Brookfield v Davey Products Pty Ltd [1996] FCA 971

IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY) No. SG20 of 1996 ) GENERAL DIVISION ) ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: IAN WALTER BROOKFIELD and SEPTIC PRODUCTS OF AUSTRALIA PTY LTD Appellants AND: DAVEY PRODUCTS PTY LTD Respondent CORAM: von Doussa, O'Loughlin & Lehane JJ PLACE: Adelaide DATE : 12 September 1996 REASONS FOR JUDGMENT THE COURT: Introduction: This is an appeal from a judgment of Branson J dismissing a claim for damages for loss alleged to result from the supply by the respondent of defective submersible pumps which had been installed in household waste water systems. The first appellant (Mr Brookfield) is a qualified master plumber who from 1988 traded under the business name Brookfield Plumbing Services. In 1989 Brookfield Plumbing Services commenced installing a waste water system known as the "Parco Beaver Aerobic Septic System" ("the Parco Beaver System"). Initially these systems were acquired through Waterite (SA) Pty Ltd, the South Australian distributor of the system. However after a few months the arrangement with Waterite (SA) Pty Ltd finished, and the Parco Beaver System was obtained from an interstate distributor, Allwater Treatment Pty Limited ("Allwater"). In 1990 Brookfield Plumbing Services commenced installing a version of the Parco Beaver System which Mr Brookfield had modified ("the modified Parco Beaver System"). In September 1990 a provisional liquidator of Allwater was appointed. Mr Brookfield then negotiated with the Parco company which held the intellectual property rights in the Parco Beaver System and he became licensed to manufacture and sell the Parco Beaver System in Australia through a company formed by him called Parco Beaver Australia Pty Limited. The relationship between Mr Brookfield and the Parco company did not flourish and came to an end in mid 1991. Parco Beaver Australia Pty Ltd eventually changed its name to Septic Products Australia Pty Ltd ("Septic Products"). This occurred on 26 June 1992. Septic Products is the second appellant. Before this name change occurred, in about March 1991 an informal joint venture agreement was entered into between Mr Brookfield and the second appellant. On 1 July 1991 the assets and liabilities of the Brookfield Plumbing Service business were transferred to the second appellant in which Mr Brookfield had a 50% shareholding. He was also the chief executive officer and a director of the company. In September 1991 Mr Brookfield received provisional patent approval for a waste water system described as the BPS Trickle Filter System ("the BPS System"). Thereafter the second appellant only installed the BPS System. Shortly after Allwater went into provisional liquidation in September 1990, Mr Brookfield contacted the respondent, a supplier of pumps. He spoke with Mr Wilsdon, the respondent's South Australian manager. Mr Wilsdon had already identified the waste water industry as a potential source of sales for pumps, and Mr Brookfield as a potential buyer of pumps. After discussions between the two, and a visit by Mr Wilsdon to the premises of the second appellant on about 5 October 1990 when he was shown a working display unit of the Parco Beaver System (which for display purposes had clean water circulating through it), the respondent commenced to supply Mr Brookfield with two models of pumps. The models were the Davey Lowara Doc 3 ("the Doc 3 pump") and the Davey Lowara Doc 7 ("the Doc 7 pump"). The Doc 3 pump was to be used in lieu of the Grundfos KP 100 pump ("the KP 100 pump") as a recirculation pump. The Doc 7 pump had been used as an irrigation pump in the Parco Beaver System supplied by Allwater, and Mr Brookfield used the Doc 7 pumps obtained from the respondent for the same purpose. Subsequently Davey Products provided "Sumprat" pumps to Mr Brookfield. These were of almost identical design to the Lowara pumps, and there was an equivalent model for both the Doc 3 and Doc 7 pumps. The applicants experienced problems with all models of pump supplied by the respondent. Losses said to arise from these problems are the subject matter of the appellants' claim; the cause and extent of the problems were central issues at trial. In October 1991 Mr Brookfield advised the respondent that Septic Products would no longer use its pumps. Thereafter Septic Products obtained pumps first from I.T.T. Flygt Ltd, and then from White International Pty Ltd. Septic Products also encountered problems with pumps from these suppliers and they were joined as respondents when proceedings were initiated in this Court on 1 November 1993. The claims against I.T.T. Flygt Ltd and White International Pty Ltd were settled by the applicants before the trial commenced. Septic Products was placed in liquidation on 5 April 1993. The appellants' case at trial: At trial the appellants contended that they relied upon representations made orally and in brochures by the respondent that the pumps would do the particular jobs required of them. They did not. The trial judge did not accept the appellants' assertion that virtually all the pumps failed, but her Honour held that approximately 50% of the Doc 3 pumps supplied failed in use. There was no finding as to the percentage of Doc 7 pumps that failed. The evidence shows that although there were failures, the percentage was considerably lower. The appellants contended that the pump failure led to the collapse of the Septic Products' business and to its liquidation. Both appellants alleged they had suffered loss. In final addresses at trial it became apparent that the liquidator of Septic Products had no involvement in the proceedings, and that Mr Brookfield had given instructions for the proceedings to be issued in the name of Septic Products. The trial judge questioned the entitlement of Mr Brookfield to use the name of Septic Products in the litigation. This inquiry led to the disclosure of a deed of assignment which had neither been discovered by the appellants, nor referred to in the pleadings. By the deed, dated 28 October 1993, the liquidator of Septic Products (the Assignor) purported to assign to Mr Brookfield (the Assignee) all the "Assignor's right title and interest as applicant in certain Federal Court proceedings". Mr Brookfield covenanted with the liquidator as follows: "The Assignee covenants with the Assignor: (1) to institute proceedings in an action for damages in the Federal Court of Australia against the parties referred to in Recital B herein on or about the 28th of October 1993; (2) upon receipt of damages awarded to the Assignee pursuant to the proceedings referred to herein pay in full the amounts specified to the creditors referred to in the Annexure hereto together with such other amounts to such other parties able to prove in the liquidation of the Assignor or in the event there are insufficient damages awarded to pay in full undertake to pay creditors on a pro rata basis; (3) to indemnify and keep indemnified the Assignor from and against any liability incurred by the Assignor arising out of the proceedings referred to herein and any associated costs reasonably incurred in the liquidation of the Assignor." The appellants were given leave to amend their pleadings to allege an assignment in equity by the liquidator of Septic Products' choses in action against the respondent to Mr Brookfield. Mr Brookfield was also granted authority by order of the trial judge with effect from the commencement of the proceedings at his own expense and risk as to costs to use the name of Septic Products as a co-applicant. This authority was granted to meet the procedural requirement as to joinder of an assignor of a chose in action: Three Rivers District Council v Bank of England [1996] QB 292 at 313 and McIntyre v Gye and Another (1994) 51 FCR 472 at 480. At trial Mr Brookfield contended that he had claims for relief not only as assignee of the choses in action of Septic Products but also in his own right. The trial judge considered that as Septic Products had been joined to satisfy the procedural requirement, and by reason of the terms of the deed of 28 October 1993, Septic Products could not be seen as a party itself entitled to relief from the respondent. The company had purported to assign those rights to Mr Brookfield. Her Honour said that she did not understand the contrary to have been argued. The causes of action pursued at trial by the appellants included a claim for damages under s.82 of the Trade Practices Act 1974 (the TP Act) for a contravention of s.52 of the TP Act; a claim for negligent misrepresentation; and a claim for breach of contract based on the conditions said to be implied by s.14 of the Sale of Goods Act 1895 (SA) that the pumps would be reasonably fit for the particular purpose made known to the respondent by the appellants and that the pumps would be of merchantable quality. The judgment at first instance: Neither in the application nor in the statement of claim is any distinction drawn between the claims for relief made by Mr Brookfield in his own name and claims made in reliance on the deed of 28 October 1993. At trial no attempt was made to prove loss or damage suffered directly by Mr Brookfield although it was argued that, quite apart from the deed, the losses of Septic Products were in reality the losses of Mr Brookfield. The trial judge rejected this approach. Her Honour held that it was not appropriate in the circumstances of this case to disregard the incorporation of Septic Products and to allow one only of two shareholders in Septic Products to claim the company's losses as his own. Her Honour considered the circumstance of Septic Products being in liquidation with unpaid creditors made an award to Mr Brookfield particularly inappropriate. Accordingly, so far as the pleadings made claims in Mr Brookfield's name independently of the deed of 28 October 1993, the application failed. The learned trial judge then went on to hold that an assignee cannot recover damages pursuant to s.82 of the TP Act for loss or damage suffered by the assignor for a contravention of s.52 of the TP Act, and that on the proper construction of s.82, s.477(2)(c) of the Corporations Law, which gives a liquidator power to "sell or otherwise dispose of, in any manner, all or any part of the property of the company" did not extend to the assignment of such a claim. The claim for damages made under s.82 of the TP Act therefore failed. Her Honour did not further discuss the allegations made in support of that claim, namely that the respondent engaged in conduct that was misleading or deceptive by representing that the Doc 3 pump was capable of being substituted for the KP 100 pump, and by representing that the Doc 3 and Doc 7 pumps, and the Sumprat pumps, were capable of working in waste water treatment systems produced by Brookfield "which systems were known to (the respondent)". The learned trial judge held that s.477(2)(c) did, however, authorise, as a sale of the property of Septic Products, the assignment of the company's choses in action for negligent representation and for breach of contract, a conclusion which the respondent has not sought to challenge on appeal. The alleged claim by Septic Products for negligent misrepresentation was based on substantially the same alleged representations the making of which was said to constitute the misleading or deceptive conduct pleaded as a contravention of s.52 of the TP Act. The claim failed as the trial judge considered that whatever representations were made by the respondent about the capabilities of the pumps, those representations were made to Mr Brookfield at a time before Septic Products was incorporated, and some six months before Septic Products became involved in the informal joint venture with Mr Brookfield. The pleadings did not allege, and the evidence failed to establish, any reliance by Septic Products on the representations; absent reliance, the applicants failed to establish the requisite degree of proximity between the respondent and Septic Products to give rise to a duty of care: San Sebastian Pty Ltd & Anor v The Minister (1986) 162 CLR 340 at 355. On the breach of contract claim the trial judge found that from mid March 1991 when Septic Products, pursuant to the informal joint venture, became a purchaser of pumps from the respondent, it purchased 70 Doc 3 pumps, and 71 Doc 7 pumps and a further 1 Doc 3 pump and 5 Doc 7 pumps were supplied pursuant to warranty claims. Septic Products placed no orders for Sumprat pumps (Sumprat pumps had been supplied to Mr Brookfield only between February 1991 and early March 1991). The sales of pumps by the respondent to Septic Products took place in circumstances where, pursuant to s.14 of the Sale of Goods Act, an implied condition as to merchantable quality applied to all the Doc 3 and Doc 7 pumps. Her Honour held that at least in the case of the early sales of Doc 3 pumps to Mr Brookfield there was an implied condition that the Doc 3 pumps were fit for the particular purpose made known by Mr Brookfield to the respondent. The implied condition as to reasonable fitness did not apply in relation to the Doc 7 pumps as her Honour held they were purchased under contracts "for the sale of a specified article under its patent or other trade name" within the meaning of the proviso to paragraph I of s.14 of the Sale of Goods Act. The particular purpose made known by Mr Brookfield, and through him by Septic Products, for which the Doc 3 pumps were required, was held by her Honour to be of acting as a recirculation pump in a Parco Beaver System. The breach of contract claims however failed. Her Honour held that Mr Brookfield and Septic Products did not make known to Mr Wilsdon the particular purpose for which the Doc 3 pump was required, namely for the purpose of acting as a recirculation pump in the modified Parco Beaver System or in the BPS System. Her Honour held that the modification to the filter system initially incorporated into the modified Parco Beaver System, and then into the design of the BPS System altered the working environment of the Doc 3 pumps, that the Doc 3 pump failures were related to the altered environment, and that use of the pumps in the altered environment was not a particular purpose made known to the respondent. The trial judge held that in the circumstances the applicants had not established that the Doc 3 pumps were not of merchantable quality. Her Honour applied by analogy the reasoning of Toohey J in the following passage from Jillawarra Grazing Company v John Shearer Ltd (1984) ATPR 40-441 at 45,089: "I am not persuaded that the airseeder was of unmerchantable quality in the sense in which that term has been considered by the Courts; indeed I am satisfied that it was of merchantable quality. As an airseeder or, if it is permissible to impose a gloss and say an airseeder capable of carrying out the work for which it was designed, the airseeder met the test. The experience of John Shearer with similar airseeders sold throughout Australia would indicate that the machine is one that a reasonable purchaser would accept... As I have concluded, the difficulties encountered by Jillawarra stemmed in the main from Mr. Bunter's decision to drive the airseeder with a hydromotor. I should not be taken as holding that John Shearer should not have anticipated that the airseeder might be driven by a hydraulic motor as well as by a power take-off. What I am saying is that a purchaser who decided to install a hydromotor was obliged to ensure that the hydraulic drive was appropriately designed and installed. ... The applicant did not seek the respondent's advice in this respect and the latter cannot be held responsible for any vice in the airseeder that was a consequence of an inadequate hydraulic system."

Although her Honour does not expressly deal with the Doc 7 pumps that failed, it is implicit from the process of reasoning relating to the Doc 3 pumps that her Honour also considered that the failure of Doc 7 pumps was related to the altered environment. Claims in respect of Doc 7 pumps based on an implied condition as to merchantable quality would fail for the same reason as the claims in respect of the Doc 3 pumps. It was common ground at trial that a batch of Lowara pumps with a bottom bearing housing problem had been received by the respondent in January or February 1991, and some of them had been supplied to Mr Brookfield. The pumps with this fault were plainly not fit for use in a waste water system, and pumps returned by Mr Brookfield with this fault were replaced under warranty by the respondent. The trial judge held that none of these faulty pumps was supplied by the respondent after February 1991, that is that none of the pumps supplied pursuant to contracts of sale between Septic Products and the respondent was a pump which suffered from the bottom bearing housing problem. The trial judge held that although 46 Sumprat pumps were invoiced by the respondent to Brookfield Plumbing Services, all those pumps were also delivered before the informal joint venture commenced between Mr Brookfield and Septic Products, and before Septic Products became a contracting party for the purchase of pumps from the respondent. Accordingly Septic Products, and in turn Mr Brookfield as assignee under the deed of 28 October 1993, had no claim in respect of the failure of pumps with the bottom bearing housing problem, or Sumprat pumps. The claims in their entirety were therefore dismissed. As none of the causes of action was found to have been established, the trial judge did not consider the question of damages. The appellants' contentions on appeal: The appellants appeal from the whole of the judgment. By direction, grounds of appeal which allege that the trial judge erred in not proceeding to assess damages were stood over to the intent that should the appeal succeed on liability, the assessment of damages will be referred back to the trial judge. On the appellants' behalf the following submissions were made: First, it was contended that at law the deed of 28 October 1993 was effective to assign to Mr Brookfield the cause of action of Septic Products under ss.52 and 82 of the TP Act pursuant both to s.477(2) of the Corporations Law, and to the principle in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 as Mr Brookfield had a genuine commercial interest in the enforcement of the claim of Septic Products. Reliance was placed, in particular on Re Daley; Ex parte National Australia Bank Ltd (1992) 37 FCR 390; Re Nguyen (1992) 107 ALR 424; Cotterill v Bank of Singapore (Australia) Ltd & Others (1995) 37 NSWLR 238; and South Australian Management Corporation v Sheehan (1995) 16 ACSR 45. Secondly, it was contended that the trial judge should have held that the liquidator of Septic Products had authorised the proceedings in the name of the company, and that the company was a claimant in its own right so that to the extent that the deed of 28 October 1993 was not effective to assign the company's choses in action, Septic Products could enforce them in the proceedings. Moreover, it was contended that to maintain a claim for damages under ss.52 and 82 of the TP Act, it is not a necessary element that the representation said to constitute the misleading or deceptive conduct be made to the applicant who suffered damage (cf passing off cases). On one or other of the bases advanced in the above two contentions it was submitted that the claims based on ss.52 and 82 of the TP Act should succeed. Thirdly, it was contended that the misstatements that formed the subject matter of the tortious claim for negligent misstatement were made to Mr Brookfield; he was an applicant, so no assignment was required in respect of that cause of action. (This aspect of the argument involves a shift from the way the appellants' case was presented at trial, where no attempt was made to prove loss or damage suffered by Mr Brookfield directly). In any event, it was contended, if a wrong were done to Mr Brookfield and as a result he sold defective goods to Septic Products when it took over the business of Brookfield Plumbing Services, he can recover the company's loss on the basis that the company could have recovered it against him as damages for breach of warranty on the sale of goods: South Coast Basalt Pty Ltd v R.W. Miller and Co. Pty Ltd [1981] 1 NSWLR 356. Fourthly, in the alternative, it was contended that if a wrong were done to Mr Brookfield and Septic Products later suffered loss and damage, he is entitled to recover one half of the loss suffered by the company less one half of anything the company can and does recover against the respondent. The primary loss is that of the company, but if for some reason the company cannot recover, he as a 50% shareholder has a cause of action in his own right to recover the diminution in the value of his shares: Gould v Vaggelas (1985) 157 CLR 215 at 220, 245, 253. Fifthly, it was contended that on the facts the trial judge misunderstood in a fundamental way the evidence about how the waste water systems operated. This misunderstanding led to the finding that the working environment for the pumps in the modified Parco Beaver System and the BPS System was different from the working environment in the Parco Beaver System, whereas it was contended that on the evidence it should have been held that the working environments were the same. The contractual cause of action propounded by the appellants, based on breach of conditions implied by s.14 of the Sale of Goods Act, depends for its success on the appellants making good the last mentioned contention, that is on overturning the finding of fact by the trial judge that in the modified Parco Beaver System and the BPS System the work environments for the pumps were different from the work environment in the Parco Beaver System. The trial judge decided that the cause of action based on s.52 of the TP Act failed because such causes of action could not be assigned and that the tortious cause of action, based on alleged negligent misstatements, failed because there was no evidence of reliance by the second appellant. Her Honour therefore did not need to consider whether the causes of action based upon the TP Act and negligence necessarily failed in any event, given her findings of fact. In our view, however, unless the appellants can overcome the factual finding to which we have referred, those two causes of action also necessarily fail. In the context of s.52, that is because the conduct which is complained of must be looked at as a whole, and in context: see, e.g., Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 per Black CJ. Thus representations to the effect that a Doc 3 pump will do the same work that a KP 100 pump will do, that it will work as a recirculation pump in a waste water system or that it (or a Doc 7 pump) will pump water containing suspended particles of stone or grit must be understood in the context that the system which Mr Brookfield and Mr Wilsdon were discussing was a Parco Beaver System and that the demonstration system which Mr Wilsdon saw in operation used lengths of pipe rather than a disc pack as its filter mechanism. If her Honour's crucial finding of fact were correct, in our view there is no basis in the pleadings or evidence on which it could be held that conduct of the respondent was misleading or deceptive or was likely to mislead or deceive. Similarly, if the question is whether, for the purposes of a claim in negligence, Mr Wilsdon misrepresented the attributes or capacity of the Doc 3 or the Doc 7 pump the result is the same. If her Honour's finding stands, in our view it was not open on the evidence before her Honour to hold that the respondent made a relevant misrepresentation.

The finding that the particular purpose for which the Doc 3 pumps were required that was made known to the respondent was the purpose of acting as a recirculation pump in a Parco Beaver System is not challenged. The evidence pointed clearly to that conclusion, as it does to the conclusion that the representations about the capabilities of all the pumps said to constitute misleading or deceptive conduct, and the negligent misstatements, were made in the context of their proposed use in the Parco Beaver System. The finding that Mr Wilsdon was not made aware of the modifications to that system effected by Mr Brookfield is not challenged; it is said that in material respects the systems were the same, so there was no relevant change in proposed use to be communicated to the respondent. The plain inference from the evidence is that if the working environment in which the pumps supplied by the respondent in fact worked was that which was made known to the respondent, the extent of the failures demonstrates that the pumps were not suited for that purpose. Indeed in relation to the Doc 3 pumps an express finding was made by the trial judge that they were not reasonably fit for the particular purpose for which they were in fact used. If the critical findings of fact about the difference in the work environments of the Parco Beaver System, and Mr Brookfield's modifications, are upheld the several causes of action, even if properly brought in the name of one or other, or both, of the appellants must, for the reasons which we have given, fail on the facts. If so, it is unnecessary to consider the elaborate arguments advanced on the appellants' behalf in support of the first four of the contentions summarised above. It is therefore convenient to deal with the fifth contention first. The working environment of the pumps: Attached to this judgment are diagrams of the Parco Beaver System (annexure 1) and the BPS System (annexure 2). The learned trial judge described the waste water system as follows: "(a)Parco Beaver System ... The Parco Beaver system utilises two tanks each divided into two compartments. The first tank serves as a settlement tank with primary settlement taking place in its larger compartment. Waste water, with limited solids, flows from the smaller compartment of the first tank into the larger compartment of the second tank. The larger compartment of the second tank is known as the holding tank. It is situated beneath a bio-filter module. The waste water is repeatedly pumped by a recirculation pump above the bio-filter module from where it trickles through the filter medium back to the holding tank. By this process clarification of the waste water is achieved. Clarified waste water flows into the smaller compartment of the second tank where it is treated with chlorine. From this compartment it is pumped by the irrigation pump out of the system, usually through a garden irrigation system. (b) Modified Parco Beaver System The Parco Beaver system utilises short lengths of cut plastic piping held within a concrete bowl as its filter medium. It is this aspect of the system which Mr Brookfield modified. The modification involved the replacement of the cut plastic piping with a series of plastic discs set one above the other on a horizontal plane ('the disc pack'). The discs had a regular pattern of small holes drilled through them so as to allow water discharged over the top disc to trickle through the series of discs and return to the holding tank.

(c) BPS System The BPS system is, in essence, a modification devised by Mr Brookfield of the Parco Beaver system. The settlement tank is not materially different from that used in the Parco Beaver system. The second tank as designed for the BPS system is illustrated in annexure 2 to these reasons. The significant differences between the second tank of the Parco Beaver system and the second tank of the BPS system include the following:- (a) the BPS system used the disc pack as the filter medium rather than the cut pipe used in the Parco Beaver systems; (b) the BPS system did not use a concrete filter bowl but rather a free-standing PVC column which supported the disc pack; (c) in the BPS system the stilling chamber extended to the floor of the tank although it had a 100 millimetre diameter circular opening 50 millimetres above the floor of the tank. In the Parco Beaver system the stilling chamber was open at the bottom and did not reach to the floor of the tank; (d) the BPS system returned water which had passed over the filter packs to the stilling chamber. The Parco Beaver system returned such water to the outside of the stilling chamber."

The stilling chamber describes the smaller compartment in the second tank, and it is in this compartment that the recirculation pump is suspended so that it is positioned some distance above the bottom, or base, of the tank. Contrary to the depiction in annexure 1, the stilling chamber did not have its own bottom above the bottom of the holding tank. One misunderstanding said to underlie the trial judge's conclusions is alleged to be expressed in paragraph (d) above. It is common ground that in the BPS System, and also in the modified Parco Beaver System, the waste water which had passed over the disc packs returned to the stilling chamber. However it is said that in the Parco Beaver System this was also the case, not, as the reasons for judgment say, to the outside of the stilling chamber. The understanding of the way in which the waste water returned to the second holding tank contained in the above description is relevant but not central to the reasoning of the trial judge. As will appear from passages in her Honour's reasons set out below, the most important consequence of Mr Brookfield's modifications related to the change in the filter medium from an aggregate of cut pipes to the disc pack. The trial judge found that all, or nearly all, waste water systems installed by Septic Products utilised the disc pack as the filter medium, and that the preponderance of Doc 3 pumps supplied to Septic Products which were used to replace failed Doc 3 pumps supplied to Mr Brookfield trading as Brookfield Plumbing Services would have been installed in waste water systems which utilised disc packs as the filter medium. These findings are not challenged. The household waste water processed through these and other aerobic waste water systems on the market includes besides sewage from the lavatory system, sink water, shower water and laundry water. The waste water is not free of solids. Household waste water contains suspended solids of about 250 milligrams per litre, including sand and grit, as it enters the first tank, which acts as a primary settlement tank. Some 60 of those solids are removed by settlement in the primary tank. The balance flows into the second tank where most, but not all, of it will settle before being discharged through the irrigation outlet. Whilst Mr Wilsdon viewed a demonstration unit operating with clean water, he understood that the system processed household waste water. The presence in suspension of solids and grit in the waste water entering the second tank is a feature of the working environment in aerobic septic systems, and submersible pumps employed in these systems must be capable of working in an environment which is not totally free from suspended abrasive solids. The appellants' case at trial supported by evidence from an expert in pump design, Emeritus Professor P.N. Joubert, was that the shafts of the respondent's pumps were made of steel that was too soft for use in association with the kind of lip seals that were employed to keep the waste water from the electric motor. Failed pumps which Professor Joubert examined showed wear grooves at the location of the lip seals. Motors in the pumps had failed in service as fluid had entered the motor by passing under the lip seals. The trial judge noted that Mr Brookfield conceded in his oral evidence that most of the failures of Doc 3 and Doc 7 pumps experienced by the appellants occurred in systems which utilised disc packs. In all the systems identified in an extensive schedule to the statement of claim as those installed by the appellants only "a handful" of failures occurred in systems not using filter packs. This finding of fact has not been challenged on appeal. It is convenient at this point to set out the trial judge's summary of the expert evidence, and reasons as to the failure of the pumps which are critical to a consideration of the appellants' contention that a fundamental misunderstanding has occurred. Her Honour said: "The only academically qualified expert with experience in waste water process design who gave evidence at the hearing of this matter was Mr Mark Gobbie ('Mr Gobbie'). Mr Gobbie was retained by the solicitors for the respondent to review the design features, performance and operation of the BPS waste water system. In doing so he necessarily gave consideration to the operational significance of using disc packs in lieu of cut plastic piping as a filter medium. Mr Gobbie expressed the opinions, which I accept, that horizontal medium, such as the disc packs, are likely to lead to uneven biomass growth, and that uneven biomass growth will result in large pieces of biomass sloughing from the filter medium into the area of the holding tank in which the recirculation pump (for present purposes, the Doc 3 pump) operates. Although Mr Gobbie assumed, contrary to the fact, that disc packs would not be serviced, I do not consider that this factor affects his above opinions. A view of waste water systems, including a BPS system, was held early in the hearing of this matter. The BPS system seen on the view was one which the evidence established to have been regularly serviced. Uneven biomass distribution on the top disc of the disc pack was pointed out to me and observed by me. Also pointed out to, and observed by me, were lumps of biomass on the surface of the holding tank below the disc pack. What I saw on the view in this regard tends, in my view, to provide support for the opinion expressed by Mr Gobbie (s54 of the Evidence Act 1995 (Cth)). Mr Wilsdon gave evidence of Doc 3 and Doc 7 pumps returned by Mr Brookfield to the respondent having large quantities of thick waste material in and around the pumps' external workings of the shaft and the impeller. His evidence was that after the removal of such material the pumps operated satisfactorily. There is other evidence that a number of failed pumps returned to the respondent showed on examination a build up of bacteria growth. Mr Brookfield himself gave evidence of seeing approximately 9 dismantled Doc 3 pumps previously returned by him to the respondent: on each of them he saw a dried substance around the impeller and the pump shaft which, when he rubbed it between his finger and thumb, ground down to a fine gritty substance. His evidence is that he recognised the dried substance immediately as bacteria culture, and that it was identical to the biomass growth which forms on top of filter packs. The Doc 3 and Doc 7 pumps are manufactured with three lip seals located on the pump shaft. The purpose of these seals is to isolate the motor of the pump from the fluid being pumped ('the working fluid'). Each of the experts in pump design who gave evidence in this case agreed that the Doc 3 and Doc 7 pumps which they had examined which had failed, failed because lip seals located on the pump shafts failed with the result that working fluid entered the motors. The dispute between them was as to why such seals had failed. Mr John Weir ('Mr Weir'), who was called on behalf of the respondent, expressed the view that the seals failed because the pumps were operated for an extended period in an environment containing an excessively high concentration of abrasive particles. Professor Joubert, the principal pump design expert called on behalf of the applicant, on the other hand, expressed the view that the seals had failed because the pump shafts were manufactured from a steel which was too soft for use with lip-seals. Professor Joubert expressed the opinion, which I have no reason to doubt, that the Doc 3 and Doc 7 pumps tested by him had shafts which were softer than the minimal hardness recommended in an accepted handbook of machine design for shafts that contact lip-seals. However, he made it plain that, so far as wear is concerned, hardness is not the only factor. He pointed out that wear is a very complicated phenomenon which cannot be predicted. If the Doc 3 and Doc 7 pumps were manufactured with a shaft which was too soft for use with lip-seals in all circumstances, one would expect such pumps to fail irrespective of the use to which they were put. The fact that the Doc 3 pumps failed at a much higher rate than the Doc 7 pumps suggests that some additional factor, or factors, was or were involved. Moreover, as Mr Weir pointed out, one would expect the wear grooves at the location of the lip-seals to be relatively uniform if the problem were one involving no variables other than the nature of the seals and the strength of the shafts. The evidence establishes that on Doc 3 and Doc 7 pumps where the lip-seals had failed, the grooves at the location of the lip-seals were deepest at the lip-seal closest to the impeller and shallowest at the lip-seal closest to the motor. This gradation of the grooves suggests a relationship between the working fluid and the failure of the lip-seals. Professor Joubert in his oral evidence appeared to accept that such a relationship was likely. It was not suggested on behalf of either party that there was any difference in the hardness of the shafts of Doc 3 and Doc 7 pumps. Mr Brookfield himself gave evidence of the satisfactory working of Doc 7 pumps in the Parco Beaver system. At the time when he first approached the respondent with respect to purchasing pumps from it, he had been using Doc 7 pumps supplied by Allwater in Parco Beaver systems since 1989. As is mentioned above, he had witnessed extensive testing of Doc 7 pumps by Allwater, apparently in conjunction with the respondent. He had found that the Doc 7 pumps performed satisfactorily in the Parco Beaver system and he was happy to continue to use them. I regard this as compelling evidence that the steel with which the Doc 7 pump shafts are manufactured is not in practice too soft for the satisfactory operation of such pumps in Parco Beaver systems. Moreover, Mr Wilsdon gave unchallenged evidence of the sale of 22,017 Doc 3 pumps by the respondent between 1988 and 1993 and of the sale of 4,689 Doc 7 pumps over the same period. He was only able to give evidence of warranty replacements of Doc 3 and Doc 7 pumps between 1990-1994. His evidence was that during that period 740 Doc 3 pumps and 297 Doc 7 pumps were replaced under warranty. Whilst there may be reason to doubt that such figures are precisely accurate, I accept that they reflect the order of the number of pumps so replaced. I further accept Mr Wilsdon's evidence that a number of the Doc 3 and Doc 7 pumps sold by the respondent over the periods referred to above were sold to customers other than the applicants for use in waste water systems and that the return rate of such pumps was not out of the ordinary. ... I find that, on the balance of probabilities, there is a relationship between the established failure of a significant proportion of the Doc 3 pumps supplied to Septic Products by the respondent and the modification effected by Mr Brookfield to the Parco Beaver system. The evidence does not disclose that Mr Brookfield, or any other person on behalf of the applicants, advised the respondent of the modification made by Mr Brookfield to the Parco Beaver system."

Mr Gobbie, whose opinions the trial judge accepted relating to the development and movement of biomass, also gave evidence about the significance of the differences between the Parco Beaver System on the one hand, and the modified Parco Beaver System and the BPS System on the other hand. A report that he prepared before trial was premised on the belief that in the Parco Beaver System the return water that had trickled through the bio-filter returned to the holding tank outside the stilling tank. He had gained that belief by studying a diagram of the Parco Beaver System which had formed part of the specification in a patent application. That diagram is similar to annexure 1. The diagram together with the text in the patent application which explains it are clear that return water flows into the holding tank outside the stilling tank. This belief is consistent with the evidence of Mr Brookfield. In his evidence in chief Mr Brookfield had been asked to explain differences between the Parco Beaver System and units installed by him that had included the disc pack modification. The transcript records Mr Brookfield as saying: "The concrete filter bowl in (annexure 1) returns the effluent to the outside of the stilling chamber, which effectively only allows the water to pass through the filters once because it is not returned to the point where the recirculation pump is positioned. The Parco Beaver installations on that exhibit on this list (i.e. those installed with the disc pack modification) has no return pipe to the outside of the stilling chamber, so that all the effluent is directed straight back into that centre stilling chamber."

On the evidence the learned trial judge did not misunderstand the way in which waste water returned from the filter to the holding tank in the Parco Beaver System. There is some confusion in the evidence about the features of the Parco Beaver System which constituted the display unit shown to Mr Wilsdon on about 5 October 1990. It is common ground that the display unit was fitted with original Parco Beaver System cut pipe filter medium, and not with a disc pack, but it is less clear whether the passage of the return water to the holding tank was outside the stilling chamber (as in the original Parco Beaver System) or whether it flowed directly to the stilling chamber - thus representing yet another modification. Counsel for the appellants before this Court argued that photographs taken during the trial judge's view of the various systems showed the same filter bowl and waste water return as Mr Wilsdon had seen, although the original filter medium had since been replaced with a disc pack. The photographs clearly show the return water entering the stilling chamber. Mr Brookfield in his evidence asserted that the filter bowl was the same. Although the matter was raised in argument before this Court, there is nothing in the trial judge's reasons to suggest that her Honour rejected Mr Brookfield's evidence on this point, or that her Honour's reasons depended on a belief that Mr Wilsdon saw something different, apart from the filter medium, on about 5 October 1990. In her Honour's opinion, what was important was the change in the filter medium so that in the modified system the biomass material sloughing off the disc packs fell back into the stilling chamber. In so holding, her Honour accepted the opinion of Mr Gobbie. Mr Gobbie correctly understood that the return waste water from the disc packs entered the stilling chamber. In any event it was Mr Gobbie's opinion that the problems he identified as associated with the disc packs would not have existed in a system which used the cut pipe filter medium from the Parco Beaver System even if the return waste water entered the stilling chamber directly. Mr Gobbie's evidence gives further insight into the consequences of the disc pack modification made by Mr Brookfield to the Parco Beaver System. The substitution of a horizontal disc pack for the medium of aggregate made up of short lengths of cut plastic piping reduced the surface area of the filter material, and increased by about three times the organic loading of the filter. In Mr Gobbie's opinion this was likely to result in an increased build up of biomass, and an increased tendency for larger pieces of biomass to slough from the filter and return to the tank underneath. The redirection of the return waste water to the stilling chamber meant that the biomass returned to the chamber surrounding the recirculation pump. The biomass is a biological solid containing a mix of organic and inorganic solids. In general the inorganic solids will include gritty material that has attached itself to the biomass. The purpose of the holding tank under the bio-filter is to allow the solids in the biomass to settle out. The settlement process will produce a sludge on the bottom of the tank. Mr Gobbie explained that because the return waste water from the bio-filter flowed into the stilling chamber in the systems modified by the use of a disc pack, and because the stilling chamber extended to the base of the holding tank, there would be a build up of sludge in the stilling chamber. Notwithstanding a 100 mm circular opening in the wall of the stilling chamber some 100 mm from the bottom to allow hydraulic connection between the stilling chamber and the balance of the holding tank, the build up would continue so that the sludge would reach, and eventually surround, the recirculation pump. The likelihood of the recirculation pump coming into contact with the settled sludge was further increased in the modified system as the recirculation pump was situated closer to the bottom of the tank than in the Parco Beaver System. Mr Gobbie considered that the sludge would build up to the base of the recirculation pump in the modified Parco Beaver System and in the BPS System in something in the order of four months depending on the level of waste output from the home. Even before the sludge reached the base of the pump, the pump would be taking in some sludge. When the sludge built up above the level of the base of the pump, it would be taken into the pump. Once the sludge surrounded the pump, the pump, when operating, would create its own hole in sludge. The recirculation pump is timed to run on a continuous cycle of 10 minutes on, then 5 minutes off. Each time the pump started it would pump sludge including inorganic, gritty, solids. Mr Gobbie was asked in cross-examination: "Now, you have said that that sludge after four months or thereabouts gets to the bottom of the recirculation pump, is that right?---Yes, yes. And if it gets to that position after about four months, the sludge would be then taken up by the pump and spewed over the disc packs?---If the pump was capable of pumping it, yes."

A correlation exists between Mr Gobbie's estimate of the time which it would take for the sludge to reach the recirculation pump, and the time when failure occurred in the recirculation pumps. The trial judge found that Doc 3 pumps, if they failed at all, failed on average roughly 8 months after being commissioned. As the trial judge observed, pumps which failed were seen to have thick waste material in and around the pump shaft and impeller. Mr Brookfield in his affidavit evidence recounted that in May or June 1991 Mr Wilsdon had informed him that a number of failed Doc 3 pumps which he had returned, on being dismantled, were found to contain fine sand. Mr Brookfield replied: "It's impossible to get sand in the pumps because they are suspended 500 mm off the floor of the tank". (The evidence of Mr Gobbie shows that the entry of inorganic solids was not only possible but likely after a few months). Mr Brookfield then went to the respondent's premises and inspected the dismantled pumps. The material which the respondent's technician had identified as sand Mr Brookfield said he recognised as dried bacterial culture, identical to the substance he had seen on top of the disc pack. This dried material, when rubbed, "ground down to a fine gritty substance".

In the course of arguing the appellants' case before this Court, counsel suggested that the trial judge erred in accepting Mr Gobbie's evidence because he had assumed that the disc packs would not be serviced, and her Honour was not justified in concluding that his opinions would not be different if the disc packs were regularly serviced. This criticism is unjustified. Mr Gobbie was asked whether his opinions would be different if his assumption about servicing were wrong, and he said they would not be different. Moreover, servicing of the disc packs would only temporarily remove excess growth of biomass from the horizontal discs, and would not pump out the build up of sludge in the stilling chamber and surrounding holding tank. Counsel also argued that the trial judge's reasons suggest that her Honour considered that the biomass floated on top of the stilling chamber, and because the recirculation pump was suspended below the surface, there was an apparent illogicality in her conclusion that biomass affected the operation of the recirculation pump. This suggestion is unjustified. Her Honour only noted that she had observed lumps of biomass which had separated from the disc pack on the surface of the stilling chamber. That observation says nothing about her Honour's belief as to the situation under the surface. Mr Gobbie's evidence, which her Honour accepted, was that the biomass would not remain on the surface; it would settle to the bottom. Another criticism made of her Honour's reasons is that her Honour disregarded evidence that the Doc 7 pump "was required to pump crystal clear chlorinated water to irrigation". This may be a fair description of the purpose of a Doc 7 pump operating in the final tank of the Parco Beaver System, but the evidence does not justify the description as one fitting the contents of the final holding tank in systems with the disc pack modification. The evidence was that failed Doc 7 pumps had large quantities of thick waste material in and around the shaft and the impeller. This evidence, coupled with the evidence that the wear grooves on Doc 7 pumps were also deeper at the lip-seal closest to the impeller, and shallower at the lip-seal closest to the motor - which is indicative of a working environment with abrasives in the fluid - show that, at least in the systems where Doc 7 pumps failed, the intended functioning of the system had broken down. Possible explanations for this could lie in the fact that the recirculation pump was recirculating sludge or that the collection of sludge around the recirculation pump led to inadequate breakdown and clarification of the waste water before it entered the final holding tank. The evidence leaves the likely cause uncertain, but it nevertheless shows that the working environment of failed Doc 7 pumps was not crystal clear water. It is submitted that the trial judge erred in treating as compelling evidence that the steel in Doc 7 pump shafts was in practice not too soft for satisfactory operation in Parco Beaver Systems the fact that Doc 7 pumps had in fact performed satisfactorily in the Parco Beaver System. This submission cannot be accepted. The fact that Doc 7 pumps had been extensively tested, and had performed satisfactorily in the very environment in which the respondent was led to believe the pumps would be used is very cogent evidence that the shafts, and the pumps, were satisfactory for that purpose. In similar vein, the appellants' case is not assisted by directing attention to the fact that KP 100 pumps had worked satisfactorily in the Parco Beaver System before Mr Brookfield commenced to purchase pumps from the respondent. The representation in October 1990 by the respondent that Doc 3 pumps would be a suitable substitute for the KP 100 pump is not shown to be wrong by the events which happened. The evidence fails to establish that Doc 3 pumps failed in significant numbers in Parco Beaver Systems which were not fitted with the disc pack modification, or that they had failed in other aerobic waste water systems. It was also argued that the trial judge failed to consider evidence that when KP 100 pumps were put in modified Parco Beaver Systems, or in BPS Systems, where the respondent's pumps (and pumps from I.T.T. Flygt Ltd and White International Pty Ltd) had failed, they operated satisfactorily. Her Honour has not referred to this evidence, probably as the evidence is not directly relevant to a case based on representations and breach of implied conditions which related to the capabilities and use of pumps in a system that was not as the respondent had been led to believe by the appellants. Moreover the evidence on this topic was not compelling. Several witnesses gave evidence that they understood KP 100 pumps had been used as replacements in their systems, and only one of those witnesses said the KP 100 pump later failed. However the nature of the faults which caused failure in the pumps which were replaced by KP 100 pumps is not known and there is no comprehensive evidence about failures, or the lack of failures, which have occurred in KP 100 pumps installed in modified Parco Beaver Systems and BPS Systems to enable comparisons to be drawn. There remains to be mentioned the position regarding the Doc 3 and Doc 7 pumps which suffered the bottom bearing housing problem which were supplied for a short time in January 1991 to Brookfield Plumbing Services. It was never disputed by the respondent that these pumps were defective, and they were replaced under warranty. The trial judge observed that no attempt had been made at trial to prove that Mr Brookfield suffered directly any loss caused by them. The grounds of appeal do not challenge the conclusions of the trial judge regarding these pumps and this Court was informed by counsel for the appellants that it need not be concerned with them. Conclusion: The appellants have failed to establish error by the learned trial judge in her findings of fact. As the appellants have not demonstrated the misunderstanding of fact alleged in the judgment under appeal it is not necessary to consider the matters raised in the balance of the appellants' contentions. The appeal should be dismissed. I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Full Court Associate: Dated: Counsel for the appellants : Mr DMJ Bennett QC Mr RA Cameron and Mr A Moffa Solicitors for the appellants : Townsends Counsel for the respondent : Mr AJ Besanko QC Mr IC Robertson Solicitors for the respondent : Piper Alderman Date of hearing : 6 and 7 May 1996