BHP v Steuler; Protec v Steuler [2014] VSCA 338

BHP v Steuler; Protec v Steuler [2014] VSCA 338 | Case summary | Zoe

[320]

We have been talking to Mr Gebhardt [sic], and he said that it is not very recommendable to put so few knobs (100 knobs/m²) to the sheets. As they are immersed in a 55°C liquid, this high temperature can cause severe deformations and bulges on the surface, finally damaging the sheets. In loose lined tanks, there will not appear severe damages in the lining during the first months of service, as the material will stay in position. Afterwards bulges or bellies will appear, and the whole sheet will get permanent deformations that cannot be corrected. The formation of the bellies is provoked by the dilatation of the sheet due to the increase in temperature. If you have knobs quite near one to each other, the maximum dilatation is restricted to the distance between these two points. As the distance is small the bulge that will form is only small. If you have a distance of some meters in between the supporting points, the elongation of the sheets due to temperature is very big and the material will bulge out, creating a big belly. If there is also the possibility of gathering condensation water behind the sheets, this bulge will get bigger and bigger and after some time the whole sheet will fail, and float up on to the surface. Steuler has seen this happen in quite a lot of cases during the past years. So we consider, that it is a more sound solution to put the 256 knobs on a 3 mm sheet and to guarantee that the lining will stay intact during a long period, as to reduce the quantity of them and getting problems with the service life of the lining. If they use the loose liner they will have to replace this lining every two to three years. Steuler has been installing Bekaplast liners during the last 20 years and they are working well today. Out of the reference list you can see a project in Niger for Cominak, that is still working since it has been constructed in 1977. We have to convince the owner, that the cheap solution of loose liners will not hold for very long and that he will have lots of shut downs of the production facility implicating high losses. With Bekaplast, having a higher initial cost, he will get in the end a cheaper solution, as probably no changes of the lining will be necessary during the service life.

[380]

160 The flaw in this line of argument is that if it embraces the third representation in its wholly generalised form it fails to appreciate its implausibility. It also ignores the particular differences, discussed above, when account is taken of the manner in which the judge inserted specific terms into the third representation. Most importantly, it renders the first and second representations, made by Steuler, no more than a source of confidence for Protec to make the third representation. If the first and second representations were made 'for the purpose of supporting a Third Representation' this suggests that the first and second representations were made by one speaker (Steuler) to support a second speaker (Protec) to make the third representation. It does not suggest that all three representations were made by the one speaker (Steuler), because one does not make representations for the purpose of supporting oneself to make another representation. If a representation is to provide support, or confidence, for the making of another representation, it is made as an inter-personal communication to someone else, a second speaker. If this was the role of the first and second representations, BHP's approach has the consequence that, while Steuler may have made the first and second representations, it is most unlikely to have made the third representation, in the 23 April 1997 facsimile or in any other relevant communication. Rather, it was Protec, having gained the confidence the first and second representations were intended to provide, that made the third representation to WMC, not passing on what Steuler had said but re-framing what it had been told as a representation of suitability in different terms. This was consistent with the evidence relied upon by BHP that Protec had no prior experience in the use of Bekaplast HDPE (which was not in contest) and was entirely dependent upon Steuler to provide it with technical and other advice.[250] In those circumstances, one would conclude that Steuler never made the third representation to Protec or to WMC and it would be free of any liability to WMC arising from the making of the third representation, or WMC's reliance upon it.[251] Such a conclusion would clearly be adverse to BHP's interests.

[479]

In my opinion, Mr Smith did rely on the singular 20 year representation (the second representation), to some extent, and the suitability representation (the third representation) made by Steuler. He was not an expert in this area and he clearly relied on what he was told by Steuler. This led to Protec NSW making the second and third representations to WMC. It also led to Protec, in reliance on Steuler's earlier representations to Mr Smith/Protec NSW, entering into the OSS Agreement.

Secondly, in my opinion, WMC also relied on the singular 20 year representation, to some extent, and the suitability representation (the second and third representations) made directly by Steuler, and repeated by Protec NSW, in deciding to enter into the OSS Agreement and install the Bekaplast HDPE lining system. Obviously, WMC did favour HDPE, but I agree with the plaintiffs' submission that if Steuler had not been prepared to represent that its HDPE material was suitable, then WMC would have looked at the issue again. Perhaps it would have stuck with HDPE by contracting with Beltreco to install Serrot's HDPE material as the liner for the tanks. Or it may have abandoned HDPE and changed to FRP, as it did some four years later. Whatever course it might have followed, I am satisfied that if Steuler had not represented that its Bekaplast HDPE lining system was suitable, WMC would not have proceeded to enter into the OSS Agreement with Protec. As stated in Gould v Vaggelas, it is sufficient if the representation played some part, even a minor part, in contributing to the formation of the contract. The evidence establishes that this was what occurred in this case, in my opinion.

However, counsel for the plaintiffs accepted that there was much to be said for the proposition that WMC did not really rely on the second representation. What was critical to it proceeding to install the HDPE lining was the third representation, that is that the lining was suitable, rather than that there was an example or examples of an HDPE lining lasting 20 years. The second representation simply reinforced the third representation. That is, on its own the second representation may not have been sufficient to make out the plaintiffs' claims.[309]

[642]

PARTICULARS

The lining system cracked, rucked and buckled and prematurely failed.

The HDPE lining system required replacement after a service life of less than 12 months.

HDPE is incompatible with solvents at temperatures up to 55°C particularly if the solvents contain aromatics. HDPE exposed to the chemicals listed in clause 1.5.4 of the Bid Request including kerosene at the operating temperatures listed absorbs organics from the solution causing swelling, cracking and blistering leading to premature failure of the HDPE material.

On 23 December 1999 a fire damaged part of the copper extraction tank farm area. Because of the continuing need for repairs that were required to the HDPE prior to the fire WMC determined not to replace the HDPE lining but to install a fibreglass (FRP) lining in the new and repaired tanks.

The copper raffinate and electrolyte tanks were damaged as a result of the December 1999 fire were rebuilt or repaired and lined with fibreglass (FRP) in or about January to June 2000 (Rebuild 1).

During 2000 the mixer box to tank E2-A, which was not damaged in the fire, was also relined with FRP as part of a trial to determine whether it was possible to delay the total replacement of the HDPE lining in the mixer-settlers by first replacing only the linings in the mixer boxes with FRP.

On 21 October 2001 a further fire extensively damaged parts of the copper extraction and uranium extraction tank farm area. None of the mixer-settler tanks were damaged in the fire. In about early 2002, preparatory to repair works being undertaken, all the tanks were emptied. It was found that all the tanks had developed blistering of the HDPE lining on the floor and walls particularly those parts of the lining which had been in contact with the process solution. In some areas of the tanks the studded lining sheets had broken away from the concrete substrate. Cracking was observed in the lining in various locations of the tanks.

As part of an upgrade of the plant following the October 2001 fire, the tank farm was revised, raised several metres and new tanks were constructed (in different locations to the old) and lined with FRP.

As part of the rebuild two of the mixer settlers (SC-A and SC-B) in the copper extraction trains were replaced with larger tanks and relined with FRP. These new tanks were renamed E1-A and E1-B. All of the remaining mixer settler tanks in both the copper and uranium extraction trains were stripped of HDPE and relined with FRP (Rebuild 2). The works comprising Rebuild 2 were carried out between about 2002 and 2004.

[744]

393 The phenomenon of the Bekaplast HDPE exhibiting some swelling when used to contain a kerosene-based extraction solvent at temperatures of 55°C does not appear to be in dispute. All the experts agree that this is how the HDPE would behave in that environment.[435] Steuler submitted that while there was swelling of the Bekaplast HDPE this was always expected and was not itself evidence of unsuitability. Steuler has never sought to say that the material would not swell. The swelling phenomenon was described by Dr Dunker when he was asked to consider the cl 1.5.4 parameters of the Bid Request in April 1997.[436] As set out above,[437] Walschburger in his 23 April 1997 fax to Smith described the behaviour of the material when immersed in a 55°C liquid.[438] The design of Bekaplast with 256 knobs per m2 was meant to deal with this kind of behaviour, by ensuring that the swelling of the sheet did not cause it to belly out and come loose. The more knobs, the less room for the swelling to have the consequences described. Steuler pointed out that the effect of swelling of the material when confined by the anchor studs created a 'dimple' effect in the 256 knob per m2 Bekaplast HDPE used on the walls of the USX tank, while the 160 knobs per m2 Bekaplast HDPE gave a 'wrinkle' or 'beach like ripple effect' on the tank floor. Dr Peggs in his 11 May 1999 fax used the phrase 'quilt appearance' in between the studs. Although the effect, especially on parts of the floor, might look severe to the uninitiated, Steuler submitted that it was not a defect and nor was it evidence of unsuitability of the material. Likewise, Steuler argued, the 'bubbling' between the anchor points in the 256 knobs per m2 Bekaplast observed by Modes in June 1999 in the USX tanks was not unexpected, nor was it an indication of unsuitability or failure. Steuler also submitted that the smooth HDPE (that is, HDPE without anchor studs) used for such things as weir cappings, was not embedded into the concrete and was not supplied by Steuler. It behaved just as Walschburger predicted, by creating a large bulge. Ultimately, it was replaced by anchored Bekaplast HDPE.

[931]

The test of merchantability in the above context involves consideration of whether the carton of yoghurt was as fit for human consumption at the time of its sale to the consumer as it is objectively reasonable to expect in all of the circumstances. It seems to me to be instructive to consider the application of that test in different hypothetical situations. These situations might include:

(1) a sale to a purchaser who learned of the risk of poisoning before eating the yoghurt;

(2) a sale to a purchaser who only learned of the risk of poisoning well after eating the yoghurt; and

(3) a sale to a purchaser who learned of the risk of poisoning after eating the yoghurt but before any poison might be expected to have taken effect.

A purchaser in the first class could reasonably be expected to return the carton of yoghurt or discard it. Surely it could not be said at trial, even if at that time all three poisoned cartons had been identified in the hands of other purchasers, that the carton of yoghurt was at the time of its sale as fit for human consumption as it is objectively reasonable to expect so as to deny the purchaser relief ... A purchaser in the second class could reasonably be expected to feel relieved to have survived but angry that he or she had been placed at risk of poisoning. Again, in my view, it would be unrealistic to say of the carton of yoghurt that it was at the time of its sale as fit for human consumption as it was objectively reasonable to expect. A purchaser in the third class could reasonably be expected to feel the most keenly of the three that the yoghurt was not fit for human consumption at the time of purchase. The anxiety experienced by that purchaser, in my view, would flow directly from the carton of yoghurt not being, at the time of its sale, as fit for human consumption as it is objectively reasonable to expect. In short, I am not persuaded that it would be absurd to characterise a food product as not merchantable in the relevant sense where the product carries a slight but appreciable risk of contamination by a deadly poison.[583]

[939]

528 Where the difficulty lay with the judge's conclusion on unsuitability is that, by contrast with the circumstances of Medtel v Courtney, the evidence did not establish, on the balance of probabilities, that there was a risk of premature failure nor that there was any physical feature of HDPE (including it having similar solubility parameters to kerosene) that was responsible for that risk. This is so for the reasons we have canvassed above. These include the defective and inconclusive nature of the scientific testing, especially the failure to conduct the tests at the actual operating temperature given that the interaction of HDPE and hydrocarbon solvents was considered to differ markedly at different temperatures; the doubts created by the opinion of all the experts that equilibrium may have been reached within seven days (with no further increase in the absorption of organics or of swelling); the limited nature of the investigations undertaken by Dr Peggs who reported primarily on the cracking of the smooth non-Steuler HDPE, who saw no completely penetrative cracking in the 3 mm Bekaplast HDPE liner and regarded the 5 mm Bekaplast HDPE as having adequate mechanical properties;[593] and the fact that Dr Scheirs did not see the liner in situ, did not investigate how widespread any problem was or what the causes might be, and did not have expertise in the process of solvent extraction.[594] Without having first established that it was a physical feature of HDPE that was responsible for the risk of premature failure, no reliance could be appropriately placed upon the analysis in Medtel v Courtney to conclude that the owner of a solvent extraction plant would not be prepared to run the risk of using HDPE lining. While it follows from Medtel v Courtney that it is permissible to demonstrate unsuitability on the basis of an inherent risk associated with a type of product, without the particular product purchased having actually failed, it is first necessary to establish that the type of product carries the inherent risk alleged. In our opinion, this is what BHP has failed to do.

[992]

... that is because the inquiry in both cases is to find out what damage flowed from (in the sense of being caused by) the deceit or contravention. Leaving aside questions of remoteness of damages in assessing damages for deceit ..., the damages for deceit will be the sum representing the loss suffered by the plaintiff because the plaintiff altered its position in reliance on the defendant's misrepresentation. But the analogy cannot be pressed too far. It should not be pressed to the point of concluding that the only damages that may be allowed under s 82 are those that would be allowed in an action for deceit. The question presented by s 82 is not what would be allowed in deceit, it is what loss or damage has been caused by the conduct contravening the Act.

It follows, then, that a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct. And even this inquiry may not conclude the question. Analysing the question of causation only by reference to what is, in essence, a 'but for' test has been found wanting in other contexts and it may well be that it is not an exclusive test of causation in this area either. But that is not a question which we need to consider in this case. For the moment it is enough to say that s 82 requires identification of a causal link between loss or damage and conduct done in contravention of the Act.[643]

...

The bare fact that a contract has been made which confers rights or imposes obligations that are different from what one party represented to be the case does not demonstrate that the party that was misled has suffered loss or damage. ...

A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less detriment to it than the course in fact adopted.[644]

[1009]

... this does not mean that common law conceptions of causation should be rigidly applied without regard to the terms or objects of the Act. Section 82 now applies to the contravention of any provision of Pt IV, IVB or V, or s 51AC of the Act. In Marks v GIO Australia Holdings Ltd, Hayne and Callinan JJ and I pointed out that the section can apply to many different kinds of cases, not just those where a breach of s 52 is alleged. Moreover, the objects of the Act indicate that a court should strive to apply s 82 in a way that promotes competition and fair trading and protects consumers. The width of the potential application of s 82 and the objects of the Act tell against a narrow, inflexible construction of the section. No doubt in most cases, applying common law conceptions of causation will be sufficient to answer the issues posed by s 82 in its application to contraventions of the Act. But care must be taken to avoid a mechanical application of those conceptions to issues arising under the section.[654]

...

The corollary of the 'common sense' approach to causation, as Mahoney JA pointed out in Barnes, is that it is not reducible to a 'test' that can be applied across the spectrum of factual situations that arise from case to case. Nevertheless, the course of judicial reasoning in this area has produced certain principles that assist tribunals of fact in deciding causation issues.

If the defendant's breach has 'materially contributed' to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.[655]

[1011]

In order to determine whether ...Walker's conduct was a cause of the losses claimed, the Full Court looked at what ... Henville would have done had the true position in regard to the market for the units been conveyed to him. The Full Court thought that, in this situation, ... Walker would not have told ... Henville that there was a 'huge void' at the top end of the market in Albany. To the contrary, as the trial judge found, an accurate report would have conveyed that there was 'little or no unsatisfied demand in Albany for top quality group residential units and no demand at all for units in the price range in question, that is $250,000 to $280,000'. So far as price was concerned, the Full Court inferred that an accurate opinion would have put the potentially obtainable amount in the range of $210,000 to $230,000. Taking these matters into account, the Full Court concluded that but for ... Walker's misleading conduct ... Henville would not have proceeded with the development.

The Full Court effectively found, therefore, that ... Walker's misrepresentations were at least one of the decisive considerations for ... Henville's proceeding with the development. Yet it felt bound to embark upon a further inquiry as to whether ... Walker's conduct, albeit an 'essential condition' of ... Henville's loss, was nevertheless 'a cause' of it. The impetus for this further inquiry was the statement in March that the mere fact that something constitutes an essential condition of an occurrence does not mean that it is properly to be seen as a 'cause' of it. But that statement was made in the context of the Court's rejection of the 'but for' test as the sole criterion of causation. The statement has no application in a case where a misrepresentation has induced a person to embark on a course of conduct - to enter into a contract or to buy land for the purpose of building units, for example. The issue with which the Court was dealing in March has nothing to do with a situation where a person makes misrepresentations that are intended to play a critical role, and do play that role, in another person's deciding whether or not to proceed with a course of action. As Gaudron J pointed out in Kenny & Good, in that situation the reliance of the representee is either 'the decisive consideration or one of the decisive considerations for taking the course of action in question'. Because it is decisive, the misrepresentation is correctly seen as causally connected with the course of action that follows.[656]

[1036]

The precise question is whether, in a case where loss results from two or more acts or events, s 82(1) requires a claimant to prove only the total loss that he or she suffered leaving it to the person whose conduct is in question to prove that some aspect of that loss is referable to other acts or events or whether, on the other hand, it requires a claimant to prove that a particular component or particular components of his or her loss are referable to the contravening conduct in question.

Just as the relief available under s 82(1) is not to be confined by analogy either with the actions in tort or in contract, it should not be confined by imposing an unduly strict burden of proof on the claimant. As already indicated, s 82 provides for the recovery of loss or damage that a person suffers by contravening conduct. To require a claimant to prove which component of his or her loss or damage is referable to the contravening conduct would be to impose limitations on relief which the terms of that subsection do not require.

At the very least, to require that a claimant under s 82(1) of the Act prove which component of his loss or damage is referable to contravening conduct would be to confine recoverable loss to that directly resulting from that conduct, and, thus, to impose a gloss on the words of the sub-section. At the other extreme, it would be to deny any remedy at all in those cases where loss results from two or more acts or events but the claimant is unable to identify the precise component or components of the loss referable to contravening conduct. That consequence is inconsistent with the concept of causation upon which s 82(1) is predicated, namely, that the contravening conduct should only have materially contributed to the loss or damage suffered.

It follows that, under s 82(1) of the Act, it is for the person whose contravening conduct materially contributed to the loss or damage to establish what component of that loss or damage is referable to some act or event other than his or her contravening conduct and not for the person who suffers loss or damage to establish the precise component or components referable to that conduct. The Full Court erred in holding otherwise.[678]

Abigroup Contractors Pty Ltd v Sydney Catchment Authority [No 3] (2006)

[1088]

Steuler says that the cause or causes for the replacement of the HDPE lining system with a FRP lining system were that:

(1) the HDPE lining system had to be replaced because it was a non-conductive material and was therefore not capable of eliminating or reducing the build up of static electricity, especially within the pipework in the copper solvent extraction plant and the uranium solvent extraction plant (both plants referred to as the 'SX Plant');

(2) the HDPE lining system had to be replaced by a conductive material such as FRP, which excluded replacement with another HDPE material or other non-conductive material;

(2A) the HDPE lining system was flammable and had to be replaced by a more fire resistant material;

(3) the HDPE lining system was severely damaged by the second of two fires, the first of which occurred on 23 December 1999, and the second on 20 October 2001. The second fire rendered the SX Plant inoperable;

(4) when rebuilding the SX Plant following the second fire, WMC was required by law to replace the HDPE lining system with a more fire resistant and conductive material. WMC had statutory and/or common law obligations in carrying out the rebuild, including an obligation to ensure that the rebuilt plant was designed and constructed so as to be safe, and an obligation to identify and eliminate all reasonably foreseeable hazards to health or safety arising from the SX Plant or systems of work associated with it;

(5) the HDPE lining system had to be replaced by a more fire resistant and conductive material in order to satisfy the requirements of potential insurers of the rebuilt SX Plant;

(6) the HDPE lining system was replaced by WMC because WMC considered that it would not be able to obtain insurance satisfactory to it, or at all, if it rebuilt the SX Plant using a non-conductive and flammable material;

(7) WMC decided to make enhancements to the SX Plant, which included replacement of the HDPE lining system with an upgraded, more fire resistant and conductive material, namely FRP.

[1354]

As soon as reasonably practicable upon the signing of this Deed, Protec will instruct its solicitors to file a Notice of Discontinuance to discontinue the Protec Claim in the [WMC proceeding].
Protec agrees to consent to the entering of judgment in favour of WMC in the amount of fifteen million dollars ($15,000,000), (inclusive of costs and interest), in respect of the Counterclaim (the Judgment Sum).
Protec agrees that it will issue a proceeding in the Supreme Court of Victoria against Steuler seeking indemnity from Steuler and other damages in respect of breaches of the agreement between Steuler and Protec, negligent statements made by Steuler to Protec and misrepresentations in respect of the suitability of liner material supplied by it to Protec for on-supply to WMC in relation to the Project and the supervision of the Protec and Steuler welders engaged to perform the work on the project (the Steuler Claim).
As soon as reasonably practicable upon the signing of this Deed, Protec will appoint solicitors and counsel nominated by WMC to act on its behalf for the purposes of issuing and then conducting the Steuler Claim. Protec agrees that WMC and the solicitors which it directs Protec to appoint to act on behalf of Protec in the Steuler Claim, will be entitled to prosecute the Steuler Claim in the name of Protec, and in the manner and as directed by WMC in its sole discretion.
Subject to compliance with this Deed by Protec and Smith WMC will, on settlement of or at the conclusion of the trial and determination of the Counterclaim and the Steuler Claim and after the determination of any appeals from the Counterclaim and/or the Steuler Claim, release the Bank Guarantee dated 23 May 2002 issued by the ANZ Bank (the Guarantee) and provided by Protec to WMC as security for performance of its obligations under the contract in respect of the Project for the amount of $175,865.08. WMC will provide to ANZ Bank any necessary correspondence/documentation for the purpose of releasing the Guarantee.
In consideration of this Deed, WMC agrees that it will:

[2052]

[768] This distinguishes the circumstances of this case from those in Clark v Macourt [2013] HCA 56; (2013) 304 ALR 220 where the High Court held that, in assessing the loss that was caused by a breach of a contractual warranty by the supplier of straws containing donated sperm to be used in assisted reproductive technology procedures, the governing principle is that the damages should put the promisee in the same situation, as far as money can, as it would have been in had the broken promise been performed, calculated as at the date of breach. By the time the proceeding reached the High Court, there was no dispute that 1996 of the straws delivered were not as warranted and were unusable (at 222 [2]). The appellant had bought replacement sperm and had charged each patient a fee that covered the costs of the replacement sperm used in treating that patient. The New South Wales Court of Appeal held that the appellant had thus avoided any loss. In allowing the appeal, the High Court held that the assessment of damages 'required assessment of the value of what should have been delivered in accordance with the vendor's contractual promise to the appellant' (at 226 [25] (Crennan and Bell JJ); see also 225 [20] (Hayne J) and 243 [111] (Keane J)). As Crennan and Bell JJ said: '[T]he circumstances of the appellant's subsequent dealings with patients did not avoid, or increase or diminish, the loss of her bargain for delivery of St George sperm which was compliant with the warranty' (at 229 [37]). The question was one of the proper approach to the calculation of damages (rather than unsuitability or causation) given that reimbursement of the replacement sperm had been achieved by the time of trial. This was not analogous to the circumstances here. Steuler did not argue that, although BHP had suffered a loss, its damages should be reduced by reference to a measure of reimbursement from its insurer. Its argument was anterior to that; it denied that BHP had suffered any loss caused by the Bekaplast HDPE liner (and denied that BHP had established that Bekaplast HDPE was unsuitable).

At a glance

Court

Decision date

Before

Source

Judgment (2181 paragraphs)

Legislation Cited (2)

Cases Cited (32)

Cited By (1)