Gough & Gilmour Holdings Pty Limited (No 2) v Peter Campbell Earthmoving Pty Limited

CATCHWORDS : Breaches of Warranties - Representations relied on as founding claims under s 51A and s 52 of the Trade Practices Act - damages - assessing damages under the Trade Practices Act

Abigroup Contractors Pty Limited v Sydney Catchment Authority (No.3) (2006) NSWCA 282 Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Gates v The City Mutual Life Assurance Society Limited (1985-1986) 160 CLR 1 Havyn Pty Limited v Webster (2005) NSWCA 182 CASES CITED : Henville v Walker (2000) 206 CLR 459 Ketteman v Hansel Properties (1987) 1 AC 189 Marks v GIO Australia Holdings Limited(1988) 196 CLR 494 Murphy v Overton Investments Pty Limited (2004) 216 CLR 388 State of Queensland v JL Holdings Pty Limited

PARTIES : Gough & Gilmour Holdings Pty Limited (No 2) v Peter Campbell Earthmoving Pty Limited

COUNSEL : F Corsaro SC/D Villa - Plaintiff N Cotman SC/I Griscti - Defendant

SOLICITORS : Minter Ellison - Plaintiff Coleman & Greig - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20491/00 GOUGH & GILMOUR HOLDINGS PTY LTD (No 2) v PETER CAMPBELL EARTHMOVING PTY LIMITED

JUDGMENT 1 HIS HONOUR: In these proceedings I have already delivered a judgment on 18 November 2005 ("the previous judgment"). The present judgment is to be read with, and as incorporating, the previous judgment. 2 The previous judgment was expressly described as a "preliminary judgment". As noted in par 60 of the previous judgment it had been agreed between the parties that I should not in a first judgment attempt to resolve all of the issues between the parties. In the previous judgment I decided, or partly decided, only the twelve issues for preliminary determination set out in par 60 of the previous judgment, leaving a number of issues outstanding. 3 Since I delivered the previous judgment the proceedings have been before me on a number of occasions, particularly on 8, 9, 10 and 11 May 2006 and 6, 7 8 and 9 November 2006. On these occasions a number of issues have been argued before me. The issues for preliminary determination which I addressed in the previous judgment had been reduced to writing by counsel for the plaintiff. However, there is no single document in which the issues remaining outstanding have been crystallised. 4 Before stating what I understand to be the outstanding issues to be decided by me, it is necessary to refer to some of the findings I made in the previous judgment. In the previous judgment I made inter alia the following findings about the causes of action relied on by the cross-claimant.

August 1997 FOCUS Contracts (1) Breaches of Warranties It was unclear whether there was any breach of the warranties alleged in par 10(b) (and par 14) of the cross-claim and in the second part of par 10(d) (and par 14) of the cross-claim and there were occasional breaches of the warranty alleged in par 10(e) (and par 14) of the cross-claim. (2) Representations relied on as founding claims under s 51A and s 52 of the Trade Practices Act . Gough & Gilmour did not have reasonable grounds for making the representations alleged in par 9(a) of the cross-claim, so far as the machines P48, P49 and perhaps P22 were concerned; par 9(c) of the cross-claim; and the second part of par 10(d) of the cross-claim.

(1) Breaches of Warranties It was unclear whether there was any breach of the warranty alleged in the second part of par 10(d) (and par 14) of the cross-claim. (2) Representations relied on as founding claims under s 51A and s 52 of the Trade Practices Act Gough & Gilmour did not have reasonable grounds for making the representations alleged in par 9(a) of the cross-claim, so far as the machines P50 and P51 were concerned; par 9(c) of the cross-claim; par 9(d) of the cross-claim; par 9(f) of the cross-claim; par 9(g) of the cross-claim; and in the second part of par 10(d) of the cross-claim. 5 Accordingly, I found in the previous judgment that there were, or could have been, breaches of a number of warranties by Gough & Gilmour and that Gough & Gilmour did not have reasonable grounds for making a number of the representations it made. 6 It became clear in the course of the subsequent hearing of the proceedings that the only warranty by Gough & Gilmour and the only representation by Gough & Gilmour relied on by counsel for the cross-claimant as giving rise to a claim in damages the amount of which was capable of being assessed by me was the warranty and the representation pleaded in the second part of par 10(d) of the cross-claim that "FOCUS arrangements… achieved a high degree of machine availability". 7 The basis on which the cross-claimant claimed that the court should assess any damages to which it was entitled by reason of the non-achievement of a certain rate or degree of machine availability changed from time to time during the course of these protracted proceedings. 8 The evidence on which the cross-claimant ultimately relied for the assessment of damages for the non-achievement of a high rate of machine availability was contained, for the most part, in evidence by Mr Campbell, and particularly his affidavit of 11 September 2006, and an affidavit by Mr Rossetto of 30 October 2006, together with some parts of earlier affidavits by Mr Rossetto. Mr Campbell's affidavit of 11 September 2006 included an exhibit (PGC-21) being the fourth and last version of a voluminous document referred to in the proceedings as Schedule E, containing spreadsheets with numerous columns for each of the machines headed "Machine Utilisation Data". I was informed by counsel on 7 November 2006 that, subject to adjustments which would be agreed, there was no dispute about any of the figures in the fourth version of Schedule E. 9 The evidence on which the cross-defendant principally relied in the assessment of damages was contained, for the most part, in a report by Mr Bloom of 31 October 2006 and a supplementary report by Mr Bloom of 6 November 2006, together with parts of an earlier report by Mr Bloom dated 2 May 2006. 10 I was informed by counsel that the documentary evidence which I have now explicitly referred to superseded much of the earlier, voluminous, documentary evidence. 11 I will now state what I understand to be the outstanding issues to be determined by me:-

Whether there was a breach of the warranty, that is the contractual term, that a high rate of availability would be achieved.

How should any damages for breach of the warranty be assessed and in particular whether a procedure described as "averaging" should be applied.

Whether in assessing damages for breaches of the warranty credit should be given for what has been described as "negative hours".

Whether in assessing damages for breach of the warranty deductions from the amount of damages claimed should be made in respect of machines P22 and P51.

What method should be adopted in assessing damages under the Trade Practices Act .

If the proper method of assessing damages under the Trade Practices Act is not the same as the method of assessing damages for breach of the warranty, what amount should be assessed as damages under the Trade Practices Act .

Whether leave should be granted to the cross-defendant to amend its defence to the cross-claim. 12 I will now proceed to deal with each of these issues.

Whether there was a breach of the warranty that a high rate of availability would be achieved. 13 As I have already stated, the only warranty relied on by counsel for the cross-claimant as giving rise to a claim in damages the amount of which was capable of being assessed by me is the warranty pleaded in the second part of par 10(d) of the cross-claim that "FOCUS arrangements … achieved a high degree of machine availability". 14 In the previous judgment I said, in relation to both the August and the November FOCUS contracts, that, in the then state of the evidence and the submissions of the parties, it was unclear whether there had been any breach of this warranty. The cross-claimant has now submitted that I should find that there were breaches of this warranty and that I should assess damages for these breaches. The cross-defendant has submitted that I should not find that there were any breaches of the warranty and, indeed, that the warranty is unenforceable. 15 The questions of whether there was any breach of the warranty and what damages should be assessed for any breach are interrelated and it is necessary to refer to the way in which the cross-claimant submitted that damages for any breach of the warranty should be assessed. 16 Until I delivered the previous judgment, the cross-claimant had claimed that damages for the non-achievement of a certain degree or rate of availability in the operation of the machines should be assessed on the basis of the difference between the machine availability rates expressed to two decimal places which were pleaded in sub-pars (f) to (m) of par 10 of the cross-claim and which were taken from the spreadsheets attached to the FOCUS contracts and the actual machine availability rates which the cross-claimant said had been achieved. However, in the previous judgment I held that Gough & Gilmour had not warranted that any of the availability rates pleaded in sub-pars (f) to (m) of par 10 of the cross-claim would be achieved. After I delivered the previous judgment, this method of assessing damages for non-achievement of availability was abandoned by the cross-claimant. 17 At the hearing in November 2006 the cross-claimant contended that I should find that there had been breaches of the warranty that a high degree of machine availability would be achieved and that damages for the breaches should be assessed in accordance with Mr Campbell's affidavit of 11 September 2006 and particularly Sch E, which is exhibit PGC 21 to the affidavit, and Mr Rossetto's affidavit of 30 October 2006 and particularly Sch 1, which is exhibit MR3 to the affidavit. 18 In Sch 1 Mr Rossetto calculated damages by subtracting from operating hours wanted ("hours wanted") all of the actual hours worked, the "wet" hours (that is, the hours when the machines could not be operated due to wet weather) and the "idle" hours (that is, the hours when no work was available) so as to produce "hours lost", which was then multiplied by a calculated net profit per hour so as to produce the amount ultimately claimed for damages. 19 At the hearing in November I was informed by the parties that the only concept employed in Sch 1 to Mr Rossetto's affidavit as to which there was any issue was the concept "operating hours wanted" (or simply "hours wanted"). 20 In Mr Campbell's affidavit and Mr Rossetto's affidavit "hours wanted" are regarded as 10.5 hours per shift, being a shift of 12 hours less an allowance of 1.5 hours for unavoidable interruptions in the shift such as meal breaks for the operators. 21 It was acknowledged by counsel for the cross-claimant that the word "high" in the warranty which I have found was given by Gough & Gilmour was imprecise but, it was submitted, not so imprecise as to prevent my finding that there had been breaches of the warranty or assessing damages for those breaches. 22 A submission was made by counsel for the cross-claimant that, having regard to some of the evidence, I should find that "high" should be interpreted as meaning within a range of availability of 90 per cent to 95 per cent. This submission was never abandoned by counsel for the cross-claimant but it was not the submission which was really pressed by counsel for the cross-claimant. 23 The submission which was really pressed by counsel for the cross-claimant was a submission which was stated in par 58 of the cross-claimant's written submissions of 27 March 2006 as follows:- "It is not necessary to give precise content to the term 'high availability', by, for example a precise percentage amount of some other figure, such as 95%, if the Court is satisfied that it is unarguable that the hours that the machines were at a relevant time achieving were less than whatever hours 'high availability' would have yielded. That is, if actual working hours are less than wanted working hours and wanted hours are significantly less than the hours that 'high availability' under a range of possible assessments would yield, the machines have worked less than the hours represented, whatever the precise quantification of 'high availability' is"." 24 Another way of expressing the submission is to say that if the "hours wanted" by PCE were less than what would be the lower limit of the range of rates of availability which could be regarded as satisfying the condition that they be "high" rates of availability (the range being described as an "envelope"), then I should find that breaches of the warranty of "high" availability had occurred, even if that lower limit could not be precisely fixed. 25 The final form of a table appended to the cross-claimant's written submissions of 27 March 2006 was in the following terms:- Wanted hours 26 Wet 27 Idle Worked hours Lost hours Months of Focus (Months x30 x24 - 20% = 80% of Possible Working Hours: Possible Working Hours Available Hours P22 4990 1217 156 2647 969 14 8060 6448 P27 3022 845 28 1705 443 11 6336 5069 P48 6027 1207 19 2488 2312 15 8640 6912 P49 6608 1322 77 2840 2368 15 8640 6912 P50 4480 1139 12 1964 1363 11 6336 5069 P51 4691 994 32 1666 1998 11 6336 5069 29818 6724 324 13310 9453 44348 35479

28 In the second last column of the table possible working hours for each machine are listed, on the basis of the machine being operated twenty-four hours a day thirty days a month, with a discount of 20 per cent. In the final column of the table the figures in the second last column are discounted by a further 20 per cent. The figures in the first column in the table are the hours wanted by PCE and are in all cases less, and much less, than the figures in the final column. 29 It was submitted by counsel for the cross-claimant that the figures in the table demonstrated that the hours wanted by PCE were less than the lower limit of the range of rates of availability which could be regarded as "high" rates of availability. 30 A number of submissions were made by counsel for the cross-defendant, including the following:-

The word "high" in the warranty was intractably qualitative and there was no legitimate means of determining what "high" meant. There was no standard which could be applied to determine whether a rate was "high".

It was essential that the lower limit of any "envelope" of high rates of availability be fixed, so that the parties would know with certainty from the outset what would, and what would not, amount to a sufficient performance of the warranty.

The spreadsheets attached to the contracts showed that available hours for the operation of each machine were limited to 3,120 hours per annum.

Counsel referred to my previous judgment and particularly my finding in par 107 that the statement on p 3 of the August 1997 contracts that "FOCUS would provide a high rate of machine availability" had been deliberately left qualitative, without any precise rate of availability being specified. 31 I do not consider that any of these submissions by counsel for the cross-defendant should be accepted. 32 I do not accept that the word "high" in the warranty is intractably qualitative. The submission by counsel for the cross-defendant can be tested by taking extreme examples. Some rates of availability would be so low that they would have to be regarded as not being "high" rates of availability. If, for example, the rate of availability achieved for a particular machine was only 10 per cent, then a finding that a high rate of availability had not been achieved would be inevitable. 33 I do not accept that it is essential to the cross-claimant's argument that the lower limit of any "envelope" of high rates of availability should be precisely fixed. All that is necessary is that I should find that the hours wanted by PCE were less than the lower limit of the range, even if that lower limit cannot be precisely fixed. The expression "envelope" which was used by counsel for both parties is merely a metaphor or analogy and is capable of being misleading. It is, of course, true that an actual physical envelope has a definite edge or boundary. 34 The figure of 3,120 for available hours each year in the spreadsheets to the contracts, like some other figures in the spreadsheets to the contracts, is, for reasons similar to reasons which I gave in the preliminary judgment, merely a figure selected for the making of calculations in the spreadsheets and does not limit the number of hours for which a machine could be operated in a year. 35 Paragraph 107 of the previous judgment must be read in context. The context in which par 107 appears is that I was considering the question of whether Gough & Gilmour had given warranties of availability in accordance with the percentage figures to two decimal places in the spreadsheets to the contracts. 36 Counsel for the cross-claimant pointed to various parts of the evidence as establishing that the hours wanted by PCE were less than the lower limit of the range of rates of availability which could be regarded as high. 37 It was submitted by counsel for the cross-claimant that, even though I had held in the previous judgment that Gough & Gilmour had not warranted that the rates of availability pleaded in pars 10(f) to 10(m) of the cross-claim would be achieved, nevertheless those rates of availability, which had been set out in the spreadsheets to the contracts prepared by Gough & Gilmour, gave an indication of the sort of rates of availability which should be regarded as "high". 38 Counsel for the cross-claimant pointed out that two of the machines included in the FOCUS contracts P28 and P82, both second-hand machines, in respect of which no claim had been brought by the cross-claimant, in fact achieved the high percentage rates of availability stated in the spreadsheets to the contracts. A similar high rate of availability was achieved by the 623F scraper acquired by the cross-claimant in 1996. 39 Counsel for the cross-claimant submitted, and counsel for the cross-defendant disputed, that evidence of things done and things said by representatives of the parties and particularly by representatives of Gough & Gilmour was admissible in determining the range of rates of availability which should be regarded as "high". In my opinion, this evidence, and particularly the evidence of things done and said by representatives of Gough & Gilmour, is admissible on this issue. 40 I will refer to only certain parts of this evidence. Mr Gough in his evidence agreed that scraper availability can range from 90 per cent to 95 per cent with a good management programme. Mr Hutsen agreed that a rate of availability of 65 per cent, which Mr Campbell at the meeting in February 1998 said was the rate he was obtaining, was "a very low figure" and that such a rate of availability would put substantial economic stress on an operation conducting commercial earthmoving, using scrapers. Mr Shearman in his evidence acknowledged that in February 1998 Gough & Gilmour "had to try and improve his (Mr Campbell's) availability" because he knew that the availability PCE was obtaining "because the machines were breaking down, was very low". 41 I conclude that the hours wanted in Mr Rossetto's assessment of damages were less than the lower limit of the range of rates of availability which could be regarded as "high" and that breaches of the warranty that a high rate of availability would be achieved occurred. 42 Subject to agreed adjustments and subject to the matters I will subsequently deal with in this judgment, damages should be assessed in accordance with Sch E to Mr Campbell's affidavit of 11 September 2006 and Sch 1 of Mr Rossetto's affidavit of 30 October 2006.

Assessment of damages for breach of contract - "Averaging" 43 Earlier in this judgment I described Sch 1 in Mr Rossetto's affidavit of 30 October 2006 and stated that the only concept employed in Sch 1 as to which there was any issue was the concept of "operating hours wanted" or, more simply, "hours wanted". I noted that "hours wanted" was based on 10.5 hours per shift. 44 It was submitted by counsel for the cross-defendant that lower figures than the figures for hours wanted in Sch 1 should be used in the assessment of damages. Counsel submitted that a procedure which was described at the hearing as "averaging" should be used. This submission was based on parts of two reports by Mr Bloom:-

(i) Mr Bloom's report of 31 October 2006 and particularly pars 1.2(b)(c), pars 3.1-3.6 and appendix J.

(ii) Mr Bloom's report of 6 November 2006 and particularly pars 1 to 6 and appendices O and P. 45 In par 3.1 of his report of 31 October 2006 to the cross-defendant's solicitors Mr Bloom said:- "You have instructed me to calculate the average actual hours worked during the period of the FOCUS contracts on days on which there was work done and which were not affected by either wet weather or time lost due to breakdown". 46 The results of Mr Bloom's analysis were set out in appendix J to his report and summarised in a table at par 3.2 of the report as follows:- Machine 47 Average actual operating hours per shift P22 9.5 P27 9.8 P48 9.0 P49 8.4 P50 9.1 P51 8.8

48 At par 3.4 of his report Mr Bloom said:- "3.4 I have been instructed to recalculate PCE's assessment of its loss, substituting the average number of hours worked per 12 hours shift on days in which no time is lost due to breakdown or wet weather, as calculated by me and set out at paragraph 3.2 above, for the 10.5 hours claimed as lost time due to breakdown in those entries in Schedule E where PCE claims to have lost the whole shift due to breakdown". 49 After making this substitution, Mr Bloom arrived at a lower figure for the assessment of loss or damages than had Mr Rossetto. 50 In par 4 of his further report of 6 November 2006 Mr Bloom said that he had been instructed to recalculate the assessment of damages, making the substitution he had made in his earlier report. "… and, in addition, substituting the average number of hours worked per 12 hour shift on shifts in which no time is lost due to breakdown or wet weather as calculated by me, for the shifts where: a. 'Operating hours wanted' is equal to, or greater than, 10.5 hours; b. 'Lost time due to breakdown' is greater than zero, but less than 10.5 hours; and c. 'Wet weather' is zero, that is, no time was lost due to wet weather. This extends the calculation described in paragraph 2 above to shifts where PCE claims to have lost less than the full 10.5 hours due to breakdown".

51 This further substitution had the effect of further reducing the assessment of damages. 52 The use of the procedure of averaging was opposed by counsel for the cross-claimant on a number of grounds, including:-

The submission was contrary to the evidence of Mr Campbell to the effect that PCE continuously had more work available than it was able to perform.

There had been no cross-examination of Mr Campbell or of any of PCE's operators on this issue.

Mr Bloom did not provide any justification for the procedure of averaging. In making the analysis, calculations and substitutions that he had, he was merely carrying out the instructions he had received from the cross-defendant's solicitors.

The shifts used by Mr Bloom in making his calculations were only a small proportion of the total shifts and were not representative of the total shifts.

There were at least occasional slips by Mr Bloom in making his calculations, such as including shifts which, according to the criteria he was applying, should not have been included in his calculations.

The occurrence within some of the shifts used by Mr Bloom of events which had occurred only rarely had had the effect of distorting his results.

There were often specific reasons why operating hours had been less than 10.5 hours in a particular shift. A table of examples was attached to the cross-claimant's written submission of 8 November 2006.

The machines which, according to Mr Bloom's analysis, had the lowest average hours worked were also the machines on which most time had been lost due to breakdowns, suggesting that on some of the days included in Mr Bloom's analysis these machines might have been subject to breakdowns which had not been recorded in PCE's records.

There were puzzling discrepancies between the results for machines which were usually operated together.

In making his analysis Mr Bloom had assumed that, if on any day there were two daily machine records, there had been two shifts, whereas it could sometimes have happened that there had been only one shift but two operators, each of whom had completed a daily machine record.

Operators often did not fully complete daily machine records by stating the reason why a machine had not been operating. In such circumstances PCE had not made any claim. However, it was likely that in some cases the reason why a machine had not been operating, which had not been recorded in the daily machine records, was that the machine had been under repair. 53 Counsel for the cross-defendant made a number of submissions in reply to these submissions by counsel for the cross-claimant.

That work was continuously available to PCE had in fact been put in issue during the taking of evidence. In any event, Mr Bloom's analysis was based on PCE's internal records.

The merit of the averaging procedure was obvious, without needing to be stated by Mr Bloom.

There was no good reason to suppose that the sample of shifts used by Mr Bloom was unrepresentative.

Close analysis showed that, while two machines might often have been operated together, they had also often been operated apart.

That some specific reason could be given why the number of hours worked on a particular shift used by Mr Bloom had been less than 10.5 hours did not invalidate the averaging procedure. Any such specific reason was likely to have been more generally applicable.

Mr Bloom had made the assumption that more than one shift had been worked on a day, only when the operating hours for the day totalled more than 12 hours. 54 More generally, counsel for the cross-defendant submitted that it was contrary to common human experience to suppose that PCE had managed to run a perfectly efficient operation. It was also submitted that in many daily machine records reasons were given why a machine had not been operating, which were internal to PCE, for example that there had been operator abuse. 55 Counsel for the cross-defendant submitted that I should accept Mr Bloom's analysis and substitution in full or that I should at least allow a discount from Mr Rossetto's assessment on the basis of Mr Bloom's analysis and substitution. 56 It seems to me that there is some force in some of the submissions made by each party and that I should not either fully accept or fully reject the averaging procedure. 57 It was not suggested by either counsel that I should myself attempt any detailed analysis. Accordingly, the only course open to me is to adopt a broad approach and to allow a general discount. I consider that I should allow a discount of 50 per cent of the difference between Mr Rossetto's assessment and Mr Bloom's final assessment of 6 November 2006.

Assessment of damages in contract - whether credit should be given for negative hours 58 On occasional days the hours worked were in fact more than the hours wanted. The excess on those days of the hours worked over the hours wanted was described at the hearing as "negative hours". 59 The form of Sch 1 in Mr Rossetto's report of 17 March 2006 included particulars of the negative hours. On p 2 of his report of 17 March 2006 Mr Rossetto said:- "(e) Schedule 1 includes a summary of those months when the actual hours worked exceeds the hours wanted 'negative hours'. I have excluded negative hours from my calculations of lost profit so that the loss of net profit only includes those months when operating hours for each machine was less than the hours wanted for each machine" 60 At par 5.16 of his report of 2 May 2006 Mr Bloom said:- "5.16 In my opinion the methodology in the Third Rossetto Report is flawed. In my view, it is not logical to claim a loss for each and every day that a machine did not achieve the available hours, but ignore days when the machine achieved more than the available hours. It seems possible that on some days work may be delayed or ceased earlier than usual, for a variety of reasons, but that some productive time might be made up on the following day or days. It seems logical to me to nett off the 'overs' and 'unders' to allow for this possibility". 61 Mr Bloom repeated this paragraph of his report of 2 May 2006 at par 2.6 of his report of 31 October 2006. He added that the omission to allow credit for the negative hours, in his opinion, led to an overstatement of PCE's damages. He observed that there were no longer any particulars of the negative hours in the current form of Sch E. 62 In the cross-claimant's written submissions of 8 May 2006 it was submitted that:- "No credit for 'negative' hours: The second change that Rossetto 3 makes is that where the machines did work for hours in excess of the low end of high availability, no 'credit' falls to G&G. That is because that 'excess' is simply the contractually bought outcome. While showing work hours being less than warranted hours demonstrates a breach of contract, work hours exceeding minimum performance is not 'over-performance', it is merely performance of the contract. That was the very benefit PCE had paid to have by agreeing to pay FOCUS fees. It is not a matter in diminution of breach". 63 In oral submissions counsel for the cross-claimant pointed out that the cross-claimant was claiming damages only for lost time due to breakdown of the machines. If on some day work was delayed or ceased earlier than usual for a reason other than breakdown of a machine, no claim for lost time was being made by PCE. 64 In my opinion, I should accept counsel for the cross-claimant's submissions. If, on a particular day, a high rate of availability was not achieved, then there was a breach of the warranty of high availability on that day for which damages should be awarded. I hold that no credit for negative hours should be allowed in the assessment of damages.

Assessment of damages in contract - machines P22 and P51 65 As to machine P22:- 66 Counsel for the cross-defendant submitted that Mr Campbell had given evidence that in a period in September - October 1997, while machine P22 was being repaired, PCE had hired a replacement machine and that, in those circumstances, the proper measure of damages was, not the value of the lost hours for machine P22, as claimed by the cross-claimant, but the cost of hiring the replacement machine. 67 I accept the submission made by counsel for the cross-defendant. The joint memorandum of December 2006 from both senior counsel states that the amount of any deduction on this ground from the damages assessed by Mr Rossetto would be $2,820 but that the amount of the deduction could be affected by my decision on the issue of averaging. 68 As to machine P51:- 69 It was common ground that on 14 March 1998 the machine P51 was damaged in an accident in which it rolled over. 70 It was further common ground that at least between 15 March 1998 and 21 March 1998 the machine was being repaired for the damage incurred in the accident and that no claim for damages could be made by PCE. 71 However, the cross-claimant claimed that the repairs of the damage incurred in the accident were completed by 21 March 1998, from which time the cross-claimant could claim damages against the cross-defendant, whereas the cross-defendant asserted that the repairs of the damage incurred in the accident were not completed until 7 May 1998 and, accordingly, the cross-claimant had no claim for the period between 21 March 1998 and 7 May 1998. 72 Conflicting evidence was given by Mr Shearman on behalf of the cross-defendant and Mr Campbell on behalf of the cross-claimant. 73 In par 74 of his statement of 19 November 2004 Mr Shearman said:- "I recall that one of the scrapers was brought into Peter Campbell's workshop after it had rolled, and it was brought in for accident and insurance work to be done on the machine. Annexed and marked 'F' are copies of photographs taken by one of the fitters on site in relation to this roll over. It was while this machine was in Gunnedah for that work to be done that Gough & Gilmour also rebuilt the major components on the machine. The accident and insurance work would have taken at least 6 weeks in any event. This is the time that was required to order the various parts in from the United States and for those parts to clear through Customs and arrive in Gunnedah. To the best of my recollection, this work was carried out by Gough & Gilmour in March and April 1998". 74 Mr Shearman gave oral evidence consistent with this paragraph in his statement. 75 Mr Campbell made no reply in any further affidavit to this part of Mr Shearman's statement. In his oral evidence at the hearing Mr Campbell, when cross-examined, fluctuated between saying that a replacement banana arm had to come from the United States, that PCE had itself fabricated the replacement part at its own workshop, that PCE could have fabricated the replacement part in its workshop and that PCE had in the end fabricated the part in its own workshop. Mr Campbell asserted that repairs for damage resulting from the roll over could have been rectified within six to seven days. 76 In seeking to resolve the conflict between the evidence of Mr Campbell and the evidence of Mr Shearman, I have taken into account that I was generally impressed by the accuracy and candour of Mr Shearman as a witness. 77 The onus is on the cross-claimant to prove its damages and I am not satisfied that the cross-claimant has established that it should recover damages for P51 for the period between 22 March 1998 and 7 May 1998. An appropriate amount should be deducted from Mr Rossetto's assessment of damages. I was informed that the amount would be $110,626 but that this could be affected by my decision on the averaging issue.

What method should be adopted in assessing damages under the Trade Practices Act 78 So far in this judgment I have been concerned with the assessment of damages for breach of the warranty that the FOCUS contracts achieved a high degree of availability. I now turn to the assessment of damages under the Trade Practices Act by reason of Gough & Gilmour not having had reasonable grounds for making the representation that the FOCUS contracts achieved a high degree of availability on which the cross-claimant relied in entering into the contracts. Although I found in the preliminary judgment that Gough & Gilmour did not have reasonable grounds for making other representations, it was not submitted by counsel for the cross-claimant that I should attempt to assess damages in respect of those other representations. 79 Counsel for the cross-claimant accepted that damages under the Trade Practices Act have generally been assessed on a different basis from the basis on which damages for breach of contract are assessed, by determining how much the worse off (if any) a plaintiff was by reason of the defendant's contraventions of the Trade Practices Act, that is by comparing what was the position of the plaintiff, the contraventions of the Trade Practices Act having occurred, with what would have been the position of the plaintiff if the contraventions of the Trade Practices Act had not occurred. The latter method of assessing damages is often referred to as the tort or deceit basis of assessing damages. 80 However, it was submitted by counsel for the cross-claimant that the law concerning the assessment of damages for contraventions of the Trade Practices Act had been changed by the High Court in Murphy v Overton Investments Pty Limited (2004) 216 CLR 388, with the consequence that in the present case damages for the claim under the Trade Practices Act should be assessed on the same basis as damages for the claim for breach of contract. 81 Counsel for the cross-defendant disputed that the law about the assessment of damages for claims under the Trade Practices Act had been changed in Murphy v Overton Investments Pty Limited and submitted that in the present case any damages under the Trade Practices Act should be assessed on the tort basis. 82 I received extensive written and oral submissions from the parties on how damages should be assessed under the Trade Practices Act. I was referred to a number of cases, including Gates v The City Mutual Life Assurance Society Limited (1985-1986) 160 CLR 1; Marks v GIO Australia Holdings Limited(1988) 196 CLR 494; Henville v Walker (2000) 206 CLR 459; Murphy v Overton Investments itself; Havyn Pty Limited v Webster (2005) NSWCA 182; Abigroup Contractors Pty Limited v Sydney Catchment Authority (No.3) (2006) NSWCA 282. 83 I accept that as a result of what had been said by the High Court in Murphy v Overton and indeed in other cases, the assessment of damages for contraventions of the Trade Practices Act has become more flexible and that a tort basis of assessment is not necessarily to be applied. 84 In Abigroup Beasley JA, with whom the other members of the Court of Appeal agreed, conveniently summarised the facts and the effect of the decision of the High Court in Murphy v Overton Investments as follows:- "92 In Murphy v Overton the appellants, a husband and wife, were prospective lessees of a lease of a unit in a retirement village. The developer provided information in a brochure stating that there would be an ongoing management and maintenance program and specified the cost of weekly outgoings on present budget indications. The estimate given did not adequately provide for all the expenditure then actually being incurred in the operation of the village. The appellants entered into the lease. Some years later, the developer decided that it would charge residents for all the expenditure incurred in the operation of the village.

93 The trial judge held that the estimate of outgoings provided to the appellants implied that all expenditure that could properly be taken into account in forming the estimate had been taken into account and that as it had not, the developer's conduct was misleading or likely to mislead in contravention of s 52 of the Trade Practices Act . His Honour found that if the truth had been revealed, the appellants would not have entered into that lease, but concluded that they had not proved that they had suffered any loss or damage because there was no evidence of difference between the price paid under the lease agreement and the value of the property at the date of agreement, and there was no evidence that the lessees were not receiving value for the maintenance fees they were paying.

94 The High Court held that the lessees had suffered loss because the continuing financial obligations they undertook when they entered into the lease proved to be larger than they had been led to believe.

95 The Court emphasised that damages assessed under the Trade Practices Act were not confined by analogies drawn from claims made under the general law and that the reference to " loss or damage " in ss 82 and 87 could not be given a narrow meaning:… The Court pointed out that s 87 provides for a wide range of orders that, relevantly, might be made to compensate for the loss or damage suffered or to reduce the loss or damage:… The analogy of capital and revenue losses was used to illustrate the point. The Court also said that it should not be assumed that loss or damage suffered as a result of contravention of the Act was necessarily singular, observing that within the range of orders that might be made, the Court was not confined to making an award of damages by way of a single capital sum: …. Their Honours pointed to the need to mould relief to avoid double compensation and noted at [52] that loss or damage may take several forms and may be incurred at different times". 85 In par 112 of her judgment Beazley JA said in part:- "…. claims for contravention of s 52 cover a wide variety of situations. Sometimes a claim will have the same features as or be similar to a claim for breach of warranty, or for a claim in deceit. In such cases it may be appropriate to make an award of damages which is in the same measure as the analogous claim". 86 Counsel for the cross-claimant made a number of submissions in support of the general contention that damages in the present case for the contraventions of the Trade Practices Act should be assessed on the contract basis.

It was submitted that the claim under the Trade Practices Act was similar to the claim for breach of warranty. The prejudice or disadvantage which the cross-claimant had suffered through the contraventions of the Trade Practices Act was that a high rate of availability had not been achieved.

The present case was not a case where a representee had been induced by a representation to acquire an asset which could be valued at the time of acquisition, so that a comparison could be made between the price paid for the asset and the value of the asset, for the purpose of determining how much the worse off the representee was as a result of having acquired the asset.

The present case was not a case where any damage had definitely been incurred upon the cross-claimant entering into the FOCUS contracts. Although I had found in the preliminary judgment that the cross-defendant had not had reasonable grounds for making the representation that a high degree of availability would be achieved, nevertheless it was possible, at the time the contracts were entered into, that such a degree of availability would be achieved. Whether any damage ever actually occurred was contingent on what occurred in the course of the performance of the FOCUS contracts. The cross-defendant could, in its discretion, have so acted in the performance of the contracts as to have enabled the achievement of a high rate of availability.

It was submitted that the difficulty of determining what would have happened, if the cross-claimant had not entered into the FOCUS contracts, and hence the difficulty of assessing damages on the tort basis supported a conclusion that the assessment of damages should be on the contract basis. 87 Counsel for the cross-defendant made a number of submissions, including the following:-

The tort method of assessing damages for contraventions of the Trade Practices Act had been strongly favoured in the earlier decisions of the High Court and it had not been suggested in Murphy v Overton Investments that any of the earlier High Court decisions had been wrong.

It was submitted by counsel for the cross-defendant that Murphy v Overton Investments was a most unusual case. As noted by Beazley JA in Abigroup , there was no evidence of any difference between the price paid under the lease agreement and the value of the lease at the date of the agreement. The trial judge had preferred the evidence of a valuer called by the developer that there had been no substantial diminution in the value of the lease because of the increase in the outgoings. The High Court had identified the loss the lessees had suffered as being the loss because the continuing financial obligations the lessees undertook when they took the lease had proved to be larger than they had been led to believe. The High Court said that the question of how much greater the burden was for the lessees was difficult to assess and the assessment of damages was remitted to the trial judge.

It was submitted that in Murphy a contingent loss had become an actual loss, upon the developer deciding that it would charge residents for all the expenditure incurred in the operation of the village. Accordingly, in Murphy the conversion of a contingent loss into an actual loss had depended entirely upon a decision by the developer, which it could take or not take at its discretion. However, in the present case there were many reasons independent of any decision by the cross-defendant during the performance of the FOCUS contracts, why a high rate of availability had not been achieved, including the condition of the machines, the location of the machines, the conditions in which the machines were operated by the cross-claimant and the standard of the servicing of the machines by the cross-claimant's operators. 88 As I stated previously, I accept that the assessment of damages for contraventions of the Trade Practices Act has become more flexible and that a tort basis of assessment is not necessarily to be applied. I also accept that in the present case the claim for contraventions of the Trade Practices Act has some of the same features as the claim for breach of contract. However, Murphy v Overton Investments was a very special case, which was far removed from the present case. I have concluded that I should assess damages for the contraventions of the Trade Practices Act in the way in which such damages have generally been assessed in the past, that is on a tort basis.

If the method of assessing damages under the Trade Practices Act is not the same as the method of assessing damages for breach of warranty, how should damages under the Trade Practices Act be assessed. 89 A method of assessing damages on the tort basis for the contraventions of the Trade Practices Act was set out at p9 of Mr Rossetto's report of 20 May 2003 under the heading "Alternative Claim". At p9 Mr Rossetto said:- "The loss of net profits in respect of the machines under the FOCUS contracts has been prepared on an alternative basis (to be known as 'Alternative Claim'). The alternative claim is prepared on the basis that PCE would not have entered the FOCUS contracts, had it known that it would not have attained the percentage availabilities as claimed in the contracts. Mr Campbell indicates that, had PCE not entered into the FOCUS contracts, it would have purchased either the same or similar machines to what were actually purchased. In other words, PCE would have been in a position to derive the same or similar gross income that is quantified that would have been derived under the FOCUS contracts during the same period. However, Mr Campbell estimates that had PCE maintained and serviced the machines, its service costs per hour would not have been the same as the FOCUS contracts. Mr Campbell estimates the cost would have been approximately 30% greater". 90 Mr Rossetto's subsequent, fairly brief, report of 17 March 2006 does not expressly refer to the alternative method of assessing damages and it is unclear to what extent, if at all, the report is intended to apply to the alternative method of assessing damages. 91 In his report of 2 May 2006 Mr Bloom, on instructions from the cross-defendant's solicitors, recalculated the alternative claim, according to various assumptions. 92 As to availability, Mr Bloom was asked to assume that, if the cross-claimant had not entered into the FOCUS contracts and had purchased the same or similar machines, it would have achieved an availability rate of 75 per cent; alternatively, the same availability rate as it in fact achieved for each machine following the termination of the FOCUS contracts; alternatively, the same availability as it in fact achieved for each machine following the termination of the FOCUS contracts and the rebuilding of the machines by the cross-claimant. 93 As to costs, Mr Bloom was asked to assume that, if the cross-claimant had not entered into the FOCUS contracts and had purchased the same or similar machines, it would have incurred costs 30 per cent greater than the costs under FOCUS; alternatively, costs in accordance with the actual costs incurred by the cross-claimant after the termination of the FOCUS contracts; alternatively, costs in accordance with the cross-defendant's actual costs during the FOCUS contracts; alternatively, costs for parts in accordance with the cross-defendant's costs during the FOCUS contracts and costs for labour using the cross-defendant's labour hours but the cross-claimant's labour rates. 94 By combining different assumptions about availability and about costs Mr Bloom calculated twelve different results for each machine, the final figures being set out in a table at par 2.4 of his report of 31 October 2006. In many instances the results calculated by Mr Bloom were worse than the results obtained by the cross-claimant under the FOCUS contracts. 95 In his final submissions counsel for the cross-defendant made many criticisms of the alternative claim for damages as set out in Mr Rossetto's report of 20 May 2003. 96 As submitted by counsel for the cross-defendant, the calculation of the amount of the alternative claim in Mr Rossetto's report of 20 May 2003 was subject to some flaws. In his report Mr Rossetto had used an early form of Sch E which had later been superseded and he had assumed that the cross-claimant would have earned income in accordance with the percentage availability rates in the spreadsheets to the FOCUS contracts. 97 Importantly, it was submitted by counsel for the cross-defendant that there was no actual evidence about the costs the cross-claimant would have incurred, if it had purchased the same or similar machines and maintained them itself. 98 In his report of 20 May 2003 Mr Rossetto said that Mr Campbell had estimated that the costs PCE would have incurred would have been approximately 30 per cent greater than the costs under the FOCUS contracts. However, this part of Mr Rossetto's report was admitted only as being part of the basis on which Mr Rossetto had prepared his report. 99 In par 4 of Mr Campbell's affidavit of 5 June 2003 Mr Campbell said that he estimated that, if PCE had purchased the same or similar machines, PCE would have incurred costs 30 per cent greater than those in the FOCUS contracts. However, when Mr Campbell's affidavit was read, objection was taken to par 4 and I rejected it on the grounds that it was too conclusionary, while reserving leave to the cross-claimant to lead additional evidence in admissible form. 100 When Mr Campbell gave oral evidence, objection was taken by counsel for the cross-defendant to questions asked by counsel for the cross-claimant which were relevant to par 4 of Mr Campbell's affidavit. Counsel for the cross-defendant observed that one would expect that the cross-claimant would have records of costs which the cross-defendant could inspect. An adjournment followed almost immediately. After the adjournment counsel for the cross-claimant said that he was moving to a different subject and he would not appear ever to have returned to the subject of the costs PCE would have incurred under the alternative method of assessing damages. 101 There being no evidence about the costs PCE would have incurred, if it had purchased the same or similar machines and maintained them itself, it cannot be determined whether PCE would have been better off or worse off, if it had not entered into the FOCUS contracts. 102 This conclusion is not affected by Mr Bloom's reports. The assumptions made by Mr Bloom in his reports were simply assumptions he was asked to make by the solicitors for the cross-defendant. On a number of combinations of these assumptions the cross-claimant would have been, not better off, but worse off, if it had not entered into the FOCUS contracts. No submission was made by counsel for the cross-claimant that I should adopt any of Mr Bloom's assumptions. 103 7. Whether leave should be granted to the cross-defendant to amend its defence to the cross-claim 104 An application by the cross-defendant for leave to amend its further amended defence to the cross-claim was made on 8 May 2006 and has not yet been determined by me. Notice of the cross-defendant's intention to apply for leave to amend had been given in a letter dated 31 March 2006 from the cross-defendant's solicitors to the cross-claimant's solicitors. 105 The proposed amendments to the defence to the cross-claim would add further paragraphs 27 and 28, as follows:- "27. In further answer to paragraphs 1-13, 15, 17-20 and 25(b) Gough & Gilmour says that if PCE has suffered loss or damage by reason of conduct of Gough & Gilmour that was done in contravention of Part v of the Trade Practices Act 1974 then PCE's action by way of cross-claim against Gough & Gilmour was commenced more than 3 years after the day on which the cause of action that relates to that conduct accrued and is thereby statute-barred pursuant to section 82(2) of the Trade Practices Act 1974. 28. In the alternative to paragraph 27 (and in further answer to the paragraphs therein recited) Gough & Gilmour says that if in the period prior to 28 March 1998 PCE has suffered loss or damage by reason of conduct of Gough & Gilmour that was done in contravention of Part v of the Trade Practices Act 1974, then PCE's cause of action in respect of such loss or damage accrued more than three years prior to the commencement of PCE's action by way of cross-claim against Gough & Gilmour and is thereby statute-barred pursuant to section 82(2) of the Trade Practices Act 1974". 106 Counsel for the cross-defendant explained the difference between the proposed par 27 and the proposed par 28 as being that, if the cross-claimant had only one cause of action under the Trade Practices Act, then it was statute barred (par 27) but, if the cross-claimant had more than one cause of action under the Trade Practices Act, then all of the causes of action were statute barred. 107 The proposed paragraphs refer to s 82(2) of the Trade Practices Act, which provides in effect that a person who suffers loss or damage by the conduct of another person in contravention of provisions of the Trade Practices Act including s 52 may recover the amount of the loss or damage by an action against the other person commenced at any time within three years after the date on which the cause of action accrues. In the present proceedings the cross-claim was filed on 28 March 2001. 108 It is, of course, the position that the application for leave to amend affects only the claim under the Trade Practices Act and is irrelevant to the claim in contract. 109 The application for leave to amend was opposed by counsel for the cross-claimant. 110 In support of the application for leave to amend counsel for the cross-defendant submitted, as had been submitted in the letter of 31 March 2006, that the need to apply to amend had arisen, only after service on the cross-defendant of Mr Rossetto's report of 17 March 2006. It was submitted that, under the way in which the cross-claimant's claim had been propounded in Mr Rossetto's earlier report of 20 May 2003, it could not be ascertained whether the cross-claimant had suffered any damage until the FOCUS contracts were terminated and, consequently, no cause of action would have accrued until October 1998, which was less than three years before the cross-claim was filed. However, it was submitted, the way in which the cross-claim was propounded in Mr Rossetto's report of 17 March 2006 was that the cross-claimant had suffered damage on a daily basis, with a separate cause of action accruing each day. This was shown by the refusal to give any credit for negative hours in Mr Rossetto's report of 17 March 2006. 111 It was submitted that, in any event, in accordance with the principles stated by the High Court in State of Queensland v JL Holdings Pty Limited (1997) 189 CLR 146, I should allow the amendment unless the amendment would cause prejudice to the cross-claimant which could not be cured, and no such prejudice could be shown. 112 Counsel for the cross-claimant made a number of submissions in opposing the application for leave to amend. 113 It was pointed out that the application had been made at a late stage in the proceedings, after years of litigation which had been conducted on the pleadings as they stood, and after I had delivered a preliminary judgment in which I had dealt with issues of liability. 114 Counsel for the cross-claimant disputed that there had been any relevant change in the cross-claimant's case in Mr Rossetto's report of 17 March 2006 and submitted that I should not accept the suggestion that the cross-defendant had been dissuaded from pleading a defence under s 82 of the Trade Practices Act at an earlier stage of the proceedings, because of the way in which the cross-claimant's claim under the Trade Practices Act had been propounded in Mr Rossetto's earlier report. It was submitted that the only real changes in Mr Rossetto's report of 17 March 2006 were that, in the light of my preliminary judgment, Mr Rossetto had abandoned the use of the percentage availability rates in the spreadsheets to the contracts and had adopted the concept of "hours wanted". Negative hours had been eliminated in the calculation of damages in the report of 17 March 2006, because that report was solely concerned with the assessment of damages for breach of contract. 115 It was submitted that, if a defence under s 82(2) had been pleaded earlier, then it might have been the case that the cross-claimant would have raised a reply to the defence, based on estoppel or waiver. 116 It was further submitted that if a defence under s 82(2) had been pleaded earlier, the cross-claimant might have applied to amend the cross-claim by adding another cause of action which had a six year limitation period and would not be statute barred, such as a cause of action for negligent miss-statement. 117 The application for leave to amend was extensively argued on 8 May 2006. I was not pressed to deliver a decision on the application and I reserved my decision. 118 During argument on 9 November 2006 I was informed by counsel that I could defer ruling on the application for leave to amend and deal with the application as part of my general reserved judgment. 119 In my opinion, I should, in accordance with the principles stated in State of Queensland v JL Holdings Pty Limited grant the application for leave to amend. The cases of Ketteman v Hansel Properties (1987) 1 AC 189 and Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84, which are noted in the commentary on s 64 of the Civil Procedure Act in Ritchie's Uniform Civil Procedure NSW at s 64.25 p2531, were decided before State of Queensland v JL Holdings Pty Limited. 120 Although counsel for the cross-defendant in his submissions may have overstated the degree to which the cross-claimant's case relevantly changed in Mr Rossetto's report of 17 March 2006, I accept that it became more apparent in Mr Rossetto's report of 17 March 2006 that the cross-claimant was asserting that its claims had accrued on a daily basis. 121 It is, of course, true that the application for leave to amend was made at a late stage of the proceedings. However, in my preliminary judgment I had dealt only with the specific issues identified in the judgment. After notice was given of the application for leave to amend and, indeed, after the application was argued in May 2006 the proceedings continued to be on foot for a number of months during which the cross-claimant had the opportunity of taking further steps to protect its interests. 122 I was not informed of any matters which might actually support a reply of estoppel or waiver to a defence based on s 82(2). 123 Despite submissions by counsel for the cross-defendant, I accept that a cause of action in negligent miss statement was not pleaded in the cross-claim, as it stands. However, a cause of action for breach of contract was pleaded, which has a six year limitation period and is not statute barred.

Conclusion 124 I have now dealt with all of the outstanding issues identified by me earlier in this judgment. The parties can communicate with me through my associate with respect to further steps in the proceedings. **********

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