SUPREME COURT OF QUEENSLAND

SUPREME COURT OF QUEENSLAND CITATION: Natcraft P/L & Anor v Det Norske Veritas & Anor [2002] QCA 284 PARTIES: NATCRAFT PTY LTD ACN 010 592 775 (deregistered) (First Plaintiff/First Appellant) HENLOCK PTY LTD ACN 010 431 688 (Second Plaintiff/Second Appellant) v DET NORSKE VERITAS ACN 000 749 708 (First Defendant/First Respondent PETER COLLEY (Second Defendant/Second Respondent) FILE NO/S: Appeal No 9550 of 2001 SC 7976 of 2000 DIVISION: PROCEEDING: ORIGINATING COURT: Court of Appeal General Civil Appeal Supreme Court at Brisbane DELIVERED ON: 9 August 2002 DELIVERED AT: Brisbane HEARING DATE: 16 July 2002 JUDGES: McPherson JA, White and Wilson JJ Separate reasons for judgment of each member of the Court, each concurring as to the orders made. ORDER: CATCHWORDS: COUNSEL: The appeal by the deregistered first plaintiff is struck out. The appeal by the second plaintiff be dismissed with costs. TORTS - NEGLIGENCE - WHERE ECONOMIC OR FINANCIAL LOSS - CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE - PARTICULAR PERSONS AND SITUATIONS - OTHER CASES - a Marine Certifier engaged by the manufacturer failed to warn the purchaser, with whom there was no relationship at law, of defects in construction - whether certifier responsible in negligence for economic loss Anns v Merton Borough Council [1978] AC 728, mentioned Sutherland Shire Council v Heyman (1985) 187 CLR 424, referred to D O Gorman, with M Nolan, for the appellants G A Thompson, with H Bowskill, for the respondents

2 SOLICITORS: Lawrence W Hewitt for the appellants Ebsworth & Ebsworth for the respondents [1] McPHERSON JA: At some time in late October or early November 1987 the plaintiffs entered into a written contract with Mantacat Pty Ltd at Cairns for the construction of a vessel for carrying day trippers to islands off the Queensland coast. The vessel was to be a 14.3 metre catamaran named Sundancer designed for Mantacat by a firm of naval architects to be constructed of laminated layers of fibreglass and kevlon to form the hull, deck and superstructure. The price for the vessel to lockup stage was $100,000, with engines and other equipment to be supplied by the plaintiffs. [2] The plaintiffs paid a deposit of $77,000 and the construction went ahead. In fact, at the time of contract Mr D Auria of Mantacat already had plans to build three such catamarans of varying lengths, of which the Sundancer was one. There were considerable delays in completing her construction, and it was not until November 1988 that the vessel underwent sea trials. She performed well, and was put into operation carrying passengers. However, after only some eight journeys had been undertaken, the vessel suffered serious structural problems. A crack developed in the hull and she began to take water. Large areas of delamination took place on both hulls. She was brought ashore and laid up. The vessel never went to sea again and was ultimately broken up and sold as scrap. [3] Mr Althaus was, with his accountant Mr Connole, the moving force behind the Sundancer venture. Each of them controlled one of the two corporate plaintiffs, which were partners in the business. Recently the first plaintiff has been deregistered. As a result of the whole unhappy affair, Mr Althaus was left without income or assets and was forced to sell his house. At the trial, he conducted the proceedings in person. Although not trained in law, the trial judge, who was Chesterman J, complimented him on his conduct at the trial. His Honour concluded, however, that in law and fact the plaintiffs were not entitled to succeed. I have reached the same conclusion for reasons that are the same or similar to those given by his Honour. [4] The vessel failed because of the two defects already mentioned, which were the delamination and the splitting of the hull. The cause of those defects was not precisely established at the trial. It seems likely that the crack in the hull was caused by a change in the design, which resulted from installing larger engines and moving them forward, adding a good deal of extra weight to the vessel. The reason for the delamination is even less clear, but it may possibly have been the consequence of removing of frames and other structural members associated with relocating the engines. In the ordinary way, the cause of the defects would not have mattered. It was a condition implied in the contract by the Sale of Goods Act 1896 (Qld) that, as seller, Mantacat would supply a vessel that was reasonably fit for its intended purpose. This the Sundancer certainly was not. Mantacat was in breach of that condition in the contract and liable for the resulting loss. Unfortunately, about a year after these events, it became insolvent and ceased business. The person who ought to have made good the plaintiffs losses therefore never did so. [5] In these circumstances the plaintiffs looked about for someone else to sue. Their attention fell on the first defendant Det Norske Veritas ( DNV ) and its agent Peter Colley, who is the second defendant. DNV is a non-profit organisation that

3 functions as a marine classification society. It originated in Norway, but it now operates in many other parts of the world. Essentially, its function is to set technical standards in shipbuilding and to see that they are carried out and maintained. Ship construction plans are examined; the process of building the vessel is inspected as it progresses; and the plans as constructed are verified. It is only then that DNV issues its final certificate of approval. Its certificates are highly respected and receive great weight in marine circles. It is apparent from the evidence in these proceedings that, at the time in question, the Department of Harbours and Marine relied on such certificates in exercising its statutory power to determine, in the case of a vessel like this, whether or not the vessel should be permitted to carry passengers in Queensland waters. [6] It was because the Department was known to have confidence in DNV that Mantacat engaged it. Obtaining DNV s certificate of approval would practically ensure that the Department would issue a certificate of survey for each of the three types of catamaran Mantacat was planning to build. Furthermore, it was a specific term of Mantacat s shipbuilding contract with the plaintiffs that, when completed, the Sundancer would be fit to receive a Departmental certificate of survey authorising it to carry 35 paying passengers by day. Only then would the plaintiffs be lawfully able to use the vessel to carry passengers commercially. [7] The evidence is that for vessels of these minor dimensions there are no agreed standards of design to which they should be built. DNV therefore issues what it calls type approval, which involves approving a standard design submitted by a boat builder, seeing if a boat like that can be built at the builder s yard, performing random inspections of a boat of that type under construction at that yard, and confirming that it has been constructed with proper materials and workmanship and in accordance with the approved plans. For performing this service DNV quoted Mantacat a total fee of $5,533, of which $3,090 was for approval of design drawings and $1,040 was for surveying hull construction and fitout, a further $1,106 would be charged for certifying the Sundancer as an individual boat if required. [8] The first defendant examined and approved the design drawings. On various occasions the second defendant Mr Colley attended at Mantacat s yard and inspected the work in progress. Ultimately in early November 1988 DNV issued a statement verifying that Sundancer had been constructed in accordance with the approved plans for hull and machinery under the supervision of DNV s surveyor Peter Colley; that the vessel had successfully completed her sea trials; and that a final certificate would issue when head office had approved plans for electrical installations. This statement was not correct. The vessel had not been constructed in accordance with the original design plans. Structural changes resulting from installing the heavier engines had been effected in the course of construction. There should have been a further set of as constructed drawings showing those changes. Instead, it was the design drawings and not the as constructed drawings that were the subject of the statement issued in November 1988. [9] It is not clear how that state of affairs came about. The statement was issued by a Mr Carlsen at the Sydney office of DNV to which the plans were sent. It was not part of Mr Carlsen s function to issue DNV certificates, and he should not have done so. He had died some time before the trial took place, so that he could not be asked how it happened. However that may be, this statement or certificate was obtained and passed on to the Department, which duly issued its certificate of

4 survey authorising the use of Sundancer for carrying passengers at sea. As has been said, the vessel suffered structural breakdown after only eight voyages. [10] It is difficult to see what good it would have done the plaintiffs if DNV had refrained from giving that statement of approval. The Department would then not have issued its certificate of survey and the vessel would not have been authorised to go to sea with passengers. That would not have improved the plaintiffs' position at all. Perhaps if the DNV approval had been withheld, the plaintiffs could have prevailed on Mantacat to replace or repair the lamination, if that was possible, and to strengthen the hull structure. That was essentially the submission advanced on the appeal. The plaintiffs written outline says that but for that negligence, deficiencies in construction would have been identified at an earlier time (and therefore would have been repaired in the course of construction). Judging, however, by the delays that occurred in completing the vessel and Mantacat s subsequent financial collapse, it seems unlikely that the Sundancer could or would have been reconstructed or repaired, if at all, without further substantial expense to the plaintiffs. The evidence on that question does not show it would have happened. We were informed that Mr D Aurio himself was not called as a witness at the trial; not surprisingly, he was unwilling to give evidence for the plaintiffs voluntarily, and he does not seem to have been subpoenaed. [11] In his reasons for judgment the learned trial judge said that the plaintiffs case against the defendants must be that they failed to warn the plaintiffs of the deficiencies in Mantacat s workmanship and construction techniques. It seems to me that, despite the difficulties of proving what it was that caused the plaintiffs loss, his Honour s suggestion is the only way in which the plaintiffs case could have been formulated, and I propose to approach it on that footing. For that purpose it will be assumed that Mr Colley ought to have noticed those deficiencies in the course of carrying out his inspections. The question, which is then one of mixed fact and law, is whether he and DNV are liable for failing to alert the plaintiffs to those defects. [12] The claim is framed as one of negligence on the part of DNV causing economic loss to the plaintiffs. It could not have been based on contract because the plaintiffs had no contract with DNV. DNV s only contract was with Mantacat, which persistently emphasised this fact to Mr Althaus when he sought to involve Mr Colley in discussions about the vessel and its construction. On more than one occasion Mr D Aurio warned Mr Althaus or those acting on his behalf to stay away from Mr Colley and to stop bothering him with questions because he or DNV was engaged by Mantacat and not by the plaintiffs. Mr Althaus claimed in evidence that shortly before the plaintiffs contracted with Mantacat for construction of the Sundancer in October or November 1987, he had a conversation with Mr Colley in which Colley said that when construction of the vessel was finished and the sea trials completed he would certify in writing that the vessel had been constructed in accordance with DNV s classifications, and the Departmental survey would adopt that classification. That was the effect of the oral evidence of Mr Althaus at the trial about the terms of the conversation. He said that until that conversation had taken place he was reluctant to commit the plaintiffs, and that it was only after and in reliance on it that he entered into the contract and paid the money to Mantacat. [13] Mr Colley had no recollection of any conversation with Mr Althaus, and it was put to Mr Althaus in cross-examination that it had never taken place. His Honour

5 accepted that there had been a conversation between Althaus and Colley, but said he could not find it was in the precise terms recalled by Mr Althaus. At the same time he found it was likely that Colley had said that, if DNV certified that Sundancer had been built in accordance with its rules, the Department would accept the certification and issue its own permit. That is the practical effect of what in fact happened. Following the issue by Mr Carlsen of the statement in November 1988, the Department gave its permit for the use of Sundancer for passenger service in Queensland waters. The plaintiffs can have no complaint about that. [14] It was submitted, however, that his Honour was wrong in not accepting the evidence of Mr Althaus about the terms of his conversation with Mr Colley. His evidence on the subject was not contradicted and the trial judge ought, it was said, therefore to have accepted it. But the fact that Mr Althaus claimed to remember what was said, whereas Mr Colley did not recall the conversation at all, does not have the consequence that the trial judge was bound to accept Mr Althaus s account of it. As the tribunal of fact, it was his Honour s function to determine the credibility of the witnesses, which included not only their truthfulness but their reliability. The conversation in question was one that had occurred some 12 or 13 years before Mr Althaus gave his evidence, and it was, objectively speaking, improbable that he would have remembered the words used by Colley on that occasion. What is more, it was, as his Honour remarked, not likely that Colley would have said any such thing, when it would have amounted in effect to a warranty from DNV to Althaus on behalf of the plaintiffs. There was no reason why Colley on behalf of DNV would have proffered any such assurance on behalf of DNV. It was not bound by any contract to the plaintiffs but only to Mantacat, and it stood to gain nothing from gratuitously undertaking or extending its own liability to cover those or any other persons in addition to Mantacat. [15] In addition, in cross-examination Mr Althaus said that, at the time of the conversation, his concern was whether, if Colley surveyed the vessel, he would need to have a Departmental surveyor in attendance with him at that time. The plaintiffs contract with Mantacat had been drawn by his solicitor, and he was asked why he had not given instructions that a clause be put into it that the vessel should be inspected by DNV. His answer was that at the time the contract was being negotiated: I really didn t care about Det Norske Veritas surveying the vessel. When I entered into the contract, or was going to enter into the contract with Mantacat, I found out there was no other way I was going to get a survey unless a classification society surveyed it first, and I knew then I had to go with Det Norske Veritas. What is evident from this is that at the time of the conversation with Colley, the immediate interest of Mr Althaus was to ensure that the requisite permit would be forthcoming from the Department if DNV approved the vessel, and that he would not have to employ a Departmental surveyor as well. Mr Colley assured him, he said, that, because of the type of construction involved, the Department wouldn t know what they were looking at, and, by implication, that DNV s approval would suffice for that purpose. [16] This is very far from constituting the statement by Colley to Mr Althaus an assurance by DNV that the vessel when completed would be so constructed as to be reasonably fit for its intended purpose or that it would be constructed with proper

6 skill and materials. There is no reason why DNV should have expected that the plaintiffs were looking to them for a guarantee like that. It was a result which the builder Mantacat was bound to produce under its contract. No one foresaw then that Mantacat would perform such a bad job and go out of business without rectifying it. If Mr Althaus had suspected that that was going to happen, he would surely not have engaged Mantacat to build the boat at all. [17] To my mind, what is shown by this evidence is that the plaintiffs through Mr Althaus never in fact relied on DNV to see that Mantacat carried out its work properly, and there were no circumstances from which it could be inferred that DNV ought to have realised he was doing so. What he did was to rely on the defendant s reputation with the Department to ensure that, as Colley predicted and as in fact turned out to be the case, the Department would authorise the use of the vessel for carrying passengers once DNV issued its certificate of approval. If Mr Althaus was looking to protect the plaintiffs interests by having Mantacat s work supervised or inspected, it was open to him to engage someone on the plaintiffs behalf to examine the materials and workmanship being used by Mantacat in building the vessel. As it happened he did so, or at least he went part of the way in that direction. On the advice of Mr Powell, who was the skipper designated by the plaintiffs to command Sundancer when she went into operation, he employed a Mr Glanville, who is an experienced naval architect. His function was, it was said, directed principally to overseeing the fitting out of the vessel; but, according to the written terms of his engagement, his duties extended to the hull or its construction. If that was so, Mr Glanville seems not to have concerned himself with that aspect of the building project. Perhaps if he had been employed to or had performed that duty, the defective workmanship would have been detected and rectified before it was too late. [18] As between Glanville and DNV, it is difficult to see why the latter rather than the former, or anyone else associated with this whole sorry affair other than Mantacat itself, should bear the responsibility for the vessel s shortcomings. The case has some, if only perhaps a remote, resemblance to Anns v Merton Borough Council [1978] AC 728, where a local authority was held liable for the failure of its building inspector to detect and warn about the defective foundations of a house that he examined in the course of his duties. In the light of later decisions, such as Murphy v Brentwood District Council [1991] 1 AC 398 and, in Australia, Sutherland Shire Council v Heyman (1985) 187 CLR 424, it must be doubtful if much or any authority continues to attach to the decision in Anns. What is clear, however, is that that case is well removed from the present circumstances. There was there at least a statutory obligation to inspect followed by reliance on the part of the building owner on the expectation that the inspector would perform that function with skill and care. Here no such duty, statutory or otherwise, existed or was undertaken or owed by DNV to the plaintiffs to inspect the vessel. From what was said by Mr Althaus in cross-examination, it is apparent that he relied, if at all, on the defendants, for no more than to secure for Sundancer the permission of the Department to ply as a passenger-carrying vessel in Queensland waters. That purpose was achieved. The present case seems to me in principle to be indistinguishable in law from Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236, where a subsequent purchaser of a building was held not to be entitled to recover from the design engineer in respect of that purchaser s economic loss resulting from the collapse of the building owing to defective design. But in the end, I prefer to base my conclusion, for reasons I have given, on the failure of the

7 plaintiffs to prove as a matter of fact the case which they set out to prove at the trial. And even if they had succeeded in doing so, I do not consider it would have given rise to any liability in law on the part of the defendants. [19] The appeal by the deregistered first plaintiff must be struck out. The appeal by the second plaintiff should be dismissed with costs. [20] WHITE J: I agree with what McPherson JA has written and with the orders he proposes for disposing of this matter. [21] WILSON J: I agree with the reasons for judgment of McPherson JA and with the orders he proposes.