FLENDER (AUST) PTY LTD v WARMAN INTERNATIONAL LTD [1998] NSWCA 81

FLENDER (AUST) PTY LTD v WARMAN INTERNATIONAL LTD

SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

HANDLEY and BEAZLEY JJA and SHEPPARD AJA 7 and 18 August 1997, 18 June 1998

[1998] NSWCA 81

Contract — Breach of contract — Causation — Non-compliance with requirements of technical codes — Whether non-compliance causative of loss.

Referees' report — Review of referees' determination — Procedural fairness — Supreme Court Rules Pt72.

In this appeal, the appellant was sued by the respondent for damages for, amongst other things, breach of contract for the supply of certain gear reducers, which included bevel pinion shafts which were to be used by the respondent in a slurry pump installation. The proceedings were referred to a referee for inquiry and report on the whole of the proceedings pursuant to Pt72 of the Supreme Court Rules. The referees found that the gear reducers as supplied by the appellant to the respondent failed in service after a relatively short service life. Eight failures were particularised in the report, two of which involved failure of the shafts. The referees found that the shafts did not comply with the requirements of a technical code known as the FEM rules.

The appellant sought a review of the referees' determination. On the review, Giles CJ Comm D held that the referees erred to the extent that they based their determination on the FEM rules, and held that their finding that the shafts had inadequate fatigue strength capacity when assessed according to another technical code, ASME, should be adopted. The consequence of this finding was that the appellant was in breach of its contract with the respondent. This was not challenged. The appellant submitted, however, that the mere finding of breach of contract does not result in a finding that that breach was causative of the damage suffered. It was also submitted that there was no evidence before the referees to establish that the failure to comply with the contractual standard, the ASME code, caused the damage which the respondent suffered, and that this part of the report should therefore have been rejected by the trial judge. On this submission, there being no other evidence before Giles CJ Comm D, the respondent was entitled to nominal damages only.