Tranquility Pools & Spas Pty Limited v Huntsman Chemical Company Australia Pty Limited

Adoption of the referee's report 12It is common ground that on 20 September 2007, Professor Robert Burford ("the Referee") delivered a report on certain questions that had been referred to him for determination ("the Report"). 13In summary, the Referee, ultimately found that [the Report at [104]]: (1)the Pool Failures were caused by the use of Hetron 922 in the barrier layer; (2)there was no evidence to suggest that substandard manufacturing standards existed (and hence could contribute to the Pool Failures); and (3)it is probable that over a decade most, if not all pools, will suffer osmosis ("Fail"). 14To be more precise : The questions asked of the referee were: "1. What has caused the Pool Failures? 2. What role, if any, has the Product played in relation to the Pool Failures? 3. What other factors (if any) have played a role in the Pool Failures? 4. If the Product has played a role, to the extent possible please state what proportion of the Pools are likely to suffer from the Pool Failures?" [ Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Company Australia Pty Ltd NSWSC 58 [2008] at [7]]. His answers were provided at paragraph [104] of the report read as follows: "What has caused the Pool Failures? My opinion based on the available evidence is that the Hetron 922, containing ethylene glycol and in particular hydrophilic thixotrope, that has been used in the tie layer in Tranquility Pools, has caused failure. Pools which did not use this material as a tie layer, but made by Tranquility, did not and do not fail. Pools made before April 2002 and after April 2004 have not failed because they do not have the same polymer mixture in the tie layer. No Pools made by Tranquility using identical manufacturing methods, except using other vinyl esters in the tie layer, between April 2002 and 2004 have failed. What role, if any, has the product played in relation to the Pool Failures? The Hetron 922 supplied to Tranquility between April 2002 and April 2004 by Huntsman has caused blistering. Although a full scientific understanding of the reasons for this are not finalized, enough is now known to relate this product to Pool Failures. Testing by Huntsman has shown that blistering is associated with Hetron 922 containing hydrophilic thixotrope. There is no evidence to show that other changes in manufacturing occurred at Tranquility during the relevant period, nor is there any evidence to suggest that substandard manufacturing standards existed. Is it probable that all of the Pools made by the plaintiff using the Product will suffer from the Pool Failures? It is probable that over a decade most if not all Pools will fail. If the answer to question 3 is 'no', to the extent possible please state what proportion of the Pools are likely to suffer from the Pool failures? N/A". 15On 20 February 2008, Bryson AJ ordered that the whole of the Report be adopted by the Court. 16Huntsman did not appeal this order. It has, however, adduced a great mass of evidence which, if accepted, would contradict some or all of the Referee's findings. The extent to which those findings are binding upon the parties and the Court is a significant area of contest. 17Very shortly after the commencement of the current final proceedings questions were raised by both parties concerning the status to be given by the Court to the undoubted fact that the whole of the referee's report had been adopted. Of particular note is the fact that in paragraph 20 of the plaintiffs' contentions it had pleaded that the product-caused the pool failures.

The principles 18It is convenient before making a ruling on this in limini issue to revert to the principles 19In Fidelitas Shipping Co Limited v V/O Exportchleb [1965] 2 All ER 4, Diplock LJ made a number of important observations concerning the nature of issue estoppel. 20In particular Lord Diplock put forward the following propositions [at 10] : Arbitration, like litigation, is concerned only with the legal rights and duties of the parties thereto. It is concerned with facts only in so far as they give rise to legal consequences. The final resolution of a dispute between parties as to their respective legal rights or duties may involve the determination of a number of different "issues," that is to say, a number of decisions as to the legal consequences of particular facts, each of which decisions constitutes a necessary step in determining what are the legal rights and duties of the parties resulting from the totality of the facts. To determine an "issue" in this sense, which is that in which I shall use the word "issue" throughout this judgment, it is necessary for the person adjudicating upon the issue first to find out what are the facts, and there may be a dispute between the parties as to this. But while an issue may thus involve a dispute about facts, a mere dispute about facts divorced from their legal consequences is not an "issue." In the case of litigation the fact that a suit may involve a number of different issues is recognised by the Rules of the Supreme Court which contain provision enabling one or more questions (whether of fact or law) in an action to be tried before others. Where the issue separately determined is not decisive of the suit, the judgment upon that issue is an interlocutory judgment and the suit continues. Yet I take it to be too clear to need citation of authority that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument or adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgment and, where appropriate, an application to the appellate Court to adduce further evidence: but such application will only be granted if the appellate Court is satisfied that the fresh evidence sought to be adduced could not have been available at the original hearing of the issue even if the party seeking to adduce it had exercised due diligence. This is but an example of a specific application of the general rule of public policy, nemo debet bis vexari pro una et eadem causa. The determination of the issue between the parties gives rise to what I ventured to call in ... an "issue estoppel." It operates in subsequent suits between the same parties in which the same issue arises. A fortiori it operates in any subsequent proceedings in the same suit in which the issue has been determined. The principle was expressed as long ago as 1843 in the words of Wigram V. C. in Henderson v Henderson which were expressly approved by the Judicial Committee of the Privy Council in Hoystead v Commissioner of Taxation I would not seek to better them: "I believe I state the rule of the Court correctly when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time." Issue estoppel applies to arbitration as it does to litigation. The parties having chosen the tribunal to determine the disputes between them as to their legal rights and duties are bound by the determination by that tribunal of any issue which is relevant to the decision of any dispute referred to that tribunal. An arbitrator today has power to make an interim award determining particular issues separately from other issues in the arbitration. It is, I understand, conceded by Mr. Goff, on behalf of the owners, that if the arbitrator does so, his interim award creates an issue estoppel as respects the issue determined by the interim award. Neither party can at any subsequent hearing in the arbitration advance arguments or adduce evidence on that issue directed to disputing the correctness of the determination previously made. ... In choosing arbitration as the method of determining disputes as to their respective legal rights and duties, the parties constitute the arbitrator the exclusive tribunal to determine all disputed questions of fact, but they do not thereby constitute him the exclusive tribunal to determine all the legal consequences of those facts. His determination of legal consequences of facts is subject to correction by the High Court. He is thus not the exclusive tribunal to determine all the issues relevant to the dispute referred to him. Any reference to arbitration under the Arbitration Act 1950, contemplates that, if the appropriate statutory machinery is invoked, the High Court may in a corrective role form part of the tribunal to determine all or any of the issues relevant to the dispute. The machinery can be invoked by the arbitrator, either of his own motion or by direction of the Court, stating his award whether final or interim, or any part of such award as a special case for the decision of the High Court. Where his award is a final award stated in the form of a special case, it does determine all the issues between the parties though the determination is inchoate. It still contains one or more potential alternative determinations of the legal consequences of the facts which the arbitrator has found until the award is completed either by failure of the parties to set down the special case for hearing or by the High Court's answering the questions of law stated. Once his final award is made, whether or not stated in the form of a special case, the arbitrator himself becomes functus officio as respects all the issues between the parties unless his jurisdiction is revived by the Court's exercise of its power to remit the award to him for his reconsideration. But this is merely the way in which the principle nemo debet bis vexari pro una et eadem causa affects the arbitrator's functions. He has decided the questions of fact as to which he is the exclusive tribunal; he has determined their legal consequences subject only to correction by the High Court on the stated questions of law. The parties cannot reopen the same matters again before him. Where his award is an interim award stated in the form of a special case, it determines the particular issue or issues to which it relates in alternative ways dependent upon the answer of the High Court to the question of law stated in the special case. It creates an issue estoppel or issue estoppels between the parties and the arbitrator is functus officio as respects the issues to which his interim award relates... 21K R Handley the learned author of Spencer Bower and Handley, Res Judicata (4 th ed, LexisNexis, 2009) makes the following observations in part 5.28 under the heading "Finality" : Issue estoppels operate in later stages of the same suit, whenever the trial is split. Where questions of liability in common law proceedings are separately determined and the claimant succeeds, the Court enters interlocutory judgment for damages to be assessed. The judgment is final for purposes of res judicata , and binding on the parties in the assessment, but would not support an action until the assessment was completed. 22The author then cites the central proposition put by Diplock LJ in Fidelitas : "Where the issue separately determined is not conducive of the suit the judgement upon that issue is interlocutory ... and the suit continues. Yet I take it to be too clear to need a citation of authority that the parties to the suit bound by the determination of the issue. They cannot subsequently in the same suit advance an argument or reduce further evidence directed to showing that the issue was wrongly determined." 23The New South Wales Court of Appeal stated in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563, "a reference is not to be treated as some kind of warm-up for the real contest". See also Bass v Permanent Trustee Co (1999) 198 CLR 334 where the Chief Justice and five other judges said at paragraphs 45 and 46 as follows The purpose of a judicial determination has been described in varying ways. But central to those descriptions is the notion that such a determination includes a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy. In R v Trade Practices Tribunal; Ex Parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 36 [52] , Kitto J said: "[J]udicial power involves, as a general rule, a decision settling for the future, as between defined persons or classes of persons, a question as to the existence of a right or obligation, so that an exercise of the power creates a new charter by reference to which that question is in future to be decided as between those persons or classes of persons... [T]he process to be followed must generally be an inquiry concerning the law as it is and the facts as they are, followed by an application of the law as determined to the facts as determined; and the end to be reached must be an act which ... entitles and obliges the persons between whom it intervenes, to observance of the rights and obligations that the application of law to facts has shown to exist." Similarly, Professor Borchard in his pioneering work, Declaratory Judgments stated [53]: "A judgment of a Court is an affirmation, by the authorized societal agent of the state ... of the legal consequences attending a proved or admitted state of facts. It is a conclusive adjudication that a legal relation does or does not exist. The power to render judgments, the so-called 'judicial power,' is the power to adjudicate upon contested or adverse legal rights or claims, to interpret the law, and to declare what the law is or has been. It is the final determination of the rights of the parties in an action which distinguishes the judgment from all other public procedural devices to give effect to legal rights." (footnotes omitted).

Returning to the contentions of the parties 24In consequence of the importance of the issue the Court invited first the defendants, then the plaintiffs and finally the defendants in reply, to set out their submissions on the above issue. The Court's invitation followed the passing down to the parties of certain questions to be answered. 25The questions were as follows : The defendant's position on the referee's report appears to be as follows: (1)Its primary submission is that although the referee's report accepts the proposition that there is some link between the pool failures and the use of Hetron 922, it does not answer the real question of whether if the product was used properly by Tranquility it would have resulted in pool failures. How is this consistent with the referee's finding that there was no "evidence to suggest that substandard manufacturing standards existed" at Tranquility? (2)The defendant has a secondary position that Tranquility itself has not been content to rest with the referee's findings and has attempted to lead further scientific evidence regarding the cause of failure of the swimming pools. This is part of a general contention by the defendants that the issues put to, and decided by the referee, were not sufficient to decide the case without further consideration of scientific issues. Does the defendant seek to contend that the referee's report, whatever it is held to decide, only applies to the twelve pools it concerned?

The defendant's contentions 26The defendants initial contentions required to be paraphrased. 27Their answer to question 1 was broadly as follows : (1)The short answer to the first question is that there is no inconsistency between the observation made or conclusion drawn by the referee regarding the state of the evidence adduced before him and the case which the defendant wishes to put because; (a) The referee was not asked to determine issues of merchantability or fitness for purpose, or any other ultimate issue in the case; and (b) To the extent that issues remain to be determined, because they were not finally resolved by the adoption of the referee's report, the parties are at liberty to adduce evidence relevant to those questions whether or not the evidence was potentially relevant to issues being determined by the referee and whether or not the referee made observations regarding the state of that evidence in the course of his report. (2)The referee was asked to consider and report to the Court on the question of what has caused certain defined 'Pool Failures', and what role (if any) Hetron 922 played in those failures. He was further asked to identify what proportion of the other pools manufactured in the relevant period by the plaintiffs would fail. ... (3)As a consequence of the fact that the scientific investigation of the issues that were referred was not "finalized" at the time that the Referee's report was provided, the Referee could not answer the questions referred comprehensively; in particular, the referee could not explain the mechanism by which Hetron 922 caused pool failures, and could only "relate" the product to pool failures in some unarticulated way (at [104(2)]). (4)There can be no doubt that a report which identified and articulated the mechanism of failure was contemplated by the parties when the issues were referred and would have been of greater utility to the Court in deciding the "ultimate issues". However, the plaintiffs moved the Court for the adoption of the report that Professor Burford had been able to produce at that time. The consequence is .. that consideration of scientific issues has not been exhausted and there will inevitably be an overlap in the matters the subject of evidence before the referee and the matters the subject of evidence before the Court. (5)More particularly, scientific evidence that is relevant to an ultimate issue (such as merchantability) must still be adduced, even if the referee considered part of that evidence when assessing the anterior question of causation. An example of such a matter is the question of manufacturing standards. It cannot be that anything that is relevant both the anterior question of causation and also relevant to the ultimate question of merchantability is now barred from examination, merely because it was partially considered in relation to the anterior question of causation. (6)It is notable, but not an essential element of the defendant's argument, that the referee did not engage extensively with the question of manufacturing standards, or express a positive finding about manufacturing standards, but merely referred to what he concluded was an absence of evidence of substandard manufacturing (at [104(2)]). One reason for the absence of any detailed consideration is that the referee himself purposely excluded evidence relating to successful pool manufacturers on the basis that it would add "unsustainable complexity" (at [64]-[65]). 28The defendants second and alternative argument included the following parameters : (1)The evidence relevant to the argument identified by the Court is also relevant to issues that do not turn upon establishing that the defendant's resin was used in some way that was "substandard" and consequently, that do not raise any conflict with the observation of the referee that has given rise to the concern. (2)It remains open to the defendant to argue that the product was not unmerchantable because it was plainly capable of being used successfully in the tie layer of swimming pools. There may be a range of "standard" manufacturing methods, some of which lead to blistering and some of which do not. Evidence of successful use of Hetron 922 by other swimming-pool manufacturers suggests that appropriate methods for successfully using Hetron 922 must exist. (3)It is not the case that unless the defendant proves that Tranquility used "substandard" manufacturing techniques, then Tranquility's claim that the resin was unmerchantable is made out. On the contrary, for the purpose of proving a breach of contractual warranties, the onus of proving that Hetron 922 was "defective" (and hence unmerchantable or unfit for purpose) rests on Tranquility at all times. 29The defendants answer to question (ii) was put inter alia as follows : (1)The "certain pools" referred to in the definition of "Pool Failures" were the 12 pools selected by the parties and subjected to scientific analysis and report; but (2)The report was not confined to 12 pools, because the fourth question required that the referee attempt to extrapolate from his conclusions in connection with the 12 identified pools and estimate how many of the pools constructed with the "Product" would fail. (3)The answer to the question which does seek an extrapolation beyond the 12 pools was plainly of limited utility. The referee's answer to what he identified as question (3) was that: "It is probable that over a decade most, if not all, Pools will fail". (4)That conclusion does not serve to discharge the plaintiffs' burden of proof other than to the extent that it establishes that 50% of pools will fail. 30Before giving the Court's decision it remains to add that the defendant's reply submissions included the following paragraph : (1)While the Court will not entertain a submission that there is no connection between the pool failures and the use of Hetron 922, any argument in connection with the ultimate issues that is consistent with that finding, and any evidence relevant to such an argument, remain open to the defendant. (2)Accordingly, issues that remain open include whether Hetron 922 was merchantable and the closely associated issue of whether the failures experienced by Tranquility are a consequence of its failure to properly use the product. (3)That factual issue is of relevance to the question of whether the alleged representations were misleading and to questions of contributory negligence. 31Also before giving the Court's decision it is appropriate to examine certain of the defendant's defences. I proceed accordingly

Huntsman's defences - the 12 pools only contention 32In final address Huntsman indicated that it no longer pressed a previous argument that the reference was confined to 12 pools only: T1088.30.

Huntsman's defences - the re-agitation by Tranquility argument 33The position in this regard may be summarised as follows: (1)Huntsman has repeatedly submitted that it was Tranquility, not Huntsman that first attempted to "re-open" the findings of the Referee. It is not clear what the consequence of this submission is said to be. (2)If it is suggested that the plaintiffs have in any way waived the benefit of the Report, or are by their conduct since its adoption somehow estopped from relying upon its findings, then such a claim has never been pleaded. (3)The subject matter of the two reports of Professor George served after the adoption of the Referee's report and before service of Dr Pilato's first report, is dealt with below. Neither attempted to reargue any matter before the Referee. (4)In respect of the number of pools expected to fail, Tranquility has adduced statistical evidence of the number expected to fail as this is relevant to the quantum of their claim, and is an issue which was not determined by the Referee (who only determined that "most, if not all" pools would fail).

Huntsman's defences - the "substandard manufacturing" finding 34The position in this regard may be summarised as follows : (1)Huntsman appears to be submitting that the Referee's statement at paragraph 104 that "[t] here is no evidence to show that other changes in manufacturing occurred at Tranquility during the relevant period, nor is there any evidence to suggest that substandard manufacturing standards existed" was an "observation" and not a "finding" (with the consequence that it is not binding upon the parties and the Court). (2)In the context in which it appears, this "observation" has all the force of a finding. The most important part of the context is that the one of the questions that the Order for Reference asked the Referee to answer was "What other factors (if any) have played a role in the Pool Failures"? (3)In his reasons for adopting the Report in whole, Bryson AJ noted that the questions as posed in paragraph [104] of the Report were put in somewhat different terms. His Honour goes on to state, however, that the answer to this question "is to be understood from the terms of the report as a whole" [at [10]]. (4)The Referee noted [at [46]] that "there is general agreement between the experts that Tranquility is regarded as a competent Pool manufacturer (see summary Points of Agreement, 11 August 2007) and there is no evidence that has been produced to indicate that significant personnel changes or changes in methods occurred during the relevant manufacturing period". The "Points of Agreement" between Professors George and Shanks referred to stated relevantly that: All evidence indicates that there were no inherent problems in manufacturing and, as noted by the referee, there was agreement (at Meeting 1 and Meeting 2) that the manufacturing process at Tranquility was at the upper end of the spectrum and not implicated in the failure. (5)The Referee was asked to investigate and report on, inter alia, the questions of whether Hetron 922 had caused the Pool Failures and whether any other cause could be identified by him. In the course of so doing, he investigated, among other things, Tranquility's manufacturing methods. This is far from surprising. The universe of possibilities as to what could have caused the Pool Failures, either alone or in combination, was: (a) something inherent in the Hetron 922 (including its additives); (b) something inherent in another component (such as the glass); and/or (c) Tranquility's manufacturing methods. (6)It was essential that the Referee consider the possibility that the Pool Failures were caused by deficient manufacturing. (7)But in circumstances where: (a) the experts of both parties agreed as to the excellence of the manufacturing method; (b) there was no other evidence of deficient manufacturing; and (c) there were no failures with any other resin despite the fact that the same manufacturing methods and same personnel were involved, it was not surprising that the Referee concluded he could "rule out" substandard manufacturing as a cause. (8)That the Referee expressed his conclusion without using the words "I find" does not alter the fact that it was indeed a finding. The Referee was not a lawyer, but a scientist. His reasons " are not to be construed minutely and finally with an eye keenly attuned to the perception of error " [ Politis v Federal Commissioner of Taxation (1988) 16 ALD 707 at 708 per Lockhart J] . (9)The Referee was asked to investigate and report on the question of whether there were other factors which materially contributed to the Pool Failures. He did so. He expressed his conclusion on this question in the part of the Report - paragraph [104] - where he was expressing his final findings. It follows that his conclusion, in the context in which it appears, that there was no evidence of substandard manufacturing standards, is a finding that there were none. (10)Huntsman submits that the Referee did not consider the question of manufacturing standards (essential to the question of whether there substandard manufacturing standards) because he purposely excluded such evidence. This was an argument agitated by Huntsman before Bryson AJ in support of their submission that the Report ought be rejected. His Honour stated: [35] The Defence denies allegations made by the plaintiffs that the pool failures have resulted from use of Hetron 922 and that Hetron 922 is not of merchantable quality, and has given particulars of those denials in paras 20 and 27 of the Defence. [36] These particulars make a contention upon which the defendant places great reliance, to the effect that at or around the period when it supplied Hetron 922 to the plaintiffs, the defendant supplied the same product to a number of other purchasers some of whom used the product to manufacture swimming pools; and that the defendant has not received and is not aware of any complaints in relation to the product supplied to those purchasers. (Evidence shows that there was one complaint, which was not pursued). The Particulars are carefully crafted to say, and to say no more than that there had been no complaints; the Particulars do not say how such of the defendant's purchasers as used Hetron 922 in swimming pools made use of the product, and do not say that there was in fact no blistering or other difficulty. One can, I suppose, put as much or as little detail into particulars of a denial in a pleading as one chooses, the object being to avoid prejudice by surprise, possible adjournment or other causes of delay in the course of a hearing. The particulars and what they disclose about the defendant's position turn essentially on the absence of complaints and not on any underlying substantial matter about what took place, and embark only in the most minimal way on a demonstration of facts supporting the denials that Hetron 922 caused the blistering, and that Hetron 922 was not of merchantable quality. There were some references to these contentions of the defendant relating to supply to others and the absence of complaint in the course of the reference. Evidence on behalf of the defendant showed that the Hetron 922 supplied to the plaintiffs was only 11.14% (that is, about one ninth) of the total quantities of that product supplied to swimming pool manufacturers. It was made clear to the Referee during the reference that the facts in para 20 of the Defence were relied on. It must be said, from the terms of the Report and also from other material showing what took place during the reference, that the Referee took very little notice of them. I do not see this as inappropriate. [37] The fact if it is established that the defendant supplied Hetron 922 to a number of other manufacturers and received no substantial complaints enters hardly at all on the subject matters of the Reference. The swimming pool manufacturers were referred to only by a code in the material produced by the defendant; their names and other identifying particulars were not given. Unless material was brought forward showing who the purchasers were, which of them made swimming pools or any other products which are in any way relevant, how many they made, what their manufacturing techniques were, to what uses their products were put, and the contractual terms on which they dealt with the defendant and with purchasers from them, the subject of any inference to be drawn from the defendant's experience in dealing with them, with respect to complaints or in any other respect, is not really opened for consideration. Considerations of those kinds could not begin because the defendant did not bring forward for the Referee's consideration, or bring to the knowledge of the plaintiffs, any material beyond particulars of the quantities of product supplied, and did not identify the particular customers who purchased the product. The defendant declined to identify the purchasers, claiming that the information was commercial-in-confidence. In the absence of that information, there were no available lines of inquiry which could have led to any real understanding of what happened to the Hetron 922 in the hands of purchasers, or of whether the absence of complaints by purchasers had any real force or significance. The Referee referred to the incidence of pool failures for other manufacturers using Hetron 922 at paras 64 and 65 of his Report. He dealt with the matter briefly indeed. He said that (para 65): "In practical terms I am satisfied that an extension to other Pools might add unsustainable complexity, time and cost to this matter." This treated the defendant gently indeed. The complexity included overcoming the defendant's refusal to identify the other pool manufacturers, and embarking on comprehensive investigation into their business and affairs which the defendant had not undertaken, or offered to undertake, or contended was relevant; indeed the defendant had put a mask over the subject by referring only to the absence of complaints and not to the underlying facts. [38] ... The experience of others in using the product is no doubt relevant, but only if all relevant circumstances are known and are considered. The key to any such investigation was in the defendant's hands, and the defendant did not produce the key. [39] The defendant could have brought forward information or evidence about what indeed happened to Hetron 922 in the hands of other manufacturers; but did not do so. The defendant did not formulate its contention about the relevance about the whole subject in any way which opened what the manufacturers did; the matter put forward was limited to the absence of complaints. It is not in my judgement a criticism of the Referee that he did not point out or bring the defendant around to the view that much more was necessary before its experience with other pool manufacturers was any basis for any useful conclusion. (11)The Referee was asked to investigate and report on what caused the Pool Failures, whether the Hetron 922 played a role and whether any other factor played a role. It would have been obvious that, at the commencement of the investigation, one of the possible causes was deficient manufacturing. If Huntsman wished to contend that deficient manufacturing was a cause of the Pool Failures, then it was obliged to bring forward that evidence before the Referee. As the NSW Court of Appeal stated in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563, a reference is not "to be treated as some kind of warm-up for the real contest". (12)Huntsman is bound by the consequences of its conduct. It failed to adduce evidence and its own expert agreed with the expert of the plaintiffs. The Referee had no other choice but to make the finding that he did. (13)Huntsman's contributory negligence defence was first pleaded by the defendant in its Further Amended Defence filed on or about 11 May 2010, almost exactly three years after the Order for Reference. It is not open for the defendant to in substance re-open a matter that had been decided by the Referee, merely by amending its pleading.

Decision 35In what follows the plaintiffs submissions are generally adopted as correct. 36In short : (1)The consequence of the Court's unqualified adoption of the Report is that: (a) the allegation in paragraph 20 of the Defence cannot be made out; and (b) the defendant is not able to make any submission or ask the Court to make any finding of fact in accordance with the particulars to that paragraph, which particulars have been adopted as the basis for the pleading at paragraph 27 (which denies that the Product was not merchantable or fit for the purpose of use in the barrier layer of swimming pools). (2)The Referee's first finding is that the product caused the pool failures. (3)The Referee's second finding is (relevantly) that there is no "evidence to suggest that substandard manufacturing standards existed" at the time of the manufacture of the pools incorporating the Product. (4)The Referee was asked to make a binding determination about the causes of the pool failures. The only alternatives were the Product, other components (such as glass), deficient manufacturing procedures or a combination of these factors. In those circumstances, a finding that there is no evidence of substandard manufacturing standards is a finding that there were no substandard manufacturing standards. (5)The Referee's third finding is that "most, if not all Pools will fail". (6)The plaintiffs correctly accept that further evidence is required to give precision to the word "most". (7)The above-described three findings do not, of themselves, determine any of Tranquility's causes of action, whether in contract or pursuant to the Trade Practices Act. (8)They are nevertheless deemed to be findings of the Court which the parties are not permitted to contradict and which this Court is bound to accept. Thus, in Wenco Industrial Pty Ltd v W W Industries Pty Ltd [2009] VSCA 191 at [11] per Redlich & Bongiorno JJA and Beach AJA ], the Victorian Court of Appeal stated: The orders of [the trial judge] adopting the referee's report were interlocutory. There was no final disposition of the rights of the parties. The referee's answers in response to the reference and the Court's unqualified adoption of them were not decisive of the applicant's proceedings. The report quantified certain matters prior to the determination of liability issues by the Court. Yet the parties were bound by the answers. They could not subsequently advance argument or adduce further evidence designed to demonstrate that the answers were wrongly determined Fidelitas Shipping Co Limited v V/O Exportchleb [1966] 1 QB 630 at 642 per Diplock LJ. The only remedy the parties have is by way of appeal from the interlocutory order made. (9)Thus, it is not open to the parties to contradict findings in fact made by the Referee and adopted by the Court, whether or not they are "ultimate findings". (10)Australian Energy Limited v Lennard Oil NL (No 2) [1988] 2 Qd R 230 - stands for the proposition that where the orders of a Court adopting a report are ambiguous, those orders are to be construed conformably with the reasons of that Court in pronouncing those orders. (11)In this case, the order made by Bryson AJ was that the Report "be adopted in whole". There is no ambiguity in that order requiring clarification by reference to his Honour's reasons. (12)The result is that the only relevant matters now before the Court are the Referee's conclusions and reasons, and the order for adoption.

A more precise identification of the further issues of fact and/or law requiring to be determined in these proceedings 37A more precise summation of the issues of fact and/or requiring to be determined by the Court is as follows : (1)the extent to which the Report is binding on the parties and the Court; (2)on the plaintiffs' Trade Practices Act claims, whether: (a) the pleaded representations ("the Representations") were made, (b) any or all of the Representations were false, misleading or deceptive, (c) the Representations, alone or in combination, were a material inducement in the purchase and use by the plaintiffs of Huntsman's Hetron 922 in the barrier layer of its fibreglass swimming pools, (d) the use of Hetron 922 materially contributed to the Pool Failures, and (e) whether Tranquility failed to take reasonable care in the manufacture of the Failed Pools, and if so, whether that failure materially contributed to the Pool failures; (3)on the plaintiffs' claims in contract, whether: (a) Huntsman is permitted to rely upon its terms of contract excluding and limiting liability for breach of contract, (b) the Hetron 922 supplied to the plaintiffs was of merchantable quality and/or fit for the purpose of use in the barrier layer of swimming pools, and (c) those breaches of contract materially contributed to the Pool Failures; (4)the quantum of Tranquility's loss for the destruction of its business; (5)the quantum of Tranquility's consequential losses; (6)the quantum of Tranquility's present liability to its customers, which in turn depends upon: (a) the terms of any contract between Tranquility and its customers, (b) whether Tranquility breached that contract, (c) whether Tranquility is otherwise liable to its customers pursuant to a provision of part 2C of the Home Building Act 1989 (NSW) and/or division 2A, part V of the Trade Practices Act 1974 (Cth), (d) whether any of these causes of action (by customer against Tranquility) are statute-barred, and (e) whether Tranquility's liability to its customers is "damage", (f) the customers' legal entitlement as against Tranquility, and (g) the quantification/assessment of that entitlement; and (7)the quantum of Tranquility's likely liability to future customers, which depends upon the same issues as set out in (f) above plus the likely number of pools that will Fail in such a way that Tranquility will be liable in respect of that Failure. 38It is further convenient to at this time focus on the consequences of the adoption both in relation to the Trade Practices Act claim as well as the contract claim. I proceed accordingly: Consequences of adoption - the trade practices act claim (1)The plaintiffs, to make out the defendant's liability pursuant to breach of sections 52 and 53(a) of the Trade Practices Act 1974 (Cth), need to establish, on the balance of probabilities, that: (a) the four Representations pleaded in paragraphs 10 and 11 of the Summons were made; (b) one or more of those Representations was or were misleading or deceptive (in respect of section 52) or in breach of section 53; (c) the breach(es) of section 52 and/or 53(a) caused (materially contributed to) the Pool Failures, and hence the plaintiffs' loss and damage flowing therefrom, which in turn requires the plaintiffs to establish that: i. the Representations were a material inducement in the purchase of the Product; and ii. use of the Product was a cause of the Pool Failures. (2)The defendant has, in turn, pleaded in paragraphs 36, 37 and 38 of the Defence, a claim for contributory negligence, which, in the event that the plaintiffs establish the foregoing matters to the satisfaction of the Court, requires the defendant to establish, on the balance of probabilities, that: (a) the plaintiffs, failed to take reasonable care in the manufacturing of the Failed Pools; and (b) that failure was a cause of the Pool Failures. (3)The Report has not decided whether the Representations were made, whether they were breached (though see section D below in respect of the Fourth Representation), or whether the plaintiffs relied upon them. Those matters must be established by other evidence. (4)The Report has, however, decided - finally - that the Product caused the Pool Failures and that there was no contributory negligence. (5)It must follow from the Referee's finding that there is no "evidence to suggest that substandard manufacturing standards existed" that not only can the defendant not make out its case of contributory negligence at paragraphs 36 - 38 of the Defence , but that it also cannot make out the matters in paragraphs 20(d) and (e) of the Defence. (6)It is no longer open to the defendant to submit that the plaintiffs failed to construct swimming pools "in a good and workmanlike manner" or to use "reasonable practices in the manufacture of swimming pools". A failure to use "reasonable practices" is to use "substandard manufacturing standards" and that issue has been decided by the Referee adversely to the defendant. Consequences of adoption - the contract claim (7)The plaintiffs quite rightly accept that the issue of whether the Product was merchantable or whether it was fit for the purpose of use in the barrier layer of fibreglass swimming pools has not been finally decided by the Referee. (8)Although that ultimate issue remains to be decided, the parties remain bound by the Referee's findings. The parties cannot make a submission (or advocate a finding) which, as a critical step in its reasoning, depends upon a proposition of fact or law which contradicts the Report. Those findings are binding for all purposes, including the plaintiffs' claim in contract. They are not limited to the plaintiffs' claim under the Trade Practices Act . (9)The defendant can no longer assert, for any purpose, including its claim that the Product is merchantable and/or fit for purpose, that the Product did not cause the Pool Failures, or that substandard manufacturing procedures on its part contributed to such failures. It follows that the defendant may not assert the matters particularised under paragraph 20(d) of the Defence - insufficient wet-out, overly variable laminate thickness and incomplete cure - as evidence of negligent manufacture, rather than as flowing the use of the Product in the barrier layer. (10)The defendant may not rely on these matters for the purposes of paragraph 20 of its Defence (on the issue of causation) or paragraph 36 (contributory negligence), or paragraph 27 (merchantability or fitness for purpose). (11)The defendant is therefore limited to arguing, by reference to the "other manufacturers" evidence particularised under paragraph 20(e) of the Defence, that the Product is merchantable and/or fit for purpose by reason of the fact that the plaintiffs' manufacturing method is distinct from those of the typical user of the Product. That is, the defendant must establish that the plaintiff did not use the Product in the ordinary way. (12)It will not be sufficient for the defendant to establish, if it can (the issue is in contest), that although the plaintiffs used the Product in the ordinary way, they did so utilising some deficient manufacturing process. (13)Two further points remain (a) The first is the reference in paragraph [7] of the defendant's submission to the Referee's refusal to include evidence going to other manufacturers. The Referee was not required to conduct the reference in the manner of a Court hearing. The adoption of the Report in whole by the Court makes this complaint irrelevant for the issues that remain to be decided. To the extent that evidence from other manufacturers could have influenced matters decided by the Referee, the time for complaint was before Bryson AJ. (b) Second, this evidence was properly excluded by the Referee because, at that time the defendant refused to disclose the identity of these others manufacturers: see paragraphs [14] and [15] of the affidavits of Noel Godfrey dated 15 June 2007, and exhibits NG-2 and NG-3 thereto. The defendant has only done so relatively recently. The defendant is bound by the consequences of its own conduct.

How to further the enquiry? 39Notwithstanding the finding that the report is binding upon the Court and the parties, both parties contended that this was an appropriate case in which [against the event that the Court's decision on the binding nature of the referee's report may be incorrect] the Court should nonetheless proceed by examining the issues. Whilst I have had a degree of anxiety in relation to the prudence of the Court acceding to this request the fact is that this is a very unusual case affecting numerous individuals and may well be approved very likely to go to the Court of Appeal. I proceed accordingly to deal with the scientific evidence and its evaluation.

Returning to giving a hopefully user-friendly summation of how fibreglass pools of manufactured

Explaining some of the basics 40There are a number of terms which require to be understood. It seems convenient to set out a glossary of terms at the end of these reasons.

The process 41Fibreglass pools are manufactured: (1)on a mould using a specialised type of spray/chopper gun; (2)in layers: (a) all of which comprise a resin (either vinyl ester or polyester); and (b) certain of which (the barrier and structural layers) also comprise glass fibre. 42In the layers comprising resin and glass fibre (the barrier and structural layer): (1)the combination of resin and glass provides toughness and durability; (2)the function of the resin is to hold the glass fibres in those layers together; (3)the glass fibres and resin are fed into the chopper gun; the chopper gun chops the glass fibres and mixes them with the resin; and then sprayed on the mould depositing a thin coat of the mixture. The process is repeated until the required thickness is achieved; (4)once the resin and fibreglass have been sprayed onto the preceding layer, the material is " laminated" or " rolled " by a laminator using a roller similar to a paint roller) to ensure that: (a) the fibreglass bundles are "wetted" by the resin; (b) air is released; and (c) the fibreglass is "de-bundled" so that the resin "wets" the individual fibres. 43The viscosity of the sprayed material is important: (1)The material sprayed must, as it leaves the chopper gun, have a viscosity allowing it to be sprayed towards and onto the mould; (2)The material must nonetheless, once it hits the mould, have a viscosity sufficient to hold the position on the mould in which it is placed by the spray gun; (3)The material must not "slump" or drape down the side of the mould while it is curing; (4)The variable viscosities necessary to achieve this result are provided by mixing in a thixotrope [a substance which promotes the ability of a liquid to change from a "thicker" (viscous, or less free flowing) state to a "thinner" (less viscous, or more free flowing) state, and back again].

R esin 44In this case, the resin used in the barrier layer was a vinyl ester resin. 45The product supplied by the defendant was Hetron 922 comprising: (1)vinyl ester resin; (2)styrene (a solvent whose function is to create cross links in the vinyl ester resin, thereby adding to the strength of the finished product); (3)various components used in the manufacture of the vinyl ester resin, including ethylene glycol; (4)an initiator (see below - of marginal relevance to the issues); (5)a promoter/stabilizer (copper naphthenate - see below); and (6)a thixotrope (see below - of critical relevance to the issues).

Glass Fibres 46The glass fibres: (1)are manufactured in rovings (a "string" comprising glass fibres drawn out but not twisted); (2)are coated with and bound together by "sizing" which: (a) is a protective coating on the bundles of fibres; (b) comprises polyvinyl acetate or vinyl acetate ethylene polymer; (c) is susceptible to hydrolysis (chemical breakdown due to reaction with water usually in the presence of a catalyst such as alkali); (d) enables the rovings to be bound together in a roll (called a "cheese"); (e) enable the fibreglass rovings to be unravelled from the "cheese" and fed into a chopper gun in which the glass fibres are chopped into small pieces and mixed with the vinyl ester resin and sprayed onto the pool mould (see below). The size holds the bundles of fibres together and protects them from abrasive damage.

Layers 47Gelcoat Layer (1)The first layer to be applied to the swimming pool mould (and thus the outer or top layer when the pool shell is removed from the mould) is the gelcoat layer. (2)The gelcoat layer: (a) is comprised of polyester resin; (b) does not contain fibreglass, (c) forms a semi-permeable membrane through which water will migrate. (3)The gelcoat layer is a cosmetic layer and provides the colour of the pool: (a) The pool can be a tinted monochrome colour (blue, sand, white or jade). These comprise approximately 20% of the relevant Tranquility pools. (b) Or the colour can be a "shimmering" colour (with highlights) usually within a clear gelcoat. Such pools comprise 80% of the relevant Tranquility pools. 48Mist Layer In most of the 80% of cases where the gelcoat is clear (that is in the case of non-monochrome gelcoats), the next coat is the mist layer which; (a) does not contain fibreglass (b) is comprised of tinted vinyl ester resin (and provide the pool colour and so that the pool does not take on the colour of the barrier layer - see below) Gelcoats originally came solely in monochrome " solid " colours, usually a shade of blue, white, "sand" or jade. Tranquility, however, like some other fibreglass swimming pool manufacturers, had developed an array of specialised " non-solid " colours which, to a lightly tinted gelcoat, added mica for a "shimmering" effect and/or gelcoat chips and dust for a "speckled" effect. 49Barrier Layer The next layer (in 80% of cases the third layer) is the barrier layer (also called the tie, or corrosion layer); (a) The role of which is to prevent pool water which is migrating through the gelcoat layer from attacking the fibreglass and general purpose resin in the structural layers (see below); (b) In Tranquility pools is comprised of fibreglass and vinyl ester resin, as described above. 50Structural Layers The next two layers (in 80% of the cases the fourth and fifth layers) are the "structural" layers of the pool which: (a) provide the strength of the pool; (b) are comprised of fibreglass and general purpose resin. 51Final Layer The final layer is a gelcoat like product which: (a) is sprayed on the "back" of the shell; (b) whose only function is to improve the appearance of the "back" of the finished product. 52The gelcoat, barrier/tie/corrosion layers and the structural layers of the pool comprise the " laminate" of the pool.

Resin 53Best practice is to use vinyl ester resin in the barrier layer because it is: (1)less susceptible to hydrolysis; (2)tougher (than the alternative, viz polyester resin); (3)susceptible to co-mingling, so that it is easier for subsequent pool layers to bond to it. 54Polyester resin is: (1)now uncommonly used in the barrier layer; (2)but used in the gelcoat and structural layers (albeit in differing varieties); (3)susceptible to hydrolysis: (a) which is the reason it is not suitable for use in the barrier layer; (b) is nonetheless suitable for use in the gelcoat layer because there is no glass fibre in the gelcoat layer; (c) is nonetheless suitable for use in the structural layer because the structural layer is protected by the barrier layer (that being the purpose of the barrier layer). 55As mentioned, the vinyl ester resin used by Tranquility was Hetron 922 which comprised: (1)vinyl ester resin; (2)styrene; (3)other (minor) components used in the manufacture of the vinyl ester resin including ethylene glycol; (4)an initiator (see below); (5)a promotor (see below); and (6)a thixotrope. 56Because of the manner in which the barrier layer is applied to the pool mould (see above) it is necessary that the vinyl ester resin, which is a liquid: (1)have the correct flow properties so that it can be sprayed onto the mould, cover the mould, not slump on the mould; and then, (2)cure or set so that it becomes solid. 57In order to achieve this a number of steps must be taken.

Initiator 58The first is to add to the mix a catalyst or initiator which: (1)initiates the process whereby the liquid of vinyl ester resin can be converted to a gel and to then set; (2)is a peroxide (methyl ethyl ketone peroxide); (3)is mechanically metered (1.5%, 2%, 2.5%) by spray gun settings as determined by the operator; (4)is adjusted in amount depending on the temperature at the time.

Promoter 59To ensure that the initiator operates effectively regardless of the temperature it is necessary to add a promoter: (1)the function of which is to accelerate the decomposition of the initiator; (2)one promoter added by Huntsman to Hetron 922 was copper naphthenate, the use of which decreases the heat produced during cure (and is thus an "exotherm") and lowers the temperature at which the resin/glass mixture solidifies. (3)Another promoter added is cobalt octoate: (a) less is needed when the weather is warmer so that; (b) vinyl ester resin is provided in a "Winter" grade (with more promoter); or (c) a "Summer" grade (with less promoter); (d) this is usually (and in this case was) incorporated by the vinyl ester resin manufacturer at its factory so that the resin is: (i)provided in a "promoted" form; and (ii)either a Winter or Summer blend.

Thixotrope 60Vinyl ester resins, when applied to a swimming pool mould as a part of a barrier layer, must also contain a thixotrope: (1)the function of which is (as outlined above) to act as viscosity control agent and thus enable the resin to change from a liquid (high viscosity) state to a liquid of lower viscosity solution when pumped and sprayed, and to re-thicken when the material is at rest, thus enabling its ready application when sprayed onto intricate mould configurations such as for pools; (2)in the absence of which the vinyl ester resin would be deposited onto the mould from the spray gun but would then run off or slump down the pool mould; (3)which can either be incorporated into the vinyl ester resin by the resin manufacturer at its factory (in which case the vinyl ester resin is supplied to the pool manufacturer as " thixed ") or at the pool factory by the pool manufacturer - e.g. by Compass Pools - in which case the vinyl ester resin is described as " unthixed". (4)the object of using a thixotrope is that the vinyl ester resin will have a: (a) low viscosity at high shear [the strain produced by pressure in the structure of a substance when its layers are laterally shifted in relation to each other ] (so that it can be sprayed); and then (b) high viscosity at low shear or rest (so that once it is on the mould it reunites quickly and sets); (5)for example, toothpaste contains a thixotrope so that: (a) it is in a gel form in the tube; (b) remains at high viscosity at low shear (when transferred from the tube to the toothbrush); and (c) has low viscosity at high shear (when brushed into the mouth). 61Thixotropes can be either " unmodified" or "modified". 62Unmodified thixotrope: (1)comprises fumed silica; (2)silica comprises SiO 2 and: (a) is a highly purified "sand"; (b) is in the form of a fine powder (little like flour); (3)"fumed" means that the SiO 2 is heated in order to make extremely fine particles. 63The natural state of thixotrope is unmodified. 64Unmodified fumed silica is naturally hydrophilic: (1)that is wet by water; (2)like an unwaxed motor car; (3)like plain flour. 65Unmodified fumed silica can be modified by putting a coating of silicone on the fine powders. This: (1)Is done by the supplier; (2)adds significant expense. 66Modified fumed silica becomes hydrophobic: (1)that is, it repels water; (2)like a car waxed using a silicone car wax; (3)like talcum powder (on which water "beads" up). 67It is necessary to match the thixotrope (unmodified or modified) with the substance in which it is to function. 68The thixotrope recommended for use with vinyl ester resins is a hydrophobic thixotrope, not a hydrophilic thixotrope. 69Three thixotrope manufacturers (Degussa, Cabot and Wacker) recommended against hydrophilic thixotropes for vinyl ester resin. 70Other manufacturers of vinyl ester resin used hydrophobic thixotrope (e.g. Derakane - which Tranquility used before they used Hetron 922). 71These proceedings concern the use by Tranquility of Huntsman's Hetron 922 in the barrier layer of its swimming pools in the period 24 April 2002 to 21 April 2004 ("the Hetron Period"). Before proceeding to set out the basic history of the dealings between the parties (and the aftermath to those dealings), it is important to briefly set out the importance of the barrier layer.

Osmotic blistering 72This may be explained as follows: (1)All fibreglass in aqueous environments, principally swimming pools, spas and boat hulls, is vulnerable to a process known as "osmotic blistering". This process commences when water migrates into the laminate and reacts with certain compounds therein in a process known as " hydrolysis" . (2)Unsaturated poly-ester resins (as are often used in the structural layers of fibreglass swimming pools) are known, for example, to be vulnerable to hydrolysis when in the presence of glass fibres. Another compound susceptible to hydrolysis is the protective coating on the glass fibres which is known as "sizing". The sizing usually comprises poly vinyl acetate or an ethylene vinyl acetate co-polymer. (3)The process of "wet out" - ensuring as far as possible during the process of spraying and lamination that each glass fibre is covered with resin - is important, among other reasons, because the resin dissolves the sizing. (4)In certain circumstances, the accumulation of the breakdown products of hydrolysis commences a process of " osmosis ", whereby water from a region of a low concentration of water-soluble materials (such as the water inside a pool) migrates through the semi-permeable cosmetic and mist layers to a region of a high concentration of water-soluble materials (the barrier and/or structural layers). This process builds up pressure inside the laminate which then leads to distortions in the surface of the laminate known as " blistering ". (5)In many blisters, the pressure increases to the point where it bursts leaving a crack in the cosmetic layer. In such a case the water will react with the cobalt salts from the promoter in the resin to form a black reside of cobalt oxide. These are known as "blackspots".

History of dealings between Tranquility's principals and Huntsman 73The plaintiffs' principals are Kevin Kahler and David Annakin. In 1977, Mr Annakin commenced employment with a fibreglass swimming pool manufacturer known as International Pools Pty Ltd ("International"). In 1986, Mr Kahler purchased International. In 1987, Mr Annakin became factory manager of International. 74International used, at various times, two resins in the barrier layer of its pools manufactured by the defendant (then known as "Chemplex Sales (Australia) Pty Limited"). These resins were the vinyl ester resin then described as "Hetron 922" and a modified poly-ester resin known as "Aropol 7000". 75In the period 1986 to 1993, International increased its sales from approximately 180 pools a year to approximately 1,500 pools a year - an increase of just over 35% annually for a period of seven years. 76In 1993, however, International received a number of complaints from its customers that the pools it had sold were defective because they suffered from blisters and blackspot characteristic of osmotic blistering. 77Mr Kahler and Mr Annakin formed the view that the osmosis outbreak was the result of the use of Aropol 7000. The seller of Aropol to International, Ferro Corporation (Aust) Pty Ltd ("Ferro"), commenced proceedings against International and related entities for the price of unpaid resin. Mr Kahler caused International and related entities to issue a cross-claim against Ferro alleging that the Aropol 7000 was defective. Ferro, in turn, issued a cross-claim against the defendant, the manufacturer. 78Those proceedings were heard by Cole J of this Court. His Honour handed down judgment, in so far as it related to liability, on 8 August 1994 [ Ferro Corporation (Aust.) Pty Limited v International Pools (Aust.) Pty Ltd , (unreported, Supreme Court of New South Wales, 8 August 1994, Cole J], finding, inter alia, that the Aropol 7000 was the "dominant cause" [at page 16] of the failures in pools manufactured using it by International [the plaintiffs do not rely on this finding in this proceeding, as Aropol 7000 was a different resin. It is, however, an important part of the background and relevant to the David Annakin's state of mind when representations are later made to him on behalf of the defendant in respect of Hetron 922]. The remaining issues in those proceedings were ultimately resolved by agreement, with the establishment of a trust from which International would pay for repairs. 79The first plaintiff, Tranquility Pools & Spas Pty Ltd ("TPS"), was incorporated on 20 August 1999 at the direction of Mr Kahler. The directors were Mr Annakin and Donald Magner, the former being the factory manager and the latter in charge of sales. The great majority of the shares were (and remain) held on trust for Mr Kahler's family. 80From its incorporation in 1999 until April 2002, the first plaintiff predominantly used a vinyl ester resin known as "Derakane 411/SPV 1265" (hereafter "Derakane 411") (then produced by a company known as "Fibreglass International" or "FGI") in the barrier layer of its swimming pools. 81Sometime just before April 2002, a Huntsman representative - Glen Rapson - attended upon Mr Annakin and stated that the vinyl ester resin manufactured by it for use in the barrier layer of swimming pools - Hetron 922 - was cheaper than Derakane 411. Mr Annakin stated that he was reluctant to deal with the defendant again after the experience International had had with Aropol 7000. 82Mr Rapson then made the following representations: (1)that the Hetron 922 Huntsman would provide Tranquility for use in the barrier layer of its swimming pools was a "20 year old product" and a "proven product" ("the first representation"); (2)that it was "the same" as the Derakane 411 currently resin being used by Tranquility ("the second representation"); and (3)that Huntsman "would stand behind its products" ("the third representation"). 83Shortly thereafter, Mr Annakin caused the first plaintiff (TPS) to use Hetron 922 as the predominant resin in the barrier layer of its swimming pools. TPS continued to do so until September 2003 when its shares were sold to Gary and Vicki Martine at which time it became exclusively a retailer of fibreglass swimming pools manufactured by a new company, the second plaintiff - Tranquility Pools & Spas (Manufacturing) Pty Ltd ("TPSM"). TPSM assumed the manufacture and wholesaling part of the business of TPS. 84TPSM continued to use Hetron 922 in the barrier layer of the pools it manufactured until 21 April 2004.

Huntsman experiments with Hetron 922 85Thixotropes can come in two forms: "hydrophilic" [literally "water-loving" and in this context meaning "water attracting"] and "hydrophobic" [literally "water-fearing" and in this context meaning "water repelling"]. Hydrophilic thixotropes are "unmodified fumed silicas": highly purified silicon dioxide (the primary component of sand, quartz and glass, among other things) heated in a way to create extremely fine particles. To the naked eye and touch they look somewhat like flour. In their natural state they are hydrophilic in that they are "wet" by water and absorb it, again like flour. 86Hydrophilic thixotropes can be "modified" to become hydrophobic. This modification may be done by the manufacturer of the thixotrope, and usually involves coating the silica particles with a "silicone". Being hydrophobic, the modified fumed silica repels water - like talcum powder upon which it beads up. The process of modification makes hydrophobic thixotropes significantly more expensive [Dr Durrant said that hydrophilic thixotropes are about half the price of hydrophobic thixotropes: T 550.12]. 87Thixotropes must be matched with the liquid to successfully impart a desired thixotropic effect. Prior to 2002, most commonly, only hydrophobic thixotropes were used in vinyl ester resins. The three principal manufacturers of thixotropes - Degussa, Cabot and Wacker - recommended against the use of hydrophilic thixotropes in vinyl ester resins. 88As at late 1988, the resin then known as Hetron 922 was only ever sold with a hydrophobic thixotrope according to this prevailing wisdom. On or about 15 November 1988, Dr Graham Durrant, a Research Chemist employed by Huntsman, conducted some laboratory tests to see if the unmodified (hydrophilic) fumed silica known as "Wacker N20" would impart thixotropy to Hetron 922. The results of his tests were inconsistent, so he temporarily shelved the project. 89Dr Durrant resumed testing on 25 July 1994. These tests entirely failed and the project was shelved once more. 90Dr Durrant returned to his project on 28 October 1997. These tests returned what he considered to be good results. Given that success, he decided to create fibreglass panels as if he were manufacturing a swimming pool for the purpose of conducting laboratory "blister" tests, designed to test the resin (including its additives) for water resistance. The panel created with Hetron 922 and the hydrophilic thixotrope ("Aerosil 200") performed poorly. 91Dr Durrant states that at the time he did not consider the possibility that the fault lay with the thixotrope, but rather with another additive - "methyl maleate" - which was water soluble and hence "susceptible to water ingression, which can result in blistering". 92The defendant manufactured Hetron 922 under licence from the patent holder, Ashland Inc. Late in 2000, Ashland issued new manufacturing instructions to Huntsman. One of these instructions resulted in the addition of (the water-soluble) ethylene glycol. Another was the consequence of the adoption of the patented "F-CAT Technology" by Ashland, which included, inter alia, the addition of the promoter copper naphthenate. 93In December 2000, Dr Durrant issued an internal manufacturing instruction regarding Hetron 922 - Number 53125, Revision 13 - incorporating these changes to the manufacturing and composition of Hetron 922. 94On 28 November 2001, Dr Durrant conducted comparative testing of the thixotropic effect of unmodified (hydrophilic) and modified (hydrophobic) fumed silicas with Hetron 922 (including styrene and promoters, because these could also change the viscosity of the resin) in the laboratory. He did further tests into January 2002. The results for the hydrophilic thixotrope were good. 95As a result of these tests, Dr Durrant issued a written manufacturing instruction in March or April 2002 that Hetron 922 in its "thixed" and "promoted" form (ie with added thixotrope, promoter and accelerator) was to use the hydrophilic Wacker N20 as the thixotrope [Exhibit P29; it is apparent from this exhibit that the formal decision to make the change was made on or about 27 March 2002 and that the first batch of this new formulation was created on 12 April 2002]. 96At the time the Hetron 922 was provided to Tranquility, neither Dr Durrant nor any other person had conducted water resistance tests of any kind on the new formulation.

The pool failures and the aftermath 97When Huntsman supplied the first batches of Hetron 922, Ben Cooper - Tranquility's chopper gun operator who, with two laminators, fashioned the barrier and structural layers of all Tranquility pools - reported that the resin was alternatively too viscous during spray or slumping on the mould. Huntsman stated that these difficulties could be rectified with the addition of further styrene and promoter and that appeared to resolve the difficulties that had been reported. 98During the period 24 April 2002 to 21 April 2004 ("the Hetron Period"), Tranquility manufactured 1033 pools. Of those, 837 pools were manufactured using Hetron 922 in the barrier layer ("the Hetron Pools"). The other 196 pools were manufactured using four other vinyl ester resins: Derakane 411, Megaresin VetP15, St Gobain CV, and another resin manufactured by Huntsman known as "Estarez 7222" ("the Non-Hetron Pools"). 99Tranquility ceased using Hetron 922 on 21 April 2004 after it had confirmed a complaint from a customer that a Hetron Pool had exhibited blistering and blackspot. Thereafter, many such further complaints were made. At the present time, such complaints have been made and confirmed in respect of 428 Hetron Pools ("the Failed Pools"). 100There have been no complaints in respect of the Non-Hetron Pools, nor any other pool manufactured by Tranquility during the entire period of its existence. Recent inspections of a substantial set of non-Hetron Pools revealed that none of them were affected by Osmosis. 101The plaintiffs contend that as a result of the osmosis outbreak, Tranquility's business has diminished to the point where it is presently incurring substantial losses. The plaintiffs' contention is that it manufactured and sold 262 pools in the financial year to 30 June 2001 to a height of 616 in the financial year to 30 June 2005 (with 592 being sold in the previous financial year). The plaintiffs' further contention is that in the financial years to 30 June 2009 and 2010, however, Tranquility manufactured only 202 and 214 pools respectively - and some of these were manufactured "on consignment", in that they were manufactured without first having been ordered and sold. 102Tranquility has brought these proceedings to recover compensation for the destruction of its business and for consequential loss, including its liability to customers which have been provided with defective pools.

The nature of the enquiry 103As Tranquility has accepted, it must establish, on the balance of probabilities, that the Hetron 922 caused (materially contributed to) the Pool Failures. 104However, it is not necessary for Tranquility to identify the precise reason, as a matter of science, or the precise "constitutional deficiency or deficiencies" in Hetron that caused the Pool Failures: [ Narellan Pools Pty Limited v Huntsman Chemical Co Australia Pty Limited [2010] FCA 267 at [104] & [177] per Edmonds J]. The question is a question of law to be answered as a matter of common sense and is not bound by scientific or philosophical notions of causation [see March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 509 per Mason CJ and at 529 - 530 per McHugh J]. 105The question to be answered is "did the use of Hetron 922 materially contribute to the Pool Failures"? Although the "how" and "why" it might have done so might assist in arriving at the answer to that question, they are not necessary to answer it.

The evidence of Professor George 106Professor George [currently Emeritus Professor of Polymer Science at the Faculty of Science of Technology at the Queensland University of Technology] was both by his credentials, by the content of his respective reports, by his demeanour, by the manner in which he gave evidence in chief and during his cross-examination an extremely careful witness. 107He had provided a considerable number of reports each of which was carefully considered. Where during his extensive cross examination, propositions were put to him testing the reasons for his conclusions, he was able to immediately take issue with those propositions by exposing his reasoning processes in a fashion which I regarded as logical and pervasive.

Identifying Professor George's several reports 108His several reports were as follows : (1)First report dated 3 October 2008; (2)Second report dated 15 December 2008; (3)Third report of 16 March 2010; (4)A further report of 19 March 2010; (5)A further short report of 1 September 2010; (6)A lengthy report including his report on the conclave dated 1 September 2010; (7)A report of 27 October, 2010; (8)A report of 23 November, 2010. 109At the commencement of his examination in chief the following overview of his extensive experience came forward : Q. Is this right, that generally your area of speciality is composites? A. Yes. Q. But you have particular experience don't you, in the swimming pool manufacturing area? A. Yes certainly my main area of interest is where material fail, particularly polymeric materials which this is in the category. My CV is in a sense split into two. When I was previously a defence scientist I worked both at the defence materials research laboratories in Maribyrnong on composite materials and also at the United States Army Materials Mechanics Research Centre on failure of composite materials and ways of improving them. So in terms of the interaction of that experience with this case I have had the experience of analysing composite materials, looking at the failure of them, and in many cases being able to make recommendations in that frame work. Q. Now at page 6 of your CV, page 129 of your affidavit you list some companies and projects with which you have been involved? A. Yes. Q. Do you not. And are the ones that bear particularly on the question of your experience with swimming pools are the ones that we see starting on page 130 at paragraph 50? A. Relying on my memory yes. Q. That is International Pools, osmotic failure of fibreglass and repair technology? A. Yes I was actually a referee for the Supreme Court in that matter. Q. There was some litigation in that matter was there? A. Yes and convened meetings, conclaves of experts which are chaired and on the basis of evidence over considerable period, we prepared a report which went forward to the judge at that time. Q. And that was Cole J was it? A. Cole J, yes. Q. So in the International Pools litigation you played the same role that Professor Burford has played in-- A. That's correct. Q. In paragraph 52 you make reference to the Building Services Corporation and you say swimming pool failure and repair protocols? A. Yes I was contacted by the Department of Fair Trading to work with the pool builders to come up with a specification for repair of a very large number of pools which had failed and as part of their responsibility to the owner the department undertook to develop the best method at the time to be able to repair them, so I worked with the pool builders to come up with a very strict and tight specification. Q. And in paragraph 53 there is a reference to Pool World, osmotic failure of fibreglass what was that about? A. I was then asked to give comment, because of my background in this area, I've been asked for a number of clients when they have had a problem for my expert opinion on what might have caused that problem. Q. Pool World a company is it? A. Yes. Q. What was the problem that Pool World had that you were involved in? A. Well there was both a gelcoat issue and a blister issue and when one looks at blistering that can occur in a number of different places in a laminate, very often, and often in boats it is behind the gelcoat and others are deeper into the laminate, so in this case we are talking about them deeper into the tie layer, but a lot of the blisters actually occur quite close to the surface and I recollect that that was a gelcoat blister. Q. Was the Pool World matter a Court case or were you simply giving advice to the company about a problem they had? A. No, no it did not go to Court. Q. On page 8 of your CV, page 131 of your report, at paragraph 7 you mention Narellan Pools, blistering of vinyl Ester tie layers, I think that was involvement in Court proceedings in the Federal Court? A. Yes, that was in the Federal Court. Q. Between Narellan and the current defendants? A. That's correct. Q. You gave advice to Narellan; did you play in the same sort of role that you're playing for Tranquility in this? A. Yes I was an expert witness of the Court in that matter and I worked with Professor Shanks. We mentioned conclave, we didn't have a referee in that case and we also wrote our reports on that matter which was then heard before Justice Edmonds. Q. You'd have the pleasure of being cross-examined by Mr Sirtes in that case I think? A. Yes I was. Q. The last one on your list is Tranquility Pools which of course is the case that we're in now correct? A. That's correct. There were other times when I have been consulted by aqua techniques in a matter of glass problems, again an inter facial failure. So I've been able to use the experience that's been gather to help pool builders when they do have a problem from time to time.

The evidence of Dr Pilato 110Dr Pilato early in his cross-examination was asked and gave the following answers : Q. You were present when I asked Professor George to emphasise the particular projects with which he has been involved in relation to the swimming pool industry? A. Yes. Q. And you would agree with this, wouldn't you that he has had a good deal more experience than you have in relation to the swimming pool industry? A. Surely has. Q. And has had a good deal more experience than you have in relation to the manufacture of swimming pools, fibreglass swimming pools? A. I would agree. Q. Now isn't it fair to say that for all the length and depth of your experience in the scientific world you've had until this case, no direct experience with swimming pools? A. That's correct. Q. Now and I think your principal area of expertise is in the aerospace industry, is that oversimplifying things? A. I think it's probably in high performance composites and aerospace but not necessarily aerospace itself. Q. Now, you know don't you that a central if not the central issue in the proceedings before his Honour is whether the Hetron 922 with a hydrophilic thixotrope caused the blisters? A. Yes. Q. But it's fair to say isn't it, that you offer no scientific opinion on that question? A. Yes. Q. You agree with me? A. I agree. Q. And that is so isn't it, despite the fact that you were asked that very question by those instructing you? A. Please repeat that. Q. You offer no scientific opinion on the question of whether or, cannot the hydrophilicity of the thixotrope caused the blistering despite the fact that amongst other questions you were asked that very question? A. In my response in the conclave I put a hash mark there and I did not really fully respond to the identity or I should say the factor of the hydrophilic. 111Professor Pilato had been asked to answer the following questions which he addressed in his expert report of 20 September 2009 : 5.1 Determine the locus of failure of the pool cut outs numbered 65, 86, 289, 384, 385, 443, 479, 532, 534, 536, 551, 582, 677, 712, 735, 907, 971 and 13A and compare this with the locus of failure in respect of the blistered panels from the cut outs from the earlier 12 pool shells considered and described in Professor Burford's report of 20 September 2007. 5.2 Do you agree with Professor George's conclusion at page 3 of this report dated 3 October 2008 that the above 18 pool cut outs: 5.2.1 have common features with respect to blister formation; and 5.2.2 that all showed large blisters and the location is unambiguously within the tie layer of the pool. If you disagree with these conclusions, please state your reasons. 5.3 Are the results of the testing requested by you consistent with the findings of the earlier separate studies of cut-outs from 12 pools manufactured by Tranquility as placed before Professor Robert Burford? 5.4 Do the results of the testing requested by you increase the statistical reliability that all pools manufactured using the same materials and showing blistering will have an identical locus of failure? 5.5 What are the possible manufacturing, constituent ingredient or other potential causes of the failure of the pools numbered 65, 86, 289, 384, 385, 443, 479, 532, 534, 536, 551, 582, 677, 712, 735, 907, 971 and 13A? 5.6 Of those causes, in respect of the 18 further cut outs examined by Professor George, can one be singled out on the available information as THE cause? Or THE causes? Can H922 or the thixotrope used be singled out as the cause of the likely cause? Alternatively, from your examination of those samples, can you make any observations about the manufacturing techniques used or choices made by Tranquility? Were any of those choices, or were the techniques in any way implicated (or potentially implicated) in the failures of the pools? 5.7 Is there any further testing or fact gathering which should be undertaken to determine the cause or likely causes of failure, in respect of those 18 samples, if the present information is insufficient? 5.8 Anything else you consider might be relevant to the issues in this proceeding. 112As is apparent from question 5 .6 he was asked [looking at, amongst other things, the third line,] can Hetron 922 or the hydrophilic thixotrope, cause blisters? The following was then put to him : Q. Now if you turn to page 10 of your report, you answer question 6 and can I suggest that the substance of your answer we see in paragraph 46, where you do with what you call the thixotrope hypothesis? A. Yes. Q. And what you say is that since other companies have had success with Hetron 922 and you mean by that, other customers of Huntsman? A. That's right. Q. Have had success with 922, you say there was a basis for saying that it is unlikely that the Hetron or the thixotrope per se caused the problem, right? A. Yes. Q. Now that is the extent isn't it to which you deal with the question of whether or not the hydrophilicity of the thixotrope caused the blisters? A. Yes. Q. And you offer don't you a conservative opinion, that is, there's simply a basis to say it's unlikely? A. For the lack of a better words, yes Q. And that was as robust of you as you thought you could probably express then and indeed now, correct? .. Q. As robust, you? A. Yes. Q. As you thought you could probably express then and now? A. At that particular time. ... Q. That remains your view doesn't it, that's as-- A. That remains my view yeah. .. Q. It remains your view doesn't it that since other companies have had success with Hetron 922, that is a basis for saying that it is unlikely that the Hetron 922 or the thixotrope, per se, caused the problem? A. That's correct. Q. And that remains the extent to which you have treated with that question? A. Yes 113This exchange with the cross-examiner was broadly typical of the approach taken by Dr Pilato through much of his reports and certainly through a deal of his cross-examination.

An overview of the scientific evidence 114Before going further it is convenient to give an overview of the scientific evidence. I proceed accordingly. 115The answers given by Professor George and Dr Pilato at the Conclave show that it is common ground that: (1)the pools failed by osmotic blistering (Conclave Answer 1); (2)the locus of failure in the majority of pools was in the barrier layer (Conclave Answer 4); and (3)small blisters occurred totally in the barrier layer and large blisters were in the barrier layer and extended into the structural layer (Conclave Answer 31). 116Professor George explained that blistering in the barrier layer of swimming pools occurs primarily when either: (1)there has been a problem in the wetout of the fibreglass material by the resin used in the barrier layer; or (2)there are water soluble materials present in the resin. 117As to (a), Professor George explained: In the process of fabrication of a pool an essential step is wetout in which the sizing agent on the fibres is dissolved and the resin can then bond to the fibre. In some cases the fibreglass may only be wet through so from the appearance of the laminate to the process operator during fabrication there has been adequate working of the resin but the sizing agent holding the bundle of fibres together has not dissolved, so the fibres have not separated from their bundle. Thus at the microscopic level full wetout has not occurred, the fibre bundle is still intact and there is the potential for slow hydrolysis of the sizing material when water migrates through the laminate and condenses in the region of the sizing agent... This hydrolysis of the sizing agent...results in the liberation of acetic acid which can then further attack the glass resin interface with the loss of adhesion between the glass and resin and the appearance of "dry fibres". The appearance of these dry fibres is thus symptomatic of a blister and an effect of the aggressive chemistry occurring in the blister fluids that has hydrolysed away the residual sizing agent. (Emphasis original) 118As to (b), Professor George explained: ...it is uncertain if there are significant hydrolysis products present in the blister fluids from these pools. This suggests that the resin must in itself contain water-soluble materials that can accelerate blister formation. Such products (diethylene glycol) have been found in blister fluids and these were identified by Mr Keith Ayres from Huntsman as coming from the original Hetron 922 formulation. 119Huntsman made four significant changes to the Hetron 922 it supplied to Tranquility. These changes were: (1)the use of FCAT technology which may have slowed cure; (2)a higher level of styrene; (3)the inclusion of water soluble materials such as ethylene glycol and diethylene glycol; and (4)the use of the inappropriate, hydrophilic thixotrope in the resin. 120Professor George concluded that of the four factors outlined in the preceding paragraph, the inclusion of hydrophilic thixotrope: ... is the one with the clearest correlation [to failure], but it is considered likely that in Tranquility pools it was a combination of factors that led to their catastrophic failure. The precise mechanism operating for blister formation may never be known, the important result is the problem was only present when hydrophilic thixotrope was used in Hetron 922 synthesised by the FCAT process using ethylene glycol and then formulated with extra styrene. 121In the reference before Professor Burford, Professor George offered a more detailed analysis of the scientific reason why the hydrophilicity of the thixotrope was likely to have caused the blistering. 122Before Professor Burford, Professor George opined that: (1)the water uptake of hydrophilic thixotrope far exceeds that of hydrophobic thixotrope and that: (a)the addition of hydrophilic thixotrope has the effect of destroying the intramolecular hydrogen bond in the vinyl ester resin and causes the hydrophilic thixotrope to bond with the resin, rather than with itself; and (b)this may result in enhanced hydrolysis and may have accelerated the ingress of moisture; and (2)alternatively that the hydrophilicity of the thixotrope caused it to settle and thus result in variable performance. That is, there would be variations in the spray pattern from the chopper gun, which the chopper gun operator (or the laminator) may be able to accommodate but which would "contribute to uneven performance including poor fibre wetout and void formation even in the hands of an expert laminator". 123There was also before the Referee a Joint Report signed by Professors George and Shanks on 24 and 26 March 2007 respectively. As a part of their "Points of Agreement" the Professors stated: Tranquility may have included more glass fibre in the vinyl ester tie-layer than other manufacturers, which in itself would not cause a problem, but in conjunction with hydrophilic fumed silica the resistance to water could be insufficient . 124Based on, inter alia, that material Professor Burford: (1)considered cut-outs from 12 blistered Tranquility pools; (2)found that it was clear that acetic acid was present in the blister fluid and noted that it was agreed between Professor George and Professor Shanks (the expert then retained by Huntsman) that this was derived from degradation or hydrolysis of the sizing present as an interfacial coating on the fibreglass (clause 23); (3)concluded that there was adequate evidence for the possibility that vinyl ester hydrolysis was the potential contributor to the blistering of the pools (clause 30); (4)noted the thesis of Professor Shanks that if the glass fibre content used by Tranquility was higher than that used by other manufacturers, this, together with the hydrophilic thixotrope in Hetron 922 "may have increased the hydrophilicity above that tolerated by the Hetron 922 VE resin" (clause 37); (5)found that "Hetron 922 containing ethylene glycol and in particular hydrophilic thixotrope, that has been used in the tie layer in Tranquility pools, has caused failure" (clause 104(1)); (6)found that the Hetron 922 "caused blistering" and that "although a full scientific understanding of the reasons for this are not finalised, enough is now known to relate this to the pool failures" (clause 104(2)); and (7)found that it was probable that, over a decade, most if not all of the 837 pools manufactured by Tranquility with Hetron 922 would fail (clauses 102(3) and (4)). 125Following Bryson AJ adoption of Professor Burford's report and prior to receipt of Dr Pilato's first report in September 2009, Professor George did not treat further with the question of the role played by the hydrophilic thixotrope in blister formation. 126This was for the obvious reason that, so far as Tranquility was concerned, that question had been resolved by the adoption by the Court of Professor Burford's report. 127Rather, prior to receipt of Dr Pilato's first report in September 2009, Professor George's reports were confined to expressing the opinions (both of which arose from Huntsman's pleadings): (1)that the locus of failure in pool cut-outs taken from a further 18 blistered pools manufactured by Tranquility was the same (that is in the barrier layer) as that in the cut-outs from the 12 pools considered by Professor Burford; and (2)that, by reason of the hydrophilicity of the thixotrope used in Hetron 922, Hetron 922 was neither the "same as" or "an equivalent product to" Derakane 411-350. 128Thereafter, Professor George's reports responded to those of Dr Pilato 129In his reports, Dr Pilato did not: (1)address, let alone dispute the conclusions of Professor George referred to in his reports of 3 October 2008 and 15 December 2008; or (2)offer any scientific opinion on the question of whether the Hetron 922 with a hydrophilic thixotrope caused the blisters (as he agreed) [T831.37] despite being asked to do so by Huntsman's solicitors. 130On what Dr Pilato described as the "thixotrope hypothesis" (that is, the central scientific question in this case), Dr Pilato did no more than opine that: (1)because other manufacturers had "success" with Hetron 922, it was "unlikely" that the thixotrope, per se, caused the problem; and (2)it was "more likely" that the problem was caused by a "differing manufacturing technique" adopted by Tranquility. 131All of Dr Pilato's reports addressed that second question, that is whether the blistering problem was caused by some aspect of Tranquility's manufacturing techniques [as he agreed at T 834.37]. 132Dr Pilato offered the thesis that a combination of the following factors, each referable to Tranquility's manufacturing process, pointed to the conclusion that it was Tranquility's manufacturing process, not the Hetron 922 itself, that caused the blistering in the pools. The factors were: (1)commingling of the structural and barrier layers; (2)voids in the barrier layer; (3)bare glass fibres in the barrier layer; (4)high resin:glass ratio; (5)variable layer thickness; and (6)low temperature during lamination. 133Examination of each element of this thesis shows that neither alone, nor in combination, can they provide a credible explanation for the blistering in the pools. 134There was an evolution in the development by Dr Pilato of this thesis. 135In his report of 7 February 2010, Dr Pilato said that "the" cause of the blisters was inadequate resin:glass ratio causing bare glass fibres to be present at the time of manufacturing. 136In his next report, of 7 June 2010, Dr Pilato said that there were a number of factors which, in whole or in part, explained the failures, namely: (1)bare glass fibres; (2)commingling; (3)voids in the gelcoat. 137As to voids in the gelcoat, Dr Pilato did not subsequently pursue that argument and agreed in cross-examination that it could be put aside [T 840.3]. 138In his 9 June 2010 report, Dr Pilato said that there were "two other factors which are potential explanations, and to which there is evidence, but about which it is difficult to hold strong views...one way or the other", namely: (1)variable layer thickness; and (2)high glass: resin ratio (that is, inadequate resin). 139Thus, in his report of 9 June 2010, Dr Pilato had relegated allegedly inadequate resin:glass ratio from being "the" cause of blistering to a "potential" explanation about which it was difficult to hold strong views one way or the other. When this was put to Dr Pilato in cross-examination [at T 840.32], Dr Pilato stated that "it should be recognised as a contributing factor" [T 840.40]. 140Further, in his report of 8 September 2010, Dr Pilato advanced, for the first time, the argument that low temperature during lamination might also be a contributing factor although this thesis was only abandoned in cross-examination (see below). 141Dr Pilato agreed that it was a conventional scientific method to test any hypothesis by reference to a control sample [T 841.33-50]. 142Dr Pilato agreed that he had not tested the hypotheses referred to above against a control sample [T 842.4]. 143There were two obvious control samples against which Dr Pilato could have tested his hypothesis, as Dr Pilato agreed. Those control samples were, first, there were almost 200 Tranquility pools made during the Hetron Period using a vinyl ester resin other than Hetron 922, which had not failed and, second, the "gold standard" Compass pools [T 841.6]. 144During the conclave, Professor George raised the question of testing Dr Pilato's hypothesis against these controls [T 844.35]. 145Ultimately, Dr Pilato did consider samples from the Tranquility/non Hetron pools (which had not failed) and samples from Compass pools. This analysis led to his 16 November 2010 report. 146Having already committed himself to his hypothesis, Dr Pilato's task was to endeavour to reconcile his hypothesis to those controls, as he agreed [T 844.45]. 147He sought to do so in his report of 16 November 2010 and was, for the reasons developed below, unsuccessful. 148It is convenient to deal with the individual elements of Dr Pilato's evidence separately .

Commingling 149This was one of the factors which Dr Pilato said explained in whole or in part pool failure. In his report of 9 June 2010 he said: The vinyl ester layer has been contaminated by poly-ester from the "structural" layer, perhaps as a result of Tranquility not allowing the tie layer to cure properly before the structural layer was applied. Poly-ester is known to readily degrade by hydrolysis. 150Dr Pilato's thesis was that the vinyl ester barrier layer was contaminated by poly-ester from the structural layer, probably because: The chopper gun operator during the second (night) shift, Mr Ben Cooper, had control over the timing of applying the layers and is likely responsible for the commingling of the vinyl ester resin and the poly-ester resin, most likely [because the structural layer was added too quickly to the tie layer] before the tie layer had time to properly cure. 151In cross-examination, it was pointed out to Dr Pilato that the evidence in these proceedings establishes that Mr Cooper was the only chopper gun operator used by Tranquility between 2002 and 2004 and that his modus operandi remained unchanged throughout the period, whether he was fabricating pools using Hetron 922 (which have failed) or pools using other vinyl ester resins (which have not failed) [T 845.44-50]. 152Dr Pilato agreed that, for his thesis concerning commingling to be correct, it must follow that Mr Cooper adopted a particular procedure when spraying pools with glass mixed with Hetron 922 and adopted some other procedure when he was spraying pools with some other vinyl ester resin [T846.47]. 153Dr Pilato also agreed that Mr Cooper's (unchallenged) evidence that he behaved the same way no matter what pool he was spraying was inconsistent with Dr Pilato's thesis [T847.5]. 154That concession is, alone, sufficient to dispose of this aspect of Dr Pilato's thesis. 155However, there was more. 156Dr Pilato asserted that commingling was the "extra" factor necessary to cause blistering [T849.43]. Dr Pilato agreed that, if commingling was that "extra factor" one would only expect to see it in Tranquility pools which had failed when Hetron was used [T850.29] and not in Tranquility pools which had not used Hetron and had not failed or in Compass pools (which had not failed). 157After the suggestion was made by Professor George at the Conclave that Dr Pilato test his hypothesis against control samples (from non-Hetron non-failed Tranquility pools and from Compass pools), Mr Stuart from Ashland and Professor Colbert from the University of Texas tested 12 skimmer box cut-outs characterised as being in Group X, Group Y and Group Z as follows: Group X: 4 skimmer box cut-outs from pools manufactured by Tranquility using a vinyl ester resin other than Hetron 922, and which had not failed. Group Y: 4 cut-outs from pools manufactured by Tranquility with Hetron 922 which had not yet failed. Group Z: 4 skimmer box cut-outs from Compass pools which had not failed. 158Dr Pilato placed particular emphasis on the "fuzzy boundaries" observed by Mr Stuart in his FTIR analysis [T 847.14]. 159But Mr Stuart's analysis showed that this "fuzzy boundary" or commingling had occurred in a pool manufactured by Tranquility, using a vinyl ester resin other than Hetron 922, and which had not failed. Dr Pilato agreed that the existence of commingling in a sample from a pool when manufactured by Tranquility, using a vinyl ester resin other than Hetron 922 and which had not failed was inconsistent in his thesis that commingling was linked with blistering [T 852.30]. 160Dr Pilato also agreed that the analysis performed by Mr Stuart of one of the Compass cut-outs (from Group Z) which had not failed also revealed commingling [T 852.41-50]. 161When these matters were pointed out to Dr Pilato the following exchange took place: Q. Isn't it obvious from that, that commingling is likely not a factor causing blistering? A. If it's the only reason for blistering that will be correct, but it's not. 162Furthermore, far from establishing that commingling was a potential cause of blistering, the evidence established that commingling was a desirable aspect of swimming pool manufacture. 163Dr Pilato agreed that [T 848.24]: Inter layer adhesion requires that a previous layer be not completely cured when a next layer is applied. If the previous layer has been completely cured, then the next layer will not be able to adhere by some commingling inter-diffusion at the surface. 164That is precisely the point. In order that the structural layer adhere properly to the barrier layer it is necessary that it be applied before complete cure of the barrier layer in order that proper adhesion between layers be achieved. 165This was emphasised in one of the scientific works to which Dr Pilato himself referred, namely the Cook Composites and Polymers publication which stated [Exhibit P38 at p.205, 2 nd column]: [Vinyl ester] resins offer the best secondary bonding capabilities. The VE resins are best for three reasons. First, the VE chemistry itself provides several bonding sites that remain active even in a fully cured laminate. Second, VE resins are more susceptible to air inhibitions than other resins, offering an uncured layer in which the secondary laminate can commingle (emphasis added). 166The result is that the evidence established that: (1)commingling provides no explanation for the blistering in the Tranquility pools; and (2)commingling does not bespeak any shortcoming in manufacturing practice by Tranquility.

Voids 167Dr Pilato nominated voids as another of the factors which, in whole or in part, explained the pool failures and stated: Bare glass fibres present in the vinyl ester layer, particularly as a consequence of an excessive number of voids being in the tie layer at the time it was manufactured. The extent of voids seen are (sic) due to a failure to properly "roll out" air trapped in the resin at the time of manufacture . 168Dr Pilato's thesis was that the presence of voids bespeaks some inadequate manufacturing process at Tranquility [T 855.31]. 169Professor George's evidence was that: (1)voids in the structural layer of a swimming pool are an inevitable consequence of the chopped glass and resin spray up process (as Dr Pilato agreed [T856.21-29]) used in their manufacture; and (2)all pool manufacturers have voids in their laminates (as Dr Pilato agreed [T 856.35]). 170Dr Pilato agreed that he would not really "expect a voidless pool to be manufactured" [T 855.48]. 171In his evidence in chief, Professor George identified voids, clearly visible to the naked eye, in the barrier and structural layers of samples taken from Compass pools which have not failed [Exhibits P16, P17, P18, P19 & P20]. 172Further, Professor George gave evidence that there were very strong theoretical reasons why voids would not cause blistering, namely that voids limit the osmotic pressure necessary for delamination (as a necessary condition of blister formation) and that a void is not a nascent blister. 173Dr Pilato agreed that the existence of voids, itself, did not indicate any defect in Tranquility's manufacturing process and that, standing alone, the existence of voids in the barrier layer of Tranquility pools would not be sufficient to impeach Tranquility's manufacturing process [T 857.5]. 174Dr Pilato also agreed that voids similar to those found in the skimmer box samples of Tranquility pools which had failed, were also found in Compass pools (which had not failed) and in Tranquility non-Hetron pools that had also not failed. 175Dr Pilato agreed that those facts pointed against the probability that the existence of voids played any role in the pool failures [T 857.8-31: the question at T 857.29 should read "You can answer that just by saying yes, don't you, it does point against the probability" (emphasis added)]. 176Dr Pilato reanalysed the data in respect of voids and swimming pools in his report of 16 November 2010 by reference to the 12 skimmer box cut-outs in Groups X, Y and Z, referred to above. 177Once Dr Pilato had made necessary corrections to his analysis at paragraphs 40 to 43 of his report of 16 November 2010, his analysis revealed voids in non-failed Compass pools comparable to those in the failed Tranquility pools. 178Examination of the average void contents for each of the samples in Groups X (Tranquility/non-Hetron/not failed), Y (Tranquility/Hetron/ not failed yet) and Z (Compass/not failed) showed void contents in all cases well below the figure of 5% nominated by Dr Pilato as being within an acceptable range. 179Professor George was not challenged in relation to his evidence that these average void contents were "sufficiently close to render any significance of void content as a factor in poor manufacturing techniques leading to blistering unlikely". 180Most significantly, in relation to this issue (and other issues) Dr Pilato stated that: All samples of Non Hetron/Tranquility [by which Dr Pilato meant Groups X (Tranquility/non-Hetron/non-fail) and Y (Tranquility/ Hetron/not failed yet) - see T 853.44-50] and Compass/Hetron 922 showed good wet out of fibres in both the tie layer and the structural layer with little or no appearance of apparent voids, cracks, or bare fibres which were very common in the Tranquility/ Hetron 922 pools [by which Dr Pilato meant the 18 Tranquility/ Hetron pools which had failed which were the subject of Dr Pilato's first report]. 181Dr Pilato agreed that this statement meant that when he examined Tranquility pools which were made between 2002 and 2004, by Mr Cooper, not using Hetron, which of course had not failed, there was no problem with any of the following [T 854.17-30]: (1)voids; (2)cracks; (3)bare fibres. 182In cross-examination the following exchange took place [T 854.32]: Q. So for any of those factors to be causative of blistering you'd have to assume wouldn't you that Mr Cooper had some different technique that he utilised when he was making Tranquility pools with Hetron than when he was making Tranquility's with some other resin? A. Truly [it] is a puzzle. 183Bearing in mind Mr Cooper's unchallenged evidence that before, during and after the relevant period he used the same manufacturing process when fabricating all pools (whether using Hetron 922 or not), the obvious answer to that "puzzle" [as was put to Dr Pilato at T854.37] was that [T 854.40]: The question of voids, cracks, bare fibres had nothing to do with what caused the problem with the pools that we are talking about. 184Dr Pilato did not, in terms, accept that proposition but allowed that the fact that Tranquility had had no problems before or after using Hetron 922, and no problems using other vinyl ester resins when it was using Hetron 922 was, from a point of view of a scientist examining the problem of the cause of the blistering in the pools, a "plainly relevant" matter [T 855.7]. 185In considering the matter of voids, Dr Pilato placed particular emphasis on what Professor George described as the "outliers", namely the results for two (only) skimmer boxes showing a void content in excess of 8%. 186In relation to the pools from which those samples were taken, Dr Pilato stated that: It is questionable and surprising to me that these pools possessed sustained structural integrity with the unusually high void content within the structural layer that is expected to maintain pool strengths when filled with water. It questions the comment made earlier in the referee's report [that] "again there is general agreement between the experts that Tranquility pools is regarded as a competent pool manufacturer". (Emphasis original) 187In fact inspection of these two pools (both when filled with water and empty) showed no signs of any structural problem. 188Dr Pilato agreed that if (as is the fact) that an inspection of these pools revealed no sign of any structural stress or other problem, that would be inconsistent with his "debating point" concerning these "outlier" pools [T 868.27]. 189The conclusion to be drawn from the totality of this evidence is that the voids observed by Dr Pilato in the barrier layer of the Tranquility pools which failed are a normal consequence of proper manufacturing process and played no role in the pool failures.

Bare glass fibres 190This was another aspect of the first of the three factors identified by Dr Pilato in his report of 9 June 2010 as explaining blister failure. As mentioned above, Dr Pilato said: Bare glass fibres present in the vinyl ester layer, particularly as a consequence of an excessive number of voids being in the tie layer at the time it was manufactured. The extent of the voids seen are (sic) due to a failure to properly "roll out" air trapped in the resin at the time of manufacture. 191Dr Pilato agreed that the issue of bare glass fibres related to the issue of voids, and that his thesis was that the existence of bare glass fibres in the voids bespoke some kind of manufacturing defect on Tranquility's part [T 868.45]. 192The foundation for Dr Pilato's thesis concerning bare glass fibres was, originally, the statement made by Mr Stuart from Ashland that: The "dry" glass fibre appearance suggests that there may have been insufficient wetting of the glass fibres in some areas of the vinyl ester layer, or that the resin has been somehow degraded under the blistered area. It cannot be concluded based on the cross sectional images whether the observed dry glass was present before blister formation (and therefore a possible cause), or if the dry glass resulted from resin degradation related to penetration of swimming pool chemicals. 193As Mr Stuart explained in his cross-examination, his views about the significance of the appearance of dry glass fibres have evolved since his report of 24 June 2008 [see T 703.30ff]. 194Ultimately Mr Stuart expressed the view that: Contrary to previous statements...examination of blisters in early stages of formation gives little reason to suspect poor resin wetout of the glass. 195Mr Stuart agreed that his final view was that evidence of dry fibres did not bespeak insufficient wetout but rather indicated some kind of degradation of the vinyl ester resin, or attack on the glass sizing, but not poor wetout of the glass [T 705.34-40]. 196Although Dr Pilato said he did not agree with Mr Stuart's analysis [T 2872.5], the result is that Dr Pilato is now at odds, on this matter, with the scientist who conducted the tests upon which Dr Pilato based his opinion - as he agreed [T 872.18]. 197In my view Mr Stuart's opinion is to be preferred. 198In any event, as the voids in which the bare glass fibres were observed are an inevitable aspect of competent swimming pool manufacture, not indicating any deficiency in manufacturing process by Tranquility (see above), the proper conclusion is that the existence of bare glass fibres in those voids could not have been a factor leading to the pool failures. 199As mentioned earlier, in his report of 16 November 2010, Dr Pilato stated that the samples of Tranquility/non-Hetron/non-failed pools in Group X, as described in the report of 16 November 2010, showed little or no appearance of "voids, cracks or bare fibres", pointing to the probability that bare fibres played no role in the pool failures.

Resin to glass ratio 200As mentioned earlier, Dr Pilato originally nominated the allegedly insufficient amount of resin used by Tranquility as being "the" cause of the pool failure. 201In his report of 9 June 2010, Dr Pilato relegated the "inadequate amount of resin used by Tranquility" to being a potential explanation about which it was difficult to hold strong views. 202In answer to interrogatories, Mr Annakin stated that Tranquility aimed for a resin to glass ratio of 2.5:1. 203Originally, Dr Pilato argued that analysis of the Ashland data comparing the percentage of glass in the tie layer of the pools showed that Tranquility had fallen well short of achieving its resin:glass ratio of 2.5:1. 204In his report of 16 March 2010 Professor George pointed out: The key point is that what has been measured in the Ashland report of 21 October 2009 and what Tranquility's David Annakin has reported in his response to interrogatories are different parameters. The Tranquility operator when making the tie layer of a pool measured the volume of resin before and after the run and noted that value against his aimed target of 2.5:1. The Ashland analysis reports the mass of solid resin in the tie layer after it has been fabricated and cured but makes no correction back to what that would mean in terms of the wet resin (i.e. vinyl ester plus styrene)... Not accounting for this partial loss of resin weight on spraying the pool and the consequent volume and thickness decrease on cure to form the solid laminate amounts to a significant error in simply equating the dry resin fraction with the wet resin to glass ratio at the time of fabrication... It is also noted in the context of an appreciation of the consequences of a wet application process, that Dr Pilato appears to be unaware of the manufacturing process of Tranquility (or any other pool manufacturer using a wet spray-up process). 205In the light of that evidence, Dr Pilato stated that: I acknowledge that these are dry values and one must generate wet values to account for these dry values. 206Professor George's evidence was that: (1)once the wet/dry adjustment was made, the average composition of the Tranquility skimmer box cut-outs was within the Ashland guidelines (of 60-70% resin and 30-40% glass); and (2)Tranquility non-Hetron pools (which did not fail) had the same resin to glass ratios as those which did fail. 207Dr Pilato produced a document that purported to compare the resin to glass ratio in a Compass sample with that in three skimmer box samples taken from failed Tranquility pools [Exhibit D 18]. 208According to that calculation, the conversion of the "dry" ratios revealed by the Ashland testing yielded "wet" resin:glass ratios in the three failed Tranquility pools of 0.9:1, 0.92:1 and 2.13:1. Obviously, a wet resin:glass ratio as low as 0.9:1 or 0.92:1 would suggest a very serious problem in Tranquility's manufacturing processes. This was the point that Dr Pilato's calculations were designed to show. 209However, the evidence revealed that Dr Pilato's calculations were seriously flawed. The details of Dr Pilato's errors are set forth in Professor George's document entitled "Sheet handed up to Professor George by Mr Donaldson 24 November 2010" [part of Exhibit D18]. The calculations in that document revealed that the correct wet resin:glass ratio of the two allegedly egregious examples was 1.9:1 (and not 0.9:1 or 0.92:1). 210It turned out that Dr Pilato's calculations were not only incorrect but also based upon the following assumptions (none of which are supported in the evidence) [T 873.17-41]: (1)that the resin transfer efficiency of the Compass pool was the same as, or comparable to that of the Tranquility pools; and that; (2)such assumption of comparability in turn assumed that: (a)the volatilisation and cure losses of the styrene monomer in the variety of Hetron used by Compass was the same as that in the variety used by Tranquility; and (b)the Compass and Tranquility production facilities were identical in terms of spray equipment, catalyst concentration, rate of cure and prevailing temperature and humidity. 211Dr Pilato agreed that if (as is the fact) any one of those assumptions was wrong then his analysis at Exhibit D18 involved the comparison of "apples and oranges" [T 873.46]. 212Professor George pointed out that the appropriate manner in which to look at the various statistics concerning resin:glass ratio was to look at the statistics as a whole and express values in terms of a mean and standard deviation. 213Professor George explained that this method was appropriate as the scientific techniques adopted to analyse the barrier layer of swimming pool samples (be they the ASTM method using the data of Mr Stuart or the Computer Tomography method adopted by Professor Colbert) only permit analysis of a tiny sample from each swimming pool (in the case of Computer Tomography, 1 cm 2 ) [see generally T 713.26 - 716.29]. 214In his report of 23 November 2010, Professor George calculated the resin:glass ratios as a mean and standard deviation [Exhibit P13 at 2.26] with the following results: (1)Group X (Tranquility/non-Hetron/non-failure) - (35.7 +/- 2.97)% glass; (2)Group Y (Tranquility/Hetron/no failure yet) - (36.9 +/- 1.8)% glass; (3)Group Z (Compass/non-failure) - (36.9 +/- 1.8)% glass; (4)Group Y plus the 18 samples from Tranquility/Hetron failed pools - (36.43 +/- 4.3)% glass. 215This analysis shows that, although Compass pools on average, use slightly less glass in the tie layer than Tranquility, there is no significant difference in the glass: resin ratios between Tranquility pools which: (1)used Hetron and blistered; (2)used Hetron but have not (yet) blistered; or (3)did not use Hetron at all and have not failed. 216At one point, Dr Pilato pointed to a document published by FGI, the distributor of the vinyl ester resin Derakane, as supporting the proposition that a resin:glass ratio of 3:1 was desirable [Pilato, 8 Sep 10 at item 17 and Attachment 3] (and, inferentially, that the resin:glass ratio of 2.5:1 aimed for by Tranquility was inadequate). 217Professor George pointed out that the Derakane publication was irrelevant, as it was a part of instructions for the manufacture of a "chopped strand mat" laminate, as opposed to a laminate manufactured by spray layup (as in this case). Professor George said this would be "obvious to anyone experienced in swimming pool fabrication". 218Faced with this evidence, Dr Pilato abandoned this aspect of his thesis [T 877.36]. 219In cross examination this exchange took place [T 877.27]: Q. So you didn't see the difference? A. I saw the ratio and seized that opportunity. 220This was an example, of Dr Pilato's inexperience in the area of swimming pool manufacture and inclination to advance arguments, not properly tested or analysed, in support of Huntsman's position. 221The conclusion from this evidence is that such variation as there is between the resin:glass ratio used by Tranquility and other manufacturers such as Compass does not and cannot provide an explanation for the blistering of the Tranquility pools and does not bespeak any deficiency in Tranquility's manufacturing process. 222In this regard, it is important to recall that, before the Referee, both Professors George and Shanks agreed that, if it were the case that Tranquility used more glass fibre than other manufacturers, this "in itself would not cause a problem" (but "in conjunction with hydrophilic fumed silica the resistance to water could be insufficient").

Layer thickness 223Dr Pilato nominated the variability of layer thickness in the Tranquility pools which have failed as "potential explanation" for the blistering about which it was difficult to hold strong views one way or the other. 224However, Professor George gave evidence, which was not challenged, that the same or similar thickness variability observed in the Tranquility pools which failed was also to be seen in Tranquility pools made with other vinyl ester resins (and which did not fail) and in Compass pools which also did not fail. 225This alone points to the improbability of layer thickness variability being a factor relevant to blistering. 226However, the point was made most vividly by the skimmer box cut-out identified by Dr Pilato at the outset of his examination in chief [Exhibit D 23]. 227This was a cut-out from a Tranquility pool, manufactured during the period Tranquility was using Hetron 922, but using the vinyl ester resin Derakane (not Hetron 922) and which did not fail and which, according to Dr Pilato, manifested [T 829.9]: ...the irregular layer configuration from the gelcoat mist layer, the tie layer and structural layer - you see a ripple effect and inconsistency in terms of these various layers that I've already identified. 228The fact that such variability was manifest in a Tranquility pool, made with Derakane, and which did not fail, points to the high probability that layer thickness has nothing to do with the problem.

Temperature during lamination 229As mentioned above, Dr Pilato raised the probability of low temperature during lamination as being a potential cause of blistering in his fourth report. 230Dr Pilato agreed that he advanced this aspect of his thesis on a tentative basis [T 888.6]. 231Dr Pilato agreed that if low temperature during lamination was a factor, he would expect to see a correlation between pools manufactured at low temperature and blistering. 232He agreed that he had seen no such correlation and accordingly did not press this aspect of his thesis [T 888.12-31].

Conclusion 233This analysis of the evidence reveals a number of things. 234First, for all the length and depth of Dr Pilato's experience, he was ill equipped to offer any opinion about any matter relevant to the questions before the Court. 235Second, Dr Pilato was, on occasions, prepared to offer arguments supportive of his thesis, without proper consideration of their merit or weight (for example, in relation to the FGI/Derakane resin:glass ratio and in relation to the relevance of ambient temperature during lamination). 236Finally, and most importantly, none of the factors relied on by Dr Pilato as showing that some aspect of Tranquility's manufacturing process (rather than a problem in the Hetron 922) was the cause of the pool failures can withstand critical analysis. 237The Court is therefore left with the two incontrovertible facts: (1)there is no theory of any substance upon which it can be concluded that poor manufacturing standards existed or that they contributed to the Pool Failures; and (2)Tranquility has manufactured approximately 4,000 pools since its incorporation. It has used at least four resins other than Hetron 922 in so doing, including Huntsman's own Estarez 7222. Of these pools, the only pools that have failed are those which contained Hetron 922. 238Causation need only be determined on the balance of probabilities. In the light of these facts, Tranquility has discharged the burden of proof borne by it.

Evaluating the scientific evidence 239Whilst it is extraordinarily difficult to identify all of the inconsistencies in Dr Pilato's sundry several theses it was quite clear that he remained even at the end of his cross examination in a state where he was quite simply unable to formulate any clear point of view. 240Naturally an expert may well be correct in expressing the point of view that having examined the issued to him or her, the only assistance that such an expert could give would be to indicate that it was simply not enough information to hand to permit of a reasonable hypothesis one way or the other. But the number of times that Dr Pilato through his reports and cross-examination had been shown to simply be incorrect or to have been shoddy in his approach to a very delicate topic gave me no real satisfaction in his tentative conclusions. 241My impression was that Dr Pilato had sat on the fence and not been able to satisfactorily treat with the true issues for determination. Unfortunately he also and exhibited a tendency to search through literature in an attempt to bolster his theories. Whilst this form of endeavouring to bolster one's opinions may sometimes be innocuous I was troubled by this tendency. 242For those reasons I have no doubt but that the approach taken by Professor George in his many reports and during his cross-examination completely outflanked Dr Pilato's endeavours to assist the Court. The contrast between the two experts was tangible : (1)Professor George manifestly being on top of the topic to the extent of not being able to be wrongfooted by his cross-examiner; [This is not to suggest that Professor George had not himself changed his position relating to vinyl ester hydrolysis. The Referee in fact commented [at 33] that this was not to be regarded as sinister, it being quite normal in the scientific sphere to learn more as information emerged. But by the time Professor George had taken the witness box in the final proceedings it was very clear that he had mastered the subject] (2)Dr Pilato unfortunately not being able to explain his sundry points of view: and on numerous occasions having to concede to having changed his point of view repeatedly: (a)Indeed in Dr Pilato's 20 September 2009 report he had been asked in terms whether he could express an opinion about whether Hetron 922 with hydrophilic thixotrope caused blisters; (b)the only extent to which he had been able to answer this question was by saying that since other companies had had success with Hetron 922 there was a basis for saying that it was unlikely that the Hetron 922 or the thixotrope per se cause the problem; (c)That had always been the extent to which he had dealt with the question of whether or not the hydrophilic of the thixotrope caused blisters. That remained his position during his cross-examination. (3)Close to the end of Dr Pilato's cross-examination he was taken to the topic of temperature during lamination which he had raised for the first time in his 9 October 2010 report. Even here as the cross examination reveals he was unable to press the theory : Q. You say there Dr Pilato that the significant variation to occur several factors are involved and you list a whole lot of them and we have discussed many of those factors, haven't we? A. Yes. Q. But in your sub paragraph 10 of 10 you mention as a factor which might be relevant, extremely low temperatures during night shift as low as 7 degrees Celsius, significantly below 15.5 Celsius that you mentioned there? A. Yes. Q. You are referring to a recommendation or some observations made in another aspect of the Cooks Composite Document? A. The Cook Book. Q. The Cook Book, all right, well it is fair to say, isn't it, that what we see at sub paragraph 10 of 10 here is the first time you've proffered the proposition that temperatures during lamination maybe a factor relevant to blistering? A. I think it's the first statement. Q. Is this an example of you looking through literature to try to find references that might assist the argument that there is some problem with Tranquility's manufacturing process that you could call in aid to -- A. No, it wasn't that because during the Conclave I was able to get the production CD or DVD that Professor George sent to me and it was an opportunity to really examine these records which I had not seen before so this is really the first time it really pops up. Yes, that truly occurred to me but I really had no way of knowing whether temperature really played a role or not until I saw this DVD. Q. Right so you saw the records and what did they show, did they show temperatures? A. Yes. Q. Did you then look through the literature to see whether temperatures might give a clue to what happened? A. That partly. Q. And is it fair to say that what you were doing was to see whether the temperatures that those records revealed could be co-ordinated by you to bolster your argument about Tranquility's manufacturing processes? A. There is more to it than just that. Q. Right, well if temperature played a role, you would expect to see, wouldn't you, a correlation between the extent of blistering in pools and the date of manufacture? A. (No verbal reply) Q. Or at least the temperature at which they were manufactured? A. That's correct. Q. So you would expect to see more blistering in winter than in summer say? A. No, not necessarily. Q. A low temperature - your thesis here which can I suggest you are developing tentatively, do you agree with that, is that -- .. Q. You are developing here, aren't you, the thesis, that lamination at low temperature could be the cause of the problems which led to the blistering? A. One of the problems, yes. Q. One of them and is it fair to say that you were advancing that thesis on a tentative basis? A. Tentative, yes. Q. In fact you are saying this maybe one of the factors? A. Yes. Q. Now if low temperature during lamination was a factor, you would expect to see a correlation, wouldn't you, between pools manufactured at low temperature and blistering? A. I expected it but I didn't see it. Q. If there were no such correlation between blistering and temperature lamination then that would eliminate low temperature, wouldn't it? A. It would, yes. Q. And it does, doesn't it? A. It does primarily because - if I may finish? Q. Of course? A. It was a question of where the temperature was determined and we have not been able to obtain that answer yet. Q. All right, well that means, does it, that the tentative thesis you've advanced about temperature is one you don't press? A. I don't press it because I don't have the answer to where temperature was determined. [Transcript 886- 888] 243Both parties went to extreme limits to pursue their respective claims. It is plainly unnecessary for the Court to examine every opposing argument. However there is considerable substance in the following sections of the plaintiffs closing submissions in reply on the question of whether the use of Hetron 922 materially contributed to the pool failures :

The mechanism of failure (1)Tranquility's case that the Hetron 922 resin was defective does not "entirely" depend on the "circumstantial evidence" that it only suffered pool failures when using Hetron 922. (2)Tranquility certainly relies on that circumstantial evidence and submits that it is a powerful factor pointing to a likely defect in the Hetron 922. Tranquility's manufacturing processes - indeed its manufacturing personnel - were the same before, during and after the time that it used Hetron 922. And yet, in its whole trading history, it only suffered pool failures when using Hetron 922. (3)As Professor George stated, the precise mechanism operating for blister formation may never be known. (4)I accept that it is not necessary for Tranquility to identify the precise mechanism, as a matter of science, for the pool failures. (5)Nonetheless, Tranquility has established the likely mechanism of failure, namely that advocated before the Referee by Professor George and Huntsman's former expert, Professor Shanks. (6)These hypotheses were not "rejected" by the Referee. (7)The Referee stated: Both experts devised and discussed chemical mechanisms which involve not only the breakdown of a vinyl ester polymer, but also hypothesise on the possible formation of fragments that might be detected either directly or indirectly by gas chromatography and mass spectrometry . (8)It is true that the Referee said [at [104]] "a full scientific understanding of the reasons for [the blistering] are not finalised". (9)I accept that this statement by the Referee reflects the technical complexity of the blistering process and the difficulty of drawing unambiguous mechanistic conclusions. (10)Importantly the Referee added "enough is now known to relate this product to Pool Failures", making clear that he accepted Professors George and Shanks' hypotheses as being open on the evidence. (11)Indeed, the Referee made specific note ("with particular interest" [the Report at [36]]) of Professor Shanks' opinion that: If the glass fibre content used by Tranquility was higher than the glass fibre used by other manufactures, this together with the untreated silica [ie hydrophilic thixotrope] may have increased the hydrophilicity above that tolerated by the Hetron 922 VE resin . (12)The Referee thus made clear that he attached particular significance to this observation.

Manufacturer's warning (13)Huntsman suggests that none of the "warnings" given by thixotrope manufacturers against using hydrophilic thixotropes and vinyl ester resins was "in any way an association or suspected association between blistering, or water resistance of any kind and hydrophilic thixotropes" and submits: The absence of any suggestion of that kind casts serious doubt on any thesis suggesting that the "hydrophilicity" of an untreated fumed silica has any impact at all on the capacity of a cured resin to perform adequately in the presence of water. (14)In my view that misstates the evidence. (15)In his report of 14 August 2007 before the Referee, Professor George stated: The observed behaviour of the hydrophilic thixotrope is consistent with the literature from all manufacturers of silica (Wacker, Cabot and Degussa) and in particular it is noted in Cabot Corporation Technical Data Sheet TD-123 of 2004: "Cab-O-Sil TS-720 Treated Fumed Silica in Vinyl Ester Reins" in which the following statement is made on page 1: "Conventional grades of silica have been tried as thixotropes in VE with little or no success. Additives that improve the performance of conventional fumed silicas are considered undesirable since they can impair other laminate properties including water resistance ". (Emphasis added) (16)Cabot thus directly highlights the impairment of water resistance resulting from the use of hydrophilic thixotrope.

Other manufacturers (17)Huntsman places great emphasis on the fact that other swimming pool manufacturers that used Hetron 922 have not suffered pool failure to the same extent as Tranquility. (18)In particular, Huntsman point to the fact that the most significant consumer of Hetron 922, Compass Pools, suffered no relevant failures. (19)The fact that Compass suffered no failures is readily explicable by reference to two features of its manufacturing process. (a)The first is the "Patented Layer System" that Compass incorporated into its pool manufacturing process [see Exhibit P4]. (b)As Professor George explained: The pools built by Compass are significantly different in construction from those built by Tranquility...Compass pools have developed a ceramic composite protective core which is applied after the vinyl ester barrier layer (containing Hetron 922) and contains a vinyl ester resin that is formulated to have a short gel time. This results in a high exotherm (heat evolution) from the gelling and cure reaction of the resin which post-cures the barrier layer, basecoat and gelcoat which are applied on the mould over the preceding four hours. This patented process was a major innovation by Compass Pools and differentiated their pools from all others on the market. This produced the same effect as if the resin had been subjected to an oven post-cure treatment... It should also be noted that a post-cure process results in a further cross-linking of the resin, consumption of any unreacted residual styrene monomer and thus lowers the risk of osmotic cell formation and subsequent blistering and black spot formation. (c)Mr Mewett, from Compass described the function of the "ceramic microsphere mix" in this "ceramic composite protective core" [T 524.25]: ...the uniqueness of the core is that it's a product that doesn't absorb any moisture, it is repellent of water vapour and this is a spray coat that does not have any glass fibre so there's no issues of induced human error by way of having to laminate and pack and consolidate. (d)Mr Mewett agreed that this layer had a short gel time, which resulted in high heat evolution or exotherm and that [T 524.39]: The heat generated is enough that you could feel it with your hands six inches off the surface, the heat will probably take 20 minutes to dissipate, that in itself is not a post cure process but it greatly helps with the layers that have been immediately applied underneath it in a matter of two or three hours before. (e)Mr Mewett agreed that this process did help post-cure the resin and agreed that this had "a beneficial effect so far as possible blistering of the pool is concerned" [T 525.34]. (f)Mr Mewett was asked whether there was anything in particular in the ceramic microsphere mix in this third waterproofing barrier that assisted guarding against osmotic reactions and blistering and he replied [T 526.1]: Yes it's - the value of it is it's substituting for glass fibres and glass fibres are a known source of osmotic origin. (g)In around 2000, Mr Enzo Palma, then General Manager of Huntsman's Composites Business Group, told Mr Beale (from Aquatic Leisure Technologies Pty Limited) that: For best results you must post cure Hetron 922, otherwise it will not reach maximum cure . (h)Although Mr Beale did not use the post cure process in Aquatic's swimming pool manufacture [T 752.30], the fact that Compass adopted a procedure, equivalent thereto is likely to explain, at least in part, why Compass did not experience blistering problems with Hetron 922. (20)Second, Compass Pools adopted a recirculating system pursuant to which Compass "mixed or agitated the Hetron 922 prior to use". Mr Mewett described the details of that system in his affidavit of 16 February 2010 [at [2]]. (21)Professor George opined before the Referee that the hydrophilicity of the thixotrope caused it to settle and result in variable performance. (22)So far as Compass' manufacturing process, Professor George said: I have shown in a report to the Referee that the effect of the use of [hydrophilic thixotrope] was that it settled out from the resin. It was thus unavailable to control the viscosity uniformly over the period for which it was needed, namely the spray up and consolidation process... In the process [at Compass] described by Mr Mewett as operating in his factory in the period that Hetron 922 with hydrophilic thixotrope was used, the effect of the recirculating pump system would have been to disperse the thixotrope more uniformly in the resin than in the direct dispensing system used by Tranquility Pools. This would contribute significantly to the difference in performance of pools built by the two companies. (23)These two factors provided a clear explanation for the absence of pool failures at Compass. (24)Contrary to Mr Godfrey's original evidence, Huntsman did receive complaints from other users of Hetron 922. (25)Huntsman received complaints of blistering arising from the use of Hetron 922 from each of Freedom Pools and Spas, AAA Pools and Kiama Fibreglassing & Repairs. Huntsman also received a complaint from Narellan Pools [T 532.5], albeit in respect of its product Hetron 942, a blend of Hetron 922 and Hetron 914. (26)It is true that, leaving Narellan to one side, the number of pools the subject of these complaints was of a much lower order than those arising from Tranquility's use of Hetron 922. (27)Nonetheless, the fact remains that complaints were received from these "other manufacturers".

Durrant blister tests (28)Vivid evidence of the causative role played by the hydrophilicity of the thixotrope used in Hetron 922 and the blistering in the Tranquility pools emerges from the evidence given by Dr Durrant of the blistering tests he conducted immediately after Tranquility first notified Huntsman of the blistering in its pools.

The Blister Tests on 26 April 2004 (29)Huntsman was first notified of blistering in a Tranquility pool on 21 April 2004. (30)Five days later, Dr Durrant conducted an experiment to investigate the cause of the blistering. (31)Dr Durrant tested panels made with a common gelcoat but containing, in the tie layer: (a)no thixotrope; (b)a hydrophobic thixotrope (Aerosol 202); and (c)a hydrophilic thixotrope (Wacker N20). (32)Dr Durrant recorded the results as follows: All panels with N20 [ie Wacker N20 - a hydrophilic thixotrope] show bad fibre prominence and blistering - all panels without [hydrophilic thixotrope] - not much change. (33)Dr Durrant explained that the "bad fibre prominence" that his experiment revealed could (although he said, did not necessarily) bespeak an adverse reaction caused by the hydrophilicity of the thixotrope [T 570.14-18]. (34)But what the experiment revealed was that each and every one of the panels made using hydrophilic thixotrope blistered, and that none of those made using hydrophobic thixotrope did [T 571.6-8 (the words "used for the" in the transcript should be "using hydrophilic")]. (35)Although Dr Durrant expressed himself more cautiously ["I thought it was a possibility": T 572.33-40], the 26 April 2004 tests showed, clearly, that the hydrophilicity of the thixotrope introduced by Huntsman to Hetron 922 in May 2002 was the cause of the blistering of which Tranquility was complaining.

The Blister test on 1 June 2004 (36)Several weeks later, on 1 June 2004, Dr Durrant conducted further blister testing on panels designed to replicate, as far as possible, a swimming pool structure [T 574.33]. (37)Dr Durrant was asked to conduct this test by Huntsman's Technical Service Manager, Mr Keith Ayres. Dr Durrant agreed that the reason that this test was conducted was that Huntsman was considering the possibility that the change from hydrophobic to hydrophilic thixotrope in Hetron 922 "was having an adverse effect on the performance of the product" [T 575.5]. (38)Again, Dr Durrant compared the blistering to panels with a hydrophilic thixotrope (Wacker N20) and the hydrophobic thixotropic (Aerosil 202). This time Dr Durrant conducted the tests without using a gelcoat. (39)The result of the tests was that the blistering on the panel with the hydrophilic thixotrope (Wacker N20) gave a rating of 5. This is the worst score possible, as Dr Durrant agreed [T 575.48]. The blistering on the panels using a hydrophobic thixotrope (Aerosil 202) was 2 [see Exhibit P8]. (40)Dr Durrant agreed that the blistering on the panel using hydrophilic thixotrope was far worse than on the panel using hydrophobic thixotrope [T 576.13]. (41)These tests provided further confirmation that it was the hydrophilicity of the thixotrope in the Hetron 922 that was causing the blistering.

The Blister test on 17 September 2004 (42)Dr Durrant conducted further tests on 17 September 2004 using four different hydrophilic thixotropes. (43)Dr Durrant's note in relation to the experiment was [Exhibit P9]: All five [although four hydrophilic thixotropes were tested, there was a fifth experiment with one of those hydrophilic thixotropes using extra styrene: T 576.5] show bad fibre pattern and blistering. No real differences. (44)One of the thixotropes tested was Wacker N20 with Hetron 922 LVPS, the variety most commonly supplied to Tranquility between 2002 and 2004. Dr Durrant agreed it was for this reason that this variety of Hetron was included in the experiment [T 577.33-42]. (45)In the experiment, the Wacker N20 and the Hetron 922 LVPS achieved the worst score, of 5 [T 578.3].

Conclusion to be drawn from these experiments (46)The accumulation of the results of the experiments of 26 April, 1 June and 17 September 2004 made it clear that, despite the more cautious language adopted by Dr Durrant [T578.28], the Tranquility blistering problem was caused by the use of the Wacker N20 hydrophilic thixotrope in the Hetron 922 LVPS supplied to it by Huntsman.

Why did Tranquility pools, alone, suffer catastrophic failure? (47)Huntsman points to the fact that Tranquility purchased less than 12% of the Hetron 922 sold by Huntsman between April 2002 and April 2004 yet accounts for the vast majority of pool failures in pools manufactured using Hetron 922 during that period. Huntsman argues that the reason for this must lie in some deficiency in Tranquility's manufacturing process. (48)There are a number of answers to this argument. (a)The first is: (i) that the findings by the Referee preclude Huntsman from advancing this argument. (b)In any event, such a contention fails to take into account the following matters: (i)First, the unchallenged evidence is that, before, during and after the critical period of 2002 to 2004, Tranquility followed the same manufacturing process and, indeed, engaged the same operator, Ben Cooper, to perform the crucial task of applying the resin glass mixture to the pool moulds. (ii)Between 2002 and 2004, Mr Cooper, using the same procedure, manufactured 837 pools using Hetron 922. Of those, 428 have been confirmed as suffering from blistering. During the same period, Mr Cooper, using exactly the same procedure, made 196 pools using a vinyl ester resin other than Hetron 922 - including 43 with Huntsman's Estarez 7222 vinyl ester resin. Not one of those 196 pools has developed blisters. (c)In those circumstances, how could it be that the blistering was caused by some shortcoming in Mr Cooper's operations? (49)Second, Tranquility manufactured its swimming pools in accordance with industry standards. (50)The procedures adopted by Tranquility were essentially the same as those employed by the Freedom companies, and Harvest pools. (51)Mr Beale from Aquatic Leisure Technologies gave evidence that the procedures adopted by Tranquility incorporated all of the mechanisms required to build a well-constructed and reliable pool and that, although Aquatic purchased its vinyl ester resin unthixed and unpromoted [T 746.17], the procedures adopted by Aquatic Leisure Technologies to manufacture its pools were otherwise essentially the same as those adopted by Tranquility [T 744.1 - 747.29]. (52)Third Dr Pilato found that there was "[g]ood wetout of fibres in both the tie layer and the structural layer [and] little or no appearance of apparent voids, cracks or bare fibres" in the four skimmer box cutouts taken from Tranquility Pools manufactured between 2002 and 2004 using vinyl ester resins other than Hetron 922 and from pools manufactured by Tranquility during that period with Hetron 922 but which have not yet been reported as failed [Report 16 November 2010 at [46]]. (53)As was put to Dr Pilato in cross-examination, it must follow that for any of those factors (poor wetout, voids, cracks or bare fibres) to be causative of blistering, it is necessary to conclude that Mr Cooper used some different technique when making Tranquility pools using Hetron 922 than when he was making Tranquility pools with some other resin [T 854.32 and TS [179]]. But he did not. (54)Tranquility did not suffer from blistering before or after it used Hetron 922 with the hydrophilic thixotrope. Nor did Tranquility suffer any pool blistering during the time it used Hetron 922 on those 196 occasions when it manufactured swimming pools using a vinyl ester resin other than Hetron 922. (55)The conclusion is irresistible that the hydrophilicity of the thixotrope in Hetron 922 was the causative factor leading to blistering. (56)Why, then, did other pool manufacturers using Hetron 922 not have the same catastrophic experience? (57)As to Compass, the probability is that it suffered no failures because of the differing manufacturing process outlined above. (58)Otherwise, the reason is likely to be found in the conclusions expressed by Professors George and Shanks in their Joint Report of 24 and 26 March 2007, and by Professor Shanks in his report of 18 August 2007 (both to the Referee): Tranquility may have included more glass fibre in the vinyl ester tie-layer than other manufacturers, which in itself would not cause a problem, but in conjunction with the hydrophilic fumed silica the resistance to water could be insufficient. (Emphasis added) If the glass fibre used by Tranquility was higher than the glass fibre used by other manufacturers, this together with the untreated silica [ie hydrophilic thixotrope] may have increased the hydrophilicity above that tolerated by the Hetron 922 VE resin [the Report at [37]]. (59)As mentioned above, this was the factor that the Referee found to be of special interest. 244Accepting that without investigation of the precise glass levels used by the "other manufacturers" it is not possible to draw any final conclusions about this, it is an open possibility that it was this factor - which does not bespeak any shortcoming in Tranquility's manufacturing processes - which resulted in Tranquility, alone amongst users of Hetron 922, having pool failures to the extent the subject of evidence in these proceedings.

The Trade Practices Act Claims 245Tranquility relies on two categories of causes of action: the first being causes of action based upon a breach of sections 52 and 53 of the Trade Practices Act 1974 (Cth) in respect of express representations made by Huntsman, and the second founded on breaches of the contract of supply.

The Express Representations 246Tranquility relies upon three express representations (made by Mr Rapson at the meeting referred to above): (1)that Hetron 922 (including all additives) - both in its present form and in the form as it would be supplied by Huntsman to Tranquility in the event that a contract of supply was entered into - is and will be both a 20 year old product and a proven product; (2)that Hetron 922- both in its present form and in the form as it would be supplied by Huntsman to Tranquility in the event that a contract of supply was entered into - is (and will be) the same as Derakane 411; and (3)that Huntsman would stand behind Hetron 922. 247Huntsman admits that Third Representation, does not admit the Second Representation and, in respect of the First Representation, admits that Mr Rapson "made a representation that a product known as 'Hetron 922' was a 20 year old product and was a proven product". 248The only evidence of the words used by Mr Rapson is contained in paragraph 35 of Mr Annakin's affidavit of 12 April 2007, where Mr Annakin records Mr Rapson as saying: Our vinyl ester resin, Hetron 922, has been around for over 20 years and it's a proven product. It's the same as the Derakane 411 that you're buying from FGI. Anyway, if anything did go wrong, we would stand behind our product. 249Huntsman did not call its former employee, Mr Rapson, to contradict Mr Annakin's evidence. Mr Annakin was not cross-examined to suggest that Mr Rapson said words different to those he gave in his affidavit save that it was suggested the word "equivalent" was used instead of the "same", a proposition which he rejected [T 162.16 - 163.27]. 250In litigation for final relief, it is accepted that where a party fails to call a witness the Court may infer that the evidence which such witness could have given would not have assisted the relevant party's case. That principle is generally known as the rule in Jones v Dunkel (1959) 101 CLR 298, but outside altogether of that authority, the principle simply expresses an inference which the Court may reach. 251The following extracts clarify the position in concerning how to approach the principles laid down in Jones v Dunkel : "The unexplained failure by a party to give evidence, to call witnesses, or tender documents, may - not must - in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered." (JD Heydon, Cross on Evidence , 6th ed, Butterworths, 2000 at [1215]) "This instance of a Jones v Dunkel inference..., also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." [ Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing] "[T]he rule [in Jones v Dunkel ] only applies where a party is "required to explain or contradict" something. What a party is required to explain or contradict depends on the issues as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts "requiring an answer". [D Byrne and JD Heydon Cross on Evidence , 4 th Aus ed, Butterworths, 1991 at [1215]]. 252As the plaintiff has contended the defendant's submissions in relation to the first representation ["20 years old proven product"] may in essence be reduced to three propositions : (1)the representation was true at the time it was made; (2)the fact that Hetron 922 had "developed" over time did not render the representation false; and (3)Mr Annakin's reliance on the representation was "limited". 253Huntsman notes that at the time the representation was made (in about March 2002) the change from a hydrophilic thixotrope had not yet occurred. I accept that this ignores the fact that the incorporation of F-CAT technology (and with it ethylene glycol and copper naphthenate) took place in December 2000. This was a material change. 254Huntsman's submission pays no regard to the context in which this representation was made. As Mahoney J stated in Wright v TNT Management Pty Ltd [(1989) 15 NSWLR 679 at 683; [cited with approval by Mason P in Sydney Harbour Casino Properties Pty Ltd v Coluzzi [2002] NSWCA 74 at [51]. See Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWCA 149 at [265] per Einstein J]: In considering whether a person has engaged in conduct which is, in the relevant sense, misleading what essentially is in question is not what the actor intends or gives another to understand by his conduct: it is what the conduct gives that person to understand or what is to be taken from that conduct. 255It may be that - in one sense - Mr Rapson "was speaking entirely of the past" when he assured Mr Annakin that Hetron 922 was a "20 year old product" and a "proven product". 256But it was clear from the context - namely Mr Rapson's "pitch" that Mr Annakin cause Tranquility to buy that product - that what the reasonable person in Mr Annakin's shoes would "take" from that representation, was that the product to be sold to Tranquility was a "20 year old product" and a "proven product" - and hence safe to use. 257On Huntsman's case all that Mr Rapson represented was that Hetron 922 has been proven over time, but that Huntsman might provide a different product, albeit bearing the same name. 258The fact that Mr Annakin understood that the precise formula might be proprietary information has nothing to do with whether he understood he would be getting a product different from the one that he had used in the past. If the formula is protected information, any lay person would regard it as being immutable rather than as being the subject of continuous "development". 259Huntsman's submission that Mr Annakin "did not regard Mr Rapson's comments as suggesting that throughout those 20 years, and into the future, there could be no development of the product whatever" is contrary to the evidence. 260The evidence given by Mr Annakin under cross-examination was [T 163.42 - 164.1 (emphasis added)]: Q. And you knew from your own experience that Hetron had been around for a long time, you didn't need Mr Rapson to tell you that? A. That's correct. Q. You'd had experience of using Hetron 922 without difficulty? A. That's correct. Q. And the fact that this salesman told you it was a 20 year proven product meant absolutely nothing to you at the time, did it? A. It would re-enforce it was the same material . 261To say that a product is the subject of "development" means it is being altered, or changed. There would be no reason for anyone not a chemical engineer to believe that any chemical formulation would be the subject of "development". On the contrary, a lay person is likely to understand that a chemical formulation is immutable, and that a product which has been "developed" (ie altered or changed) is a different product which would be expected to be given a different name. 262In any event, in each case the possibility that Hetron 922: (1)might have been the subject of "development" in the past, or (2)might be the subject of change in the future, or (3)that what might be sold to Tranquility was different from what was used by him at International, was not put to Mr Annakin in cross-examination. 263The representations regarding Hetron 922, being made in the context of an imminent sale, were representations with a continuing effect. As Turner LJ stated in Traill v Baring (1864) 4 De G J & S 318 at 329; 46 ER 941 at 946: I take it to be quite clear, that if a person makes a representation by which he induces another to take a particular course, and the circumstances are afterwards altered to the knowledge of the party making the representation, but not to the knowledge of the party to whom the representation is made, it is the imperative duty of the party who has made the representation to communicate to the party to whom the representation has been made the alteration of those circumstances; and that this Court will not hold the party to whom the representation has been made bound unless such a communication has been made. 264This statement of principle has been repeatedly approved and applied in the context of section 52 see eg Tiplady v Gold Coast Carlton Pty Ltd (1984) 3 FCR 426 at 458 per Fitzgerald J and Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361 at [6] per Mason P and at [84] per Beazley JA. 265Mr Rapson made his representations in about March 2002. Within weeks, at the most, Hetron 922 - with a materially altered composition incorporating a hydrophilic thixotrope - was being sold to Tranquility. Tranquility was not informed of that change or earlier changes. In the circumstances, Huntsman had an obligation to inform Tranquility that the representations made to them were no longer true. 266On the question of reliance, Huntsman concedes that there was at least "limited" reliance. Despite its reference to Mr Rapson's representations as a "sales pitch", Huntsman does not go so far as to suggest that the representations were mere puffs. Of course, they were not. Far from it. 267Mr Rapson made specific representations regarding Hetron 922 in response to expressed concerns from Mr Annakin. Mr Annakin only commenced purchasing the product after Mr Rapson gave him the specific assurances that he did. 268A false, misleading or deceptive representation, to be causative, need not be the sole or even dominant inducement Travel Compensation Fund v Tambree t/as R Tambee & Associates (2005) 224 CLR 627 at [32] per Gleeson CJ (Kirby & Callinan JJ agreeing on this issue), also at [49] per Gummow & Hayne JJ; see also the extracts from Henville v Walker (2001) 206 CLR 459 collected by me at [271] - [275] in Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWCA 149: Misrepresentation will rarely be the sole cause of loss. If, in reliance on information, a person acts, or fails to act, in a certain manner, the loss or damage may flow directly from the act or omission, and only indirectly from the making of the representation ... Where the reliance involves undertaking a risk, and information is provided for the purpose of inducing such reliance, then if misleading or deceptive conduct takes the form of participating in providing false information, and the very risk against which protection is sought materialises, it is consistent with the purpose of the statute to treat the loss as resulting from the misleading conduct. 269Furthermore, as Beazley JA stated in Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361 at [81] - [82]: The representation does not have to be the only inducing cause of the contract. Nor does it have to be the decisive or a necessary factor in the decision taken by the representee ... Rather, the inducement will be proved if it is established that the representation was one of the factors which contributed to the decision which was made ... If the representation does not affect the decision making process, that is, does not play a part in the decision which is made, there will be no inducement ... Thus, it is not relevant for the Court to determine whether, if the true position had been known, the representee would or would not have altered his position in relation to the contract. 'It is enough if a full and exact revelation of the material facts might have prevented him from doing so'. 270The finding is that had Mr Rapson been frank about the product that he was persuading Tranquility to buy, Mr Annakin would not have had a bar of it. 271The Court finds that Mr Rapson said words attributed to him, and that he did so as a representative of Huntsman.

The Second Representation (same as Derakane 411) 272Huntsman's submissions that this was only a representation of existing fact is rejected for the same reasons as those applying to the First Representation. 273Huntsman submits further that the representation was true because they "were equivalent in the sense that they were both vinyl ester resins with similar performance specifications and consequently, suitable for a range of similar applications". 274Once again, this submission has no regard to context, and seeks to place an artificial limit upon the representation that has no regard to the words actually used. In terms of what the reasonable person would "take" from the Second Representation, it is not that the two resins were exactly the same - they were, after all, different products - but that they would function the same. 275This accords with the evidence of Mr Annakin [T 165.50 - 166.28 (emphasis added)]: Q. And when you were told something to the effect that Hetron 922 was the same as Derakane 411 you took that to mean that it was a high quality vinyl ester resin suitable for use in the barrier layer of a swimming pool? A. Correct. Q. And you didn't think they were identical products? A. Not identical no. Q. You thought they were effectively interchangeable? A. Yes. Q. But you didn't take Mr Rapson's word for that did you? A. Well it was suitable for what I was doing . Q. Well you had some experience of using Hetron 922-- A. Yes-- Q. In the construction of swimming pools, correct? A. That's correct. Q. And you relied on that experience in deciding to try it again? A. To trial some yes. Q. And you only took the material on trial? A. Correct. Q. And you decided to check for yourself whether or not Hetron 922 would be relevantly the same as Derakane 411? A. Would perform the same that's correct yes . 276Mr Annakin's understanding was not limited to the sense that both Hetron 922 and Derakane 411 were vinyl ester resins used in the barrier layer of swimming pools. That they were only "the same" or even "equivalent" in that limited sense was never put to him. 277Mr Annakin's understanding was that they would perform the same, and that - like Derakane 411 - the Hetron 922 would be suitable for use by him. 278The Hetron 922 proved not to perform the same and not to be suitable for use. The fact that the two resins might be "equivalent" in some limited sense is irrelevant. In circumstances where Tranquility suffered: (1)no failures with Derakane 411, and (2)many failures with Hetron 922, (3)using exactly the same manufacturing procedures, it could not be argued that the two resins functioned the same or were - in substance - "the same". 279It goes without saying that if Mr Annakin had been told that both products could be used for the barrier layer of swimming pools, but that in one case (Derakane 411) he would not have osmosis and the other (Hetron 922) that he would in most cases, he would not have made the change. 280I accept the plaintiffs' contention that Mr Leggett's evidence takes the matter no further. 281Although he opined that Hetron 922 and Derakane 411 were "equivalent base products" he: (1)was an engineer with no experience in the manufacture of fibreglass swimming pools; (2)only compared the two base resins used in each product [T 540.10]; (3)did no more than observe that the base resin in both products was Bisphenol A and for this reason (alone) said he had no reason to doubt the products were interchangeable [T 542.5 - .22]; (4)made no comparison of the products as altered by additives, such as thixotropes [T 541.42]; (5)in drawing his conclusion as to the interchangeability of the products had no regard to whatever additives might be added to either product [T 543.3]; and (6)in particular, did not take into account the hydrophilicity of any thixotrope that might be added to either product [T 544.6]. 282In the result Mr Leggett's evidence is given no weight.

The Third Representation ("stand behind our products") 283Huntsman asserts that the circumstances of the statement made by Mr Rapson in this case are distinguishable from those that arose in the Ferro litigation. 284Although the precise factual circumstances in the two cases are - of course - distinct, Huntsman was unable to point to any factor which convinced me that they were relevantly distinguishable, such that one or more of the elements of an estoppel are not made out. 285Mr Rapson made the representation to Mr Annakin in an attempt to induce him to act upon it. Despite the characterisation of this as being part of a "sales pitch", Huntsman have not submitted (and could not submit) that it follows from this that the representation was a mere puff, or that no reasonable person would have placed any reliance upon it. 286The only reasonable construction of this representation - in the sense of what would be "taken" from the representation - is that Huntsman would compensate Tranquility if there was something wrong with the product, which carries with it the further representation that Huntsman would not rely upon any terms that would otherwise exclude or limit Tranquility's right to compensation if the Hetron 922 proved unmerchantable or not fit for purpose. 287The submission that Mr Annakin recognised that Huntsman's terms of sale circumscribed the extent to which Huntsman would "stand behind its product" is made contrary to the evidence: Q. You knew that the terms and conditions of sale defined the contract between Huntsman and Tranquility in connection with the sale and purchase of the resin? A. Correct. Q. And you have already told us that you were aware that customarily those terms and conditions would include provisions which defined the obligations of the parties in the event that something went wrong with the product, you've told us that already? A. Yes. Q. That's the case, isn't it? A. Sorry. Q. You knew that it was customary for terms and conditions of sale to define the obligations of the parties in the event that something went wrong? A. Yes, correct. Q. But you didn't take the trouble to read what these terms and conditions provided? A. No, I was relying on Glen Rapson stating that he - that the company would stand behind its product. Q. That was a very, very general statement, wasn't it? A. Well if I realised that the company was going to hide behind its-- .. A. Well if - if I realised that Huntsman were going to hide behind their - the warranty on the back of the invoices I wouldn't have considered dealing with them. 288The question that was put to Mr Annakin was whether he was aware that it "was customary for terms and conditions of sale to define the obligations of the parties in the event that something went wrong". 289It was not put to Mr Annakin that he understood the words "if anything did go wrong, we would stand behind our product" to mean "if anything did go wrong, what would happen between us would be governed by the Huntsman terms and conditions" . 290No doubt the reason this was not put to Mr Annakin is that it offends common sense. 291It is also contrary to the evidence: as Mr Annakin's further answers revealed, he understood those words to mean precisely the opposite. This is particularly in the context where Huntsman had previously sought to shelter behind its terms in the Ferro litigation, and Mr Rapson was seeking to allay Mr Annakin's concerns about again dealing with Huntsman. 292Despite the difference in context, the only reasonable meaning that could be assigned to those words was the one found by Cole J in Ferro at pages 31 - 33.

The implied Fourth Representation 293The further finding is that the Fourth Representation - that Hetron 922 was fit for use by Tranquility in the barrier layer of its pools - arose by implication. 294As the plaintiff has contended, the implication arises by reason of the three express representations and the context in which they were made. Because of International's unhappy experience with Aropol, Mr Annakin was reluctant to purchase another resin from Huntsman. 295The finding is that the three express representations conveyed: (1)in respect of the First Representation ("The Product is a 20 year old product and is a proven product"): "Hetron 922 is a product that has been marketed in the same form for 20 years and has been 'proven' (whether by testing or otherwise) to be able to be successfully used in swimming pools"; (2)in respect of the Second Representation ("The product is the same as Derakane 411 that [Tranquility] is buying from FGI"): "Hetron 922 functions just like the Derakane 411 (the product you presently use in your barrier layers)"; and (3)in respect of the Third Representation ("If anything does go wrong Huntsman will stand behind the Product"): "Huntsman will compensate you if what I have said is not true". 296I accept that taken together, the three express representations would be taken by the reasonable person to mean not just that Hetron 922 was generally safe (fit) for use in the barrier layer of swimming pools, but that it was fit for use by Tranquility in the same manner in which it currently manufactured fibreglass swimming pools with Derakane 411. 297Huntsman has made no or no acceptable submissions in respect of this representation, either on whether it ought be inferred from the words Mr Rapson did use, or on whether it was breached.

Alleged absence of misleading conduct towards the second plaintiff 298The Court rejects Huntsman's contention that whether or not the four representations were capable of misleading the first plaintiff (TPS), they could not have been capable of misleading the second plaintiff (TPSM) 12 months later. 299The finding is that the representations had a continuing effect. As stated in Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding AG [2004] NSWCA 149 at [284]: In short a representation may, depending always upon the precise circumstances in which it was made and upon later circumstances, have a continuing effect during the period of time following the date upon which the representation was made. The relevant period of time dealt with in the authorities is, for obvious reasons, invariably the period between the point in time when the representation was made and the point in time when it is acted upon by the representee, often by concluding a contract. Hence the springing up of the suggested duty upon the representor not to leave the representee under an error when the representation requires to be corrected, failing which correction, the representee continues ignorant of the intervening change of circumstances, and goes on by relying upon the representation as having continuing effect . 300The finding is that Huntsman never corrected any of the representations. The business of TPSM was the very same business as that of TPS - and the very same business to which Mr Rapson wished to sell Hetron 922. It was operated by exactly the same person - David Annakin. In these circumstances, with no change in circumstance between the time Mr Rapson made the representations and the time TPSM assumed conduct of that business: (1)Huntsman, to avoid contravening sections 52 and 53(a), remained under a continuing obligation to correct its representations; and (2)there was no severance of the chain of causation between the original representations and the causation (by reliance) of Mr Annakin switching from using Derakane 411 in the barrier layer of the business' swimming pools to using Hetron 922.

Breach - the First & Second Representations 301The plaintiffs have contended that further consideration of the Third and Fourth representations is more properly conducted in the context of consideration of the claims framed in contract. This proposition is accepted. 302Tranquility pleads that the First and Second Representations were each: (1)A representation of existing fact in respect of the Product (defined as the vinyl ester resin Hetron 922 in the form actually supplied to Tranquility including all additives such as thixotropes, promoters and ethylene glycol; (2)A representation with continuing effect up until the last delivery of the Product by Huntsman to Tranquility, in respect of the product as it was at the time of supply to Tranquility; (3)A representation as to the nature of the Product as it would be supplied by Huntsman to Tranquility in the event that a contract for supply was entered into. 303In respect of the First Representation, the evidence of Dr Durrant is that Huntsman altered the formulation of thixed and promoted Hetron 922: (1)from December 2000, by incorporating ethylene glycol, copper naphthenate and other components of Ashland's patented "F-CAT" technology; (2)from April 2002, by the use of the hydrophilic thixotrope Wacker N20 in place of the hydrophobic Aerosil 202; and (3)in respect of the resin actually supplied to Tranquility, the incorporation of additional styrene and promoter. 304As the plaintiffs have contended, regardless of how the representation is characterised, the Hetron 922 as supplied to Tranquility was not a "20 year old product". It had not been marketed in the same form for 20 years. At the time the representation was made, a highly significant change was about to be made to the product, namely the incorporation, for the first time, of a hydrophilic thixotrope. Other changes had been made to the product over the preceding years. 305The changes made in December 2000 and April 2002 to the composition of were material changes (whether or not, either alone or in combination, they can be isolated as the mechanism of failure to a scientific standard). 306Plainly enough a reasonable person would understand that a product can be "proven" in two ways: either through actual use, or through rigorous scientific testing. 307In the present case, the new formulation of hydrophilically thixed and promoted Hetron 922 was sold to Tranquility immediately after the change to hydrophilic thixotrope [the evidence of Mr Godfrey discloses no earlier sale to any other party: affidavit of Mr Godfrey, 28 May 2010 at [16] - [24] and Exhibit NG-7]. It had not been "proven" through use. 308Furthermore, as the evidence of Dr Durrant, outlined above, discloses, and even if the sort of laboratory blister tests he earlier conducted were capable of relevantly "proving" a new product, Dr Durrant had conducted no blister testing in relation to Hetron 922 in the formulation sold to Tranquility, no water resistance tests of any kind of Hetron 922 with a hydrophilic thixotrope since 1997 (which tests had, in any event, been failures), nor any testing at all with the formulation incorporating the water-soluble ethylene glycol. No testing was done until 2003 and 2004 (which tests also gave negative results). 309The finding is that the First Representation was: (1)misleading and deceptive contrary to section 52 of the Act; and (2)false and misleading in respect of its composition and history contrary to section 53(a) of the Act. 310As the plaintiff contends, in respect of the Second Representation, it might be accepted that the reasonable person [and Mr Annakin [T 165.3 - 166.6]] would not (and did not) understand the statement that Derakane 411 is "the same" as Hetron 922 to mean that it was absolutely identical in all respects. 311However, the Court accepts that in the context in which that statement was made in the present case, the reasonable person would [and Mr Annakin did [T 166.8-12]] understand the statement to mean that the two products would function in materially the same way. 312Putting aside that Derakane 411, manufactured by FGI, almost certainly did not incorporate Ashland's "F-CAT Technology" and that, during the Hetron Period, it was sold in Australia with a hydrophobic thixotrope, the plain fact is that: (1)Tranquility did not suffer osmosis in its pools manufactured with Derakane 411; (2)more than half of the pools it made with Hetron 922 have Failed; and (3)Tranquility's method of manufacture using the two products was identical. 313As the plaintiffs have contended, it follows that the two products as sold and used with their additives could not be, in any real sense, "the same". Hence by making the Second Representation, Huntsman contravened sections 52 and 53(a) of the Trade Practices Act.

Incorporation of terms 314Huntsman admits that it was a term of the contract of sale between it and Tranquility that Hetron 922 be of merchantable quality. It pleads, however, that other terms on its invoices (clauses 8, 9 and 10) ("the Terms") were also incorporated and that the effect of these clauses was that the usual implied term as to fitness for purpose was excluded, and that the remedy for breach of the merchantability terms was drastically limited. 315It is in this context that the Third and Fourth Representations are particularly significant. Tranquility submits and the Court accepts that, by reason of these representations, Huntsman is estopped from asserting that the Terms have been incorporated into any contract between it and Tranquility, and from denying that the term implied by section 19(1) of the Sale of Goods Act 1923 of fitness for purpose has been so incorporated. 316The elements of equitable estoppel were set out by Brereton J in Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 at [83] - [84]; see also [96] (citations omitted): Thus, in promissory estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of a legal relationship with the defendant; (2) that the defendant has induced or acquiesced in the plaintiff's adoption of that assumption; (3) that the plaintiff has acted in reliance on its assumption; (4) that the defendant knew or intended that the plaintiff so act; and (5) that it will occasion detriment to the first party if the assumption is not fulfilled. 317The finding is that all these elements have been made out: (1)Tranquility, via Mr Annakin, adopted the assumption that Huntsman would compensate it if anything went wrong with the product and, implicitly, would not enforce any terms and conditions to the contrary [T 170.18 - 171.16]; (2)that assumption was induced by Mr Rapson via the Third and Fourth Representations; (3)Tranquility, via Mr Annakin, relied upon that assumption T 170.35 - 171.37]; (4)though there is no direct evidence from Mr Rapson, as Huntsman did not call him, the only inference reasonably open is that Mr Rapson conveyed the Third and Fourth Representations intending that Mr Annakin would act on them and purchase Hetron 922; and (5)Were Huntsman is permitted to rely upon the Terms, then Tranquility's claims in contract would be reduced to nothing because of the notice requirement in clause 10. 318In Ferro [at pages 31 -33], Cole J found this kind of estoppel in favour of International on the basis that Huntsman had made a representation to it essentially identical to the Third Representation in the present case. If any of the above be wrong, I think there was substance in Tranquility's alternative submission that the Third Representation was misleading and deceptive because Huntsman never had any intention of waiving compliance with the Terms. However, given my conclusions above it is unnecessary to analyse this argument in any detail.

Breach 319Huntsman places a great deal of reliance upon the experience of other manufacturers in its submissions in this question. That evidence has been addressed above. 320What remains is that Tranquility suffered catastrophic failures, which were caused by the Hetron 922 LVPS/LVPW, and those failures were not due to substandard manufacturing procedures. 321The reason for the difference in experience with the only other significant purchaser of Hetron 922 LVPS / LVPW, Barrier Reef, is a matter of speculation. There is no evidence either way. Tranquility had the benefit of the Referee's findings. Huntsman bore the evidentiary onus of rebutting the inferences that arise from those findings. 322In Australian Knitting Mills Ltd v Grant [ (1933) 50 CLR 387 at 418; [followed by Branson J (Jacobson J agreeing) in Medtel Pty Ltd v Courtney (2003) 130 FCR 182 at [63]; see also Mistral International Pty Ltd v Polstead Pty Ltd [2002] NSWCA 321 at [73] - [75] per Sheller JA, Meagher JA and Beazley JA concurring], Dixon J (as his Honour then was) expressed as follows the approach to be pursued when considering whether goods purchased are of merchantable quality: The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms . 323Any pool manufacturer aware of the true nature of Hetron 922 LVPS or LVPW, and particularly its propensity to cause blistering (as revealed by Tranquility's experience, but also by Dr Durrant's 2004 experiments) would not purchase it without abatement of price. Hence it is not merchantable. As this product had only one use, it was also not fit for its purpose. 324In any event, Hetron 922 was not fit for use by Tranquility and hence rendering the Fourth Representation false, misleading or deceptive.

Causation 325Tranquility correctly accepts that to show it has suffered loss or damage "by" Huntsman's contravening conduct (s 82 of the Trade Practices Act ), it must establish, on the balance of probabilities, that: (1)the Representations were a material inducement in the purchase and use by Tranquility of Hetron 922 in the barrier layer of its swimming pools; and (2)using Hetron 922 materially contributed to the Pool Failures (and the losses flowing therefrom). The second issue has been dealt with above. 326On the first issue [ that of reliance] I accept that it is critical to keep in mind the context in which these representations were made. 327Mr Annakin was extremely reluctant to purchase anything from the defendant because of the experience International had had with Huntsman's Aropol 7000. 328The relevant principles concerning the role played by reliance in relation to the question of causation were summarised by Wilson J in Gould v Vaggelas [(1985) 157 CLR 215 at 236; these principles have been repeatedly affirmed, see eg Havyn Pty Ltd v Webster [2005] NSWCA 182 at [116] per Santow JS (Tobias & Brownie JJA agreeing)]: (1)Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. (2)If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation. (3)The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation. (4)The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract. 329The last point is of immediate relevance. The representation need not be the sole or even dominant factor in causing the representee to change their course of action. It need only constitute a "material", meaning anything that is not de minimus [ Bonnington Castings Ltd v Wardlaw [1956] AC 613 at 621 per Lord Reid (Viscount Simonds agreeing); March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 514 per Mason CJ (with whom Toohey & Gaudron JJ agreed) and at 532 per McHugh J] inducement. Mr Annakin, when pressed on this point in cross-examination, insisted the First Representation had "an impact" upon his choice [T164.18-20]. 330In any event, the causation inquiry does not occur in a vacuum, but in the context of the particular contravention alleged. Tranquility submits and I accept, that any reliance which Mr Annakin may have placed on his own experience with Hetron 922 was in the context where Mr Rapson had just represented to him that the Hetron 922 which would be provided to him would be "the same" not only as the "Derakane 411" he was currently using, but - by virtue of the First Representation - "the same" as the Hetron 922 he had used in the past. 331The finding is that Mr Rapson's representations were calculated to induce Mr Annakin to purchase Hetron 922 and he in fact did so. 332A "fair inference" of reliance arises from this fact. 333I accept that it is supported by the credible direct evidence of Mr Annakin that he in fact did so. 334As stated above, to rebut this evidence of reliance, evidence must be adduced showing that Mr Annakin knew the true facts or that they played no role in his decision-making process. As the plaintiff has contended these two matters can be tested by postulating whether, had Mr Rapson not misled Mr Annakin, Mr Annakin would nevertheless have purchased the Hetron 922. 335Assuming Mr Rapson: (1)nor any other Huntsman representative, did not meet Mr Annakin at all, it is clear that he would have continued using Derakane 411; (2)made only the representation regarding price, the uncontradicted evidence given by Mr Annakin regarding his conversation with Mr Rapson was that this was insufficient to sway him given his experience with Aropol 7000; and (3)represented the true position - "we have been experimenting with its composition, have run no tests for water resistance and you will be the first company to use it commercially in its new form" - there can be no doubt that Mr Annakin would not have had a bar of it. 336Mr Annakin says he was extremely wary of using another product manufactured by Huntsman. Subsequent events demonstrate that his concern was soundly based. It is difficult to envisage a more compelling case of reliance than that presented by the present facts. 337The finding is that but for the Representations, Tranquility would not have used the reformulated Hetron 922 in the manufacture of its pools and therefore it: (1)would not have suffered the Pool Failures; (2)would not have had the liability to its customers to replace those pools; and (3)would not have had its business destroyed beyond recovery.

Contributory negligence 338Huntsman pleads that its liability to Tranquility ought be reduced by reason of contributory negligence pursuant to section 82(1B) of the Trade Practices Act . 339Tranquility submits, in relation to this pleading, that: (1)as Tranquility's cause of action against Huntsman arose prior to the commencement of section 82(1B) - 26 July 2004 - the defence is not available to Huntsman; (2)a finding that Tranquility failed to take reasonable care in respect of its manufacturing is equivalent to a finding that it had "substandard manufacturing standards" and hence Huntsman is prevented by the adoption of the Referee's Report from making such a submission; and (3)in any event, Huntsman has failed to discharge its onus of proof to establish that Tranquility was negligent in its manufacturing, or that any such negligence (if it existed) materially contributed to the Pool Failures. 340Section 82(1B) of the Trade Practices Act was inserted by item 5 of schedule 3 of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth). Schedule 12 of that Act added a new section 1466 to the Corporations Act 2001 (Cth) in the following terms: The amendments made to this Act and the Trade Practices Act 1974 by Schedule 3 to the amending Act apply to causes of action that arise on or after the day on which that Schedule commences. 341Schedule 3 of the amending Act commenced on 26 July 2004. 342A cause of action pursuant to section 82 accrues on damage [ Wardley Australia Ltd v Western Australia (1992) 175 CLR 514]. Tranquility alleges that it suffered damage broadly falling into three kinds: (1)loss of profits flowing from loss of sales due to the damage suffered to its reputation; (2)liability to customers to replace or rectify their pools; and (3)expenses incurred in managing the complaint outbreak. 343I accept that on the evidence Tranquility first suffered a loss of sales sometime on or about 1 January 2005. I further accept that on the other hand Tranquility first suffered damage on the other two heads before 26 July 2004. 344The first confirmed complaint was that of Mr and Mrs Shaunessy in Lorn on 20 April 2004. By June 2004, there had been a sufficient number of confirmed complaints for Mr Kahler to issue instructions as to the dealing of complaints. Tranquility first suffered "damage" in respect of this liability when a complaint is confirmed because at that time the cause of action the customer has against Tranquility is complete, and hence the liability of Tranquility is no longer contingent but, to use the words of the High Court, "ascertainable" [ Wardley Australia Ltd v Western Australia (1992) 175 CLR 514]. 345It is not only Tranquility's liability to customers which first crystallized before 26 July 2004. The first expense it incurred in the management of the complaints was on 10 June 2004 - the invoice of $386.34 for Lo Chlor chemicals to mask blistering and blackspot [Exhibit SGA14; Exhibit SGA15. The actual payment was made on 22 June 2004: Kahler, 6 Feb 09 at [50] & Exhibit KWK66]. The first invoice in respect of work done to manage the complaints (by meeting with Huntsman representatives) was issued by Mr Kahler on 23 July 2004. 346Tranquility's causes of action pursuant to section 82 of the Trade Practices Act , having arisen before the commencement of sub-section (1B), are not subject to the contributory negligence defence: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109. 347In any event, the defence, if it be available, has not been made out. 348Contributory negligence is an affirmative defence and hence Huntsman bears the onus of proof [ Boyd v Leftwich (1982) 43 ALR 280] in establishing both that: (1)Tranquility failed to take reasonable care; and (2)that failure was a cause of Tranquility's loss or damage. 349Even putting the Referee's findings to one side, the Defendant has two substantial difficulties in the path of discharging its onus of proof: (1)first, to establish that Tranquility has been negligent, it needs to prove that Tranquility's manufacturing has fallen short of some objective standard, the Defendant has called no evidence which is capable of establishing what "reasonable" manufacturing standards might be; and (2)second, if Tranquility did have negligent manufacturing standards, and they were capable of causing Pool Failures, then one would have expected to see some failures in pools manufactured with resins other than Hetron 922 in the period 20 August 1999 to the present day. There have been none. 350On the first issue, Huntsman has sought to rely solely upon: (1)alleged breaches of Australian Standard AS/NZ 1834 ("the Standard"); and (2)the evidence of Dr Pilato. 351In respect of the use of the Australian Standard as evidence of negligence, King CJ stated in Chicco v The Corporation of the City of Woodville (1990) Aust Torts Rep 81-028 at 67,895 that: Publications containing safety standards approved by the Standards Association of Australia were admitted by consent. These standards do not have legal force, except, of course, to the extent that they may be given such force by a particular statute. They had no legal force in the circumstances of the present case. It is permissible for an expert on safety to have recourse to such public standards, if he sees fit, as one of the sources from which he informs himself as to matters relating to the subject on which he is expert. But the standards, themselves, have no legal or evidentiary force. 352Chicco has been repeatedly followed in this respect [see eg Maynard v Rover Mowers Ltd [2000] QCA 26 at [17] per McMurdo P, Thomas JA & Helman J and Hughes v Van Eyk [2008] NSWSC 525 at [68] per Hislop J] , including by Porter J in Kent v Gunns Ltd [2009] TASSC 30 where his Honour held that "[i]n short, a Standard such as AS-1755 is merely a guideline without any legally binding effect. In the absence of statutory embodiment, their relevance in any proceedings would only be to the extent that there has been expert evidence as to the extent to which they express good practice". 353Huntsman and Dr Pilato rely especially in clause 6.3 ("Corrosion barrier") of the Standard, which provides: The corrosion barrier shall be constructed from a suitable resin, or a resin/fibrous reinforcement composite, manufactured in accordance with the respective materials specification. It shall be free from dry fibres, delamination from the cosmetic layer, and air bubbles . 354The evidence of Professor George, however, is that using the method of manufacture which has the resin/glass mixture sprayed onto a mould and then rolled by laminators - the same method which is used by Compass - it is impossible to remove all air bubbles (voids) [T 797.1-29]. This has been dealt with above. Such a manual process would also be unable, at least consistently, to achieve complete wet out of all fibres, even in the hands of an expert. 355There is no evidence that the Standard has been given the force of law in this country. It is plain that section 6.3 expresses not the minimum standard of care required of the "reasonable" manufacturer, but an ideal for which a manufacturer should strive. As Barwick CJ stated in Purcell v Watson (1979) 26 ALR 235 at 237 (which concerned an appeal by a pedestrian who had sued a driver for personal injuries against the trial judge's apportionment for contributory negligence): Of course, a counsel of perfection would be for a pedestrian to step off the roadway, albeit into a puddle on the shoulders of the road, whenever the lights of an oncoming car approached: or at any rate when the lights appeared to be 50 yards or more away from him. Doubtless life is more securely preserved by such a course, particularly as negligent driving or lack of proper control of a motor vehicle is less than unusual. But we are not dealing with perfection or even with wisdom. The requirement of the law is no greater than the pedestrian take reasonable care for his own safety, not care that eliminates all risk, but reasonable care. 356As has been stated in respect of the discharge of retainer by solicitors, the duty is to exercise reasonable care, skill and diligence. The standard of care is not to be measured against a "counsel of perfection" [ Carew Counsel Pty Ltd v French (2002) 4 VR 172 at 185 per Winneke P (with whom Buchanan & Vincent JJA agreed)] or that of a "particularly meticulous and conscientious practitioner" [ Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 at 403 per Oliver J]. 357If the Standard is unable to provide a safe guide to the required standard of care in the present case, then Dr Pilato is even less so. He candidly conceded that he had no experience at all with the manufacture of fibreglass swimming pools [T 831.16-28]. His ability, therefore, to express any expert opinion on the question of whether Tranquility had substandard manufacturing procedure was extremely limited. This was graphically demonstrated, for example, by his admission of basic errors revealing a profound ignorance of pool manufacturing methods, such as, for example, his citation of recommendations related to "chopped strand mat", as explained earlier. . 358Taking into account that on this issue the burden of proof is placed upon Huntsman, I accept that the evidence before the Court is simply insufficient to satisfy the Court either that Tranquility had substandard manufacturing procedures or that any such procedure caused the Pool Failures. 359Ultimately, the most eloquent rebuttal to this defence, however, remains the fact that the only Pool Failures ever suffered by Tranquility pools - whether before the Hetron Period (reaching back to 1999), during it or after (to the present day) - were with pools which were manufactured with Hetron 922. Tranquility submits that this fact alone is sufficient to reduce the contributory negligence contention to a remote possibility - not the probability that is required to discharge Huntsman's onus of proof. 360I accept that the sole basis put forward for a finding that this defence has been made out is that the Court ought draw an inference from the fact that no other manufacturers suffered the extent of pool failures that Tranquility did. 361Huntsman's submissions pay no regard to the fact that: (1)Tranquility has no pool failures using other vinyl ester resins, despite using the same manufacturing process and personnel at all times; (2)the Referee found, with the agreement of Huntsman's expert Professor Shanks, that Tranquility did not have substandard manufacturing procedures; and (3)Huntsman adduced no evidence of what were reasonable manufacturing standards against which those of Tranquility could be measured, in circumstances where it bears the onus of proof. 362Huntsman contests Tranquility's argument that the defence is not applicable as it applies only to causes of action arising on or after 26 July 2004. Huntsman asserts that each purchase of Hetron 922 was a separate act of reliance and hence a separate cause of action. 363Huntsman cites no authority for this proposition. It is expressly contradicted by Austin J in Clutha v Millar [2002] NSWSC 362 at [34]; [see also his Honour's subsequent judgment Clutha v Millar (No 3) [2002] NSWSC 642 where his Honour adhered to this view], where his Honour stated: It would be absurd to hold, in a case where the defendant's breach of duty extends over a period of time and causes loss constituted by failure to avoid transactions that occur repeatedly during that period, that a new cause of action arises with each such transaction. Since Clutha was a substantial trading company during the September/February period, I infer that it incurred many thousands of separate debts during that period. Hence, the plaintiff's proposition would entail that many thousands of causes of action arose during that time. The only purpose of distinguishing each such cause of action from every other would be to allow some of them to be brought within the limitation period. There would be no other rational basis for drawing any distinction. Properly understood, the complaint is that a continuing duty was breached by failure to act during the whole of the specified period, leading to a single loss. 364There are two ways to characterise Tranquility's cause of action against Huntsman in respect of the latter's contravention of section 52 and 53(a) of the Trade Practices Act : (1)as the breach of an ongoing obligation to correct unqualified representations, which obligation extended throughout the Hetron Period; and/or (2)breach of an obligation which extended so far as Tranquility decided to switch to Hetron 922 as its primary resin for the barrier layer of its swimming pools, in which case each subsequent purchase flowed from that decision (and hence the initial breach). 365In the latter case, there is but one cause of action which crystallises when the first damage occurs. There is no "new" reliance. The reliance is one and the same in respect of every purchase. 366If the former characterisation be correct, then, as there was an ongoing obligation with separate reliance in each case, by the reasoning in Clutha there is but one cause of action - and that crystallised on 20 April 2004. 367The Court accepts that there were multiple causes of action, one for each purchase of Hetron 922. In consequence two of Tranquility's heads of damage - destruction of business and consequential expenses - flow not from damage to any individual pool (and hence traceable to any one purchase of Hetron 922), but from the pool failures in general. That being so, each and every Pool Failure materially contributed to those losses being suffered. 368As each and every Pool Failure contributed to those heads of loss, then that damage is recoverable as compensation on each and every cause of action. In such a case the plaintiff is entitled to elect which cause of action they shall pursue to judgment on the basis of which is the most advantageous [see A stley v Austrust Ltd (1999) 197 CLR 1 at [44] per Gleeson CJ, McHugh, Gummow & Hayne JJ]. In such a case, Tranquility has made clear that it would elect to claims those heads of loss pursuant to causes of action which arose prior to 26 July 2004, and hence not subject to section 82(1B) of the Trade Practices Act .

Quantum 369Tranquility's damage was said to fall into three broad categories: loss of profits consequent on the destruction of its business; costs incurred by reason of the Pool Failures; and present and future liability to customers who purchased a Failed Pool.

The destruction of business claim 370Both parties addressed significant submissions on this issue. One feature of the respective addresses concerned each of the parties casting major aspersions upon the veracity of one and other's experts. Essentially, in this area, the plaintiff had retained Mr McGuinness as their expert whilst the defendant had retained Mr Gower . 371The curriculum vitae of each expert is set out in Appendix A. Appendix A 372By the time of final address, it was clear that the plaintiff no longer contended that the Court should adopt the hypothesis developed by its expert, Mr McGuiness. Instead, the plaintiff essentially contended that the Court had to make its own findings based on how it resolved the various issues. 373It is of course trite to observe that the Court's role is to closely examine all of the evidence including that put forward by each of the experts and then to carry out its best endeavours to determine the relevant issues. The Court is not bound hand and foot by the opinions of the experts but must reach its own considered decision. 374The plaintiff contended that a range of issues required resolution by the Court for the purpose of quantifying its loss under this head of damage. By the time of final address it was apparent these issues were: (1)Tranquility's actual production and sales; (2)the market evidence; (3)the alleged possible recovery of the business (4)the commencement of the loss period; (5)the proper date for valuation (6)whether the decline in sales from 1 January 2005 was caused by the osmosis outbreak (7)the appropriate discount rate (8)Tranquility's plant capacity; (9)the "but for" hypothesis; (10)the use of post-loss data; (11)adjustments for working capital; and (12)grossing up for income tax.

The parties' positions as to the approach to adopt in this area 375The plaintiffs contended as follows: (1)Both Mr McGuiness and Mr Gower have valued a number of scenarios. (2)The Court will, however, be unable to safely adopt the value of any of those scenarios as Tranquility's damages for destruction of business unless the Court finds that every assumption and every methodological assessment upon which that scenario is based is in accordance with the findings of the Court on the foregoing matters. (3)The appropriate course in respect of this aspect of damages is for the Court to make findings on the foregoing matters and then invite the parties to adduce very brief further evidence from Mr McGuiness and Mr Gower valuing the loss in accordance with those findings (including for statutory interest).

The defendants' position 376The defendant first contended in this area that there were a number of profound difficulties associated with the assessment by Mr McGuiness of the second plaintiff's losses. Amongst these difficulties highlighted by the defendant was that Mr McGuiness' report was said to be based on unproven and unrealistic assumptions. Essentially by the time of final address this had become a non-issue because the plaintiff was no longer seeking for the Court to adopt Mr McGuiness' hypothesis. 377The defendant essentially then contended that Mr Gower's evidence was the only evidence before the Court which constituted an expert assessment of Tranquility's likely losses. The defendant contended that the plaintiffs' response to this situation was to invite the Court to give its assessment of the loss and to, in effect, commission the preparation of some further assessment based upon methodology and assumptions to be determined by the Court. The defendant contended that the plaintiffs' proposal was unorthodox and offended against principles of finality of litigation and the just quick and cheap determination of disputes. 378Specifically, the defendant contended that if, by reason of the plaintiffs commissioning a calculation based on unproven assumptions, the Court was left in a situation where it only had the defendant's expert evidence before it, then that situation was entirely a result of the plaintiffs' forensic decisions. 379Ultimately, I am satisfied that the plaintiffs' proposed approach to this area of the case is appropriate. I do not think the plaintiffs' suggested approach offends the "just, quick and cheap" injunction in the Civil Procedure Act 2002 (NSW). There would be nothing just in the Court rejecting the many hypotheses of both parties, finding that Tranquility has suffered substantial loss and refusing to award damages because there is no evidence of the precise calculation for a hypothesis which does not precisely meet the Court's findings on the many disputed matters underlying the hypotheses.

The legal framework 380In my view each of the following observations hold true: (1)The critical findings the Court must make on this aspect of the plaintiffs' claim is in respect of the hypothesis it is asked to form in respect of what would have occurred in its business but for the osmosis outbreak consequence on the use of Hetron 922 [see T 606.1-4]. (2)The process of weighing the many possibilities involves the assessment of many variables. The Court is nevertheless, by the nature of the task, required to form a single view about the quantum of loss. As has been repeatedly recognised this will involve a degree of speculation. (3)Once causation is established, although the plaintiff retains an evidentiary onus, the balance of probabilities has no role to play and assessing the facts upon which the hypothetical (whether past or future or, as in this case, both) on that basis would be an error of law: Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at [137] - [144] per Sheller, Stein & Giles JJA. (4)In the great majority of cases, a scientific or actuarial approach is, given the imponderables, an exercise in spurious precision, and the proper approach is for the Court, having weighed all the possibilities, to settle on a single hypothesis on a qualitative and intuitive basis [ Idoport Pty Limited v National Australia Bank Limited [2007] NSWSC 23 at [11] - [12] per Einstein J]. In the result it is not an arbitrary exercise of power for the Court to weigh up competing factors and make a determination, even if, as is often the case, the task cannot be undertaken in a mathematical or precise manner. As the Court of Appeal found in Norris v Blake ... mathematical weightings of potential outcomes in loss of chance cases might be unsustainable and reliance rather should be placed on more intuitive methods to determine loss [ Norris v Blake (by his tutor Porter) [No 2] (1997) 41 NSWLR 49 at 71 - 73 per Clarke JA, Handley & Sheller JJA agreeing] . Similarly, the Courts are frequently required to estimate damages that are not capable of precise quantification and require a degree of approximation and even guesswork [ Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 per Mason CJ & Dawson J , at 138 per Toohey J and at 153 per Gaudron J; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at [37] - [38] per Hayne J ]. The Court is no stranger to intuitive determinations, or determinations made without absolute precision, arrived at by acting judicially [ cf Murray v Shillingsworth [2006] NSWCA 367 at [10] per Santow JA]. It is misconceived to suggest that such determinations or approaches are arbitrary. (5)Where this hypothetical is being posed in the case of an income stream which has a limited history but significant potential for growth - as was the case with the plaintiff (a talented actor) in Norris v Blake , and with the plaintiff (a champion boxer) in Fightvision Pty Ltd v Onisforou - it is important to allow for both negative and positive possibilities, including that of explosive growth. (6)Thus, in Norris v Blake , Clarke JA, speaking for the Court, stated in respect of the plaintiff's claim for lost earnings, that "[t ]he proper approach is to assess what it was most likely he would earn during the rest of his working life and adjust this for contingencies including the possibility that he might have done far better" [at 73]. (7)His Honour noted that this statement of principle was "consistent with the observations by Windeyer J in Bresatz v Przibilla " [(1962) 108 CLR 541 at 544]: Moreover, the generalisation, that there must be a "scaling down" for contingencies, seems mistaken. All contingencies" are not adverse: all "vicissitudes" are not harmful. A particular plaintiff must have had prospects or chances of advancement and increasingly remunerative employment. Why count the possible buffets and ignore the rewards of fortune? Each case depends upon its own facts. In some it may seem that the chance of good fortune might have balanced or even outweighed the risk of bad . 381In Fightvision Pty Ltd v Onisforou , the Court followed these remarks [at [142]: Although in many cases the hypothetical exercise of earning capacity is not controversial, it may be, so that the vicissitudes include allowance for the validity of the hypothesis as well as for the imponderables or chances affecting its realisation. That is why the allowance for vicissitudes is not restricted to adverse contingencies but includes positive prospects [ see Bresatz v Przibilla (1962) 108 CLR 541 at 544; Mitchell v Mulholland (No 2) [1972] 1 QB 65 at 77; Norris v Blake (No 2) at 73 ]. It can make no difference in principle if a past hypothetical event is in question rather than a future hypothetical event, or if damages for loss of profits rather than for lost earning capacity is in question.

Tranquility's actual production figures 382The parties are in dispute as to the number of pools that have been produced to date, in relevant financial years, by Tranquility. 383The plaintiffs contend that the number of pools produced by Tranquility up to financial year 2010 are as contained in produced summaries annexed to Mr Kahler's affidavits. These summaries simply set out set out the number of pools produced and do not contain any supporting documentation. 384The defendant has quite clearly placed in issue at least the number of pools that Tranquility claims it produced in the financial years ending 30 June 2009 and 30 June 2010. As part of a wider debate that occurred on 30 November 2010, Huntsman stated that it only accepted the figures in the production summaries for these financial years as an assertion made by Mr Kahler as to what he claimed the production figures were: see T928.12-29-929.30. 385The defendant takes this position in reliance on the reports of Mr Gower, who drew attention to alleged inexplicable increases in the cost and volume of chemicals used to produced Tranquility pools, specifically in the 2009 financial year. Similarly, Mr Gower highlights increases in the labour costs to produce Tranquility pools. The defendant uses these parts of Mr Gower's reports to submit that Tranquility could be expected to have produced many more pools in the financial year 2009 than is reported in its production summaries (approximately 150 more than the roughly 200 produced). 386The defendant is essentially asking the Court to infer that the number of pools produced by Tranquility is much greater than that stated in its production summaries. 387As the plaintiffs highlighted, a finding that the production summaries were not accurate would amount to a finding of dishonesty against Mr Kahler. I do not make any such finding. As the plaintiffs contended, this serious allegation was not put to Mr Kahler on the two occasions he was cross-examined. The defendant highlighted that it was put to Mr Kahler that his companies had not accurately reported their income to revenue authorities. In my view if the defendant wished to submit that the production summaries were false this had to be squarely put to Mr Kahler. The ultimate holding in this area is that the Court accepts the production summaries as evidence of Tranquility's actual production figures.

Conflicting evidence as to data for discerning a trend in swimming pool market 388The parties are at odds as to which evidence should be accepted as to trends in the swimming pool market, which is relevant to assessing the business destruction claim. At the heart of this issue is whether it can be shown that Tranquility's decline is due to a market decline rather than the osmosis outbreak. 389There are four sources of market data before the Court, the first three of which ultimately emanate from Reed Construction Data: (1)the data contained in exhibits KWK60 and KWK61 to the affidavit of Mr Kahler sworn 6 February 2009 in respect of the financial years 2001 - 2006 inclusive. This data is then used by both Mr McGuiness and Mr Gower; (2)the data Mr Gower obtained in respect of the financial years and contained in Annexure H to his report of 14 September 2009; (3)the data obtained from Robert Wild, Chief Executive Officer of Cordell Information, a trading unit of Reed Business Information Pty Ltd, and set out in respect of the financial years 2004 - 2010 in exhibit ROW-2 to his affidavit of 29 October 2010, as corrected by his affidavit of 23 November 2010, and in respect of the financial years 2001 - 2003 in exhibit P27; and (4)the council data exhibited to the affidavit of Nawaar Hassan of 19 November 2010. 390What these data sets report for NSW & the ACT, Queensland, Victoria and the Eastern Seaboard for the period 1 July 2000 - 30 June 2010 is set out respectively in Tables 1, 2, 3 and 4 (see Appendix B ), (although the council data is only from 12 of the 120 local councils in NSW listed in the data which forms exhibit ROW-2 to the affidavit of Mr Wild). Appendix B 391The data in Mr Kahler's affidavits (covering the years 2001-2006) and the data compiled in Annexure H to Mr Gower's report (covering the years 2007-2009) does not match the data brought forward by Mr Wild for those years. This is despite the fact that these data sets appear to come from the same source (Reed Constructions Data). The discrepancy is not explained in the evidence. 392The real significance of the dispute as to data is that for the years 2001-2004, the Wild data, which the plaintiff relies on, shows the NSW and ACT and Queensland swimming pool markets as being markedly smaller than the position indicated by the Kahler data, relied on by the defendants. The Wild data also shows that after the boom year of 2005, the swimming pool market declined, but stayed well above its pre-2005 levels. In contrast the Kahler/Gower data shows the market post-2005 falling below its pre-2005 levels. The difference between the two data sets is usefully illustrated in the following graphs. 393By the time of final address it was clear that real issue in this area was whether Tranquility should be permitted to rely on the Wild data. The basis of the defendant's objection was essentially that the Wild data did not match the data published by Cordell during the period 2001-2004, that the Wild figures were contrary to the data put forward in Mr Kahler's evidence and relied upon by Mr Gower, and that the data was allegedly contrary to the plaintiffs' response to a notice to admit facts. 394In relation to the notice to admit facts, Tranquility, in a notice disputing facts dated 6 October 2010, admitted that the information contained in a table in Huntsman's notice to admit for the years 2001-2006 "accurately represents the number of council approvals recorded by Reed Constructions ... for those years". I accept Tranquility's submission that this does not prevent it relying on the Wild data, since it did not admit that the Kahler/Gower data accurately represented trends in the pool market for the relevant years. 395It needs to be borne in mind that Mr Wild was called by Huntsman on 25 November 2010 after Mr McGuiness and Mr Gower, who were utilising the Kahler data, gave evidence on 22 November 2010. That is, Huntsman adduced the Wild data, which it now complains is contrary to the Kahler data which the two accounting experts relied upon. 396Furthermore, Huntsman could have explored with Mr Wild why the data he produced to the Court was markedly different to that published by Reed for the years 2001-2004. It did not do so. In this circumstance, as the plaintiff submitted, to the extent that it is appropriate to draw a Jones v Dunkel inference, that inference runs against Huntsman. 397Mr Wild's evidence as to the data set he produced to the Court was as follows. Mr Wild is the Chief Executive Officer of Cordell Information, a trading unit of Reed Business Information Pty Ltd. Cordell Information produces various publications that contain information as to swimming pool development approvals. Cordell Information requests information about development approvals for swimming pools issued directly from local councils. It has no power to compel councils to provide information. Some councils provide information voluntarily. Some refuse to. Similarly some provide information regularly and some provide information intermittently. When information about development approvals for swimming pools is received from a Council, it is passed to the relevant department within Cordell Information and entered onto an electronic database managed by Cordell Information. After the information is entered onto the database, the original documents provided by the Council are destroyed. This database is used to produce Cordell's various publications. In response to a subpoena, Mr Wild arranged for an extract from the Cordell database to be sent to the Court. 398It is true that Cordell purchased the database in March 2003. But there is no reason to believe that this change altered the method of calculation. Furthermore, Mr Wild did not disclose any change in recording practices after the purchase of the database. 399In my view Mr Wild's evidence demonstrates that the data set produced to the Court on his behalf was put together in an entirely logical way. The Court holds that the plaintiff is able to rely upon it. 400The next issue is that the plaintiff contends that it is appropriate to double the Wild figures to gain an accurate understanding of the size of the pool market. As outlined above, Mr Wild acknowledges that his company does not capture all pools built in any locality, but is completely reliant upon local councils voluntarily reporting their data. It is plain that the "Wild Data" is therefore but a subset of the market. 401Importantly, the basis for doubling the Wild data, which as outlined below, I accept as entirely reasonable, arose from evidence adduced by Huntsman. Huntsman adduced evidence from Ms Nawaar Hassan, a law graduate with its solicitors, in which Ms Hassan described a process whereby she obtained data from twelve councils in NSW regarding the number of development approval applications received for swimming pools, for the financial years 2005-2010. Since the data provided by Mr Wild to the Court was broken down on a council by council basis, I accept that it is appropriate to compare the data reported by councils in Ms Hassan's evidence and the Reed data produced by Mr Wild. Such a comparison is contained in three tables [the three tables are set out in Appendix C]. That comparison reveals that, in respect of 12 local councils chosen by the defendant, that on average, Reed captures 53% of council approvals. Appendix C 402Of course, there is no evidence before the Court that suggests that the installation of a pool requires council approval. It must be accepted that a proportion of pools are sold without council approval. A conservative assumption is that that Reed Data captures 50% of the market. Thus the plaintiff contends and I accept that the Wild data should be doubled to understand the overall size of the swimming pool market. 403The defendant had several other complaints about the approach of doubling the Wild data to discern an accurate market trend. These included: (1)that on the plaintiffs' figures arrived at in this way there was a six-fold increase in the NSW and ACT swimming pool market between 2003-2005, and the plaintiff had not put forward an expert to suggested this was reasonable nor was this put to Mr Gower; (2)that the growth rates revealed in the figures relied on by Tranquility were so high that the figures should be disregarded; (3)that the trend in sales results of Compass, a significant pool manufacturer, closely tracked the trend in the published Reed data relied on by Mr Kahler, and showed the Wild data to be radically different (as illustrated by a graph produced by the defendants which became MFI P9); (4)that Mr Gower had had regard to material other than the Reed data in conducting his analysis, which did not support the high growth rates in the market indicated by the Wild data. 404In the particular circumstances that pertain, I do not think that any of this should preclude the plaintiff from relying upon the Wild data. As outlined above, I do not see it as inappropriate for the plaintiff, having effectively abandoned its expert, to make contentions based on the evidence as to the findings the Court should make. As outlined above, the Wild data, which the Huntsman now complains contradicts the evidence of the accounting experts, was adduced by Huntsman after the accounting experts gave evidence. Moreover, Huntsman had the opportunity to ask Mr Wild about any alleged anomalies in the data. As outlined above, I accept as sound both the way in which the Wild data was complied, and the logic, based on the Hassan evidence adduced by Huntsman , for doubling it. 405Finally, I am not convinced that the qualitative material relied on by Mr Gower, in the form of two media articles, appearing as Annexure F to his report of 14 September 2009, is a strong enough basis for the Court disregarding the Wild data. 406The result is that the plaintiff is permitted to rely on the Wild data, doubled, in order to assess the overall size of the swimming pool market. This is the basis on which the destruction of business claim is to be assessed. 407I will now set out two tables which utilise the data that I am permitting the plaintiff to rely upon. The first table represents the market trend as against Tranquility production: FY Production NSW & ACT Eastern Seaboard 2001 262 - 2,608 - 11,398 - 2002 326 +24% 2,172 -17% 11,174 -2% 2003 508 +56% 2,192 +1% 10,066 -10% 2004 592 +17% 4,342 +98% 13,574 +35% 2005 616 +4% 12,188 +181% 27,140 +100% 2006 457 -26% 9,610 -21% 20,560 -24% 2007 399 -13% 8,840 -8% 20,580 0% 2008 358 -10% 8,160 -8% 17,148 -17% 2009 202 -44% 6,312 -23% 18,438 +8% 2010 214 +6% 7,406 +17% 19,536 +6%

408The movement in Tranquility's market share is revealed by the second table: FY Sales NSW & ACT Eastern Seaboard 2001 262 10% 2% 2002 326 15% 3% 2003 508 23% 5% 2004 592 14% 4% 2005 616 5% 2% 2006 457 5% 2% 2007 399 5% 2% 2008 358 4% 2% 2009 202 3% 1% 2010 214 3% 1%

Tranquility's capacity at the Taree plant for the purposes of the but for scenario 409The parties disagree as to the maximum capacity of the Taree plant. This is obviously relevant to the but for hypothesis. 410Mr Annakin - who has many years of relevant experience, having operated as factory manager at both International and Tranquility - deposed that: (1)If the Taree factory operated for 7 days a week, the greatest number of pools which could theoretically be manufactured would be 18. (2)Therefore, if the factory were to operate for 50 weeks a year, its theoretical maximum output would be 900 pools. (3)In reality, taking into account, other practical estimations, he believed that the maximum output for the Taree premises would be about 850 pools per year. 411Mr Annakin was not challenged as to his estimate under cross-examination. However, the defendant draws on the sentence which follows Mr Annakin's estimate, where he deposes that "these figures assume a constant demand ... However it is my experience that demand varies depending on the season". 412The defendant submits Mr Gower's calculation of the Taree plant's maximum capacity should be adopted. Mr Gower has had regard to the variations in seasonal demand for pools, and determined the maximum capacity to be 664 per annum. 413As Mr Gower accepted under cross-examination, his calculation was premised upon Tranquility sticking rigidly to its policy of only making pools to order. Mr Gower agreed that, if some production was rescheduled from the summer period, in which the factory could not keep up with demand, to a quieter period, the maximum capacity of 850 pools per annum could be achieved: T663.31-664.36. 414I accept the plaintiffs' proposition that if Tranquility started to approach a "seasonal variation limit" - whereby it could not build all the pools that customers demanded in the summer period - it would likely have altered its policy for example by using periods where the factory had slack to build pools on consignment for sale during busier periods. There is evidence that Tranquility has been willing to shift its business methods to match the prevailing circumstances - for instance, by producing consignment stock, as it did from 2006, and as was done with International. 415For the above reasons I accept that the maximum capacity of Tranquility's Taree plant which should be used for the "but for" calculations is 850 pools per year, as supported by Mr Annakin's evidence.

The use of post-loss data 416The parties are also in dispute as to whether it is appropriate to use data after the date of loss to inform the "but for" hypothesis. 417Mr McGuiness says that it is not appropriate to use post-loss data in forming the "but for" hypothesis, because it will mean contaminating the hypothesis with the consequences of the very event that hypothesis is designed to correct. Mr Gower contests this view. 418Tranquility submits that if post-loss data is used to inform the hypothesis, it can only be after an analysis which attempts to disentangle the consequences of the loss triggering event from those other factors. The basis in principle for including post-loss data can only be that those events would have occurred in any event. Absent this process of analysis, it would be an error of law to use such data [see, in the valuation context, Ackers v Austcorp International Ltd [2009] FCA 432 at [484] - [487] per Rares J ]. 419It does not appear that Mr Gower has conducted such an analysis. In any event, the distortions to Tranquility's financial performance that he points to in respect of revenues per pool, the cost of chemicals and labour and gross profit margins only become evident in an increasing way in the latter years when Tranquility's financial position has significantly deteriorated. 420As I outline below, I reject Mr Gower's contention that the pool failures only had a "nominal" effect on Tranquility's business and it follows that the distortions in Tranquility's performance in these later years must be tied to the consequences of the osmosis outbreak - including the use of labour for tasks not related to production, and the production of pools on consignment. 421That being so, I accept Tranquility's submission that it is unsafe to use post-loss data in forming the "but for" hypothesis. 422I accept Tranquility's submission that the calculation of the revenue per pool and the costs of business for the "but for" scenario should be as determined by Mr McGuiness. However, I do not accept Tranquility's contention that it would have established two new plants. The result is I have had to alter Mr McGuiness' assumptions, and the findings are as follows for the purposes of calculating the "but for" scenario: (1)average revenue per pool, use actual FY 2005 base ($5,000) and grow at CPI (3%); (2)gross profit percentage: 50%; (3)fixed operating expenses of $350,000 (being the actual expenses for the Taree plant), growing at CPI.

Interest rate 423Tranquility submits that the appropriate discount rate to future cash flows is 18.2%. It is true that Mr Gower and Huntsman were critical of Mr McGuiness' approach to determining the appropriate discount rate, in particular his choice of comparable entities. However, by the time of final address, senior counsel for Tranquility put that the discount rate of 18.2% appeared to be common ground. Huntsman did not address this point during final address. 424I accept Tranquility's submission that the appropriate discount rate is 18.2%. I further accept Tranquility's contention that this rate reflects a significant risk weighting to future earnings which must be taken into account in forming the "but for" sales scenario, lest negative vicissitudes be double-counted. 425I accept Tranquility's contention that future cash flows must be discounted back to the date of loss - 1 January 2005 - using the midpoint in any financial year as an approximate date of incurring of the profits lost in that year. Statutory interest must then be applied to compensate Tranquility for the loss of those funds between 1 January 2005 and the date of judgment.

But for hypothesis 426It is now necessary to turn to the issue of what Tranquility's sales would have been "but for" the osmosis outbreak. 427The forming of the appropriate hypothesis as to how Tranquility would have performed but for the osmosis outbreak is a matter for the Court. It is to be guided by the legal principles in this area outlined above, and needs to include an allowance for both positive and negative vicissitudes. As outlined above, I hold that the application of the discount rate to any but for earnings will allow for negative vicissitudes.

Tranquility's but for hypothesis 428The plaintiff submits that the Court should accept a scenario which it has devised, which is supported by various evidence. The plaintiffs contend that this scenario " allows for modest growth which gives due weight both to the explosive growth seen at both Tranquility and International, the uncontradicted evidence of specific dealers that they wished to order many more pools from Tranquility and the decline in the market since 2005". The plaintiffs' favoured scenario is as follows: (1)This was a business which in the 3 years between 2001 and 2004 rose 31% a year in a falling market. When Mr Kahler and Mr Annakin operated International in the period 1986 - 1993, they had an annual rate of increase in sales of approximately 35%. They were expert and knowledgeable in the industry and had a record of success. (2)Furthermore, unlike the non-comparable data Mr Gower uses for the market in the period 2001 - 2009, the data provided by Mr Wild shows that although 2005 was undoubtedly an outlier, the market in 2006, 2007 and 2008 was approximately double the 2004 market, and in 2009 and 2010 the market was over 50% and 75% higher. (3)Tranquility achieved what can only be described as extremely impressive growth to 2004, the last year it was not affected by the osmosis outbreak. Furthermore, there is uncontested evidence that many more dealers wished to purchase Tranquility products, from which it is to inferred that, but for the Pool Failures, Tranquility would have achieved continued market growth in NSW, as well as make further inroads into the markets in Queensland, Victoria and overseas to which it already sold. (4)Of the 461 pools made during the Hetron Period which have had their addresses identified - the 428 Failed Pools and the 33 Non-Hetron Pools - 1 was sold to Japan, 11 to the Far North Coast of NSW, 2 to Queensland and 30 to Yarrawonga in Victoria. This showed that there was a market for Tranquility pools in these places. Factories closer to those markets would have permitted Tranquility to have significantly greater access to them. (5)Importantly, at all times in 2001 - 2010, NSW has represented less than half the Eastern Seaboard market. Although the NSW market has substantial room for growth itself (850 pools represents an estimated market share of 11.5% - less than Tranquility had in 2002, 2003 and 2004), Queensland and Victoria had very significant room for growth. (6)Lastly, save for the production of brochures, Tranquility undertook almost no advertising and relied entirely on word of mouth. This puts its impressive pre-outbreak growth into even starker relief. It stands to reason that the expansion plans envisaged - and pursued - by Mr Kahler and Mr Annakin, would have been supported and buttressed by an appropriate advertising campaign, and this would have increased name recognition and sales. (7)In particular, Tranquility submits the following scenario is appropriate: (a)start from the last unaffected year - 2004 and 592 sales; (b)allow growth at 25% for the "boom" year 2005 - 740 sales; (c)allow an additional year for construction of the two further factories; (d)sales remain static in 2006 at 740 sales to reflect the correction in the market; (e)allow 20% growth for the next five years as the two factories achieve initial market penetration in Queensland and Victoria - less than the growth of both International and pre-outbreak Tranquility to making an allowance for negative vicissitudes and some cannibalisation of existing markets; and (f)then 15% growth until Tranquility "stabilises" at about 2,000 pools per year (just over 10% of the estimated Eastern Seaboard market), at which point it can be assigned a "terminal value" as a mature business. This conservatively assesses damages short of the 2,500 actual capacity of the three factories. (8)If the Court rejects the hypothesis that Tranquility would have built one or both of the intended future factories, then these figures will need to be adjusted to reflect that maximum capacity.

Huntsman's position as to the but-for scenario 429Huntsman submits that the Court should adopt the conclusions arrived at by Mr Gower. 430The substance of Mr Gower's opinion evidence was essentially as follows. (1)NSW pool approvals declined during the period 2005 to 2009 from 6,005 to 2,485, a decline of 59% during the four-year period. [as noted above I think the plaintiff is able to rely on the Wild data instead]. (2)For the reasons provided above in my opinion the decline in the number of pools manufactured by Tranquility (and Tranquility's reported profitability) during the period 2005 to 2009 is attributable to: (a)The decline in the market demand for pools during the period 2005 to 2009. That is, even if the Pool Failures had not occurred, the number of pools manufactured by Tranquility and its profitability would have been adversely impacted by the decline in market demand. Tranquility's ability to manufacture pools is constrained by their market share of the number of pool approvals. In the absence of increased advertising expenditure or the sacrifice of gross profit margin (neither of which are apparent in Mr McGuiness' forecasts), Tranquility's market share will remain unchanged. ... (b)The impact of the Pool Failures on the Tranquility business. Tranquility's market share during the period 2005 to 2009 remained relatively unchanged and averaged 9% of pool approvals. This indicates to me that impact of the Pool Failures on Tranquility's business was nominal. (3)Mr Gower assumed that: (a)The maximum practical capacity of Tranquility's plant(s) was 664 pools per annum having regard to the seasonality of demand; (b)The maximum market share which Tranquility could reasonably expect, whilst maintaining its existing profit margins and promotional expenditure was 10% of NSW pool approvals whilst operating one facility at Taree. (4)Similarly, Mr Gower reasoned: "The maximum output achieved by Tranquility was 616 pools during the 2005 financial year. During this year NSW pool approvals reached a peak of 6,005 pools. Tranquility's market share declined from 14% to 10%. This may indicate that, at production of 616 pools, Tranquility was approaching maximum capacity and was unable to meet any further significant increase in demand". (5)Under cross-examination, at T671.37-44, Mr Gower agreed with the following propositions: Q. The big picture is, is it not, that from 2001 to 4, that Tranquility sales are expanding rapidly but the market's either declining or steady? A. That's correct yes. Q. And in the boom year of 2005, Tranquility figures stall for some reason, and yet the market is going gang-busters? A. That's correct yes. (6)At another point in cross-examination of Mr Gower the following exchange occurred (T658.37-659.22): Q. And you say that that indicates to you the impact of the pool failures on Tranquility's business was nominal? A. That's correct yes. Q. That conclusion assumes doesn't it, that Tranquility would not have continued to increase its market share if the pool failures hadn't occurred? A. That's correct yes. Q. But upon that assumption you say do you that the decline in the pools manufactured is other than nominally, completely attributable to the decline in the market? A. It's largely, yes, I do say it is nominal, that's correct. Q. A factor, decline in market demand on the one hand? A. That's correct yes. Q. And obviously you admit it's a possibility don't you, that in fact the pool failures might have had an impact on the number of pools manufactured by Tranquility? A. Yes. I don't express it quite in those terms, but-- Q. But I'm asking you to? A. I've finished my answer. Q. Right. Mr Donaldson's quite right, I shouldn't interrupt you. But I think you said to me, you don't express yourself in those terms but what I'm asking you, you admitted the possibility don't you that the pool failures have had some impact on declining pool sales? A. Yes. Q. But what you say in this expression of opinion is, on the one hand decline in the market is a factor? A. That's correct. Q. And the only other factor pool sales has but a nominal effect, you say? A. Those are the two types identified, yes. 431Essentially Huntsman's contention was that there was no basis for assuming that the decline in Tranquility sales late in the year ended 30 June 2005 was not reflective of the trend in the broader market. Huntsman contended that there was every likelihood that, as with the Tranquility sales, the increased sales in the broader market in the 2005 financial year were the product of a boom in the first half of the year, and that the decline, reflected in reduced sales over the next four years, commenced late in the 2005 financial year, as occurred at Tranquility. 432Huntsman further submitted that the capacity constraints facing Tranquility may have been broader than physical capacity constraints, and could explain Tranquility's growth rate, well below the market in 2005. Huntsman also disputed that the osmosis problem had become widespread enough, by either June 2004 or January 2005, to explain the decline in Tranquility's growth rate. 433Huntsman also sought to draw support from Exhibit IJM29 to Mr Mewett's affidavit of 2 October 2010. That exhibit is a quarter by quarter breakdown of the sales of Compass pools by state. It is true that that exhibit reveals for NSW and ACT, in the second and third quarters of the 2005 financial years Compass' sales first dropped and then stagnated. Huntsman submitted that this was evidence of a general market wide slowdown that would explain the drop in Tranquility's sales. However, in my view Tranquility provided a comprehensive rebuttal to this point. As Tranquility highlighted, when Exhibit KWK60 - which is the Reed data for Mr Kahler obtained for the NSW swimming pool market, on a quarter by quarter basis - is compared to Tranquility's quarter by quarter sales, it is apparent that from the second quarter of financial year 2005 Tranquility's sales initially grew much more slowly than the market and then significantly declined, at which point the market was still expanding rapidly. I accept, as Tranquility submits, that this shows that Tranquility declined ahead of the market.

Decision as to but for scenario 434Ultimately, I do not fully accept either of the parties' submissions as to the but for scenario. 435Firstly, I reject Mr Gower's essential proposition that but for the osmosis outbreak, Tranquility simply would have maintained the market share it had achieved by the 2005 financial year, and not increased that market share. In my view Mr Gower did not give sufficient weight to the substantial growth that Tranquility had achieved in the financial years 2001-2004. These were years, as Tranquility submitted, where the wider market was either stagnant or declining. 436Secondly, I also do not accept Tranquility's proposition that but for the osmosis outbreak, it would have opened two new factories, and in this way penetrated new parts of the eastern seaboard market . The Court's holding is that the but for scenario is to be calculated on the basis that Tranquility only would have maintained the Taree factory. 437I have also had regard to Mr Gower's opinion that in circumstances the Australian swimming pool market is dominated by a small number of significant manufactures. He opines that, in circumstances where the total pool market is not experiencing growth, any growth in Tranquility's volume and market share will occur at the expense of significant competitors who were likely to defend their position: September 2009 report at [67]-[69]. 438Even accepting this opinion, I am of the view that Tranquility's performance in the years prior to the osmosis outbreak, where it achieved significant growth in the face of a stagnant or declining market, demonstrates that it was capable of gaining market share from its competitors. 439I accept Tranquility's submission that the appropriate starting point for the but-for scenario is the last unaffected year, financial year 2004, where Tranquility had 592 sales. 440I accept Tranquility's submission that it is appropriate to allow for 25% growth for the boom 2005 financial year, which would have taken Tranquility to 740 sales. 441In financial year 2006 there was a substantial market correction. In my view it is appropriate to assume that Tranquility's sales would have remained static in that year. 442In financial years 2007, 2008, 2009, and 2010, it is true that the swimming pool market never reached the heights of the 2005 boom year. However, I accept Tranquility's submission that on the Wild data, which I have held it is entitled to rely on, in these later years the market was substantially higher than its pre-2005 levels. The significance of this is that there was a bigger market in which Tranquility could attempt to expand its sales. I am of the view that it is appropriate to assume that but for the osmosis outbreak, Tranquility would have grown its sales by 5% in financial year 2007. I accept that this growth rate would have been repeated in 2008 and again in 2009, however during that financial year Tranquility would have achieved its maximum capacity at the Taree plant of 850 pools per year. 443In my view after this time, Tranquility would have maintained its market share, but it would have been unable to grow it due to manufacturing constraints. 444As I have stated above I do not accept that Tranquility would have expanded its business with two more plants in the way that the plaintiffs contend. 445This is the essential 'but for' hypothesis which will need to be taken into account in determining the damages for the destruction of business claim.

For the purposes of the "but for" calculation when should the loss period be taken to have commenced 446The parties are in disagreement to issues that relate to when the loss period should taken to have commenced. 447Tranquility's position is that the commencement of the loss (in respect of this head of loss) was 1 January 2005. 448Tranquility's submissions in this area were essentially as follows. Tranquility had suffered a significant drop in market share in financial year 2005, which was a "boom" year for pool sales. On the facts, after the first complaint was confirmed on 20 April 2004, Tranquility from about June 2004 had to set up procedures for dealing with multiple complaints, and dealers began reporting loss of sales by early 2005. Tranquility also relied on its month by month sales figures for financial year 2005: Month FY 2004 FY 2005 Change July 35 53 +51% August 38 62 +63% September 52 64 +23% October 59 67 +14% November 66 67 +2% December 42 53 +26% January 51 41 -20% February 53 56 +6% March 56 49 -13% April 51 44 -14% May 54 38 -30% June 35 22 -37%

449As Tranquility submitted these figures show that January was the first month in which its sales were below that of the previous year, and that month also appears to have been the start of a long term decline. 450Tranquility also utilised a comparison of exhibit KWK60 - which contained quarter by quarter sales figures for the NSW market - with its quarter by quarter sales for financial years 2004 and 2005. That comparison was as follows: NSW Market (KWK60) Tranquility FY 2004 FY 2005 Change FY 2004 FY 2005 Change Jul - Sep 1240 1658 +34% 125 179 +43% Oct - Dec 969 1780 +84% 167 187 +12% Jan - Mar 602 1266 +110% 160 146 -9% Apr - Jun 1304 1301 - 140 104 -26%

451Huntsman in its final submissions was critical of Tranquility's submission that the commencement of the loss was 1 January 2005. Huntsman submitted that the Court should accept Mr Gower's opinion that Tranquility had reached the maximum market share it could obtain in financial year 2005. 452Ultimately, I am satisfied that the plaintiff is correct that the loss should be calculated as beginning on 1 January 2005. In part this reflects that, as I have outlined above, I do not accept Mr Gower's hypothesis that the pool failures only had a nominal impact on Tranquility's stales. I am also convinced that submission is correct when regard is had to the comparison between the market data Mr Gower had access to, in the form of exhibit KWK60, and Tranquility's stales, on a quarter by quarter basis in the time surrounding the osmosis outbreak (as extracted above). As the plaintiff submits, that table shows, on figures that were all before Mr Gower, at least by the January quarter of financial year 2005, Tranquility's sales were in significant decline, at a time when the market was experiencing rapid growth. As the plaintiff submits, it was not the case that the entire market declined in the second half of financial year 2005.

The appropriate date to value the loss at 453As the parties agree, as a matter of law the loss is to be valued at the time it occurred. As outlined above, I have accepted the loss occurred on 1 January 2005.

The alleged recovery of Tranquility's business 454The parties are in disagreement as to whether it is reasonable to assume that Tranquility's business will over time recover its market share. 455Tranquility essentially submits that Mr Kahler's evidence on this matter should be accepted. Mr Kahler deposes that he has kept Tranquility operating for the purposes of these proceedings (despite believing the company will never again trade profitably), so that the customers are not panicked into a stampede of claims and to keep certain employees employed. Based on his experience with the fate that befell International, he does not believe the business will ever again derive significant profits. 456Tranquility points to various material to support Mr Kahler's view, included Tranquility's market share as calculated on the Wild Data. On that data Tranquility's market share dropped dramatically from 14% of the NSW market in 2004 to 5% in the boom year of 2005, and has declined to 3% in 2010, assuming that the 214 made in that year have all been sold. 457Huntsman's submits as follows on this issue: (1)Mr Gower's assumption that Tranquility will gradually recover its market share is manifestly reasonable. Tranquility traded profitably every year from the time the problem emerged up to and including 30 June, 2009 and that is assuming the accuracy of its questionable financial records. As at 30 June, 2009 it had very substantial net assets and an obvious capacity to recover from the problems associated with blistering as the significance of that historical event fades. It must be remembered in this regard that the calculation proceeds on the assumption of a finding that Tranquility's difficulties arose through no fault of its own, during a confined period, and as consequence of the use of a resin which it no longer uses. The suggestion that it will be unable to recover its market share in due course is unsustainable. (2)The assumption of recovery is also strongly supported by the fact that there has been a marked increase in Tranquility's pool sales for the year ended 30 June, 2010. Even on the numbers reported by Tranquility, sales have increased from 202 in 2009 to 214 in 2010, an increase in line with the reported upturn in the swimming pool market. The prediction that Tranquility will ultimately recover its market share is also corroborated by the Compass experience. Compass, another pool manufacturer, suffered a large osmosis outbreak in the 1990s, involving almost 300 pools (Exhibit D11, and Transcript at T492-494), and yet the Compass business did not perish. The figures reported by Mr Mewett show that business did not sink. On the contrary, Compass operates a business that has sold over 1,300 pools in each year since 2002, with a peak of 2,119 pools in 2004 (Mewett Affidavit 2.10.10, Exhibit IJM 29). (3)The evidence of Messrs Kahler and Annakin regarding their expectations for Tranquility's future is in the nature of argument and should be accorded no weight. So too is Mr Kahler's evidence as to his purposes in continuing to trade. That evidence is also largely irrelevant. It may well be that Mr Kahler proposes to shut the company down and trade through a new entity under a new name as he did following the International Pools litigation. The fact that he regards that as the most attractive course available to him does not demonstrate that either company would not recover its market share if Mr Kahler didn't elect to shut it down. It reflects nothing more than Mr Kahler's business strategy. (4)In any event, argumentative evidence from Mr Kahler should be accorded no weight and his other evidence approached with caution. He has shown throughout the prosecution of his claim a marked tendency to seek to support it with misleading and inaccurate information. His evidence regarding his purpose in instructing his accountant to produce inaccurate financial records (that is, as a means of deceiving purchasers of swimming pools) [T 938-939] is a clear indication that he cannot be treated as a reliable witness where his financial interests are concerned. 458Ultimately, as Tranquility submits and I accept, it is crucial to bear in mind that Mr Annakin and Mr Kahler have now been associated with two businesses that have been damaged by an osmosis outbreak. It was possible for them, and for Compass, to recover from one. However, there is nothing which convinces me that it will be possible for their business to recover from its second osmosis outbreak. The plaintiff was able to point to a range of evidence from pool dealers which highlights the likely damage to Tranquility's reputation and therefore viability. That evidence was not challenged in cross-examination. 459Ultimately, I do not accept Mr Gower's hypothesis that Tranquility will gradually recover its pre-osmosis market share over time.

Working Capital 460There is a debate between the parties as to whether working capital should be taken into account when calculating the loss of profits. Essentially Mr Gower was of the view that historically, Tranquility did not have the need to fund working capital. He noted that in the years 2004 and 2005 Tranquility had negative working capital (ie. no funds employed). His report also makes clear that in financial year 2006 Tranquility had positive working capital (ie funds employed). Mr McGuiness was of the view that it was appropriate to adjust for working capital. Having read the evidence, I have concluded that it is not appropriate to adjust for working capital. In any case this matter only has a very minor impact on the calculation of damages.

The tax issue 461I accept the plaintiffs proposal that, the Court having made findings above as to the nature of the loss suffered by Tranquility, it is appropriate to hear brief submissions as to what, if any adjustment should be made to the damages awarded to Tranquility to take account of the capital gains tax or income tax consequences of the Court's findings.

Consequential loss 462The parties agree that the costs under this head of loss sum are $757,181.96.

The plaintiffs' pleaded case as to its liability to customers 463The plaintiffs plead that they are liable to remedy the Pool Failures in relation to pools sold by them. 464The obligation to remedy is said to arise pursuant to breaches of various contractual and statutory terms. It is necessary to examine the sundry permutations that arise. 465There are essentially three main circumstances that need to be borne in mind: (1)Some retial customers purchased pools directly from Tranquility; (2)Some pools who were sold by Tranquility to dealers who then sold the pools to customers; (3)In a limited number of cases the original customer has subsequently sold their property including the pool to a subsequent purchaser. There is a debate over the rights of such subsequent purchasers. I will put this debate to one side at present but return to it later.

The express warranty 466Although there are numerous permutations that arise in this area of the case, the plaintiffs' primary position was that it was liable to both customers that had purchased pools directly through it and customers that had purchased pools through dealers under the terms of the purported express warranty it gave. 467The terms of the alleged express warranty were that: (1)the pool shell has been fabricated to the highest standards of manufacture and raw materials; (2)the pool shell was to be free from defects caused by workmanship or raw materials used in the fabrication process for ten years from the date the pool shell is first filled with water.

The alleged express warranty in cases where Tranquility sold pools directly to customers 468At a fundamental level, whether the terms of the alleged express warranty were incorporated into the contract between the first plaintiff and customer - namely that the pool shell has been fabricated to the highest standards of manufacture and raw materials, and is to be free from defects ... from ten years from when it is first filled with water - depends upon whether the first plaintiff made a promise to the pool owner to this effect. 469In this area the plaintiff relies on the principles outlined by Gibbs CJ in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. At 61, Gibbs CJ stated: A representation made in the course of negotiations which result in a binding agreement may be a warranty - ie it may have binding contractual force - in one of two ways: it may become a term of the agreement itself, or it may be a separate collateral contract, the consideration for which is the promise to enter into the main agreement. In either case the question whether the representation creates a binding contractual obligation depends on the intention of the parties ... a statement will constitute a collateral warranty only if it was "promissory and not merely representational", and it is equally true that a statement which is "merely representational" - ie which is not intended to be a binding promise - will not form part of the main contract. If the parties did not intend that there should be contractual liability in respect of the accuracy of the representation, it will not create contractual obligations. In the present case Mr Blackman, who made his statements fraudulently, had of course no intention that they should amount to contractual undertakings, but he could not rely on his secret thoughts to escape liability, if his representations were reasonably considered by the persons to whom they were made as intended to be contractual promises, and if those persons intended to accept them as such. The intention of the parties is to be ascertained objectively; it "can only be deduced from the totality of the evidence" ... "The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice." The intelligent bystander must however be in the situation of the parties, for "what must be ascertained is what is to be taken as the intention which reasonable persons would have had if placed in the situation of the parties". 470This applies to representations in documents as well as those made orally [see eg Emu Brewery Mezzanine Ltd (In Liq) v Australian Securities and Investments Commission (2006) 32 WAR 204 at [20] - [28] per Pullin JA ]. 471Tranquility accepts, as it must, that if the Warranty - in whatever form it may have existed - was not referred to at or before the point of contract , then it cannot have been incorporated into the contract. 472Huntsman does not admit that any warranty card or brochure containing a warranty, or equivalent oral warranty, was provided to customers at the time of any sale, or alternatively prior to the entry into the contract of sale by the customer and the plaintiffs.

The alleged express warranty in circumstances where customers purchased Tranquility pools through a dealer 473In this circumstance, the plaintiff alleges that a collateral contract arose - at the time of the contract of sale between dealer and customer - between Tranquility (contracting through the dealer as its agent) and the customer, pursuant to which Tranquility, in consideration for the customer agreeing to enter into the contract of sale with the dealer, agreed with the customer to abide by the terms of its express warranty. 474It is said that the warranty was made orally by the dealers to the customers and also in writing, through the provision of warranty cards and/or brochures. 475Huntsman at one point asserted that the incorporation of the Warranty by oral reference had not been pleaded and could not be the subject of submissions. To ensure clarity, I note that I granted the plaintiff leave, which was non-contentious between the parties, to file a Sixth Further Amended Commercial List Statement. In that document it is clearly pleaded as particular (i) to paragraph 20A that, in relation to contracts between Tranquility and customers who purchased directly from it, the express warranty was both written and oral. It is pleaded that in so far as it was oral it was made by Tranquility representatives to the customer. In respect of the collateral contract said to have existed where a customer purchased through a dealer, it is pleaded as particular (ii) to paragraph 20B that, particular (i) to paragraph 20A is repeated, as if the sales representative of Tranquility was the dealer. Thus it is clearly pleaded that the alleged collateral contract was formed in writing and orally. 476In this area the defendant relies on Fairey Australasia Pty Ltd v Joyce [1981] 2 NSWLR 314, a decision of this Court (Yeldham J). In that case, the first defendant obtained a written quotation for the supply and installation of an air-conditioning system from Regulaire, an intermediary vendor. The quotation stated inter alia that a warranty card would be provided, and that Regulaire, the intermediary vendor, purchased a warranty service from the manufacturer. After acceptance of the quotation and installation of the air conditioner, the first defendant was handed the warranty document. In the warranty document the manufacturer, Fairey, set out the terms of its warranty. 477Yeldham J held, at 316B, that because the warranty document was handed to the first defendant after she had contracted with Regulaire, the intermediary, there was: No basis for holding that there was a collateral contract between her and the plaintiff [manufacturer], the consideration moving from her being her agreement to buy from Regulaire a product of the plaintiff. So much was conceded by counsel for the defendants. Hence there was no contract between the plaintiff and first defendant of the type with which cases such as Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854 and Andrews v Hopkinson [1957] 1 QB 229 were concerned. 478The defendant submits that the present case is within the decision in Fairey. The defendant contends that the brochures which pool owners were given prior to contracting to purchase a pool either from a pool dealer or the plaintiffs directly merely contained a representation that a warranty of some description would be forthcoming. The defendant draws on the fact that the warranty card was often provided after pool owners contracted to purchase a pool.

Consideration of existence of express warranty both where customer purchased directly from Tranquility and where purchased through dealer 479I accept the plaintiffs' submission that the relevant principles are those set out by Gibbs CJ in Hospital Products , extracted above. I further accept the plaintiffs' submission that the officious bystander aware of the surrounding circumstances - including the widely available brochures, or warranty cards - would conclude that Tranquility, as a matter of intention objectively ascertained - intended to be bound by its warranty in respect of each and every sale of its swimming pools (absent any express disclaimer in respect of any particular sale). 480It is true there was a point of difference between the warranty cards and the brochures, draw upon by Huntsman. I now set the relevant texts out: Brochure - Page 7 Warranty Card "TRANQUILITY FIBREGLASS POOLS ARE WARRANTED AGAINST DEFECTS CAUSED BY WORKMANSHIP AND/OR RAW MATERIALS USED IN THE FABRICATION PROCESS, FOR 10 YEARS FROM WHEN THE POOLS (SIC) IS FIRST FILLED WITH WATER." Subject to the exclusions listed below, Tranquility Pools & Spas Pty Limited warrants the Shell to be free of defects caused by workmanship and/or raw materials used in the fabrication process, for 10 years when the Shell is first filled with water.

481Applying the relevant principles, I do not see this difference as of substance. The holding is that the warranty - whether contained in a brochure or warranty card or conveyed orally - is promissory. The name itself is significant - a warranty is by definition a contractual undertaking as opposed to a mere representation. The warranty was an inducement to enter into the contract of purchase. The intelligent bystander would have no difficulty concluding that the intention of the parties, objectively understood, was that the warranty - in whatever form it was conveyed - was to be binding upon Tranquility. 482It follows from the above that the express warranty: (1)was incorporated into contracts between Tranquility and customers who purchased directly from it; (2)formed a collateral contract between Tranquility and customers who purchased from a dealer. 483It also follows that I reject Huntsman's submissions in this area which were essentially that only the warranty cards gave rise to the alleged express warranty, and therefore only customers who received the warranty card at or piror to the point of contracting could rely on the express warranty. 484I now need to turn to the evidence to explain in which cases I will accept that the express warranty was conveyed, in any form, to customers.

Use of sampling evidence from the customers 485Huntsman objects to the use of a sample of evidence from the customers. 486I accept Tranquility's submission that calling all the customers would have been a gross mismanagement of the resources of the parties and the Court considering the relative importance of their individual evidence. 487Section 62(3)(b) of the Civil Procedure Act 2005 vests in the Court the express power to limit the number of witnesses. Section 56(2) of that Act enjoins the Court to have regard to the overriding purpose of "the just, quick and cheap resolution of the real issues in the proceedings". 488I accept as correct Tranquility's contention that if it had gone to the immense expense of obtaining evidence from 428 customers, it would have inevitably faced an order pursuant to section 62(3)(b). In adducing evidence from a significant sample - 43 witnesses (10%) - it was seeking to comply with the obligation placed on it and its legal representatives by section 56(3) & (4) of the Civil Procedure Act . 489I am informed that of the 42 affidavits of pool owners relied upon by Tranquility, 15 of those pool owners were randomly selected by Huntsman, seven were selected by Huntsman due to proximity with repairers, 19 were selected on the basis that they had cut-outs from their pools taken by Tranquility, and one was selected by Huntsman due to the pool's geographic location. This information as to the makeup of the sample of customers who gave evidence to the Court does nothing but confirm in my mind that the approach I favour, of using the sample to make extrapolations as to the wider class of all pool owners, is appropriate. 490The customers' evidence is relevant to the following issues: (1)the contractual arrangements between them and Tranquility and any dealers; (2)to avoid any suggestion that they are seeking an uncovenanted benefit. 491Although these are important issues, I accept that it would be wholly disproportionate to have required the attendance of each and every pool owner to give evidence of these matters. 492In the circumstances it is appropriate for the Court to draw the inferences from the evidence that has been adduced. 493Appendix D to this judgment contains references to the evidence of the pool owners who were called as to the receipt of the warranty either in the form of warranty cards, brochures, or oral references to a warranty. Tranquility accepts that some warranty cards were provided after the point of contract. However, what the evidence shows is that for all but 2 of the 43 pool owners who gave evidence, the warranty was referred to at or prior to the point of contract either through the provision of a warranty card, a brochure, or the making of oral reference to the warranty. Appendix D 494In relation to the two exceptions, firstly, Mr Ashley Gordon, who purchased a pool from Tranquility, gave evidence under cross-examination that he could not remember when he received the warranty: T562.43-563.02. Another pool owner, Mr Anthony Mark Richardson, who purchased a pool through International Pools, a dealer, received a warranty certificate and was orally referred to the existence of a warranty, at the point of installation, that is after the point of contract. Thus as the plaintiff accepted, for 2 out of the 43 pool owners who gave evidence it has not been shown that the warranty was referred to at or prior to the point of contract. In such cases, the plaintiff argues that the warranty was incorporated pursuant to "some kind of incorporation by availability". However, as the plaintiff conceded, this has not been pleaded. The result is that for these 2 pool owners I find respectively that the alleged express warranty was not incorporated into Mr Gordon's contract with Tranquility, and did not form a collateral contract between Mr Richardson and Tranquility. 495I accept the plaintiffs' submission that it is appropriate from the above "sample" evidence for the Court to make an inference in relation to the situation of the remainder of the 428 pool owners whose pools have failed. I accept, as the plaintiff submitted, that I should infer that a group, proportional to the 41/43 in the sample, had the warranty communicated to them in one of the three forms at or prior to the point of contract. It follows that I also make the inference that a group, proportional to the 2/43 in the sample, will not have had the express warranty communicated to them in any form at or prior to the point of contract. 496The Court finds that where a pool was supplied which had latent defects, such that it would develop osmosis, the express warranty will have been breached. 497The relevance of the above findings is that in all cases where pools have failed, except for a subset equivalent to the proportion 2/43, Tranquility has succeeded in showing it has a liability to pool owners under the express warranty. For the small subset who are not in such a class it necessary to consider the alleged implied terms as to merchantability and fitness for purpose.

Alleged implied terms that pool shell was of merchantable quality and reasonably fit for purpose 498Tranquility pleads that terms that the pool shell was of merchantable quality, and reasonability fit for installation in the premises of the customer and for use as a swimming pool, were implied into: (1)Contracts between Tranquility and customers who purchased directly from it; (2)Contracts between a dealer and customers who purchased from a dealer; (3)Contracts between Tranquility and dealers. 499Whether the pleaded terms were implied into these contracts turns on the application of the relevant legislation invoked by the plaintiffs.

Consideration of implied contractual terms where Tranquility sold directly to customer 500There is only limited evidence before the Court as to Tranquility's dealings with pool dealers and customers, in the form of 11 sample contracts which the defendant tendered in volume 5 of exhibit D25. That evidence indicates that where Tranquility sold a pool directly to a customer, it entered into a contract of purchase with the customer, and a separate installation contract was entered into between a third party installer and the customer. In my view it is appropriate to conduct the analysis in this area based on the facts provided by the limited evidence. That is, it appears Tranquility contracted to supply a pool shell and related accessories but did not install the pool shell itself. The fact that the balance of the total price under the contract of purchase with the customer was due to Tranquility upon delivery is consistent with this characterisation. 501The plaintiff invokes s 71 of the Trade Practices Act, Sections 71 (1) and (2) apply "Where a corporation supplies ... goods to a consumer in the course of business". Under s 4C(c) a reference to the supply of goods includes a reference to the supply of goods together with services. In general fixtures do not fall within the definition of "goods" in s 4 of the Trade Practices Act : Theo Holdings Pty Limited v Hockey (2000) 99 FCR 232 at [9]-[12], (it is necessary to consider this issue in much greater detail below in relation to another context within the Act). Tranquility's contracts with customers purchasing from it were for the supply of a pool before it was affixed to the land. I am satisfied that Tranquility's supply of a swimming pool to customers, who would then have it installed by an third party installer, constituted a "supply of goods". 502There was no point taken by Huntsman to the effect that pool owners do not fit the definition of "consumer" under the Trade Practices Act . Accordingly, s 71(1) will apply and support the alleged term as to merchantable quality. In relation to s 71(2), I am satisfied that it was by implication made known to Tranquility the particular purpose for which the goods were being acquired (namely installation in the customer's premises and use as a swimming pool). Accordingly, Tranquility's alleged implied condition as to fitness for purpose will be supported by s 71(2).

Consideration of implied contractual terms between Tranquility and pool dealers 503In relation to the contracts between Tranquility and dealers: (1)Section 71 of the Trade Practices Act will not apply since it relates to the supply of goods by a corporation to a consumer . Section 4B which defines the situations in which a person shall be taken to have acquired particular goods as a consumer, expressly excludes the situation where a person acquires goods for the purpose of re-supply: s 4B(1)(a). (2)I am satisfied that the contract between Tranquility and pool dealers was a contract for the sale of goods. The contract was "for a chattel to be made and delivered": Lee v Griffin (1861) 1 B and S 272; 121 ER 716 at 717, referred to with approval in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 181-182. Accordingly, s 19 of the Sale of Goods Act 1923 and its equivalents in others states and territories would apply, and therefore the alleged terms as to merchantable quality and fitness for purpose will be made out.

Consideration of implied contractual terms in contracts between pool dealers and customers 504On the limited evidence before the Court, it appears that some dealers entered into contracts with customers for the supply and installation of pools and others entered into contracts for supply only. 505Where there was a "supply only contract" I am satisfied, on the above reasoning, that this was a contract for the sale of goods. 506Where there was a contract for the supply and installation of a pool, I am also satisfied that this was a contract for the sale of goods. Support for this position is found in the decision of the Full Court of the Supreme Court of Queensland in Symes v Laurie [1985] 2 Qd R 547, where it was held that a contract to for the sale, removal, and affixing on an new-site of a pre-existing home was a contract of sale. At 550 Kelly J noted that "there is no reason why a sale of goods may not be found within a contract one of the terms of which involves affixation of goods to land", citing in support Collins Trading Co Pty Ltd v Maher [1969] VR 20 at 24.

Result as to alleged implied terms as to merchantability and fitness for purpose 507These terms have been established by Tranquility in: (1)Contracts between it and customers who purchased pools directly from it; (2)Contracts between Tranquility and pool dealers; (3)Contracts between pool dealers and customers. 508I am satisfied that in all three of the permutations, where the pool that was supplied had latent defects, such that it would later develop osmosis, the implied terms as to merchantability and fitness for purpose will have been breached. 509The real significance of this, is that in relation to the minor subset of customers with failed pools who could not rely on the express warranty (a proportion of 2/43) Tranquility has shown that it will be liable to them. Thus Tranquility has satisfied me that it is liable to all pool owners save for those who have sold their homes and pools to subsequent purchasers, which I consider below.

The largely abandoned Home Building Act case 510I should note that Tranquility had pleaded, in addition to the implied terms as to merchantability and fitness for purpose, an implied term that materials used in creating the pool shell were good and suitable for that purpose, said to be supported by s 18B of the Home Building Act 1989. However, it was clear by the stage of final address that this argument had been largely abandoned, with the plaintiff conceding much of the argument could not succeed. To the extent which it may remain, I do not find it necessary to consider this argument since the plaintiff has succeeded in establishing a liability to customers under the express warranty and implied terms as to merchantability and fitness for purpose.

Tranquility's alternative case for liability to customers under Division 2A, Pt V of the Trade Practices Act 511Tranquility submitted that if the Court rejected that some or all of the customers could sue it under the express warranty, or at all in contract, it would still be liable to such customers pursuant to certain sections of Division 2A, pt V of the Trade Practices Act . 512I have already found that: (1)Tranquility will be liable to nearly all customers under the express warranty; (2)In relation to the small group of other customers who cannot rely on the express warranty, Tranquility will be liable under implied contractual terms as to fitness for purpose and merchantability. 513Accordingly, in one sense I do not need to proceed into to this area. However, it appears that in relation to the group who cannot rely on the express warranty, if Tranquility can show it is liable under Division 2A, Pt V, in addition to under implied contractual terms, this may have some impact upon the applicable limitation periods and therefore upon the appropriate orders to be made. The parties agree that an action under a provision of Division 2A is subject to a absolute maximum limitation period of ten years from the time of the first supply to the consumer of the goods in question: s 74J(3). 514The essential point raised by Huntsman against the application of Division 2A, Pt, V was that the pools became fixtures once installed and hence were no longer "goods" to which that Part applied. 515I now turn to resolve the debate between the parties on this essential point raised by Huntsman. 516Huntsman relied upon the decision of Dowsett J in Theo Holdings Pty Ltd v Hockey (2000) 99 FCR 232. In that case, the Minister for Financial Services and Regulation had issued notices pursuant to section 65F(1) of the Trade Practices Act to the effect that certain fire doors ought be the subject of a product recall. It was contended by the applicants seeking to overturn these notices that these notices could not apply to doors that had been installed and become fixtures. 517Section 65F(1) provides: Subject to section 65J, where: (a) a corporation (in this section referred to as the "supplier"), in trade or commerce, supplies on or after 1 July 1986 goods that are intended to be used, or are of a kind likely to be used, by a consumer; (b) one of the following subparagraphs applies: (i) it appears to the Minister that the goods are goods of a kind which will or may cause injury to any person; (ii) the goods are goods of a kind in respect of which there is a prescribed consumer product safety standard and the goods do not comply with that standard; (iii) the goods are goods of a kind in relation to which there is in force a notice under subsection 65C(5) or (7); and (c) it appears to the Minister that the supplier has not taken satisfactory action to prevent the goods causing injury to any person; the Minister may, by notice in writing published in the "Gazette", require the supplier to do one or more of the following: (d) take action within the period specified in the notice to recall the goods; (e) disclose to the public, or to a class of person specified in the notice, in the manner and within the period specified in the notice, one or more of the following: (i) the nature of a defect in, or a dangerous characteristic of, the goods identified in the notice; (ii) the circumstances, being circumstances identified in the notice, in which the use of the goods is dangerous; or (iii) procedures for disposing of the goods specified in the notice; (f) inform the public, or a class of persons specified in the notice, in the manner and within the period specified in the notice, that the supplier undertakes to do whichever of the following the supplier thinks is appropriate: (i) except where the notice identifies a dangerous characteristic of the goods - repair the goods; (ii) replace the goods; (iii) refund to a person to whom the goods were supplied (whether by the supplier or by another person) the price of the goods; within the period specified in the notice. 518After referring to some texts which supported the view that the definition of "goods" in the Act appeared to preserve the common law distinction between goods and fixtures, Dowsett J held at [13]-[18]: [13] To some extent, argument proceeded upon the basis that the doors were either goods for the purposes of s 65F(1) or they were not. However, the question may be rather more complex. Section 65F(1) prescribes three criteria which must be met in order that the minister be entitled to act. First, as already indicated, s 65F(1)(a) requires that there be a supply of goods by a corporation. It is common ground that such supply must be of goods as defined. Secondly, s 65F(1)(b) requires that the minister form a view as to the nature of the goods, presumably at some time after the supply contemplated by s 65F(1)(a). Probably, the relevant time is that at which the opinion is formed. In other words, it must appear to the minister that the goods are, at the time at which he forms the opinion, goods which satisfy one of the three alternative requirements of s 65F(1)(b). An opinion about part of a building would not be an opinion concerning goods, suggesting that the goods must still exist in that form at the time at which the minister forms the relevant opinion. Thus the subject matter of any proposed recall notices must be capable of description as "goods" at two potentially different times. Thirdly, s 65F(1)(c) requires that the minister form an opinion as to steps taken by the supplier to prevent the goods causing injury. Arguably, this provision also contemplates the continued existence of the "goods" in that form, although other interpretations are possible. [14] If the various requirements of s 65F(1)(a), (b) and (c) are satisfied, the minister may make an appropriate publication in the Gazette, requiring the supplier of such goods to do one or more of the acts prescribed in s 65F(1)(d), (e) and (f). Each of those prescriptions also contemplates the continued existence of the goods as such. For example s 65F(1)(d) authorises the minister to require the supplier to take action to recall the goods. It is not clear what is meant by the expression "recall", but it probably includes the various specific steps identified in s 65F(1)(f), namely repair, replacement or refund of the purchase price. If the word "goods" has the meaning attributed to it by s 4, the paragraph would not authorise the minister to require a supplier to take such steps where the goods have become part of a building and therefore can no longer be so described. It may be possible to sever them from the building so that they are again goods, but this could only be done by, or with the consent of the owner. The Act does not bind such an owner, and obtaining consent to severance would pose a problem for a supplier seeking to comply with a recall notice. Whether or not goods have been incorporated into a building or remain as goods, compliance with a recall notice will usually require such consent. Nonetheless, if it was intended that the minister be empowered to require removal of part of a building, one would have expected an express conferment of such power. [15] In the course of argument it was suggested that where "goods", although incorporated into a building, are capable of continued identification and capable of removal without substantial damage to the building (or presumably to the "goods"), they may be goods for the purposes of s 65F(1). Nothing in the Act suggests such an approach. Indeed, it might be thought that s 65F(6) suggests the contrary. That subsection provides: Where the supplier, under sub-section (1), undertakes to repair goods or replace goods, the cost of the repair or replacement, including any necessary transportation costs, shall be borne by the supplier. [16] The reference to a supplier undertaking to "replace goods" is obviously to replacement as an alternative to repair or refund as contemplated in s 65F(1)(f). The subsequent reference in s 65F(6) to the "cost of the repair or replacement" may be wide enough to include the cost of severing goods and reinstalling them after repair, or installing replacement goods, although a narrower meaning, limited to the cost of the actual repair or replacement goods is also possible. In any event, where the supplier chooses to refund the purchase price of the goods, s 65F(6) would not oblige it to pay the cost of removing the defective goods or installing replacements goods (presumably obtained from another supplier). If s 65F(1) were intended to authorise a recall notice for goods incorporated into a building, one would have expected provision in s 65F(6) for the payment of such costs. [17] In the course of argument much was said about the need to give full effect to provisions which are designed to protect the public. It was said that accordingly, s 65F(1) should be broadly construed. In the present case, however, parliament has used a term ("goods") which has a commonly understood meaning and has defined that term in a way which seems to reinforce that common understanding, albeit with some express extensions. If the clear distinction between goods and fixtures on land is to be abandoned, then that common understanding would be seriously undermined. Such an outcome would be inconsistent with parliament's adoption and definition of the term in question. [18] Although the matter is of some difficulty, I have come to the conclusion that the minister's power to issue a recall notice pursuant to s 65F(1) applies only to the extent to which the "goods" in question meet that description at the time at which the notice is given, as well as at the time of supply by the relevant corporation. It is not presently necessary to consider the position in the event that the goods have ceased to be goods between the time of such a notice and the time when the supplier might reasonably have been expected to comply with it. 519In the context of Division 2A of Part V of the Act, section 74A(8) provides that "[f]or the purposes of this Division, goods shall be taken to be supplied to a consumer notwithstanding that, at the time of the supply, they are affixed to land or premises". 520I accept the plaintiffs' submission that the decision of Theo Holdings is based upon the premise that whether or not the word "goods", wherever it appears in the Trade Practices Act is apt to embrace goods that have become fixtures, depends upon: (1)the time at which the particular reference is to be applied; (2)the legislative context of the provision; and (3)whether the reference being construed, where it is found, is apt to be applicable to such goods. 521I further accept the plaintiffs' submission that it follows that the word "goods" could have a different meaning in different parts of the Act [see State of New South Wales v Ibbett (2005) 65 NSWLR 168 at [5] - [11] per Spigelman CJ and at [123] & [124] per Basten JA], or even different parts of the same provision [ Maddox v Storer [1963] 1 QB 451] , depending on their context. 522Section 74G is the provision in relation to which this debate took place. That section provides: (1) Where: (a) a corporation, in trade or commerce, supplies goods (otherwise than by way of sale by auction) manufactured by the corporation to a consumer; or (b) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply and a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; and: (c) the corporation fails to comply with an express warranty given or made by the corporation in relation to the goods; and (d) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason of the failure; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a Court of competent jurisdiction. (2) For the purposes of any action instituted by a person against a corporation under this section, where: (a) an undertaking, assertion or representation was given or made in connection with the supply of goods or in connection with the promotion by any means of the supply or use of goods; and (b) the undertaking, assertion or representation would, if it had been given or made by the corporation or a person acting on its behalf, have constituted an express warranty in relation to the goods; it shall be presumed that the undertaking, assertion or representation was given or made by the corporation or a person acting on its behalf unless the corporation proves that it did not give or make, and did not cause or permit the giving or making of, the undertaking, assertion or representation. 523The pools - swimming pools - were supplied as goods. They were therefore "goods" at the time (1)(a) or (b) applied to them. 524Tranquility submits and the Court accepts that "the goods" in subsections (1)(c) and (d) are the "goods" referred to in subsections (1)(a) or (b). The question then, from Theo Holdings , is whether the "time" at which (c) and (d) apply, and the nature of those provisions, make it inapposite to apply to goods which have become fixtures. 525Tranquility submits and the Court accepts that in this section, as opposed to section 66F, it does not. The reasoning of Dowsett J in Theo Holdings was firmly based upon the fact that a recall would require the severance of the goods from the land to which they were affixed, which land might be owned by a person who would not consent to the severance. 526There is nothing in section 74G of that kind. It provides a cause of action for monetary compensation. There is nothing inherent in the section which would require severance. 527The purpose of the Division 2A is to extend the sorts of contractual liability that exist between vendor and purchaser to manufacturer and consumer [ Zaravinos v Dairy Farmers Co-op Ltd (1985) 7 FCR 195 at 198 per Lockhart J]. Huntsman does not suggest that the fact that the pools had become fixtures meant that customers who had contracts (collateral or otherwise) with Tranquility could not claim damages in compensation for the breach of contract - whether that be for breach of the Warranty or one of the implied terms of merchantability and fitness for purpose. 528If Huntsman's submission as to the proper approach to Division 2A were accepted, this would leave a very significant lacuna in the scope of those provisions such that that a person who acquires goods that become fixtures might have a contractual remedy against the manufacturer if they contracted with them directly, but not otherwise. As Lord Diplock stated, if " the Courts can identify the target of Parliamentary legislation their proper function is to see that it is hit: not merely to record that it has been missed" [ "The Courts As Legislators", The Lawyer and Justice (Sweet & Maxwell, 1978) at 274 extracted and approved by McHugh J in Kingston v Keprose Pty Ltd (No 3) (1987) 11 NSWLR 404 at 424]. 529As Mason & Wilson JJ stated in Cooper Brookes (Wollongong) Pty Ltd v Cmr of Taxation (Cth) (1981) 147 CLR 297 at 305 at 320 - 321: In some cases in the past these rules of construction have been applied too rigidly. The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the Courts look to the operation of the statute according to its terms and to legitimate aids to construction. The rules, as D C Pearce says in Statutory Interpretation, p 14, are no more than rules of common sense, designed to achieve this object. They are not rules of law. If the judge applies the literal rule it is because it gives emphasis to the factor which in the particular case he thinks is decisive. When he [sic] considers that the statute admits of no reasonable alternative construction it is because (a) the language is intractable or (b) although the language is not intractable, the operation of the statute, read literally, is not such as to indicate that it could not have been intended by the legislature. On the other hand, when the judge labels the operation of the statute as "absurd", "extraordinary", "capricious", "irrational" or "obscure" he assigns a ground for concluding that the legislature could not have intended such an operation and that an alternative interpretation must be preferred. But the propriety of departing from the literal interpretation is not confined to situations described by these labels. It extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions. Quite obviously questions of degree arise. If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended. 530Tranquility submits and the Court accepts that both a literal and purposive construction of section 74G favours the view that the cause of action under that section does not cease to apply if the goods supplied become fixtures. Subsections (1)(a) and (b) identify the "goods" the subject of the cause of action, the words "goods" having the extended definition for which section 74A(8) provides. 531The rest of that section attaches to "the goods" earlier identified. Unlike with section 66F, there is nothing in the context of those later provisions which suggests from the nature of those provisions that the legislature intended to deny compensation where goods had become fixtures. 532That being so, a literal as well as a purposive construction supports Tranquility's construction. The purpose of the Division was to extend sale of goods type remedies between manufacturer and ultimate consumer. Those remedies are available even if, at the time of loss, the goods are no longer in existence, let alone identifiable: see, for example, cases concerning animal feed such as Henry Kendall & Sons v William Lillico & Sons Ltd (Hardwicke Game Farm) [1969] 2 AC 31 and Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441. 533Tranquility submits and I accept that the language of the provisions would need to be "intractable" to displace this evident purpose. It is not. There is nothing in section 74G(1)(c) itself which indicates that that section is limited to goods which are "goods" at any particular time. 534For the above reasons I accept Tranquility's approach on the essential construction issue in relation to Division 2A debated between the parties. 535For the above reasons, in my view, in sections 74B, 74D, and 74G, later references to the "goods" which were initially supplied, refer back to the goods initially supplied and do not exclude goods that have become fixtures. There is no reason, on a purpose interpretation, that those three sections would not apply where goods that were initially supplied have since become fixtures. 536In relation to s 74F, I have some doubt as to whether the plaintiffs' essential construction argument can succeed. That section concerns a failure by a corporation to ensure facilities for the repair of the goods, or a part was, reasonably available to the consumer at the relevant time. It seems that this context may mean that that section does not apply to goods which, after their initial supply, become fixtures. However, this doubt makes no difference to my conclusions, since even if it be misplaced, and s 74F could have application in the present case, I would conclude, as outlined below, Tranquility has no liability under it. 537The significance of the way I have construed sections 74B, 74D and 74G is that the analysis will be the same for pool owners who are "consumers" and so-called subsequent purchasers who derive title from consumers.

Applying s 74G 538I am satisfied that: (1)The plaintiffs fall within the deeming provision that defines a manufacturer of goods under s 74A(3). (2)The type of swimming pools manufactured by the plaintiffs and acquired by the plaintiffs were "goods of a kind ordinarily acquired for personal, domestic, or household use or consumption", to which Division 2A, pt V of the Act refers: s74A(2)(a). (3)The pools owners fall within the definition of "consumers" under the Trade Practices Act since either: (a)The price of the goods or services will not have exceeded the prescribed amount: s4B(1)(a)(i), (b)(i), or (b)The goods or services were of a kind ordinary acquired for personal, domestic or household use s 4B (1)(a)(ii), (b)(ii). 539Thus s 74G(1)(a) will apply where Tranquility sold a pool directly to a consumer, and s 74G(1)(b) will apply where the pool was sold through a dealer. 540I am satisfied that Tranquility's warranty, as evidenced by the warranty cards and brochures, constituted an "express warranty" as defined by s 74A, since it was an assertion or representation, in relation to the quality, performance or characteristics of the goods, given or made either in connection with the supply of the goods or in connection with the promotion by any means of the supply or use of the goods, the natural tendency of which was to induce persons to acquire the goods. 541Section 74G 1(c) applies where the corporation fails to comply with an express warranty given or made by it in relation to the goods. As Tranquility contended, there is no requirement that the warranty be incorporated into any contract between the corporation and the consumer, or that the warranty be specifically brought to the customer's attention. Indeed, the whole purpose of Division 2A is that its provisions are to apply where there is no privity of contract. 542The Court finds that Tranquility has failed to comply with the express warranty given or made by it in relation to pools (as evidenced by the warranty cards and brochures). This reflects that in the warranty cards and brochures, Tranquility asserted or represented that the pool shell had been fabricated to the highest standards of manufacture and raw materials, and that the pool shell was to be free from defects caused by workmanship or raw materials for ten years from the date the pool shell was first filled with water. This was not the case where the pool shell suffered from defects which meant that it would later develop osmosis. Where osmosis has become apparent, the consumer, that is the relevant pool owner, will have suffered loss or damage by reason of this failure. Thus I accept that Tranquility is liable to compensate pool owners for the loss or damage, and has succeeded in showing it is liable, under s 74G.

Section 74B 543Tranquility seeks to rely on s 74B, which provides: (1) Where: (a) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply; (b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; (c) the goods are acquired by the consumer for a particular purpose that was, expressly or by implication, made known to the corporation, either directly, or through the person from whom the consumer acquired the goods or a person by whom any antecedent negotiations in connexion with the acquisition of the goods were conducted; (d) the goods are not reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied; and (e) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not reasonably fit for that purpose; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a Court of competent jurisdiction. (2) Subsection (1) does not apply: (a) if the goods are not reasonably fit for the purpose referred to in that subsection by reason of: (i) an act or default of any person (not being the corporation or a servant or agent of the corporation); or (ii) a cause independent of human control; occurring after the goods have left the control of the corporation; or (b) where the circumstances show that the consumer did not rely, or that it was unreasonable for the consumer to rely, on the skill or judgment of the corporation. 544S 74B will only have potential application where the pool in question was purchased through a dealer. Where goods only have one purpose it is not necessary that that purpose be made known to the corporation. That manufacturer's knowledge may be assumed: Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd (2004) ATPR 42-014 at [212]. In my view, fibreglass swimming pools only have the purpose of being installed and used as swimming pools, meaning the defendant's knowledge of this purpose may be assumed. Pools were not reasonably fit for that purpose if they suffered from faults which meant they would later develop osmosis. Where osmosis has become apparent, the owner will have suffered loss and damage by reason of the goods not being reasonably fit for the relevant purpose. Thus in my view, Tranquility will have a liability to pool owners whose pools were supplied through dealers under s 74B.

Section 74D 545The plaintiffs further rely on section 74D. That section provides: (1) Where: (a) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply; (b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; (c) the goods are not of merchantable quality; and (d) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a Court of competent jurisdiction. (2) Subsection (1) does not apply: (a) if the goods are not of merchantable quality by reason of: (i) an act or default of any person (not being the corporation or a servant or agent of the corporation); or (ii) a cause independent of human control; occurring after the goods have left the control of the corporation; (b) as regards defects specifically drawn to the consumer's attention before the making of the contract for the supply of the goods to the consumer; or (c) if the consumer examines the goods before that contract is made, as regards defects that the examination ought to reveal. (3) Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to: (a) any description applied to the goods by the corporation; (b) the price received by the corporation for the goods (if relevant); and (c) all the other relevant circumstances. 546In Courtney v Medtel Pty Ltd (2003) 126 FCR 219 at [194] Sackville J held that: It will be seen that s 74D(3) is framed affirmatively. It has been held by the English Court of Appeal, in relation to very similar statutory language, that goods which do not fall within the definition of merchantable quality are to be regarded as unmerchantable: Rogers v Parish Ltd at 946 per Woolf LJ. ... I think that s 74D(3) should be construed in the same way. ... Section 74D(3) directs attention to the question of whether goods of any kind are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect. As Cooper J pointed out in Rasell v Cavalier Marketing (Aust) Pty Ltd [1991] 2 Qd R 323 at 348, s 74D(3) requires a determination of two matters: (i) the purpose or purposes for which goods of that kind are commonly bought''; and (ii) whether the goods supplied are as fit for the purpose or purposes so identified as is reasonable to expect, having regard to the listed criteria. ... So far as the second matter is concerned, in Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307, Lindgren J noted (at 445) that the words as it is reasonable to expect'' raise a question as to the identity of the person or persons the reasonableness of whose expectations is in question. He considered that it was consistent with both the objective nature of the statutory standard and the consumer protection purpose of the provision to hold that the reasonable expectations to consider were those of a reasonable consumer placed in the position of the actual consumer. Lee J (at 330) agreed with Lindgren J on this issue, while Kiefel J appears to have taken (at 462) a similar approach. (The appeal to the High Court did not challenge the Full Court's conclusions on ss 74B and 74D of the TP Act : Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540). Lindgren J's analysis is consistent with that of Cooper J in Rasell v Cavalier Marketing at 348. 547Fibreglass swimming pools are obviously commonly bought for installation into a premises and use as a swimming pool. The Court holds that swimming pools which suffered from defects such that they would develop osmosis were not as fit for this purpose as is reasonable to expect having regard to the relevant factors. Where osmosis has become apparent, the pool owners will have suffered loss or damage by reason that the goods are not of merchantable quality. Thus Tranquility will also have a liability under this provision.

Section 74F 548Tranquility seeks to rely on s74F. That section provides: (1) Where: (a) a corporation, in trade or commerce, supplies goods (otherwise than by way of sale by auction) manufactured by the corporation to a consumer; or (b) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply and a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; and: (c) at a time (in this section referred to as the relevant time) after the acquisition of the goods by the consumer: (i) the goods require to be repaired but facilities for their repair are not reasonably available to the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer; or (ii) a part is required for the goods but the part is not reasonably available to the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer; (d) the corporation acted unreasonably in failing to ensure that facilities for the repair of the goods were, or that the part was, reasonably available to the consumer or that other person at the relevant time; and (e) the consumer or that other person suffers loss or damage by reason of the failure of the corporation to ensure that facilities for the repair of the goods were, or that the part was, reasonably available to the consumer or that other person at the relevant time; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a Court of competent jurisdiction. (2) Subsection (1) does not apply where the corporation took reasonable action to ensure that the consumer acquiring the goods would be given notice at or before the time when he or she acquired the goods that: (a) the corporation did not promise that facilities for the repair of the goods, or that parts for the goods, would be available; or (b) the corporation did not promise that facilities for the repair of the goods, or that parts for the goods, would be available after a specified period, being a period that expired before the relevant time. (3) Where the corporation took reasonable action to ensure that the consumer acquiring the goods would be given notice at or before the time when he or she acquired the goods that the corporation did not promise that: (a) facilities for the repair of the goods, being facilities of a kind specified in the notice, would be available; (b) parts for the goods, being parts of a kind specified in the notice, would be available; or (c) facilities for the repair of the goods would be available at, or parts for the goods would be available from, a place or places specified in the notice; the corporation is not liable to compensate the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer for loss or damage suffered by the consumer or that other person by reason of the failure of the corporation to ensure that facilities of the kind specified in the notice, or parts of the kind specified in the notice, were available, or that facilities for the repair of the goods were available at, or parts for the goods were available from, a place or places specified in the notice, as the case may be. (4) In determining whether a corporation acted unreasonably in failing to ensure that facilities for the repair of goods were, or that a part was, reasonably available to a person at the relevant time, a Court shall have regard to all the circumstances of the case, and in particular to the existence, at the relevant time, of circumstances that prevented those facilities or that part being so available, being circumstances beyond the control of the corporation. 549As outlined above, I have a doubt as to whether Tranquility's approach to interpretation on the goods/fixtures question is correct in relation to this section. Thus it may be that this section cannot have application in the present case. However, I will put that to one side, in order to explain why I think, in any case, Tranquility would not have a liability under s 74F. Section 74F would prima facie apply both where Tranquility sold a pool directly to a consumer, or where the pool was sold through a dealer. Applying subsection 1(c)(i) I accept that pools which have failed will require to be repaired but facilities for their repair will not be reasonably available to the consumer, or a person deriving title through them. The real question is whether, applying subsection (1)(d), Tranquility acted unreasonably in failing to ensure that facilities for the repair of pools were reasonably available to the consumer. In determining this question, the Court is to have regard to all the circumstances, and in particular to the existence, at the relevant time, of circumstances that prevented those facilities being so available, beyond the control of Tranquility. Having regard to all the circumstances, I am not persuaded that Tranquility acted unreasonably in failing to ensure that facilities for repair were reasonably available to pool owners. In my view, the circumstance of the defective resin, which caused blistering, being used so widely, and thus causing so many pools to require repair, is really what prevented repair facilities being reasonably available. The blistering problem was so widespread that Tranquility could not, without bringing about its own demise, have provided repair facilities. In my view, the widespread nature of the osmosis problem was a circumstance beyond the control of Tranquility. It was, on the factual findings I have made, the responsibility of Huntsman. 550For the above reasons, even if Tranquility's approach as to the goods/ fixtures debate were correct in relation to this section, Tranquility would still not succeed in showing that it has a liability to pool owners under this section.

Conclusion as to Division 2A, Pt 5 551I have found that Tranquility has only succeeded in showing that it has a liability to customers under sections 74B, 74D and 74G. 552As stated above, in one sense this does not advance the overall analysis, since I had already found that Tranquility was liable to all pool owners. However, it may have relevance for limitation periods and therefore the form of orders. 553An action under a provision of Division 2A may be commenced within 3 years after the day on which the cause of action accrues. A cause of action is deemed to have accrued on the day on which the consumer, or a person deriving title through them, first became aware or ought reasonably have become aware: (1)For s 74B, that the goods were not reasonably fit for the purpose referred to in that section; (2)For s 74D, that the goods were not of merchantable quality; (3)For section 74G, of the failure of the corporation to comply with the express warranty refereed to in that section. 554Thus the limitation period for actions by pool owners under sections 74B, 74D and 74G will be three years after the day on which the consumer, or a person deriving title through them, first became aware or ought to reasonably have become aware that their pool suffered from osmosis. 555The parties agree that an action under a provision of Division 2A is subject to a absolute maximum limitation period of ten years from the time of the first supply to the consumer of the goods in question: s 74J(3).

Consideration of subsequent purchasers 556Of all the pools which have failed, 25 have so far changed ownership. That is, the customer who purchased the pool from Tranquility or a dealer has sold their property, including the pool, to an incoming purchaser. 557Tranquility submits it has a liability to such "subsequent purchasers" in two ways.

The first way - Novation 558Tranquility argues there has been sufficient conduct for a novation of the right of action against it under the express warranty from the original pool owner to subsequent purchasers of properties that have been sold. 559Tranquility relies on the decision in Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473. In that case, Sheller, Stein and Giles JJA stated inter alia: [78] Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made: Olsson v Dyson (1969) 120 CLR 365 at 388, per Windeyer J, which Bainton J referred to. Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation: see, eg, Vickery v Woods (1952) 85 CLR 336 at 345, per Dixon J as his Honour then was. A novation may be express or implied from the circumstances. ... [86] In Upper Hunter County District Council v Australian Chilling and Freezing Co Pty Ltd (1968) 118 CLR 429 at 437, Barwick CJ said that in searching for the contractual intention, "no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements". This equally applies, in our view, when searching for an intention that there be a novation. 560In Olsson v Dyson (1969) 120 CLR 365 at 390 Windeyer J stated "[T]he requirements of our law are satisfied by a tacit agreement to extinguish the former obligation, and this is inferred when an inconsistent obligation is by agreement substituted". 561I have also had reference to a useful journal article by Mr Julian Bailey, "Novation" (1999) 14 Journal of Contract Law 189, wherein at 212 it is stated: Thus, the existence of novation being a question of fact, and the consent of all parties being requisite, the inquiry in each case will be: on the facts, did the parties intend that a novation should occur? That is, did the parties intend that the original contract should be rescinded and that a new contract be created by way of substitution? 562In the present case Mr Kahler deposes as to the process Tranquility undertook where a pool owner whose complaint had been confirmed by Tranquility wished to sell their property. Mr Kahler directed that a standard form letter be sent to the Tranquility pool owner/vendor, the obvious purpose of which was to be shown to potential purchasers. The letters stated inter alia "All warranties are fully transferable to any new owner of the property". Mr Kahler deposes in his affidavit of 6 February 2009 that on each of the 14 occasions when such a sale had occurred, he spoke with the solicitor or conveyancer acting for the vendor and the equivalent person acting for the purchaser. He deposes that representatives of the purchaser always said to him words to the effect "my client reserves its rights". Mr Kahler deposes as to an essentially identical process in relation to owners of Tranquility pools who were endeavouring to sell their properties (but may not have actually done so). 563The evidence further indicates that Tranquility's internal "complaints register" was updated to reflect changes in ownership of properties that included pools confirmed as failed. After a change of ownership, Tranquility sent subsequent purchasers standard form letters, which stated inter alia "This letter will confirm that we have adjusted our records to reflect that you are now the beneficiaries of the warranty applicable to the Tranquility swimming pool installed on your property". 564In final address, the defendant submitted that there was insufficient evidence for a finding that there had been a novation because there was insufficient evidence of the original pools owners consenting to their rights as against Tranquility being extinguished. The defendant suggested that a pool owner who had sold their property could retain rights as against Tranquility on the basis that they had endured a blistered pool for a number of years and may be entitled to a solatium. 565It is true that no original pool owners, who sold their properties, gave evidence to the Court. However, there is evidence before the Court from two subsequent purchasers, Ms Ion and Mrs Symonds. What their evidence indicates is that the letters sent by Tranquility to the original purchasers of failed pools were shown to the subsequent purchasers at the time of the real property transaction. 566In my view the defendant's argument does not properly characterise the role of the letters provided by Tranquility and shown by the original owners to the subsequent purchasers. It is important to bear in mind that a narrow or pedantic approach is not warranted in searching for an intention for there to be a novation. In my view, both Tranquility in providing the letter, and the original owner in utilising the letter, which stated that the warranty was transferable, intended that the original contract, or part of a contract, constituted by the express warranty would be extinguished. That is, I think the original owners, in utilising the letters in the form they were written, consented to their rights under the express warranty being extinguished. In my view, Tranquility, as evidenced by the letters, intended the original express warranty as between it and the original owner, to be substituted by a new contract, in the form of the express warranty, between it and the subsequent purchaser of the property. In my view the subsequent purchasers, who the evidence indicates were shown the Tranquility letters when purchasing the property, intended to enter into a new contract with Tranquility whereby they would have the rights conferred by the express warranty. 567I also think it is of some significance that Tranquility clearly regarded itself as bound by a new agreement with the subsequent purchaser, as reflected in the letters sent to subsequent purchasers stating that they were now the "beneficiaries" of the express warranty, and the updating of its internal records to reflect this perception. 568On the above basis, I hold that Tranquility is successful in making out its novation argument. 569In my view there is one potential complication to the above analysis that arises from the "sample" evidence of pool customers outlined earlier. That evidence showed that not all pool owners could establish that they had a valid express warranty claim against Tranquility. Rather, a proportion of pools owners equal to 41/43 (or approximately 95%) could establish that they had a contractual claim based on the express warranty against Tranquility. Accordingly, 5% of the 25 original owners (approximately 1.25 owners) who have sold their properties will not have had a valid contractual claim based on the express warranty as against Tranquility. 570In my view this complication does not alter the conclusion in relation to subsequent purchasers. Even if the original owner did not have a valid contractual claim under the express warranty as against Tranquility, which the parties purported to extinguish, in my view both Tranquility and the subsequent purchaser intended to enter into a new contract whereby Tranquility made a promise to the subsequent purchaser in the terms of the express warranty. In my view, the subsequent purchaser will have offered consideration to support this new contract by agreeing to enter into the main contract of sale for the property with the original owner.

Exacerbation of own loss? 571The defendant pleads that to the extent Tranquility has caused its own losses, it is not liable for such losses, giving the particular of the undertakings provided by Tranquility to subsequent home owners as set out in Mr Kahler's evidence. 572I do not accept this contention. In my view, in circumstances where Tranquility had given an express warranty to pool owners, and the pool had developed osmosis such that that warranty had been breached, it was entirely reasonable for Tranquility to provide a letter promising that the warranty would be transferred to a subsequent purchaser of the property in question.

The second way - Pt V Div 2A of the Trade Practices Act 573Tranquility contends that in addition to the novation argument, it has a liability to subsequent purchasers under this Division. 574In this area, Huntsman pleads that in relation to s74B, 74B, 74G, and 74F, at the time any property on which a pool was affixed was sold to a so-called "subsequent purchaser", any pool was no longer a "good" within the meaning of those sections and therefore the pool was not "acquired", nor title "derived" to it, as a "good" by a subsequent purchaser within the meaning of those sections. 575In my view, for the reasons I have outlined above in interpreting the relevant sections of the Division, this submission of Huntsman's should fail. As outlined above, in my view, in sections 74B, 74D, and 74G, later references to the "goods" which were initially supplied, refer back to the goods initially supplied to the consumer (that is, the original purchaser) and do not exclude goods that have become fixtures. There is no reason, on a purpose interpretation, that those three sections would not apply where goods that were initially supplied to the consumer have since become fixtures, and a person derives title to such goods through the consumer. 576Under sections 74B, 74D and 74G, cause of action are conferred upon a consumer, or a person who acquired goods from, or derives title to the goods through or under the consumer, and suffers loss or damage by reason of the reason specified. For the reasons I have outlined above in applying sections 74B, 74D, and 74G, I am satisfied that Tranquility would have a liability to subsequent purchasers under each of these sections.

Limitation issues 577Tranquility's liability to pool owners will be limited by limitation periods. The parties are in dispute as to the maximum period for which Tranquility will be liable to claims by pool owners. Essentially, Tranquility submits that under its express warranty, pool owners will have a maximum of 16 years in which to sue it, whereas Huntsman contends Tranquility will only be liable for a maximum of 10 years under the express warranty. 578It will be apparent from the analysis below that I ultimately favour Huntsman's position, that is the maximum claims period is 10 years.

Limitation periods applicable to claims under the terms of the express warranty 579Tranquility submits that it will be liable under the warranty for 16 years from the date the relevant pools were manufactured on the basis that the warranty constituted a promise that pools would be free from defects for the whole of the 10 years after they were filled with water. The defendant submits customers have ten years from the date the pool was sold in which to commence a claim under the warranty. It relies on VAI Industries (UK) v Bostock & Brawley [2003] BLR 347, a decision of the English Court of Appeal. 580In that case, the warranty in question stated "all equipment is to be warranted as free from defects ... the warranty period is for no longer than 24 months from FOB. ..." By the time the buyer had instituted proceedings, delivery or FOB had occurred outside of the normal six-year limitation period. Thus if the relevant breach of warranty were construed as occurring on the day defective goods were delivered, the claim would be statute barred. 581However, the buyers submitted that the warranty imposed on the supplier a continuous obligation to have the equipment free from defect throughout every day of the 24-month period so that failure to do so was a breach which occurred on each day including the last day. 582Ward LJ, dissenting, held at 370 that the "If the warranty continues for two years it ... is a promise that for each day of the two year period the equipment will be free from defect. For every day it continues to have a defect there is a breach ...". Thus, Ward LJ held that there was a breach of warranty including on the last day the warranty was valid. Applying the usual limitation period to this breach of contract, the claim was not statute barred. 583Carnwath LJ, in the majority, held at 371 that the cases cited: "tend to confirm ... that a clause of this kind is generally to be interpreted as giving rise to a single breach at the time of delivery, even though the obligation at that point is to ensure that the goods are in a condition that will remain fit for purpose for a reasonable time thereafter ... While each of these cases must be interpreted in the light of the particular wording of the contract in question, I believe that clearer words would be needed ... to create a continuing obligation ..." 584Newman J similarly held at 372 that there was a single breach by reason of the presence of defects within the warranty period. Newman J commented: "[t]he scope and meaning of the warranty is contained in the first sentence. The first three words of the second sentence, "the warranty period", relate not to the meaning and scope but to the period of time in which the warranty was to have effect as a promise to be answerable for any defect ... which manifests itself in that period." 585In the present case the warranty card, which is said to support the express warranty stated, "Tranquility ... warrants the Shell to be free of defects caused by workmanship and/or raw materials used in the fabrication process, for 10 years when the Shell is first filled with water." 586Tranquility submits that the proper interpretation is that the Warranty would be breached if a pool manifested osmosis on the last day in the tenth year and it would not be necessary to commence proceedings that day. Instead, the normal six-year limitation period would begin to run from that date, thus producing the 16-year maximum claims period. 587I do not accept Tranquility's submission. At least implicitly, Tranquility contends that the express warranty was only breached when the osmosis manifested itself. 588In my view, the proper interpretation is that if a pool was supplied with a latent defect, such that it would eventually develop osmosis, the express warranty would be breached upon supply, since the shell would not be free of defects caused by workmanship and/or raw materials. That is, as Huntsman submits, at the time of delivery the customer's cause of action for breach of the express warranty would have accrued. In my view, the words "for 10 years when the Shell is first filled with water", define the period in which a claim for breach of the express warranty, based on the fact that defects had become manifest, could be made against Tranquility. 589I have dealt above with the limitation periods relevant to claims against Tranquility under Pt 5 Div 2A of the Trade Practices Act . As noted there, the parties were in agreement that the maximum period that claims could be brought under Part 5, Division 2A, against Tranquility was ten years from the date of supply of the pool in question: s 74J(3).

The measure of the loss 590In this part of the case the parties are at odds as to the entitlement of the owner of a failed pool as against Tranquility. Essentially, the debate concerns whether pool owners are entitled to complete replacement of their failed pools or some lesser rectification method.

The test of unreasonableness - examining the principles through the recent authorities 591The Court has been referred to a number of authorities some of which date back to the mid-1990s and the least one of which [ Robinson v Harmon (1848) 1 Exch 850; (1848) 154 ER 363] dates back to 1848. 592The more recent authorities of particular note appear to be the following : (1)Willshee v WestCourt Ltd [2009] WASCA 81; (2)Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613; (3)Nouvelle Homes Pty Ltd v G & M Smargiassi [2008] WASC 127; (4)Radford v De Froberville [1977] 1 WLR 1262; (5)Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344; (6)Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 83 ALJR 390; [2009] HCA 8. 593The recent decision of the Western Australian Court of Appeal in Willshee v WestCourt concerned a claim by the appellant that WestCourt Ltd (WestCourt) breached a term of a contract for the construction of a house by using inferior or second quality limestone in the external cladding of the house. The trial judge upheld Mr Willshee's claim, but awarded him damages which reflected only the cost of cleaning and sealing the limestone, and some repainting necessitated by the cleaning and sealing work. Mr Willshee's claim for damages in an amount equal to the costs of, and associated with, replacement of the inferior limestone was rejected by the trial judge. 594The Court of Appeal observed inter alia as follows : [61] Since the decision of the trial judge, the Australian law applicable to issues of this kind has been elucidated by the decision of the High Court of Australia in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 83 ALJR 390; [2009] HCA 8. That case concerned a claim for damages by a landlord as a result of breach of a covenant in the lease by the tenant carrying out work, which resulted in the substantial remodelling of the foyer of the building leased without the approval of the landlord. The trial judge held that there had been a breach of covenant, but awarded damages in the sum of $34,820, being the difference between the value of the property with the old foyer, and the value of the property with the new foyer constructed by the tenant. On appeal, the Full Court of the Federal Court of Australia had increased the judgment sum to $1.38 million, made up of $580,000 to reflect the cost of restoring the foyer to its original condition, and $800,000 for loss of rent while the restoration work was taking place. The High Court upheld the decision of the Full Court. [62] In doing so, the High Court emphatically rejected the proposition that a party entering into a contract was at complete liberty to break the contract provided damages adequate to compensate the innocent party were paid - in the Tabcorp case being damages in the amount of the diminished value of the landlord's reversionary interest. Rather, the High Court reaffirmed the "ruling principle" [13] that the measure of damage at common law for breach of contract was that stated by Parke B in Robinson v Harmon (1848) 1 Exch 850 at 855; (1848) 154 ER 363, 365: The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. [63] Applying that principle to the facts of this case, under the terms of the contract for the construction of his house, Mr Willshee was entitled to a house constructed using limestone which was all of high quality. That is not what he got. Under the 'ruling principle', he was entitled to damages in the amount required to put him in that position - namely, by demolishing the existing external wall and replacing it with limestone which was all of high quality. [64] As the High Court points out in Tabcorp , the words of Baron Parke in Robinson v Harmon are not to be equated with being placed in 'as good a financial position as if the contract had been performed' [13]. So, in the case of land and buildings, diminution in value is not the only measure of damages available - although, of course, in some cases it may be the appropriate measure. [65] The earlier decision of the High Court in Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 stands firmly against the proposition that diminution in value is the ordinary measure of damages awarded against a builder as a result of departure from a building contract. In that case, a builder who had breached his contract in respect of the composition of the concrete in the foundations of the building and in respect of the mortar used in the erection of its brick walls, asserted that the relevant measure of damage was the difference between the value of the house and land as constructed, and the value which it would have had if the building contract had been performed. That contention was rejected. In the joint judgment of Dixon CJ, Webb and Taylor JJ, it is observed that the ordinary measure of damage is the cost of the building work which is required to achieve conformity with the building contract (617 - 618). If that work requires the demolition and reconstruction of the house, then, subject to one qualification, that is the appropriate measure of damage. [66] The qualification to which the High Court referred in Bellgrove was that 'not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt' (618). On the facts of Bellgrove's case, the High Court was of the view that insistence upon the performance of the remedial work by demolition and reconstruction was entirely reasonable given the nature of the breaches of the building contract. [67] In the present case, part of the reasoning relied upon by the trial judge was the proposition that Mr Willshee's concern was primarily aesthetic, but it could not be said that his view of aesthetic desirability would necessarily be shared by others, and there was no term of the contract requiring a particular aesthetic standard to be achieved, nor any objective measure by which Mr Willshee's views could be assessed. [68] The decision in Tabcorp establishes that this process of reasoning is erroneous. Although in the present case there was no express term of the contract relating to the aesthetic standard to be achieved by the limestone cladding, there was a term of the contract which required the limestone cladding to be of high quality. It was breach of that term which resulted in accelerated deterioration of the limestone surfaces which Mr Willshee did not regard as aesthetically pleasing. As the High Court points out in Tabcorp , the question of whether or not Mr Willshee's views in this respect are idiosyncratic, or would be shared by others, is not to the point [16]. Mr Willshee entered into a contract which he considered served his interests, and he is entitled to the performance of that contract quite irrespective of the views which other people might form in relation to the advancement of those interests, such as views relating to the aesthetic appearance of the house. [69] In Tabcorp , the High Court also elucidated and explained the qualification of 'unreasonableness' established by the earlier decision Bellgrove . It established that this qualification is only to apply in 'fairly exceptional circumstances ... only ... where the innocent party is "merely using a technical breach to secure an uncovenanted profit"...' [17] (quoting from Radford v De Froberville [1977] 1 WLR 1262 (Oliver J). [70] Applying that test to the circumstances of the present case, it could not be said that WestCourt's breach of contract was, in any sense 'technical'. It was a serious and significant breach, which had a significant impact upon the rate at which the external cladding of the house weathered and deteriorated, and which has had a significant impact upon the appearance of the house. [71] Nor could it be reasonably concluded that Mr Willshee is pursuing his claim in order to secure a profit to which he has no entitlement under the building contract. Mr Willshee gave evidence in the strongest terms of his displeasure upon discovering that a significant part of the limestone used for the external cladding of his house was of inferior quality. That evidence was entirely plausible and reasonable, and was not rejected by the trial judge. WestCourt submits that the evidence does not sustain the conclusion that Mr Willshee will in fact use the damages awarded to undertake the relevant remedial work (appeal ts 47). However, there are passages in the evidence of Mr Willshee (see, for example, ts 272) which suggest that it is his intention to undertake the reconstruction work in the event that damages are awarded. In any event, the question of whether or not the work will in fact be undertaken is 'quite immaterial': Bellgrove (620). [72] Notwithstanding the decision in Bellgrove , under the more recent formulation of the test in Tabcorp , it is conceivable that the subjective intention of a plaintiff may be relevant to the application of the qualification to the 'ruling principle' of damages. However, a defendant wishing to rely upon the qualification carries the onus of proving the facts relevant to its application. In the present case it was not put to Mr Willshee in the course of his cross-examination, that he had no intention of using the damages awarded to undertake the necessary reconstruction work. Accordingly, WestCourt cannot now rely upon the lack of evidence as to Mr Willshee's intention to sustain an assertion that this case comes within the 'fairly exceptional circumstances' which would result in Mr Willshee being denied the ordinary measure of damage. [73] As regards the decision of the House of Lords in Ruxley , upon which the trial judge placed significant reliance, in Tabcorp , the High Court observed that on one view, the result of that case was inconsistent with the principles established by earlier English decisions [18]. In any event, the High Court distinguished that case on the facts. It is equally distinguishable from the facts of this case. [74] In Ruxley , the builder departed from the building contract by constructing a swimming pool which had a maximum depth which was some 9 inches shallower than that specified by the contract. However, the evidence established that the pool as constructed was perfectly safe to dive into. [75] With respect to the trial judge, that is a very different situation to the present case. In the present case there was a contractual obligation to supply limestone of high quality for use as the external cladding of the house. The external cladding of a house is quite obviously a matter of great significance and importance to its owner. Notwithstanding that contractual obligation, WestCourt installed a significant quantity of limestone which was of inferior quality, with the result that it deteriorated rapidly, necessitating significant remedial work. Even though the deterioration did not adversely affect the structural soundness of the building, it was nevertheless material to the calibre and quality of the building supplied, when compared to the calibre and quality of the building for which Mr Willshee contracted. [76] In this case, application of the 'ruling principle' governing the measure of damages for breach of contract means that Mr Willshee is entitled to the amount of money required to put him in the position in which he would have been had his house been constructed using only limestone of high quality. As it could not be concluded that Mr Willshee was relying on a technical breach of contract to obtain for himself a profit which was outside the terms of the building contract in claiming damages measured in this way, the trial judge erred in concluding that the case came within the qualification of 'unreasonableness' referred to in Bellgrove . 595I have not been able to find fault in the exposition of principle to be found in the judgment on appeal in Willshee . In particular the High Court had made clear in Tabcorp that the test of unreasonableness is only to be satisfied by fairly exceptional circumstances. 596In Wheeler & Anor v Ecroplot Pty Ltd [2010] NSWCA 61 McFarlane JA [with whom McColl and Basten JJA agreed] had occasion to consider the principles to be derived in Bellgrove v Eldridge . 597In broad terms Wheeler dealt with the following circumstances : In September 2002 Mr and Mrs Wheeler contracted with the respondent building company to have a home built for them on land which they had acquired at Wagga Wagga. The home was completed in March 2003 but by late 2003 some cracks appeared in the walls and some doors were found not to be opening and closing properly. These problems increased over the following couple of years during which time investigations and some limited repairs were undertaken. The appellants commenced proceedings alleging breaches by the respondent of the relevant building contract and claiming rectification costs. The trial judge found that whilst the respondent builder had committed breaches of contract in using too much landfill and in failing to embed the footings far enough into the natural soil, the loss which the appellants suffered was not causally related to those breaches. She directed that judgment be entered in favour of the respondent. On their appeal, the appellants' contentions were that the observed damage had been caused by the excessive landfill breach found by the primary judge and by a further breach by the respondent builder in allowing the fill to dry out before the concrete slab of the home was laid. The primary judge's finding of a breach in the former respect was not challenged by the respondent and in the view of McFarlane JA a breach in the latter respect was made out on the evidence. Further, the evidence established that the latter breach materially contributed to the damage that was suffered. The appellants' claim for damages was in the sum of $127,649.64 comprising rectification costs of $113,124.64 and relocation costs of $14,525. McFarlane JA concluded that the need for relocation was not established and that an amount of $5,900, relating to some of the claimed rectification costs, should be deducted from the appellants' damages. The primary component of the balance of the rectification costs claimed was the cost of underpinning to embed the footings into the natural soil to the depth required by the contract below. The appellants did not contend that the observed damage was caused by the breach as to the footings but asserted that they were entitled to have footings embedded to the contractual depth to attempt to ensure the stability of their home. McFarlane JA concluded that they were so entitled and that it was reasonable for the appellants to incur the cost of underpinning to rectify the respondent's breach. 598The following propositions are to be found at paragraphs 80 and 81 of the judgment : [80] These conclusions conform with the principle to be derived from Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 that in the case of a building contract such as the present the prima facie measure of damages is the "amount required to rectify the defects complained of and so give to [the plaintiff] the equivalent of a building on [his or her] land which is substantially in accordance with the contract" (at 617 per Dixon CJ, Webb and Taylor JJ). A qualification to that principle was stated in Bellgrove to the effect that "not only must the work undertaken be necessary to produce conformity [with the contract], but that also, it must be a reasonable course to adopt" (at 618). [81] In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd the High Court commented in relation to this qualification that the example given in Bellgrove of a situation where rectification would be unreasonable "tends to indicate that the test of 'unreasonableness' is only to be satisfied by fairly exceptional circumstances" (at [17]). Another example of unreasonableness is a situation where the cost of the "proposed rectification is out of all proportion to the benefit to be obtained" ( Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361 at [82] - [88] citing South Parklands Hockey & Tennis Centre Inc v Brown Falkiner Group Pty Ltd [2004] SASC 81 at [90]; see also: Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253; Kirkby v Coote [2006] QCA 061; Gagner Pty Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413; (2009) 262 ALR 691; and Building Insurers' Guarantee Corporation v The Owners - Strata Plan No 57504 [2010] NSWCA 23). There is in my view no such radical disproportion in this case, nor any other factor, which would lead to the appellants' desire to have their home accord with the contractual standard concerning footings being regarded as unreasonable in the relevant sense.

Overview 599In truth the judicial determination concerning what is or is not reasonable can only be determined in the light of the particular facts before the Court. In the present litigation the Court has not been satisfied that the steps proposed by the defendant would necessarily solve the problems. Nor could it be that the pool owners should suffer the fate of effectively being guinea pigs at risk of having their pools remediated, only to find that this further remediation in due course also fails. For the reasons given otherwise in this judgment the only practicable [although expensive] manner of dealing with the situation is for the fibreglass shells to be replaced and for the defendants to also make good the premises in which any such pool has been installed. [Of course any owners who press for the alternative form of relief, have an entitlement to require that the defendant pay to them an amount equal to the cost of replacing the fibreglass shells and the making good of the premises in which such pool had been installed]

Suggested rectification methods 600Huntsman has put on evidence of a number of "rectification" methods short of replacement: the International "Nushell" method, the Compass "Reshell" method, grindback and respray or resurface, vinyl liners and the use of pool chemicals. None of these fit within the "ruling principle" reaffirmed by the High Court in Tabcorp . 601Pool chemicals, vinyl liners and grindback remedies can be dismissed immediately. None of those methods provide the customers with what they paid for. Further, save a complete grindback and respray executed to the highest standards, none of those methods cure the "disease" - osmosis - which would be expected to return and respread. 602All of those methods, including grindback and respray, would force upon the customers a significantly inferior product to that which they purchased. In the case of customers who had a pool with a "shimmering" or "sparkly" finish, it would also impose on them a monochrome coloured pool. 603As has already been noted Willshee decisively rejected a measure of damages based upon a rectification method which did not restore the property to the contractual standard. 604Tranquility accepts that both the Tranquility Nushell and Compass Reshell methods are superior to the other methods put forward. The finding is however, that neither method meets the principle of restoration set out in Tabcorp and Willshee . 605The evidence of Mr Kahler, Mr Annakin and Mr Cutts is that the Nushell method: (1)is not available for "non-solid" colours (in circumstances where 335 of the 428 confirmed Failed Pools fall into that category); and (2)in respect of pools with solid colours, requires the use of waterline tiles and "controlled cutting" and subsequent repair. 606The Compass Reshell method appears to suffer from neither drawback. The evidence of Mr Kennedy, however, is that: (1)it has been attempted a sum total of only four times; (2)on one of those occasions it failed, requiring the entire defective pool to be replaced; (3)it is an experimental process still under development; (4)it has not had an engineering specification or approval which, Tranquility submits, would be necessary before the Court could be satisfied it could be applied to over 400 pools; and (5)it is imperfect in that the bonding is solely at the top. 607Furthermore, the witness called by the defendant to prove this method, Mr Mewett, gave no evidence that this method was sufficiently developed for mass production or that Compass was either willing to do so or capable of doing so. That being so, I accept that it would be unsafe for the Court to value the costs of replacement on the basis of an untried and untested and, practically speaking, only hypothetically available procedure. 608The finding is that only full replacement will appropriately compensate the customers.

The cost of replacement 609The parties' expert quantity surveyors have come to substantial agreement regarding the cost of replacement of ten selected pools. Those pools were selected by Mr Kahler as representative pools by a process which he explained and upon which he was not cross-examined. 610The experts had only three differences of opinion: (1) the need for a second day for a crane (ie whether it was necessary to remove the old pool by crane, as opposed to cutting it up on site; it was common ground that a crane would be needed to bring the new pool shell on site), (2) whether a ramp was needed for the Vaughan site and (3) whether any economies of scale would be achieved by virtue of the large number of pools to be replaced. 611On the first issue the finding is that the defendant has not adduced evidence that the process of cutting up the pool is possible in the manner suggested. Nor has it been put to the OH&S experts for evaluation as to the precautions might be required. 612On the second issue, I accept that it is plain from the photographs of the Vaughan site that some kind of ramp would be necessary to avoid damage to the stepped landscaping leading up from street level to the Vaughan's backyard. 613In respect of the third difference, Mr Meredith produced a report of 23 November 2010 in which he expressed the opinion that a "reduction" of about $4,500 per plus (plus GST) per pool could be achieved. 614That opinion was based on the assumptions that: ... there were a number of pools and that the work could be managed in areas and staged to provide continuity of work; and [there were] a number of similar projects in close proximity to each other to minimize travel and down time, offering good long term and stable work for the trade labour over a couple of years with a good stable income with few risks. 615Mr Meredith specified particular areas where he stated savings could be made. 616In relation to those, he agreed, for instance, that he had made no enquiries of an insurance broker in respect of the insurance premium saving he asserted [T 806.43] and that he was speculating about whether his "anticipated" discount on the cost of pool shells could be achieved [T 807.3]. 617Generally he agreed that before any final figure could be arrived at, it was necessary to make assumptions about how many pools the replacer was doing, where those pools were in relation to each other and the nature of the sites in those areas [T 808.29-44]. 618Although he said he could "make some calculations based on experience", he agreed that, really, the amount of any discount was not knowable [T 808.48]. 619He denied that all one could do is make a guess at the discount achievable ("I wouldn't call it a guess" [T 809.2]). 620However, taking into account the degree of speculation involved, and the nature and variety and nature of the assumptions necessary to be made, I accept that the proper conclusion to be drawn from his evidence that little more than guesswork is involved in arriving at any "per pool" figure saving that might be achieved for a "bulk job". 621Furthermore I accept as correct the plaintiffs' contention that the matter is so uncertain that the Court ought not to hazard a guess. 622The defendant seeks to rely upon the evidence of Mr Evans to guide the process of assessment. 623Mr Evans gave evidence of the price for which he would replace 28 of the 428 pools that have failed. 624Tranquility objected to such evidence on the basis of his failure (indeed his inability) to expose any process of reasoning whereby he arrived at his quoted prices [ Assafiri v The Shell Company of Australia [ 2010] NSWSC 930 (McDougall J)] . 625Ultimately, his evidence was admitted on the voir dire [T 957.3] . 626I accept that although Mr Evans has many years experience as a builder, his only experience in relation to the replacement of fibreglass swimming pools comprises replacement of 10 such pools in 1989, in the aftermath of the Newcastle earthquake [T 595.8-13]. 627I accept that his written quotations are opaque so far as concerns the method used to arrive at the quoted figures. 628He stated that he could not recall precisely the calculations he performed for each quotation and said that, in any event, it was "not necessary for me to prepare detailed calculations" as to how much extra a particular site would cost over and above a "base cost". 629It turned out that Mr Evans adopted an extremely rudimentary method to arrive at his quotations. He simply calculated the volume of one of the fifteen [T 963.12] Tranquility pool shapes relevant to the sites the subject of his quotations (the "Classic 8") and performed an assessment of the fixed and base costs in respect of that pool shape. Then, by reference to the differing volumes of the other pool shapes, Mr Evans simply performed an arithmetical calculation (using the volume of Classic 8 as denominator and that of the other pool shape as numerator) of the corresponding variable costs for that pool and added the fixed costs to the figure so derived [T 970.33]. 630As to fixed costs Mr Evans adopted an assumed figure (based on his assessment in respect of the Classic 8 pool) and applied it to all the other quotations, no matter what the difference in site configurations and requirements. For example, he assumed that it would cost $700 to crane a pool shell into each of the 28 sites in inspected, site without getting a quotation from any crane operator [T 965.7] and no matter what the particular site was like. He could not say how that figure was calculated and simply asserted it was a "mean average" and that "I know it" [T 967.15-20]. 631The finding is that Mr Evans's evidence amounts to no more than evidence of the price at which he says he would replace the pools in the sites he inspected. Even to that extent, it was undertaken as a hypothetical exercise where he knew there was no prospect that he would be bound to those quotations (by being awarded the jobs) and possibly making a considerable loss. 632Quantity surveyors are experts are at determining the costs of building works. That is the task before the Court. Both Mr Radcliffe and Mr Meredith approached the enterprise of assisting the Court with this task methodically and with careful reasoning which they exposed to the world. 633The finding is that the evidence of Mr Evans, on the other hand: (1)provides no basis upon which the Court could make any assessment of the reasonableness of that figure; and (2)fails to provide that basis because, as Mr Evans made clear, that basis simply does not exist. 634The Court's decision is to reject the evidence given by Mr Evans as the probative value is substantially outweighed by the danger that the evidence might : (1)be unfairly prejudicial to the defendant; or (2)Be misleading or confusing; or (3)Cause or result in an undue waste of time. 635In any event Mr Evan's evidence is appropriate to be regarded as of no weight. 636The mean for Mr Radcliffe's determination for the ten pools, adjusting for the Vaughan ramp, and escalated to October 2010 is $77,278.53. Adding a figure for vicissitudes of 10% produces a figure of approximately $85,000. 637Tranquility submits and the Court accepts that it is further appropriate that an amount for solatium is awarded is in the amount of $2,000 in respect of each pool to represent inconvenience and distress [see Willshee at [79], where the Court awarded $5,000 to Mr Willshee for this head of damage ]. 638The finding is that Tranquility's liability in respect of each of the 428 confirmed complaints is, in October 2010 dollars, $87,000.

The appropriate form of orders 639There was an extensive debate between the parties as to the appropriate form of orders in this case. Much of this debate concerned the proper approach to sections 82 and 87 of the Trade Practices Act 1974 (Cth). In what follows I make findings as to the proper application of those sections in the present case. However, as I will explain below, the parties will need to assist the Court in formulating an appropriate set of orders consistent with this judgment.

The approach to sections 82 and 87 of the Trade Practices Act 1974 (Cth) [In what follows the plaintiffs submissions are generally adopted]

Damage 640Huntsman, by paragraph 32B of its Defence, pleads that Tranquility's liability to its customers does not constitute "loss or damage" within the meaning of section 82(1) of the Trade Practices Act 1974 (Cth) ("the Act"). This pleading raised close questions in terms of the High Court's decision in Wardley Australia Ltd v Western Australia Ltd (1992) 175 CLR 514. 641Huntsman's argument failed to apply what the Court said in that case to the present facts. As the plaintiffs have contended when that task is undertaken, it becomes clear that in respect of the 428 customers who have already complained ("the Present Complainants"), Tranquility: (1)has either already expended money to replace those customers' pools; or (2)is subject to a presently existing, non-contingent and ascertainable liability to replace (alternatively, to rectify) those pools; in either case those payments and that liability is actual and not merely prospective "damage". 642In Wardley , the majority [Mason CJ, Dawson, Gaudron & McHugh JJ ] held that: (1)loss or damage is the gist of an action under section 82 at 525; (2)the cause of action does not accrue until "actual" loss or damage is sustained at 525; and (3)"actual" damage is to be distinguished from "likely or potential" or "prospective" damage at 526 - 527. 643The facts in Wardley concerned an indemnity that the plaintiff had given to the National Australia Bank, which indemnity was held to have been given by reason of the misleading and deceptive conduct of the defendants. The plaintiff's liability to the bank depended upon a number of contingencies being fulfilled [at 523 - 525]. The majority's critical reasoning on whether a contingent liability constituted actual damage held as follows at 532 (emphasis added): If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred . A deferred liability may stand in a different position but there is no occasion here to discuss that matter. In the result, we agree with the decision of von Doussa J in SWF Hoists and Industrial Equipment Pty Ltd v State Government Insurance Commission (1990) 6 ANZ Ins Cas 61-002 . There the insured sued the insurer for loss suffered as a result of a misrepresentation as to the extent of the indemnity or liability coverage provided by a proposed contract of insurance. His Honour held that actionable actual loss (as opposed to a mere potential for loss) occurred only when the insured was called on by a third party to make payments against which it would have been entitled to be indemnified by the insurer under the contract as represented . When the events entitling the third party to make the demand for payment occurred and when the insurer indicated, prior to the making of that demand, that it would not indemnify the insured against any such demand, there was no more than a potential for loss. 644It has to be said that this is a difficult area of analysis. So much is apparent from portion of the judgment of Deane J in Wardley which makes it clear that, at the very least, the case law on this question is mixed (at 540-541) 645His Honour stated (at 540): "Nor does the rejection of such a qualification provide, by analogy or otherwise, a general answer to the question whether the mere incurring of a contingent liability to make a future payment of itself constitutes loss or damage for the purpose of determining when a cause of action of which loss or damage is a necessary ingredient accrues or arises..." 646In Wardley , His Honour referred in a footnote to his note in Hawkins v Clayton (1988) 164 CLR 539 at 588, to the following effect: "...That is not, of course, to say that the general rule may not be subject to qualification in some special circumstances or that its application may not involve unresolved difficulties in special categories of case (e.g., cases where all that is involved at the time of a tortious act is a risk of future economic loss )..." (emphasis added). 647The decision of SWF Hoists is particularly instructive. In that case, the plaintiff insured was informed by the defendant insurer, incorrectly and in breach of section 52 of the Act, that its inter-state employees were covered by workers' compensation insurance. An interstate employee of the plaintiff was killed while working. The plaintiff's claim to the insurer was denied. The Workers' Compensation Board made payments to the family of the deceased worker and subsequently claimed those payments from the plaintiff. 648One of the questions that arose for decision was whether the plaintiff's cause of action arose as soon as the defendant denied its claim. Von Doussa J held, consistently with the High Court's later decision in Wardley , that "the cause of action does not accrue until the plaintiff has suffered damage [and] It is not sufficient to found a cause of action ... that there be a potentiality of loss" [at 76,699-76,700]. His Honour held [at 76,701 -76,703]: I do not consider that the applicant suffered harm or injury to its interests at the time when the respondent said in its letter of 29 April 1983 that it would not accept the claim. At that stage the applicant could not have sued the respondent for damages. There was then a potentiality for loss but no more. If the deceased's dependants made no claim the applicant would suffer no loss ... At the time when the applicant received the letter from the respondent dated 29 April 1983 the applicant came under no liability to make a payment. The only liability to make a payment which the applicant incurred in respect of the death of the deceased arose under the Queensland Workers Compensation Act ... In my opinion the applicant first suffered material injury or harm when the obligation created by sub.s 8(5) and s 19A [of that Act] arose. At that point the potentiality of loss eventuated. The right of recovery for which sub.s 8(5) provides is in respect of "the amount so paid". The obligation to pay the amount of the compensation to the Crown does not accrue, by the terms of sub.s 8(5), until the Board makes payment. Payment is a condition precedent to the right created by the statute ... Until payment to the dependants of the deceased occurred, the applicant was under no obligation to the Crown, and under no liability to make a payment under the provisions of the Queensland Workers Compensation Act . I consider the applicant first suffered harm in the relevant sense when it came under a legal liability to make payment to the Board. This occurred when the Board accepted the claim and made payment to the dependants on 3 March 1987, within three years of the commencement of the action. 649To similar effect, in Wardley , Brennan J held that where a contravention of section 52 of the Act by the defendant causes the plaintiff to enter into a transaction [at 537]: The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is "worse off than if he had not entered into the transaction". 650And later [at 537-538 (emphasis added)]: There is a sense in which it is right to say that, when a misrepresentation induces a plaintiff to enter into a transaction in which the plaintiff suffers a loss, the loss is suffered once the plaintiff becomes bound to the transaction. The die is then cast and what follows can be viewed as evidence proving the extent of the loss suffered when the first binding step was taken. That may be the correct analysis when the first binding step is such that, whatever extrinsic circumstances may transpire, a loss must be suffered. For example, when an asset is purchased for a price and, by reason of an inherent defect, it is worth less than the price paid ... a loss may be said to be suffered when the plaintiff pays the price or becomes bound to pay the price. Similarly, when an agreement imposes on a plaintiff an obligation to pay an amount of money without acquiring a benefit and the amount to be paid is quantified by no factors extrinsic to the agreement save the passing of time, it is right to say that the loss is suffered when the agreement to pay becomes binding on the plaintiff. But when the actual loss that a plaintiff suffers depends not only on the making of an agreement but also on circumstances extrinsic thereto, the loss is not suffered until those circumstances have transpired and, in benefit and burden cases, not until the loss is ascertainable. The present case does not involve any acquisition by the State of a contractual benefit: there was simply an indemnity given to the Bank which entitled the Bank to demand the payment of money upon certain contingencies. The State was not under any liability to pay until those contingencies occurred and the amount of the Rothwells deficiency was demanded by the Bank in writing. No liability to pay the Bank was incurred until the demand was duly made. In claims arising out of misleading or deceptive conduct, as in claims in tort, liability is for loss suffered or damage done, not for loss or damage merely foreseeable, threatened or imminent ... In a case where the relevant loss consists of a pecuniary liability, the liability must be absolute though it is not necessary that the amount be immediately payable. 651As soon as Tranquility sold pools manufactured by it with the latent defect (the propensity to blister and blackspot) resulting from use of Huntsman's Hetron 922, it came under a potential and contingent liability to the customers . The contingencies which needed to be fulfilled for this prospective loss to become, in the language of Brennan J, "absolute" where: (1)the customer's pool's latent defect would need to become patent, ie the pool would need to display the disfiguring symptoms of osmosis; and (2)the customer would need to make a claim upon Tranquility. 652The Court accepts that nothing else was required. 653The only alleged unfulfilled contingency that Huntsman has identified is that the customers have not commenced proceedings [T 1070.35-45]. 654But as Tranquility has contended in order that Tranquility's loss become "absolute" it was not necessary that a customer commence proceedings. All that was necessary was that a "claim" be made. As the majority in Wardley , in expressly affirming the decision in SWF Hoists stated, all that was required for the prospective loss to become "actual" was that the Workers Compensation Board "called on" the employer to pay the amount owing under the Workers Compensation Act (Qld) . It did not require the Board to commence proceedings. 655Similarly, as extracted above, Brennan J held that "when an agreement imposes on a plaintiff an obligation to pay an amount of money without acquiring a benefit and the amount to be paid is quantified by no factors extrinsic to the agreement save the passing of time, it is right to say that the loss is suffered when the agreement to pay becomes binding on the plaintiff". His Honour did not require the counterparty to that contract to sue for the plaintiff's liability under that agreement - only that the liability exist. 656Tranquility correctly took violent issue with Huntsman when the latter contended that there is no actual "loss or damage" for the purposes of section 82 of the Act. This was where Huntsman had for the first time, sought to rely upon the decisions of Van Win Pty Ltd v Eleventh Mirontron Pty Ltd [1986] VR 484 and St George Bank Ltd v MJK Pty Ltd [1999] FCA 1752 in support of its proposition. Huntsman had sought to assert that the decisions upon which Tranquility relies are distinguishable as they arise in the context of indemnities. 657Tranquility correctly disputes that the decisions upon which Huntsman relies and those upon which it relies are truly distinguishable on that basis. The fact that some cases arise concerning guarantees or indemnities and others in cases concerning tortious claims for damages is merely a factual distinction. Tranquility submits and the Court accepts that the principle underlying the different result in the two sets of decisions is that, on the facts, in one case the liability was contingent and in the other it was actual and certain. It is this principle which forms the ratio decidendi of the High Court in Wardley . 658Critically, in a case where the damage asserted by the plaintiff is liability in damages to a third party, it is not always necessary that that liability be determined by a judgment before it constitutes "actual" damage to the plaintiff. That this is so, is noted by O'Loughlin in St George Bank Ltd v MJK Pty Ltd [at [31] (emphasis added), extracted by the Tobias JA (Meagher JA & Foster AJA agreeing) in Wardman v Hatfield [2003] NSWCA 283 at [17]]: This line in reasoning in Van Win's case also leads to the conclusion that the respondents in these present proceedings do not yet have a cause of action for misleading or deceptive conduct - they have not suffered loss or damage for the purposes of s82 of the TBA until there is an actual or certain liability : Wardley v State of Western Australia (1992) 175 CLR 154 at 525. I am satisfied that the respondent's intended claims against the accountant under the Trade Practices Act and the FTA and the intended claim in negligence cannot be maintained at this stage. 659After all, liability might be concluded (for instance) by a settlement between the parties. In this case, for example, Huntsman does not (and could not) submit that the payments to the four pool owners who have had their pools replaced - without the institution of proceedings, let alone the conclusion of them - were not "actual damage". It follows that although a judgment is a conclusive way of showing that damage is actual and certain, as opposed to prospective or contingent, it is not the only way. 660The critical distinction between this case and both Van Win and MJK is that in those cases, as opposed to this case, the plaintiff's liability to the third party in those cases was being resisted. In the present case, however, Tranquility has accepted the customer's claims as valid. The commencement of proceedings by the customers is unnecessary. 661That the true distinction between cases such as Wardley , SWF Hoists and Wardman on the one hand and Van Win and MJK on the other is not that the former cases concern indemnities and the latter concern actions brought in tort, is explained by the Full Court of the Federal Court in Wardley (affirmed by the High Court on appeal), where their Honours explained the decision in Van Win in the following terms [ State of WA v Wardley Australia (1991) 30 FCR 245 at 245 per Spender, Gummow & Lee JJ (emphasis added)]: In Van Win Pty Ltd v Eleventh Mirontron Pty Ltd ... a negligence case, the owner of a house sued in 1977 the relevant council for the negligent issue in 1976 of a building permit for the house. In 1984 the council joined a firm of consulting engineers to which it had referred the plans for the house before issuing the certificate. The Victorian Full Court held that the claim against the engineers did not disclose a cause of action because the council had not yet suffered any damage as a result of the negligence pleaded against it. The council's cause of action against the engineers might never crystallise; it might win the case against it brought by the plaintiff or the case might be discontinued ... In our view, the cause of action brought by the State, on the pleading as it stands, crystallised at the earliest when the bank, as detailed in para 45 of the amended statement of claim, requested the State to indemnify it in respect of the demand made upon the bank by the provisional liquidators of Rothwells. No date is specified, but it was between November 1988 and May 1989. 662The key is whether the liability has "crystallised". Where a claim was resisted, as it was in Van Win and MJK , the liability would not "crystallise" unless and until there was judgment. If, however, the claim was settled or accepted, then liability would "crystallise" at that time -judgment would not be necessary. Indeed, in those circumstances, the matter may never (and probably would never) proceed to judgment. 663The only contingencies that Huntsman has been able to identify have been whether the customers will pursue Tranquility, and whether they will accept a lesser sum in lieu of their lawful entitlement. 664These are false contingencies. In the present claim, all the Present Complainants have "called upon" Tranquility. Tranquility has accepted their claims. Tranquility's liability to its customers has, at that point, crystallised, because there is no further contingency to be fulfilled - there is no prospect that Tranquility might "win" against the customers, or that the customers will discontinue their "claim", because there is no fight to be had. Upon this Court finding that Tranquility is indeed liable to its customers, all the contingencies have been fulfilled. 665This is so, despite the fact that this Court has yet to ascertain the extent of that liability. For liability to be actual, it need not be ascertained, only ascertainable. This was made clear, inter alia, by the Court of Appeal of this Court in Wardman v Hatfield [2003] NSWCA 283 at [23] by reference to the decision of Van Win : In my opinion, therefore, once the opponents' liability under the guarantee crystallised into an actual liability, he suffered loss which completed his cause of action against the claimants. Although it was submitted by the opponent that any monetary loss sustained by him could not be ascertained until judgment had been obtained in the landlord proceedings, that argument confuses the difference between sustaining an actual and measurable loss on the one hand and the quantification of that loss on the other. That distinction was referred to by Kaye J in Van Win in the following terms (at 489): ".....that confusion is likely to enter into consideration of this type if the distinction between damage occasioned from a tortious act and damages resulting or flowing from such damage, injury or harm is not kept clear. Damage is injury or harm resulting from a wrongful act while damages are compensation and money awarded for the resultant injury or harm." 666The Court's finding is that Tranquility suffered actual loss or damage each time it accepted a claim by a customer that complained of the symptoms of osmosis in a Hetron Pool. 667There are extremely sound policy reasons why the commencement of suit is an unnecessary step in transforming what might have been a contingent liability into an absolute one. Where a liability exists, the purpose of proceedings is not to create that liability - for if that liability did not already exist the proceedings would fail [with the exception of certain equitable suits such as those to declare the existence of remedial constructive trusts, which can be presently put to one side ] - but to enforce that liability. Where that liability, however, is acknowledged, proceedings are completely unnecessary. 668In the present case, each of the Present Complainants has: (1)suffered damage; (2)a valid claim against Tranquility for breach of contract and pursuant to the Act, for an ascertainable sum; (3)has called upon Tranquility to fulfil its legal obligation. Tranquility has accepted those claims. 669The proposition that Tranquility has no actual liability to those customers because it has not acted in a way which pressed to customers to commence proceedings to enforce their legal rights is rejected. The waste of both societal and judicial resources that would flow from such a holding is obvious. As Huntsman noted, many customers would be prevented for practical reasons from asserting their legal rights because the ability to assert that right has increasingly become a "luxury" available only to the wealthy [T 1070.40-42]. Had Huntsman's submission been accepted, the customers would only have an "actual" right, and hence Tranquility an "actual" liability, if Tranquility refused the claim and dared them to claim their rights. 670The Court accepts that Wardley makes clear that a liability to third parties is itself loss or damage so long as that liability is "actual" and not merely "prospective" or "contingent". 671Although Huntsman hints that some customers might have taken their own steps to arrange for "localised repairs" [20 T 1070.43-45] with parties other than Tranquility, there is no evidence that any customer has taken steps which would have the effect of extinguishing or reducing Tranquility's liability. 672The onus of adducing such evidence lies upon Huntsman, not Tranquility. Tranquility need only prove, on the balance of probabilities [in the light of the principles set out at TSR [301] - [309]], that it has suffered "actual" loss. By proving that each Present Complainant has suffered damage and made a claim to Tranquility, it has done so. If Huntsman wished to contradict this in pursuit of its own pleading it bore, at least, the evidentiary onus of showing that other steps have been taken. 673In any event, the present evidence is that dealers referred all claims directly to Tranquility. This stands to reason. The implicit suggestion that a dealer or other party would be prepared to accept liability where Tranquility had admitted fault is unlikely in the extreme. 674That being so, the following fall within Tranquility's claim for damages pursuant to section 82: (1)compensation for destruction of business; (2)reimbursement in respect of payments already incurred; and (3)its liability to the Present Complainants. 675Tranquility correctly accepts, however, that its liability in respect of the Future Complainants is merely prospective because one or both of the contingencies set out in above have not been fulfilled. Tranquility's liability to these customers is the subject of a separate claim pursuant to section 87 (albeit based upon the same breaches of sections 52 and 53(a) of the Act).

Expenses Incurred "Managing" Alleged Contingent Loss 676It was submitted by Huntsman that costs expended "managing" contingent losses are themselves contingent, and not actual, losses in that "it's simply spending money to avoid someone suing you, is itself just money spent in a sense as a contingency and not actual loss" [T 1074.9-12]. This submission would appear to apply to Tranquility's claim for expenses. 677This contention is rejected. The payments were not loans, with the prospect of them being recovered. Huntsman has not identified any contingency - such as is the case with mortgage lenders - which could result in that loss being made good. The loss was "absolute" as soon as Tranquility parted with the money. 678Huntsman has not suggested that the payments in fact made were not caused by their alleged breaches of contract and/or the Trade Practices Act . Nor could it. Those payments were made directly in response to the position that Tranquility found itself because of the use of Huntsman's product. 679Tranquility need only establish, in each case, breach, causation and damage. If breach is established, the second goes without saying and has not been contested and the third, with respect, is obvious. 680Huntsman accepts that the alleged vicissitudes it has identified in its addendum submissions on orders cannot be taken into account if the Court makes an award pursuant to section 82 [see 20 T 1073.5-8; see TSR [421] - [426]]. 681In oral submissions, however, it submitted that the Court has the discretion to in any event discount damages awarded pursuant to section 82 (ie damages where the Court has determined there is an "actual" loss) by reason of section 87. Mr Sirtes SC said [T 1067.13-42; this submission is repeated at 1071.38-40, 1072.6-14 & 1074.35-38]: And what we submit secondly is that even if s 82 is available with respect to the $36 million claim that the Court has a choice between s 87 and s 82 and ought in the interests of justice for the reasons we have set out in our addendum, make orders under s 87. The relationship between s 82 and s 87 has been dealt with by the High Court in the case of I & L Securities which I don't believe is - your Honour is familiar with the case but I don't think it's been referred to directly. Can I give your Honour the citation and particular part of the judgment. It is dealt with - the question of 82/87 distinction is dealt with by the Chief Justice, Gleeson CJ and by Gaudron J and McHugh J in different parts of the judgment. ... the particular paragraph is that of Justice McHugh at 120. Can I just read very quickly what his Honour says. In one paragraph his Honour says, in relation to the 82/87 debate "With respect...reduce an award under s 82". The question his Honour was dealing with is, if a Court comes to the conclusion that someone has suffered damages and it finds it has suffered damages, can it reduce the damages under s 87. And what the Court, each of the Judges say you can't use s 87 to reduce damages that have actually been suffered. His Honour says "Section 87 does not give...by the contravening conduct". Now we would submit that there are, in this case, a range of reasons set forth in our addendum submissions as to why the justice of the situation would commend your Honour, even if your Honour was against ours submission about whether or not these pool claimants' potential claims constitute a loss that's recognisable and compensable under s 82 that your Honour ought still fashion relief under s 87. 682The Court accepts that the submission is directly contrary to the what was stated by the High Court in the case cited, namely I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109. 683The headnote of the decision [at 110] records: "Held ... By Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ, Kirby J not deciding, that s 87(1) did not confer a discretion to reduce or modify an award of damages made pursuant to s 82(1)". 684This unambiguous and simple statement of principle is borne out by the judgments of the majority justices. The Chief Justice stated [at [20]]: However, once the amount of the loss or damage suffered by contravening conduct is established, then that is the amount which, pursuant to s82, a plaintiff has a right to recover. That right is not made subject to s87, either expressly or by implication. There is no warrant for reading s87 as conferring upon a Court a discretionary power to take away, or modify, the right conferred by s82. And, when regard is had to the wide range of circumstances to which s87 might apply, it is not necessary to treat the power in s87 to make an order for part compensation as qualifying s82 in order to give that power ample scope for practical application. 685Gaudron, Gummow & Hayne JJ noted [at [40]] that the Court of Appeal of Queensland held that section 87 provided a means by which a Court could provide compensation for only part of the damages to which the plaintiff would otherwise be entitled to pursuant to a cause of action under section 82. Their Honours rejected this view [at [61]]: Nothing in the words of s82 or s87 requires or permits a Court to make orders which will compensate a person who has suffered loss or damage by conduct in contravention of a relevant provision of the Act for only part of the loss or damage which has been suffered by that person by that conduct and which will not be, or has not been, remedied by the making of some other order under s87. 686Some reliance was placed on observations made by McHugh J. Yet his Honour stated quite plainly at the outset of his reasons for judgment, consistently with the other members of the Court (other than Kirby J), that " Section 87 does not confer any discretion to reduce the damages to which an applicant would otherwise be entitled under s 82". His Honour later expressed his reasons for this conclusion, saying, in part [ at [117] - [120]] : Sections 82 and 87 provide complementary but independent powers. If there is any conflict between the two sections - and I do not think that there is - that conflict is best resolved by giving full effect to the specific provisions of s 82 when they apply. The conflict is then alleviated by treating the general provisions of s87 as a supplementary power to be used when an award under s 82 will not properly compensate the applicant for its loss or damage. Of course, there is nothing to stop a Court going directly to s 87 and including in the applicant's relief all the compensation that it could recover under s 82. But the terms of s87 provide no warrant for depriving an applicant of the right that s82 gives it. ... Section 87 does not give a Court the power to award damages compensating a claimant for part of the loss that it suffers. "It gives a Court the power to make orders that compensate the claimant in whole or in part for the loss or damage". Those two formulations are not equivalents. As I & L submits, nothing in s 87 suggests that the amount of a compensable loss may be reduced. Nor does anything in the section suggest the grounds upon which such a reduction might be made. Rather, the insertion of the words "in whole or in part for the loss" emphasises the availability of the remedies under s 87 in situations where those available under s80 and s82 are not appropriate, or are not sufficient, to remedy the loss or damage brought about or that may be brought about by the contravening conduct. 687Callinan J also held that rights to damages pursuant to section 82 were not fettered or limited by section 87 [at [220]]. 688In my view the reasons of the High Court in I & L Securities could not be clearer. The Court - contrary to Huntsman's submissions - does not have the power or discretion to reduce damages to which Tranquility is lawfully entitled - damages which in the present case are designed to compensate the hundreds of customers affected by the consequences of Huntsman's wrongful conduct. 689Sections 82 and 87 provide for separate remedies for breaches of sections 52 and 53(a) (among others). The Court accepts that the result in I & L Securities makes it plain that as in other cases where a plaintiff has alternate and inconsistent causes of action or remedies available (such as a client suing their solicitor in both contract and tort), it is entitled to elect at the point of judgment: United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 28 - 30 per Lord Atkin . 690In any event, in respect of the 428 Present Complainants, Tranquility's claim pursuant to section 87 is only an alternative to its primary claim pursuant to section 82. 691Huntsman's invocation of what McHugh J said in I & L Securities at [120], upon which it particularly relies [20 T 1067.28-42], not only provides no foundation for its submission that this Court has the discretion via section 87 to reduce damages that ought be awarded to Tranquility pursuant to section 82, it also provides the basis for holding that the course of action proposed by Huntsman in its addendum submissions is not available pursuant to section 87 either. 692As Greenwood J noted in Khoury v Sidhu (No. 2) [2010] FCA 1320 at [67]: The phrase "in whole or in part" does not suggest that the combination of orders that a Court makes under s 87 should do less than "provide for the full compensation for all the loss and damage that is not prevented by the making of the Court's orders": I & L Securities per Gaudron, Gummow and Hayne JJ at [53]; McHugh J at [120]. 693The orders proposed by Huntsman in this addendum offend this principle, and would result in under-compensation of the customers in at least the following respects [HS [368]]: (1)customers with monochrome pools would have their pools ground back and resprayed resulting not in "conformity" with what they purchased (and Huntsman did not suggest in oral submissions that grindback & respray did result in "conformity"); (2)payment for monochrome pools would be "capped" at $15,000 per pool of monochrome pools despite the fact that the evidence of the only credible expert (Mr Tuckwell) shows that the cost would be substantially in excess of this; and (3)payment for non-solid colours would be capped at $22,500 per pool despite the fact that the only credible evidence of the costs of doing a Tranquility "Nushell" is $32,000 per pool (plus vicissitudes and solatium) and that the costs of a Compass "Reshell" must be even greater due to the necessity of extending the "lip" such that it does not become a hazard, not to mention that replacement - restoring to the customers what each of them paid for - would be $87,000 per pool. 694Section 87 does not provide a licence for under-compensation through some sort of balancing or bargaining process between plaintiff and defendant. The compensation principle of restoring to customers what they paid for is just as binding on the Court pursuant to that section as it is pursuant to section 82. If a customer is entitled to replacement, as Tranquility contends it is, this is just as true for orders made under section 87 as it is under section 82. 695Tranquility submits and the Court accepts that Huntsman's submissions in this respect could accurately be characterised as an attempt to reintroduce the freestanding principle of reasonableness or proportionality. 696In this respect, the proposed caps and reduction for alleged vicissitudes are particularly likely to lead to under-compensation. Under Huntsman's proposal, the funds assigned to pool owners would not only be capped at an amount insufficient to perform the method of rectification upon which they are based, but then are subject to a swingeing deduction of 35% for alleged and partly unspecified "uncertainties and vicissitudes". 697In respect of the Future Complainants, the only relevant contingencies are the number of customers who will make a valid complaint against Tranquility. Whether such complainants might not commence proceedings, or whether they could be persuaded to accept a settlement sum less than what would compensate them for their loss, are not, matters which the Court could lawfully take into account in fashioning orders pursuant to section 87. 698Tranquility submits and the Court accepts that it has established actual damage and hence an entitlement to damages pursuant to section 82 in respect of the 428 Present Complainants. Tranquility accepts that the Future Complainants - the further 143 estimated to report a complaint - must be the subject of an order pursuant to section 87. Tranquility contends and the Court accepts that the only orders that are capable of compensating those customers without imposing an injustice upon Huntsman are those proposed by it, especially as the fact that Huntsman is now not operating has the consequence that orders for indemnities and progress payments are inappropriate, being subject to the risk of Huntsman's insolvency.

Evidence taken on the voire dire 699On only a few occasions the Court permitted evidence to be taken on the voire dire, generally with the acquiescence of the parties. 700The parties have usefully summarised those occasions in the following tables: Witness Transcript Reference Class of Evidence Why taken on Voir Dire Smyth, Glenn 3/11/10 T204 line 1 - 207 line 37 Owners' hopes/subjective intentions regarding pool rectification (see legal argument at T 189 line 38to 192 line 50) Global customer evidence relevance objection (Huntsman made concession after this witness that this class of evidence could be admitted subject to relevance - see T243 at line 12 - 34) Mewett, Ian VOIR DIRE 1 XXN on para 17 of Mewett affidavit 10/6/10 (opinion evidence re Derakane v Hetron, equivalence issues) Argument as to whether Mewett in a position to give specialised evidence of scientific matters. Judge to permit Counsel to return to this matter in final address, as to whether evidence should be treated as expert or lay evidence (see argument and decision from T568 line 33 to T571 line 27) 11/11/10 T572 line 1 - T574 line 36 VOIR DIRE 2 Questions in re-examination as to Mewett's evidence in XXN about the differences between a resin containing hydrophilic thixotrope & a resin containing hydrophobic thixotrope As above 11/11/10 T582 line 1 -T582 line 22 VOIR DIRE 3 Further question arising from re-examination, as to whether Mewett's opinions expressed in XXN about hydrophilic v hydrophobic thixotropes were based on advice he received As above (and only put as to Mewett's state of mind - see T585 at 31 to 36) 11/11/10 T585 line 1 to T586 line 31 Evans, Christopher 30/11/10 T 957 line 1 - T972 line 3 Evans' evidence as to cost of replacement and whether that being put forward as expert evidence as to reasonable cost of replacement Judge to permit Counsel to return to this matter in final address (see legal argument from T950 line 32 and Judge's ruling at T956 at line 25)

701It is common ground that after many witnesses called by the plaintiff had been cross-examined the parties came to an agreement whereunder the class of evidence dealing with the owner's hopes/subjective intentions regarding pool rectification could be admitted subject to relevance. In that regard the evidence of Mr Glenn is allowed. 702The evidence given by Mr Mewett in the voire dire (as identified in the above schedule] is allowed and is generally dealt with as a matter of weight. 703The evidence of Mr Evans is rejected and dealt with above.

The way forward 704The Court has attempted to deal with all of the matters of disagreement between the parties. The Court has attempted to resolve a detailed debate between the parties that went to the form of orders that would be appropriate. The parties indicated that they wished to have an opportunity to attempt to agree the form of orders that would be made, in relation to pools that have not yet failed, under s 87 of the Trade Practices Act 1974 (Cth), and I am satisfied this is appropriate. The parties are to bring in short minutes of order consistent with these reasons. 705Due to the findings I reached in relation to the destruction of business claim, it will be necessary for the parties to adduce brief evidence from the accounting experts, consistent with my findings, in order to calculate the amount of damages payable under that head of damage. 706As noted above, the parties will be given an opportunity to briefly address as to what, if any, adjustment should be made to the damages awarded to the plaintiffs to take account of the taxation consequences of the Court's findings.

Glossary of terms 707It seems appropriate to set out a glossary of terms relevant to the issues of this case: Term Definition Accelerator An ingredient added to a resin by its manufacturer which speeds up the curing reaction. Acetic Acid The material produced following Hydrolysis of Sizing. Aerosil 200 A Hydrophilic Thixotrope manufactured by Degussa. Aerosil 202 A Hydrophobic Thixotrope manufactured by Degussa. Barrier Layer Layer (containing vinyl ester resin and fibreglass) to protect structural layers from 'attack' by pool water. Blackspot The deposit (generally cobalt oxide) from the release of Blister fluids into the pool when the osmotic Blister bursts. The cobalt salts are from the Promoter included in the resin. Blister The distortion of the surface of a pool due to pressure built up in the Laminate by the process of osmosis. If the blister bursts then Blackspot results. Catalyst Incorrect (but extremely widely used) word used to describe an Initiator. Cheese A tubeless package of continuous fibreglass Rovings as delivered by the roving manufacturer. Chopper The 'gun' used in the production of a fibreglass pool which chops fibreglass Rovings; mixes them with catalysed resin; and then sprays the mixture into the pool mould. Copper Naphthenate A Promoter introduced in December 2000 by Huntsman in its production of Hetron 922. See F-CAT technology. Corrosion Layer Synonymous term for Barrier Layer Cosmetic Layer The first layer applied in the manufacture of a fibreglass pool. A layer which provides or contributes to pool colour. Crosslinking The chemical process occurring when the resin and styrene react to transform the resin to a gel and then to a solid. The rate of this process is controlled by the amount of initiator and promoter used in building the pool. Cure The action of crosslinking the resin and bonding it to the fibreglass Derakane 411 An epoxy based Vinyl Ester Resin manufactured by Dow Chemicals. Diffusion The process of migration of a substance from a region of low concentration to a region of high concentration. For example migration of water molecules across the Gelcoat. This occurs as vapour unless the water can condense at a site in the Laminate. Estarez 7222 An epoxy based Vinyl Ester Resin manufactured by Huntsman. Ethylene Glycol A water soluble chemical introduced in December 2000 by Huntsman in its production of Hetron 922. F-CAT Technology Technology patented by Ashland Inc and introduced in December 2000 by Huntsman in its production of Hetron 922. FTIR Fourier Transform Infrared Spectroscopy. An analytical technique used to determine the chemical composition of materials. Fumed Silica A high purity free-flowing synthetic silica powder that is used as a Hydrophilic Thixotrope. Gelcoat A polyester resin (nearly always tinted) used in the Cosmetic layer. Also used as a name for the Cosmetic Layer itself. Hetron 922 An epoxy based Vinyl Ester Resin manufactured by Huntsman under licence from Ashland Inc. Hydrolysis A chemical breakdown due to reaction with water usually in the presence of a catalyst such as an alkali. Type of thixotrope. Hydrophilic From the Greek:- hydros = water; philia = love. Un treated fumed silica. Oxford: "Having a tendency to mix with, dissolve in, or be wetted by water. The opposite of hydrophobic." Type of thixotrope. Hydrophobic From the Greek:- hydros = water; phobos = fear. Treated fumed silica. Oxford: "Tending to repel or fail to mix with water. The opposite of hydrophilic." Initiator An ingredient added during pool manufacture to instigate cure by reacting with the promoter added to the resin by its manufacturer. This starts a chemical reaction between the resin and the styrene monomer in the resin, resulting in the 'mix' becoming a solid. Laminate The combination of all manufactured layers of a fibreglass pool. Micrograph A photograph taken through a microscope. Mist Layer In most pools, the 2 nd layer and that which provides or contributes to pool colour. Modified In the case of a Thixotrope, the transformation by the application of an appropriate coating to a Fumed Silica in its basic state (Hydrophilic), such that it becomes Hydrophobic. Osmosis The passage of water from a region of low concentration of water soluble materials (the water inside the pool) through a semi-permeable membrane (the Cosmetic Layer), to a region of high concentration of water soluble materials (inside the Barrier and Structural Layers of a the Laminate). A term used to describe the appearance of blisters, blackspot and/or cracking in a fibreglass swimming pool. Polyester Resin Resin used in Gelcoat and Structural Layers. Promoter An ingredient in a resin added by its manufacturer which reacts with the Initiator added by the pool manufacturer, to instigate cure. This starts a chemical reaction between the resin and the Styrene monomer in the resin, resulting in the 'mix' becoming a solid. The promoter is a cobalt compound that remains unaltered at the end of this reaction. Roving String-like bundle of continuous glass filaments gathered together without mechanical twist into a single bundle and coated with Sizing. SEM Scanning Electron Microscope. An instrument that enables materials to be examined at higher magnification than from an optical microscope. Shear The 'strain' that mixing, agitation or spraying causes to a liquid thereby modifying its viscosity. For example, the viscosity of household paint changes from high to low, upon agitation (high shear), but subsequently returns to low viscosity (low shear or at rest). Sizing A coating on fibreglass Rovings vulnerable to Hydrolysis. Necessary to hold the bundle of glass filaments together and to provide protection from abrasive damage during transport and actual pool manufacture. Structural Layers Those layers (containing Polyester Resin and fibreglass) which provide the structural integrity of the pool shell. Styrene A reactive chemical that is added to a resin to 'thin' it (improve flow). Also a participant in the process of the 'mix' becoming a solid. (see Promoter). Thixed A resin into which a Thixotrope has been incorporated. Thixotrope A substance which promotes the ability of a liquid to change from a "thicker" (viscous, or less free flowing) state to a "thinner" (less viscous, or more free flowing) state, and back again. It must confer the quality of high Viscosity at low Shear, and low Viscosity at high Shear. Added to resin to modify flow attributes. Tie Layer Synonymous term for Barrier Layer Unmodified In the case of a Thixotrope, the fumed silica in its basic (Hydrophilic) state. Unthixed A resin into which a Thixotrope has not been incorporated. Vinyl Ester Resin Resin used in Barrier Layer to prevent Osmosis. Viscosity The flow characteristics of a liquid. A free flowing liquid (eg water) has a low viscosity; whereas a less free flowing liquid (eg honey) has a high viscosity. Void A region of a Laminate where there is neither resin nor fibreglass. Generally caused by air entrapment during spray up of the Laminate or air release on cure. Wacker N20 A Hydrophilic Thixotrope manufactured by Wacker. The Thixotrope used by Huntsman in the Hetron 922 supplied to Tranquility. Wet out The process of breaking up the fibre bundles to wet the individual fibres with resin so they are surrounded by resin on cure. This is achieved by rolling. Wet through The process of wetting the fibre bundles with resin and releasing the air. This is achieved through rolling.

The large number of witnesses who gave evidence in the hearing 708A considerable number of witnesses gave evidence. It is appropriate to essentially list them, and their relevance to the proceedings in order to provide that information to the reader.

Plaintiffs' employees 709The principals of Tranquility [essentially Mr Kahler and Mr Annakin] gave evidence] as did Mrs Suzan Annakin, an employee of Tranquility 710Mr Kahler gave evidence on 2 and 30 November 2010: His relevance to the proceedings is as follows: (1)From July 1986 to late 1999, Managing Director of a number of companies known as the International Pools Group of companies (International), a predecessor of the plaintiffs. (2)Controls the affairs of the first and second plaintiffs. The vast majority of shares in the first and second plaintiffs are held on trust for Mr Kahler's family. (3)Controls the affairs of PFI Pty Ltd, which owns the plant and equipment at the TPSM factory. Mr Kahler's family trust beneficially owns PFI. (4)Since October 2004 has been in charge of managing the osmosis outbreak for Tranquility. 711Mr Annakin gave evidence on 3 November 2010. His relevance is essentially as follows: (1)Director of plaintiffs; (2)Factory manager of Tpsm; (3)Factory manager at international pools from 1988 onwards; (4)Worked at International from 1977.

Plaintiff ex employees Ben Cooper: Gun operator employed by plaintiffs since 2001 Graeme Cutts: (a)retired pattern maker, employed by International to design and make pools, (b)used by plaintiffs in current proceedings to inspect various pools. Donald Magner: (a)Between 1999-2003 a director of tpsm and responsible for the part of business relating to retailing pools; (b)Vast majority of tranquillity pools sold to customers (rather than dealers) were managed by him; (c)Previously general manager for International Pools from 1990-97; Competing Manufacturers Stephen Ward: Sole director of Harvest Pools Pty Ltd Roy Laybutt: Managing director AAA pools, another manufacturer Steven Carlson: Fibreglass repairer Ian Mewett (appeared as a witness for the plaintiff and defendant): Director of compass pools Lewis Beale: Aquatic Leisure pools

Pool dealers John Candy Ronald Spice Oswold Collins Rodney Bragg 712The defendant's witnesses in this category were as follows :

Pool repairers called by defendant Peter Doris: Pool builder Lawrence Zahra: Pool repairer Derek Kramer Pool resurfacer Andres Timmermanis Manager of company that manufactures a distributes "crystal chem" products for pool care Michael Tuckwell (appeared as a witness for the plaintiff and defendant): (a)Managing director Duraglaze NSW Pty Ltd (b)Duraglaze engages in refurbishment of fibreglass pools. Also provides fibreglass shell insert into concrete pools ( a roll on fibreglass surface). Martin Kennedy (a)Sub contractor to Compass Pools (b)Pool renovator and specialist repairer Christopher Evans General manager of CCE constructions, which specialises in remedial building construction including swimming pools.

Defendant employees Noel Godfrey General manager commercial, Huntsman Graham Durrant Organic chemist formerly employed by Huntsman Geoffrey Houghton Industrial chemist employed by huntsman

Scientific witnesses Michael Leggett Expert who prepared report comparing Hetron 922 and Derakane 411 Mark Stuart Staff scientist group co-ordinator spectroscopy & microscopy group at Ashland inc

Other witnesses essentially dealt with in the above reasons 713Then there were the scientific experts principally Professor George, Emeritus professor of polymer science Queensland university of technology, who appeared for the plaintiff and Dr Pilato, consultant in the area of composites and reinforced matrix systems advanced composites, composite analysis and related areas, who appeared for the defendant. The judgment deals in detail with their evidence. 714Then there were the forensic accountants called by the respective parties namely Mr McGuiness and Mr Gower. Their evidence is also dealt with in detail in the reasons. 715Then there were the quantity surveyors called by the respective experts namely Mr Radcliffe called by the plaintiff and Mr Meredith called by the defendant. There evidence is also dealt with in some detail in the reasons. 716Then there was Mr Robert Wild called by the defendant, he is the CEO of Cordell Information which publishes information in relation to swimming pool construction approvals. His evidence is dealt with above.

Pool Owners 717The pool owners who gave evidence for the plaintiff were as follows: Glen Smyth Tracey Gannaway David Moye Michelle Gibson Martin Francis William Carter Vicky Martine Kylie Jones Janette Wilson Gillian Workman Michael Jenner Thomas Scott Joanne Hayter Deanne Ion Anthony Richardson Philip dagger Tracey Wallace Stephen Leeder David Graham Neil Smith Timothy Berrell Ruth Cronin Trevor Fardell Trevor Mutch Ashley Gordon

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: 25 February 2011