National v WellingtonWellington v National [2003] NSWSC 21

New South Wales Supreme Court

CITATION : National v WellingtonWellington v National [2003] NSWSC 21 HEARING DATE(S) : 09/12/02 JUDGMENT DATE : 12 February 2003 JURISDICTION: Equity JUDGMENT OF : Master Macready at 1 DECISION : Conclusions of Referee not accepted.

CATCHWORDS : Sale of goods- conditions and warranties - contract for supply of forked castings for steel work - supply of defective castings - whether reliance by plaintiff on defendant's skill or judgment - Sale of Goods Act 1923 (NSW) s19(1). Whether the Referree's report under Supreme Court Rules Part 72 should be accepted. PARTIES : National Engineering Pty Ltd v Wellington Orana Foundry Pty Ltd & Anor Wellington Orana Foundry Pty Ltd v National Engineering Pty Ltd FILE NUMBER(S) : SC 55020/00; 55036/00 COUNSEL : Mr A. Diethelm for National Engineering Mr. S. Hill for Wellington Orana SOLICITORS : Philip Boyce & Associates for National Engineering Marsdens Law Group for Wellington Orana

- 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Master Macready

Wednesday 12 February 2003

55020/2000 National Engineering Pty Ltd v Wellington Orana Foundry Pty Ltd 55036/2000 Wellington Orana Foundry Pty Ltd v National Engineering PtyLtd JUDGMENT 1 MASTER: This is the hearing of a motion filed on 13 September 2002 in which National Engineering Pty Ltd ("National") seeks an order that a referee's report pursuant to Part 72 of the Supreme Court Rules be rejected. Wellington Orana Foundry Pty Ltd ("Wellington") submits that the report, which found that there should be judgment for Wellington against National in a sum of $122,350.00 should be adopted by the court. The matter came before me when I was an Acting Judge of the Court and I have continued to deal with the matter pursuant to s 37 (3A) of the Supreme Court Act. 2 There are two proceedings before the Court that concern the same factual matters. Originally Wellington commenced proceedings in the District Court against National claiming a sum of $129,420.20 for goods sold and delivered. In June 2000 National commenced proceedings in the Supreme Court against Wellington claiming damages for breach of contract in the sum of $1,145,756.00. There was also a claim by National against Nepean Engineering Pty Ltd. That claim was not referred out to the referee and does not concern me. 3 The District Court proceedings were transferred to the Supreme Court and on 26 October 2001, in each of the proceedings, the court referred the whole of the proceedings as between National and Wellington to Mr G. A. Markham as referee. Mr Markham is an experienced structural consulting engineer. Background facts to the dispute 4 Most of these facts are not contentious as in general there is no challenge to most of the detailed findings of fact. The following account is taken from National's submissions but has been amplified to clarify some matters referred to by Wellington. 5 In November 1996 National entered into a sub-contract with Multiplex Constructions (NSW) Pty Ltd for the fabrication and erection of structural steelwork for Stadium Australia. The roof steelwork included diagonal tube members with forked-end connections. National sought and obtained approval from Multiplex and its engineers to cast the forked-ends rather than fabricating them from plate steel. Drawings supplied by Multiplex stipulated the quality of steel required as "350G". 6 "350G" is a grade of hot-rolled steel plate defined by AS 3678. That standard requires that grade 350 have a minimum yield strength of 350 megapascals ("MPa") and sets out the required chemical composition for the grade. (Report para 11.) 7 Cast steel is the subject of a different Australian Standard, AS 2074. This standard does include steels which reach a yield strength of 340-350 MPa, but such steels are not referred to as "350G". The same chemical composition as in 350G plate steel would not produce steel with a strength of 350 MPa in cast steel. (Report para 12.) 8 In November 1996 National requested from Wellington a quotation for castings "in 350G" which was responded to by Wellington quoting on "350G" (Report paras 67, 70) There was a factual issue between the parties as to the content of a telephone conversation, about which the Referee made a finding of fact (Report paras 71-76). That finding was that Wellington was offering cast steel of the same chemical composition as AS/NZS 3678 grade 350 plate and not cast steel with a minimum yield strength of 350 MPa. The referee made a finding that the contract included an express term that the casting would be in mild steel having this chemical composition. 9 In February 1997 National issued a purchase order to Wellington for 2,400 of the cast forked-ends, stipulating "350G", with 800 to be supplied in each of April, May and June 1997 (Report paras 8, 87, 95). 10 Wellington produced and delivered certain castings (the "Mk1 castings") made in accordance with the shape requested by National. Upon testing these were found to contain defects (Report paras 27, 94). The design of the Mk1 castings was "flawed and doomed to fail for a cast component of structural quality" (Report para 39). 11 At this stage Wellington had cast about 600 of the mark 1 clevises some of which had been delivered. They were then advised that they should produce according to addendum No 2 which applied a radiographic standard class 2 inspection. The referee found that this established for the first time that for the clevises to be fit for the purposes of being incorporated into the roof structure of Stadium Australia the acceptance criteria was radiographic standard cast 2 and that the mark 1 clevises were not to that standard. 12 After making certain enquiries Wellington proposed in June 1997 that the design be modified to provide for "tapered ears" on the castings (the "Mk2 castings"), and in August 1997 a revised price was agreed for these castings with anticipated production of 150 to 200 per week (Report paras 30,36). During September 1997 National made complaints as to the quality of Mk2 castings (Report para 101). 13 National declined to pay for castings delivered until the guarantee by Nepean was provided. In November 1997 Wellington ceased production and National commenced to fabricate the forked-ends still required out of plate steel. 14 Multiplex engaged consultants to investigate the suitability of the castings and radiographic and ultrasonic testing was carried out. Testing was required on all castings incorporated in the modules which had been lifted into the roof. Several castings in the roof needed to be replaced. (Report paras 45, 46.) The legal principles applicable to the application 15 Part 72 rule 13 SCR governs proceedings in the Court after a Referee's report is made. The rule provides: "(1) Where a report is made, the Court may, of its own motion, after notice to the parties, or on application by any party, on a matter of fact or law or both: (a) adopt, vary or reject the report in whole or in part; (b) require an explanation by way of report from the referee; (c) on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report; (d) decide any matter on the evidence taken before the referee, with or without additional evidence, and shall give such judgment or make such order as the Court thinks fit. (2) Evidence additional to the evidence taken before the referee may not be adduced before the Court except with the leave of the Court."