Gough & Gilmour v Peter Campbell

Gough & Gilmour v Peter Campbell - [2009] NSWSC 1310 - NSWSC 2009 case summary — Zoe

[8]

JUDGMENT 1 HIS HONOUR: In these proceedings brought by Gough & Gilmour Holdings Pty Ltd ("G & G") against Peter Campbell Earthmoving Pty Ltd ("PCE") I have already delivered two judgments, a judgment described as a preliminary judgment dated 18 November 2005 ([2005] NSWSC 1155) and a judgment dated 9 March 2007 ([2007] NSWSC 172). Orders to give effect to my two earlier judgments were formally made on 27 June 2007. The present judgment is to be read with my earlier judgments and I will not repeat in this judgment all of the matters set out in my earlier judgments and, in particular, all of the factual matters. 2 Summonses by G & G for leave to appeal and by PCE for leave to cross-appeal and then an appeal by G & G and a cross-appeal by PCE were brought. The appeals were heard on 16 February 2009 and the members of the Court of Appeal delivered their reserved judgments on 11 March 2009 ([2009] NSWCA 37). The principal judgment was given by Sackville AJA, with whom the other members of the Court agreed. The Court of Appeal allowed in part both the appeal and the cross-appeal. However, only certain procedural orders were made at that stage, including an order that the parties file written submissions as to the orders which should be made. 3 On 3 June 2009 the Court of Appeal made formal orders. In orders 1, 2 and 3 the Court of Appeal allowed the appeal in part, allowed the cross-appeal in part and set aside a judgment I had entered in favour of PCE. Order 4 made by the Court of Appeal, which gives rise to the present part of the proceedings before me, provided: "4. The matter be referred back to the primary judge for determination of: (a) whether there has been breach of the "minimum hours warranty" in each of the FOCUS contracts sued on in the cross-claim as found in paras 73 and 76 of the judgment of the Court delivered on 11 March 2009; (b) if there has been a breach, for assessment of damages in respect of such breach; (c) paragraph 15(b) of the respondent's amended defence to cross claim dated 6 November 2006" 4 Order 6 provided: "The costs of the further hearing and the earlier proceedings before the primary judge be reserved for his Honour's determination at the conclusion of the proceedings before him." 5 The hearing for the purpose of determining the three matters referred to me by order 4 made by the Court of Appeal commenced on Monday 21 September 2009 and continued all of that week. The matters in pars (a) and (b) of order 4, that is the "breach" and "damages" issues, which are clearly closely related, were dealt with together and separately from the matter in par (c) of order 4, the "defences" issue. 6 On 25 September 2009, when it had become apparent that the hearing could not be concluded that day and would have to be stood over, I directed that the parties lodge a statement of issues relating to the breach and damages issues, if possible a joint statement but otherwise a separate statement by each party. In accordance with this direction each party lodged a separate statement of issues. 7 The hearing of the three matters concluded on 27 October, when I reserved my decision. 8 As happened at the hearing before me, it is convenient in this judgment to deal with the breach and damages issues together, and separately from the defences issue.

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[83] The parties seem to have proceeded on the basis that the question of breach and assessment of damages should be approached by reference to the relevant portion of a year. This would mean that the methodology already outlined would be applied, but on a pro-rata basis, to the two months or so of the second year of the P49 Contract. In the absence of any contrary argument on the appeal, this pro-rata approach should be followed. It is consistent with the annual available hours being calculated as a product of 312 days at 10 hours per day." 12 A large number of submissions, written and oral, were made by counsel on the subjects of breach and damages. I will refer to many of these submissions in dealing with particular issues. 13 I have formed a number of conclusions on the subjects of breach and damages. Most of these conclusions are in accordance with what I described as "tentative ideas" I had at the beginning of the hearing on 27 October. 14 (1) Although I am dealing together with the issues of breach and damages, as being closely related, it is, nevertheless, important to keep the two issues distinct and not to elide the distinction. The two issues are distinguished in order 4 made by the Court of Appeal, the breach issue in par (a) and the damages issue in par (b). The two issues are also distinguished in Sackville AJA's judgment, for example the breach issue is dealt with in par 80 and the damages issue is dealt with in par 81. 15 There is also a practical utility in keeping the two issues distinct. In some of the written and oral submissions which were made to me the two issues were conflated, leading, so it seems to me, to some confusion. It is clear from Sackville AJA's judgment that there could be breaches of the minimum available hours warranty, which do not sound in damages. 16 (2) In my opinion, the warranty in each FOCUS contract was a minimum available hours warranty, that is a warranty that the machine would be available for at least a minimum number of hours in a year or a part of a year; and not, or only secondarily, a warranty that the number of hours the machine was unavailable in a year or a part of a year would not exceed a certain number of hours. 17 Such a view of the warranty would be consistent with parts of the FOCUS contracts referred to in Sackville AJA's judgment, including the entry for "annual available hours" in the "summary of proposed contract" in the spreadsheets attached to each FOCUS contract. 18 Such a view would also be consistent with pars 73 and 76 and many other parts of Sackville AJA's judgment. For example, in par 68 of his judgment his Honour said in part:- "…it is not difficult to conclude that G&G warranted that, perhaps subject to PCE's compliance with its responsibilities, scraper P49 would be available for each year the contract remained in force for a minimum of 3120 hours, less the down time allowed for that year in the "Cumulative" box…" 19 In par 79 of Sackville AJA's judgment, which is, of course, the paragraph immediately preceding par 80, his Honour said in part:- "Thus in the first year of the P49 Contract (commencing in August 1997), G&G warranted that the scraper would be available for 2976 hours." 20 If this is the correct view of the warranty, it is puzzling that in par 80 of his judgment, which is obviously to be regarded as an important paragraph, Sackville AJA said that for the purpose of determining whether G & G had breached its "minimum available hours warranty", what should be calculated was the number of unavailable hours, and not the number of available hours. 21 Neither counsel was able to offer any assistance on why this part of par 80 of Sackville AJA's judgment was expressed in the way in which it is. I note that it is apparent from par 78 of his Honour's judgment that the part of his Honour's judgment under the heading "Consequential issues" including par 80, was written by his Honour independently, or largely independently, of any submissions which had been received from counsel. 22 Although the view I have adopted might be the subject of criticism as not being a faithful application of the literal meaning of part of what Sackville AJA said in par 80 of his judgment, I remain of the view that the ultimate question in determining whether G & G breached what his Honour himself described in par 80 as the "minimum available hours warranty" is whether the number of hours for which the machine was in fact available was less than the number of hours the machine was warranted to be available and ascertaining the number of hours the machine was unavailable is of significance only as a means of determining that ultimate question. 23 I note that in par 81 of his judgment Sackville AJA used the concept of "available hours" and not that of "unavailable hours". His Honour said that, if breach was established, damages should be assessed by calculating the difference between the minimum number of hours the machine was warranted to be available and the number of hours the machine was actually available. 24 (3) The warranty was a warranty as to "availability". 25 I referred to the concept of "availability" in my first judgment of 18 November 2005. In par 76 and 77 of the judgment I referred to submissions which had been made by counsel for PCE about the meaning of "availability". 26 In par 76 I said that counsel for PCE had referred to the definition of "available" in the Oxford English Dictionary as "being capable of being used…capable of producing a desired result". 27 In par 77 of my judgment I recorded a submission by counsel for PCE that "availability" referred to a relationship between the operating hours for a machine which were wanted and the operating hours that could be had, after deducting down time for repairs to the machine pursuant to the contract. 28 In par 89 of my judgment I said that "I generally accept the submissions made by counsel for PCE about the word "availability"". 29 In the present part of the proceedings counsel for PCE submitted that what I had said in my earlier judgment about "availability" had not been affected by anything said in Sackville AJA's judgment in the Court of Appeal and I should apply what I had said in my earlier judgment, particularly my apparent acceptance that "availability" refer to a relationship between operating hours which were wanted for a machine and the operating hours which were actually obtained. 30 I note that in par 89 of my earlier judgment I qualified my acceptance of counsel's submissions by using the word "generally". 31 I remain of the opinion that I should accept the definition of "availability" referred to in par 76 of my earlier judgment, provided that the word "mechanically" is added; that is a machine is "available", if it is "mechanically capable of being used". 32 However, having had the opportunity for further reflection, I am not now of the opinion that "availability" refers to a relationship between operating hours wanted and operating hours obtained. 33 (4) As I have already indicated, the ultimate question in the determination of whether, in relation to a particular machine, there was a breach of the minimum available hours warranty, is whether the number of hours for which the machine was in fact available in a year (or part of the year) reached the number of hours the machine was warranted to be available. 34 The approach which was generally advocated by counsel for PCE was as follows. The number of operating hours wanted by PCE for the machine ("the hours wanted") should be calculated. In calculating the number of hours wanted, periods of wet weather (wet weather such that the machine could not be operated) and periods of idle time (when there was no work for the machine) should not be included. The hours for which the machine was available should be limited to the hours the machine was actually working ("the worked hours"). These hours would not, of course, include periods of wet weather or periods of idle time. 35 Whether there had been a breach of the minimum available hours warranty would then be ascertained by comparing the number of available hours (that is the number of worked hours) with the number of warranted hours or, if the number of wanted hours was less than the number of warranted hours, by comparing the number of available hours (worked hours) with the number of wanted hours. 36 In support of this approach counsel for PCE referred to Sackville AJA's use in par 79, 80 and 81 of his judgment of the expressions "working day" or "working days"; the description of "availability" recorded in par 77 of my earlier judgment; and the practical difficulty of determining whether, during a period of wet weather or idle time when the machine was not in fact being worked, the machine was nevertheless available in the sense of being capable of being used. 37 I do not consider that the hours a machine was available should be limited to the hours that the machine was being worked. If a machine was being worked, then it was, necessarily, available. However, a machine could be available in the sense of being mechanically capable of being used, even though it was not being worked. A machine could be available, in the sense of being mechanically capable of being used, during periods of wet weather and periods of idle time. 38 As to the arguments in support of PCE's approach which I have noted, it is clear from the last sentence in par 80 of Sackville AJA's judgment that, whatever the significance of the expression "working day(s)" as used by his Honour, his Honour considered that a day could be a "working day" for a machine, even though it was a day on which it was not operated or intended to be operated. I have earlier in this judgment held that I do not now accept the description of "availability" in par 77 of my earlier judgment. I do not consider that I should be deterred from interpreting "availability" as I consider it should be interpreted, by any practical difficulties that might exist in determining whether a machine which was not being worked on a particular day was nevertheless capable of being used on that day. 39 In my opinion, the correct approach to determining what I have described as the ultimate question is to calculate the number of hours a machine was in fact available, in the sense of being mechanically capable of being used, by adding together the number of hours the machine was available on particular days during the year, up to a maximum of 10 hours per day, and then comparing the aggregate number with the number of hours warranted. However, I acknowledge that this broad statement of a correct approach leaves a number of questions outstanding. 40 (5) As I already noted, in pars 79, 80 and 81 of Sackville AJA's judgment, his Honour used the expression "working days" or "working day". In par 79 his Honour said that whether the minimum number of available hours was attained would be determined "by reference to machine availability per 10 hour day (assuming 312 working days for a year)". The expression "working days" or "working day" then recurs in pars 80 and 81 of the judgment. 41 "The industry norm" from which Sackville AJA held that the number of hours in the available hours warranty was derived, was based on a working day of 10 hours, 6 days per week, 52 weeks per year (see par 62 of Sackville AJA's judgment). 42 It was submitted by counsel for PCE that the expression "working day" as used by Sackville AJA meant, not a calendar day of 24 hours but a shift of 12 hours. On this interpretation, there could be two "working days" in a calendar day of 24 hours. It was submitted that this interpretation was supported by evidence of the context in which the expression "working day" was used, including evidence that PCE had enough operators for two shifts of 12 hours to be worked each calendar day using the same machine and evidence that G & G had agreed to provide service for repairs and breakdowns on a 24 hour per day basis. 43 I do not consider that this submission should be accepted. The ordinary natural meaning of the word "day" is a calendar day of 24 hours and I do not consider that there is any sufficient reason or combination of reasons for departing from this meaning of the word "day" and holding that the word "day" should be interpreted as meaning "shift". 44 It was submitted by counsel for PCE that it was only the available hours on 312 days in a year which could be taken into account in determining whether there had been a performance or a breach of the available hours warranty. The other 53 days in the year would not be the subject of any warranty by G & G and the hours that the machine was available on those days could not be brought into account in determining whether there had been a performance or a breach of the minimum available hours warranty. 45 It was further submitted that the in a carefully written judgment Sackville AJA had chosen to use the expression "working day(s)" and significance should be given to the expression his Honour had chosen; that his Honour had, in accordance with the formula for deriving the industry norm, limited the number of hours per day which could be brought into account as available hours to 10 and, likewise, the number of days in a year on which hours could be brought into account as available hours should be limited to 312; and that to permit G & G to bring into account hours that the machine was available on all of the 365 days in a calendar year would confer an unfair advantage on G & G. 46 It is, in my opinion, clear that Sackville AJA was well aware that the assumptions used in the derivation of the industry norm, that a machine would be operated 10 hours a day, 6 days a week, 52 weeks a year would not necessarily be reflected and, indeed, almost certainly would not be reflected, in the extent to which PCE wanted to operate a machine or did actually operate a machine. 47 In par 56 of his Honour's judgment his Honour noted that I, as the trial judge had taken into account, inter alia, that "the calculations (in the FOCUS contracts of percentage availability) were based on assumptions which were highly unlikely to reflect the actual operation of the machine". In par 71 of Sackville AJA's judgment his Honour held that none of the matters I had identified which were referred to in par 56 of his Honour's judgment, presented an obstacle to construing a FOCUS contract as imposing a minimum available hours warranty on G & G. However, as I read his Honour's judgment, his Honour did not hold that the matters I had identified were factually wrong; merely that those matters did not prevent the construction of a FOCUS contract which his Honour favoured. 48 In par 67 of his judgment Sackville AJA said that "the parties must be taken to have appreciated…that the actual number of hours PCE wished to operate the machine would vary, perhaps considerably, from year to year". 49 In par 69 of his judgment his Honour observed that the construction of a FOCUS contract which he had adopted would have the consequence that the number of down hours for each year a contract was in force would be calculated "on the basis of assumptions as to the use of the machine that, from a chronological point of view, may be unrealistic". 50 In par 70 of his judgment his Honour said: "No doubt both parties realised that PCE might wish to use the machine more frequently than the norm." 51 I note that there are differences in pars 79 to 81 of his Honour's judgment between his Honour's references to hours in a day and his Honour's references to days in a year. His Honour explicitly states that a maximum of only 10 hours in a day can be either unavailable (par 79) or available (par 81). However, the only reference to 312 days in a year (in par 79) is in brackets and is introduced by the word "assuming", which suggests that his Honour was not stipulating that the number of days on which hours of availability could be taken into account is limited to 312. 52 It would not appear to me that his Honour intended the expression "working day(s)" to have the degree of significance suggested by counsel for PCE. It would appear from par 80 of his Honour's judgment that a day could be a "working day" for a particular machine, even though on that day the machine was unavailable and even though PCE did not intend to operate the machine on that day. 53 If it were the position that it was only the available hours on 312 days of a calendar year which could be counted, problems would arise of how those 312 days should be selected. The FOCUS contracts do not contain any suggestion as to how the 312 days would be selected. 54 It might be possible to adopt the criterion of counting the available hours on only the first 6 days of a week and not any available hours on the seventh day of a week but this seems to me to be quite arbitrary. 55 If it was within the power of either of the parties to nominate which days should be the days on which available hours could be counted, then the determination of whether there was a breach of the warranty could depend on capricious decisions by a party as to which days were selected. 56 The conclusion I have reached is that the number of available hours on all of the days in a calendar year can be counted in determining whether there was a performance or a breach of the minimum available hours warranty. 57 (6) There could be periods when there is some difficulty in determining whether as a matter of fact a machine was available or unavailable. 58 The onus of proving that a machine was unavailable would rest on PCE as the party asserting a breach of the warranty of availability. 59 I have already expressed the view that a machine could be "available", even though it was not being operated (worked). An important question is whether a machine should be regarded as available or unavailable during a period of wet weather when the machine, even if available, could not have been operated. The resolution of this question in relation to a particular period of wet weather could depend on evidence specific to that period of wet weather. However, in the absence of evidence specific to a particular period, I consider that the following guidelines should be adopted.

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……….. [27] The qualification referred to in para 25 above, is that the Court was informed, for the first time, in PCE's reply to G&G's supplementary written submissions, made by leave after the hearing, that the figure specified for "Annual available hours" in the FOCUS Contracts relating to the bulldozers was different from the figure for "Annual available hours" in the FOCUS Contracts relating to the scrapers. However, the FOCUS Contracts relating to the bulldozers were not included in the appeal books and were not referred to in argument in the appeal. This judgment proceeds on the basis expressly accepted by the parties at trial and on appeal, namely that the P49 Contract is representative of the August FOCUS Contracts and the P50 Contract is representative of the November FOCUS Contracts." 73 The number of "annual available hours" in the spreadsheets in the FOCUS contracts for the bulldozers, machines P22 and P27, was 8,000 and not 3,120, which was the number of "annual available hours" in the spreadsheets in the contracts for the other machines, which were scrapers. 74 It was submitted by counsel for PCE that the true number of annual available hours stated in the contracts for P22 and P27, and not 3,120 hours, should be adopted for the purposes of the minimum available hours warranty. It was submitted by counsel for G & G that I was bound by the judgment of Sackville AJA to find that the minimum available hours warranty for machines P22 and P27 was to be assessed by reference to annual available hours of 3,120 and that the figure of 3,120 had had a special significance in the judgment of Sackville AJA. The amount of money involved in the determination of this issue is in fact quite small. 75 It seems to me that I am bound by the judgment of Sackville AJA to find that the number of annual available hours for the machines P22 and P27 is to be regarded as 3,120. In par 25 of his judgment Sackville AJA said that there was a possible qualification to the proposition that whatever conclusions were reached in relation to the construction of the P49 contract would apply to the other August 1997 contracts. In par 27 of his judgment his Honour identified the possible qualification, namely that the figure for annual available hours in the contracts for P22 and P27 was different from the figure for annual available hours in the contracts for the other machines. However, as I read the rest of par 27 of his Honour's judgment, his Honour, having been put on notice of the possible qualification, proceeded to reject it and to state that his judgment proceeded on the basis, which he said had been accepted by the parties at trial and on appeal, that the P49 contract was representative of all the August 1997 contracts and the P50 contract was representative of all the November 1997 contracts. 76 I also accept a submission made by counsel for G & G that the figure of 3,120 for annual available hours was not merely the number of annual available hours stated in the contracts for the machines other than the bulldozers but, as expressing what Sackville AJA found was the industry norm, was fundamental to his Honour's reasoning.

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[95] Mr Cotman points out that it was at the second hearing that the parties debated whether there had been a breach of the High Availability Warranty. (The primary Judge did not need to consider at that hearing whether G&G had breached a Minimum Available Hours Warranty, since he had found that the FOCUS Contracts contained no such warranty.) PCE says that it was incumbent on G&G to bring to his Honour's attention what PCE describes as the "causation" point in a "coherent manner". Mr Cotman argues that the only time that G&G raised the so-called causation point at the second hearing was in a brief passage in G&G's written submissions, as follows: These assumptions predominantly required PCE to do certain things (such as carry out daily checks and maintenance, clean the vehicles prior to repair, modify the coal bowls to the design specification) or not do certain things (such as operate the machines outside their operational limits). To that extent, and to the extent that the representations were found to be terms of the contracts, the assumptions therefore operated as dependant [sic] obligations on the part of PCE. Alternatively, to the extent that PCE has not done or refrained from doing the things that G&G to PCE's knowledge assumed would be done/not done, then PCE has failed to co-operate with the performance of the FOCUS contracts, or has prevented G&G from performing the contracts. Because the co-operation is essential to the performance by G&G of an obligation to provide high availability, G&G is excused from performance, and therefore there is no breach established. [96] The primary Judge can readily be excused for not addressing the so-called causation issue. The ways in which the parties presented their cases were confusing and the formulation of a multitude of preliminary issues did not help to simplify the matters in dispute. G&G's submissions at the second hearing, like PCE's submissions relating to the terms of the warranties, did not develop the "causation" argument in a clear or coherent fashion.

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[99] It follows, most regrettably, that in the absence of agreement between the parties, the proceedings will have to be remitted to the primary Judge to resolve G&G's defences pleaded in para 14 of the defence, insofar as they have not been disposed of by findings already made by his Honour." 97 In pars 44 to 59 of my judgment of 18 November 2005 I summarised parts of the pleadings on the cross-claim under the heading "The pleadings". It was not suggested by either counsel at the latest hearing that any amendments to the pleadings made after I delivered my judgment of 18 November 2005 made any material difference to the pleadings. 98 I will not in this judgment repeat the parts of my judgment of 18 November 2005 in which I set out in full or summarised some of the paragraphs in the cross-claim by PCE and the defence to cross-claim by G & G. I will, however, make some comments about the structure of the pleadings. 99 In pars 9 and 10 of the cross-claim PCE alleged that G & G had made certain representations, including in par 10 representations as to machine availability rates expressed in percentages. In par 14 of the cross-claim PCE alleged that each of the matters which had been alleged in pars 9 or 10 to have been representations were also terms of the FOCUS contracts as warranties by G & G. In par 17 of the cross-claim it was alleged that, in breach of contract and contrary to representations made, G & G had failed to provide the machine availability rates represented. In par 18 of the cross-claim it was alleged that there had been contraventions or breaches of the other representations and warranties alleged in pars 9 and 10 (and 14 of the cross-claim). 100 In par 5 of the defence to cross-claim G & G, in answer to par 9 of the cross-claim, admitted that it had made statements to a similar effect to some of the representations alleged but said in sub-par (c) that the statements, to the knowledge of PCE, were based on 13 assumptions, which were listed (i) to (xiii). 101 In par 6 of the defence to cross-claim G & G, in answer to par 10 of the cross-claim, admitted that it had made statements to a similar effect to some of the representations alleged but said in sub-par (c) that the statements, to the knowledge of PCE, were based on the assumptions referred to in par 5(c) of the defence to cross-claim. 102 In par 14 of the defence to cross-claim G & G said inter alia that, based on the assumptions referred to in par 5(c) of the defence to cross-claim, G & G had made statements to the effect that the machines would have the availability rates alleged in par 17 of the cross-claim. In sub-par (e) of par 14 of the defence to cross-claim G & G said that to the extent that the machines had failed to achieve the availability rates alleged in par 17 of the cross-claim, that failure had been due to factors that, to the knowledge of PCE, had not been taken into account in calculating those machine availability rates. Sixteen factors were then listed, which were numbered (i) to (xvi). 103 The first 12 factors listed in par 14(e) corresponded to the first 12 assumptions in par 5(c), in that the assumptions alleged in par 5(c) were assumptions by G & G about what conduct would be engaged in by PCE and the factors in par 14(e) were alleged conduct engaged in by PCE which was contrary to the corresponding assumption. 104 Paragraph 15 of the defence to cross-claim was in the following terms:- "15. In answer to par 18 of the cross-claim, G & G …… (b) says that to the extent that there was any breach of the terms and conditions and warranties in the first and second FOCUS contracts (which is denied) or that the representations alleged were not made out (as to which see paragraphs 5 6 and 7 or this defence to cross-claim and which is otherwise denied), then the breaches were a result of and the representations were not made out because of the matters referred to in paragraphs 14(e)(i) through to (xvi) of this defence to cross-claim." 105 Sackville AJA's judgment refers to par 14 of the defence to cross-claim, whereas the actual order made by the Court of Appeal refers to par 15(b) of the defence to cross-claim. As I have noted, par 14 of the defence to cross-claim was directed to par 17 of the cross-claim, which alleged breaches and contraventions of warranties and representations as to machine availability rates, whereas par 15 of the defence to cross-claim was directed to par 18 of the cross-claim, which alleged breaches and contraventions of other warranties and representations alleged in the cross-claim. However, at the hearing before me it was accepted that par 15(b) of the defence to cross-claim should be treated as a defence to allegations that G & G had breached the minimum available hours warranty. 106 Although the formulation of a number of issues for preliminary determination in my first judgment had not had entirely successful results, it was agreed by the parties at a late stage of the last hearing that the parties should endeavour to define the issues for determination by me in relation to G & G's defences. 107 After I had reserved, an agreed statement of issues was forwarded to me, which was in the following terms:- "Issues for determination in relation to Gough and Gilmour's defence 1. Whether the determination of G&G's Further Amended Defence to the Cross-Claim ("the Defence") should proceed solely upon the basis of the submissions made during the original hearings in 2005 and 2007, or whether the Court is entitled to have regard to the further written and oral submissions made in August and September 2009.

[67]

Whether the determination of G&G's Further Amended Defence to the Cross-Claim ("the Defence") should proceed solely upon the basis of the submissions made during the original hearings in 2005 and 2007,or whether the Court is entitled to have regard to the further written and oral submissions made in August and September 2009. 109 I was informed at a late stage on the last day of the hearing before me (transcript 27 October 2009 p 322) by counsel for G & G that counsel for PCE wanted to raise an issue that the defences issue should be determined solely on the basis of the submissions which had been made in the original hearings before me. I observed that I had received a lot of further submissions. Neither counsel suggested on 27 October that any previous submission had been made that the defences issues should be determined solely on the basis of the submissions made at the original hearing. 110 I note that on 30 June 2009, soon after the Court of Appeal made its orders of 3 June 2009, I made orders by consent about the further conduct of the proceedings, including orders that G & G file and serve written submissions relating to the defences issue and that PCE file and serve written submissions in reply to G & G's written submissions. Pursuant to these orders written submissions were filed and served by G & G and PCE (even if somewhat belatedly). 111 On the second day of the hearing before me (22 September 2009) counsel for G & G commenced making oral submissions before me on the defences issue, without any complaint by counsel for PCE. Submissions by both counsel on the defences issue were made on parts of the third and fourth days of the hearing. On the fifth day of the hearing (25 September 2009) counsel for G & G again addressed me on the defences issue (transcript pp 262-287), again without any complaint by counsel for PCE. 112 In these circumstances it would be strange if I were now required to disregard the written and oral submissions I received before and during the latest hearing. 113 Although Sackville AJA did say in his judgment that, in his view, the evidence already adduced was sufficient to enable the defences issue to be determined, his Honour would not appear to have said anything by way of prohibiting me from receiving further submissions. Indeed, there would appear to me to be indications in his Honour's judgment that further submissions would be appropriate. The part of his Honour's judgment which I have already quoted is headed "Defences not addressed". In par 92 of the judgment his Honour said that the evidence now relied on in relation to the defences issue had been relied on at the trial principally for other purposes. In par 93 of the judgment his Honour noted submissions by counsel for G & G, which his Honour clearly accepted, that I as the primary judge had not addressed the defences pleaded in par 14 of the defence to cross-claim and that the proceedings should be remitted to me so that I could make further findings about the defences issue. In par 94 of the judgment his Honour, in referring to submissions by counsel for PCE, noted an acknowledgement by counsel for PCE that G & G had established a factual basis for "certain" of the matters pleaded but also a submission that such findings as I had made had been made in a different context. 114 In par 96 of Sackville AJA's judgment his Honour said that I could be excused for not having addressed the "causation" issue. His Honour added that G & G's submissions at the second hearing before me had not developed the "causation" argument in a clear or coherent fashion. 115 If the defences were not addressed by me in my earlier judgment, if such findings as I made in my earlier judgment related to some only of the matters pleaded in par 14(e) of the defence to cross-claim and were made in a different context, if the submissions previously made by G & G were deficient and if I am to make further findings, then it would seem to me appropriate for me to receive further submissions. 116 I answer issue 1 by saying that the Court is entitled to have regard to the further written and oral submissions made in August and September 2009 (and on 27 October 2009).

[68]

Having regard to the content of paragraph 15(b) of G&G's defence to cross claim, is G&G permitted to contend that any or all of the matters alleged in paragraph 14(e) of the defence are: a. the subject of express or implied terms of the FOCUS Contracts. b. Incidents of the implied obligation to cooperate in the performance of the FOCUS contracts by G&G. c. Obligations interdependent with G&G's obligation under the minimum available hours warranty; d. matters that prevented G&G from performing its obligation under the minimum available hours warranty. 117 I have already set out the terms of par 15(b) of the defence to cross-claim but it is convenient to repeat them. "15. In answer to par 18 of the cross-claim, G & G …… (b) says that to the extent that there was any breach of the terms and conditions and warranties in the first and second FOCUS contracts (which is denied) or that the representations alleged were not made out (as to which see paragraphs 5 6 and 7 or this defence to cross-claim and which is otherwise denied), then the breaches were a result or and the representations were not made out because of, the matters referred to in paragraphs 14(e)(i) through to (xvi) of this defence to cross-claim." 118 I have already noted that, although par 15(b) was pleaded in answer to par 18 of the cross-claim, it is to be treated as a defence to the claim by PCE based on the minimum available hours warranty. Having regard to the way in which the case progressed, any breaches by G & G of other warranties in the FOCUS contracts and any failures by G & G to "make out" representations made by it can be disregarded. 119 I have already pointed out that the matters alleged in par 14(e) of the defence to cross-claim consist of alleged conduct, by act or omission, on the part of PCE; whereas the matters alleged in par 5(c) of the defence to cross-claim were alleged assumptions by G & G about conduct which would be engaged in by PCE, which G & G alleged formed the basis of statements made by G & G. 120 To allege, as par 15(b) of the defence is to be taken to have alleged, that any breaches of the availability warranty were the result of the 14(e) matters is equivalent to alleging that the breaches of the warranty were caused by the 14(e) matters and to alleging that the 14(e) matters prevented G & G from performing the warranty. I am, accordingly, of the opinion that contention d in issue 2, that the matters alleged in par 14(e) of the defence to cross-claim prevented G & G from performing its obligation under the minimum available hours warranty, falls within what is pleaded in par 15(b) of the defence and is a contention G & G should be permitted to make. 121 It is more questionable whether contentions a, b and c fall within par 15(b) of the defence. 122 It appears to me that there are indications in the judgment of Sackville AJA that I should adopt a liberal approach in interpreting par 15(b) of the defence to cross-claim. 123 The Court of Appeal itself adopted a liberal approach in interpreting PCE's cross-claim, in holding that the cross-claim "encompassed, even if only in very general terms" (par 88 of Sackville AJA's judgment) the warranty as to minimum available hours which the Court of Appeal found had been given. 124 In pars 95 and 96 of his judgment Sackville AJA referred to the defences G & G wished to raise as the "causation" point or issue or argument (placing the word "causation" in quotation marks) or the "so-called causation issue", thereby suggesting, to my mind, that his Honour was using the word "causation" as a convenient label, rather than as a precise, exhaustive description of the defences G & G should be permitted to have determined. 125 In par 95 of Sackville AJA's judgment his Honour quoted part of G & G's submissions at the second hearing before me, in which it had been submitted that the assumptions (in par 5(c) of the defence to cross-claim), on the basis on which G & G said it had made its representations, were dependent obligations on the part of PCE and that, to the extent that the assumptions had not been fulfilled, PCE had failed to cooperate in the performance of the FOCUS contracts or had prevented G & G from performing the FOCUS contracts. 126 In par 97 of his judgment Sackville AJA said that G & G had pleaded that its apparent breach of warranty was due to PCE's failure to comply with its dependent contractual obligations. 127 Sackville AJA referred several times to G & G's defences, using the plural "defences", indicating that the defences G & G should be permitted to have determined were not limited to a single defence but extended to all of the defences referred to in this part of his Honour's judgment. 128 I have concluded that par 15(b) of the defence to cross-claim is a sufficient pleading to permit G & G to make all of the contentions in a, b, c and d of issue 2. However, later in this judgment I will give further consideration to the question of whether the terms of par 15(b), even liberally interpreted, and the terms of Sackville AJA's judgment place some limits on the contentions G & G can make.

[70]

Whether PCE had obligations in relation to the matters pleaded in paragraph 14(e) of the Defence, as contended for in paragraphs 8 to 15 of G&G's Outline of Submissions dated 14 August 2009, either as: (a) express terms of the FOCUS Contracts; (b) implied terms of the FOCUS Contracts; (c) incidents of any implied obligation to co-operate in the performance of the FOCUS contracts by G&G. 132 Earlier in this judgment I referred to the correspondence between sub-pars (i) to (xii) of par 14(e) of the defence to cross-claim and sub-pars (i) to (xii) of par 5(c) of the defence. Sub-pars (i) to (xii) of par 14(e) alleged kinds of conduct, by act or omission on the part of PCE. Sub-pars (i) to (xii) of par 5(c) alleged assumptions by G & G about what conduct would be engaged in by PCE as forming the basis for statements which had been made by G & G. The terms of the assumptions in par 5(c) could, as a matter of language, readily be converted into the terms of contractual promises by PCE which would be breached by conduct of the kind alleged in the corresponding par 14(e) matters. For example, the assumption in par 5(c)(ii) was that "the machines would not be operated in remote and isolated areas" and the corresponding matter in par 14(e)(ii) was "that the machines were operated in remote and isolated areas". 133 Accordingly, the question in issue 4, so far as sub-pars (i) to (xii) of par 14(e) are concerned, could be expressed as follows:- were there obligations of PCE, whether as express terms of the contracts or as implied terms or as incidents of an implied obligation to cooperate, which were in the same terms as, or substantially similar terms to, the assumptions alleged in par 5(c) and which would have been breached by the conduct alleged in par 14(e). 134 At pars 135 to 153 of my first judgment I made findings about whether the alleged assumptions in sub-pars (i) to (xii) of par 5(c) of the defence to cross-claim were assumptions made by G & G, to the knowledge of PCE. The question whether an alleged assumption about the conduct which would be engaged in by PCE was an assumption made by G & G, to the knowledge of PCE, is not necessarily the same question as whether the subject matter of the alleged assumption was a contractual promise by PCE that it would engage in such conduct. A matter could be an assumption made by G & G, to the knowledge of PCE, about conduct which would be engaged in by PCE, without the matter being a contractual promise by PCE. Nevertheless, the two questions are related and my findings in my first judgment about whether G & G, to the knowledge of PCE, made the various alleged assumptions in sub-pars (i) to (xii) of par 5(c) are clearly the findings made by me which Sackville AJA referred in his judgment (see pars 94 and 97). 135 I will now consider in turn the various matters in par 14(e), adopting, as the parties did, some grouping of the matters.

[88]

(iii) Daily and weekly fluid checks were not conducted in accordance with the Caterpillar Lubrication and Maintenance Guide 159 In par 23 of his statement of 18 November 2004 Mr Hutson said that the costing schedule calculated by him for the FOCUS contracts made certain assumptions, including (d):- "Adequate service records will be maintained by the operator (these are necessary to enable monitoring of component wear through oil sampling, which in turn is dependant upon accurate records being maintained of the type and quantity of oil used and topped-up by the operator)." 160 In par 50 of his statement Mr Hutson said:- "The absence of the record of oil usage, and our inability to ascertain oil consumption by reference to supply records made it impossible to accurately predict impending component failure through the SOS (scheduled oil sampling) system which would ordinarily provide an accurate wear analysis, and therefore condition, of the major components." 161 In par 77 of his statement Mr Hutson said that part of a conversation he had with Mr Campbell at a meeting on 30 September 1998 was as follows:- "I went on to say: 'Daily and weekly machine checks are not being done.' Peter Campbell made a statement to the following effect: 'My people are doing the checks now but it has been very difficult'". 162 In a report prepared within G & G which was handed to Mr Campbell at the meeting on 30 September 1998, a copy of which is annexure P to Mr Hutson's statement, it was stated:- "Regular Checks - unfortunately we have had to conduct this work in order to ensure that it is done. This involved us in considerable extra cost in the early phases of the contract. Now PCEM is doing the checks with more regularity. However, due to their not being reliable, we have continued to check whether the work is done." 163 In par 13 of his statement of 19 November 2004 Mr Shearman referred to the theory of the FOCUS contracts, that regular maintenance and inspection would enable the repair and replacement of components towards the end of their expected working life but before they failed. 164 In par 92 of his statement Mr Shearman said that he had asked Mr Campbell on a number of occasions to provide him with daily oil and weekly fluid records but they were not provided. 165 In par 93 of his statement Mr Shearman said:- "With earthmoving machinery oil checks should be done on a daily basis to avoid problems down the track. This is particularly important with scrapers as there are a lot of different oil levels that need to be checked since there are two engines, two transmissions and two differentials. It is important to check that there is no debris stuck in the radiator core or parts are not loose. The air cleaners should be blown out with compressed air to clean them." 166 In par 96 of his statement Mr Shearman said:- "The absence of these records (and in particular an accurate record of what additional oils and fluids were being put into the machines) also significantly undermined the value of the diagnostics undertaken on the machines using the 'SOS' (scheduled oil sampling) system. This, in turn, undermined Gough & Gilmour's ability to predict component failures by assessing the wear levels of the components. Without knowing how much oil and fluids had been added to the machine, it was impossible to assess the extent to which the samples that were taken had been diluted, and therefore difficult to undertake accurate sample testing." 167 In par 43 of a statement of 15 April 2004 Mr Keogh, who had been a plant mechanic (fitter) for G & G, said that, when G & G fitters arrived at a site, the machines had usually been taken out by the operators, so that the G & G fitters "were never able to confirm that the oil and water checks were being carried out". Records of any fluid replenishment were not provided to G & G. 168 In oral evidence Mr Hutson said that oil analysis was essential to the "overall Caterpillar philosophy". He explained how oil analysis enables the detection of the degree of wear in components as follows:- "A component typically, like an engine or a transmission setup, will generate wear particles initially whilst it's new, going through what is a run-in period. It will typically generate high proportions or high levels of iron, and whatever other metals are in there. After an oil change, it should become reduced and as the component settles in and becomes run-in, the levels of contamination decrease and they stay relatively low until the component starts to wear out. Then the metal-to-metal contacts start to interface again and the contamination levels start to degenerate again. So you can typically tell when it starts to wear out." 169 The working life of some components ranges from 12,000 hours to 22,000 hours. When asked how to apply this information to a machine which had been used, for example, for 11,000 hours, Mr Hutson said:- "It is difficult, your Honour, in that you can retrieve - but if the machine has been previously serviced and repaired by a dealer, you can retrieve from the SIMS - service information management system - the list of what has been done. It could well be that the engine or the transmission had recently been done and it would be in the system. You would then take that as a cut-off point for that component and not schedule it for another 12,000 hours at least. If you don't have that information, then you depend on customers' records and whatever, or all the information you can glean. Or you take the risk and go blind. I think we had some component history on those machines from the previous customers, and on some of the components we made estimates." 170 In cross-examination Mr Campbell said that at the meeting in February 1998 Mr Hutson had said that there were oil records that might not have been kept. Mr Campbell accepted that daily maintenance and machine checks "helped in the management of a machine". The following question and answer occurred in the cross-examination of Mr Campbell, with reference to the meeting in February 1998:- "Q. You agreed to keep records of oil usage and make sure daily and weekly inspections of the machines were carried out? A. I indicated to him that most of the operators were in fact carrying out those inspections and we would ensure that we would continue to do that." 171 Mr Hammond, an operator working for PCE, said in his statement that part of the work done at the beginning of shifts was pre-work checks on the machine. He agreed in cross-examination that he did not make any record of any amount of oil he added to a machine. 172 I find that there were breaches of the obligation to conduct daily and weekly fluid checks and, when checks were made, records were not always kept.

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(iv) The machines were not cleaned by PCE prior to scheduled service and repairs 173 In par 54 of his statement Mr Hutson said that at the meeting in February 1998 Mr Campbell had said that he would provide water tanks and high pressure washing equipment and would keep the equipment clean and wash out the radiators. 174 In par 60 of his statement Mr Hutson said that, after the meeting in February, he was informed that nothing had been done by PCE about cleaning the machines, although Mr Shearman did inform Mr Hutson that a water cart had been made available but with no means of towing it or filling it. 175 In par 77 of his statement Mr Hutson said that he had said to Mr Campbell at the meeting on 30 September 1998 that the machines were not being kept clean and the radiators were being plugged causing over heating and that there was no machine washing equipment on site for the operators or the G & G fitters to use. Mr Campbell said "we will get that organised". 176 In the report being annexure P to Mr Hutson's statement it was stated:- "Machines have not been cleaned prior to scheduled servicing or repairs. There are no cleaning facilities on sites at Dirranbandi. ….. Because the machines are not cleaned, it is hard to carry out correct inspection and servicing of machines within standard times. It is also hard to prevent dust and debris entering machine systems during servicing and maintenance." 177 In par 21 of his statement Mr Harper, who was a used equipment supervisor employed by G & G, said that on several occasions when machines broke down he examined their air cleaners and found that they were full of dirt. Mr Harper gave further evidence that in a conversation with Mr Winkel, a PCE site manager, Mr Winkel had said that it was G & G's responsibility to clean out the air cleaners. 178 In cross-examination Mr Campbell accepted that it was necessary to keep the radiator of a machine clean to prevent overheating of the machine. He denied that there were no cleaning facilities on any of the sites. He said:- "On most occasions we had a truck with a water tank on the back with water pressure that was available for cleaning the machine." 179 I find that there were breaches of the obligation to clean the machines prior to scheduled service and repairs.

[91]

(vi) The machines were operated beyond their operational limits 181 In submissions this matter was often coupled with the following matter (vii), that is, the alleged failure to modify the bowls of the coal bowl scrapers but, in my opinion, it is preferable to keep the two matters distinct. 182 Conduct which could be regarded as the operating of machines beyond operational limits could often also be regarded as operator abuse, one of the things within matter (xii). 183 In a statement of 18 December 2003 Mr Ireland, who had been a fitter employed by G & G, said:- "My experience on the PCE sites was that it was very difficult to get the PCE operators to pull up the machines so that we could perform scheduled maintenance and fix faults which needed to be fixed but were not preventing the machines from being operated." 184 Mr Ireland said that the PCE supervisor Mr Peter Winkel often yelled at operators to keep working the machines "(even) when things were obviously wrong with them". 185 Mr Ireland observed that EMS warning lights on machines, which were triggered by extreme temperatures and incorrect air pressure, often became activated. Mr Ireland often heard Mr Campbell or Mr Winkel yell to operators "ignore them. Keep working. It doesn't matter". 186 In this statement Mr Harper stated that on several occasions at Nindigully he saw scrapers being operated while warning lights were flashing, indicating that engine coolant temperature and transmission oil temperature were too high. He also heard the warning buzzer on machines sounding, indicating that the machine had a fault. He saw operators disconnect the warning buzzer, because it was annoying them having the buzzer going off regularly. 187 Mr Keogh, who had been a fitter working for G & G, said in his statement that he had seen operators continue to operate the machines, even though the warning lights on the machines were on and he had heard Mr Campbell or Mr Winkel say "just ignore the lights and keep on driving". Mr Keogh said that machines were driven very quickly over rough terrain. On many occasions the machines would continue to be operated, when there was a mechanical fault or malfunction. 188 In his statement Mr Insch, who had been a G & G fitter, said that "generally it was difficult to get a machine pulled up so that repairs or scheduled services could be carried out, unless the machine had broken down. Peter Winkel and other site foreman refused to allow machines to be pulled up for minor repairs". 189 In par 17 of his statement Mr Latham, who had been a fitter employed by G & G, said that the operators operated the machines at cycle times which were inappropriate for the conditions. He witnessed all of the scrapers being operated at top speed in the burrow pit and on ungraded roads. 190 In the report of 13 March 1998 it was recorded that "G & G personnel on site also mentioned that the operators had been told to ignore EMS lights and buzzers by Peter Winkel and told not to slow down or stop for over heating". 191 In the same report it was stated that on 12 March 1998 at Dirranbandi two operators employed by PCE had been interviewed and had complained that they were being forced to work faster and faster cycle times. However, the report stated "the general consensus was that the operators we observed (in the absence of the supervisor) were doing a good job of loading and operating the scrapers". 192 I find that there were breaches of the obligation not to operate the machines beyond their operational limits and not to subject them to operator abuse.

[92]

(vii) PCE failed to modify the bowls of machines P48 and P49 sufficiently or at all so as to reduce their capacity 193 In the report of 13 March 1998 it was asserted that calculations had been made showing that the coal bowl scrapers were overloaded by 35 per cent and that this was causing "extreme loading of the final drives, axles, transmissions, engines and the cushion hitches". 194 However, on 20 September 1998 Mr Shearman and Mr Hutson measured the bowls of the machine P48 and found:- "While the bowl had been modified to reduce its overall capacity by angling the ejector door at 45 degrees and removing the top most section of the bowl, based upon our measurements, the bowls still had the capacity 23 per cent above that of a standard scraper." 195 Mr Shearman said that he saw evidence of fatigue fractures in parts of the coal bowl scrapers, when they were being repaired by G & G. He expressed the opinion that these could have been caused by, inter alia, having too much material in the bowl. On the other hand, as was submitted by counsel for PCE, because the coal bowl scrapers were second hand machines, the fatigue fractures observed by Mr Shearman could have been caused by the use of the machines by the previous owners. 196 Mr Campbell in cross-examination agreed that, if the bowl of a coal bowl scraper was over-loaded, it might affect its engine life but, he said, "very marginally, not to a great degree". 197 Mr Campbell gave oral evidence in re-examination that, although the capacity of the bowl of the coal bowl scrapers was larger than that of a standard scraper, the amount of material the scraper could actually load and carry was not larger than that for a standard machine. Because the augers of the machines had been removed, the bowls of the coal bowl scrapers had no mechanisms for filling to capacity the entire space in the bowl. There would be space towards the back of the bowl which would not be filled, even if earth was spilling over the sides of the bowl. 198 Mr Hutson said in his oral evidence that he had not seen the coal bowl scrapers being operated in the field. He said that he did not agree with Mr Campbell that, because the augers had been removed from the coal bowl scrapers, they had no mechanisms for filling to capacity the entire space of the bowl. The bowls could be overloaded by just pushing more material into the bowls. 199 A video of the coal bowl scrapers operating was shown. Mr Hutson asserted that in the video the bowl was filled to capacity and that that weight would be in excess of the specification for the scraper, the specific gravity of coal being significantly less than the specific gravity of earth, and operating a scraper in that way would have affected the engine, the transmission and the hitch. 200 A number of G & G employees, Mr Ireland, Mr Latham, Mr Harper and Mr Keogh, gave evidence that they had observed the coal bowl scrapers being operated, when overloaded. 201 I find that PCE did modify the bowls of the coal bowl scrapers to some extent but not sufficiently so as to reduce their capacity to approximately that of the bowl of a standard scraper.

[93]

(viii) The machines were not accessible to G & G's servicemen to enable maintenance and repairs to be effected 202 A number of witnesses for G & G gave evidence that there had been periods of heavy rain, during which it had been difficult to gain access to sites where the machines were being operated, as the roads to the sites were unsealed and consisted of black soil which had become a bog as a result of the rain. 203 Mr Keogh said in his statement that "one of the most significant variables was our inability to access sites during wet weather". He was sometimes unable, because of wet weather, to gain access to a site in a crane truck, which was required for carrying all of G & G's equipment. Mr Keogh said that he did not have any problem accessing PCE sites, when there was dry weather. 204 In his statement Mr Hutson said that he had been told by Mr Shearman that access to the machines was sometimes impossible, due to lack of access roads and excessive rainfall, and by Mr Keogh about G & G's inability to access sites through mud. 205 Later in his statement Mr Hutson said that at the meeting on 30 September 1998 he had complained to Mr Campbell that "access roads to sites are non-existent and the majority of our time is spent in the mud, trying to get men and equipment on and off site". Mr Campbell replied "we will rectify this". 206 Mr Insch said in his statement that "there was considerable difficulty with wet weather in Dirranbandi. There were no gravel roads or sealed roads of any kind around the PCE sites in the Dirranbandi area. The roads consisted of black soil without any other grading material on top. When it was raining, the river flooded and the roads simply turned into a bog". Four-wheel drive vehicles would not have been of any assistance. 207 In par 58 of his statement Mr Shearman said that the other major difficulty (apart from the remoteness of the areas where the machines were being operated) was a result of the extraordinary amount of rain that fell during the second half of 1997. On a number of occasions access to PCE's job sites had been impossible for any form of vehicle. 208 At pp 1510 to 1525 of volume 4 of the blue appeal book there is a table of dates between 10 December 1997 and 1 October 1998 when G & G had difficulty accessing "site/machines", the information having been extracted, for the most part, from field service documents and the Gunnedah branch diary of G & G. The entries in the column for the "event" causing the difficulty usually refer to wet weather, rain, flooding or vehicles becoming bogged. 209 Mr Campbell in oral evidence agreed that he and G & G had talked about trying to make the machines more accessible in wet weather, for example, by taking the machines from the job site to a service road, but denied he had agreed to construct suitable access roads to get to work sites. 210 I accept the evidence of G & G witnesses about the difficulty of accessing sites in wet weather. However, as I stated earlier in this judgment, while I consider that there was a term of the contracts which would have been breached by conduct on the part of PCE rendering the machines inaccessible to G & G servicemen, I do not consider that the term extended to imposing a positive requirement on PCE to construct access roads for the use of G & G's servicemen during periods of wet weather. 211 I do not find that there were breaches of any obligation relating to the matter in sub-par (viii).

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219 It was submitted that, if any of its principal submissions was accepted, the relief which should be granted to G & G for the breaches by PCE would be that G & G would be excused from performing its minimum available hours warranty, and that G & G would be entirely excused from performing its warranty and not merely for any limited period or in any limited way. 220 Counsel for G & G informed the court that G & G did not intend to seek to prove, and the state of the evidence would not permit it to prove, that the unavailability of a machine on any particular day had been caused by a particular breach of its obligations by PCE. Counsel said:- "We are not intending to tell your Honour, here is evidence of Mr So and So, who says that on that particular day a machine was bogged and to prove that on that particular day we couldn't comply. The evidence does not descend to that particularity and we acknowledge that." 221 Later in his oral submissions counsel for G & G said:- "We have steadfastly maintained that you couldn't hope to run the prevention argument or to run the dependent contractual obligations argument, by demonstrating that on a particular day a breach of the dependent contractual obligation had a specific effect on the claimed lack of availability". 222 Counsel said that there were two reasons why a particular unavailability of a machine could not be connected with a particular breach by PCE. One reason was that the effects or consequences of breaches, for example of the obligation to provide or allow oil samples to be taken regularly from a machine, would not necessarily, and very likely would not, manifest themselves on the day the breach occurred. 223 The other reason, as put by counsel, would appear to be that it should be regarded as sufficient for G & G to establish "significant material breaches of the various terms that we put are dependent contractual obligations, which your Honour can comfortably find were likely to have had a material effect in preventing the final number" (that is, achieving the total number of available hours warranted). 224 Later still in the hearing counsel for G & G submitted:- "If I can satisfy your Honour that there is a complex interaction of events which your Honour is satisfied must have impacted on our ability to perform, and the breach is such as to make it impossible or impracticable for us to prove cause and effect on a day-by-day basis, we can't do it because of the nature of the breaches, that is not our fault. So your Honour would have to find that the prevention principle, whether there is a complex interaction that makes it impossible to prove the overall hindrance or delay, has the effect of disentitling the innocent party from being relieved of its obligation in toto, and we say that's a very harsh view of the prevention argument. And we say that the proper approach should be: if in truth the disentangling can't occur because of the nature of the breaches to which we have been subjected, either it is all relief or, if there is going to be some disentangling, it should be on the guilty party to disentangle and show what the effect of its breach was in connection with the prevention or hindrance. So what I need to show on that, in my respectful submission, is sufficient to show material contribution to a failure to be able to meet the warranty." 225 With regard to the submission that G & G was prevented from performing its warranty by breaches by PCE of its obligations, counsel for G & G referred to Carter Contract Law in Australia at pars (29-070) and (29-080) and to S.M.K. Cabinets v Hili Modern Electrics Pty Limited (1984) VR 391 (Supreme Court of Victoria Full Court); Drinkwater v Caddyrack Pty Ltd (Young J 25 September 1997); Kilpatrick Green Pty Ltd v Leading Synthetics Pty Ltd (Gillard J Supreme Court of Victoria 5 June 1998) and TC (by his tutor Sabatino) v New South Wales [2001] NSWCA 380. 226 Counsel for G & G placed particular reliance on the decision of the Full Court of the Supreme Court of Victoria in S.M.K. 227 In S.M.K. the Full Court of the Supreme Court of Victoria held that under a construction contract the proprietor could not recover liquidated damages under a clause in the contract providing for the payment of liquidated damages if the contractor did not complete the work by a particular date, if the proprietor had himself prevented completion by the due date by ordering extras or variations, even where the contractor might, in any event, have been prevented by his own delays from completing by the due date. 228 Counsel for G & G pointed out that in S.M.K. it was not suggested that the court should assess the number of days by which completion had been delayed by the conduct of the proprietor and then to add that number of days to the originally fixed date for completion so as to arrive at a new date for completion, to which the liquidated damages clause in the contract would apply. 229 It was submitted by counsel for G & G that the judgment in S.M.K. could be applied in the present case so as to produce the result that, on proof of some breaches by PCE of its obligations, the warranty by G & G of a specific number of hours of availability would fall and be replaced, not by a new warranty with an adjusted specific number of hours of availability, but by a warranty merely providing for a reasonable number of hours of availability. 230 The decision in S.M.K. was referred to by Young J (as his Honour then was) in Drinkwater, in the course of a wide ranging discussion by his Honour of the legal maxim that a person cannot rely on his own wrong. In Drinkwater it had been submitted that parties to a contract could not take advantage of a situation that had been brought about by their own wrong, in order to justify a termination of the contract. 231 In Drinkwater Young J summarised the decision in S.M.K. by saying that there is either a presumption of law or an implied term that, if conduct of a proprietor, whether innocent or otherwise, has substantially delayed completion, the proprietor will not be able to recover liquidated damages from the builder under a liquidated damages clause, notwithstanding that the builder may in fact have disabled himself by his own delays from completing by the due date. 232 In Drinkwater Young J explicitly held that the instant case was not a case of interdependent conditions. 233 As to whether the warranty by G & G was interdependent with the obligations of PCE, it was submitted by counsel for G & G that there is a presumption against independency, that is a presumption in favour of interdependency of contractual obligations. The decision of Lord Mansfield in Kingston v Preston (1773) 2 Doug 689, 99 E.R.437 was referred to. 234 It was submitted by counsel for G & G that the warranty as to availability was a major obligation undertaken by G & G under the FOCUS contracts and should be construed as being interdependent with at least the major obligations of PCE under the FOCUS contracts. 235 Counsel for G & G referred to a part of my first judgment in which I said at par 97 that:- "A reasonable person in the position of PCE or an intelligent bystander would not consider that G & G was intending to give a contractual promise, which would be absolute and unconditional, that PCE in operating a machine in what were likely to be a variety of conditions would achieve a rate of availability calculated to two decimal places." 236 It was conceded that, as appears on the face of this comment, it was made by me, not with respect to a warranty in the terms ultimately found by the Court of Appeal, but with respect to the warranty pleaded in par 17 of the cross-claim, that the machines would provide the percentage availability (calculated to two decimal places) set out in the table appended to par 17. Nevertheless, it was submitted that my comment was still valid, that a reasonable person would not consider that G & G was intending by its warranty to make a promise which would be absolute and unconditional. 237 It was submitted that it would defy common sense for the warranty by G & G to be held to be absolute and unconditional. Counsel offered extreme examples in which, it was submitted, the warranty could not apply, such as PCE taking the machines overseas (for example to Alaska) or operators abusing the machines every day in a year of 365 days. 238 As to the implied duty to cooperate in the performance of a contract, it was submitted by counsel for G & G that such a term is implied in all contracts; that, even if there had been no express terms in the FOCUS contracts requiring PCE to do anything, all or most of the matters in par 14(e) of the defence to cross-claim would have been breaches of the implied duty to cooperate. 239 It was accepted by counsel for G & G that, as was stated by Gummow, Hayne, Heydon and Kiefel JJ in Campbell v Backoffice Investments Pty Ltd (2009) 83 ALJR 903 at [168], "care must be exercised in identifying both the content and operation of an implied obligation to co-operate lest it be at odds with the terms upon which the parties have expressly agreed." 240 It was submitted generally by counsel for G & G that the express terms of neither the August 1997 contracts nor the November 1997 contracts prevented the implication in the contracts of a term to cooperate in the performance of the contracts having the incidents contended for or a finding that the warranty by G & G was interdependent with the obligations of PCE. 241 In particular, it was submitted that where an express term of a FOCUS contract provided that there would be some consequence of a breach of a contractual obligation by PCE, other than that G & G would be excused from its warranty as to availability, that would not prevent the obligation being held to be interdependent with the warranty by G & G.

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Submissions by PCE 242 Counsel for PCE submitted that close attention should be paid to the express terms of the FOCUS contracts, in determining whether any term should be implied or whether any incident of an implied term to cooperate should be implied or whether the warranty by G & G should be regarded as interdependent with any obligation of PCE. 243 It was submitted that the true nature of the terms of the FOCUS contracts which counsel for G & G submitted were interdependent terms, was shown by the way in which G & G had dealt with some of them in its original statement of claim, by making them the basis for claims, which were later abandoned, for sums of money or for damages. 244 It was submitted that, in whatever way G & G formulated its claim to be excused from performing the warranty, the onus of proof was on G & G, there was no reversal of the onus of proof at any stage and there was no onus, legal or evidentiary, on PCE to "disentangle" the consequences of any breaches of its obligations from the consequences of any other factors. 245 Counsel for PCE contended that, in whatever way G & G formulated its claim to be excused from its warranty, it was necessary for G & G to prove causation, that is to prove that breaches by PCE had caused the non-performance of its warranty by G & G. 246 Counsel for PCE examined the documents showing the availability of each of the machines and suggested that, in the case of each machine, much of the total time for which the machine was unavailable was to be found in a small number of large blocks of time. It was contended that, at least with respect to these large blocks of time, it should have been possible for G & G to establish, if it was the fact, that these periods of unavailability had been caused by breaches by PCE of its obligations. It was further contended that such evidence as there actually was tended to refute that these periods of unavailability had been caused by breaches by PCE. 247 A submission particularly pressed by counsel for PCE was that there was powerful evidence from witnesses within G & G itself, that the unavailability of the machines had been caused otherwise than by breaches by PCE of its obligations. Counsel for PCE concluded his written submissions by saying:- "Overwhelmingly, the evidence demonstrates that the difficulties G & G experienced in performing the FOCUS contracts was due to factors other than the relatively trifling matters set out in paragraph 14(e). The problem of not knowing the machines' maintenance history prior to them being put onto FOCUS, the inability to predict how the machines would perform, the need to perform major component removal and replacement in the field on a "random" basis and the subsequent withdrawal and rebuilding of a number of the machines were overwhelmingly the major problems. This is admitted by G & G's key witnesses. It is recorded in the contemporaneous documents." 248 Counsel for PCE referred to a part of my first judgment in which I dealt with the issue identified as issue 5 in that judgment (pars 165-186 of my judgment). In some of that part of my judgment I was concerned with whether G & G had reasonable grounds for making certain representations as to future matters. I examined parts of Mr Shearman's report of 21 July 1998 (pars 175-176 of my judgment), Mr Shearman's oral evidence (pars 178-179 of my judgment) and Mr Hutson's oral evidence (par 180 of my judgment) and I concluded that G & G had not discharged the onus of proving that it had reasonable grounds for making those representations as to future matters (pars 184 and 185 of my judgment).

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(c) did breach of the obligations prevent, or hinder, G & G from performing the minimum available hours warranty, wholly or in part, and if in part, to what extent? 249 It is convenient to consider firstly part (c) of issue 6 and, in particular, whether the breaches by PCE of its obligations which I have found prevented G & G from performing its warranty. 250 I accept that there is a principle, whether it is regarded as a rule of law or as a term implied in a contract, that one party to a contract should not by his acts or omissions prevent the other party from performing an obligation under the contract and if the first party does so, he cannot enforce the obligation of the other party. The acts or omissions preventing performance need not necessarily be breaches of the contract. See the discussion by Brooking J in S.M.K. at pp 395-396. 251 I take into account the cases which were cited by counsel for G & G as applications of the prevention principle. However, it seems to me that, apart from recognising the principle, all of them were so different in their facts from those of the present case as to afford little guidance in the determination of the present issue. 252 Counsel for G & G accepted that the onus of proof was on G & G to prove that it had been prevented by PCE's breaches from performing its warranty. However, as I noted earlier, counsel for G & G submitted that it would be sufficient, in order to discharge the onus, for G & G to prove breaches by PCE sufficient to have been likely to have affected, "impacted upon", G & G's ability to perform its warranty and, even if I considered that G & G's inability to perform its warranty was caused, not only by PCE's breaches, but by other factors as well, there would be an onus on PCE to "disentangle", if it could, the effects of the other factors from the effects of PCE's breaches. As I also noted earlier, counsel for G & G made a submission that, on proof of some breaches by PCE of its obligations, the warranty by G & G of a specific number of hours of availability would fall and be replaced by a warranty providing for merely a reasonable number of hours of availability. 253 I do not consider that I should accept any of the suggested modifications of the requirement that G & G prove that it was prevented by PCE's breaches from performing its warranty. In my opinion, it is not sufficient for G & G to prove merely that there were some breaches by PCE of its obligations. It is necessary for G & G to prove that it was prevented by PCE's breaches from performing its warranty. 254 Notwithstanding the submissions of counsel for G & G, I consider that the judgment of Brooking J in S.M.K. provides little, if any, support for any of the suggested modifications. In S.M.K. the arbitrator had made an unequivocal finding that the conduct of the proprietor had prevented the contractor from completing by the due date. It is true that the arbitrator had also made a finding that the contractor would not, in any event, have been able to complete by the due date. However, the latter finding did not detract from the former finding; the conduct of the proprietor had been a sufficient cause of the contractor being unable to complete by the due date. There is no suggestion in Brooking J's judgment that there should have been an attempt to disentangle the effects of the proprietor's conduct and the effects of the contractor's own conduct on the contractor's inability to complete by the due date. 255 I accept the submission by counsel for PCE that for each of the machines much of the time for which the machine was unavailable consisted of a small number of large blocks of time. 256 Machine P22 was unavailable between 26 August 1997 and 19 October 1997. 257 Machine P27 was unavailable, while it was being repaired, between 26 February 1998 and 3 April 1998. 258 Machine P48 was unavailable between 5 October 1997 and 9 October 1997, between 4 November 1997 and 2 December 1997 and between 25 February 1998 and 26 March 1998, while it was being rebuilt. 259 Machine P49 was unavailable between 16 August 1997 and 22 August 1997, for 10 days in October 1997, for 10 days in November 1997, between 19 February 1998 and 2 March 1998, between 19 March 1998 and 22 March 1998 and then between 31 March 1998 and 26 May 1998, while it was being rebuilt. 260 Machine P50 was unavailable between 29 January 1998 and 31 January 1998, between 3 March 1998 and 12 March 1998, and between 1 April 1998 and 3 April 1998. 261 The machine P51 broke down immediately on being delivered to PCE. It was unavailable between 26 November 1997 and 7 December 1997, between 18 January 1998 and 23 January 1998, between 21 February 1998 and 8 March 1998 and between 15 March 1998 and 12 May 1998. 262 I accept the submission by counsel for PCE that, at least with respect to some of the large blocks of time, for example during the rebuilding of a number of the machines by G & G, it should have been possible for G & G to establish, if it was the fact, that these periods of unavailability had been caused by breaches by PCE of its obligations. 263 I also accept the submission by counsel for PCE that the evidence by Mr Shearman and Mr Hutson which was referred to in the conclusion of counsel's written submissions and some of which I summarised in my earlier judgment strongly suggests that G & G was prevented from performing its warranty of availability, not by breaches by PCE of its obligations, but by the factors identified by Mr Shearman and Mr Hutson, including, especially, that G & G did not have sufficient information about the previous history of the machines, all of which were second hand, and did not know the age and condition of the components of the machines, with the consequence that there was a high incidence of unanticipated component failure, and, because components were failing unexpectedly, replacement parts were not on hand so as to enable prompt repairs to be effected. 264 I conclude that I am not satisfied that G & G has discharged the onus of establishing that breaches of its obligations by PCE prevented G & G from performing its warranty. 265 I do not propose to attempt to answer question 6(c) any further. 266 No submissions were made at the hearing that breaches of its obligations by PCE which merely "hindered", as distinct from preventing, G & G from performing its warranty would be relevant. I was not referred to any authority about conduct by a party to a contract which merely hinders, but does not prevent, another party to the contract from performing an obligation under the contract. 267 The case which was put by G & G at the hearing was that, as a result of breaches of contract by PCE, G & G was excused or relieved entirely, and not merely in part, from performing its warranty. As I have already noted, counsel for G & G informed the Court several times that the state of the evidence would not permit G & G to establish that the unavailability of a machine on a particular day had been caused by a particular breach of its obligations by PCE. If this is the state of the evidence, it is difficult to see how a breach by PCE of an obligation could be found to have prevented G & G from performing some part of its obligation under the warranty, let alone identifying the part and the extent of the part.

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(b) was performance of the minimum available hours warranty conditional upon PCE's performance of its obligations under the FOCUS contracts, and if so does the breach by PCE excuse performance of that warranty by G & G, wholly or in part and if in part, to what extent . 268 These two parts of issue 6 can be conveniently be dealt with together. To ask whether the obligations of PCE were interdependent with the obligation of G & G under the warranty is, in substance, the same as asking whether performance by G & G of its obligation under the warranty was conditional upon performance by PCE of its obligations. 269 I did not receive much assistance from counsel as to any law applicable to these parts of issue 6. All that I was referred to was a single page from a text, asserting that there is a modern presumption against the promises in a bilateral contract being construed as independent of each other. 270 It is clear that a promise by one party to a contract can be interdependent with, and not independent of, a promise by the other party. 271 A classic example of one kind of interdependency is a contract for the sale of land, where the promise by the vendor to convey or transfer the land is interdependent with the promise of the purchaser to pay (the balance) of the purchase price. Neither party can require the other party to perform, without himself performing or averring that he is ready, willing and able immediately to perform his own promise. 272 Features of this kind of interdependency are that the receiving of the benefit of the other party's performance of his promise is the benefit each party bargained for in entering into the contract. In order to perform his promise, each party is to perform a single act on one occasion and it can readily be ascertained whether the promise has been performed. Performance by one party is not conditional on performance by the other, in the sense that the promise by one party cannot be performed unless there is a performance by the other party of his promise. 273 In the present case, on the other hand, it was contended by counsel for G & G that performance by G & G of its warranty was interdependent with or conditional upon performance by PCE of its obligations, for example to conduct regular fluid checks, to clean the machines before servicing and not to subject the machines to abuse by operators, in the sense that the warranty by G & G was incapable of being performed by G & G unless PCE performed its obligations. 274 Counsel for G & G referred to the evidence by Mr Hutson about the need for PCE to perform daily and weekly checks and particularly oil sampling, to enable the principles underlying the FOCUS contracts to be realised. 275 Reference has already been made to par 97 of my first judgment where I said that a reasonable person in the position of PCE or an intelligent bystander would not consider that G & G was intending (by its warranty) to give a contractual promise which would be absolute and unconditional. What I said in par 97 related to a somewhat different warranty from that found by the Court of Appeal, namely a warranty that PCE in operating the machines in what were likely to be a variety of conditions would achieve a rate of availability calculated to two decimal places. 276 Notwithstanding that what I said in par 97 of my first judgment related to a somewhat different warranty, I remain of the opinion that the warranty as to availability by G & G cannot be interpreted as being absolute and unconditional. I accept that in the extreme cases postulated by counsel for G & G of PCE taking the machines overseas or PCE's operators operating the machines beyond their operational limits every day in a year, the warranty as to availability could not be enforced by PCE. Such extreme cases would fall within the prevention principle. G & G would have been prevented by the conduct of PCE from performing its warranty as to availability. 277 I have found that there were breaches of the obligations of PCE to conduct daily and weekly fluid checks, to clean the machines prior to scheduled servicing and repairs and not to operate the machines beyond their operational limits. However, in the case of each obligation, I find that, while there were breaches on some occasions, on other occasions the obligations were being performed. There should, at least in principle, be some remedy for G & G for these breaches of contract by PCE, for example, claims for damages of the kind made by G & G in its statement of claim but later abandoned. However, the remedy which was sought by G & G at the hearing was that it be relieved entirely from its warranty as to availability. 278 In determining issue 2, I held that par 15(b) of the defence to cross-claim was a sufficient pleading to enable G & G to make all of the contentions a, b, c and d in issue 2. However, I added that later in the judgment I would have to give further consideration to the question of whether the terms of par 15(b) of the defence to cross-claim and the terms of Sackville AJA's judgment nevertheless placed some limits on the contentions, that is the defences, G & G could make. 279 The terms of par 15(b) of the defence to cross-claim, so far as is presently relevant, provided that, to the extent that there were any breaches of the warranty by G & G, then the breaches were the result of matters referred to in par 14(e) of the defence to cross-claim; that is that matters referred to in par 14(e) (conduct by PCE) caused the breaches by G & G. 280 With reference to pars 95 to 97 of Sackville AJA's judgment, I found that his Honour used the word "causation" as a convenient label, rather than a precise, exhaustive description of the defences G & G should be permitted to have determined. I am, nevertheless, of the opinion that the word "causation", which was repeatedly used by his Honour in these paragraphs of his judgment, cannot be disregarded. I note, particularly, that in par 97 of his Honour's judgment, where his Honour was stating his own views and not merely summarising or quoting submissions which had been made by counsel (as he had in par 95 of his judgment), his Honour said that what G & G had pleaded was that any breach of its warranty "was due to PCE's failure to comply with its dependent contractual obligations". 281 The consistent use by his Honour of the word "causation" and the terms of par 97 of his Honour's judgment suggest to me that his Honour considered that it was an essential part of all the defences by G & G which had not been addressed, that there should have been a causal relationship between the breaches by PCE and non-performance by G & G of its warranty. 282 I consider that I should accept counsel for PCE's submission that, in whatever way G & G formulated a defence to be excused or relieved from performance of its warranty, in order for the defence to be permitted by the terms of par 15(b) of the defence to cross-claim and by the terms of Sackville AJA's judgment and the Court of Appeal's order, it would be necessary for G & G to prove causation, that is to prove that the breaches by PCE of its obligations caused the non-performance of its warranty by G & G. 283 In my opinion, in relation to parts (a) and (b) of issue 6 it is necessary for G & G, on whom the onus would rest, to establish that performance of its obligation under the availability warranty was dependent, or conditional, upon performance by PCE of its obligations, in the sense that substantial breaches by PCE of its obligations were the cause of G & G not performing its warranty. 284 It is clear that breaches by PCE of its obligations and particularly its obligation to conduct daily and weekly fluid checks on the machines could have militated against G & G being able to perform its warranty. However, having regard to the evidence of G & G's own witnesses Mr Hutson and Mr Shearman, the general nature of which was summarised in counsel for PCE's written submissions and in pars 173 to 180 of my first judgment, I am not satisfied that such breaches of its obligations by PCE as were established were the cause of G & G not performing its warranty. 285 Although it is not necessary for my decision, I will, because it was the subject of some submissions at the hearing, make some examination of the express terms of the contracts. 286 The express terms of the November 1997 contracts were more extensive than those of the August 1997 contracts. In neither of the two kinds of contract was there any express provision that the performance by G & G of the warranty as to availability was conditional upon performance by PCE of its obligations. 287 In the August 1997 contracts it was provided that the fixed cost agreement had been calculated on a certain basis. I infer that, if there was any departure from this basis, G & G might no longer be bound to charge no more than the fixed operating cost fixed by the contract. 288 Clause 3 of the November 1997 contracts provided that PCE must undertake the responsibilities of the customer in order that G & G could offer the fixed hourly rate of maintenance. Clause 4 of the 4-page document within the November 1997 contracts required the machines to be operated according to the operating conditions set out in Schedule 6 which, it was agreed by the parties, should have read Schedule 4. Clause 4 then went on to provide that because the maintenance of a machine had been pre-costed, any changes in the operating conditions would have to be agreed by G & G and might result in a variation in the maintenance charges or, in certain circumstances, termination of the agreement by G & G. 289 Schedule 4 provided in par 2 that specified load ratings as per Caterpillar specifications would have to be adhered to and a failure to do so might lead to a variation in the terms of the agreement or changes (semble charges) relating to failures for usage outside of the specified guidelines being to PCE's account. 290 Clause 5 of the 4-page document provided that for costs to be guaranteed by G & G PCE would have to adhere strictly to the terms of the agreement. 291 Clause 10 of the 4-page document provided that, if an event happened within Part (a) of the clause, G & G could terminate the agreement. Event (2) within Part (a) was that PCE failed to perform a material obligation under the agreement and the failure was not remedied to the satisfaction of G & G within 7 days of G & G notifying PCE in writing of the failure. 292 In the case of the November 1997 contracts what was expressly linked to the performance of its obligations by PCE was the obligation by G & G to service and maintain the machines at no more than fixed hourly costs, and not the obligation of G & G under the availability warranty. There were provisions of the November 1997 contracts to the effect that G & G might have certain remedies for contraventions by PCE, including varying the rate of charges, charging for work beyond the fixed hourly rate and terminating the contract. These features of the November 1997 tend against a conclusion that G & G should be relieved entirely of its warranty by reason of some breaches by PCE of its obligations. 293 I answer each of parts (a) and (b) of issue 6 by saying that breaches by PCE did not wholly excuse performance of the warranty by G & G. For reasons similar to the reasons I gave in considering part (c) of issue 6, I do not answer the remaining parts of issues 6 (a) and (b).

At a glance

Court

Decision date

Before

Source

Judgment (108 paragraphs)

Parties

Cases Cited (5)