Gatt & Microbuild Pty Ltd v Norlin

207. As for the appellants' counterclaim against Dr. Norlin, that failed below and as no separate argument was advanced on appeal in respect of it, the counterclaim will remain dismissed. The order made below against both defendants for the plaintiff's costs of defending the counterclaim should also stand. The order dismissing the appellants' counterclaim with costs must be understood, of course, as leaving untouched the counterclaim brought by Dr. Gatt personally against Dr. Norlin for damages for personal injury, that portion of the matter having been ordered to be tried separately as I mentioned at the outset. The judgment that we substitute, if my view prevails, should make that plain.

217. I understood Mr. Brett's argument in a slightly different way from the learned presiding judge. I shall re-state it, briefly, in my own words:

1. There is a distinction between a contractual promise that a program shall be marketable and a contractual promise to use reasonable care and skill in developing it. The distinction was illustrated in argument by reference to paragraph 4 of the further amended statement of claim. Compare, for example, sub-paragraph 4(a) with sub-paragraph 4(e). The difference between the two kinds of promise is that, in the first case, the promisor is liable if the program is not marketable. It matters not whether he used reasonable care and skill. He promised that the program would be marketable. In the second case, the fact that the program is not marketable does not in itself establish a breach of contract. It is just evidence, although it may be very strong evidence, that the promisor did not use reasonable care and skill.

2. If Dr. Gatt's company had simply been writing a program for Dr. Norlin, it may be assumed that there would have been an implied term that the program would be marketable or a term to a similar effect. It might also have been expected that the charge the company made would ensure that, if it supplied a marketable program, that charge would include an element of profit. In the present case by contrast, it was submitted, the company was not writing a program for Dr. Norlin. Dr. Norlin and the company were working together to produce a system which, if sold in sufficient quantity, would yield a profit for each of them. The company, in particular, would not make a profit unless more than 300 copies of the program were sold. In that sense, but not in any technical sense, they were engaged in a joint venture, a view of the facts which the learned trial judge had expressly accepted.

3. Although the judge said that responsibility for all program work rested with the company, which was responsible for what his Honour described as "the project catastrophe", the only term that he found to have been breached was an undertaking on the part of the company to supply a marketable program. There was no finding that the company had failed to use reasonable care and skill. When his Honour said, towards the end of his judgment, that his central finding was that the company was responsible for the failure of the project, that was to be understood in the light of the express finding of breach set out in para. 18 in the judgment of Phillips, J.A. Mr. Brett did not concede that the company had failed to exercise reasonable care and skill and said that he had not come prepared to argue that point, for no such finding could be spelled out of the judgment and there had been no notice of contention under Rule 64.17(5). Counsel's submission was that, on the evidence, there was no contractual promise to supply a marketable program.

223. At the hearing of the appeal I was much attracted by that argument. Ardent had, for example, been described in clause 1 of the February 1992 agreement as a system "jointly designed and developed" by Dr. Norlin and Dr. Gatt and clause 10 had provided that, because Ardent was the result of a significant joint development, there was to be joint copyright. (That was a change from what had been agreed in 1990.) True it was, as Mr. Brett conceded, that clause 3 could not be restricted to testing the work performed under clause 2 and the warranty in clause 4 pointed in the direction of a contractual promise to supply a marketable program rather than just to use reasonable care and skill; but I was impressed by the extent to which the two men had worked together, each supplying his own expertise, and by the fact that Dr. Gatt's company would not make a profit, even if it did supply a marketable program, unless a large number of copies of the program were sold.

226. I am, nevertheless, persuaded by the reasons for judgment prepared by Phillips, J.A., and by Charles, J.A.'s concurrence therein, that the extensive co-operation between Dr. Norlin and Dr. Gatt before they fell out and the references in the agreements to joint development are not sufficient to displace the finding below that Dr. Gatt's company must be taken, objectively, to have promised to supply a marketable program. That was its contribution to the joint venture. There may be many fittings before a tailor produces a suit to the satisfaction of a demanding customer, but that does not suggest that the tailor's obligation is not to produce a wearable garment but only to use reasonable care and skill. Accordingly, not without hesitation, I agree with the other members of the Court that the appeal should fail on the first of the three main points that were argued.

229. We refused leave to the appellants to rely on the respondent's particulars of loss and damage, in which only $100,000 was claimed for loss of profits. It was too late to take that point. If it had been taken earlier, it might well have been cured. Our ruling was not intended to prevent Mr. Brett from referring to the particulars argumentatively, either to show that there was reason to doubt the judge's assessment or that a lower assessment was more likely to be realistic, but I am not persuaded that we should disturb his Honour's award, except to the extent that damages were awarded both for loss of profits and for expenses. I agree in substance with what Phillips, J.A. has written on that subject and also on the questions of costs and leave to appeal if leave is necessary.