Hospital Products Limited v United States Surgical Corporation

Hospital Products Limited v United States Surgical Corporation - [2005] NSWSC 1155 - NSWSC 2005 case summary — Zoe

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Earthmoving machinery operators, who included Stephen James Hammond and Shane Little. 8 All of the persons I have mentioned as having been associated with either Gough & Gilmour or PCE made at least one affidavit or witness statement which was read at the hearing and also gave oral evidence at the hearing. 9 In the 1990's Gough & Gilmour developed a concept described as a fixed operating cost underwriting system contract (a "FOCUS contract"). The concept of a FOCUS contract was explained by Mr Hutson in paragraphs 9 to 23 of his witness statement and by Mr Shearman in paragraphs 13 to 17 of his witness statement. 10 A principle underlying the concept of a FOCUS contract is that the costs of servicing and maintaining an earthmoving machine which has been supplied to a customer are likely to be less, if work is carried out on the machine according to a pre-determined schedule, before any actual failure or breakdown of any part of the machine has occurred. Under a FOCUS contract Gough & Gilmour, in consideration of fixed periodical payments made by a customer to Gough & Gilmour, undertook, subject to certain qualifications, to service and maintain an earthmoving machine which had been supplied to a customer, without making any further charge. 11 Parts of Mr Hutson's witness statement were as follows:- "16. The cost analysis for the machine is a simple mathematical calculation. The on-site and off-site hours for a machine are estimated by Gough & Gilmour's and Caterpillar's and other dealers' knowledge of the time required to service, replace and overhaul components for that particular machine model and what maintenance will need to be done on a particular machine in that application during the period. 17. The services and repairs are generally in accordance with the operator's lubrication and maintenance guide provided by Caterpillar for that piece of machinery and these events are then listed in the spreadsheet. Each event has a parts cost and labour hours allocated to it. The labour hours are adjusted to take into account on-site and off-site work, customer provided portion or contribution to labour, overtime or penalty rates and the number of fitters allocated to carry out events simultaneously while the machine is down. The hours causing the machine to be inoperable, divided by the scheduled hours required by the customer, expressed as a percentage, provides a theoretical availability, which is automatically calculated by the spreadsheet. Variations will exist, in that unscheduled events do take place and maintenance down time can be reduced or increased depending on the number of people working together on the tasks and opportune maintenance done after hours or during other shut downs like meal breaks, wet weather or blasting. 19. Off-site hours are not included in the calculation of the total down hors. This is because the components that require off-site maintenance are usually changed-out and replaced in the field before being taken back to the workshop. The time for change-out and replacement only is included in the on-site hours. There is also some allowance for unscheduled maintenance. 21. The schedule calculates the number of on-site hours that it is expected will be required to perform the maintenance work scheduled during the contract engine hours. Because there is frequently more than one fitter performing maintenance on any one machine, and the scheduled maintenance of more than one component may occur at the same time, and the customer may have to supplement the labour requirement or be responsible for some service activities, the on-site total maintenance hours is not necessarily equivalent to down hours. 22. The calculation of availability is made by deducting the figures for the machine's total down hours due to scheduled maintenance over the length of the contract from the machine's annual scheduled available hours for the same period". 12 Parts of Mr Shearman's witness statement were as follows:- "13. From a mechanical perspective, the FOCUS contract was designed to optimise machine availability. Because the maintenance was scheduled to occur at regular intervals, the customer could anticipate when a particular machine would not be available. In addition, the regular maintenance and inspection enabled the repair or replacement of certain components towards the end of their expected working-life but before they fail. In theory, this reduces repair costs and increases availability because the failure of one component often results in damage to other components which then also require repair. 14. Apart from the mechanical advantage to the customer, the FOCUS contracts were designed to provide a financial advantage to the customer. The financial advantage is that the cost of maintenance and repair of each machine is fixed according to the number of engine hours. The cost is fixed in the sense that irrespective of what repairs are required to the machine during the FOCUS contract (subject to those items that are specified to be the responsibility of the customer), the cost of maintenance and repairs to the customer is the same, and depends only on the number of engine hours. 15. Attached to the engines of Caterpillar earthmoving equipment is a Service Meter. It is similar to an odometer in a car, except that instead of recording distance travelled, it measures the number of hours for which the engine has been running. Under the FOCUS contracts, the customer is charged a fee which is calculated in accordance with a fixed rate per engine hour (also called SMU's, or Service Meter Units). Periodically a reading is taken from the Service Meter, the number of hours since the beginning of the contract (or since the last invoice, if the contract is already on foot) is calculated, and an invoice raised for an amount which equals the number of engine hours multiplied by the fixed hourly maintenance fee for that particular machine. 16. The FOCUS contracts divided the responsibility for maintenance and repair of the machines between Gough & Gilmour and the customer. In general terms, Gough & Gilmour was responsible for supplying the parts and labour for scheduled services to be carried out at regular intervals in accordance with the Caterpillar Recommendations, to carry out scheduled oil sampling and infra-red analysis, and to correct all mechanical malfunctions other than those that are specified to be the responsibility of the customer. The cost of carrying out this maintenance was included in the hourly maintenance fee. 17. The customer, on the other hand, was responsible for the day to day running costs, consumable items such as fuels, lubricants and tyres, and for extraordinary repairs required as a result of accident or collision, operator abuse and Acts of God. They were also responsible for the daily and weekly maintenance checks in accordance with the Caterpillar operating manual, and to keep the machines clean. There were also a number of additional items of repair for a particular machine that were the responsibility of the customer. Sometimes, these extraordinary or additional repairs would be carried out by Gough & Gilmour even though they were the responsibility of the customer, in which case a separate invoice would be raised and the customer charged at Gough & Gilmour's standard parts and service rates". 13 Mr Shearman said in his witness statement that spreadsheets were used to calculate the hourly maintenance fee which should be charged for a particular FOCUS contract. 14 At a time which Mr Campbell in his principal affidavit of 5 June 2003 implied was in mid 1997 but which, it was accepted at the hearing, was in February 1996, conversations took place between Mr Campbell and Mr Michael Winkel, who was Gough & Gilmour's Area Sales Manager, about PCE acquiring a new 657E Caterpillar scraper from Gough & Gilmour, with the scraper being placed on a FOCUS contract. However, no transaction was entered into between Gough & Gilmour and PCE. 15 On or about 22 October 1996 Gough & Gilmour supplied to PCE a used Caterpillar 623F elevating scraper and Gough & Gilmour and PCE entered into a FOCUS contract for the scraper. The FOCUS contract for this 623F scraper was not the subject of any claim in PCE's cross-claim. 16 In about mid 1997 a conversation took place between Mr Heather and Mr Campbell, in which Mr Heather asked Mr Campbell whether, if Gough & Gilmour acquired two used 657E scrapers at an auction for its second hand stock, PCE would be interested in acquiring the scrapers from Gough & Gilmour. Mr Heather said that, if PCE acquired the scrapers, the scrapers could be placed on a FOCUS contracts. Mr Campbell expressed interest. Subsequently, Mr Heather informed Mr Campbell that Gough & Gilmour had acquired the two scrapers at the auction and he asked whether PCE was still interested in acquiring the scrapers. 17 After a number of conversations between Mr Campbell and Mr Shearman, Mr Campbell decided to acquire the two used 657E scrapers and place them on FOCUS contracts. 18 In August 1997 Gough & Gilmour and PCE entered into four FOCUS contracts ("the August 1997 FOCUS contracts" or "the first FOCUS contracts"), consisting of separate FOCUS contracts for each of four machines (the two 657E scrapers, a bulldozer and an excavator). 19 The two scrapers which were acquired and placed under FOCUS contracts in August 1997 were coal bowl scrapers, that is scrapers with a bowl having dimensions and a capacity suited to carrying coal, and certain modifications were made to the bowls before they were used by PCE for carrying earth. These modifications were carried out at PCE's premises at Gunnedah by fitters employed by Gough & Gilmour. 20 Each of the four machines was allocated a separate plant number by PCE, the number being preceded by "P" as an abbreviation for plant. During the hearing each of the machines was usually referred to by its PCE plant number. 21 Particulars of the four machines which were the subject of the August 1997 FOCUS contracts were as follows:- PCE's Plant No. Machine Description Serial No. P48 657E Scraper 90Z00102 P49 657E Scraper 90Z00122 P22 DTN Tractor 2YD02017 P82 330L Excavator 9ML00315

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25 The two scrapers, which had been used at a mine in Queensland, were delivered directly to a site in Queensland where PCE was operating. 26 I was informed at the hearing that the machine P28 was not relevant to the cross-claim. 27 All of the November 1997 FOCUS contracts were in a similar form but this form was markedly different from the form of the August 1997 FOCUS contracts. Later in this judgment I will quote or summarise the provisions of one of the November 1997 FOCUS contracts. 28 Mr Campbell became dissatisfied with the performance of the FOCUS contracts by Gough & Gilmour's fitters and became dissatisfied with the rates of availability for use the machines were achieving. 29 A meeting took place at Gough & Gilmour's head office in Parramatta on a date which Mr Campbell in his principal affidavit of 5 June 2003 asserted was in early January 1998 but which, on the basis of other evidence and, indeed, a concession made at the hearing, I find took place on 26 February 1998. The meeting was attended by, among others, Mr Campbell and Mr Peter Winkel on behalf of PCE and by Mr Hutson, Mr Shearman, Mr Shearman's sister Ms Isabel Shearman (described by Mr Hutson in his witness statement as Gough & Gilmour's "legal counsel") and, for part of the meeting, Mr Heather. At the meeting Mr Campbell made various complaints about the performance by Gough & Gilmour, and the results of, the FOCUS contracts. 30 After the meeting on 26 February 1998 machines P48, P49 and P51 were, successively, brought to PCE's premises at Gunnedah, where major rebuilds of the machines were carried out by employees of Gough & Gilmour. Mr Campbell declined to have machine P50 rebuilt. 31 On 12 March 1998 Mr Shearman and another employee of Gough & Gilmour Mr Barry Hall visited a site at Dirranbandi, Queensland, where PCE was engaged in earthmoving, to observe PCE's operations for themselves. While at the site Mr Hall took a video of two scrapers which were being operated, a coal bowl scraper and a standard bowl scraper. This video became an exhibit at the hearing. It allegedly shows the coal bowl scraper being filled to the point of earth overflowing from the bowl, thus, allegedly, causing additional wear and tear to the machine. 32 On 20 September 1998 Mr Shearman and Mr Hutson visited a site at Dirranbandi, where PCE was operating, to measure the bowl of the machine P48. Mr Shearman and Mr Hutson got inside the bowl of the scraper P48 and measured its dimensions. According to Mr Shearman, the measurements taken showed that, while the bowl had been modified so as to reduce its capacity, it still had a capacity 23 per cent more than the capacity of a standard bowl scraper. 33 On 30 September 1998 (or 1 October 1998) a meeting took place at PCE's premises at Gunnedah, which was attended by, among others, Mr Gough, Mr Hutson, Mr Shearman and Ms Shearman on behalf of Gough & Gilmour and Mr Campbell on behalf of PCE. At the meeting complaints and counter-complaints were made by the parties. A document headed "Breaches of maintenance contracts" (Mr Hutson's witness statement annexure B), setting out alleged breaches by PCE of the August 1997 FOCUS contracts was handed by a representative of Gough & Gilmour to Mr Campbell. A similar document also headed "Breaches of maintenance contracts" (Mr Hutson's witness statement annexure Q"), setting out alleged breaches by PCE of the November 1997 FOCUS contracts, was also handed to Mr Campbell. 34 On 9 October 1998 Mr Shearman visited a site at Toorooa Farm, where PCE was carrying out earthmoving, and conducted a number of weighings of the machines P48 and P51, with a view to determining whether either could be excessively loaded. P48 was weighed empty and with a struck load, that is a load level with the top of the bowl, and P51 was weighed empty and with struck and heaped loads. Mr Hutson reported the results of the weighings to Mr Shearman. 35 On 12 October 1998 Mr Hutson was informed, indirectly, that PCE intended to move some of the machines the subject of FOCUS contracts to Cunnamulla in Queensland. Mr Hutson was concerned by this information, because Cunnamulla would be even more remote from Gunnedah than Dirranbandi and it might be difficult for Gough & Gilmour to exercise any remedies against the machines, in the event of PCE continuing to default in making payments due to Gough & Gilmour. 36 On 13 October 1998 Ms Shearman sent a facsimile transmission to Mr Campbell. In this fax Ms Shearman said inter alia that the total amount outstanding from PCE to Gough & Gilmour was $436,322.87 and that Gough & Gilmour needed to receive from PCE some proposal for reducing the amount of its indebtedness. 37 On 22 October 1998 Gough & Gilmour, not having received any response from PCE as a result of the meeting of 30 September (1 October) or its fax of 13 October, sent a fax to PCE in which it stated that it had "no alternative but to withdraw our support of your equipment until agreement is reached". 38 On 5 November 1998 a meeting took place at PCE's premises at Gunnedah. Those present at the meeting included Mr Hutson, Mr Shearman and Ms Shearman and Mr Campbell. At this meeting Mr Shearman said words to the effect that Gough & Gilmour considered that PCE had breached clauses of the agreements between Gough & Gilmour and PCE and that Gough & Gilmour considered that the FOCUS contracts had been terminated by the fax of 22 October 1998. 39 After the purported termination of the FOCUS contracts Mr Campbell arranged for PCE's employees and independent contractors to carry out repairs on the machines which had been the subject of FOCUS contracts. 40 In the year 2000 PCE sold the machines which had been the subject of FOCUS contracts, for reasons unrelated to any issue arising between PCE and Gough & Gilmour.

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THE PLEADINGS 44 As already stated by me, the final form of the cross-claim was a document dated 14 April 2005. The cross-claim by PCE and the defence to the cross-claim by Gough & Gilmour are lengthy, intricate documents. I have taken into account all of the paragraphs of each document but in this judgment I will quote or summarise only some of the more important paragraphs of each document. 45 Paragraph 9 of the cross-claim was in the following terms:- "9. Prior to the entry into the first and second FOCUS agreements Gough & Gilmour represented to PCE: (a) It would be more profitable for PCE to replace the older equipment with later model used equipment purchased from Gough & Gilmour which were placed on FOCUS agreements. (b) It would be more profitable to run PCE's existing later model equipment on FOCUS and relinquish most of PCE's service employees altogether. (c) PCE's increased financial commitment each month would be more than offset from increased production/income due to high availability and cheaper operating costs offered under FOCUS. (d) Gough & Gilmour had the requisite resources to service and maintain all of the equipment proposed to be on the FOCUS agreements. (e) All known and reasonably anticipated costs in servicing, maintaining and running machines were incorporated into the calculations of availability presented to PCE. (f) Under the FOCUS contracts Gough & Gilmour would provide as many fitters as it took to maintain the equipment. (g) In the event that there were several breakdowns at the same time, Gough & Gilmour would provide whatever number of fitters were required to rectify faults quickly. (h) Gough & Gilmour had no problem in working in isolated areas. (i) If necessary, Gough & Gilmour would provide mobile facilities to facilitate maintenance whilst working away from branches. (j) The Gough & Gilmour maintenance team would be provided with four wheel drive service vehicles if necessary. (k) Gough & Gilmour personnel would be provided with adequate communication hardware, including if necessary, satellite telephones for communications in isolated job areas. Particulars The representations were oral and made by Michael Winkel, who is Gough & Gilmour's Area Manager (Sales) and by George Shearman who is Gough & Gilmour's Gunnedah Branch Manger (Service)". 46 Paragraph 5 of the defence to cross-claim was in the following terms:- "5. In answer to paragraph 9 of the cross-claim, Gough & Gilmour: (a) admits that prior to the entry into the first and second FOCUS contracts statements were made by Gough & Gilmour to PCE to the effect that: (i) it would be more profitable for PCE to replace the older equipment with later model used equipment purchased from Gough & Gilmour which were placed on the FOCUS contracts; (ii) it would be more profitable to run PCE's existing later model equipment on FOCUS and relinquish most of PCE's service employees and/or contractors; (iii) PCE's increased financial commitment each month would be more than offset from increased production/income due to high availability and cheaper operating costs offered under the FOCUS contracts; (iv) Gough & Gilmour had the requisite resources to service and maintain all of the equipment proposed to be on the FOCUS contracts; (v) Gough & Gilmour would provide as many fitters as would be required to maintain the equipment proposed to be on the FOCUS contracts; (vi) in the event that there were several breakdowns at the same time, Gough & Gilmour would provide whatever number of fitters were required to rectify faults quickly; (b) denies that that prior to the entry into the first and second FOCUS contracts it made any statement to the effect pleaded in paragraphs 9(e), 9(h), 9(i), 9(j) or 9(k) of the cross-claim.; (c) says that the statements referred to in paragraphs (a) above, to the knowledge of PCE, were based on the following assumptions: (i) that the machines would be permanently operated from PCE's Gunnedah base, and operated in and around Wee Waa, Narrabri, Burren Junction, Walgett and Gunnedah; (ii) that the machines would not be operated in remote and isolated areas; (iii) that daily and weekly checks would be conducted as per the Caterpillar Lubrication and Maintenance Guide, and in with PCE's responsibilities under the first and second FOCUS contracts; (iv) that the machines would be cleaned by PCE prior to scheduled service and repairs; (v) that PCE would immediately notify Gough & Gilmour of any machine malfunction or failure; (vi) that the machines would be operated within their operational limits; (vii) in relation to machines 90Z102 and 90Z122, that PCE would operate the machines with the scraper bowls modified so as to reduce their capacity to the machines' design specifications; (viii) that the machines the subject of the FOCUS contracts would be accessible by Gough & Gilmour for the provision of maintenance and repair services; (ix) that the machines would be at the location Gough & Gilmour's servicemen were advised the machines were located; (x) that no account was taken of extreme operating conditions, including extremes of ambient temperature and extremes of rainfall; (xi) that the machines would be operated using properly maintained haul roads and scraper runs; (xii) that no account was taken of service costs that were, under the first and second FOCUS contracts, the responsibility of PCE such as maintenance and repairs required as a result of accident or collision, operator abuse, the general nature of the job environment, flood and other acts of god, or deterioration or problems due to the unexpected atmospheric conditions; (xiii) that the machines would be operated for approximately 3,000 engine hours per annum. (d) does not admit that prior to the entry into the first and second FOCUS contracts it made representations as alleged; (e) Otherwise denies the allegations" 47 Paragraph 10 of the cross-claim was in the following terms:- "10. Further, prior to the entry into the first and second FOCUS Agreement Gough & Gilmour made the following representations to PCE: (a) that the FOCUS arrangements offered a fixed operating cost system. (b) that the FOCUS arrangements offered reduced operating costs. (c) the FOCUS arrangements enabled users to accurately predict operating costs; (d) FOCUS arrangements were designed to and achieved a high degree of machine availability. (e) the FOCUS arrangements provided for repairs and breakdowns on a 24 hour basis. (f) FOCUS would provide the D10N track type tractor, serial number 2YD02017 with a machine availability rate of 97.69%. (g) FOCUS would provide the PCE 657E scraper, serial number 90700102 with a machine availability rate of 95.80%. (h) FOCUS would provide the PCE 657E scraper serial number 90Z00122 with a machine availability rate of 95.80%. (i) FOCUS would provide the PCE 330L excavator, serial number 9ML00315 with a machine availability rate of 95.83%. (j) FOCUS would provide the PCE D10N Caterpillar bulldozer, serial number 2YD0719 with a machine availability rate of 97.83%. (k) FOCUS would provide the PCE D8N Caterpillar bulldozer, serial number 9TC3916 with a machine availability rate of 96.66%. (l) FOCUS would provide the PCE 657E Caterpillar Scraper serial number 91Z330 with a machine availability rate of 93.62%. (m) FOCUS would provide the PCE 657E Caterpillar Scraper serial number 91Z329 with a machine availability of 93.62%. Particulars The representations are express and in writing and are contained in the first FOCUS and second FOCUS contracts. The representations were also oral and made by Michael Winkel and George Shearman for and on behalf of Gough & Gilmour." 48 Paragraph 6 of the defence to cross-claim was in the following terms:- "6. In answer to paragraph 10 of the cross-claim, Gough & Gilmour: (a) admits that prior to the entry into the first and second FOCUS contracts it made statements to the following effect: (i) that the first and second FOCUS contracts offered a fixed operating cost system; (ii) that the first and second FOCUS contracts offered reduced operating costs; (iii) that the first and second FOCUS contracts enabled users to accurately predict operating costs; (iv) that the first and second FOCUS contracts were designed to achieve a high degree of machine availability; (v) that the first and second FOCUS contracts provided for, where necessary, repairs and breakdowns on a 24 hour basis to ensure maximum machine availability; (b) admits that prior to the entry into the first and second FOCUS contracts it made statements to the effect that the first and second FOCUS contracts would provide the machine identified in paragraphs 10(f) to (m) of the cross-claim with the machine availability rates referred to with respect to each machine; (c) says that the statements referred to in (a) and (b) above were based, to the knowledge of PCE, on the assumptions referred to in paragraph 5(c) of this defence to cross-claim; (d) says that the statements in relation to machine availability rates referred to in (b) above were based, to the knowledge of PCE, upon certain assumptions set out in the document entitled 'FOCUS-Fixed Operating Cost Underwriting System' attached to each of the first and second FOCUS contracts; (e) does not admit that prior to the first and second FOCUS contracts it made the representations alleged; and (f) Otherwise does not admit the allegations". 49 In paragraphs 11 to 13 of the cross-claim it was alleged that PCE had been induced by the representations alleged in paragraphs 9 and 10 to purchase Caterpillar equipment and to enter into the first and second FOCUS agreements, that the representations were made in trade or commerce and that the representations were untrue, misleading or deceptive and were made negligently in that there were no reasonable grounds for making the representations. 50 In paragraphs 8 to 10 of the defence to cross-claim Gough & Gilmour inter alia disputed that the alleged representations had been made, denied that PCE had relied on any such representations, admitted that any representations made had been made in trade and commerce and denied that, to the extent any representations had been made, the representations were untrue, misleading or deceptive and said that, to the extent any representation had been made as to future matters, Gough & Gilmour had had reasonable grounds for making the representation. 51 In paragraph 14 of the cross-claim it was alleged that each of the matters which in paragraphs 9 or 10 of the cross-claim had been alleged to be a representation had been a term of each of the FOCUS contracts as being a warranty by Gough & Gilmour. In paragraph 11 of the defence to cross-claim Gough & Gilmour in substance denied what was alleged in paragraph 14 of the cross-claim. 52 In paragraph 15 of the cross-claim it was alleged that Gough & Gilmour was estopped from denying that the matters alleged in paragraphs 9 and 10 of the cross-claim formed part of the obligations of Gough & Gilmour under the FOCUS contracts. In paragraph 12 of the defence to cross-claim Gough & Gilmour denied what was alleged in paragraph 15 of the cross-claim. 53 In paragraph 16 of the cross-claim it was alleged that it was an implied term of the FOCUS contracts that Gough & Gilmour would exercise due skill and care in carrying out the services required of it under the FOCUS contracts. In paragraph 13 of the defence to cross-claim Gough & Gilmour denied that there was such an implied term in the FOCUS contracts. 54 In paragraph 17 of the cross-claim it was alleged that, in breach of contract and contrary to representations made, Gough & Gilmour had failed to provide availability rates for the machines "as represented or near to those represented". The alleged represented availability and the alleged actual availability for each machine were said to be as follows:-

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55 Paragraph 14 of the defence to cross-claim was in the following terms:- "14. In answer to paragraph 17 of the cross-claim, Gough & Gilmour: (a) repeats paragraphs 5, 6 and 7 of this defence to cross-claim; (b) admits that based on the assumptions referred to in paragraph 5(c) of this defence to cross-claim, and the assumptions set out in the document entitled 'FOCUS-Fixed Operating Cost Underwriting System' attached to each of the first and second FOCUS contracts Gough & Gilmour made statements to the effect that the machines referred to in the first column of the table in paragraph 17 of the cross-claim would have the corresponding machine availability rate referred to in the second column of that table; (c) denies that the machines referred to in the first column of the table in paragraph 17 of the cross-claim only achieved the corresponding machine availability rates referred to in the third column of that table; (d) says that the machines referred to in the first column of the table in paragraph 17 of the cross-claim had an actual availability rate at or near to the machine availability rate referred to in the second column of that table; (e) says that in the alternative to (d), to the extent the machines referred to in the first column of the table in paragraph 17 of the cross-claim failed to achieve an actual availability rate at or near to the corresponding machine availability rate referred to in the second column of that table, that failure was a result of the following factors that, to the knowledge of PCE, were not taken into account in calculating those machine availability rates: (i) the machines were operated in areas other than in and around Wee Waa, Narrabri, Burren Junction, Walgett and Gunnedah; (ii) the machines were operated in remote and isolated areas; (iii) daily and weekly fluid checks were not conducted in accordance with the Caterpillar Lubrication and Maintenance Guide, in accordance with PCE's responsibilities under the first and second FOCUS contracts; (iv) the machines were not cleaned by PCE prior to scheduled service and repairs; (v) PCE did not immediately notify Gough & Gilmour of machine malfunctions and failures; (vi) the machines were operated beyond their operational limits; (vii) in relation to machines 90Z102 and 90Z122, PCE failed to modify the scraper bowls (sufficiently, or as to reduce their capacity; (viii) the machines the subject of the first and second FOCUS contracts were not accessible to Gough & Gilmour servicemen to enable maintenance and repairs to be effected; (ix) the machines were moved by PCE from the locations at which Gough & Gilmour's servicemen were advised the machines would be located; (x) the machines were operated in extreme conditions of ambient temperature and rainfall; (xi) the machines were operated on sites without properly maintained haul roads and scraper runs; and (xii) the machines required repairs which resulted from accident or collision, operator abuse, the general nature of the job environment, flood and other acts of god, and deterioration and problems due to unexpected atmospheric conditions; (xiii) the machines were operated on multiple sites, with vast distances between sites; (xiv) the machines were operated by inexperienced and/or incompetent operators; (xv) the machines were operated on sites overseen by inexperienced and/or incompetent site supervisors; (xvi) the obligations for maintenance and repair imposed upon PCE by the first and second FOCUS contracts were carried out by inexperience and/or incompetent employees or agents of PCE; (f) otherwise denies the allegations made". 56 In paragraph 18 of the cross-claim it was alleged that there had been breaches or contraventions of the other warranties and representations alleged in paragraphs 9 and 10 of the cross-claim. In paragraph 15 of the defence to cross-claim Gough & Gilmour denied that there had been any breaches or contraventions and said that, to the extent to which any breaches or contraventions had occurred, there had been the result of the matters pleaded in paragraph 14 of the defence to cross-claim. 57 In paragraph 19 of the cross-claim it was alleged that Gough & Gilmour had failed to exercise due skill and care in carrying out the services provided by it under the FOCUS contracts. This allegation was denied in paragraph 16 of the defence to cross-claim. 58 In paragraph 20 of the cross-claim it was alleged that, by reason of the misrepresentations and breaches of the terms of the contracts, PCE had suffered loss and damage. This allegation was denied in paragraph 17 of the defence to cross-claim. 59 Paragraphs 21 to 24 of the cross-claim were concerned with the claim by PCE for loss and damage allegedly suffered by it as a result of alleged breaches by Gough & Gilmour in performing a contract between Gough & Gilmour and PCE, which was not a FOCUS contract, which was referred to in the cross-claim as "the D11N (bulldozer) agreement". In the defence to cross-claim Gough & Gilmour disputed this claim.

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THE ISSUES 60 It is apparent from the above summary of the cross-claim and the defence to cross-claim that the pleadings on the cross-claim raised a very large number of issues. At the hearing it was agreed between the parties that I should not, at least in a first judgment, attempt to resolve all of these issues. It was agreed by the parties that I should, in the present judgment, determine only a limited number of issues, which were reduced to writing by counsel for Gough & Gilmour as follows:- " The Issues for Preliminary Determination As to the August Focus Contracts 1. Did Gough & Gilmour make the representations that the Cross Claimant alleges were made in paragraphs 9 and 10 of the Cross Claim before the parties entered into the August FOCUS Contracts? If so: (a) what was the nature of any representation or representations found to have been made? (b) did the Cross Claimant rely on the representation or representations? If so, in what way? 2. Having regard to the findings in 1, and all other evidence relevant to the issue, did the August FOCUS contracts contain warranties as alleged by the Cross Claimant in paragraphs 9 and 10 of the Cross Claim? If so, what were those warranties? 3. Having regard to the findings in 1 and 2, and all other evidence relevant to the issue, did the parties enter into a collateral warranty on the terms alleged in paragraph 14 of the Cross Claim? If so, what were the terms? 4. In particular, did Gough & Gilmour guarantee the actual availability rate alleged in subparagraphs 10(f) to (i) of the Cross Claim, in respect of the machines the subject of the August FOCUS contracts either by way of a warranty as a term of the August FOCUS contract or alternatively, by way of a collateral contract including that term? If so, what was the nature and effect of those guarantees, and in particular whether any obligation on the part of Gough & Gilmour found was conditional upon, or interdependent with, the existence or continuation of the state of affairs identified in paragraph 5(c) of the Cross Claim? 5. Whether, in the circumstances, including any concession made by Gough & Gilmour for the purposes of enabling the Court to make these preliminary determinations, and having regard to the agreement by the parties that the issue of quantum will, if necessary, be determined after the determination of all issues relating to liability, Gough & Gilmour: (a) breached any of terms of the warranties alleged by the Cross Claimant? (b) breached the terms of any collateral contract? (c) breached the terms of s 52 of the Trade Practices Act, 1974. If so, in what way? As to the November Focus Contracts 6. Did Gough & Gilmour make the representations that the Cross Claimant alleges were made in paragraphs 9 and 10 of the Cross Claim before the parties entered into the November FOCUS Contracts? If so: (a) what was the nature of any representation or representations found to have been made? (b) did the Cross Claimant rely on the representation or representations? If so, in what way? 7. Having regard to the findings in 6, and all other evidence relevant to the issue, did the November FOCUS contracts contain warranties as alleged by the Cross Claimant in paragraphs 9 and 10 of the Cross Claim? If so, what were those warranties? 8. Having regard to the findings in 6 and 7, and all other evidence relevant to the issue, did the parties enter into a collateral warranty on the terms alleged in paragraph 14 of the Cross Claim? If so, what were the terms? 9. In particular, did Gough & Gilmour guarantee the actual availability rate alleged in subparagraphs 10(j) to (m) of the Cross Claim, in respect of the machines the subject of the November FOCUS contracts either by way of a warranty as a term of the November FOCUS contract or alternatively, by way of a collateral contract including that term? If so, what was the nature and effect of those guarantees, and in particular whether any obligation on the part of Gough & Gilmour found was conditional upon, or interdependent with, the existence or continuation of the state of affairs identified in paragraph 5(c) of the Cross Claim? 10. Whether, in the circumstances, including any concession made by Gough & Gilmour for the purposes of enabling the Court to make these preliminary determinations, and having regard to the agreement by the parties that the issue of quantum will, if necessary, be determined after the determination of all issues relating to liability, Gough & Gilmour: (a) breached any of terms of the warranties alleged by the Cross Claimant? (b) breached the terms of any collateral contract? (c) breached the terms of s 52 of the Trade Practices Act, 1974. If so, in what way? D11N dozer Claim 11. Was there a breach by Gough & Gilmour of any obligation by it in respect of maintenance and/or repairs performed on the D11N dozer? If so: (a) the nature of the breach; and (b) whether Gough & Gilmour's Standard Terms and Conditions govern the provision of the maintenance and/or repairs performed on the D11N Dozer and provide a complete response to the Cross Claimants claim for damages as a result of any such breach. On the Gough & Gilmour Claims 12. The nature and extent of the Defendant's liability on the claims in the Statement of Claim, and if any liability, subject to any set off by virtue of the matters alleged in the Cross Claim".

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ISSUES 4 and 9 4. In particular, did Gough & Gilmour guarantee the actual availability rate alleged in subparagraphs 10(f) to (i) of the Cross Claim, in respect of the machines the subject of the August FOCUS contracts either by way of a warranty as a term of the August FOCUS contract or alternatively, by way of a collateral contract including that term? If so, what was the nature and effect of those guarantees, and in particular whether any obligation on the part of Gough & Gilmour found was conditional upon, or interdependent with, the existence or continuation of the state of affairs identified in paragraph 5(c) of the Cross Claim? 9. In particular, did Gough & Gilmour guarantee the actual availability rate alleged in subparagraphs 10(j) to (m) of the Cross Claim, in respect of the machines the subject of the November FOCUS contracts either by way of a warranty as a term of the November FOCUS contract or alternatively, by way of a collateral contract including that term? If so, what was the nature and effect of those guarantees, and in particular whether any obligation on the part of Gough & Gilmour found was conditional upon, or interdependent with, the existence or continuation of the state of affairs identified in paragraph 5(c) of the Cross Claim? 63 It will, for the most part, be convenient and appropriate to consider issues 4 and 9 together. The factors which are relevant to the determination of issue 4 and the factors which are relevant to the determination of issue 9 are, for the most part, the same. However, some separate consideration of the issues will be required, because of the differences between the August 1997 FOCUS documents and the November 1997 FOCUS documents. 64 It was accepted by both parties that the answer to issue 4 should be the same for all four of the August FOCUS contracts. Likewise, it was accepted by both parties that the answer to issue 9 should be same for all four of the November FOCUS contracts. 65 As previously indicated in this judgment, I will take the FOCUS documents for machine P49 (Exhibit P 11) as an example of the August 1997 FOCUS documents and the FOCUS documents for machine P50 (copies of which are behind tab 8 in the FOCUS contracts folder referred to in Mr Shearmans' witness statement) as an example of the November 1997 FOCUS documents. 66 In paragraph 6(b) of the defence to cross-claim Gough & Gilmour made the admissions I have set out earlier in this judgment. However, throughout the hearing, it was clearly part of Gough & Gilmour's case (and no complaint was made by counsel for PCE that Gough & Gilmour was precluded by any admission from making it part of its case) that Gough & Gilmour had not contractually guaranteed the availability rates stated in sub-pars (f) to (m) of paragraph 10 of the cross-claim. 67 The claim made by PCE, that Gough & Gilmour had contractually guaranteed, as a term of each of the FOCUS contracts, the rate of availability stated in the relevant sub-paragraph of paragraph 10 of the cross-claim, was based on:-

[21]

In the case of the August 1997 FOCUS contracts, the making of the statements by Gough & Gilmour, which were admitted in par 6(b) of the defence to cross-claim. It was submitted, in regard to the August 1997 FOCUS contracts, that, because there was no "whole of contract" or "entire contract" clause in the August 1997 FOCUS documents, there was no impediment to a previous oral statement becoming a term of the August 1997 FOCUS contracts, at least if such a term would not be inconsistent with any of the written terms of the contract documents and, it was submitted, there was no such inconsistency. 68 A very large number of submissions, written and oral, were made by both parties on issues 4 and 9. I have endeavoured to take into account all of the submissions which were made, although I will not in this judgment attempt to expressly refer to all of them. 69 Most of the submissions made on behalf of the cross-claimant on these issues in the cross-claimant's written submissions in chief were contained in paragraphs 35 to 38 of the written submissions. 70 It had already been submitted earlier in the written submissions that it should be regarded as significant that, in acquiring a machine and entering into a FOCUS contract, PCE was acquiring a second-hand machine (which was, therefore, more likely to require maintenance and repairs), PCE was committing itself to paying to Gough & Gilmour the agreed hourly rate under the FOCUS contract and PCE was giving up any capacity of its own to carry out maintenance and repairs and would be placing itself in a position where it had to rely exclusively on Gough & Gilmour to carry out maintenance and repairs to the machine. 71 In paragraph 38 of the cross-claimant's written submissions in chief, it was submitted that, for a number of reasons, I should find that the percentage availability item in the spreadsheets of a particular FOCUS document constituted a term of the FOCUS contract for that machine, as being a warranty given by Gough & Gilmour. Slightly rearranging and restating some of these reasons and eliminating what appears to me to be some repetition, the reasons on which PCE sought to rely were:- 1. The spreadsheets in each of the FOCUS contract documents described the scope of the work to be performed by Gough & Gilmour and "the outcome of doing the work stated as percentage availability." 2. The cost per operating hour to be paid by PCE, which was clearly a term of each FOCUS contract, was derived from the calculations in the spreadsheets. 3. There were connections between the previous documents in each set of contract documents and the spreadsheets in each set of contract documents. For example, the spreadsheets formed the basis of the "escalation clause" in each FOCUS contract (being the clause providing for an annual review on page 4 of the August 1997 contract documents and clause 13 in the November 1997 contract documents). 4. In the case of the August 1997 FOCUS contracts, the percentage availability item in the spreadsheets quantified the qualitative statement on page 3 of the previous documents that the FOCUS contract would "provide a high rate of machine availability." 5. In the case of the August 1997 FOCUS contracts, the spreadsheets had been the subject of some negotiation between the parties. 6. The spreadsheets had been physically incorporated with the previous documents into a single set of documents, which had been prepared by Gough & Gilmour and had then been proffered by Gough & Gilmour to PCE. 7. In the case of the November 1997 FOCUS contracts, although there was an entire agreement clause (clause 15), this clause identified the "agreement" and its "attachments" (and not the "schedules" to the agreement) as constituting the agreement of the parties and the spreadsheets, although not a "schedule", could be regarded as an "attachment". There was no provision in either the "agreement" or the "schedules" which would exclude the spreadsheets from forming part of each contract. 8. Unless the percentage availability item in the spreadsheets became a term of the FOCUS contract between Gough & Gilmour and PCE, there would be no term in the contract requiring Gough & Gilmour to achieve any level of performance in discharging its obligations under the contract - "the performance by Gough & Gilmour (would be) utterly unconstrained and incapable of objective assessment". In any event, the outcome in terms of the availability of a machine was the most important factor for a machine owner under a FOCUS contract and the attainment of a particular rate of availability should be the measure of Gough & Gilmour's performance under a FOCUS contract. 72 In later written submissions in reply and in oral submissions, counsel for the cross-claimant repeated and developed many of the above submissions and made some further submissions. 73 The submission that the spreadsheets described the scope of the work to be performed by Gough & Gilmour was developed by submitting that in the case of both the August 1997 FOCUS contracts and the November 1997 FOCUS contracts, the previous documents in each set of contract documents and, in particular page 6 of the August 1997 FOCUS contracts headed "Gough & Gilmour Holdings Responsibilities" and Sch 2 of the November 1997 FOCUS contracts headed "Gough & Gilmour's Responsibilities" could not regarded as fully stating the responsibilities (obligations) of Gough & Gilmour under each FOCUS contract and it was necessary to refer to the spreadsheets in each set of contract documents to ascertain the full extent of Gough & Gilmour's responsibilities. The responsibilities (obligations) of Gough & Gilmour set out on page 6 of the August 1997 contracts and in Sch 2 of the November 1997 contracts were limited to carrying out preventative maintenance services, all of which would be included in "P M services" on the second page of the spreadsheets, and to being "responsible for the correction of all mechanical malfunctions", other than those specified in PCE's responsibilities. Most of the work to be done by Gough & Gilmour which produced the total cost of the work and, hence, the cost per operating hour payable by PCE, was not described on page 6 of the August 1997 contracts or in Sch 2 of the November 1997 contracts and was described only on the second page of the spreadsheets. The responsibility to correct all mechanical malfunctions, which did appear on page 6 of the August 1997 contracts and in Sch 2 of the November 1997 contracts, would apply only to malfunctions which had actually occurred and would not require Gough & Gilmour to carry out the items of work described as "Minors" and "Majors" in the spreadsheets, which, it was clearly contemplated by the parties, would be done by Gough & Gilmour under each FOCUS contract. 74 The submission that there were connections between the previous documents and the spreadsheets in each set of documents, such that the spreadsheets should be regarded as forming an integral part of each contract (reason 3), was further developed. Reference was made inter alia to cll 1, 5 and 11 of the November 1997 contracts, all of which, it was submitted, required reference to be made to parts of the spreadsheets. For example, it was submitted that "the maintenance schedules" in clause 1, the "maintenance obligations" of Gough & Gilmour and "the maintenance timetable " in clause 5 and "the maintenance timetable" in clause 11 could not, sensibly, be confined to the very limited responsibilities of Gough & Gilmour set out in Sch 2 and should be regarded as extending to the schedules and timetables on the second page of the spreadsheets. 75 Various submissions were made by counsel for PCE in reply to submissions by counsel for Gough & Gilmour that the term "availability" was vague and ambiguous and that this vagueness and ambiguity militated against the percentage availability item in the spreadsheets being regarded as having become a term of the contracts. It was submitted on behalf of PCE that it was Gough & Gilmour who had first introduced the term "availability" in the pre-contract discussions and in the FOCUS contract documents themselves, that Gough & Gilmour had treated "availability" as a concept capable of being stated with precision, indeed as capable of being calculated to two decimal places, and that there was no evidence that in 1997 or 1998 any person on either side had been in any doubt about what was meant by "availability". 76 Counsel for PCE referred to the definition of "available" in the Oxford English Dictionary as "being capable of being used…capable of producing a desired result". 77 It was contended that the word "availability", as used in the spreadsheets and elsewhere, referred to the relationship between the operating hours for a machine which were wanted (that is the operating hours wanted by PCE) and the operating hours that could be had, after deducting downtime for repairs to the machine pursuant to the FOCUS contract, and could be expressed as operating hours wanted - downtime operating hours wanted

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The hours wanted by PCE were 10 ½ hours per day (that is a shift of 12 hours reduced by unavoidable interruptions to 10 ½ hours). 78 It was accepted by counsel for PCE that the work to be done by Gough & Gilmour on a machine and hence the number of down hours would be "lumpy", so that the actual availability of a machine would not be constant from day to day. 79 An argument or a group of arguments were put by counsel for PCE at considerable length and with a high degree of finesse, to the effect that the FOCUS contracts would be "meaningless" or ineffectual, so far as PCE was concerned, if Gough & Gilmour did not, in addition to assuming the financial risk of "overs" (that is work which had not been predicted or which did not fall within the allowance for unscheduled repairs), also bore what was described as "the time risk" of "overs" and this could be achieved only by its being a term of the contracts that the stated rate of availability would be obtained. 80 It was submitted by counsel for PCE (and not disputed by counsel for Gough & Gilmour) that Gough & Gilmour bore the financial risk of "overs". Before entering into a FOCUS contract Gough & Gilmour predicted the work which it would have to perform on a machine during a FOCUS contract, made a stated allowance for unscheduled repairs, calculated the fixed periodical costs payable to it by the operator of the machine on the basis of the predicted work and the stated allowance for unscheduled repairs and bound itself to perform any extra work, at its own expense and without making any further charge to the operator. It was then submitted (and this was disputed by counsel for Gough & Gilmour) that, unless Gough & Gilmour bore "the time-risk" of "overs" by guaranteeing a rate of machine availability, which would apply notwithstanding any need to perform work which was unanticipated and was over and above that allowed for in the stated allowance for unscheduled repairs, Gough & Gilmour's undertaking of the financial risk would be meaningless. It was submitted that a term that any work required to be done by Gough & Gilmour be done within whatever was a reasonable time in all the circumstances could not be implied in a FOCUS contract. A finding that the FOCUS contracts contained a term guaranteeing a rate of machine availability would not work any injustice to Gough & Gilmour, because Gough & Gilmour could maintain the rate of availability it had guaranteed, simply by committing more resources to doing the work, either by providing more fitters or by causing work to be done at times which would not impinge on the rate of machine availability. 81 The submission that the spreadsheets described the scope of the work to be done by Gough & Gilmour under a FOCUS contract (reason 1) was refined in PCE's further submissions. It was not submitted that under the FOCUS contracts Gough & Gilmour agreed to carry out the number of hours of work, and only the number of hours of work, set out in the spreadsheets. What was submitted was that what Gough & Gilmour agreed to do under each FOCUS contract was to do such work as would be required to make the machine available at the agreed rate of availability. If more hours were required to do such work than was set out in the spreadsheets, Gough & Gilmour would still be obliged to do that work. However, Gough & Gilmour would not be entitled to have the additional hours brought into account so as to reduce the rate of availability that it had guaranteed to provide. 82 I have decided that I should accept that a number of the reasons given and a number of the submissions made on behalf of PCE are, at least to some extent, well founded, without thereby necessarily accepting that the reasons and submissions, to the extent to which I accept them, require a conclusion that the percentage availability item in the spreadsheets of each set of documents became a term of each FOCUS contract as a warranty by Gough & Gilmour. 83 As to the reasons given in par 38 of the cross-claimant's written submissions (adopting the numbering in my restatement of those reasons), I have concluded:-

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I do not accept the submission that, unless the percentage availability figure in the spreadsheets became a term of a contract between Gough & Gilmour and PCE, there would be no term in the contract requiring Gough & Gilmour to achieve any level of performance in discharging its obligations under the contract. I see no reason why terms of a usual sort should not be implied in each of the FOCUS contracts, for example requiring Gough & Gilmour to perform the work to be done by it in a proper and workmanlike manner and within whatever would be a reasonable time in the circumstances. 89 As regards the further submissions made on behalf of PCE, I generally accept the submissions made by counsel for PCE about the word "availability". I do not accept the submission that the FOCUS contracts would be meaningless or ineffectual, so far as PCE was concerned, if Gough & Gilmour did not, in addition to bearing the financial risk of "overs," also bear the "time risk" of the overs. 90 Notwithstanding that I consider that I should accept, at least to some extent, a number of the submissions made by counsel for the cross-claimant, I have concluded that I should find that the percentage availability items in the spreadsheets did not become terms of the FOCUS contracts, as being warranties by Gough & Gilmour. Some of my reasons for reaching this conclusion apply to both the August 1997 contracts and the November 1997 contracts. Some of my reasons apply only to the August 1997 contracts or only to the November 1997 contracts. 91 Counsel for the cross-defendant submitted and counsel for the cross-claimant did not dispute, and I accept, that, in determining whether the percentage availability items in the spreadsheets became terms of the FOCUS contracts as being warranties by Gough & Gilmour, I should apply the tests which are applied in determining whether a representation made in pre-contract negotiations became a term of the contract. These tests were stated by Gibbs CJ in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 61 as being whether "….his (the representor's) representations were reasonably considered by the persons to whom they were made as intended to be contractual promises, and if those persons intended to accept them as such. The intention of the parties is to be ascertained objectively; it "can only be deduced from the totality of the evidence'…in other words, as Lord Denning said in Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 375: 'the question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice'

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The intelligent bystander must however be in the situation of the parties, for 'what must be ascertained is what is to be taken as the intention which reasonable persons would have had if placed in the situation of the parties'". 92 In my opinion, for a number of reasons the percentage availability items in the spreadsheets of the FOCUS contracts could not reasonably have been considered by PCE as intended to be contractual promises and an intelligent bystander would not have reasonably inferred that contractual promises were intended. This opinion is based on the following matters. 93 1. The position of the percentage availability item in each set of FOCUS contract documents, that is, not in the previous documents in the set, some of which were signed by the parties, which a reasonable person in the position of PCE or an intelligent bystander would infer were intended to be the principal contract documents, but merely in spreadsheets attached to those principal contract documents. 94 2. The percentage availability item in the spreadsheets for each of the FOCUS contracts consists merely of a single word "availability" and a percentage figure. A reasonable person in the position of PCE or an intelligent bystander would have expected, if such a term as is alleged by PCE was intended, that the term would be expressed in words and not left to be spelt out from a single word and a percentage figure. 95 3. I have already stated that I generally accept the submissions made by counsel for the cross-claimant about the word "availability" and I would not find that the meaning of the word "availability" in the FOCUS contract documents was so uncertain as not to be capable of being ascertained. However, a reasonable person in the position of PCE or an intelligent bystander would have expected that, if such a term as is alleged by PCE was intended, there would have been some definition of the word "availability", given the importance of the term alleged and the susceptibility of the word "availability" to different interpretations. 96 4. In most of the FOCUS contract documents the percentage in the percentage availability item in the spreadsheets is calculated to two decimal places. The FOCUS contract for machine P49 (exhibit P11), which I have taken as an example of the August 1997 FOCUS contracts, is, in fact, unusual, in that the percentage in the percentage availability item in the spreadsheets was calculated to only one decimal point, although expressed in the percentage availability item in the box in the spreadsheets as calculated to two decimal places. A reasonable person in the position of PCE or an intelligent bystander would not consider that Gough & Gilmour intended to warrant that PCE in operating a machine would achieve a rate of availability calculated to two decimal places (or even one decimal place). 97 5. Related to the previous matter is the absence of any express conditions to which any contractual promise of the kind alleged would be subject. A reasonable person in the position of PCE or an intelligent bystander would not consider that Gough & Gilmour 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. 98 6. It is true that the box in the spreadsheets in which the percentage availability item appears is headed "Summary of Proposed Contract". The heading, however, is somewhat ambivalent, using the word "contract" but then qualifying it with the word "proposed". 99 Some of the items in this box do state matters which are clearly terms of the contract but most of these matters are terms of the contract by virtue of provisions in the previous documents. For example, in exhibit P11 the item in the box "contract engine hours 12,000" states a matter which is a term of the contract but this matter is a term of the contract by virtue of the provision at the foot of page 3 of the previous documents. To take another example, the item in the box in exhibit P11 "cost per hour $47.69" states a matter which is a term of the contract but this matter is a term of the contract by virtue of a provision near the foot of page 3 of the previous documents. 100 On the other hand, the matters stated in some items in the box (other than the percentage availability item) clearly are not terms of the contract. For example, in P11 the contract period is, as I have stated, 12,000 engine hours and not a period of six years, as stated in the third item in the box. To take another example in P11, the item in the box "annual engine hours 2,000" does not state a term of the contract. It was not a term of the contract that the number of hours the machine was to be operated each year was to be 2,000 hours and no more and no less. Taking the set of documents for machine P50 as an example and the items in the box in the spreadsheets in that set of documents, it was not a term of the contract that the period of the contract should be four years or that the number of hours per annum the machine was to be operated was to be 3,000. 101 7. Importantly, it would have been apparent to a reasonable person in the position of PCE or an intelligent bystander that the percentage figure in the percentage availability item in the spreadsheets for each FOCUS contract was the result of calculations performed on figures in the box on the first page of the spreadsheets headed "2. Annual Cost Analysis". 102 It would have been apparent to a reasonable person in the position of PCE or an intelligent bystander, on even a cursory reading of box 2, that the calculations were based on assumptions which it was highly improbable would be fulfilled in the actual operation of the machine and which were, indeed, mutually inconsistent and, accordingly, a reasonable person in the position of PCE or an intelligent bystander would not have considered that the percentage availability item in the spreadsheets was intended to be a contractual promise. 103 If exhibit P11 is taken as an example, in box 2 on the first page of the spreadsheets it was assumed in the first three columns that the machine would be operated for six years and for exactly the same number of hours (2,000) in each year. A percentage availability is then calculated for each of the six years taken individually, with progressive cumulative totals for the percentage availability being shown, on an assumption that the machine would be operated each year, not for 2,000 hours but for 3,120 hours. In exhibit P11 the percentage availability of 95.4% stated in box 2 for year 1 is the result of performing the following calculation:- 3,120 - 144 x 100 3,120 1 104 In exhibit P11 the percentage availability figure of 95.80% in box 2 for the final cumulative availability figure, which is then transferred to box 1 as the percentage in the percentage availability item, is the result of performing the following calculation:- 3,120 x 6 - 785 x 100 3,120 x 6 1 105 However, a machine could not be operated at the rate of 3,120 hours per year over a period of six years, even if downtime was subtracted, because then the number of hours the machine would have been operated would have exceeded the number of engine hours provided under the contract. 106 Rather similarly, in the spreadsheets of the documents for machine P50 it was assumed that the machine would be operated for four years for exactly the same number of hours each year (3,000) and the percentage availability was then calculated for each year on the assumption that the machine would be operated each year, not for 3,000 hours, but for 3,120 hours. 107 8. As to the August 1997 FOCUS contracts, I have already indicated my view that a reasonable person in the position of PCE or an intelligent bystander would infer that the statement on page 3 of the previous documents, that the FOCUS contract would provide a "high" rate of machine availability, was deliberately left qualitative, without any precise rate of availability being specified. 108 9. As to the August 1997 contracts generally, it is quite apparent that, apart from some of the items in the first box in the spreadsheets, a number of parts even of the previous documents were not intended to give rise to contractual obligations. For example, the parts of page 1 of the previous documents under the heading "Chain of Command" and the whole of page 2 of the previous documents under the heading "Administration Procedures", which set out procedures internal to Gough & Gilmour for the performance of each contract, could not have been intended to give rise to contractual obligations enforceable by PCE. 109 I have concluded that the percentage availability items in the spreadsheets did not become terms of the FOCUS contracts as being warranties by Gough & Gilmour. Even if I was wrong in this conclusion, I would find, and it would be obvious to a reasonable person in the position of PCE or an intelligent bystander, that the percentage figure in the percentage availability item in the spreadsheets is a final cumulative figure for percentage availability over the whole of the contract period. During the period of the contract the percentage availability figure as set out in the spreadsheets fluctuated and it was only at the end of the contract period that the figure stated in the percentage availability item in box 1 became the final cumulative figure. In the present case none of the FOCUS contracts continued for the whole of the contract period, so that the cumulative percentage availability figure as at the end of the contract period, even if it was a term of the contract, did not become applicable. 110 I have held that Gough & Gilmour did not, by reason of the inclusion of the percentage availability item in the spreadsheets attached to the FOCUS contracts, contractually guarantee, as a term of any of the FOCUS contracts, the rate of availability stated in the relevant sub-paragraph of par 10 of the cross-claim. 111 On the evidence, any statements made by Gough & Gilmour, before the August 1997 FOCUS contracts were entered into, about the rates of availability of the machines were made in, or in relation to, draft spreadsheets which were in similar form to the spreadsheets later attached to the FOCUS contracts. For similar reasons to those I have given for holding that Gough & Gilmour did not, by reason of the inclusion of the percentage availability item in the spreadsheets attached to a FOCUS contract, contractually guarantee as a term of any of the FOCUS contracts the rate of availability stated in the relevant sub-paragraph of par 10 of the cross-claim, I hold that Gough & Gilmour did not, by reason of the making of any statements before the August 1997 contracts were entered into, contractually guarantee as a term of any of the FOCUS contracts, the rate of availability stated in the relevant sub-paragraph of par 10 of the cross-claim. For similar reasons, I hold that Gough & Gilmour did not, as a term of any contract collateral to a FOCUS contract, contractually guarantee the rate of availability stated in the relevant sub-paragraph of par 10 of the cross-claim. 112 Having found that there was not, on any basis, any contractual guarantee by Gough & Gilmour of any of the rates of availability alleged in sub-pars (f) to (m) of the cross-claim, it is unnecessary for me to determine whether, if any such contractual guarantee had existed, it would have been conditional on any of the assumptions by Gough & Gilmour alleged in par 5(c) of the defence to the cross-claim. I would merely observe that any assumption made by Gough & Gilmour would have had such an effect, only if the assumption itself became a term of a FOCUS contract and a term of such a kind that the guarantee by Gough & Gilmour of the rate of availability was conditional upon fulfilment of this term. Later in this judgment, when I deal with issues 1 and 6, I will give some consideration to the assumptions pleaded in par 5(c) of the defence to cross-claim.

[36]

ISSUES 2 and 3 114 The sub-paragraphs of par 10 of the cross-claim remaining to be considered are sub-pars (a), (b), (c), (d) and (e). 115 I consider that the matters alleged in sub-pars (a), (b), (c) and (d) of par 10 of the cross-claim did become terms of each of the August 1997 FOCUS contracts as warranties by Gough & Gilmour. All of these matters are expressly stated on page 3 of the documents for each FOCUS contract as being matters which will be provided by a FOCUS contract. 116 I also find that the matter alleged in sub-par (e) of par 10 of the cross-claim, to the extent to which it was admitted in the defence to cross-claim, became a term of each of the August 1997 FOCUS contracts as a warranty by Gough & Gilmour, that is to say Gough & Gilmour warranted that "when necessary service will be provided for repairs and breakdowns on a 24 hour basis to ensure maximum machine availability". Such a term is in accordance with a provision on page 4 of each of the August 1997 FOCUS contract documents. 117 None of the matters alleged in the various sub-paragraphs of par 9 of the cross-claim are expressly stated in any of the August 1997 FOCUS contracts. 118 In par 9 of the cross-claim the cross-claimant alleged that, before the August 1997 FOCUS contracts were entered into, Gough & Gilmour made representations to PCE of the matters alleged in the various sub-paragraphs of par 9. In the particulars of par 9 the persons who allegedly made the representations on behalf of Gough & Gilmour are identified as Mr M Winkel and Mr Shearman. In its defence to cross-claim Gough & Gilmour admitted that it had made "statements" as alleged in sub-pars (a), (b), (c), (d), (f) and (g) of par 9 of the cross-claim but denied that it had made statements as alleged in sub-pars (e), (h), (i), (j) and (k) of par 9 of the cross-claim. 119 There was no evidence in Peter Campbell's principal affidavit of the making to him by Mr M Winkel or Mr Shearman of any of the representations alleged in sub-pars (h), (i), (j) and (k) and I do not find that any of those representations were made. With regard to sub-paragraph (k), Mr Shearman, before the November 1997 contracts were entered into, merely said that he would see what he could arrange about getting some satellite telephones. 120 As regards sub-par (e), it was asserted by Mr Campbell in par 31 of his principal affidavit but denied by Mr Shearman in par 36 of his statement that Mr Shearman said to Mr Campbell "Peter, all reasonable anticipated costs for service, maintenance and running the machines in your areas are incorporated into the cost". 121 I am not satisfied that the alleged statement was made by Mr Shearman. The credibility of Mr Campbell's evidence in par 31 of his affidavit is weakened by his including as part of the alleged conversation with Mr Shearman before the August 1997 contracts were entered into, some things about areas in which machines would be operated, which, if they were said at all, would have been said, not before the August 1997 FOCUS contracts were entered into, but before the November 1997 FOCUS contracts were entered into. 122 I apply to the matters in sub-pars (a), (b), (c), (d), (f) and (g) the tests for determining whether a representation made in pre-contract negotiations became a term of the contract, which I earlier in this judgment applied to the rates of availability alleged in sub-pars (f) to (m) of par 10 of the cross-claim. I have concluded that all of these matters should be regarded as merely representational and not promissory. As I stated earlier, none of these matters is expressed in any of the August 1997 FOCUS contract documents. 123 I answer questions 2 and 3 by saying that none of the matters in par 9 of the cross-claim became terms of any of the August 1997 FOCUS contracts or of any contracts collateral to those contracts. The matters in sub-pars (a), (b), (c), (d) and (e) in par 10 of the cross-claim, subject to a qualification in the case of sub-par (e), did become terms of the August 1997 FOCUS contracts but none of the matters in the other sub-paragraphs of par 10 of the cross-claim became terms of any of the August 1997 FOCUS contracts or of any contracts collateral to the August 1997 FOCUS contracts.

[49]

(b) did the Cross Claimant rely on the representation or representations? If so, in what way? 124 These issues can conveniently be dealt with together. It will, however, be necessary to give some separate consideration to one or other of the issues. 125 Earlier in this judgment I set out pars 9 and 10 of the cross-claim and summarised pars 11, 12, 13, 17 and 18 of the cross-claim. As was confirmed by counsel for the cross-claimant in oral submissions, the cause of action pleaded in these paragraphs of the cross-claim is based on s 52 of the Trade Practices Act. It is alleged that the cross-defendant made the representations alleged in pars 9 and 10 of the cross-claim, that the cross-defendant thereby engaged in conduct in trade and commerce, that the cross-claimant was induced by the representations to enter into the FOCUS contracts, that the representations were misleading and deceptive in that, insofar as they related to present or past matters, they were untrue and, insofar as they related to future matters, they were made without the cross-defendant having reasonable grounds for making them. In par 17 of the cross-claim it was alleged that the machines the subject of the FOCUS contracts did not provide rates of availability "as represented or near to those represented". In par 18 of the cross-claim it was alleged that what was represented in the other sub-paragraphs of pars 9 and 10 of the cross-claim did not occur. 126 Earlier in this judgment I set out pars 5 and 6 of the defence to cross-claim and summarised pars 8, 9 and 10 of the defence to cross-claim. In par 5 of the defence to cross-claim the cross-defendant admitted that it made "statements" to the effect of some of the representations alleged in par 9 of the cross-claim, denied that it made "statements" to the effect of the other representations alleged in par 9 of the cross-claim, said that the statements it admitted making were based on certain assumptions which were set out in par 5(c) of the defence to cross-claim and which, it was alleged, were known to the cross-claimant and said that it did not admit that it made representations as alleged. 127 In par 6 of the defence to cross-claim the cross-defendant admitted (with only a couple of qualifications) that it made "statements" to the effect of the representations alleged in par 10 of the cross-claim, said that the "statements" were based on the assumptions set out in par 5(c) of the defence to cross-claim, which were known to the cross-claimant, said that the "statements" of the matters alleged in sub-pars (f) to (m) of par 10 of the cross-claim were based on the assumptions set out in the document entitled "FOCUS - Fixed Operating Cost Underwriting System" attached to each of the FOCUS contracts ( which is clearly the spreadsheets attached to each contract) and said that it did not admit that it made the "representations" alleged. 128 In later paragraphs of the defence to cross-claim the cross-defendant denied that the cross-claimant had relied on the representations alleged in entering into the FOCUS contracts, admitted that any representations which had been made had been made in trade and commerce and denied that any representations which had been made were untrue, misleading or deceptive or made without reasonable grounds. 129 In par 14 of the defence to cross-claim the cross-defendant asserted that the machines had provided availability rates at or near to those represented and, to the extent that the machines had not provided those availability rates, that failure was the result of factors which, to the knowledge of the cross-claimant, had not been taken into account in calculating the machine availability rates represented. A list of factors was then set out, which bore some relationship to the list of alleged assumptions in par 5(c) of the defence to cross-claim. 130 In par 15 of the defence to cross-claim the cross-defendant disputed that there had been contraventions of the other representations alleged by the cross-claimant and, in the alternative, said that any contraventions were the result of the factors listed in par 14 of the defence to cross-claim. 131 It is first necessary to make findings about whether Gough & Gilmour engaged in the conduct alleged. I considered similar questions in dealing with issues 2, 3, 7 and 8. 132 As to the representations alleged in par 9 of the cross-claim, Gough & Gilmour admitted in the defence to cross-claim to having made statements to the effect of the matters alleged in sub-pars (a), (b), (c), (d), (f) and (g). In the defence to cross-claim Gough & Gilmour denied having made statements to the effect of the matters alleged in sub-pars (e), (h), (i), (j) and (k) of par 9 of the cross-claim and earlier in this judgement I found that I was not satisfied that Gough & Gilmour had made any such statements. 133 As to the representations alleged in par 10 of the cross-claim, Gough & Gilmour admitted in the defence to cross-claim to having made statements to the effect of the matters alleged in almost all of the sub-paragraphs of par 10 of the cross-claim. I find that Gough & Gilmour made statements as alleged in sub-pars (a), (b), (c), (d) and (f) to (m) of par 10 of the cross-claim. As to sub-par (e), I find that Gough & Gilmour made a statement to the effect of the statement admitted by Gough & Gilmour in the defence to cross-claim. 134 In the defence to cross-claim the cross-defendant was at pains to draw a distinction between the making of a representation, which it denied, and the making of a statement, which it often admitted. However, for the purposes of the Trade Practices Act, it seems to me that there is no difference between the making of the statement and the making of a representation. Both amount to engaging in conduct within s 52 of the Act. However, that does leave outstanding questions of whether the conduct was misleading or deceptive or operated as an inducement to the person to whom the conduct was directed. 135 I will next determine whether the conduct of the cross-defendant which I have found occurred (whether it is described as the making of statements or the making of representations) was based on any of the assumptions set out in par 5(c) of the defence to cross-claim and, if so, whether the assumption by the cross-defendant was known to the cross-claimant. I will consider the various alleged assumptions in turn, dealing with both the August 1997 contracts and the November 1997 contracts.

[51]

August 1997 Contracts 138 It is true that, so far as the August 1997 contracts are concerned, on page 1 of each contract the "location" is stated to be Gunnedah and on page 4 of each contract it was stated that the amount payable by the cross-claimant had been calculated on the basis "that the machine is permanently located at Peter Campbell E/M's Gunnedah base". 139 However, notwithstanding the language of these provisions, the provisions could not mean that it was intended or assumed that the machines should be permanently located at PCE's Gunnedah base. It was known to Gough & Gilmour that PCE carried on the business of earthmoving in rural areas and it was clearly contemplated by both parties that each machine would be used by PCE for earthmoving in rural areas. 140 A literal interpretation of the provision on page 4 of each of the August 1997 contracts would be inconsistent with the immediately following provision that all services to be performed by Gough & Gilmour would be carried out "on site or at Gough & Gilmour's nearest" (my emphasis) facility" and with the obligation of PCE, as part of its responsibilities set out on page 5 of the August 1997 FOCUS contracts, to pay for "accommodation and meals for on site servicemen while working away from branch and payment of any relocation kilometres and freight expenses". 141 So far as the November 1997 contracts are concerned, clause 4 of each agreement provided that the machine would be operated only at the site shown in Sch 1; however, in Sch 1 the site was left blank. 142 The second sub-clause of clause 4 of the November 1997 contracts expressly provided that the site of a machine could be changed but such a change of site of a machine would have to be agreed to in advance by Gough & Gilmour. However, the only consequence expressed in the agreement of a change in the site of a machine was that there might be a variation in the maintenance charges, except that, where the change in site was without Gough & Gilmour's written agreement, Gough & Gilmour might terminate the agreement. 143 Various provisions under the heading "Customer Responsibilities Continued", which would appear to be a continuation of Sch 3 in the November 1997 contracts, clearly contemplated that the machines could be operated in remote and isolated areas.

[62]

Assumption (xiii) 154 I would not find that this was an assumption made by Gough & Gilmour, to the knowledge of PCE. PCE clearly intended to operate the machines for more than 3,000 engine hours per annum. 155 As I have already noted, the cross-defendant said in par 6 of the defence to cross-claim that the "statements" of the matters alleged in sub-pars (f) to (m) of par 10 of the cross-claim were based, not only on the assumptions set out in par 5(c) of the defence to cross-claim, but also on the assumptions set out in the spreadsheets attached to each of the FOCUS contracts. 156 I have already found that the statements or representations about rates of availability in sub-pars (f) to (m) of par 10 of the cross-claim were based on assumptions made in the calculations in the spreadsheets which produced the figures for rates of availability. Earlier in this judgment I found that these assumptions were unlikely to be fulfilled in the actual operation of the machines and were in fact inconsistent. Taking sub-par (g) and the spreadsheets in P11 as an example, the calculations were based on the assumptions that the machine would be operated for six years, that in each of those years it would be operated for the same number of hours and that the annual available hours would be 3,120, even though, if the machine was operated for that number of hours, then, even after allowing for the stated amount of downtime, the number of hours the machine would be operated over six years would far exceed the number of contract engine hours. 157 I am satisfied that before PCE entered into the FOCUS contracts Mr Campbell read the spreadsheets and appreciated that the rates of availability stated were figures produced by calculations in which assumptions had been made, which were most unlikely to be fulfilled in the actual operation of the machines and which would not be fulfilled, if the machines were operated in the way in which Mr Campbell intended that the machines would be operated. 158 In these circumstances I would not find that the statements of rates of availability to two decimal places referred to in pars (f) to (m) of par 10 of the cross-claim were misleading or deceptive to PCE. 159 For similar reasons, I would not find that PCE was induced to enter into the FOCUS contracts by the statements of rates of availability to two decimal places referred to in sub-pars (f) to (m) of par 10 of the cross-claim, as distinct from representations that the FOCUS contracts would provide "high" rates of availability. 160 There are indications in PCE's own pleading and Mr Campbell's evidence that Mr Campbell did not rely on the percentage availability figures to two decimal places in sub-pars (f) to (m). 161 The allegation of breach in par 17 of the cross-claim is that Gough & Gilmour failed to provide availability rates "as represented or near to those represented". 162 In par 31 of his principal affidavit Mr Campbell said that, after receiving the draft of a proposed FOCUS agreement, he was "surprised" at the availability rates and when he spoke to Mr Shearman he said "in these FOCUS contracts you people are saying that you will…..maintain a high rate of availability", that is Mr Campbell spoke of a "high" rate of availability but not the precise rate of availability produced by the calculations in the spreadsheets. 163 In par 36 of his principal affidavit Mr Campbell said that he had done calculations in which he compared the total income per month from the 657B scraper he already had and what would be the total income per month from the 657E scraper which he was proposing to acquire and put on a FOCUS contract. Mr Campbell said that in making the calculations for the 657E scraper he had assumed that the scraper would be available for 4,000 hours per year. This assumption, which was not the same as the assumption made in the spreadsheets, was much less than the figure which would be produced if a rate of availability in one of sub-pars (f) to (m) were applied to the number of hours per year Mr Campbell wanted to operate the machines. In oral evidence Mr Campbell said that there are 8,760 hours in a year, that there would be possibly 2,000 hours a year when he would not want a machine to be operated, thus producing a figure of about 7,000 hours per year; that if 7,000 was multiplied by a figure in the order of 95 per cent, which would be a figure in the order of the figures in sub-pars (f) to (m) of par 10 of the cross-claim, the number of hours would be reduced to about 6,600 hours, "so 4,000 hours were arrived at as being a sensible budget". Mr Campbell agreed that the same figure of about 4,000 hours per year would be produced, if an availability rate of 70 per cent had been applied. 164 As to the representations alleged in par 9 of the cross-claim which I have found were made, that is the representations alleged in sub-pars (a), (b), (c), (d), (f) and (g) of par 9, I find that each of these representations did operate as an inducement to PCE to enter into the FOCUS contracts, that is, the cross-claimant relied on each representation in deciding to enter into the FOCUS contracts, and that this finding is not precluded by any non-fulfilment of any of the assumptions alleged in par 5(c) of the defence to cross-claim. 165 As to the representations alleged in par 10 which I have found were made (apart from the representations in pars (f) to (m)), that is the representations alleged in sub-pars (a), (b), (c), (d) and (e) (to the extent found by me), I find that each of these representations operated as an inducement to PCE to enter into the FOCUS contracts that is, the cross-claimant relied on each representation in deciding to enter into the FOCUS contracts, and that this finding is not precluded by any non-fulfilment of any of the assumptions alleged in par 5(c) of the defence to cross-claim.

[78]

(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead" 171 I accept the submissions made in pars 102 to 104 of the cross-defendant's written submissions about the effect of s 51A, including that it casts a burden of proof of the representor, that it is necessary to determine whether, at the time of making the representation, the representor had reasonable grounds for the making of the representation and that it is important for a court to guard against hindsight. 172 The cross-defendant's case that reasonable grounds existed for the making of the representations was largely based on the evidence of Mr Hutson about the steps taken by Gough & Gilmour in the preparation of the FOCUS contracts. 173 The cross-claimant's case that the cross-defendant had not discharged the onus of proving that it had had reasonable grounds for making some of the representations which related to future matters was largely based on exhibit D19, which was a report by Mr Shearman of 21 July 1998, oral evidence by Mr Shearman and oral evidence by Mr Hutson. 174 Mr Shearman's report of 21 July 1998 dealt with both the August 1997 FOCUS contract machines and the November 1997 FOCUS contract machines and it is convenient, at this stage of this judgment, to consider Mr Shearman's report generally. 175 The parts of Mr Shearman's report which were relied on by counsel for the cross-claimant included:- 176 1. A paragraph on page 1 of the report about Gough & Gilmour's lack of information about the condition of the second-hand machines P48 and P49, before the August 1997 FOCUS contracts were entered into. This paragraph read in part:- "No formal caterpillar dealer machine condition appraisal had been undertaken and no Sims data was available, as maintenance had been carried out by mine staff at Weipa mine site due to remoteness. No photographs were available and the only information available was the mines maintenance planner printouts. These contained insufficient information to form a sound opinion about the machine condition. This was due mainly to the brief and inadequate descriptions provided about the work performed."

[82]

(v) A paragraph on page 4 of the report which stated:- "However during this exercise we have learnt the following pitfalls with focus on contracts on used equipment: * It is essential that a complete and detailed machine history from a Caterpillar dealer showing repairs and maintenance history from zero hours be made available so that it can be determined if a repair before failure maintenance culture existed from new. If this is not the case then a used machine is just a time bomb of high hour components which will in all likelihood fail before repair, giving a two fold problem: 1) They will not have been allowed for at such early hours causing negative cashflow. 2) They will cost considerably more to repair due to their failure before changeout. (over budget expenses) * It is imperative that a full machine appraisal be conducted immediately before a Focus contract is considered. The appraisal should encompass oil samples (taken warm), filter cutting, screen checking, pressure checks of transmission and hydraulics. All leaks and worn components along with any evidence of a suspect nature revealed by testing should be rectified before a contract is considered. During the appraisal, all non-Caterpillar componentry fitted should be noted so that it may be excluded or allowed for in the Focus contract. I would recommend exclusion on a universal basis". 177 Counsel for the cross-defendant submitted that the views expressed by Mr Shearman in his report of 21 July 1998 were affected by hindsight and it was pointed out that in 1997 Mr Shearman had not sought to prevent any of the FOCUS contracts being entered into. 178 Counsel for the cross-claimant referred to parts of Mr Shearman's oral evidence including evidence that Mr Shearman had had more information about the November 1997 machines "but it was no better" (than the information about the August 1997 machines); Gough & Gilmour had not had a reliable service history for any of the machines; it had not been known by Gough & Gilmour whether parts which had been used in previous replacements of parts in the machines had been Caterpillar parts or some other kind of parts and, in the absence of such knowledge, Mr Shearman could not have been confident about the lifespan of such parts and there had been a danger that, if non-Caterpillar parts had been used, they might "bring down" other parts associated with them. 179 In his oral evidence Mr Shearman said that the machines the subject of the November 1997 FOCUS contracts had been delivered directly to a site in Queensland where PCE was carrying on operations, without any representative of Gough & Gilmour having ever seen them. The rear transmission of one of these machines had failed, when the machine was being unloaded from the truck which had delivered it. 180 Counsel for the cross-claimant referred to parts of Mr Hutson's oral evidence including evidence that, before the November 1997 contracts were entered into, the problems of managing the August 1997 contracts had become "intractable"; that when unscheduled breakdowns or failures of components had occurred to the machines under FOCUS contracts, there had not been parts on hand to make replacements and it had been necessary to obtain parts from Gunnedah or other Gough & Gilmour branches in New South Wales or from Melbourne. The following questions and answers occurred in the cross-examination of Mr Hutson:- "Q. If there is a high incidence of unscheduled work, the principal way in which you can prevent extended down time is by having parts more readily available? A. That's correct. Q. On site preferably? A. That's right. Q. Because all your work times and stuff that you have assumed in your sheets is predicated on the proposition that the part is available and on hand. A. That's correct. Q. And because the work was unscheduled and because a large stock of parts was not on site, the problem of the down time of Peter Campbell machines was, as you saw it, intractable? . . . . . . A. I think it is intractable". 181 Counsel for the cross-claimant also referred to parts of the evidence of Mr Shearman on the one hand and Mr Hutson on the other hand, which, it was submitted, showed a serious conflict between the principles on which Mr Hutson had prepared the FOCUS contracts and the way in which Mr Shearman understood that the FOCUS contracts were to be managed. 182 In his evidence Mr Hutson said that off-site hours should have no bearing on downtime, because:- "The philosophy is that the machine should be kept operable as much as possible, so when the symptoms are there that a component is requiring a repair, an exchange component is made ready and then the machine is stood down and the actual hours that are recorded on the sheet are the hours needed to take that one out and put the new one in and get the machine back to work. The failed component is then returned to a workshop where it is repaired under workshop conditions". 183 On the other hand, the following question and answer occurred in the cross-examination of Mr Shearman:- "Q. …Was this right; your understanding of the way in which the FOCUS contracts worked was that in relation to the removal and replacement of components, the removal or the replacement of which was provided for under the FOCUS contracts, that work would occur in a workshop with the machine out of action; is that right? A. Yes. Q. And that the component would be repaired and replaced on to the machine in the workshop? A. Yes". 184 On the basis of the evidence I have expressly referred to and other evidence, counsel for the cross-claimant submitted that the cross-defendant had not discharged the onus of proving that it had had reasonable grounds for making some of the representations the cross-defendant had made, which related to future matters. It was submitted that, at the time of making the representations, the cross-defendant had not received reliable service histories for the machines and had not inspected and appraised the machines itself, that the cross-defendant had not had reasonable grounds for supposing that replacement parts would be readily available, and the manager of the branch of Gough & Gilmour who would have the responsibility of managing the FOCUS contracts did not intend to carry out the work to be done under the FOCUS contracts in accordance with important principles on which the FOCUS contracts were based. 185 I am conscious that, in determining whether, at the time the representations were made, Gough & Gilmour had reasonable grounds for making the representations, it is necessary to guard against hindsight. I have, however, concluded that the cross-claimant's submissions should be accepted and accorded weight, particularly the submission that Gough & Gilmour had not had adequate information about the condition of the machines which were to be placed on FOCUS contracts, and, accordingly, I should find that, in the case of some of the representations I have found Gough & Gilmour made, Gough & Gilmour has not discharged the onus of proving that it had reasonable grounds for making the representations. 186 I will now deal in turn with the representations of matters in sub-paragraphs of pars 9 and 10 of the cross-claim, which I have found were made and which I have found the cross-claimant relied on.

[107]

(a) the nature of the breach; and (b) whether Gough & Gilmour's Standard Terms and Conditions govern the provision of the maintenance and/or repairs performed on the D11N Dozer and provide a complete response to the Cross Claimants claim for damages as a result of any such breach. 190 The claim by PCE with respect to the D11N bulldozer (machine P29) was pleaded in pars 21 to 24 of the cross-claim. In these paragraphs of the cross-claim it was alleged that there was an agreement between PCE and Gough & Gilmour, whereby Gough & Gilmour agreed to supply and install a part, namely a bevel gear, in a bulldozer owned by PCE. It was further alleged that Gough & Gilmour supplied the bevel gear in March 1998; that the part failed on 13 April 1998; that Gough & Gilmour repaired the part between 14 April 1998 and 12 May 1998; that the part failed again on 12 August 1998; that between 13 August 1998 and 3 October 1998 Gough & Gilmour removed the bevel gear and also a torque converter; that Gough & Gilmour failed to rebuild the torque converter in a proper and workmanlike manner, by failing to install a seal ring; Gough & Gilmour again removed the torque converter and installed the seal ring; that as a result of the seal ring being missing, the torque converter had caused damage to the bulldozer's engine and the engine had failed; and that PCE carried out further repairs to P29 between October 1998 and May 1999. 191 In further paragraphs of the cross-claim it was alleged that it was an implied term of the agreement between Gough & Gilmour and PCE that the parts supplied would be of merchantable quality and reasonably fit for the purpose and that the installation work would be carried out with reasonable care and skill and that Gough & Gilmour had breached these implied terms. 192 Evidence in support of this claim was given by Mr Campbell in pars 31 to 39 of his second affidavit of 5 June 2003. However, many parts of these paragraphs of this affidavit by Mr Campbell were objected to by counsel for Gough & Gilmour and were rejected, on grounds that they were hearsay, that they were otherwise not within the personal knowledge of Mr Campbell or that they constituted conclusions drawn by Mr Campbell on contentious matters. 193 The parts of the affidavit which were not rejected show the following. In February 1998 PCE purchased the bulldozer from a supplier other than Gough & Gilmour. The bulldozer was not placed on a FOCUS contract with Gough & Gilmour. In April 1998 the bevel gear in the bulldozer failed, rendering the bulldozer inoperable. On or about 14 April 1998 Mr Campbell arranged for Gough & Gilmour to repair the bevel gear. The repair by Gough & Gilmour was not completed until 11 May 1998. On or about 12 August 1998 the bevel gear failed. On about 13 August Mr Campbell arranged for Gough & Gilmour to repair the bevel gear. Gough & Gilmour fitters removed the bevel gear, the torque converter and some other parts of the machine. The Gough & Gilmour fitters attempted to reinstall the torque converter but found that the engine of the machine was not revving fast enough. The fitters removed the torque converter and Mr Campbell, who was at the site, observed that there was a retaining ring missing from the torque converter. The Gough & Gilmour fitters replaced the retaining ring on the torque converter and then replaced the torque converter into the machine. Subsequently, Mr Campbell did not observe the bulldozer having any problems. The bulldozer was inoperable until 3 October 1998. On 29 October 1998 the bulldozer's engine seized and the bulldozer became inoperable again. PCE itself tried to repair the bulldozer between August 1998 and May 1999. 194 Apart from the affidavit by Mr Campbell, counsel for PCE also sought to rely on pieces of evidence by Mr Hutson and Mr Shearman about their site visit on 20 September 1998, on field service dockets by Gough & Gilmour fitters and on diary notes attached to Mr Keogh's statement. 195 Counsel for the cross-defendant in his submissions pointed out that many parts of pars 31 to 38 of Mr Campbell's second affidavit of 5 June 2003 had been rejected; that there was no evidence that the bevel gear had been originally obtained from Gough & Gilmour; that I should not infer that any failure of the bevel gear or of the machine generally had been caused by any default on the part of Gough & Gilmour; and that Gough & Gilmour could rely on its general terms and conditions of contract. 196 As I have indicated earlier, many parts of pars 31 to 38 of Mr Campbell's second affidavit of 5 June 2003 were rejected and there is no evidence which was admitted, that Gough & Gilmour supplied the bevel gear in March 1998. 197 On the sparse evidence sought to be relied on in support of this claim, I am not satisfied that there was any undue delay on the part of Gough & Gilmour in repairing the bevel gear or that any failure of the bevel gear or of the machine was the result of any fault on the part of Gough & Gilmour. When machines are subjected to the kinds of use in the kinds of conditions to which PCE subjected its machines in its earthmoving operations, the failure of a part of a machine some months or even some weeks after the part was supplied or the part was repaired is insufficient of itself to justify an inference that the part was initially defective or that the repair to the part was defective. 198 The only breach on the part of Gough & Gilmour that I find is that Gough & Gilmour's fitters failed initially to include the retaining ring on the torque converter when they were reinstalling the torque converter. However, I am not satisfied on the admitted evidence that this failure caused the bulldozer's engine to seize on 29 October 1998 or caused the bulldozer to be inoperable during the many months from October 1998 to May 1999. 199 I was informed after the conclusion of the hearing that it was common ground that standard terms and conditions were set out on the back of Gough & Gilmour invoices and that for the purpose of determining the cross-claim with respect to the D11N bulldozer, the standard terms and conditions should be regarded as including the following:- "10. SERVICE REPAIR WARRANTY THIS SERVICE REPAIR WARRANTY IS ADDITIONAL TO ANY CUSTOMER'S RIGHTS IMPLIED BY FEDERAL OR STATE LAW WHICH CANNOT BE EXCLUDED Subject to the following conditions any component or part services, supplied or repaired during the course of service or repairs carried out by Gough & Gilmour Holdings Pty Ltd which fails by reason of defective workmanship or material within the following six (6) months shall be repaired or replaced, at the option of the Company free of charge. CONDITIONS (a) The Customer shall notify the Company immediately if problems develop in the component and before removal or disassembly is attempted. Compartment oil is to be saved. (b) The Company alone shall determine whether failure occurred by reason of defective workmanship or materials. Such determination shall be made at one of the nominated service facilities, to which the customer shall transport the machine or component involved. (c) The Customer shall bear all transportation and handling costs. (d) The cost of removal of failed components and installation of replacement components shall be borne by the Company only when done by the Company. (e) If the repair involves an exchange transmission or a major transmission repair, this warranty is not applicable unless oil coolers were serviced or replaced at the time of installation. (f) If the repair involves the installation of an exchange engine or major engine repair, this warranty is not applicable unless the cooling system and the radiator were serviced or replaced at the time of engine installation. (g) Remedies under this warranty are expressly limited to repairs or replacement as specified above, and any claims for loss arising out of failure of any machine equipment of components to operate for any period of time or for special, indirect or consequential damage or other economic loss are expressly excluded. (h) This warranty is expressly in lieu of any other conditions or warranties, express or implied, including any condition or warranty of merchantability or fitness for a particular purpose, except to the extent that statutory conditions or warranties may not be limited or excluded. 11 LIMITATION OF LIABILITY IN CONSUMER TRANSACTIONS In connection with the supply to a consumer of any goods or services within the meaning of the Trade Practices Act 1974 (as amended) other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption, the liability of Gough & Gilmour Holdings Pty Ltd in the event of a breach of a condition or warranty implied by that Act (other than a condition or warranty implied by Section 59) is limited, subject to Section 68A of that Act, at the option of Gough & Gilmour Holdings Pty Ltd to: (i) In the case of goods, any one or more of the following: the replacement of the Goods or the supply of equivalent goods: the repair of the Goods: the payment of the cost of replacing the Goods or of acquiring equivalent goods: the payment of the cost of having the Goods repaired: or

[111]

201 I was informed at the hearing that the only claim made by Gough & Gilmour in the statement of claim which had not been resolved by the parties was part of the claim made in par 19 of the amended statement of claim for waiting time and travel expenses, which it was alleged PCE was required to pay under the FOCUS contracts but had failed to pay. 202 The part of the claim which was not resolved is for waiting time alleged to be due under the November 1997 FOCUS contracts and, in particular, the provision on the page headed "Customer Responsibilities Continued" which provides:- "A waiting fee will be charged if no work can be provided for Gough & Gilmour Holdings servicemen on equipment under the FOCUS agreements and no alternative work can be provided" 203 Particulars of Gough & Gilmour's claim are set out in exhibit P33, which also includes copies of the daily field service dockets in which Gough & Gilmour servicemen made entries for "standby time". 204 Gough & Gilmour also relied on parts of statements by its fitters, for example par 38 of the statement by Mr Harper, in which he said that there were periods when all of the machines were operating smoothly and no scheduled maintenance work needed to be carried out and Gough & Gilmour's fitters were sitting around, watching the machines working. 205 In answer to this claim PCE in par 10 of the amended defence to the further amended statement of claim alleged that it was a term of the FOCUS contracts that Gough & Gilmour would notify PCE and obtain a job number from it, in the event of any of its servicemen claiming to have no work to do, such a term being implied in order to give business efficacy to the FOCUS contracts. 206 It was further alleged in the amended defence that such a term had been agreed at the meeting in February 1998, as was shown by parts of Ms Shearman's memorandum of the meeting exhibit D14. 207 It was then alleged that on no occasion had Gough & Gilmour's servicemen notified PCE that there was no work to do and Gough & Gilmour's servicemen had not obtained job numbers for waiting time. 208 It was alleged in the amended defence that throughout the period of the FOCUS contracts there had been no time when there had been no work for Gough & Gilmour's servicemen to do. 209 In written submissions the term which it was submitted I should find had been implied as a term of the FOCUS contracts, was said to be simply a term that Gough & Gilmour would notify PCE in the event of any of its servicemen having no work to do. It was submitted that the implication of such a term was supported by the inclusion of the words "and no alternative work can be provided" in the provision in the November 1997 FOCUS contracts. 210 In support of the submission that the term contended for had been expressly agreed at the meeting in February 1998, reference was made to some passages in Ms Shearman's report of the meeting. 211 It was submitted by counsel for PCE that on a number of days on which a total claim for waiting time of $3,900 was made, records kept by PCE recorded machines as having been non-operational. 212 Counsel for PCE submitted that the field service dockets of the Gough & Gilmour fitters, with only a few exceptions, did not state reasons why there was no alternative work. Reference was made to parts of the witness statements by PCE operators to the effect that there had always been work to do on site. 213 I do not consider that the requirements which would have to be satisfied for implying a term in order to give business efficacy to the November 1997 FOCUS contracts are satisfied. See Carter & Harland Contract Law in Australia (4th ed) at pars 625 to 630. 214 It would not be necessary to imply such a term in order to make the contracts effective in a business sense. If there was alternative work which could be done on PCE machines which were not the subject of FOCUS contracts, the PCE operators or the PCE supervisor could inform the Gough & Gilmour servicemen of this alternative work. The part of the provision in the November 1997 FOCUS contracts sought to be relied on by counsel for PCE would also support an argument that it was for PCE to "provide" alternative work. 215 The implication of such a term in any of the November 1997 FOCUS contracts would be inconsistent with clause 15 of the contracts, which provided that the terms set out in the written agreement and its attachments constituted the entire agreement of the parties. 216 Nor do I consider that the brief references in Ms Shearman's report of the meeting in February 1998, even including the references to it being agreed that Peter Winkel should be "the point of contact" in regard to waiting time, justify a conclusion that a term as alleged by PCE in its amended defence were as contended for in PCE submissions thereby became an express term of the November 1997 FOCUS contracts. 217 It would be quite possible for machines to be non-operational and yet for there to be no work that could be done on the machines, for example if Gough & Gilmour had not been notified of the need for work to be done on a machine, if the machines were inaccessible due to wet weather or if Gough & Gilmour fitters were waiting on parts. 218 The daily field dockets filled in by Gough & Gilmour servicemen are more likely to be reliable than the broad general assertions by PCE operators in statements made much later. 219 I consider that the defendant PCE is liable to pay the claim for waiting time. **********

At a glance

Court

Decision date

Before

Source

Judgment (112 paragraphs)

Parties

Cases Cited (2)

Cited By (1)