Plaintiff v Defendant

2 The five paper making machines at Maryvale are designated M1 to M5. This case concerns M2, a machine which produces both machine glazed (MG) and machine finished (MF) paper. It is a very large machine which processes wet paper pulp through many stages by pressing and drying it until it becomes one continuous long roll of dry paper. In simple terms, MG paper is produced by pressing the still very wet paper at a late stage in the production process against a highly polished, heated, cast iron cylinder, using a pressure roller covered with rubber. The cylinder is called an MG cylinder or a Yankee dryer. It is a cast iron pressure vessel which weighs about 80 or 90 tonne. It is heated by steam under pressure.

3 It is the MG cylinder on the M2 machine with which this case is concerned. It was 200 inches long and 14 feet in diameter. The pressure roller, which holds the wet paper against the rotating cylinder, was slightly longer than the cylinder and had a diameter of 29½ inches. It weighed about 9.5 tonne and was made of steel with a rubber covering. There were two such rollers used on the M2 machine designated as #2.130 and #2.132. These rollers were used in rotation, one being kept as a spare whilst the other was on the machine. They are sometimes called service rollers. The inner steel core is referred to as the "shell".

4 In the process of glazing paper the pressure roller holds the paper against the MG cylinder using pneumatic pressure. The force applied was in the order of 400lb/linear foot. In metric measurement this is equivalent to 70kN/metre. The MG cylinder was heated from within using steam under pressure so that after the paper has passed over it, its water content is considerably reduced (to about 20%) and it exhibits a glossy or glazed surface. During this process the paper passed through the M2 machine at speeds of between about 150 and 410 metres per minute, depending upon the grade of paper being made.

5 This litigation concerns an event which occurred on 7 April 2001 when, as the plaintiff alleges, the rubber coating on pressure roller #2.132, which was being used on the M2 machine, separated from its steel shell. That is to say the rubber coating, which was designed to contact the wet paper and press it against the MG cylinder, came away from the steel core of the roller. The event was described as a delamination of the rubber cover of the pressure or service roller.

6 The plaintiff alleges that in the course of this event considerable damage was done to the MG cylinder on the M2 machine, as a result of which it had to be replaced. The machine was, at the time, producing MG papers for a variety of applications from fast food wrappers to building insulation. Paper Australia alleges that it suffered substantial losses as a result of this incident, not only directly, but also consequentially, to its business. It claims damages for those losses against Ansell Limited (formerly called Dunlop Duratray, a business owned by Pacific Dunlop Ltd) which, shortly before the incident on 7 April 2001, had serviced the pressure roller by replacing its rubber covering - the covering which delaminated.

7 The plaintiff's claim is framed both in contract and in tort. It alleges that Dunlop[1] was in breach of terms of its contract to service the pressure roller and/or it was negligent. In either case, says the plaintiff, the defendant is liable in damages to compensate it for the losses which it has suffered both directly and indirectly.

8 The defendant's defence to the proceeding raises a number of legal and factual issues which must be resolved. It is convenient that they be dealt with serially. They raise not only questions of Dunlop's liability but also, if it is liable, the extent of that liability and, in particular, the extent of its liability (if any) for the costs, both direct and indirect, of the plaintiff having replaced the MG cylinder on the No. 2 paper making machine.

9 Mark Anthony Walker, a professional engineer, has worked at the Maryvale mill since 1990. He had tertiary qualifications in engineering and, in April 2001, was the Engineer Support Manager - Packaging Papers. He had held this position since June 2000 and as such he had responsibility for the M2 paper making machine.

10 Mr Walker told the Court that at about 6.00am on Saturday, 7 April 2001 he was telephoned at his home by a mill employee who told him that the cover had come off the pressure roller on the M2 machine and that the machine was no longer operating.

11 Mr Walker went immediately to the mill and inspected the M2 machine. That inspection verified what he had been told. The rubber cover on #2.132 service roller had completely come off its shell. He was concerned that this event may have damaged the MG cylinder. Accordingly, he ensured that the MG cylinder, which normally operated under a steam pressure of 47psi or 330kPa, was de-pressurised for safety reasons. He then inspected the cylinder and the scene generally.

12 Mr Walker's inspection of the pressure roller revealed that its rubber covering had completely come away from its metal shell and had broken into pieces. He found no sign of the rubber cover itself having hardened or become brittle with stress cracks. It had simply come away from the shell leaving the metal exposed. He had seen hardening and cracking of the rubber on rollers on a number of earlier occasions, but on this occasion there had been a complete separation between the cover and the shell, not a disintegration of the cover itself.

13 Mr Walker and other employees of the plaintiff then removed all the broken cover pieces from the M2 machine and placed them on the floor. He made a visual inspection of the M2 machine itself but found no obvious signs of damage at that time.

14 The plaintiff's case is that the rubber cover of the service roll on the M2 machine delaminated on 7 April 2001 because Dunlop had not properly cured or vulcanised the rubber in the course of re-covering the service roll when it was contracted to do so by the plaintiff in August 2000. Failure to adequately cure or vulcanise the rubber had resulted in the base layer of the rubber cover being too soft, alleged the plaintiff, causing the rubber cover to delaminate when exposed to the massive forces in the nip between the MG cylinder and the service roll in the course of the operation of the M2 machine.

15 In his evidence Mr Walker said that shortly after he inspected the M2 machine he telephoned a Mr Jason Dwyer of Dunlop. He described Mr Dwyer as the "Maryvale mill contact person at Dunlop for sales". He described what he had seen at the M2 machine to Mr Dwyer who agreed with him that the likely cause of the problem was delamination due to a bonding failure between the cover and the shell of the service roller.

16 Mr Walker also gave evidence of a subsequent meeting with a Mr Val Faoro, who he described as the general manager of Dunlop, on 9 April 2001 at the mill. He told the Court that, after inspecting the failed service roller, Mr Faoro said that in his opinion there had been no "cross-linking between the base cover material and the roll metal shell". Mr Walker explained that cross-linking refers to "the creation of chemical bonds that stick the rubber cover to the metal roll shell of the service roll". He said that Mr Faoro told him that he, Faoro, would check what chemical solutions had been used to prepare the shell before the rubber was applied.

17 The plaintiff called Mr Harry Wyllie Mowbray, a paper industry consultant with experience in examining the causes of roll cover failure. Mr Mowbray analysed the failed pressure roll cover and performed a range of tests to determine the hardness of the layers of the cover. From these and other observations he concluded that the base layer of the cover was too soft and was therefore bound to fail in service.

18 In 2006 Mr Mowbray performed a further test on a small piece of the failed cover, measuring the hardness of the inner layer, vulcanising the piece of rubber and then measuring the hardness again. From the results he obtained he concluded that the rubber was formulated correctly but had not been heated long enough or to a high enough temperature or both during the re-covering of the roll. This meant that the roll did not have the ability to handle the shear loads in the nip between it and the cylinder under operating conditions.

19 Dr Graeme Ewing Russell was also engaged by the plaintiff to provide an opinion on the possible causes of the failure of the rubber cover. He concluded that:

Negligible or no bond was achieved between the base of the rubber cover and the steel shell of the compression roller. This was most likely due to the rubber cover not being properly cured during the process of re-covering the pressure roller.

20 Finally, Mr Walker gave evidence that on 18 December 2001 a Professor Robert Burford attended at the Maryvale mill on behalf of Dunlop. He took four samples of the cover which had failed. Mr Walker said that Professor Burford had with him a Shore A hardness meter, which is a hand held measuring device which can be used to evaluate the hardness of a substance such as rubber. Mr Walker said that Professor Burford took a number of measurements using the hardness meter.

21 Although the defendant never conceded that the cause of the rubber cover delaminating, and thus the cause of the event which occurred on machine M2 on 7 April 2001, was a defect in the way the rubber cover was fixed to the pressure roller in August 2000 when it was serviced by Dunlop, it hardly contested the issue. Mr Walker was not cross-examined as to the evidence he gave on this question and Professor Burford was not called as a witness.

22 Mr Walker's evidence stands unchallenged. It being entirely cogent and inherently reasonable having regard to the expert evidence which was, likewise, unchallenged, the Court is entitled, if not bound, to act upon it: Paric v John Holland Constructions;[2] Hardy v Gillette;[3] and Fensford Pty Ltd v Nour Pty Ltd.[4] Further, the failure of the defendant to call Professor Burford enables an inference to be drawn to the effect that his evidence would not have assisted its case: Jones v Dunkel;[5] O'Donnell v Reichard.[6]

23 Whether the roller cover on the pressure roller delaminated, as Mr Faoro suggested, because of a lack of a proper bond between it and the metal shell of the roller or whether it delaminated because of a failure to cure the rubber properly as Dr Russell suggested is of little moment. The probable cause of the delamination of the cover of the pressure roller on the MG cylinder of machine M2 on 7 April 2001 was faulty workmanship on the part of Dunlop in fixing a new cover to the roller some eight months previously.

24 The plaintiff alleges that the agreement between it and Ansell to service pressure roller #2.132 was evidenced by a purchase order dated 6 September 2000 by which it said it requested Dunlop to replace the cover on the roller. This purchase order incorporated, by reference, the plaintiff's standard conditions of purchase which, it maintains, were well known to Dunlop from previous occasions on which Dunlop had performed work for it.

25 In fact, there are arguably three documents relevant to the agreement between the plaintiff and Dunlop concerning the covering of the pressure roller. First, there is a quotation No. JD2K081, dated 15 August 2000 under Dunlop's letterhead, signed by Jason Dwyer, to perform specified work for a fixed price on a roller described as "PM 2 MG SERVICE ROLL". There is no dispute that this quotation refers to the relevant pressure roller. After setting out details of the job and its cost, the following appears on this document:

Because of so many conditions existing beyond the control of Dunlop Duratray in the use of roll coverings, no warranty as to life or length of service is made. All roll coverings are warranted to be free of defects in material and workmanship. No claim will be honoured or adjustment made on any roll covering after one year from date of invoice or shipment.

Our liability for breach of warranty is limited to the replacement of the roll covering. Consequential damages are not allowed.

The second document is the plaintiff's purchase order dated 6 September 2000 addressed to the defendant, marked for the attention of Jason Dwyer. It purports to accept quotation No. JD2K081 and contains a statement as follows:

AUSTRALIAN PAPER TERMS & CONDITIONS WILL APPLY TO THIS ORDER - A COPY WILL BE SUPPLIED ON REQUEST

The third document is a copy of those terms and conditions signed by its Maryvale Mill contract manager, Neil Donoghue. The first paragraph of this document is in the following terms:

The order may be accepted in accordance with the terms and conditions hereby stated along with any and all special conditions set forth on the face of the purchase order. Shipment of any part of the goods or the furnishings [sic] of any part of the services shall constitute an acceptance of the order upon the terms herein, notwithstanding any different or additional terms contained in any acknowledgement, acceptance or other communication from Vendor not signed by Purchaser.

26 Mr Donoghue provided detailed evidence to the Court as to the plaintiff's purchasing system for goods and services. He said that the plaintiff's terms and conditions upon which his signature appeared had not changed since 1990. He said that they were originally printed on the back of purchase orders but after the plaintiff moved to a computerised system there was merely a reference to them on purchase orders, as in this case. He said that although he did not know whether the defendant had ever asked for a copy of the terms and conditions it had been a supplier to the plaintiff since before the plaintiff changed from a manual to a computerised ordering system, the inference being that it must have known of them.

27 The plaintiff also contended that there were implied terms of its agreement with the defendant which imposed the following obligations on the defendant with respect to the work to be carried out:

(a) (To) carry out all necessary work recovering the #2.132 service roll with reasonable skill and care;

(b) (To) ensure that any materials which it applied comprising the rubber cover were reasonably fit for the purpose;

(c) (To) ensure that the rubber cover was adequately cured and vulcanised.

The defendant admitted that each of these terms was implied in its contract with the plaintiff.

28 In its pleading the plaintiff also alleged that there were terms of its contract with the defendant implied by virtue of the provisions of the Trade Practices Act 1974 (C'th). The defendant denied the implication of these statutory terms and the plaintiff did not press its case on this basis at trial.

29 Mr Derham QC, for the plaintiff, contended that the defendant had sufficient notice of the plaintiff's terms and conditions for those terms and conditions to be incorporated into the contract between them for the re-covering of the service roll. He referred to Thompson v London Midland and Scottish Railway Company;[7] Smith v South Wales Switchgear Co Limited;[8] and Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd.[9] Accordingly, the plaintiff's case was that the contract between it and Dunlop was subject to the plaintiff's standard conditions and incorporated the implied terms which Dunlop conceded were part of its contract.

30 The defendant's case was that, although the implied terms pleaded were incorporated into the contract for the re-covering of the service roller, those terms must be applied subject to the limitations imposed by the warranty expressed in its original quotation. This warranty which, it argued, effectively precluded any liability in tort, would limit its exposure in this case to the cost of supplying and fitting a replacement roller cover - $31,990, the amount it had charged the plaintiff for the work it performed in August 2000.

31 Accordingly, the first question to be addressed on this part of the case is whether the warranty contained in the defendant's quotation forms part of the contract between the parties.

32 In his final address, counsel for the defendant, Mr McArthur SC, contended that the contract was effected by the plaintiff's acceptance of its written quotation, such acceptance being constituted by its sending the roll to be re-covered to the defendant's premises on 17 August after receiving that quotation but well before it sent its purchase order dated 6 September 2000. The plaintiff's answer to this argument was that any action by it in dispatching the roller was an action consistent with both parties' intention that, the price of the work to be performed having been established, the terms of their contract would be finalised when the plaintiff sent a purchase order, which it later did. The plaintiff contended that the course of dealing between the parties meant that no contract was contemplated as existing until a purchase order was received by Dunlop.

33 In opening the defendant's case on this point Mr McArthur had outlined it as being that Mr Burgess, an employee of the plaintiff, had orally accepted the defendant's quotation on 16 August in a phone call with Jason Dwyer of Dunlop, the originator of the quotation. Mr McArthur said that " ... that was the end of the matter contractually".

34 Jason Dwyer was not called as a witness by the defendant and Mr Burgess, under cross-examination, said he did not recall phoning Dwyer and orally accepting the quote. He said it was not necessarily his normal practice to phone Dunlop to say whether a quote had been accepted. He recognised the "Warranty" clause in the Dunlop quotation of 15 August and acknowledged having seen another Dunlop quote from an earlier date containing the same clause.

35 The plaintiff's submission was that there was no evidence of any oral acceptance of Dunlop's quotation. Having regard to the evidence this submission must be accepted, but the matter does not end there. The question remains as to whether that quotation was accepted by the plaintiff's delivery to Dunlop of the roller to be re-covered. This undoubtedly occurred on 17 August. It was this act, argued the defendant, which caused the contract to come into existence well before the plaintiff sent its purchase order. The purchase order, with its incorporated terms and conditions, was, thus, irrelevant.

36 Mr Derham submitted that the defendant's failure to call Mr Dwyer in the circumstances created a Jones v Dunkel[10] situation which would enable an adverse inference to be drawn against Dunlop as to the creation of the contract and its terms. But such an inference would go no further than the evidence already referred to, that is to say that Dunlop had not established that there was any oral acceptance of its quotation. But Dunlop no longer said that there was. In its final address it relied upon the act of the plaintiff in delivering the roll to it for re-covering as necessitating the inference that its quote had been unconditionally accepted.

37 The defendant's failure to call Mr Dwyer can only affect the issue of the creation of the contract and its terms if the uncontradicted evidence of Neil Donoghue, called by the plaintiff, was capable of supporting an inference that Dunlop must have known of and accepted the practice of the plaintiff in imposing its standard terms and conditions on every contract for goods and services which it entered, thus subordinating Dunlop's terms (including the "Warranty" clause) to those of the plaintiff.

38 Mr Donoghue's evidence established that Dunlop had dealt with the plaintiff before the plaintiff changed its ordering system from a manual system, where its terms and conditions were printed on the reverse of its purchase order form, to a computerised system where full details of its terms and conditions were omitted from its purchase order form which merely informed the supplier of the existence of those terms and conditions and how they could be ascertained. The plaintiff argued that because of Mr Donoghue's evidence and the lack of any contradictory evidence from Mr Dwyer (or anyone else from Dunlop) the Court should infer that, notwithstanding that the plaintiff did not forward its purchase order to Dunlop until about 6 September, the fact that Dunlop knew of the plaintiff's terms and conditions from its earlier dealings with the plaintiff is enough to support a conclusion that the terms and conditions were incorporated into the contract between it and the plaintiff.

39 But the sequence of events here is such that even if an inference is open from Mr Donoghue's evidence that Dunlop knew of the plaintiff's terms and conditions, that inference cannot go as far as establishing that Dunlop accepted those terms and conditions as applicable to its contract in this instance. It submitted its quotation to the plaintiff on 15 August containing a specific clause which sought to limit its liability in certain circumstances - a clause inconsistent with the plaintiff's standard terms and conditions. The plaintiff forwarded the roll to Dunlop on 17 August for work to be done on it without any query as to the limited warranty or its proposed application and without any reference to any other contractual terms. Dunlop's offer to perform work on the roller constituted by its quotation was accepted by the plaintiff, unconditionally, by its sending the roller to Dunlop for the work to be performed on 17 August. The attempted inclusion by the plaintiff of its standard terms and conditions by the forwarding of a purchase order three weeks later was, in this case, ineffective. The purchase order was not a contractual document. The contract between the parties was constituted by the Dunlop quotation, including the "Warranty" clause (for whatever effect it has), subject to the implied terms which Dunlop has admitted.

40 The plaintiff contended that even if the "Warranty" clause in Dunlop's quotation is incorporated into the contract to re-cover the pressure roll, it has no application to its case against Dunlop. It argued that, as the plaintiff did not make its case on a breach by Dunlop of that express warranty but on a breach by Dunlop of one or other of the terms the defendant admits are implied into the contract, the limitation on Dunlop's liability which the quotation purported to impose has no application. The ordinary and natural meaning of the limitation, being expressed, as it was, immediately after the description of the warranty offered, is that it limits Dunlop's liability only in respect of a claim for breach of that warranty and not otherwise, argued the plaintiff.

41 Clauses limiting liability in a contract are to be construed according to their natural and ordinary meaning in the context of the whole of the contract in which they are found. Any ambiguity should be construed contra proferentem: Darlington Futures Limited v Delco Australia Pty Ltd.[11] The defendant argued that the limitation of liability expressed in the "Warranty" clause (or immediately after it) in the quotation applied to all claims against it, whether for breach of the express warranty itself or for a breach of one or other of the conceded implied terms, or in negligence.

42 A number of things may be said about the defendant's quotation. First, it is a quotation to supply particular designated and specified materials, namely a roll cover. Those materials are described by reference to brand and characteristics:-

Secondly, it is a quotation for work to be performed, namely:

Stripping and disposal of cover, removal of corrosion, preparing shell surface, covering and grinding.

43 Thirdly, the "Warranty" clause, read in its ordinary meaning, applies not to the work to be performed by Dunlop, but rather to the roll covering which is to be supplied. The clause opens by explaining the need to limit any warranty as to the life or length of service of "roll coverings". It warrants "roll coverings" as being free from defects in material and workmanship (scil. workmanship in respect of manufacture of the cover itself) and limits claims "on any roll covering" to one year. Its limitation on liability refers to "replacement of the roll covering".

44 Fourthly, the limitation on liability is not expressed to be a general limitation but rather one which applies to a claim for breach of the "Warranty" set out above it. Fifthly, viewed overall, in its natural and ordinary meaning and in the context of the whole contract, the "Warranty" clause and its limitation would entitle Dunlop to limit its liability to the cost of replacement of a roll cover only in those cases in which a claim is made because of a failure of the roll cover attributable to a breach of the express warranty; that is to say, a claim made because of defects in the material of which the roll cover is manufactured or defects in the workmanship used in making it. The limitation does not purport to limit liability in respect of defective workmanship in applying an otherwise satisfactory roll cover to the shell which is designed to take it.

45 The plaintiff's expert witnesses who provided opinions as to the failure of the roll cover, Harry Mowbray and Dr Graeme Russell, each concluded that the failure of the roll cover occurred because of defects, not in the roll cover itself, but in the process of applying it to the roller. Mr Mowbray specifically referred to the rubber in the cover having been formulated correctly and attributed its subsequent failure to inadequate vulcanisation, the process by which rubber is cured and made hard by the application of heat. Mr Mowbray considered that the cover was not heated to a high enough temperature and/or for long enough to create inter-molecular bonding between the raw rubber molecules so as to cause it to achieve appropriate hardness and to bond onto the roller shell. Dr Russell expressed a similar opinion. Each of them attributed fault to the process by which the cover was applied to the shell, not to the manufacture of the cover itself. Their conclusions in this regard were never challenged and no evidence was called by the defendant on the question. Accordingly, the limitation on liability expressed in Dunlop's quotation has no effect on its liability to the plaintiff in this case. Such liability must be judged by reference to its obligations in contract and tort without limit.

46 The plaintiff claimed a breach of three implied terms of its contract with Dunlop. It has successfully proved a breach of two of those terms, that which required the defendant to use reasonable skill and care in carrying out the work of re-covering the pressure roller and that which required the defendant to ensure that the cover was adequately cured and vulcanised. The plaintiff is accordingly entitled to succeed in its claim for damages for breach of contract.

47 As well as its claim in contract against Dunlop the plaintiff put forward a case in common law negligence, alleging a duty of care arising out of the relationship between the parties, the course of dealing between them over many years, the nature of the work undertaken in re-covering the roller, the defendant's knowledge of the important function carried out by the roller in the plaintiff's manufacturing process and the massive forces imposed on the roller in that process. The plaintiff contended that the content of that duty of care was, in essence, the same as that of the duty imposed upon the defendant by the implied terms which it had conceded bound it in its performance of its contractual obligations.

48 The defendant denied the existence of this duty of care in its pleading but confined itself, at trial, to repeating that denial on the ground that:

There is no warrant for imposing a concurrent duty of care which could produce a different outcome to the application of the contractual terms.

49 By this submission the defendant was referring to the possibility that if the limitation on its liability which it contended was effected by the limited warranty clause in its quotation succeeded in limiting its liability for breach of contract, the imposition of a duty of care outside the contract might deprive that clause of its intended effect. No authority was cited by the defendant for the proposition that negligence could not co-exist with breach of contract in a case such as this and the matter was not argued further.

50 The two issues which could be affected by a finding of negligence against the defendant as well as a finding that it was in breach of contract are those which go to the issue identified by the defendant - namely the efficacy of the limitation of liability clause - and the issue as to whether damages might be differently assessed in negligence. However, having regard to the conclusion reached above as to the effect of the contractual term purporting to limit the defendant's liability in contract and the fact that neither party suggested that damages in this case would be assessed differently were there to be a finding of negligence, little turns on whether the defendant is in fact liable in negligence.

51 In light of the above it is sufficient to indicate that there would appear to be no reason why the defendant would not have imposed upon it a duty of care arising out of the relationship between the parties and the other matters relied upon by the plaintiff to which reference has been made. The content of that duty would not differ from the obligation imposed by the terms implied in the parties' contract, two of which were, as has already been held, breached by the defendant. The limitation of liability clause would have no application to a finding of negligence so that in the circumstances of this case the plaintiff would be entitled to damages for negligence, assessed on the same principles as it is entitled to damages for breach of contract. The tort produced the same damage as the defendant's failure to honour its contract. There is, accordingly, no need to pursue this matter further.

52 The MG cylinder central to this case was made in 1949 in the U.K. by engineers Bentley and Jackson. It was made of grey cast iron, a very brittle substance with a very low tolerance to deformation. It was installed at Maryvale in 1955 and operated there until it was replaced following the event of 7 April 2001 with which this litigation is concerned. It was certified to operate at a steam pressure of 50psi (344kPa). At all relevant times it was part of the M2 paper making machine.

53 According to the evidence of Mr Walker, since 1990 there had been a number of instances in which the cover on a service roll on this MG cylinder failed, but in none of them did the whole cover come off the roll. He dated these events as having occurred in April 1995, November 1995, April 1999, July 1999, May 2000 and August 2000.

54 The first cover failure in April 1995 occurred in what he described as a "trial" cover called "Tempwear", supplied by the defendant as a premium cover to prevent the edges of the service rolls on the M2 machine from becoming hard and brittle, resulting in cracking. This cover failed after being in service for only 24 hours. The defendant subsequently admitted that it was defective.

55 Each of the other cover failures involved the cover cracking and becoming brittle so that small pieces of rubber fell out. None of the failures before 7 April 2001 involved the whole cover coming off the shell. Mr Walker said that when he inspected the delaminated cover after the event it had none of the defects described as having accompanied earlier failures.

56 In late March 2001 the MG cylinder was inspected by two technicians, a Mr Elsässer of Prüf-Werkstofftechnik GmbH and a Mr Frech of Voith Paper Rolls GmbH and Co, German companies involved in the paper industry. Mr Elsässer's company was a sub-contractor to Voith. He established that the MG cylinder had an even shell surface within .02mm, except for one small area which was within .03mm.

57 Mr Frech attended at Maryvale with a Mr Keller at about the same time as Mr Elsässer. He measured the surface of the MG cylinder, ground it and performed minor repairs to it.

58 The work the German technicians carried out involved ultrasonic stud integrity inspections of the head/shell studs, the head/journal studs and the shell of the MG cylinder. There was external and internal inspection for corrosion, a head tilt test, an internal spigot fit gap inspection of the head to shell fit of the cylinder and a run-out check of the shell. Mr Walker explained that an internal spigot fit gap inspection was an examination of the fit between the shell of the MG cylinder and the front head and the fit between the MG cylinder and the back head. Voith found the MG cylinder to be fit for service, it passed all of Voith's evaluation criteria and Voith made no recommendations for repair or further maintenance.

59 The effect of the evidence of Mr Elsässer and Mr Frech, which was not challenged by cross-examination, was that a week prior to the delamination of the roll cover on the pressure roller of the MG cylinder on the M2 machine that cylinder was neither dented nor displaced.

60 The most direct evidence as to the event of 7 April 2001 came from Jamie Hamilton, who was a dryer-man at Maryvale. On the morning of that day he was in Crew 4 at the M2 machine. He was responsible for the "dry" end of the machine, that is to say the end nearest the MG cylinder. He said he was in the control room adjacent to the MG cylinder when he heard a "massive bang". There was then a lot of "noise, thuds and vibration". He saw pieces of rubber going up into the hood above the MG cylinder and there were some small pieces going into the after-dryer. He said he thought the MG cylinder was going to "blow up". He took steps to shut it down. It took about 30 seconds for it to stop.

61 Mr Hamilton also gave evidence that before the event he described nothing untoward had happened. There was nothing out of the ordinary. In his evidence Mark Walker said that records kept for the M2 machine showed no abnormal operation in the period immediately before the event. Those records showed that the event itself occurred at 5.59am on 7 April, a Saturday morning.

62 Richard Burgess, the maintenance superintendent for the M2 machine, said that he got to the mill within about half an hour of the incident happening. He said that he saw large portions of the rubber cover of the pressure roller scattered about the M2 machine. He described the event as a "catastrophic failure" of the service roll cover.

63 There was little challenge by the defendant to any of this evidence although it maintained at trial that the only actual damage to the MG cylinder which could be linked to the incident of 7 April was a small indentation which could easily have been ground out. It maintained that the technicians from Voith who ground the cylinder in the days immediately before 7 April were still present in Australia and could easily have ground the indentation out without affecting future performance of the MG cylinder or causing the MG cylinder to be "de-rated," that is to say, operate at a lower pressure, such that it would be less productive. It submitted that there was sufficient thickness in the shell to permit a small indentation to be ground out without causing the cylinder to be de-rated. This would only occur if considerably more than was necessary was ground off. After the Voith re-grind at the end of March there would still be a thickness margin if the amount required to eliminate what, it contended, was the only damage to the cylinder was ground off. The plaintiff vigorously contested these submissions. Its case was that the event of 7 April 2001 effectively rendered the MG cylinder irreparably damaged so that it had to be replaced.

64 In 1999 Mr Walker had suspected that an incorrect camber of the MG cylinder might be a possible cause of the partial roller failures which had been experienced. An incorrect camber could lead to excessive loads being applied to the outer edge of the pressure roller. He measured the MG cylinder to establish whether it had the correct camber. He found that the outer edges of it were higher than they should have been and determined that the cylinder should be re-ground. Before this exercise was carried out, however, a fitness-for-service inspection was commissioned from Beloit, one of the then prominent manufacturers of papermaking equipment. The inspection was carried out, in October 1999, by Dennis Alan White, a non-destructive examination inspector whose company, Inspection Systems and Services Inc consulted in this area. Mr White has had long experience in the non-destructive testing of boilers and pressure vessels, particularly in the paper industry. His CV, which was before the Court, was impressive, especially with respect to his experience with pressure vessels, and Yankee dryers or MG cylinders in particular. It was not challenged. Indeed, an expert called by the defendant, Professor Andrew Samuel, conceded that Mr White enjoyed an international reputation in the field of testing Yankee Dryers.

65 Mr White examined the MG cylinder at the plaintiff's mill at Maryvale in October 1999. He carried out a number of different technical tests on it. They were an acoustic emission test (AE test) of the shell of the cylinder, a magnetic particle inspection (MPI) of the heads of the cylinder, an ultrasonic testing (UT) examination of the bolts on each end of the MG cylinder and a UT examination of the thickness of the shell of the MG cylinder in three different positions. All of Mr White's tests were carried out in accordance with a number of different international codes and standards applicable to the test being performed. These codes and standards, which are highly technical in nature, dictate the procedures to be applied when carrying out the various tests referred to in the examination of pressure vessels such as MG cylinders. In particular, Mr White applied the directions contained in two publications of the Technical Association of Pulp and Paper Industries (TAPPI): "Guidelines for the Inspection and Non-Destructive Examination of Paper Machine Dryers" and "Yankee Dryers: Guidelines for Safety and Condition Assessment".

66 In his evidence Mr White described the purpose of non-destructive examination of steam heated pressure vessels such as the MG cylinder as being to locate "indications". An indication is a linear fault in the material being examined. According to the American Society of Mechanical Engineers a "rejectable indication" is any linear fault in the shell of a pressure vessel which is at least three times as long as it is wide. "Indications" were sometimes, in the evidence in this case, referred to as "cracks": a description vehemently disputed by the defendant. They could, perhaps, be better understood as defects or irregularities, not all of which have particular structural significance.

67 Mr White described acoustic emission testing (AE testing) as seeking to identify indications in a body such as a pressure vessel by measuring the emission of "elastic energy" from the vessel. It does this by measuring electrical impulses transmitted between sensors placed at various points on the surface of the vessel. The characteristics of such impulses are able to be analysed by a computer, using proprietary software, to enable deductions to be made as to what is happening within the material tested. Such testing is a well-recognised non-destructive testing method.

68 Magnetic particle inspection (MPI) is a form of crack-testing of ferrous metals. When a magnetic field spans a crack in a steel or iron surface, one side of the crack will be charged "north" and the other "south". MPI takes advantage of this phenomenon to examine articles capable of being magnetised. There were two variations of MPI referred to by Mr White in his evidence. Contrast background magnetic particle inspection (CBMI) involves the application of a thin background (or contrast) layer of paint on the object being examined which is then spread with a medium of magnetic particles whilst electrical current is applied. Fluorescent wet magnetic particle inspection (WMPI) involves spreading the surface of the article being examined with a fluorescent liquid medium in which magnetic particles are suspended and then examining the surface under ultraviolet light during and/or after part-magnetisation of the object. Mr White considered this testing method to be the most sensitive available.

69 Mr White described ultrasonic testing as being a method of testing an object using piezo-electric transducers placed on the surface of the object to pass sound into it and then measuring the sound reflected from it. The thickness of the material being examined can thus be calculated by deduction from those reflections. This method can detect any interface or discontinuity within the material being examined.

70 The result of Mr White's testing of the MG cylinder in October 1999 was summarised by him as follows:

(a) The AE test revealed some AE activity from the drive side head of the vessel. The data was characteristic of attached metal (bolting) strain caused by differing thermal expansion coefficients around a bolting discontinuity. In my opinion, the activity noted was caused by, one or more, very small head/shell bolting flaws;

(b) the MP examination revealed no rejectable indications;

(c) the UT examination of the head/shell bolts revealed no rejectable indications;

(d) the shell was 2.057" thick at the centre, 2.003" thick at the tending side and 2.023" thick at the drive side.

Mr White considered that these test results, together with other examination data which he collected, indicated that the MG cylinder was fit for service when he inspected it in October 1999. Mr Walker received a report of Mr White's fitness-for-service test from Beloit. It noted that "no rejectable indication was noted during the magnetic particle inspection".

71 Shortly after the incident of 7 April 2001 Mr Walker contacted Roy Tyrer at Sandusky Walmsley, the successor company to Beloit, to determine what tests should be performed prior to putting the MG cylinder back into service. Mr Tyrer recommended a run-out test, wet fluorescent magnetic particle inspection and an acoustic emission test as had been done previously.

72 On 10 April Mr Walker and two fitters performed the run-out test suggested by Mr Tyrer. They took extensive measurements, with dial gauges, of the surface of the shell of the MG cylinder. They recorded these measurements and repeated them in an area where they found a significant indentation. They found and recorded a maximum deviation of 1.35mm on the point of the shell of the cylinder which they described as being "at Voith bolt #24" - a particular point described by reference to one of the features on the outside of the end of the cylinder, namely a "Voith bolt". By "deviation" Mr Walker explained that he was referring to the difference between the highest and lowest points in a particular quadrant of the cylinder - thus measuring an indentation. The quadrant in which Voith bolt #24 is found is that quadrant between Voith bolts 15 and 30.[12] Mr Walker repeated these measurements with the same result on 12 April.

73 Overall, Mr Walker's measurements, charted on an exhibit before the Court, showed that the MG cylinder was significantly displaced and had many indentations in it after the incident of 7 April. In particular they demonstrated an external depression in the cast iron MG shell.

74 Mr White returned to Maryvale on 18 April 2001 and between then and 21 April tested the MG cylinder again, having been requested to do so by Roy Tyrer of Sandusky Walmsley. He summarised the conclusions which he reached on that occasion in his evidence as follows:

(a) The MG produced an alarming amount of AE data, at an alarming rate, with a quarter of the operating steam pressure. The most active source of acoustic emission was the area of the external depression in the cast iron MG shell. The results were characteristic of existing and new damage to the cast iron shell in that area. The results were the worst I have ever experienced;

(b) Following the MG test I performed an MPI test which revealed indications in the outer surface of the shell in the area of the depression. I note in this regard that the reference in my report of 19 April 2001 to the indications being 10mm apart is incorrect. They were approximately 10"apart;

(c) My examination of x-rays of the area of the depression provided to me by Peter Miller of Intico Pty Ltd showed the existence of acceptable levels (grade 2 and 3) of casting shrinkage (also known as casting porosity);

(d) An internal examination of the cylinder in the area of the depression using a straight edge and light source did not show a bulge corresponding with the external depression.

The "depression" referred to by Mr White was that found by Mr Walker when he performed the run-out tests already described.

75 Mr White said that whilst he was conducting these tests he became very concerned at the results he was obtaining. Although he had intended to pressurise the MG cylinder up to 340kPa he aborted the test when the steam pressure reached 80kPa because it became apparent to him that damage to the MG cylinder was worsening during the test. He considered it unsafe to continue. He explained his concern as being that the cylinder might explode. In answer to a question from the Court as to why pressurising the cylinder was dangerous, he said that if a Yankee dryer fails in its shell " ... it destroys a city block". Mr White was not cross-examined on this statement.

76 Mr White undertook further inspections and performed further tests in March/April 2004 on the MG cylinder in relation to this litigation. By then, of course, the cylinder was out of service and had been so for three years. It had been removed from the paper factory and was stored in an open area at the Maryvale mill.

77 On 29 March 2004, Mr White carried out an MPI examination of the cylinder in the area of the original depression and found five further linear indications. On 1 April he carried out a further AE test and found that there was significant AE activity during the test, both during pressurisation and when the pressure was kept static. Because he considered that the AE activity level of 19 April 2001 (when he tested the MG cylinder shortly after the event of 7 April) was a warning of impending failure of the cylinder, all work activity within 200 yards of the cylinder was stopped for the duration of the AE test.

78 On the same day Mr White carried out a further MPI test on two of the indications in the area of the original depression which he had identified in April 2001. One of those indications had grown from 5mm to 10mm and another had grown from 12mm to 20mm during pressurisation on the AE test. A UT examination of the depression found three ultrasonic indications.

79 The document relied upon as Mr White's final report following his examination and testing of the MG cylinder in April 2004 was dated 2 April 2004, although it appears to have been actually produced somewhat later. He expressed his conclusions/recommendations in that report in the following terms:

The #2MG Cylinder cannot be recommended for steam pressure service because:

• The appearance of new WFMPI indications each time cast iron cylinders is examined demonstrates that the #2MG is/was unsafe for continual service.
• All WFMPI and AE indications would need to be absent from the cylinder before it could be recommended for service.

Acoustic emission examination is recommended prior to any future steam service of this cylinder.

80 In the body of his report Mr White described the damage suffered by the MG cylinder in the incident of 7 April 2001 thus:

The #2 MG Yankee shell suffered an enormous inward force, creating a depressed area when the delaminated pressure roll cover passed through the nip between the Yankee and service roll. The force of the impact is attested to by the fact that the 90 Tonne Yankee was lifted, along with its bearing housing, stretching the housing "hold-down" bolts. The observable damage is a depressed area of the Yankee shell, most notably about 1mm deep around an area 1425mm from the shell front edge in line with bolt 23 (or bolt 46 depending on the numbering system). The #2 MG Yankee cast iron shell was sufficiently stressed to cause permanent material strain (deformation).

The cast iron in the depressed area of the #2 MG Yankee shell is permanently deformed. In order to remain in this state, it must have significant residual stress. The depressed area continuously exhibits new linear indications on the shell surface due to the high residual stress(s). This can be thought of as similar to the way safety glass continues to crack once its material strain limit is exceeded.

81 Mr White was cross-examined with respect to his report by reference to another version of it in which his conclusions/recommendations were expressed in different terms:

The #2 MG cylinder cannot be recommended for steam pressure services until all AE and WFMPI indications are removed from the shell area.

Acoustic emission examination is recommended prior to any future steam services of this cylinder.

82 Counsel for the defendant tendered two emails which, read together with their attachments, made it clear that Mr White had told Messrs Tyrer, Ryder and Butler of Sandusky Walmsley that his conclusions/recommendations in his "first" report had been "rephrased" at the suggestion of a solicitor of the firm of Hunt and Hunt, the solicitors for the plaintiff.

83 Consequent upon the revelation of this alteration to Mr White's report, and the way it appears to have come about, it became necessary for the Court to consider carefully whether this matter affected the reliance which could be placed on his evidence generally, and in particular whether his opinion should be accepted concerning the damage which was done to the MG cylinder and the effect of that damage. That is the central issue upon which his opinion is relied on by the plaintiff.

84 Having considered this matter I have decided that, notwithstanding the alteration to his report which he conceded and other concessions which he made in cross-examination to the effect that he may have discussed his conclusions generally, before writing his report, with other people who had an interest in the effect of his tests, I should generally accept his evidence. I reach this conclusion, principally for two reasons. First, the description of the damage to the MG cylinder in the first version of Mr White's final report set out above is identical to that in the version with the altered conclusion. That conclusion is generally in line with the opinion of other experts concerned with the MG cylinder since the event of 7 April 2001, including experts who were not challenged by the defendant. This is important because it is that damage and its extent which is of central importance to the ultimate question in this case.

85 Secondly, neither of the two versions of Mr White's final report proffer an opinion as to whether it might be possible to remove the indications found in the MG cylinder by WFMPI and AE testing in April 2004 (as well as in April 2001). The differences in the two conclusions are of emphasis rather than of substance. Under cross-examination he adhered to his conclusions expressed in the rephrased report. He said he was intending to give the impression that the MG cylinder might not be repairable. He described it as "toast". I am satisfied that Mr White is generally a witness of truth whose evidence ought to be accepted.

86 One of the principal issues in this case was whether the plaintiff's decision to replace the MG cylinder on the M2 paper making machine after the event of 7 April 2001 was reasonable. Much of the defendant's case was concerned with criticising that decision with a view to demonstrating that the plaintiff's actions in replacing the MG cylinder were unreasonable, thus leading to a conclusion that its claim for damages should be limited to the reasonable costs of necessary repairs to the cylinder rather than the cost of replacement.

87 After Mr White completed his tests in April 2001 he expressed the opinion that those tests had shown that the cast iron of the MG cylinder was damaged and, indeed, was damaged further during the tests themselves even though the steam pressure in the cylinder was raised to only 80kPa: well below a rated working pressure of 344kPa. He gave evidence that following the tests he discussed carrying out further tests with Mr Walker. He told Mr Walker that further AE testing would be required, but that he thought it was risky to pressurise the vessel with steam as there was a distinct possibility it would explode and that a possible alternative was to pressurise it by filling it with water, called hydrostatic pressurisation. However, having regard to the size and weight of the MG cylinder, its position inside the Maryvale plant and the weight of the water which would be required to pressurise it, any such testing would require extensive strengthening of structural components of the M2 machine and significant engineering work to the building in which it was housed. Such work would be extremely time consuming and costly. Mr Walker told the Court that about 65 tonne of water would have to be put into the MG cylinder which would need to be independently supported (other than on its own bearings or journals) to be able to carry out this exercise safely.

88 Clive Robert Butler was, in 2001, product line engineer-Yankee, MG and paper dryers with Sandusky Walmsley in the U.K. His CV, which was before the Court, attested to extensive qualifications and work experience in the paper industry and in particular with respect to MG cylinder operation. He was on each of two sub-committees of the Technical Association of the Pulp and Paper Industries (TAPPI) which were concerned with the operation of MG cylinders, namely the "Yankee Dryer Safety Sub-committee" and the "Steam Heater Paper Dryer Sub-committee". He had been a member of both those committees for many years. Their charter was, he said, to inform dryer owners and operators of the safety aspects of MG dryers.

89 Mr Butler gave evidence that following the incident of 7 April 2001 he was informed of the results of the run-out, AE and MPI tests performed by Mr Walker and Mr White and asked to provide a written recommendation regarding the options available to the plaintiff. His evidence was that he formed the view that:

... The cylinder could not be returned to service without removal of all indications found on its surface, to be followed by further hydrostatic and acoustic emission testing. Particularly in light of my understanding of Dennis White's tests, I considered it extremely unlikely that the cylinder would pass such tests, even if repairs were carried out.

90 Mr Butler said that he had formed his opinion on information given to him by Roy Tyrer of Sandusky Walmsley and Dennis White to the effect that measurements of the external surface of the cylinder had found a depression in it extending over an area of the circumference and up to about 1mm deep, that the cylinder had failed on all three of the acceptance criteria on AE testing, that the number of acoustic hits, their magnitude and the low pressures at which they were recorded were unprecedented and that a subsequent magnetic particle inspection had found indications within the depressed area.

91 Mr Butler wrote a letter of advice to Mr Walker of the plaintiff. The letter was dated 20 April 2001 although it was probably not received by Mr Walker, as an attachment to an email to him from Roy Tyrer, also of Sandusky Walmsley, until the following day. Mr Butler's conclusion in that letter was expressed in the following terms:

• The shell was sound before the incident.
• The shell has cracks/indications.
• The AE results are at a level higher than any known dryer currently in service.
• The dryer should not be operated in it's (sic) present condition.

1. Remove the dryer from service and find a replacement/new dryer.
2. Remove all visible indications/cracks by grinding, hydrotest the dryer in the presence of your local Authorised Inspector, an AE examination to be included in the test. Only if the results of the AE examination are acceptable can the operation of the dryer be considered.

We would also advise that option 2 is a "long shot" and unlikely to be acceptable to your insurance carriers or the Authorised Inspector. We do not recommend this course of action, as it is very costly with little hope of success.

Despite having travelled from the United Kingdom, Mr Butler was not cross-examined, either on the opinion expressed in this letter or otherwise.

92 Mr Walker told the Court that he took part in a video conference on 20 April 2001 with a number of executives of the plaintiff including Ian Wightwick, the CEO. Mr Wightwick, who chaired the conference, asked Mr Walker what had been found out to that time concerning the MG cylinder. Mr Walker told the meeting that dial gauge tests, fluorescent MPI tests, acoustic emission tests and an x-ray of the MG cylinder had been carried out. All of the data collected, he said, suggested that the MG cylinder was damaged in the area of an indentation which had been found. He said he described the indentation to the meeting and told the meeting that it had not been present on previous surveys of the cylinder. He said that he described the properties of cast iron and, in particular, the fact that it does not give or yield significantly as compared with mild steel. He said he told the meeting that it was his opinion that the failure of the cover of the #2.132 service roll had caused a localised force which had caused the indentation in the MG cylinder as that was the only event which had occurred between the end of the March 2001 shut down (when Voith carried out its testing and grinding) and the incident on 7 April which could have produced such damage. He said that he told the meeting that to move a 2" thick MG cylinder shell 1mm in a localised area permanently could only mean that the cast iron structure had been damaged and fractured. He said that he described the acoustic emission tests in detail and told the meeting that in pressuring the MG cylinder during those tests further damage was being done.

93 Mr Walker said that he told the meeting what he thought the Company's options were. It could remove the source of the acoustic emissions by removing all the linear cracks found in the indentation at Voith bolt #24 which would involve repetitive wet fluorescent magnetic particle inspections and the grinding out of all the linear cracks. Further AE tests would then be required to confirm that all live cracks had been removed following which the cylinder would have to be sprayed with metal spray and re-ground by removing a minimum of 1mm off the shell. But he also said that he was not prepared to do any further AE testing using steam, given the risks which had already been taken in the course of Mr White's tests. He said that the only other option was to do AE testing by pressurising the MG cylinder using water in place of steam. He told the meeting that this was the safer means of pressurising the MG cylinder because if the MG cylinder failed under pressure the amount of energy released would be minimal and there would be less risk to personnel doing the AE testing. He said that he told the meeting that this procedure would take a considerable amount of time and effort and involve further downtime of the M2 paper machine with little chance of success. He said that he pointed out to the meeting the problem of the weight of the water to be added to the MG cylinder to undertake hydrostatic AE testing and that this additional weight would require alternative supports to be built to prevent the MG cylinder failing under its own weight. He said that he told the meeting that there was still a risk that, even with appropriate supports, further damage could occur due to additional forces generated by the water load.

94 Mr Walker said that Mr Wightwick said that there was no further point in proceeding as he had outlined as the Company would have no customers left by the time the testing referred to was completed. He said Mr Wightwick was keen to commence the manufacture of MF[13] papers for the Company's MG customers as quickly as possible. He said that Wightwick said that the sales and marketing group of the Company had a considerable job ahead to launch MF papers in place of MG papers. Mr Walker said that he told the meeting that another option was to get a new MG cylinder which would take about 12 months. Wightwick then said to the meeting that the Company should proceed to try to first find an available second hand MG cylinder as there would be no MG paper customers left if it took 12 months to get a new MG cylinder.

95 Mr Walker said that he estimated that the work required to undertake AE testing by pressurising the MG cylinder using water instead of steam would have caused the M2 machine to be closed completely for four or five weeks. The extensive engineering and building works required to be undertaken to the building in which the M2 was housed would have cost in the order of $700,000.

96 Mr Walker said that after the meeting of 20 April 2001 he telephoned Roy Tyrer of Sandusky Walmsley and advised him that he agreed with Dennis White that the source of the acoustic emissions found on AE testing were linear indications and crazed cracking in the area where the run-out test earlier performed had found an indentation. He told Tyrer that it would be risky to do AE testing using steam and that the alternative, using water, was impractical having regard to the machine downtime which would be involved. Mr Walker said that after further discussion Mr Tyer expressed the opinion that " ... we were flogging a dead horse".

97 Mr Walker gave evidence that he eventually received an email from Roy Tyrer attaching the letter from Clive Butler dated 20 April 2001 expressing the opinion that the MG cylinder should be replaced and enclosing a quotation from Sandusky Walmsley for a new MG cylinder. He also received a letter on 2 May 2001 from Roy Tyrer expressing the opinion that Sandusky Walmsley regarded the damaged MG cylinder as having had an unlimited life expectancy prior to the incident of 7 April 2001.

98 Mr Walker's evidence reveals that notwithstanding the advice which the plaintiff had received, further testing and investigation was continued to be carried out. Mr Walker said that he took advice from Peter Thorpe of PH Thorpe & Associates who were consulting engineers which advice confirmed Dennis White's opinion that the MG cylinder had to be taken out of service.

99 A company called Intico was subsequently engaged to perform a wet fluorescent magnetic particle inspection of the MG cylinder. Mr Walker said that he wanted this test done because he had not been present when Dennis White had performed his test on 20 April. Peter Thomas Miller, a non-destructive technician employed by Intico, performed that test on 11 May 2001. It was performed in the deformed area in from the tender side of the cylinder. It was carried out in accordance with the requirements of Australian Standard 1171 and reported upon by Mr Miller. He found seven indications in the area between Voith bolts 21 and 24 at varying distances from the tender side. This was in the area of the indentation found by Mr Walker. The indications were between 3mm and 6mm. Mr Walker told the Court that this testing confirmed what Dennis White had found on 20 April. Mr Miller was not cross-examined.

100 In addition to the test which he performed on the composition of the failed roller cover, Harry Mowbray re-assembled the pieces of the failed cover and expressed an opinion as to the mechanism by which the cover came away from the shell. In his report, which was before the Court, Mr Mowbray described the sequence in which parts of the cover came away. From indications of severe crushing on parts of the roll cover he concluded that pieces had passed back through the nip between the roller and the MG cylinder. He said:

There is little doubt in my mind that there was sufficient energy in terms of static loads and momentum to cause a displacement of the MG surface that has occurred there is also evidence showing the main energy absorption in the cover during the catastrophic failure aligns with the damage on the MG cylinder. (sic)

101 Mr Mowbray is an agent for the supply of various components and services to the paper industry. He was cross-examined extensively as to his motive in preparing his report for the plaintiff. He admitted in cross-examination that he did so in the expectation that he would become the preferred supplier of roll covers to it. He also acknowledged an emotional email he wrote to Mr Walker expressing his disappointment upon being informed that he would not have the opportunity to become the new supplier, despite having expressed an opinion favourable to the plaintiff's case. Notwithstanding this cross-examination and the frank admissions made by Mr Mowbray, which were heavily relied upon by counsel for the defendant in criticism of his evidence, I am satisfied that his principal interest in the investigations he undertook was to determine how the cover had delaminated and what the effect of that event was. I am also satisfied that the fact that he had a commercial motive for supporting the plaintiff's case does not diminish the overall effect of his evidence. Having observed him give his evidence and having considered the concessions which he made I am satisfied that his evidence is cogent and reliable notwithstanding. It is supported by much of the other expert evidence. I accept it.

102 Before leaving Mr Mowbray it should be noted that in cross-examination by Mr McArthur he said that it was known in 2001 in the paper making industry that there was a risk that rubber from a delaminated pressure roller could cause damage to an MG cylinder. He also said that he did not know of any way an MG cylinder could be protected from damage in the event that a pressure roller did delaminate. In other words, the event which the plaintiff alleges occurred in this case, namely damage to an MG cylinder caused by a delaminating pressure roll cover represented, in Mr Mowbray's opinion, a recognised risk in the paper making industry in 2001.

103 The decision to condemn the MG cylinder was effectively taken by the plaintiff at the teleconference of 20 April 2001, although I accept the plaintiff's submission that even then that decision was not irreversible had some reason emerged which rendered it inappropriate. As it happened, justification of the decision was significantly strengthened by the letter from Mr Butler from Sandusky Walmsley dated the same day but received some time after the meeting. Mr Walker told the Court that the plaintiff's CEO had made the decision to try to obtain a secondhand MG cylinder as " ... the market place wouldn't wait".

104 Mr Walker tried to locate a secondhand MG cylinder through the only three worldwide manufacturers of such cylinders, Voith, Metso and Sandusky Walmsley. He told the Court that he made enquiries of his contacts in the tissue paper manufacturing industry and of secondhand dealers in MG cylinders. He was unable to locate a suitable secondhand cylinder. None of Mr Walker's evidence on this topic was challenged.

105 Further expert evidence was tendered by the plaintiff on the issue as to whether the MG cylinder was repairable. This evidence was from two experts, one a world authority on MG cylinders and their safe operation, the other a former industrial safety regulator.

106 William Grant Corboy was retained by the plaintiff as an expert to provide an opinion as to whether the MG cylinder could have been returned to successful operation after 7 April 2001. He is a professional engineer with particular expertise in relation to dryers in the paper making industry. He has tertiary qualifications in engineering and long experience in the United States paper industry. He has published papers on Yankee dryers including the TAPPI guidelines on their safe operation. He operates a consultancy called Yankee Consulting Inc. in New Jersey, USA.

107 Mr Corboy wrote three reports which were before the Court. They were dated 29 May 2004, 31 March 2005 and 31 July 2006.

108 In his first report Mr Corboy said he accepted, as the basis of it, Mr Harry Mowbray's opinion as to the cause of the event of 7 April 2001. He concluded that the MG cylinder was not capable of being returned to service after that event. He gave a number of reasons for this opinion, including that it would be necessary, in attempting to repair the cylinder, to grind more than 1mm from its surface to eliminate the high residual stresses within the cast iron structure caused by the assault to it by the delaminating roll cover. He explained residual stress in his oral evidence as being produced when cast iron is stressed beyond its elastic range so that some of the energy put into it at the time it was deformed still resides within it. He concluded that the MG cylinder had been subject to "plastic deformation". He said that the internal surface of the MG cylinder shell, as measured by the defendant's experts, Professor Samuel and Mr Bell, confirmed the original run-out measurements of the outside of the shell taken by Mr Walker shortly after 7 April 2001.

109 Mr Corboy was of the opinion that any attempted repair of the cylinder by grinding would result in its being de-rated - that is to say being required to be operated at a decreased pressure - thus preventing its return to successful operation.

110 In his report of 31 July 2006 Mr Corboy referred again to the residual stresses in the MG cylinder and said that such stresses were only remediable through stress relief heat treatment which he considered impractical either in situ or at an external workshop. He said that even if such treatment was possible, which he maintained it was not, " ... it is extremely unlikely that subsequent machining to return the vessel to papermaking standards could be performed without reducing shell thickness below the Derating Thickness, rendering the vessel inoperable."

111 In his reports of May 2005 and July 2006 and in his evidence before the Court Mr Corboy expressed serious disagreement on a large number of matters with the expert witnesses relied upon by the defendant, Professor Samuel and Dr Martin. He not only disagreed completely with their ultimate opinions but also identified what he considered to be a number of errors in their methodology. Although he was cross-examined, that cross-examination related mainly to matters going to his credit. His conclusions and his criticism of the defendant's case were not challenged. For example, Mr Corboy expressed the following opinion with respect to Professor Samuel's suggestion that one method of repairing the MG cylinder was to use "metallocking":

No professional, with sufficient knowledge of the industry would venture to submit metallocking as a credible, permanent MG shell repair recommendation.

This definitive opinion was never challenged in cross-examination. There were many other opinions of Mr Corboy's left similarly unchallenged. No effective inroads were made into Mr Corboy's evidence in the course of cross-examination, leaving it as an appropriate basis upon which to reach conclusions in this case.

112 In 2005 the plaintiff engaged yet another engineer to provide expert evidence as to the MG cylinder. He is Mr Donald Robinson, who was, for 18 years, Victoria's Chief Inspector of Boilers and Pressure Vessels. Not surprisingly, having regard to his background and experience, Mr Robinson emphasised occupational health and safety considerations in the opinion which he expressed in a report dated 14 June 2006 which was before the Court.

113 In his report Mr Robinson referred to the statutory responsibility imposed upon the plaintiff by s 21(1) of the Occupational Health and Safety Act 1985 to provide and maintain, as far as practicable, a working environment for its employees which is safe and without risks to health.[14] He also referred to the statutory duties imposed upon employers by the Occupational Health and Safety (Plant) Regulations 1995 to undertake hazard identification and risk assessment and control in respect of the operation of plant equipment such as the MG cylinder. In particular he referred to the absolute duty imposed by Regulation 708(1)(a)(i) to maintain the MG cylinder so as to eliminate any risk associated with its use, at least unless it was impracticable to do so.

114 Mr Robinson examined a number of the numerous other reports tendered by the plaintiff in this case including the reports of Mr White's tests on the MG cylinder conducted shortly after the incident of 7 April 2001 and again in 2004, and Mr Corboy's report of 29 May 2004. He also read reports from the defendant's expert witness, Professor Andrew Samuel, of 30 October 2003 and 7 October 2004 with two folders of documents, referred to as the Dunlop-Duratray documents, which he described as being relevant to the replacement of the cylinder and a report from Dr Gary Martin, also procured by the defendant.

115 Mr Robinson offered a number of opinions concerning the condition of the MG cylinder after 7 April 2001. In particular he concluded that if the cylinder had been returned to operation after the incident complete failure would have occurred. He considered that no competent boiler and pressure vessel inspector would have certified it as safe to operate. He considered that the fact that it was not practical to monitor any deterioration in the cylinder whilst it was in service should, of itself, have been sufficient to render the risk of using it unacceptable from an occupational health and safety point of view. In his written statement he said that, having reviewed material generated by the parties' experts, he was of the view that if returned to service the cylinder would, at some point, have exploded, even if the repairs suggested by the defendant had been performed satisfactorily.

116 Mr Robinson concluded his report with the opinion that, having regard to Mr White's findings in 2004 as compared with those of 2001 there was "...indisputable evidence that further use of the MG cylinder would constitute a grave danger to life and property..."

117 Mr Robinson was cross-examined by counsel for Dunlop on a number of matters but not on his conclusions as to the dangers inherent in putting this MG cylinder back into service even if it had been repaired in the way the defendant's experts suggested. These conclusions were nothing if not dramatic but were not challenged. Mr Robinson rejected emphatically any suggestion that he had been influenced in his opinion by other expert reports which the plaintiff had obtained and which he had read or by statements in his letter of instructions from the plaintiff's solicitors as to the eminence of the experts who had written those reports.

118 Mr Robinson impressed me as man who had had very long practical experience with pressure vessels and held firm views as to the dangers they could pose for people working with them if they were not free of defects and properly maintained. Although he emphasised these safety aspects, in general terms his evidence was congruent with all of the other expert opinion obtained by the plaintiff.

119 The defendant ran a number of different cases. It contested liability on almost every possible basis. On this aspect of the case it contended that the plaintiff had no justification for replacing the MG cylinder even if it had been damaged in the event of 7 April 2001. The defendant argued that any damage was repairable and ought to have been repaired.

120 The defendant's principal witness on this aspect was Professor Andrew Samuel, a mechanical engineer who wrote reports dated 30 October 2003, 7 October 2004, 8 February 2005 and 6 June 2006. His opinion generally was that the damage to the MG cylinder was relatively superficial and capable of repair. It could have continued to operate successfully if the indentation caused by the event of 7 April 2001 had been ground out and the shell had been appropriately tested. He considered that the root strength remaining in the shell would not compromise the structural integrity of the cylinder. He thought that the cylinder had a substantial service life left as at April 2001, of the order of 80 to 100 years (which figure he revised in cross-examination to "at least 100 years").

121 Professor Samuel told the Court he had read two folders which he called "the Dunlop Duratray folders". Those folders were in evidence before the Court. From one of them he said he read a TAPPI document concerning the management and safety of Yankee dryers written by Mr Corboy. Before reading that paper he said he had no particular knowledge of the safe operation of Yankee dryers which was a very significant and important matter for paper manufacturers. He said he also read a paper contained in one of the folders entitled "Examining cast iron dryers and determining tensile strength" by Dennis White. He said, in cross-examination, that both Corboy and White enjoyed internationally recognised reputations and expertise in the paper making industry. He conceded that he was not an expert in Yankee dryers.

122 Professor Samuel accepted Mr Walker and Mr White's measurements of the depression or indentation found in the MG cylinder after the incident of 7 April 2001. He thought that there had been one area of impact on the cylinder with several small impacts in that area. His opinion was that notwithstanding Mr Walker's run-out measurements and Mr White's AE testing it was most unlikely that the MG cylinder had suffered anything but superficial surface damage. He considered Mr White's AE testing to be of little significance even though the latter's opinion was that the "magnitude of the hits" he had obtained during such testing was above acceptable guidelines and the highest he had ever experienced.

123 In his report of 30 October 2003 Professor Samuel suggested that long term repairs of the MG cylinder could have been effected by "plugging" the damaged sections of its surface. He said he had been advised by a company called Metalok Australia that such repairs would have taken only one or two weeks and cost only about $10,000. Presumably such repairs would have been followed by a re-grind of the cylinder.

124 In his report of 6 June 2006 he referred to the possible need to relieve residual stresses in the cast iron of the cylinder by localised heat treatment followed by re-grinding. His opinion overall was that the damage to the MG cylinder was superficial. It could easily be repaired, enabling the cylinder to be safely returned to service. He refused to accept the safety concerns of a number of the plaintiff's expert witnesses (eg. Mr White, Mr Corboy or Mr Robinson). Any risk of catastrophic failure of the cylinder was, he thought, "not serious".

125 Professor Samuel is a mechanical engineer with high academic qualifications and long experience in mechanical engineering - particularly, it seems, in the area of engineering design. However, he has had no experience of steam heated paper dryers, no particular knowledge as to their safe operation and had never examined or investigated damage to an MG cylinder or, indeed, any cast iron pressure vessel. He conceded that, as an engineer, he had had very little experience of cast iron at all and such experience that he had had been early in his career.

126 In September 2004 Mr Paul Grosser examined the MG cylinder at Maryvale using a magnetic particle inspection (MPI) technique. Mr Grosser was a non-destructive testing technician employed by Advanced Technology Testing and Research (ATTAR) a company associated with Dr Gary Martin, a consulting engineer. He examined the cylinder with Professor Samuel.

127 Initially, Mr Grosser was instructed by Professor Samuel to look for all "indications" in the cylinder. He carried out a dry powder inspection using direct current, a contrast background inspection using direct current and the same inspection using alternating current. Because of the very large number of what he described as "very minor indications" he found between bolts 19 and 25 it was determined then to report only those indications greater than 5mm. He found three such indications, of 6mm, whereas he thought there were well in excess of 150 indications at less than 5mm, many greater than 2mm.

128 Mr Grosser's report places the location of each of the three larger indications he found at bolts 22.5, 22 and 21.5 at distances of 705mm, 845mm and 800mm from the tender end of the cylinder. The first two of these indications he reported as having been formerly identified as indications A and B in the report of Intico to which reference has already been made. The third indication he reported as having been "Not previously nominated".

129 Mr Grosser did not carry out wet fluorescent magnetic particle inspections of the cylinder because to do so would have required darkness. He said he believed that he did not require the level of sensitivity which could be obtained using WFMPI for the tests he was undertaking. Mr Grosser also carried out ultrasonic testing on the indications which he found but was unable to determine the depths of them.

130 Residual stresses in the shell of the MG cylinder, a topic introduced to the debate in this case principally by Mr Corboy, were attempted to be measured on behalf of the defendant by Ross Ulmer, an experimental stress analysis technician employed by HRL Technology Pty Ltd. Mr Ulmer has technical college qualifications and commenced work as a technician with the State Electricity Commission in its research laboratory in 1981. On 4 May 2006 Mr Ulmer went to Maryvale and met Professor Samuel and Dr Martin for the purpose of conducting residual stress analysis on the MG cylinder using the test method specified in a particular Standard. He said that the purpose of the tests he performed was to measure residual stresses at or near the surface of an object and up to about 2mm deep. He noted in his report that part of the test which he performed did not comply with the relevant American Standard and in cross-examination conceded that the test did not comply with the standard in another regard as well and that it had severe limitations. The testing which he undertook gave no indication of what residual stresses there were deeper in the material of the MG cylinder shell than the 2mm which he measured. He agreed that as there was plastic deformation of the MG cylinder variations in residual stresses would be expected throughout the thickness of the shell. Overall, Mr Ulmer's evidence was of little assistance in resolving the conflicts in opinion which were at the heart of this case.

131 Dr Gary Martin, a materials engineer with ATTAR (an organisation which he founded) agreed that some plastic deformation of the cylinder had occurred in the event of 7 April 2001, but that high residual stresses caused in the course of such plastic deformation would be limited to less than 0.5mm below the surface of the cylinder shell. He considered that they could have been removed by stress relieving followed by machining of the shell to restore the surface finish.

132 As far as the stress relief is concerned Dr Martin expressed the view that it could have been undertaken in situ or in an external workshop to which the cylinder was transported. He described the process involved and said that there were a number of companies in Australia which could undertake this work. Mr Corboy's opinion with respect to this process has already been referred to.

133 Dr Martin conceded in cross-examination that when cast iron is under strain it may get to a point where there is a permanent opening up of graphite cavities in the iron matrix. This condition represents severe plastic deformation which is not going to be significantly affected by stress relieving heat treatment.

134 Dr Martin is, like Professor Samuel, a highly qualified engineer with a PhD from Monash University. Although his CV describes long and extensive experience in engineering relating to the characteristics of many different materials he has had no experience in the paper industry and no experience with cast iron.

135 After Intico performed its examination of the MG cylinder on Mr Walker's instructions on 10 and 11 April 2001 he commissioned a metallurgical report from Mr Andrew Kelleher of Metallurgical Consulting Services Pty Ltd. Mr Kelleher was asked to examine and report on a particular indication found by Intico 2,700mm from the ring at the front head of the cylinder midway between bolts 11 and 12.

136 This linear indication was examined by Mr Kelleher using the technique of microstructural replication. This technique is designed to determine the nature of a defect such as that which Intico had described.

137 Mr Kelleher's conclusion was that the indication he examined was found to be associated with casting porosity characteristic of what he described as "hot tearing". He considered that the crack was evidence of the relief of tensile stresses established during solidification and cooling of the casting. In other words the defect was present from the time the cylinder was manufactured. Thus, if Mr Kelleher is correct, it had been in the MG cylinder since 1949!

138 Mr Kelleher said that he found no evidence of in-service crack propagation upon his examination. He considered this opinion to be consistent with what he understood to have been the direction of tensile stresses during the event of 7 April 2001. Mr Kelleher considered that whilst a defect such as that which he examined represented crack-like stress concentrators, it may well prove unreasonable to condemn the cylinder as a consequence of these defects which have been in it for so long without any apparent ill effect.

139 The defendant relies upon Mr Kelleher's opinion to make a case that as it was not responsible for the Kelleher indication and that that indication, alone, would have been enough either to condemn the MG cylinder or at least put it into an uneconomic de-rate situation, no compensable damage has been suffered by the plaintiff. The incident of 7 April 2001 had nothing to do with the plaintiff's need to either repair or replace the MG cylinder. The defendant's counsel argued that the Butler letter of 20 April 2001, condemned the MG cylinder, not because of the damage done to it on 7 April but rather because of the Kelleher indication.

140 The plaintiff contends that Kelleher was wrong. In doing so it puts forward a number of separate arguments. First, only days before 7 April 2001 the cylinder was subjected to extensive examination by the German technicians Elsässer and Frech. They found no evidence of the Kelleher indication. Secondly, in 1999 the cylinder had been the subject of another fitness-for-service inspection which included AE testing by Dennis White and measurements and other observations by Mark Walker and other employees of the plaintiff. This inspection was carried out under the auspices of Sandusky Walmsley, the successor to the Original Engineering Manufacturer (OEM). The Kelleher indication was not found on that inspection.

141 Thirdly, Kelleher's description of the indication as being a casting porosity having the characteristics of a "hot tear" was disputed by Mr Tyrer of Sandusky Walmsley who explained that hot tearing occurs on the surface of a casting and would be ground off in the ordinary course of manufacturing the cylinder after the casting cooled. He regarded the indication as a service crack; that is to say a crack consistent with its having been caused in the incident of 7 April 2001.

142 Fourthly, the cylinder had been re-ground in 1975 as well as by the German technicians in 2001. It could not have escaped detection at these times if it was, in fact, present since manufacture, argued the plaintiff.

143 Fifthly, Mr Robinson, the former Chief Inspector of Boilers and Pressure Vessels, considered that the Kelleher indication was service related. He noted that its position on the cylinder relative to the indentation undoubtedly created by the event of 7 April 2001, namely one complete revolution of the service roll away from that indentation, suggested that it was caused by the next revolution of the delaminating service roll after the delamination commenced.

144 Professor Samuel was cross-examined on the Kelleher indication by Mr Derham for the plaintiff. Initially, he accepted Kelleher's description of it as being a "hot tear" but subsequently said he was not qualified to offer an opinion when confronted with Mr Tyrer's explanation of hot tearing and how it would be obliterated by subsequent grinding.

145 Having regard to the evidence to the contrary relied upon by the plaintiff the defendant's argument cannot be accepted. The Kelleher indication could not have been present in the MG cylinder since its manufacture. It is much more likely to have post-dated the German technicians' inspection and re-grind a few days before 7 April 2001. It must be concluded that it was caused by the delaminating cover of the #2.132 service roll.

146 The Kelleher indication was also subjected to a "potential drop" test by Australian NDT Services Pty Ltd, on 12 April 2001, to establish the depth of the crack or indication. The technician's report stated that it was a maximum of 4mm but, as Dr Martin noted in his report of 7 October 2004, the technician who did the test described the MG cylinder as being made of steel, not grey cast iron, so that the result reported was probably wrong, due to the different conductivities of the two materials.

147 Having regard to the determination of the issue of the Kelleher indication adversely to the defendant it follows that it is liable in damages to the plaintiff. The question still to be determined is whether that liability is to be calculated by reference to the plaintiff's losses occasioned by replacing the MG cylinder with associated consequential losses, or, as it claims, merely the cost of repairing it with such associated losses as would have been properly consequential had that course been followed.

148 A second, more difficult, question might have arisen if, in fact, the cylinder was repairable but that, on the information it had at the time, and in a bona fide attempt to limit its losses, the plaintiff mistakenly condemned the cylinder on 20 April 2001. Then questions as to the reasonableness of that course viewed against an ultimate finding that the cylinder was repairable could lead to a different result. However, as the conclusion that the cylinder was, in Mr White's terms "toast" following the incident of 7 April 2001 is compelled by the evidence that question does not arise. The loss suffered by the plaintiff, and thus the damages to which it is entitled, will be quantified as the cost of replacing the MG cylinder together with such consequential losses as are properly recoverable.

149 The delamination of the pressure roll on the MG cylinder on the No. 2 paper making machine on 7 April 2001 at Maryvale damaged that cylinder such that, as a matter of practical business and engineering practise, it had to be replaced. This was the conclusion reached by Mr Butler and/or Sandusky Walmsley on about 20 April 2001 following his consideration of all that he was told by Mr Walker and the results of Mr White's tests. It was the conclusion reached by Mr Walker himself, who was the engineer on the spot with primary responsibility, not only for keeping the factory in production but also for the safety and wellbeing of the plaintiff's employees who worked on and around the No. 2 paper making machine. These opinions are supported by the subsequent investigations conducted by Mr White in 2004 and the opinions of Mr Corboy and Mr Robinson.

150 The evidence of the plaintiff's witnesses generally, and that of Mr White and Mr Corboy in particular, is to be preferred over that of the defendant's experts, Professor Samuel and Dr Martin. Although both these witnesses were eminent engineers their evidence lacked the cogency of that of White and Corboy and they themselves lacked the vast experience of the paper making industry and Yankee dryers that the plaintiff's experts possessed. This experience extended beyond White and Corboy to Sandusky Walmsley and its employees Butler and Tyrer and, the plaintiff's employee Walker.

151 Neither of the defendant's experts considered the safety issue to be of any significance in determining the suitability for continued operation of the MG cylinder - Professor Samuel in particular dismissed it of being of little moment, despite the uncontested evidence of Mr White as to the damage which could be caused by an MG cylinder which failed. On the other hand, Mr Robinson, who may have lacked the formal qualifications of the defendant's experts, gave evidence of a regulatory regime which emphasised safety with respect to pressure vessels for obvious reasons. It should also be remembered that it would be the successor to Mr Robinson to whom Mr Butler was referring in the final paragraph of his letter of 20 April 2001 as the "Authorised Inspector". Butler thought that the authorised inspector would be unlikely to accept repair of the MG cylinder by grinding out the damaged area.

152 Much of the defendant's case sought to demonstrate a lack of good faith on the part of the plaintiff. It failed to do so. It suggested that the plaintiff had seized upon an opportunity to upgrade its plant by replacing the 60 year old MG cylinder with a new and more efficient dryer.

153 Although there was some evidence that various employees of the plaintiff had, from time to time, investigated whether the MG cylinder could take a higher steam pressure and thus increase production there is no evidence that the decision taken by the plaintiff on 20 April 2001 to replace the cylinder was motivated by any considerations other than those of returning the plant to running order as soon as possible to prevent the total loss of the plaintiff's customer base for MG paper.

154 The plaintiff is entitled to damages assessed on the basis that the defendant's breach of contract and/or negligence caused the effective destruction of the No. 2 cylinder on the MG paper making machine necessitating its replacement. The plaintiff's recoverable losses must include associated and consequential losses caused by its having to replace the cylinder including losses caused by delay, lost production and lost business consequent upon its incapacity to meet demand for MG papers.

155 The plaintiff makes its claim for damages under two principal headings: Material Damage and Consequential Loss. It separately addressed the issue of betterment, raised by the defendant as a matter which should diminish, or even extinguish, the plaintiff's claim.

156 At trial the plaintiff's claim for material damage was quantified at $4,756,952.93. Mr Walker gave evidence that the claim was fully itemised in a spreadsheet which was Annexure B to his further supplementary witness statement. He said he had constructed Annexure B himself by deleting a number of items from an appendix to a report of a forensic accountant, Dr Allan Manning, of 4 March 2003. He said he examined each of the relevant purchaser orders and invoices in respect of each of the items in Annexure B and that they all related to the incident of 7 April 2001, the investigation of the damage to the old MG cylinder, the purchase, transport, insurance and installation of a replacement MG cylinder and associated equipment (including frames) and works, the removal of the old MG cylinder and the testing and commissioning of the new MG cylinder. Annotations on this spreadsheet were written by Mr Walker. They are, accordingly, part of his sworn evidence in this case.

157 Mr Walker gave evidence that he was present during the removal of the old MG cylinder and the installation of the new cylinder. He produced photographs of the work. On any view it was a large mechanical and civil engineering project.

158 Annexure B contains items numbered from 1 to 253 (with some omissions). Each item is claimed in Australian dollars and is explained in annotations, which, where appropriate, express the amount claimed in foreign currency. As all Australian dollar amounts are arrived at by using exchange rates applied by the plaintiff's bank at the time it remitted funds overseas no question of exchange rate variation arises.

159 The claims made in Annexure B total $4,965,488.18 from which Mr Walker deducted $208,535.25. The total thus claimed in Annexure B is:

Less contract prices from presser[15] roll

160 Mr Walker explained the reason for his deducting an amount for the price of the presser roll. He said that the Sandusky Walmsley contract had included the sum of £UK199,600 itemised as follows:

161 He said that the air ride loading system and the roll removal rails and trolley were required as a result of the installation of the new MG cylinder as they formed part of the structure of the frame of the MG cylinder that had to be replaced. They were thus appropriately included in the plaintiff's claim. The three items above them were extra components not directly related to replacement of the MG cylinder. Mr Walker said that the adjustment required to remove the first three items in the part of the Sandusky Walmsley contract set out above from the claim was £UK77,631 which he converted to $208,535.25. As the plaintiff had paid the whole £UK199,600 in four instalments Mr Walker said that on this occasion he used an exchange rate derived by averaging the rates applied to each of those instalments when they were made, namely, $1.00 = £UK .372268.

162 The defendant challenged a number of matters included in Mr Walker's Annexure B. It did so by reference to a document entitled Annexure A to Defendant's Outline. It was part of counsel's argument, not part of the evidence before the Court. The defendant's challenges can be conveniently dealt with serially.

163 The plaintiff contracted with Sandusky Walmsley to manufacture a replacement MG cylinder for that which was abandoned after the incident of 7 April 2001. That contract, which was in evidence, provided for a total price of £UK870,865.00 ex Sandusky Walmsley's works at Bolton in the United Kingdom. The items comprising that contract were set out in it as follows:

All prices are on an Ex Works Bolton (Incoterms 2000) basis:

Bearings & housings for the MG, generally comprising:

• Mounting locations for MG cylinder, doctors, felts rolls & presser roll

164 The defendant claims that as Sandusky Walmsley's quote of 20 April 2001 to replace the MG cylinder at the time Mr Butler advised the plaintiff to do so totalled only £UK524,500, the plaintiff's claim is now excessive.

165 The Sandusky Walmsley quotation of 20 April 2001, insofar as it referred to price, was in the following terms:

One 14ft Diameter x 5080mm face MG Cylinder as described in the attached specification

166 The defendant complains that over and above the items specified in Sandusky Walmsley's quotation of 20 April 2001 the plaintiff has acquired more equipment, namely a new steam and lubrication system, new "frames" and new water cooled service roll and ancillary equipment.

167 On 11 January 2001, some three months before the event of 7 April, Mr Walker had proposed to his superiors a modification to a number of systems associated with the MG cylinder. These modifications were designed to interlock those systems, thereby providing a greater safety level in operating the MG cylinder and reducing the risk of its catastrophic failure. The budgeted cost of the project was $88,500.

168 Although the project was approved prior to April 2001 the work contemplated by it was not performed before the event of that day. However, when the MG cylinder was replaced it was replaced with interlock systems already in place which effected the improvement sought by Mr Walker in his submission of January 2001. It is appropriate, and the plaintiff concedes, that some allowance should be made from its claim in respect of this improvement to the operation of the MG cylinder. It argues that an amount of $88,500, being the amount which it would have spent in achieving that improvement itself, should be deducted. The plaintiff's argument and concession should be accepted.

169 Before leaving the interlock project it should be made clear that Mr Walker's memorandum of 4 January 2001 was concerned with a project which affected various systems on the MG cylinder but did not contemplate replacement of those systems. The defendant's submissions appear to suggest that the scope of the interlock project was somewhat more extensive than it was. Mr Walker's proposal was for the installation of a monitoring and switching system which would affect a number of existing systems on the MG cylinder. It was not a proposal to replace those systems. In as much as the defendant's submissions seek to bring under the umbrella of the "interlock project", systems such as the MG steam system, the MG drive, the MG service roll loading, the MG gas fired hood or the MG lubrication system those submissions must be rejected.

170 Sandusky Walmsley quoted £UK199,600 for the five items described under the heading "Presser Roll". The plaintiff has agreed that the first three of these items should not form part of its claim and they have been deducted from the total in Mr Walker's Annexure B. However, the defendant contends that the cost of the other two items, "air ride loading system" and "roll removal rails and trolley" should also be deducted.

171 When Annexure B was first prepared Mr Walker did deduct the whole of Sandusky Walmsley's quote under the heading "presser roll". However he subsequently gave evidence in these terms:

The air ride loading system and the roll removal rails and trolley were required as a result of the installation of the new MG cylinder as they formed part of the structure of the frame of the MG cylinder that had to be replaced.

He gave evidence that he included this item as soon as he realised that it was part of the Sandusky Walmsley quote under the heading "presser roll". It was submitted on his behalf that his failure to initially include this amount was a mistake and it should be allowed. The defendant submitted that the Court should not accept that explanation. The defendant's submission must be rejected. Mr Walker made an honest mistake. The amount claimed will be allowed.

172 The Sandusky Walmsley contract included an item of £UK47,400 under the heading "Bearings and Housing for the MG". The bearings referred to were roller bearings of the SKF brand in cast iron housings. Mr Walker said that the new MG cylinder was designed to operate with roller bearings which had to be provided when it was installed. The old MG cylinder operated with white metal bearings which were a different bearing system of a design which was, it may be supposed, as old as the MG cylinder.

173 The defendant contends that "the old white metal bearings could have been replaced with new white metal bearings".

174 Mr Tyrer of Sandusky Walmsley, said, in cross examination, that new bearings would be required for the new MG cylinder. The only evidence to the contrary was an oblique reference in an email written by Mr Tyrer in August 1999 which referred, non-specifically, to the MG cylinder being on "plain brass/white metal bearings" as a reason to "...have the MG itself under the spotlight." There is no reason not to allow this item as charged by Sandusky Walmsley.

175 The Sandusky Walmsley contract provided for an oil lubrication system for the new MG at a cost of £ UK 24,500. Mr Walker gave evidence that the roller bearings for the new MG cylinder were designed to be used with a modern lubrication system designed for roller bearings with an appropriate oil filtering system.

176 The defendant's objection to the inclusion of this item appears to be based on a misunderstanding of the scope of the MG interlock project to which reference has already been made. Insofar as that project was concerned with the oil lubrication system for the MG cylinder it was concerned with an interlock on that system to prevent its failure in appropriate circumstances. It was not concerned with replacing or modifying the system itself.

177 The amount for the lubrication system should be allowed in accordance with the Sandusky Walmsley contract.

178 The Sandusky Walmsley contract provided for a "steam and condensate system" for the MG cylinder at a cost of £UK71,400. The steam and condensate system which was installed was designed for the new MG cylinder which had a maximum operating steam pressure of 100 lbs/in2 ( 6.9 bar) as against that of the old MG cylinder of 50 lbs/in2 (3.45 bar).

179 The defendant's first objection to the inclusion of this item in the plaintiff's claim is based upon the same misunderstanding of the interlock project as has already been referred to.

180 The new MG cylinder is the modern equivalent of the old MG cylinder. It is reasonable that it needed a more modern steam system to operate it at a modern steam pressure. Any consideration of a discount to the plaintiff's claim on a betterment basis will be discussed below. At this point the plaintiff's claim in respect of this item should be allowed at the amount quoted by Sandusky Walmsley.

181 The Sandusky Walmsley contract included an amount of £UK98,000 for a "support frame for the MG".

182 The defendant objects to this item being allowed. It complains that because the frames were not included in the original Sandusky Walmsley quote of 20 April 2001 and were first mentioned in June 2001 the claim should be scrutinised carefully. Further, it relies upon an internal email which, it submits, suggests some lack of good faith on the plaintiff's part with respect to this issue.

183 Mr Walker gave evidence that he was concerned about the frame supports of the MG cylinder and sought assurance from the plaintiff's insurer that it would cover the cost of replacing them. He quoted Sandusky Walmsley (referring to it as the Original Engineering Manufacturer or OEM)[16] as saying that they would have difficulty formally approving the re-use of the existing support frame due to the probability that there could be damage to it from the incident which occurred on 7 April 2001 or defects in its cast iron members that could affect its integrity.

184 Further, Mr Andrew Heath, an engineer employed by Incode Pty Ltd, gave evidence of being involved in supervising the plaintiff's claim upon its insurer. He described part of his role as making sure " ... that the insurers did not have the wool pulled over their eyes ... ". He said that he attended a meeting on 8 June 2001 with representatives of Sandusky Walmsley at which the question of supports for the new MG cylinder were discussed. He said that he discussed various potential problems with using the current supports for the new cylinder including the difficulty of testing their internal soundness, the difficulty of modifying them to suit the new machine, the possibility of misfits between new and old parts if they were not replaced and a number of other matters. He concluded that replacement of supports was not only the option involving the lowest risk of further difficulties or even failure, it was also likely to prove the cheapest. Mr Heath was not cross-examined on this matter.

185 Mr Tyrer of Sandusky Walmsley gave similar evidence in the following terms:

... I think we can bend the framework, the old system, because of the shock loads, I don't think anybody would stay with the existing system. Once you start changing your bracketry and your iron work you have to change all your system ...

186 There is ample evidence to justify the replacement of the framework for the new MG cylinder. There is no evidence to the contrary. The plaintiff's claim in this regard should be allowed in full.

Additional Installation Training and Commissioning Costs

187 Item 187 of Annexure B claims $13,392.86 under this heading. It is explained in the annotations to Item 187 as being payment for additional installation, training and commissioning as part of the installation works for the new MG cylinder. They did not form part of the contract price with Sandusky Walmsley but were necessary. The contract provided for the charging by Sandusky Walmsley of per hour costs for additional erection, supervision, commissioning, start-up and training. The invoice relates to that time. Mr Walker gave evidence that the amounts claimed by Sandusky Walmsley from the plaintiff were reasonable and necessary.

188 The defendant contended that only part of the item related to "the new MG". No grounds are provided for this assertion and Mr Walker was not cross-examined on the matter.

189 The full amount claimed at Item 187 should be allowed.

190 Items 48, 67 and 123 in Annexure B claim various amounts for spare parts. Mr Walker gave evidence that these items "related to parts that (the plaintiff) required for the new MG cylinder." The parts were described in Annexure C to Mr Walker's further supplementary witness statement.

191 The defendant has asserted that the spare parts do not relate to the replacement cylinder but to other matters, but provided no grounds for this assertion. Mr Walker was not cross-examined with respect to this matter.

192 In the circumstances the full amount relating to the spare parts in the three items referred to should be allowed.

193 Item 137 of Annexure B claims $6,582.94 as a payment made to Sandusky Walmsley in respect of the calculation of steam pressure loadings and modifications as part of the installation works for the new MG. Mr Walker verified this description in his evidence. He said that the work performed did not form part of Sandusky Walmsley's contract but was, in effect, a necessary extra. It involved connecting the steam system of the MG cylinder.

194 The defendant asserts that Item 137 should not be allowed but gives no reason for this other than that it included items other than the new MG cylinder. There is no substance in this contention. Mr Walker was not cross-examined about the matter and he has sworn that the work was necessary to connect the steam system to the new MG cylinder.

195 The full amount of $6,582.94 should be allowed in respect of Item 137.

196 Item 221 of Annexure B claims $108,920.24 constituted by two invoices and a back charge. One invoice relates to the installation, training and commissioning services under the contract. This amount is £UK37,175 which is 100% of the total price for that item stated in the contract. The second invoice relates to a number of matters. The only relevant ones were £UK516.50 which is described in Annexure C to Mr Walker's further supplementary statement at Item 3 and £UK2,794.75 constituted by three part-payments and described in Annexure C to Mr Walker's further supplementary statement at Items 5, 6 and 7.

197 Mr Walker verified these figures in his evidence. He also said that there was a back charge of £UK4,988.66 deducted from the amount of those invoices because of costs incurred by the plaintiff during the installation works which were caused by Sandusky Walmsley.

198 The defendant's complaint about this item is that it is substantial and "no further explanation is provided". This submission misunderstands the contract between the plaintiff and Sandusky Walmsley which provided (at paragraph 2.2) for £UK37,175 for installation, training commissioning services. The other items were fully described in the evidence of Mr Walker.

199 There is no basis for the defendant's objection. The amount should be allowed in full.

200 Item 159 makes a claim of $9,892.88 in respect of redundant spares. This claim relates to a list of items consisting of spare parts for the old MG cylinder that were being held as spares but became redundant with the demise of that cylinder.

201 Mr Burgess of the plaintiff gave evidence concerning this matter and proved that the plaintiff had bought the spares. He produced invoices.

202 Mr Burgess was not cross-examined with respect to this matter. Mr Walker gave evidence to the same effect.

203 $9,892.88 as claimed in Item 159 should be allowed in full.

204 A number of items, 119, 120, 209, 222, 225, 243 and 244 relate to Lurgi Constructions. The total amount paid to Lurgi Constructions was $929,619.

205 The defendant contends that only an amount of $494,603.75 of the amount paid to Lurgi Constructions should be allowed to the plaintiff.

206 The defendant's submission depends upon the Court having disallowed a number of items in the Sandusky Walmsley quotation upon which Lurgi Constructions worked. For example, if the steam and condensate system item had been disallowed it would have been appropriate to disallow some of the amount paid to Lurgi for installing that system. However, as no amounts have in fact, been disallowed there is no basis for reducing the plaintiff's claim in respect of the amount that it paid to Lurgi Constructions.

207 In as far as the plaintiff conceded that some of the items quoted by Sandusky Walmsley under the heading "presser roll" were not properly part of its claim against the defendant, it is still entitled to recover payments made to Lurgi Constructions in respect of any work which it did in installing those parts of the presser roll mechanism for which the plaintiff is not claiming. The installation of the presser roll, whether that purchased by the plaintiff or an exact replacement of that which failed, would have been an appropriate cost to debit against the defendant having regard to its responsibility for the failure of the old roll. Accordingly there is no basis for making any deduction from the amount which the plaintiff has paid Lurgi Constructions. The items referred to should be allowed in the total amount claimed, that is to say, $929,619.

208 Items 28, 35, 40, 49, 63, 87, 88 and 242 of Annexure B concern amounts paid to Debtech Pty Ltd for professional commercial services provided by it with respect to the tender for the contract for the new MG cylinder and professional commercial services provided by it with respect to works including preparation of a revision to the installation contract, the attendance at review meetings and general assistance to the plaintiff in obtaining the new MG cylinder.

209 The defendant's contention with respect to these items is similar to that with respect to the Lurgi Construction items. It fails for the same reason. There is no basis for deducting anything from the Debtech claims. They should be allowed in full. That is to say, $13,876.23, $15,113.16, $4,155.93, $11,117.20, $3,733, $7,301, $8,079 and $1,870.40.

210 Item 11 involves an undated invoice for $2,936.47 which Mr Walker's annotation shows were fees paid to Simon Carves with respect to labour for assistance with respect to the incident on 7 April 2001. Mr Walker gave evidence that this item concerned fees paid to Simon Carves. He was not cross-examined on it.

211 Item 11 being a sum of $2,936.47 should be allowed.

212 Items 12, 38, 90 and 165 of Annexure B to Mr Walker's further supplementary witness statement relate to amounts paid by the plaintiff to Incode Pty Ltd, a company which offers professional engineering services particularly in the area of investigation. The amounts paid were for its investigation of the incident of 7 April 2001. Mr Walker gave evidence to that effect and the annotation at each of those items in his Annexure B is to the same effect.

213 The defendant contends that these amounts are not recoverable as damages but rather are "disbursements" recoverable with costs if costs are awarded to the plaintiff in the proceeding. The defendant submitted that the amounts should all be disallowed.

214 The plaintiff referred to a definition of "disbursements" from an old case: Re Remnant.[17] That case defined disbursements as: "a payment which a solicitor in the due discharge of his or her duty is bound to make whether the client furnishes the solicitor with money for the purpose, with money on account, or not."

215 It is unlikely that the Incode payments could be properly characterised as "disbursements". The work for which payment was made was not ordered by the plaintiff's solicitors: it was all performed well before this case was commenced. The amounts paid were not paid by the plaintiff's solicitors: they were paid by the plaintiff. Further, it is clear that when Incode was retained the plaintiff's concern was to establish its losses for the purpose of making a successful claim on its insurer even if the insurer was a "captive". All of the Incode invoices pre-date the commencement of this proceeding on 4 December 2002. It is, to some degree at least, fortuitous that some of Incode's investigations were of some benefit to the plaintiff in preparing for and prosecuting this case.

216 No authorities were cited to the Court concerning the distinction between damages and costs in circumstances such as those with which we are presently concerned. The application of fundamental principle to the problem leads to the question as to whether the amounts paid by the plaintiff to Incode could fairly and reasonably be considered to have arisen naturally, that is to say according to the usual course of things, from Dunlop's breach of its contract with the plaintiff: Hadley v Baxendale.[18] Alternatively, were the payments which the plaintiff has made to Incode reasonably foreseeable as liable to result from Dunlop's breach of contract at the time it agreed with the plaintiff that it would re-cover the pressure roller?: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd.[19]

217 It is certainly foreseeable that the failure of an integral part of a large industrial machine would be likely to lead to dramatic, even catastrophic, damage. It would also be reasonably foreseeable that a factory owner such as the plaintiff would be insured against losses arising out of such an incident and that a claim upon an insurer would require detailed investigation of the incident - as Incode provided here.

218 In the circumstances the payments to Incode arise naturally from the breach of contract itself, and are accordingly, recoverable.

219 Items 20, 24, 26, 27, 30, 32, 41, 42, 47, 52, 55, 57, 59, 69, 72, 82, 85, 100, 112, 128, 139, 146, 175, 206, 224, 236 and 248 all relate to professional drafting work performed by KRH Drafting Pty Ltd. Mr Walker gave evidence that that company was the "lead draftsman for the construction works necessary to accommodate the replacement MG cylinder and supervision of construction". He was not cross-examined on this evidence.

220 The defendant contends that all the KRH Drafting invoices lack any detail as to what drafting was done or how any such drafting related to the actual replacement of the MG as opposed to drafting related to other items such as the DCS upgrade or the extensions to the control room.

221 Mr Walker's evidence and the invoices produced are indeed sparse. However his evidence is sufficient to prove the plaintiff's case on this point because he related the KRH Drafting Pty Ltd's invoice to construction works necessary to accommodate the replacement MG cylinder. In the absence of any challenge to Mr Walker's evidence and in the absence of any evidence to the contrary the claim must be allowed.

222 Item 21 in Annexure B is an invoice for $1,690 payable for professional engineering services provided by Robert Price and Trevor Howden as part of the installation of the new MG cylinder. Mr Walker gave evidence that RG and C Price "carried out engineering and supervision in connection with the construction works for the replacement MG cylinder". For the same reason that KRH Drafting Pty Ltd's invoices must be allowed so must this invoice.

223 Items 76, 108, 116 and 117 on Annexure B relate to invoices payable to Beca Simons Pty Ltd. The annotation on Annexure B against Item 76, verified by Mr Walker in his evidence, was to the effect that the invoice related to:

Computations for the steam system modifications as part of the installation works for the new MG cylinder. These computations concern stress analysis of pipe runs. This was necessary to work out how to support the pipe work during thermal expansion to prevent failure.

Mr Walker was not cross-examined on this explanation. His evidence necessarily amounts to a statement that the work was necessary for the replacement of the MG cylinder. It being uncontradicted, the items claimed in respect of Beca Simons Pty Ltd must be allowed.

224 Items 83, 16, 33, 45, 50, 58, 107, 138, 154 and 211 all concern invoices paid to Beesley Consulting Pty Ltd. The defendant challenges them because, they "relate to the new steam and condensate system".

225 Item 107 relates to pipe supports for the steam line modifications as part of the installation works for the new MG cylinder. Item 138 also concerns pipe supports for the steam line modifications but it and Item 107 are the only items which relate to the "steam and condensate system". It would appear that the defendant's submission with respect to these items suffers from the same misunderstanding of the MG Interlock Project as was earlier exposed with respect to other items.

226 All of the items relating to Beesley Consulting Pty Ltd were said by Mr Walker to have been:

Civil engineering technical advice provided by Lawrence Beesley as part of the installation works for the new MG cylinder, including geotechnical work for the different options of installation.

Other than Items 107 and 138 none of the other items have any connection with the MG cylinder steam system.

227 Having regard to Mr Walker's evidence, to the fact that he was not cross-examined and that no evidence contradicted it, all of the amounts relating to Beesley Consulting Pty Ltd must be allowed in full.

228 Items 202, 203 and 204 all relate to invoices of Marsh Pty Ltd for insurance. The first relates to transportation insurance, the second for transportation and contract insurance works insurance and the third for installation contract works insurance.

229 Mr Walker's annotations against these items on Annexure B all relate them to the transportation and installation of the new MG cylinder. The defendant contends that these items should be apportioned " ... to take account of the additional scope of work ... ".

230 Again, this submission would appear to be based on a misunderstanding of the MG Interlock Project. The defendant is liable for the full cost of the insurance provided by Marsh Pty Ltd.

231 Items 93, 129, 143, 151, 163, 196, 201, 227, 232, 233, 234, 238, 239, 240 and 252 of Annexure B all relate to matters relevant to the installation of the new MG cylinder.

232 The defendant contends that Item 227 related to "additional lighting and relocation of gear lube panel to rear side of MG". However, Mr Walker's annotation at Item 227 does not bear that interpretation. The invoice there referred to is for the:

Supply of "M2 MG Gear Lube Panel relocation" as quoted on 23 April 2002 by Primech as part of the installation works for the new MG cylinder. The total amount of the invoice is $1,662 (ex GST) but only $1,307 related to the above works. This work was required as access to the lube panel for the MG cylinder gear change with the modification of the walkways for the new MG cylinder.

233 The plaintiff contends that this description, verified by Mr Walker, renders the invoice claimable. Having regard to the fact that Mr Walker was not cross-examined on this item and no other evidence was led the item must be allowed at $1307.00.

234 The defendant also contends that it disputes all other Primech invoices although it subsequently appears to concede Items 93 and 196.

235 Item 129 is a claim for $15,000 in respect of an invoice for $18,000. Mr Walker described it as a progress payment for the "No. 2 paper machine steam system mechanical works" contract as part of the installation works for the new MG cylinder.

Amongst other things Primech provide instrumentation services - no evidence that this does not relate, for example, to the upgrade of the Digital Control System or the steam and condensate system - not shown to be necessary for MG replacement.

237 The defendant's submission does not appear to meet the sworn evidence of Mr Walker. It appears to again raise the misunderstanding which has already been dealt with. Item 129 should be allowed in full at $15,000.

238 Item 143 is another progress payment for $3,785 for mechanical works. The defendant's response is identical to its response in respect to Item 129. It fails for the same reason. Item 143 should be allowed in full at $3,785.

239 Item 151 is an invoice for $1,864.50 for the supply of "M2 steam valve lighting" as per quote dated 1 March 2002. Mr Walker's annotation attributes this as part of the installation works for the new MG cylinder.

This appears to relate to the steam and condensate upgrade - not shown to be necessary for MG replacement.

241 Having regard to Mr Walker's evidence this item should be allowed at $1,864.50.

242 Item 163 is an invoice for $961.25 which Mr Walker's annotation describes as:

Payment for works to carry out alterations to fire sprinklers and to also drill holes and fit MG cross-beam as part of installation works for new MG cylinder.

243 The defendant asserts that there is no evidence as to why any alteration of the fire sprinklers was necessary. It is an escapable inference from Mr Walker's annotation (and hence his evidence) that the fire sprinklers had to be altered to accommodate the new MG cylinder. The item should be allowed at $961.25 as claimed.

244 Item 201 is an invoice for $2,186.25. Mr Walker's annotation attributes it to:

Supply of "MG extra works" as quoted on 20 March 2002 by Primech as part of the installation works for the new MG cylinder.

No electrical fit-off required on MG - this relates to the new digital control system instrumentation.

246 The defendant's response does not meet Mr Walker's evidence. The amount should be allowed as claimed.

247 Item 227 is an invoice for $1,307 described in Mr Walker's annotation as:

Supply of "M2 MG gear lube panel relocation" as quoted on 23 April 2002 by Primech as part of the installation works for the new MG cylinder. Total amount of the invoice is $1,662 (ex GST) but only $1,307 related to the above works. This work was required as access to the lube panel for the MG cylinder gear change with the modification of the walkways for the new MG cylinder.

This relates to the lubrication upgrade - not shown to be necessary for the MG replacement.

The defendant's response does not meet Mr Walker's evidence. Item 227 should be allowed as claimed in the sum of $1,307.

249 Items 232, 233 and 234 all relate to miscellaneous electrical works. The amounts are small and all are verified by Mr Walker as having been part of the installation works for the new MG cylinder.

251 In the circumstances Mr Walker's evidence establishes these claims. They should all be allowed in the amount claimed.

252 Item 238 involves an invoice for $3,667.43 described in Mr Walker's annotation as:

Tidy up of M2 DCS network fibre optic cables as quoted by Primech ... as part of the installation works for the new MG cylinder. ... This was required as part of the extension of the DCS system. It had to be extended to accommodate the new MG cylinder.

This invoice relates to "optic fibre cables" - this is part of the digital control system upgrade.

254 Mr Walker's verification of the fact that this work was required to extend the optic fibre "to accommodate the new MG cylinder" renders the claim payable. This item should be allowed as claimed.

255 Item 239 is an invoice for $500 concerning the removal of a redundant concrete bund at the lube system and filling in of redundant openings in machine floor behind MG roll as part of the installation works for the new MG cylinder. Mr Walker's annotation describes it as having been required due to the removal of the old MG cylinder.

256 The defendant claims that this work was not shown to be necessary for replacement of the MG cylinder. Having regard to Mr Walker's evidence the amount should be allowed as claimed.

257 Item 240 concerns an invoice for $6,738 which Mr Walker's annotation describes as:

Supply and installation of two cabinets as part of the installation work for the new MG cylinder. The cabinets replace storage facilities that were demolished as part of providing access for the removal of the old MG cylinder and installation of the new MG cylinder. The total amount of the invoice is $6,738 (ex GST).

Mr Walker's description is sufficient proof that this relates to the replacement of the old MG cylinder with the new MG cylinder. Accordingly the amount should be allowed in full as claimed.

259 Item 249 is an invoice for $450 which Mr Walker describes as:

Supply of modifications to MG service roll lifting gear storage cabinets as part of the installation works for the new MG cylinder. ... These are the cabinets that are referred to in Item 240 above.

This is a bill issued for service provided to Debtech - not shown to be necessary for replacement of MG.

261 Having regard to Mr Walker's evidence on this question the amount should be allowed in full.

262 Item 252 concerns an invoice for $1,786 annotated by Mr Walker as:

Supply of "M2 lighting modifications" as to quote dated 13 March 2002 and schedule of rates as part of the installation works for the new MG cylinder. The total amount of the invoice is $1,786 (ex GST). The costs of the flood lighting in front of MG cylinder are not claimed.

The invoice states that this relates to lighting modifications above the MG sensor field control box - this is part of the DCS upgrade and does not relate to the alleged damage.

264 Having regard to Mr Walker's evidence the amount should be allowed in full.

265 There are a number of other miscellaneous items which need to be dealt with. With respect to them the plaintiff relies upon the annotations against each item in Annexure B to Mr Walker's further supplementary witness statement and also the matters set out in paragraph 224 of Mr Walker's first witness statement where he describes a large number of organisations and the work that they did in replacing the old MG cylinder with the new MG cylinder. As already noted, Mr Walker's witness statement and his annotations on his Annexure B are in the form of sworn evidence.

266 Item 5 concerns an invoice for $7,527.18 of Sandusky Walmsley. Mr Walker's annotation describes this invoice in the following terms:

Professional services of Mr White for his attendance and testing in April 2001 at the Maryvale mill with respect to the incident on 7 April 2001. This invoice related to an additional two days for Mr White's attendance at the Maryvale mill.

267 The defendant's response to this claim is simple:

268 Having regard to Mr Walker's annotation, to the fact that he was not cross-examined and that his assertion goes uncontradicted by evidence the amount should be allowed in full.

269 Item 6 is an invoice for $61,885.98 (having been converted from Euros) which Mr Walker's annotation describes as follows:

Costs incurred in having technicians from Voith Paper ready to repair and regrind the MG cylinder in the period immediately following the incident on 7 April 2001. These works were ultimately not proceeded with.

271 It will be recalled that the Voith technicians had undertaken survey and regrinding work on the old MG cylinder in the week immediately before the incident of 7 April 2001. They were retained on site after that incident pending a determination as to whether an attempt would be made to rehabilitate the cylinder by performing work which they were equipped and capable of undertaking. Thus, their retention on site was, in effect, a preparatory step towards a course of action in mitigation of the plaintiff's loss. Indeed, it was the defendant's case that these technicians could have completely remedied the problems in the MG cylinder caused by the event of 7 April 2001.

272 It is a fundamental rule of the law of damages that a claimant can recover damages for loss incurred in reasonable attempts to avoid loss. Here, the plaintiff delayed the German technicians' return to Germany so that, if the damage caused by the defendant's breach of contract could have been mitigated by work which they could do, that work could be done in the shortest possible time thus minimising the plaintiff's loss and the defendant's commensurate liability.[20] In the circumstances the full amount claimed should be allowed.

273 Items 13 and 14 relate to damage to the MG cylinder felt and destruction of the first and second dryer felts, all of which occurred in the course of the incident of 7 April 2001. The invoices quoted against those items pre-date the incident; the reasonable inference being that they were the cost of those felts when they were installed. No allowance has been made for depreciation. However, the MG cylinder felt was about 15 months old when the event occurred and the first and second dryer felts were about 27 months old. These amounts should be allowed subject to reasonable depreciation. To take account of that depreciation in the defendant's favour the MG cylinder felt should be depreciated by 25% and the first and second dryer felts should be depreciated by 50%. Thus the plaintiff should be allowed $8,910 in respect of Item 13 and $12,653 in respect of Item 14. There is an element of assessment involved in resolving this claim, justified by the decision in Fink v Fink.[21]

274 Items 18, 19, 23 and 25 all relate to a company called JSz Pty Ltd which Mr Walker's annotation showed, in each case provided:

Assistance with respect to minor contracts and commercial support as part of the installation of the new MG cylinder.

The defendant asserts that the plaintiff has not shown that these items were necessary.

275 Mr Walker was not challenged in respect of these figures. No evidence was called to rebut it. In the circumstances the plaintiff should have the full amounts of Items 18, 19, 23 and 25 as claimed.

276 Items 31, 53, 81, 84, 106, 127, 136, 223 and 251 all related to work performed by Pro Draft Pty Ltd which Mr Walker described as being " ... with respect to the installation works for the new MG cylinder". The defendant's answer to these claims is that the plaintiff has not shown that these items were necessary. Having regard to Mr Walker's unchallenged assertion and the lack of any evidence to the contrary the plaintiff should have these items at the amount they claim.

277 Item 36 related to an invoice of Paperlines Pty Ltd concerning investigation of the incident of 7 April 2001. Paperlines Pty Ltd is a company associated with Mr Harry Mowbray who, it will be recalled, investigated the delamination of the pressure roller for the plaintiff.

278 The defendant contends that this invoice relates to a "disbursement". It makes the same submission as it did with respect to the Incode Pty Ltd invoices. For the same reasons as its submission was rejected with respect to Incode Pty Ltd, its submission with respect to Paperlines Pty Ltd is similarly rejected. The plaintiff should recover the full amount of Paperlines Pty Ltd's invoice.

279 Items 44, 64 and 121 concern invoices for professional services provided by Robert Bruce and Sons who, Mr Walker swears, were engaged by the plaintiff to oversee the manufacture of the MG cylinder in the United Kingdom.

280 The plaintiff submits that as the manufacture of the new MG cylinder was a substantial exercise and represented a substantial investment and commitment by it, it was reasonable for the plaintiff to engage a local agent to oversee its manufacture. The defendant contends that this expenditure was unnecessary. It proffered no evidence on the matter. The plaintiff's evidence with respect to the invoices of Robert Bruce and Sons should be accepted. It should recover the full amount of them.

281 Items 46, 51, 54, 60 and 61 relate to invoices of Wayne Cook which Mr Walker's annotation states were for:

Professional fees for electrical and instrumentation and design by Wayne Cook with respect to the installation works for the new MG cylinder.

The defendant claims that these invoices relate to the "new instrumentation system - not related to any damage to the old MG cylinder".

282 Mr Walker's annotation on his Annexure B stands uncontradicted. He was not cross-examined on it. He swears that the work done by Wayne Cook was related to the installation works for the new MG cylinder. The plaintiff is entitled to recover the full amount of those items.

283 Items 86 and 219 were each concerned with the digital control system of the new MG cylinder. Mr Walker's annotation with respect to Item 86 was:

Supply of hardware and software for the extension of the DCS system as part of the installation works for the new MG cylinder. We needed to upgrade the manual controls of the old MG cylinder in order to incorporate these into the DCS controls for the new MG cylinder.

Professional service rendered by Metso Automation for programming of DCS as part of the installation works for the new MG cylinder. The DCS needed to be programmed once it had been upgraded and connected to the new MG cylinder.

284 The defendant's assertion is that as each of these items was an "upgrade" expenditure on it was not caused by the replacement of the old MG cylinder. However, having regard to Mr Walker's evidence that these expenditures were "needed" with respect to the installation of the new MG cylinder, the plaintiff should have the full amount of each of them.

285 Items 91, 92, 122 and 124 relate to transportation costs for the MG cylinder and associated equipment and include customs duty payable. Item 91 is a direct shipping cost for transporting the MG cylinder from Southampton to Melbourne. Item 92 involves two invoices also related to shipping costs. Item 122 relates to local shipping costs and Item 124 relates to land transport of the MG cylinder from Melbourne to Maryvale.

286 The defendant contends that a discount of 45% should be applied to these items on the same basis as it sought a similar discount with respect to the Lurgi Construction contract.

287 There is no basis for the defendant's contention. The items have been otherwise uncontested and the plaintiff is entitled to recover the full amount of each of them.

288 The final item, Item 253, is an amount of $15,552.23 being an unpaid amount quoted by Simon Engineering to remove the old MG cylinder from the Maryvale site. The defendant contends that 50% of this amount should be recoverable on its sale as scrap iron. The plaintiff accepts this contention, thus reducing Item 253 to $7,776.11.

289 The defendant argued that, for a long time, the plaintiff had evinced a desire to increase the steam pressure of the old MG cylinder and, since at least 1999, to replace it with an MG cylinder with upgraded specifications. In paragraphs 19.21 to 19.26 of its outline of argument it pointed to various pieces of evidence (some going back to 1969!) which, it submitted, established each of the propositions referred to. It argued that the old MG cylinder operated at a maximum pressure of 345kPa which was said to be low compared to its competitors. If it operated at a higher pressure the factory's output would be increased.

290 There is no need to consider this evidence further. For present purposes it can be assumed that the defendant is correct in its contention and that various of the plaintiff's senior personnel had, from time to time, expressed a wish to upgrade the company's production capacity. The fact is that the plaintiff was still operating its old MG cylinder to manufacture MG paper at the time of the event of 7 April 2001 although it had recently upgraded the MG drive. However, the relevance of the plaintiff's desire to increase its production capacity to the assessment of damages in this case has not been made clear by the defendant. The plaintiff's long standing desire to upgrade its production facility cannot affect an assessment of the plaintiff's damages for an event which actually happened. Earlier aspirations which were never realised have no bearing on the outcome of such an assessment. There is no merit in this argument put by the defendant.

291 Finally, with respect to the plaintiff's claim for material damage, the defendant raised the issue of betterment, contending that that claim should be discounted because the new MG cylinder is more productive, and thus more profitable, than the old MG cylinder. That issue will be addressed below.

292 The plaintiff has established a claim for material damage in the sum of $4,645,053.32 as follows:

Total as per Annexure B to Walker's Further Supplementary Witness Statement

293 Upon the occurrence of the event of 7 April 2001 the MG cylinder on the No. 2 paper making machine at Maryvale was taken out of service. The new MG cylinder was not commissioned until 24 February 2002. In the meantime the No. 2 machine was unable to manufacture MG paper but was used to manufacture MF paper. The plaintiff alleges that its business suffered losses as a result of this disruption caused by the defendant's breach of contract and/or its negligence in not recovering the service roll on the MG cylinder properly. It is entitled to damages to compensate it for those losses.

294 The plaintiff claims a loss of $5,096,737 for the period 7 April 2001 to 31 March 2003 and $3,129,232 for the period 1 April 2003 to 30 June 2005. These sums have been calculated by Dr Allan Manning, a loss adjuster whose initial contact with this matter was in his capacity as the loss adjuster retained by Amcor Insurances Pte Ltd, the Singapore based captive insurer of the plaintiff. It had claimed against that insurer under an Industrial Special Risks Policy. Two reports of Dr Manning relevant to the plaintiff's claim were before the Court. The first was directed to Amcor Insurances and covered the period from 7 April 2001 to 31 March 2003. It was called Dr Manning's 23rd report and was principally directed to assessing the plaintiff's claim against its insurer in terms of the relevant insurance policy. The second report, directed to the plaintiff, covered losses incurred by the plaintiff up to 30 June 2005 for which it was not insured.

295 Dr Manning's 23rd Report summarised his opinion as to the plaintiff's losses incurred between 7 April 2001 and 31 March 2003 as follows:

296 Dr Manning acknowledged that the computation of the plaintiff's losses in this instance had been made extremely complex by a number of factors, several of which he identified. Those factors included that the M2 machine had changed from manufacturing bleached paper to manufacturing unbleached paper shortly prior to 7 April 2001; that the event of 7 April 2001 involved the complete loss of the only MG cylinder in Australia; that there was no independent method of testing price assumptions made to calculate the plaintiff's losses; that the substitute MF grades of paper were sold into different export markets to the original MG products and were sold at different prices; that some product was transferred to another machine and/or imported during the relevant period; that two other unrelated events caused disruption to the M2 machine (a scratch and a fire); that he had difficulty in collecting data to make his assessment; that there was a long period of disruption and that there was a limitation on the plaintiff's right to claim insurance in respect of its payroll.

297 Dr Manning's 23rd Report is of some 103 pages with 67 appendices. However, the essential features of his methodology and his calculations may be shortly, if somewhat inadequately, summarised to explain his conclusions.

298 The commencing point of Dr Manning's opinion was an examination of the turnover actually generated by the M2 machine, month by month, between April 2000 and March 2001, the 12 months immediately before the relevant event. That turnover was $40,280,000 - a figure which Dr Manning referred to as "the standard turnover". He adjusted this figure downwards to $38,000,000 to take into account his opinion that the level of sales which generated this turnover would not have been achieved in the following 12 months. He believed this would be due to a change in the paper produced by the M2 machine from unbleached and part-bleached paper to solely unbleached bag and wrapping paper.

299 From his analysis of the M2 machine's production Dr Manning developed a model of anticipated production. Had the event of 7 April 2001 not happened Dr Manning was of the opinion that 31,536 tonne of (MG) paper would have been produced on the M2 machine in the 12 months following that date. In fact 29,509.235 tonne (of MF paper) was produced. He calculated that had the time lost due to the installation of the new MG cylinder not been lost a further 1,736.41 tonne would have been produced, a figure which, when added to the actual production amounted to 31,245.645 tonne, only 290.355 tonne short of the model he had constructed. From this base he proceeded to assess the plaintiff's losses over the relevant period.

300 Dr Manning took into account the complexities of the plaintiff's operation, its markets, both domestic and export, the different returns on sales which it achieved in each of those markets, the special circumstances relating to a particular product called BWax (a fast food wrapping paper used by McDonalds) and many other matters and concluded that between 7 April 2001 and 31 March 2003 the plaintiff suffered a gross loss of profit due to the event of 7 April 2001 of $2,374,585. The calculation of this figure was an extremely complex exercise which, however, Dr Manning explained fully in his report.

301 As well as affecting its gross profit the plaintiff claims that the event of 7 April 2001 resulted in other losses which, it argued, are recoverable. They were assessed by Dr Manning for the purposes of the plaintiff's claim against its insurer as "Increased Cost of Working," a term referable to the relevant policy although analogous to items of loss claimable as directly caused by the defendant's default at common law. The plaintiff claims these amounts under seven separate headings.

302 The first of the plaintiff's claims for increased cost of working caused by the event of 7 April 2001 was in respect of rebates paid to its customer, Detmold, which bought BWax paper, packed it and on-sold it to McDonalds. The forced change from MG to MF paper in respect of BWax resulted in fewer sheets being able to be packed in each standard box. The plaintiff gave rebates to Detmold because it could not supply the BWax product as MG paper. Dr Manning calculated these rebates as amounting to $153,840. However, he deducted $6,014 from this figure because MF paper requires less energy to produce and he calculated the energy saving to the plaintiff as being $6,014. Thus the claim in respect of these rebates amounted to $147,826.

303 The second item claimed by the plaintiff was in respect of rebates paid to Australian domestic customers because they were supplied with MF rather than MG paper. These rebates were paid for inconvenience and increased processing costs or to off-set discounts that they may have had to provide to their customers due to the inferior paper with which they were then being supplied. Dr Manning calculated these rebates at $186,847 during the relevant period.

304 The third additional expense claimed by the plaintiff related to the loss of its markets in South-East Asia. To off-set this loss of market the plaintiff exported more paper to the east coast of the USA. Mr Bodin, the plaintiff's divisional manager - packaging, deposed to this in his witness statements. He said that prior to the event of 7 April 2001 the plaintiff had exported MG paper to companies in Indonesia and Singapore. After 7 April 2001 that market was lost.

305 Dr Manning assessed the extra freight costs incurred by the plaintiff in exporting paper to the east coast of the United States instead of to South-East Asia at $1,274,557.84.

306 The fourth additional expense claimed by the plaintiff related to its having imported MG paper to satisfy some of its customers who had previously used its MG paper as a base for insulation. Mr Grzegorczyn deposed in his witness statement that following the event of 7 April 2001 the plaintiff attempted to find alternative MF grade paper which could be substituted for particular MG paper which had been previously supplied to customers who manufactured insulating materials. He said that over several months they were supplied with various rolls of MF product which they converted and tested for its suitability. Questions of adherence to appropriate Australian standards and the necessity for the paper to pass tests for water resistance, glue adhesion and other technical matters meant that this process took some time. During this period the plaintiff imported some MG paper to satisfy its customers and thus preserve its business. Dr Manning calculated the cost of this imported product used in this way at $6,305.65.

307 The fifth matter claimed as an additional expense by the plaintiff related to the transfer of production from its M2 paper making machine to its M3 machine of paper which it previously supplied as insulation base. Dr Manning calculated the plaintiff's losses as a result of this substitution at $328,238.23. The loss arose because bleached MF paper which was substituted was more expensive to produce than the unbleached MG paper it replaced. Secondly, as the M3 machine was otherwise at full production the plaintiff had to forego profit which it would otherwise have made on the paper which it did not produce on that machine. Dr Manning's calculation involved assessing the increased cost of production of the substitute product and deducting from it the margin foregone on its least profitable product. His calculation resulted in a figure of $328,238.23.

308 The final additional expense claimed by the plaintiff relates to wastage of its payroll. As the plaintiff did not lay off any staff when it lost the use of the old MG cylinder it made no saving of payroll expense as a result of that loss. The loss of use of the old MG cylinder and consequent decline in revenue from the M2 machine during the year to March 2002 increased the proportion of payroll expense to turnover as the same expense was apportioned to lower revenue. As the plaintiff's payroll expenses did not reduce as revenue reduced it claims that loss as part of its damages.

309 Dr Manning calculated the plaintiff's loss under this heading at $668,094 but limited the claim to the period ending 31 March 2002 as he was assessing the plaintiff's claim against its insurer, not its claim for damages at common law. It was insured only for the first year of loss in respect of this claim. It appears that the plaintiff has limited its claim to the same period in its claim against the defendant.

310 The plaintiff claims a further sum of $135,698 paid to Erris Enterprises Pty Ltd for work performed by Mr Patrick O'Connor in preparing and adjusting its material loss and business interruption insurance claim. It argues that Mr O'Connor's work was a direct result of the event the subject of its claim against the defendant, that it was foreseeable and that it is accordingly recoverable.

311 In reaching his final figure for the plaintiff's losses over this period Dr Manning has considered that the plaintiff must bring into account savings of $25,414.21 consisting of two items, the deferred cost of re-covering a service roll for the M2 machine and deferred cost of re-grinding the MG cylinder.

312 The plaintiff makes claims in respect of this period under a number of different headings:

Wasted cost of re-covering #2.132 service roll in 2000

Loss of gross profit caused by substitution of MF paper for MG paper

Loss of gross profit because of lost domestic sales of MG paper necessitating their sale on export market

Increased freight costs in exporting paper not sold on domestic market

313 The second report of Dr Manning relied upon by the plaintiff (that of 4 September 2006) calculates a number of losses which the plaintiff claims were incurred after the end of the period in respect of which it was insured.

314 The first item of loss claimed by the plaintiff as having related to this period is not recoverable as damages. Damages are assessed on the basis that they will put the plaintiff into the position it would have been in had the defendant complied with its contractual obligations and/or not been negligent. Had that been the situation the plaintiff would still have paid (and been unable to recover) the amount charged by the defendant to re-cover the service roll which failed. This part of the plaintiff's claim cannot succeed.

315 The first matter Dr Manning addressed in his report on the period between 1 April 2003 and 30 June 2005 was the lost profit suffered by the plaintiff as a result of its having to substitute MF paper for MG paper because of the loss of the MG cylinder. He commenced this exercise by analysing the plaintiff's production of MG and MF paper over the ten years from 1996 to 2006. From these figures he made predictions as to what would probably have been the plaintiff's production of the two grades of paper had the event of 7 April 2001 not occurred. He calculated that up to 2006 the shortfall in actual production of MG paper over expected production was 7,219 tonne. By that year actual production figures virtually coincided with his predicted production.

316 Dr Manning analysed the sales price and the cost of production of MF and MG papers respectively over the period he was considering and, after taking into account a number of other matters, calculated the loss of gross profit which the plaintiff suffered because of the drop in MG paper production caused by the loss of the MG cylinder between 8 April 2003 and 30 June 2005 as $744,693. This loss was caused, in the opinion of Dr Manning, as a direct result of not being able to produce MG paper after 7 April 2001 until the new MG cylinder was commissioned.

317 The second matter considered by Dr Manning was a valuation of the cost to the plaintiff of the loss of a substantial part of its domestic market because of its inability to provide MG paper after 7 April 2001. He valued this loss at $2,145,291 by analysing the plaintiff's sales in its domestic market as compared to its export market where returns were markedly less. Again, Dr Manning assumed that by 2005/06 the level of domestic sales would have been the quantity the plaintiff would have sold even if the event of 7 April 2001 had not occurred.

318 Finally, Dr Manning considered the question of increased distribution costs incurred by the plaintiff because of the change in its market necessitated by its being unable to produce MG paper between April 2001 and February 2002. Export sales are not only less profitable for the plaintiff than domestic sales, they are also more expensive to effect. Dr Manning calculated the loss to the plaintiff because of these increased distribution costs at $207,258.

319 Dr Manning's total assessment of the plaintiff's losses between 1 April 2003 and 30 June 2005 was $3,629,232 but this figure included $531,990 being the $500,000 deductible on its insurance claim, and $31,990, being the "wasted" cost of recovering the service roll which failed, which amount is not recoverable for the reason already expressed. The deductible amount under the relevant insurance policy is not recoverable as the plaintiff has claimed its total loss against the defendant in this proceeding. The adjusted total is, therefore, $3,097,242.

320 It was suggested to Dr Manning in cross-examination that the model which he used as the base for his calculations adopted excessive tonnages for expected production on the M2 machine on the assumption that the event of 7 April 2001 had not happened. He refuted that suggestion comprehensively and demonstrated the conservative nature of his model by reference to actual production achieved. In his cross-examination generally Dr Manning demonstrated a sound understanding of the methodology he employed to assess the plaintiff's losses and was able to answer effectively every proposition which was put to him. In particular, he twice rejected any suggestion that he ought to have made an allowance for extra profit generated by extra tonnes of paper produced after the new MG cylinder was installed. He said there was no need for such an allowance. In re-examination he expanded on these answers by saying that the analysis he carried out with respect to the effect of the new MG cylinder demonstrated that whilst the machine's production improved whilst the MG cylinder was bypassed - it had its best year ever - once the new MG cylinder was installed there was no effect. He said the difference was negligible.

321 In March 2005 John Andrew Welsford, a senior consultant with Poyry Forrest Industry Pty Ltd (formerly Jaako Pöyry Consulting) who has professional qualifications both in engineering and business, was retained to advise the plaintiff on a number of the financial issues in this litigation. He wrote two reports, the second of which (which superseded the first) dated 13 October 2006 was in evidence.

322 In his report Mr Welsford took a somewhat less conservative view of the plaintiff's losses than did Dr Manning. He considered that the plaintiff lost $11,394,000 due solely to the shift in sales from the domestic market to the export market between April 2001 and June 2005. Of this loss he attributed $6,920,000 to the period from July 2002 to June 2005.

323 As the plaintiff did not argue that the Court should assess its production and sales losses caused by the event of 7 April 2001 by reference to Mr Welsford's opinion there is no need to analyse his report, on this aspect of the case, further. However, his assessment is not irrelevant to a consideration of the reasonableness of Dr Manning's approach and his conclusions particularly as, although he was cross-examined, no challenge was mounted to the methodology Mr Welsford used in reaching figures substantially in excess of those of Dr Manning.

324 In support of its case as to the plaintiff's claim for consequential losses the defendant relied upon the evidence of Mr Trevor Williams of RGL International, forensic accountants, of Perth, Western Australia. Mr Williams wrote two reports dated 5 and 22 September 2006. He has tertiary qualifications in accounting and is a chartered accountant.

325 Mr Williams did not attempt to determine directly whether the plaintiff had suffered losses as a result of the incident of 7 April 2001 and, if so, of what magnitude. As his first report notes he was instructed to review Dr Manning's reports and to quantify the benefit actually achieved or prospectively available to the plaintiff because of the installation of the new MG cylinder.

326 Mr Williams summarised his opinion as to Dr Manning's evidence in his report of 22 September by stating that he regarded Dr Manning's opinions as set out in both his 23rd Report and his subsequent report as to uninsured losses as being "largely unsupported". He referred to a number of specific matters of criticism. He said that Dr Manning's calculations did not take into account the benefits of the increased performance of the new MG cylinder and they were at such a high level that all aspects of a reduction in profits, even where they were not related to the incident, were taken into account. He said that the plaintiff was able to produce budgeted tonnes in the period to 31 March 2003. He criticised the use by Dr Manning of an average price for the Australian market of $1,411 per tonne for paper. He said that there was a declining trend for MG paper in the domestic market before the incident and the strengthening of the Australian dollar made the market more competitive with imports being cheaper and exports being more expensive. He said that pressure from customers to reduce selling prices would have an effect on actual turnover during the loss period and that this had not been accounted for. He said that the plaintiff's losses appear to have stopped in June 2002 when the management reports of the plaintiff noted that all customers had been changed back to MG quality paper at an increased price.

327 Mr Williams said that actual losses of MG customers represented less than 4% of total loss of turnover claimed for the period April 2001 to June of that year. He criticised Dr Manning's use of rates of gross profit to calculate the difference in product sales between MG and MF papers instead of using the difference in the cost of producing that MF paper which was produced as a replacement for MG paper. He said that no supporting documents were provided to show the loss of Asian customers and he criticised Dr Manning's calculations in respect of sea freighting. Finally, he said that the claimed increase cost of product transferred from the M3 paper making machine was incorrect as the comparison was done at a fully absorbed cost and not on the difference in variable costs between the M2 and M3 machines.

328 Mr Williams was cross-examined on a number of matters in his report of 22 September 2006. This cross-examination exposed a number of weaknesses in his understanding of Dr Manning's evidence. It became clear that he had not considered the final version of Dr Manning's report which became his evidence in this case. Mr Williams' report related to the earlier version of Dr Manning's 23rd Report.

329 Mr Williams said in cross-examination that he had not inspected any of the plaintiff's documents other than those which had come, via the defendant's solicitors, from earlier accountants who had been retained, Pricewaterhouse Coopers, and those appended to Dr Manning's report. He was taken to a number of those appendices and conceded that material in them, which had been taken into account by Dr Manning, demonstrated some deficiencies in his own criticism of Dr Manning's report. He said he understood his brief was not to do a critical analysis of Dr Manning's report but conceded that the point of his retainer was "to throw mud at the assessment made by Dr Manning".

330 Counsel for the defendant also made a number of criticisms of Dr Manning's evidence in his address, not all of which arose from Mr Williams' evidence. He commenced by criticising the use of Dr Manning's calculations which were done, initially at least, for the purpose of the plaintiff's claim against its insurer. He argued that the plaintiff's loss ought to have been calculated simply, rather than pursuant to the complicated basis of settlement in its insurance policy. He argued that the "simple concept" he advocated would have been to calculate the plaintiff's profit on the MG paper which it produced on the M2 machine in the 12 months before the incident of 7 April 2001 and " ... subtract from that figure the number of extra tonnes of MF paper that were in fact produced whilst the MG was bypassed in that year, and calculate the profit that was obtained on that paper."

331 Mr McArthur criticised Dr Manning because he said that he did not address the issue of betterment. He submitted that the method of calculation relied upon by Dr Manning was merely a "private bargain" between the plaintiff and its captive insurer to provide a means to settle claims. He argued that it was not a proper method of calculating the measure of loss and damage for contract or tort claims and should not be accepted on this basis alone.

332 Counsel for the defendant then proceeded to point out what he said were errors in Dr Manning's report which he described as "unreliable". He criticised the method by which Dr Manning reached the figure of 31,536 tonnes as the quantity of paper the plaintiff would have produced in the 12 months immediately following 7 April 2001 had the incident not occurred. He criticised Dr Manning for not explaining in his evidence the way he reached a number of his conclusions and asserted that a number of figures used in various tables were simply wrong. He asserted that a number of Dr Manning's assumptions were wrong and argued that as no explanation was given for the plaintiff's not having reached budgeted targets before 7 April 2001 calculations based on information Dr Manning derived from the plaintiff's production figures should not be accepted. In particular he argued that Dr Manning's analysis of the plaintiff's domestic market as against its export market was flawed and that, therefore, the rest of his calculations ought to be ignored. He criticised figures in a number of the tables in Dr Manning's reports.

333 With respect to Dr Manning's calculations of the items which comprise the extra costs incurred by the plaintiff in producing paper caused by the incident of 7 April 2001 counsel submitted that they were "complicated and suspect", but apart from a comment concerning wages he did not submit that Dr Manning's conclusions were wrong or not to be accepted.

334 Mr McArthur continued his attack on Dr Manning's evidence by submitting that because " ... from June 2003 the M2 paper machine was up and running at a profit ... " there was no loss suffered by the plaintiff after that date so that Dr Manning's report dealing with the "uninsured losses" was fundamentally flawed and ought to be disregarded.

335 The defendant argued that the plaintiff's liability for company tax has been reduced by its entitlement to claim a deduction from its taxable income for depreciation of the new MG cylinder which it purchased. The defendant submitted that to the date of trial this entitlement would have saved the plaintiff tax of $526,000 per year for four years or $2,104,000 which ought to be deducted from the plaintiff's claim.

336 The defendant's calculation is derived from an expenditure requisition for the new MG cylinder found in the plaintiff's records which was before the Court. This expenditure requisition was dated 2 July 2001 and predicted a total cost for the new MG cylinder of $5,775,893 comprising $1,863,689 for the MG cylinder and associated equipment and the balance for installation, peripherals, commissioning etc. It detailed a number of matters relevant to the replacement of the MG cylinder and contained a document entitled "Calculation of Net Profit after Tax". This calculation showed a figure for "tax depreciation" of ($751,000) per year for ten years.

337 Mr Peter Williams, an accountant employed by the plaintiff, was cross-examined about this document. He said that the plaintiff had calculated its financial loss brought about by the physical loss of the MG cylinder at about M$3.2 per year. The document relied upon by the defendant, said Mr Williams, was designed to answer the question as to whether some of that loss could be regained by investing in a new MG cylinder. He was asked about the reference in the document to "tax depreciation" and whether the plaintiff had been claiming tax depreciation on the new MG cylinder. He said that "taxation accountant(ing) is not done at the mill and is not done by myself but I would venture to say, yes that has occurred." There his cross-examination on this topic ceased.

338 Asked by the Court as to whether the figures referred to by Mr Williams were going to be explained further, counsel for the defendant said that there would be cross-examination of Mr Welsford and Dr Manning on them in due course. In fact there was no such cross-examination.

339 There is no evidence before the Court as to whether the plaintiff has ever received a taxation benefit of $526,000 per annum or any other amount because of its entitlement to claim depreciation in respect of the new MG cylinder. There is no evidence as to the applicable depreciation rate for equipment such as an MG cylinder and there is no evidence as to the general taxation position of the plaintiff having regard to all its business activities. The Court was not referred to any part of the applicable taxation legislation pursuant to which deprecation of the type being discussed is allowed as a deduction from taxable income nor to any practice or ruling of the Australian Taxation Office concerning the taxation treatment of equipment such as an MG cylinder. The defendant's submission rests only on a reference in a budget paper written by an employee of the plaintiff as to his expectation as to the effect of spending $5,775,893 on a new MG cylinder.

340 There is, however, before the Court, a report of accounting firm Pricewaterhouse Coopers written by one Mark Thompson, dated 5 December 2003, concerning a number of financial matters relevant to this proceeding which refers to this taxation question. The report which is, in total, over 100 pages, deals with the taxation issue briefly. It was written at the request of the defendant's solicitors.

341 The essence of Mr Thompson's opinion is that whether or not any taxation benefit would ultimately accrue to the plaintiff because of its purchase of the new MG cylinder would depend upon a consideration of a number of matters including the fact that it made a successful claim on its industrial special risks insurance policy and its taxation affairs generally. Mr Thompson expressed the view that it was not possible for him to conclude that there was any tax benefit or detriment arising from the plaintiff's purchase of the new MG cylinder.

342 The plaintiff submits that, having regard to Mr Thompson's opinion, no benefit to the plaintiff is established as asserted by the defendant and that its attempt to quantify any such benefit is pure speculation. Having regard to the available evidence it is impossible to reach any conclusion as to whether there has been any and if so what effect on the plaintiff's taxation position caused by its purchase of and possible depreciation of the new MG cylinder. This is particularly so when regard is paid to the fact that the plaintiff received the proceeds of an insurance policy, part of which, at least, indemnified it in respect of the cost of the new cylinder. Had this matter been taken up in cross-examination with Dr Manning or Mr Welsford (particularly, perhaps, Dr Manning) there may have been evidence upon which some conclusion could have been reached. As Dr Manning calculated the plaintiff's losses in intricate detail in both his reports and expressed his conclusions without qualifications other than those expressed in those reports, the failure of the defendant to put its case on the taxation issue to Dr Manning, and the lack of any other evidence, leads inevitably to the conclusion that it must have no effect on the assessment of the damages to which the plaintiff is entitled.

Consequential Losses: Conclusion and Assessment

343 Dr Manning's evidence was cogent and convincing. Whilst he readily conceded the complexity of the calculations he had undertaken, I am satisfied that he took into account all those factors which he considered were relevant to those calculations. He was not shown, either by cross-examination or by reference to any convincing criticism by Mr Williams, the defendant's forensic accountant, that he had made any error of principle or, for that matter, any error of calculation.

344 I have considered Mr Williams' evidence carefully. It consisted only of criticisms of Dr Manning's opinions; no affirmative case was put. Indeed, Mr Williams conceded that his role was only to discredit those opinions. He did not succeed in that endeavour. Nor do I regard counsel for the defendant's criticisms of Dr Manning as having diminished the value of his evidence in any way.

345 It follows that the plaintiff's claim for consequential losses should be assessed in conformity with Dr Manning's calculations. I accept his opinion that those calculations are conservative. It is not insignificant, in this regard, that Mr Welsford assessed the plaintiff's loss at a considerably higher amount. It is also indicative of the conservative nature of Dr Manning's calculations that he regarded the factors which caused the plaintiff's ongoing losses to have exhausted themselves by the end of the 2004-2005 financial year. By that time he thought that any ongoing loss was insignificant.

346 In respect of two matters which affected Dr Manning's calculations the plaintiff voluntarily incurred extra costs. Those costs were incurred in providing rebates to some of its customers and in importing MG paper to satisfy some of its customers who had previously used its MG paper as a base for insulation. I am satisfied that those costs were incurred in a reasonable attempt to preserve the plaintiff's business against further loss for which the defendant would have been liable. They are, accordingly, recoverable.

347 Dr Manning's evidence provided calculations of loss, not an assessment of damages. In some cases the difference may be significant, particularly where future losses or contingent events have to be taken into account. That is not this case. Here, all the plaintiff's losses are past losses and can be the subject of calculation. Nor are vicissitudes or possibilities relevant. However, having regard to the fact that an assessment can never be as precise as a calculation it is appropriate to round off Dr Manning's figures to reach a sum for damages. His reports themselves acknowledge rounding errors so that the precision with which his results are reported are, as in any such calculation, subject to limits of error.

348 Dr Manning calculated the plaintiff's losses for the period from 8 April 2001 to 31 March 2003 in the sum of $5,096,737 and for the period 1 April 2003 to 30 June 2005 in the sum of $3,129,232. From the latter figure $31,990 must be deducted as not being recoverable. Accordingly that sum should be reduced to $3,097,242. The total of these sums is $8,193,979. The plaintiff's damages for consequential losses should be assessed at M$8.2.

349 When the plaintiff replaced the MG cylinder on the M2 paper making machine following the event of 7 April 2001 it did so with a new MG cylinder which was a more modern version of the MG cylinder which it replaced. Its maximum operating steam pressure is 6.2bar against the old MG cylinder's 3.45bar. It also operates at a higher speed and with a higher nip load. The defendant argues that if the plaintiff is entitled to damages assessed by reference to the replacement of the MG cylinder it must bring into account against those damages a "betterment" factor because the new machine is more profitable than the old.

350 When the decision was taken, on 20 April 2001, by the plaintiff that the old MG cylinder was not able to be repaired Mr Walker was instructed to seek a secondhand cylinder to replace it. He could not do so. There are very few such pieces of equipment in existence around the world and there were none that he could find which were for sale despite a worldwide enquiry.[22] Thus, the only option available to the plaintiff to replace the cylinder was to acquire a new one. Speed was of the essence as the plaintiff was of the belief, as expressed by its executives in the teleconference of 20 April 2001, that its market for MG paper was in danger of being lost if production was not resumed as quickly as possible.

351 The defendant's primary submission in this case, assuming its liability to the plaintiff, was that the decision by the plaintiff to condemn the MG cylinder was taken too quickly and was, in any event, wrong. The plaintiff should not recover the cost of a new MG cylinder - only the reasonable cost of repairing the old cylinder. Alternatively it took the position that if the plaintiff is awarded damages based on the cost of a new MG cylinder it should be required to account for the increased profit derived from the employment of this new piece of equipment.

352 There is no doubt here that the plaintiff has obtained a new MG cylinder installed on its M2 paper making machine as a replacement for an old MG cylinder and that this new cylinder is better and, other things being equal, capable of improving the M2 machine's production capacity with consequences for the profit derived by the plaintiff from its business. But the matter does not end there.

353 The general rule as to the measure of damages, both in contract and in tort had its origin in the judgment of Lord Blackburn in Livingstone v Rawyards Coal Co.[23] He defined the measure of damages as:

That sum of money which will put the party who has been injured, or who has suffered, in the same position that he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.

354 The application of this principle in this case means that the plaintiff must be put in the same position it would have been in had the incident of 7 April 2001 not occurred: that is to say operating its M2 paper making machine with a 50 year old MG cylinder having an unlimited, or at least a very long, life expectancy. Instead, it has a new MG cylinder, with more modern specifications which, the defendant argues, has already demonstrated a capacity for being able to increase production on the M2 paper making machine. As the plaintiff will receive damages to cover the cost of the purchase, installation and commissioning of the new MG cylinder it has, as a matter of fact, received a benefit over and above the replacement of that which it lost as a consequence of the defendant's default.

355 In the course of this case the MG cylinder has, for convenience, generally been treated as an independent chattel although it is, of course, only part of the M2 machine. It is but one part of a very large machine which processes paper pulp into paper over a very long process. It produces nothing of itself. The plaintiff's claim in this case could just as easily have been framed as a claim for damage to the M2 machine which required the replacement of its MG cylinder. It is useful to consider these aspects of this case to expose the real question as to whether the plaintiff has, in fact, gained a benefit for which its damages must be reduced and, if so, how that reduction should be calculated.

356 The ordinary measure of damages for the loss or destruction of a chattel ( apart from consequential losses properly claimable) is its value.[24] Where there is a market for the lost or destroyed chattel that market will, theoretically at least, determine the chattel's value and thus the quantum of the plaintiff's damages. Here, the plaintiff says there was no market for second hand MG cylinders. If there had been it would have bought one, if only to resume making MG paper as quickly as possible. Its case on this question must be accepted; it was hardly contested. So must its contention that it had to act quickly, not only in abandoning the old MG cylinder but in ordering a new one. In the circumstances the plaintiff acted reasonably in replacing the old MG cylinder with a new one. Viewed as a repair of the M2 machine it would be equally justified in effecting the repair using a new MG cylinder.[25] It was the only practical solution to the problem it found itself in because of the defendant's default.

357 In Harbutt's Plasticine Limited v Wayne Tank and Pump Co Limited[26] the UK Court of Appeal was dealing with the question as to whether the owners of a plasticine factory which was destroyed by the defendant's default and who built a new modern factory to continue operating their business should have their claim for damages reduced because they acquired a new factory for one which was old. In his judgment Widgery LJ commenced from Lord Blackburn's position as to the restitutio in integrum principle of compensation for actionable loss and then examined the reasonableness of the plaintiffs' conduct in having done what they did. He upheld the plaintiff's contention that no credit had to be given for the "betterment" they obtained at the defendant's expense. It is clear from what his Lordship said that if he had considered that the plaintiffs were obliged to give such a credit its measure would have been assessed by comparing the value of the old factory as against that of the new.

358 In the same case Cross LJ was more specific. He considered that in a case where it was obviously right for the plaintiffs to re-build and re-equip its factory and start business again as soon as possible, the defendant was not entitled to claim any reduction in the damages it had to pay simply because the plaintiff got new for old. Dealing with the quantification of any betterment had it been allowed his Lordship said:

I can well understand that if the plaintiffs in re-building the factory with a different and more convenient lay out had spent more money than they would have spent had they re-built it according to the old plan, the defendants would have been entitled to claim that the excess should be deducted in calculating the damages. But the defendants did not call any evidence to make out a case of betterment on these lines and we were told that in fact the planning authorities would not have allowed the factory to be re-built on the old lines.

Lord Denning MR agreed in the result on similar reasoning although, like Cross LJ, excepted the case where the plaintiff " ... added extra accommodation or made extra improvements ... ".

359 In Bacon v Cooper (Metals) Limited[27] Cantley J applied Harbutt to deny a defendant a reduction in damages for the destruction of a machine part caused by its default where the plaintiff bought a new part because a secondhand part was not available. He held that an injured party was not disentitled to recover the costs of reasonable remedial measures merely because the person in breach could suggest other measures less burdensome or because the injured party incidentally derived some greater benefit over and above mere indemnification. Like the Court of Appeal in Harbutt, Cantley J considered that the inquiry to be embarked upon in determining whether a plaintiff must give credit for receiving a betterment is whether the plaintiff behaved reasonably in doing what it did. He quoted MacMillan LJ in Banco de Portugal v Waterlow and Sons Limited[28] where he said:

Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of a breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest other measures less burdensome to him might have been taken.

360 The plaintiff has maintained in this case that the new MG cylinder was simply a modern version of the old. Whilst its specifications are undeniably better than the old cylinder it has not been suggested in argument by the defendant that the plaintiff should have ordered a new MG cylinder having the same specifications as the old cylinder. Much less has the defendant demonstrated that the plaintiff acted unreasonably in not doing so. There is no evidence either that an MG cylinder identical to the old one would have been able to be obtained, nor was there any evidence as to whether, if it could, it would cost less (or for that matter more) than the new MG cylinder.

361 The defendant relied upon the House of Lords decision in British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways Company of London Limited[29] and the NSW Court of Appeal decision in Hoad v Scone Motor Pty Ltd.[30] But each of these cases is distinguishable on their facts. In the first, the breach of contract which gave rise to the plaintiff's action was not, as here, one in which a chattel was destroyed but rather one in which the defendant failed to supply a chattel which complied with its obligation to do so. Further, the facts surrounding the alleged betterment were quite different to those which obtain in this case.

362 In the second of the cases relied upon by the defendant the plaintiff intended to sell the chattel with which he had replaced that which was destroyed by the defendant's default, by which sale he would make a substantial profit because the replacement chattel was considerably more valuable than that which it replaced. That is not this case. Hoad and British Westinghouse are each illustrations of Widgery LJ's assertion in Harbutt that cases of alleged betterment are always dependent upon their own peculiar facts.

363 The reasonableness of the plaintiff's action in replacing the old MG cylinder with a modern equivalent must be accepted. In the circumstances of this case, the plaintiff, having acted reasonably in doing what it did, is not obliged to give credit to the defendant for the better MG cylinder with which it replaced that which the defendant effectively destroyed. This is so, even if, as the defendant contends, the new MG cylinder is capable of enhancing the performance of the M2 machine and has achieved that result.

364 Even if it was decided that the plaintiff did have to account for some betterment arising from its replacement of the old MG cylinder the defendant faces another problem in demonstrating the quantum of that betterment. There is no evidence before the Court as to the difference in value between the new MG cylinder and the old so as to form some basis for a rational assessment of the deduction to be made to the plaintiff's damages. That the onus of proving the quantum of any betterment is on the defendant is clear not only from Harbutt[31] but also from the judgment of Handley JA in Tyco Australia Pty Ltd v Optus Networks Pty Ltd.[32] In that case his Honour acknowledged the principle in the law of damages derived from cases such as Fink v Fink[33] and Chaplin v Hicks,[34] that the common law does not permit difficulties of estimating a plaintiff's loss to defeat his remedy. But he went on to distinguish the position of a defendant who seeks to have damages reduced because of a chance that the plaintiff derived a benefit from the wrong which the defendant committed. He said a defendant does not have the plaintiff's advantage. He is not in this "favoured position." A defendant must prove the quantum of the reduction he seeks. See also Roberts v Rodier and ors,[35]J & B Caldwell Ltd v Logan House Retirement Home Ltd,[36]and Monroe Schneider Associates (Inc) v No 1. Raberem Pty Ltd.[37]

365 The defendant put its case on the quantum of betterment issue, not in terms of the respective values of the two MG cylinders, but on the profit which it asserted the plaintiff made as a result of having a more efficient MG cylinder. It called Mr Wayne White of Omni Continental, a process consulting company specialising in the pulp and paper industry in Canada. Mr White wrote two reports and gave oral evidence. His evidence was relied upon by the defendant as demonstrating that the plaintiff had achieved considerable increases in its production following the installation of the new MG cylinder. It also relied upon the opinion of Mr Trevor Williams the forensic accountant, as to the monetary quantification of Mr Wayne White's production assessment. Together they suggested that the benefit to the plaintiff was somewhere between M$4.6 and M$12.4.

366 The plaintiff responded to this evidence with evidence from Mr Welsford to whom reference has already been made and, of course, it relied upon the opinion of Dr Manning who was adamant that there was no financial advantage to the plaintiff which accrued as a result of the new equipment. In any event, on Dr Manning's evidence, any benefit which the plaintiff did obtain, at least up until 30 June 2005, was already accounted for in Dr Manning's opinion on the plaintiff's losses which the Court has accepted.

367 But all of this evidence is beside the point. In the circumstances of this case any claim for betterment would have to be assessed by reference to values, not the resulting profit experienced by the plaintiff. The plaintiff's profit is derived from the operation of the whole M2 paper making machine and its business generally not just the MG cylinder. There is much evidence before the Court as to the limitations which are imposed upon the operation of that machine by various "bottlenecks" in it. The paper making process on the M2 machine is a long one. It involves a large number of linked individual processes which the paper passes through in a continuous strip from one such process to the next. Essentially, all of these processes are concerned with extracting water from the paper pulp. Many of them are called "dryers". The MG cylinder is but one of those towards the end of the process which is used in the manufacture of MG paper. Thus, assessments of the plaintiff's profitability as a result of the new MG cylinder would need to take into account, in some considerable detail, the effect on that profitability of the operation of various parts of the MG paper making machine. The term "dryer limited" was used frequently in this case to describe problems such as those adverted to above.

368 Further, the plaintiff's profitability is always going to be affected by a large number of business factors quite unrelated to the M2 paper-making machine and its efficiency. As cross-examination demonstrated throughout this case, the Australian exchange rate, markets for paper in South East Asia, the United States, New Zealand and Australia, the world spot market for the price of paper, the presence or absence of local and overseas competitors etc etc all affect the plaintiff's profitability. To these can be added the plaintiff's business activities in marketing, advertising and otherwise promoting its products.

369 If, contrary to the Court's conclusion, an amount for betterment should be deducted from the plaintiff's damages there has been no reason demonstrated for a departure from the ordinary method of calculating the benefit to the plaintiff of its having acquired a new MG cylinder at the defendant's expense. That method would be to calculate the difference in value of the two MG cylinders and use that sum as the betterment factor. But there is no evidence in this case that that exercise would lead to a finding that there had been a relevant benefit. In any event there is no evidence upon which that calculation could be made.

370 The plaintiff's damages should not be reduced for betterment. Even if a case could be made that they should be so reduced, the defendant has failed to discharge its burden of proving the quantum of any such reduction.

371 The plaintiff is entitled to judgment against the defendant in the sum of $ 4,645, 053.32 for its material damage and $ 8,200,000.00 in respect of its consequential losses, a total of $12, 845, 053.32.

372 Subject to hearing counsel as to any inaccuracies in the figures or calculations in this judgment and on the question of interest and costs, there will be judgment as I have stated above.

[1] In this judgment the defendant will normally be referred to as "Dunlop" notwithstanding its subsequent change of name. That is how it was generally referred to in evidence and documents before the Court.

[3] [1976] VicRp 36; (1976) VR 392.

[4] [2006] VSCA 118.

[5] [1959] HCA 8; (1959) 101 CLR 298.

[6] [1975] VicRp 89; [1975] VR 916.

[7] [1930] 1 KB 41.

[8] [1977] UKHL 7; [1978] 1 WLR 165.

[9] [1999] QCA 472 (McPherson JA).

[10] [1959] HCA 8; (1959) 101 CLR 298.

[11] [1986] HCA 82; (1986) 161 CLR 500, 510 (Mason, Wilson, Brennan, Deane and Dawson JJ).

[12] The MG cylinder had cast iron plates sealing each of its ends. Those plates were held to the cylinder by bolts at their circumference. There were 60 such bolts sometimes called "Voith bolts". Thus each quadrant of the cylinder sliced lengthwise represented a segment in which there were 15 bolts. These bolts and the segments of each group of 15 of them are commonly used to describe points on the surface of an MG cylinder.

[13] MF (machine finished) papers could be produced on the M2 machine by, in effect, by-passing the MG cylinder. MF papers lack the glaze of MG papers and are inferior for the uses for which MG papers are generally used.

[14] This legislation was in force at all times relevant to this litigation. It has since been replaced by the Occupational Health and Safety Act 2004.