Sydney Advanced Plumbing Pty Ltd v Smoothflow Australia Pty Ltd [2019] NSWSC 1839 | Case summary

Supreme Court of NSW|2019-11-20|Before: Knoll AM

Appeals generally

Section 39 of the Local Court Act 2007 (NSW) provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court, but only on a question of law.
Section 40(1) of the Local Court Act provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court on a ground that involves a question of mixed law and fact, but only by leave of the Supreme Court.
Section 40(2) of the Local Court Act provides that a party who is dissatisfied with an order as to costs of the Local Court may appeal to the Supreme Court, but only by leave of the Supreme Court.
Section 41 of the Local Court Act provides that this Court may determine an appeal either (a) by varying the terms of the judgment or order, (b) by setting aside the judgment or order, (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal.

Grounds of appeal

The grounds of appeal are firstly, that the Magistrate failed to give reasons for rejecting Sydney Advanced Plumbing's expert evidence; and secondly, that the Magistrate denied Sydney Advanced Plumbing procedural fairness by failing to bring to its attention the critical factor upon which the Magistrate's decision turned.

Extension of time

It is common ground that Sydney Advanced Plumbing lodged its application to appeal 37 days out of time, and requires an extension of time to appeal. Smoothflow objects to an extension of time being granted.
In Gallo v Dawson (1990) 93 ALR 479; [1990] HCA 30 ("Gallo"), McHugh J stated at [2]: " …The grant of an extension of time under this rule is not automatic. The object of the rule is to ensure that those Rules which fix times for doing acts do not become instruments of injustice. The discretion to extend time is given for the sole purpose of enabling the Court or Justice to do justice between the parties: see Hughes v National Trustees Executors and Agency Co. of Australasia Ltd [1978] VR 257 at 262. This means that the discretion can only be exercised in favour of an applicant upon proof that strict compliance with the rules will work an injustice upon the applicant. In order to determine whether the rules will work an injustice, it is necessary to have regard to the history of the proceedings, the conduct of the parties, the nature of the litigation, and the consequences for the parties of the grant or refusal of the application for extension of time: see Avery v No 2 Public Service Appeal Board [1973] 2 NZLR 86 at 92; Jess v Scott (1986) 12 FCR 187 at 194-5. When the application is for an extension of time in which to file an appeal, it is always necessary to consider the prospects of the applicant succeeding in the appeal: see Burns v Grigg [1967] VR 871 at 872; Hughes, at 263-4; Mitchelson v Mitchelson (1979) 24 ALR 522 at 524. It is also necessary to bear in mind in such an application that, upon the expiry of the time for appealing, the respondent has 'a vested right to retain the judgment' unless the application is granted: Vilenius v Heinegar (1962) 36 ALJR 200 at 201. It follows that, before the applicant can succeed in this application, there must be material upon which I can be satisfied that to refuse the application would constitute an injustice. As the Judicial Committee of the Privy Council pointed out in Ratnam v Cumarasamy [1965] 1 WLR 8 at 12; [1964] 3 All ER 933 at 935: 'The rules of court must prima facie be obeyed, and in order to justify a court in extending the time during which some step in procedure requires to be taken there must be some material upon which the court can exercise its discretion.'"

Sydney Advanced Plumbing's submissions

Sydney Advanced Plumbing submitted that the Court should extend the time for it to appeal from 23 April 2019 until 30 May 2019, a period of 37 days. It submitted that under the circumstances, the delay in filing the summons was short; there is a good explanation for the delay; there is no prejudice to Smoothflow; and Sydney Advanced Plumbing has a fairly arguable case. Smoothflow submitted that Sydney Advanced Plumbing has not provided a good explanation for delay.

Explanation for delay

Sydney Advanced Plumbing submitted that the explanation for delay is that on 26 March 2019, the Magistrate gave an ex tempore judgment and provided no written reasons. Accordingly, Sydney Advanced Plumbing could not sensibly commence an appeal without the transcript disclosing the Magistrate's reasons. Sydney Advanced Plumbing's solicitor, Mr Ayache, ordered the transcript on 2 April 2019, the day after the Court notified the parties of the orders which had been made on 26 March 2019. Mr Ayache did not appear on the day judgment was delivered because he understood from the Magistrate that no appearance was necessary. It is fair to say that the Magistrate left it up to the legal representatives to decide whether or not they wished to appear when he delivered his ex tempore judgment. Mr Gulper, solicitor for Smoothflow, attended Court on 26 March 2019 when the ex tempore judgment was given.
The Court did not provide the transcript of the Magistrate's judgment to Sydney Advanced Plumbing's solicitors until 17 April 2019, six days before the appeal period expired. That was two days before the Easter long weekend commenced. In these circumstances, Sydney Advanced Plumbing could not reasonably have commenced the appeal within 28 days of the material date.
In addition to requiring time to seek and consider advice as to prospects, Sydney Advanced Plumbing's solicitor did not have a full transcript of the Local Court proceedings because he originally only obtained the transcript of the first two days of the four day hearing. Given the small quantum of the claim, and the cost of a transcript, the solicitor thought that he ought to order the remainder of the transcript before commencing the appeal. On 1 May 2019, Sydney Advanced Plumbing's solicitors ordered the transcript but did not receive a complete transcript until 24 May 2019. Sydney Advanced Plumbing commenced the appeal six days later.
Sydney Advanced Plumbing submitted that for these reasons, the delay between 23 April 2019 (when the appeal period expired) and 30 May 2019 (when the summons commencing the appeal was filed) is explicable and reasonable.

Smoothflow's submissions

On 26 March 2019, the Magistrate delivered his ex tempore judgment. There was no appearance on behalf of Sydney Advanced Plumbing, despite the fact that it knew or ought to have known that those reasons could be relevant to any appeal that might need to be filed.
A transcript of the decision was received by Sydney Advanced Plumbing on 17 April 2019. It could have, but did not, file a summons that would have been within time in the following week.
It took two weeks, until 1 May 2019, for Sydney Advanced Plumbing to seek a transcript, although only for the 6 September 2018 and 8 February 2019 hearing dates. The transcript for 6 September 2018 was received by Sydney Advanced Plumbing on 8 May 2019. The transcript for the hearing date of 8 February 2019 was received by Sydney Advanced Plumbing on 24 May 2019.
Sydney Advanced Plumbing then took a further week, until 30 May 2019, to file these proceedings commencing an appeal.
Sydney Advanced Plumbing justifies its delay in seeking transcripts by reference to "the small quantum of the claim and the cost of a transcript". Smoothflow submitted that in circumstances where delays in receiving the relevant transcripts were foreseeable, and in circumstances where those transcripts were relevant to any prospective appeal, the plaintiff could and should have sought those transcripts on 2 April 2019 rather than 1 May 2019. As such, its delay was unreasonable.

Consideration

It is not in dispute that Sydney Advanced Plumbing has a more than "fairly arguable case" on its appeal. If the extension of time is not granted, Sydney Advanced Plumbing will be denied the opportunity to have a Court determine the case according to law. The claim against Smoothflow is in the sum of $58,000.
While I accept that the Magistrate left it up to the parties' legal representatives to decide whether or not they should attend Court to hear the Magistrate deliver his ex tempore judgment, it was not prudent for Sydney Advanced Plumbing's solicitor to elect not to appear. Nor did he chase up the transcript of the judgment until six days later, when the Court that notified him of the decision. Nor was it an exercise of good judgment not to order the entire transcript at once, if that is what was required in order to appeal. This is a borderline decision. Sydney Advanced Plumbing has an arguable case, the delay was 37 days and Smoothflow does not suffer real prejudice, in the exercise of my discretion, I grant an extension of time to appeal.

The Local Court proceedings

Smoothflow sued Sydney Advanced Plumbing for a debt claim in the sum of $42,169.24, largely in respect of unpaid invoices. The claim related to goods supplied by Smoothflow to Sydney Advanced Plumbing, which were of a class used in fire prevention systems and water sprinkler systems.
Sydney Advanced Plumbing admitted that it had agreed to purchase the goods (save for those the subject of invoice 19517), but denied liability on the grounds that the goods were not of merchantable quality and not fit for purpose. The Magistrate made a finding that Sydney Advanced Plumbing had not purchased the goods the subject of invoice 19517. There is no challenge to that finding on appeal.

The pleading of the cross claim and defence to the cross claim

Sydney Advanced Plumbing cross claimed for damages, alleging that goods provided by Smoothflow were not fit for purpose or of merchantable quality, and had caused Sydney Advanced Plumbing to incur loss in carrying out repairs or replacement. The alleged "defective goods" comprised of Galvanised Malleable Equal Tees, a Sprinkler Control Valve Set, Galvanised Malleable Hexagon Reducing Tees, Galvanised Malleable Hexagonal Nipples, Fire Pumps and an Automatic Jacking Pump.
The cross claim pleaded at [11] to [13]: "11. In breach of the agreement, some of the goods sold by the cross-defendant to the cross-claimant were not fit for the installation as part of the Fire Prevention Systems and/or were not of merchantable quality by reason of the fact that the goods failed, thereby causing the Fire Prevention System to either fail or require repairs. (a) Item No: MTEQ32 in Tax Invoice 17670 dated 25 May 2016; [Galvanized Malleable Equal Tee - 32mm] (b) Item No: MTEQ40 in Tax Invoice 17670 dated 25 May 2016; [Galvanized Malleable Equal Tee - 40mm] (c) Item No: SCV-65 (9 of 10 items defective) in Tax Invoice 18640 dated 12 September 2016; [65NB sprinkler control value] (d) Item No: MTER252515 (approximately 50% of Tees) in Tax Invoice 19028 dated 21 October 2016; [Galvanized Malleable Hexagon Reducing Tee] (e) Item No: MNIP25 (approximately 50% of Nipples) in Tax Invoice 19028 dated 21 October 2016; (f) Item No: FPS380-65-160-HE in Tax Invoice 18954 dated 1 November 2016; [Diesel plump] (g) Item No: JP-LVR1-15 in Tax Invoice 18954 dated 1 November 2016; and [Tacking pump] (h) Item No: FPS80x50-250-22.0 in Tax Invoice 19072 dated 3 November 2016. [Electric pump] [the description of the items were added in handwriting] (Defective Goods) The Defective Goods failed resulting in: (a) water damage being caused to the premises in which the Fire Prevention Systems were installed; (b) the Fire Prevention Systems (in the premises where the Defective Goods were installed) failing; (c) the fire alarm forming part of the Fire Prevention System (in the premises where the Defective Goods were installed) being triggered despite their being no fire; (d) water leaks in the Fire Prevention System installed in various premises; and (e) the first defendant having to either directly, or through contractors, carry out rectification or repair work to the Fire Prevention Systems, which the Defective Goods formed part of. 13. By reason of the cross-defendant's breach of the agreement, the cross-claimant had to carry our rectification and/or repair works to the Defective Goods and the Fire Prevention Systems totalling $45,727.00."
In its defence to the cross claim, Smoothflow denied Sydney Advanced Plumbing's allegations.

The hearing in the Local Court

The Local Court proceedings where heard over four days, namely, 1 and 2 March 2018, 6 September 2018 and 8 February 2019.
Both parties relied upon evidence from several lay witnesses. Each party relied upon an expert's report. Sydney Advanced Plumbing relied on the expert report of Dr Paul Schaffer ("the Schaffer report"). Smoothflow relied upon the expert report of Dr Tawfik ("the Tawfik report"). The Tawfik report provided a contradicting opinion on the products which were the subject of the Schaffer report. It was also referred to as "the rebuttal report".
The Magistrate stated that both the Schaffer and Tawfik reports were admissible as expert reports. On 6 September 2019, the two experts gave concurrent evidence. The parties filed written submissions after the conclusion of the hearing.

The Magistrate's decision

So far as the lay witnesses were concerned, the Magistrate set out their evidence and made a finding that largely, their evidence was not helpful because none of them had the expertise necessary to unravel the tryst between the parties on what caused the alleged defects. As the Magistrate stated, this meant that the outcome rested entirely in the analysis of the evidence of the two experts, Drs Tawfik and Schaffer, and "this is where this dispute needed to be resolved."
The Magistrate then set out the expert evidence, beginning with Dr Schaffer and then turning to Dr Tawfik. After setting out the two opinions, the Magistrate explained where their opinions differed as follows (T 20-21): "Tawfik's evidence and Schaffer's evidence is where I turn to now. I will go to the affidavits first and then I will go to the transcripts. I will deal with Schaffer first because Tawfik is a rebuttal report. Schaffers report in his affidavit, he says that he was required to investigate three elbows, three tees and two landing valves, if you look at the evidence carefully, it's not clear that that's right because that's seven items and if you, other parts of his report and some other parts of his evidence, he refers to fewer items than that. Nevertheless, he did have these items and he was required to test them. He sets out his qualifications and the rest, his summary of the case and what he was given. Reference is made to the Australian Standards and that's on page 14 and these are his conclusions: 'On fittings. The microstructure of the fittings did not comply with the microstructure of requirements of theoretic malleable iron as outlined in ASTM A47-49. The presence of large interconnected graphic flakes in the interdendritic would have significantly reduced the duct ability of the fittings making them prone to cracking. The presence of perlite at the outer selvage of fittings indicated that the incorrect atmosphere was used in the furnace during the annealing heat treatment. The chemical composition of the fittings was consistent with the chemistry of Ferritic Malleable iron. Valves, 1.4.2. Corrosion at the thread interface between the stem and the morlet led to the seizure of the valves. The corrosion resulted in higher contact stresses between the threads and consequently increased the friction between these two component parts. These caused threads to seize. The material used to produce the stem did not comply with the material requirements of AS2419.2. The material used to produce the stem had inferior corrosion resistance compared to the minimum grade outlined in AS2419.2.' So those are his conclusions and he sets out in 2.1.5 the metallography that he engages in. Then he talks about the scanning of electron microscopy, chemical analysis, the metallography. This is on page 2.2.4. Then on page 3: 'Fittings. It is my opinion the microstructure requirements for the Ferritic Malleable iron is outlined in ASTM A47 were not meant for the fittings.' He quotes that that standard says 3.1.2: 'The mottled graphic flakes observed in microstructure elbow 2', only one elbow, 'indicated that the casting procedure used to produce the fittings was not carried out correctly.' 3.1.3: 'It is my opinion that the chemical composition of the fittings did not contribute to the cracking.' Chemical composition of the fittings did not contribute to the cracking. 3.2.2: 'In my opinion corrosion at the interface between the stem and bonnet threads resulted in the seizure of the value. This is due to incorrect material being used to produce the stem which did not meet the material requirements of AS2419.2.' Then there is a whole lot of photographs. So that's what he says…."
The Magistrate then set out the Tawfik report and explained why Dr Tawfik's opinion differed from that of Dr Schaffer (T 21-23): "…Then you look at what Dr Tawfik says. This is a rebuttal report. He does not [do the] testing. He doesn't go to the sites. He relies very much on what is contained in the materials given to him. He is provided with materials which are in my view, probably are not admissible, including the Mill certificates. They are not authenticated. The authors of those reports are not before the Court and in my view Mill certificates would not be admissible in these proceedings. But he goes on and says this: 'It is my opinion that the malleable iron fittings are likely to have cracked under irregular installation conditions ascribed to excessive tightening of the threaded pipes, the significant crack opening and level of mechanical defamation observed on the fittings were associated with the clamping force employed to secure the pipe fitting using a wrench to counteract the excessive screwing force applied by threaded pipe work to the fitting. The screwing force of the pipe during installation exerted excessive tensile stress levels on the threaded fitting causing it to yield and crack. Dr Schaffer has not properly considered whether the low levels applied by the tightening procedure were excessive to cause the cracking.' Further on: 'Inconsistencies were detected with the relative level of perlite microstructure reported by Dr Schaffer between the new pipefitting and the failed elbow 1 and elbow 2. I disagree with the claims made in Dr Schaffer's report with respect to the amount of perlite present in the new tee fitting. It is my opinion that the micrograph of the new tee exhibit similar and comparable amounts of perlite contained in the micrograph of elbow 1 and 2 despite the disparity in magnification levels employed. The amount of perlite in elbow 1 was not considered as excessive for Ferritic Malleable iron pipe fittings considering the hardness levels remain below the maximum requirement limits ASTM A47.' Then he goes on: 'Dr Schaffer's report is not properly considered or examined the mechanical properties in the failed malleable fittings. To support his claim I have reduced material ductility due to the presence of excessive mottled graphic flakes indicated in elbow 2. Dr Schaffer has not qualified or validated through mechanical testing the deductibility of fittings and conformity against the limits of table 1 of ASTM A47.' Then he talks about the tensile testing and the test bars. That part of his report I guess again is material that I don't think is admissible in these proceedings. Then he goes on talking about the fire hydrant landing valves: 'There was no direct evidence to indicate that the inferior of corrosion resistance to the stem caused the galling.' Then he goes on: 'It is my opinion Dr Schaffer did not consider the potential contributing factors of hardness and tightening low levels that could cause significant contact stresses and eventually to seizing of the landing values.' Then he goes on talking about the affidavit of Choi. He says, this is at 2.5. He has got some hypothesis material in 2.5 which he is really theorising there, but: 'It is my opinion that the significant crack opening and localized defamation observed on the elbow fitting was associated with clamping force employed by screwing the fitting and counter act the excessive screwing force applied by threaded pipework to the fitting. The screwing force exerted excessive tensile stress levels on the threaded fitting causing it to crack.' His evidence, and he is referring to Choi, then he refers to Mohamed El-Reda and he refers to Schaffer, it's the way in which the pipes and items were assembled. Excessive tightening, irregular tightening he says that caused the defect and caused the pipes to crack. He says and this is also, he agrees with this and Schaffer says the same thing, he doesn't believe that the operating pressure or that is that the water operating pressure has caused the problems. They both agree that the hemp escaping through the cracks of the pipes could have been exacerbated by water pressure. They both agree with that. But that is about as far as their agreement goes. The material issues that are in dispute here are the subject of disagreement between Drs Schaffer and Tawfik. For example: 'I disagree the claims made in Dr Schaffer's report with respect to the amount of perlite present in the new tee fittings under microscopic examination. It is my opinion that the micrograph of the new tee exhibits similar and comparable amounts of perlite distribution as the micrograph of elbow 1 and elbow 2 dispute the disparity in magnification levels. It is my opinion that the amount of perlite in elbow 1 was not excessive according to the standards of ASTM A47.'"
The Magistrate observed that the experts agreed that the hemp escaping through the cracks of the pipes could have been exacerbated by water pressure, and then referred to the material issues that were the subject of disagreement between the experts.
The Magistrate set out Dr Tawfik's disagreement with Dr Schaffer's postulations as follows (T 23-28): "Then [Dr Tawfik] goes on about Dr [Schaffer]'s postulations. He says: 'I believe the microstructural analysis is insufficient. It is difficult to quantify the ductility of characteristics of the malleable iron cast fitting purely on the metallographic inspection considering the chemical composition cooling rate during solidification, heat treatments. Section thickness will also have contributing effects to the mechanical properties.' Then he talks about the test bar specimens and other such matters which he tried to say that they relate to things that Schaffer has said but I don't think those tests are admissible in these proceedings. So that is what he says and then you go to the hot tubbing exercise. The attack made by Tawfik on Schaffer to do with magnification. What does Schaffer say about that? There are questions about magnification. This is the micrographs. They were incorrect. So they weren't comparing apples with apples to use words used elsewhere. But on page 6 of the transcript, transcript of 6 September 2018 he says: 'The magnifications of my micrographs, the allegation that they're incorrect is wrong. They are 100% correct.' That's what he says at the bottom of that page. Then we go on, this is again Dr Schaffer when he is asked about certain things. He is asked by Mr Ayache: '"And I ask you to assume that normal titling processes were used. Would you agree that the damage appearing on page 70 and or depicted on page 70 would have occurred?" "Yes, I believe so," says Schaffer. "Just to clarify" says Ayache, "Is it the case that the parts that you examined and I will use layman terms, was structurally unsound in their composition?" "Based on the microstructures I saw they were susceptible to cracking, in my view." Ayache, "Would it be fair to say that if a micro crack did occur, once the fire systems were charged with high pressure water, those micro cracks could develop into larger cracks?" "They could grow under pressure, yes."' The two witnesses agree on that, about one of the only things they do agree. Then he says on page 14: 'If the parts were structurally sound I wouldn't expect cracking during installation.' That's what he says. Then he goes on about parts being susceptible to cracking. He is talking about the elliptical shape. This is on page 15: 'Would that be indicative of over tightening during installation?' He says, 'I don't believe so.' He says then later on, he says, 'I believe that reduced the ductility of the fittings made them susceptible to cracking.' So he means 'I believe that the reduced ductility of the fittings' made them susceptible to cracking. So he's going into the latent or patent defects in the products provided by Smoothflow. That's what he says it's all about. It's not to do with the tightening. Levels of perlite. So he says this is to do with the magnification where Dr Tawfik is saying that he's got it wrong. He says, 'Yes the assumption by Mr Tawfik', he calls him as Dr Tawfik, is that I have the magnifications are wrong and therefore actually the level of perlite is comparable between the new fittings that I investigated.' Then he says, 'I think it's yeah the elbow 1 and tee 1.' He has also compared in figure 7. 'The magnification is the same in all three images' he says, so he is responding to that. So there is a dispute between them on this. So he is saying that the magnification is consistent and that's not the view of the other expert. He then goes to say, 'The presence of perlite is a red flag. It's a red flag and it points to problems.' Page 17 of the transcript. Then he goes, 'Inadequate testing.' So it is put to Mr Schaffer that Professor Tawfik, Dr Tawfik says he hasn't done sufficient investigation and Schaffer says, 'Well I make the statement that the ductility of the castings is reduced due to the model graphic so these large graphic flakes which essentially reduce the ductility and make it susceptible to cracking.' Also he, that is Tawfik, states that: 'I haven't quantified the effect though some sort of mechanical testing. I thought about doing this of course but there was some challenge with doing this and unfortunately based on the size and geometry of these fittings, you can't actually take a sample big enough to have like a nice straight piece of material to test so I based my conclusions on microstructural effects I have seen.' A very important piece of evidence that, in this case because it shows the weakness of the Schaffer analysis in my opinion. 'So you had to rely on microstructural examinations?' 'Yes.' 'And the microstructural feature that I'm talking about, the ASTM Standard actually states that this phase or these graphic flakes are not permitted at all in the microstructure.' Then he is talking about the landing values and then the corrosion. The corrosion that is between the stem and bonnet which caused galling. Then he says this; 'It would corrosion when it occurs it's like oxide layer that's thicker on the surface so oxygen added it becomes less dense which will change essentially the dimensions of the material. So if you have two surfaces that are in contact, then you start corroding between them, there is a higher frictional force between them when you go to turn them then.' Then I asked him, 'Dr Tawfik said you didn't consider the contributing factors of harvest levels and timing loads that can cause significant stress.' 'I did but maybe it's not explicit in my report.' Then he explains what he means by that. Then he is asked about the landing valves and he says, it is an interesting answer of were the landing valves defective, 'I wouldn't say defective but it wasn't the right material.' Page 23, that's Schaffer. Then Tawfik is asked questions and on page 24 he is talking about the gripping marks that can be seen. Now Tawfik never goes to the site. He is just a rebuttal witness. He is just commenting on Schaffer's findings as he sees them and he has given other material that in my view, is inadmissible such as the Mill Certificates and the like, which I just don't think are relevant because they are not admissible. But he is talking about the photographs and the affidavits that he has seen and he is talking about hemp that was lodged in the crack that can be seen in the evidence. 'It is my opinion that the hemp material can be lodged during the tightening process. It can also be exacerbated by the fact that water emanating out of there can also push it but l believe there is no evidence to rule out that the hemp material itself cannot have entered there by just water. So it is also plausible it can actually be lodged in there by tightening.' Well they both agree these experts, on water and the impact it might have on the hemp material and the cracks in these pipes. Then we go on, then he says, 'Dr Schaffer hasn't done any fracture mechanics to substantial the fact that these cracks had actually opened from water pressure testing. In fact, Dr Schaffer indicates that he does not believe that the water pressure causes the failures, the point I've just made. My opinion, I don't think the water pressure caused this cracks to open any further and this is qualified by the fact that what we have is the water pressure which operates, was reported to be 900 kPa, then that would apply some circumferential stress to the pipe fittings.' Then the disparities in magnification. Tawfik says there were disparities in magnification. Schaffer says there were not disparities in magnification. Then Tawfik talks about the metallurgical reports, generally speaking. He talks about some of the science associated with that. He goes on and makes the observation on page 27 that Dr Schaffer does not make any reference to ASTM A247 which standard is in the evidence and is of course important. Then he is asked by Mr Gulpers on this point, 'The document requires you to when undertaking metallurgical practise to adopt a method that is referred to in A247, is that right' and Schaffer says, 'Not 100% correct. It says it's recommended.' And Mr Gulpers questions him about that. And then he asks him: Q. But you didn't follow the standard, did you, A247? A. No not in this instance. Q. You don't see that as a shortcoming? A. No I don't. And then Tawfik says on 29 the chemical analysis undertaken by Dr Schaffer which is under the table description Elbow 1 Tee 1 he is talking about the scrutinization of the test bars, i withdraw that, I do not regard that as relevant because of the inadmissibility of that kind of evidence and the mill certificates. And then Dr Tawfik's talking about de-ductility characteristics of the malleable iron fittings - this is page 30. And he talks about another test report that could have been done. And then there is a very important piece of evidence on page 31. This is talking about ASTM847 and he is asked a question by Mr Gulpers about that and he says this: A. It highlights to me the mechanical properties of the fittings. With the tightening procedure that was applied for the cracks to occur it would have to exceed the mechanical properties of these fittings to cause it to crack. So Dr Schaffer and I we agree that tightening caused the cracking. The question was, was the cracking caused by the deficiency in the material ..(not transcribable).. or was it used to excessive load levels? And then he talks about these mill certificates which tends to support his contention because the findings and the mill certificates are much the same as the findings scientifically derived by Dr Schaffer. So then we go on. And then the perlite issue which is the magnification microstructures, page 35: 'It is my opinion excessive perlite in the microstructures presented in figures 6 and 7 of Dr Schaffer's report is construed as excessive. I deem it as acceptable.' So he disagrees with Schaffer on the perlite. Then he goes on: 'The hardness ..(not transcribable).. scrutinized by Dr Schaffer for conformity. If there's an excessive amount of perlite the hardness levels would have exceeded the requirements of ATSM847.' And it was found to be compliant and that was confirmed by Dr Schaffer's report. So he is saying that whilst he has not done any primary work himself, any research himself he is saying as an expert commenting on what Schaffer's done, he's saying that in his view there was a compliance with the standard. And then he disagrees with Schaffer on page 36, he disagrees about the mottled graphic flakes, 'The presence of mottled graphic flakes reduced the ductility and contributed to the cracking of the fittings, Without taking into consideration--' says Dr Tawfik-- '--the mechanical properties and the deform of the fittings it does not appear to be consistent with what we're observing.' And then he is talking again about these issues of the mottled flakes. And then when he is asked questions by Mr Ayache he concedes he did not do any site inspections, he was relying on material provided to him. His quite extensive questions about his observations about the bent pipe and he says he is just relying on photographs. He is asked questions about the mill certificates and the like. Quite extensively cross-examined. And then he is asked about the mill certificates. I think the mill certificates are not admissible in these proceedings. Then he talks about - further about the mill certificates. But the cross-examination by Mr Ayache is fairly penetrating. The clamping marks on the items he is referred to on page 60: 'It possible that could have occurred not just during installation' he says - 'but also removal.' And Schaffer's asked about these indentations, he says: 'I can't say whether the indentations are made during installation or removal. I think we discussed earlier in my (as said) hearing that a crack like this will change the shape of any of the fitting and it may make it more difficult to remove it and therefore you need a higher clamping force to remove it.' And then Schaffer talks about: 'I didn't include an image of complete graphic flack region unfortunately in my report, but this snapshot of the graphic region in the image or figure 18 is showing this interconnected graphite which should not be in the microstructure of the malleable fittings.' And then Tawfik then goes on and says: 'The whole point is you want to avoid graphic flakes.' And Schaffer's then talking about the dots in the images and Tawfik's coming back at that, page 53. And then on page 54 Dr Tawfik says that: 'Dr Schaffer has only analysed and only detected that a problem with Elbow 1, none of Elbow - Elbow 2, I withdraw that. None of Elbow 1 Tee 1 or Tee 2 were actually found to have any evidence of micrographs and of graphic flakes.' And I asked Schaffer: Q. Do you agree with that? A. Yes I agree, I did not find any graphic flakes and other components. So they are in agreement for once. Then on page 50, line 15 right down basically to the bottom he is talking about the mechanical properties of these items: Q. Do you believe that the investigations you carried out were sufficient to support the conclusions you have reached? A. I believe so."
The Magistrate then summarised the expert evidence and commented upon it (T 28-31). "So the evidence of the expert is they contradict each other on just about every point of materiality. I would say about this though the following and say this. The evidence of Dr Tawfik is so far as it relates to how he concludes that installation process is caused the defects is in my view evidence that offends the [principle in Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705] because he gives absolutely no reasoning as to how he comes to that conclusion. The fact that that part of his report and that part of his evidence is inadmissible does not mean that the rest of his evidence is inadmissible because he is an expert and he's entitled to evoke questions about Dr Schaffer's evidence which is effectively what he does. But in regard of this issue of installation, his opinion is not reasoned and because of that it's of little - it's certainly of little value and it is probably on that point, inadmissible. But what Mr Ayache wishes me to do is to dismiss Dr Tawfik's evidence altogether and I am not prepared to do that because on other points where he is effectively engaging Dr Schaffer and questioning the voracity of the process as engaged by Dr Schaffer to found the conclusions he has, he has made some salient points and they do resonate and Dr Schaffer agrees. He agrees that it would have been desirable to do more testing than he did do. He says it was not feasible because of the size of some of the products. But he does not deny that it would have been preferable to engage in further testing, he just did not do it because A) because he was unable to do it because of the size of the products. And B) because of other constraints that existed. So before coming to or wrapping this thing up within the next five minutes, I would say this, I do agree with Mr Ayache that the failure to put to Mr Choi the assertions as to the installation and the workmanship and the failures in the workmanship does offend the rule in Browne and Dunn. I would also agree with Mr Gulpers's submission that the failure to call AN Fawad(?) who was the SAP's business manager on 1 August 2016 when the first complaints were made about these products. Failure to call him to give evidence, not explained, does offend the rule in Jones and Dunkel. And yes it is permissible to draw an inference that what he might have said would not have supported the first defendant's case. So I agree with all that. And in my view dealing with the issues there were complaints made. There were on numerous occasions non-compliance made by the first defendant and Mr Choi with the express terms of the contract between the supplier and the purchaser of these goods. None of the witnesses in the case - leaving aside the comment I made about Mr Choi - what Mr Ayache would say about that I agree with Mr Gulpers may have a different view on that but what I say about all of them Cameron, Choi, El-Reda, Mourtada, Mohamed is none of their evidence takes us anywhere because their opinions are not admissible as proof of the content of what they say, they are just observations and we all know that the products failed. It is why they failed that is relevant. So none of their views really assist in resolving this issue. What you can say is, the experts agree that the cracking to the component parts was caused by the way - by the assemble systems failing, but they do not agree as to what caused the units to crack. Schaffer says the components were defective and this caused the cracking. Tawfik says it was the manner installation that caused the components to crack. No agreement between them. Schaffer was engaged to undertake primary analysis. It could be five or seven components he took from the site, he tested them. He found the Tees fittings and Elbows and landing values had mechanical defects. Tawfik's report, Dr Tawfik's report as an expert rebuffs the research done by Dr Schaffer. He concedes he made no observations himself, he did not go to the site, he did not do any primary research, but he is entitled to criticise Dr Schaffer's work, he is himself an expert. And he says in his opinion installation caused the cracks, the pipes to crack. I have expressed a view about that. But he based his rebuttal of Dr Schaffer's expert evidence on materials and photographs provided to him and on the data contained in Dr Schaffer's report. So on lots of points they are in disagreement. Magnification, testing, hardness levels, perlite. And these are all issues of contention. So Dr Tawfik questions the advocacy of the work done by Schaffer. Whether some of the testing was done properly. And he also and it is also pointed out that some of the conclusions expressed by Dr Schaffer appear to be based on inadequate research by him which may affect the admissibility of some of the things he says. Well I am not going to go there because I do not think it is necessary. In my opinion the evidence in this case is such on the cross-claim as not to persuade this Court on the balance of probabilities that the defects which everybody agrees occurred were the result of failures in the component parts provided by Smoothflow to the first defendant SAP. So in my view based on that and it is because the expert evidence is contradictory, it is because Dr Tawfik raises some good questions about the adequacy of Dr Schaffer's research. It is because of those factors that in my view the cross-claim in this case should be dismissed, And that being my view, it is not necessary for me to make any rulings in regard to the defence to the cross-claim because whilst I have made observations about Tawfik's view, it is the defence to the cross- claim becomes otiose. It is for the defendant and cross-claimant to establish that the failings here occurred because of defects in the products. So just to wrap this up. We do have a contract. It is encapsulated in agreement 31 July 2015. It is a credit account agreement. There were 106 purchase orders, They were fulfilled. The goods were supplied. I made a finding of issue number 1 which I will not repeat. Alleged that the goods were defective, not fit for purpose, not of merchantable quality. I must say that when it comes to merchantable quality just as a side there is absolutely no evidence before me that would suggest other than they were of merchantable quality, I make that observation. Fitness for purpose is what this case was about as far as I can deduce from the evidence. Made findings that the prior terms exist. I made findings they are not inconsistent with the express terms. I have made findings that the first defendant and the second defendant and Mr Choi did not avail themselves of the remedies available in the express terms of the contract. Mr Gulpers makes a number of observations about what would be available under the clauses that I have referred to in the express terms of the contract. And he makes the point that they will be different to the remedies that are being sought. Yes I agree with that. But the fact is, these goods were not inspected and the provisions in the contract to which I have made reference, were not followed up in a timely fashion by the first defendant. So my reasons for basically dismissing the cross-claim is that - and this is my first reason - is that i do not think there is evidence that is such as to persuade this Court on the balance of probabilities that these goods were defective. Secondly, the way in which is case has pleaded, if you look at the cross-claim it is pleaded by reference to invoices and there is no correlation made in the evidence between any defects detected by Dr Schaffer and particular items identified in the invoices. And there is basically no evidence before this Court at all in relation to the invoice that is in dispute raised in the cross-claim the import being that whilst paid for the products themselves were defective. There is absolutely no evidence before the Court in my view that points to that and indeed if there is evidence that may have been relevant to that, it has not been made explicit to the Court what that evidence is. So you have a problem here where you have got people on site, plaintiffs, witnesses and defence witnesses expressing opinions which are no more than opinions. You have got contradicted expert evidence. No agreement except on a few points. So very difficult to use that evidence to determine the outcome. It is clear to me that Dr Tawfik's challenge of Dr Schaffer's testing and that it was not sufficient is a valid criticism and indeed Doctor Schaffer whilst he does not acknowledge that it is a valid criticism, he does acknowledge that more could have been done than what he did do. The items found by Dr Schaffer which could be five or seven items that he tested were found by him to be defective where in no way correlated with the goods supplied by Smoothflow pursuant to the invoices that are subject to the pleadings in the cross-claim, So he makes findings, but then the allegation is that these invoices related to goods that were defective, there is no correlation between them. The express terms of the contract were not pursued by the first defendant and its agents in regard to the delivery of the goods, the inspection of the goods, the lodging of complaints. Yes I take the point that some of the defects - should they have existed - may have been latent. And then I have made the observations about the application of the mill certificates to this case, I just do not think the mill certificates are admissible, their origins are dubious, they are not authenticated and the authors of those reports are not before the Court. So the reasoning goes in different ways, but at the end of the result it is for the cross-claimant to make its case. And in my view the cross-claimant has not made its case. That being the situation, I guess I would reiterate what my primary reason for that is, is the correlation between the defects identified by Schaffer and the invoices specified in the cross-claim and there are other reasons, but that is a primary reason why this claim will fail. And secondly, the evidence as to whether the goods supplied by Smoothflow were defective is just not sufficient to meet the standard albeit more probable than not standard as described by me earlier on."
The Magistrate dismissed the cross claim and entered judgment in favour of Smoothflow in the amount of $37,447.44.

Ground 1 - obligation to provide sufficient reasons

Sydney Advanced Plumbing submitted that the Magistrate dismissed the cross claim for two reasons. The first was that there was insufficient evidence to persuade the Court that the relevant goods were defective. Sydney Advanced Plumbing submitted that his Honour failed to adequately explain that conclusion.
The Magistrate had a duty to provide reasons for his decision. In Sydney Advanced Plumbing's submission, the Magistrate failed to do so and that failure comprises an error of law vitiating his judgment.
The onus lies on Sydney Advanced Plumbing to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill [1999] NSWSC 1263 and RL & D Investments Pty Ltd v Bisby [2002] NSWSC 1082; (2002) 37 MVR 479.

Sydney Advanced Plumbing's submissions

Sydney Advanced Plumbing submitted that the Magistrate's reasons did not engage with or resolve the competing evidence adduced from Drs Schaffer and Tawfik. It submitted that the record of the proceedings discloses the following key areas of conflict: 1. Whether or not the "levels of pearlite at the surface of the elbows and pearlite and primary graphite found in tee 1" were "excessive", and whether there was a "disparity in magnification levels" employed by Dr Schaffer: see the Schaffer report at 3.1.1; Tawfik report at 3.4, 3.5; and Sydney Advanced Plumbing's closing submissions at [50]-[52]. 2. Whether or not the microstructural analysis conducted by Dr Schaffer was sufficient to determine the strength and ductility of the fittings, or whether those conclusions needed to be validated by way of "tensile testing": see the Schaffer report at 3.1.2; Tawfik report at 3.6-3.81; and Sydney Advanced Plumbing's closing submissions at [53]-[54]. 3. Whether physical characteristics of the fittings revealed that their defects occurred due to the manner in which they were installed, as opposed to their manufacture: see the Schaffer report at 3.1.4; Tawfik report at 2.1-2.7; and Sydney Advanced Plumbing's closing submissions at [43]-[47]. 4. Whether "the material used to produce the valve stem had inferior corrosion resistance and corrosion of this component led to seizure of the valves": see the Schaffer report executive summary and at 3.2; Tawfik report at 4.1-4.10; and Sydney Advanced Plumbing's closing submissions at [55]-[57].
Sydney Advanced Plumbing submitted that the Magistrate made no specific findings as to any of these issues. Nor did his Honour provide reasons for preferring the evidence of one expert over another in relation to them.
Sydney Advanced Plumbing argued that in the course of summarising of the expert evidence, the Magistrate gave no reasons for preferring the evidence of either expert in respect of the contested issues. The closest the Magistrate came to giving such reasons was to state that Dr Schaffer's evidence that he had not conducted "mechanical testing" was a "very important piece of evidence that, in this case because it shows the weakness of the Schaffer [sic] analysis in my opinion" (T 24.33-34).
The Magistrate returned to the expert evidence (at T 28.05-27 and at T 29.01-36), extracted earlier in this judgment. Those parts of the judgment contain the Magistrate's conclusions as to the expert evidence. Sydney Advanced Plumbing submitted that again, they disclose no analysis of it. The Magistrate stated that Dr Tawfik "has made some salient points and they do resinate [sic]" (T 28.21-22). It is apparent from those parts of the Magistrate's judgment that his Honour's sole reasons for rejecting Dr Schaffer's evidence as to the cause of the defects were that the expert evidence was contradictory, and that Dr Tawfik raised "good questions about the adequacy of Dr Schaffer's research".
Sydney Advanced Plumbing submitted that those reasons are manifestly inadequate. They do not disclose any engagement with the areas of dispute between the experts. In that regard, Sydney Advanced Plumbing submitted that the Magistrate erred and the judgment ought to be set aside.

Smoothflow's submissions

Smoothflow submitted that as a general rule, a judicial officer should firstly, refer to relevant evidence; secondly, set out any material findings of fact and any conclusions or ultimate findings of fact reached; and finally, provide reasons for making the relevant findings of fact (and conclusions) and reasons in applying the law to the facts found.
There is no "mechanical formula" for what reasons will be required in any given case. However, while more detail may be preferable in a particular case, once a primary judge accepts the evidence given by a witness on a crucial issue, unless that finding is not open to the primary judge, no error of law arises.
The Magistrate was not required to "make findings on every argument or destroy every submission", or "make explicit findings on each disputed piece of evidence". His Honour was only required to make findings on matters which were material to his Honour's exercise of power.
Sydney Advanced Plumbing has conceded that the Magistrate gave a reason for rejecting the claim that the goods which Smoothflow supplied were defective. The complaint is that this finding was inadequately explained. For the reasons set out below, Smoothflow submitted that the Magistrate's explanation was adequate.
The Magistrate correctly identified that Sydney Advanced Plumbing had to prove on the balance of probabilities that the goods supplied by Smoothflow were defective.
The evidence before the Magistrate was that goods, although it was not proven which ones, were incorporated by Sydney Advanced Plumbing into its fire protection system. This constituted sufficient acceptance of the goods so that the breach (if there was one) of the implied conditions in s 19 of the Sale of Goods Act 1923 (NSW) could only be treated as a breach of warranty, pursuant to subs 16(3) of the Sale of Goods Act.
The Magistrate made a finding that the fire protection systems were defective once assembled. The Magistrate then correctly identified that "the issue is what caused the defect".
Having carefully reviewed Sydney Advanced Plumbing's lay witness evidence, his Honour concluded that none of that evidence went beyond demonstrating that "there was a defect in the system once assembled".
The Magistrate then identified that in order to resolve the issue of causation he needed to consider the evidence of the two experts.
The Magistrate accepted the validity of Dr Tawfik's "challenge of Dr Schaffer's testing and that it was not sufficient". In other words, his Honour determined that the evidence relied on by Sydney Advanced Plumbing did not support a finding that any defects in Smoothflow's products caused the fire protection systems to fail.
Sydney Advanced Plumbing has contended that the Magistrate failed to engage with or resolve the competing evidence from Drs Schaffer and Tawfik. Smoothflow submitted that this is a partial and selective reading of the judgment. It demands a level of detail that is not legally required. What is required is that the Magistrate set out any material findings of fact, not a finding as to every fact about which experts disagreed. There is no need for a Magistrate to deal with every minute detail. His Honour more than adequately engaged with the expert evidence in setting out his reasoning process.
Smoothflow submitted that the expert evidence before the Magistrate was as follows.
Dr Schaffer was given 7 items (2 elbows, 3 tees and 2 landing valves) to test. He acknowledged that there were 500-700 fittings installed. Dr Schaffer accepted that the chemical composition of the fittings which he tested did not contribute to the cracking in Sydney Advanced Plumbing's fire prevention systems. However, on the basis that Smoothflow's fittings were "inferior [on a basis not stated] when compared to new fittings obtained from an [unidentified] alternate supplier", he proffered an opinion that it was "likely that the level of defects found in in the failed fittings would have led to cracking under normal tightening conditions".
In reply, Dr Tawfik's opinion was as follows. He stated that Dr Schaffer "has not properly considered whether the load levels applied by the tightening procedure were excessive to cause cracking." His opinion was that the testing conducted by Dr Schaffer was insufficient to support Dr Schaffer's opinion. Dr Tawfik maintained this position in giving his oral evidence.
In giving his oral evidence, Dr Schaffer said he did not believe that the defects in the few parts he tested were indicative of over-tightening during installation. Those parts were "susceptible to cracking."
Dr Schaffer said that the two landing valves he tested included a stem made from "incorrect material" and had "poor corrosion resistance" which led to "eventual seizure of the values".
In reply, Dr Tawfik stated that there was "no evidence to indicate that the inferior corrosion resistance of the stem caused the galling" [being the chafing to which Dr Schaffer referred], and that Dr Schaffer "did not consider the contributing factors of hardness levels and tightening load levels that can cause significant contact stresses and eventually lead to seizing if the landing valves." Dr Tawfik did not express an opinion as to why the landing valve failed. His point was that there was insufficient evidence to exclude the alternate causes.
The Magistrate quoted extensively from Dr Schaffer's and Dr Tawfik's evidence. He clearly recognised that Dr Schaffer's opinion was that latent, or patent, defects in Smoothflow's products caused cracking in the fire protection system. He then clearly recognised that Dr Tawfik disagreed. His Honour observed that Dr Tawfik undertook a critical analysis of Dr Schaffer's findings, which persuaded the Magistrate that the Sydney Advanced Plumbing could not discharge its burden of satisfying the Court that on the balance of probabilities, any defects in Smoothflow's products caused the fire protection systems to fail.
The Magistrate referred to Dr Tawfik's "good questions about the adequacy of Dr [Schaffer]'s research" and said that Dr Tawfik's "salient points ... resonate". Sydney Advanced Plumbing submitted that these observations were inadequate to disclose the Magistrate's reasons. However, Smoothflow argued that the Magistrate's observations cannot be read in isolation. They need to be read by reference to the Magistrate's description of "Dr Tawfik's challenge of Dr [Schaffer]'s testing and that it was not sufficient as "a valid criticism". Dr Tawfik's challenge to the extent of Dr Schaffer's testing and Dr Schaffer's concession that more testing needed to be completed were described at some length by the Magistrate in his judgment. As Sydney Advanced Plumbing noted, the Magistrate stated that Dr Schaffer's failure to complete "mechanical testing ... shows the weakness of the Schaffer analysis in my opinion".
The next complaint is that there were no reasons for preferring the evidence of one expert over another. However, the chain of reasoning summarised above more than adequately demonstrates that the Magistrate did engage with, and give reasons for, accepting Dr Tawfik's critical analysis, and rejecting Dr Schaffer's causation theory.
For the above reasons, Smoothflow submitted that the reasons given by the learned Magistrate were adequate. Read fairly, the Magistrate: 1. noted that Dr Tawfik had challenged the extent of Dr Schaffer's testing of the relevant materials; 2. found that that challenge demonstrated weakness in Dr Schaffer's analysis and amounted to a "valid criticism"; and 3. having identified this weakness in Dr Schaffer's analysis (and the critique by Dr Tawfik on which this finding was based), proceeded to find that the Sydney Advanced Plumbing had not satisfied the onus upon it, and that Dr Schaffer's report was not sufficient to do so.
The Magistrate said: "the evidence in this case is such on the cross-claim as not to persuade this Court on the balance of probabilities that the defects which everybody agrees occurred were the result of failures in the component parts provided by Smoothflow to the first defendant [Sydney Advanced Plumbing]. So, in my view based on that and it is because the expert evidence is contradictory, it is because Dr Tawfik raises some good questions about the adequacy of Dr [Schaffer]'s research. It is because of those factors that in my view the cross-claim in this case should be dismissed."
The Magistrate's findings as to the inadequacy of Dr Schaffer's testing provided a sufficient basis for his conclusions, and were a stand-alone "material" basis for the decision to dismiss the cross claim. To that end, they were all that his Honour was required to disclose in his judgment. Indeed, the Magistrate explicitly stated that it was not necessary to resolve the additional conflicts between the experts.
Smoothflow submitted that in doing so, the Magistrate satisfied the relevant requirements for adequate reasons. The Magistrate referred extensively to the evidence before him; he found that Sydney Advanced Plumbing's' expert evidence was not sufficient to satisfy him that the materials supplied were defective; and he identified the key basis for this finding, namely, that Dr Schaffer's testing was insufficient to support his opinion as to causation.

Consideration

It is trite law that if a court fails to give sufficient reasons for its decision, it constitutes an error of law: see Wang v Yamamoto [2015] NSWSC 942; and Jung v Son [1998] NSWCA 120.
Counsel for Sydney Advanced Plumbing referred to Pettitt v Dunkley [1971] 1 NSWLR 376 ("Pettitt") and Beale v GIO (1997) 48 NSWLR 430 ("Beale"). Counsel for Smoothflow referred to Bradley v Matloob [2015] NSWCA 239 ("Matloob").
In Pettitt, Moffitt JA (with whom Manning JA agreed) cited with approval the following remarks of Jordan CJ in Carlson v King (1947) 64 WN (NSW) 65 at 387: "… [I]t is the duty of a court of first instance, from which an appeal lies to a higher court, to make, or cause to be made, a note of everything necessary to enable the case to be laid properly and sufficiently before the appellate court if there should be an appeal. This includes not only the evidence, and the decision arrived at, but also the reasons for arriving at the decision. The duty is incumbent, not only upon magistrates and District Courts, but also upon this Court…"
In Pettitt, Moffitt JA concluded that a failure to give reasons comprised an error of law, observing at 388 that: "If it can be established that a judge failed or declined to give any reasons for his decision in circumstances where there was a judicial duty express or otherwise to do so, then, as with other errors in the judicial process, I think he has erred in law."
In Pettitt, Asprey JA agreed with these conclusions at 382, which have since been cited with approval by the High Court in Public Service Board of NSW v Osmond (1986) 159 CLR 656 at 666-667.
Where "one set of evidence is accepted over a conflicting set of significant evidence, the trial judge should set out his findings as to how he comes to accept the one over the other": see Beale at 443. As Campbell JA (Allsop P and McColl JA agreeing) stated in Mitchell v Cullingral Pty Ltd [2012] NSWCA 389 at [116]: "Another way in which this has been put is that the judge must engage with, or grapple or wrestle with, the cases presented by each party… This is not adequately done by setting out the evidence adduced by one side, setting out the evidence on the other side, and saying that the judge prefers one body of evidence to another…"
Finally, in Matloob, the Court of Appeal per Beech-Jones (with McColl and Leeming JJA agreeing) stated at [17] and [18]: "[17] It is well established that where there is a real conflict in the evidence, it is necessary to "engage with, or grapple or wrestle with the cases presented by each party": see for example Mitchell v Cullingral Pty Ltd [2012] NSWCA 389 at [116], Coote v Kelly [2013] NSWCA 357 at [39]-[52] and Keith v Gal [2013] NSWCA 339 at [109]-[119]. As was said in Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd [2015] NSWCA 73 at [53], the point of the metaphor of 'grappling' is that it is not sufficient to set out the conflicting evidence and conclude, without analysis, that the judge prefers one body to another: Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187; 66 NSWLR 186 at [28]. There are two overlapping reasons for this. The first appears from the often quoted statement by McColl JA in Pollard v RRR Corporation Pty Ltd [2009] NSWCA 110 at [66]: 'Where it is apparent from a judgment that no analysis was made of evidence competing with evidence apparently accepted and no explanation is given in the judgment for rejecting it, it is apparent that the process of fact finding miscarried.' [18] The second emerges from the opening paragraph of the joint reasons of Mason P, Ipp and Tobias JJA in Whalan v Kogarah Municipal Council [2007] NSWCA 5 at [1]: '[J]udges duties to give reasons are ... designed to ensure that a judge wrestles adequately with the issues in the case, to enable appellate accountability and to provide basic fairness to the losing party.'"
The Magistrate's ex tempore reasons for decision should be considered in the context of his Honour providing reasons for judgment in a busy Local Court. The focus therefore must be upon the substance of what the Magistrate said and did. Any other approach imposes an intolerable burden on Magistrates: see Acuthan v Coates (1986) 6 NSWLR 472 at 479 at 479; 24 A Crim R 304 at 310 per Kirby P. Taking these circumstances into account and reading the judgment as a whole, I must determine whether the Magistrate engaged, grappled or wrestled with the cases presented by each party, such that the losing party can understand why it lost.
The Magistrate's task was a difficult one, as there was almost no agreement between the experts. The only issue the experts agreed upon was that the cracking of the component parts was caused by the assemble systems failing, but they did not agree as to what caused the units to crack. Essentially, the area of dispute was whether the defects were caused by installation or as a consequence of metallurgical failure in the composition of the materials used to manufacture the various fittings. The experts disagreed on the issues of magnification, testing, hardness levels and perlite. The parties made careful written submissions on the topic of the experts' evidence. Each party also referred to the lay evidence that supported the experts' reports. While the Magistrate held the view that the outcome of the dispute rested on the analysis of the evidence of the experts, these submissions would have been of some assistance to the Magistrate.
The Magistrate made a finding that the fire protection systems were defective once assembled and correctly identified that "the issue is what caused the defect". The Magistrate set out the lay witnesses' evidence and made a finding that largely, their evidence was not helpful because none of those witnesses had the expertise necessary to unravel the disagreement between the parties on what caused these defects. That meant that the outcome rested entirely in the analysis of the evidence of the two experts, which is where the dispute needed to be resolved.
Dr Schaffer wrote a report dated 2 February 2018 for Sydney Advanced Plumbing. Dr Tawfik wrote a rebuttal report dated 27 February 2019. Both experts relied upon their reports and gave concurrent evidence at the hearing.
Dr Schaffer was supplied with 2 elbows, 3 tees and 2 landing valves. He visually inspected these 5 fittings, carried out radiography and chemical analysis, hardness testing, metrollography and scanning electromiscroscopy. Dr Schaffer reached the following conclusion in relation to the fittings. Firstly, microstructure of the fittings did not comply with the microstructural requirements of ferritic malleable iron as out lined in ASTM A47-99; secondly, the presence of large interconnected graphite flakes in the interdendritic would have significantly reduced the ductility of the fitting making them prone to cracking; thirdly, the presence of perlite at the outer surface of the fitting indicated that the incorrect atmosphere was used in the furnace during the annealing heat treatment; and finally, the chemical composition of the fitting was consistent with the chemistry of ferritic malleable iron.
In relation to the valves, Dr Schaffer found firstly, corrosion at the thread interface between the stem and bonnet led to the seizure of the valves; secondly, the corrosion resulted in higher contact stresses between the threads and consequently increased the friction between these two components, which caused threads to seize; thirdly, the material used to produce the stem did not comply with the material requirements of AS 2419.2; and finally, the material used to produce the stem had inferior corrosion resistance compared to the minimum grade outlined in AS 24119.2.
The Magistrate reviewed Dr Schaffer's conclusions. His Honour considered the following exchange to represent an important piece of evidence, because in his opinion it showed a weakness of Dr Schaffer's analysis: "So you had to rely on microstructural examinations?" "Yes." "And the microstructural feature that I'm talking about, the ASTM Standard actually states that this phase or these graphic flakes are not permitted at all in the microstructure."
The Magistrate also pointed to another piece of important evidence in relation to ASTM847, which was when Dr Tawfik said it highlighted to him the mechanical properties of the fittings. The tightening procedure that was applied would have to have exceeded the mechanical properties of the fittings to cause them to crack. As such, Dr Schaffer and Dr Tawfik agreed that tightening caused the cracking. The question relevant to the Magistrate was whether the cracking was caused by the deficiency in the material, or whether it had been used to excessive load levels.
On this issue, the Magistrate referred to the perlite issue, which is the magnification microstructures and quoted Dr Tawfik as stating that in his opinion, excessive perlite in the microstructures presented in figures 6 and 7 of Dr Schaffer's report was construed as excessive. Dr Tawfik deemed it as acceptable.
The Magistrate noted that Dr Tawfik disagreed with Dr Schaffer on the perlite. Dr Tawfik had stated, "The hardness was scrutinised by Dr Schaffer for conformity. If there's an excessive amount of perlite the hardness levels would have exceeded the requirements of ATSM847."
The Magistrate rejected Dr Tawfik's conclusion on the topic of how the installation process had caused the defects, because he gave absolutely no reasoning as to how he came to his conclusion. An expert witness should state the facts or assumptions upon which his or her opinion is based. The expert should not omit to consider material facts which could detract from his or her concluded opinion. As his Honour rightly pointed out, this gap in reasoning offends the principle in Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305.
The Magistrate referred to the solicitor for Sydney Advanced Plumbing's submissions, where he said that because of this deficiency in Dr Tawfik's reasoning process in relation to how the installation process caused the defects, the whole of his report should be disregarded. His Honour disagreed, because Dr Tawfik had questioned the veracity of the process engaged by Dr Schaffer, and made some salient points with which Dr Schaffer agreed. The Magistrate then identified those salient points, which were that it would have been preferable to engage in further testing, but that he was unable to do so because of the size of the products and other constraints that existed.
In addressing Smoothflow's submissions, the Magistrate drew a Jones v Dunkel (1959) 101 CLR 298 finding against Sydney Advanced Plumbing, who had called Mr A N Fawad (its business manager) on 1 August 2016 when the first complaints had been made about the products.
His Honour reached the following conclusion at T 29.5-23: "Dr Schaffer was engaged to undertake primary analysis. It could be five or seven components he took from the site, he tested them. He found the tees fittings and elbows and landing values had mechanical defects. Tawfik's report, Dr Tawfik's report as an expert rebuffs the research done by Dr Schaffer. He concedes he made no observations himself, he did not go to the site, he did not do any primary research, but he is entitled to criticise Dr Schaffer's work, he is himself an expert. And he says in his opinion installation caused the cracks, the pipes to crack. The Magistrate expressed a view about that. But he based his rebuttal of Dr Schaffer's expert evidence on materials and photographs provided to him and on the data contained in Dr Schaffer's report. So on lots of points they are in disagreement. Magnification, testing, hardness levels, perlite. And these are all issues of contention. So Dr Tawfik questions the advocacy of the work done by Dr Schaffer. Whether some of the testing was done properly. And he also and it is also pointed out that some of the conclusions expressed by Dr Schaffer appear to be based on inadequate research by him which may affect the admissibility of some of the things he says. Well I am not going to go there because I do not think it is necessary."
The Magistrate was of the opinion that the evidence on the cross claim was not enough to persuade him, on the balance of probabilities, that the defects were the result of failures in the component parts provided by Smoothflow to Sydney Advance Plumbing. In his view, this was because the expert evidence was contradictory, as Dr Tawfik raised "good" questions about the adequacy of Dr Schaffer's research. The Magistrate stated that it was because of these factors he reached the opinion that the cross claim should be dismissed. He did not find it necessary to make any rulings in regard to the defence to the cross-claim, because although he made observations about Dr Tawfik's view, it was up to Sydney Advanced Plumbing to establish that the relevant failings occurred because of defects in the products. As his Honour had found that Sydney Advanced Plumbing failed to do so, Smoothflow's defence to the cross claim became otiose.
The onus of proof was on Sydney Advanced Plumbing to establish the matters pleaded in its cross claim. As the Magistrate stated, his first reason for dismissing the cross claim was that there was evidence such as to persuade the Court on the balance of probabilities that the goods were defective.
The Magistrate's second reason for dismissing the cross claim was the way in which it had been pleaded. Sydney Advanced Plumbing had referred to invoices, but made no correlation between the evidence of any defects detected by Dr Schaffer and the particular items identified in the invoices. The Magistrate made a finding that there was no correlation between them. As he outlined, the express terms of the contract were not followed by Sydney Advanced Plumbing in regards to the delivery of goods, the inspection of goods and the lodging of complaints. In other words, Sydney Advanced Plumbing did not prove that the goods examined by Dr Schaffer were those delivered by Smoothflow under the contract. In these circumstances, the Magistrate also dismissed the cross claim because the evidence as to whether the goods supplied by Smoothflow were deficient was not sufficient to meet the standard, albeit whether it was on the balance of probabilities, more probable than not. For these reasons, it is my view that in reaching his conclusion, the Magistrate in his reasons sufficiently engaged, grappled and/or wrestled with the cases advanced by the parties. The result is that this ground of appeal fails.

Ground 2 - denial of procedural fairness

The parties agreed that if ground 1 failed, even if the Magistrate erred in his finding in relation to the second basis for dismissing the cross claim, the outcome of the case would not change; the cross claim would still need to be dismissed. As such, this Court would not need to determine this second ground of appeal.
As ground 1 of appeal has failed, it is not necessary that ground 2 of the appeal be dealt with. However, I will express my tentative reasons.
This ground of appeal arises from the following exchange. At the hearing before the Magistrate, his Honour engaged Sydney Advanced Plumbing's solicitor in the following exchange during opening (1 March 2018 at T 10.15-22): "HIS HONOUR: Is it your contention then that the fittings and the valves were provided pursuant to the agreement? AYACHE: Yes. HIS HONOUR: You can prove that, can you? AYACHE: Yes. And that's not an issue in dispute. HIS HONOUR: It's not in dispute."
Smoothflow's legal representative did not interject to contradict Mr Ayache.

Sydney Advanced Plumbing's submissions

Sydney Advanced Plumbing submitted that if the Magistrate had alerted it to the issues which became the "primary reason" (at T 30.46) for his decision, Sydney Advanced Plumbing could have taken steps to address the issue. In particular, Sydney Advanced Plumbing could have sought to adduce evidence to prove that the items examined by Dr Schaffer did correspond to those that were the subject of the cross claim. By failing to alert Sydney Advanced Plumbing to a critical basis for his decision, his Honour denied Sydney Advanced Plumbing that opportunity.
Sydney Advanced Plumbing alleged that the Magistrate denied it procedural fairness in respect of its cross claim, in that "[h]is Honour did not raise with [Sydney Advanced Plumbing's] representative any concern that the items examined by Dr Shaffer were not those particularised in the cross claim" between the defects identified by Dr Schaffer and the invoices specified in the cross claim.
The complaint was that when Mr Ayache suggested to the Magistrate that the fittings were provided pursuant to the agreement, Smoothflow did not interject.
The Magistrate's second reason for dismissing the cross claim was that "it is pleaded by reference to invoices and there is no correlation made in the evidence between any defects detected by Dr Schaffer and particular items identified in the invoices". In Sydney Advanced Plumbing's submission, the Magistrate erred in the process by which he reached this conclusion.
The Magistrate was obliged to afford Sydney Advanced Plumbing procedural fairness. That obligation required the Magistrate to bring to Sydney Advanced Plumbing's attention "any issue critical to the decision which is not apparent from its nature" and to "advise of any adverse conclusion which has been arrived at which would not obviously be open on the known material": see Commissioner for ACT Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 at 592; SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 228 CLR 152 at [29]. Although this principle has been articulated in relation to administrative decision making, it applies with equal force in relation to judicial decision making: see Jorgensen v Fair Work Ombudsman (2019) 371 ALR 426; [2019] FCAFC 113 at [199].
Over the course of a four day hearing, his Honour did not raise with Sydney Advanced Plumbing's representative any concern that the items examined by Dr Schaffer were not those particularised in the cross claim. Nor did Smoothflow's counsel raise any such concern. To the contrary, Smoothflow adduced expert evidence from Dr Tawfik in relation to those same items. The experts' oral evidence in relation to those items occupied an entire day of the hearing.

Smoothflow's submissions

Smoothflow made the following written submissions. 1. There is no reference in any of Smoothflow's affidavits in chief that deal with any allegation of defectiveness with respect to any of the 10 separate items comprising tax invoice 18640. Tax Invoice 18640, while raised in the cross claim, is not the subject of any evidence. 2. Mr Choi referred only to Sydney Advanced Plumbing's tax invoice 19517. He failed to mention Sydney Advanced Plumbing's tax invoices 17670; 18640; 19028; 18954 or 19072, which were itemised by the first defendant in its cross claim, and further failed in his evidence to identify and correlate allegations of defects to specific identifiable goods referred to in Sydney Advanced Plumbing's tax invoices 17670; 18640; 19028; 18954 or 19072, and certainly not with any of the 9 defects pertaining to individual items identified by invoice 18640, which Sydney Advanced Plumbing asserted had been paid. 3. Mr Mourtada El Reda referred only to Sydney Advanced Plumbing's tax invoice 19517. He too failed to mention Sydney Advanced Plumbing's tax invoices 17610 and 18640, or the 9 defects pertaining to individual items identified by invoice 18640. 4. Mr Mourtada El Reda in Ex 6 referred only to Sydney Advanced Plumbing's tax invoice 19517. He too failed to mention Sydney Advanced Plumbing's tax invoices 17670; 18640; 19028; 18954 or 19072 which were itemised by Smoothflow in its cross claim, and further failed in his evidence to identify and correlate allegations to specific identifiable defects to goods referred to in Sydney Advanced Plumbing's tax invoices 17670; 18640; 19028; 18954 or 19072, and certainly not with any of the 9 defects pertaining to individual items identified by invoice 18640. 5. Smoothflow's closing submissions contained the relevant passages questioning the link between the pleaded invoices and the defects identified by Dr Schaffer.
Not every departure from the rules of natural justice will give rise to jurisdictional error, appealable error or otherwise warrant setting aside a decision at first instance. Appellate courts will not order a new trial "if it would inevitably result in the making of the same order as that made by the primary judge at the first trial". Similarly, a breach of "procedural fairness" will not be material to the exercise of power (and hence will not give rise to jurisdictional error) "where a failure to afford procedural fairness did not deprive the person who was denied an opportunity to be heard of the possibility of a successful outcome".
In the circumstances, Smoothflow submitted that any denial of procedural fairness was not material to the Magistrate's exercise of power, and did not deny Sydney Advance Plumbing the possibility of a successful outcome. Smoothflow submitted that if ground 1 is dismissed, ground 2 should also be dismissed.

Consideration

At the commencement of the hearing, the Magistrate agreed with the solicitor for Sydney Advanced Plumbing that the issue as to whether the fittings and valves were provided pursuant to the agreement was not in dispute. The legal representative for Smoothflow did not say anything to the contrary. However, Smoothflow had filed submissions dated 30 October 2018 and put into issue that there was no link between the goods supplied in the pleaded invoices and the defects identified by Dr Schaffer. Sydney Advanced Plumbing filed written submissions dated 26 November 2018. Paragraph 10(1) analyses Sydney Advanced Plumbing's lack of evidence in relation to the tax invoices and the allegations of defectiveness. Sydney Advanced Plumbing had been put on notice of Smoothflow's argument concerning the fittings and valves, which were not proved to be the ones supplied under the contract. The Magistrate provided an opportunity for oral elaboration on the written submissions, but the parties were content to rely on the written submissions (T 6.39-42). Sydney Advanced Plumbing did not address this issue in its written submissions, and although given the opportunity, it did not seek to make oral submissions. In my view, in the circumstances, Sydney Advanced Plumbing was afforded procedural fairness. The result is that this ground of appeal also fails.

Costs

Costs are discretionary. Costs usually follow the event. Sydney Advanced Plumbing is to pay Smoothflow's costs on an ordinary basis.

The Court orders that: (1) The appeal is dismissed. (2) The decision of his Honour Magistrate Richardson dated 26 March 2019 is affirmed. (3) The amended summons filed 18 June 2019 is dismissed. (4) The first plaintiff is to pay the defendant's costs on an ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 December 2019

Sydney Advanced Plumbing Pty Ltd v Smoothflow Australia Pty Ltd

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