Cummins Generator Technologies Germany GmbH v Johnson Controls Australia Pty Limited

BEAZLEY P:

These proceedings relate to the supply and installation of a generator set (the additional generator set) to augment the existing emergency power supply of a Data Processing Centre (DPC) operated by IBM Australia (IBM) at Baulkham Hills. A generator set comprises a diesel engine, an alternator, a cooling system and a control system. The additional generator set was unsuitable for its purpose as the alternator was not capable of working safely in parallel with the existing generators. The fault was rectified at a cost, net of GST, of approximately $988,000. The central question in issue is who is liable to bear that cost.

The appellant, Cummins Generator Technologies Germany GmbH (Cummins), is a German company which, under German law, is the successor to and responsible for the acts, omissions and liabilities of AVK Deutschland GmbH & Co, a company referred to in the proceedings below as “AVK”. AVK was the manufacturer and supplier of the alternators in the existing emergency power supply standby generators at the Baulkham Hills DPC. It provided a quotation for an alternator to the second respondent, Energy Power Systems Australia Pty Limited (EPSA). In doing so, AVK was alleged to have made representations as to the compatibility of the alternator in the additional generator set with the alternator for which it quoted and, specifically, as to the winding pitch ratio of the alternator in the existing generator.

The first respondent, Johnson Controls Australia Pty Limited (Johnson Controls) was the project manager and head contractor for the supply to IBM of the additional generator set and for its installation. Its obligation was to deliver the completed project to IBM. Johnson Controls engaged Webb Australia Group (NSW) Pty Limited (Webb), the first defendant in the proceedings below, as a consultant to prepare a specification for the works and to advise Johnson Controls on the tenders submitted for the work. Webb is not a party to this appeal.

The second respondent, EPSA, was the successful tenderer for the project. EPSA was a licenced dealer for Caterpillar Inc (Caterpillar), a competitor of AVK in the market for the supply of alternators, although the evidence did not disclose whether AVK was aware of that.

EPSA obtained a quotation from AVK for the supply of an alternator for the additional generator set. On or about 28 February 2006, AVK provided to EPSA a quotation for the alternator, together with technical specifications. On 14 March 2006, AVK provided a Technical Data Sheet for the alternator. The technical information provided by AVK to EPSA was in respect of, inter alia, an alternator with a specified “winding pitch ratio” of 2/3. The existing alternators had winding pitch ratios of 13/15. EPSA forwarded the technical specifications and the Technical Data Sheet documents provided by Cummins to each of IBM, Johnson and Webb on or about 31 March 2006.

EPSA submitted two tenders to Johnson Controls, one based upon the supply of an additional generator set manufactured and supplied predominantly by Caterpillar but incorporating an alternator manufactured and supplied by AVK (the conforming tender) and one based upon the supply of a generator set fully manufactured and supplied by Caterpillar (the non-conforming tender).

The conforming tender price was $1,494,220 plus 10 per cent GST, making a total tender price of $1,643,642. The conforming tender was based on delivery estimated at 56 working weeks for the entire generator set and 46 weeks for the alternator. The conforming tender included the AVK alternator. AVK’s quotation and technical data sheet for the alternator were attached to the conforming tender.

The non-conforming tender was for a Caterpillar 2000 KVA rated diesel generator and associated equipment. An accompanying data sheet to this tender specified the winding pitch ratio of the alternator as 0.6667, or 2/3. The non-conforming tender stated that “the components of this offer are fully compatible with the existing system”. The non-conforming tender price was $1,454,950 plus 10 per cent GST, making a total tender price of $1,600,445. Delivery for the generator set was estimated at 32 weeks.

EPSA’s non-conforming tender was accepted and it supplied and installed a generator set that included an alternator with a winding pitch ratio of 2/3. The existing alternators had winding pitch ratios of 13/15. It was common ground that, for additional alternators to work in parallel with existing alternators in the way required by the DPC, their winding pitch ratios had to be the same.

As the winding pitch of the new alternator in the additional generator set did not match that of the existing alternators, the additional generator set required significant rectification to work safely. Temporary generators were hired to provide the necessary backup power supply. However, due to the substantial hiring cost of approximately $80,000 per month, and being unable to quickly source a new generator with an alternator with the winding pitch of 13/15, EPSA opted to purchase two new alternators with a winding pitch of 2/3 which would operate in parallel with the additional generator set supplied by EPSA pursuant to the tender process. The hiring arrangement was then terminated. The old alternators with the 13/15 winding pitch were redeployed.

Johnson Controls brought proceedings against Webb and EPSA for breach of contract and misleading and deceptive conduct, and against Cummins, as the successor of AVK, for misleading and deceptive conduct. As against AVK, Johnson Controls pleaded that AVK had made three representations which were misleading and deceptive:

Johnson Controls’ claims against EPSA and Cummins (AVK) were successful. EPSA cross-claimed against Cummins (AVK) for misleading and deceptive conduct. That claim also succeeded. McDougall J gave judgment in favour of Johnson Controls in the sum of $1,427,753.83 against each of AVK and EPSA, together with interest and costs. His Honour also ordered judgment in favour of EPSA against Cummins (AVK) on EPSA’s cross-claim against Cummins (AVK) in the same sum as awarded to Johnson Controls and ordered that Cummins (AVK) indemnify EPSA in respect of its liability to pay IBM’s costs of the proceedings.

Cummins appealed against the judgment in favour of Johnson Controls and against the judgment on the cross-claim in favour of EPSA. The issues raised on the appeal were as follows:

By notice of contention, Johnson Controls contended that the primary judge ought to have held that it had established its case of third party reliance or indirect causation against AVK and was entitled to judgment in the sum of $1,427,753.83 against Cummins as successor to and responsible for the acts, omissions and liabilities of AVK. The trial judge did not decide this issue on the basis that, as Johnson Controls had established a case of direct reliance, the question was moot.

Cummins initially identified causation as the principal issue on the appeal, but in its oral submissions indicated that the “first main issue in this appeal … is whether AVK engaged in misleading or deceptive conduct”. Cummins conceded that AVK made the third representation above at [12](3), that the alternator that it offered to supply to EPSA was “suitable for parallel operation with” the existing alternators. It contended that this misrepresentation was “immaterial”, as it never sold the alternator to EPSA. It remained in issue whether it made the first and second representations. Cummins contended that if the first and second representations were not made, the other issues fall away.

Johnson Controls based its case on both direct and third party reliance. The direct reliance case was that AVK should have known that EPSA would pass the representations on, as they did by supplying the Technical Data Sheet to Johnson Controls. Johnson Controls contended that the relevant representations which they relied on in deciding to accept the non-conforming tender were contained in the Technical Data Sheet.

Johnson Controls’ third party reliance case, pleaded in the alternative, was that it was entitled to succeed because AVK’s misleading or deceptive conduct, directed to EPSA, caused EPSA to tender to supply an alternator which purportedly could, but in fact could not, operate in parallel with existing alternators. Johnson Controls thus contended that it suffered loss as a result of EPSA’s reliance on the representations made by AVK.

The trial judge held in Johnson Controls’ favour that the case was one of direct reliance. His Honour, at [294], chose not to speculate on the outcome of an indirect reliance case as the question was “entirely moot”.

Apart from the expert evidence, the evidence before his Honour was mostly documentary. There were certain matters which were uncontroversial. These were identified in the submissions of Johnson Controls (and not challenged by Cummins) as follows:

Dr Grantham, Johnson Controls’ electrical engineering expert gave evidence, which was not challenged, that there were three ways the necessary technical information as to the winding pitch of the alternator in the existing generator sets could be obtained: (1) from the technical data supplied by the manufacturer at the time of the original purchase; (2) from the manufacturer directly; or (3) by visual inspection, although this last option was often not feasible, as the end windings were usually covered with insulating tape. In the present case, the technical data could not be found and the winding pitch could not be ascertained on visual inspection. That left AVK as the only feasible source of the technical information required to ensure that the additional generator set could work in parallel with the existing machines. There was no dispute about these matters, although Cummins pointed out that there was no evidence that it was aware that that the technical data in respect of the existing generator sets could not be found.

His Honour held, at [277](1), that as the manufacturer of the original alternators, AVK was the “ultimate and reliable source of information as to the technical characteristics of those alternators, including their winding pitch ratios”. His Honour also found that anyone who wanted to access that information was likely to contact AVK for that purpose. AVK did not challenge the correctness of these findings.

There were a number of critical email exchanges between EPSA and AVK. The first was on 23 January 2006 from Derek Morley, an EPSA Sales Representative, stating:

Mr Morley’s email was answered by Maja Spies, an AVK Sales Engineer, on 24 January 2006, as follows:

Mr Morley responded to Ms Spies on 25 January 2006, stating:

At the time that EPSA sought this information from AVK and provided it with a copy of the draft specifications, it did not inform AVK that it was proposing to put in two tenders for the additional generator set, one using the AVK alternator and one using Caterpillar’s alternator.

EPSA sent two more emails to AVK before receiving a response. In the second of these, on 27 February 2006, Mr Morley asked AVK what the problem was in obtaining the information he was seeking and informed AVK that “[t]he consultant is about to issue the spec and we need to know what the options are and what you suggest is the best approach”.

Ms Spies replied to Mr Morley on 28 February 2006 attaching AVK’s offer. The subject line of the email stated “Repeat of our previous order-no. 68 17 182 A004”. The body of the email referred to “offer-no. P-06.20259/AUS” and stated that the offer was attached.

The attached offer was headed “Project: Repeat of our previous order-no. 68 17 182 A004 Quotation P-06.20259/AUS” and contained a quote for the supply of “1 each ‘AvK’-synchronous threephase alternators, acc. to detailed technical specification attached”. A unit price of €44,500 was quoted, with delivery in “week 13, 2007”, provided AVK received “techn. and commercially clear order latest till 13.3.06”. A document headed “Technical Specification” was attached to the email. In that document under the sub-heading “Electrical data and characteristics”, the following appeared: “Alternator suitable for parallel operation with other alternators”.

On 9 March 2006, Mr Morley emailed Ms Spies requesting that she send “the tech data sheet with pitch/reactances etc and times etc for the schedules we need to complete”. The reference to “schedules” was to the schedules in EPSA’s tender documents.

On 14 March 2006, Ms Spies responded by email as follows:

The winding pitch specified in the attached Technical Data Sheet was 2/3.

On 6 April 2006, following the submission of the two tenders, Mr Murphy, EPSA’s sales manager, again communicated with AVK, informing it that the proposed client was insistent on “having three alternators from the same manufacturer” (that is, that the alternator in the additional generator set was to be an AVK alternator) and asked whether there could be an “improvement in the delivery time of a technically identical machine”. Mr Murphy advised that “our client is wishing to make a decision in the very near future” and requested that the inquiry be treated as promptly as possible.

Mr Morley also emailed AVK on 6 April 2006, emphasising that EPSA needed an answer overnight “if at all possible”, or alternatively, advice as to when they could “supply an answer”. Theo Dragonas, AVK’s representative in Australia and who worked out of AVK’s Singapore office, replied on 7 April 2006, stating that he did not know the exact requirements and asked whether it was possible to quote a “Stamford equivalent or AVK K model” out of Singapore. Mr Morley responded on 9 April 2006 advising that EPSA’s “definite preference” was for “another AVK unit, not a Stamford or a Cat or a LS ETC”. The email continued:

On 12 April 2006, Mr Morley forwarded another email to AVK asking what the options were for machines that would be guaranteed to run in parallel with the existing generator sets.

On 13 April 2006, Mr Dragonas advised that there was a machine in Singapore that might be suitable. He attached the technical data for DSG86K1-4. However, he cautioned that he did “not know the exact specs for this job … so careful analyses must be conducted to see if this unit is capable”.

On 20 April 2006, Mr Morley, in response to an email from AVK asking whether EPSA still wanted the alternator in Singapore, as another customer had shown interest, informed AVK that the client was still asking questions to which they hoped to respond the following day. He said, “If [the alternator in Singapore] goes to someone else it goes and that is all there is to it”. He said that they would advise the client that someone else was interested in the machine and pointed out that they still had no reply from Germany as to the available options.

In his affidavit evidence, Mr Morley stated that in December 2005 he was approached by Rod Hoddinett of Webb in relation to the IBM DPC project. Mr Hoddinett emphasised to Mr Morley that Webb wished “to stay with CAT/AVK package”. Mr Hoddinett informed Mr Morley that they were checking the pitch with AVK. Some time later, Mr Hoddinett informed Mr Morley that the pitch was 2/3.

Mr Morley gave evidence that an alternator’s pitch is not discoverable on inspection. He said that in a project such as the IBM project, where an additional machine was to be run in parallel with existing machines, his first action would be to obtain a quote from the original manufacturer. AVK’s offer did not state the pitch. Mr Morley said “that [was] not unusual as manufacturers want to keep that confidential at the quoting stage for commercial reasons”. He said that after he received the quotation from AVK, which clearly referred to a repeat of the previous order, he sought technical data schedules from AVK. He stated that the inclusion of the previous order number meant that AVK was offering a suitable machine as it was a repeat of the previous machine.

Mr Morley also gave evidence that in his experience:

Mr Morley explained that the reason for submitting the non-conforming tender was due to the long lead time in obtaining delivery of the AVK alternator both from AVK and elsewhere. He commented that “[a]t that time, there was a upsurge of business in China and it was buying just about all generators available worldwide”.

Mr Morley explained in his affidavit evidence that as the information he had obtained from AVK indicated that the winding pitch of the existing machines was 2/3 either he or John Murphy, EPSA’s sales engineer, obtained quotes and technical data from CAT for an alternator with a pitch of 2/3.

In cross-examination, Mr Morley said that in his email communications with AVK, he was seeking a quotation for a new piece of equipment to run in parallel with the existing generator sets. Mr Morley said that it was his responsibility to find out from the original alternator manufacturer the pitch of the existing alternators and to obtain suitable machinery to match. He said, however, that he would not order a new alternator without undertaking an independent check as to the specifications of the existing alternators. When asked if he thought that Webb were undertaking the task of an independent check of the specifications, Mr Morley respondent, “No … I was undertaking my task of checking, of seeking from the original alternator manufacturer what the pitch was”. This would appear to be a reference to having requested and obtained the technical data sheet from AVK which identified the pitch to be 2/3. He also gave the following evidence in cross-examination:

Mr Coles, EPSA’s regional manager, gave evidence that as a licensed Caterpillar dealer, EPSA had access to two computer systems through which it was able to source Caterpillar engines, including alternators, by reference to customer specifications and technical information. Having sourced the matching Caterpillar machinery, it was then able to produce a technical data sheet. On this occasion, EPSA, having obtained the specifications for the alternator from AVK, used its computer system to source a Caterpillar alternator and produce a technical data sheet which it submitted as part of its non-conforming tender.

Webb, in the tender invitation, included a draft specification. A final specification in, relevantly, identical terms, was provided later. Mr Morley forwarded the draft specification to Ms Spies under cover of his email of 25 January 2006. The draft specification contained the statement:

Schedule 1 of the draft specifications set out the “Specified Equipment” with the following notation under that heading, in bolded type: “Tenderers should offer equipment identical in performance and characteristics to the existing equipment”. For the item “Generators”, the “Make and Type” specified were “Stamford (Newage), Caterpillar (Kato). AVK”.

The trial judge found that, having regard to the pre-contractual dealings between EPSA and AVK and the context in which those dealings occurred, AVK made the first and second representations either expressly or impliedly. His Honour’s reasons for so finding were as follows:

His Honour, at [241], stated that:

His Honour, at [242], identified the information available to AVK at the time it made the offer to EPSA to supply the alternator as follows:

The trial judge found, at [249], that having regard to industry practice, AVK “must have understood that one of the purposes of EPSA’s inquiry was to ascertain the winding pitch of the existing alternators”. His Honour considered that this was so because it was the unanimous view of the experts that a common and appropriate way for a contractor to ascertain the winding pitch of an existing alternator was to ask the supplier.

His Honour considered, at [250], that AVK could not have been so naïve as to think that its quotation might not be beaten by a competitor on either or both of price or delivery time, even though EPSA’s preference was for an AVK alternator.

His Honour accordingly, at [251], inferred that AVK should reasonably have understood, if it did not in fact understand, that EPSA required information as to the winding pitch, not only for the purpose of deciding whether to purchase from AVK but, more generally for the purpose of deciding how to structure its tender. However, his Honour observed, at [252], that that observation was “something of a diversion”, although not “entirely beside the point”, reiterating what he had said at [252], namely, that the “question is, in effect, how far should AVK have understood the information provided by it to EPSA was likely to go”.

His Honour answered that question at [253], in the following terms:

His Honour then concluded, at [258], that it was probable that AVK in fact understood that the information supplied by it and the representations made by it would be passed by EPSA to the consultant and on to the principal. His Honour also held, at [259], that even if AVK did not have that actual understanding, had it turned its mind to the question it must have understood or appreciated that the information provided and the representations made relevant to EPSA’s tender would be passed on up the line to Webb and the principal.

His Honour considered, at [264], that the inescapable inference from the information provided by AVK was that the existing alternators had a winding pitch ratio of 2/3. His Honour concluded, at [266], that EPSA prepared and Webb and Mr Johnson assessed, the non-conforming tender on their understanding gained from the information supplied and representations made by AVK that the new alternator must have a winding pitch ratio of 2/3.

His Honour held, at [268], that the representations were incorrect. The winding pitch ratio required to match the existing alternators was 13/15, not 2/3. It followed, his Honour observed at [269], that the representations were misleading or deceptive.

Cummins accepted that if the first and second representations were made, the test as articulated by his Honour at [241] (set out above at [48]), would be made out. Its contention however, was that the representations contained in its quotation had been taken out of context and that in determining whether there was misleading and deceptive conduct it was necessary “to examine the relevant course of conduct as a whole”: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [102]. Cummins sought to rely on the proposition cited in Campbell v Backoffice Investments that it is to:

Cummins accepted that the statement in the quotation that the alternator would run in parallel with the existing alternators was misleading and deceptive and for that reason, it had conceded that the third representation had been made. Nonetheless, Cummins submitted that his Honour’s reasoning at [238] (see above at [47]) involved an artificial characterisation of what AVK had stated in its quotation as to what it proposed to sell. It submitted that the effect of its quotation to EPSA was a representation that it would supply goods, which would be compatible with the existing equipment, at the price quoted. The misleading statement was that the equipment to be supplied was compatible. It was not a representation about the existing equipment being operated by IBM.

EPSA submitted that it was clear from Mr Morley’s evidence that in requesting the Technical Data Sheet he was seeking the winding pitch of the existing IBM alternators. EPSA also submitted that AVK understood that in responding to that request, the information it provided would “go up the line”, that is, that the information would be available to the persons involved in the tender approval process. EPSA contended, therefore, that it was open to them, as a licensed dealer of Caterpillar, to use the information to internally source an alternative Caterpillar alternator. They submitted that, having requested information from AVK for the purposes of completing the tender documents, there was no limitation upon the use that EPSA could make of that information. They pointed out that AVK did not enquire into or seek to impose limitations on the uses to which the information would be put.

Although Johnson Controls accepted that Mr Morley had given evidence that the technical data was usually kept confidential by the manufacturer at the point in time when a quotation was provided, it contended that any confidentiality was lost when, responding to its request, AVK provided it with the Technical Data Sheet on 14 March 2006 and placed no limitation upon its use.

Integral to this argument was the fact that AVK had been provided with the draft specifications prior to forwarding the Technical Data Sheet to EPSA, which expressly stated that tenderers were encouraged to offer other manufacturers’ equipment, as quoted above at [45]. In addition, the draft specification nominated different brands of equipment that were suitable. There were then the added factors submitted by Johnson Controls as significant: that the manufacturer was a reliable source of technical information; that EPSA was a licensed Caterpillar dealer; that it was apparent from the specification that any information in a tender would be seen and considered by a variety of personnel, including the head contractor, the project manager, and contractor for the supply of the generator set; that, as conceded by Cummins, AVK at all times knew that the information would be communicated “up the line” to Johnson Controls and others as part of the tender process; and finally, that AVK placed no restriction on the use of the information when it provided the Technical Data Sheet to EPSA.

Johnson Controls also submitted that it was apparent from the email communications, particularly in April, that AVK knew that other manufacturers were being approached to provide the alternator. Johnson also pointed out that his Honour’s finding at [258], that AVK knew that the information supplied by it would be passed on by EPSA, was not the subject of challenge.

EPSA’s submissions were to like effect. It pointed out additionally that Cummins had not challenged his Honour’s observations at [250] as to the likelihood that AVK would have understood that competitive quotes might be sought.

In my opinion, Cummins has not established that his Honour erred in finding that the first and second representations were made. In the first place, there are the findings made by his Honour at [238] (set out above at [47]) that are not the subject of an express challenge by Cummins.

Secondly, Cummins’ submission that his Honour’s characterisation of the AVK quotation was “artificial” and that the quotation was “prospective” only, failed to grapple with the evidence relating to the information that was provided to AVK. Almost at the outset of the communications between EPSA and AVK, Mr Morley was concerned to know whether it was necessary “to match pitch” (see 25 January 2006 email at [25] above). When AVK then provided its quotation on 28 February 2006, it stated that the alternator to be supplied was “suitable for parallel operation with other alternators”. Subsequently, on 9 March 2006, Mr Morley asked “for the tech data sheet with pitch/reactances”. He also asked for “times etc for the schedules we need to complete”.

In response to that email, AVK forwarded the Technical Data Sheet to EPSA on 14 March 2006. Leaving aside the question as to whether AVK was, or ought to have been, aware that this information would be used by others, it had expressly represented in the Technical Data Sheet that the winding pitch ratio of the alternator for which it had quoted in the 28 February 2006 offer was 2/3.

The misleading representations for which Johnson Controls contended were contained in various statements made by AVK. AVK relevantly made two statements to EPSA in the course of their communications. One statement was that it would supply an alternator with the characteristic that it would operate in parallel with the alternators in the existing generator set. Another statement made was that the alternator for which it had quoted had a winding pitch ratio of 2/3.

Cummins sought to confine its argument to the former statement and the fact that this statement was a representation made about the product it was offering to, but did not in fact, supply. Cummins submitted that AVK’s conduct was to be assessed in the context of the dealings between the parties: Campbell v Backoffice Investments: see above at [57]. Although Campbell v Backoffice Investments supports this submission, the contextual approach espoused by Cummins does not detract from the ultimate undertaking required of this Court: to look to what statements were made and to then ask, stated in terms of the statute, whether the conduct, that is, in this case, the statements made, was misleading and deceptive.

The dealings between EPSA and AVK were not as purposeful or directed as Cummins contended. Although in its email of 25 January 2006 (above at [25]), EPSA stated that the ultimate client wanted to stay with AVK, it also asked what the options were, whether it was necessary to match the winding pitch ratio and included the draft specification for AVK’s consideration. This correspondence did not convey that AVK was to be the supplier as opposed to the preferred supplier. This was stated expressly in the email of 9 April 2006 (above at [34]).

It was also apparent from the communication between EPSA and AVK that different brand alternators were being canvassed, even from within AVK. That was proved in evidence and was not at any time in dispute. There was then the underlying common fact that the alternator to be supplied was to have the same winding pitch ratio as that in the existing generator set.

Given these factors, his Honour correctly reasoned that it was inherent, or it might be said, implicit, that the first and second representations had been made. Indeed, it is unarguable that the first representation was made: Cummins had offered to supply an alternator, that was a repeat of its previous order, with a winding pitch ratio of 2/3, and which AVK said would operate in parallel with the existing equipment. That had to mean, on AVK’s own documents, that was the winding pitch ratio required to match the existing alternators. The engineering evidence made this indisputable. On the engineering evidence, the second representation was the flip side of the first. If the winding pitch ratio required to match the existing alternators was 2/3, the winding pitch of the existing alternators was 2/3.

In my opinion, it was apparent by the end of the argument on this question that the real matter in contention was causation, as Cummins had signalled in its written submissions.

The trial judge, at [262], held that the information supplied and representations made by AVK were relied upon: by EPSA for the preparation of what it said was a conforming tender; by Webb when it assessed the tender as conforming, including because it contained a proposal to supply an alternator with a winding pitch ratio of 2/3; and ultimately by Johnson Controls when it assessed the tenders.

At trial, Cummins’ case on causation was that to the extent that AVK had supplied information or made representations, it had done so only for the purpose of inducing EPSA to purchase the alternator that AVK offered to supply. It had not supplied the information for EPSA to rely on in deciding to purchase an alternator supplied by a competitor of AVK: see Henville v Walker [2001] HCA 52; 206 CLR 459 at [98]-[100] per McHugh J; Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; 221 CLR 568 at [96], [99] and [100] per Gummow, Hayne and Heydon JJ.

In seeking to make that case, Cummins accepted, as did Johnson Controls, that for the direct reliance case to succeed, Johnson Controls had to establish that the representations were made in circumstances calculated to lead to them being transmitted through EPSA, to others, including Johnson Controls, even though AVK never dealt with Johnson Controls: see Azzi v Volvo Car Australia Pty Ltd [2007] NSWSC 319.

The trial judge rejected Cummins’ submission that Johnson had not established a causal connection between AVK’s representations and the loss it claimed it had suffered. His Honour found, at [277], that :

His Honour, at [278], rejected AVK’s argument that it had only supplied the information to EPSA for the purposes of inducing it to purchase the alternator from it. His Honour commented that the circumstances went far beyond the simple example of limited advice postulated by McHugh J in Henville v Walker. His Honour had found earlier, at [48], that everyone involved in the project, including the AVK representatives who dealt with the matter, knew that if the additional generator set was to operate in parallel with the existing sets it was essential to “match the pitch” of the alternators. His Honour had also observed, at [150], in relation to the claim against Webb, that Webb could have made a formal inquiry of AVK as to the winding pitch ratio of the existing alternators.

His Honour concluded, at [280], that AVK was liable for the consequences of its misleading or deceptive conduct. His Honour reiterated, at [329], that EPSA made plain to AVK in Mr Morley’s emails and in sending the draft specifications, both its purpose in seeking the quotation and the performance requirements that the new alternator had to meet. His Honour considered that it was too late for AVK to complain that EPSA could have made things clearer to enable it to respond more accurately.

In Henville v Walker at [103], McHugh J, in considering the situation in which “a person has acted to his or her detriment by reason of or following some conduct of the defendant”, stated:

McHugh J went on, at [103], to provide the following example of the principle:

The decision of Brereton J in Street v Luna Park Sydney Pty Ltd [2009] NSWSC 1; 223 FLR 245 provides a further illustration. That case involved, relevantly, a claim by owners of premises nearby to Luna Park that, by the lodgment of two development applications, which were subsequently displayed to the public, the developers of Luna Park had engaged in misleading and deceptive conduct contrary to the Trade Practices Act 1974 (Cth), s 52. At [226], Brereton J considered the submission that:

In applying that principle, Brereton J held, at [231] that:

That statement was quoted by Giles JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2009) 73 NSWLR 653, in a passage considering the misleading and deceptive conduct provisions of the Corporations Law 1991 (Cth). Giles JA observed, at [19], that “[c]onduct which merely provides the opportunity for the plaintiff to enter into the transaction will not suffice”.

In Travel Compensation Fund v Robert Tambree [2005] HCA 69; 224 CLR 627, the respondents prepared and audited the financial statements of a travel agent in a way that was false and misleading, knowing that the financial statements would be submitted to the appellant for the purpose of determining the travel agent’s eligibility to continue to participate in the fund. The travel agent continued to trade illegally for approximately two months until the Department of Fair Trading closed the business. The Travel Compensation Fund paid compensation of $143,050 to persons who had dealt with the agent, of which all but $13,320 related to the period in which the agent was trading illegally. It brought a claim against the respondents for damage suffered by their misleading and deceptive conduct in the full amount of compensation it had paid out.

The Court (Gleeson CJ, Gummow, Hayne, Kirby and Callinan JJ) held, in four separate judgments, that the full amount paid out was recoverable. A central issue was whether the illegality of the conduct of the agent, by trading without a licence, was sufficient to break the chain of causation with respect to losses incurred relating to that period. Gleeson CJ, with whom Callinan J agreed, found that causation in respect of the full amount was made out as the risk of the travel agent continuing to trade illegally was one of the risks against which the applicant sought protection by requiring audited financial statements. His Honour discussed the normative aspects of causation as they related to claims for misleading and deceptive conduct as follows:

Gummow and Hayne JJ agreed, at [40], that what had eventuated was the occurrence of the very risk against which the appellant had sought to protect itself. Their Honours explained at [49]:

Kirby J, at [74] and Callinan J, at [79], relevantly agreed with Gleeson CJ as to the proper approach to the determination of causation under the Act.

In Allianz Australia Insurance v GSF Australia at [99]-[100], Gummow, Hayne and Heydon JJ stated:

Most recently, in Williams v Pisano [2015] NSWCA 177 Emmett JA, at [100], confirmed that the purpose of the Trade Practices Act was:

Cummins submitted that the trial judge erred in his finding at [251]. It relied, inter alia, upon Luna Park v Street in support of its argument that the purpose of providing the information to EPSA was for it to use to purchase the alternator from AVK. Underlying this submission was its concern that Johnson Controls was seeking to make it liable in circumstances where it had had no contact with Johnson Controls and had not provided the information for any purpose of Johnson Controls.

Cummins accepted that his Honour’s findings at [277](1)-(4) (set out above at [20]) were correct, or sufficiently so as not to warrant challenge, but submitted that those findings did not impinge upon its contention that the information it provided to EPSA as to the alternator was confined in its purpose to the offer with respect to the alternator. Cummins submitted that, if contrary to its argument the representation recorded in [277](5) was made, it did not support his Honour’s characterisation of the purpose of the quotation.

Cummins next submitted that, in circumstances where AVK was told that the client was insistent on an AVK product, the evidence did not support the findings in [277](6)-(8). Further, it contended that even if AVK should have known that EPSA would approach competitors for the same product, it was not AVK’s purpose in supplying the information that it be used in that way.

Cummins argued that it had not provided information to EPSA to be used to make another offer not involving the supply of an AVK alternator. It was submitted that there was no sense in which AVK would have anticipated that the information it provided to EPSA would be used other than for the purpose for which it supplied it and, in particular, would not be used for the purposes of sourcing a competitor product. Cummins contended, therefore, that his Honour erred in finding, at [278], that the purpose for which AVK provided the information and made the representations was wider than the limited one for which it contended.

Notwithstanding its submission that AVK provided information to EPSA, including the winding pitch ratio of the alternator it offered to sell, solely for the purpose of supplying its alternator if its quotation was accepted, Cummins did not challenge the findings made by his Honour, including, at [48] and [277](4), that everyone in the industry knew that the winding pitch ratios of the alternators needed to match if the additional generator set was to operate in parallel. For that reason, it was not to the point to quibble, as Cummins did, that Webb, or even Mr Morley, could have made a direct inquiry of AVK as to the winding pitch ratio of the existing alternator. In light of his Honour’s finding, such an inquiry would not have been necessary. Cummins did contend, however, that there was no evidence to support his Honour’s finding at [249] that AVK must have understood that one of the purposes of EPSA’s inquiry was to ascertain the winding pitch of the existing alternators. Cummins also submitted that his Honour’s finding at [248] did not follow from the finding at [48] and [277](4).

Johnson Controls submitted that the question to be determined on causation is what would have happened if AVK had disclosed the true position. It submitted that if the true position had been disclosed, that is, that the winding pitch ratio of the existing alternator was 13/15, it would not have purchased a generator set with an alternator with a 2/3 winding pitch ratio. Johnson Controls also contended that by focussing on the ‘purpose’ of making the representations, Cummins had conflated causation in fact and legal causation and, further, had failed to distinguish between damage and damages.

In direct response to Cummins’ submissions on causation, Johnson Controls, pointed out that Cummins had in fact only challenged three factual findings none of which were the trial judge’s ultimate findings of fact on causation. The challenged findings, as indicated above, were those at [249], [251] and [329], set out above at [50], [52] and [78]. Johnson Controls submitted that for that reason alone, the challenge to causation must fail. Johnson Controls also pointed out that Cummins did not challenge the relevant anterior findings of fact, including those set out at [20] above, that underpinned the ultimate factual findings on causation.

Johnson Controls submitted, therefore, that having regard to the unchallenged anterior factual findings of his Honour, Cummins could not succeed on causation, even if it was successful in its challenge to the findings at [249], [251] and [329]. It submitted that on the anterior factual findings it was apparent that AVK’s conduct was directed to a class of person which included Johnson Controls. Johnson Controls submitted that having regard to those unchallenged factual findings, Luna Park v Street was clearly distinguishable.

For its part, EPSA criticised Cummins’ case on causation as conflating four issues: (1) the purpose for which the quotation was requested by EPSA; (2) whether any relevant purpose was communicated by EPSA; (3) the purpose for which AVK provided information in answer to that request; and (4) whether AVK communicated such a purpose, including any limitation on use of the information. It also relied upon the absence of evidence from AVK as to its understanding of EPSA’s purpose in seeking the information. EPSA submitted that it was significant that no AVK employee had been called to suggest that the request by EPSA was understood as anything other than a request for technical information, including as to winding pitch ratio, so as to complete a tender in accordance with the draft specification provided to AVK. EPSA further pointed out that, in its various responses, AVK did not indicate that the information it provided was confidential or could only be used for the purposes of accepting the quotation for the supply of the AVK alternator. EPSA further pointed out that in addition to the unchallenged factual findings to which Johnson Controls had drawn attention, Cummins had not challenged his Honour’s finding at [253], set out at [53] above.

EPSA submitted that its reliance on the information provided was not only reasonable, AVK had in fact acted similarly in suggesting that a different manufacturer’s product might be an appropriate alternative.

It was not seriously in issue that factual causation had been made out. Were it not for the fact (“but for”) that AVK had stated to EPSA that the alternator to be supplied to run in parallel with the alternator in the existing generator sets had a winding pitch ratio of 2/3, Johnson Controls would not have accepted EPSA’s non-conforming tender for an additional generator set incorporating an alternator with that winding pitch ratio.

The question in issue is whether Johnson Controls has established legal causation. As the authorities discussed above demonstrate, the answer to that question is to be found in the purpose of the statute, as related to the circumstances of a particular case. The purpose of the consumer protection provisions of the statute, the provisions here in question, has also been well articulated: it is “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection”: Trade Practices Act, s 2. See also Allianz Australia Insurance v GSF Australia. It is to the circumstances of this case that that purpose is to be applied.

Cummins’ central complaint was that AVK provided a quotation to supply an alternator to EPSA, for the sale by EPSA to Johnson Controls of an alternator for an additional generator set. That quotation was not accepted and yet a different entity, Johnson Controls, had sought to make AVK responsible for the loss that Johnson Controls had suffered. Cummins’ submission was that, having provided information for a particular purpose, not intending for its information to be relied on for any other purpose, and not knowing that it would be relied upon for a different purpose and by different parties, there was no basis for finding it liable for Johnson Controls’ loss in accordance with the principles stated in Henville v Walker and Street v Luna Park (above at [79] ff).

However, those arguments do not correspond with the evidence. As the factual background recited above and the submissions of Johnson Controls and EPSA reveal, the representations were not made within the silo of a two party transaction between AVK and EPSA, as AVK well knew. AVK knew that EPSA was engaged in a tender process. Nor did AVK challenge on the appeal the finding that it knew and intended that the information would be passed to others for use in the tender process, or that it had no intention that the information would not be passed on. Indeed, it called no evidence at trial to establish its absence of knowledge or understanding, or any evidence of an intention or purpose that the information not be passed on: see judgment at [241], [258]-[259]. Contrary to Cummins’ submission, it was clear from the evidence that although the client had a preference for an AVK product, it was willing to look elsewhere, and AVK knew that: see above at [69]-[70].

Further, it was unchallenged that the manufacturer of the alternator, in this case, AVK, was a source, and at times the only source, of the technical specifications of the alternator. There was also evidence that although EPSA accepted that whilst at the quoting stage a manufacturer may keep technical information confidential, Mr Morley, in evidence that was unchallenged on the appeal, said that he would not order a new alternator without undertaking an independent check as to the specifications of the existing alternator and that he had done that. As I have indicated above at [43], that appeared to be a reference to his request for the technical data sheet.

In addition, there are the factors to which I have referred above at [68] ff which are also relevant to causation.

Having regard to the unchallenged findings of fact canvassed above, it was open to his Honour to conclude that AVK must have understood that one of the purposes of EPSA’s inquiry was to ascertain the winding pitch ratio of the existing alternators and that parties other that EPSA would rely on the information AVK provided in response to that inquiry. In so finding, his Honour correctly appreciated the circumstances of the case and the purpose of the Trade Practices Act.

It was also open to his Honour to conclude that Johnson Controls relied on the information in accepting a tender for an alternator with a winding pitch ratio of 2/3. Likewise, it was open to his Honour to find that EPSA had established that it relied on the representations made. Consequently, his Honour was correct to attribute the loss suffered by Johnson Controls to Cummins as a result of its reliance upon Cummins’ representations. In other words, the misrepresentation as to the winding pitch was the cause of the loss that Johnson Controls suffered.

A further comment needs to be made as to Cummins’ submissions on causation. In both its written and oral submissions, Cummins challenged his Honour’s finding at [329] that EPSA had made it plain to AVK the purpose for seeking the quotation and the performance requirements that the new alternator had to meet. Cummins contended that there was no evidence that EPSA had done so.

However, his Honour’s finding was based on his understanding of the email communications between EPSA and AVK, and on the fact of EPSA sending the draft specification to AVK in which it was made clear that equipment other than AVK’s equipment was acceptable for tender purposes. It is incorrect, therefore, to say there was no evidence to support his Honour’s finding.

But in any event, not only was his Honour’s finding at [329] made in the context of his finding on apportionment and not causation, Cummins’ failure to challenge the finding at [241], [258] and [259] meant that its written submissions, in which it contended that EPSA did not make it plain that that it sought the information for any reason other than the purpose of deciding whether to accept the offer, were effectively abandoned. The submission also failed to grapple with the other uncontested fact that AVK was at all times the source of the technical information required and that at no time did it provide this technical information on a confidential basis. This aspect of its challenge to causation is accordingly also rejected.

Cummins’ resistance to liability on the basis that damage had not been established was predicated upon the proposition that Johnson Controls had to show what its position would have been but for the contravening conduct: Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494 at [42]; Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; 160 CLR 1 at 13. In short, Cummins contended that Johnson Controls had not advanced a “no transaction” or “different transaction” case.

His Honour rejected this submission, stating, at [281], that he did not accept that there was an inflexible rule that damage, for the purpose of a misleading or deceptive conduct case, required proof of a “no transaction” or “different transaction” case: see Henville v Walker at [131], [133]-[135]; Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) [2006] NSWCA 282; 67 NSWLR 341.

His Honour concluded, at [286], that Johnson Control’s loss was the cost of providing three alternators that could operate in parallel in circumstances where Johnson Controls decided to replace the existing alternators so that they would conform with the 2/3 winding pitch ratio of the newly supplied alternator, rather than wait until it could source an alternator with a 13/15 winding pitch ratio. His Honour, at [286], explained that Johnson Controls adopted this course so as to:

His Honour concluded, at [288], that Johnson Controls had made out its case of direct reliance, having found at [287]:

Cummins did not take issue with the trial judge’s quantification of damages. Rather, it submitted that, as a matter of law, Johnson Controls had not made out its claim as it had not suffered any loss or damage. Cummins submitted that Johnson Controls did not allege, in its pleadings or otherwise, nor seek to establish by evidence, what it would have done if the misrepresentations had not been made. In particular, Cummins submitted that Johnson Controls did not advance a case that but for the misleading and deceptive conduct it would not have purchased an alternator with a winding pitch ratio of 2/3 (the no transaction case).

Neither, on Cummins’ submission, did Johnson Controls establish a different transaction case, as it had not established what different transaction it would have entered into had the misrepresentation not been made so as to enable a comparison with the position it was in as a result of its reliance on the misrepresentation, a matter upon which Johnson Controls bore the onus: Leadenhall Australia Limited v Peptech Ltd [2001] NSWCA 272 at [56].

According to Cummins there was nothing in the judgment of McHugh J in Henville v Walker that contradicted or qualified the fundamental principle stated in Marks v GIO and in Gates v City Mutual Life. It submitted that the principle was correctly stated in Heydon, Trade Practices Law: Competition and Consumer Law at [140.4310], namely, that establishing the loss or damage “requires consideration in comparison with the events that actually happened with what would have happened had there been no contravening conduct”. See also PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 at [167].

Cummins further submitted that the statement in Abigroup Contractors v Sydney Catchment Authority at [114] to which his Honour had referred was made in the context of, and was confined to, cases where there was a negative representation: see Heydon, Trade Practices Law: Competition and Consumer Law [140. 4310]; Lockhart, The Law of Misleading and Deceptive Conduct (3rd ed, 2011) p 347 n81. Cummins submitted that so understood, Abigroup did not detract from the fundamental principles expressed by the High Court in Marks v GIO and Gates v City Mutual Life.

It followed, on Cummins’ submission, that Johnson Control’s case for damages had no legal basis.

In response to Cummins’ submission that it had not pleaded or otherwise alleged a case that but for the misleading and deceptive conduct, it would not have purchased a winding pitch ratio of 2/3, Johnson Controls referred to its pleading in its Third Further Amended Technology and Construction List Statement in which it pleaded:

Johnson Controls pointed out that the fundamental premise of its claim was that, but for AVK’s misleading conduct, it would not have purchased an alternator set with a 2/3 winding pitch ratio. Had AVK informed EPSA that the winding pitch of the existing alternator was 13/15, Johnson Controls would not have ordered an alternator with a 2/3 winding pitch ratio. To do so would have put it in breach of its contract with IBM which required it to supply and install an additional generator set that would work in parallel with the existing generator sets. Having acted on AVK’s misleading information, it became necessary for it to remedy the situation so as to provide IBM with a 3,000 kw electrical load, as it was contractually bound to do. That was due to occur by December 2006. During that time, IBM had borne the cost of having additional electrical load by hiring additional generators.

Johnson Controls pointed out that Mr Morley (EPSA), Mr Bowers (Webb) and Mr Buttifant (Johnson Controls) each gave unchallenged evidence that he had relied upon the information supplied and representations made by AVK. Johnson Controls further pointed out that Cummins had not challenged the trial judge’s findings at [266] that the tender had been prepared and assessed by the relevant parties on the basis of the information provided by AVK (see above at [55]). Johnson Controls submitted that it had clearly suffered damage or loss because it could not use what it had bought. When the problem with the alternator was discovered, the most feasible engineering and economic solution was to hire additional generators until the problem could be sorted. However, unlike the position during the contract period, Johnson Controls was required to bear that cost. It submitted that that was a cost it otherwise would not have incurred but for AVK’s misleading conduct.

Johnson Controls submitted therefore that it incurred direct costs by reason of AVK’s misleading conduct in providing incorrect information as to the winding pitch of the alternator. It also pointed out that Cummins had not challenged his Honour’s finding at [287] as to the damage suffered.

EPSA supported these submissions relying upon the observation of Gleeson CJ in Travel Compensation Fund v Robert Tambree at [30]:

As it pointed out, Johnson Controls found itself with a generator set with an incompatible alternator. The most efficient and economical solution to that problem was to do what Johnson Controls did, so that IBM was provided with sufficient generating capacity through having generators that were able to synchronise and load share.

In Gates v City Mutual Life the Court was concerned with the measure of damages for a representation made contrary to s 52 of the Trade Practices Act. The plurality observed, at 11, that the Act did not prescribe the measure of damages recoverable for a contravention of, relevantly, Pt V and it was thus for the Court to determine the appropriate measure of damages recoverable for the particular contravention, although that which applied in tort was the appropriate measure in most if not all cases.

These observations were explained in Marks v GIO. That was a case where the providers of a loan facility made representations as to the terms of the loan facility that were held to contravene s 52. At trial, no borrower said that if the true terms were known they would not have entered into the loan facility at all, or would have entered into a different facility. The plurality observed, at [38], that, relevantly, where there had been a contravention of s 52, s 82 required an examination of whether a person had suffered loss or damage by that conduct. That inquiry was directed to establishing a causal connection between the loss or damage suffered and the contravening conduct. Their Honours continued:

Their Honours, at [39], stated that Gates did not hold to the contrary. They accepted, at [42], that the loss or damage caused by a contravention of s 52 would coincide with what would have been allowed in an action for deceit because in each case the inquiry is as to the damage that flowed from the deceit or the contravention. Their Honours concluded, at [42], in a passage upon which Cummins relied that:

However, that passage continued:

This approach was most recently applied by this Court in Williams v Pisano at [100].

Cummins relied upon Leadenhall Australia Limited v Peptech at [56] and PT Ltd v Spuds Surf Chatswood in support of its proposition that the appellant had not proved its case on damage. Those cases each involved the application of principle to the particular facts of the case and in each the court considered whether, on the facts, the case was, or critically was not, a different transaction or no transaction case. Thus, Giles JA in Leadenhall observed, at [56], that the trial judge had correctly identified the case, on the facts he had found, as a different transaction case. On that case, the trial judge had held that the appellants had failed to prove loss or damage. The Court of Appeal upheld the trial judge’s decision. The observation of Sackville AJA in PT Ltd v Spuds Surf Chatswood at [167] to the effect that Henville v Walker was a ‘no transaction’ case was made in the context of where the onus lay in the case of a breach of a lease, to disentangle the losses that the respondent claimed from other causes of those losses.

Neither case is of assistance in determining the two essential questions here: whether Johnson Controls suffered loss and if so, the measure of that loss. As is apparent from Cummins’ selective reliance on the passage from Marks v GIO reproduced at [128] above, its argument on loss was that it was necessary for Johnson Controls to establish either that it would not have entered into the transaction, that is, it was required to prove a ‘no transaction’ case, or that it would have entered into a ‘different transaction’. However, as the complete passage of their Honour’s comments (reproduced at [129] above) reveals, the Court was there dealing with the question of whether loss or damage flowed from the contravening conduct. There is then a separate question as to the measure of damages.

In my opinion, the trial judge was correct in stating that there was no strict requirement to prove a ‘no transaction’ or ‘different transaction’ case. Rather, it is necessary for a party to prove that in reliance on the misrepresentation it acted in a particular way that caused it loss and to then prove the quantum of that loss. That involves a consideration of the particular circumstances in which the conduct that caused the loss occurred. This was demonstrated in the recent decision of the Queensland Court of Appeal in Westpac Banking Corporation v Jamieson [2015] QCA 50. In that case, the respondent was given investment advice that was held, inter alia, to be misleading or deceptive.

The respondent in Westpac Banking Corporation v Jamieson argued that having established that he had entered into the investments in reliance on the misleading or deceptive conduct of the Bank and had incurred losses in doing so, it was irrelevant to enquire what he would or might have done instead, as to do so would be speculative: see Downs v Chappell [1997] 1 WLR 426 at 441. That proposition was rejected. As Applegarth J observed at [143]-[144]:

Applegarth J further observed, at [146], that it was not necessary in a no transaction case that a claimant prove what alternative transaction would have been entered into. Rather, “[i]t may be sufficient for the plaintiff to prove that he or she would not have entered into the subject transaction”.

The evidence revealed that if the correct information had been provided by AVK, Johnson Controls would have supplied an alternator with a winding pitch ratio of 13/15 at the same cost as an alternator with a 2/3 winding pitch ratio. In those circumstances, it was sufficient for Johnson Controls to prove that it relied upon the wrong information from AVK and installed equipment that did not satisfy its contractual arrangements with IBM. In order to fulfil its contractual obligation, it was faced with at least two options, either of which resulted in it incurring costs. It had thereby proved that it had a suffered a loss as a result of its reliance on the wrong information provided by AVK.

There was then the separate question of the assessment of the damages to compensate for that loss, about which there was no issue on the appeal.

The parties to the proceedings each engaged experts. Their reports related relevantly to matters such as industry practice, what the experts would have understood from the relevant tender and specification documents and the communications the parties should reasonably have had with each other. They also expressed opinions as to the reasonable steps available when it was ascertained that the additional generator set did not operate in parallel because of the disconformity between the alternators in the existing and additional generator sets.

A joint expert report was also prepared.

At trial, Johnson Controls, with the agreement of Webb and EPSA, did not tender certain passages of the principal report of its expert, Dr Grantham, or corresponding passages in the joint expert report. Webb and EPSA agreed in turn not to tender the expert reports they had commissioned. However, Cummins wished to rely on those parts of the report of Dr Grantham which Johnson Controls did not read. When it was pointed out to Cummins that it had not served that report in accordance with the rules, Cummins responded by seeking to tender the joint report.

The tender of the balance of Dr Grantham’s report and the joint report were both rejected by the trial judge (unreported, 29 August 2013). His Honour held that Cummins was, in substance, seeking to adduce evidence from an expert in respect of which it had not served a report as required by the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 31.28. His Honour also held that that r 31.28 applied to joint expert reports. As Cummins had served neither Dr Grantham’s report nor the joint expert report, his Honour held that leave was required pursuant to r 31.28(3)(a) for them to be admitted. His Honour refused leave as there were no “exceptional circumstances” as required by r 31.28(4)(a). His Honour also considered that the evidence sought to be tendered was irrelevant. His Honour could have, but appears was not asked to, exercise the powers conferred by the Civil Procedure Act 2005 (NSW), s 14, nor was reference made to that provision in this Court. For that reason, and given there was no challenge to his Honour’s finding that the evidence sought to be tendered was not relevant, I do not propose to consider whether this was an appropriate case for the exercise of that power.

The purposes of the rules relating to expert evidence are set out in UCPR, r 31.17, as follows:

Rules 31.24-31.26, which appear in Subdiv 2 of Div 2 of the UCPR, relate specifically to joint expert reports. Of those provisions, only r 31.26 addresses the question of admissibility. It provides as follows:

Rule 31.28 appears in Subdiv 3, “Experts’ reports and expert evidence”, of Div 2 of the UCPR. It provides, relevantly, as follows:

UCPR, r 31.29 provides for the admissibility of expert’s report as follows:

Cummins contended that his Honour was in error in rejecting the tender of the reports. It submitted that it would be “absurd” if r 31.28 applied to joint expert reports, as joint reports were covered by their own regime in UCPR, rr 31.24-31.26.

In relation to the individual expert reports, Cummins submitted that leave was not required, in circumstances where the reports had been served in accordance with r 31.28 by parties other than Cummins. It contended that there was no requirement in the rules that the recipient of a report “back serve” it if it intended to rely upon it. On Cummins’ construction, the rule was complied with provided the report had been served, and leave is required pursuant to r 31.28(3)(a) only where a report has not been served at all.

Cummins submitted that this construction of the rule promoted efficiency, and was consistent with the purposes of the provisions relating to expert evidence in the UCPR as identified by r 31.17, and with the overriding purpose of s 56 of the Civil Procedure Act. It also relied on comments in Yacoub v Pilkington (Australia) Ltd [2007] NSWCA 290 relating to the inefficiency of “back-serving” documents on the original serving party.

Cummins further submitted that if leave were required, the circumstances were “exceptional” such that his Honour erred in refusing to grant it. It relied on the statement in Yacoub v Pilkington at [66] that exceptional circumstances are “out of the ordinary course or unusual or special, or uncommon. They need not be unique or unprecedented”. The appellant contended that the circumstance that the first respondent abandoned one of the two major bases of its case, being its negligence claim, thereby abandoning reliance on the joint experts report, was exceptional, and that in any case a party’s refusal to tender expert evidence after the publication of a joint expert’s report was exceptional. Further, it contended that if the joint report were admissible, leave should be granted to admit the underlying individual reports as it would an anomalous and exceptional circumstance for them to be excluded.

Cummins contended that if it made out these grounds but not the grounds relating to causation or misleading and deceptive conduct, the matter would need to be remitted to the trial judge for redetermination.

The respondents’ submissions on these points covered similar ground and may be considered together. Their overall contention was that Cummins had demonstrated no House v The King [1936] HCA 40; 55 CLR 499 error in the trial judge’s refusal to admit the evidence.

In response to Cummins’ contention that joint expert reports, being subject to their own rules, were not governed by r 31.28, the respondents contended that rr 31.24-31.26 are not exhaustive, and did not include any provision governing the situation that arose here. Johnson Controls further submitted that the heading to Subdiv 3 of Div 2 of the UCPR, when read with the heading to Subdiv 4, “Parties’ single experts”, supports the construction that Subdiv 3, including r 31.28, applies to all expert evidence, including joint expert reports.

Johnson Controls submitted that the reference to service “in accordance with this rule” in r 31.28(3)(a) must refer to the requirement of service by “each party” in r 31.28(1), which they contended militated for a requirement of service by any party intending to tender the evidence. Both respondents noted that Yacoub v Pilkington (Australia) Ltd had not been cited before the primary judge, did not decide the question whether the rules required “back-serving” and indeed, at [64], recognised a policy rationale to “back-serving” in giving notice to opposing parties of the intended use of the evidence.

The respondents also contended that there was no House v The King error in his Honour’s finding that there were no “exceptional circumstances” for the purposes of r 31.28(4)(a). They submitted that the determination of “exceptional circumstances” was necessarily highly subjective and discretionary: Nikac v Minister for Immigration and Ethnic Affairs [1988] FCA 400; 20 FCR 65 at 81; Hicks v Aboriginal & Torres Strait Islander Commission [2001] FCA 586; 110 FCR 582 at [21]. Further, they submitted that there was nothing unusual in commercial litigation for parties to choose not to tender some of the evidence they have prepared, and that there was nothing in the specific circumstances of the case, including that Cummins was caught by surprise by the decisions of the other parties not to tender the evidence, to give rise to “exceptional circumstances”.

The respondents submitted that, in any event, the evidence sought to be tendered would not have assisted Cummins’ case such that no substantial wrong occurred by reason of the refusal of the trial judge, in his discretion, to grant leave. In particular, it contended that evidence as to how the parties should have communicated would not have altered the outcome of the case in the context that, first, the trial judge made findings to the effect that Cummins must have known that the alternators had to have a matching winding pitch to run in parallel and secondly, Cummins called no evidence of the state of mind of its employees such as could have demonstrated that a different result would have occurred if the parties had communicated in different ways.

At its most basic level, these grounds of appeal can be dealt with by reference to his Honour’s finding that the material was irrelevant. That finding was not the subject of challenge. Nor could it be. A review of the joint report indicates that the questions asked related in large measure to the characterisation and content of the specifications provided by Webb and what information EPSA should have sought from Webb and others in relation to the specifications. Those matters may have been relevant to the negligence case that was not pursued and the contract claim against Webb, but were not relevant to the misleading and deceptive case that was run before the trial judge and which is the claim in issue on the appeal.

However, in deference to the arguments advanced as to the proper construction of the rules, it is appropriate to deal with those arguments.

It is convenient to commence with the rules governing the joint report and, in particular, UCPR, rr 31.26(3) and (4). The effect of UCPR, r 31.26(3) is that any party may tender the joint report insofar as matters are agreed by the experts. In this case, Cummins wished to tender sections 1-6 and 7.1-7.3 of the joint report. Section 7.4 of the joint report responded to issues raised in respect of Cummins and was tendered by Johnson Controls.

Sections 1-6 identified the issues and questions that pertained to each of the parties. Section 7 of the report contained the experts’ responses to the issues and questions raised in sections 1-6. The relevance and therefore admissibility of sections 1-6 was therefore dependent upon whether the answers to the issues and questions so raised were agreed by all experts: see UCPR, r 31.26(3). Except perhaps for section 7.3.5, no matters were agreed in sections 7.1-7.3 of the joint report. There was either disagreement amongst the experts, or aspects of agreement but with qualifications or in some instances, a statement that the expert’s opinion was as stated in that expert’s affidavit, to which the expert report was annexed. As part of the agreement between the parties other than Cummins, the relevant affidavit was not read, nor the annexed report otherwise tendered in evidence by those parties.

Section 7.3.5 aside, therefore, the joint report was not admissible pursuant to UCPR, r 31.26(3). To be admissible it was necessary for the material in the report to comply, relevantly, with the practices of the court. The practice of the court includes the rules of court and its Practice Notes. The rules provide for the service of expert reports. The joint report was not served by any party but was in the possession of each of the parties. I do not consider that the rules required it to be separately served. However, for the reasons given, it was not admissible. The position is different with the underlying expert reports.

Practice Note No SC Eq 5 provides, relevantly, as follows:

The parties did not favour the Court with any information as to what directions were made in this matter. All that is known is that Cummins determined, as it was entitled to do, not to adduce expert evidence (except in respect of a matter not presently in issue). In the absence of knowing what directions if any, were given, the question becomes what Cummins’ entitlement was, under the rules, to rely on the expert reports of the other parties when it had not ‘served’ those reports back on those parties. There is then the further question whether the trial judge erred in rejecting the tender of the balance of Dr Grantham’s report and the joint report.

UCPR, r 31.28 does not expressly provide that a receiving party, if it intends to rely on another party’s report must “serve it back” on the other parties to the proceedings. However, the rules as a whole and UCPR, r 31.29 in particular indicate that that is their intended operation. UCPR, r 31.29 cannot operate sensibly unless the report has been served by the party intending to rely upon it.

Accordingly, Cummins was reliant pursuant to UCPR, r 31.28(3) on the grant of leave to tender the individual expert reports upon which it sought to rely and was thus required to demonstrate that there were “exceptional circumstances” for the purposes of UCPR, r 31.28(4)(a). His Honour was not satisfied that it was “exceptional” for a party to abandon part of its case at trial or to decide, during the course of the trial, not to call certain evidence. His Honour considered that was what had happened in this case and the position Cummins found itself in was of its own making, having decided not to adduce expert evidence on the questions that remained in issue.

What constitutes exceptional circumstances for the purposes of the rule was considered by the Court in Yacoub v Pilkington at [66], as follows:

Johnson Controls and EPSA both submitted that the court’s determination under UCPR, r 31.28(4) was a discretionary determination and no House v The King error had been demonstrated. Appellate review of a determination under UCPR, r 31.28(4)(a) may not strictly be the basis of the principle stated in House v The King. Where the question whether a court is satisfied of a particular matter which involves the application of a standard, the appropriate review mechanism is in accordance with the principles in Warren v Coombes [1979] HCA 9; 142 CLR 531; Singer v Berghouse [1994] HCA 40; 181 CLR 201; Port Stephens Council v Samson [2007] NSWCA 299; Community Association DP270253 v Woollahra Municipal Council (No 2) [2014] NSWLEC 8. UCPR, r 31.28(4)(a) provided that there must be “exceptional circumstances” for the grant of leave and thus specifies the standard in respect of which there must be satisfaction. However, regardless of the standard of appellate review, Cummins has not shown error in the trial judge’s determination.

Cummins, in any event, is faced with a further difficulty. Apart from the attempt to tender the balance of Dr Grantham’s report, Cummins did not seek to read the relevant affidavit or tender the expert reports of the other experts upon which the joint report was based, even on a formal basis before the trial judge.

Senior Counsel informed the Court that no attempt to do so was made, given his Honour’s rejection of the tender of that part of Dr Grantham’s report that was not read by Johnston Controls. However, if it wished to preserve its position should it decide to appeal, Cummins ought to have at least formally tendered the evidence upon which it wished to rely, acknowledging that the tender would be covered by the ruling already given. That is a commonplace forensic response to a ruling such as was made by the trial judge here.

There is another and even more fundamental problem that Cummins faces in respect of these grounds of appeal. Webb was not a party to the appeal. Nonetheless, much, if not most, of the material in sections 7.1-7.3 of the joint report it sought to tender related to the conduct of Webb. For example, in section 7.1.1, under the issues relating to Johnson Controls, the first question was:

Section 7.2 dealt with the questions asked and issues which arose in respect of Webb, all of which related to Webb’s liability or raised questions which were directed, inter alia, to ascertaining whether Webb was liable, either solely or in conjunction with one or other of the other defendants. The position was the same in respect of section 7.3, directed to EPSA. For example, the first question posed in section 7.3.1 was directed to what information Webb ought to have included in the specifications.

The circumstances in which a retrial may be ordered are addressed by UCPR, r 51.53, which provides, relevantly, that the Court must not order a new trial on the ground of improper rejection of evidence “unless it appears to the Court that some substantial wrong or miscarriage has been thereby occasioned”: r 51.53(1). In circumstances where Webb was not a party to the appeal, and given that the material sought to be tendered in any event appears to have been at substantially irrelevant to the issue on the appeal, this Court would not order a new trial.

The only argument that Cummins advanced in respect of apportionment was that if it only succeeded in respect of grounds 8 and 9, the appropriate order was that the matter be remitted to the trial judge for further determination.

EPSA submitted that as grounds 8 and 9 should be rejected, ground 12 of the appeal did not arise. That submission should be accepted.

The trial judge found it unnecessary to deal with the third party reliance case as he had found a case of direct reliance. His Honour indicated, however, at [294], that he had made all the necessary findings of fact should an appellate court find it necessary to deal with it. Cummins accepted that whatever it communicated to EPSA would be passed onto Johnson Controls. For that reason, its position on the notice of contention was that there was no utility in it and therefore it was not necessary for this court to deal with it. Given that I consider that the appeal should be dismissed in any event it is not necessary to deal with this question which is raised on the notice of contention. I also do not consider it appropriate to do so in the absence of assistance from all parties.

It follows from my reasons that I consider the appeal should be dismissed with costs.

GLEESON JA: I agree with Beazley P.

LEEMING JA: I agree with Beazley P.