Supreme Court
New South Wales
Medium Neutral Citation: Tranquility Pools & Spas Pty Limited v Huntsman Chemical Company Australia Pty Limited [2011] NSWSC 75 Hearing dates: 1-5, 8-12, 15, 16, 22-26, 30 November 2010, 9 & 10 February 2011 Decision date: 25 February 2011 Before: Einstein J Decision: The Referee's findings bind the parties and the Court.
The plaintiffs pleaded case against the defendant for breach of contract and contravention of sections 52 and 53 of the Trade Practices Act 1974 (Cth) is made out.
The parties will be given an opportunity to adduce further evidence from their accounting experts to value the damages payable in accordance with the Court's findings on the destruction of business claim.
The plaintiffs have established a liability to all pool owners with failed pools.
The plaintiffs will be exposed to claims of failed pool owners for a maximum period of 10 years not 16 years.
Pool owners with failed pools are entitled as against the plaintiffs to full replacement of the pool and making good of the premises.
In relation to all pools that have presently failed the plaintiffs are entitled as against the defendant to damages under section 82 of the Trade Practices Act. In relation to pools which will fail in future, which will result in a liability of the plaintiffs, s 87 of the Trade Practices Act is engaged.
Catchwords: Defective product claim
Fibreglass swimming pools
Claim that defective resin sold by the defendants to plaintiffs had caused unseemly blistering and blackspots to hundreds of fibreglass swimming pools
Plaintiffs claim entitlement to sue on be half of 837 owners of pools manufactured with allegedly defective resin
Plaintiffs claim that all defective swimming pools necessary to be replaced
Reference out
Effect of adoption of referee's report
Reference not to be treated as some kind of "warmup" for the real contest
Cause of failure
Whether failure of the pools caused by the defendant or by the plaintiff
Whether defendant had contravened sections 52 and 53 of Trade Practices Act 1974 (Cth)
Whether alleged representations were made by the defendant
Whether representations induced the Plaintiffs to buy the product
Whether defendant made out defence of contributory negligence under s 82(1B)
Whether defendant breached implied contractual terms of merchantable quality and fitness for purpose
Whether defendant estopped from relying on standard terms and conditions which would have greatly restricted such a claim
Assessment of claim to damages and expense to the businesses of the Plaintiffs as a result of the pool failures
Whether plaintiffs entitled for damages on basis that defendant's defective product had destroyed their business
Whether plaintiff could rely on data favoured by it to establish trends in the swimming pool market
Court left to determine, on all the evidence, but for the pool failures, how plaintiffs' business would have performed
Quantum of plaintiffs' consequential loss
Whether plaintiffs' liable to customers with failed pools
Whether alleged express warranty incorporated into plaintiffs' contract with customers who contracted directly with it
Whether alleged express warranty formed a collateral contract between plaintiffs and customers where pool purchased through a third party dealer
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61 applied
Fairey Australasia Pty Ltd v Joyce [1981] 2 NSWLR 314 considered
Whether customers could rely on express warranty contained in warranty cards, brochures, and conveyed orally
Whether plaintiffs use of "sampling" evidence from a subset of customers appropriate
Civil Procedure Act 2005 (NSW) ss 56, 62 considered
Whether customers could rely on implied contractual terms as to merchantability and fitness for purpose against plaintiffs
Trade Practices Act 1974 (Cth) s 71, Sale of Goods Act 1923 (NSW) s 19 applied
Whether plaintiffs also liable to customers under Pt V Div 2A of the Trade Practices Act 1974 (Cth)
Whether that Division applied to "goods" once they had become fixtures
Theo Holdings Pty Limited v Hockey (2000) 99 FCR 232 considered
Trade Practices Act 1974 (Cth) ss 74B, 74D, 74F, 74G applied
Whether plaintiffs liable to subsequent purchasers of properties including failed pools manufactured by plaintiffs
Whether letters written by plaintiffs stating that warranties covering vendors would be transferable to purchasers affected a novation
Alternatively whether plaintiffs liable to subsequent purchasers under Pt V Div 2A of the Trade Practices Act 1974 (Cth)
Limitation periods applicable to plaintiffs' liability to customers
Whether maximum liability, under express warranty, was 10 or 16 years
VAI Industries (UK) v Bostock & Brawley [2003] BLR 359 considered
Whether, as against plaintiffs, pool owners entitled to complete replacement of their failed pools or some lesser rectification method
Willshee v WestCourt [2009] WASCA 81, Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 83 ALJR 390, applied.
Whether any of lesser suggested rectification methods meet the relevant test laid down by the authorities
Consideration of costs of replacement of failed pools
Proper approach to sections 82 and 87 of the Trade Practices Act 1974 (Cth)
Wardley Australia v Western Australia (1992) 175 CLR 514 considered
Whether plaintiffs' liability to its customers constitutes damageLegislation Cited: Arbitration Act 1950 (UK)
Civil Procedure Act 2005 (NSW)
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth)
Corporations Act 2001 (Cth)
Home Building Act 1989 (NSW)
Sale of Goods Act 1923 (NSW)
Trade Practices Act 1974 (Cth)
Workers Compensation and Rehabilitation Act 2003 (Qld)Cases Cited: Ackers v Austcorp International Ltd [2009] FCA 432
Adler v Australian Securities and Investments Commission [2003] NSWCA 131
Andrews v Hopkinson [1957] 1 QB 229
Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441
Assafiri v The Shell Company of Australia [2010] NSWSC 930
Astley & Ors v Austrust Limited (1999) 197 CLR 1
Australian Energy Limited v Lennard Oil NL (No 2) [1988] 2 Qd R 230
Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613
Bonnington Castings Ltd v Wardlaw [1956] AC 613
Boyd v Leftwich (1982) 43 ALR 280
Bresatz v Przibilla (1962) 108 CLR 541
Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361
Building Insurers' Guarantee Corporation v The Owners - Strata Plan No 57504 [2010] NSWCA 23
Carew Counsel Pty Ltd v French (2002) 4 VR 172
Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd (2004) ATPR 42-014
Chicco v The Corporation of the City of Woodville (1990) Aust Torts Reports 81-028
Clutha Ltd (in liq) v Millar [2002] NSWSC 362
Clutha v Millar (No 3) [2002] NSWSC 642
Collins Trading Co Pty Ltd v Maher [1969] VR 20
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Cooper Brookes (Wollongong) Pty Ltd v Cmr of Taxation (Cth)(1981) 147 CLR 297
Courtney v Medtel Pty Ltd (2003) 126 FCR 219
Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167
Emu Brewery Mezzanine Ltd (In Liq) v Australian Securities and Investments Commission (2006) 32 WAR 204
Fairey Australasia Pty Ltd v Joyce [1981] 2 NSWLR 314
Ferro Corporation (Aust.) Pty Limited v International Pools (Aust.) Pty Ltd (unreported, Supreme Court of New South Wales, 8 August 1994, Cole J)
Fidelitas Shipping Co Limited v V/O Exportchleb [1966] 1 QB 630; [1965] 2 All ER 4
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473
Gagner Pty Ltd t/as Indochine Caf v Canturi Corporation Pty Ltd [2009] NSWCA 413; (2009) 262 ALR 691
Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWCA 149
Gould v Vaggelas (1985) 157 CLR 215
Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307
Havyn Pty Ltd v Webster [2005] NSWCA 182
Hawkins v Clayton (1988) 164 CLR 539
Henderson v Henderson (1843) 67 ER 313
Henry Kendall & Sons v William Lillico & Sons Ltd (Hardwicke Game Farm) [1969] 2 AC 31
Henville v Walker (2001) 206 CLR 459
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Hoystead v Commissioner of Taxation (1926) 42 TLR 207
Hughes v Van Eyk [2008] NSWSC 525
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
Idoport Pty Limited v National Australia Bank Limited [2007] NSWSC 23
Jones v Dunkel (1959) 101 CLR 298
Kent v Gunns Ltd [2009] TASSC 30
Khoury v Sidhu (No. 2) [2010] FCA 1320
Kingston v Keprose Pty Ltd (No 3) (1987) 11 NSWLR 404
Kirkby v Coote [2006] QCA 061
Lee v Griffin (1861) 1 B and S 272; 121 ER 716
Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361
Maddox v Storer [1963] 1 QB 451
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Maynard v Rover Mowers Ltd [2000] QCA 26
Medtel Pty Ltd v Courtney (2003) 130 FCR 182
Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384
Mistral International Pty Ltd v Polstead Pty Ltd [2002] NSWCA 321
Mitchell v Mulholland (No 2) [1972] 1 QB 65
Murray v Shillingsworth [2006] NSWCA 367
Narellan Pools Pty Limited v Huntsman Chemical Co Australia Pty Limited [2010] FCA 267
Norris v Blake by his Tutor Porter (No 2) (1997) 41 NSWLR 49
Nouvelle Homes Pty Ltd v G & M Smargiassi [2008] WASC 127
Olsson v Dyson (1969) 120 CLR 365
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257
Politis v FCT (1988) 16 ALD 707
Purcell v Watson (1979) 26 ALR 235
R v Trade Practices Tribunal; Ex Parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361
Radford v de Froberville [1977] 1 WLR 1262
Rasell v Cavalier Marketing (Aust) Pty Ltd & Anor [1991] 2 Qd R 323
Robinson v Harman (1848) 1 Exch 850; (1848) 154 ER 363
Rogers v Parish (Scarborough) Ltd [1987] QB 933
Ruxley Electronics & Constructions Ltd v Forsyth [1996] AC 344
Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854
South Parklands Hockey & Tennis Centre Inc v Brown Falkiner Group Pty Ltd [2004] SASC 81
St George Bank Ltd v MJK Pty Ltd [1999] FCA 1752
State of New South Wales v Ibbett (2005) 65 NSWLR 168
State of WA v Wardley Australia Ltd & Ors (1991) 30 FCR 245
Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549
SWF Hoists and Industrial Equipment Pty Ltd v State Government Insurance Commission (1990) 6 ANZ Ins Cas 61-002
Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74
Symes v Laurie [1985] 2 Qd R 547
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 83 ALJR 390; [2009] HCA 8
Theo Holdings Pty Limited v Hockey (2000) 99 FCR 232
Tiplady v Gold Coast Carlton Pty Ltd (1984) 3 FCR 426
Traill v Baring (1864) 4 De GJ & Sm 318; 46 ER 941
Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Company Australia Pty Ltd [2008] NSWSC 58
Travel Compensation Fund v Tambree t/as R Tambee & Associates (2005) 224 CLR 627
United Australia Ltd v Barclays Bank Ltd [1941] AC 1
Upper Hunter County District Council v Australian Chilling and Freezing Co Pty Ltd (1968) 118 CLR 429
VAI Industries (UK) v Bostock & Brawley [2003] BLR 347
Van Win Pty Ltd v Eleventh Mirontron Pty Ltd [1986] VR 484
Vickery v Woods (1952) 85 CLR 336
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Wardman v Hatfield [2003] NSWCA 283
Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300
Wenco Industrial Pty Ltd v W W Industries Pty Ltd [2009] VSCA 191
Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253
Wheeler & Anor v Ecroplot Pty Ltd [2010] NSWCA 61
Willshee v WestCourt Ltd [2009] WASCA 81; [2008] WASC 18
Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679
Zaravinos v Dairy Farmers Co-op Ltd & Anor (1985) 7 FCR 195Texts Cited: JD Heydon, Cross on Evidence (6th ed, Butterworths, 2000)
D Byrne and JD Heydon Cross on Evidence, (4th Aus ed, Butterworths, 1991).
KR Handley, Spencer Bower and Handley Res Judicata (4th ed, LexisNexis, 2009)
Julian Bailey, "Novation" (1999) 14 Journal of Contract Law 189
Lord Diplock, "The Courts as Legislators", The Lawyer and Justice (Sweet & Maxwell, 1978)Category: Principal judgment Parties: Tranquility Pools & Spas Pty Limited (First Plaintiff)
Tranquility Pools & Spas (Manufacturing) Pty Limited (Second Plaintiff0
Huntsman Chemical Company Australia Pty Limited (Defendant)Representation: Mr J Stevenson SC, Mr N Kabilafkas (Plaintiff)
Mr S Donaldson SC, Mr G Sirtes SC, Mr T Maltz
I E Duffield (Plaintiff)
DLA Phillips Fox (Defendant)
File Number(s): 2006/00268486
JUDGMENT
The proceedings before the Court
The proceedings before the Court concern the manufacture of fibreglass swimming pools.
The plaintiffs [ Tranquility Pools & Spas Pty Ltd and Tranquility Pools & Spas (Manufacturing) Pty Ltd] manufactured the fibreglass pools using a vinyl esther product (the product) supplied by the defendant [Huntsman Chemical Company Australia Pty Ltd].
To be more precise :
The first plaintiff (TPS):
(1) Was at all material times until on or about 5 September 2003 a manufacturer of swimming pools for homes either for retail sale and installation by it, or for wholesale sale to dealers for retail sale and installation by them;
(2) Was engaged in the business of selling and installing swimming pools made by the Second plaintiff from on or about 5 September 2003.
The second plaintiff (TPSM):
(3) The second plaintiff has been from on or about 5 September 2003 a manufacturer of swimming pools for homes for wholesale sale to dealers (including the first plaintiff) for retail sale and installation by them.
The plaintiffs' case is that the pools the subject of this litigation were either sold wholesale to the pool dealers or were sold and installed at a retail level by the plaintiffs. The case is that the defendant's product was defective. The case is that as a result, numerous pools made using the product have developed blistering and black spots and this problem will affect all pools made by using the product. The plaintiffs' case is that every pool made using the product will have to be replaced as the problem is not remediable in situ.
The plaintiffs sue for :
(1) Breach of contract on the basis that the product was not of merchantable quality;
(2) Contravention of sections 52 and 53 of the Trade Practices Act on the basis that they bought the product induced by certain representations made as to the product, which representations were false, misleading and deceptive.
The issues
Without being exhaustive the issues include :
(1) Whether the alleged representations were made by the defendant and whether they induced the plaintiffs to buy the product;
(2) Whether the failures in the swimming pools made by the plaintiffs using the product were due to the product;
(3) Whether all 837 pools made by the plaintiffs using the product will have to be replaced;
(4) The total cost of replacing and/or repairing the affected pools;
(5) An assessment of the claimed damage and expense to the businesses of the plaintiffs as a result of the pool failures.
Later in these reasons it becomes necessary to provide the reader with an understanding of how fibreglass pools are manufactured. For the moment attention should be first given to a background overview of the nature of the proceedings. I proceed accordingly.
Background overview
The proceedings before the Court are of particular significance to many hundreds of fibreglass pool owners who entered into contracts with the plaintiffs, as manufacturers and suppliers of fibreglass swimming pool.
The plaintiffs manufactured in the order of 837 such pools using a vinyl tester product supplied by the defendant.
As will be apparent from the extensive reasons below the Court's finding is that the product was defective and as a result, numerous pools made using the product have developed blistering and black spots and this problem will affect all pools made using the product.
Numerous pool owners have given evidence and generally to the same effect :
(1) Their evidence is that they spent considerable sums in purchasing their pools, in the main having first carried out their best endeavours to determine study the market.
(2) In almost all instances they were very careful in determining which of several colour schemes to select.
(3) The pool which they selected was often to be the pivotal showpiece of their property.
(4) Sundry work was being carried out either by the pool owners themselves or by contractors in the form of putting in the surrounds and/or shrubs or trees.
(5) After some time their pools began to develop blisters and black spots which were unseemly.
(6) At a time when the transactions took place between these individuals and those from whom the pools were purchased, they were given warranties.
(7) They have now patiently waited many years for these proceedings to travel through the Court system in the expectation that the results of these proceedings will be that they will be provided with new fibreglass pools which will not develop blisters or black spots which they regarded as their entitlement by reason of the general circumstances and the warranties which they were given.
(8) They expect that any consequential works [which may be necessary as part and parcel of the remediation of so much of their properties as will be affected when the new pools are installed] will be funded by those responsible for the defective product.
Adoption of the referee's report
It is common ground that on 20 September 2007, Professor Robert Burford ("the Referee") delivered a report on certain questions that had been referred to him for determination ("the Report").
In summary, the Referee, ultimately found that [the Report at [104]]:
(1) the Pool Failures were caused by the use of Hetron 922 in the barrier layer;
(2) there was no evidence to suggest that substandard manufacturing standards existed (and hence could contribute to the Pool Failures); and
(3) it is probable that over a decade most, if not all pools, will suffer osmosis ("Fail").
To be more precise :
The questions asked of the referee were:
"1. What has caused the Pool Failures?
2. What role, if any, has the Product played in relation to the Pool Failures?
3. What other factors (if any) have played a role in the Pool Failures?
4. If the Product has played a role, to the extent possible please state what proportion of the Pools are likely to suffer from the Pool Failures?" [ Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Company Australia Pty Ltd NSWSC 58 [2008] at [7]].
His answers were provided at paragraph [104] of the report read as follows:
"What has caused the Pool Failures?
My opinion based on the available evidence is that the Hetron 922, containing ethylene glycol and in particular hydrophilic thixotrope, that has been used in the tie layer in Tranquility Pools, has caused failure. Pools which did not use this material as a tie layer, but made by Tranquility, did not and do not fail. Pools made before April 2002 and after April 2004 have not failed because they do not have the same polymer mixture in the tie layer. No Pools made by Tranquility using identical manufacturing methods, except using other vinyl esters in the tie layer, between April 2002 and 2004 have failed.
What role, if any, has the product played in relation to the Pool Failures?
The Hetron 922 supplied to Tranquility between April 2002 and April 2004 by Huntsman has caused blistering. Although a full scientific understanding of the reasons for this are not finalized, enough is now known to relate this product to Pool Failures. Testing by Huntsman has shown that blistering is associated with Hetron 922 containing hydrophilic thixotrope.
There is no evidence to show that other changes in manufacturing occurred at Tranquility during the relevant period, nor is there any evidence to suggest that substandard manufacturing standards existed.
Is it probable that all of the Pools made by the plaintiff using the Product will suffer from the Pool Failures?
It is probable that over a decade most if not all Pools will fail.
If the answer to question 3 is 'no', to the extent possible please state what proportion of the Pools are likely to suffer from the Pool failures?
N/A".
On 20 February 2008, Bryson AJ ordered that the whole of the Report be adopted by the Court.
Huntsman did not appeal this order. It has, however, adduced a great mass of evidence which, if accepted, would contradict some or all of the Referee's findings. The extent to which those findings are binding upon the parties and the Court is a significant area of contest.
Very shortly after the commencement of the current final proceedings questions were raised by both parties concerning the status to be given by the Court to the undoubted fact that the whole of the referee's report had been adopted. Of particular note is the fact that in paragraph 20 of the plaintiffs' contentions it had pleaded that the product-caused the pool failures.
The principles
It is convenient before making a ruling on this in limini issue to revert to the principles
In Fidelitas Shipping Co Limited v V/O Exportchleb [1965] 2 All ER 4, Diplock LJ made a number of important observations concerning the nature of issue estoppel.
In particular Lord Diplock put forward the following propositions [at 10] :
Arbitration, like litigation, is concerned only with the legal rights and duties of the parties thereto. It is concerned with facts only in so far as they give rise to legal consequences. The final resolution of a dispute between parties as to their respective legal rights or duties may involve the determination of a number of different "issues," that is to say, a number of decisions as to the legal consequences of particular facts, each of which decisions constitutes a necessary step in determining what are the legal rights and duties of the parties resulting from the totality of the facts. To determine an "issue" in this sense, which is that in which I shall use the word "issue" throughout this judgment, it is necessary for the person adjudicating upon the issue first to find out what are the facts, and there may be a dispute between the parties as to this. But while an issue may thus involve a dispute about facts, a mere dispute about facts divorced from their legal consequences is not an "issue."
In the case of litigation the fact that a suit may involve a number of different issues is recognised by the Rules of the Supreme Court which contain provision enabling one or more questions (whether of fact or law) in an action to be tried before others. Where the issue separately determined is not decisive of the suit, the judgment upon that issue is an interlocutory judgment and the suit continues. Yet I take it to be too clear to need citation of authority that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument or adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgment and, where appropriate, an application to the appellate Court to adduce further evidence: but such application will only be granted if the appellate Court is satisfied that the fresh evidence sought to be adduced could not have been available at the original hearing of the issue even if the party seeking to adduce it had exercised due diligence.
This is but an example of a specific application of the general rule of public policy, nemo debet bis vexari pro una et eadem causa. The determination of the issue between the parties gives rise to what I ventured to call in ... an "issue estoppel." It operates in subsequent suits between the same parties in which the same issue arises. A fortiori it operates in any subsequent proceedings in the same suit in which the issue has been determined. The principle was expressed as long ago as 1843 in the words of Wigram V. C. in Henderson v Henderson which were expressly approved by the Judicial Committee of the Privy Council in Hoystead v Commissioner of Taxation I would not seek to better them:
"I believe I state the rule of the Court correctly when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
Issue estoppel applies to arbitration as it does to litigation. The parties having chosen the tribunal to determine the disputes between them as to their legal rights and duties are bound by the determination by that tribunal of any issue which is relevant to the decision of any dispute referred to that tribunal. An arbitrator today has power to make an interim award determining particular issues separately from other issues in the arbitration. It is, I understand, conceded by Mr. Goff, on behalf of the owners, that if the arbitrator does so, his interim award creates an issue estoppel as respects the issue determined by the interim award. Neither party can at any subsequent hearing in the arbitration advance arguments or adduce evidence on that issue directed to disputing the correctness of the determination previously made. ...
In choosing arbitration as the method of determining disputes as to their respective legal rights and duties, the parties constitute the arbitrator the exclusive tribunal to determine all disputed questions of fact, but they do not thereby constitute him the exclusive tribunal to determine all the legal consequences of those facts. His determination of legal consequences of facts is subject to correction by the High Court. He is thus not the exclusive tribunal to determine all the issues relevant to the dispute referred to him. Any reference to arbitration under the Arbitration Act 1950, contemplates that, if the appropriate statutory machinery is invoked, the High Court may in a corrective role form part of the tribunal to determine all or any of the issues relevant to the dispute. The machinery can be invoked by the arbitrator, either of his own motion or by direction of the Court, stating his award whether final or interim, or any part of such award as a special case for the decision of the High Court. Where his award is a final award stated in the form of a special case, it does determine all the issues between the parties though the determination is inchoate. It still contains one or more potential alternative determinations of the legal consequences of the facts which the arbitrator has found until the award is completed either by failure of the parties to set down the special case for hearing or by the High Court's answering the questions of law stated. Once his final award is made, whether or not stated in the form of a special case, the arbitrator himself becomes functus officio as respects all the issues between the parties unless his jurisdiction is revived by the Court's exercise of its power to remit the award to him for his reconsideration. But this is merely the way in which the principle nemo debet bis vexari pro una et eadem causa affects the arbitrator's functions. He has decided the questions of fact as to which he is the exclusive tribunal; he has determined their legal consequences subject only to correction by the High Court on the stated questions of law. The parties cannot reopen the same matters again before him. Where his award is an interim award stated in the form of a special case, it determines the particular issue or issues to which it relates in alternative ways dependent upon the answer of the High Court to the question of law stated in the special case. It creates an issue estoppel or issue estoppels between the parties and the arbitrator is functus officio as respects the issues to which his interim award relates...
K R Handley the learned author of Spencer Bower and Handley, Res Judicata (4 th ed, LexisNexis, 2009) makes the following observations in part 5.28 under the heading "Finality" :
Issue estoppels operate in later stages of the same suit, whenever the trial is split. Where questions of liability in common law proceedings are separately determined and the claimant succeeds, the Court enters interlocutory judgment for damages to be assessed. The judgment is final for purposes of res judicata , and binding on the parties in the assessment, but would not support an action until the assessment was completed.
The author then cites the central proposition put by Diplock LJ in Fidelitas :
"Where the issue separately determined is not conducive of the suit the judgement upon that issue is interlocutory ... and the suit continues. Yet I take it to be too clear to need a citation of authority that the parties to the suit bound by the determination of the issue. They cannot subsequently in the same suit advance an argument or reduce further evidence directed to showing that the issue was wrongly determined."
The New South Wales Court of Appeal stated in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563, "a reference is not to be treated as some kind of warm-up for the real contest". See also Bass v Permanent Trustee Co (1999) 198 CLR 334 where the Chief Justice and five other judges said at paragraphs 45 and 46 as follows
The purpose of a judicial determination has been described in varying ways. But central to those descriptions is the notion that such a determination includes a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy. In R v Trade Practices Tribunal; Ex Parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 36 [52] , Kitto J said:
"[J]udicial power involves, as a general rule, a decision settling for the future, as between defined persons or classes of persons, a question as to the existence of a right or obligation, so that an exercise of the power creates a new charter by reference to which that question is in future to be decided as between those persons or classes of persons... [T]he process to be followed must generally be an inquiry concerning the law as it is and the facts as they are, followed by an application of the law as determined to the facts as determined; and the end to be reached must be an act which ... entitles and obliges the persons between whom it intervenes, to observance of the rights and obligations that the application of law to facts has shown to exist."
Similarly, Professor Borchard in his pioneering work, Declaratory Judgments stated [53]:
"A judgment of a Court is an affirmation, by the authorized societal agent of the state ... of the legal consequences attending a proved or admitted state of facts. It is a conclusive adjudication that a legal relation does or does not exist. The power to render judgments, the so-called 'judicial power,' is the power to adjudicate upon contested or adverse legal rights or claims, to interpret the law, and to declare what the law is or has been. It is the final determination of the rights of the parties in an action which distinguishes the judgment from all other public procedural devices to give effect to legal rights." (footnotes omitted).
Returning to the contentions of the parties
In consequence of the importance of the issue the Court invited first the defendants, then the plaintiffs and finally the defendants in reply, to set out their submissions on the above issue. The Court's invitation followed the passing down to the parties of certain questions to be answered.
The questions were as follows :
The defendant's position on the referee's report appears to be as follows:
(1) Its primary submission is that although the referee's report accepts the proposition that there is some link between the pool failures and the use of Hetron 922, it does not answer the real question of whether if the product was used properly by Tranquility it would have resulted in pool failures.
How is this consistent with the referee's finding that there was no "evidence to suggest that substandard manufacturing standards existed" at Tranquility?
(2) The defendant has a secondary position that Tranquility itself has not been content to rest with the referee's findings and has attempted to lead further scientific evidence regarding the cause of failure of the swimming pools. This is part of a general contention by the defendants that the issues put to, and decided by the referee, were not sufficient to decide the case without further consideration of scientific issues.
Does the defendant seek to contend that the referee's report, whatever it is held to decide, only applies to the twelve pools it concerned?
The defendant's contentions
The defendants initial contentions required to be paraphrased.
Their answer to question 1 was broadly as follows :
(1) The short answer to the first question is that there is no inconsistency between the observation made or conclusion drawn by the referee regarding the state of the evidence adduced before him and the case which the defendant wishes to put because;
(a) The referee was not asked to determine issues of merchantability or fitness for purpose, or any other ultimate issue in the case; and
(b) To the extent that issues remain to be determined, because they were not finally resolved by the adoption of the referee's report, the parties are at liberty to adduce evidence relevant to those questions whether or not the evidence was potentially relevant to issues being determined by the referee and whether or not the referee made observations regarding the state of that evidence in the course of his report.
(2) The referee was asked to consider and report to the Court on the question of what has caused certain defined 'Pool Failures', and what role (if any) Hetron 922 played in those failures. He was further asked to identify what proportion of the other pools manufactured in the relevant period by the plaintiffs would fail. ...
(3) As a consequence of the fact that the scientific investigation of the issues that were referred was not "finalized" at the time that the Referee's report was provided, the Referee could not answer the questions referred comprehensively; in particular, the referee could not explain the mechanism by which Hetron 922 caused pool failures, and could only "relate" the product to pool failures in some unarticulated way (at [104(2)]).
(4) There can be no doubt that a report which identified and articulated the mechanism of failure was contemplated by the parties when the issues were referred and would have been of greater utility to the Court in deciding the "ultimate issues". However, the plaintiffs moved the Court for the adoption of the report that Professor Burford had been able to produce at that time. The consequence is .. that consideration of scientific issues has not been exhausted and there will inevitably be an overlap in the matters the subject of evidence before the referee and the matters the subject of evidence before the Court.
(5) More particularly, scientific evidence that is relevant to an ultimate issue (such as merchantability) must still be adduced, even if the referee considered part of that evidence when assessing the anterior question of causation. An example of such a matter is the question of manufacturing standards. It cannot be that anything that is relevant both the anterior question of causation and also relevant to the ultimate question of merchantability is now barred from examination, merely because it was partially considered in relation to the anterior question of causation.
(6) It is notable, but not an essential element of the defendant's argument, that the referee did not engage extensively with the question of manufacturing standards, or express a positive finding about manufacturing standards, but merely referred to what he concluded was an absence of evidence of substandard manufacturing (at [104(2)]). One reason for the absence of any detailed consideration is that the referee himself purposely excluded evidence relating to successful pool manufacturers on the basis that it would add "unsustainable complexity" (at [64]-[65]).
The defendants second and alternative argument included the following parameters :
(1) The evidence relevant to the argument identified by the Court is also relevant to issues that do not turn upon establishing that the defendant's resin was used in some way that was "substandard" and consequently, that do not raise any conflict with the observation of the referee that has given rise to the concern.
(2) It remains open to the defendant to argue that the product was not unmerchantable because it was plainly capable of being used successfully in the tie layer of swimming pools. There may be a range of "standard" manufacturing methods, some of which lead to blistering and some of which do not. Evidence of successful use of Hetron 922 by other swimming-pool manufacturers suggests that appropriate methods for successfully using Hetron 922 must exist.
(3) It is not the case that unless the defendant proves that Tranquility used "substandard" manufacturing techniques, then Tranquility's claim that the resin was unmerchantable is made out. On the contrary, for the purpose of proving a breach of contractual warranties, the onus of proving that Hetron 922 was "defective" (and hence unmerchantable or unfit for purpose) rests on Tranquility at all times.
The defendants answer to question (ii) was put inter alia as follows :
(1) The "certain pools" referred to in the definition of "Pool Failures" were the 12 pools selected by the parties and subjected to scientific analysis and report; but
(2) The report was not confined to 12 pools, because the fourth question required that the referee attempt to extrapolate from his conclusions in connection with the 12 identified pools and estimate how many of the pools constructed with the "Product" would fail.
(3) The answer to the question which does seek an extrapolation beyond the 12 pools was plainly of limited utility. The referee's answer to what he identified as question (3) was that: "It is probable that over a decade most, if not all, Pools will fail".
(4) That conclusion does not serve to discharge the plaintiffs' burden of proof other than to the extent that it establishes that 50% of pools will fail.
Before giving the Court's decision it remains to add that the defendant's reply submissions included the following paragraph :
(1) While the Court will not entertain a submission that there is no connection between the pool failures and the use of Hetron 922, any argument in connection with the ultimate issues that is consistent with that finding, and any evidence relevant to such an argument, remain open to the defendant.
(2) Accordingly, issues that remain open include whether Hetron 922 was merchantable and the closely associated issue of whether the failures experienced by Tranquility are a consequence of its failure to properly use the product.
(3) That factual issue is of relevance to the question of whether the alleged representations were misleading and to questions of contributory negligence.
Also before giving the Court's decision it is appropriate to examine certain of the defendant's defences. I proceed accordingly
Huntsman's defences - the 12 pools only contention
In final address Huntsman indicated that it no longer pressed a previous argument that the reference was confined to 12 pools only: T1088.30.
Huntsman's defences - the re-agitation by Tranquility argument
The position in this regard may be summarised as follows:
(1) Huntsman has repeatedly submitted that it was Tranquility, not Huntsman that first attempted to "re-open" the findings of the Referee. It is not clear what the consequence of this submission is said to be.
(2) If it is suggested that the plaintiffs have in any way waived the benefit of the Report, or are by their conduct since its adoption somehow estopped from relying upon its findings, then such a claim has never been pleaded.
(3) The subject matter of the two reports of Professor George served after the adoption of the Referee's report and before service of Dr Pilato's first report, is dealt with below. Neither attempted to reargue any matter before the Referee.
(4) In respect of the number of pools expected to fail, Tranquility has adduced statistical evidence of the number expected to fail as this is relevant to the quantum of their claim, and is an issue which was not determined by the Referee (who only determined that "most, if not all" pools would fail).
Huntsman's defences - the "substandard manufacturing" finding
The position in this regard may be summarised as follows :
(1) Huntsman appears to be submitting that the Referee's statement at paragraph [104](2) that "[t] here is no evidence to show that other changes in manufacturing occurred at Tranquility during the relevant period, nor is there any evidence to suggest that substandard manufacturing standards existed" was an "observation" and not a "finding" (with the consequence that it is not binding upon the parties and the Court).
(2) In the context in which it appears, this "observation" has all the force of a finding. The most important part of the context is that the one of the questions that the Order for Reference asked the Referee to answer was "What other factors (if any) have played a role in the Pool Failures"?
(3) In his reasons for adopting the Report in whole, Bryson AJ noted that the questions as posed in paragraph [104] of the Report were put in somewhat different terms. His Honour goes on to state, however, that the answer to this question "is to be understood from the terms of the report as a whole" [at [10]].
(4) The Referee noted [at [46]] that "there is general agreement between the experts that Tranquility is regarded as a competent Pool manufacturer (see summary Points of Agreement, 11 August 2007) and there is no evidence that has been produced to indicate that significant personnel changes or changes in methods occurred during the relevant manufacturing period". The "Points of Agreement" between Professors George and Shanks referred to stated relevantly that:
All evidence indicates that there were no inherent problems in manufacturing and, as noted by the referee, there was agreement (at Meeting 1 and Meeting 2) that the manufacturing process at Tranquility was at the upper end of the spectrum and not implicated in the failure.
(5) The Referee was asked to investigate and report on, inter alia, the questions of whether Hetron 922 had caused the Pool Failures and whether any other cause could be identified by him. In the course of so doing, he investigated, among other things, Tranquility's manufacturing methods. This is far from surprising. The universe of possibilities as to what could have caused the Pool Failures, either alone or in combination, was:
(a) something inherent in the Hetron 922 (including its additives);
(b) something inherent in another component (such as the glass); and/or
(c) Tranquility's manufacturing methods.
(6) It was essential that the Referee consider the possibility that the Pool Failures were caused by deficient manufacturing.
(7) But in circumstances where:
(a) the experts of both parties agreed as to the excellence of the manufacturing method;
(b) there was no other evidence of deficient manufacturing; and
(c) there were no failures with any other resin despite the fact that the same manufacturing methods and same personnel were involved,
it was not surprising that the Referee concluded he could "rule out" substandard manufacturing as a cause.
(8) That the Referee expressed his conclusion without using the words "I find" does not alter the fact that it was indeed a finding. The Referee was not a lawyer, but a scientist. His reasons " are not to be construed minutely and finally with an eye keenly attuned to the perception of error " [ Politis v Federal Commissioner of Taxation (1988) 16 ALD 707 at 708 per Lockhart J] .
(9) The Referee was asked to investigate and report on the question of whether there were other factors which materially contributed to the Pool Failures. He did so. He expressed his conclusion on this question in the part of the Report - paragraph [104] - where he was expressing his final findings. It follows that his conclusion, in the context in which it appears, that there was no evidence of substandard manufacturing standards, is a finding that there were none.
(10) Huntsman submits that the Referee did not consider the question of manufacturing standards (essential to the question of whether there substandard manufacturing standards) because he purposely excluded such evidence. This was an argument agitated by Huntsman before Bryson AJ in support of their submission that the Report ought be rejected. His Honour stated:
[35] The Defence denies allegations made by the plaintiffs that the pool failures have resulted from use of Hetron 922 and that Hetron 922 is not of merchantable quality, and has given particulars of those denials in paras 20 and 27 of the Defence.
[36] These particulars make a contention upon which the defendant places great reliance, to the effect that at or around the period when it supplied Hetron 922 to the plaintiffs, the defendant supplied the same product to a number of other purchasers some of whom used the product to manufacture swimming pools; and that the defendant has not received and is not aware of any complaints in relation to the product supplied to those purchasers. (Evidence shows that there was one complaint, which was not pursued). The Particulars are carefully crafted to say, and to say no more than that there had been no complaints; the Particulars do not say how such of the defendant's purchasers as used Hetron 922 in swimming pools made use of the product, and do not say that there was in fact no blistering or other difficulty. One can, I suppose, put as much or as little detail into particulars of a denial in a pleading as one chooses, the object being to avoid prejudice by surprise, possible adjournment or other causes of delay in the course of a hearing. The particulars and what they disclose about the defendant's position turn essentially on the absence of complaints and not on any underlying substantial matter about what took place, and embark only in the most minimal way on a demonstration of facts supporting the denials that Hetron 922 caused the blistering, and that Hetron 922 was not of merchantable quality. There were some references to these contentions of the defendant relating to supply to others and the absence of complaint in the course of the reference. Evidence on behalf of the defendant showed that the Hetron 922 supplied to the plaintiffs was only 11.14% (that is, about one ninth) of the total quantities of that product supplied to swimming pool manufacturers. It was made clear to the Referee during the reference that the facts in para 20 of the Defence were relied on. It must be said, from the terms of the Report and also from other material showing what took place during the reference, that the Referee took very little notice of them. I do not see this as inappropriate.
[37] The fact if it is established that the defendant supplied Hetron 922 to a number of other manufacturers and received no substantial complaints enters hardly at all on the subject matters of the Reference. The swimming pool manufacturers were referred to only by a code in the material produced by the defendant; their names and other identifying particulars were not given. Unless material was brought forward showing who the purchasers were, which of them made swimming pools or any other products which are in any way relevant, how many they made, what their manufacturing techniques were, to what uses their products were put, and the contractual terms on which they dealt with the defendant and with purchasers from them, the subject of any inference to be drawn from the defendant's experience in dealing with them, with respect to complaints or in any other respect, is not really opened for consideration. Considerations of those kinds could not begin because the defendant did not bring forward for the Referee's consideration, or bring to the knowledge of the plaintiffs, any material beyond particulars of the quantities of product supplied, and did not identify the particular customers who purchased the product. The defendant declined to identify the purchasers, claiming that the information was commercial-in-confidence. In the absence of that information, there were no available lines of inquiry which could have led to any real understanding of what happened to the Hetron 922 in the hands of purchasers, or of whether the absence of complaints by purchasers had any real force or significance. The Referee referred to the incidence of pool failures for other manufacturers using Hetron 922 at paras 64 and 65 of his Report. He dealt with the matter briefly indeed. He said that (para 65): "In practical terms I am satisfied that an extension to other Pools might add unsustainable complexity, time and cost to this matter." This treated the defendant gently indeed. The complexity included overcoming the defendant's refusal to identify the other pool manufacturers, and embarking on comprehensive investigation into their business and affairs which the defendant had not undertaken, or offered to undertake, or contended was relevant; indeed the defendant had put a mask over the subject by referring only to the absence of complaints and not to the underlying facts.
[38] ... The experience of others in using the product is no doubt relevant, but only if all relevant circumstances are known and are considered. The key to any such investigation was in the defendant's hands, and the defendant did not produce the key.
[39] The defendant could have brought forward information or evidence about what indeed happened to Hetron 922 in the hands of other manufacturers; but did not do so. The defendant did not formulate its contention about the relevance about the whole subject in any way which opened what the manufacturers did; the matter put forward was limited to the absence of complaints. It is not in my judgement a criticism of the Referee that he did not point out or bring the defendant around to the view that much more was necessary before its experience with other pool manufacturers was any basis for any useful conclusion.
(11) The Referee was asked to investigate and report on what caused the Pool Failures, whether the Hetron 922 played a role and whether any other factor played a role. It would have been obvious that, at the commencement of the investigation, one of the possible causes was deficient manufacturing. If Huntsman wished to contend that deficient manufacturing was a cause of the Pool Failures, then it was obliged to bring forward that evidence before the Referee. As the NSW Court of Appeal stated in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563, a reference is not "to be treated as some kind of warm-up for the real contest".
(12) Huntsman is bound by the consequences of its conduct. It failed to adduce evidence and its own expert agreed with the expert of the plaintiffs. The Referee had no other choice but to make the finding that he did.
(13) Huntsman's contributory negligence defence was first pleaded by the defendant in its Further Amended Defence filed on or about 11 May 2010, almost exactly three years after the Order for Reference. It is not open for the defendant to in substance re-open a matter that had been decided by the Referee, merely by amending its pleading.
Decision
In what follows the plaintiffs submissions are generally adopted as correct.
In short :
(1) The consequence of the Court's unqualified adoption of the Report is that:
(a) the allegation in paragraph 20 of the Defence cannot be made out; and
(b) the defendant is not able to make any submission or ask the Court to make any finding of fact in accordance with the particulars to that paragraph, which particulars have been adopted as the basis for the pleading at paragraph 27 (which denies that the Product was not merchantable or fit for the purpose of use in the barrier layer of swimming pools).
(2) The Referee's first finding is that the product caused the pool failures.
(3) The Referee's second finding is (relevantly) that there is no "evidence to suggest that substandard manufacturing standards existed" at the time of the manufacture of the pools incorporating the Product.
(4) The Referee was asked to make a binding determination about the causes of the pool failures. The only alternatives were the Product, other components (such as glass), deficient manufacturing procedures or a combination of these factors. In those circumstances, a finding that there is no evidence of substandard manufacturing standards is a finding that there were no substandard manufacturing standards.
(5) The Referee's third finding is that "most, if not all Pools will fail".
(6) The plaintiffs correctly accept that further evidence is required to give precision to the word "most".
(7) The above-described three findings do not, of themselves, determine any of Tranquility's causes of action, whether in contract or pursuant to the Trade Practices Act.
(8) They are nevertheless deemed to be findings of the Court which the parties are not permitted to contradict and which this Court is bound to accept. Thus, in Wenco Industrial Pty Ltd v W W Industries Pty Ltd [2009] VSCA 191 at [11] per Redlich & Bongiorno JJA and Beach AJA ], the Victorian Court of Appeal stated:
The orders of [the trial judge] adopting the referee's report were interlocutory. There was no final disposition of the rights of the parties. The referee's answers in response to the reference and the Court's unqualified adoption of them were not decisive of the applicant's proceedings. The report quantified certain matters prior to the determination of liability issues by the Court. Yet the parties were bound by the answers. They could not subsequently advance argument or adduce further evidence designed to demonstrate that the answers were wrongly determined Fidelitas Shipping Co Limited v V/O Exportchleb [1966] 1 QB 630 at 642 per Diplock LJ. The only remedy the parties have is by way of appeal from the interlocutory order made.
(9) Thus, it is not open to the parties to contradict findings in fact made by the Referee and adopted by the Court, whether or not they are "ultimate findings".
(10) Australian Energy Limited v Lennard Oil NL (No 2) [1988] 2 Qd R 230 - stands for the proposition that where the orders of a Court adopting a report are ambiguous, those orders are to be construed conformably with the reasons of that Court in pronouncing those orders.
(11) In this case, the order made by Bryson AJ was that the Report "be adopted in whole". There is no ambiguity in that order requiring clarification by reference to his Honour's reasons.
(12) The result is that the only relevant matters now before the Court are the Referee's conclusions and reasons, and the order for adoption.
A more precise identification of the further issues of fact and/or law requiring to be determined in these proceedings
A more precise summation of the issues of fact and/or requiring to be determined by the Court is as follows :
(1) the extent to which the Report is binding on the parties and the Court;
(2) on the plaintiffs' Trade Practices Act claims, whether:
(a) the pleaded representations ("the Representations") were made,
(b) any or all of the Representations were false, misleading or deceptive,
(c) the Representations, alone or in combination, were a material inducement in the purchase and use by the plaintiffs of Huntsman's Hetron 922 in the barrier layer of its fibreglass swimming pools,
(d) the use of Hetron 922 materially contributed to the Pool Failures, and
(e) whether Tranquility failed to take reasonable care in the manufacture of the Failed Pools, and if so, whether that failure materially contributed to the Pool failures;
(3) on the plaintiffs' claims in contract, whether:
(a) Huntsman is permitted to rely upon its terms of contract excluding and limiting liability for breach of contract,
(b) the Hetron 922 supplied to the plaintiffs was of merchantable quality and/or fit for the purpose of use in the barrier layer of swimming pools, and
(c) those breaches of contract materially contributed to the Pool Failures;
(4) the quantum of Tranquility's loss for the destruction of its business;
(5) the quantum of Tranquility's consequential losses;
(6) the quantum of Tranquility's present liability to its customers, which in turn depends upon:
(a) the terms of any contract between Tranquility and its customers,
(b) whether Tranquility breached that contract,
(c) whether Tranquility is otherwise liable to its customers pursuant to a provision of part 2C of the Home Building Act 1989 (NSW) and/or division 2A, part V of the Trade Practices Act 1974 (Cth),
(d) whether any of these causes of action (by customer against Tranquility) are statute-barred, and
(e) whether Tranquility's liability to its customers is "damage",
(f) the customers' legal entitlement as against Tranquility, and
(g) the quantification/assessment of that entitlement; and
(7) the quantum of Tranquility's likely liability to future customers, which depends upon the same issues as set out in (f) above plus the likely number of pools that will Fail in such a way that Tranquility will be liable in respect of that Failure.
It is further convenient to at this time focus on the consequences of the adoption both in relation to the Trade Practices Act claim as well as the contract claim. I proceed accordingly:
Consequences of adoption - the trade practices act claim
(1) The plaintiffs, to make out the defendant's liability pursuant to breach of sections 52 and 53(a) of the Trade Practices Act 1974 (Cth), need to establish, on the balance of probabilities, that:
(a) the four Representations pleaded in paragraphs 10 and 11 of the Summons were made;
(b) one or more of those Representations was or were misleading or deceptive (in respect of section 52) or in breach of section 53;
(c) the breach(es) of section 52 and/or 53(a) caused (materially contributed to) the Pool Failures, and hence the plaintiffs' loss and damage flowing therefrom, which in turn requires the plaintiffs to establish that:
i. the Representations were a material inducement in the purchase of the Product; and
ii. use of the Product was a cause of the Pool Failures.
(2) The defendant has, in turn, pleaded in paragraphs 36, 37 and 38 of the Defence, a claim for contributory negligence, which, in the event that the plaintiffs establish the foregoing matters to the satisfaction of the Court, requires the defendant to establish, on the balance of probabilities, that:
(a) the plaintiffs, failed to take reasonable care in the manufacturing of the Failed Pools; and
(b) that failure was a cause of the Pool Failures.
(3) The Report has not decided whether the Representations were made, whether they were breached (though see section D below in respect of the Fourth Representation), or whether the plaintiffs relied upon them. Those matters must be established by other evidence.
(4) The Report has, however, decided - finally - that the Product caused the Pool Failures and that there was no contributory negligence.
(5) It must follow from the Referee's finding that there is no "evidence to suggest that substandard manufacturing standards existed" that not only can the defendant not make out its case of contributory negligence at paragraphs 36 - 38 of the Defence , but that it also cannot make out the matters in paragraphs 20(d) and (e) of the Defence.
(6) It is no longer open to the defendant to submit that the plaintiffs failed to construct swimming pools "in a good and workmanlike manner" or to use "reasonable practices in the manufacture of swimming pools". A failure to use "reasonable practices" is to use "substandard manufacturing standards" and that issue has been decided by the Referee adversely to the defendant.
Consequences of adoption - the contract claim
(7) The plaintiffs quite rightly accept that the issue of whether the Product was merchantable or whether it was fit for the purpose of use in the barrier layer of fibreglass swimming pools has not been finally decided by the Referee.
(8) Although that ultimate issue remains to be decided, the parties remain bound by the Referee's findings. The parties cannot make a submission (or advocate a finding) which, as a critical step in its reasoning, depends upon a proposition of fact or law which contradicts the Report. Those findings are binding for all purposes, including the plaintiffs' claim in contract. They are not limited to the plaintiffs' claim under the Trade Practices Act .
(9) The defendant can no longer assert, for any purpose, including its claim that the Product is merchantable and/or fit for purpose, that the Product did not cause the Pool Failures, or that substandard manufacturing procedures on its part contributed to such failures. It follows that the defendant may not assert the matters particularised under paragraph 20(d) of the Defence - insufficient wet-out, overly variable laminate thickness and incomplete cure - as evidence of negligent manufacture, rather than as flowing the use of the Product in the barrier layer.
(10) The defendant may not rely on these matters for the purposes of paragraph 20 of its Defence (on the issue of causation) or paragraph 36 (contributory negligence), or paragraph 27 (merchantability or fitness for purpose).
(11) The defendant is therefore limited to arguing, by reference to the "other manufacturers" evidence particularised under paragraph 20(e) of the Defence, that the Product is merchantable and/or fit for purpose by reason of the fact that the plaintiffs' manufacturing method is distinct from those of the typical user of the Product. That is, the defendant must establish that the plaintiff did not use the Product in the ordinary way.
(12) It will not be sufficient for the defendant to establish, if it can (the issue is in contest), that although the plaintiffs used the Product in the ordinary way, they did so utilising some deficient manufacturing process.
(13) Two further points remain
(a) The first is the reference in paragraph [7] of the defendant's submission to the Referee's refusal to include evidence going to other manufacturers. The Referee was not required to conduct the reference in the manner of a Court hearing. The adoption of the Report in whole by the Court makes this complaint irrelevant for the issues that remain to be decided. To the extent that evidence from other manufacturers could have influenced matters decided by the Referee, the time for complaint was before Bryson AJ.
(b) Second, this evidence was properly excluded by the Referee because, at that time the defendant refused to disclose the identity of these others manufacturers: see paragraphs [14] and [15] of the affidavits of Noel Godfrey dated 15 June 2007, and exhibits NG-2 and NG-3 thereto. The defendant has only done so relatively recently. The defendant is bound by the consequences of its own conduct.
How to further the enquiry?
Notwithstanding the finding that the report is binding upon the Court and the parties, both parties contended that this was an appropriate case in which [against the event that the Court's decision on the binding nature of the referee's report may be incorrect] the Court should nonetheless proceed by examining the issues. Whilst I have had a degree of anxiety in relation to the prudence of the Court acceding to this request the fact is that this is a very unusual case affecting numerous individuals and may well be approved very likely to go to the Court of Appeal. I proceed accordingly to deal with the scientific evidence and its evaluation.
Returning to giving a hopefully user-friendly summation of how fibreglass pools of manufactured
Explaining some of the basics
There are a number of terms which require to be understood. It seems convenient to set out a glossary of terms at the end of these reasons.
The process
Fibreglass pools are manufactured:
(1) on a mould using a specialised type of spray/chopper gun;
(2) in layers:
(a) all of which comprise a resin (either vinyl ester or polyester); and
(b) certain of which (the barrier and structural layers) also comprise glass fibre.
In the layers comprising resin and glass fibre (the barrier and structural layer):
(1) the combination of resin and glass provides toughness and durability;
(2) the function of the resin is to hold the glass fibres in those layers together;
(3) the glass fibres and resin are fed into the chopper gun; the chopper gun chops the glass fibres and mixes them with the resin; and then sprayed on the mould depositing a thin coat of the mixture. The process is repeated until the required thickness is achieved;
(4) once the resin and fibreglass have been sprayed onto the preceding layer, the material is " laminated" or " rolled " by a laminator using a roller similar to a paint roller) to ensure that:
(a) the fibreglass bundles are "wetted" by the resin;
(b) air is released; and
(c) the fibreglass is "de-bundled" so that the resin "wets" the individual fibres.
The viscosity of the sprayed material is important:
(1) The material sprayed must, as it leaves the chopper gun, have a viscosity allowing it to be sprayed towards and onto the mould;
(2) The material must nonetheless, once it hits the mould, have a viscosity sufficient to hold the position on the mould in which it is placed by the spray gun;
(3) The material must not "slump" or drape down the side of the mould while it is curing;
(4) The variable viscosities necessary to achieve this result are provided by mixing in a thixotrope [a substance which promotes the ability of a liquid to change from a "thicker" (viscous, or less free flowing) state to a "thinner" (less viscous, or more free flowing) state, and back again].
R esin
In this case, the resin used in the barrier layer was a vinyl ester resin.
The product supplied by the defendant was Hetron 922 comprising:
(1) vinyl ester resin;
(2) styrene (a solvent whose function is to create cross links in the vinyl ester resin, thereby adding to the strength of the finished product);
(3) various components used in the manufacture of the vinyl ester resin, including ethylene glycol;
(4) an initiator (see below - of marginal relevance to the issues);
(5) a promoter/stabilizer (copper naphthenate - see below); and
(6) a thixotrope (see below - of critical relevance to the issues).
Glass Fibres
The glass fibres:
(1) are manufactured in rovings (a "string" comprising glass fibres drawn out but not twisted);
(2) are coated with and bound together by "sizing" which:
(a) is a protective coating on the bundles of fibres;
(b) comprises polyvinyl acetate or vinyl acetate ethylene polymer;
(c) is susceptible to hydrolysis (chemical breakdown due to reaction with water usually in the presence of a catalyst such as alkali);
(d) enables the rovings to be bound together in a roll (called a "cheese");
(e) enable the fibreglass rovings to be unravelled from the "cheese" and fed into a chopper gun in which the glass fibres are chopped into small pieces and mixed with the vinyl ester resin and sprayed onto the pool mould (see below). The size holds the bundles of fibres together and protects them from abrasive damage.
Layers
Gelcoat Layer
(1) The first layer to be applied to the swimming pool mould (and thus the outer or top layer when the pool shell is removed from the mould) is the gelcoat layer.
(2) The gelcoat layer:
(a) is comprised of polyester resin;
(b) does not contain fibreglass,
(c) forms a semi-permeable membrane through which water will migrate.
(3) The gelcoat layer is a cosmetic layer and provides the colour of the pool:
(a) The pool can be a tinted monochrome colour (blue, sand, white or jade). These comprise approximately 20% of the relevant Tranquility pools.
(b) Or the colour can be a "shimmering" colour (with highlights) usually within a clear gelcoat. Such pools comprise 80% of the relevant Tranquility pools.
Mist Layer
In most of the 80% of cases where the gelcoat is clear (that is in the case of non-monochrome gelcoats), the next coat is the mist layer which;
(a) does not contain fibreglass
(b) is comprised of tinted vinyl ester resin (and provide the pool colour and so that the pool does not take on the colour of the barrier layer - see below)
Gelcoats originally came solely in monochrome " solid " colours, usually a shade of blue, white, "sand" or jade. Tranquility, however, like some other fibreglass swimming pool manufacturers, had developed an array of specialised " non-solid " colours which, to a lightly tinted gelcoat, added mica for a "shimmering" effect and/or gelcoat chips and dust for a "speckled" effect.
Barrier Layer
The next layer (in 80% of cases the third layer) is the barrier layer (also called the tie, or corrosion layer);
(a) The role of which is to prevent pool water which is migrating through the gelcoat layer from attacking the fibreglass and general purpose resin in the structural layers (see below);
(b) In Tranquility pools is comprised of fibreglass and vinyl ester resin, as described above.
Structural Layers
The next two layers (in 80% of the cases the fourth and fifth layers) are the "structural" layers of the pool which:
(a) provide the strength of the pool;
(b) are comprised of fibreglass and general purpose resin.
Final Layer
The final layer is a gelcoat like product which:
(a) is sprayed on the "back" of the shell;
(b) whose only function is to improve the appearance of the "back" of the finished product.
The gelcoat, barrier/tie/corrosion layers and the structural layers of the pool comprise the " laminate" of the pool.
Resin
Best practice is to use vinyl ester resin in the barrier layer because it is:
(1) less susceptible to hydrolysis;
(2) tougher (than the alternative, viz polyester resin);
(3) susceptible to co-mingling, so that it is easier for subsequent pool layers to bond to it.
Polyester resin is:
(1) now uncommonly used in the barrier layer;
(2) but used in the gelcoat and structural layers (albeit in differing varieties);
(3) susceptible to hydrolysis:
(a) which is the reason it is not suitable for use in the barrier layer;
(b) is nonetheless suitable for use in the gelcoat layer because there is no glass fibre in the gelcoat layer;
(c) is nonetheless suitable for use in the structural layer because the structural layer is protected by the barrier layer (that being the purpose of the barrier layer).
As mentioned, the vinyl ester resin used by Tranquility was Hetron 922 which comprised:
(1) vinyl ester resin;
(2) styrene;
(3) other (minor) components used in the manufacture of the vinyl ester resin including ethylene glycol;
(4) an initiator (see below);
(5) a promotor (see below); and
(6) a thixotrope.
Because of the manner in which the barrier layer is applied to the pool mould (see above) it is necessary that the vinyl ester resin, which is a liquid:
(1) have the correct flow properties so that it can be sprayed onto the mould, cover the mould, not slump on the mould; and then,
(2) cure or set so that it becomes solid.
In order to achieve this a number of steps must be taken.
Initiator
The first is to add to the mix a catalyst or initiator which:
(1) initiates the process whereby the liquid of vinyl ester resin can be converted to a gel and to then set;
(2) is a peroxide (methyl ethyl ketone peroxide);
(3) is mechanically metered (1.5%, 2%, 2.5%) by spray gun settings as determined by the operator;
(4) is adjusted in amount depending on the temperature at the time.
Promoter
To ensure that the initiator operates effectively regardless of the temperature it is necessary to add a promoter:
(1) the function of which is to accelerate the decomposition of the initiator;
(2) one promoter added by Huntsman to Hetron 922 was copper naphthenate, the use of which decreases the heat produced during cure (and is thus an "exotherm") and lowers the temperature at which the resin/glass mixture solidifies.
(3) Another promoter added is cobalt octoate:
(a) less is needed when the weather is warmer so that;
(b) vinyl ester resin is provided in a "Winter" grade (with more promoter); or
(c) a "Summer" grade (with less promoter);
(d) this is usually (and in this case was) incorporated by the vinyl ester resin manufacturer at its factory so that the resin is:
(i) provided in a "promoted" form; and
(ii) either a Winter or Summer blend.
Thixotrope
Vinyl ester resins, when applied to a swimming pool mould as a part of a barrier layer, must also contain a thixotrope:
(1) the function of which is (as outlined above) to act as viscosity control agent and thus enable the resin to change from a liquid (high viscosity) state to a liquid of lower viscosity solution when pumped and sprayed, and to re-thicken when the material is at rest, thus enabling its ready application when sprayed onto intricate mould configurations such as for pools;
(2) in the absence of which the vinyl ester resin would be deposited onto the mould from the spray gun but would then run off or slump down the pool mould;
(3) which can either be incorporated into the vinyl ester resin by the resin manufacturer at its factory (in which case the vinyl ester resin is supplied to the pool manufacturer as " thixed ") or at the pool factory by the pool manufacturer - e.g. by Compass Pools - in which case the vinyl ester resin is described as " unthixed".
(4) the object of using a thixotrope is that the vinyl ester resin will have a:
(a) low viscosity at high shear [the strain produced by pressure in the structure of a substance when its layers are laterally shifted in relation to each other ] (so that it can be sprayed); and then
(b) high viscosity at low shear or rest (so that once it is on the mould it reunites quickly and sets);
(5) for example, toothpaste contains a thixotrope so that:
(a) it is in a gel form in the tube;
(b) remains at high viscosity at low shear (when transferred from the tube to the toothbrush); and
(c) has low viscosity at high shear (when brushed into the mouth).
Thixotropes can be either " unmodified" or "modified".
Unmodified thixotrope:
(1) comprises fumed silica;
(2) silica comprises SiO 2 and:
(a) is a highly purified "sand";
(b) is in the form of a fine powder (little like flour);
(3) "fumed" means that the SiO 2 is heated in order to make extremely fine particles.
The natural state of thixotrope is unmodified.
Unmodified fumed silica is naturally hydrophilic:
(1) that is wet by water;
(2) like an unwaxed motor car;
(3) like plain flour.
Unmodified fumed silica can be modified by putting a coating of silicone on the fine powders. This:
(1) Is done by the supplier;
(2) adds significant expense.
Modified fumed silica becomes hydrophobic:
(1) that is, it repels water;
(2) like a car waxed using a silicone car wax;
(3) like talcum powder (on which water "beads" up).
It is necessary to match the thixotrope (unmodified or modified) with the substance in which it is to function.
The thixotrope recommended for use with vinyl ester resins is a hydrophobic thixotrope, not a hydrophilic thixotrope.
Three thixotrope manufacturers (Degussa, Cabot and Wacker) recommended against hydrophilic thixotropes for vinyl ester resin.
Other manufacturers of vinyl ester resin used hydrophobic thixotrope (e.g. Derakane - which Tranquility used before they used Hetron 922).
These proceedings concern the use by Tranquility of Huntsman's Hetron 922 in the barrier layer of its swimming pools in the period 24 April 2002 to 21 April 2004 ("the Hetron Period"). Before proceeding to set out the basic history of the dealings between the parties (and the aftermath to those dealings), it is important to briefly set out the importance of the barrier layer.
Osmotic blistering
This may be explained as follows:
(1) All fibreglass in aqueous environments, principally swimming pools, spas and boat hulls, is vulnerable to a process known as "osmotic blistering". This process commences when water migrates into the laminate and reacts with certain compounds therein in a process known as " hydrolysis" .
(2) Unsaturated poly-ester resins (as are often used in the structural layers of fibreglass swimming pools) are known, for example, to be vulnerable to hydrolysis when in the presence of glass fibres. Another compound susceptible to hydrolysis is the protective coating on the glass fibres which is known as "sizing". The sizing usually comprises poly vinyl acetate or an ethylene vinyl acetate co-polymer.
(3) The process of "wet out" - ensuring as far as possible during the process of spraying and lamination that each glass fibre is covered with resin - is important, among other reasons, because the resin dissolves the sizing.
(4) In certain circumstances, the accumulation of the breakdown products of hydrolysis commences a process of " osmosis ", whereby water from a region of a low concentration of water-soluble materials (such as the water inside a pool) migrates through the semi-permeable cosmetic and mist layers to a region of a high concentration of water-soluble materials (the barrier and/or structural layers). This process builds up pressure inside the laminate which then leads to distortions in the surface of the laminate known as " blistering ".
(5) In many blisters, the pressure increases to the point where it bursts leaving a crack in the cosmetic layer. In such a case the water will react with the cobalt salts from the promoter in the resin to form a black reside of cobalt oxide. These are known as "blackspots".
History of dealings between Tranquility's principals and Huntsman
The plaintiffs' principals are Kevin Kahler and David Annakin. In 1977, Mr Annakin commenced employment with a fibreglass swimming pool manufacturer known as International Pools Pty Ltd ("International"). In 1986, Mr Kahler purchased International. In 1987, Mr Annakin became factory manager of International.
International used, at various times, two resins in the barrier layer of its pools manufactured by the defendant (then known as "Chemplex Sales (Australia) Pty Limited"). These resins were the vinyl ester resin then described as "Hetron 922" and a modified poly-ester resin known as "Aropol 7000".
In the period 1986 to 1993, International increased its sales from approximately 180 pools a year to approximately 1,500 pools a year - an increase of just over 35% annually for a period of seven years.
In 1993, however, International received a number of complaints from its customers that the pools it had sold were defective because they suffered from blisters and blackspot characteristic of osmotic blistering.
Mr Kahler and Mr Annakin formed the view that the osmosis outbreak was the result of the use of Aropol 7000. The seller of Aropol to International, Ferro Corporation (Aust) Pty Ltd ("Ferro"), commenced proceedings against International and related entities for the price of unpaid resin. Mr Kahler caused International and related entities to issue a cross-claim against Ferro alleging that the Aropol 7000 was defective. Ferro, in turn, issued a cross-claim against the defendant, the manufacturer.
Tranquility need only establish, in each case, breach, causation and damage. If breach is established, the second goes without saying and has not been contested and the third, with respect, is obvious.
Huntsman accepts that the alleged vicissitudes it has identified in its addendum submissions on orders cannot be taken into account if the Court makes an award pursuant to section 82 [see 20 T 1073.5-8; see TSR [421] - [426]].
In oral submissions, however, it submitted that the Court has the discretion to in any event discount damages awarded pursuant to section 82 (ie damages where the Court has determined there is an "actual" loss) by reason of section 87. Mr Sirtes SC said [T 1067.13-42; this submission is repeated at 1071.38-40, 1072.6-14 & 1074.35-38]:
And what we submit secondly is that even if s 82 is available with respect to the $36 million claim that the Court has a choice between s 87 and s 82 and ought in the interests of justice for the reasons we have set out in our addendum, make orders under s 87.
The relationship between s 82 and s 87 has been dealt with by the High Court in the case of I & L Securities which I don't believe is - your Honour is familiar with the case but I don't think it's been referred to directly. Can I give your Honour the citation and particular part of the judgment. It is dealt with - the question of 82/87 distinction is dealt with by the Chief Justice, Gleeson CJ and by Gaudron J and McHugh J in different parts of the judgment.
... the particular paragraph is that of Justice McHugh at 120. Can I just read very quickly what his Honour says. In one paragraph his Honour says, in relation to the 82/87 debate "With respect...reduce an award under s 82". The question his Honour was dealing with is, if a Court comes to the conclusion that someone has suffered damages and it finds it has suffered damages, can it reduce the damages under s 87. And what the Court, each of the Judges say you can't use s 87 to reduce damages that have actually been suffered.
His Honour says "Section 87 does not give...by the contravening conduct". Now we would submit that there are, in this case, a range of reasons set forth in our addendum submissions as to why the justice of the situation would commend your Honour, even if your Honour was against ours submission about whether or not these pool claimants' potential claims constitute a loss that's recognisable and compensable under s 82 that your Honour ought still fashion relief under s 87.
The Court accepts that the submission is directly contrary to the what was stated by the High Court in the case cited, namely I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109.
The headnote of the decision [at 110] records:
"Held ... By Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ, Kirby J not deciding, that s 87(1) did not confer a discretion to reduce or modify an award of damages made pursuant to s 82(1)".
This unambiguous and simple statement of principle is borne out by the judgments of the majority justices. The Chief Justice stated [at [20]]:
However, once the amount of the loss or damage suffered by contravening conduct is established, then that is the amount which, pursuant to s82, a plaintiff has a right to recover. That right is not made subject to s87, either expressly or by implication. There is no warrant for reading s87 as conferring upon a Court a discretionary power to take away, or modify, the right conferred by s82. And, when regard is had to the wide range of circumstances to which s87 might apply, it is not necessary to treat the power in s87 to make an order for part compensation as qualifying s82 in order to give that power ample scope for practical application.
Gaudron, Gummow & Hayne JJ noted [at [40]] that the Court of Appeal of Queensland held that section 87 provided a means by which a Court could provide compensation for only part of the damages to which the plaintiff would otherwise be entitled to pursuant to a cause of action under section 82. Their Honours rejected this view [at [61]]:
Nothing in the words of s82 or s87 requires or permits a Court to make orders which will compensate a person who has suffered loss or damage by conduct in contravention of a relevant provision of the Act for only part of the loss or damage which has been suffered by that person by that conduct and which will not be, or has not been, remedied by the making of some other order under s87.
Some reliance was placed on observations made by McHugh J. Yet his Honour stated quite plainly at the outset of his reasons for judgment, consistently with the other members of the Court (other than Kirby J), that " Section 87 does not confer any discretion to reduce the damages to which an applicant would otherwise be entitled under s 82". His Honour later expressed his reasons for this conclusion, saying, in part [ at [117] - [120]] :
Sections 82 and 87 provide complementary but independent powers. If there is any conflict between the two sections - and I do not think that there is - that conflict is best resolved by giving full effect to the specific provisions of s 82 when they apply. The conflict is then alleviated by treating the general provisions of s87 as a supplementary power to be used when an award under s 82 will not properly compensate the applicant for its loss or damage. Of course, there is nothing to stop a Court going directly to s 87 and including in the applicant's relief all the compensation that it could recover under s 82. But the terms of s87 provide no warrant for depriving an applicant of the right that s82 gives it.
... Section 87 does not give a Court the power to award damages compensating a claimant for part of the loss that it suffers. "It gives a Court the power to make orders that compensate the claimant in whole or in part for the loss or damage". Those two formulations are not equivalents. As I & L submits, nothing in s 87 suggests that the amount of a compensable loss may be reduced. Nor does anything in the section suggest the grounds upon which such a reduction might be made. Rather, the insertion of the words "in whole or in part for the loss" emphasises the availability of the remedies under s 87 in situations where those available under s80 and s82 are not appropriate, or are not sufficient, to remedy the loss or damage brought about or that may be brought about by the contravening conduct.
Callinan J also held that rights to damages pursuant to section 82 were not fettered or limited by section 87 [at [220]].
In my view the reasons of the High Court in I & L Securities could not be clearer. The Court - contrary to Huntsman's submissions - does not have the power or discretion to reduce damages to which Tranquility is lawfully entitled - damages which in the present case are designed to compensate the hundreds of customers affected by the consequences of Huntsman's wrongful conduct.
Sections 82 and 87 provide for separate remedies for breaches of sections 52 and 53(a) (among others). The Court accepts that the result in I & L Securities makes it plain that as in other cases where a plaintiff has alternate and inconsistent causes of action or remedies available (such as a client suing their solicitor in both contract and tort), it is entitled to elect at the point of judgment: United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 28 - 30 per Lord Atkin .
In any event, in respect of the 428 Present Complainants, Tranquility's claim pursuant to section 87 is only an alternative to its primary claim pursuant to section 82.
Huntsman's invocation of what McHugh J said in I & L Securities at [120], upon which it particularly relies [20 T 1067.28-42], not only provides no foundation for its submission that this Court has the discretion via section 87 to reduce damages that ought be awarded to Tranquility pursuant to section 82, it also provides the basis for holding that the course of action proposed by Huntsman in its addendum submissions is not available pursuant to section 87 either.
As Greenwood J noted in Khoury v Sidhu (No. 2) [2010] FCA 1320 at [67]:
The phrase "in whole or in part" does not suggest that the combination of orders that a Court makes under s 87 should do less than "provide for the full compensation for all the loss and damage that is not prevented by the making of the Court's orders": I & L Securities per Gaudron, Gummow and Hayne JJ at [53]; McHugh J at [120].
The orders proposed by Huntsman in this addendum offend this principle, and would result in under-compensation of the customers in at least the following respects [HS [368]]:
(1) customers with monochrome pools would have their pools ground back and resprayed resulting not in "conformity" with what they purchased (and Huntsman did not suggest in oral submissions that grindback & respray did result in "conformity");
(2) payment for monochrome pools would be "capped" at $15,000 per pool of monochrome pools despite the fact that the evidence of the only credible expert (Mr Tuckwell) shows that the cost would be substantially in excess of this; and
(3) payment for non-solid colours would be capped at $22,500 per pool despite the fact that the only credible evidence of the costs of doing a Tranquility "Nushell" is $32,000 per pool (plus vicissitudes and solatium) and that the costs of a Compass "Reshell" must be even greater due to the necessity of extending the "lip" such that it does not become a hazard, not to mention that replacement - restoring to the customers what each of them paid for - would be $87,000 per pool.
Section 87 does not provide a licence for under-compensation through some sort of balancing or bargaining process between plaintiff and defendant. The compensation principle of restoring to customers what they paid for is just as binding on the Court pursuant to that section as it is pursuant to section 82. If a customer is entitled to replacement, as Tranquility contends it is, this is just as true for orders made under section 87 as it is under section 82.
Tranquility submits and the Court accepts that Huntsman's submissions in this respect could accurately be characterised as an attempt to reintroduce the freestanding principle of reasonableness or proportionality.
In this respect, the proposed caps and reduction for alleged vicissitudes are particularly likely to lead to under-compensation. Under Huntsman's proposal, the funds assigned to pool owners would not only be capped at an amount insufficient to perform the method of rectification upon which they are based, but then are subject to a swingeing deduction of 35% for alleged and partly unspecified "uncertainties and vicissitudes".
In respect of the Future Complainants, the only relevant contingencies are the number of customers who will make a valid complaint against Tranquility. Whether such complainants might not commence proceedings, or whether they could be persuaded to accept a settlement sum less than what would compensate them for their loss, are not, matters which the Court could lawfully take into account in fashioning orders pursuant to section 87.
Tranquility submits and the Court accepts that it has established actual damage and hence an entitlement to damages pursuant to section 82 in respect of the 428 Present Complainants. Tranquility accepts that the Future Complainants - the further 143 estimated to report a complaint - must be the subject of an order pursuant to section 87. Tranquility contends and the Court accepts that the only orders that are capable of compensating those customers without imposing an injustice upon Huntsman are those proposed by it, especially as the fact that Huntsman is now not operating has the consequence that orders for indemnities and progress payments are inappropriate, being subject to the risk of Huntsman's insolvency.
Evidence taken on the voire dire
On only a few occasions the Court permitted evidence to be taken on the voire dire, generally with the acquiescence of the parties.
The parties have usefully summarised those occasions in the following tables:
Witness
Transcript Reference
Class of Evidence
Why taken on Voir Dire
Smyth, Glenn
3/11/10 T204 line 1 - 207 line 37
Owners' hopes/subjective intentions regarding pool rectification
(see legal argument at T 189 line 38to 192 line 50) Global customer evidence relevance objection (Huntsman made concession after this witness that this class of evidence could be admitted subject to relevance - see T243 at line 12 - 34)
Mewett, Ian
VOIR DIRE 1
11/11/10 T572 line 1 - T574 line 36
XXN on para 17 of Mewett affidavit 10/6/10 (opinion evidence re Derakane v Hetron, equivalence issues)
Argument as to whether Mewett in a position to give specialised evidence of scientific matters. Judge to permit Counsel to return to this matter in final address, as to whether evidence should be treated as expert or lay evidence (see argument and decision from T568 line 33 to T571 line 27)
VOIR DIRE 2
11/11/10 T582 line 1 -T582 line 22
Questions in re-examination as to Mewett's evidence in XXN about the differences between a resin containing hydrophilic thixotrope & a resin containing hydrophobic thixotrope
As above
VOIR DIRE 3
11/11/10 T585 line 1 to T586 line 31
Further question arising from re-examination, as to whether Mewett's opinions expressed in XXN about hydrophilic v hydrophobic thixotropes were based on advice he received
As above (and only put as to Mewett's state of mind - see T585 at 31 to 36)
Evans, Christopher
30/11/10 T 957 line 1 - T972 line 3
Evans' evidence as to cost of replacement and whether that being put forward as expert evidence as to reasonable cost of replacement
Judge to permit Counsel to return to this matter in final address (see legal argument from T950 line 32 and Judge's ruling at T956 at line 25)
It is common ground that after many witnesses called by the plaintiff had been cross-examined the parties came to an agreement whereunder the class of evidence dealing with the owner's hopes/subjective intentions regarding pool rectification could be admitted subject to relevance. In that regard the evidence of Mr Glenn is allowed.
The evidence given by Mr Mewett in the voire dire (as identified in the above schedule] is allowed and is generally dealt with as a matter of weight.
The evidence of Mr Evans is rejected and dealt with above.
The way forward
The Court has attempted to deal with all of the matters of disagreement between the parties. The Court has attempted to resolve a detailed debate between the parties that went to the form of orders that would be appropriate. The parties indicated that they wished to have an opportunity to attempt to agree the form of orders that would be made, in relation to pools that have not yet failed, under s 87 of the Trade Practices Act 1974 (Cth), and I am satisfied this is appropriate. The parties are to bring in short minutes of order consistent with these reasons.
Due to the findings I reached in relation to the destruction of business claim, it will be necessary for the parties to adduce brief evidence from the accounting experts, consistent with my findings, in order to calculate the amount of damages payable under that head of damage.
As noted above, the parties will be given an opportunity to briefly address as to what, if any, adjustment should be made to the damages awarded to the plaintiffs to take account of the taxation consequences of the Court's findings.
Glossary of terms
It seems appropriate to set out a glossary of terms relevant to the issues of this case:
Term
Definition
Accelerator
An ingredient added to a resin by its manufacturer which speeds up the curing reaction.
Acetic Acid
The material produced following Hydrolysis of Sizing.
Aerosil 200
A Hydrophilic Thixotrope manufactured by Degussa.
Aerosil 202
A Hydrophobic Thixotrope manufactured by Degussa.
Barrier Layer
Layer (containing vinyl ester resin and fibreglass) to protect structural layers from 'attack' by pool water.
Blackspot
The deposit (generally cobalt oxide) from the release of Blister fluids into the pool when the osmotic Blister bursts. The cobalt salts are from the Promoter included in the resin.
Blister
The distortion of the surface of a pool due to pressure built up in the Laminate by the process of osmosis. If the blister bursts then Blackspot results.
Catalyst
Incorrect (but extremely widely used) word used to describe an Initiator.
Cheese
A tubeless package of continuous fibreglass Rovings as delivered by the roving manufacturer.
Chopper
The 'gun' used in the production of a fibreglass pool which chops fibreglass Rovings; mixes them with catalysed resin; and then sprays the mixture into the pool mould.
Copper Naphthenate
A Promoter introduced in December 2000 by Huntsman in its production of Hetron 922. See F-CAT technology.
Corrosion Layer
Synonymous term for Barrier Layer
Cosmetic Layer
The first layer applied in the manufacture of a fibreglass pool. A layer which provides or contributes to pool colour.
Crosslinking
The chemical process occurring when the resin and styrene react to transform the resin to a gel and then to a solid. The rate of this process is controlled by the amount of initiator and promoter used in building the pool.
Cure
The action of crosslinking the resin and bonding it to the fibreglass
Derakane 411
An epoxy based Vinyl Ester Resin manufactured by Dow Chemicals.
Diffusion
The process of migration of a substance from a region of low concentration to a region of high concentration. For example migration of water molecules across the Gelcoat. This occurs as vapour unless the water can condense at a site in the Laminate.
Estarez 7222
An epoxy based Vinyl Ester Resin manufactured by Huntsman.
Ethylene Glycol
A water soluble chemical introduced in December 2000 by Huntsman in its production of Hetron 922.
F-CAT Technology
Technology patented by Ashland Inc and introduced in December 2000 by Huntsman in its production of Hetron 922.
FTIR
Fourier Transform Infrared Spectroscopy. An analytical technique used to determine the chemical composition of materials.
Fumed Silica
A high purity free-flowing synthetic silica powder that is used as a Hydrophilic Thixotrope.
Gelcoat
A polyester resin (nearly always tinted) used in the Cosmetic layer. Also used as a name for the Cosmetic Layer itself.
Hetron 922
An epoxy based Vinyl Ester Resin manufactured by Huntsman under licence from Ashland Inc.
Hydrolysis
A chemical breakdown due to reaction with water usually in the presence of a catalyst such as an alkali.
Hydrophilic
Type of thixotrope.
From the Greek:- hydros = water; philia = love.
Un treated fumed silica.
Oxford: "Having a tendency to mix with, dissolve in, or be wetted by water. The opposite of hydrophobic."
Hydrophobic
Type of thixotrope.
From the Greek:- hydros = water; phobos = fear.
Treated fumed silica.
Oxford: "Tending to repel or fail to mix with water. The opposite of hydrophilic."
Initiator
An ingredient added during pool manufacture to instigate cure by reacting with the promoter added to the resin by its manufacturer. This starts a chemical reaction between the resin and the styrene monomer in the resin, resulting in the 'mix' becoming a solid.
Laminate
The combination of all manufactured layers of a fibreglass pool.
Micrograph
A photograph taken through a microscope.
Mist Layer
In most pools, the 2 nd layer and that which provides or contributes to pool colour.
Modified
In the case of a Thixotrope, the transformation by the application of an appropriate coating to a Fumed Silica in its basic state (Hydrophilic), such that it becomes Hydrophobic.
Osmosis
The passage of water from a region of low concentration of water soluble materials (the water inside the pool) through a semi-permeable membrane (the Cosmetic Layer), to a region of high concentration of water soluble materials (inside the Barrier and Structural Layers of a the Laminate).
A term used to describe the appearance of blisters, blackspot and/or cracking in a fibreglass swimming pool.
Polyester Resin
Resin used in Gelcoat and Structural Layers.
Promoter
An ingredient in a resin added by its manufacturer which reacts with the Initiator added by the pool manufacturer, to instigate cure. This starts a chemical reaction between the resin and the Styrene monomer in the resin, resulting in the 'mix' becoming a solid. The promoter is a cobalt compound that remains unaltered at the end of this reaction.
Roving
String-like bundle of continuous glass filaments gathered together without mechanical twist into a single bundle and coated with Sizing.
SEM
Scanning Electron Microscope. An instrument that enables materials to be examined at higher magnification than from an optical microscope.
Shear
The 'strain' that mixing, agitation or spraying causes to a liquid thereby modifying its viscosity. For example, the viscosity of household paint changes from high to low, upon agitation (high shear), but subsequently returns to low viscosity (low shear or at rest).
Sizing
A coating on fibreglass Rovings vulnerable to Hydrolysis. Necessary to hold the bundle of glass filaments together and to provide protection from abrasive damage during transport and actual pool manufacture.
Structural Layers
Those layers (containing Polyester Resin and fibreglass) which provide the structural integrity of the pool shell.
Styrene
A reactive chemical that is added to a resin to 'thin' it (improve flow). Also a participant in the process of the 'mix' becoming a solid. (see Promoter).
Thixed
A resin into which a Thixotrope has been incorporated.
Thixotrope
A substance which promotes the ability of a liquid to change from a "thicker" (viscous, or less free flowing) state to a "thinner" (less viscous, or more free flowing) state, and back again. It must confer the quality of high Viscosity at low Shear, and low Viscosity at high Shear. Added to resin to modify flow attributes.
Tie Layer
Synonymous term for Barrier Layer
Unmodified
In the case of a Thixotrope, the fumed silica in its basic (Hydrophilic) state.
Unthixed
A resin into which a Thixotrope has not been incorporated.
Vinyl Ester Resin
Resin used in Barrier Layer to prevent Osmosis.
Viscosity
The flow characteristics of a liquid. A free flowing liquid (eg water) has a low viscosity; whereas a less free flowing liquid (eg honey) has a high viscosity.
Void
A region of a Laminate where there is neither resin nor fibreglass. Generally caused by air entrapment during spray up of the Laminate or air release on cure.
Wacker N20
A Hydrophilic Thixotrope manufactured by Wacker. The Thixotrope used by Huntsman in the Hetron 922 supplied to Tranquility.
Wet out
The process of breaking up the fibre bundles to wet the individual fibres with resin so they are surrounded by resin on cure. This is achieved by rolling.
Wet through
The process of wetting the fibre bundles with resin and releasing the air. This is achieved through rolling.
The large number of witnesses who gave evidence in the hearing
A considerable number of witnesses gave evidence. It is appropriate to essentially list them, and their relevance to the proceedings in order to provide that information to the reader.
Plaintiffs' employees
The principals of Tranquility [essentially Mr Kahler and Mr Annakin] gave evidence] as did Mrs Suzan Annakin, an employee of Tranquility
Mr Kahler gave evidence on 2 and 30 November 2010: His relevance to the proceedings is as follows:
(1) From July 1986 to late 1999, Managing Director of a number of companies known as the International Pools Group of companies (International), a predecessor of the plaintiffs.
(2) Controls the affairs of the first and second plaintiffs. The vast majority of shares in the first and second plaintiffs are held on trust for Mr Kahler's family.
(3) Controls the affairs of PFI Pty Ltd, which owns the plant and equipment at the TPSM factory. Mr Kahler's family trust beneficially owns PFI.
(4) Since October 2004 has been in charge of managing the osmosis outbreak for Tranquility.
Mr Annakin gave evidence on 3 November 2010. His relevance is essentially as follows:
(1) Director of plaintiffs;
(2) Factory manager of Tpsm;
(3) Factory manager at international pools from 1988 onwards;
(4) Worked at International from 1977.
Plaintiff ex employees
Ben Cooper:
Gun operator employed by plaintiffs since 2001
Graeme Cutts:
(a) retired pattern maker, employed by International to design and make pools,
(b) used by plaintiffs in current proceedings to inspect various pools.
Donald Magner:
(a) Between 1999-2003 a director of tpsm and responsible for the part of business relating to retailing pools;
(b) Vast majority of tranquillity pools sold to customers (rather than dealers) were managed by him;
(c) Previously general manager for International Pools from 1990-97;
Competing Manufacturers
Stephen Ward:
Sole director of Harvest Pools Pty Ltd
Roy Laybutt:
Managing director AAA pools, another manufacturer
Steven Carlson:
Fibreglass repairer
Ian Mewett (appeared as a witness for the plaintiff and defendant):
Director of compass pools
Lewis Beale:
Aquatic Leisure pools
Pool dealers
John Candy
Ronald Spice
Oswold Collins
Rodney Bragg
The defendant's witnesses in this category were as follows :
Pool repairers called by defendant
Peter Doris:
Pool builder
Lawrence Zahra:
Pool repairer
Derek Kramer
Pool resurfacer
Andres Timmermanis
Manager of company that manufactures a distributes "crystal chem" products for pool care
Michael Tuckwell (appeared as a witness for the plaintiff and defendant):
(a) Managing director Duraglaze NSW Pty Ltd
(b) Duraglaze engages in refurbishment of fibreglass pools. Also provides fibreglass shell insert into concrete pools ( a roll on fibreglass surface).
Martin Kennedy
(a) Sub contractor to Compass Pools
(b) Pool renovator and specialist repairer
Christopher Evans
General manager of CCE constructions, which specialises in remedial building construction including swimming pools.
Defendant employees
Noel Godfrey
General manager commercial, Huntsman
Graham Durrant
Organic chemist formerly employed by Huntsman
Geoffrey Houghton
Industrial chemist employed by huntsman
Scientific witnesses
Michael Leggett
Expert who prepared report comparing Hetron 922 and Derakane 411
Mark Stuart
Staff scientist group co-ordinator spectroscopy & microscopy group at Ashland inc
Other witnesses essentially dealt with in the above reasons
Then there were the scientific experts principally Professor George, Emeritus professor of polymer science Queensland university of technology, who appeared for the plaintiff and Dr Pilato, consultant in the area of composites and reinforced matrix systems advanced composites, composite analysis and related areas, who appeared for the defendant. The judgment deals in detail with their evidence.
Then there were the forensic accountants called by the respective parties namely Mr McGuiness and Mr Gower. Their evidence is also dealt with in detail in the reasons.
Then there were the quantity surveyors called by the respective experts namely Mr Radcliffe called by the plaintiff and Mr Meredith called by the defendant. There evidence is also dealt with in some detail in the reasons.
Then there was Mr Robert Wild called by the defendant, he is the CEO of Cordell Information which publishes information in relation to swimming pool construction approvals. His evidence is dealt with above.
Pool Owners
The pool owners who gave evidence for the plaintiff were as follows:
Glen Smyth
Tracey Gannaway
David Moye
Michelle Gibson
Martin Francis
William Carter
Vicky Martine
Kylie Jones
Janette Wilson
Gillian Workman
Michael Jenner
Thomas Scott
Joanne Hayter
Deanne Ion
Anthony Richardson
Philip dagger
Tracey Wallace
Stephen Leeder
David Graham
Neil Smith
Timothy Berrell
Ruth Cronin
Trevor Fardell
Trevor Mutch
Ashley Gordon
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- AGLC
- Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Co Australia Pty Ltd [2011] NSWSC 75
- Case
- [2011] NSWSC 75
- Decision Date
CaseChat Overview and Summary
The reasoning of the court was meticulous, examining each claim point by point. The court concluded that the failure of the pools was indeed caused by the defective resin supplied by the defendant, thus establishing liability under the Trade Practices Act. The court found that the defendant had contravened sections 52 and 53 of the Trade Practices Act by making misleading representations that induced the plaintiffs to buy the product. The court further considered the defendant's defence of contributory negligence, finding it did not apply. The court found that the plaintiffs were entitled to rely on an express warranty and implied contractual terms of merchantable quality and fitness for purpose. It held that the defendant was estopped from relying on standard terms and conditions that would have restricted such claims. The court also held that the plaintiffs were liable to their customers under the Trade Practices Act, and subsequent purchasers of properties with failed pools were also entitled to rectification. The court assessed the quantum of damages and ordered the defendant to compensate the plaintiffs and their customers for the cost of replacing the defective pools. The court's final orders included a detailed assessment of the costs and a determination of the appropriate rectification methods.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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