CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH
AND DEFENCES TO ACTION FOR BREACH – PERFORMANCE –
where the
plaintiff was a provider of diagnostic imaging services to members of the public
Source
Original judgment source is linked above.
Catchwords
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACHAND DEFENCES TO ACTION FOR BREACH – PERFORMANCE –where theplaintiff was a provider of diagnostic imaging services to members of the public– where the first defendant wasa manufacturer, supplier and servicer ofmagnetic resonance imaging (MRI) machines – where the plaintiffpurchased an MRI machine from the first defendant for use in its business– where theplaintiff and the first defendant entered into a contractpursuant to which the first defendant would provide maintenance servicesasselected by the plaintiff – where the contract provided that the serviceswould be provided within certain service windowhours – where theplaintiff could request service outside of the designated service window hoursat extra cost – wherevandals tampered with the MRI machine’schiller in the middle of the night – where the first defendant sent anautomatic
alert to the plaintiff advising that there was an issue with the
chiller – where the first defendant did not attend the site
to identify
the problem – where the MRI machine then quenched – where the
plaintiff made no request for the first defendant
to provide maintenance
services outside the designated service window hours – where the plaintiff
claims that the first defendant
failed to attend the site and respond more
quickly to the identified problem – where the plaintiff claims that such
failure
was a breach of contract by the first defendant – where the first
defendant denies that its conduct constituted a breach of
contract – where
the first defendant submits that any liability for breach of contract is
excluded by certain terms of the
contract – whether there was a breach of
contract by the first defendant – whether any liability for breach of
contract
was excluded by terms in the contract
TORTS – NEGLIGENCE – STANDARD OF CARE, SCOPE OF DUTY AND
SUBSEQUENT BREACH – AT COMMON LAW – OTHER CASES AND
MATTERS –
where the plaintiff claims that the first defendant owed it a duty of care to
apply reasonable care and skill –
whether the first defendant owed a
tortious duty that required it to act differently to the terms of the
contract
TORTS – NEGLIGENCE – STANDARD OF CARE, SCOPE OF DUTY AND
SUBSEQUENT BREACH – AT COMMON LAW – GENERALLY –
where the MRI
machine was returned to operation by the first defendant’s repairs after
the quench – where the MRI machine
quenched a second time four months
after the first quench – where the MRI machine quenched a third time
approximately three
months after the second quench – where the MRI machine
experienced a training quench during repairs from the third quench –
where, shortly after the third quench and before the fourth quench, the first
defendant indicated that it was prepared to replace
the cryostat in the MRI
machine subject to performing a site audit when State borders opened –
where a site audit was conducted
as soon as State borders opened – where,
approximately four months after the fourth quench, the first defendant’s
MRI
specialists provided a report that the first quench created instability in
the MRI machine’s magnet which caused and would
continue to cause further
quenches – where, approximately seven months after the fourth quench, the
first defendant advised
the plaintiff of the results of its investigation
– where discussions about possible replacement of the cryostat on certain
conditions – where the plaintiff alleges that the first defendant owed it
a duty to advise that the magnet in the MRI machine
be replaced at the time of
the third quench – whether the first defendant owed such a duty –
whether any duty of care
owed by the first defendant was breached
EQUITY – GENERAL PRINCIPLES – FRAUDULENT AND INNOCENT
MISREPRESENTATION – GENERALLY – where after each of
the quenches the
first defendant provided customer service reports to the plaintiff stating
“system fully meets specifications
and is returned to use” –
where the plaintiff claims that these statements amount to representations that
the MRI machine
was completely repaired and defect free – where the
plaintiff alleges that the first defendant’s representatives made
oral
representations to the same general effect after the second and fourth quenches
– where the plaintiff claims that each
of these representations amounted
to a misrepresentation – whether the representations alleged by the
plaintiff were made –
whether the statements made amount to
misrepresentations
Astley v Austrust Ltd (1999) 197 CLR 1,
applied
Body Corporate for Ocean Pacifique v Pugliese [2023] QCA 129,
cited
Brookfield Multiplex v Owners 61288 [2014] HCA 36
(2014) 254 CLR 185,
cited
Bryan v Moloney (1995) 182 CLR 609, applied
Electricity
Generation Corp v Woodside Energy Ltd [2014] HCA 7
(2014) 251 CLR 640,
applied
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563,
cited
Woolcock Street Investments Pty Ltd v CDG Ltd [2004] HCA 16
(2004) 216 CLR 515,
cited
Judgment (114 paragraphs)
[1]
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - PERFORMANCE - where the plaintiff was a provider of diagnostic imaging services to members of the public - where the first defendant was a manufacturer, supplier and servicer of magnetic resonance imaging (MRI) machines - where the plaintiff purchased an MRI machine from the first defendant for use in its business - where the plaintiff and the first defendant entered into a contract pursuant to which the first defendant would provide maintenance services as selected by the plaintiff - where the contract provided that the services would be provided within certain service window hours - where the plaintiff could request service outside of the designated service window hours at extra cost - where vandals tampered with the MRI machine's chiller in the middle of the night - where the first defendant sent an automatic alert to the plaintiff advising that there was an issue with the chiller - where the first defendant did not attend the site to identify the problem - where the MRI machine then quenched - where the plaintiff made no request for the first defendant to provide maintenance services outside the designated service window hours - where the plaintiff claims that the first defendant failed to attend the site and respond more quickly to the identified problem - where the plaintiff claims that such failure was a breach of contract by the first defendant - where the first defendant denies that its conduct constituted a breach of contract - where the first defendant submits that any liability for breach of contract is excluded by certain terms of the contract - whether there was a breach of contract by the first defendant - whether any liability for breach of contract was excluded by terms in the contract
[2]
TORTS - NEGLIGENCE - STANDARD OF CARE, SCOPE OF DUTY AND SUBSEQUENT BREACH - AT COMMON LAW - OTHER CASES AND MATTERS - where the plaintiff claims that the first defendant owed it a duty of care to apply reasonable care and skill - whether the first defendant owed a tortious duty that required it to act differently to the terms of the contract
[3]
TORTS - NEGLIGENCE - STANDARD OF CARE, SCOPE OF DUTY AND SUBSEQUENT BREACH - AT COMMON LAW - GENERALLY - where the MRI machine was returned to operation by the first defendant's repairs after the quench - where the MRI machine quenched a second time four months after the first quench - where the MRI machine quenched a third time approximately three months after the second quench - where the MRI machine experienced a training quench during repairs from the third quench - where, shortly after the third quench and before the fourth quench, the first defendant indicated that it was prepared to replace the cryostat in the MRI machine subject to performing a site audit when State borders opened - where a site audit was conducted as soon as State borders opened - where, approximately four months after the fourth quench, the first defendant's MRI specialists provided a report that the first quench created instability in the MRI machine's magnet which caused and would continue to cause further quenches - where, approximately seven months after the fourth quench, the first defendant advised the plaintiff of the results of its investigation - where discussions about possible replacement of the cryostat on certain conditions - where the plaintiff alleges that the first defendant owed it a duty to advise that the magnet in the MRI machine be replaced at the time of the third quench - whether the first defendant owed such a duty - whether any duty of care owed by the first defendant was breached
[4]
EQUITY - GENERAL PRINCIPLES - FRAUDULENT AND INNOCENT MISREPRESENTATION - GENERALLY - where after each of the quenches the first defendant provided customer service reports to the plaintiff stating "system fully meets specifications and is returned to use" - where the plaintiff claims that these statements amount to representations that the MRI machine was completely repaired and defect free - where the plaintiff alleges that the first defendant's representatives made oral representations to the same general effect after the second and fourth quenches - where the plaintiff claims that each of these representations amounted to a misrepresentation - whether the representations alleged by the plaintiff were made - whether the statements made amount to misrepresentations
M T Hickey KC with T W Elliss for the first defendant
[12]
[1] This case concerns a magnetic resonance imaging (MRI) machine that quenched on five occasions.
[2] The owner of the MRI machine, QRAD (the plaintiff), claims damages from the manufacturer, supplier and servicer of the machine, Philips (the first defendant) relating to repair and replacement costs associated with the machine, and business interruption costs as a consequence of the machine being offline for certain periods of time. The claims made are:
[13]
(a) for a breach of contract or negligence related to Philips' response to the circumstances leading to the first quench;
(b) for misleading and deceptive conduct in respect of alleged representations made subsequent to the repairs of the MRI machine after its first, second and fourth quenches to the effect that the machine had no continuing defect;
(c) for negligence related to Philips' alleged failure to provide proper advice regarding the MRI machine after the third or fourth quench took place (namely, the proper advice being that the machine would continue to quench and the magnet should be replaced).
[14]
[3] Philips denies liability to QRAD for each of those claims, and counterclaims for unpaid invoices for repair works undertaken to the MRI machine.
[4] In the result, QRAD's claims fail, and Philips' counterclaim succeeds.
[15]
[5] It is useful to start with an overview of what comprises an MRI machine, how it works, what happens in a quench, and how the machine is recovered after a quench.
[6] Used in the health industry, an MRI machine uses magnetic resonance to take cross-sectional high-resolution images of organs, soft tissues and bones without using x-ray radiation. It does this using, amongst other things, a powerful magnet that creates a strong magnetic field. The magnet is housed in a large, cylindrical casing (donut shaped). The patient slides into that casing tube containing the magnet[1] (and into the strong magnetic field) for image scanning to occur.
[7] MRI machines are usually categorised by magnetic field strength (which is measured in Tesla). A fairly standard type of MRI machine used for clinical health applications is a 3T MRI that uses a superconducting magnet.
[8] Superconductivity allows a magnet to conduct electricity without any resistance, which permits for the powerful and stable magnetic field required for high-quality diagnostic images. To create the necessary magnetic field strength, superconducting magnets are required to be kept at very low temperatures. That is achieved with the use of liquid helium, the coldest liquid on earth, bathing the magnet. The MRI machine in this case operated at a temperature of 4K (-269℃) which is marginally above absolute zero (-273.15℃ or 0K).
[9] Without that very cold temperature there will be a rise in the magnet's temperature which will result in a loss of superconductivity (meaning that the resistance in the electrical current will start to increase above zero). A rise in temperature or a little bit of resistance can be in a very tiny part of the magnet initially, but will set off a chain reaction. The increase in resistance will cause heat which causes an increase in resistance and so on. The heat generated causes the liquid helium to boil into gas (occurring at about -268.9℃ or 4.21K) which quickly causes pressure to build up in the casing until there is a sudden release of helium gas through a disc which is designed to burst in this scenario to avoid damage to the magnet or its casing in what is a potentially explosive event. The helium gas is released into the atmosphere (piped outside). That is a quench. A quench occurs over a matter of seconds and once commenced cannot be reversed. The consequence of a quench is that the magnet will no longer be superconductive and the magnetic field will not be present.
[16]
[20] The part that keeps the liquid helium cold usually comprises a chiller, a liquid cooling cabinet and a compressor of cryocooler which connects to a cold head on the casing. Different suppliers can supply (and maintain) different parts of the MRI machine.
[21] An MRI machine is an expensive and sensitive piece of equipment. Quenches are mostly unpredictable and can have many causes. Quenches are undesirable as they carry some risk (albeit small) of causing damage to the magnet and are sought to be avoided. Damage to an MRI machine can be expensive to repair and so attending to any faults in a timely manner is important. Replacing a magnet can be both time consuming and expensive. Thus the operation of an MRI machine usually includes computer monitoring of the machine and the giving of alerts when faults or operation outside of usual parameters is detected. Suppliers of MRI machines often have service agreements with customers in relation to the equipment that they have supplied.
[17]
[22] QRAD has been in business since 2018 providing diagnostic imaging services to members of the public. Dr Patrick Bergin is an experienced radiologist who stands behind QRAD.
[23] QRAD purchased a Philips Ingenia 3.0T MRI machine and had it installed at its Springwood premises in about October 2019. All parts of the MRI machine were supplied and installed by Philips save for the chiller. QRAD engaged a third party, UAP, to supply and install the chiller. UAP (rather than Philips) was also engaged to service the chiller.
[24] The MRI machine was operational, without any quenching event, until February 2021.
[25] QRAD entered into a Customer Service Agreement (CSA) with Philips in respect of various pieces of equipment, including the MRI machine, on 26 August 2020. The service agreement term for the MRI machine was from 27 September 2020 to 30 June 2025. The annual service cost associated with the MRI machine was $140,000 excluding GST. Dr Bergin signed the CSA on behalf of QRAD.
[26] The Contract Entitlements Overview to the CSA allowed QRAD to select (relevantly):
[18]
(a) Philips' response times for initial and on-site responses;
(b) the windows of time during which Philips' responses were to be provided;
(c) any other services QRAD wanted Philips to provide, which in respect of the MRI machine included options for chiller coverage, magnet insurance and helium supply.
[19]
[27] Different service levels incurred different prices. QRAD had the option of selecting (and paying for) higher service levels including quicker initial and on-site response times, including 24-hour service coverage. 24-hour service coverage is often required by facilities such as hospitals.
[28] QRAD selected the following service levels for the MRI machine:
[20]
[29] Magnet insurance was not selected.
[30] The CSA expressly incorporated:
[21]
(a) the Quotation, setting out the service options selected by QRAD;
(b) General Terms (GT);
(c) exhibit - Additional Terms and Conditions for Imaging Services (AT);
(d) exhibit - Terms and Conditions for Liquid Helium Refill Service;
(e) exhibit - Additional Terms and Conditions for Uptime Guarantee.
[22]
The factual background regarding the first quench
[23]
[31] At approximately 1:05am on Saturday 20 February 2021, vandals accessed QRAD's premises (by sticking their hands through a fence) and switched off the power to the MRI machine's chiller.
[32] At approximately 1:10am, Philips sent an automatic alert via email and text to QRAD's nominated representative (Ms Melissa Green, radiographer), which informed her that the "status of the chiller is not ok".
[33] Ms Green received the text alert and woke up. Ms Green telephoned Philips but decided not to proceed beyond a recorded message because she says it indicated there may be a call out fee if she proceeded and she did not believe she was authorised to cause QRAD to incur such a fee.
[34] Ms Green then telephoned Dr Bergin, Ms Natasha Nickolai (QRAD business operations manager) and Mr Frank Lai (QRAD radiographer) to obtain approval to proceed, but no-one answered her calls.
[35] Philips provided further automatic alerts to QRAD throughout the night to the effect that the water supplied by the cryo compressor and the water returning from the cryo compressor were outside Philips' parameters.
[36] At 6:30am, Ms Green telephoned Dr Bergin again and she told him that there was an issue with the MRI machine - in particular, that the temperature inside the MRI machine had been rising. Dr Bergin told her "I'll get Karl to sort it out when he gets to work". Karl was Dr Bergin's then co-director, Dr Karl Kua.
[37] At 6:40am, Dr Bergin asked Dr Kua to go to QRAD's premises to check the MRI machine and to call Philips to have a technician look at it.
[38] Dr Bergin also received a telephone call from Ms Nickolai who advised him she had also received an alert from Philips.
[39] Because neither Dr Kua nor Mr Allan Trembath (the Philips technician) gave evidence, the Court cannot be certain about what Dr Kua did, but regardless, at approximately 8:30am, a Philips representative (Mr Trembath) telephoned Ms Nickolai and explained that an issue had arisen with the chiller. This was the first contact of a human of Philips to QRAD. There is no suggestion that Mr Trembath recommended any particular course of action to Ms Nickolai.
[40] Neither Mr Trembath nor anybody else from Philips took the step of actually attending at QRAD's premises to identify the problem immediately, or seeking to speak to any person present at the QRAD premises to help them identify the problem immediately. Mr Trembath went about his usual Sunday morning activities.
[24]
[46] The first claim advanced by QRAD against Philips can be considered at this point in the factual chronology. In summary QRAD claims that Philips' failure to attend at the QRAD premises or act more quickly in response to the identified problem the subject of the automatic alerts was a breach of Philips' contractual obligations under the CSA. The argument goes that had Philips acted in accordance with its contractual obligations it would have, either directly itself or through a person present at the QRAD premises, identified that the actual problem the subject of the alerts was that the chiller had been switched off and would have then advised QRAD what was necessary to fix that problem (that is, switch the chiller back on) in time such that action could have been taken to prevent the first quench. QRAD's case is that had that occurred none of the damages suffered by QRAD as a consequence of the first quench (or the subsequent quenches which it says arise from damage to the magnet caused as a result of the first quench) would have been suffered. The experts agree that had Philips attended at the QRAD premises and restored the power to the chiller prior to the first quench, the first quench could have been avoided.
[25]
[47] It is necessary then to consider the relevant contractual obligations in the CSA.
[48] The Quotation part of the CSA contained the selected service levels for the MRI machine as set out in [28] above.
[49] The CSA included the following definitions:
[26]
(a) under the heading "RightFit Definitions" and a subheading "System Availability":
[27]
Initial response: The time for a qualified Philips Service representative to make direct telephone contact with the customer following a request for service to assess the problem.
[28]
On-site/Remote response: The time for a qualified Philips Service representative to start of repair or actions related to repair by Philips either remotely, or on-site.
[29]
(b) under the heading "RightFit Definitions" and a subheading "Corrective / Preventative Maintenance Service Window":
[30]
The Customer Service Agreement defined the hours of coverage within which on-site service may be performed for corrective and/or preventative maintenance activities without incurring additional labor charges. It will exclude Philips observed public holidays in the country of the Site.
[31]
[50] Under clause 1 of the GT, Philips agreed to provide the Services (that is, those that QRAD had selected). Clause 22 of the GT provided that unless otherwise set out in the exhibits, the Services would be supplied between Monday and Friday from 8:30am to 5:30pm.
[51] Specifically, clause 22 of the GT provided:
[32]
Unless otherwise set forth in the Exhibit(s), Philips will provide the Customer the Services Mondays through Fridays, 8.30am to 5.30pm, Customer local time, excluding Philips observed public holidays ('Service Coverage'). If the fault is of a minor nature and there is no complete system breakdown of the Equipment, Philips will liaise with Customer to arrange a suitable time to attend to the Equipment during Service Coverage hours ... Subject to the availability of Personnel and repair parts, Philips will provide, at Customer request and additional costs, ... service outside the Service Coverage hours ...
[33]
[52] None of the exhibits provided otherwise.
[53] Clause 20 of the GT was an entire agreement clause.
[54] Clause 2 of the GT noted exclusions, namely that the Services did not include certain things, including:
[34]
2.3 service specifically excluded in the Quotation;
[35]
(v) damage caused by an external source, regardless of nature;
[36]
2.11 maintenance or repair, including the cost thereof, of non-Philips manufactured products, unless specified otherwise in this Agreement.
[37]
[55] The AT relevantly under the heading "Services" in clause 1 identified two types of maintenance service that were provided by Philips: "Preventative Maintenance Service" and "Corrective Maintenance Service".
[56] Clause 1.2 of the AT provided:
[38]
1.2Preventative Maintenance Service. Unless otherwise indicated in the Quotation, Philips will provide planned, preventative maintenance services including general Equipment inspection and planned remedial maintenance activities of non-emergency nature, as well as Equipment Monitoring via remote network connection in order to identify potential technical issues with the Equipment and proactively initiate service action to address such potential issue. The so initiated service action will be provided, in most cases, as part of the planned service activities at the Site.
[39]
Philips will provide such planned maintenance during the hours of coverage (as defined in the Quotation) at a time that is mutually agreed upon. Philips will provide Customer a planned maintenance schedule for the Equipment(s).
[40]
1.3 Corrective Maintenance Service. Unless otherwise indicated in the Quotation, Philips will provide corrective maintenance services including repair activities due to Equipment malfunctioning and provide replacement parts, on Exchange Basis (as defined below), as necessary to repair the Equipment, all as indicated in the quotation.
[41]
[58] Clause 2 of the AT dealing with "Service Coverage" commenced as follows:
[42]
Philips will provide the Service elements included in the Agreement as indicated in the Quotation ('Service Coverage'). Customer may request service outside the Service Coverage (e.g. service outside the hours of coverage, service or repair parts that is not otherwise included in this Agreement). Subject to the availability of personnel and repair parts, Philips will provide such additional service and repair parts and invoice Customer at Philips' then current standard rates for labor and Philips' then current published list price for parts.
[43]
[59] Clauses 2.5 and 2.6 of the AT dealing with "Hours of Coverage" and "Response Time" provided:
[44]
2.5 Hours of Coverage. Philips will provide the preventative and corrective maintenance services during the service window hours as indicated in the Quotation excluding Philips observed public holidays in the country of the Site.
[45]
2.6 Response Time. Philips strives to provide initial response (i.e. call back by a Philips speciality to assess the problem) and onsite/remote response (i.e. start of repair or actions related to repair by Philips either remotely, or on site) within the response times as listed in the Quotation.
[46]
[60] Clause 4 of the AT dealt with customer (QRAD) responsibilities, and clause 4.1, specifically for MRI related services, provided as follows (relevantly):
[47]
4.1 maintain the Site and operating environment in accordance with the Philips specifications, including but not limited to:
[48]
4.1.1. ensuring uninterrupted facility power quality for the MR Equipment (including its cryogenic refrigerator system) and for the chilled water sister;
[49]
4.1.2 ensuring uninterrupted facility chilled water flow, temperature and quality for the MR Equipment (including its cryogenic refrigerator system);
[50]
[61] Clauses 4.5 and 4.6 of the AT relevantly provided:
[51]
During the term of this Agreement the Customer shall:
[52]
4.5.4 the MRI magnet refrigeration system is out of order and/or not operational;
[53]
4.6 act on alerts provided by the MRI Equipment and/or monitoring processes which apply to the operating environment condition.
[54]
[62] Finally, clause 3 of the AT noted exclusions to the Services as follows:
Exclusion.
[55]
3.1 unless otherwise specified in the Quotation, maintaining or repairing third-party products, including but not limited to ... magnet refrigeration system (coldhead, compressor, chillers) ... uninterruptable power supplies...
[56]
Principles of contractual construction of commercial contracts
[57]
[63] The relevant principles of contractual construction are not in dispute. In Electricity Generation Corp v Woodside Energy Ltd,[4] French CJ, Hayne, Crennan and Kiefel JJ explained:
[58]
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience.'
[59]
[64] See to similar effect Body Corporate for Ocean Pacifique v Pugliese[2023] QCA 129 at [19]- [20].
[60]
[65] QRAD's argument that Philips was obliged to do to more than it actually did rests on the contractual obligation in clause 1.2 of the AT to monitor the equipment and proactively initiate service action to address any potential issues identified. It says that clause required Philips to act outside of the usual service coverage hours and that must be the case in circumstances where the parties understood the equipment to be very expensive and sensitive.
[66] In my view, clause 1.2 of the AT is not engaged at all in the circumstances of this case.
[67] Clauses 1.2 and 1.3 of the AT make a clear distinction between preventative maintenance and corrective maintenance, and together cover the field of all types of maintenance that might be required under the CSA. Preventative maintenance applies when there is not yet a problem with the equipment; corrective maintenance applies when there is an actual existing problem with the equipment that requires correction.
[68] Insofar as in respect of preventative maintenance services there is contemplated to be "Equipment monitoring via remote network connection in order to identify potential technical issues with the Equipment and proactively initiate service action to address such potential issue", that is concerned with potential issues, not actual existing issues.
[69] Here what had been identified by the equipment monitoring system was an actual existing issue that needed correction. Clause 1.3 of the AT dealing with Corrective Maintenance Service was engaged. The equipment was malfunctioning. The clause required that any repairs were to be carried out as indicated in the quotation and unless otherwise requested by QRAD, that would be within the service coverage hours.
[70] If I am wrong about that and in the circumstances that existed the monitoring system in fact only identified a "potential issue" with the MRI machine such that clause 1.2 of the AT was engaged, then in my view, Philips complied with its obligation to "proactively initiate service action" by sending the alerts to Ms Green. And the alerts were effective to cause Ms Green to take action. She had a choice at that time, having been alerted to a potential problem with the MRI machine, and likely specifically the chiller, to request Philips to attend outside the service coverage hours (which would be chargeable).
[61]
(a) to take the alert messages received in the early hours of 20 February 2021 very seriously until the cause of the chiller not working and the compressor overheating could be identified;
(b) identify the issue as being one that required urgent attention;
(c) make initial contact with QRAD within 1 hour of the initial alert;
(d) if no contact could be made, to attempt to reach QRAD every 15 to 30 minutes thereafter;
(e) if someone was on site, to contact them to do a check to see if they can ascertain why the chiller stopped working and to guide them over the phone to check the status of other pieces of equipment;
(f) have an engineer attend site as soon as possible to troubleshoot the cooling system;
(g) monitor the rate of helium loss in real time, to monitor the risk of a quench occurring (and if the boil off rate cannot be calculated, an engineer should be onsite within hours of the first alert to allow sufficient time to fix the problem and restart cooling to the magnet, or take other actions to prevent a quench from happening).
[62]
[75] That is far beyond what the parties had contractually agreed. Undoubtedly the parties had contemplated that issues could arise of an emergency nature with the MRI machine out of the servicing hours. But consistent with the contractual arrangements Philips (through an automated system) successfully notified QRAD of a problem (or potential problem) with the MRI machine, and the general nature of a problem (or potential problem), very quickly. It was then for QRAD to decide whether it wished to request Philips to attend outside of its service coverage hours or not.
[76] That is further reinforced by the fact that the even the initial response time (within service coverage hours) as defined contemplated QRAD making a request for service ("following a request for service to assess the problem") - not Philips acting of its own volition. There was no contractual requirement for Philips to have made any contact with QRAD within 1 hour of receiving the alerts.
[77] One could speculate in this case that had QRAD or UAP attended the premises with the information supplied by Philips in a timely way that the problem could have been readily identified and rectified without incurring any out of service coverage hours fees with Philips. But that is not to the point. What is to the point is that Philips, consistently with its contractual obligations, monitored the MRI machine and notified of a problem (or potential problem) that had arisen outside of its service coverage hours. It was then for QRAD to decide how to proceed.
[78] There is no breach of contract by Philips for a failure to attend.
[63]
[79] Even if I had concluded that there was a breach of contract by Philips for a failure to attend, certain exclusion provisions of the CSA would then have required consideration.
[64]
[80] Here it is evident that the problem with the MRI machine that resulted in the first quench arose because the chiller had been turned off. The CSA specifically excluded chiller coverage. In the Quotation section of the CSA, in the "Contract Entitlements Overview" the words "Chiller coverage" appear with an "x" - indicating that chiller coverage is not included.
[81] Clause 1 of the GT provided that "[t]he services included in the Quotation (the "Services") will be provided by Philips to Customer ...".
[82] The question then is what services if any was Philips required to provide in relation to the chiller. Both parties agree that the effect of the above clauses is that the parties did not contract for Philips to provide maintenance for the chiller itself.
[83] But the Services did include equipment monitoring via remote network connection pursuant to clause 1.2 of the AT, and though the Equipment there mentioned is plainly the equipment detailed in the Contract Entitlements Overview (which includes the MRI machine) insofar as that equipment might be operating outside of usual parameters, albeit because of something external to the machine, I consider that the monitoring obligation would extend that far.
[84] In that respect, the monitoring did identify a problem (or potential problem) with the MRI machine because it recorded that the "status of the chiller is not ok", and Philips issued an alert to QRAD of that appropriately.
[85] I accept, as Mr Nicholas Evdokimov (National Operations Manager of Philips) said, that:[5]
[65]
The notification of 'status of the chiller is not ok' does not necessarily mean that the chiller has broken down. Rather, the notification is sent when the system detects that the flow or temperature of chilled water being received by the MRI is not appropriate.
[66]
However, for the reasons I have already expressed, Philips had no contractual obligation to take any further steps until the service coverage hours or if a request were made of it by QRAD (subject to clause 22 of the GT and clause 2 of the AT).
[67]
[86] In this particular case, where the problem did end up specifically being a chiller caused problem (not the responsibility of Philips to rectify), if Philips had not attended at all that would not have been in breach of the contractual obligations because Philips was not required to maintain the chiller. The CSA expressly excluded any services in relation to any equipment other than the Equipment listed in the Quotation (clauses 2.1 and 2.11 of the GT and clause 3.1 of the AT). This clause exempted Philips from providing any service in relation to the chiller, and so there would be no breach.
[68]
2.4 any service necessary due to ... (v) damage caused by an external source, regardless of nature; ...
[69]
[88] The need for any type of service under either clauses 1.2 or 1.3 of the AT in this case was a consequence of damage caused by an external source - namely the vandals switching off power to the chiller. The circumstances here do fall within the scope of clause 2.4(v) of the GT and accordingly even if I had otherwise found a contractual obligation on Philips to attend as contended for by QRAD, this clause exempted Philips from providing any Service, and so there would be no breach.
[70]
[89] Although not a matter raised by the parties, I note also the obligations placed on QRAD by operation of clause 4 of the AT.
[90] QRAD was contractually obliged to:
[71]
(a) ensure an uninterrupted power supply to the chiller;
(b) ensure an uninterrupted facility of chilled water flow to the MRI machine;
(c) to immediately inform Philips if the refrigeration system was not operational;
(d) importantly, act on the text alert.
[72]
[91] Arguably QRAD did not comply with such contractual obligations. But I will not consider this further given it was not raised by the parties.
[73]
(a) Philips was obliged to provide a monitoring service in relation to the MRI machine;
(b) Philips had no such obligation in relation to the chiller except insofar as (as occurred here) a problem with the MRI machine was detected that may have had its origins with the chiller;
(c) Philips had no obligation to provide any other services in relation to the chiller, even if an issue was identified by the monitoring service or if requested to do so by QRAD;
(d) Philips was not obliged to provide services pursuant to the CSA outside of the service coverage hours;
(e) Philips was not obliged to provide services pursuant to the CSA if the services were required because of damage caused by an external source;
(f) Philips could provide such services on request (subject to its capacity to provide them) but was entitled to charge for them at its standard rates;
(g) otherwise Philips was only required to provide services within the service coverage hours - providing an initial response by way of a telephone call back within 1 hour and, if needed, an on-site repair response within 8 hours, but in either case only between 8:30am and 5:30pm on a weekday.
[74]
[93] The next issue is whether Philips assumed a more extensive or different duty in tort.
[94] The position of QRAD is that if I accepted that the contractual obligation on Philips in clause 1.2 of the AT was as QRAD contended, then the tortious duty would be no more onerous and it would not be necessary to go on to determine any liability of Philips in negligence. I have not accepted clause 1.2 of the AT has the effect contended for by QRAD, and so as I understand it QRAD presses that even if there is no contractual liability, Philips does have a liability in negligence, because QRAD says that in the circumstances Philips did not act reasonably in failing to do something more about the alert than it actually did.
[95] It is accepted that a contractual duty of care does not necessarily exclude a concurrent duty of care in tort. But the authorities establish that detailed contractual provisions setting out the parties' rights and obligations exclude any duty in tort to act in a way that is inconsistent with those contractual duties.
[96] In Bryan v Moloney (1995) 182 CLR 609 at 620-623, the plurality of the High Court (Mason CJ, Dean and Gaudron JJ) endorsed the following statement of Le Dain J (speaking for a unanimous Supreme Court of Canada) as a correct explanation of the law (emphasis added and footnotes omitted):
[75]
1. The common law duty of care that is created by a relationship of sufficient proximity ... is not confined to relationships that arise apart from contract. Although the relationships in Donoghue v. Stevenson, Hedley Byrne and Anns were all of a non-contractual nature and there was necessarily reference in the judgments to a duty of care that exists apart from or independently of contract, I find nothing in the statements of general principle in those cases to suggest that the principle was intended to be confined to relationships that arise apart from contract. Indeed, the dictum of Lord Macmillan in Donoghue v. Stevenson concerning concurrent liability... would clearly suggest the contrary ... Junior Books Ltd. v. Veitchi Co. Ltd., in which an owner sued flooring subcontractors directly in tort, is authority for the proposition that a common law duty of care may be created by a relationship of proximity that would not have arisen but for a contract.
[76]
2. What is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but the nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obligations or duties created by the express terms of the contract. It is in that sense that the common law duty of care must be independent of the contract. The distinction, in so far as the terms of the contract are concerned, is, broadly speaking, between what is to be done and how it is to be done. A claim cannot be said to be in tort if it depends for the nature and scope of the asserted duty of care on the manner in which an obligation or duty has been expressly and specifically defined by a contract. Where the common law duty of care is co-extensive with that which arises as an implied term of the contract it obviously does not depend on the terms of the contract, and there is nothing flowing from contractual intention which should preclude reliance on a concurrent or alternative liability in tort. The same is also true of reliance on a common law duty of care that falls short of a specific obligation or duty imposed by the express terms of a contract.
[77]
3. A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence.
[78]
[97] Similarly, in Astley v Austrust Ltd(1999) 197 CLR 1, the majority of the High Court said at [47] (emphasis added and footnotes omitted):
[79]
History and legal principle combine to indicate that the conclusion of the House of Lords in Henderson is the correct view. The implied term of reasonable care in a contract of professional services arises by operation of law. It is one of those terms that the law attaches as an incident of contracts of that class. It is part of the consideration that the promisor pays in return for the express or implied agreement of the promisee to pay for the services of the person giving the promise. Unlike the duty of care arising under the law of tort, the promisee in contract always gives consideration for the implied term. And it is a term that the parties can, and often do, bargain away or limit as they choose. Rather than ask why the law should imply such a term in a contract for professional services, it might be more appropriate to ask why should the law of negligence have any say at all in regulating the relationship of the parties to the contract? The contract defines the relationship of the parties. Statute, criminal law and public policy apart, there is no reason why the contract should not declare completely and exclusively what are the legal rights and obligations of the parties in relation to their contractual dealings.
[80]
[98] The same essential point was made again by the High Court in Woolcock Street Investments Pty Ltd v CDG Ltd[2004] HCA 16; (2004) 216 CLR 515 at [28] (Gleeson CJ, Gummow, Hayne and Heydon JJ) and in Brookfield Multiplex v Owners 61288[2014] HCA 36; (2014) 254 CLR 185 at [143] and [144] (Crennan, Bell and Keane JJ).
[99] Here, the parties went to some effort to define in the CSA what services would be provided (and what would not), when those services would be provided, and the price for the provision of those services.
[100] Insofar as QRAD asserts that Philips had a duty of care in tort that required Philips to act in accordance with [[74]] above (beyond the terms of the CSA) I reject that. The CSA deals with such matters completely and exclusively. There is no room to overlay of any tortious duty of care that is inconsistent with those obligations. To do so would "alter the allocation of risks effected by the parties' con[6]ract"6 and would give QRAD a benefit for which it has not paid. Any tortious duty was concurrent with the contractual obligations and was not breached for the same reasons there was no breach of contract.
[81]
The factual background to the subsequent quenches
[82]
[101] The MRI machine was returned to operation after the first quench. The experts agree that in respect of the first quench the repair work was performed with due care and skill and no damage could have reasonably been caused to the MRI machine after the quench or by reason of the repairs.
[102] A site audit undertaken at the time identified the cause of the first quench as being the vandalism event.
[103] However, some four months later the MRI machine quenched for a second time on 6 July 2021 around 9pm. A site audit undertaken at the time was unable to identify any obvious cause of the second quench. At the time Philips considered it a spontaneous quench with no known cause. The MRI machine was returned to operation by Philips after the second quench. The repairs took approximately 7 days.
[104] Some three months later, the MRI machine quenched for a third time on or about 18 October 2021 in the middle of the night. On 25 October 2021, after it had been repaired by Philips and was being ramped to field by Philips, the machine quenched again at 98.8% of charge (the fourth quench, also referred to as the training quench). The MRI machine was then brought back to operation by Philips again. At the time Philips considered both of these quenches spontaneous quenches with causes unknown. But the number of quenches suffered now justified more detailed investigations being undertaken, which occurred.
[105] After the third and fourth quenches, Philips investigated the causes of those quenches. In an email from Mr Evdokimov to Dr Bergin and Ms Nickolai on 26 October 2021, Philips explained to QRAD that:
[83]
Our National MR Technical Specialist spoke to the factory last night about the behaviour of this magnet and we have formulated an action plan on the next steps from a Technical recovery perspective.
[84]
We must do a detailed check on all connections internal and external to the MR. This includes signal, power and earthing. Only once all the checks have been cleared by the factory then helium can be ordered if we are to proceed with another recovery.
The Factory has put this down to possible training quench on the system but we need the results of the all the tests before helium should be ordered. (Training quench can and does sometimes happen directly after a quench with the magnet settling down again, as this happen at 98% field and it is believed the magnet should ramp to field on the next attempt). If we discover a major issue then we will have to re‐evaluate the situation.
We are also going to isolate the MR and an electrician is to check all the circuit breakers, isolators, surge arrestors to the MDU connection for good tension and connectivity.
Power monitor device is on its way from the US and will be fitted to the incoming power once it arrives.
Once the borders are open again into QLD, both Fast Recover Team members will attend site and perform a full site audit. 17th Dec QLD border lockdown is presenting a problem and we are seeing if we can get our interstate staff in earlier.
[85]
[106] Mr Toby Thorogood of the Philips Fast Response Team gave evidence of the various matters considered in the wake of the third and fourth quenches.[7]
[107] There had been a meeting between Philips (Tony Trigg) and QRAD (Dr Bergin) on 20 October 2021 (between the third and fourth quenches whilst the machine was still being repaired). Mr Trigg attended at QRAD's premises following an exchange on LinkedIn between Mr Trigg and Dr Bergin. At or shortly after this meeting, Mr Trigg discussed various trade-in or repair options with Dr Bergin. Philips indicated it was prepared to replace the "cylinder in the middle" (the can/cryostat - not the entire MRI machine), subject to first performing a site audit to rule out environmental factors. The site audit would be undertaken when the State borders opened.
[108] Discussions at a meeting between Philips and QRAD on 26 November 2021 were to a similar effect, with Philips agreeing to cover all of the costs of that replacement process, including the cylinder itself, provided that QRAD covered the costs of a 'cage builder' who would be required to open the Faraday cage constructed within the walls of the room within which the MRI machine was located. QRAD did not wish to cover those costs.
[109] QRAD alleges that, at the meeting of 26 November 2021, Mr Trigg or Mr Roost (of Philips) told Dr Bergin that "the quench was a 'training quench' and that it should have realigned the coils, so the machine should be fine going forward". Under cross-examination, Mr Trigg gave evidence that he had a reasonable recollection of that meeting but had no recollection of making or hearing a statement to that effect. He did give evidence that "No-one can guarantee that a machine will never quench again". That seems self-evidently true.
[110] Between 15 and 17 December 2021, as soon as the borders between Queensland and NSW had opened, Philips' Fast Response Team (of which Mr Thorogood was a member) conducted a site audit of the QRAD premises. That audit identified possible environmental factors, but no obvious reason for the quenches. The outcome was detailed in an audit report and summarised in an email to QRAD.
[111] In January 2022, Philips engaged a specialist power monitoring company, RxMS, to attend to conduct a detailed examination of the power supply to the QRAD premises. RxMS reported to Philips on 8 February 2022.
[86]
Following a site survey conducted by two Fast Response Team Members (FRT) and a Power Quality Survey (PQS) as well as the service history and environmental conditions, the information provided was investigated and it was found that the first quench created instability in the magnet which resulted in further quenching. Therefore, based on the past performance, there is a probability that the magnet will quench again. If the magnet is replaced and all site-specific specifications are met, there would be confidence that the system would become stable again.
[87]
[113] On 17 May 2022, the outcome of Philips' investigation was relayed to QRAD in a meeting between Philips (Mr Evdokimov and Mr Maharaj) and QRAD (Dr Bergin) at Philips' premises.
[114] In May 2022, Philips told QRAD (by way of a letter dated 22 February 2022):
[88]
Following a site survey conducted by two Fast Response Team Members (FRT) and a Power Quality Survey (PQS) as well as the service history and environmental conditions, the information provided was investigated and it was found that the first quench created instability in the magnet which resulted in further quenching. Therefore, based on the past performance, there is a probability that the magnet will quench again. If the magnet is replaced and all site-specific specifications are met, there would be confidence that the system would become stable again.
[89]
[115] Dr Bergin appeared to accept that there were discussions about replacing the cylinder at this meeting, but then went on to deny that any offer was made to replace the cylinder at this meeting. He said that Philips then issued invoices and there was no further discussion about replacing the cylinder.
[116] Mr Evdokimov's evidence was that the proposal made at the meeting on 26 November 2021 was repeated at the May 2022 meeting and that Dr Bergin informed him that he did not want to spend any more money and intended to let his insurance claim against AIG play out.
[117] That dispute in the evidence does not need to be resolved. The simple fact to note for present purposes is that no deal to replace the cylinder was struck between the parties and the MRI machine continued in operation. The MRI machine then quenched for the fifth time during working hours on 2 March 2023 (this time nearing 18 months since the last quench). Philips attended but Dr Bergin instructed that the machine was not to be repaired. The MRI machine was not returned to service, was removed from the premises on 6 March 2023 and was sold by QRAD's agents at an auction on 20 April 2023 for a price of approximately $325,000. QRAD proceeded to source a replacement MRI machine from Siemens. A 3.0T model was not readily available and a 1.5T model was purchased.
[90]
What was the cause of the first and subsequent quenches?
[91]
[118] The experts agree that the cause of the first quench was the vandals switching off power to the chiller. Whilst it is true that a quench so soon after the chiller had become non-operational is unusual and there remains a small possibility that the first quench was actually caused by something else, I accept the experts' evidence and find that on the balance of probabilities the cause of the first quench was the vandals switching off the power to the chiller.
[119] Whilst it had been unable to be confirmed with absolute certainty, I find that on the balance of probabilities the cause of the subsequent quenches was also the original act of the vandals switching off the power to the chiller. The first quench appears to have caused some internal damage to the magnet that made it prone to quench, albeit at irregular intervals. There were no other causes of the subsequent quenches that have been able to be identified with any high level of certainty. Most external factors have been excluded. Those that remain possibilities (such as interference from radio frequency bursts) are speculative.
[92]
Negligence (or breach of contract) claim about the repair works undertaken after the second to fourth quenches
[93]
[120] QRAD appears to advance a claim in its written closing submissions that Philips, in carrying out the repair works after the second to fourth quenches, breached either the repair contract or a duty of care to carry out the works with reasonable care and skill.[9]
[121] Whilst the documents, if any, constituting the repair contract/s are controversial, this claim can be analysed on the assumed basis that Philips owed QRAD either or both of a contractual or tortious duty to carry out the repair works with reasonable care and skill (as contended for by QRAD).
[122] However, the only pleaded facts relied upon by QRAD to establish that breach is to refer to allegations that have been abandoned that were referred to as the yellow ball valve claim.[10]
[123] I cannot see pleaded by QRAD any broader case about unsatisfactory repair works. The mere fact of the third to fifth quenches would not of itself be sufficient to plead or conclude any breach in respect of the repairs undertaken after the second and fourth quenches. There is no proper claim pleaded and it will not be considered further.
[94]
[124] QRAD's pleaded case is that Philips owed it a duty of care to:[11]
[95]
(a) after the third quench, advise QRAD that the MRI machine would continue to quench unless the entire magnet was replaced; or
(b) in the alternative, examine its data logs in relation to the MRI machine and, following the third quench:
(i) recommend that the MRI machine be examined: and
(ii) following an examination of the MRI machine, advise QRAD that it was necessary to replace the entire magnet.
[96]
[125] In QRAD's opening, this case was further explained as follows:[12]
[97]
(a) the second quench ought to have been of concern to Philips, in that the root cause had not been identified. At that time, a reasonable person in Philips' position should have started taking some diagnostics to see if a cause could be identified;
(b) the parties' experts agree "that after quench 3 and following ramp quench 4, it should have been clear to Philips that something is seriously wrong, and a magnet swap should have been considered";
(c) therefore, by the time of the third quench and without any explanation as to why the magnet has quenched, Philips ought to have considered replacing the magnet;
(d) by the fourth quench, the magnet was unstable and no longer reliable and ought to have been returned.
[98]
[126] The duty of care owed cannot properly be in the terms advanced by QRAD. Undoubtedly after the second quench there was reason for all parties to be concerned that the cause of the second quench had not been ascertained with any certainty. Unidentified damage to the magnet as a consequence of the first quench was unlikely - the machine had been returned to operation without difficulty. But even the first quench had a question mark over it because the MRI machine was not expected to quench so quickly after the power to the chiller had been turned off.
[127] Three quenches within eight months was unusual. Even if the fourth quench could be somewhat discounted as a training quench, it was still also of concern. Further investigations to rule out environmental factors were plainly needed and as both experts agreed, after the third and fourth quenches, a magnet swap should have been considered.
[128] But Philips did not, in my opinion, have any obligation to recommend the replacement of the magnet before the causes of the magnet quenching had been better ascertained. There would be little point in replacing the magnet with a new magnet (a very costly exercise) if existing environmental factors would also adversely affect the new magnet.
[129] Further investigations to rule out environmental factors were needed and were undertaken. The cause of the quenching remained unclear and so it is unsurprising that most other factors having been ruled out, what was left was the conclusion that there must have been something damaged internally within the magnet as a result of the first quench that was causing the subsequent quenches. At that point, a magnet replacement was recommended by Philips on the basis that its advice was that the magnet would continue to quench.
[130] There is no good evidence that Philips did not act in a timely way in the circumstances in undertaking those further investigations and providing the advice given. And in the events as they occurred, QRAD did not take the advice to have the magnet replaced when the advice was given, and the MRI machine continued in operation until long after - with the fifth quench not occurring until 3 March 2023.
[131] Given the uncertainty surrounding the cause of the quenches and the investigations into environmental factors which were required to be undertaken following the third and fourth quenches, I reject that Philips owed a duty of care to QRAD in the terms alleged by QRAD.
[99]
(a) a replacement magnet would not have been available and able to be installed for a period of about 8 to 12 weeks (or potentially longer depending on when the site audit could take place);[13]
(b) it was not tenable for QRAD to be without a MRI machine for many months, and QRAD did not want that period of down time.[14]
[100]
[135] Even if the replacement of the magnet could occur quicker, Philips was under no obligation to replace the magnet at no cost, and its replacement of the magnet at no cost did come with conditions that were not acceptable to Dr Bergin. In all of those circumstances, I do conclude that QRAD would have repaired the magnet after the third and fourth quenches in any event. That was the reasonable decision in all of the circumstances that then existed. It is noteworthy that even when given the later advice from Philips in May 2022 that the magnet was expected to continue to quench and ought be replaced, QRAD did not put that advice into effect, instead Dr Bergin consulted with QRAD's insurer and ended up allowing the MRI machine to continue in operation until the fifth quench in March 2023.
[101]
[136] QRAD alleges that after each of the first, second, third and fourth quenches, a representation was made by Philips to the effect that "the MRI Machine was completely repaired and suitable for clinical use" (the First, Second, Third and Fourth Representations, respectively). The claim based on the Third Representation (following the third quench) has been abandoned by QRAD.
[137] It is alleged by QRAD that each of those representations was made in writing in the Customer Service Reports provided by Philips to QRAD at the conclusion of the repairs.
[138] The language used in the Customer Service Reports was:
[102]
"System fully meets specifications and is returned to use"
[103]
Philips admits it made written representations in the terms of the Customer Service Reports.
[104]
[139] It is also alleged by QRAD that the Second and Fourth Representations were also made orally to Dr Bergin and Ms Nickolai. The language allegedly used in the oral representations was to the effect that "the MRI Machine was completely repaired and suitable for clinical use". Philips denies it made representations in the terms of the alleged oral representations.
[140] QRAD alleges that the effect of the representations (both oral and written) were that there was "no continuing defect" in the MRI machine.
[141] In determining whether a representation is false, the representation is to be considered from the objective perspective of a reasonable person in the position of the representee.[15] In my view the representations made (even if made as QRAD alleges) do not have the effect alleged by QRAD and could not be reasonably understood to have that effect. The representations, objectively understood, were not false. What the parties knew is that after the first quench although damage to the magnet was unlikely, it could not be ruled out completely. That the MRI machine could be brought back into usual operation did not mean that there was not some underlying damage or defect existing within the magnet. Limited visibility of the magnet was available whilst in its casing. Even if it could be removed from its casing and inspected that would be an external inspection only that might not reveal any existing damage or defect. What was known with certainty was that the MRI machine could be and in fact was placed back into usual operation after the first, second and fourth quenches. No one could have reasonably understood there to be any representation made that there was no continuing defect. At the most, a reasonable person would have understood the representations to be that the MRI machine was returned to operation and there was no physical evidence of any continuing defect. No one at any stage was able to discover with absolute certainty the reason for any of the quenches and so no absolute fix could be guaranteed in any way. No misrepresentation was made by Philips.
[142] What was promised by Philips under the CSA was an Uptime Guarantee of a minimum of 95%; and what was represented after repairs were completed was that the MRI machine fully met specifications and was returned to operation - not that the MRI machine was completely defect-free after repair.
[105]
Causation, loss, mitigation, other limitations of liability
[106]
[143] I have found against QRAD in respect of liability for the causes of action it has relied upon.
[144] In most cases, as would be orthodox, I would go on to make findings about causation, loss, mitigation and other limitations of liability that might apply in the event that any of my findings in respect of liability are wrong. In this case, however, given the way the various claims have been advanced, there are several causation and loss theories that would need to be considered and I do not consider it practical or time-efficient at this juncture to do so (acknowledging that in the event of a successful appeal by QRAD against any adverse liability findings the matter will need to be remitted to me for further decision).
[107]
[145] QRAD pleads and Philips admits that all of the repair work performed by it in relation to each of the first to fourth quenches was outside the scope of works to be provided pursuant to the CSA and therefore not governed by the CSA.
[146] Philips pleads that such repair work was performed pursuant to the Philips' Terms and Conditions for the Supply of Time & Materials Service - see [45[16] above.16 QRAD denies that and says that repair work was performed pursuant to an agreement entered into by conduct (with various implied terms). That dispute is not required to be resolved for the purpose of determining Philips' counterclaim.
[147] Philips seeks payment for the costs it incurred in repairing the MRI machine following each quench. It says QRAD's obligation to pay for the works necessary to repair the MRI machine after each of the first to fourth quenches arises:
[108]
(a) under the terms of the Philips' Terms and Conditions for the Supply of Time & Materials Service dated 23 February 2021, 19 October 2021 and 21 June 2022;
(b) otherwise, under the principles of quantum meruit and quantum valebat.
[109]
[148] There is no dispute that the repair works have been performed, goods supplied and that Philips issued invoices for payment that have not been paid. There is no evidence to suggest that the amounts claimed by Philips for the repair works are unreasonable. The proper quantum of the counterclaim is not disputed by QRAD.
[149] QRAD's primary defence is that that the invoices are not payable because:
[110]
(a) Philips did not actually repair the MRI machine to full functionality on any occasion;
(b) the works undertaken by Philips on the MRI machine were not works of a type that could have repaired the machine to full functionality;
(c) Philips knew or ought to have reasonably known that the repair works could not have repaired the MRI machine to full functionality;
(d) QRAD never received any benefit from unpaid repair services as the unpaid repair services were not capable of being a benefit in the circumstances mentioned in the subparagraphs above.
[111]
[150] For similar reasons given respect of the misrepresentation claims, I do not accept those defences have any merit. The MRI machine was returned to full functionality (or operation) on each occasion. Philips made appropriate enquiries into the causes of quenches and had no reason to conclude with any certainty, at least before the fourth quench and until it had ruled out other environmental factors, that there was an underlying problem with the machine that could not be readily resolved. QRAD plainly obtained a benefit from the repair work undertaken - the MRI machine was operational for a significant period of time after each repair was completed.
[151] Otherwise, on each occasion that Philips performed repair work for QRAD it was undertaken at the request of and with the consent of QRAD. In respect of the repair work carried out after each quench, Dr Bergin accepted that he wanted Philips to attend as quickly as possible to bring the MRI machine back online, he granted access to Philips to perform the repair work, he knew Philips was performing the repair work, and he knew that there would be costs associated with the performance of the repair work.
[152] In those circumstances, Philips should be paid for that work unless it is work that it would otherwise have had to perform pursuant to the CSA. As to that, as I have found that the vandalism event causing the first quench has caused all the subsequent quenches, all the invoices are due and payable in full because they arise from works required excluded by clause 2.4(v) of the CSA from the Services to be provided under that agreement. Further, as mentioned, QRAD specifically pleads that the repair work undertaken on the MRI machine was outside the scope of the works to be provided pursuant to the CSA so there is not dispute about that.
[153] Philips' counterclaim succeeds in the amount of the counterclaim - $557,488.79.
[112]
[154] The plaintiff's claims are dismissed. Judgment is entered for the first defendant against the plaintiff on the counterclaim in the sum of $557,488.79, plus interest. Directions made in respect to the question of the costs of the proceeding.
[113]
[1] That part of the MRI machine is sometimes called the "can" or the "cylinder" or the "cryostat".
[114]
[2] Supplementary export report of Theo Becker dated 11 April 2025 at p.341.
Parties
Applicant/Plaintiff:
QRAD Pty Ltd
Respondent/Defendant:
Philips Electronics Australia Limited [2025] QSC 317
Cases Cited (6)
(1999) 197 CLR 1
(2014) 254 CLR 185
(1995) 182 CLR 609
(2014) 251 CLR 640
(1995) 183 CLR 563
(2004) 216 CLR 515
[10] Damage being caused to a magnet as a result of a quench is unlikely. However the stress placed on a magnet as a result of quenching can cause damage to the magnet's internal superconducting coils (for example, by way of micro-cracking in the epoxy resin surrounding the coiled wire).
[11] Quenches are relatively rare once MRI magnets are ramped up and running but can be caused by various matters such as leaks, ice in the magnet, failure in the cooling system, critically low helium levels, power surges, etc.
[12] In respect of a failure in the cooling system, magnets are usually sufficiently insulated that they can go several days before the temperature of the magnet rises to the point that a quench will occur. However, a quench can occur at any time the cooling system for the MRI machine is out of specification, so there is no minimum time before a quench can occur if the cooling system fails.
[13] Recovery of a magnet after a quench should occur in a timely way. Having the magnet exposed to the air risks water entering into the machine which when the magnet is cooled will expand into ice and potentially damage the magnet. Accordingly, a priority is to replace the burst disc and reseal the magnet. Once that is done, amongst other steps that might be required (such as de-icing), liquid helium in the casing having been lost, replacement liquid helium will be required to be placed in the casing in order to allow the magnet to come (or ramp) to field again.
[14] Putting a quenched MRI machine back into service is a process that is time consuming (at least days) and expensive (tens of thousands of dollars). During repair the machine is not available to take diagnostic images.
[15] There is a more common type of quenching that occurs referred to as a training quench. This is a quench that usually occurs in the factory setting before the MRI machine is put into service. In testing the magnet in the factory, and in bringing the magnet up to field and often when close to field, magnets do from time to time quench. Usually the magnets are then brought up to field on the next occasion without experiencing a further quench. A quench is sometimes thought to be effective to "re-align" the magnet. In the factory setting, gas helium released in a quench can be collected. That is not usually the case in an in-situ situation where a quench will usually result in the gas helium being lost to the atmosphere. Liquid helium is an expensive product. A refill of liquid helium for an MRI machine is a cost in the order of tens of thousands of dollars.
[16] A manufacturer would not in the ordinary course replace a magnet after a quench, particularly in circumstances where it is an expensive and significant logistical exercise to replace a magnet and requires the MRI machine to be dismantled and taken out of operation.
[17] If the tube casing were to be removed, the magnet itself is usually a large coil of wire. The magnet can be created by winding the metal coil which is then soaked/covered in epoxy resin which is designed to insulate the wire, or the coil can be wet wound. That involves winding the wire which is already covered in wet epoxy resin to achieve the same result. What is sought is that the wire comprising the magnet and the whole of the magnet be wholly encased in a fairly consistent amount of epoxy resin with no gaps or cracks.
[18] Once the magnet is in its casing there is only one small opening in the casing where some attached electronics can be removed to look in at the magnet itself, but only a very small portion of the magnet is visible through that opening.
[19] There are then attached to the magnet various ancillary parts that comprise the whole working apparatus of the MRI machine in accordance with the diagram below.[2]
[41] There is no evidence that any out-of-hours attendance by Philips was requested by QRAD. There is no evidence that Ms Nickolai in fact requested that Mr Trembath attend on site.
[42] After taking the telephone call from Mr Trembath, Ms Nickolai telephoned Mr Michael Bettany, a representative of UAP, the entity that supplied the chiller and with whom QRAD had an agreement to service the chiller. Because Mr Bettany did not answer, Ms Nickolai left him a message (and he eventually arrived at the QRAD premises after the first quench).
[43] At 10:40am the MRI machine quenched.
[44] By 11:30am Mr Trembath had arrived at QRAD's premises and by 12:15pm Mr Trembath had replaced the burst disc and sealed the magnet. Over the next few days Philips performed the necessary works to restore the MRI machine to operation (including supplying liquid helium) and it was back to ordinary operation around 26 February 2021.
[45] Whilst the repair works were underway, on about 23 February 2021 Philips sent QRAD a service quote for the repair works. The quote included Philips' Terms and Conditions for the Supply of Time & Materials Service. By that time Philips did not consider the repair works covered by the CSA in the circumstances of the vandalism that had by then been identified as having occurred.
[71] She in fact called Philips. She did not proceed to request service action from Philips. There is no reason to think that Philips would not have attended out of hours if they had been asked to do so (subject to clause 22 of the GT and clause 2 of the AT).
[72] Insofar as Mr Trembath attended on Saturday morning seemingly not at the request of QRAD (albeit after the first quench) in doing so he acted above and beyond the obligations imposed by the CSA. Absent a specific request by QRAD for Philips to attend, as the consequence of the alerts Philips was only otherwise required by the CSA to act within the service coverage hours.
[73] Those service coverage hours were reinforced by clauses 2, 2.5 and 2.6 of the AT again referring back to the quotation.
[74] To require anything more from Philips in the circumstances of what had been agreed under the CSA is not commercially realistic and not the proper construction of the contractual obligations. QRAD says that what Philips was required to do by application of clause 1.2 of the AT was:
[112] On 22 February 2022, Philips' MRI specialists in the Netherlands concluded that:[8]
[132] Philips' actions to try to identify with certainty the underlying causes of the quenches, and the subsequent advice that QRAD should proceed on the basis that there was some underlying damage to the magnet caused by the first quench (although not able to be physically confirmed with the magnet in situ) that meant that further quenching of the magnet was expected, were reasonable and sound. Philips' offer to replace the can at no charge (with QRAD being required to pay for works at its premises to facilitate that occurring) was beyond what Philips was required to do under the CSA or pursuant to any duty of care it might have owed.
[133] I also accept the submission made on behalf of Philips that even if QRAD had been able to establish a breach by Philips of the duty of care alleged by QRAD, that QRAD's case for damages for that breach would have failed because of a lack of causation.
[134] In that respect, Dr Bergin accepted that after the third and fourth quenches: