FEDERAL COURT OF AUSTRALIA

F.Y.D. Investments Pty Ltd v Promptair Pty Ltd (No 2) [2019] FCA 419

ORDERS

THE COURT ORDERS THAT:

1.    The matter be adjourned to a date to be fixed for the hearing of submissions with respect to interest, costs and the appropriate form of orders.

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

REASONS FOR JUDGMENT

WHITE J:

Introduction

1    The applicants, F.Y.D. Investments Pty Ltd (FYD) and Kyren Pty Ltd (Kyren) (together “the Applicants”), are the owner and builder respectively of the premises at 70 Franklin Street, Adelaide which were constructed between late 2011 and early 2013.

2    The premises comprise two towers, both of 16 levels. The Western Tower is disposed as Quest Apartments. The Eastern Tower is an office building with several commercial tenants. The present proceedings are concerned only with the Eastern Tower and it is convenient to refer to it in these reasons as “the Building”.

3    The respondent, Promptair was the mechanical services contractor to whom Kyren subcontracted the supply and installation of the mechanical services plant, including the air conditioning equipment. Promptair undertook its work in the period between September 2011 and January 2013, although it engaged in commissioning, testing and remedial work thereafter.

4    The Applicants seek damages from Promptair in respect of alleged shortcomings in the air handling units (AHUs) it supplied during the construction and in respect of certain conduct relating to the performance of its work. In particular, the Applicants allege that Promptair did not supply and install the AHUs which had been approved by its consulting engineer, Lucid Consulting Engineers (SA) Pty Ltd trading as Lucid Consulting Australia (Lucid), and that it was in breach of a number of its contractual obligations. These included obligations to use materials which were fit for their intended purpose and would be free of defects.

5    The Applicants sue on three causes of action:

(a)     the enforcement by Kyren of a debt arising pursuant to the terms of its contract with Promptair;

(b)    breach of Contract; and

(c)    misleading or deceptive conduct.

6    Promptair brings a cross-claim against Vekavent Pty Ltd (Vekavent) and its director, Mr Kärner (together the Cross-Respondents). Vekavent is a supplier of mechanical services equipment. Promptair alleges that it placed the order for the particular AHUs which it installed in the Building in reliance on representations made by Mr Kärner which were misleading or deceptive. It seeks damages by way of indemnity from the Cross-Respondents in respect of any amounts, including costs, which may be awarded against it in favour of the Applicants and, in addition, damages in respect of the costs incurred and the loss of profits it suffered in consequence of the inadequacy of the installed AHUs.

7    The Cross-Respondents filed a defence to the cross-claim in which they denied the allegations of misleading or deceptive conduct and denied any liability to Promptair. However, they did not take any part in the trial. By a letter addressed to the Court on 10 March 2017 (just over one week before the scheduled commencement of trial), Mr Kärner said that he would “not be appearing or taking an active role in the proceedings” and would abide the order of the Court, as he did not have the financial resources with which to participate in the trial.

8    Promptair had also commenced a cross-claim against Kyren. However, the issues raised by that cross-claim were resolved consensually, and Promptair discontinued the cross-claim.

9    Administrators were appointed to Promptair on 14 March 2017, that is, six days before the scheduled commencement of the trial. Section 440D of the Corporations Act 2001 (Cth) then became applicable:

Stay of proceedings

(1)    During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:

  (a)    with the administrator’s written consent; or

(b)    with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

(2)    Subsection (1) does not apply to:

(a)    a criminal proceeding; or

(b)    a prescribed proceeding.

10    However, it was common ground that Promptair is indemnified under an insurance policy with respect to all but a small part of the Applicants’ claims. The parties, including the administrators appointed to Promptair, consented to a grant of leave to the Applicants to proceed with the claim for which Promptair had indemnity. Kyren’s remaining claim, being that contained in para C of the Originating Application and pleaded in paras [60] to [62] inclusive of what is now the Fifth Amended Statement of Claim (5ASC), was not the subject of the grant of leave and was adjourned to a date to be fixed.

11    For the reasons which follow, I am satisfied that Kyren has established an entitlement to damages from Promptair in the sum of $944,033.50 and that Promptair is entitled to recover the whole of its liability, including costs, from the Cross-Respondents.

The witnesses

12    The Applicants adduced evidence from 10 witnesses and Promptair from six. The evidence in chief of all witnesses was given by affidavit and was supported by a large amount of documentary material.

13    The parties accepted that each witness had given his evidence honestly and that the Court is not required to make assessments of credit. It must, however, assess the reliability of the evidence given by the witnesses when necessary. It is pertinent to note that at this stage the Applicants did not assert that the misleading or deceptive conduct it alleged against Promptair had involved dishonesty on its part or by its employees.

14    The Applicants’ witnesses were Mr Theodoros Samaras (sole Director and Manager of both FYD and Kyren), Mr Steven Kotzias (Kyren’s Project Manager), Mr Colin Dally (Kyren’s Building Superintendent at 70 Franklin Street), Mr Gregory Shubin (the Managing Director of Frigrite Mechanical Services Pty Ltd (Frigrite) who advised Kyren in relation to aspects of Promptair’s work and, for a short period while Mr Kotzias was on leave, acted as its Contract Administrator), Mr Travis Stanton (a mechanical engineer employed by Lucid), Mr Phillip Roach (a chartered building services engineer employed by Lucid) and Mr Pasquale Callisto (a building services engineer and Director of Lucid). In addition, the Applicants led evidence from three experts, Mr Sale, Mr Maynard and Mr Caleo. The affidavit of Mr Sale, a quantity surveyor, was received without him being required to attend for cross-examination. Both Mr Maynard and Mr Caleo are building services engineers.

15    Promptair led evidence from Mr Peter Thornton (its Managing Director and a qualified air conditioning and refrigeration mechanic), Mr Darryl Stevens (Promptair’s General Manager), Mr Shaun Burgers (Promptair’s Senior Mechanical Engineer), Mr Damien Bennett (Promptair’s Estimator who had been involved in the preparation of its tender to Kyren) and Mr Craig Ullrich (Promptair’s Project Manager). Promptair also led evidence from one expert, Dr Michael Bellstedt, a consulting engineer. Mr Ullrich’s affidavit was received without him being required to attend to give evidence.

16    Promptair did not lead evidence from its former Project Manager, Mr Upton, who had a significant involvement in the process for the approval of the AHUs. He ceased to be an employee of Promptair in 2013.

Factual setting

17    In this section of the reasons, I set out the factual setting giving rise to the issues for the Court’s determination. The matters I record were, in the main, non-contentious and, unless otherwise indicated, should be regarded as findings of fact.

18    FYD and Kyren are related companies as both are members of the group of companies controlled by Mr Samaras. That circumstance no doubt explains why there was no formal building contrct between the two entities.

19    On 17 March 2011, Kyren invited tenders for the provision, installation, commissioning and maintenance of the mechanical services (which included the air conditioning) for the construction of 70 Franklin St (the Project). Promptair submitted a tender on 15 June 2011. Kyren informed Promptair on 12 July 2011 that its tender of $8,681,200 inclusive of GST had been accepted but Kyren and Promptair did not execute their written contract (the Contract) until 25 January 2012.

20    Lucid was retained by Kyren as the Consulting Engineer for the Project and acted in that capacity in relation to the mechanical services, both before and after the execution of the Contract.

The terms of the Contract

21    In addition to its formal part, the Contract comprised documents entitled “Conditions of Contract” and “Contract Particulars” and other documents referred to in the Contract Particulars. These included the Mechanical Services Specification in a document entitled “70 Franklin St Office & Residential Development-Mechanical Services Specification Construction Issue-Project No: 4652 M.SPC” (the First Specification).

22    In the formal part of the Contract, Promptair bound itself to “to carry out and complete” its obligations in accordance with, amongst other things, the Conditions of Contract and the First Specification. By cl 2.2 it provided a number of warranties to Kyren to which it will be necessary to refer later. The scheduled date for practical completion was 10 January 2013.

23    Clause 9.1 of the Contract imposed obligations with respect to the workmanship with which the work was to be carried out, the materials to be supplied and with respect to compliance with the Contract itself, the Building Code and relevant standards. Again, it will be necessary to return to cl 9.1 as Kyren alleged that its provisions had been breached.

24    Clause 9.4 of the Contract obliged Promptair to test and commission all its work in a specified manner. Clause 9.4 provided (relevantly):

9.4    Testing

The Subcontractor must carry out all tests required by the Contract or directed by the Contract Administrator.

All tests are to be carried out in accordance with any procedure:

  (a)    set out in the Contract which may apply to the tests; or

(b)    if no procedure exists, as reasonably directed by the Contract Administrator.

…

25    By cl 9.6 of the Contract, Promptair was bound, subject to paras (b) and (c), to correct all defects. The balance of cl 9.6 provided:

If, prior to the expiration of the Defects Liability Period for the Works or a Stage, the Contract Administrator discovers or believes there is a Defect the Contract Administrator may give the Subcontractor an instruction specifying the Defect and doing one or more of the following:

(a)    requiring the Subcontractor to correct the Defect, or any part of it, and specifying the time within which this must occur; or

(b)    requiring the Subcontractor to carry out a Variation to overcome the Defect, or any part of it, and specifying the time within which this must be carried out; or

(c)    advising the Subcontractor that the Main Contractor will accept the work, or any part of it, despite the Defect.

26    In relation to the events with which this litigation is concerned, the Contract Administrator to whom this Clause referred was Mr Steven Kotzias, the Project Manager employed by Kyren.

27    Clause 11 of the Contract provided for variations. It did so in some detail by, amongst other things, authorising the Contract Administrator to issue a “Variation Price Request” to instruct Promptair to carry out a variation by a written document entitled “Variation Order” and to increase or decrease the contract price to take account of variations which were directed.

28    Clause 16.1 also concerned the topic of variation. It was concerned with the circumstance in which the Contract Administrator gave a direction, other than a Variation Order, which constituted or involved a Variation. It will be necessary to return to cl 16.1.

29    The Contract provided for a defects liability period of 12 months which was to commence on “the date of completion” (cl 1.1).

30    In the event of a default by Promptair in fulfilling its obligations under the Contract, Kyren could give a notice requiring the breach to be remedied (cl 14.2-14.3). If Promptair failed to remedy a breach after being given such a notice, Kyren could take the work out of its hands (cll 14.4-14.5). When that occurred, the Contract Administrator could, on the completion of the work, assess the cost incurred by Kyren and certify it as an amount due and payable by Promptair (cl 14.6). It will be necessary to return to cl 14 later in these reasons as Kyren relies on it for its claim in debt.

The First Specification

31    The First Specification was dated 1 August 2011. This was after Promptair had submitted its tender which, I infer, was based on the specification issued for tender purposes and dated 4 March 2011. It was not suggested that any changes to the specification between that on which Promptair tendered and the First Specification were material in these proceedings.

32    Lucid, in its capacity as Kyren’s Consulting Engineer, had prepared the First Specification, including the design of the mechanical services. That work was undertaken by its engineer, Mr Adcock, with the assistance of Mr Stanton. Mr Adcock left the Adelaide office of Lucid at the end of 2011 and thereafter Mr Stanton was the principal person within Lucid with responsibility for the Project.

33    The First Specification indicated that it encompassed “the provision of a Mechanical Services installation that satisfies all statutory legislative and code requirements and satisfies the general details herein”; the “installation, testing, commissioning, maintenance, service and warranty and all sundry and material items, whether mentioned in detail or not, required to complete the installation and place into working order”; and specified that Promptair was to undertake “full responsibility for the execution of the complete installation in accordance with the specification and drawings” (cl 1.1).

34    Clause 1.6 imposed the following “General Requirement” with respect to Materials Equipment and Workmanship:

Obtain approval for and maintain uniformity of the manufacturer and type of all materials and equipment. Use only new, current manufacture, first quality materials and equipment.

It was common ground that Promptair was required to obtain the approval of the material and equipment to which this provision referred from Lucid.

35    Clause 2.1, under the heading “Equipment Performance”, provided as follows (relevantly):

General

The Contractor shall be responsible for complying fully with this Specification and for ensuring that good trade practice is observed and that all work is completed in a tradesman-like manner.

In particular, the capacities and outputs of the various items of installed equipment shall be not less than those specified and the Contractor shall balance air quantities and make all necessary adjustments to the plant to satisfy the Consulting Engineer that the installation meets the requirements of this Specification.

…

Tenderers are required to submit full manufacturer’s selection details of equipment offered at time of tender submission for approval. Identical equipment to that approved by the consulting engineer must be installed on site. Equipment will only be considered “equal approved” if it has been approved by the consulting engineer. Approval of equipment does not override the requirement to comply with the requirements of the specification.

Minimum Performance Requirements

The Contractor shall be fully responsible for the selection of plant to achieve the performance specified below. The Contractor shall guarantee the performance of all the systems installed under this Contract.

Continuous Operation

All plant selected and installed shall be capable of continuous reliable operation within the following extremes:

Maximum Temperature:        46 degrees C dry bulb plus full solar load

                  24 degrees C wet bulb

Minimum Temperature:        0 degrees C dry bulb

Electricity Supply:        …

Minimum Performance Requirements

Air conditioning system capacities have been calculated to achieve the minimum performance requirement specified below:

External Ambient conditions:

Summer:    Design day of maximum external ambient temperature 38.0 degrees C dry bulb/21.0 degrees C wet bulb plus full solar load

Winter:        Ambient temperature 6.0 degrees C dry bulb

Internal Conditions:

Summer:    Maximum 24 degrees C DB/50% RH.

Winter:        Minimum 20 degrees C DB.

(Emphasis added)

36    As is apparent, this clause required tenderers to submit for approval “full manufacturer’s selection details of equipment”. Nevertheless, despite the approval, the successful tenderer remained obliged to comply with the requirements of the specification.

37    The AHUs were an integral part of the air conditioning system in the Building. The First Specification divided each level into three zones, north, central and south. Each zone had its own AHU, so that there were 48 AHUs in total.

38    In simplified terms, an AHU operates in the following manner. It takes air returning from the conditioned room or space (referred to as returned air) which has been mixed with fresh air from outside the Building (outside air). This mixture is referred to as the “Air On”. The Air On is then passed over a cooling coil inside the AHU which has the effect of cooling the air and, in most cases, dehumidifying it. The cooling coil achieves this effect because it contains chilled water (typically at around 4-6°C) in tubes within the coil. When the air leaves the AHU, it is referred to as “Air Off” and its temperature as the “Air Off temperature”. The air is then supplied back into the room or space to be conditioned as “Supply Air”.

39    Clause 2.4 under the heading “Air Handling Units” contained detailed prescriptions with respect to the AHUs. It commenced with the statement that Promptair was to:

Supply and install chilled water only air handling units of manufacturer “GJ Walker” or “Carrier” or equal approved, complying with the following performance and construction criteria.

40    Performance criteria were specified separately in relation to each of the 48 AHUs. For each level, the criteria varied according to whether the AHU was to be located in the north, central or south zone. The performance criteria were not, however, uniform for all the corresponding zones on each level. The criteria for the units in each corresponding zone on Levels 2 to 5, and Levels 10 to 14 were identical, but the criteria for the zones at those levels differed from those for the corresponding zones at Levels 1, 7, 15 and 16. The performance criteria for the AHUs in the three zones at those Levels did not match the criteria for the AHUs on any other level. This gave rise to a submission to be addressed later in these reasons.

41    As it is not practical in these reasons to set out the performance criteria for all of the AHUs, I will do so only for the three AHUs to be located on Level 13:

42    The specification for the “Supply Air” in these criteria is the aggregate of the specifications for the Return Air and the Outside Air. Of the elements in the performance criteria, “total cooling capacity”, “sensible cooling capacity” and the “chilled water flow rate” were the subject of attention in the evidence. As used in the evidence and submissions, “sensible cool capacity” refers to the capacity of the unit to lower the temperature within a space; “total cooling capacity” refers to the capacity of the unit to both lower the temperature and to remove moisture (humidity); and the “chilled water flow rate” refers to the system’s evaporator. Both the total cooling capacity and sensible cooling capacity are measured in kilowatts.

43    Clause 6.2 of the First Specification contained another specification which is important in this litigation. It specified that in relation to the 48 AHUs:

Maximum [cooling] will see the chilled water valves in the fully open position, leaving chilled water temperature setpoint of 4.0°C, design supply air temperature of 10°C and the VAV dampers fully open. …

(Emphasis added)

As already noted the supply air (“air off”) to which this clause refers is the air which leaves the AHU after it has been cooled.

44    As is apparent, the First Specification did not prescribe the precise AHUs to be supplied by Promptair. Instead, it identified the performance requirements of the AHUs and gave an indication of the required quality by reference to two well-known Australian suppliers of air conditioners, GJ Walker and Carrier. Promptair had nominated Carrier AHUs in its tender.

45    The requirements for testing and commissioning were specified in cl 9 of the First Specification. Clause 9.1 provided (relevantly):

On completion of the work, commission the entire installation and put it into operation.

Carry out comprehensive pre-commissioning, commissioning and quality monitoring in exact accordance with CIBSE Commissioning Codes or ASHRAE Commissioning Guideline 1-1996 to satisfy Green Star Man-2 Commissioning Clauses. … .

46    Clause 9.6 of the First Specification, under the heading “System Acceptance Tests”, commenced with the following:

Preliminary tests: When the installation is complete, commission the plant by putting it into working order and operating it for not less than the specified minimum running period. Make the adjustments necessary to achieve the required performance under continuous operating service conditions, including balancing, setting the controls, checking the operation of overload and safety devices, and correcting malfunctions. Record and submit the results.

Acceptance tests

Acceptance tests shall commence only when the preliminary test results demonstrate that the plant is ready for test … .

The approval of the AHUs

47    As already noted, the First Specification required Promptair to submit “full manufacturer’s selection details of equipment” for approval by Lucid. Strictly speaking, Promptair should have provided the equipment details with its tender and therefore before the award of the Contract to it. However, while Promptair indicated in its tender that it proposed particular models of AHUs manufactured by Carrier, Kyren by its Consulting Engineer, Lucid, did not give any approval until after the Contract had been executed. It was not suggested that anything turned on this.

48    Subsequently, and before the execution of the Contract, Lucid and Promptair realised that the First Specification contained inconsistent requirements. This was because the Air Off temperatures of 10° C could not be achieved in AHUs having the nominated values for “Total Cooling Capacity” and “Sensible Cooling Capacity”. Those values had to be higher if the required Air Off temperature was to be achieved. The inconsistency became apparent during the course of the process by which Promptair sought approval of the AHUs it would supply. The presence of the inconsistency was confirmed in the evidence by Mr Maynard and Mr Bellstedt. However, the inconsistency was resolved by Lucid’s approval of the data for the AHUs which allowed higher total and sensible cooling capacities than specified in the First Specification.

49    The process by which Promptair sought approval for the AHUs commenced on 23 August 2011 when Mr Upton (Promptair’s then Project Manager) provided Lucid with “Carrier tech data” for the AHUs. Mr Stanton, who was then Lucid’s Mechanical Services Engineer, responded by email later that day with a number of comments. These included “all coil air off temps are required to be 10 deg C”. Mr Stanton asked whether Carrier could “adjust the coil designs to suit”. In addition, Mr Stanton made a handwritten entry on the Carrier data with respect to the leaving air temperature details, namely, “must be 10°C. Increase coil capacity to achieve”. Mr Stanton provided the annotated Carrier data to Mr Upton, also on 23 August 2011.

50    A copy of the Lucid annotations on the Carrier data was provided by Mr Upton to personnel at Carrier.

51    In addition to seeking a quotation and technical data from Carrier, Mr Upton also sought technical data and a quotation for supply of the AHUs from the Cross-Respondents. In preparing his response, Mr Kärner identified the inconsistency in the specification. He pointed it out to Mr Upton in his email on 30 August 2011 in which, in relation to the Carrier data, he said “[b]ased on sensible capacity I would say that leaving dry bulb from coil must be 12 deg C.”. That is to say, Mr Kärner was pointing out that if one adhered to the stipulated sensible cooling capacities in the performance criteria contained in cl 2.4, the dry bulb Air Off temperature would be 12°C.

52    On 30 August 2011, Carrier provided an updated specification and quotation to Promptair, but the data it supplied in support indicated that the Air Off temperatures on its proposed AHUs still exceeded 10°C. Promptair provided the specification to Lucid.

53    On 2 September 2011, Mr Upton provided to Mr Adcock and Mr Stanton at Lucid the “tech data” for AHUs manufactured by Fläktwood which he had received from the Cross-Respondents. In his accompanying email, Mr Upton said:

Viekko from Flaktwoods is a very helpful Engineer and understands your requirements. We put their products into Tower 2 Waymouth street (5 star green) and were very impressed with the quality and performance.

54    On 6 September 2011, Mr Upton provided Mr Stanton and Mr Adcock with the technical data for AHUs manufactured by Daikin. Mr Upton said that Promptair itself had rejected the Daikin AHUs “based on earlier comments for alternative suppliers from Lucid”, that is, because the AHUs did not satisfy the required Air Off temperature.

55    On 8 September 2011, Mr Stanton gave his response to Mr Upton concerning the Carrier AHU data. His comments included:

Still have some leaving air temperatures are (sic) high. Units around the 10.1 and 10.2 are ok, but any higher will not be acceptable. … If the waterside T and leaving air temps are difficult to get then could we get some indication of the factors limiting the performance we require?

As is apparent, by this email, Mr Stanton made explicit Lucid’s insistence on the requirement for Air Off temperatures of 10°C, although allowing for some minor tolerance.

56    Mr Stanton also responded to Mr Upton concerning the Fläktwood AHU data on 8 September 2011. He again remarked on the Air Off temperatures saying:

The Flaktwood units have a similar issue to the Carrier units. The air off temperatures are too high, up around 12 in most cases. … Could we please get reselections on the coil to achieve the 10.0 air off temp.

Again, Mr Stanton made express the requirement for adherence to the 10°C Air Off temperature even if that required the use of different coils. Mr Upton responded to Mr Stanton saying that he would obtain the requested reselections for the coils.

57    Mr Upton passed on Mr Stanton’s comments to Mr Kärner on the following day, saying (relevantly):

You are close with price and information, however the comments from Lucid confirm they want the 10C leaving temp (no greater than 6 delta T) and the 50pa maximum pressure drop across the coil.

We need supportive selections to reflect the above.

58    Mr Kärner responded by an email of 9 September 2011 saying:

This is interesting now as your sensible capacity goes up 15% and question is about Chillers. Do you have enough capacity?

Obviously the coil pressure drop will increase as well as extra rows must be added.

Thus, Mr Kärner again pointed out the inconsistency in the First Specification to Mr Upton, by indicating that the insistence on compliance with the Air Off 10°C requirement meant that the total sensible cooling capacity had to increase by 15%.

59    Later that same day, Mr Kärner sent an email to Mr Upton, saying (relevantly):

I can reach 10 deg C leaving, water delta 6 deg C and max 50 Pa with 4 row coils. This means that in many units you will have max. face area cooling coil arrangement. … .

60    On 14 September 2011, Mr Upton sent to Mr Adcock and Mr Stanton an email attaching “final selections from Fläktwoods for comment/approval”. The Air Off temperatures shown in the technical data for the 48 units varied between 8.7 and 9°C (wet bulb) and were uniformly 10°C (dry bulb).

61    Mr Stanton responded on 16 September 2011 by email, saying (relevantly):

The AHU selections look ok. I didn’t get the selections for Levels 9 up, but if these are anything to go by it looks like Fläktwood have made the necessary modifications to the coils.

I infer that, by his statement that he had not been able to get the selections “for Levels 9 up”, Mr Stanton meant that he had not been able to open the electronic attachments containing the data for Levels 9 to 16.

62    Mr Upton obtained further data from the Cross-Respondents. Mr Kärner informed him in the accompanying email of 19 September 2011 that the data did not relate to Fläktwoods, although he did claim that it produced the same construction and technical details as Fläktwoods.

63    Mr Upton provided the data for Levels 9-16 by separate emails on 20 September 2011. This data showed Air Off temperatures of 8.9°C (wet bulb) and 10°C (dry bulb) for the AHUs at those Levels. Mr Stanton responded later the same day informing Mr Upton that the AHU selections for these Levels “appear to [be] acceptable”. Mr Upton responded by email almost immediately, saying:

Thanks Travis.

At this point I believe that they are the only ones that will comply with the spec however I will endeavour to get the others in compliance if you are not happy to run with these.

Should you require any additional information please do not hesitate to contact our office.

64    Mr Stanton said that he gave his approval for the AHUs “on the basis that a 10 degree leaving air temperature was achieved by the Fläktwoods data”. The sequence of events just recorded, and in particular Mr Stanton’s insistence on compliance with this criterion, supports that evidence, and I accept it.

65    So also does the importance of the Air Off temperature of 10°C in achieving the desired building energy efficiency. Mr Stanton explained that importance as follows:

[16]    The air-conditioning system installed at 70 Franklin Street is a state of the art low air temperature, induction variable air volume (IVAV), chilled water system with high energy efficiency. The high energy efficiency was needed in order for the Building to achieve a green star design rating, and a “5 star” NABERS (National Australian Built Environment Rating System) rating. The Building did achieve both these targets.

[17]    The key to the high energy efficiency of the system is the use of low temperature supply air, leaving air handling units at 10° C. To achieve this water is chilled to 4°c by chiller units. The chilled water at 4 degrees is circulated through "coils" within the air handling units, and air is moved within the AHUs across the face of these coils to achieve an air off coil temperature of 10° C. The cooled air is then delivered through ducts to “zones” on each floor by a system of "dampers" within the air handling units connected to the air­ conditioning ductwork.

66    Accordingly, I am satisfied that Mr Stanton would not have approved the AHUs had the data indicated that a 10°C leaving air temperature could not be achieved. I am also satisfied that Mr Stanton gave his approval on the basis that the data provided by Mr Upton related to Fläktwood AHUs. That is what he and Mr Upton had been discussing and Mr Upton had said that he would get the “reselections” of the Fläktwood coils which Mr Stanton had requested. Unknown to Mr Stanton, the technical data supplied to him by Mr Upton did not relate to Fläktwood AHUs.

67    Although Mr Upton had been aware from at least 19 September 2011 that the data he had provided to Lucid did not relate to AHUs manufactured by Fläktwood but instead to AHUs manufactured by another entity (Egyptian Swedish Airconditioning Co (ESAC)), he did not inform Lucid of that circumstance. In all these circumstances, there is no difficulty in concluding (and I do), that Mr Stanton gave the approval in the email of 20 September 2011 on the basis of the representation to him that the “tech data” provided by Promptair for the purpose related to Fläktwood AHUs.

68    It is a matter of some significance in this litigation that the data for which Mr Stanton gave approval provided for total and sensible cooling capacities which exceeded those specified in the First Specification.

The installation of AHUs manufactured by ESAC

69    As can be seen, the chronology of events recorded above culminated on 20 September 2011 with Lucid approving the supply and installation of Fläktwood AHUs. Fläktwood is a Swedish manufacturer. It seemed to be common ground in the trial that in September 2011 Fläktwood was a well-known reputable manufacturer of AHUs. This was confirmed by Mr Caleo, the Consulting Engineer called by the Applicants.

70    Promptair did not install Fläktwood AHUs. Instead, it installed the much cheaper AHUs manufactured by ESAC, an Egyptian manufacturer. It seemed to be common ground that, throughout the period relevant in this litigation, ESAC was not a well-known manufacturer and, in particular, did not have a known reputation as a supplier of AHUs.

71    Mr Thornton, the Managing Director of Promptair, deposed to his having had an understanding in October 2011 on his return from leave that the AHUs were Fläktwood units. He said that he had derived that understanding from a discussion with Mr Upton. Mr Thornton also deposed that Mr Upton had told him at the time that Mr Kärner had been able to obtain a costs saving for the AHUs by obtaining them from Egypt, “direct from the factory”.

72    Promptair did not inform Lucid or Kyren that it had not installed Fläktwood AHUs, and this was not detected by Lucid until 1 April 2014. In his opening submissions provided in advance of the trial, counsel for Promptair conceded that it had not¸ before March 2013, provided any information to Lucid which disclosed that the technical data on which it had sought approval related to ESAC, and not Fläktwood, AHUs. On the third day of the trial, counsel for Promptair sought and was granted leave to amend its defence to admit the applicants’ allegations that it had engaged in misleading or deceptive conduct. I will return to this later.

The commissioning and testing

73    The Contract between Kyren and Promptair required Promptair to achieve practical completion by 10 January 2013. However, this was not achieved. It seems that the physical work of installation was completed by about January 2013, but the commissioning of the plant and equipment remained to be carried out.

74    Promptair commenced the steps contemplated by cl 9 for commissioning of the mechanical plant and equipment on about 17 January 2013. This involved the completion of both “Preliminary Tests” and “Acceptance Tests”. Various tests and commissioning work occurred over the ensuing months. Mr Thornton acknowledged that the commissioning was not completed because Promptair did not ever complete the Preliminary Tests.

Action to address the air conditioning issues

75    Problems with the air conditioning became apparent fairly early on in the commissioning process.

76    By email dated 21 March 2013, Mr Kotzias sought urgent action from both Lucid and Promptair. He pointed out that the Building Management System (BMS) was reporting temperature spikes at Levels 14-16; that with increasing external air temperatures, the Air Off temperatures were 14 or 15°C (at best); and he queried whether there were shortcomings in either of the design or installation of the air conditioning system, including the AHUs.

77    This letter caused Lucid to review its design calculations and Promptair to check other aspects of the air conditioning system. In March 2013, Promptair upgraded the fans in all the AHUs. Lucid completed its review of the technical data by 27 March 2013 and, on the same day, informed Promptair that, on the basis of that review, it could not understand why the equipment “cannot hold conditions”. Mr Stanton concluded the email by saying “the Fläktwood tech data says we should have a little more capacity over and above the [base building] spec so we should have no issues getting 10°C air off on warm days”.

78    On 28 March 2013, Mr Upton informed Mr Stanton that Promptair would change the coils on some of the AHUs “as they are under spec and the tech data provided by the supplier”. During April 2013, the principal focus of the activities with respect to the air conditioning system appears to have been the replacement of coils in some of the AHUs. At the same time, other matters were explored and various adjustments were tried. I note, however, that, at least by 4 April 2013, Lucid was suggesting that “the currently installed undersized coils do not appear to be the issue”.

79    While these steps were continuing, on 2 April 2013, Katnich Dodd issued a Certificate of Occupancy under s 67 of the Development Act 1993 (SA) and reg 83 of the Development Regulations 2008 (SA), certifying that the Building was suitable for occupation. In doing so, Katnich Dodd were acting as a building certifier. The issue of the certificate had the effect that FYD could then allow the commercial tenants of the Building to take occupation.

80    It was common ground that both Kyren and Promptair had treated the date of the Certificate of Occupancy as the date on which completion was achieved.

81    Higher than required temperatures continued to be experienced in the building. There were numerous communications between Kyren, Lucid and Promptair concerning them. In a meeting on 2 April 2013, Promptair agreed to replace the cooling coils to the AHUs servicing the north zones on Levels 7 to 16.

82    Despite these and other attempts by Promptair to remedy the situation, the internal air temperatures remained too high. The stratagems adopted by Promptair included increasing the capacity of the water pumps, closing some of the return air slots within some rooms, reversing the chilled water flows, balancing some flow rates, and installing collars, blanking plates and different diffusers. In July 2013, Lucid recommended that the majority of the return air slots forming part of the light fittings be blanked off and that return air “egg crate” grilles be fitted. Numerous further checks and tests were undertaken. On 28 October 2013, Lucid provided a scope of works for the replacement of the plug fan assemblies in the AHUs for the north facing zones on Level 7 to 16. None of these stratagems solved the problem that the required internal air temperatures were not being achieved. As external temperatures increased in the 2013-2014 summer, tenants in the building complained to Kyren about the internal temperatures. The BMS reports also showed that the AHUs were not always achieving a 10°C Air Off temperature. Promptair took further steps with a view to remedying the situation, including replacing further coils in the AHUs.

83    By a letter sent on 12 February 2014 (incorrectly shown as 12 February 2013), Mr Stanton notified Kyren of performance issues affecting the AHUs. He noted that a number of the AHUs were not capable of “achieving the design cooling coil air off temperature of 10.0°C, at the full design supply airflow rate, during peak cooling conditions”. He summarised the testing of the AHUs which Lucid had carried out on Levels 15 and 16 with a view to identifying the underlying reason. This was testing of the supply air flow rate, the chilled water flow rate, the controls, the air diffusion, and the short cycling. Mr Stanton then reported on testing of the AHUs on Level 16 carried out on 17 January 2014, a day on which the ambient external temperature reached 42.7°C. He included the results of that testing in a table which included (relevantly):

As can be seen, the Air Off temperatures for each of these AHUs well exceeded 10°C.

84    Mr Stanton concluded the letter with the following recommendation:

In light of the above findings, and based on the coil capacity issues identified from Levels 7 to 16 on the North Perimeter last year, our office recommends a full review be undertaken on the Base Building Air Handling Unit Coil Installations to identify defective cooling coils. Cooling coils that do not achieve the specified cooling capacity will be required to be replaced with cooling coils compliant with the Mechanical Services Contract Documentation.

As is apparent, Mr Stanton’s belief at that time was that the problem lay with the cooling coils.

85    By letter to Kyren of 26 March 2014, Mr Burgers acknowledged that the AHUs were not producing Air Off temperatures of 10°C. He attributed this to the inadequate cooling capacity requirements in the First Specification for which he contended Promptair was not responsible.

86    On about 1 April 2014, Lucid became aware that Promptair had not installed AHUs manufactured by Fläktwood. It notified Kyren that this was so by a letter dated 4 April 2014. After summarising the shortcomings concerning the AHU coils, Mr Callisto (Lucid’s director) continued:

Further to the above, we confirm having reviewed our project file for correspondence relating to the approval process for the air handling units and associated cooling coils. The various communications between Promptair and Lucid Consulting Australia indicate the following;

•    Air handling units and cooling coils offered and subsequently approved were of Fläktwoods manufacture.

•    The approved selection data for each coil was based on a 10°C ‘air-off’ temperature at the corresponding design ‘air-on’ condition.

Fläktwoods manufacture[d] equipment is considered a reputable make of equipment, hence we are concerned that following a comprehensive coil selection and approval process, the installed cooling coils have not met the approved selection/performance data. A manufacturer of Fläktwoods good standing within the industry would also be concerned with the observed unsatisfactory performance of their equipment, and hence we sought to contact the supplier/manufacturer for comment.

We refer you to the attached correspondence from David Stark of Fläktwoods dated 1 April 2014, and Viekko Kärner of Vekavent Pty Ltd (an agent of Fläktwoods) dated 2 April 2014. Both suppliers have indicated they have no record of an order being placed by Promptair or any record of any delivery of equipment to 70 Franklin Street.

Mr Callisto concluded with a recommendation that an urgent meeting be held with Promptair.

87    Some polite but firm correspondence then ensued between Mr Samaras and Mr Thornton. These issues, and the issues arising from the inadequate performance of the ESAC AHUs, were discussed at a meeting of Messrs Thornton, Burgers and Hayter from Promptair and Messrs Stanton and Callisto from Lucid on 8 April 2014.

88    In early May 2014, Kyren and Promptair agreed that the latter would replace the coils to the AHUs at Level 13 so that their performance could be checked before Promptair proceeded with the replacement of the coils in all 48 AHUs. Lucid then approved the GJ Walker technical data for the replacement coils and Promptair installed them in the Level 13 AHUs in late May 2014.

89    These matters were the subject of extensive communications between Kyren, Lucid and Promptair. It is not necessary to record the detail of all of those communications presently.

90    On 13 June 2014, Mr Samaras sent an email to Mr Thornton, Promptair’s Managing Director, the content of which was as follows:

Hello Peter,

I have attached a letter outlining several items that need your attention although there are other minor outstanding items that also need attention!

From the Practical Completion Date it has been 15 months now and still there is substantial amount of work that needs to be completed urgently!

Kyren will not go through this summer chasing PromptAir to complete these items, the decision has been made.

The coil issue is a very big problem and we have one way or other (sic) we have been pestering Promptair all this time to resolve the non-conforming coils with no success!

Since January’14 it has been almost 6 months and [we] have achieved almost nothing. Don’t forget P A ignored this problem for the previous 10 months.

I look forward to your response.

Cheers

Theo

91    In a letter accompanying the email, Mr Samaras put Promptair on notice as follows:

In accordance with section 6.6 Fit for Purpose, the mechanical services system delivered does not comply with the specified requirements [of the First Specification], therefore Final Completion cannot be granted.

Mr Samaras then listed 10 matters in which Promptair’s performance of its contractual obligations had been inadequate. Items 1 and 5 were:

1.    Clause 2.4 “Air Handling Units”

Promptair has not supplied an approved brand and product. The unit brand supplied is non-existent in Australia [and] the componentry unidentified throughout the project.

The product does not meet the specified:

a.    Nominated cooling capacities to comply with the design criteria and supply temperatures

b.    Correct counter flow cooling coils.

…

5.    Clause 6.2 “Control Functions and Strategies”

The specified control strategies for the air handling units cannot deliver supply temperatures of 10 degrees due to incorrect air handling unit cooling coil selections and chilled water pipework arrangements.

(Emphasis in the original)

92    Mr Samaras then set out his expectations for the rectification of the shortcomings:

System Rectification

Under clause 9.6 of the contract, we hereby notify Promptair that the mechanical services system is incomplete. The system is not approved, not handed over and the DLP (defects liability period) is incomplete until the system is handed over to Kyren Pty Ltd in accordance with contract requirements.

We note the above works are extensive and require a detailed plan to be submitted by your office in order to approve the execution of works.

The plan needs to include:

1.    Scope of work document of how Promptair Pty Ltd propose to rectify the above outstanding works and system defects in a[n] occupied building without affecting the working conditions of existing tenants (i.e. Noise, conditions, access, essential plant and equipment).

2.    Program works schedule detailing all time lines required to complete the outstanding works and defects.

3.    Approval by Lucid Consulting Australia Pty Ltd of the rectification plan.

4.    Final testing and witnessing procedure of all outstanding works and defects by Lucid Consulting Australia Pty Ltd and Kyren Pty Ltd.

5.    Extended warranties of all mechanical services plant and equipment for a full twelve (12) months of satisfactory operation to meet the specified performance criteria.

6.    Continuation of the DLP period including the required service and maintenance requirements in accordance with the satisfactory operation of plant and equipment to meet the specified performance criteria for a full twelve (12) month period.

93    Mr Thornton, the Managing Director of Promptair, responded by letter dated 25 June 2014, saying (relevantly):

Clause 2.4 Air Handling Units

Whilst it is acknowledged that the particular brand of air handling units provided was not as per the Lucid specifications the product, with the new coil fitted, is capable of providing the capability as required. As you know, Promptair is in the process of changing coils for the air handling units and we have been in continual communication with you in respect of this. We are following the agreed plan whereby level 13 will be changed firstly as a model for the other levels.

…

Clause 6.2

We do not accept that “the specified control strategies for the air handling units do not deliver supply temperatures of ten degrees due to incorrect air selections and pipe work arrangements”. When the coils for the air handling units are changed this should alleviate any concerns. As agreed, coils will be changed on level 13 firstly, prior to change on other floors. Lucid will be asked to approve this work once completed through yourselves.

…

System Rectification

The defects liability period for this project expired on 2 April 2014. You are raising matters not received during the defect[s] liability period. The provision of a detailed plan as requested by you is not warranted.

We anticipate being in a position to complete the installation of new coils on level 13 (and as previously advised) by first week of July 2014 as long as access is available to us.

(Emphasis in the original)

94    Promptair installed new coils in the Level 13 AHUs in the week commencing 30 June 2014. Testing commenced on 3 July and continued on 7 and 11 July 2014. During June and July, it also tried a number of other stratagems.

95    By email on 24 July to Promptair’s General Manager, Mr Stevens, and copied to Mr Thornton, Mr Samaras raised the replacement of the ESAC AHUs:

This is becoming out of control and we need you[r] total input to this matter by the [close of] business today!

Kyren has been very reasonable with this matter and as far as we are concern[ed] you or Promptair needs to replace all these AHUs with the approved and recommended band!

This can’t keep on going as it has over the last several months.

There is a period of 3 months only that this work needs to be completed!!

Need your feedback today URGENTLY!!

(Emphasis in the original)

96    On 25 July 2014, Lucid (by Mr Roach) reported to Kyren that, despite the action taken to improve the performance of the AHUs installed by Promptair, they were “not fit for purpose and do not meet the requirements of the specification”. Mr Roach continued:

All attempts have been made to retain the existing units and modify their arrangement to produce the required duties. Unfortunately the attempts taken have not been successful and the only remaining option, that being the installation of a side inlet centrifugal fan (as originally specified) is available.

With the AHU performance being identified as an issue many months ago, this option is not available to be pursued since any further delays to the rectification of the installation will cause further discomfort to the tenants within the building with the summer period approaching.

It is also believed that further modifications to the existing AHUs, coupled with the necessity to modify the existing coils from parallel to counter flow will degrade their quality further.

The decision has therefore been made to highlight the AHUs as ‘non-conforming’ and ‘not fit for purpose’ by the fact that they are unable to meet the specified design duties.

The full and complete replacement of all of the AHUs with units compliant with the contract specification is required.

97    Having not had a response to his email of 24 July, Mr Samaras sent a follow up email on 25 July. He informed Promptair that, if Kyren did not receive a satisfactory response, it would “place the program in place to replace all units at [Promptair’s] cost”. Mr Stevens responded later on 25 July. He informed Mr Samaras that Promptair was seeking data and equipment selection details from reputable manufacturers of AHUs but that the indications were that a 12 week delivery time was realistic irrespective of which brand of replacement AHUs was chosen.

98    Later on 25 July 2014, Mr Samaras informed Promptair that Kyren would assume control of the tender and equipment selection process, with a view to fast tracking it, and that Promptair would be responsible for the installation and onsite modifications necessary for the new equipment. Later that same day, Mr Thornton accepted Mr Samaras’ proposal providing that Kyren undertook the responsibility for payment of the replacement AHUs.

99    By email dated 26 July 2014 to Mr Thornton, Mr Samaras informed him that he would be absent on leave for the period 27 July-28 September, but contactable by email and mobile phone. He told Mr Thornton that Kyren had engaged Lucid to undertake the tender process for the purchase of 48 replacement AHUs “in conjunction with the Project Manager Greg Shubin (Frigrite)”. Mr Samaras continued:

Frigrite will act as the Project Manager for the duration that I’ll be away and will review their position on my arrival. They will have full control to act for Kyren to mitigate all the events in regard to the Mechanical Outstanding matters.

100    By the same email. Mr Samaras rejected, in forceful terms, Mr Thornton’s suggestion that Kyren be responsible for meeting the costs of the replacement AHUs.

101    On 30 July 2014, Mr Stevens provided Mr Roach at Lucid with the technical data of both Carrier and Temperzone, noting that Carrier had a longer lead time for delivery and that, unlike Temperzone, it did not commit to achieving the desired 10° Air Off temperatures.

102    On 3 August 2014, Frigrite (by Mr Shubin) provided Lucid with a summary of the technical data for AHUs manufactured by Carrier, GJ Walker, Fan Coil Industries and Temperzone and of their compliance with the First Specification. He concluded that no single AHU complied in every respect with the requirements of the First Specification and sought Lucid’s advice as to the aspects of the specification which were negotiable.

103    By email of 7 August 2014 to Mr Shubin, Mr Roach said that the Temperzone AHUs would be acceptable. He proposed an in-situ test of one unit before proceeding further.

104    On 8 August 2014, Frigrite (by Mr Shubin) accepted Temperzone’s quotation for the supply of 48 AHUs but on the basis that one AHU was to be installed on Level 13 and tested for one week before Temperzone proceeded with the remainder. One of the conditions which Mr Shubin attached to the acceptance was that “this purchase order to be novated to Promptair Pty Ltd”.

105    Subsequently, following the completion and testing of the Temperzone AHU which had occurred by 4 September 2014, Mr Shubin, in a letter sent on Frigrite letterhead, accepted on behalf of Kyren, Temperzone’s quotation for the supply of the remaining 47 AHUs.

106    On 11 August 2014, Frigrite (by Mr Shubin) had quoted a total price of $1,061,799 (excluding GST) for the replacement of the 48 AHUs. Mr Samaras provided that quotation to Mr Callisto and Mr Roach on 20 August 2014 and sought their confirmation that the offer was “within the Original Specification”.

107    By letter to Promptair dated 12 August 2014 on the Kyren letterhead, Mr Shubin (describing himself as “Project Manager”) informed it of Kyren’s selection of the Temperzone AHUs and that Promptair was required to replace the 48 AHUs “in order to meet the commercial terms of [its] contractual obligations for the project”. Mr Shubin attached a copy of Temperzone’s quotation and noted the requirement for it be “novated” to Promptair. He also attached the specification entitled “Mechanical Services Air Handling Unit Replacement Scope of Works Project No: 4652 M.SPC.002” dated 12 August 2014 prepared by Lucid (the Second Specification). Mr Shubin concluded by saying:

We seek Promptair Pty Ltd formal confirmation accepting the replacement of the forty-eight (48) new air handling units documented by [Lucid] in accordance with the specified work program. This confirmation is required within seven (7) days of receipt of this letter.

108    The Second Specification differed from the First Specification in that Mr Roach, who prepared it, had removed the performance criteria for total capacity, sensible cooling capacity and chilled water flow rate. He said that he had done so because of the mistake in the First Specification and because these criteria were irrelevant to the selection of the replacement AHUs, they not being matters specified by the manufacturers. I accept Mr Roach’s explanation.

109    Mr Thornton responded to Mr Shubin on 14 August 2014, stating that Promptair would not take any further action on instructions from either Frigrite or Mr Shubin:

Greg

Promptair [is] not prepared to take any further action regarding the proposed scope of works via instruction from either Frigrite or yourself.

To date Promptair has never been provided with any formal notification from Kyren Group or Lucid that these works would be undertaken through your direction & instruction (as their PM) on their behalf (Frigrite & yourself are not recognised).

There has been no prior discussion, or consultation regarding this matter with Promptair.

As mentioned to Kyren on numerous occasions previously, (and we now confirm this to you) – unless an official Promptair purchase order number is raised to the supplier/s Promptair will not be accepting any form of purchase or payment of that purchase by others on Promptair’s behalf. This includes the related pricing that has been discussed, agreed and confirmed between the supplier/s and Promptair at the time.

110    In the light of Mr Samaras’ email to Mr Thornton of 26 July 2014 to which I referred earlier, Mr Thornton’s refusal to accept direction from Mr Shubin is puzzling. I infer that Mr Thornton had allowed the commercial rivalry between Frigrite and Promptair to colour his response.

111    In a long email to Mr Thornton of 18 August 2014, Mr Samaras made a “last request” that Promptair reconsider its position. He warned him that Kyren was prepared to engage others to do the whole of the outstanding work and then pursue Promptair for costs and damages. Mr Thornton responded on 20 August 2014 saying that Promptair would have one Temperzone AHU installed and tested before purchasing the remaining AHUs. On the following day, Mr Thornton sought information from Lucid as to the reasons for the changes in the Second Specification from the First Specification and information concerning whether it had ever been possible for Lucid’s Original Specification to be achieved. On the same day, in a letter to Mr Samaras, Mr Thornton questioned the need for the replacement of the AHUs but said that Promptair was willing to install the single unit available from Temperzone.

112    By email to Mr Thornton of 19 August 2014, Mr Samaras confirmed that Kyren had engaged Frigrite as Project Manager in order to see the building completed according to specification. He forewarned Mr Thornton that the costs which Kyren incurred in retaining Frigrite would be passed on to it.

113    By letter dated 22 August 2014, Mr Kotzias informed Mr Thornton that he had appointed Mr Shubin as his Contract Administrator’s Representative pursuant to cl 3.4 of the Contract.

Issue of Notice of Default

114    On 1 September 2014, Temperzone provided to Mr Shubin a quotation of $297,891 (including GST) for the supply of 48 replacement AHUs. At about the same time, a Temperzone AHU was installed in a zone on Level 13. After a minor adjustment, this was found to be satisfactory and Lucid approved the use of Temperzone AHUs as the replacement.

115    On the same day, Lucid prepared a third specification for replacement of the AHUs (the Third Specification). This specification contained data relating to the Temperzone AHUs and some variations from the Second Specification.

116    By a notice issued to Promptair on 5 September 2014, Kyren (by Mr Shubin) gave notice of default under cl 14 of the Contract. The notice asserted, in para [5], that Promptair was in breach of cll 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a)(ii), 9.1(b) and 9.1(c) of the Contract and specified the respects in which Promptair was said to be in non-compliance. Clause 8 required Promptair to take action to remedy the breaches, as follows:

[8]    Kyren, as the Main Contractor, requires Promptair as the Subcontractor to remedy the breaches of the Contract referred to in paragraphs 5 to 7 above within 14 days of receipt of this Notice of Default by acknowledging in writing that:-

[8.1]    it will carry out, at its expense, each of the tasks specified in the attached remedial works specification of [Lucid] dated 1 September 2014 … which includes the approval of [Lucid] to the Temperzone Air Handling Units dated 4 September 2014. In this regard for the avoidance of doubt “at its expense” includes your agreement to reimburse Kyren for the cost associated with the supply identified in paragraph 9 below;

[8.2]    it will carry out the task set out in Attachment 4 in accordance with the attached construction program (Attachment 5) and in this regard will ensure it has sufficient labour resources on site at all times to ensure the programme is met;

[8.3]    it will remedy the defects identified in the Incomplete Defect Item List dated 28 August 2014 (attachment 2) and the Mechanical Services Defect Schedule dated 28 August 2014 (attachment 3) within 30 days.

[9]    In relation to item 1.2, dot point 2 of the remedial works specification of [Lucid] dated 1 September 2014 (attachment 4), Kyren will supply the air handling units as per the attached quote of Temperzone Australia Pty Ltd quotation number 83763-B dated 1 September 2014 (Attachment 6).

…

[13]    Upon providing the written acknowledgement referred to paragraph 8 above you are directed to strictly comply with and undertake each of the tasks identified in Attachment 4 at the times identified in Attachment 5 and as nominated in 8.3 above.

(Emphasis in the original)

117    Attachment 4 in this notice was the Third Specification prepared by Lucid on 1 September 2014.

118    The Notice of Default was sent to Promptair by Kyren’s solicitors, Clelands Lawyers (Clelands).

119    Promptair responded to the Notice of Default with a short letter to Mr Shubin on 12 September 2014, in which it asserted, under cl 16.1(a) of the Contract, that the Notice of Default was a direction constituting a variation. It provided its formal response by two letters from its lawyers, MinterEllison. In the first, dated 19 September 2014 and addressed to Clelands, Promptair denied that it was in breach of the Contract as Kyren had asserted and gave reasons for that denial. The letter also asserted that the Notice of Default was not a valid notice. MinterEllison then said that Promptair was “prepared to accept the proposals set out in Clauses 8.1, 8.2 and 8.3 of the Notice of Default” subject to three “amendments” to cl 8.1 to which I will refer later. These contemplated that the remedial works which Promtpair considered appropriate would be included in a Notice of Variation, and therefore that Kyren may pay for them.

120    In the second letter (also dated 19 September 2014) addressed to Mr Shubin as Kyren’s Contract Administrator Representative, MinterEllison asserted that the Notice of Default of 5 September 2014 amounted to a direction constituting a Variation under the Contract. MinterEllison then made a claim for an increase in the Contract price pursuant to cl 16.1(b) of the Contract. The increase claimed was $745,826 (excluding GST). Mr Kotzias, as the Contract Administrator, rejected that claim.

121    MinterEllison also sent a third letter dated 19 September 2014. This was addressed to Mr Shubin. MinterEllison expressed the view that the counter-proposal comprising the three “amendments” indicated the seriousness of Promptair’s intention to work with Kyren to resolve the issues. MinterEllison went on to say that Promptair’s willingness to undertake the works pursuant to the counter-proposal was not contingent on Kyren agreeing to the claimed Contract price adjustment of $745,826. It was apparent, however, that Promptair’s willingness to do the work was contingent on Kyren’s acceptance of the three “amendments” to cl 8.1 in the Notice of Default.

122    By letter dated 30 September 2014, Mr Shubin, in his capacity as Contract Administrator Representative, extended the time for compliance by Promptair with the Notice of Default to 5 pm on 1 October 2014.

123    Mr Kotzias resumed as Contract Administrator on 1 October 2014 and notified Mr Thornton of that fact.

124    By notice to Promptair on 2 October 2014, Mr Kotzias notified it, pursuant to cl 14.4(a) of the Contract, that Kyren was taking the works specified in the Third Specification dated 1 September 2014 out of Promptair’s hands.

The replacement of the AHUs

125    Frigrite carried out the replacement of the ESAC AHUs with the Temperzone AHUs in October, November and December 2014. The replacement work was completed by 19 December 2014. The Applicants paid Frigrite a total of $1,020,476 (excluding GST) for that work, including the cost of installing the test Temperzone Unit in August 2014.

The cl 14.6 certificate

126    On 5 February 2015, Mr Kotzias as Contract Administrator, issued to Promptair a certificate under cl 14.6 of the Contract certifying the amount payable by it in respect of the work taken out of its hands at $1,074,394.50 (excluding GST) (the Certificate Sum).

127    Promptair did not pay that amount. There followed a series of meetings and communications and on 3 November 2015, the Applicant commenced the present proceedings.

Non-compliance with the required Air Off temperature

128    There is a considerable amount of evidence indicating that the AHUs installed by Promptair did not meet the Air Off 10°C requirement. Given some of the submissions made by Promptair, I list some of the evidence supporting that conclusion.

(1)    in March 2013, the tenants at Levels 14-16 in the building complained of excessive heat with temperatures in the range 25-27°C. The Air Off temperatures for AHUs in the north zone on Levels 14-16 were recorded at 14-15°C at best;

(2)    on 5 April 2013, Mr Stanton recorded the Air Off temperatures for the AHUs in the north zone at Levels 15 and 16 as being 11°C or greater;

(3)    following the replacement of coils in the AHUs in the north zones at Levels 7-16, testing at Levels 14-16 revealed that the temperatures remained too high;

(4)    on 8 October 2013, Mr Stanton noted that the Air Off temperature for AHU 16-3 was 11°C (the parties had used Level 16 as a test case at this stage because it was the worst affected floor);

(5)    in January 2014, Mr Dally, the Building Superintendent, reported that he was receiving complaints from the tenants on the 16th Floor almost daily;

(6)    testing of the three AHUs at Level 16 on 17 January 2014 revealed Air Off temperatures of 14.5°C, 13.6°C and 13.2°C, respectively;

(7)    in total, 18 AHUs were tested on 17 January 2014. Only four recorded an Air Off temperature of 10°C or less (but no result was recorded for three). Several of the test results were well in excess of 10°C;

(8)    on 31 January 2014, Promptair (by Mr Ullrich) reported that the Air Off temperatures of Levels 1, 2, 3-1, 4, 5, 7, 8-1, 15 and 16-1 were high but he also said “[g]enerally over half of the Southern AHUs are performing OK”. I note, however, that earlier on 31 January 2014, Mr Stanton had reported that the AHUs in the south zone were typically “not hitting the supply air temp off”;

(9)    on 25 February 2014, Promptair (by Mr Burgers) proposed some adjustments to AHU 13-1 which was then producing an Air Off temperature of 12°C. Mr Burgers noted that it had previously been 14-15°C;

(10)    testing on 3 March 2014 of the three AHUs at Level 13 with the modified coils in place revealed Air Off temperatures of 14.4°C, 13.8°C and 11.5°C respectively. It was following that testing that Promptair agreed to replace the coils with cooling coils manufactured by GJ Walker;

(11)    testing of the AHUs at Level 13 on 7 July 2014 after the replacement of the coils revealed that they did not produce the required Air Off temperatures, even though the external conditions then were well below the design specification;

(12)    on 23 July 2014, Mr Roach reported that testing of the modified AHUs on Level 13 had not demonstrated improvement in the Air Off temperatures. He then recommended that the replacement of the AHUs be explored; and

(13)    many of the BMS records in evidence indicated that the required Air Off temperature was not being achieved.

129    The evidence indicates that much of the testing was carried out at Level 13 because, until July 2014, that Level was not occupied and both Kyren and Promptair had sought to minimise the disruption and inconvenience to the tenants occupying the other floors.

The Applicants’ claim

130    In the 5ASC, the Applicants claim a total of $1,074,394.50 for the cost of the remedial work as follows:

131    In addition, the Applicants claim other amounts as part of their damages claim. These are:

All of these figures are exclusive of GST.

132    This means that, putting GST to one side, the overall damages sought by Kyren in the 5ASC totalled $1,515,456.97.

The claim in debt

133    As already indicated, Kyren’s claim in debt arises pursuant to cl 14 of the Contract. That clause is concerned, amongst other things, with the consequences of default.

134    Clause 14.2 entitled Kyren, as the Main Contractor, to give a written notice to Promptair “under cl 14.4” in a range of circumstances in which Promptair was in default. Relevantly, those circumstances included:

(e)    [Promptair’s failure] to use the materials or standards of workmanship required by the Contract;

…

(h)    [Promptair being] otherwise in substantial breach of the Contract.

135    There is some infelicity in the numbering in cl 14, as it is apparent that the notice which cl 14.2 contemplated is, in fact, a notice under cl 14.3. That clause provided:

14.3    Contents of Notice of Default to Subcontractor

A notice under this clause 14.4 (sic) must be in writing and must state:

  (a)    that it is a notice under clause 14.4 (sic);

  (b)    the breach relied upon; and

(c)    that the Main Contractor requires the Subcontractor to remedy the breach within 14 days of receiving the notice.

136    Clauses 14.4, 14.5 and 14.6 provided for the situation when Promptair failed to remedy the notified breach:

14.4    Consequence of the failure of the Subcontractor to remedy the breach

If the Subcontractor fails to remedy the breach the Main Contractor may by written notice to the Subcontractor:

(a)    Take out of the Subcontractor’s hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to 14.6; or

  (b)    Terminate the Contract.

14.5    Removal of work from the Subcontractor’s hands

The Main Contractor shall complete the work taken out of the Subcontractor’s hands and may:

(a)    use materials, equipment and other things intended for the Contract; and

(b)    without payment of compensation to the Subcontractor;

(i)    take possession of, and use such of the construction plant and other things on or in the vicinity of the site as were used by the Subcontractor; and

(ii)    contract with such of the subsubcontractor’s and Subcontractor’s consultants;

as are reasonably required by the Main Contractor to facilitate completion of the Contract.

If the Main Contractor takes possession of construction plant or other things, the Main Contractor shall maintain them and, subject to subclause 14.6, on completion of work, shall return such of them as are surplus.

The Contract Administrator shall keep records of the cost of completing the work.

14.6    Adjustment on completion of work taken out

When work taken out of the Subcontractor’s hands has been completed, the Contract Administrator shall assess the cost thereby incurred and shall certify as monies due and payable accordingly the difference between that cost (showing calculations therefore) and the amount which would otherwise have been paid to the Subcontractor if the work had been completed by the Subcontractor.

If the Subcontractor is indebted to the Main Contractor, the Main Contractor may retain construction plant or other things taken under subclause 14.5 until the debt is satisfied. If after reasonable notice, the Subcontractor fails to pay the debt, the Main Contractor may sell the construction plant or other things and apply the proceeds to the satisfaction of the debt and the costs of the sale. Any excess shall be paid to the Subcontractor.

137    In summary, cl 14.4 authorised Kyren to take the remaining work out of Promptair’s hands if Promptair failed to remedy the notified breach. Clause 14.5 then enabled Kyren to complete Promptair’s work, and cl 14.6 provided that Kyren could recover from Promptair the additional costs incurred in doing so. The amount certified by the Contract Administrator in this respect would then become a debt due to Kyren.

138    As already recorded, Kyren gave Promptair a Notice of Default on 5 September 2014 and on 2 October 2014 removed the work from Promptair’s hands. On 5 February 2015, Mr Kotzias sent to Promptair a certificate he had issued under cl 14.6 of the Contract stating that the sum of $1,074,394.60 was payable by Promptair in respect of the work taken out of its hands. Mr Kotzias also sent a tax invoice for that amount and a payment statement under cl 12.7 of the Contract. A later certificate amended (and increased) the claimed sum but the parties have resolved the Applicants’ claim in respect of the additional amount. On 19 February 2015, Promptair notified Kyren of its own claim for payment of an additional $742,806.30.

139    As noted earlier, on 19 September 2014, MinterEllison had contended that the Notice of Default issued on 5 September was invalid. Promptair then contended at the hearing that the invalidity in the Notice of Default “tainted” all that followed and, in particular, the removal of the work from its hands with the consequence that Mr Kotzias’ certificate of 5 February 2015 did not create the debt on which Kyren sues.

The content of the Notice of Default

140    By the Notice of Default, Kyren asserted that Promptair was in breach of cll 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a)(ii), 9.1(b) and 9.1(c) of the Contract. It then identified 11 respects in which Promptair was said to be in breach. Some of these included multiple sub-breaches. Those which are relevant for present purposes are Promptair’s failure to install Fläktwood AHUs, and the non-compliance with cll 2.4 and 6.2 of the First Specification.

141    Clause 8 of the Notice then contained a statement of the requirement made of Promptair. It has been set out earlier in these reasons.

142    The remedial work specification of Lucid dated 1 September 2014 to which cl 8 referred is the Third Specification.

143    By cl 9 of the Notice, Kyren said that it would supply the AHUs as per an attached quotation from Temperzone.

144    The remaining clauses contained a reservation of Kyren’s rights (cl 10), made time of the essence (cl 11), and indicated that in the absence of a written acknowledgement as required by cl 8, Kyren would exercise its rights under cl 14.4 (cl 12). As already noted, cl 13 provided:

Upon providing the written acknowledgement referred to in paragraph 8 above you are directed to strictly comply with and undertake each of the tasks identified in Attachment 4 at the times specified in Attachment 5 and as nominated in 8.3 above.

145    The Notice of Default did not indicate the subclauses within cl 14.2 upon which Kyren relied but they appear to have been subcll (e) and (h) set out earlier in these reasons.

146    Promptair claimed that the Notice of Default was invalid because:

(a)    the Temperzone AHUs prescribed by the Third Specification were not the same as, or equivalent to, the AHUs approved under the First Specification;

(b)    not all of the installed AHUs were performing below the standard required by the First Specification; and

(c)    the Notice of Default assumed incorrectly that Kyren had the right to direct Promptair to install AHUs supplied by Kyren itself.

147    It is convenient to consider Promptair’s contentions concerning its compliance with the Contract when considering Kyren’s claims for breach of contract. I indicate now, however, that I am satisfied that Kyren has made good some of its pleaded claims of breach of contract and that it was appropriate for it to proceed on the basis that all of the installed AHUs needed replacement. That means that the second of the above bases would fail.

148    However, Promptair’s complaint that the Notice of Default proceeded on the basis that Kyren had the right to direct it to install AHUs supplied by Kyren itself has more substance. By cl 14 of the Contract, Kyren was entitled to give Promptair notice of a breach by it and to require it “to remedy the breach”. That is to say, Kyren was entitled by cl 14 to require Promptair to do that which it had failed to do in the proper performance of the Contract.

149    The Contract had not required Promptair to install AHUs supplied by Kyren. Instead, the Contract required it to supply and install the AHUs itself. It was Promptair which was to negotiate and contract with the supplier of the approved AHUs. It thereby had some control over the terms on which the AHUs were acquired. Put slightly differently, Promptair’s Contract with Kyren was in the nature of a supply and install contract, and not a labour only contract.

150    Further, the Contract did not contain any requirement for Promptair to reimburse Kyren for the cost associated with the supply of the AHUs, as cl 8.1 of the Notice contemplated.

151    Accordingly, in my view, the Notice of Default of 5 September 2014 contained a requirement of Promptair which Kyren was not entitled to impose. In that respect, the Notice was unauthorised by the Contract and ineffective: GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1 at [626]-[627].

152    The requirement that Promptair install the AHUs supplied by Kyren was an essential part of the requirement sought to be imposed by the Notice of Default. Kyren did not submit that that requirement could be severed. In my view, severance would not be practical.

153    Accordingly, I conclude that the Notice of Default was not a valid notice for the purposes of cl 14 of the Contract. That being so, Promptair’s failure to comply with it could not trigger the sequence of events giving rise to a debt pursuant to cl 14.6. Accordingly, Kyren’s claim in debt fails.

Promptair’s Variation submission

154    It is convenient to refer at this point to Promptair’s submission that the Third Specification attached to the Notice of Default constituted a Variation to which cl 16.1 of the Contract referred. This was so, Promptair submitted, because the Notice required it “to supply and install AHUs of significantly greater capacity than originally specified and which in other respects could not satisfy the performance and construction criteria prescribed in the First Specification (namely, greater fin density, higher airside pressure drop and lower maximum face velocity)”.

155    Promptair accepted that the Third Specification was not a Variation within the meaning of cl 11 of the Contract. It relied only on cl 16.1 which provides:

[16.1]    Notice of variation

If a Direction by the Contract Administrator, other than a “Variation Order” under clause 11.2, constitutes or involves a Variation, the Subcontractor must, if it wishes to make a Claim against the Main Contractor arising out of, or in any way in connection with, the Direction:

(a)    within the time specified in the Contract Particulars of receiving the Direction and before commencing work on the subject matter of the Direction, give notice to the Contract Administrator that it considers the Direction constitutes or involves a Variation;

(b)    within the time specified in the Contract Particulars of giving the notice under paragraph (a), submit a written claim to the Contract Administrator which includes the details required by clause 16.3(b); and

(c)    continue to carry out the Subcontractor’s Activities in accordance with the Contract and all Directions of the Contract Administrator, including any Direction in respect of which notice has been given under this clause 16.1.

156    The Seventh Amended Defence of Promptair contains three pleas concerning the character of the Third Specification as a Variation to which cl 16.1 applies, namely, in [39.3], [39.4] and [52.2.3]. The pleas in [39.3] and [39.4] were made in answer to [39] of the 5ASC in which the Applicants alleged:

Kyren has suffered loss and damage by reason of PromptAir’s misleading and deceptive conduct as it was obliged to carry out remedial work as pleaded in paragraph 58 below to replace the air handling units.

157    In answer to that allegation, Promptair pleaded in [39.3] and [39.4] that the work undertaken in accordance with the Third Specification constituted “a substantial departure from the original Specification” and that it should have been treated by Mr Kotzias, as Contract Administrator, “as a variation of the work to be undertaken by [Promptair], and should have been paid for as such”.

158    In [52] of the Seventh Amended Defence, Promptair alleged that the Notice of Default was not valid because, amongst other things, it had directed it to undertake to do work “which in fact constituted a variation to the Contract, and without any right to payment or reimbursement therefor”.

159    As is apparent from its terms, the subject matter of cl 16.1 is the provision of timely notice by Promptair, if it wished to make a claim on the basis that a direction constituted or involved a variation.

160    I did not understand the Applicants to dispute that the MinterEllison letters of 12 and 19 September 2014 addressed to Mr Shubin constituted notices of the kind required by cll 16.1(a) and (b).

161    However, the giving of the notices did not entitle Promptair to the payment it claimed. It was just a condition precedent to the making of the claim: Leighton Contractors Pty Ltd v South Australian Superannuation Fund Investment Trust [1995] SASC 5006.

162    Promptair discontinued its cross-claim against Kyren by which it sought relief in respect of the claimed Variation. Accordingly, subject to the issue arising from [52.2.3] of the Seventh Amended Defence, it is not apparent that the matter requires determination by the Court.

163    Further, if Promptair had regarded the Third Specification as a direction under cl 16.1, then it was required by cl 16.1(c), despite its having given the required notices, to continue with the performance of its activities in accordance with the direction in the Third Specification. It did not do so. Instead, Promptair sought amendments to cl 8 of the Notice of Default which would have introduced new terms and altered significantly the basis on which it was to comply with the direction. Promptair thereby acted inconsistently. On the view advanced in this submission, Promptair should have complied with the direction and, if so advised, brought a claim subsequently.

164    Promptair’s submission that the requirement in the Third Specification that it perform work amounting to a Variation had the effect of invalidating the Notice of Default appears to face a fundamental difficulty. That is that cl 16.1 itself contemplated the circumstance in which the Contract Administrator gave a direction, other than a Variation Order, constituting or involving a variation. It prescribed the course to be followed in that event, which did not contemplate the invalidity of the direction. Accordingly, it is not readily apparent how the giving of such a direction amounting to a variation could invalidate the Notice of Default. However, it is not necessary to express a concluded view about this given that, for different reasons, I have found the Notice of Default to be ineffective.

The claim for breach of contract

165    The breach of contract claim can be brought only by Kyren, as it was the entity which had contracted with Promptair.

166    It was not suggested that the ineffectiveness of the Notice of Default precluded Kyren from seeking damages for breach of contract. A claim to that effect would have been difficult given the terms of cl 14.1 of the Contract.

167    Kyren’s pleading of its claim of breach contract was somewhat curious in that it did not plead directly the breaches on which it relied. Instead, it pleaded in the 5ASC at [52] and [53] that it had, on 5 September 2014, issued a Notice of Default to Promptair pursuant to cl 14 of the Contract which had identified breaches of cll 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a)(ii), 9.1(b) and 9.1(c) of the Contract and that the Notice of Default had required Promptair to remedy the breaches in a specified manner.

168    Kyren then pleaded in the 5ASC at [54] that the Notice of Default had asserted breaches of these clauses by reason of three matters:

[54.1]    A breach of clauses 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a), 9.1(b) and 9.1(c) of the Contract by reason of PromptAir's failure to install the approved air handling units in the Building as pleaded in paragraphs 13 to 15 above.

[54.2]    A breach of clauses 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a), 9.1(b) and 9.1 (c) of the Contract because the air handling units which PromptAir did supply

[54.2.1]    failed to comply with the performance and construction criteria set out in Clause 2.4 of the Specification as they did not meet the specified nominated cooling capacities to comply with the design criteria and supply temperatures; and

[54.2.2]    failed to comply with the ‘air-off’ coil conditions specified in Clause 6.2 of the Specification.

[54.3]    A breach of clauses 2.2(a)(ii), 2.2(a)(ix), 9.1(a) and 9.1(c) of the Contract because PromptAir installed the chilled water pipework to all cooling coils in an incorrect manner which did not provide a counter-flow arrangement as required under clause 2.4 of the Specification.

169    Next, Kyren pleaded in the 5ASC at [56] that Promptair had failed to remedy the breaches identified in the Notice of Default in the specified manner.

170    On its face, this form of pleading suggested that Kyren’s breach of contract claim was based on Promptair’s failure to comply with the Notice of Default.

171    However, the trial proceeded on the basis that Kyren was seeking damages for the breaches it alleged of the individual clauses in the manner identified in [54], and not in respect of Promptair’s failure to comply with the Notice of Default. I will determine the breach of contract claim on that basis.

172    Kyren did not pursue the claim in the 5ASC at [54.3] and it need not be considered further.

173    The provisions in the Contact on which Kyren relies are as follows:

Clause 2.2

(a)    The Subcontractor warrants that:

…

(ii)    it shall construct the Works in accordance with the information and documents supplied by the Main Contractor;

(A)    in a manner and to a quality commensurate with the purpose of the Works ; and

(B)    using materials of the nature described in the Contract or failing any specific description, the best quality available;

(iii)    all materials used in the Works will be of merchantable quality and fit for their intended purpose;

…

(ix)    the Works will be constructed such that at Completion the Works will be fit for the purpose for which the Works are intended to be used and or operated as specified or inferred from the information and documents supplied by the Main Contractor;

…

Clause 9.1

The Subcontractor must in carrying out the Subcontractor’s Activities:

(a)    use workmanship:

(i)    of:

   (A)    the standard prescribed in the Contract; or

(B)    to the extent it is not so prescribed, a standard consistent with the best industry standards for work of a nature similar to the Works and which is at least to the same standard as that found in the development referred to in the Contract Particulars; and

(ii)    which is fit for its purpose;

(b)    use materials:

(i)    which:

   (A)    comply with the requirements of the Contract; or

(B)    if not fully described in the Contract, are new and consistent with the best industry standards for work of a nature similar to the Works and which are at least to the same standard as those found in the development referred to in the Contact Particulars; and

(ii)    of merchantable quality, which are fit for their purpose and consistent with the nature and character of the Works; and

(c)    comply with the requirements of the Contract and, to the extent they are not inconsistent, the requirements of the Building Code of Australia and all relevant standards of Standards Australia.

5ASC [54.1]: Installing non-approved AHUs

174    Kyren’s first claim is that Promptair breached each of cll 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a), 9.1(b) and 9.1(c) in that it did not install the AHUs approved by Lucid.

175    Clause 2.2(a) required Promptair to carry out its works “using materials of the nature described in the Contract”. Clause 9.1(b) contained an express stipulation that Promptair use materials which “comply with the requirements of the Contract”. Clause 9.1(c) also required Promptair to “comply with the requirements of the Contract”.

176    As noted earlier in these reasons, cl 1.6 of the First Specification imposed an express obligation on Promptair to “obtain approval for … the manufacturer and type of all materials and equipment”. To similar effect, cl 2.1 of the Specification included:

Identical equipment to that approved by the consulting engineer must be installed on site. Equipment will only be considered “equal approved” if it has been approved by the consulting engineer. Approval of equipment does not override the requirement to comply with the requirements of the specification.

(Emphasis added)

177    The effect of these clauses was that Promptair could only install equipment, including the AHUs, which had been approved by Lucid. It could supply substitute equipment only if it had also been approved.

178    The conclusion that the ESAC AHUs installed by Promptair had not been approved by Kyren (by Lucid) and that Promptair did not install the approved Fläktwood AHUs is inescapable. So also is the conclusion that the installation of non-approved AHUs constituted a breach of cll 2.2(a)(ii), 9.1(b) and 9.1(c).

179    Promptair acknowledged in its opening submissions that, before March 2013, it had not provided any information to Lucid indicating that the technical data it had provided was for ESAC AHUs and not for Fläktwood AHUs. I infer that Promptair referred to March 2013 in this acknowledgement because some of the results of the testing of the installed AHUs provided by Promptair at that time included the ESAC name. However, that fact was not drawn to Lucid’s attention and it did not advert to the inclusion of the name. Mr Stanton, who was responsible for reviewing the test results, said that he had not noticed the name “ESAC” on the documents containing the results. That evidence was not challenged and I accept it. It is understandable that Mr Stanton’s focus at the time was on the data contained in the test results rather than on the more formal parts of the documents.

180    Promptair also acknowledged in its opening submissions that an express statement that the AHUs had been manufactured by ESAC was not made to Lucid until April 2014.

181    Promptair submitted, nevertheless, that Kyren’s concentration in the proceedings on the brand of the AHUs was “an artifice”. It submitted that it is a matter on which Kyren has seized as part of a “rationalisation for the failure of Lucid (and therefore Kyren) to properly specify AHUs that were capable of delivering 10°C air off temperature”.

182    I do not accept that submission. The terms of cll 1.6 and 2.1 of the First Specification indicate that Kyren’s approval of the manufacturer of the equipment to be installed was an important element of the Contract. Mr Samaras said that it had been important to him that items such as the AHUs come from a reputable supplier, such as GJ Walker or Carrier. He also said that, had Lucid told him that Promptair wished to supply ESAC AHUs, he would have sought further information regarding ESAC and, in particular, would have sought assurances from Lucid regarding the quality of its equipment. This evidence as to his thinking at the time is inconsistent with him having recently seized on the importance of the identity of the manufacturer simply because it suits Kyren’s purposes in its dispute with Promptair.

183    On this topic, it is also appropriate to note the evidence of Mr Maynard, an experienced Systems Engineer called by Kyren. Mr Maynard was asked this question:

If you were the consulting engineer for the project, and you were provided with technical and construction data which nominated equipment manufactured by the Egyptian Swedish Air Conditioning Company (“ESAC”) as part of the Varied AHU Specification, would you have accepted ESAC as a reputable manufacturer, or would you have made enquiries into their manufacturing, testing, quality control processes or any other processes, and if so what, before considering whether to approve equipment from that manufacturer?

184    To that question, Mr Maynard gave the following answer:

Based on my experience, if alternate manufacturers were provided that was unknown to me (as the consulting engineer for the project), further information would be requested to validate the performance criteria of the equipment. My specifications will often be performance based, however would include a brand to indicate the level of quality and reliability that has been proven on a number of projects (or equal approved).

Egyptian Swedish Air Conditioning Company (ESAC) is unknown to me and it is likely that this brand would have been rejected outright given there was no track record for a project of this magnitude to my knowledge.

In order to accept such a divergence from the specified brands, I would require validated technical data, NATA certification or similar, and complete technical data, maintenance requirements and quality assurance procedures and a list of projects where the equipment has been successfully utilised throughout Australia and worldwide.

Following the above, if this was the first job, whilst unlikely, I would demand some level of performance and or financial guarantee through the contractor and manufacturer that these units would perform as offered.

185    Dr Bellstedt, the Engineer called by Promptair, said that he was in “full agreement” with this opinion of Mr Maynard. I understand both Engineers to be expressing an opinion about the way in which the ordinarily careful and competent engineer would have proceeded.

186    It is understandable that Kyren would have been concerned that the equipment which was to be installed would not only satisfy the specified performance criteria but would also be sound and reliable. Using equipment manufactured by well-regarded and reputable manufacturers was one way by which it could ensure that that was so. Kyren indicated as much by nominating the manufacturers GJ Walker and Carrier in the First Specification – I infer that that nomination also formed part of the specification issued to Promptair for tender purposes. I accept the evidence of Mr Samaras and Mr Kotzias about the importance to them of the identity of the manufacturer and that they wished to have installed AHUs of a brand they (by Lucid) approved which satisfied the required performance criteria.

187    Next, Promptair submitted that the inconsistency in the First Specification meant that it had prescribed the “impossible” and that its (Promptair’s) failure to achieve the impossible should not be regarded as a breach of contract. That submission cannot be accepted, at least in relation to the first alleged breach.

188    First, Promptair had installed AHUs for which it had not been given approval. That is the gist of Kyren’s first claim of breach of contract. The alleged impossibility of performance does not alter that circumstance.

189    Secondly, and in any event, Promptair and Lucid had recognised the inconsistency during the approval process. As counsel for Promptair submitted, the inconsistency in the First Specification could be resolved in one of two ways: by increasing the specified Air Off temperature for the AHUs (which would reduce the cooling effect they could produce) or by increasing the capacity of the AHUs. In the events which happened, Mr Stanton approved AHUs with greater capacity. Promptair did not seek any increase in the Contract price on that account. If Promptair had wished to resolve the inconsistency by supplying units of greater capacity, but could do so only at greater cost than it had contemplated at the time of tender, it could have sought a Variation in price pursuant to cl 11 of the Contract. Alternatively, Promptair could have sought a Variation increasing the permitted Air Off temperature. By either of these courses, Promptair could have availed itself of the mechanism for which the Contract provided for resolving the inconsistency.

190    Promptair adopted the course of seeking approval for AHUs with greater capacity. It did so by seeking approval for Fläktwood AHUs but, in support, submitted technical data for a different (and non-compliant) brand of AHUs.

191    Both Mr Samaras and Mr Kotzias said that, if Promptair had sought a Variation by way of increase in the Contract price so as to supply AHUs of greater capacity because that was the only way to overcome the inconsistency in the First Specification, Kyren was likely to have approved the variation pursuant to Section 11 of the Contract. It is appropriate to exercise caution with evidence of this kind as it involves the witnesses saying what they would have done in a hypothetical circumstance and in which the temptation to give self-serving evidence is patent. However, I accept the evidence. It was not challenged, I consider it to be plausible, and it appears to be consistent with the generally reasonable manner in which Kyren conducted itself once the difficulties emerged.

192    I conclude therefore, that Kyren has established the first of the pleaded breaches of contract by establishing breaches of cll 2(a)(ii), 9.1(b) and 9.1(c). It is accordingly unnecessary to refer to the remaining contractual provisions said to have been breached by Promptair’s installation of non-approved AHUs.

5ASC [54.2]: Non-compliance with the specified cooling capacities

193    The second breach of contract which Kyren alleges is that Promptair supplied AHUs which did not comply with the specified performance and construction criteria. The form of this breach originally pleaded by the Applicants was as follows:

[54.2]    A breach of clauses 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a), 9.1(b) and 9.1(c) of the Contract because the air handling units which PromptAir did supply failed to comply with the performance and construction criteria set out in Clause 2.4 of the Specification as they did not meet the specified nominated cooling capacities to comply with the design criteria and supply temperatures and in particular the ‘air-off’ coil conditions specified in Clause 6.2 of the Specification.

194    However, at the conclusion of the closing submissions, the Applicants sought, and were granted, leave to amend [54.2] so as to read as follows:

[54.2]    A breach of clauses 2.2(a)(ii), 2.2(a)(iii), 2.2(a)(ix), 9.1(a), 9.1(b) and 9.1(c) of the Contract because the air handling units which PromptAir did supply:-

[54.2.1]    failed to comply with the performance and construction criteria set out in Clause 2.4 of the Specification as they did not meet the specified nominated cooling capacities to comply with the design criteria and supply temperatures; and

[54.2.2]    failed to comply with the ‘air-off’ coil conditions specified in Clause 6.2 of the Specification.

195    The effect of the amendment was to make it clear that the Applicants alleged separately a breach of the Contract by reason of Promptair’s failure to comply with the “performance and construction criteria” set out in cl 2.4 of the First Specification (because the ESAC AHUs did not meet the specified nominated cooling capacities) and a breach because the ESAC AHUs failed to comply with the “air-off” coil requirement specified in cl 6.2 of the First Specification.

196    Promptair raised a number of issues by way of defence to these claims:

(a)    that the Air Off criterion of 10°C appeared in the First Specification only in cl 6.2 and accordingly was not part of the performance criteria for the AHUs with which cl 2.1 required it to comply;

(b)    if that contention be wrong, the inconsistency between the performance criteria specified in cll 2.4 and 6.2 meant that the required criteria were incapable of achievement;

(c)    Kyren had not proven in any event that all the installed AHUs did not achieve an Air Off temperature of 10°C; and

(d)    even if Kyren had proved (c), that did not have the consequence that the AHUs were not fit for purpose in the sense that that expression is used in the First Specification.

197    I will address these issues in turn.

The requirement for an Air Off temperature of 10 degrees C

198    It is important to note that the allegation in [54.2.1] is that Promptair supplied AHUs which failed to comply with the “performance and construction criteria” set out in cl 2.4. The particulars of the allegation are that the AHUs did not meet “the specified nominated cooling capacities” so as to comply with “the design criteria and supply temperatures”.

199    Promptair is correct in submitting that the 10°C Air Off temperature requirement is contained only in cl 6.2 of the First Specification. Its submission that this requirement did not form part of the cl 2.4 “performance and construction” criteria rested on a number of matters.

200    First, the First Specification is divided into Sections. Each Section has its own focus, with some directed to particular aspects of Promptair’s work and others applying to its work more generally.

201    Section 2, with the heading “Equipment” is, with the exception of cl 2.1, directed to 18 specific items of equipment. Clause 2.4 concerns one of those items, namely, the AHUs. Section 6, on the other hand deals with a different subject matter, namely, “Automatic Controls”. Promptair also noted that a focus of cl 2 is on performance criteria. These two matters made it natural to conclude, Promptair submitted, that it is Section 2, and in particular, cl 2.4, which contain the performance and construction criteria for the AHUs and not Section 6.

202    Secondly, Promptair emphasised two passages in cl 2.1, each of which had the heading “Minimum Performance Requirements”. Under the first of these headings, the First Specification stated:

The Contractor shall be fully responsible for the selection of plant to achieve the performance specified below. The Contractor shall guarantee the performance of all the systems installed under this contract.

(Emphasis added)

It then specified that the selected plant had to be capable of continuous reliable operation within the temperature range of 0°C-46°C, as well as satisfying other criteria.

203    Under the second heading “Minimum Performance Requirements”, the First Specification stated:

Air conditioning system capacities have been calculated to achieve the minimum performance requirements specified below: ...

(Emphasis added)

204    Clause 2.1 then specified the maximum and minimum internal temperatures which the air conditioning system was expected to achieve when the external ambient temperature was as high as 38°C and as low as 6°C. Promptair submitted that the location of the maximum and minimum internal temperatures which the air conditioning system was expected to be able to achieve in the specified range of external temperatures suggested naturally that these were the performance requirements to which cl 2.1 referred, rather than requirements in a different Section of the First Specification altogether.

205    Thirdly, Promptair noted that the term “performance and construction criteria” used in the 5ASC at [54.2.1] appears to be derived from cl 2.4. Under the heading “Air Handling Units”, that clause stated that Promptair was to supply and install AHUs of manufacture “GJ Walker” or “Carrier” or equal approved, complying with “the following performance and construction criteria”. There then followed criteria for the fans, fan motors and drives, coils, casings and for the AHUs themselves. Further still, the requirements for each of the 48 AHUs were specified under the heading “Performance criteria”. This was done in an apparently exhaustive fashion.

206    Fourthly, Promptair noted the subject matter of Section 6. It has the heading “Automatic Controls”. The opening paragraph of cl 6.1 supports the impression that its subject matter is the provision of appropriate controls:

Supply and install all automatic controls necessary to achieve the specified control functions and for the safe and satisfactory operation of the mechanical services systems described in this specification. Include all ancillary equipment as necessary to provide a complete operating system designed for safe, correct and efficient operation of the plant.

207    Having regard to these matters, Promptair submitted that, on the proper construction of the First Specification, it is Section 2 in the First Specification which specifies the performance and construction criteria for the AHUs, and not Section 6. Accordingly, the provision of AHUs satisfying the performance criteria in cll 2.1 and 2.4 was sufficient compliance with the “performance and construction criteria” in the First Specification. The fact that the prescribed criteria could not produce the Air Off temperature of 10°C was not a breach of those requirements and, therefore, not a breach of the Contract.

208    The First Specification, being a contractual document is to be read as a whole, and so far as possible, so that its separate parts are given a harmonious operation. It should also be given a business-like construction, having regard to the language used in it, the surrounding circumstances and its commercial purpose: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35]. The Court should construe the First Specification on the assumption that the parties intended to produce a commercial result.

209    Construing the First Specification in this way means, in my opinion, that the specification of the Air Off temperature in cl 6.2 of the Specification cannot reasonably be regarded as part of “the performance and construction criteria set out in Clause 2.4” of the First Specification to which [54.2.1] of the 5ASC refers. It is natural to understand the term “the following performance and construction criteria” in cl 2.4 as referring to those criteria which immediately follow. The circumstance that the First Specification also contained performance criteria in other Sections does not have the consequence that some different construction should be applied. The pleading in [54.2.1] refers only to the criteria set out in cl 2.4 and they do not include those in cl 6.2.

210    Accordingly, the Applicants do not establish the contractual breaches pleaded in the 5ASC at [54.2.1].

211    However, the Applicants do establish the breach of contract alleged in the 5ASC at [54.2.2]. The evidence establishes that the AHUs supplied by Promptair did not achieve the design of “supply air temperature of 10°C”. I refer to my earlier findings on this topic. On an objective reading of the First Specification, this was one of the criteria which the AHUs had to satisfy. Although the subjective understanding of Mr Stanton and Mr Upton in August and September 2011 is not of course determinative of the way in which the First Specification is to be understood, I note that each construed the First Specification in the manner which I consider to be appropriate.

212    Promptair’s supply of AHUs which did not satisfy the cl 6.2 requirement meant that it breached, at the least, cll 2.2(a)(ii)(A), 9.1(b) and 9.1(c).

The inconsistency

213    Promptair’s next submission in answer to the 5ASC at [54.2], was based on the inconsistency between the performance criteria specified in cll 2.4 and 6.2. It submitted that this meant that the specified criteria were incapable of being achieved.

214    That submission could be accepted only if the performance criteria specified in cl 2.4 are understood as the criteria which must actually be achieved, rather than being as specification of maxima or minima, as the case may be. The second paragraph in cl 2.1 of the First Specification makes it apparent that, unless the context indicated otherwise, Section 2 specifies minima:

In particular, the capacities and outputs of the various items of installed equipment shall be not less than those specified and the Contractor shall balance air quantities and make all necessary adjustments to the plant to satisfy the Consulting Engineer that the installation meets the requirements of this specification.

(Emphasis added)

215    In any event, Mr Stanton had approved AHUs of greater capacity so that Promptair could achieve the required Air Off temperatures.

216    Further, as already indicated, had Promptair considered that it could comply with the Air Off requirement in cl 6.2 only by providing AHUs with greater capacity than contemplated by cl 2.4, and thereby at greater expense than it had contemplated at the time of its tender, it could have sought a Variation. As already indicated, it is likely that such a Variation would have been granted.

217    This basis for defence of the claim in the 5ASC at [54.2] fails.

Were all the installed AHUs non-compliant?

218    Promptair submitted that the decision to replace all the AHUs was made on the basis of the test of one unit on one Level, namely, AHU13-1.

219    It submitted that this was inappropriate because, as noted earlier, the performance criteria for the AHUs were not uniform at all zones and at all Levels in the building. The submission, as I understood it, was that this made it unsound to rely on the performance of the Level 13 AHUs when making decisions with respect to the replacement of all AHUs.

220    I do not accept this submission. The parties had themselves selected the Level 13 AHUs for test purposes. There was no suggestion at that time that Level 13 was inappropriate for this purpose, or that testing at other Levels should be carried out. Testing of every AHU was probably impractical. Further, there were advantages in having AHUs of the same brand and type in all zones at all Levels. This is what the First Specification had required.

221    The appropriateness of the Applicants’ decision to replace all 48 AHUs was a matter about which Mr Caleo and Mr Bellstedt, the respective expert Engineers called by the Applicants and Promptair, were agreed. Mr Caleo was asked for his opinion on the following questions:

[5]    [W]as it acceptable to test two AHUs (namely AHUs 13-1 and 13-2) to determine performance when:-

[5.1]    all air handling units in the building were supposed to be of the same or very similar construction; and

[5.2]    when the same temperature issues arose across all floors in a partially occupied building?

222    Mr Caleo gave the following response to these questions:

[5.1]    The performance criteria is consistent across the majority of the AHUs and therefore testing two (2) AHUs to determine whether the AHU’s met specification requirements is acceptable for the following reasons

•    Extensive testing and modifications had been undertaken over 2013 and 2014.

•    The issues were consistent across all AHUs

•    The units were of the same manufacture and fabrication standard

•    It is noted that Promptair were satisfied that the results from testing AHU’s 13-1 and 13-2 were applicable to all units by agreement to undertake upgrades to all AHU’s. I cannot see evidence that Promptair suggested testing other units.

[5.2]    My response to 5.1 is applicable here. The decision to replace all units was only made once onerous and extensive testing has been undertaken. After several attempts at rectification; i.e; fan replacement, coil replacement, air path adjustment; etc, it [was] very obvious that the AHU’s could not meet the specification requirements. Promptair had conceded on a number of occasions that the units did not meet their contract requirements. Kyren in my opinion had been very patient and had given Promptair sufficient time to verify that the AHU’s could meet the contract requirements.

I cannot see evidence that Promptair offered an alternate solution when requested to replace the AHU’s and therefore had also conceded that the units needed to be replaced.

223    Subject to one matter, Mr Bellstedt said that he agreed with this response of Mr Caleo. Mr Bellstedt’s qualification was that he considered that “some [of the ESAC] AHUs were providing adequate conditions on certain days”. In my view, this qualification served only to reinforce the appropriateness of replacing all the AHUs: Kyren was entitled to have all of the AHUs meeting the required performance standards on all of the days within the specified temperature extremes.

224    I conclude therefore that the Applicants have proven that the installed AHUs were non-compliant and that the decision to replace all of them was reasonable.

Were the AHUs fit for purpose?

225    This submission can be dealt with quite shortly. I referred earlier to Mr Stanton’s evidence concerning the importance of the Air Off requirement of 10°C to the Building’s achievement of a “Green Star Design Rating” and a “5 Star NABERS Rating”, both being markers of its high energy efficiency. The adequacy of the performance of the AHUs should be assessed having regard to that purpose.

226    Mr Maynard confirmed that it was the inability of the installed AHUs to achieve Air Off temperatures of 10°C which resulted in the required internal temperatures not being achieved. He also confirmed that the AHUs were not fit for purpose.

227    The inadequate performance of the AHUs had been apparent for more than 18 months before they were replaced. The AHUs were not producing the air conditioning effects which the technical data had suggested. That was probably because that data did not relate to the AHUs which were actually concerned. More particularly, it seems that the coils were inadequate for the purpose. The Applicants had received numerous complaints from some of the building tenants, although I accept that these seem in the main to have been from the tenants at the upper Levels in the building.

228    As I have indicated, Mr Bellstedt’s evidence that some of the AHUs were providing adequate air conditioning only on certain days reinforces the conclusion that the AHUs were not fit for purpose.

The Applicants’ Variation submission

229    In the final submissions, the Applicants advanced a submission based on a passage in cl 1.1 of the First Specification, which provides:

Variations to the Scope

Instructions may be issued throughout the project which may later the scope of works. Any aspects of any such works which are not specifically mentioned in any instruction are to comply with this specification.

Any claims for any additional costs or credits for any such variations must be submitted with a complete breakdown of costs including quantities and rates for all labour, materials and equipment. Variation Claims submitted without breakdowns will be rejected.

230    Counsel submitted that Mr Stanton’s communication to Mr Upton on 23 August 2011, together with his notation on the Carrier data supplied by Mr Upton, constituted an “instruction” within the meaning of this passage. The instruction had the effect, so the submission ran, of an alteration to the scope of works, so that from then on, it was not necessary for Promptair to comply with the total and sensible cooling capacities and the associated water flow requirements contained in the First Specification.

231    First, one would naturally have expected such a matter going to the very obligations of Promptair under the Contract to have been pleaded. It had not. Counsel could point only to [3.12] in the Applicants’ Reply which pleaded that, in his email to Promptair on 23 August 2011, Mr Stanton had “advised” it, inter alia, that “all coil air off temps are required to be 10 deg C”. That cannot reasonably be regarded as a plea of an instruction varying the scope or the work under the Contract. If Mr Stanton had wished to issue an instruction (assuming that he had authority to do so), it would be expected that he would have used language which was appropriate to that end.

232    Secondly, counsel for Promptair acknowledged that his submission was the first occasion in the trial when the suggested instruction had been mentioned. It had not been opined on, nor any witness questioned about it.

233    Counsel sought (initially at least) to avoid these difficulties by a submission that Promptair’s conduct indicated that it had regarded the communication as an instruction amounting to a Variation. It is not altogether clear whether counsel did persist with that submission but, to the extent that he did, it is untenable. All of the conduct of Promptair to which counsel pointed is, at the least, consistent with action by Promptair to fulfil the express terms of the First Specification. Further, and in any event, the 5ASC did not contain any allegation than an instruction, which was to be inferred from conduct, had been given.

234    For these reasons, the Applicants’ submission concerning Variation to the content of the First Specification is rejected.

Conclusion on breach of contract

235    I conclude that Promptair’s failure to comply with the Air Off condition specified in cl 6.2 constituted a breach of cll 2.2(a)(ii)(A), 9.1(b) and 9.1(c) of the Contract as alleged in [54.2.2] of the 5ASC. For the reasons given earlier, Kyren has also established the breach alleged in [54.1] of the 5ASC. Subject to the matters to be addressed next, Kyren is entitled to damages for those breaches.

Damages for breach of contract

236    The fundamental principle is that Kyren is entitled to be put in the same position as if the Contract had been performed, so far as an award of damages can achieve that effect. Kyren claims the sum of $1,515,456.97 for this purpose, calculated in the manner set out earlier in these reasons. It seeks that sum by way of common law damages.

237    I note at the outset that, subject to some matters to be mentioned shortly, Promptair did not dispute the quantification of the three items making up the total of $1,074,394.50 which is the first component in Kyren’s damages claim. It did dispute the remaining items. In these circumstances, it is convenient to address Kyren’s claim for common law damages by reference to the matters which Promptair raised in answer to it.

Clause 12.7

238    Promptair’s closing submissions assumed that Kyren also sought damages pursuant to cl 12.7 of the Contract. It made a number of submissions concerning an assessment of damages pursuant to cl 12.7.

239    Clause 12.7 is concerned in the main with the issue of payment statements by Kyren to Promptair in respect of payments to which the latter was entitled. However, it included the following sub-clause providing for payments by Promptair to Kyren:

In addition the Contract Administrator may, at any time, issue a payment statement of the amount then payable by the Subcontractor to the Main Contractor on account of any credit due in the Main Contractor’s favour in respect of the Contract Price and the same shall be due and payable within the period stated in the Contract Particulars for clause 12.8.

240    In my view, although this subclause provides for payments by Promptair to Kyren, it is not concerned at all with the topic of damages for breach of contract. Instead, as the clause itself indicates, it is concerned only with amounts due to Kyren by way of “credit … in respect of the Contract Price”. A claim for damages cannot be characterised in that way.

241    Accordingly, cl 12.7 is not applicable presently. That being so, I do not propose to address Promptair’s submissions concerning the topic of “contractual damages pursuant to clause 12.7 of the Contract”.

The position had Promptair performed the Contract

242    The fundamental principle underpinning the assessment of damages for breach of contract makes it necessary to determine what the position would have been had the Contract been performed.

243    On my findings, had Lucid been informed that the technical data submitted by Mr Upton on 14 and 20 September 2011 did not relate to Fläktwood AHUs but instead to ESAC AHUs, it would not have approved the AHUs without further enquiry. Further, Kyren would not have approved those AHUs without assurance as to their reliability and performance. Given that ESAC did not have an established reputation in the market and the events which happened, it is improbable that the further enquiries would have resulted in the necessary assurances.

244    It is but a short step to conclude (and I do) that the ESAC AHUs would not have been installed.

245    The question is then to ascertain the AHUs which Promptair would have installed had it performed its obligations under the Contract. On the evidence, there are two possibilities: the Fläktwood AHUs and the Temperzone AHUs which were ultimately installed. The Carrier AHUs had been rejected as they did not satisfy the Air Off temperature requirement. The possibility that the Fläktwood AHUs would have been approved and installed can be discounted because, despite the regard in which Mr Stanton held the Fläktwood name, he had rejected its AHUs because the technical data indicated that, at least in the assemblies then proposed, they could not achieve the required Air Off temperature. Dr Bellstedt considered that the Fläktwood AHUs had been compliant, but that opinion was expressed by reference to the specified cooling capacities and not by reference to the Air Off temperature. Mr Stanton’s opinion about their non-compliance in that respect has not been shown to be wrong. Mr Stanton had sought “reselections on the coil[s]” of Fläktwood AHUs but Promptair did not provide them. Instead it provided the technical data for different AHUs. There is no evidence indicating that Fläktwood AHUs would have been able to provide coil selections satisfying the required performance criteria, let alone its price had it been able to do so.

246    In August 2014, Mr Shubin carried out the comparative analysis which lead to the selection of the Temperzone AHUs. There is evidence that Temperzone AHUs had also been available in 2011. Mr Upton had obtained an indicative price from Temperzone when preparing Promptair’s tender. In fact he told Mr Kärner that Vekavent’s indicative price was nearly 10% more than that of Temperzone. Promptair did not suggest that a selection of the kind made in August and September 2014 could not have been made three years earlier, had the matter been investigated at that time. It may also be pertinent that, when in July 2014, Promptair sought data for replacement AHUs, one of the suppliers from which it sought the data was Temperzone. In these circumstances, I consider it appropriate to proceed on the basis that, had Promptair complied with the Contract in August and September 2011, it is likely (and I so find) that it would have been appreciated then that the achievement of the Air Off 10°C requirement was possible only with AHUs of greater capacity than the ESAC units, and that Temperzone AHUs with that capacity would have been proposed.

247    Accordingly, I will proceed on the basis that damages should be assessed on the basis that, had Promptair performed its obligations under the Contract, it would have sought and obtained approval for Temperzone AHUs of the kind installed in 2014 and would have installed such AHUs.

248    The likely price of 48 Temperzone AHUs in August/September 2011 was not established on the evidence.

249    Temperzone’s price, as per its quotation of 1 September 2014 for the 48 AHUs, was $297,891 inclusive of GST. It may have been less in August and September 2011 but the evidence did not indicate that that was so. This compares with the cost of the ESAC AHUs of $167,530, inclusive of GST. The difference is $130,361. Although Promptair’s progress payment claims indicate that the amount it had allowed for the cost of the AHUs was $240,000, the evidence did not indicate the amount for this item which it had included in its tender, or the amount on which it had based the tender. For that reason, I do not consider it appropriate to base the comparison on that figure. It can be taken that, had Promptair complied with its Contract, it would have sought a Variation with respect to the additional cost and, on the basis of the findings made earlier, it is probable that Mr Samaras and Mr Kotzias would have certified a Variation for that amount.

250    Accordingly, in order that Kyren be placed in the same position as it would have been in had the Contract been performed, it should recover as part of its damages the amount it paid for the replacement AHUs, the costs associated with the removal of the non-compliant AHUs, and the costs associated with the installation, testing and commissioning of the Temperzone AHUs. As a starting point, damages assessed on this basis would be the aggregate sum of $1,074,394.50. However, the difference between the cost of the ESAC AHUs and the Temperzone AHUs ($130,361) should be deducted from this sum. Kyren should not be permitted to recover that difference from Promptair because, had the Contract been performed in the manner outlined, that is an expense which, on my findings, it would have occurred in any event.

251    The evidence indicated that the 47 non-compliant AHUs were, on their removal from the building, returned to Promptair. It was not suggested that either Kyren or Promptair should provide any credit in respect of their return. Accordingly, the first component in the assessment of Kyren’s damages is $944,033.50.

Impossibility of performance

252    Promptair submitted that, because the inconsistency in the First Specification meant that it was not possible for it to have complied with that Specification, it should not be liable in damages for that non-compliance. That submission fails for the same reasons given earlier in respect of Promptair’s submissions concerning the breach itself.

253    I note again that, despite being aware of the inconsistency, Promptair had sought approval from Lucid on the basis that it would be able to comply with the performance criteria. It had done so by reference to data indicating that the AHUs had total cooling and sensible capacities which exceeded those contained in the First Specification. Thus, Promptair had not in fact been constrained by those criteria. In addition, Promptair could, as indicated, have sought a Variation, and that Variation is likely to have been granted.

Causation

254    Promptair submitted that the need to remove and replace the AHUs was not caused by its breach of contract but instead by “Lucid’s negligent design of the specification”. That was so, it contended because the remedial work was necessary to obtain the Air Off temperature of 10°C.

255    This submission cannot be accepted. For reasons to be given in relation to Promptair’s apportionment claim, its attempt to implicate Lucid fails. Promptair was the cause of the loss because, not only did it install non-approved AHUs, those AHUs which it did install did not achieve the required Air Off temperatures of 10°C. Both the First Specification and Mr Stanton’s comments during the approval process had made that requirement very apparent to Promptair. Its attempt in the proceedings to shift the casual responsibility for what occurred is unmeritorious.

256    The consequence of Promptair’s supply of the non-compliant AHUs was that they did not cool the Building adequately. This was evident both on the objective testing to which I referred earlier and in the complaints which FYD received from its tenants.

A failure to mitigate?

257    Promptair contended that the Applicants had failed to mitigate their claimed loss in two respects:

(a)    Kyren should have given it (Promptair) a reasonable opportunity to undertake the replacement of the AHUs, rather than engaging an alternate contractor (Frigrite) to do so at full commercial rates; and

(b)    in relation to Kyren’s claim for its own management, administration and Building Superintendent costs (for which Kyren seeks $200,300 (exclusive of GST)), Kyren should have required Lucid to undertake, at its expense, the work for which those costs related.

258    The Applicants accepted that Kyren had been required to give Promptair a reasonable opportunity to rectify the defects. In The Owners-Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067, Ball J stated the relevant principles as follows:

[44]    In the case of building contracts, it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects. Often, of course, the building contract itself requires the owner to repair defects or sets out a procedure by which defects are to be made good … But, even if it does not, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs … That obligation may be an aspect of the duty to mitigate, since it may be less expensive for the builder rather than a third party to rectify the defects, particularly if the builder is still on site. But the obligation is not simply an aspect of the duty to mitigate. The cost to the builder of undertaking the repairs is likely to be less than the amount that a third party would charge the owner for the same work. In that case, the owner is not mitigating its loss, but rather the builder's damages.

[45]    The question of what is reasonable depends on all the circumstances of the particular case. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder's conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work …

[46]    It is for the defendant to prove that the plaintiff has acted unreasonably. It is not for the plaintiff to prove that it acted reasonably …

(Citations omitted)

259    Promptair submitted that the Applicants had acted unreasonably in the present case in failing to give it the opportunity to undertake the removal and replacement of the AHUs. It submitted as follows:

(a)    it had endeavoured to do all that it could to assist Lucid and Kyren to rectify the position between April 2013 and July 2014;

(b)    its lack of success in these efforts was attributable to the impossibility of achieving the performance criteria contained in the First Specification. In particular, it had:

(i)    supplied new fans at its own cost;

(ii)    supplied 10 new coils at its own cost even though Mr Upton, its Project Manager, had been of the view that the coils were not the problem;

(iii)    had agreed to supply new coils for all the 48 AHUs at its own cost. Mr Thornton had estimated the cost of replacing the coils, including labour, at $3,700 per coil; and

(iv)    had undertaken testing and modifications as suggested from time to time by Lucid;

(c)    Mr Thornton had deposed that following the receipt of Mr Samaras’ email of 24 July 2014 indicating that Promptair should replace the AHUs, he had directed his “team” to prepare for the replacement of the AHUs at Promptair’s cost by seeking quotes and technical data from AHU suppliers and preparing a program or works. Mr Stevens had informed Messrs Samaras, Kotzias, Dally and Lucid Personnel of the actions Promptair had taken but, at the same time, had cautioned that, realistically, 12 weeks was required for delivery irrespective of the selected brand of replacement AHUs;

(d)    although Mr Stevens had provided to Mr Roach at Lucid the technical data for Temperzone and Carrier AHUs, Promptair had not been provided with a substantive response;

(e)    Promptair and Lucid would have been able to proceed much more quickly had Lucid acknowledged the inconsistency in the First Specification, something which it did not do until Mr Stanton acknowledged it in the course of his cross-examination; and

(f)    when Promptair received the Notice of Default, it had continued to cooperate. Counsel referred to this respect to the counter-proposal contained in MinterEllison’s letter of 19 September 2014, referred to as “amendments” which were:

(i)    Promptair being permitted to purchase the AHUs from Temperzone so as to be able to negotiate its own payment terms;

(ii)    Promptair being released from any liability if the Temperzone AHUs did not perform to the required specification; and

(iii)    Promptair meeting the cost of the work in the Third Specification but being permitted to “include such of these costs as are appropriate in its Notice of Variation claim”.

Counsel also submitted that the reasonableness of Promptair’s position is evident in MinterEllison’s letter of 19 September 2014 to Mr Shubin indicating that the counter-proposal was not subject to Kyren’s acceptance of its claim for a Contract Variation of $745,826 (excluding GST).

260    In the light of these matters, Promptair submitted that the Court should conclude that it had remained ready, willing and able at all times to cooperate with Kyren to replace the AHUs, including with the AHUs of greater capacity specified in the Third Specification and that it had been unreasonable of Kyren not to have permitted it to do so. It submitted that, if Kyren had accepted the counter-proposal in MinterEllison’s letter of 19 September 2014, it would then have carried out the work and Kyren would have suffered no loss. In this circumstance, the Court should conclude that Kyren’s failure to mitigate its loss was fatal to its claim for damages in its entirety.

261    Promptair submitted that, despite the correspondence being directed to it, Kyren had been determined on Frigrite undertaking the work. Its submission also seemed to be that Mr Shubin had a conflict of interest in his capacity as Project Director of Kyren, on the one hand, and Managing Director of Frigrite, on the other, given the prospect of, and later agreement for, Frigrite to carry out the work.

262    Some of the matters on which Promptair relies may be accepted. As the course of events which I set out at the commencement of these reasons indicates, Promptair did undertake a number of actions with a view to addressing the shortcomings in the performance of the air conditioning system in the Building and, in particular, in the AHUs. Mr Thornton had given the direction to his “team” which he claimed, and Mr Stevens did provide information to Lucid and Kyren as claimed.

263    However, I consider that a number of the matters on which Promptair relies are based on a selective viewing of the evidence.

264    It is appropriate to keep in mind that, for much of the period during which Promptair was behaving in the creditable way claimed by counsel, it knew (or can be taken to have known) of two matters:

(a)    it had not supplied the Fläktwood AHUs for which it had been given approval; and

(b)    the inconsistency in the First Specification. Mr Kärner had drawn its attention explicitly to the inconsistency and yet Promptair had chosen to submit technical data for approval on the basis that there could be compliance with the First Specification.

265    Promptair did not acknowledge the first of these matters to Lucid and Kyren until April 2014.

266    Accordingly, Promptair’s conduct does not have the “innocent” character in this respect which counsel sought to portray.

267    Secondly, Promptair’s submission that it had not received a substantive response to Mr Stevens’ email of 30 July 2014, is not supported by the evidence, as Mr Samaras had responded the same day. The terms of his email indicate Mr Samaras’ increasing concerns about the credibility of Promptair. These included, the fact that Promptair had indicated in August and September 2011 that Carrier did not make AHUs which satisfied the performance criteria but was now producing data for Carrier AHUs; and Promptair having supplied the inferior ESAC AHUs instead of the approved Fläktwood AHUs. Mr Stevens responded to Mr Samaras on 31 July 2014, defending Promptair’s position. Mr Samaras’ further response on 31 July 2014 including the following:

Your comments are [embarrassing] to Promptair and Peter [Thornton] should deal with [these] sort of responses!!!

You should go back and read the correspondence in regards to this matter as you are wasting my valuable time.

268    Then, on 12 August 2014, Mr Shubin in his capacity as Project Manager for Kyren, sent (on Kyren letterhead) the email to which I referred earlier. The letter required Promptair to replace the 48 AHUs with Temperzone AHUs in accordance with the Second Specification and in accordance with an attached work program. Contrary to Promptair’s submissions concerning mitigation, Mr Thornton’s response to that email cannot reasonably be regarded as evincing a spirit of helpfulness and cooperation. As noted earlier, Mr Thornton refused to accept Mr Shubin’s authority to give the direction, despite having been told by Mr Samaras as recently as 26 July 2014 that Frigrite, of which Mr Shubin was the Managing Director, would be the Project Manager in his (Mr Samaras) absence on leave and that it had “full control to act for Kyren to mitigate all the events in regards to the Mechanical Outstanding matters”.

269    Despite Mr Thornton’s rejection of Mr Shubin’s direction, Mr Samaras made a “last request” to Promptair on 18 August 2014 for it to reconsider its position. Mr Thornton’s response on 20 August 2014 appeared to concede only that Promptair would install one Temperzone AHU for testing and, if that was satisfactory, would purchase the remaining 47 AHUs. However, Promptair did not commit to that course. It left uncertain how things would progress. Furthermore, in his letter to Lucid of 21 August 2014, Mr Thornton said that Promptair was puzzled by the Second Specification. The questions he asked indicated that Promptair intended to pursue the issue of whether the First Specification had been capable of being achieved. In a letter to Mr Shubin of 21 August 2014, Mr Thornton raised the same issue. In addition, Mr Thornton queried the need for replacement of the AHUs. In particular, his letter made plain that, even if the Temperzone AHU was satisfactory, Promptair did not commit to replacing the remaining AHUs.

270    It is noteworthy that Mr Thornton continued to wish to agitate the inconsistency issue, even though Promptair had been aware of it at the time of seeking the approval of the AHUs and had not sought any Variation to the Contract on its account. Instead, Promptair had sought approval of the data relating to the ESAC AHUs on the basis that they would meet the required performance criteria.

271    The fact that the MinterEllison letter of 19 September 2014 had made it clear that Promptair’s counter-proposal was not subject to Kyren’s acceptance of the variation claim of $745,826 excluding GST appears to be a matter of little consequence. Acceptance of Promptair’s counter-proposal would have required Kyren to agree that Promptair would be entitled to include the cost of the removal and replacement of the AHUs, and their supply, in a notice of Variation claim. That is to say, Promptair sought Kyren to commit to means by which Kyren would, or may, be responsible ultimately for the payment of the work. That being so, Promptair’s submission that, had Kyren accepted the counter-proposal, it would have suffered no loss lacks merit.

272    In my opinion, it is understandable that in September 2014, Kyren wished to proceed with dispatch. More than 20 months had elapsed since the completion of construction in January 2013. As Mr Samaras had pointed out repeatedly to Promptair, considerable time, energy and effort had been expended in attempts to overcome the shortcomings in the air conditioning in the Building. The summer of 2014-2015 was imminent and, given the lead times for the supply of replacement AHUs, it was reasonable, in my opinion, for Kyren to take the view that time had become critical. There were no indications that Promptair was willing to act with the alacrity which the situation demanded, and indeed there were indications that it would not. I consider it understandable that Kyren wished to take control of the progress of work, especially in the light of the opportunities it had given to Promptair to take the action itself. It had given Promptair multiple warnings that it may do so and that, in that event, it would look to Promptair to make good the costs.

273    In all these circumstances, I consider that Promptair has not established that Kyren failed to take reasonable action to mitigate its own loss and, in turn, the loss of Promptair. This basis for defence of the damages claim fails.

Did Kyren suffer the loss?

274    In its closing submissions, Promptair submitted that Kyren had not in any event suffered the loss which it alleged. It relied for this submission on the evidence indicating that it was not Kyren which had made the payments with respect to the removal and replacement of the AHUs. Instead, it had been either FYD which had made the payments as the following table indicates:

275    Promptair’s initial submissions on this topic had also included an amount paid by MSAP on 31 December 2014 to Frigrite. However, it did not pursue that submission, no doubt given Mr Samaras’ evidence that MSAP is an acronym for a business operated by Kyren itself.

276    Promptair submitted that the law permits an award of damages only for the actual losses suffered by the particular applicant. It cited in this respect: Hungerfords v Walker [1989] HCA 8, (1989) 171 CLR 125 at 143; The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54, (1991) 174 CLR 64 at 82 (Mason CJ and Dawson J), at 99 (Brennan J), and at 161 (McHugh J); Hill v Van Erp [1997] HCA 9, (1997) 188 CLR 159 at 232.

277    This submission led to the application by the Applicants to reopen their case following the reservation of judgment. That application was granted: F.Y.D. Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097.

278    On the reopening, the Applicants acknowledged that the payments set out in the above table had been paid by FYD. They submitted, however, that Kyren was entitled to recover those payments because it had incurred a liability to reimburse FYD the amounts it had paid or, alternatively, that the payments by FYD should be characterised as a third party subvention which had not been intended to operate for the benefit of Promptair. In the further alternative, they submitted that, FYD should be able to recover the amount it had paid by reason of its reliance on the misleading or deceptive conduct of Promptair, to be considered in a later section of these reasons.

Kyren’s liability to FYD

279    In support of these claims, the Applicants led further evidence from Mr Samaras and evidence from Ms Sellan (the Accounts Administrator for the Kyren Group), Ms Miller (an Administrative Assistant within the Kyren Group) and Mr Polymeneas, a member of the firm of O’Leary & Polymeneas, Accountants & Auditors who have been the external accountant for the Kyren Group, including FYD and Kyren, for nearly 20 years. The findings which I make below are, unless otherwise indicated, based on the evidence of these witnesses, together with the evidence previously given by Mr Samaras and Mr Kotzias.

280    I commence with findings regarding the manner in which invoices received by a member of the Kyren Group are approved and processed for payment.

281    The Kyren Group has one office at which the administration of the affairs of all members of the Group is conducted. When an invoice relates to a particular building project, it must be approved for payment by either Mr Samaras or Mr Kotzias. Mr Kotzias generally indicates his approval by use of an “Approved for Payment” stamp and enters his initials and date, but sometimes he indicates his approval by initialling and dating the invoice. Mr Samaras generally adopts the latter method. Ms Sellan then determines whether there are sufficient funds in the account of the Group member to whom the invoice is addressed with which to pay the invoice. If so, she prepares the electronic funds transfer (EFT) or a cheque for the payment. Usually it is Mr Samaras who will make the EFT or sign the cheque. If Mr Samaras is absent, Ms Sellan may attend personally to the payment.

282    When there are insufficient funds in the account of the particular Group member, Ms Sellan will ascertain whether another member of the Group has sufficient funds. In particular, she will ascertain whether the Group member which owns the land or building to which the invoice relates has sufficient funds. Ms Miller says that she engages in a similar process, although she does not have the authority to make the payments herself.

283    Each of Ms Sellan and Ms Miller processed some of the payments for invoices paid by FYD which are in dispute presently. Neither could recall (I accept honestly) why the payments were made by FYD and not Kyren, nor whether she had been told by Mr Samaras or Mr Kotzias to use FYD funds.

284    Mr Samaras and Mr Polymeneas both deposed that at times in the past when one member of the Kyren Group had paid invoices rendered to another member, loan accounts between the two companies reflecting the transactions have either been raised or adjusted. Ms Sellan also deposed that, when she processed a payment by one member of the Group of an amount invoiced to another, she is required to include the words “on behalf of” or and equivalent term in the MYOB entry maintained by the Kyren Group so that the Group’s external accountant could be alerted to record the matter as a loan. She also deposed that she provides the MYOB data to the external accountant on a monthly, quarterly and annual basis.

285    However, there had been no creation or adjustment of a loan account between FYD and Kyren in respect of the payments presently in dispute. Mr Samaras deposed that he became aware of this only after judgment had been reserved when the issue about Kyren’s ability to recover the amounts paid by FYD became acute. Mr Polymeneas said that he had not been aware when preparing the accounts for the Kyren Group in 2014 and 2015 that the payments made by FYD related to “warranty work” and to invoices issued to Kyren and so had not made a loan account entry to reflect the transaction.

286    Mr Samaras deposed that when he realised that no loan account adjustment had been made reflecting FYD’s payments, he had instructed Mr Polymeneas to correct the accounting records. Mr Polymeneas deposed that he had done so. This occurred in mid-2017, after the Court had reserved judgment.

287    The Applicants submitted that this retrospective adjustment reflected the intended position in 2014 and 2015 and formalised the position that Kyren had an actual liability to reimburse FYD the amounts it had paid. That being so, they submitted that Kyren was entitled to recover the amount of its liability from Promptair.

288    Promptair submitted that the Court should find that the initial accounting treatment of the payments reflected their true character, that is, that FYD had not made the payments on Kyren’s behalf, but in its own right. It also submitted that the changes to the accounts in 2017 made by Mr Polymeneas at the direction of Mr Samaras were only for the purpose of defeating the defence which it (Promptair) had advanced in its closing submissions concerning those payments. In support, Promptair noted that there are no written loan agreements between Kyren and FYD nor any written requests by Kyren to FYD to make the payments on its behalf.

289    Promptair also submitted that FYD had not been shown to be under any obligation to make the payments on behalf of Kyren; that FYD and Kyren were separate entities; that the common directorships and shareholdings (if the latter be the case) of the two companies did not alter the position; and that, even if the commercial reality was that the distinction between companies in one group with common directors can become blurred, this did not mean that the distinction should be ignored. It also referred to cases concerning the inappropriateness of lifting the corporate veil.

290    I do not accept the submission that the adjustments to the accounts of Kyren and FYD in mid-2017 was a device adopted only for the purpose of these proceedings, although plainly these proceedings were the occasion for it occurring. I thought that the evidence of Mr Samaras and Mr Polymeneas about these matters was honest and reliable. Furthermore, their evidence concerning the practice within the Kyren Group for loan accounts to be created or adjusted when one member paid an invoice directed to another was not challenged. Likewise, Ms Sellan was not challenged concerning her evidence concerning the manner of recording the payments made by one Group member of behalf of another. I note further that it was not suggested to Mr Samaras that he had given his instruction in mid-2017 to Mr Polymeneas only for the purpose of creating retrospectively a form of evidence which would suit his purposes in this litigation.

291    The Applicants advanced two reasons why it had been FYD which had made the payments and not Kyren: it was FYD which had the funds at the time; and/or, it was a matter of “administrative expedience”. The bank statements for Kyren do not bear out the first of these explanations, as it had sufficient funds to have made each of the payments. I am satisfied that the second is the more likely explanation. That is especially so having regard to the existence of some administrative informality within the single corporate Group, the practice of payments being made from to time by one Group member on behalf of another with the payments being recorded in the respective loan accounts of the companies, the practice that the owner of a building would sometimes pay the invoices directed to Kyren as the builder and, perhaps, some administrative oversight. In the context just described, I consider, not without some hesitation, that the Court may appropriately draw inferences from the usual practice within the Kyren Group as to the basis on which FYD made the payments, even though no one within that Group is now able to say positively that the payments had been made by FYD in accordance with that practice.

292    In my view, the submissions of Promptair concerning the maintenance of the corporate veil are of limited utility presently. The Applicants are not asking the Court to lift the corporate veil or to ignore the distinction between FYD and Kyren. On the contrary, the evidence concerning the creation and adjustment of the loan accounts indicates that the Applicants were alert to, and generally maintained, the distinction between the companies.

293    Likewise I did not find the evidence and submissions of Promptair concerning the GST treatment of the payments made by FYD and Kyren to be apposite. Promptair did not submit that the GST treatment should in some way mitigate the amount that it should be required to pay as damages.

294    In these circumstances, I am willing, with some hesitation, to accept that Kyren has a liability to reimburse FYD the payments which it made on Kyren’s behalf. That being so, the fact that some of the payments presently in dispute were made by FYD and not Kyren is not a matter which avails Promptair in the assessment of damages.

295    Promptair accepted that, in the event that the Court finds that Kyren is liable to reimburse FYD for the payments, it (Kyren) would have incurred a loss which (subject to its submissions concerning liability, causation and quantum) may be recovered from it.

Third party subvention

296    In case I am wrong in concluding that Kyren has a liability to FYD in respect of the payments made by it, I will consider Kyren’s alternative submission that the payments by FYD constituted a form of third party subvention which does not operate for Promptair’s benefit.

297    The Applicants submitted that the Court should find that it had not been the intention of either FYD or Kyren that FYD’s payments should operate for the benefit of Promptair, or to alter the rights of Kyren against Promptair. That being so, it should not be open to Promptair to take advantage of the fact that the payments had been made by FYD and not Kyren.

298    In relation to claims for damages for personal injuries, it is established that payments received by plaintiffs from a third party by way of benevolence or under certain contracts do not operate to reduce the liability in damages of the tortfeasor: The National Insurance Co of New Zealand Ltd v Espagne [1961] HCA 15, (1961) 105 CLR 569 at 573 (Dixon CJ), at 599 (Windeyer J); Redding v Leen [1983] HCA 16, (1983) 151 CLR 117 at 122 (Gibbs CJ).

299    In Espagne, Windeyer J said at 599-600:

Is there a governing principle in all these cases? So far as any rules can be extracted, I think they may be stated, generally speaking, as follows: In assessing damages for personal injuries, benefits that a plaintiff has received or is to receive from any source other than the defendant are not to be regarded as mitigating his loss, if: (a) they were received or are to be received by him as a result of a contract he had made before the loss occurred and by the express or implied terms of that contract they were to be provided notwithstanding any rights of action he might have; or (b) they were given or promised to him by way of bounty, to the intent that he should enjoy them in addition to and not in diminution of any claim for damages … [T]he decisive consideration is, not whether the benefit was received in consequence of, or as a result of the injury, but what was its character: and that is determined … by the intent of the person conferring the benefit. The test is by purpose rather than by cause.

(Emphasis added)

300    Likewise, in Redding v Lee, Mason and Dawson JJ said, at 138:

[I]t has been acknowledged that it would be unjust and unreasonable to reduce damages on account of benefits received by the plaintiff resulting from benevolence. Benefits of this kind spring from a desire to assist the plaintiff, not from any wish to relieve against the tortfeasor’s liability (Espagne [11]).

(Emphasis added)

301    The principle is not confined to the assessment of damages for personal injuries: Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1 at 24-26 (per Burchett J, with whom O’Loughlin J agreed); Masters Dairy Ltd v Nagy [1998] FCA 907, (1998) 156 ALR 262 at 269 (Foster, Lee and Tamberlin JJ). It has been applied to the assessment of damages in a variety of situations, including claims for damage to property, and claims for damages for breach of contract and misleading or deceptive conduct.

302    In Jones v Stroud District Council [1986] 1 WLR 1141, it was held that home owners were entitled to recover from a tortfeasor the cost of repairing the damages caused by inadequate footings even though there was no evidence that the plaintiffs had themselves paid those costs. Neill LJ, in the judgment of the Court of Appeal, said at 1150:

It is true that as a general principle a plaintiff who seeks to recover damages must prove that he has suffered a loss, but if property belonging to him has been damaged to an extent which is proved and the court is satisfied that the property has been or will be repaired I do not consider that the court is further concerned with the question whether the owner has had to pay for the repairs out of his own pocket or whether the funds have come from some other source.

See also Naumann v Ford [1985] 2 E.G.L.R. 70 at 74, to which Burchett J referred in Monroe Schneider at 25.

303    Counsel for Promptair sought to distinguish Monroe Schneider by submitting that the Court was there concerned only with the payment of a “gratuity”. His submission was that the principle is that a respondent is not entitled to the benefit of a “gratuity” paid to, or on behalf of, the applicant. Counsel submitted that the payments by FYD could not be characterised as a gratuity.

304    Promptair also submitted that the third party subvention principle did not apply if the payment by the third party was intended to discharge the liability of the applicant. It then submitted that, in the present case, FYD’s payments were “plainly intended to discharge the liability” and that “there is no other explanation for it”.

305    In my view, neither of these submissions should be accepted. First, the third party subvention principle does not apply only to the payment of a gratuity, if by that term is meant payments to which the applicant has no entitlement or expectation. It is established by many of the authorities that the principle extends to amounts paid to an applicant pursuant to an antecedent contract and pursuant to statutory schemes of compensation.

306    Secondly, the decision in Monroe Schneider did not turn on the characterisation of the third party subvention in question as a “gratuity”. That term (which is necessarily imprecise) does not even appear in the dispositive reasoning in Monroe Schneider on the topic, at 23-6. Nor, as the authorities to which Burchett J referred indicate, is the principle confined to the receipt of monies paid by either public or private benevolence.

307    Instead, as the emphasised passages in the authorities quoted above indicate, the issue turns on the purpose of the payment, that is, “the intent of the person conferring the benefit”. It was on that basis that Burchett J found that the applicant in Monroe Schneider was not obliged to bring the payment into account in its claim against the respondent. His Honour’s reasoning did not turn at all on the characterisation of the payment as a “gratuity”: that had been the circumstance giving rise to the question for determination in Monroe Schneider, and not its answer.

308    In the present case, one may accept that the payments by FYD were intended to discharge Kyren’s liability to each of Frigrite, Lucid and Mr Dally. However, in my view, it could not reasonably be concluded that FYD intended the payments to discharge Promptair’s liability to Kyren. Counsel did not point to any evidence suggesting an actual or inferred intention by those within the Kyren Group, let alone FYD, that that should be so. The objective circumstances are, in my view, wholly inconsistent with such an intention. Kyren and Promptair had not agreed on who should pay for the remedial work and Kyren had foreshadowed making a claim against Promptair. It is not plausible that Mr Samaras (who Promptair accepts was the relevant “heart and mind” of FYD) should have put aside all of the actions he had taken, or directed to be taken, with a view to having Promptair pay for the remedial work by intending that FYD’s payments should extinguish Promptair’s liability. In my view, such a conclusion would be absurd.

309    Accordingly, had it been necessary, I would have found that the FYD payments constituted a third party subvention which had not been paid within the intention that they should operate in reduction of Promptair’s liability. Accordingly, this particular defence of Promptair would fail.

The performance of Fläktwood AHUs

310    By [79.6] of its defence, Promptair alleged that the Applicants had not suffered any loss by the installation of ESAC AHUs in lieu of Fläktwood AHUs, because the performance of both would have been identical. However, it did not adduce any evidence to support that contention, and this is a matter on which it had, at least, an evidential onus. This ground of defence fails. I note, however, that this contention of Promptair tended to support the appropriateness of Mr Stanton having refused approval of the Fläktwood AHUs.

Betterment

311    Promptair submitted that an adjustment should be made to the damages to which Kyren is entitled on account of betterment. Its submission was that, because of the understatement of the capacities of the AHUs in the First Specification, ultimately much larger units were required and it should not be liable for “the increase in the value of the asset acquired by Kyren”.

312    Promptair referred in this respect to Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27, (2017) 94 NSWLR 108; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333; British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673; and Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313.

313    Promptair submitted that the reduction should be the difference, in round terms, of $132,000 between the cost to it of the ESAC units ($153,200) and the cost of the Temperzone units which were installed ($285,000).

314    In my opinion, no deduction for betterment should be made. To do so would involve some double counting as I have reduced the amount to which Kyren is entitled by the difference between the cost of the ESAC AHUs, on the one hand, and the sum of $297,891, being the cost of the acquisition of the replacement Temperzone units.

315    The submission with respect to betterment fails.

Lucid’s fees

316    As previously indicated, Promptair did not dispute the reasonableness or the quantum of Kyren’s claims with respect to the fees of Lucid amounting to $37,885 included in the sum of $1,074,394.50 for the removal and replacement of the AHUs.

317    In the 5ASC, Kyren claimed a further amount of $69,220.25 (exclusive of GST) in respect of fees paid to Lucid in the period between April 2013 and March 2015.

318    In the final submissions, the Applicants’ counsel sought a different figure with respect to the fees to Lucid, namely, $60,775 (inclusive of GST). Counsel did not provide any explanation for this difference. Given the view I take of this claim of Lucid, it is not necessary to make any choice between the two figures.

319    I make the following findings concerning Kyren’s claim with respect to fees paid to Lucid after April 2013. In June 2010, Kyren had accepted Lucid’s fee submission and had retained it as the Engineering Consultant for the Project. Lucid’s work was to comprise all the phases of work from conceptual design and development to the post-construction documentation handover, including defects inspection. Its total fee was $470,000 excluding GST. Lucid’s fee submission also indicated the hourly rates for the various personnel who would be engaged on the Project.

320    At some stage after the difficulties with the AHUs became apparent, Mr Samaras and Mr Callisto of Lucid discussed the basis upon which Lucid would perform the work in relation to the remedying of the non-performing AHUs. They agreed that Lucid would charge for its time at the hourly rate set out in the 2010 Fee Submission. The agreement was not reduced to writing.

321    It is not clear when the discussion occurred. Mr Callisto deposed in his affidavit that it was “in about April/May 2013”. However, in the oral evidence, Mr Callisto could not say when the discussion had occurred. He did, however, say that it was on the basis of his discussion with Mr Samaras that Lucid had commenced rendering invoices to Kyren. Its first invoice was dated 30 June 2014.

322    The evidence of Mr Samaras on this topic was also non-specific. He deposed:

[108]    In the period from April 2013 to March 2015 Kyren retained Lucid to assist it in dealing with the on-going issues with the AHUs. The work they did was outside the scope of their original retainer. We did not have a formal retainer for this further work but they proceeded on the basis that Lucid would charge Kyren at the same rates it had charged under its earlier retainer.

As is apparent, Mr Samaras did not indicate when he had made the agreement with Mr Callisto.

323    Lucid’s first invoice to Kyren dated 30 June 2014 related to the period 1 April 2013-30 June 2014. That circumstance, together with Mr Callisto’s evidence, suggests that the invoice was prepared retrospectively and only very shortly after Mr Samaras and Mr Callisto had reached their agreement. Another curious feature is that, unlike all but one of the remaining invoices from Lucid, the invoice of 30 June 2014 has not been paid by Kyren. The Court was not provided with any explanation for Lucid’s account of 30 June 2014 not having been paid. However, it is consistent with Kyren not having accepted that it has any liability to pay the invoice.

324    Lucid has submitted invoices to Kyren as follows:

325    The evidence did not explain the overlapping periods to which the last two invoices relate.

326    It is plain that Kyren’s claim with respect to the six Lucid invoices, other than that rendered on 30 June 2014, involves double counting. The aggregate of the six invoices is the sum of $37,885 which was included in the Certificate of $1,074,394.50 issued by Mr Kotzias on 5 February 2015. Kyren cannot recover the same amount twice.

327    That leaves the amount claimed by Lucid in the invoice of 30 June 2014. For the reasons given earlier, I am not satisfied that that work was performed pursuant to the oral retainer pursuant to which Mr Samaras and Mr Callisto deposed. I consider it more likely that Mr Samaras and Mr Callisto reached their agreement with respect to payment of Lucid in or about May 2014. Lucid’s work before then had been treated as part of its original retainer. That explains Lucid commencing to render monthly invoices only in June 2014. Had the agreement been reached earlier, it is likely that Lucid would rendered invoices earlier.

328    Accordingly, I am not satisfied that any amount claimed by Kyren with respect to the additional Lucid fees should be included as part of its damages.

329    Kyren had also sought an amount in the damages of $10,383.04 “in [the] nature of a loss of profit and a contribution to its overheads”. It had calculated this sum as 15% of the fees claimed with respect to Lucid.

330    Kyren claimed that the figure of 15% was supported by the evidence of the Quantity Surveyor, Mr Sale. However, a reading of his report does not support that submission.

331    However, it is not necessary to consider this claim further given my disallowance of the whole of the amount claimed for Lucid in this part of the assessment.

Kyren’s management, administration and building superintendent costs incurred in investigating defects and supervising remedial works

332    Kyren claims that it incurred costs in the period between April 2013 and June 2015 in carrying out investigations and the works needed to achieve the internal air conditions specified for the Building, including:

(a)    rectifying the defective AHUs;

(b)    having Promptair complete outstanding works; and

(c)    commissioning the mechanical services in accordance with the Contract and the First Specification.

333    Kyren seeks damages of $200,300 (exclusive of GST) for the management costs, administration costs, and the costs of the Building Superintendent, Mr Dally, to supervise and provide access to the Building to Promptair.

334    Kyren’s claim is comprised as follows:

    Mr Samaras – 242 hours @ $150/hour - $36,300;

    Mr Kotzias – 1,144 hours @ $91/hour - $104,104; and

    Mr Dally – 920 hours @ $65/hour - $59,800.

These amounts total $200,204, and not the sum of $200,300 claimed by Kyren. However, for reasons which will become apparent, the difference is immaterial.

Relevant principles

335    Although the Applicants did not refer to any authority in support of this claim, I understood them to be invoking the principles concerning the recovery of wasted employees’ costs discussed in a number of cases. In Tesrol Joinery Pty Ltd v CEFLA Scri [2005] NSWSC 528, Einstein J said:

[26]    In terms of CEFLA's contention that no damages should be awarded because Tesrol was bound to pay the employees' salaries and wages in any event, I accept that this contention ignores the fact that Tesrol received no benefit for these salaries and wages wasted, whereas if these salaries and wages had not been wasted on consequences of the CEFLA spray line non-performance, Tesrol would have been able to benefit from the productive capacity of the workforce in the time which would then have been available (see annexures M and N to exhibit P7).

[27]    CEFLA's contention entails the proposition, as the plaintiffs have submitted, that a contractual wrongdoer can cause the total loss of the plaintiff's production capacity but have no liability for the labour cost incurred by the plaintiff while its workforce remains idle.

[28]    The principle is that the innocent party is entitled to be put in the same position, as best as money can do it, as if the contract had not been broken. In the case of employees that means that the employer is entitled to be reimbursed for the cost of the employees' productive time lost by reason of the breach of contract. …

336    In Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3, Wilson LJ reviewed a number of the authorities when considering a claim for the recovery of payments made to staff diverted to deal with the consequences of a negligently caused flood. His Honour considered, at [86], that the authorities established the following propositions:

(a)    The fact and, if so, the extent of the diversion of staff time have to be properly established and, if in that regard evidence which it would have been reasonable for the claimant to adduce is not adduced, he is at risk of a finding that they have not been established.

(b)    The claimant also has to establish that the diversion caused significant disruption to its business.

(c)    Even though it may well be that strictly the claim should be cast in terms of a loss of revenue attributable to the diversion of staff time, nevertheless in the ordinary case, and unless the defendant can establish the contrary, it is reasonable for the court to infer from the disruption that, had their time not been thus diverted, staff would have applied it to activities which would, directly or indirectly, have generated revenue for the claimant in an amount at least equal to the costs of employing them during that time.

337    There principles were applied in BHP Coal Pty Ltd v O&K Orenstein & Koppel AG [2008] QSC 141. McMurdo J held that it was for the plaintiff to prove that there was such a significant disruption as likely to impact on its profits, even if that was not susceptible to clear proof, at [808]. As Tesrol Joinery indicates, the focus of the enquiry is on the lost ability of the employer to benefit from the productive capacity of its employees.

338    Alternatively, an applicant should establish that it had incurred expenditure which, without the breach in question, would not otherwise had been incurred. Even then, it is necessary for an applicant to show that the expenditure had been wasted: NRMA Ltd v Morgan [1999] NSWSC 407; (1999) 31 ACSR 435 at [1378].

Mr Samaras and Mr Kotzias

339    The evidence which the Applicants provided to support the claims with respect to Mr Samaras and Mr Kotzias was of a very general kind. Mr Samaras said that he had spent “a considerable amount of time” between 2 April 2013 and December 2014 in dealing with the issues concerning the performance of the AHUs and, ultimately, their replacement. Likewise, Mr Kotzias said that he had spent a “considerable amount of time” involved with the same issues in the same period. Neither Mr Samaras nor Mr Kotzias had kept any record of the amount of time which they had spent dealing with the air conditioning issues at the Building. However, each said, having reviewed the emails, the correspondence, and the Building Management System in the period, that the estimates of their respective hours used in the claim were “very conservative”.

340    The Applicants also relied upon the report of Mr Sale, an experienced Quantity Surveyor. Mr Sale addressed two topics in his report. First, he gave evidence of the hourly “charge out rates” charged by commercial builders in Adelaide in the time period between April 2013 and December 2014. He gave the following figures:

341    Secondly, Mr Sale expressed the view that, given the scope of works contained in the Third Specification, a percentage of 5% would be allowed for profit on the performance of the work for which it provided.

342    Thirdly, Mr Sale expressed the view that a 6-7% contribution of the cost of the remedial works would be appropriate for Kyren’s preliminaries and overheads.

343    As noted at the commencement of these reasons, Mr Sale was not required for cross-examination. It was common ground between counsel that Mr Sale had used the term “charge out rates” to indicate the rates charged by a contractor to third parties.

344    Although I accept that both Mr Samaras and Mr Kotzias did spend a considerable amount of time addressing the issues created by the AHUs supplied by Promptair, I am not satisfied that any amount should be allowed in respect of it. Kyren has not proven that it suffered a significant disruption to its business, let alone a disruption impacting upon its profit.

345    Further, the evidence indicates that both Mr Samaras and Mr Kotzias received a salary which was inclusive of any overtime each performed. There is no evidence that Kyren paid any additional amounts to either in respect of the work associated with the AHUs. The salaries they did receive had been payable in any event.

346    The evidence does not establish that the time which Mr Samaras and Mr Kotzias spent on the AHU issues diverted them from other profitable projects. Mr Samaras confirmed that the Project at 70 Franklin Street was the only project which was “live” for the Kyren Group at relevant times. Apart from the general statements of Mr Samaras and Mr Kotzias that Kyren had lost the opportunity to pursue other projects, the Applicants did not seek to establish that, had Kyren not been engaged in the activities associated with the AHUs, it would have been engaged in any other project. There is no evidence on the basis on which it could be inferred that the time spent by Mr Samaras and Mr Kotzias was in fact productive of a loss of revenue to Kyren.

347    Accordingly, in my view, these claims, in so far as they concerned Mr Samaras and Mr Kotzias, fail wholly.

Mr Dally

348    Mr Dally described himself as a Building Supervisor who worked full-time with Kyren as an independent contractor. He is an Electrician by trade.

349    At the beginning of 2013, Mr Dally had been working at another building owned by the Kyren Group but, in April 2013, he was asked to commence work at the Building. He worked there full-time (8 am-5 pm).

350    There was a difference in the evidence as to whether Mr Dally was directed to work at the Building because of the air conditioning issues. Mr Kotzias said:

Mr Kotzias:    There was no requirement for Mr Dally to be on that premises. He was specifically brought in to manage the AHU replacement process. Knight Frank, who managed the building as Facilities Managers – all capital works are excluded from their contract. So we formed the opinion, to lessen the cost on Promptair at the time that we made that assessment, that we would use Mr Dally in lieu of using Knight Frank.

…

His Honour:    When you say he was brought in, you mean he was assigned to this building as opposed to being assigned to other duties within the Kyren Group?

Mr Kotzias:    Yes, your Honour, because he’s not a member of the construction team; he’s a member of the facilities management team, so he could be working on another particular asset rather than being on 70 Franklin Street.

His Honour:    When he was brought in to the Franklin Street site, was he also carrying out other duties?

Mr Kotzias:    No.

His Honour:    By which I mean duties with respect to other sites?

Mr Kotzias:    Yes, he was at other sites, yes. … I believe he was doing work at our Coglin Street building.

351    On the other hand Mr Dally’s evidence suggested that, from April 2013 onwards, only part of his duties had involved liaising with Promptair. He has also continued working at the Building since the replacement of the AHUs. This is inconsistent with Mr Dally having been brought in specifically to deal with the AHU issues rather than being engaged to perform building supervisor duties more generally.

352    In these circumstances, I am not willing to proceed on the basis that Mr Dally was allocated to the Building only because of the air conditioning problems. Instead, I find that he was allocated to exercise building supervision duties with respect to the Building generally as indicated by the fact that he has continued to perform those duties since the air conditioning issues were resolved. Mr Dally did, however, say that he had spent a considerable amount of his time from April 2013 to the end of December 2014 involved in the issues concerning the performance and ultimate replacement of the AHUs.

353    In my view, there are a number of shortcomings in the evidence presented by the Applicants in support of the claim concerning Mr Dally’s time. First, the Applicants did not provide all of Mr Dally’s invoices for the whole of the period between April 2013 and January 2015.

354    Secondly, the Applicants did not attempt to separate out those amounts claimed for Mr Dally under this head of damages from those claimed in the certificate issued by Mr Kotzias on 5 February 2015. In that certificate, Kyren had claimed payments to Mr Dally in each of the months between July and December 2014 totalling $16,033.50. It is not possible on the evidence provided to determine the extent to which account has or may have been taken of payments to Mr Dally in that certificate. Kyren’s double counting with respect to the Lucid claims suggests that this is a real concern.

355    Thirdly, contrary to the evidence of Mr Kotzias, Kyren would have incurred the monthly cost to Mr Dally even without the air conditioning issue. This is evident in the evidence of Mr Dally himself to which I referred earlier. It is also evident in the fact that he continued to be engaged at the Building after January 2015. The invoices that he rendered for the 2015 calendar year indicate that the payments to him were typically in the range $5,500-$6,000. I am satisfied that costs of this order would also have been incurred to Mr Dally in the period from April 2013 to January 2015, even without the air conditioning issues.

356    Fourthly, Mr Kotzias calculated the claim with respect to Mr Dally by reference to the hours that Promptair personnel had spent at the Building, even though Mr Dally would have been present at the Building on many of those occasions as part of his ordinary duties in any event. That is to say, Kyren would not have incurred any additional expense on that account.

357    Fifthly, there is no suggestion that Mr Dally was diverted from other profitable activities by reason of being located at the Building.

358    Finally, contrary to the basis on which Kyren made its claim with respect to Mr Dally (claiming at the rate of $65 per hour), he was in fact been paid an ordinary time rate of $35 per hour and an overtime rate of $52.50 per hour.

359    Having regard to these shortcomings, I am not satisfied that Kyren has suffered or proved a recoverable loss with respect to the payments to Mr Dally under this head of its damages claim.

360    For these reasons, Kyren’s claim for payment of $200,300 with respect to management, administration and building and superintendent costs incurred in investigating the defects and supervising remedial works fails.

Kyren’s overheads, preliminaries and profit margin on the AHUs replacement costs

361    By [78] of the 5ASC, Kyren seeks damages of $161,159.18 (exclusive of GST). It claimed this amount as being “in the nature of a loss of profit and a contribution to its overheads calculated as 15% of the costs of the AHU replacement works carried out by Frigrite”.

362    The submissions which Kyren made in support of this claim were the same as those which it made in respect of the claim for “management, administration and building superintendent costs” considered in the immediately preceding section of these reasons.

363    The claim fails, essentially for the same reasons which I gave in relation to that component.

364    I add that the evidence which Kyren provided in support of this claim was also at a high level of generality. Mr Samaras deposed that from the period 25 July 2014 to 31 December 2014, the replacement of the AHUs with new AHUs had taken up almost all of his time and that of Mr Kotzias. He said that Kyren had lost the opportunity to pursue other projects during this five month period. Mr Kotzias’ evidence in his affidavit was expressed in almost identical terms. However, neither presented any evidence of the opportunities which had been lost. I note again, Mr Samaras’ acknowledgment in his cross-examination that Kyren had not had any other current projects at the time. I also note that Mr Samaras was on leave in August and September 2014 and Mr Kotzias on leave during September 2014.

365    As indicated, I am not satisfied that Kyren had established this aspect of its claim.

Conclusion on damages for breach of contract

366    For these reasons, I am satisfied that Kyren has proved an entitlement to damages for breach of contract of $944,033.50. The remaining aspects of Kyren’s claim for damages fails.

The misleading or deceptive conduct claim

367    By their third cause of action, made in the alternative, the Applicants allege that Promptair’s conduct in submitting progress payment claims constituted misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law (ACL) contained in Sch 2 to the Competition and Consumer Act 2010 (Cth). The conduct was said to be misleading or deceptive by reason of Promptair’s failure, when seeking the progress payments, to disclose that the AHUs it had installed and for which payment was claimed were manufactured by ESAC and not the approved AHUs manufactured by Fläktwood. Kyren’s submission was that by making the claims for progress payments in accordance with the Contract, Promptair had implicitly represented that it had performed the part of the Contract to which the claim related, when that was not so.

368    Kyren then alleged that, if Promptair had, when making the progress payment claims, disclosed that it had not installed Fläktwood’s AHUs, Mr Kotzias as Contract Administrator would not have certified an amount due for payment to Promptair for the AHUs. Instead, he would have directed Promptair to remove the installed AHUs and to install the approved AHUs.

369    Clauses 12.6, 12.7 and 12.8 of the Contract provided for Promptair’s entitlement to progress payments. Clause 12.6 provided:

[12.6]    PAYMENT CLAIMS

The Subcontractor must give the Contract Administrator claims for payment on account of the Contract Price and any other amounts payable by the Main Contractor to the Subcontractor under the Contract:

(a)    at the times stated, or upon completion of the milestones described, in the Contract Particulars;

(b)    within the times required by clauses 12.13 and 12.15;

(c)    in the format the Contract Administrator reasonably requires;

(d)    which include the evidence reasonably required by the Contract Administrator of the value of work completed in accordance with the Contract and the amount claimed; and

(e)    which are based on the Priced Bill of Quantities, the Cost Schedule or the Schedule of Rates to the extent these are relevant.

The Subcontractor cannot include in any payment claim under this clause 12.6, a Claim which is prohibited or excluded by the Contract including a Claim which is barred by clause 16.5.

370    By cl 12.7, Mr Kotzias as Contract Administrator was obliged, within 14 days of receiving Promptair’s payment claim, to issue a payment determination, with specified particulars. By cl 12.8, Kyren was obliged to make the progress payment to Promptair within a further 14 days.

371    The evidence indicated that each of Mr Samaras and Mr Kotzias had considered Promptair’s claims for progress payments. Mr Kotzias reviewed the claims and made a recommendation for their payment when appropriate. Mr Samaras then reviewed and approved the claim. I accept this evidence.

372    In progress payment claims 7, 8 and 10, Promptair claimed payment for the AHUs it had supplied. The amounts claimed were $34,450, $6,675 and $287,875 respectively. The payment breakdown sheet accompanying Promptair’s 10th progress payment claim indicates that Promptair sought an aggregate payment of $329,000 in respect of the AHUs.

373    Payment of these claims was considered and recommended by Mr Kotzias and approved by Mr Samaras in the manner just described. I accept the evidence of Mr Samaras and Mr Kotzias that each was unaware, when giving the recommendation or approval, as the case may be, that non-approved AHUs had been installed by Promptair.

374    Both Mr Samaras and Mr Kotzias said that, if they had been aware that Promptair was claiming progress payments with respect to the supply of non-approved AHUs, he (in Mr Kotzias’ case) would not have recommended and (in Mr Samaras’ case) would not have approved the making of the progress payment. Each said that he would instead have directed Promptair, or have caused Promptair to be directed, to remove the installed AHUs and to install the approved AHUs. I accept that evidence. It was not challenged and is inherently plausible. In this respect, I refer to my earlier findings concerning the importance of the identity of the manufacturer. The evidence of Mr Samaras and Mr Kotzias is also consistent with the action which Mr Kotzias took on an unrelated occasion on which Promptair used non-approved (and less expensive) steel piping. Mr Kotzias had then directed Promptair to remove the steel piping and to replace it with the copper piping required by the First Specification at Promptair’s own cost.

375    In [39] of the 5ASC, Kyren alleges that it has suffered loss and damage by reason of Promptair’s misleading or deceptive conduct “as it was obliged to carry out [the] remedial work … to replace the [AHUs]”.

376    Kyren alleges the loss said to result from the misleading or deceptive conduct as being the aggregate of progress payments 7-10, as follows:

    progress payment 7 - $34,450;

    progress payment 8 - $6,675; and

    progress payment 10 - $287,875.

377    On the third day of trial, Counsel for Promptair sought, and was granted, leave to amend Promptair’s defence so as to make admissions with respect to Kyren’s claim of misleading or deceptive conduct. By [37] of the Seventh Amended Defence, Promptair admitted:

(a)    that it did not disclose to Kyren that it had not installed AHUs manufactured by Fläktwood;

(b)    that it had installed AHUs manufactured by ESAC; and

(c)    that Promptair should have disclosed the facts set out in the two preceding subparagraphs to Lucid or to Kyren prior to the installation of the AHUs, and that its failure to do so was a contravention of s 18 of the ACL.

378    Nevertheless, Promptair maintained a denial that the admitted misleading or deceptive conduct had been causative of any loss. The pleaded particulars of that denial were in substance that:

(a)     neither Mr Kotzias or Lucid had placed any material reliance on the particular brand supplied;

(b)    Kyren had not been justified in undertaking the removal and replacement of all 48 AHUs; and

(c)    the ESAC AHUs had been in “substantial conformity” with the Contract and were generally fit for purpose.

379    Those denials were elaborated in a number of ways.

380    For the reasons given earlier, I am satisfied that Kyren has established the importance to it of the manufacturer of the AHUs. I am also satisfied that Kyren was justified in taking the steps of removing the non-compliant ESAC AHUs and replacing them with the Temperzone AHUs. I note again that significant attempts had been made over a long period of time to overcome the inadequate performance of the ESAC AHUs and it was apparent, some 20 months after those attempts had started, that they had not been successful. For the reasons given in relation to the breach of contract claim, I am satisfied that Kyren has established that the AHUs were not generally fit for purpose and that it was appropriate for them to be replaced.

381    This means that Kyren has established its claim that it suffered loss because of the misleading or deceptive conduct of Promptair.

382    Section 236 of the ACL provides that a person who suffers loss or damage because of conduct of another contravening (relevantly) s 18 of the ACL may recover the amount of the loss or damage by action against the contravenor.

383    Kyren submitted that its damages pursuant to s 236 should be assessed in the same way as the damages for the breach of contract.

384    Promptair’s first submission was that the damages should not exceed the aggregate amount of progress payments 7-10 inclusive (which it regarded as totalling $395,750). It submitted that this was so because that was the amount which Kyren had paid away in consequence of its conduct, it was the amount pleaded by Kyren, and because Kyren had not directed it to remove the ESAC units and to replace them with the approved AHUs.

385    It also submitted that, because it was FYD which had made the payments, Kyren had not established that it had suffered a loss.

386    It would not be correct in principle to find that Kyren is confined to the amounts actually paid away and not entitled to recover any of its consequential losses. Further, Promptair’s submission overlooks the fact (as I find it to be) that, had Promptair informed Kyren or Lucid that it had installed the non-approved ESAC AHUs, it would have been required to remove and replace them with approved AHUs. The work which Kyren subsequently undertook to replace the AHUs comprises part of its loss.

387    The claim that Kyren has not suffered a loss because the payments were made by FYD fails, for the same reasons given earlier.

388    The submissions of the parties did not otherwise distinguish between the assessment of damages for breach of contract, on the one hand, and the assessment of damages pursuant to s 236 of the ACL, on the other. Promptair seemed to accept that, if the matters which it had raised in defence to the misleading or deceptive conduct claim failed, then it would be appropriate for the Court to award the same damages for its misleading or deceptive conduct as it awarded for the breach of contract. Accordingly, I will proceed on that basis. Had it been necessary to do so, I would have assessed Kyren’s damages for the loss it suffered because of Promptair’s misleading or deceptive conduct at $944,033.50.

389    This conclusion makes it unnecessary to consider the claim made by the Applicants in the alternative that FYD was entitled to recover the amounts it had paid by reason of the misleading or deceptive conduct of Promptair. Counsel had referred to Bartley v Myers [2002] SASC 24; (2002) 83 SASR 183 at [191]-[202] and to Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 529 in relation to this claim.

Apportionment

390    By [79] of the Seventh Amended Defence, Promptair claimed that, if it is liable to Kyren for damages for breach of contract, judgment should be entered against it only for such amount as is just and equitable having regard to the conduct of Lucid and Vekavent. This pleading invoked s 72 of the Development Act 1993 (SA) and s 8 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (the LR Act).

391    Promptair had also pleaded s 72 of the Development Act in [12.5] and [12.7] of the Seventh Amended Defence and had pleaded the LR Act in [12.8] of the Seventh Amended Defence.

392    In [39.9] of the Seventh Amended Defence, Promptair raised the same claim with respect to Kyren’s misleading or deceptive conduct claim, referring on this occasion to s 87CD of the Competition and Consumer Act 2010 (Cth) (the CC Act).

Section 72 of the Development Act

393    Section 72 provides:

72 - Negation of joint and several liability in certain cases

(1)    If—

   (a)    building work is defective; and

(b)    the defect or defects arise from the wrongful acts or defaults of two or more persons; and

(c)    those persons would, apart from this section, be jointly and severally liable for damage or loss resulting from the defective work; and

(d)    an action is brought against any one or more of those persons to recover damages for that damage or loss,

the court may only give judgment against a defendant, or each defendant, for such amount as may be just and equitable having regard to the extent to which the act or default of that defendant contributed to the damage or loss.

(2)    An act or default for which a person is vicariously liable will be taken to be an act or default of that person for the purposes of this section.

394    The term “building work” in subs (1)(a) is defined in s 4 of the Development Act as follows:

“Building work” means work or activity in the nature of –

(a)    the construction, demolition or removal of a building (including any incidental excavation or filling of land); or

…

(c)    any other prescribed work or activity.

395    The term “building” is defined in s 4 to mean “a building or structure or a portion of a building or structure (including any fixtures or fittings which are subject to the provisions of the Building Code of Australia), whether temporary or permanent, moveable or immoveable, and includes a boat or pontoon permanently moored or fixed to land, or a caravan permanently fixed to land”.

396    As counsel for Promptair noted, there is no clear authority that mechanical services work of the type undertaken by Promptair falls within these definitions. Counsel also noted that it has been held that air conditioning works are not “building work” under the similar (but not identical) provisions in the Building Work Contractors Act 1995 (SA): DG Australia Pty Ltd v Alexander [2003] SASC 176.

397    This is an important issue and one on which the Court received submissions only from Promptair, as Kyren did not make any submissions at all with respect to the apportionment issue. In those circumstances, I am reluctant to express a concluded view and, for the reasons to follow, it is unnecessary to do so.

398    The second and third elements in s 72 of the Development Act are that the defect arises from the “wrongful acts or defaults of two or more persons” and that those persons would, apart from s 72, be jointly and severally liable for the damage or loss resulting from the defective work.

Sections 87CB and 87CD of the CC Act

399    Sections 87CB and 87CD of the CC Act provide:

87CB Application of Part

(1)    This Part applies to a claim (an apportionable claim) if the claim is a claim for damages made under section 236 of the Australian Consumer Law for:

(a)    economic loss; or

(b)    damage to property;

caused by conduct that was done in a contravention of section 18 of the Australian Consumer Law.

(2)    For the purposes of this Part, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind).

(3)    In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

(4)    For the purposes of this Part, apportionable claims are limited to those claims specified in subsection (1).

(5)    For the purposes of this Part, it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died.

87CD Proportionate liability for apportionable claims

(1)    In any proceedings involving an apportionable claim:

(a)    the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss; and

(b)    the court may give judgment against the defendant for not more than that amount.

(2)    If the proceedings involve both an apportionable claim and a claim that is not an apportionable claim:

(a)    liability for the apportionable claim is to be determined in accordance with the provisions of this Part; and

(b)    liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3)    In apportioning responsibility between defendants in the proceedings:

(a)    the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law; and

(b)    the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.

(4)    This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings.

(5)    A reference in this Part to a defendant in proceedings includes any person joined as a defendant or other party in the proceedings (except as a plaintiff) whether joined under this Part, under rules of court or otherwise.

400    The term “damage” in these provision is a reference to the harm or loss suffered by the applicant, rather than to the amount of damages or the losses quantified: Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10, (2013) 247 CLR 613 at [23]-[24].

401    It is not necessary to set out the terms of s 8 of the LR Act. It is not in identical terms to either s 72 of the Development Act or s 87CD of the CC Act, but its effect is (relevantly) the same.

402    The purpose of s 87CD was discussed by French CJ, Hayne and Kiefel JJ in Hunt & Hunt:

[16]    The evident purpose of Pt 4 is to give effect to a legislative policy that, in respect of certain claims such as those for economic loss or property damage, a defendant should be liable only to the extent of his or her responsibility. The court has the task of apportioning that responsibility where the defendant can show that he or she is a “concurrent wrongdoer”, which is to say that there are others whose acts or omissions can be said to have caused the damage the plaintiff claims, whether jointly with the defendant's acts or independently of them. If there are other wrongdoers they, together with the defendant, are all concurrent wrongdoers.

[17]    The purpose of Pt 4 is achieved by the limitation on a defendant's liability, effected by s 35(1)(b), which requires that the court award a plaintiff only the sum which represents the defendant's proportionate liability as determined by the court. For that purpose, it is not necessary that orders are able to be made against the other wrongdoers in the proceedings. Section 34(4) provides that it does not matter, for the purposes of Pt 4, that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died. Thus under Pt 4 the risk of a failure to recover the whole of the claim is shifted to the plaintiff.

(Citation omitted)

403    Thus, s 87CD and its Federal and State and Territory counterparts reflect a legislative policy that, in respect of claims for economic loss or property damage, respondents should be liable only to the extent of their own responsibility.

404    It is, however, important to note that s 87CD and its counterparts operate only in respect of wrongdoers, namely, persons who are themselves liable to the applicant: Shrimp v Landmark Operations Ltd [2007] FCA 1468, (2007) 163 FCR 510 at [59]; St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245 at [59]; Latteria Holdings Pty Ltd v Corcoran Parker Pty Ltd [2014] FCA 880, (2014) 224 FCR 519 at [16]. In the last of these cases, Mortimer J referred to Hunt & Hunt in which, at [91], Bell and Gageler JJ said:

To answer the description of “a person … whose acts or omissions (or act or omission) caused” that damage or loss or harm, C (in common with B) must be (or have been) legally liable to A for the damage or loss that is the subject of the claim. The reference in the definition to “acts or omissions (or act or omission)” is to one or more legally actionable acts or omissions. The reference in the definition to acts or omissions having “caused … the damage or loss that is the subject of the claim” is not, as has correctly been held, merely to causation in fact. “Questions of causation are not answered in a legal vacuum” but “are answered in the legal framework in which they arise”. The reference here is to causation that results, or would result, in legal liability.

(Emphasis in the original and citations omitted)

405    The authorities also indicate the importance of a proper pleading of a claim of proportionate liability. See, for example, Ucak v Avante Developments Pty Ltd [2007] NSWSC 367 at [35]; Hart v JGC Accounting & Financial Services Pty Ltd [2015] WASCA 22, (2015) 47 WAR 582 at [25]-[26].

Apportionment with respect to Lucid

406    The basis for Promptair’s claim that a wrongful act or default of Lucid contributed to Kyren’s loss is pleaded in [12] of the Seventh Amended Defence. The plea commences with a claim that Lucid owed both a contractual and tortious duty of care to perform its work in accordance with the accepted professional standards of a competent consulting engineer, at [12.3]. Promptair then pleads that Lucid breached that duty of care in multiple respects. These turn on, or derive from, the inconsistency in the performance criteria contained in the First Specification. Thus, Promptair pleads that:

(a)    Lucid’s preparation of the First Specification was defective because the combination of performance and construction requirements was not, in combination, technically achievable;

(b)    Lucid wrongly rejected the technical data supplied by Promptair relating to the Carrier and Fläktwood AHUs on the basis that they did not meet the unachievable requirements in the First Specification;

(c)    Lucid insisted upon strict compliance with the Air Off temperature requirement without issuing an addendum to the Specification so as to make that requirement technically achievable; and

(d)    Lucid should not have approved the final Promptair submission but rather should have amended the specification so that “reputable local suppliers” could provide compliant AHUs.

407    These allegations are elaborated in the remaining subparagraphs within [12] and [13] of the Seventh Amended Defence.

408    I have already recorded some of the exchanges between Promptair and Lucid in the AHU approval process which occurred in August and September 2011. I will return to that topic shortly. For the moment, it is convenient to record that Kyren denied that there had been any breach of a duty of care by Lucid and, in the alternative, that any breach had been causative of its loss. At the heart of that denial was that Lucid had made it plain to Promptair that it was compliance with the required Air Off temperature which was essential and that Promptair had been aware of the inconsistency in the First Specification during the approval process. In fact, it had sought approval of AHUs in which the total cooling capacities and sensible cooling capacities exceeded those specified in the First Specification. That is to say, Kyren alleged that Lucid had addressed the issue raised by the inconsistency. It also pleaded that Lucid had not rejected Promptair’s proposed AHUs because they exceeded the specification for total cooling capacity and sensible cooling capacity.

409    In considering the claim which Promptair makes concerning the liability of Lucid, it is appropriate to keep in mind the allocation of the contractual responsibilities. Promptair had given the warranties contained in cl 2.2 of the Contract, set out earlier in these reasons. Specifically, it had accepted responsibility for complying fully with the Specification and for the selection of plant to achieve the specified performance (cl 2.1 of the First Specification). It had also agreed to guarantee the performance of the systems installed under the Contract and had accepted that approval of the equipment did not override the requirement for it to comply with the requirements of the First Specification (cl 2.1).

410    Earlier in these reasons, I recorded aspects of the process by which Lucid sought approval of the AHUs. It is appropriate to repeat some of that detail presently.

411    The process by which Promptair sought Lucid’s approval had commenced on 23 August 2011 when Mr Upton sent to Lucid “the Carrier tech data … for your comment/approval/rejection”. As noted earlier, Mr Stanton responded later the same day. He said that “all coil air off temps are required to be 10 deg C”. He did not make any comment on the total and sensible cooling capacities and concluded by asking whether Carrier could “adjust the coil designs to suit”. As noted earlier, Mr Stanton made a note on the Carrier data that the Air Off temperature had to be 10°C and suggested that the coil capacity be increased so as to achieve that.

412    At that time, Mr Upton was also communicating with Mr Kärner. By an email of 30 August 2011, Mr Kärner gave some comments on the compliance of the Carrier technical data with the criteria in the First Specification. His email included the statement “[b]ased on sensible capacity I would say that leaving dry bulb from coil must be 12 deg C”. In effect, Mr Kärner was pointing out the tension between the specified sensible capacity in the First Specification, on the one hand, and the Air Off requirement, on the other. Mr Upton did not pass that comment on to Lucid then, or at any other time.

413    On 29 August 2011, Mr Upton provided “revised Tech Data” for Carrier AHUs to Mr Adcock, Mr Stanton and to Lucid.

414    On 1 September 2011, Mr Kärner sent an email to Mr Upton saying:

I have finalized selections as above. These units will be not branded as FW but construction will be same as selection and drawings above. Hope this is ok as with FW Sweden factory the price will be too high vs. Carrier. Probably you will like to see at least similar to Carrier price.

415    On 2 September 2011, Mr Kärner provided Mr Upton with a quotation for the AHUs. The quotation was contained on ESAC letterhead, thereby indicating clearly that the quotation did not relate to Fläktwood units. On the same day, Mr Kärner provided Mr Upton with the technical data for Fläktwood AHUs.

416    I am satisfied that the abbreviation “FW” is a reference to Fläktwood. Mr Kärner was telling Mr Upton specifically that the AHUs which he had selected would not be Fläktwoods and that he had done that because of price considerations. He also told Mr Upton that the “construction” of the alternate AHUs would be the same as the “selection and drawings above” being, apparently, those relating to Fläktwood AHUs.

417    Despite having been informed that Mr Kärner’s selections were not Fläktwood AHUs, Mr Upton then sent the following email to Mr Adcock and Mr Stanton at Lucid on 2 September 2011:

Please find attached the tech data for the Fläktwood AHU’s. Viekko from Flaktwoods is a very helpful Engineer and understands your requirements. We put their products into Tower 2 Waymouth Street (5 star green) and were very impressed with the quality and performance.

Please let me know your thoughts on the attached data.

418    As is apparent, Mr Upton identified the data as relating to Fläktwood AHUs. He reinforced this by his reference to “Viekko from Fläktwoods”. It is also apparent that he sought to draw on the reputation of Fläktwood AHUs by reference to the previous use of them on another property.

419    By an email on 5 September 2011 to Mr Adcock and Mr Stanton, Mr Upton suggested the use of a plug fan instead of a belt driven fan. Mr Adcock informed Mr Upton later the same day that Lucid was interested in pursuing the use of plug fans and also told him that Mr Stanton would be responding later that same day concerning “the AHU tech data submitted to date”.

420    On 6 September 2011, Mr Upton sent to Mr Adcock and Mr Stanton technical data relating to Daikin AHUs but told him that Promptair had rejected those based on Lucid’s earlier comments. Mr Upton must have been referring to Lucid’s insistence on compliance with the Air Off 10°C temperature requirement as Mr Stanton’s statements on 23 August 2011 were the only comment provided to Promptair to that date.

421    On 8 September 2011, Mr Stanton provided a response to Mr Upton concerning the tech data for the Carrier units he had provided on 29 August 2011. Mr Stanton noted, amongst other things:

Still having some leaving air temperatures are high. Units around the 10.1 and 10.2 are ok, but any higher will not be acceptable.

422    Again, Mr Stanton made it clear that the Air Off temperature of 10°C was critical. He did not make any comment concerning the total cooling capacity or total sensible cooling capacities of the Carrier AHUs.

423    Also on 8 September 2011, Mr Stanton provided Lucid’s response concerning the Fläktwood AHUs (more accurately, what Mr Stanton thought were Fläktwood AHUs). He said:

The Flaktwood units have a similar issue to the Carrier units. The air off temperatures are too high, up around 12 in most cases. The airside statics and waterside statics are generally ok. Unit sizes ok.

Could we please get reselections on the coil to achieve the 10.0 air off temp.

424    A very pertinent communication for present purposes occurred on 9 September 2011. Mr Kärner responded to the information given to him by Mr Upton that Lucid require an Air Off temperature of 10°C by saying:

This is interesting now as your sensible capacity goes up 15% and question is about Chillers. Do you have enough capacity?

Obviously the coil pressure drop will increase as well as extra rows must be added.

425    As is apparent, Mr Kärner was pointing out that an Air Off temperature of 10°C could be obtained only if the total sensible cooling capacity was increased by 15%. Although informed of that fact, Mr Upton did not inform Lucid that that was so. However, as will be seen, he acted in accordance with the information he had received from Mr Kärner by seeking approval for AHUs with total cooling capacities in excess of those specified in the First Specification. He was entitled to do so by reason of the statement in cl 2.1 of the First Specification that “the capacities and outputs of the various items of installed equipment shall be not less than those specified”. It is evident that Mr Upton did not consider himself constrained by the cooling capacities specified in the First Specification.

426    Mr Upton responded to Lucid on 14 September 2011 with an email which commenced:

Please find attached final selections from Flaktwoods for comment/approval.

427    He attached the technical data for several AHUs. By a later email he attached further technical date describing these as “more of the AHUs selections”.

428    As is apparent, Mr Upton was representing that the technical data which he was providing related to Fläktwood AHUs. He must also have known that Mr Stanton understood that he was being provided with the technical data for Fläktwood AHUs because, on 16 September 2011, Mr Stanton responded to Mr Upton as follows:

The AHUs selections look ok. I didn’t get the selections for Levels 9 up, but if these are anything to go by it looks like Flaktwood have made the necessary modifications to the coils.

Are these the EC plug fans that we were potentially going to look at? If not do Flaktwood provide the VFD’s to these units sized for their fan motor’s? I know some suppliers do this separately which raises warranty questions if wrong sized VFD’s are fitted.

(Emphasis added)

429    It seems that Mr Upton provided a copy of Mr Stanton’s email of 16 September 2011 to Mr Kärner. In any event, by email on 19 September 2011, Mr Kärner reminded Mr Upton that the technical data did not relate to Fläktwood AHUs. He said:

I said before, these are not Flaktwoods AHU but produced same construction & technical details as Flaktwoods.

See catalogue about for ESAC units.

430    By the same email, he provided Mr Upton with a copy of the ESAC catalogue containing promotional material concerning ESAC.

431    Subsequently, after Mr Upton had provided the technical data for the AHUs at Levels 9-16, Mr Stanton gave Lucid’s approval for the AHUs.

432    I am satisfied that he did so in reliance upon the information provided by Promptair, including the identity of the manufacturer and the technical data. There was no suggestion of any breach of professional duty by Lucid in that respect.

433    Mr Stanton had said, when insisting on compliance with the Air Off 10°C requirement, that it would be appropriate for Promptair to increase the coil capacity in the AHUs to achieve that result. Doing so increased the cooling capacity. Again, it was not suggested that there was any breach of professional duty by Lucid in that indication to Promptair.

434    Further, Lucid had by other means made it apparent to Promptair that it did not have to adhere to the specifications for total cooling capacity and total sensible cooling capacity. The technical data for the Carrier AHUs Promptair submitted on 29 August 2011 contained specifications for the cooling capacities which exceeded those in the First Specification. As noted earlier, when Mr Stanton provided his comments on the Carrier AHUs, he did not even refer to the specification of the cooling capacities. He indicated concern about only two matters, one of which was the data concerning the Air Off temperatures.

435    Mr Upton’s understanding that Lucid did not require adherence to the actual specifications for the total and sensible cooling capacities is also evident in the technical data he provided to Lucid on 14 and 20 September 2011 (said to be for Fläktwood AHUs, but in fact for ESAC AHUs). These contained specifications for “output” (said to be synonymous with total cooling capacity) which well exceeded the counterpart specifications in the First Specification. This was the data which was approved by Mr Stanton.

436    Kyren submitted, and I accept, that this evidence indicates that Lucid had indicated the way in which the inconsistency was to be resolved, and that Promptair had not been constrained by the inconsistent Specification for total cooling capacity and total sensible cooling capacity. As the evidence reviewed above indicates, Mr Kärner had pointed it out to Promptair; Mr Stanton had suggested increased coil capacities; and Promptair had sought approval of AHUs with increased cooling capacities.

437    In my view, when regard is had to the course of the approval process, the inconsistency in the First Specification does not have the significance which Promptair sought to attach to it. There was no breach of duty by Lucid in refusing approval for the Carrier or Fläktwood AHUs, as neither complied with the requirement for the Air Off temperature. Lucid was not obliged to issue an addendum to the First Specification because Promptair was capable of complying with it. Lucid’s approval of the AHUs on the data submitted by Promptair cannot reasonably be regarded as a breach of professional duty. On the contrary, it is evident that Lucid gave the submitted data appropriate scrutiny.

438    I add that some of the evidence which Promptair adduced from Dr Bellstedt concerned matters bearing on the liability of Lucid. There was a good deal of unanimity in the opinions of Mr Maynard and Mr Caleo, on the one hand, and of Dr Bellstedt, on the other. In those areas on which their opinions differed, I have generally preferred the opinions of Mr Maynard and Mr Caleo. I had the impression that their opinions were more practically based and, in any event, they had regard to the course of the approval process. Dr Bellstedt tended to focus more on the content of the First Specification without regard to the course of events during the approval process. In particular, Dr Bellstedt’s opinion overlooked that Promptair had not regarded itself as constrained by the cooling capacities specified in the First Specification. Dr Bellstedt’s opinion also failed to take account of the fact that some of the performance and construction criteria in the First Specification were described as minima.

439    I conclude that Promptair has not established any breach of professional duty by Lucid. Instead, it was Lucid which was misled by Promptair as to the identity of the AHUs which it was asked to approve. It was also asked by Promptair to approve AHUs on the basis of technical data which did not relate to the AHUs which it thought it was approving. Thirdly, Lucid had made it clear to Promptair that the critical consideration for its approval was the Air Off temperature of 10°C. It had not insisted on the AHUs having the exact total and sensible cooling capacities specified in the First Specification but had accepted, appropriately, that the AHUs could have greater cooling capacities than those specified.

440    Even if Promptair had established a breach of duty by Lucid, it does not, for the same reasons, establish that the resultant loss was in part caused by Lucid’s breach.

441    Promptair’s claim for an apportionment with respect to the liability of Lucid, whether under s 72 of the Development Act, s 8 of the LR Act or s 87CD of the CC Act fails.

Apportionment with respect to Vekavent

442    Promptair’s claim for an apportionment of its liability under s 72 of the Development Act having regard to the conduct of Vekavent faces the difficulty that it has not shown a basis on which Vekavent is legally liable to Kyren. Its defence did not include any claim to that effect, let alone plead the material facts supporting such a claim. Putting to one side those paragraphs in the Seventh Amended Defence in which Promptair makes the assertion that its liability should be apportioned having regard to the conduct of Vekavent, amongst others, the only other reference in the Defence is in [13.5] in which it pleads a series of events concerning its seeking of the approval for the AHUs. That subparagraph cannot reasonably be understood as containing allegations of Vekavent’s liability to Kyren, let alone of the material facts supporting it.

443    Quite apart from the pleading difficulties, Promptair’s submissions did not seek to show a basis upon which Vekavent could be legally liable to Kyren, as opposed to itself.

444    For this reason, Promptair’s claim for an apportionment by reference to the conduct of Vekavent fails.

ESAC and Kyren

445    Before leading the topic of apportionment, I mention that the Seventh Amended Defence also contained a claim of apportionment with respect to the alleged wrongful act or default of ESAC, at [79.2], and of Kyren itself, at [79.1] and [79.3].

446    Presumably, the claim with respect to Kyren was made on the basis that the proper claimant of damages was FYD. On the basis of my findings, that allegations falls away. I observe that Promptair did not address any submissions towards it.

447    Nor did Promptair address any submissions with respect to an apportionment on the basis of the conduct of ESAC. I took that claim to have been tacitly abandoned.

Conclusion on the apportionment claim

448    This means that Promptair’s claim that judgment should be entered against it for only a proportionate part of Kyren’s claim fails.

The cross-claim against Vekavent and Mr Kärner

449    As noted at the commencement of these reasons, although the Cross-Respondents had filed a defence to Promptair’s cross-claim, they did not appear at the trial.

450    An initial question in relation to Promptair’s cross-claim against Vekavent is whether s 440D of the Corporations Act, set out at the commencement of these reasons, precludes Promptair from pursuing it, without the written consent of the Administrators or the leave of the Court. In his closing submissions, counsel for Promptair quite properly drew the Court’s attention to conflicting authorities on the question: Mead Corporation v Carbonless Papers (Australia) Pty Ltd [2002] WASC 268, on the one hand, and MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383, (2012) 202 FCR 354 and Arogen v Leighton [2013] NSWSC 1099, (2013) 278 FLR 245, on the other. In the latter two cases, it was held that a cross-claim by a company in administration was not a “proceeding … relation to any of its property” to which s 440D refers. Arogen v Leighton appears to have been followed in CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd (No 2) [2013] TASFC 10; (2013) 24 Tas R 10.

451    Counsel for Kyren did not address any submissions to the issue. The solicitor for the Administrator who attended the Court when the issue of leave to proceed against Promptair had been raised took the view that s 440D did not apply to Promptair’s cross-claim. In these circumstances, and given the national nature of the scheme of the CC Act, I consider it appropriate to follow the approach adopted in MG Corrosion and in Arogen v Leighton. Promptair does not require leave to proceed on its cross-claim against the Cross-Respondents.

452    Counsel for Promptair submitted that, by reason of the non-attendance of the Cross-Respondents at the trial, judgment should be entered for it against them pursuant to r 5.23 of the Federal Court Rules 2011 (Cth). That Rule operates when a party is “in default”. By r 5.22(c), a party is “in default” if a party fails to attend a hearing in the proceeding. Rule 5.23(2) provides for that circumstance:

(2)    If a respondent is default, an applicant may apply to the Court for:

…

(c)    if the proceeding was started by an originating application supported by a statement of claim, or if the Court ordered that the proceeding continue on pleadings – an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or

(d)    an order giving judgment against the respondent for damages to be assessed, or any other order; or

…

453    As I understood it, Promptair sought orders under both subrr (2)(c) and (d).

454    It is established that the Court may grant relief under subr (2)(c) on being satisfied that the relief sought could be granted on the face of the pleading and without requiring evidence: Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2006] FCA 1427, (2006) 236 ALR 665 at [45]-[48]; CNIP Pty Ltd v Chan & Naylor Norwest Pty Ltd (No 2) [2011] FCA 1170 at [18]-[19].

455    The Amended Statement of Claim on the cross-claim indicates that Promptair alleged misleading or deceptive conduct by the Cross-Respondents. More particularly, Promptair alleges that Mr Kärner made four representations about the ability of the AHUs whose technical data he was supplying to satisfy the requirements of the First Specification. Those representations were made in Mr Kärner’s emails of 9, 13 and 14 September 2011 and in his provision of the technical specifications for the AHUs. Promptair alleged that each of these representations was false and misleading and made without any reasonable basis as the ESAC AHUs were not capable of producing the required Air Off temperatures and did not in fact do so.

456    By [16] of their filed Defence to the cross-claim, the Cross-Respondents asserted that each of the four representations pleaded by Promptair had been made in relation to future matters and that there had been reasonable grounds for them to make those representations at the time that they were made. This plea involved an implicit admission that the representations had been made.

457    In these circumstances, I am satisfied that, subject to a matter concerning the form of the judgment to be mentioned shortly, Promptair has an entitlement, in the requisite sense, to judgment under r 5.23(2)(c) against the Cross-Respondents in respect of its liability to Kyren.

458    Promptair’s Amended Statement of Claim on the cross-claim also includes a claim in respect of the costs which it itself had incurred in undertaking the various unsuccessful attempts to investigate, modify and adjust the AHUs so that they might achieve the Air Off temperature of 10°C and, in addition, a claim for the loss of profits it alleges it had suffered by not being able to undertake the work pursuant to the Third Specification. However, Promptair did not lead evidence of the damages it sought for these components. Instead, as I understood it, Promptair sought an order pursuant to r 5.23(2)(d) in respect of this aspect of its claim.

459    This gives rise to an issue concerning the form of the judgment to be entered in Promptair’s favour on the cross-claim. I will hear submissions from the parties about that.

Conclusion

460    In summary, for the reasons given above, I am satisfied that Kyren is entitled to damages from Promptair in the sum of $944,033.50.

461    FYD’s claim in the proceedings should be dismissed.

462    Promptair is entitled to judgment against the Cross-Respondents on its cross-claim but I will hear submissions from Promptair as to the appropriate form of the judgment.

463    Before entering judgment, I will hear from the parties with respect to interest and costs and as to the orders to be made, including the appropriate orders in relation to the claims in [60] to [62] inclusive of the 5ASC, on which Kyren was not granted leave to proceed against Promptair.

Associate: .

Dated:    26 March 2019

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