Triple M Mechanical Services Pty Limited v Climate Technologies Pty Limited

In these proceedings, the plaintiff, Triple M Mechanical Services Pty Limited (Triple M), sued the defendant/cross-claimant, Climate Technologies Pty Limited (Climate), for damages arising from the supply of 606 defective Ventitech fan coil units (FCUs) acquired by Triple M as part of the air-conditioning system for the ICC Hotel development in Darling Harbour, Sydney. Triple M was a subcontractor to the head contractor, Lendlease Building Pty Ltd (Lendlease), and was responsible for installing the air-conditioning system. Climate was the Australian distributor of the FCUs, which were manufactured by the cross-defendant, Sonkor Global HVAC Solutions Limited (Sonkor), a company incorporated in Hong Kong.

Climate settled the claim brought by Triple M for $800,000 (inclusive of interest and costs). The evidence is that it has paid that amount. By its cross-claim filed on 21 May 2019, Climate seeks to recover that amount from Sonkor together with legal costs incurred in connection with Triple M’s claim. Those costs total $95,520.32. Sonkor has not filed an appearance and did not appear at the hearing of the matter.

I am satisfied that the cross-claim has been properly served on Sonkor in accordance with Div 2 of Pt 11A of the Uniform Civil Procedure Rules 2005 (NSW).

It is unclear whether New South Wales or Hong Kong law applies to the contract for the supply of the FCUs by Sonkor. Nothing, however, turns on the resolution of that question. Whether the contract is governed by New South Wales or Hong Kong law, implied into the contract are terms that the FCUs be of merchantable quality and fit for purpose: see Sale of Goods Act 1923 (NSW), s 19(1), (2); Sale of Goods Ordinance (HK), s 16(2), (3). The evidence discloses that it was made known to Sonkor that the FCUs were required for installation in a hotel project in Darling Harbour.

The evidence also establishes that the FCUs were defective. According to expert evidence given by Mr George Floth, a mechanical engineer, the FCUs principally suffered from a design defect because the FCU motors were not earthed to the FCU chassis, which caused bearing failures to arise from ‘electric discharge machining’ (EDM) of the bearing housing. EDM is the process by which metal is removed by the application of a pulsed voltage between two electrodes in the presence of dielectric fluid. In Mr Floth’s opinion, the fluted erosion pattern in the bearing cases of the FCU motors was clear evidence of EDM arising from the fact that the bearings were subjected to a regular voltage pulse, which could only be explained by the failure to earth the motors. According to Mr Floth, the damage to the bearings explained the excessive noise that the FCU motors had been heard to emit and would lead to the FCU motors being irretrievably damaged after a short period of operation.

Mr Floth expressed the view that approximately 90.6 percent of the motors inspected presented with shaft voltages which represented a dangerously high risk of bearing failure due to EDM and that a further 6.3 percent of those motors presented with shaft voltages that would be considered to entail risk of bearing failure due to EDM. He also expressed the view that it was not practicable to rectify the FCUs by retro-fitting an earthing mechanism because, among other things, assessing the state of the bearings for each individual unit would require dismantling them and the cost of doing so would likely exceed the cost of replacement of the motors and provision of an earthing mechanism.

In these proceedings, Triple M ultimately claimed an amount of $1,342,430.64. That amount was broken down as follows:

On 14 August 2020, Climate settled Triple M’s claim against it by agreeing to the Court entering consent judgment against it in the sum of $800,000 inclusive of costs and interest.

A person who settles a claim made by a third party that arises from a breach of contract is generally entitled to recover the amount of the settlement from the counterparty, provided the settlement is reasonable: UGL Rail Pty Ltd v Wilkinson Murray Pty Ltd [2014] NSWSC 1959 at [205]ff.

There may be a question whether Triple M was entitled to recover the $250,000 claimed by Lendlease. Leaving that amount aside, the claim still exceeded $1,000,000. Triple M’s legal costs are likely to have been substantial. Given the evidence of Mr Floth, there was strong evidence that the FCUs were defective and that the only practicable method of correcting the defect was to replace the electrical motors. Triple M had filed extensive evidence quantifying its loss. Against that background, a settlement of $800,000, which included costs, was reasonable.

Accordingly, Climate is entitled to recover the $800,000 from Sonkor.

In addition to the amount paid to Triple M, Climate is entitled to recover costs reasonably incurred by it as a consequence of a claim against it arising from the defective goods: see J Edelman, McGregor on Damages (21st ed, 2021, Thomson Reuters) [21-040]ff. It accepts, of course, that it is not entitled to recover the costs of the claim against Sonkor as damages.

Climate led evidence of the costs it incurred as a consequence of the claim by Triple M against it, which total $95,520.32. There is no reason not to accept that evidence. In addition, Climate is entitled to pre-judgment interest at court rates from the date it paid the relevant amount to the date of judgment. The evidence before the Court is that that amount is $38,510.83 up until 25 November 2021. Interest continues to accrue at the rate of 4.1 percent per annum on the $800,000 to the date of judgment (2 December 2021), resulting in an additional amount of interest of $629.04 and a total amount of interest of $39,139.87.

It follows that Climate is entitled to judgment in the sum of $934,660.19 ($800,000 plus $95,520.32 plus $39,139.87).

The orders of the Court therefore are: