Medical Device Technologies Pty Ltd v Health Administration Corporation - [2024] NSWCA 142 - NSWCA 2024 case summary — Zoe

NSWNSWCA

Medical Device Technologies Pty Ltd v Health Administration Corporation

[2024] NSWCA 142

Court of Appeal (NSW)|2024-03-22|Before: Payne JA, Stern JA, Harrison JA, Stevenson J

View original source

At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2024-03-22

Before

Payne JA, Stern JA, Harrison JA, Stevenson J

Catchwords

[2020] FCAFC 130 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
[2013] HCA 54 Boensch v Pascoe (2019) 268 CLR 593
[2019] HCA 49 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
[2001] NSWCA 61 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592

Source

Original judgment source is linked above.

Catchwords

[2020] FCAFC 130 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640[2013] HCA 54 Boensch v Pascoe (2019) 268 CLR 593[2019] HCA 49 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153[2001] NSWCA 61 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592[2004] HCA 60 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304[2009] HCA 25 Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45[1984] FCA 180 Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435[2013] HCA 1 Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49 Henville v Walker (2001) 206 CLR 459[2001] HCA 52 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216[1978] HCA 11 Kuru v State of New South Wales (2008) 236 CLR 1[2012] VSCA 91 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191

Judgment (115 paragraphs)

[1]

[5]

HEADNOTE [This headnote is not to be read as part of the judgment] In April 2020, the respondent, Health Administration Corporation, negotiated the purchase of "Shangrila 510S Integrated Respiratory Work Station" ventilators from Medical Device Technologies Pty Ltd, the appellant. The Ventilators were manufactured by Beijing Aeonmed Co., Limited. The respondent's medical adviser, Dr Morris, reviewed technical information about the Ventilator, including a User Manual supplied by the appellant, and on the strength of this review, recommended the Ventilator be acquired. In April 2020, the respondent entered two agreements with the appellant to purchase 348 Ventilators for $20.79 million. The respondent paid half the purchase price ($10.395 million) and the appellant delivered the Ventilators. After delivery, the respondent conducted several rounds of testing and found the Ventilators did not meet performance requirements identified in the User Manual. On 7 September 2020, the respondent purported to reject the Ventilators, terminated the agreements and demanded the appellant refund the $10.395 million. Proceedings were commenced in the Supreme Court Commercial List. The primary judge, Stevenson J, found in favour of the respondent. A notice of appeal was filed, as were notices of contention. On appeal, the issues were: (i) In relation to s 19 of the Sale of Goods Act, did the respondent make known to the appellant the particular purpose for which it purchased the Ventilators? (ii) Did the respondent rely on the appellant's skill and judgment? (iii) Was the Ventilator fit for purpose? (iv) Was the respondent entitled to reject the Ventilators, or had they already been accepted under ss 37 and 38 of the Sale of Goods Act? (v) Were the respondent's purchase terms incorporated into the agreements? (vi) Did the appellant adopt or endorse the User Manual? (vii) Was the User Manual misleading and deceptive? (viii) Did reliance on the misrepresentations cause the respondent loss? The Court held (Payne JA, Stern and Harrison JJA agreeing at [409] and [410] respectively), dismissing the appeal:

[14]

Judgment

PAYNE JA: In April 2020, as part of the New South Wales Government's response to the COVID-19 pandemic, the respondent, the Health Administration Corporation, a NSW government corporation established under the Health Administration Act 1982 (NSW), entered into two agreements ("the Agreements") with Medical Device Technologies Pty Ltd, the appellant, to purchase a total of 348 "Shangrila 510S Integrated Respiratory Work Station" ventilators ("the Shangrila Ventilators" or simply "the Ventilators") for a total of $20.79 million. The Shangrila Ventilators were manufactured in China by Beijing Aeonmed Co., Limited ("Aeonmed"), and were to be imported into Australia by the appellant.
On 27 and 30 April 2020, the respondent paid the appellant $10.395 million of the $20.79 million purchase price and, subsequently, the appellant caused the Shangrila Ventilators to be delivered to the respondent.
The respondent then conducted several rounds of technical and clinical testing on the Shangrila Ventilators. At the heart of this appeal are the primary judge's findings that the Shangrila Ventilators did not meet basic performance parameters, rendering them unfit for use on COVID-19 patients in NSW in any clinical setting.
On 7 September 2020, the respondent, by its solicitors, purported to reject the Shangrila Ventilators, terminated the Agreements and demanded that the appellant refund the $10.395 million paid on 27 and 30 April 2020. The Shangrila Ventilators have never been used. Proceedings were commenced by the appellant in the Commercial List of the Supreme Court.
On 7 June 2023, the primary judge, Stevenson J, delivered judgment, finding that the respondent was entitled to terminate the Agreements, that the appellant was obliged to refund the $10.395 million to the respondent, and that the respondent was under no obligation to pay the balance otherwise owing under the Agreements. On 28 June 2023, the primary judge entered judgment for the respondent in the sum of $11,746,194.22, comprising $10.395 million plus interest.
As I will explain in greater detail below, the primary judge relevantly found that: 1. The respondent failed to establish that its Purchase Order Terms and Conditions were incorporated into the Agreements. 2. The respondent established that the Shangrila Ventilators were not fit for purpose within the meaning of s 19 of the Sale of Goods Act 1923 (NSW). 3. The respondent established that the appellant engaged in misleading or deceptive conduct within the meaning of Sch 2 s 18 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law, which I shall refer to as the ACL).
For the reasons that follow, the appeal should be dismissed with costs.

[18]

Key individuals

The following personnel of the appellant were involved in the communications about the Ventilator: 1. Mr James Bellas, the appellant's Contract Sales and Marketing Manager: Mr Bellas was the first representative of the appellant to contact the respondent, which he did in an email on 26 March 2020. 2. Mr Lee Gannon, Sole Director of the appellant: Mr Gannon forwarded technical information to representatives of the respondent, and also gave his own assurances about the Ventilator's functions and purpose.
The following agents of the respondent were involved in the communications: 1. Mr Rod Treadwell, Executive Director, Procurement: Mr Treadwell was the first of the respondent's representatives to be contacted by the appellant. He engaged in initial discussion about the Ventilator before delegating discussions to other staff. 2. Ms 'Kia' Akua Addai-Aboagye, Category Manager, Strategic Procurement Services. 3. Dr Richard Morris AM, staff specialist in anaesthesia at St George Hospital: Dr Morris joined a Technical Advisory Group established to develop an initial testing and simulation testing regime for ventilators that had not previously been used in NSW hospitals. It was on Dr Morris' recommendation, after a "desktop review", that the respondent decided to purchase the Ventilators. 4. Mr Rodney Zanetic, an engineer in the respondent's Medical Equipment Unit: Mr Zanetic communicated with representatives of the appellant, received information from them, and passed that information on to other affiliates of the respondent, including Dr Morris. Mr Zanetic was involved in deciding what ventilators were to be purchased. He participated in the "desktop review" of the Shangrila Ventilator which ultimately led to the respondent's decision to enter the Agreements. 5. Ms Susan 'Susie' Giddey, the Associate Director of Strategic Procurement. 6. Ms Rachel Hanigan, the Chief Procurement Officer of the NSW Rural Fire Service: Ms Hanigan joined the respondent's COVID-19 taskforce to manage and coordinate the response of NSW government agencies to the pandemic. 7. Dr Nhi Nguyen, intensive care specialist at Nepean Hospital: Dr Nguyen was an advisor to the State Health Emergency Operations Centre, a body established to oversee clinical operations in NSW hospitals during the pandemic and facilitate procurement of medical equipment. 8. Ms Teresa Kusnadi, Category Officer, Strategic Procurement Services. 9. Ms Donna Bonser, Site Supervisor, Purchasing, Supply Chain Operations.

[19]

Key documents

For ease of reference, I will adopt the names given by the primary judge to the key documents that described the functionality of the Shangrila Ventilator. 1. "MDT Shangrila Brochure": this brochure was sent via email from Mr Bellas to Mr Treadwell on 26 March 2020. The MDT Shangrila Brochure was entitled "Fighting against COVID-19". It did not contain any detailed technical specifications. Under the heading "Working Scenarios", the MDT Shangrila Brochure stated the uses of the Ventilators included "Ward, Emergency Department, Sub-acute Care Unit". The MDT Shangrila Brochure was notable because it represented that the Ventilator had "conventional volume control". The only other document to make that explicit claim was the Allied Scientific Shangrila Brochure which I describe below. On 30 March 2020, Mr Bellas also emailed the MDT Shangrila Brochure to Ms Addai-Aboagye. 2. "RAPP Shangrila Brochure": the respondent ultimately acquired VG70 Ventilators from another supplier, RAPP Australia Pty Limited ("RAPP"). On 26 March 2020, Mr Simon Lloyd from RAPP emailed Ms Addai-Aboagye. The email contained hyperlinks, including to another brochure concerning the Shangrila Ventilator. This brochure was entitled "Shangrila 510S Emergency Transport Ventilator" and showed the Ventilator in a bag attached to a gurney alongside two "emergency" personnel. This brochure contained technical specifications of the Shangrila Ventilator and described it as a "Multi-functional Emergency Transport Ventilator". 3. "MDT Shangrila Technical Data Brochure": on 30 March 2020, Mr Bellas attached to his email to Ms Addai-Aboagye a Shangrila "Technical Data" sheet that set out such data and also stated "Shangrila 510S Integrated Respiratory Work Station is customized to save more lives in the global outbreak of COVID-19 pandemic". 4. "EC Certificate": Mr Bellas also attached to his email of 30 March 2020 to Ms Addai-Aboagye a document headed "EC Certificate, Full Quality Assurance System, Directive 93/42/EEC on Medical Devices (MDD), Annex II excluding (4)" dated 16 July 2016 which stated, of Aeonmed: "The Certification Body of TÜV SÜD Product Service GmbH declares that the aforementioned manufacturer has implemented a quality assurance system for design, manufacture and final inspection of the respective devices / device categories in accordance with MDD Annex II. This quality assurance system conforms to the requirements of this Directive and is subject to periodical surveillance. For marketing of class III devices an additional Annex II (4) certificate is mandatory..." 1. "Shangrila in a Bag Brochure": this brochure was found online by Mr Zanetic. It depicted the Shangrila Ventilator in a bag. This brochure contained technical specifications similar to those in the RAPP Shangrila Brochure and the MDT Shangrila Brochure. It did not contain any express statement to the effect that the Shangrila Ventilator had conventional volume control. It stated: "Shangrila 510S is a universally used model. Not only for emergency ventilation, but also it is suitable for ideal transport ventilation. The circumstances include on-site emergency treatment, pre-hospital transport, inter-hospital transport, and even intra-hospital transport." 1. "Allied Scientific Shangrila Brochure": this brochure was found online by Mr Zanetic. It was in the same form as the MDT Shangrila Brochure but, unlike that brochure, did not bear Aeonmed's logo at the bottom right-hand corner of the front page. Rather, it bore the logo of "Allied Scientific Pro", evidently another purported distributor of Aeonmed products. This brochure was in the same form as the MDT Shangrila Brochure and it also represented that the Ventilator had "conventional volume control". 2. "User Manual": the user manual for the Shangrila Ventilator was provided, on request, to the respondent by Mr Gannon on 21 April 2020.

[20]

The search for an adequate ventilator

Mr Bellas, on behalf of the appellant, first contacted the respondent on 26 March 2020. At the same time, Mr Lloyd from RAPP was also in discussions with representatives of the respondent about the possibility that his company would supply the Ventilator. On 30 March 2020, Ms Addai-Aboagye sent copies of Mr Lloyd's emails, including the RAPP Shangrila Brochure, to Mr Zanetic.
On 30 March 2020, the appellant's managing director Mr Gannon emailed Ms Addai-Aboagye and attached the MDT Shangrila Brochure that Mr Bellas had sent Mr Treadwell on 26 March 2020. This was the third separate occasion the MDT Shangrila Brochure had been sent by the appellant to the respondent. Mr Gannon said in his email: "…AEONMED has offered 300 Shangrila - Bedside for delivery in late June. These units have been specifically designed for the Coronavirus Pandemic and used in Wuhan".
On 3 April 2020, the Therapeutic Goods Administration ("TGA") approved the Shangrila Ventilator for use in Australia and stated that its intended purpose was to be: "… mainly used in the emergency rooms of hospitals, transfer after operations, field and occasions where first-aid or transfer is needed for care of adult, paediatric, infant patients weighing at least 3.5kg."
On 20 April 2020, Mr Gannon wrote in the following terms to Ms Hanigan, Mr Zanetic and others: "We have just been contacted by our AEONMED manufacturer and they have confirmed they can obtain 48 Shangrila 510S Ventilator in May from a local distributor who is willing to sell his product. The acquisition will be through AEONMED and all factory warranties and insurances honored. The amount would be higher than standard factory pricing. AEONMED want this to be very clear, this is not standard practice and preferences is through normal order processes. These are available in May 2020. $67500 (1 Yr Warranty) - Confirmed $90,000 (5 Yr Warranty) - Just awaiting confirmation on warranty amount and whether AEONMED will also allow for us to purchase an additional warranty. This price should be very close. Once again, we need a quick response to obtain these units. These units will go quickly due to the delivery time of May." (Emphasis in original.)
Ms Hanigan called Mr Gannon and had a conversation. The terms of that conversation were in dispute before the primary judge. The primary judge accepted Mr Gannon's account and there is no challenge to that finding: "[Mr Gannon] said: The Shangrila units are an emergency ventilator. They are not intended for ICU. If NSW Health wants to acquire ventilators suitable for the ICU, the VG70 ventilator would be suitable. MDT has 200 Shangrila units which it can obtain from our AEONMED distributor and its distributors. [Ms Hanigan] said: We are trying to source ICU ventilators like the VG70, but I will put this forward."
RAPP's quotation for the Shangrila "Emergency Transport Ventilator" was at a unit price of $15,615 (excluding GST). The price that the respondent ultimately agreed to pay the appellant for the Shangrila Ventilators was considerably more than this price: $67,500 per unit for the first 148 units and $54,000 per unit for the second 200 units. Demand for ventilators outstripped supply at that time.

[21]

The respondent's review of the Ventilator

On 15 April 2020, Dr Morris suggested to Mr Zanetic that a standard be adopted to assess ventilators to be used in NSW during the pandemic. Dr Morris suggested the TGA guidelines as the standard for locally made ventilators. Mr Zanetic agreed that guidelines should be adopted "to base our decisions on" and that he had been using "the ICU mid and high acuity technical requirement [the respondent] published in 2018 for the Ventilator tender". Dr Morris replied, agreeing with Mr Zanetic's suggestion and saying that Mr Zanetic's proposal looked "more detailed than the TGA and could be combined with the TGA minimum standards nicely". Guidelines in the form suggested by Mr Zanetic were used by the respondent to conduct a "desktop review" of the Shangrila Ventilator.
On 20 April 2020, Mr Zanetic wrote to Dr Morris and Dr Nguyen: "Please find attached a ventilator for review. Product brochure, TGA submission and technical assessment. This appears to be a purpose built emergency transport ventilator pending TGA approval. I have copied the evaluation summary below…"
I agree with the primary judge's finding that the "product brochure" to which Mr Zanetic referred was the RAPP Shangrila Brochure, which Mr Lloyd from RAPP had sent Ms Addai-Aboagye on 26 March 2020 and which Ms Addai-Aboagye had sent Mr Zanetic on 30 March 2020.
In the "evaluation summary" included in Mr Zanetic's email there were a number of entries which indicated that review was required as the relevant matter was "not clear in current documentation".
On 21 April 2020, Dr Morris replied: "I can't find a user manual or more specs on the web to clarify these queries. Otherwise it looks like it has the modes we are interested in. You might ask for the manual if you want to take this one further."
Mr Zanetic replied: "Attached is the only other document that I can find. I will reach out and request a user manual."
The primary judge correctly found that the "other document" to which Mr Zanetic referred was the Shangrila in a Bag Brochure.
Dr Morris replied: "Based on this document. The airway pressure alarms are covered. The inspiratory times will also be okay because the rate and I:E ratios available mean you would cover that range. The MV [minute volume] monitor would give you an alarm if the tidal volume was not achieved or over achieved. So i think it is fine."
Around this time, Mr Zanetic located the Allied Scientific Shangrila Brochure online.
Also on 21 April 2020, Ms Hanigan wrote to Mr Gannon: "Health [the respondent] do wish to proceed with the S510s & have requested the user manual. Can you please provide?"
Mr Gannon replied a few minutes later, providing the User Manual and stating: "As requested, please find attached the User Manual and TGA approval for the Shangrila 501S Ventilator. Please noted MDT will be developing a User Video and app on the arrival of the units and putting in place a training program is required by owners/user of the equipment. This morning AEONMED has also advised that: 1. 50 units are available in June (Shangrila 510S) 2. 50 units are available in July (510S) These are in addition to the first 50 we have offered in May and are through the same supplier which has agreed to sell. Additional Information of Interest We are also bringing in another 300 units for the Federal Government in June. … Timings are tight and the market is still moving quickly, a little slower than last week though. Once NSW has indicated they are fully committed we will provide a formal quote and guarantee of supply for all units."
Ms Hanigan then wrote to Mr Zanetic requesting that he review the User Manual as soon as possible.
Mr Zanetic replied to Ms Hanigan "I will send through for clinical assessment". Mr Zanetic then wrote to Dr Morris, attaching the User Manual: "We have managed to source the user manual for the 510S and there is the possibility to secure 100 of these units so the team would like to move fairly quickly on this one. Are you able to perform a review and let me know if there is anything that changes your assessment?"
The primary judge found that Mr Zanetic did not rely on anything in the User Manual to change his "initial assessment" of the Shangrila Ventilator and there is no challenge to that finding.
The respondent's reliance on the User Manual was proven by Dr Morris. Two and a half hours later, Dr Morris replied: "Having looked at the brochure I am happy that it now satisfies all the requirements."

[25]

The First Agreement

On 21 April 2020, Mr Gannon wrote to Ms Hanigan: "As requested, please find the attached quote for 148 Units. We await your PO, this arrangement is in place and we need to ensure timings and payment approvals are quick."
On 21 April 2020, Mr Gannon provided Ms Hannigan with a quotation which specified that the total amount due was $9.99 million for 148 Shangrila Ventilators. The quotation read: "Shangrila 510S Integrated Respiratory Workstation (1 Year Warranty) (Units available in late May 48 Units, late June 50 Units, and late July 50 Units) Payment Terms: Payment of 50% by COB Monday 27 April 2020 Payment of the balance of unit prices on delivery of units payable with 7 days (This would be three payments)"
The primary judge correctly concluded that, by providing its quotation, the appellant made an offer to sell the 148 Shangrila Ventilators to the respondent.
The appellant contends that, by sending an email in reply on 22 April 2020, the respondent accepted the offer the appellant made in its 21 April 2020 quotation. The respondent's 22 April 2020 email was sent by Ms Kusnadi. The subject line to that email read: "PO 37879543 from NSW Health to secure stock of 148 units ventilator"
The email read: "My colleague, Rachel [Hanigan] has been in contact with you in regards to purchase of 148 Ventilator unit. Please kindly use PO 37879543 for this, a copy of the PO will follow later today or tomorrow. Can you please kindly advice about payment arrangement needed as per your email below? Susie Giddey (from HealthShar) cc'd on this email will advise where the delivery of the units will need to be delivered to"
At this stage, it is clear that the respondent contemplated that the appellant would be proposing payment terms. The appellant replied a few minutes later: "Payment is as per terms on the quote provided. We require 50% payment by the latest Monday 27 April 2020, sooner would be great if possible, Once we receive formal PO we will submit a corresponding invoice."
The primary judge found, again correctly, that this email shows that there was still no mutual assent as the appellant was reiterating its requirement, stated in the quotation, that the respondent pay half the purchase price by 27 April 2020, which was a matter not yet agreed. The email also shows that, at this stage, the appellant contemplated it would receive a purchase order before it sent its invoice. That is not what happened.
About an hour later, Ms Kusnadi sent Mr Gannon an email: "To arrange for the payment - can you please kindly issue me tax invoice (not proforma) and have the following so I can pass to our accounts 1. Bill to: HealthShare NSW Acc Payable , c/o Parramatta 2. Please include the ETA on the tax invoice (for rolling delivery) 3. Make a reference of the PO number i.e. 37879543"
Later on 22 April 2020, Mr Gannon replied, attaching a tax invoice (dated 22 April 2020) directed to the respondent for $9.99 million. "As requested, if you need any changes please advise. The critical date is the first payment by Monday 27 [April] 2020. We are a little more flexible with others."
The invoice stated: "Payment of 50% by COB Monday 27 April 2020 Payment of the balance of unit prices on delivery of units payable with 7 days (This would be three payments). ETA for each delivery 30 May - 48 Units, 30 June - 50 Units and 30 July - 50 Units. NSW Purchase Order: 37879543"
Details of the appellant's bank account followed. I agree with the primary judge's conclusion that Mr Gannon's statement that "if you need any changes please advise" shows that mutual assent had still not been achieved. Mr Gannon was referring to when payment of the balance of the purchase price would be made. The invoice proposed that such payment be made within seven days of the three proposed delivery dates. Mr Gannon was saying that the appellant was flexible, that is, amenable to further negotiation, about that matter. Thus, I agree with the conclusion of the primary judge that there was still no final agreement on terms.
About 24 hours later, on 23 April 2020, Ms Bonser for the respondent sent Mr Gannon an email, which read "Please see attached PO:37879543" and which attached the respondent's Purchase Order for 148 Shangrila Ventilators for $9.99 million.
Ms Bonser made no reference to Mr Gannon's statement about the appellant being "flexible" about when the second half of the purchase price would be paid. I agree with the conclusion of the primary judge that Ms Bonser's note comprised the respondent's acceptance of the offer made in the appellant's 22 April 2020 invoice.
The Purchase Order provided: "All goods or services are to be supplied in accordance with our terms and conditions, which can be viewed under "Purchase Order Terms and Conditions" at http://www.healthshare.nsw.gov.au/services/procurement"
The hyperlink in those words provided access to the respondent's Purchase Order Terms and Conditions.
On 27 April 2020, the respondent paid the appellant $4.995 million, being half the amount in the 22 April 2020 tax invoice.

[26]

The Second Agreement

Late on 23 April 2020, several hours after Ms Bonser's email sending Mr Gannon the Purchase Order under the First Agreement, Mr Gannon wrote to Ms Hanigan, stating that a Mr David Mellick had: "… advised another deal[er] is looking to sell an order which is due to August 2020 for Shangrila 510S. The amount will be between 100 to 300 units, not yet confirmed. The Netherlands is looking to take 100-200 units of the amount and is in front of me. AEONMED believes that 100 to 200 units could be available. They have asked whether we would like to make a formal request of the seller. Can you advise whether you wish to acquire more units and whether you wish for us to proceed with a request? Timing's a little tight."
Ms Hanigan replied the following day, 24 April 2020: "Thanks so much for the update. We are interested in the 510s, are you able to request pricing & terms?"
Ms Hanigan was there inviting Mr Gannon to advise the respondent about the "terms" on which the appellant would supply those further Shangrila Ventilators to the respondent. There is no suggestion in Ms Hanigan's enquiry that the respondent itself was proposing the terms of any such supply, let alone that any such supply would be on the basis of the respondent's Purchase Order Terms and Conditions.
On 29 April 2020, Mr Bellas from the appellant wrote to Ms Hanigan at the respondent: "We have had AEONMED advise they could have a dealers stock of 200 units, deliverable 100 July 100 August. The 200 cannot be separated and need to be ordered as combined lot. If this is of interest we will request pricing, as AEONMED has asked us to put all offers to our clients."
Ms Hanigan replied, saying that she was "seeking urgent feedback/approval".
Mr Bellas replied: "The delivery schedules would be 65 June 65 July 70 in August at a price of $54,000Aus each, due to volumes purchased and timing. Approval and payment of the 50% would be required by noon tomorrow. Our representative in AEONMED has worked hard to get this pricing."
On 30 April 2020, Ms Hanigan wrote to Mr Bellas: "Can we please have a tax invoice for these, I am waiting on the final decision any minute but want to be able to move swiftly if it's a yes."
Mr Bellas replied that the invoice was "on its way".
A short time later, on 30 April 2020, at 10.42am, Mr Gannon wrote to Ms Hanigan: "Please find attached invoice for your consideration. We understand you are still in approval process for these units, but if approved this will assist with the speed of processing."
The attached invoice was for 200 Shangrila Ventilators for an amount of $10.8 million.
The invoice for 200 units at a total price of $10.8 million read: "Shangrila 510S Integrated Respiratory Workstation (1 Year Warranty) (Units available in June 66, July 66 and August 68) Payment Terms: Payment of 50% by COB Monday 30 April 2020 Payment of the balance of unit prices on delivery of group units payable with 7 days (This would be three payments)"
Several hours later, at 2.25pm, Ms Kusnadi wrote to Mr Gannon and Mr Bellas with the subject line "PO 37879498 from NSW Health to secure 200 ventilator": "Please use PO 37879498 for confirmation of order of 200 ventilator as per correspondence between you and Rachel [Hanigan]. A copy of the PO will follow tomorrow Susie Giddey will advise the location where it needs to be delivered to"
Like Ms Kusnadi's email of 22 April 2020 at [50]-[51] above, this email was headed with the Purchase Order number followed by the words "to secure" the relevant number of Shangrila Ventilators. However, Ms Kusnadi made no enquiry on this occasion about the "payment arrangement needed". This is because, consistently with its 22 April 2020 invoice, the appellant had clearly stated its "Payment Terms" in its invoice delivered several hours earlier, being 50% payment by close of business that day and the remaining balance within seven days from the delivery date.
At some time on 30 April 2020, after the delivery of that email, and before close of business, the respondent paid the appellant $5.4 million "pursuant to the terms of invoice #000211".
On 1 May 2020, Ms Bonser sent Purchase Order 37879498 to the appellant. This purchase order was in the same terms as the purchase order delivered by the respondent on 23 April 2020 and, in the same way, referred by hyperlink to the Purchase Order Terms and Conditions.
The Shangrila Ventilators were in fact delivered to the respondent between 16 June 2020 and 15 July 2020.

[27]

Submissions

By ground 1 of its NoC, the respondent submitted that the Purchase Order Terms and Conditions hyperlinked in the email which made the Purchase Order were incorporated into both Agreements to purchase Ventilators. By ground 2 of the NoC, the respondent submitted the primary judge should have found that the appellant breached the Purchase Order Terms and Conditions, and was on that basis obliged to refund the respondent's $10.395 million.
The respondent's case before the primary judge and by ground 1 of its NoC was that Ms Bonser's 23 April 2020 email delivering the Purchase Order constituted a counteroffer by the respondent, as the Purchase Order Terms and Conditions were hyperlinked in that email and contained terms additional to those proposed by the appellant in its invoice. The respondent contended that it was incorrect to characterise Ms Bonser's email as acceptance, because her email contained the additional terms. Rather, the respondent argued before the primary judge that Ms Bonser's 23 April 2020 email was the relevant offer, incorporating the Purchase Order Terms and Conditions, and the appellant accepted that offer by its conduct, in particular by delivering the Ventilators.
On appeal, the respondent's submission was that the contract was a synthesis of terms and conditions contained in different documents. The respondent contended that there was no inconsistency between the terms upon which it relied and the appellant's terms, and that it did not need to demonstrate that every term in the Purchase Order Terms and Conditions was incorporated. The Purchase Order Terms and Conditions were standardised and did not address price - they were intended to apply alongside the appellant's terms and contained terms additional to those proposed by the appellant.
The respondent submitted that the primary judge focused too narrowly on offer and acceptance analysis and did not consider the respondent's argument that appellant had signalled assent to the Purchase Order Terms and Conditions by its conduct, including delivering the Ventilators while not raising any objection to the Terms and Conditions, even though it had not expressly assented to those terms.
The respondent submitted that it was inherently improbable that the parties chose not to impose any explicit condition that the Ventilators would be suitable for use in a clinical environment, which would be the outcome if the Terms and Conditions were not incorporated. It also contended that the entitlement to test the Ventilators demonstrates that there were terms as to the functionality of the Ventilators. The respondent further submitted that reasonable parties would have expected that it would be the respondent who would propose key terms given the importance of the transaction.
The respondent submitted that the primary judge impermissibly relied on post-contractual conduct by referring to an enquiry made to the appellant by a representative of the respondent to "request pricing & terms" from Aeonmed, quoted above at [64]. Even if post-contractual conduct were admissible, the respondent submitted that the totality of post-contractual conduct, particularly the right to test the Ventilators, supports the respondent's contention that the Purchase Order Terms and Conditions were incorporated.
Finally, the respondent argued that even if the Purchase Order Terms and Conditions did not apply to the first Agreement because the bargain had been concluded before they were sent, the terms nonetheless applied to the second Agreement.

[28]

Conclusion on grounds 1 and 2 of the NoC

The primary judge rejected the respondent's arguments about the Terms and Conditions, principally on the basis that if no contract was formed until, at the earliest, delivery of the first batch of Ventilators on 16 June 2020, and perhaps not until final delivery on 31 July 2020, the respondent would have had no legally enforceable commitment from the appellant to deliver any Ventilators. Further, on 27 April 2020, the respondent paid the appellant $4.995 million for those Ventilators. Acceptance of the respondent's case would also mean that, had the appellant been unable to supply any Ventilators, the respondent, not having a contract on which to sue, would have been obliged to seek restitutionary relief to recover the $4.995 million.
Even though the respondent now seeks to distance itself from the "acceptance by delivery" submission, the primary judge's findings are correct. Viewed objectively, the respondent must have, by Ms Bonser's 23 April 2020 email, accepted the appellant's offer and formed a binding contract. This is the only conclusion consistent with the respondent soon thereafter paying millions of dollars for the Ventilators.
To resolve this issue, I need not decide whether or not the appellant had a reasonable opportunity to access the hyperlink in the Purchase Order and consider the Purchase Order Terms and Conditions. Rather, the critical question, as the primary judge correctly held, is whether, looking at the matter objectively, reasonable people in the positions of the parties would have understood that the Purchase Order Terms and Conditions, referred to at the foot of the Purchase Order and accessible by hyperlink, were intended to be incorporated into either Agreement and that sending the Purchase Order would constitute a counteroffer.
I have concluded that reasonable people in the position of the parties would not have thought the appellant and the respondent intended this result. It is obvious from the parties' communications leading up to 23 April 2020, from the overall circumstances of a global shortage of ventilators during the pandemic, and from the urgent need for the respondent to secure a supply of ventilators, that the respondent intended on 23 April 2020 to reach a binding agreement to purchase the 148 Shangrila Ventilators. The respondent intended to obtain a commitment from the appellant with binding contractual force that the appellant would supply the 148 Shangrila Ventilators, and to do this before it paid the $4.995 million.
Further, during the negotiations, the respondent made no suggestion that the purchase would be on the respondent's terms. On the contrary, the respondent asked the appellant to state the "payment arrangement needed" and to issue a tax invoice (not a pro forma document) "to arrange for the payment". Nor are grounds 1 and 2 of the NoC established by the respondent's submission that the contract was a synthesis of terms and that the right to test the Ventilators demonstrated that the parties agreed to additional terms concerning the functionality of the Ventilators. A reasonable business person in the position of the parties would have concluded the contract was on the terms that the respondent asked the appellant to provide, and took binding effect on those terms when Ms Bonser sent her email of acceptance on 23 April 2020. I do not accept that the Purchase Order Terms and Conditions, hyperlinked in that email, should objectively be understood as applying alongside the terms in the appellant's invoice.
The primary judge correctly found that post contractual conduct was admissible in considering whether the contract had already been formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]. Ms Hanigan's enquiry quoted at [64] would have been unnecessary had she thought that the Purchase Order Terms and Conditions governed the first Agreement. Of course, Ms Hanigan's subjective state of mind is not relevant to the question of determining the terms of the first Agreement. But the primary judge was correct to conclude that this enquiry, viewed by an objective bystander, supported the conclusion that the parties did not intend the Purchase Order Terms and Conditions to be incorporated into the first Agreement.
I also agree with the primary judge that that the Purchase Order Terms and Conditions were not incorporated into the Second Agreement. I find that by providing its invoice to the respondent on 30 April 2020, the appellant made an offer. I agree with the primary judge that Ms Kusnadi's email of 30 April 2020 constituted acceptance of that offer. Ms Kusnadi's email made clear that it was only necessary for the appellant to use the Purchase Order number "for confirmation" of the order made by the respondent in the correspondence between Mr Gannon and Ms Hanigan, being the "correspondence between you and Rachel".
I find that the respondent made the payment on 30 April 2020 with the intent of securing a contractually enforceable promise from the appellant to deliver the 200 further Ventilators. I agree with the primary judge that by the time Ms Bonser sent the appellant the Purchase Order on 1 May 2020, the Second Agreement had already been formed and the respondent had paid the appellant the 50% payment of $5.4 million. The sale was on the terms proposed by the appellant in its invoice, and did not incorporate the terms hyperlinked in Ms Bonser's Purchase Order of 1 May 2020.
Grounds 1 and 2 of the NoC should be rejected.

[30]

Rejection of the Ventilators and termination of the agreement

By 21 August 2020, the respondent produced a report which the primary judge referred to as the "CPG Report". I will do the same. The CPG Report reviewed the technical and clinical testing I have just described and concluded: "The Shangrila 510S ventilator does not perform adequately according to the modes of ventilation described in the specifications in the User Manual. The usability of the device and the delays in alarms leads to a risk of confusion in operating the device and safely responding to emergencies. The problems in setting basic Volume Control ventilation will require excessive training and supervision by experienced staff to enable safe use to manage critically ill patients. The User Manual is poorly written and not adequate for safe use of the device. Overall, the performance of this ventilator is not adequate for use in the contemporary ICU setting or in potential surge wards during the COVID pandemic response."
On 21 August 2020, Ms Giddey sent a copy of the CPG Report to Mr Gannon, stating: "The Shangrila 510S ventilator has failed to operate in accordance with the operations manual. The results of the ventilator testing are currently being reviewed by senior staff within NSW Health and we will come back to you shortly."
On 1 September 2020, the respondent prepared a "Brief for the SHEOC Controller" which sought approval to "cancel" the purchase orders for the Shangrila Ventilators. That document then described the main issues as being: "1) Tidal volume in Volume Controlled mode is inconsistent depending on lung compliance, i.e. ventilator cannot maintain a consistent tidal volume during lung compliance changes. This is inconsistent with typical ventilator operation. This is not consistent with the supplier's operation manual. 2) Ventilator triggering appeared to be inconsistent, i.e. at some points the ventilator was spontaneously triggered [and] at other times the ventilator could not be triggered by the lung simulator. 3) FiO2 measured values inconsistent with O2 set values. Differs by up to 40%. 4) The clinical test team were unable to complete the Pre-Use check as the manual lacks clarity."
On 7 September 2020, the respondent, by its solicitors, wrote to the appellant formally rejecting the Shangrila Ventilators, purporting to terminate the Agreements and demanding the return of the $10.395 million the respondent paid to the appellant on 27 and 30 April 2020.

[37]

Grounds of appeal

The notice of appeal ("NoA") contained the following grounds: Section 19 of the Sale of Goods Act 1 The primary judge: a. erred in finding that the Respondent made known to the Appellant a particular purpose for which the Shangrila Ventilators were required by the Respondent, for the purposes of s 19 of the Sale of Goods Act (other than that, in substance, the ventilators would be used as ventilators) (Judgment [485]); b. erred in finding that the Respondent did, through Dr Morris and for the purposes of s 19 of the Sale of Goods Act, rely on the Appellant's skill or judgment when deciding to purchase the Shangrila Ventilators (Judgment [516]); c. in the alternative to (a) and (b), and to the extent that the Respondent relied upon the Appellant's skill and judgment (which is denied), ought to have found that it was understood by the Respondent, and any such reliance by the Respondent, was limited to the knowledge or expectation that the Shangrila Ventilators would operate in accordance with the User Manual; d. ought to have found that there was no implied term under s 19 of the Sale of Goods Act, on the basis that the Respondent did not make known to the Appellant the particular purpose for which the Shangrila Ventilators were required so as to show that the Respondent relied on the Appellant's skill and judgment for the purposes of s 19( 1) of the Sale of Goods Act, and ought to have found that as a matter of fact the Respondent did not rely upon the Appellant's skill and judgment; e. further, or in the alternative, erred in finding that the Respondent had not, at any material time prior to giving notice to the Appellant that the Respondent intended to reject the goods, accepted the goods pursuant to sections 37 and 38 of the Sale of Goods Act. Pressure control 2 The primary judge erred in finding that the Shangrila Ventilators did not operate in pressure control mode as set out in the User Manual and MDT Shangrila Brochure (Judgment [369], 524). Oxygen concentration 3 The primary judge erred in finding that the Shangrila Ventilators did not reliably, accurately or efficiently deliver a fraction of inspired oxygen in accordance with the ranges specified in the User Manual (Judgment [405]-[407], 524, [526], [545], [558]). 4 Alternatively to ground 3, even if the Respondent established that one or some of the Shangrila Ventilators did not reliably, accurately or efficiently deliver a fraction of inspired oxygen in accordance with the ranges specified in the User Manual (which is denied), the primary judge erred in finding that this applied to all of the Shangrila Ventilators purchased by the Respondent. Tidal volume 5 The primary judge: a. erred in finding that the manner in which tidal volume could be pre-set on the Shangrila Ventilators was a shortcoming of the ventilators for the purposes of the Respondent's claim under s 19 of the Sale of Goods Act (Judgment [523]524); b. having regard to his finding that tidal volume could be pre-set on the Shangrila Ventilators, which is consistent with the User Manual, ought to have found that the Shangrila Ventilators were not unfit for the particular purpose claimed by the Respondent for the purposes of s 19 of the Sale of Goods Act (to the extent a particular purpose was conveyed, which is denied). Volume control 6 The primary judge: a. erred in finding that the volume control functionality on the Shangrila Ventilators was a shortcoming of the ventilators for the purposes of the Respondent's claim under s 19 of the Sale of Goods Act (Judgment [523] 524); b. having regard to the finding that the Shangrila Ventilator operated in a type of volume control, which is consistent with the User Manual, ought to have found that the Shangrila Ventilators were not unfit for the particular purpose claimed by the Respondent for the purposes of s 19 of the Sale of Goods Act (to the extent a particular purpose was conveyed, which is denied). Fitness for purpose 7 The primary judge erred in finding that the Respondent's claim for breach of an implied term arising by reason of s 19 of the Sale of Goods Act relied upon the "four factors" described at Judgment [524], having regard to the pleaded case under the Further Amended Commercial List Cross-Claim Statement at [31A], and the facts pleaded at 28. 8 The primary judge erred in finding that the Shangrila Ventilators were not reasonably fit for the purpose of being used in any clinical setting for the treatment of patients with COVID-19 (Judgment [524]-[528]). Misleading or deceptive conduct 9 The primary judge erred in finding that by the provision by the Appellant to the Respondent of the manufacturer's User Manual, the Appellant represented that the Shangrila Ventilators would function in accordance with the specifications in the User Manual (Judgment [543]-[544]). 10 To the extent that the Appellant represented to the Respondent that the Shangrila Ventilators would function in accordance with the specifications in the User Manual (which is denied), the primary judge ought to have found that the Shangrila Ventilators operated in accordance with the User Manual, on the bases set out above in grounds 2 to 6 above. 11 The primary judge erred in finding that to the extent it was represented that the Shangrila Ventilators could be used in common wards, ICU or other clinical settings, that they were not fit for that purpose (Judgment [554]-[555]), and the Appellant refers to grounds 2 to 8 above. 12 The primary judge: a. erred in finding that the Appellant relied upon those representations pleaded to have been made by the Appellant to the Respondent with respect to which it was found that there had been reliance (Judgment [547], [559]); b. ought to have found that the Respondent did not rely on any representation made by the Appellant. 13 The primary judge ought to have found that the Respondent's claim based on section 18 of the Australian Consumer Law failed, and ought to have dismissed that claim.

[41]

Sale of Goods Act

Section 19(1) of the Sale of Goods Act provides as follows: "(1) Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose"
This provision is engaged only where the buyer conveyed their particular purpose to the seller "so as to show that the buyer relies on the seller's skill or judgment". The Privy Council's advice in Grant v Australian Knitting Mills Ltd (1935) 54 CLR 49 analyses the requirements of a South Australian statute in essentially the same terms in the following way (at 60): "It is clear that the reliance must be brought home to the mind of the seller, expressly or by implication. The reliance will seldom be express: it will usually arise by implication from the circumstances …."
Similarly, in Manchester Liners Ltd v Rea Ltd [1922] 2 AC 74 at 90, Lord Sumner said of a UK statute in essentially the same terms: "This warranty, though no doubt an implied one, is still contractual; and, just as a seller may refuse to contract except upon the terms of an express exclusion of it, so he cannot be supposed to consent to the liability which it involves unless the buyer's reliance on him, on which the liability rests, is shown, and shown to him. The tribunal must decide whether the circumstances brought to his knowledge showed this to him as a reasonable man or not; but there must be evidence to bring it home to his mind before the case for the warranty can be launched against him." (emphasis added)
Lord Diplock explained in Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 at 506: "The key to [the cognate English provision] is reliance - the reasonable reliance of the buyer upon the seller's ability to make or select goods which are reasonably fit for the buyer's purpose coupled with the seller's acceptance of responsibility to do so. The seller has a choice whether or not to accept that responsibility. To enable him to exercise it he must be supplied by the buyer with sufficient information to acquaint him with what he is being relied upon to do and to enable him to appreciate what exercise of skill or judgment is called for in order to make or select goods which will be fit for the purpose for which the buyer requires them."
A buyer need not show that all they relied on was the seller's skill or judgment. The buyer need only show that their reliance on the seller's skill or judgment was a substantial part of why the buyer entered the transaction. As Lord Sumner said in Manchester Liners Ltd at 90: "The section does not say that the reliance on the seller's skill or judgment is to be exclusive of all reliance on anything else, on the advice, for example, of the buyer's own experts, or the use of his own knowledge or common sense. Indeed it would never be possible to be sure that the element of reliance on the seller entered into the matter at all unless the buyer made some statement to that effect. It follows that the reliance in question must be such as to constitute a substantial and effective inducement which leads the buyer to agree to purchase the commodity …"
That statement of law was approved in David Jones Ltd v Willis (1934) 52 CLR 110 by Rich J at 120 and McTiernan J at 129.
Factual reliance is often a matter of inference. In Tre Cavalli Pty Ltd v Berry Rural Co-Operative Society Ltd [2013] NSWCA 235 at [95] Gleeson JA, with whom McColl and Leeming JJA agreed, said: "Reliance by the buyer on the seller will seldom be express, it will usually arise by implication from the circumstances. In the case of a purchase from a retailer the reliance will be generally inferred from the fact that a buyer goes to the shop in the confidence that the retailer has selected his stock with skill and judgment. It is immaterial whether the retailer be the manufacturer or not, and there is no need for the buyer to specify in terms the particular purpose for which the buyer requires the goods. The particular purpose will generally be clear because it is the only purpose for which anyone would ordinarily want the goods (see Grant v Australian Knitting Mills Ltd at 60)."
In addressing the question of reliance, Sackville AJA writing for this Court said in Scenic Tours Pty Ltd v Moore [2018] NSWCA 238 at [217] (an appeal was allowed, but not on this point): "The Sale of Goods Act 1893 (UK) (1893 Act) and its Australian counterparts provided that where a buyer expressly or impliedly made known to the seller the particular purpose for which the goods were required, so as to show that the buyer relied on the seller's skill and judgment, there was an implied condition that the goods were fit for that purpose. The test of whether the buyer had relied on the seller's skill and judgment was whether in all the circumstances a person in the position of the seller would have realised that his or her skill and judgment was being relied on. While the questions of particular purpose and reliance were distinct they were closely related and were often considered together." (footnotes omitted)
Cases involving corporate entities raise additional questions if a range of different individuals act on the corporation's behalf. Where a corporation is the buyer, it may be that the agent, employee or officer who expresses the company's "particular purpose" is different from the agent, employee or officer who relies on the seller's skill and judgment, and is different again from the agent, employee or officer who makes the decision to purchase the goods on the company's behalf. It is clear that s 19(1) can be engaged even when each of the provision's requirements is satisfied by a different individual acting on the corporation's behalf.
In Ashford Shire Council v Dependable Motors Pty Ltd (1960) 104 CLR 139, the Privy Council dealt with the sale of a tractor. The buyer was Ashford Shire Council. The Council's agent, Mr Bowman, discussed the tractor's technical specifications with a representative of the seller, Mr Corney. Mr Bowman wrote a report to the Council, recommending the tractor for purchase. The report made no mention of the conversation between the agent and the seller's representative. After reading this report, the Shire Clerk, Mr Heywood, and the Council President, Mr Black, made the decision to purchase. The Judicial Committee said: "Such general statements of the law do not deal with the position of a buyer who acts through agents or servants as a corporation must do. There is no doubt that the making known to the seller of the buyer's particular purpose may take place during negotiations which precede the making of the contract of sale and that there need be no reference to this in the contract itself. What is necessary is that the buyer shall contract in reliance on what took place during the negotiations, and that his reliance at the time when the contract is made "is a matter of reasonable inference to the seller and to the Court" (per Lord Sumner in Manchester Liners Ltd v Rea Ltd (1922) 2 AC 74, at p 90). If the agent who conducts the negotiations is the same person as the agent who makes the contract on behalf of the buyer there is no difficulty. But the case where they are different persons has to be considered. In the present case Mr Bowman conducted the negotiations on behalf of the appellant and Mr Heywood made the contract on its behalf. The question is whether it is necessary that the former should have made the latter fully aware of what took place during the negotiations before the latter agent made the contract."
In proving the Council's reliance, it was enough in that case that one agent relied on the seller's skill or judgment, while other agents carried out the transaction. The Board gave two reasons for this conclusion: 1. Mr Bowman relied on the seller's assurances when making the report; Mr Black and Mr Heywood in turn relied on this report when deciding to purchase the tractor, and therefore indirectly relied on the seller's skill or judgment. 2. All three men - Mr Bowman, Mr Black and Mr Heywood - were agents of the Council; none of them was the Council itself. Because of that, it was enough that Mr Bowman relied on the seller's skill or judgment, while different agents carried out the purchase.
Contrary to the appellant's submission, nothing in the language of s 19(1) requires that the person who conveys the buyer's purpose is the same person who, in fact, relies on the seller's skill and judgment. Proof of the buyer's reliance on the seller will seldom be express; it will usually arise by implication from the circumstances. The question is whether the seller would reasonably have understood, from the buyer's communications, that the buyer was relying on the seller's skill or judgment.
Before the primary judge, there was no dispute that: "The [U]ser [M]anual was also reviewed by Dr Morris, who had earlier reviewed the COVID-19 Brochure. Following his review of the [U]ser [M]anual, Dr Morris formed the view that the Shangrila 510S would be suitable for use in NSW during the COVID-19 pandemic. Dr Morris reviewed the modes listed in the [U]ser [M]anual and the COVID-19 Brochure and relied on those documents as an accurate description of the functionality of the ventilators, which he had not used before."
The question of whether the Ventilators were fit for purpose is answered as at the date the Agreements were entered. It may readily be accepted, as the primary judge found, that whilst there is some use to which the Shangrila Ventilators could be put, for example, as a transport ventilator taking a patient to other areas of the hospital, the "particular purpose" which the primary judge found the respondent had for purchasing the Ventilator, and which was communicated to the appellant, was treating COVID-19 patients in a clinical setting. The primary judge found that the respondent, via Dr Morris, relied upon the seller's skill and judgment in purchasing the Ventilators. Accordingly, his Honour found there was an implied condition that the Ventilators were fit for the purpose of treating COVID-19 patients in a clinical setting. The primary judge concluded that there was a breach of the implied condition of fitness for the purpose of treating COVID-19 patients in a clinical setting because of the combined force of the following four factors: 1. it was possible to pre-set tidal volume on the Shangrila Ventilator, although not at the press of a button, and only with some difficulty; 2. the Shangrila Ventilator did have volume control, but not conventional volume control, that is, volume control which maintained volume in the face of changes in a patient's pulmonary impedance; 3. the Shangrila Ventilator did not operate in pressure control mode as stated in the User Manual; and 4. the Shangrila Ventilator did not reliably, accurately or efficiently deliver the fraction of inspired oxygen in accordance with the ranges specified in the User Manual, or at all.
I will examine each of the steps in the primary judge's reasoning in addressing the grounds of the NoA and the NoC below.

[42]

Misleading or deceptive conduct

There was no challenge to the principles applied by the primary judge to the respondent's claim under s 18 of the ACL. His Honour drew those principles from Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2020) 278 FCR 450; [2020] FCAFC 130 at [22]: 1. the central question is whether the impugned conduct, viewed as a whole, has a sufficient tendency to lead a person exposed to the conduct into error, that is, to form an erroneous assumption or conclusion about some fact or matter: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200 (Deane and Fitzgerald JJ); Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44 at 198 (Gibbs CJ); Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45; [2000] HCA 12 at [98] (Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ); Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [39] (French CJ, Crennan, Bell and Keane JJ); Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [25] (French CJ); 2. conduct is likely to mislead or deceive if there is a real or not remote chance or possibility of it doing so: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82; [1984] FCA 180 at [8] (Toohey J), referred to with apparent approval in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [112] (Gleeson CJ, Hayne and Heydon JJ); Noone (Director of Consumer Affairs Victoria) v Operation Smile (Australia) Inc (2012) 38 VR 569; [2012] VSCA 91 at [69] (Nettle JA, with whom Warren CJ and Cavanough AJA agreed at [33]); 3. it is not necessary to prove an intention to mislead or deceive: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216; [1978] HCA 11 at 228 (Stephen J, with whom Barwick CJ and Jacobs J agreed) and 234 (Murphy J); Parkdale Custom Built Furniture at 197 (Gibbs CJ); Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1 at [6] (French CJ, Crennan and Kiefel JJ); and 4. it is unnecessary to prove that the conduct in question actually deceived or misled anyone: Taco Co at 202; Parkdale Custom Built Furniture at 198; Google Inc v Australian Competition and Consumer Commission at [6]. Evidence that a person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself establish that conduct is misleading or deceptive within the meaning of the statute. The question whether conduct is misleading or deceptive is objective and the Court must determine the question for itself: Taco Co at 202; Parkdale Custom Built Furniture at 198.
In Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8, the High Court, in addressing what meaning allegedly misleading or deceptive conduct conveyed and whether that conduct in light of that meaning was "misleading or deceptive or … likely to mislead or deceive", explained that the court is required to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons.
Questions of allegedly misleading conduct are usually divided into those matters where conduct is directed in a general sense to members of a class, and those where the objects of the conduct are identified individuals: Butcher v Lachlan Elder at [36]. Where the conduct is directed to members of a class, then the characterisation inquiry is to be made with respect to a hypothetical individual isolated by some criterion as a representative member of that class: Campbell v Backoffice at [25] (French CJ). Neither party in this case addressed the misleading conduct case on the basis that one approach, rather than the other, should be adopted. If the case is treated as one where the objects of the conduct are identified individuals, Dr Morris, the person ultimately responsible for the decision to purchase the Ventilators, would be the object of the enquiry. I will also examine the misleading conduct case on the basis, more favourable to the appellant, that the conduct was directed in a general sense to members of a class, being clinicians responsible for operating ventilators.
When a claimant proves there has been a misrepresentation contravening s 18 of the ACL, they may seek damages under s 236 for loss or damage they have suffered "because of" that misrepresentation. That is the course the respondent took in this case. To prove causation under s 236 a claimant is not required to show that the misrepresentation was the direct cause of the loss. Rather, as Gleeson CJ explained in Henville v Walker (2001) 206 CLR 459; [2001] HCA 52, considering the predecessor provision to s 236: "[14] For there to be the necessary causal relationship between a contravention of s 52, and loss or damage, so as to satisfy the requirements of s 82(1), it is not essential that the contravention be the sole cause of the loss or damage. As Brennan J pointed out in Sellars v Adelaide Petroleum NL, where the making of a false representation induces a person to act in a certain manner, loss or damage may flow directly from the act and only indirectly from the making of the representation; but in such a case the act 'is a link - not a break - in the chain of causation'."
Similarly, in that case, McHugh J found that it was enough if the misrepresentation "materially contributed" to the loss or damage: "[106] 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."

[44]

Ground 1(a)

On ground 1(a), the appellant alleged that the primary judge erred in finding that the respondent made known to the appellant a "particular purpose" for which the Shangrila Ventilators were required, other than that, in substance, the Ventilators would be used as ventilators.
The appellant accepted that, in an organisation, more than one person can be involved in the conveyance of the particular purpose and the reliance upon the supplier's skill that it will meet that purpose. The problem, it was submitted, was that there was a "disconnect" between the purpose conveyed by Ms Hanigan and the purposes that Dr Morris had in mind when reviewing the Ventilators. The contention was that Dr Morris was not relying upon the appellant when performing that review. The appellant submitted that Ms Hanigan did not know the respondent's needs or requirements, and did not convey them, such that there was no reliance in respect of those requirements. Although Dr Morris understood the purpose for which the respondent was acquiring the Ventilators, he did not know, the appellant said, whether the purpose was conveyed to the appellant. Conversely, assuming Ms Hanigan did communicate the particular purpose, it was not Ms Hanigan's role to rely on any such purpose.
As the High Court explained in David Jones, a "particular purpose" need not be some peculiar or unusual purpose. A particular purpose is simply the buyer's definite purpose. It may be a "general" purpose, or the purpose for which the goods in question are ordinarily used, or indeed the "sole" purpose for which those goods could possibly be used: at 119 (Rich J), at 121 (Starke J), at 128 (McTiernan J). It is not essential that the buyer explicitly state their particular purpose. As I have explained, that purpose can be inferred from the circumstances: Grant v Australian Knitting Mills Ltd.
I would reject ground 1(a). A representative of the respondent, Ms Hanigan, told Mr Gannon, as was in any event obvious in the circumstances, that the ventilators were to be used to treat patients with COVID-19. Mr Gannon accepted that he told the respondent that the Ventilators were specifically designed for use in the COVID-19 pandemic and that the Ventilators would be suitable for treating patients with COVID-19 in NSW hospitals.
In April 2020, Ms Hanigan asked Mr Gannon: "Will the Shangrila 510s be suitable for NSW Health and meet our needs for COVID?"
Mr Gannon answered: "I only deal with the best. I have run a large global corporation since 2008 so I understand the global market. Also my wife is an emergency doctor in Queensland. I would never recommend anything but the best ventilators for NSW or she'd be up me."
In these conversations between Ms Hanigan and Mr Gannon, the respondent made known to the appellant the particular purpose for which it required the Shangrila Ventilators. That purpose was: "… for use in a clinical setting for treating patients with COVID-19."
Mr Gannon agreed in cross-examination that he understood that the Shangrila Ventilators were to be used in "multiple clinical settings" and that this included use in hospitals. Mr Gannon also agreed that he told Ms Hanigan that: 1. the Shangrila Ventilators were specifically designed for use in the COVID-19 pandemic; and 2. the Shangrila Ventilators would be effective and suitable for treating patients with COVID-19 in NSW hospitals.
Section 19(1) provides that a purpose may be communicated "expressly or by implication", and the authorities recognise that a particular purpose may be conveyed impliedly. Here, an implied purpose arose out of the context of the sale, a context which the appellant, as a sophisticated medical equipment business, well understood. Important aspects of that context were: 1. a serious and novel respiratory virus, the treatment of which often required patients to be ventilated and treated in a clinical setting; 2. a global shortage of ventilators; and 3. a buyer (the respondent) whose task was to source medical supplies for NSW's emergency pandemic response.
It was in that context that Ms Hanigan asked whether the Ventilator would be "suitable for NSW Health and meet our needs for COVID". In that context, her reference to "our needs for COVID" implicitly conveyed a clinical purpose: faced with a novel virus and a public health emergency, the "need" of a public health authority like NSW Health was for ventilators that could be used in treating that virus in a clinical setting. It cannot seriously be contended that the appellant did not know the respondent intended to use the Ventilators in treating COVID-19 patients in a clinical setting.
In writing, the appellant suggested that the respondent purchased the Shangrila Ventilators for the purpose of a "reserve stockpile" and that this somehow meant they were not purchased for use in treating COVID patients. This suggestion was apparently abandoned in oral address: "STERN JA: Mr Clarke, is your submission that the purpose, when we're considering fitness for purpose, should be simply for stockpiling as opposed to in respect of the evidence that Dr Morris gave, which is set out at para 126 of the judgment, drawing a distinction between the stockpiling, and actually use for caring? CLARKE: There's a number of important purposes that come up in this case. The pleaded case as to what is the particular purpose that enlivens s 19 is that it was going to be used on COVID patients, and that's it. That's the start and the end of it. The actual purpose for which the Shangrilas were going to be used was potentially on patients with COVID, but firstly, put in a stockpile for use only if needed when the ICU ventilators were used first, and secondly, for use in an ICU setting, notwithstanding that it was stated to be and known by New South Wales Health to be only an emergency transport ventilator. The second and third of those two purposes, the stockpile and the use of it in ICU, were not stated to the appellant, and the case is pleaded and run on the first purpose I indicated. I've given a slightly longer answer to your Honour's question, but understanding those three purposes are very important in the overall context of this case because the case is simply that they were to be used for COVID. We say that effectively, a ventilator that's to be used on a COVID patient rises barely higher than saying a ventilator's going to be used as a ventilator. They knew it was an emergency transport ventilator. They knew it had lower specifications, and it was a lower performing ventilator. They purchased it as such …"
To the extent that the appellant maintains its suggestion that the respondent's pleaded purpose should be rejected because the Ventilators were intended for stockpiling, then that suggestion must be rejected. The clear implication of what Ms Hanigan told Mr Gannon, as I have found, was that the Ventilators were intended to be used to treat patients with COVID-19, whether or not the Shangrila Ventilators were to be held for a time in a stockpile.
The appellant's submission that the respondent did not make known to the appellant its actual intended clinical purpose for the Shangrila Ventilators erroneously treats "particular" in contradistinction to "general". The word "particular" requires that the identified purpose be "definite" and "is not necessarily distinct from a general purpose". A purpose may be "particular" even though "it is the sole use for which goods of that kind are adapted"; it need not denote "some special use or requirement".
It was not necessary for the respondent to identify, at the time of entering into the Agreements, how these lower performing ventilators were actually intended to be used in a world where the preferable functionality of a specialised ICU ventilator was simply not available. Rather, the respondent did what was required of it, namely to show that, in the context of the sale, Ms Hanigan conveyed the respondent's purpose for acquiring the Ventilators.
The appellant's submission misunderstands the level of specificity the "particular purpose" must be expressed at in order to fall under s 19 of the Sale of Goods Act. It is not necessary that Ms Hanigan expressed or understood the technical requirements for a ventilator to be used in clinical settings to treat COVID-19. That is, she did not need to know the metrics upon which Dr Morris was assessing the Ventilator in the desktop review. The "particular purpose" was that the Ventilator was being used to treat COVID-19 in a clinical setting. I reject any suggestion that the particular purpose, treatment of COVID-19 patients "in a clinical setting", is limited solely to providing ventilation whilst transporting patients. In context, the particular purpose of treating COVID-19 patients "in a clinical setting" included treatment of COVID-19 patients in an ICU setting and a general or "surge" ward setting.
I reject the appellant's submission that the respondent knowingly purchased a lower performing emergency transport ventilator for use in a clinical setting (which setting included but was not limited to an ICU setting) in the context of the ventilator shortage. As I discuss further below, and when addressing Grounds 7 and 8 of the NoA, the respondent relied on the appellant's skill and judgment in determining that the Ventilators could be used to treat COVID-19 in a clinical setting, including an ICU setting and a general or "surge" ward setting.
Ground 1(a) should be rejected.

[46]

Consideration of ground 1(b)

The submission that Dr Morris was not relying on the skill and judgment of the appellant because he was relying on his own skill and judgment when he performed his own "desktop review" of the Ventilators should be rejected.
The primary judge correctly found that Dr Morris gave unchallenged evidence that the most important elements in the User Manual he took into account for the purposes of his review were: the modes of ventilation; the displays; the technical specifications; the types of peripheral and consumable equipment required; and the troubleshooting features. Dr Morris reviewed the intended purpose stated in cl 1.1.1 of the User Manual.
As to the oxygen concentration delivery, Dr Morris reviewed cl 9.7.3 of the User Manual which stated that the Shangrila 510S Ventilator could deliver a fraction of inspired oxygen (FiO2) of between 40-100% with a ±20% accuracy. While that accuracy range was not as precise as he would normally expect for a ventilator used in the NSW Health system, he decided that this range would be sufficient given the difficulty in sourcing ventilators during the pandemic. Dr Morris' evidence was that if the User Manual had indicated the accuracy was in fact ±50%, he would not have recommended that the respondent proceed with the transaction.
Dr Morris' evidence identified the nature of the "desktop review". The essence of that review was that Dr Morris reviewed the User Manual supplied by the appellant to assess whether the Ventilators would be suitable for treating patients with COVID-19. It was not part of the desktop review for Dr Morris to inspect the Ventilators or perform clinical testing on them. The Ventilators had not, at that stage, been delivered. Dr Morris, without access to the Ventilators themselves, was reliant upon information supplied by the appellant to ensure that the product as described in the accompanying documentation provided by the appellant was suitable for the respondent's purpose.
Dr Morris relied on the User Manual as containing accurate statements of the functionality of the Ventilators. Dr Morris did not wholly rely on his own technical skill or judgment. The primary judge was correct to find that Dr Morris relied on the appellant's skill and judgment when recommending the purchase of the Ventilators.
As to the submission that the appellant is entitled to succeed because the User Manual was an Aeonmed document, that too must be rejected. My reasons below at [359]-[365] for rejecting ground 9 are equally applicable here. The appellant did not merely pass on the User Manual as a conduit, but adopted and endorsed the contents of the User Manual in the process of seeking to engage the respondent in a multi-million dollar transaction where the appellant was selling the Ventilators as principal and not agent for Aeonmed.
I would reject ground 1(b).

[48]

Ground 1(d)

In ground 1(d), the appellant claimed that the primary judge ought to have found that there was no implied condition under s 19 of the Sale of Goods Act, on the basis that the respondent did not make known to the appellant the particular purpose for which the Shangrila Ventilators were required so as to show that the respondent relied on the appellant's skill and judgment for the purposes of s 19(1) of the Sale of Goods Act, and ought to have found that as a matter of fact the respondent did not rely upon the appellant's skill and judgment.
The appellant's main submission in support of this ground was that Ms Hanigan was unaware the Ventilators were to be used to treat patients for COVID-19, and therefore could not have expressed the respondent's purpose. However, as I found when considering ground 1(a), Ms Hanigan was so aware and conveyed that purpose to the appellant.
Ms Hanigan conveyed the respondent's purpose in such a way that made clear it was relying on the appellant's skill and judgment. She asked Mr Gannon, directly, whether the Shangrila Ventilator would be suitable for the respondent's needs during COVID. In the same email chain, she also requested and received the User Manual from Mr Gannon. It was clear to the appellant that Ms Hanigan would pass on that User Manual, as well as Mr Gannon's assurances about the quality of the Ventilators, to those officers of the respondent making the purchase decision. That is why the assurances were given and the User Manual provided. A reasonable person in the appellant's position would have understood the respondent to be relying upon the appellant's skill and judgment.
As I have explained, s 19(1) of the Sale of Goods Act does not require identity between the person who conveys a corporate buyer's purpose and the person who in fact relies on the seller's skill and judgment. It is irrelevant to the appellant's liability under s 19 that the desktop review conducted by Dr Morris was not made known to the appellant. It is irrelevant to the appellant's s 19 liability that Ms Hanigan, who made known to the appellant the respondent's particular purpose, was not involved in the desktop review. There is no difficulty created in the application of s 19(1) of the Sale of Goods Act by Ms Hanigan being responsible for the communication of the particular purpose and Dr Morris being responsible for reliance on the appellant's skill and judgment by use of the User Manual.
The appellant's remaining submissions in support of ground 1(d) overlapped with those made on grounds 1(a), 1(b) and 1(c). I have rejected those submissions when considering grounds 1 (a), 1(b) and 1(c) and repeat that rejection for the purposes of ground 1(d).

[49]

Ground 1(e)

Part of the appellant's case before the primary judge was that the respondent was not entitled to reject the Shangrila Ventilators when it did so, on the basis that the respondent had already "accepted" the Ventilators under s 38 of the Sale of Goods Act. The first 48 Ventilators were delivered on 16 June 2020 and subjected to the respondent's various rounds of testing over the following months. The appellant was notified of these tests. The primary judge found that, despite the delay, the respondent had not accepted the Ventilators before 7 September 2020. That finding is challenged by ground 1(e) of the appellant's NoA.
Section 37(1) of the Sale of Goods Act provides: "Where goods are delivered to the buyer which the buyer has not previously examined, the buyer is not deemed to have accepted them unless and until the buyer has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract."
Section 38(1) of the Sale of Goods Act provides: "The buyer is deemed to have accepted the goods when the buyer intimates to the seller that the buyer has accepted them, or, subject to section 37, when the goods have been delivered to the buyer and the buyer does any act in relation to them which is inconsistent with the ownership of the seller, or when after the lapse of a reasonable time the buyer retains the goods without intimating to the seller that the buyer has rejected them."
The appellant submitted that the respondent should be deemed to have accepted the Ventilators under s 38 of the Sale of Goods Act. That, in the appellant's submission, was because the respondent enjoyed a reasonable opportunity to examine the Ventilators and, even allowing for this opportunity, the respondent did not intimate within a reasonable time that it rejected the goods. The appellant submitted that a "reasonable time" is guided by the urgency of the circumstances and that the respondent knew that the appellant was required to pay the manufacturer within seven days of delivery.
The appellant further submitted that the entitlement to inspect the goods, provided by s 37 of the Sale of Goods Act, was limited to testing for conformity with the contract, not any manner of testing. Part of the primary judge's reasoning was that the appellant acquiesced to the lengthy period of testing. The appellant challenged that finding on appeal, arguing it did object to the long testing period by conveying "extreme unhappiness" with delays in payment and concerns that the "goal posts just keep moving". It was further submitted that the appellant was not aware of the tests that occurred on 14 August 2020.
I reject these submissions. The primary judge was correct to find that the respondent should not be deemed to have accepted the Ventilators before it informed the appellant it rejected them on 7 September 2020.
The appellant challenges the findings that both Mr Gannon and Mr Bellas were aware that the respondent would conduct tests on the Ventilators. Those challenges must be rejected. On 16 June 2020, the day the first batch of Ventilators was delivered, the respondent emailed Mr Gannon saying testing would take place over the coming weeks and payment would be made only once testing was completed. Mr Gannon accepted under cross-examination that he knew that, once the testing had been completed, he would be notified, and that if the testing was not successful the respondent was entitled to a refund. It is no answer that the appellant was not fully aware of the dates on which testing would take place. Nor is it an answer that the appellant was inconvenienced by the time the testing took. The appellant accepted, at the time of the testing, that the respondent was entitled to carry out its testing regime. Mr Gannon conceded that he never objected to this approach. He never sought to place a time limit on the respondent's testing process. He never denied, when communicating with the respondent, that the respondent would be entitled to a refund if the Ventilators did not pass the tests.
That being so, it would make no commercial sense for the respondent to be deemed to have accepted the Ventilators while the agreed testing regime was still underway. In these circumstances, the respondent's "reasonable opportunity" to examine the Ventilators, within the meaning of s 37 of the Sale of Goods Act, had not elapsed by 7 September 2020, the day the respondent rejected the Ventilators. There was therefore no deemed acceptance under s 38.

[52]

Ground 5 NoA and Grounds 3(a) and 5(c) NoC - Tidal Volume

A patient's "tidal volume" is the amount of gas, measured in millilitres, that moves in or out of the lungs with each respiratory cycle. In addressing whether the Ventilators could pre-set tidal volume, cl 3.3.2 of the User Manual said: "3.3.2 A/C-V A/C-V (Volume Control Ventilation) is mandatory ventilation with preset respiratory frequency and tidal volume. When ventilator detects patient's spontaneous breath, it will work according to the above settings."
The primary judge accepted Dr Gatward's evidence that there was no "button or knob" that allowed tidal volume to be pre-set in one step, and that instead, to "set the volume" it was necessary to adjust three different settings, namely respiratory rate, peak flow and I:E ratio. This evidence satisfied the primary judge that it was possible to "pre-set" the Ventilator's tidal volume function, but only with difficulty and not at the press of a button. Because, on this finding, it was possible to pre-set tidal volume, the primary judge found that the User Manual's representation was not misleading or deceptive. However, the difficulty in setting tidal volume, his Honour found, rendered the Ventilator unfit for purpose under s 19(1) of the Sale of Goods Act.
By ground 5 of its NoA, the appellant complained that the primary judge: 1. erred in finding that the manner in which tidal volume could be pre-set on the Shangrila Ventilators was a shortcoming of the Ventilators for the purposes of the Respondent's claim under s 19 of the Sale of Goods Act; and 2. having regard to his finding that tidal volume could be pre-set on the Shangrila Ventilators, which is consistent with the User Manual, ought to have found that the Shangrila Ventilators were not unfit for the particular purpose claimed by the respondent for the purposes of s 19 of the Sale of Goods Act (to the extent a particular purpose was conveyed, which is denied).
In its NoC, the respondent also challenges the primary judge's findings about tidal volume: 1. the primary judge erred in finding that tidal volume could be "pre-set" (Ground 3(a)); and 2. the primary judge should have found that the User Manual's statement that the Ventilator's tidal volume could be "pre-set" was misleading or deceptive (Ground 5(c)).

[53]

"Pre-setting" tidal volume

The appellant raised a pleading point about what it meant to "pre-set" tidal volume, as that phrase was used in the respondent's pleadings and submissions. In its further amended commercial list cross-claim, the respondent's pleading on "tidal volume control" was as follows: "The results of the Third Test (endorsed by the CPG) showed that the ventilators: …. (ca) did not allow for the pre-setting of the tidal volume;"
The appellant characterised this as a pleading that the Ventilator lacked all capacity to pre-set tidal volume. It was not the respondent's case, the appellant submitted, that the Ventilator was unfit for purpose because it was difficult to pre-set tidal volume, or because it was impossible to pre-set tidal volume with a single button push. The primary judge, it was submitted, therefore travelled outside the respondent's pleaded case when he found that the difficulty in pre-setting tidal volume made the Shangrila Ventilator unfit for purpose. Inherent in this argument was the submission that to "pre-set" tidal volume was simply to set tidal volume, no matter how difficult that might be.
By its NoC, the respondent submitted that the primary judge misinterpreted the concept of "pre-setting" tidal volume. His Honour incorrectly conflated "pre-setting" with "setting", the respondent said. According to the respondent, the expert evidence showed that "pre-setting" tidal volume meant pre-programming a nominated tidal volume with a single button or a single setting. The primary judge erred, the respondent said, when he found that because tidal volume could be set by altering three different variables, that meant it could be pre-set.
In reply, the appellant denied that the respondent's pleadings allowed the submission that "pre-setting" meant "set with a single button"; and also denied that "pre-set", in this context, meant "set with a single button" simply because most ventilator models permitted tidal volume to be set with a single button.

[54]

Consideration of the meaning of "pre-setting"

I reject the appellant's pleading complaint. The respondent's case was open on the pleadings. As the respondent correctly submitted, to "pre-set" tidal volume is different from "setting" tidal volume. The respondent's contention was not that there was no way to manipulate or control tidal volume, but rather that on the Shangrila Ventilator, tidal volume could be set only indirectly, by manipulating three different controls, none of which had the express function of setting tidal volume, and had to be maintained by an operator. As the respondent submitted, this process cannot be described as pre-setting. The concept of "pre-setting" does not encompass the manipulation of other variables to alter the target variable in an indirect way. Rather, to "pre-set" a particular operating variable implies the use of a dedicated function, for example a button or dial, to set that variable in advance. Construed correctly, the respondent's pleading about "pre-setting" tidal volume was a complaint that the Shangrila Ventilator lacked a dedicated function for setting tidal volume in advance.
In addition, for the purposes of the misleading or deceptive conduct case, the respondent led evidence from Dr Morris and from the relevant class of persons, clinicians responsible for operating the Ventilators, that "pre-setting" tidal volume was something that could be done quickly, accurately, in advance and at the push of a button. Dr Morris stated: "The ability to pre-set tidal volume means that the desired amount of tidal volume can be entered into the ventilator by pressing a button or entering a value."
Dr Cook gave evidence that: "I was unable to 'pre-set' tidal volume on the Shangrila Ventilators. By this I mean I was not able to locate a setting or a button on the Shangrila Ventilators which allowed me to input a desired tidal volume."
Dr Gatward, as explained, gave evidence that "the Shangrila Ventilator did not have a button or knob that enabled me to pre-set the tidal volume". He concluded that "it was not possible to set tidal volume quickly and accurately, due to the absence of a single tidal volume setting that would enable tidal volume to be pre-set and the need to manually adjust three different settings".
The respondent specifically referred to this evidence at [127] of its closing submissions before the primary judge. The emphasis of those submissions was on the importance of quick and accurate pre-setting of tidal volume, and that "pre-setting" involves one special setting or button. Plainly, the respondent was using "pre-setting" to mean the easy setting of tidal volume, using a dedicated function, such as a single button or dial. The parties litigated on this issue in a way that made clear that "pre-setting" of tidal volume involved a single dedicated function.
That is the meaning relevant clinicians attributed to the phrase. I will explain in more detail below when dealing with ground 5(c) of the NoC why, for the purposes of the case under s 18 of the ACL, this was the meaning of "pre-setting" that the User Manual conveyed to Dr Morris and to the relevant class who received that representation.

[55]

Ground 5 NoA: Fitness for purpose and pre-setting tidal volume

By ground 5 of the NoA, the appellant contended that the primary judge was wrong to find that the Shangrila Ventilator was not fit for purpose because of his finding that tidal volume could be pre-set only with difficulty. Part of the appellant's argument was that that finding was not open on the pleadings. I have explained why I reject that submission.
The appellant's remaining submissions on this ground were, first, that "pre-setting" tidal volume meant any form of "setting" (including setting "with difficulty"), and that so long as tidal volume could be set, however laboriously, the Ventilator was fit for purpose.
There was ample, essentially uncontradicted evidence before the primary judge that the Ventilator's tidal volume control was not fit for purpose.
Dr Gatward's evidence was that a person operating the Shangrila Ventilator was unable to set tidal volume quickly or accurately, and this was a "serious deficiency". Dr Cook's opinion was that the Ventilator's tidal volume control functions were a "design limitation".
Dr Morris gave evidence that: "[T]he ability to pre-set tidal volume is very important as it reduces the risk of human error. That risk is reduced because, when the volume is pre-set, the user of the ventilator does not need to make a series of manual adjustments over time to maintain the desired volume… [I]f a user of a ventilator is required to set a range of settings and manually adjust the peak flow knob to generate a specific tidal volume, this would create a significant risk that the incorrect volume of oxygen would be delivered to patients…"
The appellant did not contend that Dr Morris' description of the significant risks to patients posed by the way the tidal volume function of the Shangrila Ventilator operated was inaccurate. Dr Morris was clear in his evidence that the tidal volume functionality of the Shangrila Ventilator was dangerous to COVID-19 patients.
The appellant's final submission on this topic was that, with further use, experts like Dr Gatward would have become more proficient in setting tidal volume. Even if that were true, it does not detract from the experts' opinion that the Shangrila Ventilator did not allow tidal volume to be set quickly or accurately, and that this lack of a dedicated tidal volume control function made it dangerous for use on COVID-19 patients.
The primary judge was correct that the Ventilator's tidal volume control functions were not fit for purpose. I reject ground 5 of the NoA.

[56]

Ground 3(a) NoC: Could the Shangrila Ventilator's tidal volume be "pre-set" at all?

By ground 3(a) of the NoC, the respondent argues that the primary judge should have found that the Shangrila Ventilator had no capacity to "pre-set" tidal volume, and that this was a further reason the Ventilator was unfit for purpose.
The submission underlying this ground is partly correct. The primary judge found that tidal volume could be "pre-set" only with difficulty, using several different control inputs. As I explained in addressing the meaning of "pre-setting", this kind of functionality cannot reasonably be labelled as "pre-setting" tidal volume. Strictly, the primary judge should have found that, even though tidal volume could be affected by manipulating three different settings, that process was not correctly described as "pre-setting".
However, in the context of the Sale of Goods Act s 19(1) case, that error was not material. The primary judge correctly found that, on the Shangrila Ventilator, tidal volume could be set only by manipulating three different variables. The appellant does not dispute this description of how the Ventilator operates. The primary judge went on to find that, because of the "difficulty" this procedure caused in setting tidal volume, the Ventilator was unfit for purpose. That finding was correct. It was beside the point, in the Sale of Goods Act context, that his Honour chose to describe the Ventilator's tidal volume controls as involving a kind of "pre-setting". That label had no bearing on the crucial Sale of Goods Act questions: how the machine actually functioned, and what kind of functions it needed to have to be fit for the respondent's identified purpose.
Whilst it was incorrect to label the Ventilator's tidal volume controls as a kind of "pre-setting", in applying that label, his Honour made no finding that the Ventilator was fit for purpose. His Honour's reasoning and conclusion, on the Sale of Goods Act case, did not turn on the label he gave the Ventilator's functions. The conclusion about breach of the condition implied by s 19 of the Sale of Goods Act is the same whether the Ventilator's tidal volume controls are described as a form of difficult "pre-setting", or if they are described as lacking any form of "pre-setting" at all.
I would not allow ground 3(a) of the NoC.

[60]

The primary judge's findings on "volume control"

The primary judge accepted that the Shangrila Ventilator did have a "volume control function", even if its volume control was not automatic, as was the case with all other modern ventilators: "[324] Overall, this evidence persuades me that the Shangrila Ventilator did have a volume control function, albeit one that would only operate in "open loop" mode, that is, without making automatic adjustments to ensure constant tidal flow in the face of a change in a patient's pulmonary impedance."
The basis for this conclusion was the conceptual distinction, belatedly advanced by the appellant's expert Dr Barkalow, between "open" and "closed" loop functioning. As explained by Dr Barkalow, a ventilator's volume control was "open loop" if it was possible to pre-set a constant volume target, which would be maintained unless something changed in the patient's breathing rate or lung compliance. At that point an operator would have to manually adjust certain functions (in particular the "peak flow" setting), so that volume would remain constant despite the new variables. Dr Barkalow opined that volume control could be described as "closed loop" if no operator input was necessary, and if the machine adjusted itself automatically in response to changes in the patient's air intake and lung compliance, such that volume would remain constant despite new variables.
The primary judge found that, because all modern ventilators had a function which allowed volume to remain constant despite the new variables, what Dr Barkalow described as "closed loop" volume control could be called "conventional" volume control. The Shangrila Ventilator had so-called "open loop" volume control functions, but not "closed loop" or "conventional" volume control.
That the Ventilator lacked "conventional" volume control was one of the four factors the primary judge found compelled the finding that the Ventilator was not fit for purpose, within the meaning of the Sale of Goods Act s 19(1).
On the misleading or deceptive conduct claim, however, his Honour found: 1. the User Manual correctly described the Ventilator as having "volume control", since "open loop" volume control was still a type of volume control; and 2. the MDT Shangrila Brochure represented that the Ventilator would have "conventional" (and therefore "closed loop") volume control. This was a misrepresentation. His Honour found, however, that the respondent did not rely on this representation.

[61]

Dr Barkalow: The source of the conceptual distinction

The source of the asserted distinction between "open loop" and "closed loop" volume control was Dr Bruce Barkalow, the appellant's biomedical engineering expert. The respondent's biomedical expert, Mr Jones, apparently endorsed Dr Barkalow's distinction, although for reasons I will explain, that apparent endorsement did not affect the substance of his evidence about volume control. No expert clinician or other witness recognised or endorsed a distinction of this kind.
Three of Dr Barkalow's expert reports were received into evidence. Neither the first nor second report referred to "closed loop" or "open loop" volume control. That terminology appeared only in Dr Barkalow's third report, which was served on 22 March 2023, after all but one of the respondent's lay witnesses had completed their cross-examination.
Dr Barkalow wrote: "What is being described in this cross complaint is that the 510S does not have closed loop operation. The closed loop mode of operation allows the ventilator to use data from the patient such as monitored delivered tidal volume and if it is different than the set tidal volume, the ventilator makes an automatic adjustment … The method of volume control used by the 510S is not closed loop regulation. Instead, the 510S ventilator uses an open loop means of operation where the tidal volume is preset by setting breath per minute (bpm) rate and the I:E ratio. Then the flow control knob is used to preset the desired tidal volume."
Dr Barkalow then quoted cl 3.3.2 of the User Manual and said it was implicit in that clause that "to adjust the preset tidal volume value in mL, the operator adjusts the Peak Flow as per page 2-5 [of the User Manual]".
There is no challenge that the Shangrila Ventilator's volume control function was as Dr Barkalow described it. That is, as the patient's condition changed, it was necessary for an operator to adjust the "peak flow" settings on the Ventilator in order to maintain a constant volume. The dispute is whether that functionality was what the appellant had represented to the respondent in the User Manual.
Dr Barkalow's "open loop"/"closed loop" distinction is therefore relevant to the misleading and deceptive conduct case only if, in understanding the User Manual, Dr Morris should reasonably have understood or a reasonable representative of the class to whom the representation in cl 3.3.2 was made would have understood references to the Shangrila Ventilator's volume control function to include the function Dr Barkalow described as "open loop" control. A finding of that kind would be open if, for example, Dr Barkalow were right that the concept of "volume control" should reasonably have been understood by Dr Morris or the relevant class of persons, potential clinicians who would operate the Ventilators, as embracing both "open loop" and "closed loop" volume control.
The evidence does not support that finding.

[63]

ISO 80601-2-12

The first of the international standards referred to in the TGA appendix is "ISO 80601-2-12 - Medical electrical equipment Part 2-12: Particular requirements for basic safety and essential performance of critical care ventilators". Clause 201.1.1 of that document contains the following: "A critical care ventilator is not considered to utilize a physiologic closed-loop-control system unless it uses a physiological patient variable to adjust the ventilation therapy settings."
Annex AA.2 of ISO 80601-2-12 went on to explain the "rationale" for cl 201.1.1, including the following: "ISO 80601-2-12 ventilators are not considered a physiological closed-loop control system due to the fact that parameters monitored during delivery of respiratory gases that are also used to control the delivery of these gases are exclusively physical parameters of the delivered gases. Consequently, these parameters are considered equipment variables as specified in IEC 60601-1-10. A pressure-control ventilator that uses the breathing system pressure as a feedback to control breathing system pressure is a closed-loop control system, but not a physiologic closed-loop control system. The breathing system pressure is considered both a 'variable' influenced by the patient physical conditions and at the same time a 'feedback variable', but it is not a quantity or condition measured from the patient's physiology."
Annex AA.2 went on to say: "The requirements of this document do not require the ventilator to adjust ventilation delivery parameters based on the detection in the change of physiological conditions of the patient. All automatic adjustments of ventilator equipment parameters or generated alarm conditions are only based on the measurement of physical variables related to the delivery of breathing gas to the patient-connection port. In this sense the ventilator ends at the patient-connection port, (i.e. has no direct contact to the physiological parameters of the patient) and a change in the patient's physiological conditions is a disturbance to the ventilator's control system that does not act to control the physiological change but continues to control the physical variable(s) to their original objective."
The following observations should be made: 1. nowhere in this document is a distinction drawn between "open loop" and "closed loop" operation. The appellant maintained that there was a documentary basis for this distinction, because the term "closed loop" implied its "obvious opposite", which was said to be "open loop". I do not accept this submission. Even assuming that the logical opposite of "closed loop" is "open loop", there is no evidence that "open loop" operation is a concept recognised by any of the ISO documents. Nor does Annex AA.2 of ISO 80601-2-12 contemplate that a ventilator with volume control will necessarily operate in either "open loop" or "closed loop" mode; 2. the distinction Annex AA.2 of ISO 80601-2-12 draws is not between "open loop" and "closed loop" systems, but between "physiological closed-loop control systems" and "closed-loop control systems", in the context of a "Pressure-control ventilator"; 3. the distinction between "physiological closed-loop systems" and "closed-loop systems" is taxonomical. It says little about what degree of automation the ISO standards expect a ventilator to display. It certainly draws no explicit distinction between "open loop" and "closed loop" operation; 4. the appellant's strongest basis for identifying a distinction of the kind Dr Barkalow makes is the following phrase: "The requirements of this document do not require the ventilator to adjust ventilation delivery parameters based on the detection in the change of physiological conditions of the patient". When read in isolation, that sentence could be understood to mean that ventilators which comply with the standard are not required to adjust ventilation automatically. But the sentence must be read with what follows: "All automatic adjustments of ventilator equipment parameters or generated alarm conditions are only based on the measurement of physical variables related to the delivery of breathing gas to the patient-connection port". When these sentences are read together, there can be little doubt the focus remains a distinction between physiological parameters and physical parameters. That is, ventilators are not required to adjust operation based on a measurement of patient physiology. The second sentence explains why: the ventilator measures the physical properties of gas delivered to the patient, and makes automatic adjustments based on those measurements; and 5. nothing in the two sentences just discussed supports a view that ventilators having volume control should reasonably be understood as operating with the kind of constant manual input Dr Barkalow described as "open loop" operation.
In any event, the contents of an annexe to an International Standard itself referred to in an annexe to TGA guidelines does not address the question for the purposes of the ACL, namely whether the concept of "volume control" should reasonably have been understood by Dr Morris or the relevant class of persons, potential operators of the Ventilators, as embracing both "open loop" and "closed loop" volume control.

[64]

Mr Jones' understanding of the standard

The appellant emphasised that the respondent's biomedical expert Mr Jones gave some support to the appellant's interpretation of ISO 80601-2-12. In concurrent examination, Mr Jones was shown the standard document and taken to the extract above, before giving the following evidence: "CLARKE: What I want to suggest to you is that the effect of this is to, first of all, accept that ventilators do not necessarily operate in a physiologically closed loop control system. Do you agree with that? WITNESS JONES: I agree with that. CLARKE: I want to suggest to you that what this means is that these paragraphs are indicating that Dr Barkalow's distinction between open and closed loop systems is a valid and proper way to consider the status of a ventilator; do you agree with that? STUDDY: I object. He's been cross-examined about a standard and then been asked to comment or apply that standard in evidence of another witness. That's not permissible, your Honour. HIS HONOUR: The standard appears to recognise a distinction between a closed loop and an open loop. WITNESS JONES: Yeah, I don't think I disagree with Mr Clarke on this point. HIS HONOUR: You don't think you do disagree? WITNESS JONES: No, I don't disagree with him about volume control being either open or closed. I think it can be both, and I think I've agreed to that. HIS HONOUR: I think he's overruled the objection. Just state clearly what you think you're agreeing to - sorry, what you are agreeing to. First, this standard - and others, perhaps - recognise a distinction between an open and a closed loop category of ventilators; that's the first thing? WITNESS JONES: In this standard, I understand what they're saying - just in the very brief time that we looked at it - is that it doesn't necessarily require it to be a closed loop control system, and I agreed to that, and I think I agreed to that when we looked at the other ISO standard. HIS HONOUR: You think ventilators don't have to be closed loop? WITNESS JONES: For volume control, no. That's - I agree with that. But there are conditions that flow from that, your Honour, that I think need to be discussed. HIS HONOUR: The user manual, for example? WITNESS JONES: Correct. HIS HONOUR: And what it says about - WITNESS JONES: And what it says. HIS HONOUR: --how to operate the machine? WITNESS JONES: That's right."
Mr Jones accepted that the standard distinguished between "open" and "closed loop" functions. Mr Jones, however, appears to have seen the standard document for the first time while being examined, as he referred to "the very brief time that we looked at it".
However, accepting Mr Jones' evidence at face value, the content of the ISO standard cannot, of itself, determine the meaning of the appellant's representations made in the User Manual. Mr Jones himself made that point. In particular, as is explained below, those representations were made in the context of evidence that all modern ventilators had what Dr Barkalow described as "closed loop" volume control function, something Dr Barkalow himself accepted, when he said that in all modern hospitals, he was "absolutely sure" that most, if not all, of those ventilators operate in closed-loop mode.

[67]

Dr Morris' evidence

Dr Morris gave the following evidence for the respondent: "HIS HONOUR Q. I think you've told me that you regard the expression "volume control" as having a particular meaning? A. Yes. Q. What is that meaning, can you tell me, in relation to how you operate a ventilator? If a ventilator has volume control, what do you say that means? A. So, to me it means that I can control the volume that is being delivered to the patient by setting on the front of the ventilator a particular volume which the ventilator will then deliver to the patient. … HIS HONOUR Q. Is there a way for someone in your position to test what a particular patient's compliance and resistance will be? A. So, you don't generally predict it. You monitor it and then you adapt to those changes. I guess what I was limited by was your statement of - for a particular time, these changes can occur in minutes. And so, if that occurs, then you need to respond to it at the time or have the capacity to monitor what that compliance is. Q. What role does a ventilator play in that process? A. So, if you're using volume control mode, then you're specifically relying on the ventilator maintaining the volume as the compliance changes. Q. As it were, automatically? A. Yes. And then the ventilator might alarm to tell you that the compliance changes, but it would continue giving the same size breaths. That'd be my expectation in volume control mode … CLARKE: You're not able to say, sitting here now, that there's no other ventilators internationally, including in China, that don't operate in the way in which the Shangrila does? STUDDY: I object. HIS HONOUR: I'll allow that. Q. Can you answer that? A. I'm not aware of every sort of ventilator in the world. I'll accept that I'm not aware of all of them. Q. Is this what you're telling me, that a ventilator is supposed to deliver the same volume of air once set, no matter what changes there might be in the patient's compliance and resistance? A. Yes. Q. That's the point of them, is it? A. That's why you're using volume control mode, yes, and I'd go further and say that when you're using volume control, you would expect to set the volume on the screen of the ventilator before you attach it to the patient, and that's been my experience with the other ventilators I've used, but that's not the case with the Shangrila. When we did the review of the user manual, I thought that was the case, but the manual was not clear. When we actually got it and tested it, we discovered that it was not like other volume control ventilators that I'm aware of."

[70]

Dr Barkalow's further evidence

There is further evidence that the general modern conception of "volume control" should reasonably be understood as excluding what Dr Barkalow called "open loop" functionality. Dr Barkalow himself was the source of that evidence. At several points, he described "open loop" volume control as an older technology, superseded by a new generation of ventilators produced since 2004.
In his third report, Dr Barkalow wrote: "Open loop operation of ventilators has been used initially and it was not until circa 2004 that various methods of closed loop operation became feasible and available through more advanced technology."
A footnote to this sentence cited the following article: RL Chatburn, "Computer control of mechanical ventilation" (2004) 49(5) Respir Care 507. In oral evidence, Dr Barkalow expanded on the article and the 2004 date as follows: "This concept of close loop ventilation is more than tidal volume pressure. The modern ones can assess other things like Fi02 and make adjustments. And they're becoming very sophisticated as time goes on looking at other parameters of the patient in making adjustments. Like Fi02, as I said. So when I looked at that article it was talking about the new generations of ventilators [circa] 2004 and explaining that these would have the closed loop control."
Dr Barkalow was further examined on the article he refers to above, and whether modern ventilators all used closed loop systems: "STUDDY: That article states that all modern ventilators used closed-loop control to maintain consistent pressure and flow waveforms in the face of changing environmental conditions; correct? WITNESS BARKALOW: Correct. STUDDY: You did not, in this third affidavit [sc. report], spell out what I've just put to you, did you? WITNESS BARKALOW: I think I did. STUDDY: That all modern ventilators - WITNESS BARKALOW: On page 2 - STUDDY: --use closed-loop control to maintain consistent pressure and flow waveforms in the face of changing environmental conditions, that's not in your - WITNESS BARKALOW: That is closed-loop control, yes. STUDDY: No, I'm putting to you that you did not refer anywhere in this third report to the statement I've just read to you twice; you accept that? WITNESS BARKALOW: Yes. STUDDY: By definition that must mean that the Shangrila ventilator is not a modern ventilator, in your view? WITNESS BARKALOW: It's using an older technology that requires an operator to be an intermediary to look at patient data and make adjustments, that's correct. STUDDY: Because it can't do it automatically? WITNESS BARKALOW: That's exactly right; it cannot."
Dr Barkalow accepted that it was conventional for "volume control" to refer to closed loop volume control. "STUDDY: You understand the term 'conventional volume controlled ventilation' to mean automatic adjustment for volume and pressure? WITNESS BARKALOW: Closed-loop operation."
For the primary judge, this evidence demonstrated that "conventional volume control", a phrase used in the MDT Shangrila Brochure, meant "closed loop" volume control. So much may be accepted. The evidence is also, however, relevant to an assessment of how "volume control" should reasonably have been understood by Dr Morris or the class of clinicians to whom the representation was made in 2020, even when the term does not appear with the adjective "conventional". Since, as Dr Barkalow said, it is conventional for "volume control" to provide "closed loop" functionality, then it follows that the bare term "volume control", at the time the representation was made in 2020, reasonably meant what Dr Barkalow called "closed loop" volume control, unless there was something explicit to give it a different or broader meaning. Nothing explicit of that kind appeared in the User Manual or in any other document.
Finally, Dr Barkalow gave candid evidence that nearly all clinical ventilators operated in "closed loop" mode: "WITNESS BARKALOW: Yes, most of - to the best of my knowledge most of the ventilators that are in hospitals, modern hospitals today use a closed-loop mode of operation. … I am absolutely sure that most, if not all of those ventilators operate in closed-loop mode." (emphasis added)
The appellant submitted that this evidence was not relevant to how clinicians should reasonably have assessed the Shangrila Ventilator, since that Ventilator is not a hospital grade machine, but a mobile unit designed as a "back up" or for use in ambulances. However, the respondent acquired the Ventilators for clinical use, as I have found. The appellant knew that the clinicians who were to operate the Ventilators were experienced with modern hospital grade ventilators. In 2020 it was reasonable for Dr Morris and the relevant class of persons, experienced clinicians who would operate the Ventilators, to understand the description "volume control" as meaning "closed loop" functionality, which was by 2020 the universal hospital grade norm. None of appellant's communications with the respondent, including the User Manual, suggested that Dr Morris or the relevant class of persons should assess the Ventilator's volume control function with a different norm in mind.

[72]

Ground 6 NoA - Was the lack of "conventional" volume control unfit for purpose?

By ground 6, the appellant contends the primary judge ought not to have found that the Ventilator's "open loop volume control" function and lack of "conventional" volume control rendered it unfit for purpose under s 19 (1) of the Sale of Goods Act.
This ground must be rejected. The evidence of Dr Morris, Dr Gatward and Dr Cook, as set out above, clearly supported the primary judge's finding that anything less than automatic volume control was completely unsuitable for the treatment of COVID-19 patients in a clinical setting.
In particular: 1. Dr Gatward's evidence was: "If the patient's lung compliance and resistance changes, then the ventilator should compensate for that, your Honour, but we don't allow the ventilator to give unbridled and, you know, pressures that are unsafe, so we set these limits with the peak airway pressure alarm that we've - the peak airway pressure setting that we've just talked about. So within certain pressure limits, the ventilator makes adjustments to deliver and guarantee that volume, and that is the case on every ICU ventilator I've ever used and every transport ventilator I've ever used, so even much simpler ventilators than we use in ICU have a volume-controlled mode that makes automatic compensations for changes in lung compliance and lung resistance. I would regard that as so essential to caring for patients who are on ventilators, that was one of my main concerns with this ventilator is that it did not do that." 1. Dr Morris' evidence was: "Q. Is this what you're telling me, that a ventilator is supposed to deliver the same volume of air once set, no matter what changes there might be in the patient's compliance and resistance? A. Yes. Q. That's the point of them, is it? A. That's why you're using volume control mode, yes, and I'd go further and say that when you're using volume control, you would expect to set the volume on the screen of the ventilator before you attach it to the patient, and that's been my experience with the other ventilators I've used, but that's not the case with the Shangrila."
In his evidence, Dr Barkalow also accepted that what he called "open loop" volume control was an older technology, and that modern ventilators are virtually always "closed loop" in their volume control function.
On this evidence, anything less than automatic or "conventional" volume control was unsuitable for clinical use; automatic or "conventional" volume control was essential to caring for COVID-19 patients who are on ventilators. The primary judge was correct to accept this evidence.
The appellant's subsidiary argument on this ground was a pleading point. The respondent's pleading on volume control was, in terms, that the Ventilators were unfit because they lacked a "volume control" function. The appellant submitted that this pleading did not leave open the primary judge's finding that the Ventilator was unfit for purpose because it lacked "conventional" volume control.
I reject that submission. The respondent closed its case on the evidence of Dr Morris, Dr Gatward and Dr Cook, who all essentially agreed that a ventilator without conventional or automatic volume control was dangerous in the care of COVID-19 patients. The appellant was clearly on notice that the absence of conventional or automatic "volume control" made the Ventilators unfit for purpose. It was correct for the primary judge to find that the Ventilators lacked what he called "conventional volume control", which was the thrust of the respondent's case on this issue below, and that, on the evidence, the Ventilators were therefore not fit for purpose within the meaning of s 19(1) of the Sale of Goods Act.
I reject ground 6 of the NoA.

[76]

[327] This is one of the knobs to which Dr Morris referred. [328] Dr Barkalow opined that, as he read the User Manual, the reference in cl 3.3.2 of the User Manual to "the above settings" was a reference to "peak flow setting" that I have set out in the preceding paragraph. [329] Dr Barkalow agreed that this was not expressly stated in the User Manual, whether at cl 3.3.2 or at all, but said that he read the User Manual this way. Thus, he gave this evidence: "HIS HONOUR: What is it about your reading of this manual that has indicated to you that I should read 3.3.2 in the light of what is at page 2-5? WITNESS BARKALOW: The reason is in the first sentence that says, 'volume control ventilation is mandatory ventilation with pre-set respiratory frequency and tidal volume'. And so one would need to know how to set tidal volume. And that information is located on page 2-5. And then following that you could successfully pre-set a tidal volume. HIS HONOUR: And you're saying what the reader of this manual would so understand it? WITNESS BARKALOW: I believe so, because the reader needs to know how to set a tidal volume and the answer is on page 2-5." [330] Dr Barkalow agreed that the User Manual did not make any "overt statement" to this effect. [331] Mr Jones' opinion was that there was "insufficient explanation" in the User Manual of how volume control was to be maintained. This was the caveat to which Mr Jones referred in the passage from his evidence that I have set out at [321] above. Mr Jones agreed however that, in his report, he had not referred to the earlier passage on page 2-5 of the User Manual to which Dr Barkalow referred. [332] The User Manual says nothing about whether the Shangrila Ventilator would automatically adjust volume control in response to a patient's pulmonary impedance. The User Manual does not assert that the Shangrila Ventilator has this functionality; nor does it state that it does not. As Dr Morris said, "the manual was not clear"."

I respectfully disagree with this conclusion. The evidence, which I have summarised above, demonstrates that, since at least 2004, the term "volume control" would reasonably be understood by Dr Morris and by the relevant class of persons, clinicians who operated ventilators, to mean what Dr Barkalow called "closed loop" volume control. On Dr Barkalow's own evidence, by 2020 "open loop" volume control was no longer a feature of modern ventilators. Mr Jones was the only other expert who recognised the concept, and then only in the qualified way I have described above. All of the experienced clinicians who gave evidence insisted, and I accept that insistence was reasonable, that in 2020 the term "volume control" meant "closed loop" control only. When the appellant represented that the Shangrila Ventilator had "volume control" functionality, that representation would reasonably be understood by Dr Morris and by the relevant class of persons, clinicians who operated ventilators, to mean what Dr Barkalow called "closed loop" volume control.

[80]

Primary judge's findings on "pressure control"

The primary judge concluded that the Shangrila Ventilators did not have pressure control functionality. Relying on the evidence of Dr Morris and Mr Jones, his Honour found that pressure control mode meant a mode of ventilation that allows the user to set a desired pressure, which the ventilator then delivers, regardless of changes in other parameters. In pressure control mode, the pressure remains constant, while volume changes.
On pressure control, the User Manual stated: "3.3.3 A/C-P PCV (Pressure Control Ventilation) is mandatory ventilation with preset respiratory frequency and pressure limit. When ventilator detects patient's spontaneous breath, it will work according to the above settings."
The wording used in the User Manual to describe "Pressure Control Ventilation" was similar to that used to describe "Volume Control Ventilation", and like that provision concluded by stating "it will work according to the above settings".
Similarly, the MDT Shangrila Brochure stated that the Shangrila Ventilator: "… also has Pressure-Controlled ventilation mode."
In concluding that the Ventilator lacked "pressure control mode", the primary judge relied on Mr Jones' evidence: "… when testing the flow-triggering settings in pressure control mode, it was found that while in pressure control mode, pressure was not maintained at the level which had been set by the user. Instead, the pressure appeared to change when the peak flow knob was adjusted. Effectively, the Test Results show that the Shangrila Ventilators do not reliably offer pressure controlled ventilation as described in the User Manual (as to do so, pressure would need to remain constant despite changes to other parameters such as flow settings)."
The primary judge then quoted Dr Barkalow's first report, where he appeared to agree that the Ventilator "is not a pressure-controlled ventilator except for setting a peak pressure limit". His Honour also relied on the following extract from Dr Barkalow's examination in expert conclave: "STUDDY: In paragraph 10.29 of your first report, you stated that the ventilator is not a pressure control ventilator except for setting the pressure control limit. Do you recall saying that? WITNESS BARKALOW: Yes. STUDDY: And you stated that the user adjusts the peak flow to achieve the desired tidal volume; correct? WITNESS BARKALOW: That is correct. STUDDY: In paragraph 9.2 of your second report, you stated that the pressure delivered to a patient is controlled by adjusting the flow control knob; correct? WITNESS BARKALOW: That is correct. STUDDY: And the clinician has to reset the pressure to maintain the level if there were changes to other parameters that cause the pressure to change; correct? WITNESS BARKALOW: Not exactly. The clinician will adjust the peak flow control to set the desired pressure. STUDDY: But it has to be done manually, it's not done automatically by the ventilator; correct? WITNESS BARKALOW: That is correct. STUDDY: That's because the ventilators do not maintain a constant pressure given a change in other settings such as flow; correct? WITNESS BARKALOW: Yes. Essentially that's correct." (Emphasis added.)
The primary judge was not persuaded by Dr Barkalow's view, given in a note after the third day of expert conclave evidence, that the Ventilator had "volume targeted pressure control". His Honour concluded that, even if the Ventilator had "volume targeted pressure control", that was not, in terms, what the User Manual or MDT Shangrila Brochure represented: both documents stated that the Ventilator had "pressure control" mode.

[81]

Submissions on pressure control

The appellant submitted that the primary judge misunderstood the expert evidence. It was submitted that the operators of a Shangrila Ventilator needed to adjust the "peak flow knob" to obtain the desired pressure and make further adjustments if the operator changed the "breath rate" or the "I:E ratio". The appellant submitted that the term "pressure control" encompasses this form of manual pressure control and is not limited to automatic pressure control.
In support of this submission, the appellant returned to Dr Barkalow's concept of "open loop" operation. That concept was first deployed in the context of volume control (see above at [224]-[282]), but Dr Barkalow, in his third report, also applied it to pressure control. The appellant complained that the primary judge did not consider this evidence. He should have done so, the appellant submitted, and on the strength of that evidence accepted that the Ventilator's manual pressure control functions were accurately described as "open loop" pressure control.
The appellant also attacked Mr Jones' evidence on pressure control. In the expert conclave examination, Mr Jones advanced a theory that the Ventilator had "volume control with pressure limitation", but not "pressure control". This theory was not part of the respondent's pleaded case, the appellant submitted, and should not have been accepted. Nor, it was submitted, did the primary judge explain why "pressure limitation" was inconsistent with what the User Manual described as "pressure control".
The appellant also relied on Dr Barkalow's note, produced after the expert conclave examination, and his explanation of it, that the Ventilator had open loop pressure control. This evidence was compelling, the appellant said, in part because the respondent did not examine Dr Barkalow on the note, or on multiple other explanations in his evidence for why the functionality of the Shangrila Ventilator amounted to pressure control.
The appellant rejected any suggestion that Dr Barkalow's third report and note were inconsistent with his earlier evidence, in particular his first report, which said that the Ventilator was "not a pressure-controlled ventilator except for setting a peak pressure limit". "Peak pressure limit" functionality, the appellant said, was a form of pressure control which required the operator to manually adjust controlled pressure if there was a change in another setting. It was therefore a type of "open loop pressure control". When read together and in context, the appellant said, Dr Barkalow's evidence was consistent that the functionality of the Shangrila Ventilator amounted to "pressure control", albeit "open loop" pressure control.

[83]

Pressure control and open/closed loop functionality

The appellant's principal submission was that "pressure control" embraces what the appellant calls "open loop" pressure control, which suggests that pressure control need not be automatic.
In his third report, Dr Barkalow wrote that the User Manual's reference to the Shangrila Ventilator's "pressure control" functions did not imply closed loop pressure control.
The primary judge found that on the expert evidence before him, the Ventilator lacked pressure control: "[368] On the third day of the expert conclave evidence, Dr Barkalow produced a note suggesting that the Shangrila Ventilators had "volume targeted pressure control". But this is not what is described in cl 3.3.3 of the User Manual nor in the MDT Shangrila Brochure. Those documents assert that the Shangrila Ventilator had pressure controlled ventilation. [369] I am persuaded that the evidence shows that the Shangrila Ventilators did not in fact operate in pressure control mode as set out in the User Manual or in the MDT Shangrila Brochure."
The appellant complained that this finding overlooked Dr Barkalow's evidence that "pressure control" embraced "open loop" pressure control, and that the Ventilator had "open loop" pressure control.
I reject that submission for the following reasons: 1. The observations made above (at [236]-[248]) about the various international standards apply with the same force to "open loop" functionality in the context of pressure control: 1. ISO 19223:2019 does not, in terms, specify that pressure control must be either "open" or "closed loop". This standard is, at best, a neutral factor. 2. ISO 80601-2-12 invokes no concept of "open loop" functions: its distinction is between "physiological closed-loop systems" and "closed-loop systems". The document nowhere explicitly recognises anything like "open loop" operation. On the contrary, its language appears to assume that ventilators make "automatic adjustments". 3. Mr Jones, when shown ISO 80601-2-12, accepted that a ventilator might function in open or closed loop volume control. He never accepted the same was true of pressure control. 4. For the same reasons as set out in the discussion of volume control (see above at [249]-[261]), "open loop" ventilator technology is no longer encountered in hospital settings. Most of Dr Barkalow's evidence about the ubiquity in 2020 of "closed loop" technology applied with equal force to "closed loop" pressure control.
These are powerful reasons to conclude that by saying, without qualification, that the Shangrila Ventilator had "pressure control" functions, the appellant was representing to the respondent that the machine had what the appellant now describes as closed loop pressure control.

[84]

Did the Ventilator have "open loop" pressure control?

However, even if "pressure control" could mean "open loop" pressure control, the appellant would not succeed. There is compelling evidence that the Shangrila Ventilator did not display even what Dr Barkalow described as open loop pressure control functionality.
Rather, the evidence showed that pressure could not be reliably maintained at all: 1. Mr Jones gave the following evidence: "WITNESS JONES: … And it's out view that this is how the Shangrila works in what it calls pressure control mode, and it's further out view that it is not pressure control mode at all, it's volume control with a pressure limitation. STUDDY: And could I just ask, what do you mean by that distinction that you've just given his Honour? WITNESS JONES: I think there's a fundamental aspect of how Shangrila works, and it doesn't use feedback or even in an open system to control the pressure. It only limits the pressure, and these were our observations and findings, consistent in our affidavit. You needed to increase the control knob to get the pressure to a certain limit that was set, and then the ventilator acted to limit that pressure only, and this was a finding that came out in our testing. HIS HONOUR: That led you to a conclusion that what? WITNESS JONES: My conclusion is that what Aeonmed in their manual calls pressure control ventilation is not pressure control ventilation. It is volume control with pressure ventilation." 1. In his first report, Dr Barkalow appeared to reach a similar conclusion: "Mr Jones opined: Note: Pinsp may be governed by the peak flow knob and not the setting on the ventilator, such that if the peak flow knob is too low, the inspiratory pressure may not be reached. My opinion: This is found to be true, and it is how this ventilator works as it is not a pressure controlled ventilator except for setting a peak pressure limit."
Dr Barkalow gave a different view in his third report. In his further note, he wrote that "when the intention is to regulate pressure … the inspiratory pressure is set by the operator setting the breaths per minute rate and the I:E ratio". Dr Barkalow's conclusion was that "inspiratory pressure being (determined by inspiratory time and the peak flow adjustment using the peak flow control knob) is not in Volume Control (VC) but instead targeting the volume by time-terminated inspiratory pressure".
As the respondent pointed out, nowhere in this note did Dr Barkalow in terms contend that the Ventilators had a "pressure control" function. Nor did he resile from his earlier evidence, given in the first report, that the machine was not "a pressure controlled ventilator". Nor am I persuaded that by saying, in his first report, that the Ventilator had a "peak pressure limit", Dr Barkalow was arguing that the Ventilator had "open loop pressure control" functionality. It was only in this Court that the appellant first advanced that interpretation of the first report. Dr Barkalow never adopted that interpretation, and in the first report flatly contradicts it: "this is not a pressure-controlled ventilator". Given that statement, I would not interpret the first report as giving an opinion that the Ventilator had "open loop pressure control".
It is therefore difficult to reconcile Dr Barkalow's first report on "pressure control" with his third report and his later note, neither of which in terms withdrew Dr Barkalow's earlier views. The appellant is correct that Dr Barkalow was not examined on these inconsistencies, nor on the contents of the note. But the inconsistencies are plain and were not adequately explained by the appellant. Because of these inconsistencies, Mr Jones' evidence on this point should be preferred. That evidence was clear: the Ventilator's functions could not be described as any form of "pressure control", whether "open loop" or otherwise.
Whatever meaning is given to the term "pressure control" in the User Manual, it was inaccurate to represent that the Ventilator had "pressure control" functions.

[86]

Grounds 3 and 4 - Oxygen concentration

The appellant's grounds 3 and 4 are complaints about the primary judge's findings on the Ventilator's oxygen concentration functions. Ground 3 complains that the primary judge erred in finding that the Shangrila Ventilators did not reliably, accurately or efficiently deliver a fraction of inspired oxygen in accordance with the ranges specified in the User Manual. Ground 4, in the alternative, contends that even if the primary judge was right that some of the tested Ventilators had substandard oxygen concentration performance, it was an error to apply that finding to all of the Ventilators.
"Fraction of inspired oxygen" (or "FiO2") means, as the primary judge explained, the percentage of oxygen a person inhales. Since the earth's atmosphere is 21% oxygen, the fraction of inspired oxygen is normally 21%. Medical ventilators can deliver higher fractions of inspired oxygen. Here, the primary judge found that, according to the User Manual, the Shangrila Ventilator could deliver a fraction of inspired oxygen in the range of 40% to 100% with an accuracy of plus or minus 20%. The User Manual went on to represent that the fraction of inspired oxygen "response time" (that is, the time necessary to reach a pre-set fraction of inspired oxygen) was 15 seconds. The appellant does not challenge that finding.
The primary judge found that the Shangrila Ventilator's actual performance in calibrating the fraction of inspired oxygen was "well outside" the plus or minus 20% accuracy range.
In reaching that conclusion, the primary judge considered evidence of technical tests performed on the Shangrila Ventilators. The first series of technical tests were performed by agents of the respondent, soon after the Ventilators were delivered. The tests were: 1. first technical test: 1 July 2020, Dr Cook, two Ventilators; 2. second technical test: 30 July 2020, Dr Cook, two Ventilators; 3. clinical test: 10 August 2020, Dr Gatward, the same two Ventilators as on the second occasion; and 4. third technical test: 14 August 2020, Dr Cook, the same two Ventilators as on the initial 1 July 2020 test.
The results of this testing were: the Shangrila Ventilator was incapable of consistently delivering a fraction of inspired oxygen within the plus or minus 20% accuracy range, and its "response time" in doing so was far greater than 15 seconds (on average 45 seconds).
The parties' biomedical engineering experts, Mr Jones (in July and August 2021) and Dr Barkalow (in January 2022), also performed tests. Dr Barkalow received four Ventilators for testing. He found that two of these Ventilators delivered fraction of inspired oxygen within an acceptable range. The other two, he found, had malfunctioning oxygen sensors and performed well below the specified requirements.
It was submitted by the appellant to the primary judge that the oxygen sensors in the Ventilators tested by Mr Jones and Dr Barkalow had expired. This argument was reagitated on appeal, and I will return to it below. The primary judge did not accept this argument. Rather, the primary judge explained that his conclusions about the Ventilator's FiO2 performance flowed from the tests performed by Dr Cook and Dr Gatward, soon after the Ventilators were delivered to the respondent and in circumstances where there was no reason to infer the Ventilator's oxygen sensors had expired or were faulty.

[87]

Appellant's submissions on grounds 3 and 4

The appellant submitted that the expert evidence demonstrated that the Shangrila Ventilators can deliver oxygen concentration readings within tolerance, and that the respondent had not established that "properly maintained" Shangrila Ventilators were unable to reliably deliver FiO2 within tolerance.
The appellant submitted that the following matters showed the primary judge had erred in his findings: 1. the oxygen sensor needed to be "calibrated". In late July or August 2020, the appellant allegedly "rectified" what it said were "incomplete" calibration instructions provided in the initial version of the User Manual given to the respondent. After that point, the appellant said, the respondent should have been able to calibrate the sensors correctly. The poor ongoing test results were because the respondent's representatives were not provided with adequate training in calibration, the appellant said; 2. Shangrila Ventilators required "servicing and preventative maintenance", although at what time and in what respects it is unclear. The appellant submitted that "servicing and preventative maintenance" was not carried out; 3. the appellant relied upon the fact that 300 Shangrila Ventilators had been acquired by the federal government and subjected to "preventative maintenance". After being in storage for six months, only 14 out of 300 of those Ventilators failed a test. It is incorrect, the appellant submitted, to say that these Ventilators were never subject to technical testing; 4. the appellant submitted that the condition of a Ventilator "can be affected by how long it has been stored for, the conditions in which it has been stored, and if it has been shipped, the potential it may have been damaged in transit or exposed to out-of-range temperatures". As such, it may require servicing or repair; and 5. the appellant submitted that the oxygen sensor in the Shangrila Ventilators has a limited shelf life of six to 12 months.
The appellant submitted that only eight out of 348 Ventilators were tested by the parties' biomedical engineering experts, four by Mr Jones and four by Dr Barkalow, and that Mr Jones only tested Ventilators where the oxygen sensor "had in fact expired or was suspected to have expired or was faulty". The appellant went on to say that Mr Jones did not have the correct calibration instructions when testing at least the first, and possibly the second Ventilator, and that the Ventilators Mr Jones tested were not subject to "preventative maintenance" despite having been in unknown storage conditions since June and July 2020. For the two Ventilators, which the appellant submitted Mr Jones calibrated using the "correct" instructions, the appellant submitted that the oxygen readings were within the tolerances in the User Manual. As for Dr Barkalow, for two of the Ventilators, the oxygen concentration readings were "within tolerance". For the other two Ventilators, Dr Barkalow stated that they "required maintenance", and were not tested.
The appellant also submitted that the primary judge erred in having regard to the test results obtained by the respondent's staff.
The problems with the tests were "calibration" issues, the appellant said, and the independent experts "were able to calibrate the ventilators without issue". For at least his first round of technical testing (in July 2020), Dr Cook did not have the correct calibration instructions, which the appellant provided to the respondent in time for Dr Cook's second test on 30 July 2020 and which were later incorporated in the updated User Manual sent to the respondent on 31 August 2020.
Dr Cook's other tests were said to have failed due to a calibration error, something Dr Cook himself "suspected". It was submitted that Dr Cook damaged the sensor on one of the Ventilators while conducting the first test, and then, unbeknownst to him, was using this damaged Ventilator when attempting the third test he conducted.
Further, the two Ventilators tested on 30 July 2020 were later provided to Dr Barkalow who determined that one needed maintenance and one had oxygen readings within tolerance once the oxygen sensors were replaced.
Finally, the appellant relied on the evidence of a physician Dr Joseph Varon, who said he used a Shangrila in the United States of America without significant issue.
The appellant submitted that the respondent did not establish that each of the 348 Ventilators was incapable of delivering oxygen in accordance with the specified ranges. Dr Barkalow's tests, Mr Jones' tests, the federal government's tests, the "CE" certification, Dr Varon's evidence and the world wide use of Shangrila Ventilators were submitted to support the appellant's contentions.

[88]

Consideration of grounds 3 and 4

The appellant's submissions on oxygen concentration reagitate at some length factual submissions that were advanced unsuccessfully before the primary judge. The thrust of those submissions was and is that, if the Ventilators had been stored differently, or handled differently, or tested by differently qualified people, or at different times, then technical testing might have demonstrated FIO2 performance within the range specified by the User Manual.
There was nothing more than speculation in the appellant's suggested explanations for the problems the primary judge found the Ventilator displayed in oxygen concentration delivery. There was no evidence to support a finding the deficiencies uncovered by the testing would have been remedied by: 1. any particular form of training; 2. any specific servicing and preventative maintenance; 3. storing the Ventilators in different conditions; 4. replacing the oxygen sensors; or 5. servicing the Ventilators in whatever (unspecified) way suggested by the appellant.
The appellant suggested that, because the respondent had not carried out the kinds of remediation just listed, the technical evidence about the Ventilator's FIO2 performance could not, on balance, show that the machines operated below the described performance level. That submission is not persuasive, because the appellant led no evidence that the listed remedies would, if carried out, have changed the outcome of the testing. Given this argument was based on speculation, I am satisfied that the primary judge made no error by relying on the evidence of the technical testing which was conducted to conclude the respondent discharged its burden of proving the Ventilators functioned below the specified FIO2 performance level.
Many of the appellant's challenges to the technical evidence turned on an assertion that, by the time Mr Jones and Dr Barkalow tested the Ventilators in mid-2021 and early 2022, poor storage, poor handling or the simple passage of time had somehow degraded the Ventilator's FIO2 performance, for example by causing oxygen sensors to expire or become faulty. As I have said, these arguments were based on speculation, not evidence. However, the primary judge was correct to find that Dr Cook's testing could not have suffered from any of the problems arising from storage, handling or the passage of time. That is because, as the primary judge found, the Ventilators were delivered directly by the appellant to Dr Cook and were not stored by the respondent before testing. As the primary judge said, these Ventilators were "brand new". There is no reason to attribute any of Dr Cook's test results to any kind of flaw or defect in the Ventilators caused by the passage of time.
The appellant mounted a different challenge to Dr Cook's evidence, submitting he obtained the results he did because he failed to calibrate the Ventilators properly. The instructions for calibration of the oxygen sensor were contained in cl 3.6.5.2 of the User Manual. The respondent's pleaded case is that it was not possible to calibrate the oxygen sensor using the instructions in the March 2020 version of the User Manual, the version the appellant supplied to the appellant to the respondent on 21 April 2020. The appellant conceded as much before the primary judge.
However, the appellant later revised the instructions in cl 3.6.5.2 of the User Manual. On 31 August 2020, the appellant circulated an updated User Manual to its customers, which contained the revised cl 3.6.5.2. Dr Cook, however, was shown the revised instructions earlier, when conducting the second and third technical tests. His evidence, elicited in cross-examination, was that a Dr Peter Scriberras, a biomedical engineer associated with the appellant who assisted Dr Cook with his tests, had the updated version of cl 3.6.5.2 with him during the second round of technical testing.
The respondent accepted that Dr Cook had the updated instructions before him during the second and third round of tests, and it accepted that correct calibration was, on these instructions, possible. The appellant submitted that Dr Cook's own evidence was that, even using these instructions, he was still "unable" to calibrate the Ventilators. That, the appellant said, was evidence the results of Dr Cook's second and third round of testing were unreliable, even when Dr Cook had all the necessary material before him, because of Dr Cook's own inability to calibrate the machines.
I reject that submission. Fairly read (and as the primary judge concluded) Dr Cook's evidence was not that he was "struggling" with correct calibration. Rather, he was drawing a distinction between the concept of correct calibration, in the sense of following the instructions, on the one hand, and accurate calibration, that is, using the oxygen sensors in the Ventilator so as to accurately measure oxygen concentration. For example: "Q. When you say calibrate correctly, you mean as per [the instructions]? A. As per the instructions. For example, this oxygen cell, if we had used it in an external arrangement and in other environment, the cell was performing correctly, the calibration was likely performing correctly, but within its functionality of how it was used, as a device as a whole the performance - I was unable to verify the performance because it didn't match what we were measuring externally." (Emphasis added.) … Q. The results you got previously were in respect of a ventilator that you accepted had not been calibrated correctly, isn't that right? Isn't that right? A. Calibrated-- Q. No, no, isn't that right? A. No, because they're calibrated correctly but the calibration's inaccurate. Q. All right. The results you had previously were in respect of a ventilator that you accept had been inaccurately calibrated; correct? A. Correct. Q. So, to the extent that the results of [the] third test are consistent with the second test, it would suggest that the machine has not been calibrated correctly; correct? A. No. The suggestion that the calibration is not accurate. Q. Right. That's right. You're drawing a distinction between calibrating correctly and calibrating accurately? A. Correct. Q. In answering those questions? A. Yes. HIS HONOUR Q. By calibrating correctly do you mean in accordance with the user manual? A. Yes, in accordance with the user manual and/or the other details provided, and to the point where the device said calibration completed. Q. Do at some point the words calibration come up on the screen of the machine? A. Yes. CLARKE Q. Those words came up on the screen in the second test, didn't they? A. Yes. Q. You knew right then and there that because of the results that it hadn't calibrated accurately; correct? A. It's not-- Q. Could you just answer the question? HIS HONOUR: Well he is. I think he is trying to answer. Q. Is that right, Dr Cook? A. It's the aspect that calibration doesn't mean that it's functioning correctly. So you may have calibrated it, it may - the cell may be accurately calibrated but in the design and function of the ventilator it's not happening correctly."
Dr Cook's evidence was that, even when calibrated in accordance with the updated calibration instructions, the Ventilator was not performing as specified. The results of Dr Cook's testing are clear. I do not accept that evidence demonstrates that there was any issue with the steps performed by Dr Cook during calibration of the oxygen sensors in his second and third rounds of technical tests.
Therefore, Dr Cook's test results alone entitled the primary judge to find, as he did, that the Ventilators were not fit for purpose.

[89]

Conclusion regarding oxygen concentration

I agree with the primary judge's conclusion that the difficulties that Dr Cook and Dr Gatward had with the Shangrila Ventilators regarding oxygen concentration measurement demonstrated a serious shortcoming with the Shangrila Ventilators. Like the primary judge, I regard Dr Cook's test results as particularly striking. Dr Cook tested the Ventilators almost immediately after they were delivered by the appellant to the respondent. He found that the times it took to set the Ventilators to the desired FiO2 level were far slower than showed in the User Manual. More importantly, the Ventilators were shown to be delivering the FiO2 at strikingly different levels to the FiO2 levels that the Ventilators stated were being delivered.
It is correct that Dr Barkalow said he had a different experience with two of the four Ventilators he tested. But one of those Ventilators, number 8369, was also tested by Dr Cook in his second round of technical testing and was tested in Dr Gatward's clinical testing. Another of the Ventilators tested by Dr Barkalow, number 5966, had also been the subject of Dr Cook's second round of technical testing and Dr Gatward's clinical testing. Consistently with the results reported by Dr Cook and Dr Gatward, Dr Barkalow found Ventilator 5966 to be inaccurate. One of the Ventilators tested by Dr Barkalow, number 13208, did not work at all. I reject the appellant's suggestion that this 50% failure rate in the testing conducted by Dr Barkalow may safely be ignored. The reasons advanced by Dr Barkalow for the failure of 50% of the Shangrila Ventilators he tested, namely the expiry or malfunction of sensors, are no more than speculation.
The submission that the federal government conducted any relevant "tests" is not a matter reflected in the evidence. The fact that a "CE" certification was obtained does not cause me to doubt the primary judge's conclusion about the Ventilator's shortcomings: what testing was required to obtain such a certificate was not in evidence. Further, the primary judge correctly gave little weight to the evidence of Dr Varon, who did not perform any clinical tests on the Ventilators he used and instead simply reflected his general positive experience of them. This evidence, from a physician in the United States, could shine little light on the particular Ventilators the appellant delivered to the respondent or the issues in this case.
I agree with the primary judge that the testing results in the evidence before him "bespeak a serious shortcoming in the Shangrila Ventilators". I would reject ground 3.
The appellant's ground 4 complains that, even if the respondent established that one or some of the Shangrila Ventilators did not reliably, accurately or efficiently deliver a fraction of inspired oxygen in accordance with the ranges specified in the User Manual, the primary judge erred in finding that this applied to all of the Shangrila Ventilators purchased by the respondent.
This is a point without merit. The idea that the respondent needed to test some greater number of the Shangrila Ventilators to satisfy its burden was not put below and should not be entertained now.
If it was the appellant's case that the Shangrila Ventilators were fit for purpose and that the testing was somehow selective or inaccurate that should have been put to the experts, including the appellant's expert Dr Barkalow. It was not.
I would reject ground 4.

[90]

Grounds 7 and 8 - Fitness for purpose

The appellant complained that: 1. Ground 7: the primary judge erred in finding that the Respondent's claim for breach of an implied term arising by reason of s 19 of the Sale of Goods Act relied upon the "four factors" described at [524] of the primary judgment, having regard to the pleaded case under the Further Amended Commercial List Cross-Claim Statement at [31A], and the facts pleaded at 28; and 2. Ground 8: the primary judge erred in finding that the Shangrila Ventilators were not reasonably fit for the purpose of being used in any clinical setting for the treatment of patients with COVID-19.
The appellant submitted that the "four factors" described at [524] of the primary judgment, which were key to the finding against the appellant, did not form part of the respondent's pleaded case. I have explained in addressing Grounds 5 and 6 of the NoA why these pleading points should be rejected.
The appellant contends that the "four factors" found by the primary judge do not mean the Shangrila Ventilators cannot be used in any clinical setting. The appellant submitted that the Shangrila Ventilator could be used as a transport ventilator, for weaning a patient off ventilation, or in a case where no better alternative was available in an ICU.
As I have earlier said, the question of fitness was answered as at the date the Agreements were entered. The primary judge was correct to find that whilst there is some use to which the Shangrila Ventilator could be put, for example, as a transport ventilator taking a patient to other areas of the hospital, the "particular purpose" which the respondent had for the Ventilator, and which was communicated to the appellant, was treating COVID-19 patients in a clinical setting, which included an ICU setting or a ward or "surge" setting. The primary judge concluded that the Ventilator was unfit for this purpose because of the combined force of the following four factors: 1. it was possible to pre-set tidal volume on the Shangrila Ventilator, although not at the press of a button, and only with some difficulty; 2. the Shangrila Ventilator did have volume control, but not conventional volume control, that is, volume control which maintained volume in the face of changes in a patient's pulmonary impedance; 3. the Shangrila Ventilator did not operate in pressure control mode as stated in the User Manual; and 4. the Shangrila Ventilator did not reliably, accurately or efficiently deliver the fraction of inspired oxygen in accordance with the ranges specified in the User Manual, or at all.
For the reasons I have given in dealing with grounds 2-6 of the NoA and 5(b) and 5(c) of the NoC, the correct findings about the Ventilator's functionality were: 1. It was not possible to pre-set tidal volume on the Shangrila Ventilator at all, because there was no dedicated functionality, such as a button or dial, which would allow tidal volume to be set in advance; 2. The Shangrila Ventilator had no volume control mode, of the automatic kind required for modern clinical use, because the only way oxygen volume could be maintained was by the regular intervention of an operator; 3. The Shangrila Ventilator had no pressure control mode, of the automatic kind required for modern clinical use, because the only way oxygen pressure could be maintained was by the regular intervention of an operator; and 4. The Shangrila Ventilator does not reliably, accurately or efficiently deliver the fraction of inspired oxygen in accordance with the ranges specified in the User Manual, or at all.
There was, however, no error shown in the conclusions of the primary judge the Shangrila Ventilators were not reasonably fit for the particular purpose for which they were purchased, treating patients with COVID-19 in a clinical setting.
I would reject grounds 7 and 8.

[94]

The representations not entitling the respondent to relief

The primary judge found, for various reasons, that six of the eight pleaded representations did not entitle the respondent to relief. By its NoC, the respondent challenges aspects of the primary judge's reasoning on three of those representations: 1. Representation 3: The Ventilators have a conventional volume-controlled ventilation mode and can reliably provide precise tidal volume: 1. the statement the subject of this alleged representation was made in the MDT Shangrila Brochure, and thus also in the Allied Scientific Shangrila Brochure. The primary judge found that the Shangrila Ventilators did not have "conventional" volume control and that the statements in these brochures were not correct, and thus misleading or deceptive. 2. the primary judge found that Dr Morris did not rely on any document provided to the respondent by the appellant which stated that the Shangrila Ventilator had "conventional" volume control. Dr Morris did not have the MDT Shangrila Brochure when he conducted his "desktop review", and the appellant did not provide the respondent with the Allied Scientific Shangrila Brochure. Mr Zanetic found it online. When making his decision concerning the Ventilators, Dr Morris had the RAPP Shangrila Brochure and the Shangrila in a Bag Brochure. There were no statements in those two brochures that the Shangrila Ventilators had "conventional volume controlled ventilation mode" or that they could reliably provide "precise tidal volume". 1. Representation 4: The Ventilators are intended to be used in common wards and ICUs: 1. the primary judge found that this representation arose by reason of the statement in the User Manual as to the "Intended Use" of the Shangrila Ventilators. 2. the complete statement made in the User Manual included that the Shangrila Ventilator is "intended to be used in the common ward, ICU, outside the hospital and intra-hospital transport". 3. his Honour found that, as Mr Gannon said in his 1 May 2020 email to Ms Hannigan, the Shangrila Ventilator was not a "full ICU ventilator". 4. the primary judge found that this statement did not qualify what was stated in the User Manual. 5. his Honour concluded that this representation was not false. The Shangrila Ventilators were intended to be used "in common wards and ICU". The problem was they were not fit for that purpose. 1. Representation 5: The Ventilators can deliver volume control ventilation and the tidal volume on the Ventilators can be pre-set: 1. the primary judge found that the representation arose from statements made in the User Manual. 2. the primary judge concluded that the Shangrila Ventilators did have a volume control function and that tidal volume on the Ventilators could be pre-set.
In upholding grounds 5(b) and 5(c) of the NoC, I have explained why the primary judge erred in finding that representation (5) above was not misleading or deceptive. Dr Morris plainly relied upon that representation.
The respondent's remaining submissions on the misleading or deceptive portion of its NoC are directed to representations (3) and (4) above.

[96]

Consideration of ground 9

The primary judge found that the appellant did not pass on to the respondent the User Manual on a "for what it's worth" basis. The appellant was no "mere conduit". A reasonable person in the respondent's position would have understood that the appellant had "adopted or endorsed" the accuracy of the User Manual.
These findings were correct. The appellant does not challenge the finding of the primary judge that it provided the User Manual to the respondent. The appellant was acting as a principal in its dealings with the respondent. It was aiming to conclude a contractual relationship with the respondent, not as the agent for Aeonmed, but on its own account, for which it would be paid millions of dollars. The appellant represented itself as the exclusive distributor in Australia of the Shangrila Ventilators.
It would have been obvious to Mr Gannon and Mr Bellas that the respondent would rely on the contents of the User Manual as accurately and comprehensively explaining how the Shangrila Ventilator was to be used and what its functionality was. The provision of the User Manual was for the obvious purpose of effecting a sale of those Ventilators to the respondent. By providing the User Manual during the course of the negotiations for the sale of the Shangrila Ventilators, the appellant represented to the respondent that the Ventilators had the specifications stated in the User Manual.
The primary judge was plainly correct to conclude that by providing the User Manual the appellant adopted and endorsed its contents. The primary judge was also correct to reject the suggestion that any relevant analogy existed between the appellant, as the seller of the Shangrila Ventilators, and an internet search engine the subject of the Google litigation in the High Court or the real estate agent the subject of Butcher v Lachlan Elder. Unlike a real estate agent, the appellant handed over the User Manual as principal, rather than agent for a principal, in pursuing its own commercial purpose. Unlike a search engine, the appellant provided the respondent the User Manual to induce the respondent to enter into a commercial transaction, in circumstances where a reasonable person would have understood that the respondent would rely on the User Manual in determining the functionality of the Ventilators.
Ground 9 should be dismissed.

[98]

Consideration of Ground 10

In considering grounds 2 to 6 of the NoA, as well as grounds 5(b) and 5(c) of the NoC, I have explained my findings about which aspects of the User Manual were misleading or deceptive. In particular: 1. the User Manual represented that it was possible to "pre-set" tidal volume, meaning there was a dedicated functionality, such as a button or dial, which would allow tidal volume to be set in advance: see at [188]-[218]; 2. the User Manual, in representing that the Ventilator had "volume control", represented that it had automatic volume control, and not volume control that required the regular intervention of an operator (so called "open loop" volume control): see at [219]-[282]; 3. the User Manual, in representing that the Ventilator had "pressure control" function, meant only automatic pressure control, and not pressure that required the regulator intervention of an operator (so called "closed loop" pressure control): see at [283]-[311]; and 4. the User Manual represented that the Ventilator could deliver FIO2 at a specified rate with plus or minus 20% accuracy: see at [312]-[345].
Each of these representations was misleading or deceptive, because, as I have explained, the evidence showed that the Ventilator had the following technical shortcomings: 1. the Ventilator had no dedicated functionality for pre-setting tidal volume; rather, setting tidal volume was possible only by manipulating other variables, in a complicated and indirect procedure; 2. the Ventilator had no volume control mode at all, since an operator's regular input was required to control volume function, and there was no automatic volume control mode; 3. the Ventilator had no "pressure control" mode, since an operator's regular input was required to control pressure function, and there was no automatic pressure control mode; and 4. the Ventilator was unable to deliver FIO2 at a specified rate with plus or minus 20% accuracy.
Because of these findings, I reject ground 10.

[103]

Consideration of ground 5(a) NoC

The respondent's submissions should be preferred. The User Manual was a technical document, the purpose of which was to specify the Ventilator's features and limitations. The appellant provided the User Manual to the respondent so that it could decide whether to purchase the Ventilator. In those circumstances, a reasonable member of the relevant class would read the User Manual's statements about "intended use" as objective descriptions of the purposes for which the Ventilator was suitable. Dr Morris and a member of the relevant class would not understand a statement of "intended use" as a representation that the appellant had a particular use in mind for the Ventilator. That is because the appellant's subjective intentions were largely irrelevant to the transaction. Dr Morris and a member of the relevant class, in deciding whether to acquire the Ventilator, would be interested in the range of uses, objectively assessed, which the Ventilator had. That is how the phrase "intended use", in the User Manual, should be understood.
The respondent's second submission is also persuasive. The appellant's own case was that the appellant's employees and officers did not intend the Ventilator to be used in the ICU or common ward. Several of the primary judge's findings are to the same effect. For example, the primary judge accepted that Mr Gannon told Ms Hanigan that the Ventilators were not intended for use in the ICU: see, eg, at J [519]. It was inconsistent with these findings to then hold that the appellant subjectively intended the Ventilator for ICU or common ward use.
Neither of the appellant's replies are compelling. It is true that, in context, the User Manual describes other uses for the Ventilator beyond ICU and common ward use, and says the Ventilator is "mainly" used in emergency settings. Those statements do not, however, dilute the bald assertion that the Ventilator is "intended for use" in common wards or the ICU. Even if the User Manual represented the Ventilator was primarily an emergency model, a reasonable member of the relevant class would still, upon reading the whole extract at [371] above, conclude that the device was suitable for use in the ICU or common ward.
Nor do I accept the appellant's submission that the respondent neither pleaded nor proved reliance on this aspect of the User Manual. The representation was contained within the User Manual. The respondent pleaded, and the primary judge found, that Dr Morris relied on the User Manual when deciding whether to recommend the Ventilator for purchase. There was no need to separately plead or prove reliance on this particular representation.

[110]

Dr Morris' evidence

In an affidavit, Dr Morris gave evidence that he conducted his review by consulting the User Manual and what he called the "COVID-19 Brochure": "8 Around the time I was conducting the desktop review, I was also provided with the brochure which appears at pages 2 to 3 of Exhibit RWM-3, in this affidavit I refer to that document as the COVID-19 Brochure. … 10 I read the User Manual and the COVID-19 Brochure in full during the desktop review. The most important elements in the documentation for the purpose of my review were the modes of ventilation, the displays, the technical specifications, the types of peripheral and consumable equipment required and the troubleshooting section. I also reviewed the diagrams and images of the ventilators which are contained in the User Manual and the COVID-19 Brochure."
The brochure in question was an exhibit to Dr Morris' affidavit, and that bundle of exhibits was in evidence. The brochure included in that bundle was the "MDT Shangrila Brochure". As the appellant correctly pointed out, however, the MDT Shangrila Brochure was not one of the two brochures Mr Zanetic sent to Dr Morris. While Dr Morris accepted that the only two brochures he had received by email were not the MDT Shangrila Brochure, he also explained: "A. […] My comment was that there was, in that case, a third brochure that I also looked at for the same product again, and it was on a stand. …. A. […] That's what I mean about the alternate brochure. I think it is included, the third brochure is included in my affidavit, and I may have taken that brochure off the web myself. Q. You can't now recall when you got that brochure? A. No."
Dr Morris in cross-examination could not remember how he obtained the brochure and he left open the possibility that he downloaded the brochure from the internet.
There is no dispute that the appellant sent the MDT Shangrila Brochure to Mr Zanetic. The question is whether the misrepresentations in the MDT Shangrila Brochure reached Dr Morris because the appellant sent the brochure to Mr Zanetic. If he received those misrepresentations some other way, for example by downloading an online brochure, then the appellant is not responsible for the misrepresentations.
Because of Dr Morris' evidence in cross-examination, the respondent did not prove that what Dr Morris received was the MDT Shangrila Brochure.

Medical Device Technologies Pty Ltd v Health Administration Corporation

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (115 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (37)

Cited By (1)