Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd

Judgment 1WARD JA: I have had the advantage of reading in draft the comprehensive reasons of Gleeson JA. I agree with the orders proposed by his Honour for the reasons his Honour gives. 2EMMETT JA: This appeal and cross-appeal concern the sale, in February 2004, of a Doppstadt AK430K high-speed timber shredder (the Doppstadt shredder) by the first appellant, Doppstadt Australia Pty Limited (Doppstadt), to the first respondent, Lovick & Son Developments Pty Ltd (Developments). Developments let the Doppstadt shredder on hire to the second respondent, Lovick Engineering Pty Limited (Engineering). 3The business of Developments consisted of acquiring heavy machinery and leasing it to Engineering. Engineering's business included the repair and external hire of heavy plant and equipment. Mr John Lovick was a director and controlling shareholder of both Developments and Engineering. 4Developments and Engineering sued Doppstadt on the basis that they had been the victims of misleading and deceptive conduct on the part of Doppstadt, in that they had been induced to buy the Doppstadt Shredder in reliance on false representations made on behalf of Doppstadt. They alleged that the second appellant, Mr Raymond Davis, who was the sole director of Doppstadt, was knowingly concerned in the wrongful conduct that they alleged on the part of Doppstadt. 5The allegations made by Developments and Engineering in their amended statement of claim, so far as relevant to the appeal, may be summarised as follows:

• In February 2004, Developments entered into a contract with Doppstadt whereby Developments agreed to buy and Doppstadt agreed to sell and deliver the Doppstadt shredder, together with a screening basket, for a total price of $662,561 (the Contract);
• On taking delivery of the Doppstadt shredder, Developments hired it to Engineering for use in its land clearing and green mulching business;
• Prior to the making of the Contract, Doppstadt made various representations to Developments and Engineering (the Representations);
• The conduct of Doppstadt in making the Representations was misleading and deceptive in that the Representations were false and Doppstadt thereby contravened s 52 of the Trade Practices Act 1974 (Cth);
• By reason of that contravention, Developments suffered loss and damage, in that the Doppstadt shredder has no value as a shredder and Developments has suffered damage in the amount of the purchase price paid;
• By reason of the contraventions of s 52, Engineering also suffered loss and damage, including loss of profits. 6The causal connection between the alleged damage and the contravention is not dealt with expressly in the pleading. The case that was ultimately prosecuted by Developments and Engineering was that, in reliance upon the Representations, Developments bought the Doppstadt shredder and hired it to Engineering and that Developments refrained from buying a Peterson machine (a different brand of shredder) and hiring that machine to Engineering. It also appears to be asserted that, in some way, Engineering, in reliance on the Representations, took the Doppstadt shredder on hire and refrained from taking a Peterson machine on hire from Developments. 7In February 2005, Developments bought a Peterson machine. Thus, Developments and Engineering used the Doppstadt shredder for a year before acquiring the Peterson machine. They claimed that they had no problems with the Peterson machine, in contrast with the Doppstadt shredder. In March 2007, Developments sold the Doppstadt shredder for $255,000. 8The primary judge found that some of the Representations had been made out. His Honour also found that certain of the Representations were misleading and deceptive and that Mr Davis was knowingly involved in making the Representations. However, his Honour found that Developments and Engineering failed to mitigate their losses and that they were responsible for their losses to the extent of one third. His Honour also applied a twenty percent discount to Engineering's claim for loss of profits from February 2004 to February 2005. His Honour dismissed allegations of contributory negligence made by Doppstadt. Finally, his Honour found that Mr Lovick and Engineering were concurrent wrongdoers in respect of Developments' claim and that Mr Lovick and Developments were concurrent wrongdoers in respect of Engineering's claim, but did not proceed to determine questions of apportionment. 9Having made those findings, the primary judge heard further submissions from the parties on the question of damages. His Honour concluded that Developments and Engineering had failed to establish any loss at the time of their acquisition of the Doppstadt shredder in February 2004 by reason of a difference between the price paid and the actual market value. On the other hand, his Honour concluded that Developments and Engineering had succeeded in establishing that, after discounts, a loss of profits in the sum of $254,468.80 was suffered by reason of operating the Doppstadt shredder, rather than a Peterson machine, between February 2004 and February 2005. 10The primary judge then received further submissions on the question of interest and costs and concluded that interest should run on the judgment sum from 1 March 2005. His Honour ordered that Doppstadt and Mr Davis pay 40 percent of the costs of Developments and Engineering of the proceedings. Finally, his Honour ordered Doppstadt and Mr Davis to pay interest on the costs payable to Developments and Engineering. 11In their amended notice of appeal, filed on 16 July 2013, Doppstadt and Mr Davis raised 36 separate grounds. In their amended notice of cross-appeal, filed on 30 October 2013, Developments and Engineering raised eight separate grounds. The grounds raised by Doppstadt and Mr Davis may be divided into five categories as follows:
• evidentiary matters, primarily in respect of the operation or performance of the Doppstadt shredder;
• the findings of the primary judge that certain of the Representations were misleading and deceptive;
• his Honour's conclusions concerning the apportionment claim;
• the findings and conclusions of the primary judge in relation to damages;
• the orders concerning interests and costs. The grounds raised by Developments and Engineering may be divided into separate categories as follows:
• findings concerning the failure to mitigate damage;
• the discount applied to the quantum of damages;
• rejection of the claim for damages based on the value of the Doppstadt shredder at the time of purchase;
• costs;
• the calculation of the damages awarded to Developments. 12There was some confusion in the submissions concerning the distinction between causation and mitigation of loss. The primary judge referred to the allegation that Developments and Engineering failed to take reasonable steps to service, maintain and repair the Doppstadt shredder, thereby contributing to its poor condition and loss of value. That was characterised as an issue of causation and mitigation. The real question was whether or not Developments and Engineering established that they had suffered loss and damage. The existence of a causal connection between contravention and damage is a matter upon which a plaintiff bears the onus. On the other hand, questions of mitigation raise an onus for a defendant. 13I have had the advantage of reading in draft form the very thorough and detailed reasons of Gleeson JA. I agree with the conclusions reached by his Honour on all of the issues and with the orders proposed by his Honour for the reasons given by him. 14In particular, I agree with Gleeson JA that there was no error on the part of the primary judge in failing to draw an inference against Engineering and Developments by reason of the failure to call either Mr Missingham or Mr Gold. While evidence that might have been contradicted by a witness can be accepted the more readily if the witness fails to give evidence, the absence of a witness cannot be used to make up a deficiency in the evidence. Where an inference is open from facts proved by direct evidence, and the question is whether that inference should be drawn, the fact that a witness who might have been called to prove the contrary is not called may properly be taken into account as a circumstance in favour of drawing the inference (Jones v Dunkel [1959] HCA 8; 101 CLR 298 at 312). Where the evidence supports the drawing of an inference favourable to one party, a person able to put the true complexion on the facts relied on for drawing that inference has not been called as a witness by the other party and there is no sufficient explanation for the absence of the witness, that inference can be more confidently drawn (Jones v Dunkel at 308). 15Where a party who is capable of testifying fails to give evidence, or where an available witness is not called and the failure is not explained, an inference may be drawn that the evidence would not help that party's case. That is to say, an inference can be drawn where a relevant witness does not give evidence that counsel for the relevant party concluded that the client is more likely to succeed without the evidence (Jones v Dunkel, 321-322). 16I also agree with Gleeson JA's treatment of the contention by Doppstadt that Engineering's claim was an "apportionable claim" in so far as his Honour concludes that Mr Lovick and Developments were not "concurrent wrongdoers". As his Honour says, that conclusion is sufficient to dispose of that issue. Without expressing any doubt as to the correctness of Gleeson JA's conclusion that the relevant legislation had no application, I express no view on that question. 17By notice of motion filed on 14 November 2013, Developments and Engineering sought leave to adduce additional evidence and to make supplementary submissions on appeal. I agree with Gleeson JA that leave should be refused. 18GLEESON JA: This appeal concerns a German manufactured timber shredder machine, referred to as a Doppstadt AK430K high-speed shredder (Doppstadt shredder), which the first appellant (Doppstadt Australia) marketed and sold to the first respondent (Developments) in February 2004 for $602,328 (ex GST). Developments leased the machine to the second respondent (Engineering) for use in its business, which included a contracting business. Mr John Lovick was a director and the controlling shareholder of both respondents. 19Doppstadt Australia is the Australian distributor of the Doppstadt range of high-speed timber shredders. The second appellant, Mr Raymond Davis (Mr Davis), is the sole director of Doppstadt Australia. 20The Doppstadt shredder did not perform in accordance with the respondents' expectations. In February 2005 the respondents ceased using it and replaced it with a different brand of shredder/grinder, a Peterson, which was manufactured in the United States. The respondents subsequently sold the Doppstadt shredder to a third party in February 2007 for $255,000 (ex GST), an amount considerably less than its original purchase price. 21In February 2006 the respondents commenced proceedings against the appellants claiming damages for breach of contract, breach of collateral warranty, misleading or deceptive conduct prior to purchase of the shredder, and negligent misrepresentation. The proceedings did not come on for trial until December 2010. The only claims pursued at trial were the misleading conduct claim against both appellants and the negligent misrepresentation claim against Mr Davis. 22The hearing before the primary judge (Slattery J) took place over nine days in December 2010 and one day in June 2011. His Honour reserved his decision on 4 July 2011. Judgment on liability issues was given on 21 May 2012. His Honour found the appellants liable to the respondents for misleading conduct, but assessed the respondents as being responsible for causing themselves one third of their loss and damage in respect of the machine: Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor [2012] NSWSC 529 (Judgment No 1). 23A hearing on the assessment of damages occurred in May 2012 and judgment was given on 17 December 2012. His Honour awarded no damages to Developments. He awarded damages to Engineering of "$254,468.80": Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 2) [2012] NSWSC 1579 (Judgment No 2). 24A further hearing on the questions of interest and costs took place in February 2013 and judgment was given on 27 February 2013: Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 3) [2013] NSWSC 135 (Judgment No 3). 25The result of the proceedings was that the primary judge ordered that: (1)judgment be entered for the respondents for $254,468.80; (2)interest be paid to the respondents on that sum from 1 March 2005 to 27 February 2013. (Note: following agreement between the parties as to the calculation of interest the Court gave judgment on 18 April 2013 for interest in the sum of $183,046.69); (3)the appellants pay 40% of the respondents' costs of the proceedings, as agreed or assessed; and (4)the appellants pay interest at the rates prescribed under Civil Procedure Act 2005 (NSW), s 100 on amounts of costs actually paid by the respondents. (Note: the reference in the orders to "s 100" was an error. It should have been "s 101(4)": see [410] below.) 26The appellants have appealed against each of the judgments in respect of liability, damages, interest, and costs. The respondents have cross-appealed against the judgments on damages and costs.

The purchase of a shredder 27Commencing in August 2003 Mr Lovick investigated the purchase of a "shredder" or "grinder" from a number of different suppliers - Peterson, Vermeer, and Van Gelder. Mr Lovick was seeking such a machine to expand Engineering's contracting business to process green waste for local councils to a finer end product suitable for sale as horticultural mulch, which is resaleable by local councils. 28Mr Lovick inspected a Peterson machine at a dealership at Albury and was impressed with what he saw, but was informed that there was a six-month waiting list for delivery. Following a recommendation by an officer of a local council he made contact with Doppstadt Australia on 31 October 2003. Between that date and the first week of February 2004 Mr Lovick met or communicated with representatives of Doppstadt Australia, including Mr Davis, on at least five occasions. He claimed that certain representations were made to him orally and in writing in relation to the suitability, reliability, and performance of a Doppstadt AK430K high-speed shredder. Ultimately, Developments purchased such a shredder, serial number 371, from Doppstadt Australia in February 2004.

Performance of the shredder 29The primary judge explained the operation of mechanical shredders, such as the Doppstadt shredder, in the following terms in Judgment No 1: "45 Mechanical shredders of green waste generally require the use of other ancillary machinery to aid their operations. An excavator is required to shear oversized material into smaller sized pieces and then load the sheared and other material into the shredder. The extent to which mechanical shredding requires pre-shearing is one of the issues in these proceedings. At the end of the shredding process the shredding-product must be taken away by a truck or conveyor. Except for tracked vehicle shredders such as the AK430K, shredders can only be moved with the assistance of other powered transport vehicles. 46 The centre of any grinder or shredder is a hammermill which is a rotating steel cylinder from which hard faced steel hammers protrude and which strike the material to be ground, reducing it to a mulch. The particle size of the product is controlled by varying the screen through which the material is pushed at the end of the process, acting like a sieve. 47 Doppstadt Australia distributed Doppstadt shredders described as 'horizontal end-feed grinders'. Such shredders are essentially designed as a large open topped bin into which the green waste can be dropped by tractor or excavator at one end. The bottom of the bin has a travelling floor that moves from that end to the other. This floor draws the material towards a compression roller which compacts it, so it can then be struck and reduced by the rotating cylinder with its metal hammers. Then the machine feeds the end-product onto a conveyor belt and discharges it into stockpiles. Even this description of the process makes clear it requires high amounts of energy, and large horsepowered engines. The shredding machine's chassis is subjected to high mechanical stress. Although there are only a limited number of moving parts, the conveyor, the compressor, the hammer, they too are subjected to considerable mechanical stress. 48 The AK430K, as with most other mechanical shredders of green waste, was controlled by electrical and hydraulic systems and was diesel powered. The problems Mr Lovick described with the AK430K in this case, covered most of the components and operating systems, just described." 30Engineering operated the Doppstadt shredder from February 2004 until February 2005. The respondents' case at trial was that Engineering experienced problems with the shredder very shortly after it was first delivered. There was a significant factual dispute in relation to the reasons for the shredder's stoppages - were they caused by operator error and the alleged failure by the respondents to service, maintain, and repair the shredder, or was the shredder defective and not as represented by the appellants. 31Two of Engineering's operators of the shredder in the first 12 months gave evidence and were cross-examined - Mr Triantafyllou who operated the machine from 25 February until 15 June 2004, and Mr Wilton, the last operator of the shredder between November 2004 and February 2005. The respondents did not call either Mr Missingham or Mr Gold who operated the shredder between June 2004 and November/December 2004. Their absence is the subject of one of the appellants' complaints on appeal, which asserts that the primary judge should have, but failed to, draw a Jones v Dunkel [1959] HCA 8; 101 CLR 298 inference against the respondents.

Liability - Judgment No 1 32The primary judge found that Doppstadt Australia made 14 of the pleaded representations concerning the Doppstadt shredder (both written and oral) to Mr Lovick, on behalf of the respondents, and that 10 of those representations were misleading or deceptive. These included representations that:

• the machine was suitable for Mr Lovick's operations;
• it was reliable and required less maintenance than rival shredders;
• its operation was smooth and powerful; and
• it was particularly good in dealing with the common problem of contamination (being a reference to hard non-timber material such as steel). 33His Honour's finding that certain representations were misleading and deceptive was based upon his findings that the shredder did not perform consistently with the representations made. 34It is with respect to these findings (in relation to the performance of the shredder) that a large number of the appellants' grounds of appeal are directed. Grounds 3-12 relate to evidentiary matters concerning the performance of the shredder and assert that the primary judge failed to find the correct facts, or drew the wrong inference. Grounds 13-21 assert error in finding that the representations as found by his Honour (the making of which is not challenged on appeal) were misleading and deceptive. 35The primary judge found that Mr Lovick, acting on behalf of both respondents, relied upon each of the representations that were found to be misleading and deceptive: at [225]-[229]. This finding is not challenged on appeal. 36The primary judge found that Mr Davis was liable as an accessory under s 75B of the Trade Practices Act 1974 (Cth) for all of Doppstadt's contraventions of s 52 of the Trade Practices Act, with the exception of those representations made only by Mr Gillen of Doppstadt Australia: at [235]. His Honour also found that Mr Davis was liable under the Fair Trading Act 1987 (NSW) ss 41 and 42 for all representations as to future matters: at [237]. The primary judge found that Mr Davis' potential liability in tort did not add anything to the scope of his overall liability to the respondents: at [238]-[239]. 37The primary judge found that the respondents had failed to take reasonable steps to service, maintain, and repair the Doppstadt shredder: at [246]-[247], and had also failed to take reasonable steps to operate the machine properly: at [249], in each instance, "contributing to its poor condition and loss of value". As a consequence, his Honour found that the respondents were "responsible for causing themselves and in failing to mitigate their losses, a proportion of one third of the loss and damage they claim in respect of the machine" [emphasis added]: at [252]. 38The respondents assert error in respect of the finding that they failed to mitigate their own losses "in respect of the machine" (grounds 1 and 2 of the cross-appeal). 39The primary judge found that each respondent's claim for damages under s 82 of the Trade Practices Act and s 42 of the Fair Trading Act was an "apportionable claim", by reason of s 87CD of the Trade Practices Act and 34(1)(b) of the Civil Liability Act 2002 (NSW) respectively: at [256]. His Honour viewed Mr Lovick's conduct to be exactly identified with that of Engineering and Developments as he was the controlling mind of those entities: at [259]. Although his Honour accepted that: (1) Mr Lovick/Engineering were concurrent wrongdoers with the appellants in respect of Developments' claims; and (2) Mr Lovick/Developments were concurrent wrongdoers with the appellants in respect of Engineering's claim, he did not proceed to determine the proportion of liability of the concurrent wrongdoers. This was because he found that no separate proportion of each respondent's damage should justly be attributed to these concurrent wrongdoers: at [261]. 40It is with respect to the failure to apportion liability in respect of Engineering's claim for lost profits that the appellants assert error (ground 21A).

Damages - Judgment No 2 41The claim by Developments was for capital loss, being the difference between the price paid for the Doppstadt shredder and the market value of the shredder at the date of acquisition. The primary judge dismissed this claim because of the absence of evidence of the actual market value of the Doppstadt shredder at the time of purchase: at [23] and [29]. 42The respondents assert error with respect to the rejection of Developments' damages claim (grounds 5 and 6 cross-appeal). 43The claim by Engineering was for lost profits during the first 12 months of operation of the Doppstadt shredder. The primary judge found that "but for" the representations of the appellants, the respondents would have purchased a Peterson machine, and that a Peterson would have been available for purchase in late 2003 or early 2004: at [8]-[9]. On this basis his Honour found that the respondents were entitled to damages, calculated as the difference between the profits they would have made utilising the Peterson machine between February 2004 and February 2005 and the actual profit they made using the Doppstadt shredder during the same period: at [35]-[36]. 44It is with respect to this finding that the appellants assert error on the grounds that there was no evidence to support a finding that the respondents would have purchased a Peterson machine in February 2004. Alternatively, it was contended that if a Peterson was ordered instead of the Doppstadt shredder in February 2004, his Honour should have found that it would have taken six months for the Peterson to have been delivered. This would mean a consequent reduction in the period during which the lost profits from the hypothetical Peterson machine should have been calculated (grounds 22-24). 45The primary judge assessed Engineering's lost profits as $477,129. This amount was reduced by 20% to reflect his Honour's finding that the respondents would have been less competent operating the Peterson machine in early 2004, as opposed to early 2005, and the "slight possibility" that something may have gone wrong with the purchase of the Peterson machine, giving a loss of earnings figure of $381,703.20: at [39]. Taking into account his earlier finding in Judgment No 1 at [252] that the respondents failed to mitigate their loss, his Honour reduced the award of damages by a discount of one third to the amount of $254,468.80: at [40]. 46The appellants and the respondents both assert error with respect to his Honour's calculation of Engineering's lost profits and the 20% discount for contingencies (grounds 22-32 appeal, and ground 8 cross-appeal).

Relief - Judgment No 3 47The primary judge found that the respondents' delay in prosecuting the proceedings was substantial. However, his Honour held that this was not a sufficient basis on its own to disallow the claim for prejudgment interest by either adjusting the rate of interest up to judgment, or the date from which such interest was to be calculated: at [19]. Nor did he consider that the delay in advancing the claim, which ultimately succeeded, was unreasonable: at [20]. Accordingly, prejudgment interest was calculated from 1 March 2005 up to the date of judgment: at [23]. 48It is with respect to the award of interest that the appellants assert error in the exercise of his Honour's discretion not to make any adjustment to the period of time in which interest was payable (grounds 33 and 34). 49As to costs, the primary judge rejected the appellants' contention that an order for costs should be made against Developments because it did not succeed on its damages claim. His Honour reasoned that this submission was overly simplistic and that the Court could infer that Developments suffered a nominal loss in leasing to Engineering an asset of less income earning potential with the Doppstadt shredder than it would have with the Peterson: at [27]. He also considered that, having regard to the way the case was run on both sides, it was impossible to separate out costs incurred in relation to Developments' claim rather than Engineering's claim: at [29]. 50Next his Honour dealt with the contention that there should be a reduction in the costs awarded to the respondents on the grounds that they had succeeded on only a fraction of the amount originally claimed and that resulted in a judgment well within the District Court jurisdiction. The appellants also contended that there should be some adjustment to costs in recognition of the changes to the respondents' damages case and their abandonment of several causes of action. His Honour considered the appropriate course to be to apportion costs, recognising that this was necessarily broad brush: at [42]. His Honour considered that the appellants should pay 40% of the respondents' costs of the proceedings: at [43]. 51As to the submission that there should be a cap on costs, his Honour noted the evidence that the respondents were claiming legal costs totalling $636,558.27: at [47]. His Honour was not prepared to place a cap on the respondents' costs pursuant to Civil Procedure Act, s 98(4)(d). Taking into account that the respondents' costs had already been reduced to an award of 40% of their costs, his Honour considered it unjust to place a further cap on such costs: at [48]. 52Finally, as to interest on costs, his Honour observed that the appellants were not realistically able to resist such an order: at [49]. 53The appellants assert error in his Honour's finding that no costs order should have been made against Developments, in not capping the respondents' costs pursuant to s 98(4)(d) of the Civil Procedure Act, and in ordering interest on costs (grounds 35 and 36). The respondents assert error with respect to the award of only 40% of their costs (ground 7 cross-appeal).

Issues on appeal 54The appellants raised 36 appeal grounds in their amended notice of appeal (notice of appeal). There is no challenge to his Honour's findings as to the making of certain of the representations. The respondents raised 8 grounds in their amended notice of cross-appeal (cross-appeal). 55The issues on appeal may be conveniently grouped as follows: (1)whether the representations by Doppstadt Australia and Mr Davis, in the terms found by the primary judge, were misleading or deceptive. This issue included the appellants' challenges to evidentiary matters, primarily the findings by the primary judge in respect of the operation and performance of the Doppstadt shredder; (2)failure to mitigate: whether the respondents, in particular Engineering, caused or failed to mitigate part of their own losses, justifying the one third reduction in their damages; (3)the apportionment claim that Engineering's damages should be reduced under the proportionate liability legislation because Developments and Mr Lovick were "concurrent wrongdoers"; (4)damages - in particular: (a)whether Developments' claim for damages was properly rejected; (b)as to Engineering's claim for loss of profits: (i)would the respondents have purchased a Peterson machine in February 2004; (ii)alternatively, would there have been a six-month delay in delivery of a Peterson machine if ordered by Engineering in February 2004; (iii)whether there was sufficient work available in 2004 for a Peterson machine to work at the same capacity as it did in the February-June 2005 period; (iv)whether Engineering's claim for loss of profit should be discounted by 20% to reflect that it would have been less competent operating a Peterson machine in early 2004 as opposed to 2005; (v)the calculation of Engineering's claim for loss of profits; (5)interest and costs.

Application to adduce additional evidence and make further submissions 56Following the hearing of the appeal, the respondents filed a notice of motion on 14 November 2013 seeking leave to adduce additional evidence pursuant to s 75A(7) of the Supreme Court Act 1970 (NSW) and for leave to make further submissions. 57The additional evidence and further submissions both related to Engineering's claim for lost profits. The evidence was contained in an affidavit of Mr Lovick, sworn 13 November 2013. 58The appellants opposed the respondents' application. The parties filed written submissions in support of their competing contentions. The respondents' notice of motion was fixed for hearing before the Court on 17 December 2013. Shortly prior to this date the parties indicated to the Court that they were content for the respondents' motion to be determined on the papers without the need for oral hearing. The appellants acknowledged that the evidence on the respondents' motion could be taken as read without objection. 59The Court agreed with the parties' request to deal with this application on the papers. For the reasons which follow, the respondents' application should be dismissed.

The primary judge's reasoning 60The primary judge found that the respondents had established that a number of the pleaded representations were made by the appellants: at [141]-[156] Judgment No 1. There were 15 such representations. Two of these representations were characterised by his Honour as representations as to future matters. 61At [158] Judgment No 1 the primary judge noted that how the Doppstadt shredder actually performed was not a basis on its own to infer that the representations were misleading or deceptive. Rather this was to be judged by reference to the true state of affairs at the time the representations were made, including whether there were reasonable grounds for the making of the representations (so far as they related to future matters). 62The primary judge accepted that an account of the problems with the shredder in its first 12 months of operation was conveniently given through an assessment of Mr Triantafyllou's and Mr Wilton's evidence: at [162] Judgment No 1. His Honour found Mr Triantafyllou to be a blunt, direct, and convincing witness and accepted his opinions as a correct account of the performance of the shredder: at [163] Judgment No 1. Mr Triantafyllou kept a "little red diary" to record his daily operations of the shredder. He started keeping this pocket sized book about a month after the shredder was acquired, and he wrote down in the diary all the faults and problems he had with the machine. His Honour accepted Mr Triantafyllou's "workbook" as an accurate and contemporaneous account of the shredder's stoppages and other problems. This workbook became exhibit GA in the proceedings. His Honour also accepted Mr Triantafyllou's evidence that at the end of each shift he would transfer the material from his workbook into what he described as his "day diary": at [164] Judgment No 1. The information in Mr Triantafyllou's day diary was later transcribed into a typed diary which was in evidence at the trial, but his Honour found that the "little red book" was a better primary record than the day diary: at [167] Judgment No 1. 63His Honour also accepted what he described as other important evidence of Mr Triantafyllou concerning his operation of the Doppstadt shredder, which included: (1)that it was not possible to place anything greater than 250mm into the feed unit of the shredder - colloquially referred to as the "pineapple" - that is, the part of the machine which progresses the logs into the grinder. This was based on an acceptance of Mr Triantafyllou's evidence that anything greater in size would stall the machine "straightaway": at [169] Judgment No 1; (2)that it was not rational behaviour to put large logs into the machine as this would cause the machine to stall. Mr Triantafyllou said that he was always vigilant to make sure that he put reduced sized timber into the shredder: at [170] Judgment No 1; (3)that Mr Triantafyllou's workbook was an accurate record of shutdowns, overheating, excessive vibration, feeder jams, grinder jams, gear problems, and parts deficiencies occurring about every two days between February 2004 and June 2004: at [172] Judgment No 1. 64His Honour found that Mr Wilton was also an excellent witness who was not prone to exaggeration. He accepted all of his evidence about the shredder's stoppages and its difficulty in handling material being feed into it: at [176] Judgment No 1. This included Mr Wilton's evidence that: (1)he had no reason to put excessive sized logs or excessive quantities of material into the shredder for grinding: at [178] Judgment No 1; (2)he did shear material in excess of approximately 200mm before feeding into the shredder: at [181] Judgment No 1. 65His Honour found that neither Mr Triantafyllou or Mr Wilton deliberately nor consciously put oversized logs into the shredder. He accepted that they may have done so occasionally in error, but the machine's problems were not as a result of overloading or feeding oversized material into it: at [170] and [183] Judgment No 1. 66His Honour inferred that the problems Mr Triantafyllou encountered with the shredder between February 2004 and June 2004 were continuing with Mr Wilton between November 2004 and February 2005: at [179] Judgment No 1. 67However, his Honour was not prepared to infer, in the absence of evidence from Mr Missingham and Mr Gold, that they were as good at operating the machine as Mr Triantafyllou and Mr Wilton: at [182] Judgment No 1. 68His Honour found that correspondence from Doppstadt Australia to Doppstadt Germany in March 2004 and April 2004 about the problems with the machine, which was authored by Mr Gillen, was an accurate account of what was wrong with the machine. His Honour found that Mr Gillen genuinely thought the problems were well beyond normal ones to be expected from a new machine: at [187] Judgment No 1. 69The appellants called Mr D'Apollonio who purchased the shredder from Developments in February 2007 to rebut the respondents' claims that the shredder was defective. Mr D'Apollonio gave evidence of almost trouble-free operation of the shredder from that time: at [197] Judgment No 1. However, his Honour was not convinced that the shredder's operation by Mr D'Apollonio in the Adelaide Hills was comparable to the environment in which the respondents were operating the machine: at [198] Judgment No 1. His Honour also noted that a significant difference between Mr D'Apollonio's experience and the respondents' experience was that the shredder had been altered by the time it was acquired by Mr D'Apollonio. In particular, welding had been done to the machine to rectify the excessive vibration that Mr Lovick had experienced, which the technical evidence indicated contributed to other problems with the shredder including electrical problems and reduced capacities to deal with contamination: at [205] Judgment No 1. 70His Honour did however observe that Mr Lovick seemed less diligent about the quality of the operators he engaged (but found that he mostly had good ones): at [204] Judgment No 1. His Honour considered that Mr D'Apollonio's management of his operators was better than Mr Lovick's, and this was a deficiency in Mr Lovick's operation which did cause him some problems. However, his Honour viewed this as a matter to be addressed under the subject of mitigation of loss: at [206] Judgment No 1.

Submissions 71A significant factual dispute raised by the appeal is whether the failures of the Doppstadt shredder were due to operator error and failure to service and maintain the shredder in accordance with the Doppstadt operator manual. In particular, the appellants challenge the primary judge's finding that the problems with the Doppstadt shredder were established by the evidence of Mr Triantafyllou and Mr Wilton; the finding that correspondence from Mr Gillen of Doppstadt Australia to Doppstadt Germany in March 2004 and April 2004 was an accurate account of what was wrong with the Doppstadt shredder and that Mr Gillen genuinely thought the problems were well beyond normal ones; the finding that the respondents did not misuse or put larger logs through the Doppstadt shredder; and the way in which his Honour dealt with the credit finding made against Mr Lovick in relation to the inconsistency between his affidavit evidence that the Peterson machine performed very efficiently and reliably in 2005 and a letter of complaint sent by Mr Lovick on 29 July 2005 to the supplier of that machine. 72The appellants contend that it is insufficient for the respondents to point to alleged failures in the operation of the shredder. They argue that the respondents failed to also prove that they used the shredder in accordance with the training provided by Doppstadt Australia and in accordance with Doppstadt's operators manual. They submit that the respondents failed at this evidentiary hurdle and therefore have not proved that any of the representations about the operation of the shredder were misleading or deceptive. 73In summary, the appellants relied on four matters: (1)his Honour failed to take into account gaps in the respondents' evidence as to the performance of the shredder, in particular: (a)the Jones v Dunkel inference that ought to have been drawn from the failure to explain not calling Mr Missingham and Mr Gold; (b)the failure of the respondents to put the "day sheets" into evidence; (c)the lack of any written complaint (save for a letter in October 2004) between May 2004 and February 2005; and (d)the lack of servicing records; (2)his Honour did not consider his findings concerning failures in the respondents' operation, servicing, and maintenance of the shredder in the context of whether the representations were misleading or deceptive; (3)his Honour did not consider: (a)Mr Lovick's evidence in his October 2010 affidavit to the effect that it was the practice of Engineering to place logs with a diameter of greater than 200mm in the shredder; or (b)Mr Lovick's concession in cross-examination that material with a diameter of greater than 200mm was placed through the shredder and that this was contrary to Mr Lovick's own operating manual; (4)his Honour failed to have proper regard to, or place sufficient weight on, the evidence of Mr D'Apollonio as to his inspection of the shredder in February 2007. 74It is convenient to deal with the appellants' factual challenges, the subject of the appeal grounds 3-12, as they arise in relation to each of the above complaints.

Failure to call Mr Missingham and Mr Gold and to tender the "day sheets" 75The appellants contend that no explanation was provided by the respondents for the failure to call Mr Missingham or Mr Gold, who operated the shredder between June 2004 and November/December 2004, nor did the respondents provide an explanation for their failure to put into evidence the "day sheets" which both Mr Triantafyllou and Mr Wilton gave evidence of (which recorded the quantity of material shredded each day and the periods the shredder was inoperable). 76The appellants submit that his Honour should have drawn a Jones v Dunkel inference that any evidence to be called from Mr Missingham or Mr Gold, or the "day sheets", would not have assisted the respondents' case that the shredder was defective at the time of purchase. 77As explained by the plurality in Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361: "[63] The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. ... The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. ... [64] The rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party. ...". [Citations omitted.] 78In the present case the relevant question was whether the failure to call Mr Missingham, Mr Gold, and to tender the "day sheets" could mean that the direct evidence of Mr Triantafyllou, Mr Wilton, Mr Haigh, and Mr Agland concerning the problems with the shredder may be more readily rejected, and the inferences for which the respondents contended may be treated with greater reserve: Payne v Parker [1976] 1 NSWLR 191 at 201 per Glass JA. 79It is necessary to separately consider the position in relation to each piece of evidence.

Mr Gold 80The primary operator of the shredder from November 2004 to February 2005 was Mr Wilton not Mr Gold. Mr Gold operated the shredder for approximately two weeks in early November 2004 before Mr Wilton took over as operator, and Mr Gold then moved onto the float work - driving the shredder on a float from one site to another. Mr Gold trained Mr Wilton in the operation of the shredder (Blue 543U; Black 755Q). Mr Wilton was called and gave evidence about the poor performance of the shredder during that period. Mr Wilton's evidence was to the effect that during this period Mr Gold "occasionally" operated the shredder (Blue 543U; Black 285P). Mr Lovick gave Mr Wilton instructions in relation to shearing logs greater than 200mm in diameter (Black 301C), and his Honour accepted Mr Wilton's evidence that he did shear material in excess of approximately 200mm: at [181] Judgment No 1. 81The rule in Jones v Dunkel only applies where a party is required to explain or contradict something: Jones v Dunkel at 321. Nor is it necessary to call cumulative evidence: D Byrne and J D Heydon, Cross on Evidence (Australian loose-leaf edition, Butterworths) at [1215]. Just as the rule does not operate where junior decision makers are not called so long as the senior decision makers have been (see Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 52 FCR 474 at 490), the rule does not operate, in my view, in the present case where the primary operator (Mr Wilton) during the period to which Mr Gold's evidence could have been relevant was called. 82Nor was there a basis for suggesting that the inference which his Honour drew - that the problems with the shredder during Mr Wilton's period with the machine were not as a result of Mr Wilton, or persons with him, overloading the machine (at [183] Judgment No 1) - should have been treated with greater reserve.

Mr Missingham 83Three matters call for consideration: see Payne v Parker at 201 per Glass JA. The first is whether Mr Missingham would be expected to be called by the respondents rather than the appellants. The second is whether his evidence would have elucidated a particular matter. The third is whether his absence was unexplained at trial. 84As to the first matter, a convenient summary of the relevant principles is to be found in MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 at [53] per Macfarlan JA (Ward JA and Gleeson JA agreeing) as follows: "54 The High Court has described the foundation of the Jones v Dunkel principle as that 'the party or his advisers are presumed to know the content of the absent witness's evidence, otherwise he would not be a witness whom 'that party might reasonably be expected to call' (Brandi v Mingot (1976) 12 ALR 551 at 560). As Glass JA observed in Payne v Parker, the condition that the missing witness would be expected to be called by one party rather than the other has been described in different terms (at 201). These include descriptions of it being 'natural for one party to produce the witness" and the witness being 'in the camp of one party, so as to make it unrealistic for the other party to call him' (ibid)." 85Counsel for the respondents suggested several reasons why Mr Missingham would not be expected to be called by the respondents rather than the appellants. These included that Mr Missingham was a former employee who worked for the respondents for about six months in 2004 and had long ceased to be in their employ at the time of trial. A further matter was that it could be inferred, from the evidence at trial, that the respondents had served an affidavit from Mr Missingham (and indeed also from Mr Gold) as Mr Eric Davis had responded to their affidavits in his affidavit, which was read at trial by the appellants (Blue 855 and 857). It was argued that Mr Missingham was not in the respondents' camp as he was merely a former employee, his evidence was available to the appellants by way of the affidavit he had sworn, and that it was not unrealistic for the appellants to call him if they wished to. 86It was common ground on the appeal that Mr Missingham was no longer employed by the respondents at the time of trial, but his absence was otherwise unexplained. 87The mere fact that an absent witness is or has been an employee of one party is not of itself sufficient to place him or her in the other party's camp. However the higher the person stands in the structure or confidence of the employer the more likely it is that the witness may be considered to be in the camp of his employer or former employer: Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [33]; Earle v Castlemaine District Hospital [1974] VR 722 at 734 per Lush J. 88In Earle v Castlemaine District Hospital, Lush J observed that it may be relevant to whether a Jones v Dunkel inference is drawn that the knowledge of the absent witness is of a kind which an employee would or should be unlikely to disclose to the opposing party (at 734). In my view, the same may be said in relation to a former employee. 89In the present case, it was not suggested by the appellants that Mr Missingham's knowledge of his operation of the Doppstadt shredder in 2004 should be treated as a matter which he was required to hold in confidence for the respondents after he had ceased employment. Furthermore, I do not consider that Mr Missingham's knowledge was of a kind which he would or should be unlikely to disclose to the appellants, in circumstances where the respondents had served an affidavit from Mr Missingham on that very topic. In my view, Mr Missingham was equally available to both parties and there was no basis for a Jones v Dunkel inference against the respondents. 90Should others be of a different view, it is appropriate to consider the second condition referred to in Payne v Parker, that is, whether Mr Missingham's evidence would have elucidated a particular matter. The relevant inquiry is whether there was evidence against the respondents of operator error, or failure to maintain or service the shredder during the period Mr Missingham operated the shredder, which was required to be explained or contradicted. The appellants contend that the inference of operator error and failure to service and maintain the shredder during the period June to November 2004 may be drawn from the evidence of Mr Davis and Mr D'Apollonio who gave evidence of their observations of the condition of the shredder in February 2007. His Honour accepted Mr D'Apollonio's evidence and, to a lesser extent Mr Davis' evidence, as the basis for his findings that the respondents had failed to mitigate their losses in respect of the machine. However, I have concluded below that the respondents' challenge to his Honour's findings of failure to mitigate their losses is made out. This leaves for consideration the evidence of the problems encountered during the June to November 2004 period. There was direct evidence given by Mr Hurley, Mr Haigh, and Mr Agland of the problems with the shredder, none of which suggested operator error, or failure to service or maintain the shredder. This evidence included first, Mr Hurley's affidavit evidence relating to: (1)telephone conversations with Mr Trommer of Doppstadt Germany commencing in about July 2004, complaining of difficulties with the shredder not starting, that it operated erratically, and that he also noticed that cracks were arising in the doors (Blue 506Q-X); (2)Mr Hurley's observations on inspection of replacement of the drive belt in about July 2004, that other belts had been damaged and were unserviceable, and that there were whip marks in the belt enclosure, which was consistent with a power transmission belt failure. He explained that with multiple drive belts sitting immediately beside one another, when one belt snapped, it often took out the adjacent belts (Blue 507U-508D); (3)travelling to Mudgee in "about December 2004" and meeting Mr Missingham who told him that a bearing had broken and that parts of it had fallen onto the power transmission belts and damaged them (Blue 513R-T). The date of this conversation appears to be inaccurate, as Mr Missingham was not operating the shredder at this time. As noted in (2) above, the problem with the drive belts had emerged in about July 2004. This discrepancy in dates in Mr Hurley's affidavit was not explored by the appellants at the trial with Mr Wilton, who was the primary operator in December 2004; (4)visiting Mudgee on two other occasions in "December 2004" and being informed by Mr Missingham of serious structural problems with the shredder (Blue 514P-516N). Again, the reference to "December 2004" appears to be an error and should be taken as referring to about July 2004, being the time when Mr Missingham was operating the shredder and, as referred to in (1) above, when Mr Hurley first noticed cracks in the doors; (5)telephone conversations with Mr Agland relating to electrical problems with the circuit boards in the shredder and a number of failures observed by Mr Agland, including that the floor of the shredder would operate in the wrong direction when the hammer mill was operating; the floor of the shredder would unexpectedly reverse direction; the floor of the shredder would cease to operate, thus preventing material from entering the hammer mill; and the rear door failed to lift (Blue 509E-510N). As a result of ongoing problems Mr Hurley made a number of complaints by telephone in early October 2004 directly to representatives of Doppstadt Germany concerning the replacement of electrical circuit boards, but he said that the shredder still did not operate reliably after these were replaced (Blue 510W-512X). 91Secondly, there was unchallenged evidence from Mr Agland, a licensed auto electrician, relating to multiple electrical problems which he observed caused operating difficulties with the shredder, commencing in late February 2004. His evidence included his observations of the types of failure of the shredder that he was called out to fix; his opinion that the shredder was unreliable having regard to the nature and causes of the breakdowns; his observation that the shredder suffered vibration in its whole frame and that he saw cracks developing, which the respondents' workmen repaired from time to time; his observation of continuous vibration in the housing structure to which the electronic switch gear was connected when the shredder was operated under load; his observation that parts of the bearing of the main rotor had fallen off and there was cracking in the structure around the main bearing holding walls (Blue 577K-578Y). Mr Agland explained that the reason for the need to bypass the wiring system was in an attempt to ascertain the source of electrical circuit failures (Blue 574F-M). It was not put to Mr Agland that bypassing the electrical safety switches was the cause of any operating problems experienced by the respondents. He also gave unchallenged evidence relating to the cause of electrical failures, including that the relay units wired into the electrical circuit board were, to his observation, of poor quality manufacture and were subject to excessive vibration (Blue 575L-U). 92Thirdly, Mr Haigh, a fitter and machinist who worked for Engineering, gave unchallenged evidence that in about September 2004, when the shredder was brought in for service and maintenance, it was Mr Missingham who pointed out some cracking which had occurred on the shredder and which required repair. This, and a number of other repairs, took approximately two weeks at the respondents' yard in Orange (Blue 562K-P and 563C-D). Mr Haigh gave evidence of other repairs which he undertook in December 2004 at Gulgong, later in December at Kandos, and in January 2005 at Mudgee (Blue 564H-565H). It was not put to Mr Haigh that any of the repairs he carried out were due to operator error. 93I do not consider that the primary judge erred in not drawing a Jones v Dunkel inference against the respondents when determining whether the representations as found were misleading and deceptive, based on the absence of either Mr Missingham or Mr Gold.

Absence of the day sheets 94Contrary to the appellants' contention, the absence of the "day sheets" or "time sheets" was explained in the respondents' evidence. Accordingly, the third condition referred to in Payne v Parker was not satisfied. Mr Tancred, the respondents' solicitor, provided affidavit evidence, which was unchallenged, that when he received the files from the respondents' former solicitor there appeared to be documents missing; in particular, he was unable to locate the time sheets for Mr Triantafyllou and Mr Wilton or Mr Triantafyllou's diary (Blue 629L-T). Mr Lovick gave evidence that he had handed his original documents to his former solicitor and he had not seen the originals since that time (Black 201E-G).

Absence of complaints between May 2004 and February 2005 95The appellants contend that his Honour failed to take into account the significance of the lack of any "written" complaint by the respondents between May 2004 and February 2005, save for a letter dated 22 October 2004. Implicit in this contention was the proposition that the respondents were not encountering performance problems with the Doppstadt shredder during this period. However the evidence at trial revealed that other complaints, albeit not in writing, were made by the respondents during this period. 96First, Mr Hurley telephoned Mr Ray Davis on 15 June 2004 to complain that in the previous two weeks the shredder had stopped running twice. This was after new circuit boards had been fitted to the machine. A letter from Mr Davis to Mr Lovick dated 22 June 2004 recorded that this telephone conversation ended in a shouting match. The parties were in disagreement as to whether the machine stopping twice in two weeks was a consistent problem or not (see Blue 785-786). 97Next, the nature and seriousness of Mr Lovick's complaint in his letter to Mr Davis of 22 October 2004 (Blue 789) is itself of some significance. Mr Lovick complained that the shredder had stopped once again, exhibiting the same problems that had been encountered in Armidale during the month of May 2004. This was the failure of the scraper floor to operate in the forward direction and the failure of the rear to function without the engine running. This problem had been earlier reported by Mr Hurley to Mr Chiu of Doppstadt Australia during a telephone call on 19 October 2004 (Blue 792). 98There was also evidence from Mr Hurley of his telephone communications, both with Doppstadt Australia and Doppstadt Germany, concerning various failures of the machine including: in about June 2004 with Doppstadt Germany, when the belts snapped as a result of one belt failing (Blue 505F-506K); in July 2004, with Mr Trommer of Doppstadt Germany, concerning the shredder not starting, operating erratically, and cracks appearing in the doors (Blue 506Q-Y); in September 2004, with Mr Thorsten Krause of Doppstadt Germany, requesting new circuit boards (Blue 508M); and in early October 2004 with Mr Thomas Deckman, an expert associated with Doppstadt Germany, concerning the shredder intermittently starting and stopping, the floor changing direction, and the rear door failing to lift (Blue 510W-511R and 512P-513H). 99It was not incumbent on the primary judge to refer to every piece of evidence in his reasons. It is clear that there were a number of other complaints, albeit not in writing, made by the respondents to the appellants and to Doppstadt Germany over the period May 2004 to February 2005. The appellants did not submit that these complaints were not genuine. The inference that the appellants contend should have been drawn - that the respondents encountered only one performance problem in the period May 2004 to February 2005 - must be rejected. The objective circumstances revealed by the evidence of Mr Hurley, and the unchallenged evidence of Mr Agland and Mr Haigh, together with the evidence of Mr Wilton, was one of continuing performance problems during this period.

Failures in the respondents' operations, servicing, and maintenance of the shredder 100It is convenient to deal with the appellants' contentions under this heading together with their related complaints that his Honour failed to take into account the lack of servicing records kept by the respondents, and failed to have proper regard to or place sufficient weight on Mr D'Apollonio's evidence as to his experience with the shredder in 2007. 101The appellants' case at trial was that the problems encountered by the respondents with the Doppstadt shredder were as a result of: (a)operator error, primarily placing oversized logs into the shredder and failing to check for contaminants such as steel; and (b)a failure to service, maintain, and repair the shredder in accordance with the Doppstadt manual provided to Mr Lovick. 102I will deal with each of these contentions in turn.

(1) Oversized logs 103The appellants relied on evidence of Mr Davis that he told Mr Lovick to pre-shear timber material with a diameter greater than 200mm before putting it through the shredder. His Honour found that such a warning was given: at [137]-[138] Judgment No 1. Indeed, Mr Lovick included this instruction in his own operating manual prepared for use by his operators which stated that: "material over 200mm in diameter and 500mm in length should be put aside. Shearing will downsize the material and allow it to be ground and processed." (Blue 178). 104The primary judge accepted the evidence of Mr Triantafyllou that, other than accidentally, from time-to-time, he complied with this direction about shearing: at [173] Judgment No 1. His Honour also accepted the evidence of Mr Wilton that he would shear material with the excavator that was in excess of approximately 200mm: at [181] Judgment No 1. 105The appellants did not challenge these factual findings in their notice of appeal but, in oral argument, counsel for the appellants submitted that Mr Triantafyllou's evidence in cross-examination should be read as an admission that his practice was not to shear material unless it exceeded 250mm in diameter. The appellants relied upon the following answers given by Mr Triantafyllou: "Q. I suggest to you that that arose when oversized or irregular shaped logs ended up in the hammer wheel? A. That could be so if you were not observant but we had a set of shears as I explained to you outside - that we purchased shears because, the material was hard and you could not place anything greater than 250 millimetres into that what we call the feed unit, the pineapple, which progresses the logs into the grinder. Anything greater than that, would stall the machine straight away. Q. I suggest that on a number of occasions material that was bigger than that ended up in the machine and stalled it? A. No. Again, I would say you would not purposely go and make work for yourself. You were always vigilant and made sure that you put reduced sized timber in that, there." (Black 363N-S) 106Counsel for the appellants accepted that it was never put to Mr Triantafyllou that he regularly put material in excess of 200mm into the shredder (AT 28, lines 23-38). It is also to be observed that the cross-examination referring to "oversized or irregular shaped logs" did not make clear to the witness whether "oversized" meant over 200mm in diameter. In my view, this evidence is not inconsistent with his Honour's finding that Mr Triantafyllou complied with the direction about shearing. 107It is appropriate at this point to refer to one piece of evidence given by Mr D'Apollonio to which his Honour did not refer. Mr D'Apollonio said that he observed a large tree stump in the machine when he inspected it in February 2007. 108In my view, it could not be inferred from Mr D'Apollonio's single observation two years after the respondents ceased using the shredder, that the respondents processed oversized logs or tree stumps through the machine during 2004. Nor could it be inferred that the respondents were responsible for the tree stump which he observed when he inspected the shredder at an agent's yard in Queensland. It was not established that no one other than the respondents had used the shredder, whether as a trial or otherwise, since February 2005. Mr Wilton was the last operator of the shredder in February 2005, but the proposition that he attempted to process a large tree stump was never put to him. 109Accordingly, there was no error in his Honour concluding that the machine was not misused by either Mr Triantafyllou or Mr Wilton, when making findings that the machine did not perform consistently with the representations made: at [210] Judgment No 1. 110The appellants next complain that his Honour failed to reconcile his acceptance of this evidence with his later findings (based on the evidence of Mr D'Apollonio and Mr Davis) regarding the respondents' failure to mitigate their losses, which they argued was relevant to whether the machine performed consistently with the representations made. It may be accepted that his Honour did not attempt that task. As already noted, his Honour expressly based his findings, that the machine did not perform consistently with the representations made, largely on his conclusion that the machine was not misused by Mr Triantafyllou and Mr Wilton. In my view, it was not necessary for his Honour to go beyond the nine month period covered by those two operators, and whose evidence his Honour accepted. Their evidence covered a substantial period of the respondents' operations. 111Even if it is assumed that some operator error had occurred in the intervening period of June to November 2004 (a matter which is considered below), this would not militate against a finding that the machine did not, over two continuous periods totalling nine months, perform consistently with the representations made.

(2) Steel contamination 112The primary judge dealt with the issue of failing to check for steel contamination later in his reasons on the issue of failure to mitigate. His Honour did not find that either Mr Triantafyllou or Mr Wilton acted unreasonably (at [248] Judgment No 1), but was not prepared to infer that the shredder was always operated well by Mr Missingham and Mr Gold, who did not give evidence. It seems that his Honour had in mind both oversized logs being processed through the shredder and failing to avoid steel contamination: at [247] and [249] Judgment No 1. 113His Honour's findings were based on his acceptance of the evidence of Mr D'Apollonio, and to a lesser extent, Mr Davis, relating to the condition of the shredder on inspection by each of them in February 2007. However, his Honour erred when stating that Mr D'Apollonio's observations were consistent with a failure to avoid steel contamination. This is not an observation recorded by Mr D'Apollonio in his affidavit (Blue 864G-Q). In cross-examination, Mr D'Apollonio agreed that no matter how diligent the operator or the shearing of materials by the excavator, it was not possible to avoid any contamination (Black 616E-F). His evidence did not support a finding that the respondents' operators failed to take reasonable care to avoid contamination being fed into the shredder. 114This leaves for consideration the evidence of Mr Davis (Blue 658C-F). Mr Davis also agreed in cross-examination that it was not possible to avoid contamination. He said that one could not stop small metal objects such as hinges being processed. He said that a problem would occur with a big piece of steel, and that he observed a "great dent" on the machine cutter, which was a consequence of "steel on steel" (Black 620F-K). His Honour considered that he should somewhat discount Mr Davis' evidence because of self-interest: at [247] Judgment No 1. His Honour was correct to do so but erred, in my view, in concluding that steel contamination must have occurred because the respondents' operators had not exercised reasonable care. 115First, his Honour seems to have overlooked his earlier findings relating to the "contamination" representation, which he found was misleading and deceptive: at [211] Judgment No 1. Those findings included that Mr Gillen, Doppstadt Australia's sales manager, had told Mr Lovick that the machine was particularly good with dealing with contamination (which included steel contamination (see Blue 12G-M)), because it was designed with "swinging hammers" rather than "fixed hammers": at [58] and [71] Judgment No 1. However his Honour found that it could be inferred from the evidence of Mr Triantafyllou and Mr Wilton that the machine could not handle contamination: at [211] Judgment No 1. 116Secondly, it was not put to the respondents' two operators who were called that they put large pieces of steel into the machine. Mr Lovick said that the operators took care to look for contaminants to ensure that they did not go through the machine (Black 252V). This was consistent with the respondents' operating manual which required the operators to carefully work through the stockpile before shredding to identify steel, concrete, and rocks (Blue 178L). 117Thirdly, the appellants bore the onus of proof on this issue which they had raised as part of the failure to mitigate defence. The relevant question was whether the appellants had established that any of the respondents' operators had misused the machine, it not being in dispute that steel contamination was a common problem which could not always be avoided. In my view, his Honour erred in finding that two of the respondents' operators - Mr Missingham and Mr Gold - had misused the machine by failing to take care to avoid steel contaminants. Whilst his Honour correctly discounted Mr Davis' evidence, he erred in justifying his finding as being supported by Mr D'Apollonio's evidence, which it was not. His Honour also erred in ignoring his earlier finding that the machine could not handle contamination well (which included steel contamination) when operated by Mr Triantafyllou and Mr Wilton. Accepting that limited weight could be given to Mr Davis' evidence, I do not consider that the appellants satisfied their onus of proof on this issue. The appellants did not establish that the damage to the machine which Mr Davis said he observed in 2007 was greater than that which could have been expected if the machine had handled contamination in the manner which the appellants had represented the machine was capable of.

Servicing, maintenance, and repair 118His Honour's finding that the respondents failed to service, maintain, and repair the machine at all times (at [242] and [248] Judgment No 1), was based upon an acceptance of the evidence of Mr D'Apollonio, and to a lesser extent Mr Davis' evidence. His Honour specifically found that there had been a failure to maintain the machine's belts, a failure to grease the shredder's moving parts, and a bypassing of safety switches (at [247] Judgment No 1). He also found that the absence of maintenance records meant that it could not be inferred that the maintenance which Mr Lovick said had been done had in fact been carried out: at [248] Judgment No 1. 119The respondents challenge these factual findings. 120As a preliminary matter, Mr D'Apollonio's evidence suffered from the general difficulty that his observations were made two years after the respondents ceased using the machine. Turning to each of his observations.

(1) Machine belts 121I have earlier referred to the evidence of Mr Hurley concerning the need to replace the drive belts in about July 2004 and the problems associated with damage caused by one of multiple drive belts snapping and taking out the adjacent belts. Mr Hurley's evidence was that the damage to the belts in July 2004 was consistent with a power transmission belt failure. As the respondents continued to encounter performance problems after July 2004 it is unsurprising that the machine's belts were not in good condition when Mr D'Apollonio inspected the machine over two years later. 122Moreover the condition of the drive belts in 2007 did not establish that the respondents operated the shredder with loose machine belts in 2004 and thereby contributed to its poor performance. In my view, his Honour erred in accepting that the appellants had made out this allegation.

(2) Greasing of machine 123As to the alleged failure to grease moving parts, little if any weight could be given to this evidence in view of the temporal gap between the respondents' last use of the machine in February 2005 and the inspection by Mr D'Apollonio two years later. 124Moreover there was direct evidence to the contrary given by both Mr Triantafyllou and Mr Wilton. In the case of Mr Triantafyllou the typed transcription of his daily diary, which was made in about June 2004, contains numerous entries relating to inspection and maintenance of the Doppstadt shredder carried out by him. It is sufficient to refer to the following entries: "... At the end of the day, I would do service, refuel, grease the 32 grease points (other than the rotor with its 45 hammers which also had to be greased each day). This service would take until around 2.5 hrs. ...". (28 March 2004: Blue 1269). "... About 40% of operator time was spent in maintenance." (30 March 2004: Blue 1269). "Service and replace filters." (6 April 2004: Blue 1271). "I cleaned and serviced the Doppstadt." (20 April 2004: Blue 1273). 125This evidence was not challenged. 126In the case of Mr Wilton, he gave evidence that at the time of the handover by the then operator Mr Gold in November 2004, Mr Gold showed him the daily checking procedure (Blue 541B-S). It may be inferred that Mr Gold also carried out this procedure in the two weeks he operated the machine in early November 2004, and when he "occasionally" operated the machine during the November 2004 to February 2005 period, when Mr Wilton was the main operator. Mr Wilton gave unchallenged evidence that he spent approximately 1 to 1.5 hours per day in the daily inspection and service of the machine before use as follows: "Q. What was involved in the day to day service? Just give me a typical list of things that you would do on a daily basis which would fall into the category of services. A. Before you start you just go round, you would grease the machine and whilst doing that you would check for any breakages or cracking or deterioration of any part of the machine. You check all fluids, levels, to make sure that they were all good. Then you would go into the hopper and check all the hammer faces for wear and you would re-tension all the bolts on the hammers themselves to make sure everything was up to speed so that you could have a bit of a crack at it before you had to re-service it, which was an ongoing thing through the day." (Black 285V-286D) 127It is significant that Mr Wilton was the last operator of the shredder in February 2005. He gave unchallenged evidence of day to day servicing, including greasing of the machine, to which his Honour did not refer in this part of his reasons. In my view, his Honour erred in accepting that the appellants had made out this allegation.

(3) Electrical safety switches 128Mr D'Apollonio gave evidence that electrical safety switches had been altered and, in most cases, bypassed. He did not say that this involved misuse of the machine (Blue 864Q). That view was expressed by Mr Davis who was not a qualified auto electrician. He expressed the belief that setting up a "bypass" on a warning circuit is highly dangerous. It was said that ignoring warning lights can result in serious damage to the machine, as the matter which requires attention will not receive that attention (Blue 660K-M). This evidence was given by Mr Davis in response to evidence of Mr Agland, the licensed auto electrician who worked on the machine for the respondents. 129Mr Agland gave evidence of an occasion in November 2004 when he attended at Cowra to assess a problem which Mr Wilton had experienced in the engine shutting down immediately after starting up. Mr Agland determined that the problem was with the coolant light, which was incorrectly indicating that coolant levels had dropped to dangerously low proportions and thus shut down the engine. Mr Agland manually checked the coolant levels and found them to be within normal range. The bypass system which Mr Agland established was a switch which enabled the operator to keep using the machine if it shut down and showed a low coolant light again (Blue 573B-574C). Mr Agland was not cross-examined. Thus it was never put to him that the bypass system which he installed was dangerous for the machine's performance. Nor was it put to him that he installed any other bypass systems or that they were dangerous for the machine's performance. 130Mr Agland also gave evidence that on many occasions he installed an electrical circuit to bypass the wiring system in his attempt to ascertain the source of electrical failures. He described this as involving long runs of "temporary" wires around the electrical circuit board. He said this was required because the wiring diagrams provided were not accurate and could not be relied upon (Blue 574F-575I). His Honour seems to have treated Mr Agland's evidence concerning the temporary bypass of the wiring system, which he accepted was a convenient means of carrying out his investigations, as involving the bypassing of safety switches: at [249] Judgment No 1. I would not read Mr Agland's evidence in this way. Nor did the appellants attempt to establish, by cross-examination of Mr Agland, that any temporary bypass installed by Mr Agland when conducting investigations caused the shredder's performance problems. 131In my view, his Honour erred in accepting the appellants' allegation that Mr Agland's conduct involved a failure to take reasonable care.

Evidence of Mr D'Apollonio 132The appellants relied upon Mr D'Apollonio's evidence at trial in support of the contention that he did not encounter problems with use of the machine, similar to those experienced by the respondents, and that it could be inferred that the respondents' problems were a result of operator error. 133However, the primary judge found that Mr D'Apollonio did not push the machine very hard and that its operation in the Adelaide Hills was a quite different environment from that which confronted the respondents, and this largely explained the better performance of the machine experienced by Mr D'Apollonio: at [197]-[198] Judgment No 1. A further difference was that the machine had been altered by the time it was used by Mr D'Apollonio: at [205] Judgment No 1. 134The appellants contend that his Honour failed to have proper regard to, or place sufficient weight on, Mr D'Apollonio's evidence as to his experience with the machine. In my view, this contention must be rejected. His Honour carefully reviewed Mr D'Apollonio's evidence in four main areas relating to contamination, land clearing, the economics of the machine, and the importance of the choice of operators: at [200]-[204] Judgment No 1. His Honour correctly concluded that caution must be exercised in inferring directly from Mr D'Apollonio's evidence that the performance problems experienced by the respondents must be as a result of misuse of the machine: at [205] Judgment No 1. 135His Honour's assessment that Mr D'Apollonio's operation of the machine was in a quite different environment to that which the respondents encountered was well founded in the evidence. Mr D'Apollonio did not operate a contracting business, he did not move the machine to other sites for land clearing, and he did not do work for councils, such as processing green waste at transfer stations (Black 615C-H). 136In his affidavit, Mr D'Apollonio said that the machine was not put to work every day but only when there was sufficient work ready to be processed and then it was used on average for eight hours per day (Blue 868Q). In cross-examination, Mr D'Apollonio conceded that his method of operation of the machine was that he might not use it for a month and then he would use it for a month straight, once he had built up enough product to process through the machine (Black 608M-P). 137Mr D'Apollonio did not push the machine very hard and said in cross-examination that his operators adopted a practice of processing pieces smaller than 200mm in diameter and 500mm in length (Black 616L-P). His practice was to process material with a maximum diameter of about 150mm (Black 609N). His use of the machine was not comparable with that of the respondents. 138In my view, there was no error in his Honour's caution about inferring directly from Mr D'Apollonio's evidence that the respondents misused the machine.

Lack of servicing records 139The appellants also contend that his Honour failed to take into account the lack of servicing records kept by the respondents. They relied on the absence of these records as part of their contention that the respondents did not properly service and maintain the machine. 140The respondents point to two matters. First, they submit that there was direct and uncontradicted evidence from the operators during February 2004 to June 2004 (Mr Triantafyllou) and November 2004 to February 2005 (Mr Wilton) that the Doppstadt shredder was properly serviced and maintained during those periods. This evidence included Mr Triantafyllou's diary entries recording servicing and maintaining the machine, Mr Triantafyllou's evidence in cross-examination rejecting the suggestion that he failed to grease moving parts (the hammers) (Black 362U-W), and Mr Wilton's unchallenged evidence of his daily inspection and service of 1 to 1.5 hours, and his practice of stopping and checking the moving parts (the hammers) during the ordinary operation of the machine (Black 286). Mr Wilton also gave unchallenged evidence that a major maintenance was carried out by a fitter from the respondents who attended on site during his period of operation of the shredder (Black 285S). In addition, there was the unchallenged evidence from Mr Haigh, referred to above at [92], of his inspection and repairs carried out in December 2004, first at Gulgong and later at Kandos, and then in early January 2005 at Mudgee. 141Secondly, as to the period from June to November 2004, the respondents submit that there was evidence from Mr Hurley of the maintenance and repairs carried out in July and October 2004, which has been referred to above at [90]; evidence from Mr Hurley that he considered Mr Missingham to be an experienced mechanic (Blue 514M-N); evidence from Mr Haigh that it was Mr Missingham who brought the machine in for repairs for two weeks in September 2004; evidence from Mr Agland of the multiple electrical failures which he was required to attend to; and evidence that Westrak serviced the machine in around October 2004 in anticipation of a possible sale (Black 256T-V). 142The respondents conducted their own service business employing 20 to 25 people (Black 256N-Q). They submit that it should not be inferred, from the absence of maintenance records, that they did not properly service and maintain the Doppstadt shredder. There is much force in this argument. There was direct evidence of both daily and regular servicing and maintenance as well as repairs being carried out. However, in a later section of his Honour's reasons, dealing with the failure to mitigate defence, his Honour found that Mr Lovick did not have a proper record-keeping system to verify the maintenance which he said had been undertaken on the machine and that, in the absence of proof of such a system, his Honour was not prepared to infer that proper maintenance was always conducted: at [248] Judgment No 1. However, as already noted in relation to the issue of operator error, the relevant question was whether the appellants had established a failure by the respondents to take reasonable care with the machine. 143In my view, the weight to be given to the inference to be drawn from the absence of maintenance records needs to be balanced against the whole of the evidence including from the two operators of the machine and the evidence of Mr Hurley, Mr Haigh, and Mr Agland concerning servicing, maintenance, and repairs. The respondents' operating manual prepared for its operators dealt with servicing and maintenance, both day to day and at regular intervals based on hours of the machine's use. Major maintenance and repairs were carried out both on site and at the respondents' premises in Orange. Taken together I do not consider that the lack of servicing records of itself undermined the respondents' case that the Doppstadt machine was defective when acquired from the appellants.

Mr Lovick's evidence 144The appellants contend that the primary judge should have found that the respondents ignored the warning given to Mr Lovick about not putting oversized logs through the shredder, and should have found that the respondents had done so, having regard to what were said to be, in effect, admissions by Mr Lovick when he inspected the machine in July 2010 at Mr D'Apollonio's property in the Adelaide Hills. Mr Lovick had arranged, in advance of this inspection, for eight logs of wood of various sizes to be delivered to Adelaide Hills to be feed into the machine. He referred to these in his affidavit as the "sample logs" (Blue 446L-O). Mr Lovick said that he selected the sample logs as he regarded them to be representative of the type and size of logs that Engineering attempted to process in the shredder (Blue 447T-U). The appellants emphasised that Mr Lovick's affidavit did not mention the logs being sheared by the respondents' operators before being placed in the shredder. However, in cross-examination, Mr Lovick said that the sample logs were "representative of logs that we processed through the shredder that we should shear up, yes" (Black 161J-L). Mr Lovick acknowledged that his affidavit had not referred to shearing before processing the logs, and he explained that he did not process the logs himself. He said that the respondents would shear the logs before putting them in the shredder. Mr Lovick said that the sample logs were only representative of the types of timber processed, not the sizes, as they included two hardwood varieties, a medium hardness of timber, and a soft timber and palm (Black 161W-162X). 145In my view, Mr Lovick's evidence relating to the inspection of the shredder in July 2010 is not to be taken as containing the admission for which the appellants contended. 146The appellants also drew attention to later evidence given by Mr Lovick in cross-examination that irregular shaped material of larger dimensions than 200mm in diameter and 500mm in length would "occasionally" be put through the shredder (Black 252N-T). The context of this evidence was that Mr Lovick was explaining that his operators did not simply place large pieces of hard wood and other materials into the shredder. Rather, these large pieces were first reduced into an irregular shape by shearing, because the hammer mill in the shredder worked best with irregular shapes (Black 251K-T). The concession by Mr Lovick that "occasionally" the dimensions of the irregular shaped material was larger than the recommended sizes in the Doppstadt operating manual is unsurprising. The process of shearing the material is done by visual observation using mechanical means. It involves a degree of estimation that the material has been reduced in size to the recommended dimensions. Mr Davis himself acknowledged that the shredder could process larger sized material than that recommended in Doppstadt's operating manual. He explained that the recommended dimensions took into account that operators might make a mistake or not observe the recommended shearing sizes. Mr Lovick's concession regarding his operators "occasionally" processing larger material is not inconsistent with his Honour's findings in relation to Mr Triantafyllou's evidence, that accidentally, from time to time, he would process larger material than the recommended sizes. His Honour did not consider that this involved misuse of the shredder by Mr Triantafyllou. In my view, his Honour did not fail to take into account Mr Lovick's evidence of his operator's conduct.

Significance of credit finding against Mr Lovick 147The primary judge found that Mr Lovick's evidence that the Peterson machine had performed efficiently and reliably with minimum downtime was misleading, because Mr Lovick made a complaint later in 2005 about the operation of the Peterson shredder: at [194] Judgment No 1. The appellants contend that his Honour did not place sufficient weight on this credit finding. They submit that his Honour should have taken this into account in assessing Mr Lovick's evidence on other matters including reliance and damages. 148The respondents submit that Mr Lovick's evidence about reliance and damages was properly to be considered in light of the whole of the evidence and not to be based on one credit blow achieved over the course of several days of cross-examination. So much may be accepted as a general proposition, but much will depend on the nature and significance of the credit blow and whether the other findings are credit based or corroborated by evidence of the objective circumstances and events. 149In the present case, the credit finding against Mr Lovick does not, in my view, undermine his Honour's findings on reliance or damages. As to reliance, there is no challenge to his Honour's finding that Mr Lovick, on behalf of the respondents, relied upon the appellants' representations when deciding to purchase the Doppstadt shredder. His Honour's further finding that Mr Lovick would have purchased a Peterson machine instead of the Doppstadt shredder was based on inferences drawn from evidence of the respondents' objective circumstances. Although his Honour also referred to Mr Lovick as having given "direct evidence" on this issue, it is common ground that his Honour was mistaken in this regard. For the reasons given below under issue 4, sub-issue (2), I do not consider that this error precludes the inference drawn by his Honour on reliance. 150As to his Honour's findings on damages, the appellants submit that Mr Lovick's evidence relating to the available work in 2004 should not have been accepted, having regard to the credit blow. I reject this submission. The appellants did not challenge Mr Lovick's evidence on this issue in cross-examination, and his evidence relating to the availability of work in 2004 was supported by the evidence of Mr Hurley. In my view, there was no error in his Honour's approach to Mr Lovick's evidence.

Mr Gillen's letters 151It will be recalled that Mr Gillen was employed as Doppstadt Australia's sales manager. In March and April 2004 he was the author of correspondence between Doppstadt Australia and Doppstadt Germany concerning problems encountered by the respondents with the Doppstadt shredder. The primary judge found that Mr Gillen was a diligent employee who was following up on problems reported about the machine, and that this correspondence was an accurate account of what was wrong with the machine: at [185] Judgment No 1. 152His Honour observed that the correspondence was detailed and largely consistent with the complaints Mr Lovick was making at the time about electrical problems, vibration, machine stalling, and an incapacity to accept properly sized loads without breaking down. His Honour found that Mr Gillen genuinely thought that the problems were well beyond normal ones to be expected from a new machine: at [187] Judgment No 1. The appellants complain that the rule in Browne v Dunn (1893) 6 R 67 required that the respondents put this proposition to Mr Gillen. 153The appellants' reliance on Browne v Dunn is misconceived. The rule in Browne v Dunn is a rule of fairness. It was explained by Hunt J in Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 as a requirement to cross-examine a witness if it was intended to contend that the witness' evidence should not be accepted. In oral argument, counsel for the appellants accepted that his Honour did not err in concluding that what was being said by Mr Gillen in his correspondence to Doppstadt Germany was accurate (AT 24, lines 23-31). The respondents did not seek to rely upon Mr Gillen's conduct for any adverse inference that required the respondents, as a matter of fairness, to put that inference to him. The respondents relied upon Mr Gillen's correspondence in a different way. This was that the obvious conclusion to be drawn from the tone of his correspondence was that Mr Gillen genuinely thought that the problems were well beyond normal ones to be expected from a new machine. His Honour did not err in reaching this conclusion.

(5) Other challenges to misleading conduct findings 154It is next necessary to address a number of specific challenges to his Honour's findings that particular representations found to have been made by the appellants were misleading and deceptive.

The contamination representation (ground 14) 155The primary judge found that Doppstadt Australia represented to the respondents that the Doppstadt shredder was particularly good in dealing with contamination and handled contamination better than any other machine on the market (the contamination representation): at [143] Judgment No 1. This representation was made by Mr Gillen to Mr Lovick on 31 October 2003 that the machine's swinging, rather than fixed, hammers assisted in dealing with contamination and would reduce the damage that might result from the presence of such contamination: at [58] and [71] Judgment No 1. The reference to "contamination" was a reference to steel and other non-organic material (Blue 12A-E). His Honour found that this representation was misleading and deceptive because it could be directly inferred from the evidence of Mr Triantafyllou and Mr Wilton that the shredder could not handle contamination, and it was probable that it could not do so: at [211] Judgment No 1. 156The appellants complain that in reaching this finding his Honour did not refer to the evidence of Mr D'Apollonio, which he accepted, that the shredder appeared to be able to manage contamination after February 2007, or his Honour's finding that Mr D'Apollonio's observations of the shredder at that time were consistent with a failure to avoid steel contamination being fed into the shredder. The appellants contend that in light of Mr D'Apollonio's evidence his Honour ought to have found that he was not satisfied that the contamination representation was misleading and deceptive. 157Although his Honour did not expressly refer to Mr D'Apollonio's evidence when addressing the contamination representation, this does not establish error in his Honour's finding of misleading conduct. As to Mr D'Apollonio's own experience with managing contamination, his Honour had already considered and distinguished Mr D'Apollonio's experience with the shredder in Adelaide Hills. First, Mr D'Apollonio's use of the shredder was not comparable with the respondents' use of the shredder: at [197] Judgment No 1. Secondly, the shredder had been altered by 2007 to rectify excessive vibration that the respondents had experienced: at [205] Judgment No 1. Thirdly, his Honour was entitled to give greater weight to the direct evidence of Mr Triantafyllou and Mr Wilton of the shredder's inability to handle contamination well, which evidence he accepted: at [211] Judgment No 1. 158So far as the appellants rely on Mr D'Apollonio's observation of the condition of the shredder in February 2007, Mr D'Apollonio did not expressly say that the damage he observed was consistent with a failure to avoid steel contamination being fed into the shredder. For the reasons given above relating to steel contamination at [112] to [117], I have concluded that his Honour was in error in finding that Mr D'Apollonio's observations were consistent with a failure by the respondents to take care to avoid steel contamination.

The remote control representation (ground 15) 159The primary judge found that Doppstadt Australia represented to the respondents that the remote control device used with the shredder allowed the one-man operator an early response time and an additional means to expel contamination without causing damage (the remote control representation): at [146] Judgment No 1. His Honour found that this representation was misleading and deceptive because the remote control did not work properly right from the beginning: at [214] Judgment No 1. This finding was based on correspondence from Doppstadt Australia to Doppstadt Germany seeking a replacement remote control, and the evidence of Mr Triantafyllou. 160The appellants complain that his Honour's reasons do not address two matters. First, that there was only one problem ever experienced with the remote control device - which Mr Lovick reported in a letter to Doppstadt Australia on 3 March 2004 - and the remote control was replaced in March 2004. Secondly, that there was no mention of any subsequent problems with the remote control in Mr Triantafyllou's diary or any other of the respondents' records. 161The appellants submit that the fact that there was a single problem with the remote control following delivery did not make the representation misleading or deceptive because the remote control was covered by warranty, it was replaced when found defective, and following its replacement no further problems were recorded or reported and it was said to be working fine. 162The appellants' submission should be accepted. The mere occurrence of a single problem with the remote control device, taken together with no further problem being recorded or reported after it was replaced in March 2004, does not establish that the remote control representation was misleading and deceptive at the time it was made. 163The appellants have made out appeal ground 15.

The Landfill and Council's suitability representations (ground 16) 164The primary judge found that Doppstadt Australia made two suitability representations to the respondents. The first by Mr Gillen to Mr Lovick was that the Doppstadt shredder was suitable for processing green waste in landfill sites and for land clearing (the landfill suitability representation), and the second by Mr Davis to Mr Lovick was that the shredder was suitable for tendering to service Councils' waste disposal requirements (the Councils' suitability representation): at [147] Judgment No 1. His Honour found that both these representations were misleading and deceptive because the lack of the performance of the machine immediately upon delivery was a basis to infer its unsuitability: at [215] Judgment No 1. 165The appellants challenge his Honour's finding by contending that his Honour did not reconcile Mr Triantafyllou's evidence, as to performance problems, with a number of other matters, including that: at the time the representations were made (prior to delivery) the respondents were not then performing council waste disposal work or processing green waste in landfill sites; that the shredder was first put to work on 26 February 2004 at Western Plains Zoo, Dubbo, which was not a council landfill site or waste disposal depot; that Mr Triantafyllou was inexperienced in the use of shredders; that "unsuitability" must involve an element of degree; and, finally, that his Honour failed to give consideration to Mr Lovick's evidence in cross-examination that he observed the shredder processing green waste and other timber materials. 166The appellants' complaint must be rejected. It is not to the point that the respondents were not performing the particular work in respect of which the suitability representations relate at the time those representations were made, nor is it to the point that the first job on which the shredder was used was not a council landfill site or a waste disposal depot. The evidence established that Engineering used the Doppstadt shredder for processing green waste for councils including Griffith City Council on 17 March 2004 (Blue 1212), Tamworth City Council on 23 April 2004 (Blue 1213), Armidale Dumaresq Shire on 31 May 2004 (Blue 1214), and Tenterfield Shire Council on 12 July 2004 (Blue 1216) (amongst others). Mr Triantafyllou also gave evidence, which his Honour accepted, that he was careful in using the machine, and that the machine experienced operational difficulties and breakdowns during the period from February to June 2004, whilst the shredder was being used to process green waste in landfill sites and for land clearing and servicing council waste disposal (see Black 364D-F).

The "no problems" representation (ground 16A) 167The primary judge found the Doppstadt Australia represented to the respondents that they would not have any problems with the Doppstadt shredder in their own business such that they would have to call on any warranty from Doppstadt Australia (the "no problems" representation): at [150] Judgment No 1. His Honour based this finding on statements made by Mr Davis to Mr Lovick in a telephone conversation in mid December 2003 (at [111] Judgment No 1), which included: "Look you will not have any warranty repairs. This is a great machine. It is one of the best machines around ... ." [Emphasis added] His Honour found that this representation was misleading and deceptive at the time of purchase for the same reasons as the suitability representations were misleading, being because of performance issues: at [218] Judgment No 1. 168The appellants challenge his Honour's finding by characterising the statement by Mr Davis as no more than "puffery" or a statement of opinion that was incapable of being proved true or false: see General Newspapers Pty Ltd v Telstra Corporation (General Newspapers) [1993] FCA 473; 45 FCR 164 at 178 per Davies and Einfeld JJ; Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 at [270]-[274] per Kenny J. The appellants submit that the fact that a represented event may itself not have come to pass does not make the representation misleading and deceptive: Bill Acceptance Corporation Ltd v GWA Ltd [1982] FCA 269; 78 FLR 171 at 178.

Was the "no problems" representation mere "puffery"? 169It may be accepted that some statements made as introductory comments, at the start of negotiations for the purpose of attracting the interest of a possible purchaser, may be in the nature of puffery. In each case the statement must be considered in light of the particular facts, the context of the negotiations, and the ordinary incidents and character of commercial behaviour: General Newspapers at 178. 170The context of the follow up telephone conversation in mid December 2003 between Mr Davis and Mr Lovick was that Mr Lovick was seeking reassurance about repairs and servicing of the machine. The primary judge found that Mr Davis felt he needed to persuade Mr Lovick on this issue: at [111] Judgment No 1. When viewed in this context, and having regard to its subject matter, Mr Davis' statement was not mere "puffery".

Characterisation of the "no problems" representation 171Whether an expressed belief related to a future matter depends on the words used and the context in which they were used: Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; 62 IPR 184 at [99]-[102]. Here the context is that identified in the preceding paragraph. The words used by Mr Davis clearly concerned the future performance of the shredder and thus related to future matters. The mere fact that the representation is expressed as a statement of belief or opinion does not prevent it from being a representation with respect to a future matter. Nor does the fact that the representor state his or her reasons for making a statement prevent it from being a representation with respect to a future matter: see Digi-Tech (Australia) Ltd v Brand at [99]-[102]; Willett v Thomas [2012] NSWCA 97 at [160] per Macfarlan A (Young JA agreeing). 172Although the primary judge erred in treating the "no problems" representation as a statement of fact (at [150] and [218] Judgment No 1), there was no material error because, later in his reasons, his Honour correctly dealt with this statement by Mr Davis to Mr Lovick (that he would not have to call on the warranty), as a statement as to a future matter when addressing the maintenance reliability representation. Whether this representation as to future matters was misleading is considered below under appeal grounds 19 and 20.

The fixed electrical representation (ground 17) 173The primary judge found that Doppstadt Australia represented to the respondents at the mid December 2003 meeting that a small electrical fault had recently been identified in the Doppstadt shredder, caused by a poor electrical earth contact, but the problem had now been fixed (the fixed electrical representation): at [151] Judgment No 1. His Honour accepted Mr Lovick's evidence that Mr Davis said something to him to the effect that the machine was a very good one, now that the mechanical or electrical issues had been fixed: at [107] Judgment No 1. His Honour found that there was ample evidence that this representation was misleading and deceptive. This was primarily because multiple electrical problems were recorded as the cause of downtime with the machine, and that the existence of electrical problems was supported by the evidence of Mr Agland, a licensed electrician: at [219] Judgment No 1. I would add that the occurrence of multiple electrical problems was also supported by Mr Hurley's affidavit evidence. 174The appellants complain that in making this finding his Honour failed to recognise that the representation as found was confined to a small electrical problem, which had been fixed, and that this did not support a finding of a broader representation as found by his Honour. In my view, this characterisation of the representation as found by his Honour should be rejected in light of his Honour's findings at [107] Judgment No 1, referred to above, namely, that Mr Davis said to Mr Lovick that any mechanical or electrical issues had been fixed. The fixed electrical representation is not to be viewed so narrowly as the appellants contend. 175The appellants also complain that his Honour ignored certain evidentiary matters, including that the respondents had bypassed electrical safety switches; that the machine was tested by different electricians on 29 March 2004 and 15 April 2004 who could not find any fault; and that Mr Agland's invoices for September 2004, October 2004, and January 2005 did not corroborate electrical problems at an earlier time, nor demonstrate multiple electrical problems. 176Reference has already been made above to the evidence of Mr Agland, the auto electrician who serviced the shredder on behalf of the respondents, and the evidence of Mr Hurley concerning the numerous electrical problems experienced with the shredder. Mr Hurley's affidavit evidence concerning problems with the electrical circuit boards covered the period from at least June to October 2004 (Blue 504-512). Mr Hurley was in frequent contact with Mr Agland during this period concerning electrical problems. Mr Hurley's evidence was consistent with the evidence from Mr Agland, albeit Mr Agland could not recall the precise date of each and every telephone call with Mr Hurley nor every occasion on which he serviced the shredder. Taken together there was no error in the primary judge's finding that there was ample evidence to support the conclusion that the fixed electrical representation was misleading and deceptive.

The technical capacity representations (ground 18) 177The primary judge found that Doppstadt Australia represented in a publication given to the respondents that the Doppstadt shredder had a number of technical characteristics. In particular, that it had a powerful shredder capable of most shredding jobs and equipped with patented load-sensing feed control and features which ensured smooth operation at 1,000rpms - being free swinging hammer holders with quickly replaceable hammer tips and a heavy rotational hammer mill mass (the technical capacity representations). These representations were contained in a document given to Mr Lovick in November 2003: at [90], [99] and [156] Judgment No 1. His Honour found that, to the extent that these representations asserted "smooth and powerful operation", they were misleading and deceptive for the reasons already given in relation to the earlier representations found to have been misleading: at [221] Judgment No 1. 178The appellants complain that his Honour's reference to "smooth and powerful operation" added a representation which did not appear on the face of the document provided to Mr Lovick. 179This submission should be rejected. The question is whether the statements in the brochure contained or conveyed a representation to the effect, as found by the primary judge, that the shredder was a powerful machine, capable of most shredding jobs and equipped with features which ensured smooth operation. His Honour's shorthand description of the brochure having conveyed the message that the shredder provided "smooth and power operation" is simply that - a shorthand reference to the message conveyed by the brochure. Moreover, his Honour's description of that message was entirely apt.

The maintenance reliability and country repair representations (grounds 19, 20 and 21) 180The primary judge found that Doppstadt Australia represented to the respondents that the Doppstadt shredder was reliable and better than rival shredders for maintenance frequency and reliability (the maintenance reliability representation), and that if the machine broke down many hundreds of kilometres from Sydney, Doppstadt Australia would send a repairer to wherever the machine was to repair it and would not charge travel and transport costs for service (the country repair representation): at [153] and [155] Judgment No 1. These representations were made by Mr Davis to Mr Lovick in a telephone conversation following the mid December 2003 meeting between them: at [110]-[111] Judgment No 1. His Honour found that these representations were representations as to future matters, that there were delays in Doppstadt Australia getting parts and service personnel to the country, and that as the appellants had not called evidence to establish reasonable grounds for making these representations they should be taken to be misleading and deceptive: at [223] Judgment No 1. 181As to the maintenance reliability representation, the appellants contend that it was merely a representation as to the present capability of the shredder. Alternatively, if the representation was as to a future matter, the appellants contend that they had reasonable grounds for making the representation, having regard to the prior experience of Mr Davis and the availability of trained staff to attend to servicing issues. I have concluded above at [171]-[172] that this representation, which his Honour found based on the statement by Mr Davis to Mr Lovick that "... you will not have any warranty repairs ...", concerned the future performance of the shredder and thus related to future matters. 182As to the country repair representation, the appellants accepted that it was a representation as to a future matter but contend that his Honour ought to have found that there was evidence of reasonable grounds for making the representation in light of evidence that Doppstadt Australia had trained staff available (Black 863H-U). 183The appellants' submissions concerning reasonable grounds did not grapple with the evidentiary difficulty of how they could establish reasonable grounds, when at the same time they denied that Mr Davis made these two representations to Mr Lovick (Black 863B-K). I now turn to this issue.

Were the representations as to future matters misleading? 184The respondents relied upon s 51A of the former Trade Practices Act in relation to the claim against Doppstadt Australia and s 41 of the Fair Trading Act in relation to the claim against Mr Davis. Those provisions are as follows: "51A Interpretation (1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation. [Emphasis added.] ... ." "41 Interpretation (1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person."

Primary judge's reasoning 185The primary judge seems to have proceeded upon the basis that s 51A(2) and s 41(2) operate in the same manner. In respect of s 51A(2), his Honour referred to authority in the full Federal Court that it effects the reversal of the evidential burden of proof rather than an absolute reversal of the onus proof, by deeming a person who makes a representation of a future matter not to have had reasonable grounds for making the representation unless the person adduces evidence to the contrary: Re McGrath; Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd (Re McGrath) [2008] FCAFC 2; 165 FCR 230 at [192]-[193] per Allsop J. His Honour noted the contrary view in some other authorities that the section imposes a legal onus on the representor to adduce evidence to the contrary otherwise the deeming provision operates. His Honour expressed the view that the present case did not turn on any difference between whether the appellants bore an evidential burden, in the sense of an obligation on it to adduce evidence, rather than the legal or persuasive burden, to prove that they had reasonable grounds for making the representations alleged: at [208] Judgment No 1.

Consideration 186It seems that his Honour's attention was not drawn to the different terms of s 41(2) of the Fair Trading Act, which is to be taken as imposing a legal or persuasive onus on the representor: Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd (Dib Group) [2011] NSWCA 300 at [20] and [31] (Allsop P, Macfarlan JA and Handley AJA agreeing); Willett v Thomas at [41] (Basten JA), at [158] (Macfarlan JA) (Young JA agreeing with both). Nonetheless neither party suggested on appeal that this omission resulted in any material error by the primary judge. As already noted, his Honour did not consider that there would be any different outcome if the appellants bore the legal or persuasive burden. 187There is one further matter to note in relation to s 51A(2) of the Trade Practices Act. Neither party suggested on appeal that the proper construction of s 51A(2) of the Trade Practices Act was not as stated in Re McGrath. However, in Dib Group at [34] (Allsop P, Macfarlan JA and Handley AJA agreeing), this Court left open the proper construction of s 51A(2) of the Trade Practices Act and in particular, the nature of the onus and what is encompassed by the words "it adduces evidence", which has been construed in possibly conflicting ways by Allsop P in Re McGrath and the Queensland Court of Appeal in Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199. Neither party directed argument to this issue. The appellants seemed to accept that in respect of s 51A they bore an evidential burden to adduce some evidence "to the contrary" which tended to establish, or admitted the inference, that there were reasonable grounds for making the representation, before the deeming provision ceased to operate: Re McGrath at [191] per Allsop P. The matter should be dealt with on this basis. 188In their defences the appellants denied making the representations at all, and neither of the appellants pleaded that they had reasonable grounds for making the representation. They maintained this position on the hearing of the appeal but nonetheless contended that there was evidence of reasonable grounds for making each of the representations. The appellants' submissions made no distinction between the position of Doppstadt Australia and Mr Davis. 189The primary judge applied the well-established approach in Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513 per Heerey J, that s 51A of the former Trade Practices Act requires the representor, in this case Doppstadt Australia and Mr Davis, to show:

• some facts or circumstances;
• existing at the time of the representation;
• on which the representor in fact relied;
• which are objectively reasonable; and
• which support the representations made. The appellants did not suggest on appeal that this approach was not applicable. The passage from Sykes v Reserve Bank of Australia referred to above has been approved by this Court: City of Botany Bay Council v Jazabas Pty Ltd (Jazabas) [2001] NSWCA 94 at [83]-[85] (per Mason P with which Beazley JA agreed at [105]). Special leave was refused on 19 April 2002: Jazabas Pty Ltd v City of Botany Bay Council [2002] HCATrans 131 (Gleeson CJ and McHugh J). This Court has also held that the passage in Sykes v Reserve Bank of Australia is equally applicable to s 41 of the Fair Trading Act: see Willett v Thomas at [41] per Basten JA (Macfarlan JA and Young JA agreeing). 190The determination of whether a person had reasonable grounds for making a statement as to a future matter must be assessed as at the date of the representation: Sykes v Reserve Bank of Australia at 513; Re McGrath at [198]. Nonetheless, it is permissible to examine later events which might throw light upon the overall probabilities. Indeed, as Mason P observed in Jazabas at [83], the overall probabilities and circumstances may offer the most reliable guidance. However, it is also vital to guard against hindsight illusion: Jazabas at [83].

How does the representor establish an actual belief? 191The third requirement in Sykes v Reserve Bank of Australia that the representor must have relied on some facts or circumstances raises difficulty where a representor denies making the representation but also seeks to contend, in the alternative, that the representor had reasonable grounds for making the representation if it was made: see Cummings v Lewis (1993) 41 FCR 559 at 565-566 per Sheppard and Neaves JJ); Willett v Thomas at [44] per Basten JA. 192In the case of a corporation, where a statement has been made by an individual on its behalf, it seems that the grounds on which the corporation can rely may not be limited to the grounds held by the individual who made the statement: Cummings v Lewis at 565-566; Jazabas at [83]-[85], although Basten JA in Willett v Thomas at [42] expressed the view that there was a level of ambiguity about the legal proposition for which Jazabas stands. 193By contrast in Willett v Thomas at [44] Basten JA highlighted the legal difficulty in demonstrating subjective reliance in cases where the representor is an individual and unequivocally denies making any relevant representation, which evidence is rejected. Mr Davis is in this position in the present case. The difficulty arises because an individual cannot have actual reasons for making a representation which the individual says was not made. A similar view was expressed by Macfarlan JA in Willett v Thomas at [158] that only grounds which the representor in fact relied upon are relevant, even if the evidence revealed that other grounds were available to support the making of the relevant representations. His Honour cited Dib Group at [35]-[36] per Allsop P (Macfarlan JA and Handley AJA agreeing) as authority to this effect. So much should be accepted. 194It might be argued that the position may not be as extreme as suggested in Willett v Thomas and Dib Group. In Trade Right (NSW) v Bank of Queensland [2014] NSWSC 55 at [1130], Ball J expressed the view that an individual may be able to establish reasonable grounds by adducing evidence of a belief that a particular prediction was true, but still deny making the prediction. It is unnecessary to reach any concluded view on this possible approach to s 51A, as the appellants did not challenge the approach taken in this Court in Willett v Thomas and Dib Group. 195The present case involves one in which the individual (Mr Davis) who made most of the representations and the corporation (Doppstadt Australia) are both sued. The appellants' submissions did not address the practical and legal difficulties identified above that Mr Davis denied making the relevant representations, yet both appellants contended on appeal that reasonable grounds existed for making the representations. It was not argued on Mr Davis' behalf that there was evidence of facts or circumstances unknown to him which constituted reasonable grounds for the making of the relevant representations. 196As already noted, the primary judge found that the maintenance reliability representation and the country repair representation were both misleading, because there were delays in getting parts and service personnel to the country and the appellants did not adduce evidence to establish reasonable grounds for making these representations: at [223] Judgment No 1. In relation to the maintenance reliability representation, the appellants contend that reasonable grounds existed for making this representation, taking into account Mr Davis' evidence of prior experience in using Doppstadt shredders in his own business and the availability of trained staff, Mr Billy Chiu and Mr Eric Davis, to attend to servicing issues. 197So far as this submission relied on Mr Davis' prior experience with Doppstadt machines, Mr Davis did not give evidence of any actual belief as to facts and circumstances which would support his representation that the respondents would not have any warranty repairs. Mr Davis' evidence related to a different issue - that Doppstadt Australia had never received a complaint that a Doppstadt shredder was unable to handle material sought to be shredded, other than the respondents' complaint. Mr Davis acknowledged that another customer (Mr Danny Hughes) had complained because the engine in his Doppstadt shredder had blown up on a number of occasions. His Honour did not find it necessary to resolve the conflict in the evidence between Mr Hughes and Mr Davis as to whether Mr Hughes also experienced other problems in 2001, such as computer problems, wiring problems and belt problems (Black 703C-F). So far as the appellants relied upon the availability of trained staff to attend to servicing issues, this was not directly relevant to the maintenance reliability representation itself. 198As to the country repair representation, both appellants contend that reasonable grounds existed for making this representation, in light of the evidence that Doppstadt Australia had trained staff to attend to servicing issues. The difficulty with this submission is that the evidence did not go further than the existence of trained staff. There was no evidence of facts or circumstances which existed at the time of the representation which supported an actual belief held by Mr Davis, or anyone else on behalf of Doppstadt Australia, that it would send a repairer to wherever the machine was to repair it and would not charge travel and transport costs for service. 199In my view, the primary judge did not err in concluding that the appellants had failed to make out reasonable grounds for the making of either of these representations.

Issue 2: Causation of loss/failure to mitigate findings 200The respondents contend by grounds 1 and 2 of the cross-appeal that the primary judge erred in finding that the respondents' damages "in respect of the machine" ought be reduced by one third on account of the respondents being responsible for causing, and failing to mitigate, their losses: at [252] Judgment No 1. 201The contention that the respondents failed to mitigate their losses was a defence relied upon by the appellants at trial, in the alternative to the allegation of contributory negligence by the respondents, which his Honour rejected. Both allegations were based on the respondents' alleged failure to take reasonable steps to service, maintain, and repair the Doppstadt shredder and their alleged failure to take reasonable steps to operate the machine properly. At trial, and again on appeal, no attention was given by the parties to why his Honour's findings concerning failure to mitigate losses "in respect of the machine" were in some way relevant either causally, or by way of defence of failure to mitigate, in relation to Engineering's claim for lost profits. 202To understand why this is so, it is necessary to analyse his Honour's reasoning in light of the appellants' pleading of this defence and the submissions advanced at trial.

Primary judge's reasoning 203The primary judge recorded that the failure to mitigate defence was based upon three matters, each of which had been pleaded. First, the alleged failure by the respondents to properly take reasonable steps to service, maintain, and repair the Doppstadt shredder "contributing to its poor condition and loss of value": at [246] Judgment No 1. Secondly, the alleged failure of the respondents to take reasonable steps to operate the shredder properly, again "contributing to its poor condition and loss of value": at [249] Judgment No 1. Thirdly, the alleged failure by Developments once Engineering ceased using the machine in February 2005 to sell it quickly and allowing it to fall into disrepair: at [250] Judgment No 1. 204At trial the appellants advanced their case in their final written submissions consistently with the three matters recorded by his Honour (Black 901C-M). The primary judge rejected the appellants' third contention relating to the alleged delay in selling the machine: at [251] Judgment No 1. However, his Honour upheld the first two contentions and, in this regard, his Honour accepted the evidence of Mr Davis (although somewhat discounted because of self-interest) and Mr D'Apollonio, that their observations of the shredder when they each inspected it in February 2007 were consistent with: "...a failure to maintain the machine's belts, with oversized logs being processed through the shredder, with failing to avoid steel contamination being fed into the machine, with failing to grease the shredder's moving parts, and with bypassing safety switches. Whilst I somewhat discount Mr Davis's evidence because of his self-interest, I found Mr D'Appollonio's evidence persuasive on this subject. In my view the objective evidence of the machine itself showed a failure to take reasonable care": at [247] Judgment No 1. 205The primary judge reconciled this finding with the evidence of Mr Triantafyllou and Mr Wilton, which he mostly accepted, of reasonable use of the shredder, having regard to two matters. First, that Mr Triantafyllou and Mr Wilton's evidence did not account for all of the respondents' operations, in particular the respondents did not call Mr Missingham or Mr Gold who also operated the machine, and hence he was not prepared to infer that the machine was always operated well during the balance of the period February 2004 to February 2005. Secondly, the finding that there were systematic problems in Engineering's fledging contracting business, in particular a lack of consistent and coherent maintenance records for the machine, in the absence of which his Honour was not prepared to infer that proper maintenance was always conducted as Mr Lovick said it had been: at [248]-[249] Judgment No 1. 206These two matters led his Honour to conclude that there should be a reduction of one third in the respondents' damages on account of their failure to mitigate their loss after they acquired the shredder: at [252] Judgment No 1.

Submissions 207The respondents contend that the primary judge erred in finding that their conduct involved a failure to mitigate their losses. As to operator error they contend that there was direct and uncontradicted evidence from the operators of the shredder during the periods February to June 2004 (Mr Triantafyllou) and November 2004 to February 2005 (Mr Wilton), that the shredder was not misused. As to servicing and maintenance, they repeated their submissions recorded at [140]-[141] above that the shredder was properly serviced and maintained. They also contend that little weight should have been given to the evidence of Mr D'Apollonio largely for the reasons already given above under issue 1. 208The respondents submit that even if the respondents' conduct is correctly characterised as being relevant to causation, the appellants should be held to the way in which they ran their case below as they carried the onus of proof in respect of the allegation of failure to mitigate. 209The appellants sought to uphold the primary judge's finding of failure to mitigate by submitting that the evidence of Mr Lovick, Mr Triantafyllou, and Mr Wilton demonstrated operator error, misuse of the machine, failure to shear materials over 200mm in diameter, failure to check for contamination prior to processing material, and a failure to service and maintain the shredder in accordance with the Doppstadt manual. The appellants also submit that the observations of Mr D'Apollonio and Mr Davis in February 2007 were consistent with a failure to maintain the machine belts, with oversized logs being processed through the shredder, with a failure to grease moving parts, with bypassing of safety switches, and with a lack of records.

Consideration 210Two preliminary issues arise for consideration. The first relates to the onus of proof of the "failure to mitigate" defence. The second relates to whether this defence has any relevance to Engineering's claim of lost profits, even assuming that his Honour's findings stand.

Onus of proof 211On the first issue, the correct characterisation of the respondents' conduct has significance at an evidentiary level because the appellants bore the onus of proof of their contention that the respondents failed to mitigate their loss: Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; 10 BPR 18,735 at [187] per Giles JA (Meagher JA and Stein JA agreeing), whereas the respondents bore the onus of proof on causation of loss. 212In my view, the appellants should be held to the way in which they pleaded and ran their case below, that is, they had the onus of proof in respect of the allegation of failure to mitigate losses: Metwally v University of Wollongong [1985] HCA 28; 60 ALR 68 at [71]. 213Accordingly, the appellants had to show at trial the extent to which, had the respondents acted reasonably, their losses would have been less. A high standard of conduct was not required of the respondents and it was insufficient for the appellants to suggest other and more beneficial conduct, if it was reasonable for the respondents to do what they did: Karacominakis v Big Country Developments Pty Ltd at [187].

Failure to mitigate not relevant to Engineering's claim of lost profits 214As to the second issue, it is apparent from the appellants' closing submissions at trial, and the way in which his Honour dealt with the failure to mitigate defence, that it had no relevance to Engineering's claim of lost profits. This is unsurprising in circumstances where this claim by Engineering was not raised until very shortly before the commencement of the hearing, and the failure to mitigate defence had been pleaded by the appellants as an answer to the earlier particularised claims by Developments for loss of capital value of the machine and by Engineering for wasted expenditure and lost profits from the use of the Doppstadt shredder itself because of repeated breakdowns. 215So far as this defence was advanced at trial as against Developments, it was put solely on the basis that the alleged failure to service, maintain, and repair the Doppstadt shredder detrimentally affected the sale price (in 2007) because of the state of disrepair it was left in (Black 901C-E and G-J). As against Engineering, this defence was advanced solely upon the basis that if Engineering was suffering loss because the Doppstadt shredder could not perform the work it had available, Engineering should have terminated its hire agreement with Developments and hired an alternative shredder, or hired an additional shredder. Accordingly, the appellants argued at trial that any inability of Engineering to perform work available to it and generate profits was "largely because it did not ensure it had sufficient machinery to cope with the workload" (Black 901K-M). 216His Honour's finding in Judgment No 1 that the respondents' damages should be reduced by one third was made with respect to both respondents. In Judgment No 1, his Honour rejected Developments' claim for loss of capital value of the Doppstadt shredder. Accordingly, his Honour's earlier finding that Development had failed to mitigate its losses "in respect of the machine" had no consequence because Developments' damages claim failed. 217As to Engineering's claim of lost profits, it seems that when determining the issue of damages, his Honour overlooked the basis of his earlier findings in Judgment No 1 (at [246] and [249]), that the respondents' failure to mitigate their losses with respect to the machine was relevant to "contributing to its poor condition and loss of value". 218The appellants did not attempt at trial, or on appeal, to demonstrate why the respondents' conduct might be relevant to Engineering's claim of lost profits based on the hypothetical purchase of a Peterson machine instead of the Doppstadt shredder. In my view, any failure by Engineering to take reasonable steps to either operate or service, maintain, or repair the Doppstadt shredder, could not have had any impact upon the hypothetical profit generated by a Peterson machine in 2004. 219The primary judge did not make any findings in relation to the appellants' submission that Engineering failed to mitigate its loss by not terminating its hire agreement with Developments, and hiring an alternative shredder or an additional shredder in 2004. Nor did the appellants contend on appeal that the one third discount applied by his Honour to Engineering's damages should be upheld on the basis that his Honour should have found that Engineering's actual profit in 2004 would have been higher, and if so, by what amount, if Engineering had acquired an alternate or additional shredder in 2004. 220The absence of any such contention by the appellants on appeal is not surprising in light of the evidence that Mr Lovick ordered a Peterson machine in August 2004, which was delivered in February 2005: at [188] Judgment No 1, and ordered a second Peterson machine in about November 2004 (Blue 352N) which was delivered in June 2005. The expected delivery date of the first Peterson machine was early January 2005. When it did not arrive as anticipated, because of a delay in arranging shipping from the United States, the respondents obtained a loan or replacement machine from the local supplier in about late January 2005. The appellants did not suggest that the respondents acted unreasonably in persevering with using the Doppstadt shredder from February to July 2004. 221On the evidence before the primary judge, I would conclude that the appellants did not prove that the respondents acted unreasonably in not taking any steps before August 2004 to obtain a replacement machine for the defective Doppstadt shredder. It follows, in my view, that his Honour should have found that Engineering did not, relevantly, fail to mitigate its loss so far as it claimed lost profits based on a "different transaction" claim - the purchase of a Peterson machine instead of the Doppstadt shredder in 2004. Nor should his Honour have reduced Engineering's claim of lost profits by one third. 222It would not be appropriate however to uphold the respondents' challenge to the one third discount applied to Engineering's lost profits claim on this basis, as this was not within the scope of argument on the cross-appeal. Rather, it is necessary to decide whether the respondents' challenges to his Honour's factual findings should be accepted. These challenges have already been dealt with above under issue 1. For the reasons there given, the respondents' challenges to his Honour's factual findings should be accepted. 223Accordingly, the primary judge erred, in my view, in reducing Engineering's damages by one third. Grounds 1 and 2 of the cross-appeal should be upheld. The effect on the damages calculation is considered below.

Issue 3: Apportionable claim 224The appellants contend by appeal ground 21A that, having found that Engineering's claim was an "apportionable claim" and that Mr Lovick and Developments were "concurrent wrongdoers" in respect of Engineering's claim (see s 34 Civil Liability Act, and s 87CB of the former Trade Practices Act), the primary judge erred in failing to determine the proportion of liability of the concurrent wrongdoers for the loss claimed by Engineering, and should have proceeded to make that determination and reduce the appellant's liability accordingly: see s 35 Civil Liability Act and s 87CD of the former Trade Practices Act. 225In oral argument counsel for the appellants submitted that the apportionment should be that the appellants are liable for no more than 30% of Engineering's loss or damage (AT 29/10/13, tcpt 46, lines 1-2). 226The argument proceeded on appeal on the assumption by both parties that the proportionate liability provisions of Pt VIA of the former Trade Practices Act and Pt 4 of the Civil Liability Act applied to each respondent's claim for damages under s 82 of the Trade Practices Act and s 42 of the Fair Trading Act. For the reasons explained below, this assumption may be doubted. It is convenient however to first address this appeal ground on the assumption that the proportionate liability legislation applied to each respondent's claim for damages. 227The premise of the appellants' contention that the primary judge erred in not apportioning responsibility for Engineering's damages as between Mr Lovick, Developments, and Engineering, is that Mr Lovick and Developments were "concurrent wrongdoers" in relation to Engineering's claim. This focuses attention on the definition of "concurrent wrongdoer". Both s 87CB(3) of the Trade Practices Act and s 34(2) of the Civil Liability Act provide: "(2) In this Part, a concurrent wrongdoer, in relation to a claim, is a person who is one of two 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." 228The framework of the appellants' contention that Mr Lovick and Developments were concurrent wrongdoers in respect of Engineering's claim is to be found in their pleadings - that Mr Lovick and Developments owed a duty to Engineering to exercise reasonable care in obtaining a shredder which was suitable for Engineering's requirements, and to ensure that the shredder's capabilities were consistent with the way in which Engineering intended to use the shredder (par 35 amended defence of Doppstadt Australia; par 36 amended defence of Mr Davis). However, the circumstances giving rise to the alleged duty of care were not pleaded or particularised. 229In oral argument, counsel for the appellants submitted that the duty arose because there was an arrangement between Developments and Engineering that Developments would acquire the equipment and then hire it to Engineering. The only evidence of an "arrangement" was contained in minutes of meetings of the directors of Developments and Engineering held on 30 June 2003. The directors of Developments resolved that Developments would enter into a hire arrangement with Engineering to supply and make available for use equipment as requested from time to time by Engineering, and that the term and hire charges for the equipment would be determined from time to time by the directors of Developments based on the type of equipment required and the amount of hours required. Similarly Mr Lovick, as the sole director of Engineering, resolved that Engineering enter into a hire arrangement with Developments on the same basis. It may be strongly doubted that these circumstances alone, and without more, provide the foundation for a duty of care in the terms pleaded by the appellants. 230In any event, for the following reasons, the appellants' contention that Mr Lovick and Developments failed to make reasonable enquiries to ensure that the Doppstadt shredder was suitable for Engineering's operations must fail, even assuming the existence of the pleaded duty. 231First, this contention ignores the finding by the primary judge (at [244] Judgment No 1) when rejecting the contention of contributory negligence by the respondents, that: "This contention has a simple answer. Mr Lovick did make enquiries and many of them, to both Mr Davis and Mr Gillen. He can hardly be blamed for not making other enquiries when he was looking for and obtaining assurance about the suitability of the Doppstadt AK430K for his purposes from both Mr Davis and Mr Gillen and supported by the publications that Doppstadt Australia gave to him. There is no contributory negligence on this account." 232Secondly, insofar as counsel for the appellants sought to raise a new point on appeal in oral argument - that Developments had a liability to Engineering because Developments did not tell Engineering that it had to limit the size of logs that the shredder could deal with to those of 200mm in diameter - they should not be permitted to do so. Counsel conceded that this was not the way in which the apportionable claim had been pleaded in the appellants' amended defences (AT 29/10/13, tcpt 48, lines 11-12 and lines 41-46). The appellants are bound by the way in which they ran their case at trial: University of Wollongong v Metwally (No 2) at 71; Coulton v Holcombe [1968] HCA 33; 162 CLR 1 at 8. See also the authorities collected by Beazley P in Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37 at [2]-[10]. Furthermore, the new contention sought to be raised by the appellants is inconsistent with his Honour's finding that the operator's manual, prepared by Mr Lovick as a summary of what he wanted to emphasise to his operators, contained an instruction to shear logs over 200mm in diameter and 500mm in length: at [136] Judgment No 1. 233Accordingly, his Honour erred in concluding that Mr Lovick and Developments were concurrent wrongdoers with Engineering, and should have rejected the apportionable claim on this ground. It is unnecessary in these circumstances to consider whether the other reasons relied upon by the primary judge for rejecting this claim were erroneous.

Proportionate liability legislation does not apply to causes of action arising before 26 July 2004. 234There is an additional reason for doubting that Mr Lovick and Developments were concurrent wrongdoers with Engineering. At trial the respondents accepted that Pt VIA of the Trade Practices Act and Pt 4 of the Civil Liability Act applied to their claim: at [258] Judgment No 1. However, it seems to have been overlooked by both parties at trial and on appeal, that the relevant legislation introducing these provisions commenced on 26 July 2004 and only applied to causes of action that arose on or after that date. The position may be summarised as follows: (1)Sections 87CB to 87CI of the former Trade Practices Act were introduced by Schedule 3 to the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth) which commenced on 26 July 2004: Commonwealth Gazette, No GN28, 14 July 2004, at 2157. (2)The relevant transitional provision is to be found in s 1466 of the Corporations Act 2001 (Cth) which provides: "The amendments made to this Act and the Trade Practices Act 1974 by Schedule 3 to the amending Act applied to causes of action that arise on or after the day on which that Schedule commences." The expression "amending Act" in s 1466 is defined in s 1453 to mean the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004. (3)Part 4 (Proportionate Liability) of the Civil Liability Act was introduced into that Act by the Civil Liability Amendment (Personal Responsibility) Act 2002, and was amended before its commencement by the Civil Liability Amendment Act 2003 to bring it into line with the similar reforms enacted by the Commonwealth Parliament. The provisions of Pt 4 commenced on 1 December 2004: NSW Government Gazette, No GN187, 26 November 2004. (4)The relevant transitional provisions in relation to Pt 4 of the Civil Liability Act are contained in Schedule 1 of that Act. In relation to the Civil Liability Amendment (Personal Responsibility) Act 2002, Pt 3 of Schedule 1 relevantly provides: "6 Application of amendments (1) The amendments to this Act made by the 2002 amending Act extend to civil liability arising before the commencement of the amendments, but do not apply to or in respect of proceedings commenced in a court before that commencement." (5)In relation to the Civil Liability Amendment Act 2003, Pt 4 of Schedule 1 to the Civil Liability Act relevantly provides: "13 Application of amendments concerning proportionate liability Clause 6 (1) extends to Part 4 (as inserted by the Civil Liability Amendment (Personal Responsibility) Act 2002 and amended by the amending Act)." (6)However, s 3B(3) of the Civil Liability Act also provides: "3B Civil liability excluded from Act (3) The regulations may exclude a specified class or classes of civil liability (and awards of damages in those proceedings) from the operation of all or any specified provisions of this Act. Any such regulation may make transitional provision with respect to claims for acts or omissions before the commencement of the regulation." (7)Clause 3 of the Civil Liability Regulation 2003 inserted by the Civil Liability Amendment (Proportionate Liability) Regulation 2004, which came into force on 1 December 2004 (see NSW Government Gazette, No GN187, 26 November 2004) provides: "3 Proportionate liability Any civil liability to which Part 4 of the Act would have applied but for this clause is excluded from the operation of that Part, and from the operation of clauses 6 and 13 of Schedule 1 to the Act in their application to that Part, if the liability arose before 26 July 2004." (8)The current transitional provision is now found in reg 5 of the Civil Liability Regulation 2009. This is in the same terms as cl 3 of the Civil Liability Regulation 2003. 235As explained in Origin Energy LPG Ltd v Bestcare Foods Ltd [2007] NSWCA 321 at [4]-[7] per Handley AJA (Spigelman CJ and McColl JA agreeing), cl 3 of the Civil Liability Regulation 2003 displaces the operation of cl 6 and cl 13 of Schedule 1 to the Civil Liability Act. This Court also found cl 3 to be valid: at [15]. 236Accordingly, the proportionate liability provisions of both the former Trade Practices Act and the Civil Liability Act do not apply if civil liability arose before 26 July 2004. 237In the present case, Engineering leased the Doppstadt shredder from Developments commencing in February 2004. Engineering's revenue losses commenced shortly after February 2004, as soon as the breakdowns and failures commenced: Hutchinson v Equititour Pty Ltd [2011] 2 QD R 99 at [57]. It would seem therefore that damage was first suffered by Engineering shortly after February 2004. On this basis the cause of action of Engineering would have arisen before 26 July 2004. 238Although I do not base my decision on the cause of action having arisen before the proportionate liability legislation came into force, as it was not raised by either of the parties on appeal, the foregoing analysis would provide an additional reason for rejecting the appellants' claim for apportioning liability under that legislation.

Issue 4: Damages 239The appellants do not contest that the respondents were induced by the representations, as found by the primary judge, to purchase the Doppstadt shredder. What is put in issue by appeal grounds 22-24 is the primary judge's finding (at [12] Judgment No 2) that the respondents would have purchased a Peterson machine instead of the Doppstadt shredder in February 2004. Alternatively, the appellants contend that there would have been a six-month delay in the respondents' order for a Peterson shredder being fulfilled and this has a significant effect on the calculation of the damages claim by Engineering. 240By appeal grounds 26-30, the appellants assert error by the primary judge in the assessment of damages, specifically whether there was sufficient work available for a Peterson machine in 2004 to work at the same capacity as it did in February to June 2005, and in the calculation of various items making up Engineering's loss of profits. 241By appeal grounds 31 and 32, the appellants contend that the primary judge should have applied a discount of greater than 20% to Engineering's damages to reflect a number of contingencies which it said would have likely impacted its loss of profits if a Peterson machine had been ordered in February 2004 rather than the Doppstadt shredder. By their cross-appeal (grounds 3 and 4) the respondents contend that his Honour should not have applied any discount to their claim for damages. 242By grounds 5 and 6 of the cross-appeal the respondents contend that the primary judge should have allowed Developments' claim for damages in respect of the undervalue of the Doppstadt shredder as at the date of acquisition in an amount of $347,328, plus interest. 243By ground 8 of the cross-appeal the respondents contend that the primary judge erred in failing to base his calculation of Engineering's damages claim on the final schedule of damages dated 4 June 2012, rather than the schedule of damages provided to the Court at the commencement of the trial. 244It is convenient to deal with the damages issues in the following order: (1)Developments' damages claim; (2)whether the respondents would have purchased a Peterson machine instead of the Doppstadt shredder in February 2004; (3)alternatively, whether the estimated delay in the delivery of a Peterson machine should have been six months; (4)whether there was sufficient work available for the Peterson machine in 2004 compared to 2005; (5)the 20% discount for contingencies; (6)the calculation of Engineering's claim for loss of profits.

Sub-issue 1: Rejection of Developments' claim for damages 245Grounds 5 and 6 of the cross-appeal contend that the primary judge erred in finding that Developments had not established a rational foundation for its claim for damages in respect of the undervalue of the machine "as at the date of acquisition". The respondents further contend that his Honour should have found that there was sufficient evidence to support Developments' claim for damages and that these damages should have been assessed in an amount of $347,328 plus interest.

The primary judge's reasoning 246The primary judge approached the loss claimed by Developments as being by reason of purchasing a defective machine which had a lower market value than the price paid for it: at [6] Judgment No 2. 247His Honour noted that Developments claimed an amount of $275,048, being the purchase price of $602,328 (ex GST) less (a) an allowance of 12% for depreciation for the first year of use; and (b) the sale price in February 2007 of $255,000 (ex GST): see exhibit H (Blue 1028H and 1033H). The respondents' contention was that the actual value of the Doppstadt shredder at the date of acquisition could be inferred from the sale price in 2007 taking into account an allowance for depreciation between 2004 and 2007. 248The primary judge rejected this methodology for inferring value at the date of acquisition for a number of reasons. First, it represented no more than the assumed depreciated value (from cost) of the machine over three years, compared with its then sale value. Secondly, the depreciation calculation was flawed and arbitrary - it was only calculated over one year, yet the shredder was sold after three years, and the depreciation figure of 12% was taken from a tax guide. Thirdly, the sale price in February 2007 was not a reliable indicator of the market value of the shredder in February 2004: at [23]-[28] Judgment No 2. 249In its closing submissions at the trial, Developments contended for higher damages, claiming an amount of $347,328 in its submissions on damages dated 4 June 2012 (Black 907O-P and 909K-M). This figure was calculated as simply the price ($602,328) minus the salvage value in February 2007 ($255,000). Developments contended that the approach to damages in Potts v Miller [1940] HCA 43; 64 CLR 282 was not the approach under the Trade Practices Act and that it did not matter that it was unable to prove a loss in value as at the date of purchase of the shredder. The primary judge did not address this contention as he seems to have overlooked the respondents' final schedule of damages dated 4 June 2012, and the reference in note 5 to that Schedule (Black 909K-M) to the respondents' supplementary note dated 24 June 2011 (Black 913T-915P).

Submissions 250Developments' written submissions on this appeal ground were contained in a single sentence which alleged that error was demonstrated for the reasons advanced before the primary judge. That singularly unhelpful submission was a reference to the respondents' closing submissions at trial referred to above. Those submissions were primarily directed to a separate point taken by the appellants at trial, that there was an overlap between the damages claimed by Developments on capital account in relation to the undervalue of the shredder at the date of acquisition and the claim by Engineering for loss of profits on revenue account. As noted above, in this context, Developments submitted that it did not matter that it was unable to prove a loss in value as at the date of purchase of the shredder. 251In oral argument on the appeal, counsel for the respondents contended that Developments should have been put back in the position it would have been in had it not been misled by the appellants, and this meant that it would not have suffered the capital loss in relation to the Doppstadt shredder. This loss was calculated as $347,328, being the difference between the purchase price of $602,328 (ex GST) and the salvage value of $255,000 (ex GST).

Consideration 252In my view, his Honour was correct to reject Developments' initial damages claim of $275,048 on the methodology advanced at the commencement of the trial, for the reasons given by his Honour which are referred to at [248] above. 253The amendment to ground 6 of the cross-appeal to substitute the figure of $347,328 in place of $275,048 as Developments' claim for damages does not overcome the fundamental problem that, as framed, grounds 5 and 6 of the cross-appeal are directed to a complaint that the primary judge erred in failing to allow a claim for damages in respect of "the undervalue of the machine as at the date of acquisition". That value is not established by simply deducting the salvage price (in 2007) from the purchase price three years earlier. Developments' claim for damages for the undervalue of the machine failed because the respondents did not establish the value of the Doppstadt shredder as at the "date of acquisition" (being February 2004). 254So far as Developments advanced a claim at trial, and again on appeal, for damages on the basis that it should be put back in the position it would have been in had it not purchased the Doppstadt shredder, this requires consideration of what would have happened if Developments had proceeded with a "different transaction", namely the purchase of a Peterson shredder in February 2004 or thereabouts. That is, it would be necessary to make a comparison between the loss on capital account in relation to purchase of the Doppstadt shredder and any loss on capital account if a Peterson machine had been acquired instead, assuming in each case that there are no losses resulting from extraneous factors to separate out: see HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640 at [65]. 255A significant evidentiary difficulty confronting this claim by Developments is that there was no evidence of the value of the Peterson machine, either after 12 months use or after 3 years, assuming either of those dates was the appropriate time on which to base such comparison. It is entirely speculative whether a Peterson machine, if acquired in February 2004, would have declined in value by an amount less than, equal to, or greater than the decline in value actually experienced in relation to the Doppstadt shredder. Ultimately, counsel for the respondents recognised this difficulty during oral argument and was unable to point to any evidence which might be used to undertake such a comparison for the purposes of assessing loss. 256Grounds 5 and 6 of the cross-appeal by Developments must be rejected.

Sub-issue 2: Purchase of a Peterson machine in February 2004 257The appellants challenge the primary judge's finding that without the influence of the appellants' contravening conduct, Mr Lovick would have caused Developments to purchase, and Engineering to operate, a Peterson machine rather than the Doppstadt shredder: at [12] Judgment No 2.

Primary judge's reasoning 258His Honour's finding was based on an inference from his findings that: (a) having regard to Mr Lovick's investigations of other machines, including a Peterson, in late 2003 there was no indication of any lack of availability of these machines; (b) a Peterson machine would have been available for the respondents to purchase, had Developments attempted to acquire one, in late 2003 or early 2004; (c) Mr Lovick had a strong preference for the Peterson machine; and (d) that when Mr Lovick decided to purchase a replacement machine for the Doppstadt shredder in August 2004, he went straight back to the Peterson machine and ordered it, because it was his next preference but for the representations by the appellants which persuaded him to purchase the Doppstadt shredder. His Honour also accepted what he described as Mr Lovick's "direct evidence" that if he did not purchase the Doppstadt shredder he would have purchased the Peterson machine in February 2004: at [9]-[11] Judgment No 2.

Submissions 259The appellants submit that there was no evidence to support his Honour's findings that there was "direct evidence", or that it was open to his Honour to infer that, but for the representations by the appellants, Developments would have purchased the Peterson machine and Engineering would have hired the Peterson machine from Developments. The appellants argued that Mr Lovick had already determined not to purchase a Peterson, or any other type of machine, before he had first contacted Doppstadt Australia on 31 October 2003. They submit that Mr Lovick did not give any evidence to the effect that he purchased the Doppstadt shredder instead of a Peterson machine. Nor did he give any evidence concerning arrangements made to inspect a Peterson in operation; obtaining prices for a Peterson; making inquiries as to parts availability; or any discussions or contact with retailers of a Peterson machine or the availability of a particular Peterson model. The appellants submit that this is because Mr Lovick had decided not to purchase a Peterson machine before any inquiry was made of Doppstadt Australia. The appellants further submit that there was no evidence that a Peterson machine or an appropriate type of machine was available for purchase in January 2004 or February 2004, and no evidence of the price of the machine or whether Developments was capable of purchasing it. 260The appellants also complain that there was no evidence to support his Honour's finding that Mr Lovick had a strong preference for the Peterson machine and found it difficult to make up his mind between the Peterson machine and the Doppstadt shredder. 261The appellants submit that as Mr Lovick had not given direct evidence on the topic, the inference could not be drawn in favour of the respondents that Mr Lovick would have caused Developments to purchase a Peterson machine but for the influence of the appellants' representations: Commercial Union Assurance Company of Australia Ltd v Ferrcom (1991) 22 NSWLR 389 at 418-419. In oral argument counsel for the appellants submitted that the decision of this Court in Daniels v Anderson (1995) 37 NSWLR 438 at 561 to 563 provided support for the contention that his Honour erred in drawing this inference.

Consideration 262The foundation upon which Engineering's lost profits claim was based was that it would have purchased a Peterson machine in 2004 instead of the Doppstadt shredder but for the influence of the appellants' representations. Although at trial the respondents disavowed that they put their case as a loss of opportunity claim (Black 905G-J), they subsequently submitted that their case was essentially the same as that in Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 (Black 912K-N), which was a case involving damages for the loss of an opportunity to obtain a commercial advantage or benefit. In my view, Engineering's lost profits claim is properly characterised as a loss of opportunity claim. 263The principles to be applied to proof of such a claim are well established. On the question of causation, a plaintiff must first prove "on the balance of probabilities that he or she has sustained some loss or damage", whilst on the assessment of damages the value of a lost commercial opportunity is to be "ascertained by reference to the degree of probabilities or possibilities" that it would be realised: Sellars v Adelaide Petroleum NL at 355. See also Daniels v Anderson at 530 (Clarke JA and Sheller JA); Origin Energy LPG Ltd v BestCare Foods Ltd [2013] NSWCA 90 at [3] per Macfarlan JA and [84]-[86] per Ward JA. 264It is common ground that the commercial opportunity that had to be considered in the present case was the opportunity to obtain profits from the use of a Peterson machine in 2004 instead of the Doppstadt shredder. The respondents accepted that this involved two hypothetical questions, the first was whether Developments would not have purchased the Doppstadt shredder but for the representations by the appellants, and the second was whether, if Developments did not purchase the Doppstadt shredder, it would instead have purchased a Peterson shredder. 265Developments had to establish an affirmative answer to both these hypothetical questions on the balance of probabilities. On the first question, his Honour found that the respondents were induced by the representations to purchase the Doppstadt shredder. That finding is not challenged on appeal. The second question raises two matters. The first relates to the error by his Honour, which the respondents accept, in stating that Mr Lovick gave "direct evidence" that if he did not purchase the Doppstadt shredder he would have purchased the Peterson machine in February 2004. Appeal ground 22 is made out. 266The second matter relates to the inference drawn by his Honour that Mr Lovick would have caused Developments to purchase a Peterson machine, rather than the Doppstadt shredder, but for the influence of the appellants' representations. In my view, his Honour did not err in drawing this inference. My reasons are as follows. 267First, the appellants' contentions proceed upon the incorrect premise that Mr Lovick had determined not to purchase a Peterson machine before he first contacted the appellants on 31 October 2003. His Honour's finding was to a different effect, namely, that Mr Lovick had doubts, for different reasons, about the purchase of the machines he had inspected before he turned to investigate what Doppstadt Australia had to offer: at [39] Judgment No 1. Mr Lovick gave unchallenged evidence that he was impressed with the Peterson machine he inspected at Albury (Blue 9V). The only "doubt" Mr Lovick had in relation to the Peterson machine was that arising from his understanding that there was a six-month waiting list for delivery (Blue 9T-W). 268Secondly, evidence of the respondents' objectives and the contingencies in the way of their achievement was relevant to both the existence of and the value of the lost opportunity: Sellars v Adelaide Petroleum NL at 365 per Brennan J. In the present case there was unchallenged evidence from Mr Lovick that he had decided to purchase a shredder for Engineering's new contracting business of processing green waste. It is not to the point, as suggested by the appellants, that Mr Lovick did not give evidence to the effect that he purchased the Doppstadt shredder instead of a Peterson machine. What is relevant is that the only "doubt" held by Mr Lovick in relation to the Peterson machine was that there was a delivery timing issue. It was not put to Mr Lovick in cross-examination that he had decided not to purchase a Peterson machine before any inquiry was made of Doppstadt Australia. 269Thirdly, the evidence supported his Honour's finding that Mr Lovick's strong preference was for the Peterson machine. Mr Lovick had inspected a Vermeer shredder, but decided not to purchase it because he understood that it involved higher maintenance. He had also inspected a Van Gelder shredder, but decided against purchasing it not simply because there was a five to six-month delivery time, but more significantly because there was no track-mounted version and Engineering's business required a track-mounted machine. The Peterson was a track-mounted machine (see invoice at Blue 495L). Mr Lovick was impressed with the Peterson machine he inspected at Albury, although he did not see it in operation. His decision to investigate the Doppstadt shredder was a product of his understanding that there was a six-month waiting list for delivery of a Peterson machine and that he did not want to defer the purchase for that length of time. 270Fourthly, contrary to the appellants' submissions, Mr Lovick gave unchallenged evidence of his understanding as to the availability of a Peterson machine - the issue was one of timing of delivery in view of the six-month waiting list. Mr Lovick's understanding was based on his inquiries made at the time he inspected a Peterson machine at the dealership at Albury. It may be accepted that his Honour erred in overlooking the delivery timing issue when finding that a Peterson machine would have been available for the respondents to purchase in late 2003 or early 2004. The effect of this error is dealt with next under sub-issue 3. In the present context, his Honour's error does not undermine the inference drawn by his Honour that Mr Lovick would have purchased a Peterson machine instead of the Doppstadt shredder but for the influence of the appellants' representations. 271Fifthly, the primary judge was entitled to take into account that when the respondents encountered problems in operating the Doppstadt shredder, it was the Peterson machine which Mr Lovick turned to and ordered in August 2004, and that he ordered a second Peterson machine in November 2004. The present case is not one in which the plaintiff who has been misled had never previously turned his or her mind to any alternatives. The appellants did not suggest that it was not permissible to examine later events, which might throw light on the overall probabilities. In my view, the later events in 2004 are objective circumstances which provide a reliable guide as to what Mr Lovick would have done in late 2003 but for the appellants' representations. 272Sixthly, it may be inferred that finance would have been available to Developments in respect of the purchase of a Peterson machine in 2004, taking into account both the comparative costs of the Doppstadt shredder and the Peterson machines and Developments' ability to obtain finance for the purchase price of the Doppstadt shredder in February 2004 ($602,328 ex GST). 273The first Peterson machine ordered in August 2004 and delivered in February 2005 cost $653,660 (ex GST) (Blue 400). The second Peterson machine ordered in November 2004 and delivered in June 2005 cost $645,908 (ex GST) (Blue 389). Although each Peterson machine cost slightly more (in 2005) than the Doppstadt shredder, it was not suggested by the appellants that Developments had any difficulties in obtaining the required finance for the Peterson machines in February 2005 and June 2005 from CBFC and Esanda respectively. Whilst the probabilities of obtaining the required finance for the hypothetical purchase of the Peterson machine needs to be determined as at the beginning of 2004, the subsequent events in relation to the acquisition of the two Peterson machines casts light on Developments' likely ability to obtain finance to acquire a Peterson machine in 2004. The objective circumstances do not support the appellants' contention that Developments was not capable of purchasing a Peterson machine at the beginning of 2004. 274Seventhly, although Mr Lovick's evidence did not identify precisely which Peterson machine he inspected at Albury in 2003, it may be inferred that the machine which he inspected and with which he was impressed was the machine which the supplier had informed Mr Lovick was the subject of a six-month waiting list for delivery. Putting aside the Doppstadt shredder, Mr Lovick's clear preference amongst the other machines he had inspected was for the Peterson machine. 275In my view, there was no error in the primary judge drawing the inference that Mr Lovick would have caused Developments to purchase a Peterson machine rather than a Doppstadt shredder in 2004, but for the influence of the appellants' representations.

Sub-issue 3: Six-month delivery delay 276The appellants contend in the alternative to their position on sub-issue 1, that the primary judge should have found that if the Peterson machine was ordered at the time the Doppstadt shredder was ordered in February 2004, it would not have been available for delivery for a period of six months, that is until about August 2004.

The primary judge's reasoning 277The primary judge found that a Peterson machine would have been available for the respondents to purchase, had Developments attempted to acquire one, in late 2003 or early 2004: at [9] Judgment No 2. It seems in this regard that his Honour accepted the respondents' contention in their original Schedule of Damages which became exhibit H (see Blue 1035N-P) that a Peterson machine would have been ordered and delivered in February 2004, and overlooked the concession in the respondents' closing submissions that the Peterson machine would have been ordered by December 2003 and delivered and operational four months later, by about March 2004 (Black 846C-E).

Submissions 278The appellants submit that the primary judge ignored Mr Lovick's evidence that he was told in August 2003 that there was a six-month waiting list for delivery of a Peterson machine, and also ignored the evidence of the six-month delay in the delivery of the two Peterson machines which Developments ordered in 2004 and acquired in 2005. 279In their written submissions, the respondents contend that the proper inference is that: (a) but for the appellants' misrepresentations on 31 October 2003 Mr Lovick would have ordered a Peterson machine shortly thereafter; and (b) the delay likely to have occurred, if an order was placed by Developments in 2003, would be similar to the delay which was anticipated when the first Peterson machine was ordered by Developments in August 2004 - a period of a little over four months (from August 2004 to the first week of January 2005), albeit this delivery period was later extended to late February 2005 because of delays in having the machine ready for shipping from the United States to Australia. 280In oral submissions, counsel for the respondents contended that the timeline for the hypothetical purchase of a Peterson machine should not be equated with what occurred with the first inspection and placing of an order for the Doppstadt shredder (from 31 October 2003 to early February 2004) because the time taken with investigating and considering the purchase of the Doppstadt shredder was as a result of a series of misleading representations by the appellants. 281Nonetheless, counsel for the respondents acknowledged that some allowance should be made, when assessing the hypothetical timeline for purchase of a Peterson machine, for a period of further inquiry by Mr Lovick after 31 October 2003 (assuming the appellants had not engaged in misleading conduct on that occasion and Mr Lovick had resumed his inquiries in relation to a Peterson machine) and to arrange finance for the purchase. It was submitted by the respondents that the inference which should be drawn is that Mr Lovick would have placed an order by December 2003. (This was consistent with the contention which the respondents had advanced before the primary judge (Black 846C-D), but which as already noted his Honour seems to have overlooked.)

Timeline for hypothetical order 282In my view the actual timeline in relation to Mr Lovick's inquiries and arranging finance for the purchase of the Doppstadt shredder in 2003/2004 provides some guidance as to the proper inference which should be drawn in relation to the hypothetical purchase of a Peterson machine. However, the comparison is not exact and an adjustment should be made to take into account: (a) the delaying effect of the series of misleading representations made to Mr Lovick by the appellants during the period from 31 October 2003 to mid February 2004; and (b) the likelihood that Mr Lovick's understanding (since about August 2003) that there was a six-month waiting list for delivery of the Peterson machine, unlike the Doppstadt shredder which was available immediately, would most likely have spurred him after 31 October 2003 to make a decision sooner rather than later, once he had completed his inquiries concerning the Peterson machine. 283Accordingly, I consider that the proper inference is that Mr Lovick would have placed an order for the Peterson machine by December 2003, as the respondents contend, rather than February 2004, as the appellants contend.

Estimated delay in delivery 284The next issue is whether the estimated delay between ordering and receiving delivery of the Peterson machine should be assessed as six months, as the appellants contend, or as a little over four months, as the respondents contend. 285The matters suggesting a six-month delay are: first, this was what Mr Lovick understood when he inspected the Peterson machine in or about August 2003; and secondly, this is consistent with the actual delay experienced by Mr Lovick in relation to the acquisition of the first and second Peterson machines in 2004/2005. 286The sole matter relied upon by the respondents for the shorter estimate is that, at the time of ordering the first Peterson machine in August 2004, the anticipated delay was then only a little over four months and that the supplier provided a replacement machine in late January 2005 pending actual delivery when the delivery time was delayed until mid February 2005. 287In my view, little weight can be given to the anticipated shorter delivery period of a little over four months as at August 2004, as subsequent events demonstrated that this was too ambitious. Greater weight must be given to the actual period of delay of approximately six months experienced in respect of the purchase of the two Peterson machines in 2004 and delivered in 2005. Likewise, little weight can be given to the fact that the supplier provided a replacement or loan machine in late January 2005 when the anticipated delivery date of the first Peterson machine was delayed. There was no evidence that the supplier could and would have acted similarly in December 2003 by providing a replacement or loan machine if the machine which had been ordered had not been delivered after four months. 288In the circumstances the more reasonable inference, in my opinion, is that the estimated delay in delivery of the Peterson would have been approximately six months. It follows that I find that it is reasonable to infer that the Peterson machine would have been ordered by Developments in about December 2003 and delivered in about June 2004. 289The effect of these findings on Engineering's damages claim is that the period in respect of which loss of profits should be calculated is 7.5 months, being from July 2004 to mid-February 2005 (when the first Peterson machine was actually delivered) rather than the period of 12 months adopted by the primary judge: at [31]-[32] Judgment No 2. The consequential effect on the calculation of Engineering's loss of profits is addressed below under sub-issue 6.

Sub-issue 4: Whether sufficient work would have been available for the Peterson machine in 2004 290The appellants challenge the primary judge's finding that there was sufficient work available to use the Peterson machine to the same capacity between February 2004 and February 2005, as it had been used in the period between February 2005 and June 2005: at [36] Judgment No 2.

The primary judge's reasoning 291His Honour's reasoning at [36] was as follows: "Both Mr Lovick and Mr Hurley said this was the case, and I accept that evidence. Moreover, witnesses such as Mr Robert Wilton who straddle the 2004 operation of the AK430K and the 2005 operation of the Peterson machine did not speak of any major differences in demand. Subject to one matter, the two periods were in my view quite comparable." 292The one qualification referred to by the primary judge was that Engineering's business was a start-up business in 2004 and therefore less experienced, whereas by 2005 its operators of the Peterson machine were highly capable. His Honour took this matter into account as one of the relevant factors in arriving at the 20% discount to be applied to Engineering's loss of earnings from February 2004 to February 2005: at [39] Judgment No 2.

Submissions 293The appellants submit that his Honour did not identify the evidence to which he was referring at [36] Judgment No 2, and failed to take into account several significant evidentiary matters. First, in the case of Mr Hurley, who was deceased at the time of the hearing, the appellants contend that his Honour did not reconcile Mr Hurley's evidence of available work with the absence of evidence from him of particular contracts in respect of which profits were lost because they were not performed or were performed less efficiently. The appellants also complain that Mr Hurley's evidence of available work was not confirmed by the council officer with whom he said he spoke, and otherwise was not corroborated in writing. 294Next, in relation to Mr Lovick's evidence, the appellants contend that his Honour failed to reconcile his evidence with the attacks which they say had been successfully made in respect of other aspects of his evidence, and with his failure to put the "day sheets" into evidence, which recorded the operation of the Doppstadt shredder in 2004, and that Mr Lovick, like Mr Hurley, did not identify particular contracts in respect of which profits were lost. 295Finally, in relation to Mr Wilton's evidence, the appellants contend that little weight should have been given to his evidence as he only operated the Doppstadt shredder from November 2004 to February 2005, and the operators of the shredder between June 2004 and November 2004 had not been called to give evidence to say that any contract work was lost in that period.

Consideration 296In my view the appellants' challenge to his Honour's factual finding should be rejected for the following reasons. 297First, in the case of Mr Lovick and Mr Wilton, his Honour had the benefit of observing both of them give evidence which was tested by cross-examination. To the extent that his Honour did not accept parts of Mr Lovick's evidence in relation to other issues, it has not been demonstrated on appeal that his Honour erred in accepting Mr Lovick's evidence on the availability of work for the shredder in 2004. Although Mr Lovick's evidence was given in fairly general terms, there was no challenge to his evidence relating to the many business opportunities available in late 2003 to obtain Council green waste processing work (Blue 9E-K) and the availability of work in 2004, including the requests for work to be performed that were generated from marketing and business development (Blue 419E-I). 298Secondly, in relation to the period from February to June 2004 Mr Triantafyllou's typed diary notes (Blue 1265-1281), which were unchallenged, recorded that, subject to the continual breakdowns, the shredder was in almost constant use on jobs during that period. 299Thirdly, Mr Wilton, the operator from November 2004 to February 2005, gave evidence of regular and repeated breakdowns, which reduced the effective work period in a 12 hour day to about 6 hours (Blue 541U-W); that some breakdowns were more serious and resulted in being unable to work for several days (Blue 542B-D); and that he was constantly behind the schedule of work that Engineering required him to maintain with the shredder (Blue 542E-G). 300Fourthly, his Honour was entitled to accept Mr Hurley's affidavit evidence, notwithstanding his unavailability for cross-examination as he died before the trial. Mr Hurley was an engineering consultant who commenced working with Mr Lovick and Engineering in January 2004 as contract manager for the new business. His responsibilities included approaching companies and local councils in an attempt to procure green waste mulching contracts. He gave evidence in his affidavits of contract work which was lost because the Doppstadt shredder was out of action (Blue 517K-518E and 534O-R). His evidence was that there was more work available from councils than the Doppstadt shredder could reasonably carry out (Blue 526K-Q). He said that he gradually ceased attending sites on projects where the Doppstadt shredder was commissioned for the purpose of seeking to obtain further contracts and projects from local councils because he was aware that the work could not be carried out by the failing Doppstadt shredder (Blue 528O-R). 301Contrary to the appellants' submissions, Mr Hurley gave specific evidence of contracts which Engineering lost or was unable to complete because the shredder was breaking down, including: a contract on the South Coast of New South Wales near Minnamurra (Blue 528S-X); a contract for Tenterfield Council in May 2004 which was unable to be completed and which Engineering had to subcontract to another operator (Blue 532R-U); a contract for Hardy Bros Civil Constructions at Malua Bay in February 2004, which again Engineering could not perform because of breakdowns with the Doppstadt shredder and had to arrange for a subcontractor to perform the contract (Blue 532V-533F); a landfill green waste processing project for Kiama Council commencing in 2005 which Engineering was unable to commence because of the unavailability of the Doppstadt shredder (Blue 533I-L); a green waste contract for Scone Council in late 2004 which was lost because, although the start date had been extended several times whilst the Doppstadt shredder was out of service, ultimately Scone Council refused to extend the start date any further (Blue 534F-L); and a tender with Rural Outlook which Engineering subsequently withdrew because of problems with the Doppstadt shredder (Blue 534M-N). 302In my view, there was no error in the primary judge's finding as to the availability of work for Engineering in 2004 and the comparability of the two periods of February 2004-February 2005 and February 2005-June 2005.

Sub-issue 5: 20% discount to Engineering's damages claim 303It is convenient to deal with appeal grounds 31 and 32 and cross-appeal grounds 3 and 4 together, as they both relate to the 20% discount applied by the primary judge to Engineering's damages claim.

The primary judge's reasoning 304The primary judge gave two reasons for applying the 20% discount to Engineering's claim for loss of profits from February 2004 to February 2005. The first took into account that Engineering was conducting a start-up business and its operators were inexperienced in the use of the shredder in 2004. The second took into account what his Honour described as the "slight possibility" that something may have gone wrong with the purchase of the Peterson machine: at [39] Judgment No 2. 305It is to be observed that his Honour applied this 20% discount to Engineering's lost profits claim, being the difference between the estimated profit from February 2004 to February 2005 if a Peterson machine had been operated less the actual profit made by the Doppstadt shredder in that period: at [39] Judgment No 2. Ordinarily any discount for contingencies would be applied only to the estimated profit which would have been made using the Peterson machine between February 2004 and February 2005. His Honour's approach had the effect that, in calculating Engineering's loss of profits, the deduction in respect of the actual profit made by the Doppstadt shredder was also discounted by 20%. The effect of his Honour's approach is that the actual discount for contingencies, in respect of the notional earnings if a Peterson machine had been acquired instead of the Doppstadt shredder, is slightly less than 20%. The appellants however do not challenge this aspect of his Honour's approach.

Submissions 306The appellants contend that the primary judge should have applied a greater discount than 20% to take into account various contingencies affecting Engineering's claim for loss of profits, in particular: (1)the prospect, which was said to be substantial, that work would not have been available for the Peterson machine in 2004 to have operated at the same capacity as it did from February 2005 to June 2005; (2)that the shredder was to be used in a start-up business in February 2004 and that Engineering's operators were inexperienced in the use of the shredder; (3)the absence of day sheets and the failure to call the operators of the Doppstadt shredder between June 2004 and November 2004; (4)the lack of evidence as to the availability of a Peterson machine in February 2004, and that a finding should have been made that if ordered in February 2004 a Peterson machine would not have been available until August 2004. 307The respondents contend that the primary judge erred in discounting Engineering's damages claim by 20% to reflect the possibility that the profit achieved in the five months from February to June 2005 as a result of use of the Peterson machine may have been higher than the profit which would have been achieved by Engineering if it had used a Peterson in 2004, on the basis that by 2005 Engineering had more experience in using a shredder. 308The respondents submit that the profit from the use of the Peterson machine between February 2005 and June 2005 was very likely to be understated as there were "teething problems" with the Peterson in this initial period, and the profit would have been likely to increase after June 2005 thus giving a higher average monthly profit over the whole of 2005 than in the period February-June 2005. It was acknowledged however that there was an absence of any records for the Peterson machine in the period after June 2005. 309The respondents did not make any oral submissions on the appeal in support of their challenge to the 20% discount.

Consideration 310In my view, no error has been shown in the primary judge's reasoning or his conclusion on this issue.

Appellants' contention for a larger discount 311As to the matters raised by the appellants in support of a larger discount: the first factor relating to market conditions and the sufficiency of work in 2004, compared to the February 2005 to June 2005 period, was considered by his Honour, who found that the two periods were comparable: at [36] Judgment No 2. I have already concluded under sub-issue 4 that the appellants' challenge to his Honour's finding on this issue fail. 312The second factor relating to Engineering's start-up business and inexperienced operators, was taken into account by his Honour. 313The third factor relating to the absence of day sheets and evidence from Mr Missingham and Mr Gold, who operated the shredder between June 2004 and November 2004, has not been shown to have any relevant connection to the anticipated profits likely to be earned from the Peterson machine in 2004. The absence of these records was explained at trial - that they had been lost when the respondents had changed solicitors (Blue 629 and Black 201E-G). 314The final factor was not overlooked by his Honour, although I have concluded above that his Honour erred in finding that the Peterson machine would have been delivered in February 2004. The possibility of delay in delivery of the Peterson machine was a matter which his Honour took into account as a "slight prospect" in arriving at the 20% discount.

Respondents' contention for no discount 315As to the respondents' submissions challenging the 20% discount and arguing no discount should have been applied: first, notwithstanding some "teething problems" experienced with the Peterson machine in early 2005, his Honour correctly found that Engineering was more experienced in using such a machine in early 2005 than it was as a start-up business in early 2004. It was appropriate for his Honour to make an allowance for this factor. 316Secondly, in the absence of any records for the Peterson machine in the period after June 2005, it is entirely speculative whether the monthly profit for the Peterson machine would have been likely to increase after June 2005 compared to the profit from February to June 2005. There is no proper basis in the evidence to infer, as the respondents contend, that the assumed monthly profit figure for the Peterson machine (based on February to June 2005 actual figures) understated the likely profit which would have been achieved if such a machine had been purchased in 2004. 317Thirdly, insofar as the 20% discount includes some allowance for the "slight possibility" that something may have gone wrong with the purchase of the Peterson machine, no written or oral submissions were advanced by the respondents as to why the primary judge erred in making some allowance for this contingency. There was no error in his Honour's approach. 318For the above reasons, the challenges by both parties to his Honour's 20% discount to Engineering's claim for loss of profits fail.

Sub-issue 6: Assessment of Engineering's damages 319Ground 8 of the cross-appeal contends that the primary judge erred in his calculation of Engineering's damages by failing to base his calculation on the lost profits claim as set out in the respondents' final schedule of damages dated 4 June 2012 (Black 907-909).

The primary judge's reasoning 320The primary judge appears to have assessed Engineering's lost profits claim by reference to the schedule of damages which the respondents had provided shortly prior to the commencement of the trial. This schedule became exhibit H in the proceedings (Blue 1033-1036). In this schedule Engineering claimed lost profits of $477,129. An explanation of how this figure was calculated was provided in note 3 to the schedule. The figure of $477,129, as recorded by the primary judge at [35] and [39] of Judgment No 2, is the starting figure of Engineering's lost profits claim in exhibit H. His Honour also used other figures taken from exhibit H: see [35], [37] and [38] Judgment No 2.

Consideration 321It seems that his Honour overlooked the respondents' final damages schedule, dated 4 June 2012, when assessing Engineering's lost profits claim. The appellants did not suggest otherwise. Thus his Honour erred because he proceeded on an incorrect assumption as to the manner in which Engineering's damages claim was advanced. 322It is necessary therefore to consider the calculation of Engineering's damages claim afresh by reference to his Honour's findings, subject to four adjustments of which three are contentious.

(1) Discount for failure to mitigate 323The first adjustment relates to the discount of one third on account of his Honour's finding that the respondents failed to mitigate their loss. For the reasons given above, no such discount ought to be made.

(2) Estimated delay in delivery of Peterson machine 324The second adjustment relates to the time period in respect of which the lost profits should be calculated. For the reasons given above, the time period should be adjusted from 12 months (as adopted by his Honour) to 7.5 months to take into account the likely delay in the availability of a Peterson machine, and the finding which ought to have been made as to the time when Mr Lovick would have placed an order for a Peterson (December 2003) and received delivery (June 2004).

(3) Doppstadt sales revenue 325The third adjustment relates to the sales revenue which ought to be included in the calculation of the actual profit made from the Doppstadt shredder between February 2004 and February 2005. The respondents agreed that the sales revenue ($510,481) - as recorded in [11] of note 2 to the damages schedule of 4 June 2012 should be increased by $27,560 to $538,041 (see Agreed Schedule of Calculations of 8 November 2013).

(4) Peterson sales revenue 326The fourth adjustment relates to the sales revenue for the Peterson machine in the first five months, commencing February 2005, which was used to calculate a monthly profit figure and which in turn provided the basis for the hypothetical Peterson profit in 2004. The appellants contend that this figure ($734,044.45 (ex GST) is overstated in three respects.

(a) Peterson loan machine invoices 327The first matter concerns three invoices (totalling $166,309 (ex GST)) relating to work done in late January 2005 and early February 2005 using a Peterson machine which was on loan to Engineering, rather than the Peterson machine which was ordered in August 2004 and delivered in mid February 2005. 328The appellants contend that these three invoices should be disallowed because they do not relate to the Peterson machine which, on the respondents' case, would have been acquired instead of the Doppstadt shredder in February 2004. 329The respondents accept that part of the first invoice, number 24785, should be disallowed for a different reason - because Mr Lovick conceded in cross-examination that Engineering had not been paid the total invoice value (Black 748Q-X; Blue 1231). As this is common ground, the amount of $49,806 should be deducted from the Peterson sales revenue. Otherwise the respondents contend that these three invoices should be included. 330As to the balance of the first invoice and the other two invoices (Blue 1232 and 1233), in my view, these amounts should be included in the Peterson sales revenue. This is on the basis that the Peterson loan machine had been made available to Engineering because of a delay in the anticipated delivery of the Peterson machine ordered in August 2004, and which was expected to be delivered in the first week of January 2005. The sales revenue from the Peterson loan machine may be seen as a relevant component of the Peterson sales revenue for the first five months of 2005, as relates to the period 31 January to mid February 2005.

(b) Duplicated invoice 331The second matter is that it is common ground between the parties that Engineering's invoice 24853 dated 15 March 2005 ($34,652.82) should be disallowed, as it is a duplication of another invoice on the same date.

(c) Disputed invoices 332The third matter concerns invoices which the appellants contend relate to the use of a different Peterson machine (a Peterson 760), being the second Peterson machine acquired by Developments in mid 2005. The sales revenue relating to these invoices totals $164,715.08 (Blue 1243, 1245, 1246, 1248-1250). 333The respondents sought to avoid this consequence by contending that Mr Lovick had given affidavit evidence, which was unchallenged, that the second Peterson machine was acquired in "approximately July 2005" (Blue 418R) and that the (disputed) invoices related to income earned by the first Peterson machine delivered in February 2005. This submission should be accepted for the following reasons. 334First, although Mr Lovick originally gave evidence in his affidavit sworn on 16 June 2008 that the second Peterson machine was received in "about May 2005" (Blue 352P), this was qualified in his later affidavit, sworn on 9 September 2009, that the second Peterson machine was purchased in "approximately July 2005" (Blue 418R). He also gave evidence distinguishing between the sales revenue for the first Peterson machine, which he said related to the period from its purchase to 30 June 2005, and the sales revenue from the two Peterson machines, which he said related to the period from 30 June 2005 to 30 June 2006 (Blue 418W-Y). Mr Lovick was not challenged on either aspect of his later affidavit. 335Secondly, the finance application documents annexed to Mr Lovick's affidavit of 16 June 2008 established that Esanda provided the finance for the acquisition of the second Peterson machine on 10 June 2005 (Blue 388). It would seem that this is the earliest date upon which Developments would have taken possession of the second Peterson machine. It is reasonable to infer that some short period of time was spent by the respondents familiarising themselves with and commissioning the new machine. The dates of the disputed invoices are 30 May, 31 May, 6 June, 15 June, 21 June, and 28 June 2005. The dates of the first three disputed invoices precede the date upon which Esanda provided finance for the acquisition of the second Peterson machine. To this extent, at least, the documentary evidence supports the respondents' position. 336Thirdly, Mr Lovick was not challenged on his further affidavit evidence of 6 December 2010 which annexed the (disputed) invoices and stated that they related to the first Peterson machine delivered in February 2005 (Blue 455N-O). On one view, the disputed invoices are business records which speak for themselves. An inference might be drawn from the description used in those invoices that the "Peterson Grinder/Recycler 760" was a different machine to the "Peterson 660", being the first Peterson machine delivered in mid February 2005. It might also be said that little weight should be attached to Mr Lovick's conclusionary statement that the (disputed) invoices relate to the first Peterson machine delivered in February 2005. 337On the other hand, when Mr Lovick's affidavit evidence of 6 December 2010 is read together with his earlier affidavit evidence of 9 November 2009 - that the second Peterson machine was delivered in "approximately July 2005" - and viewed in light of the date of the finance documents in relation to the acquisition of the second Peterson machine, there is a firmer basis for accepting Mr Lovick's evidence that the (disputed) invoices relate to the first Peterson machine. 338Fourthly, even though there had been an exchange of affidavits at trial, counsel for the appellants was obliged to put to Mr Lovick the implications which counsel proposed to submit could be drawn from the evidence, if those implications were not obvious from the evidence, or from other pre-trial procedures, or from the course of the case: West v Mead [2003] NSWSC 161 at [99] per Campbell J. In my view, the implications were not obvious, and counsel for the appellants failed to put the relevant implication to Mr Lovick in cross-examination. 339It follows that the appellants were not free to later put the submission which they did in closing that all of the invoices in May and June 2005 might not relate to the first Peterson machine (Black 898H-N). Although counsel for the respondents failed to take the Browne v Dunn point at trial, upon receiving the appellants' closing submissions which suggested such a doubt (Black 898K-L), it is clear from his Honour's acceptance of Engineering's loss of profits claim, that he did not accept the appellants' submission casting doubt on some of the invoices relied upon by Engineering. 340The position on appeal is that the appellants now contend, in far stronger terms than they did at trial (which was merely to suggest some doubt), that some of the invoices do not relate to the second Peterson machine. In my view, the appellants should not be permitted to raise this contention on appeal, not having put the proposition on which they now rely directly to Mr Lovick at trial. 341Accordingly, the third category of the disputed invoices is properly included in the Peterson sales revenue for the purposes of Engineering's damages calculation.

Conclusions on Engineering's loss of profits 342The effect of the above adjustments, which I consider ought to be made in respect of Engineering's damages claim, are as follows. All figures are exclusive of GST, which was the common approach by the parties. 343First, the Peterson sales revenue, which his Honour found was $734,044.45, should be reduced by $84,458.82 to $649,585.63. 344Secondly, the figure for the Peterson expenses in the Agreed Damages Schedule may be accepted as $258,926. 345Thirdly, the Peterson average monthly profit over the five-month period is $78,131.92 ($649,585.63 less $258,926 divided by 5). 346Fourthly, the Peterson projected monthly profit on the relevant scenario addressed in the Agreed Damages Schedule is $585,989.40 - assuming delivery in June 2004 (that is, 7.5 months profit). 347Fifthly, the agreed revised Doppstadt sales revenue ($538,041) less the agreed Doppstadt expenses ($222,582), gives a Doppstadt profit for February 2004 to February 2005 of $315,459. 348Accordingly, Engineering's loss of profits is to be calculated as $270,530.40, being the difference between the Peterson projected profit figure for February 2004 to February 2005 ($585,989, assuming 7.5 months profits based on delivery in June 2004) and the Doppstadt profit figure for that same period ($315,459). 349Applying his Honour's approach that the 20% discount for contingencies is to be applied to the net figure in the above calculations (as to which there was no challenge on appeal: see [305] above), the amount of $270,530.40 is to be reduced by 20% resulting in Engineering's damages being $216,424.32. To this amount is to be added prejudgment interest from 1 March 2005 to 27 February 2013. (The appellants' challenge to his Honour's award of pre-judgment interest should be rejected, in my view, for the reasons given below.)

Application to adduce additional evidence and make further submissions 350The context of the respondents' application to adduce additional evidence and make further submissions on appeal is as follows. 351The hearing of the appeal concluded on 30 October 2013. The parties were requested to provide the Court with an agreed schedule of damages in relation to the lost profits claim by Engineering setting out those items of the calculation that were agreed and, insofar as items were not agreed, how those items were calculated and upon what assumptions. On 12 November 2013 an agreed schedule dated 8 November 2013 was provided to the Court. On 14 November 2013 the respondents filed a notice of motion seeking leave to adduce additional evidence and to make supplementary submissions on appeal.

Additional evidence on appeal 352Under s 75A of the Supreme Court Act 1970 further evidence is not received on appeal except on special grounds (s 75A(8)), other than where it is evidence concerning matters occurring after the trial: s 75A(9). 353Although it is not possible to formulate a universal test, in general, special grounds calls for three conditions to be satisfied: (1) that the evidence could not have been obtained by reasonable diligence for use at the trial; (2) that the evidence is credible; and (3) that the evidence is such that there is a high degree of probability that there would be a different result: Akins v National Australia Bank (1994) 34 NSWLR 155 at 160 per Clarke J; Harrison v Schipp [2002] NSWCA 78; 54 NSWLR 612 at 642 [195] per Giles JA. 354The evidence sought to be adduced by the affidavit of Mr Lovick sworn 13 November 2013 concerned two issues, one relating to the date on which the respondents received the second Peterson machine and the other relating to references to a "Peterson Grinder/Recycler 760" in certain invoices which were in evidence at the trial. In each case the further evidence sought to be adduced concerned matters occurring before the trial.

(a) Date of receipt of second Peterson machine 355On the first issue, the additional evidence seeks to establish that the respondents did not receive the second Peterson machine until approximately mid June 2005, that Mr Lovick worked on that machine for approximately one week setting up the service truck and excavator and familiarising himself with the machine, and that the first job on which Engineering used the second Peterson machine was for Orange City Council, the subject of an invoice dated 18 July 2005 (Annexure "F"). 356The additional evidence also included financing documents in relation to the purchase of the second Peterson machine. However, some of these documents were already in evidence. 357Insofar as the documents sought to be adduced were already in evidence, there is no basis to grant leave to rely upon these documents on appeal. They are already before the Court. This applies to annexures "B" and "C" to Mr Lovick's affidavit of 13 November 2013: (see Blue 389, 388, and 405-413, and 404, and 401-402). 358Annexure "A" to Mr Lovick's affidavit is the contract to purchase the second Peterson machine and records the "Expected Delivery Date" as "Early may-05". This does not advance the respondents' case. Annexures "D" and "E" simply confirm that Esanda paid the supplier of the second Peterson machine on 10 June 2005. But this inference is otherwise established by the Esanda letter of 10 June 2005 which is already in evidence (Blue 388). There is no basis to adduce these further documents. 359Annexure "F", being an invoice from Engineering dated 18 July 2005, seems to be the only document not already in evidence on this issue. However, this invoice and Mr Lovick's affidavit evidence was not required to qualify the evidence given in Mr Lovick's affidavit sworn 16 June 2008 that he received the second Peterson machine in "about May 2005". As noted above, Mr Lovick's evidence at trial was already qualified by: (a) his later affidavit sworn 9 September 2009 in which he said that he received the second Peterson machine in "approximately July 2005" and that the sales revenue for the second Peterson machine only related to the period from 30 June 2005 onwards; and (b) the finance documents which were already in evidence which established that Esanda had provided the finance for the acquisition of the second Peterson machine on 10 June 2005. 360The respondents did not advance any special grounds for receiving annexures "A", "D", "E" and "F" or Mr Lovick's explanation concerning the actual date of receipt of the second Peterson machine, and that it was first put into use by Engineering in July 2005. Leave should not be granted to adduce this evidence. 361In any event, having regard to my conclusions in relation to the disputed invoices, the additional evidence sought to be adduced is not required to advance Engineering's case.

(b) Explanation of disputed invoices 362On the second issue, the additional evidence seeks to explain that the references in certain invoices issued by Engineering in May and June 2005 to the "Peterson Grinder/Recycler 760" or "Peterson Timber Grinder 760" are a coding error by Engineering, and that those invoices relate to work done with the first Peterson machine which is described in other invoices issued by Engineering as the "Peterson 660". 363The grounds advanced by the respondents for leave to rely upon this evidence on the appeal were the substantial injustice that would otherwise arise to the respondents since it could be expected that Mr Lovick would have given that evidence if he had been challenged at the trial with the proposition subsequently advanced in Doppstadt's written submissions. It was not suggested that Mr Lovick's further evidence could not have been obtained with reasonable diligence for use at the trial. 364There are two reasons, in my view, why the respondents have not established special grounds to rely upon this further evidence. The first is that, having regard to the view I have taken concerning the appellants' failure at the trial to challenge Mr Lovick's evidence concerning the disputed invoices issued by Engineering in May and June 2005, no injustice arises because the appellants' challenge to those invoices should be rejected. 365Secondly, if I am wrong in concluding that the appellants are precluded from advancing the submission that Mr Lovick's evidence concerning disputed invoices should not be accepted, then the suggested injustice to the respondents arises solely because they failed to raise the Browne v Dunn point at trial.

Supplementary submissions on appeal 366The respondents also sought leave to rely upon supplementary submissions on damages. These submissions departed from the way in which the respondents had put their case on damages both at trial and on the appeal. There were two aspects of this departure. The first related to Engineering's lost profits claim. 367The respondents' supplementary submission was to the effect that if the Court found that the first Peterson machine would not have been delivered until sometime after March 2004, then the actual profit made by the use of the Doppstadt shredder in 2004 should be divided by 12 to give a monthly figure, and then multiplied by the same number of months that the Court finds that Engineering would have had the Peterson machine available for use prior to February 2005, if ordered in February 2004. 368The second departure from the respondents' earlier submissions related to the figure to be used for the expenses for the first Peterson machine for the period February to June 2005. At trial and on appeal it was common ground that the expense figure was $258,926. The respondents' supplementary submissions sought to substitute a lower figure of $220,087.

(a) New methodology 369The new case which the respondents sought to argue involved a different methodology to that advanced at trial and on appeal. It would allow the calculation of Engineering's lost profit not to include a deduction for the benefit of earnings received from the Doppstadt shredder, to the extent that such earnings related to months not the subject of a proportional comparison between the actual profit on the Doppstadt shredder and the hypothetical profit from the Peterson. 370The consequence of the new methodology would be that if, for example, damages for lost profits were based on a 7.5 month period only (as I have concluded), the "notional" Peterson machine compared with the "actual" Doppstadt shredder would result in the other 4.5 months of actual Doppstadt earnings for February 2004 to February 2005 not being taken into account as a benefit received by Engineering when determining its lost profits. 371The appellants submit that the respondents should not be permitted to raise this "new methodology" after the hearing of the appeal. This submission must be accepted. The respondents are bound by the way in which they conducted their case at trial (and indeed on appeal). No exceptional circumstances have been shown as to why the respondents should be allowed to raise such a new point on appeal let alone after the hearing has concluded: Metwally v University of Wollongong at [71].

(b) Peterson expenses 372The respondents' explanation for seeking to rely on a lower expense figure for the Peterson machine was largely defensive. That is, should the Court determine that certain of Engineering's invoices in the month of June 2005 be disallowed on the basis that they are referable to the second Peterson machine (as the appellants contend), then the period for the determination of the Peterson expenses, and thus the Peterson net profit, should be reduced from 5 months to 4.25 months, because in that event the only revenue referable to the first Peterson machine in June 2005 would be an invoice dated 6 June 2005. It was argued that the expense figure for the entire 5 month period would be inappropriate when no revenue was earned in respect of the Peterson shredder from 7 to 30 June 2005, and it should not be assumed that expenses were being incurred after 6 June 2005 with no revenue being earned. 373In my view, this new submission should not be permitted. Having agreed both at the trial, and on the appeal, that the amount of the expenses relating to the first Peterson machine for the five-month period from February to June 2005 was $258,296, it is purely speculative for the respondents to now contend that no expenses were being incurred by Engineering from 7 to 30 June 2005, because the only invoice in respect of that five-month period was dated 6 June 2005. 374As this Court stated in Bale & Anor v Mills [2011] NSWCA 226 at [60]: "The appeal is not an occasion merely for a discussion of the issues so that the parties can go away to marshal and develop their ideas further, bearing in mind the discussion with the court. It is the time and place when and where argument, and sometimes decision, occurs. Once the appeal is reserved, the parties' rights to argument and to be heard have been exhausted." 375Accordingly, leave should not be granted to the respondents to rely on the proposed supplementary submissions on damages. 376In any event, having regard to my rejection of the appellants' challenge to the disputed invoices, the second issue to which the respondents' supplementary submissions are directed does not arise, at least in relation to the figure adopted for the Peterson expenses.

Interest (ground 33) 377The appellants challenge the discretionary decision of the primary judge to award interest on damages between 1 March 2005 and 27 February 2013 relying on s 100(1) of the Civil Procedure Act. The interest as calculated by the parties was $183,046.69. Judgment was given for this amount on 18 April 2013. 378The appellants submit that prejudgment interest should run only from 10 December 2010, being the Friday of the second trial week, when the respondents finally formulated their damages claim and served all the material upon which they relied. 379The challenge to his Honour's exercise of discretionary power to include interest in the amount for which judgment is given is subject to the constraints of House v R [1936] HCA 40; 55 CLR 499. It was not suggested that his Honour acted upon a wrong principle. His Honour referred to relevant authorities including Kalls Enterprises Pty Ltd (in liq) & Ors v Baloglow & Anor (No 3) [2007] NSWCA 298: Judgment No 3 at [11]. Nor was it suggested that his Honour took into account an irrelevant consideration, or failed to take into account a relevant consideration. 380Rather, reliance was placed on the last limb of House v R, that the result was plainly unjust, and that his Honour failed to take sufficient account of the matters which were relevant to his discretion to award prejudgment interest. The latter was in reference to the history of the proceedings between 2006 and 2010 and the respondents' delay in claiming the relief in respect of which Engineering was ultimately successful. 381In my view, no such error has been established. His Honour considered the respondents' delay (at [13]-[18] Judgment No 3), and took this matter into account in exercising his discretion: at [19]-[21] Judgment No 3. While accepting that there was substantial delay in the respondents formulating the case on which they ultimately succeeded at trial, his Honour found that the appellants had not demonstrated that the delay was unreasonable. The appellants did not challenge his Honour's finding that the evidence presented in support of the respondents' case which was ultimately successful would have taken some years to prepare, plead, and present at trial: at [21] Judgment No 3. Nor did the appellants contend that the absence of financial evidence demonstrating any long-term disadvantage to the appellants, having regard to interest rate differentials between commercial interest rates and the prescribed rates under s 100 of the Civil Procedure Act, was not a relevant consideration for his Honour to take into account, which he did: see Kalls Enterprises Pty Ltd (in liq) & Ors v Baloglow & Anor (No 3) at [11]: at [19] Judgment No 3. 382The conclusion reached by his Honour on prejudgment interest was open to him. It has not been demonstrated that the decision is clearly outside what could be justified by correct reasoning.

Costs (grounds 34 - 46 and cross-appeal ground 7) 383It is convenient to deal with the competing challenges to his Honour's costs orders together. The starting point is to recall that his Honour ordered the appellants to pay 40% of the respondents' costs. 384The appellants contend that: (1)Developments should have been ordered to pay the appellants' costs, because it was unsuccessful in the only claim that it ultimately pursued - the loss of capital arising from the undervalue of the Doppstadt shredder at the date of acquisition; (2)Engineering should have been ordered to pay the appellants' costs up to 10 December 2010 and the appellants should only be liable to pay 20% of Engineering's costs from 10 December 2010. (3)The respondents' costs, which were said at trial to be in excess of $630,000, should have been capped pursuant to s 98(4)(d) of the Civil Procedure Act, because they are disproportionate to the amount of the claim that was advanced and the amount ultimately ordered in favour of Engineering. (4)The primary judge should not have ordered interest on legal costs, because the respondents' costs are out of all proportion to the issues and the quantum for which Engineering was ultimately successful. 385The respondents contend that the primary judge should have ordered the appellants to pay the whole of the respondents' costs of the proceedings. 386Again, the constraints in House v R on appellate review of discretionary decisions apply to each parties' challenge to his Honour's exercise of discretion on costs. 387These challenges are to be considered in the context of ss 98, 100 and 101 of the Civil Procedure Act which relevantly provide: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and ... (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: ... (d) such proportion of the assessed costs as does not exceed a specified amount." "100 Interest up to judgment (1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. ... 101 Interest after judgment ... (4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs."

(1) Developments 388The primary judge rejected, as being "overly simplistic", the appellants' submission that Developments should pay the appellants' costs of its claim because Developments was unsuccessful in establishing damages: at [27] Judgment No 3. His Honour reasoned that the appellants' misleading conduct had caused Developments to purchase the Doppstadt shredder instead of the Peterson machine and that: (a) the Court should infer that Developments leased to Engineering an asset with less income earning potential in February 2004, than it would have if it had acquired the Peterson machine: at [27] Judgment No 3; (b) the appellants did not conduct the case in a way that distinguished between the two entities: at [28] Judgment No 3; and (c) it was impossible to separate out costs incurred in relation to Development's claim rather than Engineering's claim: at [29] Judgment No 3. 389In my view, there was no error in his Honour's assessment of the appellants' contention as being "overly simplistic", at least for the first reason given by his Honour. It is unnecessary to consider whether the second and third reasons reveal error because, as the appellants contend, the respondents advanced separate damages claims, and as separate legal entities, they should not have been treated by his Honour as if they were one legal entity. 390As to the first reason, the appellants did not challenge his Honour's finding that Developments had suffered at least a nominal loss, being the difference in the income earning potential in February 2004 of the Doppstadt shredder, which was defective, and the Peterson machine. The appellants did not submit that a costs order could not have been made in favour of Developments, based on his Honour's finding of, at least, a nominal loss. No basis has been shown to disturb the costs order made in favour of Developments.

(2) Engineering 391The competing contentions are whether Engineering should pay the appellants' costs up to 10 December 2010 and thereafter the appellants should pay 20% of the respondents' costs, or whether the appellants should pay the whole of Engineering's costs of the proceedings. 392Again, it was not suggested by the appellants that his Honour acted upon a wrong principle, or took into account an irrelevant consideration, or failed to take into account a relevant consideration, when making the costs order in favour of the respondents. Rather, reliance was placed on the last limb of House v R that the result was plainly unjust or unreasonable. 393The appellants submit that an order for costs should not have been made in favour of Engineering as the judgment was significantly less than $500,000, and the claim on which Engineering succeeded was first raised shortly before the hearing. The appellants referred to Uniform Civil Procedure Rules (UCPR) r 42.34 which requires in the case of a verdict of less than $500,000 that: "(2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted." 394The appellants' submission ignored the short answer which was given to this same submission by the primary judge: at [46] Judgment No 3. UCPR r 42.34 was introduced in September 2010, approximately three months before the hearing. The proceedings were already listed for hearing and transfer to the District Court would have been impractical without incurring costs of vacation of the hearing. Moreover, his Honour was satisfied that the complexity of the proceedings warranted action in the Supreme Court, particularly having regard to the fact that the proceedings had been conducted for approximately four years before the rule was introduced, and this was sufficient to take the case outside the ordinary application of the rule in any event. The appellants' reliance on UCPR r 42.34 is misconceived. 395The appellants next submit that a general costs order in favour of the respondents would involve substantial injustice for the appellants, having regard to the significant amount of the respondents' costs ($630,000), and that a large proportion of those costs related to work duplicated by various legal representatives and to work in respect of claims that were either abandoned very late, were amended on a number of occasions, or were unsuccessful. 396As to the appellants' first contention (duplication of the respondents' costs occasioned by changes of legal representatives), his Honour considered this factor but took the view that the extent of duplication was far less obvious to him than it would be to a costs assessor, and that it was more appropriate for the costs assessor to address the effects of costs duplication: at [44] Judgment No 3. 397As to the appellants' second contention (that the costs order should be reduced to take into account those claims by Engineering which were either abandoned, amended, or unsuccessful), his Honour did so in arriving at his 40% apportionment in favour of the respondents: at [32]-[43] Judgment No 3.

Reassessment of costs of proceedings below 398In my view, no error has been established. That however is not the end of the matter. This is because the outcome on appeal should be somewhat different, in my view, to that which his Honour found. For this reason, it is necessary for this Court to reconsider the question of costs of the proceedings below, taking into account the somewhat different outcome on appeal, which I would favour. This involves success for the respondents in overturning the failure to mitigate finding. However this is offset by the appellants' success on the damages issues, taking into account the different finding I favour in relation to the six-month delay in the delivery of the Peterson machine, although the effect of this finding is militated somewhat by the further finding I favour that Mr Lovick would have placed this order by December 2003. The outcome in monetary terms is a judgment (before including interest) in favour of Engineering, approximately $38,000 lower than that awarded by the primary judge. In these circumstances, I would not disturb the costs order below.

(3) Cap on costs 399Alternatively, the appellants submit that the respondents' costs should be capped pursuant to s 98(4)(d) of the Civil Procedure Act as the amount of costs claimed ($630,000) is out of all proportion to the claim that was advanced and ultimately successful. 400The primary judge rejected this contention. His Honour reasoned that, having awarded the respondents only 40% of their costs, it would be unjust to cap their costs beyond that limit: at [48] Judgment No 3. His Honour noted the general reluctance in the authorities to impose arbitrary limits on the amount of costs recovered unless Court cost scales exist to warrant the lower recovery, or other misconduct has occurred warranting cost reduction. 401The appellants place reliance on the last limb of House v R that the result was plainly unjust or unreasonable. However, the appellants' written submissions did not identify any specific cap on the respondents' costs which his Honour should have ordered. Nor did the appellants' submissions attempt to engage with, or demonstrate why, his Honour's reasoning for refusing to place a cap on the respondents' costs was unreasonable. In my view, no error has been demonstrated.

(4) Interest on costs 402Finally, the appellants contend that the primary judge erred in the exercise of his discretion to order interest on costs which were awarded to the respondents. The appellants accept that there is power to make an order pursuant to s 101(4), but resist such an order in the present case relying upon essentially the same factors as referred to above for limiting or capping Engineering's costs - the disproportion between the respondents' costs and the quantum of Engineering's successful claim, the alleged significant duplication of costs by the respondents' solicitors, and the costs incurred in respect of matters which were abandoned or unsuccessful. 403No issue was raised on appeal as to the principles applied by the primary judge at [49] Judgment No 3. The payment of interest is intended to be compensatory, on the basis that the person entitled to costs has been wrongly required to spend money on litigation to enforce established rights: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 as [44] per Basten JA (Campbell JA agreeing). Thus in the absence of any countervailing discretionary factor, it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it had paid. There is no requirement to establish that the circumstances of the case are out of the ordinary: Drummond and Rosen Pty Ltd v Easey & Ors (No 2) [2009] NSWCA 331 at [4] per Macfarlan JA (Tobias JA agreeing) citing Lahoud v Lahoud [2006] NSWCA 126 at [82]-[83] per Campbell J. 404In this case, there was evidence before the primary judge by way of affidavit from Mrs Vicki Lovick, the administration officer of the respondents, of the amounts paid, and the dates of payment of legal costs totalling $636,558.27 as at 21 June 2012 (Black 936M). Thus no issue arises on the present appeal as to whether a special order for interest on costs can and should be made in the absence of such evidence: Drummond and Rosen Pty Ltd v Easey & Ors (No 2) at [3] per Macfarlan JA (Tobias JA agreeing); contra Handley AJA at [49]; cf Illawarra Hotel Co Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; 84 NSWLR 436 at [36] per Meagher, Barrett and Ward JJA. 405The first and third of the countervailing factors relied upon by the appellants (see [402] above) are effectively negated by the circumstance that his Honour awarded the respondents only 40% of their costs. The second countervailing factor relied upon by the appellants (the alleged duplication of costs by the respondents' solicitors) is a matter which his Honour considered (in the context of whether a cap should be ordered on costs), correctly in my view, is better addressed by the costs assessor. The same reasoning applies in the context of the appellants' challenge to interest on costs. In my view, no error has been demonstrated in his Honour's exercise of discretionary judgment to order interest on costs.

Conclusion and orders 406The appeal fails on all grounds other than: (a) the successful challenge to two of his Honour's findings: that the remote control representation was misleading and that Mr Lovick gave "direct evidence" that if he did not purchase the Doppstadt shredder he would have purchased a Peterson machine in February 2004; (b) the issue of the estimated six-month delay in delivery of the Peterson machine; and (c) some adjustments to the calculation of Engineering's damages for lost profits. 407The cross-appeal is successful except in relation to: (a) the challenge to Developments' unsuccessful damages claim; (b) the challenge to the 20% discount to Engineering's loss of profits claim; and (c) the challenge to the costs orders below. The issues on which the respondents were unsuccessful were the subject of only brief written submissions and occupied relatively little time at the hearing. 408The respondents' application to adduce further evidence and supplementary submissions on appeal must be dismissed. 409My present view is that since the appellants' limited success on the appeal is largely offset by the respondents' success on the cross-appeal, and this translates into only a small reduction in the amount of the judgment (before interest) in favour of Engineering, then each party should pay their own costs in this Court. However, the parties should also be given the opportunity to make further submissions on costs. 410Although not raised by either of the parties, there is an obvious typographical error in order 6 made by the primary judge on 27 February 2013. The correct reference should be to s 101(4) of the Civil Procedure Act, not s 100 of that Act. This will be corrected in the orders proposed below. 411The orders I propose are as follows: (1)Appeal allowed in part. (2)Cross-appeal allowed in part. (3)Vary orders 1 and 2 made by the primary judge on 27 February 2013 by amending the reference to "the plaintiffs" to read "the second plaintiff" and by inserting the figure of "$216,424.32" in place of "$254,468.80". (4)Set aside order 2 made by the primary judge on 18 April 2013 in respect of the amount of interest on the judgment from 1 March 2005 to 27 February 2013. (5)Direct the parties to agree upon and provide to the Court the calculation of interest required by order 2 made on 27 February 2013, as varied, by order 3 above. (6)Vary order 6 made by the primary on 27 February 2013 by inserting the words "s 101(4)" in place of "s 100". (7)The respondents' notice of motion filed 14 November 2013 be dismissed. (8)Direct the parties to file within 14 days agreed short minutes of order giving effect to these reasons. (9)In default of agreement: (a)the appellants file and serve within 14 days proposed short minutes of order, together with brief written submissions in support; (b)the respondents file and serve within a further 14 days their proposed short minutes of order, together with brief written submissions in support.

Amendments 22 May 2014 - Typo Amended paragraphs: Heading above para 147 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 May 2014