stipulated in coating formulations.  Specifying the resin and conditions of use in particular formulations reduces the risk of coating failure.

35. More particularly, it was said that type-9 epoxies are not directly interchangeable in high performance can coating formulations because in-service performance cannot be predicted without performing a full side-by-side investigation.  But to accept such a proposition does not in and of itself establish Siegwerk’s causation case although I accept that it is part of the matrix of evidence and inferences to be drawn therefrom to consider.  What it may show is an increase in risk from the substitution.  But an increase in risk of itself does not establish causation as I will discuss later.

36. Relatedly, Siegwerk contended that even if their physical properties and analytical chemistry suggested that Epikote and DER669E were equivalent, their equivalency and qualification in coating performance cannot be established without pack testing.  In the can coating industry, any substitution of an epoxy resin had to be approved and tested.  In the absence of pack-testing, it was said that the assumption “must be” that the substituted resin does not perform equivalently.  It was said that the settled industry practice was that laboratory testing was only used to start a qualification process and that qualification is demonstrated or not by performance in actual use.  But again, accepting for the moment such industry practice does not in and of itself establish causation, although it is part of the matrix of evidence to consider.  Further, this “must be” assumption is merely a rhetorical pushing of the envelope.  This is a characterisation, not a criticism.

37. Generally, and on the basis of the foregoing, Siegwerk said that the unauthorised substitution of Epikote for DER669E was a probable cause of the loss of integrity (cracking) of the epoxy-phenolic coating (lacquer) on the inside of the cans and the consequent corrosion of the tin plate.  It was said to have led to the sporadic occurrence of brittle cracking on the underside of the EOE in that specific area corresponding to the underside of the score line.  It was said that coatings for scored EOEs for tuna cans had to have exceptional flexibility along with many other required properties.  It was said that the Siegwerk formula made with DER669E was formulated near the edge of its window of operability and that the measured differences between Epikote and DER669E were large enough to explain the observed failures in view of the small window of operability of the Siegwerk formula.

    (c)       General

38. For the detailed reasons that I have set out later, I am not satisfied that Siegwerk has made out its causation case on the balance of probabilities either as to its circumstantial case or on the science or considering both together.

1. But before descending into the detail of the evidence, some of which is not straightforward, it is appropriate to set out the legal framework within which the forensic analysis is to be addressed.

   LEGAL PRINCIPLES

   (a)       General principles of causation in contract law

2. Siegwerk must show that the damage to the cans and the consequent loss suffered resulted from Nuplex’s breach of the tolling agreement (Reg. Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 at 523 per Barwick CJ, McTiernan and Menzies JJ). It is sufficient that the breach causally contributed to the loss (Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635 at 643 per Barwick CJ; Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196 at 232 per Lord du Parcq; Wenham v Ella (1972) 127 CLR 454 at 466 per Walsh J; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 351 per McHugh JA).

3. Factual causation is generally resolved through an application of the “but for” test.  The “but for” test entails a determination on the balance of probabilities that the particular harm that in fact occurred would not have occurred absent the conduct of the party in breach.  The question is whether a particular act or condition was one of the conditions or relations necessary to complete the set of conditions which represent the cause posited.  This is the basis of the “but for” test of causation.  But the “but for” test is not the exclusive test of factual causation.

4. Further, it is not enough to demonstrate that Nuplex’s breach of the tolling agreement materially increased the risk of harm or loss.  The breach must be the or a cause including a material contribution.  Nevertheless, a breach causing a material increase in risk may provide, together with other circumstances, a foundation for inferring causation, including a material contribution to the loss, in the absence of any sufficient reason to the contrary. 

5. Further, it is irrelevant to inquire whether the breach was the dominant, effective or real cause of the loss.  If the evidence is suggestive of multiple causes, the inquiry to be made is whether the breach was a cause of the loss.

6. It has been said that the question whether a breach of contract has caused a loss is a question of fact applying common sense principles.  It is said that the common law applies the ordinary man’s notion of causation instead of theories espoused by philosophers and scientists.  Clearly, the object of the common law theory of causation is not the same as that of a philosophical or scientific inquiry into causation.  But the conceptually elusive if not inutile phrase “common sense”, when discussing questions of causation in the present context, adds little to the problem solving task.

7. Before proceeding further, it is necessary to be clear about the following three different levels of analysis that need to be undertaken:

   (a)First, what is the context within which and why is the question of causation being posed?  In the present context what is being addressed is an alleged breach of contract, and particularly whether the relevant product met the contractual standard.  What is then being considered is whether that breach was a or the cause of the relevant damage or loss.  So, the lens through which causation is to be assessed starts from the proper identification of the relevant perspective for why the inquiry is being undertaken.  The perspective from which causation is then to be addressed is not some diffuse or decontextualised inquiry.  The lens through which causation is to be assessed must identify the act, omission, state of affairs or circumstance said to constitute the breach of the relevant normative standard.  That identification is not to be described in the language of “common sense”.  Further, questions of causation require identification of the particular harm that was suffered.  Identification of the damage sustained by a claimant will assist in identifying the acts or omissions that were its cause (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613 at [43] to [57] per French CJ, Hayne and Kiefel JJ).

   (b)Second, once that contextual lens has been identified, the question then arises as to whether factual causation has been established in terms of the usual “but for” or necessary condition test by reference to linking the act, omission, state of affairs or circumstance referred to in subparagraph (a) with the alleged damage or loss.  But even here, to use the vernacular of “common sense” is conceptually unhelpful in a case involving forensic complexity.  Moreover, it is otiose in a case where the facts are simple and factual causation obvious.

   (c)Third, once that factual question has been analysed, the legal question arises, if factual causation has been established, as to whether the relevant party should be held legally responsible for that loss or damage.  Alternatively expressed, is the damage within the relevant scope of liability?  But this is a legal question depending in part upon the nature of both the breach and the damage alleged.  It is difficult to see how the vernacular of “common sense” has utility for this third level of analysis.  One is not talking of the common sense of the layman.  Moreover, one is not truly talking of the “common sense” of the lawyer, but rather a conceptual and evaluative legal question upon which reasonable minds might differ.  Indeed, lawyers have struggled with this conceptual question and have sought refuge in adjectives such as “direct”, “natural and probable”, “direct and natural”, “proximate”, “real effective” and so on to categorise potential cause(s) to address the legal question.  And even where they have agreed on the label, differences have arisen in their application.  Further, other problems have arisen with scenarios that have had to deal with concurrent sufficient causes, causes that are neither necessary nor sufficient conditions with or without other elements, and novus actus interveniens questions.  March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 515 per Mason CJ is authority for a common sense test or a common sense value judgment, but it was a tort case not a contract case. The value of such a test in my context may be doubted (cf Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 at [97] to [98] per Gummow, Hayne and Heydon JJ and Travel Compensation Fund v Tambree (2005) 224 CLR 627 at [45] per Gummow and Hayne JJ). Nevertheless, I have applied a common sense test. Finally, on one view, this third level of analysis is not a causation question at all, but rather a legal responsibility question once factual causation has been answered (the second level of analysis) through the relevant lens (the first level of analysis). It has been suggested that the substantive meaning of causation has been inappropriately comingled with this latter question of legal responsibility or the associated phrase “scope of liability”, as the observations of Edelman J writing extra-judicially in “Unnecessary Causation” (2015) 89 ALJ 20 and Professor Jane Stapleton in “Cause-in-Fact and the Scope of Liability for Consequences” (2003) 119 LQR 388 explain.  Their views may be said to resonate with those of working trial judges mining facts from the coal face of forensic inquiry.

8. There are several other preliminary observations that should be made.

9. First, one can understand some jurists using the language of “common sense”.  If one was instructing a jury, such simplistic language has an attraction.  Further, many scenarios involving causation are straightforward with the answer being intuitively clear without further factual reflection at least.

10. Second, some jurists are understandably keen by the use of the vernacular of “common sense” to distinguish the lawyer’s use and context of causation from that of the scientist or the philosopher.  But to so distinguish does not entail that the only contrast is with a “common sense” test.  Moreover, although that distinction from other fields of discourse is correct when looking at the first and third levels of analysis referred to above, the line is not so brightly drawn for the second level of analysis, where concepts from one context can assist in the conceptualisation of another. 

    (b)      The nature of the contract

11. Where a party breaches a contract by defective or inadequate performance, the circumstances which render the performance defective or inadequate are an integral part of the breach.  They form part of the starting point for the analysis of causation (Ramsey v Annesley College [2013] SASC 72 at [434] per Blue J).

12. More generally, the selection of the relevant cause will vary with the nature of the contract, the nature of the breach and the damage suffered.  The scope of a defendant’s legal responsibility for loss caused by a breach of contract is to be assessed by analysing what it promised to achieve (Chand v Commonwealth Bank of Australia [2014] NSWSC 708 at [293] per Robb J). Further, the question of causation is to be informed by the context in which the contract was made, which may reinforce rather than attenuate a conclusion of causation (Programmed Total Marine Services Pty Ltd v Ship Hako Endeavour (2014) 229 FCR 563 at [14] and [15] per Allsop CJ).

13. In relation to the contractual arrangements between Siegwerk and Nuplex, the following may be noted:

    (a)The tolling agreement provided as a preamble that it was “designed to foster a long term trading relationship, based on mutual trust and co-operation”.

    (b)The term of the tolling agreement was for five years and was thereafter to continue terminable upon six months’ notice (clause 1).

    (c)The coating resin to be supplied by Nuplex had to be “on the terms contained in this Agreement” (clause 2) and “in compliance with the agreed specifications” (clause 7.1).  There were relevant definitions (clause 61).  “Agreed Specification” was defined to mean:

    “those in-process tests and result ranges, finished product tests and result ranges, and relevant application tests and performance criteria as agreed between the parties from time to time”.

    The definition of “Products” was:

    “the products listed in Schedule 1 as may be amended from time to time being Resins and Varnishes made in accordance with the agreed specifications”.

    (d)More specifically, clauses 14 and 15 provided:

    “14SICPA shall provide to Nuplex from time to time specifications to which both parties will agree the parameters to which Products must be made.

    15Nuplex shall manufacture and sell the Products in compliance with the agreed specifications”.

    (e)Clause 25 provided that Siegwerk had the right to inspect Products and to not accept or reject Products for non-conformity with the agreed specifications.

    (f)Clause 32 provided that:

    “Nuplex must not change, modify nor alter the composition of the Products without prior written agreement from SICPA”.

    See also clauses 33 to 35.

    (g)Under clause 36.2, Nuplex warranted that the Products would be “manufactured in accordance with the agreed specifications as determined from time to time”.  Nuplex gave a corresponding indemnity for breach of that warranty (clause 37); see also clause 38.

    (h)It is accepted that the applicable specifications were those contained in a document headed “Process Instructions for Nuplex” issued on 10 May 2000 which provided for the SICPA Code: 3490 EP Resin the following:

Issue No.: 2		CONFIDENTIAL INFORMATION			Page: 1 of 2
Date: 10.05.00		PROCESS INSTRUCTIONS FOR NUPLEX SICPA CODE: 3490 EP RESIN
Authorisation:        Ron Laherty
FORMULATION & PROCESS INSTRUCTIONS:
Materials		%W	Instructions
Notes: This is a food grade product.  All equipment must be thoroughly cleaned before use.
(A)	n-Butanol Butyl Cellosolve Xylene		12.690 12.690 25.380	Charge (A) into a clean kettle. Fill separator 2/3 full with water and to the return line with xylene. Raise to 100°C.
(B)	DER 669E		30.000	Add (B) slowly over 1 hour (Approx.) Raise to 110°C and hold for complete solution.
(C)	2972 (Phenolic Resin ML 98)		4.925	Add (C) and heat to reflux (approx. 122°C) over one hour. Hold at reflux for one hour. Immediately apply cooling.
(D)	iso butyl acetate		12.690	Add (D).  Cool to less than 40°C.
(E)	n-butanol 89.5% Phosphoric acid (SG = 1.75)		1.300 0.325	Add a premix of these two items. Mix until uniform.  Sample to QC.
(F)	Xylene n-Butanol Butyl Cellosolve iso butyl acetate		Adjust viscosity with a 2:1:1:1 blend of (F).
100.000
Note: DER 669E must be sourced from DOW (Germany).

(i)As will be seen, the DER669E was stipulated to be 30.000% by weight, to be sourced from DOW (Germany).  There was also a stipulation (page 2) for viscosity (3.1 ~ Ford 4 at 25°C; 55 to 60 seconds).

1. Finally, a conclusion that factual causation is made out will usually provide an affirmative answer to the question of legal causation in contract, unless the damage is too remote (Alexander v Cambridge Credit Corporation at 352 per McHugh JA).  In the present case, questions of remoteness and Hadley v Baxendale type questions are not in issue.

   (c)       The “onus of exculpation”

2. A major theme of Siegwerk’s case on causation relied upon the idea of an “onus of exculpation” being imposed upon Nuplex.  In my view there is no such concept in terms.  Siegwerk seemed to put that there was such a substantive principle in contract law where the cause was unknown or there were two or more alternative causes that could not be disentangled and the loss that had occurred was within the scope of the breach or contemplated by the parties as so embraced.  In my view, there is no such principle.  I was not assisted by academic writings on the subject or reference to contexts such as the field of admiralty or maritime law where more exotic rules might apply.  But I do agree that in an appropriate case, an evidential onus might shift to the contract breaker.  So expressed, such a principle may be unremarkable.  But Siegwerk sought to take this further, by asserting that such an evidential onus might rise to the level of an “onus of exculpation” and not merely of raising a doubt or even eliminating an inference.  But if that was the proposition, I would reject it.  There is no authority which binds me to accept such an elevation.  Moreover, cases such as Davis v Garrett (1830) 6 Bing 715; 130 ER 1456 are either not on point for my context or distinguishable.

3. As I say, I accept that while a plaintiff has the onus of showing loss caused by the breach, if the loss in question is the apparent or likely result of the breach, an evidentiary onus may shift to the contract-breaker.  But such an evidentiary onus does not rise to the level of disproof as such (cf the differently formulated observations in Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd (2009) 254 ALR 273 at [27](8) and [46] per Jagot J; Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 at [2388] per Jagot J (appeal dismissed ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1)). The evidentiary onus may be discharged by showing facts that might support an alternative reasonable causation hypothesis.

4. Reg. Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 has been cited, but that case concerned a decision in which the provision of a defective security door was followed by a burglary. The majority (Barwick CJ, McTiernan and Menzies JJ) did not address causation. In any event, the plaintiff had proved a direct connection between the breach and the loss. Accordingly, it was for the defendant to establish that despite that direct connection, the burglary would have occurred in any event. But in the present case, Siegwerk has not established a clear and direct connection between the use of the alternative resin and the can failures. No shifting onus scenario arises.

5. Watts v Rake (1960) 108 CLR 158 and analogous cases deal with situations where the connection between the breach and the plaintiff’s disability is affirmatively established, but the defendant asserts that some aspect of that injury would have occurred in any event. In such a case, “it is the defendant who should be required to do the disentangling and to exclude the operation of the accident as a contributory cause” (at 160 per Dixon CJ). But in the present case, the link between the breach and the alleged damage has not been established. No question of disentangling arises. Decisions of this type are not on point.

6. The passage from Henville v Walker (2001) 206 CLR 459 cited by Siegwerk is also of no assistance. Henville involved a case where concurrent causes had been established in respect of the total loss with the question then arising as to whether individual causes could be attributed to separate parts of the loss.  But in my case, it is not established that the breach by Nuplex was the or a cause of any part of the loss.  Further, McHugh J was not suggesting that whenever there is temporal proximity between a breach and a loss, causation is established.  His reference at [148] to Watts v Rake and the circumstances with which he was concerned make it plain that he was referring to situations where a breach was closely followed by causally connected loss.  Further, his observations should not be decontextualised.  The issue with which McHugh J was concerned was whether the plaintiff had satisfied his onus in connection with a discrete part of that loss.  He held that in the circumstances, the burden of “disentangling” discrete parts of the loss and attributing to them discrete causes fell upon the defendant.  The present case is not a case of multiple causes.  The real issue is whether a causal connection between the substitute resin and the can failures has been established, not the disentangling of concurrent causes where both are established.

7. Finally, the passage from Dixon J’s judgment in Betts v Whittingslowe (1945) 71 CLR 637 at 649 is of little assistance to Siegwerk given the rider “in the absence of any sufficient reason to the contrary” and in any event its different context.

   (d)      Expert evidence

8. The necessary resort to expert scientific evidence may make an appeal to common sense notions of causation counterintuitive if not meaningless.  Many issues of causation lie outside the realm of common knowledge and experience; indeed the applicable scientific theories will usually have been propounded and developed as an intentional counterpoint to common sense.  In many cases, it may not be possible to separate the investigation of the facts from an appreciation of the science which affects them.  But even where expert evidence is adduced, it remains for me to decide the question of causation.  Moreover, the role of the expert does not trump the whole of the evidence adduced before me.  Further, I accept that a claimant’s case as a whole may persuade me that a sufficient causal link is established although expert evidence may be couched only in the language of possibility.  Where expert evidence on causation does not admit of a probable answer one way or the other, nonetheless I am entitled to find as a fact that conduct was a cause of harm notwithstanding that no probable let alone conclusive answer may be available in the claimant’s favour.  But I am entitled to find that a claimant has not discharged the burden of proving that the defendant’s breach was a cause of the damage or loss where the present state of scientific knowledge does not admit of an affirmative answer in the claimant’s favour and reliable expert opinion regards an affirmative answer on causation as lacking justification taking into account all of the evidence.

   (e)       Causation in a circumstantial case

9. A finding of causation may be made in the absence of direct evidence.  All that is necessary is that the more probable inference from the circumstances that sufficiently appear by evidence, left unexplained, is that the injury arose from the breach.  “More probable” means no more than that upon a balance of probabilities, such an inference might reasonably be considered to have some greater degree of likelihood.  A party who relies on circumstantial evidence to prove causation must show that the circumstances raise the more probable inference in favour of what is alleged (Flounders v Millar [2007] NSWCA 238 at [35] per Ipp JA, Handley AJA agreeing).

1. It is not sufficient that the circumstances give rise to conflicting inferences of an equal degree of probability or plausibility or that the choice between them can only be made by conjecture (Coastwide Fabrication & Erection Pty Ltd v Honeysett [2009] NSWCA 134 at [60] per McDougall J, Ipp and Young JJA agreeing). I accept though that the process of inference may involve an intuitive element that is not susceptible to detailed support or explanation (at [64] per McDougall J).

2. There is a distinction between inference and conjecture even if the reasoning process occurs on a continuum in which there is no bright line division (Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262 at 275 [84] to [88] per Spigelman CJ). A conjecture, even though plausible, is no more than a guess, whereas an inference is a deduction from the evidence. If the deduction is reasonable, the inference may rise to legal proof (Jones v Great Western Railway Co (1930) 144 LT 194 at 202). But there must be objective facts from which the inference could be drawn, otherwise what is left is mere speculation or conjecture (Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152 at 169 and 170 per Lord Wright).

3. Generally, the proper inference to be drawn on the balance of probabilities depends upon a practical and reasonable assessment of the evidence as a whole (BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268 at [51] and [54] per Pullin JA).

   Evidence relevant to circumstantial case

4. It is appropriate to now address the evidence relevant to Siegwerk’s circumstantial case.  Most of the primary facts are not in issue.

   (a)       Industry practice: recommendation, trial & approval

5. Siegwerk adduced evidence from Mr Leslie Chambers, a research and development chemist.  Mr Chambers worked from 1976 to 2008 in various positions in the coatings industry.

6. Siegwerk also called Dr David Hewitt, Visy’s Quality Manager.  Dr Hewitt had 35 years’ industry and academic experience working as a resins and polymer chemist.  He worked from 1994 to 2006 as a product development chemist for Visy and the predecessor owners of the relevant canning operations.

7. Mr Chambers and Dr Hewitt gave evidence of the standard industry practice by which can coatings were designed for, tested by, approved by and supplied to, customers.  Following a customer enquiry, a lacquer manufacturer would make a recommendation that appeared suitable for the customer’s requirements.  The ingredients would remain confidential to the lacquer manufacturer, but a sample would be provided and subject to testing.  The sample would be provided to the can manufacturer and cans coated with the sample lacquer would be supplied to the end user.  The cans would be the subject of laboratory testing by the can manufacturer and end user.  If the sample met laboratory requirements, it would then be approved for two types of trials, viz., in-line production and storage packing trials being accelerated shelf life testing.

8. The testing processes of a sample lacquer might take 12 to 18 months although Dr Hewitt agreed that the use of the SICPA lacquer (Siegwerk manufactured lacquer using a former name) at least in relation to tuna vinaigrette took between four to six months to approve.  Each form of testing was integral to the approval process.  The final determinant for approval was whether the sample performed to a satisfactory standard for the food manufacturer’s requirements.

9. Once the sample lacquer had been judged as performing to a satisfactory standard in those tests, customer approval was given for commercial production of the lacquer.

10. Lacquer subsequently supplied was required to correspond with the approved sample.  A proposed change in formulation, whether in relation to ingredients or process or place of formulation, had to be subject to customer approval, which approval process usually required the analysis and testing described earlier.  The lacquer supplied to Visy and PLTP in the present case was subject to such approval processes.

11. Siegwerk submitted, which I accept, that such circumstances formed part of the background and context in which the question of causation was required to be addressed in the present case involving the substitution of DER669E with Epikote.

    (b)      History & development of the lacquer

12. At Siegwerk’s request, Nuplex began formulating resin 3490EP from June 2000.  It did so initially for the purpose of preparation of a laboratory sample.  In May 2001, Nuplex made its first batch of 3490EP for incorporation into sample lacquer for Visy customer trials.  On 20 February 2002, Nuplex finalised the establishment of a permanent process to formulate 3490EP for Siegwerk.  Full customer approval for the sample lacquer as a coating for EOEs was later obtained.  Nuplex supplied 49 batches of 3490EP to Siegwerk in the period April 2003 to November 2004.  Of the 49 batches, 13 contained Epikote.

13. The in-line production and accelerated storage testing approval processes first began with an assessment of the suitability of the lacquer for use as a coating for can bodies.  The separate assessment of the suitability of the lacquer for use as a coating was later extended to EOEs.

14. The history relevant to the development of the lacquer involved changes in the identity of the relevant entities which from time to time held a licence to formulate the lacquer, placed orders for the supply of the lacquer and supplied the resin 3490EP.

15. Mr Chambers traced the original development of the lacquer the subject of this proceeding from ICI (UK) and the transfer of the licence to formulate that lacquer to ICI (Australia) and others including Dulux, Orica, PPG and finally Siegwerk.  Dr Hewitt traced the succession of entities that placed orders for the lacquer.  Those companies — Gadsden, SA Brewing, Southcorp Packaging and Visy — conducted a can manufacturing operation from premises in Charles St, Coburg, Victoria.

16. A truncated history is reflected in the following key events:

September 1998	Orica sells coatings business to PPG Industries
January 1999	PPG supplies small trial batch of lacquer, 788-R-3344, to Visy
August 1999	PPG sells first commercial volumes of lacquer, 788-R-3344, now referenced, 788-52161
April 2000	Mr Chambers resigns from PPG and joins Siegwerk
2000	ICI transfers licence for lacquer to Siegwerk
October 2000	Siegwerk manufactures first batch of lacquer 650772
April 2001	Visy successfully runs a line trial batch of lacquer 650772
July 2001	Interim customer approval is given for batch of lacquer 650772 following three months of pack test trials; thereupon, Visy plans to scale-up trials of that lacquer
January 2002	600 litres of batch of lacquer 650772 supplied to Visy for extended trials to produce 1 million EOEs as final trial leading to full approval
April 2002	Substitution of aluminium paste in lacquer formulation

1. Mr Chambers gave evidence as to the history of his involvement in the initial recommendation of a lacquer to Mr Chris Bell, Gadsden’s technical manager (a predecessor of Visy).  Mr Chambers’ recommendation was of an epoxy-phenolic lacquer that might be suitable for coating cans known as draw/re-draw cans, or DRDs.  The acronym DRD describes the process by which a can is manufactured in two phases: (a) first, a “cup” is cut, or drawn, from tin plate; (b) second, the base of the cup is then held in place while its sides are “re-drawn” to form the can side.  Mr Chambers and Dr Hewitt were each involved in the process of testing and approval of this lacquer at various times.

2. Until about 2000 the lacquer coating had been manufactured at premises in Clayton which were operated by Dulux, Orica and then PPG.

3. In 2000, ICI licensed Siegwerk to produce the lacquer 650772.

   (c)       Use of lacquer for EOEs

4. At some point (the time of which is unclear) Mr Chambers was also asked by Mr Bell if Visy could use the lacquer as a coating application not just for its cans but also for its EOEs.

5. As I have discussed earlier, a standard practice in the can manufacturing industry and employed by Visy was to undertake a program of testing and approval to any given product offered by a materials supplier before that product was incorporated into a process of manufacture.  Following the testing and approval processes, any subsequent formulation of the product needed to comply with the sample provided for testing and approved by Visy and its customer, PLTP.  Any proposed departure from that approved specification would require that the parties undertake a test program of the new proposed specification.

6. In January 2002, 600 litres of batch of lacquer 650772 was supplied to Visy for extended trials to produce 1 million EOEs as final trials leading to full approval.

   (d)      Test pack results

7. Dr Hewitt explained that different lacquers were originally used on cans and EOEs as follows.  Initially, PPG lacquer was used on the cans while another lacquer known as organosol was used on the EOEs.  A decision was then taken by Visy to conduct trials of the PPG lacquer on the EOEs.  PPG was no longer able to supply lacquer from late 2003.  Tests of SICPA/Siegwerk lacquer were conducted following the approval of which Visy obtained its supplies of lacquer from Siegwerk.  There is an issue, which I will discuss later, as to whether and to what extent the SICPA lacquer was tested on EOEs.

8. Dr Hewitt produced the Test Pack Reports of tests conducted by Visy in relation to the lacquer being formulated by PPG and Siegwerk respectively.  Those Test Pack Reports covered the period 4 August 1999 to 9 November 2005.  Tests were generally conducted by storing the products at either 27°C or 38°C.  The storage of a product for a 12 month period at 38°C was considered to bring a filled can to the condition that was equivalent to a four year shelf life under ambient conditions.  It is to be noted that the warranty given by Visy to its customer, PLTP, was that the cans it supplied would “have a corrosion shelf life of at least two years from the date of filling for the products approved for each can, unless otherwise specified”.

9. The test packs were prepared to enable analyses of performance to be made conservatively and under a wide variety of conditions (0 to 19 months), to consider the effect of a range of up to 11 tuna product types (and their respective pH levels), for the suitability of different lacquers and for cans and can ends of different sizes and designs.  Usually, a change to any of these variables prompted a Test Pack analysis.  Further, the results of one such analysis might prompt a test for performance using different criteria.

10. The practice of conducting trials of a customer’s product using test packs was a standard industry practice.  That practice was employed by Visy and it was applied to the specific requirements of PLTP for its range of tuna products.  Siegwerk’s lacquer formulated with DER669E was so tested and approved.  It is appropriate to elaborate in some detail on this aspect as it is an important plank of Siegwerk’s circumstantial case.  I have drawn in part on Siegwerk’s summary which was not in issue in terms of the primary results of the tests (as distinct from the secondary conclusions and significance to be drawn therefrom which in some respects were contentious).

    Standard practice with test packs

11. Test Pack 493 (Bodies & Ends) was the subject of an examination on 4 August 1999 and entailed an assessment of the performance of the lacquer on 11 tuna products.  The results of those tests recorded the pH levels of each of those products.  One tuna product, and the product having the second lowest pH of all products tested, was the tuna vinaigrette.

12. Test Pack 504 (Bodies & Ends) was the subject of an initial examination on 30 March 1999 and then further examined after two months, six months and 12 months.  The products were stored at both 27°C and 38°C.  Conclusions made after 12 months’ storage included:

    “2.The tuna in vinaigrette cans have completely failed at both temperatures, due to the coating losing adhesion, heavy corrosion and pitting at both temperatures.”  (emphasis added)

13. Test Pack 515 was for the purpose of comparing the performance of two different sizes of cans in July 1999 and thereafter.  Conclusions made after 12 months’ storage included:

    “2.The tuna vinaigrette DRD cans in both the 35 and 56 sizes failed at 38°.  Both had extensive heavy corrosion and pitting on the body wall and base, while the coating on the 35mm cans was losing adhesion.”

14. Test Pack 517 was for the purpose of assessing sulphide staining in September 1999 and thereafter.

15. Test Pack 518 was for the dual purpose of assessing sulphide staining and to gauge the extent of corrosion.  The initial assessment was made in October 1999 and then at 12 months’ storage in September 2000.  Conclusions reported include that:

    “4.The 38° teriyaki cans had heavy corrosion and pitting … Because of the overall amount of corrosion, particularly on the base, these cans should be classified as failed.  However it has taken the equivalent of four years shelf life to reach this stage.

    …

    9.The lemongrass, lime & ginger FPEO ends had light staining over the end at 27°, and light to moderate staining over the end at 38°.  There was also some light and occasional moderate detinning on the shoulder.

    …

    1.FPEO End [Tomato & Basil (4/8)]

    At both temperatures the ends had light staining on the shoulder, rings and score and around the tab rivot.”  

16. Test Pack 519 was for the purpose of assessing a two coat grey internal coating with tuna vinaigrette and the subject of an initial examination on 24 September 1999 and thereafter.  It was noted that:

    “1.After twelve months storage, the two coat grey lacquer has had lacquer adhesion problems on the cans more vulnerable to corrosion.  That is the 38° upright and inverted cans, together with the 27° inverted cans, had areas of bubbling and lifting coating near the base.

    …

    4.If the cans are stored inverted (FPEO) up with this product, there is a greater loss of lacquer adhesion, and increased corrosion near the base.

    5.        The FPEO ends would be acceptable.”

    See also the “Findings” as to the FPEO End.

17. Test Pack 520 was for the purpose of assessing a modified can base and was the subject of an initial examination on 24 September 1999 and thereafter.  It was noted that after 12 months:

    “2.The 38° cans had moderate to heavy pitting on the body wall and base, and are close to the borderline of acceptability.  However it has taken the equivalent of four years shelf life to reach this stage.

    3.The 27° FPEO ends were acceptable.

    4.The staining on the 38° FPEO ends appeared to be slightly excessive, with moderate staining over the end and moderate to heavy staining around the tab rivot [sic].  However it has taken the equivalent of four years shelf life to reach this stage.”

18. Test Pack 525 included a trial of tuna in vinaigrette in a modified base profile DRD can using a new Siegwerk coating (one coat and two coat sampling was undertaken).  These packs were the subject of an initial examination in December 1999 and thereafter the subject of further examination after three months, six months and 12 months.  The conclusions at 12 months included that:

    “4.Both the one coat and two coat Sicpa/vinaigrette cans were acceptable, having some light to moderate, and moderate pitting.

    5.Some vinaigrette/FPEO ends had slightly excessive staining at 38°.  However, it has taken the equivalent of four years shelf life to reach this stage.  …”

    See also the findings as to the performance of FPEO Ends.

19. Test Pack 526 was for a number of purposes including an assessment of DRD cans and with the trial of the new Siegwerk coating (in both a single and double coat) when used with tomato and basil, lemongrass, lime and ginger and vinaigrette tuna products.  These packs were also the subject of an initial examination in December 1999 and thereafter the subject of further examination after three months, six months and 12 months.  The reported conclusions of this test pack analysis after 12 months’ storage at page 419 included:

    “1.After twelve months storage, the two coat tomato & basil cans would be acceptable, having only light to moderate pitting.

    Consequently the two coat Sicpa lacquer has proven to be suitable for use with this product.

    2.        The one coat tomato & basil cans … would be acceptable.

    Consequently the one coat Sicpa lacquer has proven to be suitable for use with this product.

    3.        The two coat lemongrass, lime & ginger cans … would be acceptable.

    Consequently the two coat Sicpa lacquer has proven to be suitable for use with this product.

    4.        The one coat lemongrass, lime & ginger cans … would be acceptable.

    Consequently the one coat Sicpa lacquer has proven to be suitable for use with this product.

    5A.     The 27° two coat vinaigrette cans … are acceptable.

    5B. The 38° two coat vinaigrette cans … must be classed as a failure.

    The two coat Sicpa lacquer should be acceptable to be used with the vinaigrette product to a limit of two years shelf life.

    6.The one coat vinaigrette cans have failed.  The cans were swollen at both temperatures, and the coating was losing adhesion.  There was heavy corrosion at both temperatures, with moderate pitting at 27° and moderate to heavy pitting at 38°.” (emphasis added)

    See also the findings as to the performance of FPEO Ends.

20. Test Pack 530 was for the purpose of a filling trial to assess cans placed in various orientations so as to check for sulphide black staining.  These packs were also the subject of an initial examination in February 2000 and thereafter the subject of further examination after three months, six months and 12 months.  Conclusions after 12 months included that:

    “4.      All FPEO ends were quite acceptable.”

    See also the findings as to the performance of FPEO Ends.

21. Test Pack 536 was for the purpose of assessing a two coat grey FPEO end with five tuna products.  These packs were also the subject of an initial examination in September 2000 and thereafter the subject of further examination after three months, five months and 12 months.  Conclusions after 12 months included that:

    “1.After twelve months storage at 38°, the lemon & cracked pepper FPEO ends were at the borderline of acceptability.  There was moderate to heavy pitting, particularly on the score, together with detinning ranging up to moderate.  However as the ends have now survived the equivalent of four years shelf life, they should be acceptable.

    2.        All remaining FPEO end variables would be acceptable …”

    See also the findings as to the performance of FPEO Ends.

22. Test Pack 543 was for purposes including an assessment of a two coat grey FPEO end with six tuna products and to monitor the effects of retorting and storing the FPEO end both up and down.  These packs were the subject of an initial examination after three months and six months.  Conclusions after six months included that:

    “1.After six months storage, the FPEO ends had patches of detinning along the score, with some mild and light pitting.  After the equivalent of two years shelf life the ends would be acceptable.

    The FPEO ends have proven to be suitable for use with these products.”

23. Test Pack 554 was for the purpose of assessing FPEO ends and a new compound.  These packs were the subject of examination after three months in June 2001, six months and 12 months.  Conclusions after 12 months included that:

    “1.After twelve months storage at 38°, all FPEO ends were quite acceptable.  The ends have now survived the equivalent of four years shelf life.”

24. Test Pack 568 was for the purpose of checking sulphur staining.  These packs were the subject of an initial examination in December 2001 and then after three months, six months and 12 months.  Conclusions after 12 months included that:

    “1.After twelve months storage, the DRD bodies were quite acceptable, having very little corrosion …

    2.The FPEO ends had a substantial amount of corrosion on the score, with moderate detinning and pitting.  However after surviving the equivalent of four years shelf life, the ends should be acceptable.”

    Comparative tests of Siegwerk lacquer 650814 & PPG lacquer

1. Gaussian chains are those molecules long enough to adopt a random coil configuration.  There are an enormous number of different ways in which a chain can be curled around in a relatively compact shape, like an unraveling ball of twine with lots of open space, and comparatively few ways it can be more or less stretched out.  So, if each conformation has an equal probability or statistical weight, chains are much more likely to be ball-like than they are to be extended — a purely entropic effect.  In an ensemble of chains, most of them will, therefore, be loosely balled up.  This is the kind of shape any one of them will have most of the time.

   (e)       P.S. Sheih and J.L. Massingill, “Fundamental Studies of Epoxy Resins for Can and Coil Coatings I.  Adhesion to Tin Free Steel” (1990) 62 Journal of Coatings Technology 25

2. The abstract and introduction to the article is as follows:

   Adhesion of high molecular weight epoxy can coatings to tin free steel was found to be dependent on the ratio of weight average molecular weight to epoxide equivalent weight of the epoxy resin used. …

   Wet and dry adhesion of epoxy can coatings can be optimized by adjustment of the epoxy resin parameters molecular weight and epoxide equivalent weight.  This can be done by selection of the raw materials used in the advancement reaction.

   INTRODUCTION

   Epoxy coatings are widely used for food and beverage cans because of their excellent combination of flexibility, adhesion, toughness, chemical resistance, and corrosion resistance.  Higher molecular weight resins are used for these applications because of their superior flexibility.  The molecular weight of the epoxy resin generally affects the softening point, melt viscosity, and solution viscosity of the epoxy resin, as well as the physical and chemical properties of the cured coatings prepared.

3. The authors explain their research in the following terms:

   Our research has concentrated on designing advanced epoxy resins with increased flexibility and an optimized combination of dry and wet adhesion for cans using phenol/formaldehyde resoles as curing agent.  In this paper, we discuss the factors affecting adhesion at epoxy/metal interfaces and examine the correlation found between epoxy resin properties and adhesion as measured by a T-peel test.

4. Further, the authors explain that available hydroxyl groups are important for adhesion to metal:

   Aliphatic hydroxyl and ether groups in advanced epoxy resin contribute a high degree of polarity to the coatings.  These groups serve as sites for the formation of strong hydrogen bonds … between epoxy molecules and substrates such as metal oxides and certain plastics.

   … During curing, the coating system becomes mechanically embedded in the metal oxide structure.

5. Further, in Table 2 there is reference to a number of different molecular weight values and the adhesion measured in kg/5mm.  The second and third values in the “dry” adhesion column in the table are relevant here:

   (a)the Mw value of 15.8 (row 2) is comparable to Epikote 1009, and

   (b)the Mw value of 19.1 (row 3) is comparable to DER669E.

6. In the column entitled “dry”, the DER equivalent molecular weight has higher and therefore better “dry” adhesion properties than the Epikote equivalent molecular weight.

7. Further, the authors explain the impact of higher molecular weight on adhesion strength:

   Weight Average Molecular Weight and Epoxide Equivalent Weight

   Our study of the effects of advanced epoxy resin properties was very illuminating.  Table 2 indicates that wet adhesion decreases rapidly to catastrophic levels with increasing molecular weight.  This demonstrates the dependence of adhesive strength on flow viscosity as mentioned previously.  Higher Mw would increase viscosity and could decrease wettability of the substrate.  Dry adhesion, however, is more complicated.  Dry adhesion increases with increasing molecular weight up to about Mw 20,000 and then decreases slowly (see Table 2).  This behaviour is perhaps due to a combination of crosslink density, glass transition temperature, and, possibly, surface tension of the cured epoxy surface.  Figure 4 demonstrates that when Mw is kept in the relatively narrow range of 13,000 to 16,000, the dry adhesion remains constant in spite of a wide variation of epoxide equivalent weight (EEW) from 2,000 to 3,500. …  Therefore, in order to optimize both dry and wet adhesion strength, both Mw and EEW must be considered.

   Mw/EEW Ratio

   In the effort to optimize both dry and wet adhesion in the same resin, we found that the ratio of Mw/EEW could be very useful (Table 3).  The overall adhesion for the system studied is optimized when the ratio of Mw to EEW is between 3.5 and 5.

8. Further, the summary of the article at the end is as follows:

   Adhesion of epoxy/metal interfaces has been investigated.  Variations in basic properties of advanced epoxy resins as well as bisphenol A have been shown to have significant effects on adhesion in the system studied.  Weight average molecular weight and epoxide equivalent weight (or EEW) are the key factors affecting both dry and wet adhesion.  Components of LER, such as a-glycol and hydrolyzable chloride, as well as the ortho isomer of bisphenol A, were found to be important to adhesion performance.  Bimodal systems demonstrated an excellent agreement on the Mw effect with the findings from normal resin distribution.  The key parameter to have a good coating resin with optimum wet/dry adhesion is Mw/EEW control in order to obtain good wettability and interfacial bonding.

9. But I accept the evidence of Dr Brinkhuis on this paper.  As he points out, the paper targets adhesion phenomena rather than flexibility.  Moreover, molecular weight effects of the epoxy resins used in a crosslinking formulation are addressed, especially by table 2 of this reference:

10. As is apparent from the table, too high values of Mw are found to be detrimental to the observed adhesion.  Further, it is said:

    Our study of the effects of advanced epoxy resin properties was very illuminating.  Table 2 indicates that wet adhesion decreases rapidly to catastrophic levels with increasing molecular weight. … Dry adhesion increases with increasing molecular weight up to about Mw 20,000 and then decreases slowly (see Table 2).

    (f)       J.L. Massingill and P.S. Sheih et al “Fundamental Studies of Epoxy Resins for Can and Coil Coatings II.  Flexibility and Adhesion of Epoxy Resins” (1990) 62 Journal of Coatings Technology 31

11. The abstract to the article is as follows:

    Epoxy coatings with improved flexibility and adhesion have been made using epoxy phosphate esters in solvent-borne formulations.  Performance of these coatings in wedgebend tests are 35-100% improved over conventional solid epoxy resins.  Aliphatic modification of the epoxy backbone also improved wedgebend test performance of coatings, but resistance of the coatings to water and solvent deteriorated as the level of aliphatic backbone modification increased.  Modification of the aliphatic hybrid resins with phosphoric acid overcame the water sensitivity of the coatings in some cases.  Coating flexibility on tin free steel can be either proportional or inversely proportional to the molecular weight of the epoxy resin used, depending on the particular steel substrate used.  This was true for commercial solid epoxy resins as well as for new experimental resins such as the epoxy phosphate esters and the aliphatic modified resins.

12. Further, the key findings are set out as follows:

    The immediate need for more flexible epoxy resins caused us to evaluate advanced products from commercially available aliphatic epoxy resins. …

    Interesting results were found when the bisphenol A resins were studied.  At comparable crosslinker levels in the can formulation in Table 3, we found that wedgebend flexibility was inversely related to resin epoxide equivalent weight when using TFS #1 (Figure 3).  Similarly, Figure 4 shows the inverse relationship of resin molecular weight and wedgebend flexibility at two crosslinker levels, while Figure 5 shows a similar relationship for resin molecular weight and reverse impact resistance of epoxy-phenolic coatings.  The cured coatings from Figures 3 to 5 all had excellent solvent resistance of about 100 MEK double rubs or more, except for those coatings based on the low EEW 4-type resin which had less than 10 MEK double rubs (Figure 6).  These observations lead to the recognition that experimental resins need to be compared to resins of similar molecular weight in order to draw valid conclusions about the possible effect of various resin modifications.

    The inverse relationship between EEW and resin “flexibility” seen in Figure 3 was somewhat surprising because we know that higher molecular weight resins are used in industry to improve the flexibility of coatings.  Also, a study of uncured resin coatings showed that the higher the molecular weight of the resins, the greater is the resistance to reverse impact (Table 5).

13. Amongst these findings, the following Figure 7 and commentary explains that coating flexibility varied with cross-linker level.  Figure 7 shows that for higher Mw resins, optimum flexibility can be achieved with little cross-linker, and that for lower Mw resins, more cross-linker needs to be added to achieve optimum flexibility.

    A study of epoxy-phenolic clearcoat T-bend flexibility versus crosslinker level was instructive.  We found that coating flexibility varied (Figure 7) with changes in crosslinker level, and that an optimum level could be determined for maximum flexibility.  In general, it seems that a given coating flexibility can be reached with less crosslinker when using resins with higher molecular weight.  The flexibility of epoxy-urea formaldehyde coatings is determined by the crosslinker level and can be optimized also.  Too low and/or too high a crosslinker level can reduce coating flexibility.  The performance of high molecular weight “phenoxy” resins in flexibility tests rapidly decreases as crosslinker level is increased from zero.  This is probably due to poor adhesion caused by poor flowout and rapid gellation of formulations containing these resins.

14. Further, the conclusions are as follows:

    Remarkable improvements in wedgebend flexibility of epoxy-phenolic container coatings have been obtained by modifying commercial epoxy resins with phosphoric acid.  These improvements are postulated to result from better adhesion due to the phosphate ester and increased molecular weight by chain extension through the reaction of resin terminal hydroxyl groups with crosslinker.

    Incorporation of dipropylene glycol units and propylene glycol units into the experimental advanced epoxy resin backbone does increase the flexibility of coatings made from those resins.  Water sensitivity of the dipropylene glycol modified resins was reduced by changing to propylene glycol modified experimental epoxy resins.  Maximum wedgebend flexibility performance was reached with only 5–10% propylene glycol units incorporated into the resin backbone.

    For the formulations tested and under the conditions tested, the wedgebend, T-bend, and reverse impact flexibility of epoxy-phenolic clearcoats, and epoxy-urea pigmented coatings, can be either inversely proportional or directly proportional to the molecular weight of the advanced epoxy resin used depending on the particular metal substrate used.  This is true for commercial bisphenol A advanced resins as well as for new experimental resins containing propylene glycol units in the backbone of the resin.

    XU 71899.00L experimental modified advanced epoxy resin solid solution imparts an outstanding combination of flexibility, corrosion resistance, and adhesion to epoxy-phenolic coatings.  It may be useful in operations where coated metal is formed into end products such as container ends, draw redraw cans, and draw with ironing cans that are necked in; and general industrial parts for the automotive, appliance, and building industries.

15. Again, Dr Brinkhuis made pertinent observations on this paper.

16. The paper explicitly discusses the disputed correlation of epoxy resin molecular weight and flexibility of a coating prepared from a formulation with a phenol formaldehyde resin crosslinker.  Flexibility is quantified e.g. by the length of the coating failure in a wedgebend test (ASTM D 3281-4; a higher value being a more negative result).  In this paper, figures 3 and 4 give the results for a formulation containing 20% of the crosslinking resins, vs. the epoxy equivalent weight (figure 3), or the molecular weight of the epoxy resin (figure 4).  In both cases, a strong correlation is seen with more damage upon deformation as molecular weight (or epoxy equivalent weight) increases:

17. Figure 4 from this paper also demonstrates that flexibility is more critical if more cross-linker is used (so, more critical at higher cross-link densities).

18. Further, flexibility loss with raised epoxy resin molecular weight is illustrated by reverse impact data (high values being positive) in figure 5 of this publication:

19. On page 35, one can read:

    At comparable crosslinker levels in the can formulation in Table 3, we found that wedgebend flexibility was inversely related to resin epoxide equivalent weight when using TFS #1 (Figure 3).  Similarly, Figure 4 shows the inverse relationship of resin molecular weight and wedgebend flexibility at two crosslinker levels, while Figure 5 shows a similar relationship for resin molecular weight and reverse impact resistance of epoxy-phenolic coatings.

20. Somewhat further, it addresses the “prejudice” that high molecular weight resins should improve flexibility, and relates such statements to effects observed for uncured coatings:

    The inverse relationship between EEW and resin “flexibility” seen in Figure 3 was somewhat surprising because we know that higher molecular weight resins are used in industry to improve the flexibility of coatings.  Also, a study of uncured resin coatings showed that the higher the molecular weight of the resins, the greater is the resistance to reverse impact (Table 5).

21. This correlation of the effect of the level of crosslinking on the optimal molecular weight of epoxy resins from flexibility perspective is very well illustrated by figure 7 of this publication.  A high T-bend value is an indication for a poorer result.

22. The optimal value for the level of crosslinking depends on the epoxy resin molecular weight.  For an Mw of 8000, it is found at 10–15%; for an Mw of 14,000 it is found at 5–10%, and for an Mw of 41,000, best results are found without any crosslinking.  At crosslinker levels of 10–20%, best flexibility results are observed for the Mw 8000 material:

23. Page 37 reads:

    A study of epoxy-phenolic clearcoat T-bend flexibility versus crosslinker level was instructive.  We found that coating flexibility varied (Figure 7) with changes in crosslinker level, and that an optimum level could be determined for maximum flexibility.  In general, it seems that a given coating flexibility can be reached with less crosslinker when using resins with higher molecular weight. … Too low and/or too high a crosslinker level can reduce coating flexibility.  The performance of high molecular weight “phenoxy” resins in flexibility tests rapidly decreases as crosslinker level is increased from zero.

24. Figure 8 shows the relation between flexibility and resin molecular weight, now after an aliphatic modification.  Again, vulnerability is seen to increase with higher molecular weights:

25. Page 37 reads:

    Figure 8 shows that the inverse relationship of molecular weight and wedgebend flexibility on TFS #1 observed for the commercial solid epoxy resins also holds for a series of experimental resins containing 2.6% propylene glycol in the backbone.

    (g)       J.L. Massingill Jr and R.C. Whiteside, “Formability Improvement of Epoxy Can and Coil Coatings I.  Blends of Epoxy Phosphate Esters” (1993) 65 Journal of Coatings Technology 65

26. The introduction to the article is as follows:

    The can and coil coating industry needs coatings with better formability characteristics combined with acceptable protective properties.  Two-piece can technology is expected to eventually replace most of the three-piece can technology in the U.S.  The two-piece technology is very demanding on the applied organic coatings.  Draw-Redraw (DRD) is a process for making two-piece cans in which a circular blank is drawn through a die to form a cup and then the cup is redrawn through a second and sometimes a third die to produce a can of desired dimensions.  Since the DRD process uses precoated metal, there is a need for more formable can coatings that can withstand the stress associated with the can formation process. …

    The stamping of a can or can end is a severe flexibility test and is the definitive method for evaluating the flexibility of can coatings in rapid deformation conditions.  Formability of coatings on metal surfaces results from several characteristics of the coating such as adhesion to the metal, flexibility, extensibility, and slip.  The effect of resin properties on coating adhesion to tin free steel was reported earlier. … Above Mw 20,000, increasing resin molecular weight decreased both dry and wet adhesion.  The effect of resin molecular weight on T-bend and wedgebend flexibility of coatings on tin free steel was also reported earlier.  The metal substrate was shown to affect the test results dramatically.  The flexibility of epoxy coatings by these tests can be either directly proportional or inversely proportional to the molecular weight of the resin used, depending on the particular metal substrate used, and the molecular weight of the resin tested.  Coating flexibility varied with changes in crosslinker level, and an optimum level of crosslinker could be determined for maximum flexibility.  Higher molecular weight resins need less curing agent to reach optimum properties. …

    We also report the evaluation of coatings using a can stamper and compare the results with wedgebend results for the same coatings.

27. The article refers to testing of DER669E which is said to have an EEW of 3,000 and an Mw of 18,000.

28. The authors make the following comment about resin molecular weight:

    To take full advantage of higher molecular weight epoxy resins, one must adjust formulations to lower curing agent levels to obtain the optimum coating combination of flexibility and protection.

29. In relation to this paper, Dr Brinkhuis points out that it again illustrates the impact of the molecular weight of the epoxy resin on the flexibility in a cross-linked formulation, as expressed by wedgebend failure length in figure 3 reprinted from this paper:

30. Page 69 reads:

    Coating wedgebend flexibility on Weirchrome decreased with increasing resin Mw (Figure 3) at a constant level of curing agent, for the molecular weights tested.  To take full advantage of higher molecular weight epoxy resins, one must adjust formulations to lower curing agent levels to obtain the optimum coating combination of flexibility and protection.

31. As Dr Brinkhuis points out, this may imply not using any crosslinker at all for the highest molecular weights.

32. In yet a further paper co-authored by Dr Massingill (R.C. Whiteside, P.S. Sheih, J.L. Massingill, “High Performance Epoxy Resins for Container Coating Applications based on In-Situ Advancement Technology” (1990) 62 Journal of Coatings Technology 61–67) and discussed by Dr Brinkhuis, epoxy-phenolic formulations are compared including a high molecular weight phenoxy resin, a “9-series” epoxy resin which was DER669E, and two experimental resins of molecular weight slightly lower than DER669E.  Figures 5, 6 and 7 of this DOW paper report the wedgebend failure length (high is negative) for these resins, for three different cross-linker levels.  In all cases, the high molecular weight epoxy (phenoxy) has a poorer flexibility performance compared to the other resins of lower molecular weight.

33. The conclusion that Dr Brinkhuis drew from the four Massingill papers, which conclusion I accept, is that the use of higher molecular weight epoxy resins is only favourable in formulations in which no or very limited amounts of cross-linker have been used.  At higher cross-linker levels, an increase of molecular weight of the epoxy resin may turn out negative for flexibility and adhesion.

    (h)      Bruce Burton and James Bertram, “Design of Tough Epoxy Thermosets” in Charles Arends, Polymer Toughening (1996) 339

1. The introduction to the article is as follows:

   It is generally accepted by those who work with thermosetting polymers that as the glass transition temperature (Tg) of the polymer increases, it becomes more brittle. … The reduction in yield stress upon going to lower Tg systems appears to provide increased ductility, in spite of the resin’s higher modulus.

2. The authors explain the relevance of Tg to crosslink density and chain stiffness:

   In some applications areas, increased toughness and Tg are simultaneously desired.  Since increased crosslinking tends to increase a polymer’s Tg but decreases its toughenability, ways were sought to maintain high glass transition temperatures while reducing crosslink density, thus increasing polymers’ toughness at a given Tg.

   …

   Somewhat curiously, increasing the stiffness of the polymer backbone need not lead to higher moduli or yield strength values for epoxy thermosets.  In recent years it has become increasingly recognized that for epoxy thermosets the relationship between the glass transition temperature and modulus often runs counter to that generally reported for thermoplastic polymers.  Specifically, the modulus of a wide variety of epoxy resin systems has been seen to decrease as their Tg’s increase. … It is believed that the density decreases with increasing Tg (due to increased crosslinking) because the increase in unoccupied volume that is frozen into the glass, by virtue of the higher glass transition temperature, is greater than the decrease in unoccupied volume that is caused by polymerization shrinkage at the curing temperature.

3. Third, the authors explain that changing Mc sometimes affects Tg:

   Misra et al. reported that for the cured epoxy systems in their study, changing the distribution of Mc (molecular weight between crosslinks) affects Tg (sometimes), the slope of the transition region (dynamic mechanical spectroscopy), the shape of the tan δ peak, and, especially, the characteristic creep time of the polymer.

   (i)        Leslie Sperling, Introduction to Physical Polymer Science (2006, 4^th ed)

4. There is an explanation of dangling ends:

   9.10.3 Network Defects

   There are two major types of network defects: …

   (b)      loose, dangling chain ends, attached to the network by only one end …

   Figure 9.19Network structure and defects: (a) elastically active chain, (b) loop, and (c) dangling chain end.

5. It is to be noted that dangling ends are different to “wasted cross-links” which are two cross-links that are too close together and which therefore act as one, rendering the other “wasted”.

6. Second, retractive stress, which is the ability to recoil, is explained:

   Figure 9.4A network chain segment: (a) relaxed, with a random coil conformation, and (b) extended, owing to an external stress.

   Conclusions on scientific evidence

7. In summary, I am left in a considerable state of uncertainty on the science.

8. At best, Siegwerk has put forward evidence that raises only a reasonable hypothesis that:

   (a)there were material differences between the Epikote supplied and the DER669E that could have been expected to have been supplied if the tolling agreement had been complied with;

   (b)such differences may have impacted adversely on the flexibility of the lacquer.

9. At the least, Nuplex has put forward evidence that raises a reasonable hypothesis countering each such proposition.

10. On any view, Siegwerk’s polymer chemistry thesis does not rise to the level of the required balance of probabilities.  I will address what I would describe as the combination case in the next section.

11. Further, if it is necessary to say so, in terms of the competing scientific hypotheses, based on the scientific evidence I found Nuplex’s hypothesis in both of the dimensions indicated to be more likely than Siegwerk’s hypothesis in both dimensions.

    Combination of circumstantial case and scientific evidence

12. It is appropriate to consider the circumstantial case and the scientific evidence in combination in order to assess whether Siegwerk has discharged its onus to establish causation.

13. Let me make the following points based upon my reasoning set out earlier.

14. First, I accept that by the substitution of Epikote for DER669E, Nuplex may have increased the risk of the resin supplied and therefore the lacquer being defective in the absence of detailed testing.  But an increase in risk does not of itself establish causation, including the requisite material contribution.

15. Second, I also accept that in some cases, it may be appropriate to infer causation, including the requisite material contribution, from the foundation of an increase in risk.  But this is not such a case.  There is good and sufficient reason not to so conclude.  All of the deficiencies in the circumstantial case that I have referred to earlier is one reason, including that lacquer with DER669E was associated with cans that failed and there were other plausible alternative hypotheses for the explanation of failure other than the substitution.  The other reason is that the science is quite unclear; alternatively, if it is necessary to decide, I prefer Nuplex’s scientific hypothesis in both dimensions in any event.

16. Third, I do not consider that Siegwerk’s case, separately on either the circumstantial case or the science or collectively, rose to the level of shifting any evidentiary onus on to Nuplex.  But, if it did rise to such a level, then in my view Nuplex discharged such an onus in:

    (a)demonstrating that there were facts which tended against Siegwerk’s circumstantial case, including other reasonable explanations for the can failures; and

    (b)propounding a better case on the science to the effect that at the level of reasonable hypothesis, its hypothesis in the two dimensions set out was more likely.

17. Relatedly, I reject Siegwerk’s creation of an “onus of exculpation” to the extent that it was propounded in terms such as to impose a legal onus on Nuplex to disprove causation.

18. Fourth, this is not a case where Siegwerk disproved all other reasonable causation scenarios and explanations for the can failures such that all that was left was its own case thesis; see my earlier discussion on coating thickness and the aluminium flakes.  Indeed, Dr Scheirs had the coating thickness theory in the frame, at least at one stage when it suited him and Siegwerk.

19. Fifth, the present case is not a case where multiple competing causes have been established on the balance of probabilities with the question of disentanglement then arising.

20. Sixth and generally, the circumstantial case and the scientific evidence together do not on the balance of probabilities establish causation including material contribution.  Applying a “common sense” test for causation, Siegwerk has not provided sufficient evidence to support or from which I can infer causation to the requisite level of satisfaction.

21. Finally, I accept that Siegwerk can obtain substantial leverage off the fact that substitution of the product contracted to be supplied under the tolling agreement occurred in the absence of Siegwerk’s knowledge and that the consequent absence of an opportunity to retest heightened risk.  I have viewed all causation questions through that lens.  Nevertheless I am not satisfied that it has made out its case on causation.

    The result

22. Siegwerk has not discharged its onus to establish that Nuplex’s breach of the tolling agreement was the or a cause of the relevant damage.  To be clear, it has not satisfied me on the balance of probabilities that the substitution of Epikote for DER669E was the or a cause of the corrosion in the relevant cans.

23. I will give the parties an opportunity to submit minutes of orders and short submissions on costs to give effect to these reasons and the result.

I certify that the preceding four hundred and sixty-four (464) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach.

Associate:

Dated:       29 February 2016