FEDERAL COURT OF AUSTRALIA

Siegwerk Australia Pty Ltd (in liquidation) v Nuplex Industries (Aust) Pty Ltd [2016] FCA 158

ORDERS

THE COURT ORDERS THAT:

1.    The cross-applicant file and serve within 7 days of the date hereof short submissions (three pages only) and draft proposed orders to give effect to these reasons, including on the question of costs.

2.    The cross-respondent file and serve within 7 days of the receipt of the cross-applicant's submissions, short submissions (three pages only) and draft proposed orders to give effect to these reasons, including on the question of costs.

3.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1    The hearing before me has involved the re-trial of a causation question under a cross-claim by Siegwerk Australia Pty Ltd (In Liquidation) (Siegwerk) against Nuplex Industries (Australia) Pty Ltd (Nuplex). This issue has required me to investigate the interface between contract law and the subtleties of polymer chemistry concerning the causal consequences of the supply by Nuplex to Siegwerk of an epoxy-phenolic resin not conforming to the contractual specification by reason of the substitution of the epoxy component.

2    Visy Packaging Pty Ltd (Visy) was the applicant in the principal claim. It manufactured tuna cans with ends that had ring-pull ends or "easy open ends" (EOEs). Siegwerk was the manufacturer of a lacquer, code 650814, that it supplied to Visy for Visy to use in the manufacture of such cans. The lacquer was applied to the internal surface of the cans and EOEs by Visy so as to provide a protective coating between the contents of the can and the internal can surface. This was intended to prevent degradation of the internal surface by the corrosive action of the contents. Nuplex supplied resin to Siegwerk to use in the manufacture of the lacquer. Once the cans were manufactured by Visy, the cans were supplied by Visy to Port Lincoln Tuna Processors Pty Ltd (PLTP), who filled the cans with varieties of tuna products using tuna supplied to it predominantly by Simplot Australia Pty Ltd (Simplot). The filled cans were then delivered back to Simplot, who sold them to distributors for supply to the retail market.

3    On 25 July 2004, internal corrosion was observed on the score line of the EOEs. Corrosion was detected after a minimum of four to six weeks of the cans being filled by PLTP. In some cases, the corrosion made its way from the inside of the can to the can exterior. When this occurred, the contents of the cans leaked and spilled out, spreading the corrosion to other cans. As a consequence, there were two product recalls by Simplot of its products from the retail market. These occurred in August 2004 and in January 2005. Initially the recalls were confined to tuna in zesty vinaigrette, but the recalls were then extended to tuna in brine as well as in lemon and cracked pepper.

4    Visy settled claims that were made against it by paying $6,105,786 to Simplot and $1,630,000 to PLTP. Visy then sued Siegwerk. In August 2010, Siegwerk settled the claim made against it by Visy for $2,250,000. It has sought to recover that sum from Nuplex under its cross-claim against Nuplex.

5    Siegwerk's claim against Nuplex has been for breach of contract, being a toll manufacturing and supply agreement dated 30 June 1999 (tolling agreement). It is alleged that the resin supplied by Nuplex to Siegwerk did not conform to the contractual specification and was a or the cause of the corrosion. The tolling agreement was "designed to foster a long term trading relationship, based on mutual trust and co-operation" as is stipulated on its face. Terms of the tolling agreement provided, inter alia, that:

(a)    Nuplex would manufacture and sell the Products (being the relevant resin) in compliance with the agreed specifications;

(b)    Nuplex would not change, alter or modify the composition of the Products without prior written agreement from Siegwerk;

(c)    Nuplex warranted that the Products would be manufactured in accordance with the agreed specifications and would promptly notify Siegwerk and give it full particulars of any breach of which it became aware.

6    Under the tolling agreement, an epoxy-phenolic resin, designated as 3490EP, required for the formulation of the lacquer was the product to be supplied by Nuplex to Siegwerk. Siegwerk then mixed the 3490EP with six additional ingredients to produce the lacquer for Visy, code 650814. 3490EP made up approximately 93% of the lacquer. Pursuant to formulation and process instructions provided by Siegwerk to Nuplex, 30% of the 3490EP formula was to be the epoxy resin, DER669E. The instructions stated: "DER669E must be sourced from DOW (Germany)". The instructions had been changed in May 2000 to emphasise the requirement that the supplies of DER669E had to be sourced from Germany. The change was apparently made because companies such as Dow often supply products from more than one location, and manufacturing processes could differ between plants.

7    An epoxy resin is a polymer consisting of macromolecules each containing epoxide groups. An epoxide group is a form of cyclic ether. Simplistically, an oxygen atom is joined to two carbon atoms (each a part of an alkyl group) in an equilateral triangle. The backbone for each macromolecule is a hydrocarbon chain consisting of a number of repeating units (small molecules) known as monomers. These macromolecules are created by the process of polymerisation, which process may occur naturally (although not usually for an epoxy resin) or synthetically, involving the joining of the monomers by covalent bonding (to be distinguished from both ionic bonding and hydrogen bonding, the latter involving lesser and different electrostatic interactions than ionic bonding). Each chain (itself a macromolecule) may be of variable length depending upon the number of monomers joined together. Macromolecule chains may be linked together end to end or "linearly" to form a longer chain or "laterally" so that two chains are what are described as "cross-linked", usually through hydrogen bonding or covalent bonding. A macromolecule chain may have one "line" of monomer units or may be a "line" with various branches (forks) of the monomer units; the descriptions of "line" or "linearly" are not completely accurate given the twisting and coiling in three dimensions. The length and three dimensional architecture of the polymer (the mixture of all macromolecules), including its propensity or capacity for cross-linking, will affect its physical properties such as melting and boiling temperatures, viscosity, impact resistance, chain mobility, strength, hardness, and so on. For ease of reference I will just use the term "polymer" to refer to these macromolecules singularly and collectively. An epoxy resin may be combined with other reactants, such as phenol, which may act as hardeners or curatives. The polymer (epoxy resin) in the present case had the following chemical structure (with the repeating monomer unit (n times) shown in brackets):

8    From June 2003 to February 2004, Nuplex supplied to Siegwerk 20 batches of 3490EP, 13 of which had been formulated using Epikote 1009 (Epikote) instead of DER669E. Epikote was an epoxy resin manufactured by Shell Chemical Co, rather than DOW.

9    On 6 April 2004, Nuplex asked Siegwerk whether Epikote could be used to refurbish stock by blending it with DER669E. Siegwerk responded that customer approval through trials on the manufacturing line and pack testing would need to be done to prove the fitness for use of Epikote. At this time, Nuplex did not say that it had been using and supplying Epikote during the period June 2003 to February 2004.

10    At the first trial of this matter before Gray J, Nuplex conceded that it had breached the tolling agreement by the substitution. But Gray J held that there was insufficient evidence to establish that the substitution was causally linked to the damage to the cans of tuna. On his analysis, the theory that the causal chain could be traced to a difference in molecular weights between Epikote and DER669E had not been established.

11    On appeal, the Full Court constituted by Perram, Dodds-Streeton and Robertson JJ ((2013) 305 ALR 412) set aside Gray J's decision and ordered a new trial on the sole issue of whether the substitution of Epikote for DER669E caused the corrosion in the cans. I have conducted that retrial. The Full Court did not impose any restraints on how I was to conduct that retrial. I have reached the same ultimate conclusion as Gray J but on the evidence adduced before me, including evidence adduced before Gray J that was retendered before me. But it must be said that the parties' analysis and the expert evidence on the retrial has been considerably more sophisticated than it was in the original trial.

12    It is convenient to divide the analysis into the following sections:

(a)    Background facts ([13] to [25]);

(b)    Siegwerk's case thesis ([26] to [64]);

(c)    Legal principles ([65] to [88]) including:

    General principles of causation in contract law;

    The nature of the contract;

    The "onus of exculpation";

    Expert evidence;

    Causation in a circumstantial case;

(d)    Evidence relevant to circumstantial case ([89] to [191]);

(e)    Analysis of circumstantial case ([192] to [223]);

(f)    The parties' experts ([224] to [242]);

(g)    Scientific concepts ([243] to [270]);

(h)    The scientific questions ([271] to [382]);

(i)    The scientific literature ([383] to [447]);

(j)    Conclusions on scientific evidence ([448] to [452]);

(k)    The combination of the circumstantial case and scientific evidence ([453] to [462]);

(l)    The result ([463] to [464]).

Background facts

13    It is appropriate to set out further background primary facts contained in Siegwerk's evidence and submissions which for the most part were not in dispute and in any event have been established.

14    A standard practice in the can manufacturing industry employed by Visy was to undertake a program of testing and approval to any product offered by one of its suppliers before that product was incorporated into a process of manufacture of Visy's cans. Following the testing and approval processes, any subsequent formulation of the product needed to comply with the sample provided for testing and approved by Visy and its customer, PLTP. Usually, any proposed departure from that approved specification would require that the parties undertake a test program of the new proposed specification.

15    In April 2000, Siegwerk provided Nuplex with the process instructions for the formulation of 3490EP; as I have explained earlier, these were changed in May 2000. From June to August 2000, Nuplex made trial batches of 3490EP. In May 2001, Nuplex made a first batch of 3490EP for use in Visy customer trials. In February 2002, Nuplex finalised its permanent production process for 3490EP. In 2001, Siegwerk began producing a lacquer using the code 650772. Both Visy and PLTP had variously run in-line production tests and pack trials of the sample lacquer. Interim approval for use of the lacquer was given in July 2001.

16    In April 2002, Siegwerk was given the formulation for a new lacquer 650814, to replace lacquer 650772. The new formulation differed from lacquer 650772 in that it changed the aluminium paste component from Metana Superfine to Silveral 7NL. There was an issue before me as to whether the aluminium paste influenced the performance of the coating. I will return to this later. Siegwerk went through a regime of customer approval including supplying samples of the coating for testing and approval by Visy and PLTP. Approval of lacquer 650814 was given for use on can bodies in June/July 2003. In September 2003, Visy commenced commercial production of cans using lacquer 650814 on can bodies.

17    Until October 2003, Visy also used a lacquer supplied by PPG Industries Australia Pty Ltd (PPG) on its EOEs. In October 2003, Visy commenced commercial production of cans using lacquer 650814 on both can bodies and EOEs, and ceased using the PPG lacquer from that time.

18    Visy manufactured its EOEs at its processing plant in Coburg. The internal surfaces of the EOEs were given two coats of lacquer. The EOEs had a score line which was to allow more easily for the opening of the can by manipulating a tab that was riveted on to the face of the EOEs. The score line was stamped out using a 100 tonne score tool press and an anvil. Once the score line had been stamped, the tab or ring pull was affixed. Visy assigned a specific can code to the entire quantity of EOEs produced in any run.

19    Visy did not maintain stocks of the lacquer to be applied to its cans and EOEs. Visy placed orders for the lacquer from Siegwerk on an "as required" basis, with delivery taking place as soon as possible after the orders were placed. Visy rotated its stock of lacquer on a "first-in first-out" basis. Apparently, Visy used the drums of lacquer usually within a few weeks of delivery by Siegwerk. The lacquer was supplied to Visy in 200 litre drums. Each drum had a batch number. In sequential order (first-in first-out), the drum contents were poured into a holding tank that had a storage capacity of about 100 litres. Visy kept this tank filled at no less than 40 litres. Once the holding tank had fallen to that level it would be topped up with more lacquer. The consequence was that lacquer from different drums became mixed together. Consequently, by using drums in sequential order, Visy mixed compliant lacquer with what has now been established as non-compliant lacquer and applied it to the cans and EOEs.

20    From June 2003 to February 2004, Nuplex substituted Epikote for DER669E in 13 of 20 batches of 3490EP that it supplied to Siegwerk in that period.

21    After corrosion of the cans coated with lacquer 650814 was first discovered in July 2004, Visy, Siegwerk and PLTP undertook directly or indirectly a number of investigations. From August 2004, Visy identified:

(a)    the can codes of batches that were thought to be suspect;

(b)    batch numbers of the lacquer 650814 that had been poured into the holding tank when those EOEs had been coated;

(c)    the date on which the two coatings of lacquer had been applied by Visy.

22    In September 2004 and during the course of those investigations, Siegwerk sent an email to Visy that identified certain batch numbers of 3490EP used to formulate batches of lacquer 650814 that had been applied in coatings of cans considered to be suspect. At the time, Siegwerk assumed that Nuplex had complied with the process instructions and used the specified ingredients when formulating batches of 3490EP. The fact of substitution was not revealed until May 2010.

23    The investigations and reports obtained by Visy, Siegwerk and PLTP included the following:

(a)    First, an analysis of the tuna and vinaigrette that had been filled in the cans in 2004 found that the level and type of acid in the contents of the cans was satisfactory and typical of that found in the tuna in vinaigrette products.

(b)    Second, there was an analysis of the manufacturing and coating quality control records at Visy. The purpose was to examine whether Visy had manufactured the cans to specification and had applied the correct film weights. The analysis apparently confirmed that manufacturing had occurred at Visy in accordance with its specifications.

(c)    Third, there was what Siegwerk described as a root cause analysis to assess whether the tooling used to "stamp out" the EOEs was defective. The analysis apparently concluded that there was no physical evidence discovered in the tooling system for the conversion system to be the cause of the corrosion problem. Further, the coating tests apparently showed that the Siegwerk lacquer demonstrated evidence of the coating breakdown under the score line of a significant nature. I note at this point that Mr Hnilo stated in his report that he was not a lacquer or coating expert and the test conducted on the old vs new lacquer by itself proved nothing.

(d)    Fourth, trials were conducted in which the cans were filled and then subjected to accelerated testing under standard storage conditions and evaluated after three months' and six months' storage. The trials showed that a number of Siegwerk coated EOEs leaked from the score region after six months' storage.

24    According to Siegwerk, these investigations were supportive of its causation thesis advanced before me.

25    It was accepted by the parties that Epikote was used in, inter alia, the following batches of 3490EP (as set out in the table):

Siegwerk's case thesis

26    Mr Anthony Kelly QC for Siegwerk has presented a sophisticated argument for causation relying upon both a circumstantial case and on scientific evidence in the field of polymer chemistry. But I should say at this point that neither aspect of Siegwerk's case has discharged its onus of establishing causation. Further, even treating both aspects of its case together, with one aspect said to fortify the other and vice versa, I am still not satisfied that Siegwerk has discharged its onus. Let me also make one other point clear given the problematic nature of the scientific evidence and the equivocacy of the interpretation of the facts said to support the circumstantial case. I am not making a definitive finding that the substitution was not a or the cause. Rather, my conclusion is that Siegwerk has not shown on the balance of probabilities that the substitution was a or the cause of the relevant damage to the cans. In other words, I am not finding one way or the other whether the substitution was a or the cause. I do not need to declare a state of objective reality on causation. Rather, Siegwerk has not established its causation thesis on the balance of probabilities. Let me elaborate on Siegwerk's thesis in its two complementary dimensions.

(a)    Circumstantial case

27    As to its circumstantial case, it has identified the following central features, which when taken together give rise so it is said to a reasonable and definite inference of causation.

28    First, Visy, PLTP and Siegwerk conducted trials of lacquer formulated with 650814. Those trials demonstrated that the lacquer did perform to a satisfactory standard. Siegwerk has particularly referred to Test Pack 659 that it says confirmed that 650814 continued to perform to a satisfactory standard after 18 months' storage at 38°C. But as I will explain later, there is an issue concerning the absence of testing on ends and whether the testing generally was comprehensive on that aspect.

29    Second, DER669E made up 30% of EP3490, which made up 93% of the lacquer.

30    Third, there had been no experience of failure of the lacquers formulated by PPG or Siegwerk respectively that 650814 had replaced. It says that the lacquer 650814 was to be identical to the PPG lacquer. I note that lacquer 650814 was not identical. Moreover, I note that some PPG lacquer failed in filling trials.

31    Fourth, cans coated with the lacquer and filled by PLTP with tuna products failed by corrosion through the score line within weeks of being filled.

32    Fifth, the lacquer formulated with Epikote was used to coat cans in the period that immediately preceded the corrosion. Certain batches of lacquer formulated using Epikote were identified during the course of those investigations and were traced back to the cans filled by PLTP. I note though that cans using DER669E also failed.

33    Sixth, the collaborative investigations undertaken by Visy, Siegwerk, PLTP and Simplot were said to have "comprehensively identified and excluded" all other modes of failure. That description is exaggerated. But at this point I am just setting out Siegwerk's thesis.

34    Seventh, Siegwerk would not have supplied lacquer to Visy for use by PLTP and that lacquer would not have been applied to EOEs unless and until that lacquer had been proved to perform to a satisfactory standard under accepted storage conditions. I note that such a proposition does not directly establish causation.

35    Eighth, it is said that treating the commercial use and application of lacquer that had been formulated with Epikote as a proxy for standard industry testing conditions, the lacquer failed comprehensively from corrosion. It would have been rejected.

36    Ninth, post recall tests conducted by Visy, PLTP and Siegwerk using a wide range of 650814 lacquer from retained samples showed that corrosion occurred. But as I have noted, cans using DER669E also failed.

37    Tenth, it is said that Nuplex has not discharged the "onus of exculpation" that it bears to establish that the corrosion would have occurred in any event. I should say now that I reject the concept of an "onus of exculpation". Nor, it is said, has Nuplex disentangled the multitude of causative factors from its breach. But the premise for that argument also fails as it has not been established that this is a multiple causes case, with one of the causes being linked to Nuplex's breach of the tolling agreement.

38    Generally, Siegwerk has contended that on the combined weight of the whole of the circumstances, it is demonstrated that EOEs coated with lacquer containing Epikote failed from corrosion.

(b)    Scientific case

39    Siegwerk has also put its case based upon scientific evidence, which it says fortifies its circumstantial case. It asserts that such evidence establishes that as a matter of polymer chemistry, substitution caused the corrosion of the cans. Polymer chemistry is a subset of organic chemistry, the latter ranking with physical chemistry and inorganic chemistry as the three main disciplines of chemistry with physical chemistry being the most fundamental.

40    First, the experts agreed, and I accept, that the cans failed because there was a loss of integrity (cracking) of the epoxy-phenolic coating (lacquer) on the inside of the cans under the score line of the EOEs that allowed the contents of the cans to come into contact with the steel of the cans. So, internal corrosion of the EOEs was the failure mechanism.

41    Second, it was agreed, and I accept, that when making 3490EP for Siegwerk, Nuplex substituted the resin Epikote for DER669E in various batches of resin (see the schedule being exhibit N4). Siegwerk has contended that differences in the properties of these two resins included that:

(a)    the molecular weight of DER669E was higher than the molecular weight of Epikote;

(b)    DER669E contained a greater proportion of high molecular weight chains;

(c)    DER669E had a broader molecular weight distribution;

(d)    the epoxy equivalent weight (EEW) of DER669E was higher than the EEW of Epikote; and

(e)    the glass transition temperature (Tg) of DER669E was higher than the Tg of Epikote.

42    Third, Siegwerk has contended that the consequence of these differences in the properties of the epoxy resins was that if DER669E was used as an ingredient in formulating a lacquer, the formulator was able to produce a more flexible coating whilst using less cross-linker. Siegwerk's proposition tied to the amount or ratio of cross-linker is a technical issue that I will address later. I will also return to the question of physical differences when I later discuss relevant distribution curves for the spread of molecular weights.

43    Let me elaborate on the concept of "flexibility" at this point. The experts agreed, and I accept, that during the scoring process the can coating is subjected to a variety of stresses being tensile stresses, compressive stresses, flexural stresses and shear stresses. Greater flexibility enables the coating to withstand some of these stresses. It has been suggested that "formability" is a better word to use when describing the ability of the can coating to withstand all of these stresses as well as having the appropriate adhesive properties. In these reasons, I will use the term "flexibility", but to be taken to encompass the capacity to deal with all such stresses. I will deal with adhesive properties separately.

44    Siegwerk has contended that it is well-known in the coatings industry that higher molecular weight epoxies impart greater flexibility to cross-linked coating films than lower molecular weight epoxies. It is said that there is a broad understanding in materials science that the higher the molecular weight of the epoxy resin before cure, the higher the flexibility after cure (with appropriate cross-linker levels and with other factors being equal). It is said that equally, the published literature and polymer chemistry theory all indicate that a decrease in molecular weight gives poorer flexibility in the situation under consideration.

45    Generally, Siegwerk has contended that the presence of higher molecular weight epoxy chains is of particular importance because:

(a)    it improves flexibility;

(b)    it improves adhesion and allows elastically effective chains during the cross-linking to be formed;

(c)    it improves the elastic effectiveness of the chains;

(d)    it provides for more flexible epoxy films;

(e)    it serves to widen the window of operability of the epoxy-phenolic coating system;

(f)    it makes the coating less susceptible to stress corrosion cracking;

(g)    it generates entangling, thus allowing the formulator to use less cross-linker so as to achieve the same level of flexibility; and

(h)    it increases strength and toughness properties.

46    More specifically, it is said by Siegwerk that the higher Mw and Mz (I will explain these and other variables referred to in this section later) of DER669E made it much more suitable for Visy's can coating requirements and that substituting Epikote resulted in a less flexible and less fabricable coating film, and moved the coating to the edge of the "window of operability and beyond". I note that the expert report of Dr Frank Jones of 12 November 2014 used the language of "sometimes beyond".

47    Further, the Tg of DER669E was higher than the Tg of Epikote. The value Tg measures the mobility of the polymer segments and more particularly how readily the polymer segments can follow the rate of deformation. All else being equal, Siegwerk contended that a lower Tg results in a looser structure and a loss of mechanical strength, yield stress, and less toughness.

48    Fourth, Siegwerk has contended that because the formulator of a coating that had DER669E as an ingredient would have been able to produce a more flexible coating whilst using less cross-linker, there would have been more hydroxyls left over to provide for better adhesion of the coating. Its thesis was as follows. Generally speaking, a larger number of higher molecular weight molecules improves flexibility and adhesion in can coatings. As the resin molecular weight goes up, the number of repeating units is increased. Every repeating unit contains a hydroxyl; I should note that the descriptions "hydroxyl" and "hydroxy" are used interchangeably in the field, but I am content to adopt the former as the experts have done in this case. All the hydroxyls are used either for crosslinking or for adhesion to the container surface via hydrogen bonding. The longer the chain, the more hydroxyls are available for crosslinking and adhesion. Higher Mw epoxy molecules have a greater number of hydroxyl groups on the longer chains. The higher thermal properties of the longer chain and the greater number of hydroxyls also allows for the use of less cross-linker for corrosion protection, leaving more hydroxyls to provide better adhesion. In the present case Siegwerk contends that there was on average a difference of about 6.6 hydroxyls per chain between the two resins. This entailed, so it was said on the arithmetic (which I will pass by), that for every ten polymer chains of DER669E, it would take 11 chains of the Epikote to have the same number of hydroxyls. Although one ends up with the same amount of hydroxyls, in the case of the Epikote it had shorter chains with fewer (about 10% fewer) hydroxyls, leaving a 10% less chance of having the correct cross-linked density and the correct adhesion for the system if one resin was changed for the other. If there were fewer hydroxyl groups to use for cross-linking or for adhesion and the ratio of cross-linking agent was kept the same, then the properties of the epoxy, either as a cross-linker or to adhere, were reduced.

49    Fifth, Siegwerk referred to tests that were conducted by Nuplex using free-standing films that it had prepared from 3490EP intermediate. Nuplex's results showed that the films made from DER669E had:

(a)    a lower sol fraction than the films made from Epikote;

(b)    a higher cross-link density than the films made from Epikote; and

(c)    a lower Mc than the films made from Epikote.

50    But Siegwerk asserted that the value of Nuplex's results was limited. I will return to this later.

51    Sixth, Siegwerk contended that in any event even if the results of the film testing were valid, when taken together with the earlier test results that measured the molecular weight of the respective epoxy resin samples, they demonstrated that there was a difference in the cross-linking ability of DER669E and Epikote and that the substitution of Epikote for DER669E would have upset a formulation that was optimised for maximum flexibility and adhesion. Siegwerk elaborated on this aspect in the following terms.

52    It was said that the higher Mc of Epikote reflected the reduced cross-linking capacity in the Epikote resin. It was said to be reasonable to assume that the 3490EP recipe was formulated for optimal flexibility and that it was highly unlikely the Mc was not at the appropriate level required for optimal flexibility and that substitution with Epikote, with its short molecule fractions and absence of high molecule fractions, would just happen to bring Mc to its optimal value. In addition, by causing cross-link density to go down and Mc to go up, it was said that Nuplex introduced more defects into the network structure, being undesirable ends and wasted cross-links i.e. cross-links that were too close together to be effective.

53    Further, Siegwerk said that a can coating formulator must balance conflicting properties such as flexibility (favoured by high Mc), hardness (favoured by low Mc), resistance to steam and hot fish oils and acids (favoured by low Mc), and an ability to slide through track work during the filling process (favoured by low Mc). It was asserted that a coating with an Mc that is too high would be far too soft and would have inadequate resistances; the support for this proposition is problematic in its generality. So, Siegwerk asserted, whilst in theory a higher Mc might translate to higher flexibility, the optimisation of the cross-linking for formability remained most important.

54    Further, it was said that a successful epoxy can coating film depends not only on flexibility but also on adhesion, toughness and other factors. Adhesion and flexibility are both important for coating formulation, and the combination of the two "needs to be right". Further, an under cross-linked coating can have a high Mc but not be very tough. With epoxy resins, under cross-linking can lead to the material becoming weak and brittle, assuming some of the attributes of the uncross-linked epoxy. An example was the under cross-linked films studied by Nuplex which were bendable but fractured readily under tensile stress.

55    Generally, it was said that optimisation of a coating formulation is always dealing with multiple parameters that need to be on an acceptable level. More cross-linker produces a harder film, and the lower the leachables, the better the solvency. But there is a point where flexibility suffers. An optimised formulation is not an optimum for all parameters. It is always a compromise that is manageable towards all critical parameters.

56    It was said that for a given resin, the coating flexibility varies with changes in cross-linker level. An optimum cross-linker level must be determined for maximum flexibility. If a cross-linker level is too low or too high, it can reduce coating flexibility for a given resin. It was said that the generally accepted trend that coating flexibility increases with epoxy molecular weight is true if one uses the optimum cross-linker level for each resin.

57    In summary, it was said that whilst substitution of Epikote for DER669E increased Mc, it probably would have increased it out of the range for optimum performance. Substitution of Epikote into the Siegwerk formula it is said upset the "carefully established balance" of molecular weight and cross-linker, thus compromising film properties including flexibility. It is said that the lacquer formula was "very carefully optimised" to have the right amount of cross-linker for DER669E and because of its higher molecular weight, DER669E was more capable of entanglement and therefore required less cross-linker.

58    Siegwerk also emphasised that relatively small changes in formulation could have large effects on the effective cross-link density. In addition, small changes in effective cross-link density could have large effects on coating performance.

59    Seventh, Siegwerk asserted that resins of the type in question (type-9) made from different manufacturers were not drop-in equivalents. Epoxy resins are broadly classed according to their molecular weight ranges, for example, types 4, 7 or 9. More specifically it was said that Epikote was not a drop-in equivalent for or interchangeable with DER669E even though they were both type-9 resins. There were physical property differences between them, they historically did not perform the same in coatings and they were not interchangeable. It was said that resins that may bear similarities in physical and chemical properties may still not be equivalent in high performance coatings applications. It was said that this is the reason why specific resins are stipulated in coating formulations. Specifying the resin and conditions of use in particular formulations reduces the risk of coating failure.

60    More particularly, it was said that type-9 epoxies are not directly interchangeable in high performance can coating formulations because in-service performance cannot be predicted without performing a full side-by-side investigation. But to accept such a proposition does not in and of itself establish Siegwerk's causation case although I accept that it is part of the matrix of evidence and inferences to be drawn therefrom to consider. What it may show is an increase in risk from the substitution. But an increase in risk of itself does not establish causation as I will discuss later.

61    Relatedly, Siegwerk contended that even if their physical properties and analytical chemistry suggested that Epikote and DER669E were equivalent, their equivalency and qualification in coating performance cannot be established without pack testing. In the can coating industry, any substitution of an epoxy resin had to be approved and tested. In the absence of pack-testing, it was said that the assumption "must be" that the substituted resin does not perform equivalently. It was said that the settled industry practice was that laboratory testing was only used to start a qualification process and that qualification is demonstrated or not by performance in actual use. But again, accepting for the moment such industry practice does not in and of itself establish causation, although it is part of the matrix of evidence to consider. Further, this "must be" assumption is merely a rhetorical pushing of the envelope. This is a characterisation, not a criticism.

62    Generally, and on the basis of the foregoing, Siegwerk said that the unauthorised substitution of Epikote for DER669E was a probable cause of the loss of integrity (cracking) of the epoxy-phenolic coating (lacquer) on the inside of the cans and the consequent corrosion of the tin plate. It was said to have led to the sporadic occurrence of brittle cracking on the underside of the EOE in that specific area corresponding to the underside of the score line. It was said that coatings for scored EOEs for tuna cans had to have exceptional flexibility along with many other required properties. It was said that the Siegwerk formula made with DER669E was formulated near the edge of its window of operability and that the measured differences between Epikote and DER669E were large enough to explain the observed failures in view of the small window of operability of the Siegwerk formula.

(c)    General

63    For the detailed reasons that I have set out later, I am not satisfied that Siegwerk has made out its causation case on the balance of probabilities either as to its circumstantial case or on the science or considering both together.

64    But before descending into the detail of the evidence, some of which is not straightforward, it is appropriate to set out the legal framework within which the forensic analysis is to be addressed.

LEGAL PRINCIPLES

(a)    General principles of causation in contract law

65    Siegwerk must show that the damage to the cans and the consequent loss suffered resulted from Nuplex's breach of the tolling agreement (Reg. Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 at 523 per Barwick CJ, McTiernan and Menzies JJ). It is sufficient that the breach causally contributed to the loss (Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) 120 CLR 635 at 643 per Barwick CJ; Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196 at 232 per Lord du Parcq; Wenham v Ella (1972) 127 CLR 454 at 466 per Walsh J; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 351 per McHugh JA).

66    Factual causation is generally resolved through an application of the "but for" test. The "but for" test entails a determination on the balance of probabilities that the particular harm that in fact occurred would not have occurred absent the conduct of the party in breach. The question is whether a particular act or condition was one of the conditions or relations necessary to complete the set of conditions which represent the cause posited. This is the basis of the "but for" test of causation. But the "but for" test is not the exclusive test of factual causation.

67    Further, it is not enough to demonstrate that Nuplex's breach of the tolling agreement materially increased the risk of harm or loss. The breach must be the or a cause including a material contribution. Nevertheless, a breach causing a material increase in risk may provide, together with other circumstances, a foundation for inferring causation, including a material contribution to the loss, in the absence of any sufficient reason to the contrary.

68    Further, it is irrelevant to inquire whether the breach was the dominant, effective or real cause of the loss. If the evidence is suggestive of multiple causes, the inquiry to be made is whether the breach was a cause of the loss.

69    It has been said that the question whether a breach of contract has caused a loss is a question of fact applying common sense principles. It is said that the common law applies the ordinary man's notion of causation instead of theories espoused by philosophers and scientists. Clearly, the object of the common law theory of causation is not the same as that of a philosophical or scientific inquiry into causation. But the conceptually elusive if not inutile phrase "common sense", when discussing questions of causation in the present context, adds little to the problem solving task.

70    Before proceeding further, it is necessary to be clear about the following three different levels of analysis that need to be undertaken:

(a)    First, what is the context within which and why is the question of causation being posed? In the present context what is being addressed is an alleged breach of contract, and particularly whether the relevant product met the contractual standard. What is then being considered is whether that breach was a or the cause of the relevant damage or loss. So, the lens through which causation is to be assessed starts from the proper identification of the relevant perspective for why the inquiry is being undertaken. The perspective from which causation is then to be addressed is not some diffuse or decontextualised inquiry. The lens through which causation is to be assessed must identify the act, omission, state of affairs or circumstance said to constitute the breach of the relevant normative standard. That identification is not to be described in the language of "common sense". Further, questions of causation require identification of the particular harm that was suffered. Identification of the damage sustained by a claimant will assist in identifying the acts or omissions that were its cause (Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613 at [43] to [57] per French CJ, Hayne and Kiefel JJ).

(b)    Second, once that contextual lens has been identified, the question then arises as to whether factual causation has been established in terms of the usual "but for" or necessary condition test by reference to linking the act, omission, state of affairs or circumstance referred to in subparagraph (a) with the alleged damage or loss. But even here, to use the vernacular of "common sense" is conceptually unhelpful in a case involving forensic complexity. Moreover, it is otiose in a case where the facts are simple and factual causation obvious.

(c)    Third, once that factual question has been analysed, the legal question arises, if factual causation has been established, as to whether the relevant party should be held legally responsible for that loss or damage. Alternatively expressed, is the damage within the relevant scope of liability? But this is a legal question depending in part upon the nature of both the breach and the damage alleged. It is difficult to see how the vernacular of "common sense" has utility for this third level of analysis. One is not talking of the common sense of the layman. Moreover, one is not truly talking of the "common sense" of the lawyer, but rather a conceptual and evaluative legal question upon which reasonable minds might differ. Indeed, lawyers have struggled with this conceptual question and have sought refuge in adjectives such as "direct", "natural and probable", "direct and natural", "proximate", "real effective" and so on to categorise potential cause(s) to address the legal question. And even where they have agreed on the label, differences have arisen in their application. Further, other problems have arisen with scenarios that have had to deal with concurrent sufficient causes, causes that are neither necessary nor sufficient conditions with or without other elements, and novus actus interveniens questions. March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 515 per Mason CJ is authority for a common sense test or a common sense value judgment, but it was a tort case not a contract case. The value of such a test in my context may be doubted (cf Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 at [97] to [98] per Gummow, Hayne and Heydon JJ and Travel Compensation Fund v Tambree (2005) 224 CLR 627 at [45] per Gummow and Hayne JJ). Nevertheless, I have applied a common sense test. Finally, on one view, this third level of analysis is not a causation question at all, but rather a legal responsibility question once factual causation has been answered (the second level of analysis) through the relevant lens (the first level of analysis). It has been suggested that the substantive meaning of causation has been inappropriately comingled with this latter question of legal responsibility or the associated phrase "scope of liability", as the observations of Edelman J writing extra-judicially in "Unnecessary Causation" (2015) 89 ALJ 20 and Professor Jane Stapleton in "Cause-in-Fact and the Scope of Liability for Consequences" (2003) 119 LQR 388 explain. Their views may be said to resonate with those of working trial judges mining facts from the coal face of forensic inquiry.

71    There are several other preliminary observations that should be made.

72    First, one can understand some jurists using the language of "common sense". If one was instructing a jury, such simplistic language has an attraction. Further, many scenarios involving causation are straightforward with the answer being intuitively clear without further factual reflection at least.

73    Second, some jurists are understandably keen by the use of the vernacular of "common sense" to distinguish the lawyer's use and context of causation from that of the scientist or the philosopher. But to so distinguish does not entail that the only contrast is with a "common sense" test. Moreover, although that distinction from other fields of discourse is correct when looking at the first and third levels of analysis referred to above, the line is not so brightly drawn for the second level of analysis, where concepts from one context can assist in the conceptualisation of another.

(b)    The nature of the contract

74    Where a party breaches a contract by defective or inadequate performance, the circumstances which render the performance defective or inadequate are an integral part of the breach. They form part of the starting point for the analysis of causation (Ramsey v Annesley College [2013] SASC 72 at [434] per Blue J).

75    More generally, the selection of the relevant cause will vary with the nature of the contract, the nature of the breach and the damage suffered. The scope of a defendant's legal responsibility for loss caused by a breach of contract is to be assessed by analysing what it promised to achieve (Chand v Commonwealth Bank of Australia [2014] NSWSC 708 at [293] per Robb J). Further, the question of causation is to be informed by the context in which the contract was made, which may reinforce rather than attenuate a conclusion of causation (Programmed Total Marine Services Pty Ltd v Ship Hako Endeavour (2014) 229 FCR 563 at [14] and [15] per Allsop CJ).

76    In relation to the contractual arrangements between Siegwerk and Nuplex, the following may be noted:

(a)    The tolling agreement provided as a preamble that it was "designed to foster a long term trading relationship, based on mutual trust and co-operation".

(b)    The term of the tolling agreement was for five years and was thereafter to continue terminable upon six months' notice (clause 1).

(c)    The coating resin to be supplied by Nuplex had to be "on the terms contained in this Agreement" (clause 2) and "in compliance with the agreed specifications" (clause 7.1). There were relevant definitions (clause 61). "Agreed Specification" was defined to mean:

"those in-process tests and result ranges, finished product tests and result ranges, and relevant application tests and performance criteria as agreed between the parties from time to time".

        The definition of "Products" was:

"the products listed in Schedule 1 as may be amended from time to time being Resins and Varnishes made in accordance with the agreed specifications".

(d)    More specifically, clauses 14 and 15 provided:

"14    SICPA shall provide to Nuplex from time to time specifications to which both parties will agree the parameters to which Products must be made.

15    Nuplex shall manufacture and sell the Products in compliance with the agreed specifications".

(e)    Clause 25 provided that Siegwerk had the right to inspect Products and to not accept or reject Products for non-conformity with the agreed specifications.

(f)    Clause 32 provided that:

"Nuplex must not change, modify nor alter the composition of the Products without prior written agreement from SICPA".

        See also clauses 33 to 35.

(g)    Under clause 36.2, Nuplex warranted that the Products would be "manufactured in accordance with the agreed specifications as determined from time to time". Nuplex gave a corresponding indemnity for breach of that warranty (clause 37); see also clause 38.

(h)    It is accepted that the applicable specifications were those contained in a document headed "Process Instructions for Nuplex" issued on 10 May 2000 which provided for the SICPA Code: 3490 EP Resin the following:

(i)    As will be seen, the DER669E was stipulated to be 30.000% by weight, to be sourced from DOW (Germany). There was also a stipulation (page 2) for viscosity (3.1 ~ Ford 4 at 25°C; 55 to 60 seconds).

77    Finally, a conclusion that factual causation is made out will usually provide an affirmative answer to the question of legal causation in contract, unless the damage is too remote (Alexander v Cambridge Credit Corporation at 352 per McHugh JA). In the present case, questions of remoteness and Hadley v Baxendale type questions are not in issue.

(c)    The "onus of exculpation"

78    A major theme of Siegwerk's case on causation relied upon the idea of an "onus of exculpation" being imposed upon Nuplex. In my view there is no such concept in terms. Siegwerk seemed to put that there was such a substantive principle in contract law where the cause was unknown or there were two or more alternative causes that could not be disentangled and the loss that had occurred was within the scope of the breach or contemplated by the parties as so embraced. In my view, there is no such principle. I was not assisted by academic writings on the subject or reference to contexts such as the field of admiralty or maritime law where more exotic rules might apply. But I do agree that in an appropriate case, an evidential onus might shift to the contract breaker. So expressed, such a principle may be unremarkable. But Siegwerk sought to take this further, by asserting that such an evidential onus might rise to the level of an "onus of exculpation" and not merely of raising a doubt or even eliminating an inference. But if that was the proposition, I would reject it. There is no authority which binds me to accept such an elevation. Moreover, cases such as Davis v Garrett (1830) 6 Bing 715; 130 ER 1456 are either not on point for my context or distinguishable.

79    As I say, I accept that while a plaintiff has the onus of showing loss caused by the breach, if the loss in question is the apparent or likely result of the breach, an evidentiary onus may shift to the contract-breaker. But such an evidentiary onus does not rise to the level of disproof as such (cf the differently formulated observations in Haviv Holdings Pty Ltd v Howards Storage World Pty Ltd (2009) 254 ALR 273 at [27](8) and [46] per Jagot J; Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 at [2388] per Jagot J (appeal dismissed ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1)). The evidentiary onus may be discharged by showing facts that might support an alternative reasonable causation hypothesis.

80    Reg. Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 has been cited, but that case concerned a decision in which the provision of a defective security door was followed by a burglary. The majority (Barwick CJ, McTiernan and Menzies JJ) did not address causation. In any event, the plaintiff had proved a direct connection between the breach and the loss. Accordingly, it was for the defendant to establish that despite that direct connection, the burglary would have occurred in any event. But in the present case, Siegwerk has not established a clear and direct connection between the use of the alternative resin and the can failures. No shifting onus scenario arises.

81    Watts v Rake (1960) 108 CLR 158 and analogous cases deal with situations where the connection between the breach and the plaintiff's disability is affirmatively established, but the defendant asserts that some aspect of that injury would have occurred in any event. In such a case, "it is the defendant who should be required to do the disentangling and to exclude the operation of the accident as a contributory cause" (at 160 per Dixon CJ). But in the present case, the link between the breach and the alleged damage has not been established. No question of disentangling arises. Decisions of this type are not on point.

82    The passage from Henville v Walker (2001) 206 CLR 459 cited by Siegwerk is also of no assistance. Henville involved a case where concurrent causes had been established in respect of the total loss with the question then arising as to whether individual causes could be attributed to separate parts of the loss. But in my case, it is not established that the breach by Nuplex was the or a cause of any part of the loss. Further, McHugh J was not suggesting that whenever there is temporal proximity between a breach and a loss, causation is established. His reference at [148] to Watts v Rake and the circumstances with which he was concerned make it plain that he was referring to situations where a breach was closely followed by causally connected loss. Further, his observations should not be decontextualised. The issue with which McHugh J was concerned was whether the plaintiff had satisfied his onus in connection with a discrete part of that loss. He held that in the circumstances, the burden of "disentangling" discrete parts of the loss and attributing to them discrete causes fell upon the defendant. The present case is not a case of multiple causes. The real issue is whether a causal connection between the substitute resin and the can failures has been established, not the disentangling of concurrent causes where both are established.

83    Finally, the passage from Dixon J's judgment in Betts v Whittingslowe (1945) 71 CLR 637 at 649 is of little assistance to Siegwerk given the rider "in the absence of any sufficient reason to the contrary" and in any event its different context.

(d)    Expert evidence

84    The necessary resort to expert scientific evidence may make an appeal to common sense notions of causation counterintuitive if not meaningless. Many issues of causation lie outside the realm of common knowledge and experience; indeed the applicable scientific theories will usually have been propounded and developed as an intentional counterpoint to common sense. In many cases, it may not be possible to separate the investigation of the facts from an appreciation of the science which affects them. But even where expert evidence is adduced, it remains for me to decide the question of causation. Moreover, the role of the expert does not trump the whole of the evidence adduced before me. Further, I accept that a claimant's case as a whole may persuade me that a sufficient causal link is established although expert evidence may be couched only in the language of possibility. Where expert evidence on causation does not admit of a probable answer one way or the other, nonetheless I am entitled to find as a fact that conduct was a cause of harm notwithstanding that no probable let alone conclusive answer may be available in the claimant's favour. But I am entitled to find that a claimant has not discharged the burden of proving that the defendant's breach was a cause of the damage or loss where the present state of scientific knowledge does not admit of an affirmative answer in the claimant's favour and reliable expert opinion regards an affirmative answer on causation as lacking justification taking into account all of the evidence.

(e)    Causation in a circumstantial case

85    A finding of causation may be made in the absence of direct evidence. All that is necessary is that the more probable inference from the circumstances that sufficiently appear by evidence, left unexplained, is that the injury arose from the breach. "More probable" means no more than that upon a balance of probabilities, such an inference might reasonably be considered to have some greater degree of likelihood. A party who relies on circumstantial evidence to prove causation must show that the circumstances raise the more probable inference in favour of what is alleged (Flounders v Millar [2007] NSWCA 238 at [35] per Ipp JA, Handley AJA agreeing).

86    It is not sufficient that the circumstances give rise to conflicting inferences of an equal degree of probability or plausibility or that the choice between them can only be made by conjecture (Coastwide Fabrication & Erection Pty Ltd v Honeysett [2009] NSWCA 134 at [60] per McDougall J, Ipp and Young JJA agreeing). I accept though that the process of inference may involve an intuitive element that is not susceptible to detailed support or explanation (at [64] per McDougall J).

87    There is a distinction between inference and conjecture even if the reasoning process occurs on a continuum in which there is no bright line division (Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262 at 275 [84] to [88] per Spigelman CJ). A conjecture, even though plausible, is no more than a guess, whereas an inference is a deduction from the evidence. If the deduction is reasonable, the inference may rise to legal proof (Jones v Great Western Railway Co (1930) 144 LT 194 at 202). But there must be objective facts from which the inference could be drawn, otherwise what is left is mere speculation or conjecture (Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152 at 169 and 170 per Lord Wright).

88    Generally, the proper inference to be drawn on the balance of probabilities depends upon a practical and reasonable assessment of the evidence as a whole (BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268 at [51] and [54] per Pullin JA).

Evidence relevant to circumstantial case

89    It is appropriate to now address the evidence relevant to Siegwerk's circumstantial case. Most of the primary facts are not in issue.

(a)    Industry practice: recommendation, trial & approval

90    Siegwerk adduced evidence from Mr Leslie Chambers, a research and development chemist. Mr Chambers worked from 1976 to 2008 in various positions in the coatings industry.

91    Siegwerk also called Dr David Hewitt, Visy's Quality Manager. Dr Hewitt had 35 years' industry and academic experience working as a resins and polymer chemist. He worked from 1994 to 2006 as a product development chemist for Visy and the predecessor owners of the relevant canning operations.

92    Mr Chambers and Dr Hewitt gave evidence of the standard industry practice by which can coatings were designed for, tested by, approved by and supplied to, customers. Following a customer enquiry, a lacquer manufacturer would make a recommendation that appeared suitable for the customer's requirements. The ingredients would remain confidential to the lacquer manufacturer, but a sample would be provided and subject to testing. The sample would be provided to the can manufacturer and cans coated with the sample lacquer would be supplied to the end user. The cans would be the subject of laboratory testing by the can manufacturer and end user. If the sample met laboratory requirements, it would then be approved for two types of trials, viz., in-line production and storage packing trials being accelerated shelf life testing.

93    The testing processes of a sample lacquer might take 12 to 18 months although Dr Hewitt agreed that the use of the SICPA lacquer (Siegwerk manufactured lacquer using a former name) at least in relation to tuna vinaigrette took between four to six months to approve. Each form of testing was integral to the approval process. The final determinant for approval was whether the sample performed to a satisfactory standard for the food manufacturer's requirements.

94    Once the sample lacquer had been judged as performing to a satisfactory standard in those tests, customer approval was given for commercial production of the lacquer.

95    Lacquer subsequently supplied was required to correspond with the approved sample. A proposed change in formulation, whether in relation to ingredients or process or place of formulation, had to be subject to customer approval, which approval process usually required the analysis and testing described earlier. The lacquer supplied to Visy and PLTP in the present case was subject to such approval processes.

96    Siegwerk submitted, which I accept, that such circumstances formed part of the background and context in which the question of causation was required to be addressed in the present case involving the substitution of DER669E with Epikote.

(b)    History & development of the lacquer

97    At Siegwerk's request, Nuplex began formulating resin 3490EP from June 2000. It did so initially for the purpose of preparation of a laboratory sample. In May 2001, Nuplex made its first batch of 3490EP for incorporation into sample lacquer for Visy customer trials. On 20 February 2002, Nuplex finalised the establishment of a permanent process to formulate 3490EP for Siegwerk. Full customer approval for the sample lacquer as a coating for EOEs was later obtained. Nuplex supplied 49 batches of 3490EP to Siegwerk in the period April 2003 to November 2004. Of the 49 batches, 13 contained Epikote.

98    The in-line production and accelerated storage testing approval processes first began with an assessment of the suitability of the lacquer for use as a coating for can bodies. The separate assessment of the suitability of the lacquer for use as a coating was later extended to EOEs.

99    The history relevant to the development of the lacquer involved changes in the identity of the relevant entities which from time to time held a licence to formulate the lacquer, placed orders for the supply of the lacquer and supplied the resin 3490EP.

100    Mr Chambers traced the original development of the lacquer the subject of this proceeding from ICI (UK) and the transfer of the licence to formulate that lacquer to ICI (Australia) and others including Dulux, Orica, PPG and finally Siegwerk. Dr Hewitt traced the succession of entities that placed orders for the lacquer. Those companies — Gadsden, SA Brewing, Southcorp Packaging and Visy — conducted a can manufacturing operation from premises in Charles St, Coburg, Victoria.

101    A truncated history is reflected in the following key events:

102    Mr Chambers gave evidence as to the history of his involvement in the initial recommendation of a lacquer to Mr Chris Bell, Gadsden's technical manager (a predecessor of Visy). Mr Chambers' recommendation was of an epoxy-phenolic lacquer that might be suitable for coating cans known as draw/re-draw cans, or DRDs. The acronym DRD describes the process by which a can is manufactured in two phases: (a) first, a "cup" is cut, or drawn, from tin plate; (b) second, the base of the cup is then held in place while its sides are "re-drawn" to form the can side. Mr Chambers and Dr Hewitt were each involved in the process of testing and approval of this lacquer at various times.

103    Until about 2000 the lacquer coating had been manufactured at premises in Clayton which were operated by Dulux, Orica and then PPG.

104    In 2000, ICI licensed Siegwerk to produce the lacquer 650772.

(c)    Use of lacquer for EOEs

105    At some point (the time of which is unclear) Mr Chambers was also asked by Mr Bell if Visy could use the lacquer as a coating application not just for its cans but also for its EOEs.

106    As I have discussed earlier, a standard practice in the can manufacturing industry and employed by Visy was to undertake a program of testing and approval to any given product offered by a materials supplier before that product was incorporated into a process of manufacture. Following the testing and approval processes, any subsequent formulation of the product needed to comply with the sample provided for testing and approved by Visy and its customer, PLTP. Any proposed departure from that approved specification would require that the parties undertake a test program of the new proposed specification.

107    In January 2002, 600 litres of batch of lacquer 650772 was supplied to Visy for extended trials to produce 1 million EOEs as final trials leading to full approval.

(d)    Test pack results

108    Dr Hewitt explained that different lacquers were originally used on cans and EOEs as follows. Initially, PPG lacquer was used on the cans while another lacquer known as organosol was used on the EOEs. A decision was then taken by Visy to conduct trials of the PPG lacquer on the EOEs. PPG was no longer able to supply lacquer from late 2003. Tests of SICPA/Siegwerk lacquer were conducted following the approval of which Visy obtained its supplies of lacquer from Siegwerk. There is an issue, which I will discuss later, as to whether and to what extent the SICPA lacquer was tested on EOEs.

109    Dr Hewitt produced the Test Pack Reports of tests conducted by Visy in relation to the lacquer being formulated by PPG and Siegwerk respectively. Those Test Pack Reports covered the period 4 August 1999 to 9 November 2005. Tests were generally conducted by storing the products at either 27°C or 38°C. The storage of a product for a 12 month period at 38°C was considered to bring a filled can to the condition that was equivalent to a four year shelf life under ambient conditions. It is to be noted that the warranty given by Visy to its customer, PLTP, was that the cans it supplied would "have a corrosion shelf life of at least two years from the date of filling for the products approved for each can, unless otherwise specified".

110    The test packs were prepared to enable analyses of performance to be made conservatively and under a wide variety of conditions (0 to 19 months), to consider the effect of a range of up to 11 tuna product types (and their respective pH levels), for the suitability of different lacquers and for cans and can ends of different sizes and designs. Usually, a change to any of these variables prompted a Test Pack analysis. Further, the results of one such analysis might prompt a test for performance using different criteria.

111    The practice of conducting trials of a customer's product using test packs was a standard industry practice. That practice was employed by Visy and it was applied to the specific requirements of PLTP for its range of tuna products. Siegwerk's lacquer formulated with DER669E was so tested and approved. It is appropriate to elaborate in some detail on this aspect as it is an important plank of Siegwerk's circumstantial case. I have drawn in part on Siegwerk's summary which was not in issue in terms of the primary results of the tests (as distinct from the secondary conclusions and significance to be drawn therefrom which in some respects were contentious).

Standard practice with test packs

112    Test Pack 493 (Bodies & Ends) was the subject of an examination on 4 August 1999 and entailed an assessment of the performance of the lacquer on 11 tuna products. The results of those tests recorded the pH levels of each of those products. One tuna product, and the product having the second lowest pH of all products tested, was the tuna vinaigrette.

113    Test Pack 504 (Bodies & Ends) was the subject of an initial examination on 30 March 1999 and then further examined after two months, six months and 12 months. The products were stored at both 27°C and 38°C. Conclusions made after 12 months' storage included:

"2.    The tuna in vinaigrette cans have completely failed at both temperatures, due to the coating losing adhesion, heavy corrosion and pitting at both temperatures." (emphasis added)

114    Test Pack 515 was for the purpose of comparing the performance of two different sizes of cans in July 1999 and thereafter. Conclusions made after 12 months' storage included:

"2.    The tuna vinaigrette DRD cans in both the 35 and 56 sizes failed at 38°. Both had extensive heavy corrosion and pitting on the body wall and base, while the coating on the 35mm cans was losing adhesion."

115    Test Pack 517 was for the purpose of assessing sulphide staining in September 1999 and thereafter.

116    Test Pack 518 was for the dual purpose of assessing sulphide staining and to gauge the extent of corrosion. The initial assessment was made in October 1999 and then at 12 months' storage in September 2000. Conclusions reported include that:

"4.    The 38° teriyaki cans had heavy corrosion and pitting … Because of the overall amount of corrosion, particularly on the base, these cans should be classified as failed. However it has taken the equivalent of four years shelf life to reach this stage.

…

9.    The lemongrass, lime & ginger FPEO ends had light staining over the end at 27°, and light to moderate staining over the end at 38°. There was also some light and occasional moderate detinning on the shoulder.

…

1.    FPEO End [Tomato & Basil (4/8)]

At both temperatures the ends had light staining on the shoulder, rings and score and around the tab rivot."

117    Test Pack 519 was for the purpose of assessing a two coat grey internal coating with tuna vinaigrette and the subject of an initial examination on 24 September 1999 and thereafter. It was noted that:

"1.    After twelve months storage, the two coat grey lacquer has had lacquer adhesion problems on the cans more vulnerable to corrosion. That is the 38° upright and inverted cans, together with the 27° inverted cans, had areas of bubbling and lifting coating near the base.

…

4.    If the cans are stored inverted (FPEO) up with this product, there is a greater loss of lacquer adhesion, and increased corrosion near the base.

5.    The FPEO ends would be acceptable."

See also the "Findings" as to the FPEO End.

118    Test Pack 520 was for the purpose of assessing a modified can base and was the subject of an initial examination on 24 September 1999 and thereafter. It was noted that after 12 months:

"2.    The 38° cans had moderate to heavy pitting on the body wall and base, and are close to the borderline of acceptability. However it has taken the equivalent of four years shelf life to reach this stage.

3.    The 27° FPEO ends were acceptable.

4.    The staining on the 38° FPEO ends appeared to be slightly excessive, with moderate staining over the end and moderate to heavy staining around the tab rivot [sic]. However it has taken the equivalent of four years shelf life to reach this stage."

119    Test Pack 525 included a trial of tuna in vinaigrette in a modified base profile DRD can using a new Siegwerk coating (one coat and two coat sampling was undertaken). These packs were the subject of an initial examination in December 1999 and thereafter the subject of further examination after three months, six months and 12 months. The conclusions at 12 months included that:

"4.    Both the one coat and two coat Sicpa/vinaigrette cans were acceptable, having some light to moderate, and moderate pitting.

5.    Some vinaigrette/FPEO ends had slightly excessive staining at 38°. However, it has taken the equivalent of four years shelf life to reach this stage. …"

See also the findings as to the performance of FPEO Ends.

120    Test Pack 526 was for a number of purposes including an assessment of DRD cans and with the trial of the new Siegwerk coating (in both a single and double coat) when used with tomato and basil, lemongrass, lime and ginger and vinaigrette tuna products. These packs were also the subject of an initial examination in December 1999 and thereafter the subject of further examination after three months, six months and 12 months. The reported conclusions of this test pack analysis after 12 months' storage at page 419 included:

"1.    After twelve months storage, the two coat tomato & basil cans would be acceptable, having only light to moderate pitting.

Consequently the two coat Sicpa lacquer has proven to be suitable for use with this product.

2.    The one coat tomato & basil cans … would be acceptable.

Consequently the one coat Sicpa lacquer has proven to be suitable for use with this product.

3.    The two coat lemongrass, lime & ginger cans … would be acceptable.

Consequently the two coat Sicpa lacquer has proven to be suitable for use with this product.

4.    The one coat lemongrass, lime & ginger cans … would be acceptable.

Consequently the one coat Sicpa lacquer has proven to be suitable for use with this product.

5A.    The 27° two coat vinaigrette cans … are acceptable.

5B.     The 38° two coat vinaigrette cans … must be classed as a failure.

The two coat Sicpa lacquer should be acceptable to be used with the vinaigrette product to a limit of two years shelf life.

6.    The one coat vinaigrette cans have failed. The cans were swollen at both temperatures, and the coating was losing adhesion. There was heavy corrosion at both temperatures, with moderate pitting at 27° and moderate to heavy pitting at 38°." (emphasis added)

See also the findings as to the performance of FPEO Ends.

121    Test Pack 530 was for the purpose of a filling trial to assess cans placed in various orientations so as to check for sulphide black staining. These packs were also the subject of an initial examination in February 2000 and thereafter the subject of further examination after three months, six months and 12 months. Conclusions after 12 months included that:

"4.    All FPEO ends were quite acceptable."

See also the findings as to the performance of FPEO Ends.

122    Test Pack 536 was for the purpose of assessing a two coat grey FPEO end with five tuna products. These packs were also the subject of an initial examination in September 2000 and thereafter the subject of further examination after three months, five months and 12 months. Conclusions after 12 months included that:

"1.    After twelve months storage at 38°, the lemon & cracked pepper FPEO ends were at the borderline of acceptability. There was moderate to heavy pitting, particularly on the score, together with detinning ranging up to moderate. However as the ends have now survived the equivalent of four years shelf life, they should be acceptable.

2.    All remaining FPEO end variables would be acceptable …"

See also the findings as to the performance of FPEO Ends.

123    Test Pack 543 was for purposes including an assessment of a two coat grey FPEO end with six tuna products and to monitor the effects of retorting and storing the FPEO end both up and down. These packs were the subject of an initial examination after three months and six months. Conclusions after six months included that:

"1.    After six months storage, the FPEO ends had patches of detinning along the score, with some mild and light pitting. After the equivalent of two years shelf life the ends would be acceptable.

The FPEO ends have proven to be suitable for use with these products."

124    Test Pack 554 was for the purpose of assessing FPEO ends and a new compound. These packs were the subject of examination after three months in June 2001, six months and 12 months. Conclusions after 12 months included that:

"1.    After twelve months storage at 38°, all FPEO ends were quite acceptable. The ends have now survived the equivalent of four years shelf life."

125    Test Pack 568 was for the purpose of checking sulphur staining. These packs were the subject of an initial examination in December 2001 and then after three months, six months and 12 months. Conclusions after 12 months included that:

"1.    After twelve months storage, the DRD bodies were quite acceptable, having very little corrosion …

2.    The FPEO ends had a substantial amount of corrosion on the score, with moderate detinning and pitting. However after surviving the equivalent of four years shelf life, the ends should be acceptable."

Comparative tests of Siegwerk lacquer 650814 & PPG lacquer

126    Test Pack 595 was for the purpose of assessing sulphide staining using various can bodies and coatings and specifically to see whether inverting the cans would dissolve the staining. The coating 650814 was employed in the test packs designated set Variable C. Further, the coating for Variable C was assigned Visy's internal code DR30. The same internal code DR30 was also assigned for the test packs designated Variable F. These packs were the subject of an initial examination in September 2002 and then after three months and ten months.

127    The term DR30 was an internal code employed by Visy to denote the lacquer of a class that included the PPG lacquer and the SICPA lacquer code 650814. Reference to DR30 is found on many of the Test Pack Reports above and on Visy's Manufacturing Standards.

128    The conclusions and findings recorded in relation to test packs Variable C and Variable F were as follows:

(a)    The initial examination in each case was that "[t]he cans were satisfactory";

(b)    Examination after three months demonstrated: (a) as to Variable C: "End. There were quite a few patches of light detinning, combined with a moderate amount of light pitting on the shoulder" and, (b) as to Variable F: "End. There were a few patches of light detinning, combined with quite a few mild pitting spots on the shoulder".

(c)    Examination after ten months demonstrated: "[t]he FPEO ends had light, and light to moderate pitting on the score and shoulder, but at this stage would be acceptable".

129    But the problem for Siegwerk in relying upon Test Pack 595 is that it records that what was being tested was the SICPA product on the can body, and not the ends.

130    Test Pack 597 was for the purpose of comparing the performance of cans coated with the Siegwerk DR30 grey coating against the standard PPG DR32 grey. Again this was on the can body and not the ends. These packs were the subject of an initial examination in October 2002 and then after three months and nine months. Two variables were employed: A, Control, and B, Test. Further, the Test Pack records state in relation to variable A, Control, that the PPG coatings 788-52150/788-50821 were employed, while in the case of variable B, Test, that the coating 650814 was employed. The conclusions reached upon the initial inspection in October 2002 were that all cans were satisfactory. The conclusions after three months included that: "[t]he FPEO end had some light to moderate detinning and light pitting on the score, however at this stage would be acceptable". The conclusions after nine months were based on examination of cans stored at 27°C and 38°C, as were the initial examination and three months' examination, including that:

"1.    After nine months storage, there was no staining on either variable.

…

3.    The FPEO end had some light to moderate detinning and light pitting on the score and shoulder, however the end would be acceptable."

131    Test Pack 607 was for the purpose of trialling PLTP tuna with onion in olive oil using the first production of a new Visy DRD can size. These packs were the subject of examination after three months in February 2003 and then after eight months and 16 months. Conclusions after 16 months were that:

"1.    After sixteen months storage, the bodies were satisfactory.

2.    The FPEO end (sic) had areas of light, and light to moderate staining, but would be quite acceptable."

132    Test Pack 612 was for the purpose of trialling PLTP tuna vinaigrette in 73x35 DRD cans with a DR30 internal coating on both the can body and FPEO end. In each case, two "passes" or coats of PPG lacquer, code 788-521616, were tested. These packs were the subject of examination after five months' storage in May 2003 and then 19 months in April 2005. Conclusions after 19 months included that:

"1.    After nineteen months storage, there were quite a few light pitting spots on the 38° bodies, however after surviving the equivalent of over six years shelf life the bodies would be acceptable.

2.    The grey FPEO end (sic) had a light to moderate amount of detinning on the score … However after nineteen months storage, the testpack results would indicate that the grey ends would be acceptable."

133    Test Pack 613 was for the purpose of trialling PLTP salmon with lemon and cracked pepper using the first production of a new Visy DRD can (size 65x41) coated with lacquer grade DR32, being SICPA lacquer, 650781/650767. These packs were the subject of examination after six months' storage in July 2003 and then after 19 months' storage in April 2005. Conclusions and findings after 19 months included that:

"1.    After nineteen months storage, the FPEO ends were quite acceptable, with only the occasional mild pitting spot on the score at 27°.

…

PRODUCT

The product appeared to be satisfactory.

FPEO End

i.    At 27° there was the occasional mild pitting spot on the score.

ii.    At 38° there was light staining on the rings, score and around the tab rivet.

iii.    There was no corrosion on the 38°ends."

134    Test Pack 626 was for the purpose of trialling PLTP tuna vinaigrette in 73x35 DR30 DRD cans with a modified base profile to overcome sulphide black staining issues on the can base. The FPEO ends were coated with lacquer grade DR30, being PPG lacquer, 788-52161. These packs were the subject of an initial examination in March 2003 and then after four months, seven months and 12 months. Conclusions reached in relation to Test Pack 626 initially, and then at four, seven and 12 month intervals, included the following:

In March 2003 (initial test):

"3.    The end had some mild pitting, but would be acceptable at this stage."

In July 2003 (4 months) included that:

"3.    The end had some light pitting, but would be acceptable at this stage."

In October 2003 (7 months) included that:

"2.    The FPEO end had some light pitting on the score and shoulder, but after surviving the equivalent of twenty-eight months shelf life the ends would be acceptable."

In March 2004 (12 months) included that:

"3    The FPEO end had some light to moderate detinning and pitting on the score and shoulder, but after surviving the equivalent of four years shelf life the ends would be acceptable."

135    Test Pack 627 was for the purpose of trialling PLTP vinaigrette in DRD cans using BHP TFS bodies stored at 38°C. The can bodies had been coated using DR32 SICPA 650781/650767 while the FPEO ends were coated with grey DR30. Dr Hewitt asserted that the SICPA lacquer had certainly been applied to the FPEO ends in this test pack series notwithstanding that there was no reference to SICPA lacquer code 650814. As I discuss later, I have no confidence in the accuracy of this assertion. These packs were the subject of an initial examination in July 2003 after four months, seven months and 12 months. Conclusions reached in relation to Test Pack 627, initially, and then again at seven and 12 month intervals, included the following:

In July 2003 (test after 4 months' storage):

"2.    The FPEO end had some mild pitting on the score, however the end would still be acceptable at this stage."

In October 2003 (test after 7 months' storage):

"2.    The FPEO end had some mild pitting on the score, and occasional large patches of extensive light pitting on the shoulder, however the end would still be acceptable at this stage."

In March 2004 (test after 12 months' storage):

"2.    The FPEO end had a light to moderate amount of light to moderate detinning, and a moderate amount of light, and light to moderate pitting, particularly on the shoulder. However after surviving the equivalent of four years shelf life, the ends should be acceptable."

136    Test Pack 649 was to trial DRD cans and FPEO ends both coated with lacquer grade DR30. However, different manufacturers' lacquer were used. On the can body, SICPA lacquer 650814 (wrongly identified as 6500814) was used, while in the case of the FPEO ends, PPG lacquer, 788-52161 was used. Further, it appears that the base profile of the cans had been modified in an endeavour to overcome sulphide black staining. This was the first production run of these cans. These packs were the subject of an initial examination in October 2003 and then after three months and six months. Conclusions after six months included that:

"[Vinaigrette]            The FPEO ends were satisfactory.

[Lemon & Pepper]    The end had one or two light pitting spots on the shoulder, however the ends would be acceptable."

137    Test Pack 659 was for the purpose of trialling 65mm, single coat organosol coating on FPEO ends on cans packed with PLTP salmon with chilli and lime. Different coats and manufacturers' lacquer were used. On the can body, two passes of SICPA lacquer 650814 were applied, and in the case of the FPEO ends one pass of organosol was used. Although these test packs had been packed before the product recall, when these packs were the subject of examination after 18 months' storage at 38°C and 27°C (that is, six years' shelf life), the report stated:

"Conclusion

1    After eighteen months storage all of the cans still had a vacuum, the FPEO ends were intact despite some moderate amount (scil of) detinning and light surface corrosion on the shoulder. … However after surviving almost two years shelf life at high temperatures, the ends would be acceptable.

2    The bodies showed variability in their performance some had extensive moderate pitting spots on body scratches but most showed no attack at all. However the bodies would be considered acceptable.

Findings

The cans showed extensive corrosion on any scratches present but were still intact." (emphasis added)

138    In summary, cans coated with 650814 were found to perform to an acceptable level after six years' shelf life.

Overview of tests

139    It is apparent that Visy conducted a series of tests on both can bodies and FPEO ends.

140    The potential for corrosion was identified as one of the reasons for testing.

141    From August 1999 the test reports demonstrated that the vinaigrette product was one of the most acidic of the tuna products: tuna vinaigrette had a 4.74pH value while tuna with lemon and cracked pepper had a pH value of 5.11; tuna with tandoori had the lowest pH value of 4.62. Further, by January 2001, it was recognised that PLTP's vinaigrette products were corrosive of the sample lacquer. Visy's test pack results thereafter demonstrated that the sample lacquer had proven to be suitable across a range of PLTP's tuna products and that one or two coats of the lacquer would provide sufficient protection of the DRD tin from the corrosive effects of nearly all tuna products.

142    An exception was that one coat of the sample lacquer would fail when the tuna product was vinaigrette where heavy corrosion was found after the product was stored for 12 months at both 27°C and 38°C. Having acquired this knowledge by January 2001, Visy set about conducting a series of further test packs.

143    The above evidence demonstrates the approach taken in relation to testing and approval of both cans and lacquers. A change in the design of a can or the source of the tin plate or the type of lacquer usually prompted a test program. The programs could run for up to 19 months' duration.

144    Siegwerk also points out, which I accept, that notable aspects of the Test Pack results set out earlier include the following aspects:

(a)    From the outset, tuna vinaigrette was known to be very acidic;

(b)    Cans filled with that product "failed completely" in early tests as a result of coatings losing adhesion and heavy corrosion;

(c)    Sulphide staining was a persistent subject for testing;

(d)    Corrosion became a constant subject of investigation. Coatings were examined for loss of adhesion, bubbling, lifting and cracking. Investigations focused on pitting and detinning;

(e)    Tests were made to examine performance using one coat and also two coats of lacquer;

(f)    The same test packs were the subject of initial examination and then re-examined, usually at intervals of three, six and 12 months;

(g)    Testing on a new Siegwerk product began in late 1999 (Test Pack 525);

(h)    By early 2000, the Siegwerk lacquer had been assessed under various tests as having proven to be suitable or acceptable in respect of those parts tested;

(i)    By March and October 2003, tests were found to exhibit light to moderate pitting or detinning, including on the score line, but the performance of the lacquer and cans were judged as being acceptable;

(j)    Examination of Test Pack 627 dated 17 March 2004, which was not post-product recall (4 August 2004) contrary to Siegwerk's assertion, may have shown detinning and pitting on the shoulder, but there was no record of any corrosion being found on the score line or any leakage of cans through the score line. As to this, 12 months' storage at 38°C was considered as being equivalent to four years' shelf life. By contrast, PLTP's experience of failure through corrosion and leakage was after a minimum of four to six weeks of filling.

145    The testing regime summarised above demonstrates that the requirements of a specific customer are demonstrated, by performance or failure, by in situ testing using its products in coated cans. Dr Massingill indicated that laboratory tests were not used by can coating manufacturers to qualify a resin for a container application but were merely part of a qualifying process.

(e)    Approval of sample lacquer & commercial usage

146    Until April 2002, Siegwerk formulated lacquer for Visy using the code 650772. Visy had variously run in-line production tests and pack trials of the sample lacquer. Interim customer approval for use of the lacquer was given in July 2001. However, as a means of resolving a royalties dispute with PPG over the use of code 650772, in April 2002 Siegwerk was given the formulation for a new lacquer 650814 to replace lacquer 650772. The new formulation differed from lacquer 650772 in that it changed the aluminium paste component from Metana Superfine to Silveral 7NL. The function of the aluminium paste was apparently cosmetic. Nevertheless, Siegwerk was required to go through a full regime of customer approval including supplying samples of the coating for testing and approval by Visy and PLTP.

147    Siegwerk's lacquer samples were found to have performed to a satisfactory standard during these various tests. Mr Chambers' evidence was that he participated in coating trials of the lacquer and that the results of those trials were satisfactory. Interim approval was obtained in July 2001. The lacquer could not go into commercial production until the sample had been finally approved by Visy and the end-user, PLTP, such full approval being later obtained. Full testing was required for such approvals by reason of the change of supplier, the change of the supplier's place of manufacture and the change in the coating to include a different aluminium paste.

148    Following prior testing and approval by Visy, on 16 September 2003 Visy began commercial production of can bodies using 650814 lacquer, with commercial production of 650814 commencing on can ends in October/November 2003. But as I have said, and as I will discuss further, the evidence of the testing of 650814 lacquer on can ends is problematic to say the least.

149    From January 2004, PLTP filled these cans with tuna products and supplied them to Simplot. There had been six filling dates at PLTP between early January 2004 to April 2004 (the PLTP factory having closed for Christmas from December 2003 and closed again in May 2004).

(f)    Toll manufacturing agreement

150    Prior to the transfer of the licence from ICI to Siegwerk, on 30 June 1999 Siegwerk and Nuplex entered into the tolling agreement.

151    The tolling agreement recorded the terms upon which Nuplex would manufacture certain products for Siegwerk including in accordance with agreed specifications. I have previously set out the relevant terms of the tolling agreement.

(g)    3490EP

152    On 11 April 2000, Siegwerk provided Nuplex with the process instructions necessary to formulate 3490EP. This was necessary because Siegwerk did not have the manufacturing facilities in Australia to make 3490EP.

153    In May 2000, Siegwerk provided Nuplex with a revised set of process instructions for 3490EP; see issue 2 of those instructions dated 10 May 2000. The instructions had been changed in May 2000 to emphasise the requirement that the supplies of DER669E must be sourced from Germany. The change was made because companies such as Dow often supply products from more than one location and manufacturing processes can differ slightly between plants. The instructions stated in part:

PROCESS INSTRUCTIONS FOR NUPLEX

SICPA CODE: 3490

FORMULATION & PROCESS INSTRUCTIONS:

Note: DER 669E must be sourced from DOW (Germany). (emphasis added)

154    As appears from those Formulation and Process Instructions, 30% of the 3490EP formula was the epoxy resin DER669E. From June to August 2000, Nuplex made trial batches of 3490EP as follows:

155    As is apparent, Nuplex samples of 3490EP had been approved for Visy customer trials on 29 May 2001.

156    Further, on 20 February 2002 Nuplex finalised the permanent production process for the formulation of 3490EP.

157    It appears that it was on about 11 June 2003 that Nuplex first manufactured 3490EP using Epikote. Conversely, there is no evidence that Epikote was ever employed by Nuplex in the formulation of 3490EP at any time before June 2003 including in the period of the testing programs that led to full customer approval.

158    Siegwerk commenced supply of the lacquer code 650814 for DRD cans in July 2003 and for the FPEO ends in about September 2003.

(h)    Formulation of the lacquer/quality control

159    As noted above, DER669E made up 30% of 3490EP, which made up 93% of the lacquer.

160    Once Nuplex had delivered its batch of 3490EP, Siegwerk added six ingredients (making up the remaining 7% of the lacquer). One of the ingredients that was added by Siegwerk was a resin called Beetle resin BE651. This ingredient acted as a cross-linker in the formulation process.

161    Thus, the formulation of the lacquer occurred in essentially two stages, namely, by:

(a)    formulation of 3490EP by Nuplex; and

(b)    incorporation of 3490EP with the six remaining ingredients by Siegwerk including a cross-linker.

The parties' scientific evidence demonstrates that the degree of flexibility which inheres in the lacquer once it has been formulated depends on the cross-linker that is selected for use and how and when it is incorporated into the final product. I will elaborate on this later.

162    Siegwerk recorded each of the steps taken to formulate and test the quality of lacquer while each batch was being formulated. Siegwerk's practice was to record in a batch card the steps taken to mix each batch of lacquer supplied to Visy, together with the results of its quality control checks, records of which were retained on its computer. Mr Chambers gave evidence of the several tests which were made of its lacquer before delivery of that batch to Visy. Mr Chambers has explained that, although he was able to examine the batch cards at the time of the post-product recall investigations in 2004 to 2005, Siegwerk has now been placed in liquidation and despite the attempts taken to locate those batch cards, they cannot now be found. This is a clear deficiency in Siegwerk's evidence in my opinion, whatever the explanation.

163    Mr Chambers originally examined the results of the quality control tests that were recorded in Siegwerk's manufacturing records. His evidence, based upon a review of those records, was that the lacquer sold by Siegwerk to Visy complied with the quality control requirements in place at Siegwerk prior to delivery of those products.

164    As concerns the use of 3490EP in the lacquer and the use of that lacquer as a coating of cans and EOEs by Visy and the supply of those cans to PLTP respectively, the schedule which is exhibit N4 shows the placing of orders by Siegwerk, the supply of 3490EP by Nuplex, the use of base resins by Nuplex in those supplies and the substitution of Epikote for DER669E. In addition, it is apparent that:

(a)    3490EP was supplied to Siegwerk no earlier than approximately two weeks after being ordered;

(b)    3490EP supplied to Siegwerk was used to make the lacquer; and

(c)    3490EP was used by Siegwerk within one to two months of being ordered.

(i)    Substitution of Epikote for DER669E

165    From June 2003 to February 2004, Nuplex supplied to Siegwerk 20 batches of 3490EP, 13 of which had been formulated using Epikote in place of DER669E. Epikote is an epoxy resin manufactured by Shell, not Dow. Exhibit N4 shows the available information about the batches of 3490EP resin supplied by Nuplex to Siegwerk during the relevant period. The Schedule records, inter alia, the batch number given to each respective batch, the epoxy resin that was used (DER669E or Epikote), the latest likely order date by Siegwerk and the dates of manufacture and delivery by Nuplex. In the trial before me, Mr Stephen Browning, Manager – Coatings Application Support, gave some evidence for Nuplex in relation to batch records, work orders and the like that was not the subject of serious challenge; the material produced was partly used for secondary evaluations that were put into evidence.

(j)    Manufacture of EOEs: the score-line

166    Visy manufactured EOEs at its processing plant in Coburg. The machinery used to produce an EOE is called a conversion press. Visy operated three lines — lines A, B and C — to manufacture EOEs. The panels are double coated with the lacquer. After each coat the lacquer is baked for 15 minutes for curing to occur. There were essentially seven phases involved in the manufacture of an EOE. The first five phases entail the creation of a rivet on the face of the EOE shell or blank. During the fifth phase, the conversion press by use of a score die and anvil then creates a score line around the inside perimeter of the shell. In the sixth phase, the press creates the panels. In the seventh and final phase, the tab or ring pull is attached to the rivet.

167    The EOEs had a score line which was to allow more easily for the opening of the can by manipulating a tab that was riveted on to the face of the EOEs.

168    The score line was stamped out using a score die that was applied by a 100 tonne compression press to an anvil. Once the score line had been stamped, the tab (or ring pull) was affixed. Visy assigned a specific can code to the entire quantity of EOEs produced in any run. Dr Hewitt produced the anvil and score tool at trial which I inspected.

169    Dr Hewitt gave evidence that there was no change to the tooling specification in relation to the Conversion Press that was used to manufacture EOEs during the relevant period. Visy retained a manufacturing standard which recorded Visy's criteria for score depth tolerances. This standard, entitled Manufacturing Standard MS-406 dated July 2003, provided a series of seven progression checks during the process of manufacture of a full panel easy open can-end. At page 3-11, the progression standard for "Fifth Station — Score" is addressed for the DR30 lacquer amongst others:

Dr Hewitt gave evidence that these progression checks allowed for the score depth from 0.060 um.

170    Performance of the score die was monitored using a quality control system. The score die was a consumable part and thus was replaced at frequent intervals. The quality of manufacture was checked daily. Operators undertook checks of the score line at four hourly intervals. Any deviation in the quality of the score made by the compression press was reviewed by a Review Committee each day. Cross-section tests were undertaken each week. Dr Hewitt examined Visy's quality control records and found no record of any problem with the quality of scoring or the scoring tools. He also said that he had no recollection of any such problem with the score line other than that which has been identified in this proceeding.

(k)    Application of lacquer

171    Until about October 2003, Visy also used a lacquer supplied by PPG on its EOEs. In October 2003, Visy commenced commercial production of cans using lacquer 650814 on both can bodies and EOEs and ceased using the PPG lacquer from that time. Dr Hewitt gave evidence as to the method by which the lacquer was applied to cans and EOEs. Visy did not maintain stocks of the lacquer to be applied to its cans and EOEs. Visy placed orders for the lacquer from Siegwerk on an "as required" basis with delivery taking place as soon as possible thereafter. Dr Hewitt gave evidence that the lacquer was supplied to Visy in 200 litre drums. Each drum had a batch number. Visy used the drums of lacquer usually within a few weeks of delivery by Siegwerk. Visy rotated its stock of lacquer on a "first-in first-out" basis.

172    Accordingly, drums were used in sequential order (first-in first-out) and their contents poured into a holding tank that had a storage capacity of about 100 litres. Visy kept this tank filled at no less than 40 litres. Once the holding tank had fallen to that 40 litres level it would be topped up with more lacquer. The operator recorded the batch number from the drum while a coating was being applied to a run of cans or EOEs.

173    The coating process had the following elements:

(a)    The lacquer was transferred (pumped) from the holding tank to a reservoir;

(b)    A quantity of lacquer was taken up from this reservoir by means of a ceramic Anilox Roller;

(c)    The lacquer on that Anilox Roller was transferred to a Rubberised Roller;

(d)    The Rubberised Roller applied the lacquer to the tin sheet;

(e)    The internal surfaces of the EOEs were given two coats of lacquer.

174    The manufacturing "first in, first out" practice to use drums in a sequential order applied to both 3490EP and the lacquer 650814. Visy mixed compliant lacquer with non-compliant lacquer and applied mixed quantities of lacquer to cans and EOEs.

(l)    Visy's quality control

175    Dr Hewitt also gave evidence that there was no change to the coating processes or specifications in relation to the application of lacquer to EOEs during the relevant period. Visy also employed a standard which recorded Visy's specification for the lacquer coating for a customer's cans.

176    Dr Hewitt explained the manufacturing standards which applied to the application of the lacquer to EOEs. He referred to that section of the standard headed "Application" and explained that for lacquer of grade DR30, two coatings or "passes" were applied. The coatings were assessed against a criterion of "Coating Weight". Using a sample measuring 25cm2, the two coatings were required to have a combined dry weight of 36 milligrams (+/- 4 milligrams). The adequacy of the coating film was measured by weight rather than thickness. Dr Hewitt's evidence explained how Coating Weight was employed to assess the adequacy of the film. The standard was to the following effect.

APPLICATION

177    Dr Hewitt described the system employed at Visy to check the lacquer coating weight. He said that it was checked by taking two twice-coated wet sample EOEs from the line, measuring the weight of a wet sample, placing the other wet sample in the laboratory oven, removing and measuring the weight of the semi-wet (i.e. baked) sample from the oven and comparing the weight of the wet and semi-wet samples. The weights are determined by the use of instruments. An operator enters the weights of the samples into Visy's computer system. Any "out of specification" sample was evaluated by the daily Review Committee.

178    Dr Hewitt explained the quality control system in place at Visy to check the coating weight of the lacquer. Dr Hewitt referred in evidence to all of the quality control records for the production of EOEs using the PPG and SICPA lacquers between March and July 2003, and between September 2003 and July 2004. For example, as concerns coating weight, the range of nominal coating weights were described as the "High Limit" and the "Low Limit" respectively. The band of tolerance for the coating weight of 21.0 and 17.0 was set out and which corresponded to the High and Low Limit for the coating weight stipulated in the standard.

179    Dr Hewitt gave evidence that the EOEs' coating weight for both PPG and SICPA lacquers was within the band of tolerance stipulated by the standard.

(m)    Discovery of corrosion

180    In July 2004 and again in January 2005, cans were found to be leaking from stock that had been manufactured prior to June 2004. Visy's investigation concluded that corrosion was limited to vinaigrette based products.

181    As concerns the relevant sequence of events, it is to be noted that:

September 2003    Visy commenced commercial production using 650814 on can bodies

October 2003    PPG used all of existing raw materials and ceased further supply of PPG lacquer; Siegwerk thereafter supplied all lacquer to Visy

    Visy only used 650814 lacquer on both cans and EOEs thereafter

January 2004    PLTP commenced using cans and EOEs coated with 650814 lacquer, filling them and supplying those cans to Simplot

July 2004             First report of corrosion in cans coated with 650814

August 2004             First product recall (zesty vinaigrette cans only)

    Visy, Siegwerk, PLTP and Simplot commence investigation of cause of failure

January 2005     Further corrosion detected with a further product recall; the investigation continues.

182    Exhibit N4 details Nuplex's supplies of 3490EP resin that were formulated using DER669E or Epikote during the period April 2003 to August 2004, with the latest delivery to Siegwerk in November 2004.

(n)    Initial investigations

183    At Visy, Dr Hewitt was among the first to receive information from PLTP of the discovery. He relayed that information to Mr Chambers at Siegwerk. In July 2004, the problem was at first thought to be isolated to the tuna vinaigrette products. Then in January 2005, it was found that the corrosion had spread to other products also.

184    After corrosion of the cans was first discovered in July 2004, Visy and Siegwerk with PLTP and Simplot undertook a collaborative investigation during which a number of reports were commissioned. PLTP's analysis at January 2005 indicated that the corrosion problem could be traced to cans that had been filled up to ten months rather than ten weeks earlier.

185    Each of Dr Hewitt and Mr Chambers produced the contemporaneous records that they had created or obtained during the course of those investigations. Those personnel, together with others from Visy and Siegwerk, attended a number of meetings to address the matter. They gave evidence that there had been no prior history of failure. Mr Chambers' record of those investigations included that during initial meetings with Visy, it was disclosed that there was evidence of score fracture or failure in 20 to 30% of cans tested, that cans were being scrutinised by PLTP and from supermarket shelves for either leaking or staining and that the "feeling is about 10% failure" (see a contemporaneous meeting note of 3 August 2004) although it is not precisely clear what the 10% relates to. An interim report dated 8 August 2004 reported upon the results of examination by Visy's Technical Centre of "a larger set of samples of Vinaigrette and other products in the Tempters range, from the various 2004 filling dates":

The objectives of the evaluations were:

to identify the incidence rate of the leakage?

ascertain what products are affected?

to determine the underlying cause of leakage and perforation?

One of the parameters employed was to examine Vinaigrette cans from ten 2004 filling dates. Twelve cans out of 107 cans were found to have corrosion or fracture at the score line:

The leakage resulted from corrosion on the score of the Easy Open End. The corrosion was inside to outside at various points around the score. The score fracture was consistent across all the filling dates even though there were various end-manufacturing dates used.

The past history of this vinaigrette product did not show any pattern of perforation.

The product had been canned successfully for the past five years. Examination of 3 test packs in the past 12 months had shown no evidence of corrosion/perforation Issues.

The corrosion of the score in 3-4 months is an exceptionally abnormal occurrence. (emphasis in original)

Siegwerk has submitted that these findings stand in contrast with the suggestion of Nuplex of "single digit" failure. I must say that the evidence led as to the frequency of failures was less than satisfactory. I will return to this later.

186    PLTP also provided a range of cans from filling dates over the five year period 1999 to 2004. While some minor corrosion was found, the score lines were found to be satisfactory. The report dated 8 February 2005 prepared by Visy identified the extent of the problem of corrosion. Siegwerk described this as "widespread in the marketplace". That label is not completely accurate.

187    In the course of those investigations, the following potential causes of corrosion were examined and progressively excluded as being a possible cause of corrosion:

(a)    Food products. The corrosivity of the tuna products was excluded as a possible cause: the tests by Visy's Technical Centre, N Skodras, conducted in September 2004 confirmed that the food products were within expected parameters. An analysis of the tuna and vinaigrette that had been filled in the cans found that the content of the acid in the contents was satisfactory and typical of that found in the tuna products.

(b)    Sales data. Dr Hewitt correlated the available data relating to the sale of tuna vinaigrette products. He undertook this research since products of that kind were known to have one of the lowest pH, had been identified during Test Packs as a key example of failure through corrosion and because they had been identified as the core problem of the "leakers".

(c)    Defective manufacture. From August 2004, Dr Hewitt identified the following information: (1) the can codes of EOEs that had been suspected to have leaked; (2) batch numbers of the lacquer 650814 that had been poured into the holding tank when those EOEs had been coated; (3) the date on which the two coatings of lacquer had been applied by Visy. Dr Hewitt correlated such information to link the PLTP product batch codes and work back to Visy's cans and EOEs and then the Siegwerk lacquer batches. He collated that information in a table. Dr Hewitt communicated the view to Mr Chambers that the suspect batches had been made from about December 2003. At a meeting held on 3 August 2004, Dr Hewitt gave Mr Chambers a copy of his table.

(d)    Quality control. Dr Hewitt examined Visy's Quality Control Records including the coating weight data for EOEs. The analysis of the manufacturing and coating quality control records at Visy was for the purpose of examining whether Visy had manufactured the cans to specification and had applied the correct film weights. The analysis confirmed that manufacturing had occurred at Visy in accordance with specifications. Dr Hewitt excluded the possible oversight of quality control errors. He also confirmed that the EOEs had been manufactured and coated with lacquer in conformity with the application standard and within the tolerances set by that standard. To this end, Dr Hewitt retained BlueScope Steel to examine the score anvil. It did so and by an email dated 5 August 2004 BlueScope Steel reported that: "[e]xamination of score anvil at x64 on stereo microscope found no sign of damage or cracking of lacquer".

(e)    Request for Siegwerk review. Dr Hewitt requested that Mr Chambers undertake a review of Siegwerk's operations. Mr Chambers agreed to do so.

(f)    Examination of batch cards. Mr Chambers undertook such a review and located the batch cards relating to the formulation of the suspect batches of lacquer. Mr Chambers isolated those batch cards, placing them in a box in the Siegwerk laboratory. Since then Siegwerk has gone into liquidation. Mr Chambers has made searches for those records but cannot locate them. He produced an example of such a card. During the course of those investigations, in September 2004 Siegwerk sent an email to Visy that identified certain batch numbers of 3490EP used to formulate batches of lacquer 650814 that had been applied in coatings of cans that were considered suspect. Siegwerk had wrongly assumed that Nuplex had complied with the Process Instructions and used the specified ingredients when formulating batches of 3490EP. Further, Mr Chambers has given evidence that: (1) during the course of the parties' investigation, he prepared a contemporaneous chronology of events; (2) the process of compiling that chronology entailed a "cut and paste" of various emails which he sent or received at that time; (3) one email was reproduced as part of that chronology which accurately distilled the results of investigations which he carried out at that time; (4) this reproduced email identified certain batches of lacquer that were considered to be suspect at the time of those investigations and identified batches of 3490EP and the batches of lacquer into which that 3490EP was poured.

(g)    Preparation of sample cans & EOEs. Mr Chambers agreed to participate in a program for the evaluation of the performance of the lacquer code 650814. On 3 August 2004, he prepared a protocol for such evaluation. The protocol had the following elements. First, he divided the samples into two sets: (1) "650814 batches on ends ex PLTP" (using retained samples of the lacquer from batches 590111, 590112, 593405, 594406, 597954 and 598891); (2) 650814 from randomly selected batches (588031, 599691, 620486 and 620491). He arranged ten batches in total. Mr Chambers planned for lacquer from those batches to be applied in the laboratory to "coated FPEOE plate ex Coburg" — due for coating on 4 August 2004. He proposed that 5 x A4 panels of each batch would be double coated with 650814. The net effect of that protocol was to conduct tests on 5 x A4 panels for each of ten batches of Siegwerk's lacquer 650814. In addition, Visy sourced retained samples of PPG lacquer and established a protocol for making sample panels for testing of that lacquer also. Mr Chambers located and provided Visy with samples of the lacquer formulated during the relevant period. PPG likewise provided Visy with samples of its lacquer. Visy then prepared test cans and EOEs which were coated with lacquer using retained lacquer samples taken from Siegwerk and PPG respectively.

(h)    Analysis of investigation results. The parties held conference calls to assess the available information. For example, on 18 August 2004 they held such a call during which the subjects "Lacquer Characteristics — Change in supply" and "Product Formulation" were discussed including that:

"Lubricant — are lube levels the same and the same type?

Crossing linking of the Film — Are they identical?

Adhesion to substrate — are they the same.

Coating chemistry ain (sic) resin and past are they the same.

These are the key attributes that need to be explored. Visy is at this time looking at the cure and the chemistry to clarify if the PPG and Sicpa supply are the same.

…

The group, particularly Bob Steele could not identify a significant product factor that should be focused on as part of the review. He felt that the key areas to concentrate on are in the area lacquer and substrate."

(i)    Results of filling trials. Once samples had been prepared, they were subject to quality control checks. These Test Packs were subject to accelerated storage testing for periods of 25 days, three and six months respectively. The filling trials occurred during August and November 2004. The filling trials required that the sample cans once filled be stored for a period. The cans were stored at 38°C. They were examined in September 2004 and February 2005. Siegwerk asserted that the result of these trials showed that Siegwerk coated EOEs leaked from the score region as early as 25 days' storage at 38°C with a number more at three and six months' storage. Dr Hewitt stated in his second affidavit at [42] that after 25 days there was deep pitting which indicated that leakage could be expected in a few months. It was said that this corrosion was found to have breached the score line of the stored cans coated with Siegwerk lacquer. This is not precisely Dr Hewitt's description, but the differences do not matter for present purposes. Deep pitting and failure exhibited in the 25 day examination had not been seen before in any trials and such rapid degradation is consistent with PLTP's reports of corrosion being detected after four to ten weeks. Dr Hewitt's analysis recorded findings of severe lacquer blistering, lacquer fracture and pitting. Other sample cans, being cans coated with retained quantities of PPG lacquer, were also filled and subject to accelerated storage testing. There was an instance of failure of a PPG coated can. Siegwerk has, understandably, sought to diminish the significance of this failure.

(j)    Score-line investigations. Dr Hewitt arranged for independent analysis of the condition of the score line in various samples of cans. Visy's investigation of this issue approached the matter from two perspectives:

(i)    First, a supplier of tin free steel, BlueScope Steel, conducted analysis and provided a report. Visual examination via a stereo microscope and metallographic examination were undertaken. The presence of corrosion through the score line was confirmed.

(ii)    Second, an investigation was made of the integrity of Visy's conversion presses and in particular the anvil and scoring tool. Service Tool International Inc of Illinois provided a consultant, Mr Hnilo, who travelled to Australia and examined Visy's tooling. The tooling was excluded as a possible cause of failure. Mr Hnilo undertook an analysis to see whether the tooling used to stamp out the EOEs was defective. The report concluded that: (1) there was no physical evidence discovered in the tooling system for the conversion system to be the root cause of the corrosion problem; (2) the coating tests showed that the Siegwerk lacquer demonstrated evidence of the coating breakdown under the score line of a significant nature.

(k)    In January 2005, Dr Hewitt informed Mr Chambers of the finding that PPG and Siegwerk samples tested during the course of the investigations above revealed that there were differences in those coatings.

188    Siegwerk has submitted that these investigations demonstrate that there was a significant difference between the lacquer tested by Visy prior to approval of 650814 and the lacquer that was supplied by Siegwerk.