Plaintiff v Defendant

For the defendant and the plaintiff to the counterclaim

**1 This case arises out of the construction of a waste recycling plant at Coolaroo, north of Melbourne. The plant separated recyclable household waste into its components, such as glass, paper and metal cans. The plant was owned and operated by the defendant, SKM. It has since burnt down.

2 SKM operated a waste recycling plant in Thornbury. SKM was conducted by Mr Joe Italiano and his two sons, Robert and Anthony Italiano. In 2003, SKM had succeeded in obtaining from the City of Burandoora a significant contract for the recycling of domestic recyclable waste. SKM did not have sufficient capacity at its Thornbury plant to recycle this waste. To fulfil that contract, SKM acquired the site at Coolaroo to build and operate a recycling plant.

3 The plaintiff, ICA, carries on business manufacturing and installing conveying platforms. ICA has a manufacturing plant in Bendigo, which is managed by Mr Donald Erskine. The company is owned by Mr Erskine and his staff. ICA is one of the largest manufacturers of conveying systems in Australia and has supplied conveyors to customers such as mining companies, tobacco businesses and Coca Cola.

4 In 2003, SKM retained ICA to manufacture and install conveyors and other components of the recycling plant at Coolaroo. The recycling plant at Coolaroo was made up of conveying platforms and systems and other equipment that separates the recyclable products. The conveying platforms and systems constitute a significant part of the recycling plant.

5 Between September 2003 and 2006, under various separate contracts, ICA supplied and installed conveying platforms and other plant and equipment at the Coolaroo plant.

6 In May 2007, ICA instituted proceedings against SKM in the Magistrates' Court at Bendigo for $52,392.64 said to be owing in relation to work on what is called in that proceeding the C2 incline elevator. SKM disputed the debt and counterclaimed for some $3,955,627.08, alleging breach of contract by ICA, and also alleging misleading and deceptive conduct by ICA in breach of s 52 of the Trade Practices Act 1974. The matter was uplifted to the Supreme Court of Victoria. There, ICA amended its claim to seek $820,117.20 as debts owing.

7 The claims and counterclaims in this matter are extensive. SKM claims that in the order of fifty contractual terms have been breached. ICA in turn claims moneys due under many different invoices. Multiple court books have been filed and expert witness reports tendered. The technical issues in the matter are not simple. The parties estimated the matter would run ten days, a less than reasonable estimate. It soon became apparent to me that to properly hear the matter considerably more than ten days would be required. I considered that it might be more expeditious to resolve the multiple contractual issues as preliminary questions. I made Orders accordingly, included as annexure 1 to this judgment.

8 One of the main contractual issues between the parties is whether ICA was retained to design the recycling plant and whether ICA agreed to achieve certain performance characteristics of the plant as a whole. That is, whether ICA agreed with SKM to design and build a plant that could achieve a certain quantity and rate of output. SKM claims ICA was under a contractual obligation to do so. ICA deny that claim and says that it was only retained to build certain items of plant to be installed in a plant designed by SKM.

9 In summary, I have upheld the contracts relied on by ICA to make out its claims against SKM. I have not found that ICA was retained to design the plant, nor that it had agreed to design and construct it to achieve the output claimed by SKM. Due to the large number of contractual issues I have been asked to decide, it is not possible to include a summary of them all here. I refer to them in detail below.**

10 The trial of the preliminary issues took place over thirteen days. The court book comprised five folders. The following persons gave evidence.

**11 (a) Donald James Erskine, managing director of ICA.[1]

(b) Shane Byleveld, project manager employed by ICA since 1998.[2]

(c) Clinton Robert Miller, from 1 May 2001 to 9 February 2007 contracted by ICA as a design draftsman: witness statement of 20 June 2011.[3]

(d) Jason Mathew Downing, since 2003 employed by ICA as an electrical design engineer.[4]

(e) Shane David Normoyle, from 1996 to 2003 worked with ICA as an A Grade Electrician and 2003 to 2008 as a Site Installation Electrician.[5]

(f) Rodney Baldock, employed by ICA as general supervisor from 1997 to 2004, in 2004 promoted to production planning, sales and general administration of a division of ICA.[6]

(g) Bruce Robert Granger, general manager of ICA, at time of ICA work in 2003-2006 held position of Senior Project Manager.[7]**

**12 (a) Robert Italiano, in the period relevant to the dispute held the position of administration and business manager of SKM.[8]

(b) Anthony Italiano, in the period relevant to the dispute ensured the plant was operating and maintained the plant.[9]

(c) Richard Collins, employed by ICA between 1997 and 2010, started as a boilermaker, promoted to a leading hand and then to supervisor.[10]

(d) Anthony Ian Metcalf, employed by ICA from 1993 to 2010 as a boiler maker.[11]**

(a) ICA's amended statement of claim of 21 December 2009[12] (ICA claim);

(b) SKM amended defence of 5 March 2010 to ICA ASC[13] (SKM defence);

(c) SKM further amended counterclaim of 3 December 2009[14] (SKM claim);

(d) ICA defence of 19 February 2010 to SKM FACC[15] (ICA defence);

(e) Erskine defence of 19 February 2010 to SKM FACC[16] (Erskine defence).

14 There are also further and better particulars of various pleadings.**

(a) ICA's outline of closing submissions of 4 November 2011;[17]

(b) ICA's summary of final submissions of 8 November 2011.

(a) SKM outline of submissions, including: [18]

(i) Summary of legal issues to be determined SKM counterclaim;

**17 SKM is a family owned company under the control of Mr Joe Italiano. He is assisted in his business by his two sons Mr Roberto Italiano and Mr Anthony Italiano. Robert attends to financial and business matters. Anthony attends to mechanical and technical matters. The company carries on business separating recyclable waste into its component parts. The recyclable waste is essentially obtained from household bins provided to each home by local councils.

18 Recyclable waste generally consists of co-mingled glass and plastic bottles, aluminium and metal cans, cardboard and paper. The plant that carries out the separating is called a recycling plant. SKM owned and operated such a plant in Thornbury.

19 Some time prior to May 2003, SKM obtained a new contract to process recyclable waste. In order to process this waste, SKM decided it needed a new recycling plant. A site was found at Coolaroo, north of Melbourne. The site had an existing building into which the new plant would be installed.

20 Generally speaking, the plant functioned by putting the co-mingled recyclable waste on a series of conveyors. At various stages along the series of conveyors types of waste were removed by hand, or by some sort of machinery. The recyclable waste also contains non-recyclable products such as household rubbish including items such as old prams and toys. In the plant to be built at Coolaroo non-recyclable waste was to be removed by hand as it travelled along a conveyor. Other recyclable waste such as tin cans would be removed by the conveyor passing under a magnet that attracted the cans. As the co-mingled waste travelled along a series of conveyors it would be further separated and placed in bins or such like.**

**21 Before turning to the contract issues between the parties, it is useful to describe the Coolaroo project in a little more detail. I propose to use the description provided by Mr Erskine,[19] with reference to contemporaneous documents, as I have no reason to doubt what they record.

22 ICA was retained to manufacture and install conveyors and other components of the Coolaroo plant. The Coolaroo project was divided into stages. SKM specified and supplied all the sorting equipment and a number of other items incorporated into the plant. As a general observation, ICA supplied and installed most, but not all, of the conveyors and platforms, and SKM supplied the equipment which performed the role of sorting and separating the co-mingled product into its different types, and the balers (which were located at the end of the different product lines and would compact material after it had been separated). ICA also built the disc screens that separated paper from the co-mingled product.**

**23 Although I am addressing contractual issues, it is necessary to provide some detail of the equipment used in the plant including the conveyors supplied by ICA. A conveyor consists of the following essential components:

(a) a moving belt of any width or length which rotates around two ends, often referred to as the head drum (or pulley) and the tail drum; and

(b) a motor/gearbox which drives/rotates the head drum which, in turn, drives the belt.

24 The tail drum is usually adjustable to provide the appropriate amount of tension on the belt to create friction on the head drum.

25 The motors that ICA supply for the conveyors are electric. They range in size (motor horse power) depending on requirements. The motor is connected to a motor control station (switchboard) and mains power. The motor control station has motor overload protection which is adjustable, depending on motor power.

26 Belts are made of various types of materials. For the Coolaroo project, most belts were made from rubber with a polyester type carcase. The belts require replacement periodically.

27 On its return from the head drum, the belt is carried on a number of support rollers, which are often approximately 50mm in diameter, and are spaced at varying intervals to support the belt on its return to the tail drum. For heavy duty applications, a chain-guided belt using sprockets to transmit torque/pull to the belt might be used instead of pulleys. Only one of these was used in the SKM project.

28 To operate properly, a belt must 'track' in a straight line continuously. A belt can 'track off' the head drum if the conveyor pulleys are incorrectly adjusted or go out of alignment. In poorly maintained situations, produce can build up on rollers and cause the belt to run off line. Tracking can be adjusted by:

29 Conveyors can be flat or inclined, depending on the position of the head and tail drum. Inclined conveyors often have a cleated belt for elevating (carrying) materials.

30 Belts can be flat or can be troughed, depending on the type of material and process requirements. Flat belt conveyors usually have skirts which provide a seal between the vertical side guard and the belt. These need to be regularly checked, adjusted and maintained to prevent spillage and leaking of material. Troughed conveyors usually do not have side guards.

31 When adjusted correctly, scrapers remove material that has stuck to the belt in order to prevent a build-up of foreign matter which can affect belt tracking, which in turn can damage the belt. Scraper blades can be made of metal or plastic and are consumable items.

32 Conveyors will also have guards and safety barriers to stop personnel from being injured. They are usually located at a point where a person could be caught or injured by moving components.**

**33 Stage 1 involved the building of a material processing line to process recycled product other than paper and cardboard, i.e. plastics, glass, aluminium and steel cans. ICA performed the stage 1 works from August to mid-October 2003.

34 The design layout for the stage 1 works is set out in drawing number 24620 Revision 4.[20] Stage 1 used one in-feed line (process line). Product delivered by recycled waste collection vehicles was dumped onto the floor of the plant and would then be placed onto the in-feed line at the first conveyor (in-ground conveyor) by a tractor or front-end loader (i.e. manual input). The weight, volume and bulk density of the feed material was affected by the mix of product. SKM provided ICA with details of loads, volume and percentages of light product and heavy product on 1 July 2003[21] and 29 July 2003.[22]

35 Product placed onto the in-ground conveyor was then conveyed to an elevator conveyor that took the product up to a platform where a primary sorting of the product was to be done by four people stationed there (two on each side of the conveyor) whose job it was to remove foreign objects from the waste stream such as ropes, large items and general rubbish. Foreign objects were to be dropped into chutes. It was important that this primary sorting removed the majority of those foreign objects at this stage of the process because otherwise, if such objects continued down the line, it could reduce the efficiency of the later sorting processes.

36 After primary sorting, the product went under a magnetic conveyor (supplied by SKM) for the removal of ferrous metal objects. The metal objects, such as metal cans, dropped into a chute and then into a steel baler (i.e. a compactor). The steel baler was supplied by SKM.

37 The product then went onto a disc screen conveyor which removed fine material. From the disc screen conveyor, product went through the 'classifier' (supplied by SKM), which is a unit which removed light product (e.g. aluminium cans and plastic) from glass product (which is heavier).

38 The remaining product then passed over a bounce conveyor (supplied by SKM) to separate paper from the plastic product.[23] Plastic product then passed a quality control station, where any foreign product still remaining was manually removed from the plastic screen by hand. The plastic material was then delivered to a plastic baler unit (supplied by SKM).

39 The remaining heavy product was conveyed along a conveyor referred to as a glass sorting line where three types of glass (clear, green and brown) were manually separated and placed into chutes. Any remaining product continued on as general rubbish to a collection bin.**

40 For stage 1, ICA provided the individual conveyors and support structure (including platforms) to deliver product to the SKM-supplied sorting equipment. ICA supplied approximately 12 conveyors for stage 1, along with associated electrical equipment and controllers, safety equipment (such as emergency stop switches) and operating manuals. ICA did not supply equipment, such as classifiers, to actually sort product on the stage 1 line. The only handling equipment supplied was the individual conveyors to connect the SKM-supplied sorting equipment. The conveyor widths and locations were nominated by Robert Italiano in his email dated 28 July 2003.[24]

**41 The major sorting equipment supplied by SKM for stage 1 was:

(a) a magnetic separation conveyor to remove metal objects;

(b) the classifier unit referred to above to separate light product from heavy items, such as glass;

(c) the eddy current unit which uses a fast-spinning magnet to remove aluminium cans from the light product;

(d) a bounce conveyor for removing paper from plastic beverage waste; and

(e) a number of balers which compacted product at the end of a product line.

42 All other materials were removed by manual sorting personnel. These supplied items and personnel determined the quality and volume of product sorted.**

**43 Stage 2 of the project involved the processing of co-mingled product, for the removal of paper, cardboard and foreign objects, before the remaining product passed to stage 1 for further processing. This was called stages 2 and 3. For convenience I will refer to stages 2 and 3 as merely stage 2. Drawing 24622 dated 11 November 2003 shows the layout plans for stage 2.[25] Mr Erskine instructed ICA personnel to design the plant based on 30 tonne input to ensure there was enough capacity. ICA performed stage 2 works from November 2003 to early March 2004.

44 Mr Erskine explained the process performed by stage 2 in his witness statement as follows.[26] At the end of the incline belt, the product was then split into two lines by a moveable splitter (the moveable splitter allowed adjustment so that more or less product could be directed to each of the two sorting lines). The lines were split/duplicated so that a sufficient number of manual sorters could have physical access to the product to perform manual sorting.

45 In the first part of the line, ten sorters sorting per line (20 people) would manually remove general waste from the line and drop it down chutes, where it would be conveyed to a collection bin.

46 The remaining recyclable waste product then continued along and over a coarse disc screen which separated out newspaper and cardboard (which continued along the line). Plastic, glass, metal, aluminium and smaller paper items would fall through the first disc screen and drop onto a second fine disc screen which removed further paper items. Beverage products such as glass, plastic, aluminium and metal cans were then conveyed to a point where they could be manually re-inserted into the stage 1 system.

47 The product that passed over the coarse and fine disc screens, mostly paper and cardboard, would then be conveyed along two sorting lines, one above the other, with eight manual sorters on the upper deck and eight on the lower deck (16 people on each of the two lines) who would sort product to manually remove cardboard and any remaining foreign items that were mixed with the paper.

48 Paper product would then continue through and be combined from the two lines as mixed paper before entering the baling unit, which produced large bales of compressed paper. Originally, Robert Italiano's concept had been to separate paper into two grades, coarse and fine paper, but the system he designed and ordered joined two paper lines up to produce mixed paper, which was baled.**

**49 For stage 2, ICA supplied the following equipment:

(a) approximately 17 conveyors and support/platforms;

(b) the moveable splitter (which split the single line into two sorting lines referred to above);

(c) four disc screens (i.e. two coarse and two fine disc screens); and

(d) associated electrical equipment and controllers, safety equipment and maintenance/operations manuals.**

50 For stage 2, SKM supplied the paper baler and the design for the disc screens.

51 ICA contends that in addition to the stage 1 and stage 2 works, ICA performed the additional works that are the subject of its claim. These are discussed in detail below.

**52 In May 2003, SKM contacted ICA to provide conveyors for the new plant. The exact nature of what ICA was retained for is one of the main issues I need to resolve.

53 The parties agree that the first meeting between them was held at SKM's Thornbury office in May 2003. There is considerable dispute as to what transpired at this first meeting.

54 Subsequently, ICA was asked to provide a quotation for the supply of equipment for the plant. Again the exact nature of what ICA was requested to do is a matter in issue between the parties. There is no dispute, however, that the plant was to have two sections. One section was to separate out glass and plastic. It was called the bottle line. The second, was to separate out paper and cardboard. That was called the paper line. Ultimately, the plant was to operate with paper being separated out first before the feed travelled on to the bottle line. As events transpired, the sections were built in two stages. Stage one, the bottle line, was built first and then the paper line and connecting conveyor to stage one was built, this being stage 2.

55 The two main witnesses as to the negotiations between ICA and SKM are Mr Erskine and Robert Italiano. Their recollections of the negotiations differ considerably. For reasons that I explain below, I consider that Mr Erskine's recollections are the more reliable. I will, however, set out the substance of the evidence in chief of both Mr Erskine and Mr Robert Italiano.**

Mr Erskine's evidence on the formation of the stage 1 and stage 2 contracts

**56 Mr Erskine, in his witness statement, gave the following evidence of the initial contact with SKM and negotiations leading up to the contracts:

57 On or around 14 May 2003, Mr Erskine received a telephone call from Robert Italiano inquiring as to whether ICA made conveying equipment and whether ICA would be interested in tendering for a project requiring a number of conveyors. A meeting was organised.**

58 Mr Erskine attended SKM's premises in Thornbury on or about 17 May 2003 and met with Robert Italiano, Anthony Italiano and their father Joe Italiano. They discussed the equipment required for a recycling plant and ICA's ability to manufacture the conveying components for such a plant. Robert Italiano did most of the talking for SKM. Robert said that they had their design for the plant that they had in mind, that the design was being drafted, and that these drawings would be provided to ICA following their inspection of ICA's Bendigo facility. Joe Italiano told Mr Erskine that strict confidentiality had to be observed, to which Mr Erskine agreed. This meeting concluded on the basis that the Italianos would visit the ICA workshop in Bendigo to determine for themselves ICA's suitability to manufacture the equipment they required. There was no discussion with regard to location, volumes or type of product at this meeting.

**59 On 28 May 2003, Anthony, Robert and Joe Italiano attended ICA's premises at Howard Street, Epsom (Bendigo) at approximately 10.00 am. Following a full inspection of the manufacturing facilities, a meeting was convened in the ICA boardroom. Mr Bruce Granger (senior project manager) and Mr Clinton Miller (draftsman) from ICA attended this meeting.

60 Joe Italiano told ICA that SKM had won a major contract to process product that had been collected from the kerbside by, Mr Erskine believes, Cleanaway, for a northern suburbs municipality, and that SKM had sourced a green fill site, being the ex-Smorgon's steel premises at Maffra Street, Coolaroo.

61 Robert Italiano said that the design work, including the length and width of the conveyors, and their location, had been completed and that these conveyors were to form the interconnection for the delivery of product between the various processes. ICA was told that SKM would source and supply the various sorting components required for the plant. Mr Erskine does not recall being given any details about those components at this meeting.

62 Robert Italiano said that his idea was that SKM would manage the project and be responsible for the plant layout, the process control, the sorting equipment, the throughput of the recyclable product and the determination of manning levels. He said that SKM would prepare the detailed drawings of the individual conveyors, which ICA would then manufacture and install, along with the associated support structure, platforms and walkways, electrical control and wiring. Robert said that as he was responsible for the design, he would approve ICA's drawings. All the other equipment (i.e. sorting equipment), which was being provided by SKM, would be installed by SKM. Robert said that ICA would be provided with detailed layout drawings, showing elevations and locations, early the following week. Discussion also took place regarding the possibility of ICA providing extra drafting services to help speed up the project.**

**63 On Monday 2 June 2003, ICA received, via email, a number of drawings from Anthony Italiano. These drawings showed the main dimensions, including width, length and elevation of each conveyor, but were, according to Mr Erskine, no where near comprehensive enough to allow ICA to quote for the manufacture of the individual conveyors.

64 The next morning, on 3 June 2003, Mr Erskine telephoned Anthony and expressed his concern that there was not enough information in the drawings he had provided for ICA to give a quotation. Mr Erskine was told that further drawings would be sent to ICA once they had been received from SKM's drafting service. A second batch of drawings was received by ICA on Wednesday 4 June 2003.[27]

65 The additional drawings provided by SKM were very sketchy and did not provide the detail Mr Erskine expected or required in order to quote, so he organised a meeting with SKM. A meeting was held at SKM's Thornbury premises on or about Friday 6 June 2003. In attendance at this meeting were Anthony, Robert and Joe Italiano, Mr Erskine and Clinton Miller. Mr Erskine offered to second Mr Miller to SKM to provide drafting services so that SKM could properly document the proposed project design and ICA could then provide a quote. Robert agreed with this suggestion and said that he would direct Mr Miller on the design. Mr Erskine said that if ICA was successful in winning the project, then these drawing costs would be amortised within the project and if ICA did not win the project, then ICA would be paid for hours expended for producing the drawings at a rate of $58 per hour. Mr Erskine's recollection is that Robert seemed happy with that arrangement.

66 From this point on, Robert was ICA's main point of contact with SKM. Robert was in regular contact with Mr Miller in developing the concept and the design. Some preliminary drawings were provided by Mr Miller to Robert on 20 and 23 June 2003.[28]**

**67 On 1 July 2003, Anthony Italiano provided by email details of the product mix, volume and density of the proposed plant.[29] A meeting was held on or about 8 July 2003 at SKM's premises at Thornbury. Those present were Robert and Anthony Italiano, Mr Miller and Mr Erskine. Mr Erskine requested specific details on the general layout and manning levels of the plant. This was necessary because ICA needed, for the purposes of providing a quote, to know where personnel were to be located within the plant so that ICA could provide for platforms and access (stairs, etc) to their work stations. At the meeting, Robert indicated where personnel were to be located. (The locations and manning levels were then included in the next layout drawings.)

68 An email records that on 9 July 2003, Mr Miller sent Robert a PDF of the Coolaroo recycling plant, telling him that they would bring some section drawings and a full size layout to the meeting on the following day.[30]**

**69 Using the information that had been provided to ICA by SKM, Mr Erskine prepared a quotation on 10 July 2003 (quotation number 1628) which was given to SKM the same day at a meeting at Thornbury.[31] This quotation outlined and covered all the points that had been raised by Robert Italiano up until this time and was based on layout drawing number 24620.[32] In the quotation, the various stages had been separated with individual pricing for each stage. The total price for stage 1 was $1,171,853.46, stage 2 was $1,351,751.34 and the price for a future stage was $451,590.78, giving an overall package for stages 1, 2 and the future stage of $2,975,194 excluding GST. Specific exclusions within this quotation were item seven, liquidated damages; item eight, any retention; and item nine, any conditions unknown to ICA at the time of quotation.

70 Included in the quotation was a clause to the effect that any additional guarding which may be required due to the final application of the equipment was not included. Mr Erskine said that this type of clause is usual in installations because additional guarding which is required at the interface between the various components of equipment is usually fabricated and installed after the equipment is in place at site.**

**71 On 10 July 2003, Bruce Granger, Mr Miller and Mr Erskine met with Robert and Anthony Italiano at Thornbury to discuss the 10 July 2003 quotation. According to Mr Erskine, at this meeting Robert became quite agitated. He said that the prices quoted were way above his budget and that they had only been able to secure a leasing finance from the bank for a much smaller amount. He then went through each item in the quotation, making comments such as 'that's ridiculous', and 'there's no way I'm paying for that'. They then discussed taking items of equipment out of the quotation or doing a re-design to simplify the project to reduce the cost. The layout was changed and items such as the second glass line were taken out, however Mr Erskine says that provision had to be made to provide for its future inclusion.[33]

72 After this meeting, Mr Miller prepared a new layout drawing. Mr Erskine then prepared a further quotation (quotation number 1628 Revision B, dated 21 July 2003) based on the discussions of 10 July 2003 and layout drawing number 24620 Revision 3.[34] Mr Erskine emailed it to SKM on the afternoon of 11 July 2003. This quotation related specifically to the stage 1 glass line and outlined individual costing for each item, including the future stage.

73 The same day, Robert Italiano telephoned Mr Erskine. According to Mr Erskine, Robert was still agitated and said that Mr Erskine had not carried out his instructions, that the quotation was unacceptable, and that he required further reduction. Robert requested the removal of all items not relating to the direct supply of the item of equipment, such as maintenance, warranty, documentation and project management. Robert stated that ICA was competing directly with SKM manufacturing the equipment themselves and that he wanted a 'bare bones' price based on supply for individual items of equipment. He said that SKM would take over and run the plant as soon as it was ready to run, and any extra work required to optimise the plant would be done on a cost plus basis under instruction from himself or Anthony Italiano. Robert also instructed Mr Erskine to concentrate on stage 1 and said that the remaining stages of the project would be considered by SKM at a later date.

74 On 22 July 2003, Mr Erskine prepared another quotation and emailed it to Robert Italiano.[35] This quotation was a base price 'bare bones' quotation, further reduced to $934,762.89 excluding GST and was based on items of supply and installation only. Further drawings showing the simplified version of plant were produced by Mr Miller under instruction from Robert and were provided by ICA to SKM on 23 July 2003.[36]

75 On 28 July 2003, Robert Italiano provided conveyor width details to Mr Miller and instructed ICA to make the glass sorting line (i.e. the stage 1 line) as close to the factory wall as possible to allow the platform to accept another glass sorting line at a future stage if required. He also resized the conveyor width to 1200mm to further reduce the price of the quotation.[37]

76 On 29 July 2003, Robert Italiano provided Mr Miller with details of the brick wall for the plant, and details of volumes and the densities of the products making up the mixed product (glass, plastic, aluminium and liquid paperboard).[38]

77 On 29 July 2003, Jason Downing of ICA requested details of the kilowatt rating for each of the balers and details of the main switchboard and location from Robert Italiano.[39]

78 On 29 July 2003, Mr Miller and Robert Italiano corresponded on the location of equipment.[40]

79 On 31 July 2003, Mr Downing sought details on the classifiers, electro-magnet and transfer belt from Robert Italiano.[41] Mr Erskine said that Robert provided details for the classifier the same afternoon.[42]**

**80 On 1 August 2003, Robert and Anthony Italiano travelled to Bendigo to inspect the prototype conveyor that had been manufactured by ICA at SKM's request, prior to an order being placed, so that SKM could be satisfied that the conveyor design and construction and the materials used were to their satisfaction.

81 On inspection, they praised the prototype and approved it without any modifications. This conveyor design was then used on stages 1 and 2.

82 After the inspection, a meeting was held between Mr Erskine, Mr Shane Byleveld, Mr Miller, and Anthony and Robert Italiano.

83 Shane Byleveld was the project engineer assigned to the project. He was responsible for co-ordinating the manufacture of equipment at ICA's workshop in Bendigo, its delivery to site, and installation. Mr Byleveld was based in Bendigo but would go out to Coolaroo as required by the project activities, sometimes on a weekly basis and sometimes daily (for example, during commissioning). Mr Byleveld reported to Mr Bruce Granger and also kept Mr Erskine informed of progress on the project.

84 At the meeting on 1 August 2003, Robert Italiano gave ICA final details for the throughput, manning levels and equipment supply. Robert said that the throughput for the stage 1 system was to be 10 tonne per hour, and that the product coming from the stage 2 system would be a further 10 tonne per hour being distributed to the additional glass line to be built at a future date. As it was an additional stage 1 glass line was not built by ICA.

85 Mr Miller prepared further drawings relating to items discussed at the 1 August 2003 meeting, including a revised version of drawing number 24620, which he provided to Mr Erskine.[43]**

**86 Mr Erskine then prepared quotation 1628 Revision 4 dated 6 August 2003 for Stage 1 which was sent to Robert Italiano on that day.[44] Drawing number 24620 was attached to the quotation.[45]

87 Robert Italiano requested that Mr Erskine provide two versions of this quotation, one showing itemised pricing, the other showing only the total price. Mr Erskine understood that the second version, showing only the total price, was for the Italiano's bank.

88 Quotation 1628 Revision 4 allowed for extra items of equipment that Robert Italiano now required for Stage 1. It described each individual item to be supplied, together with the width, length and type of conveyor and equipment.

89 The quotation also set out a list of exclusions. One exclusion (number 11) noted that ICA assumed that all SKM-supplied items would be provided fully assembled and fit for purpose, and that should extra work be required to modify equipment supplied by others to fit into the system, then this would be via agreed variation as required.

90 The final quoted price for stage 1 was $742,620 plus GST. This reflected the extra equipment added by Robert Italiano at the last minute and reductions that were brought about by reducing the scope of supply and providing for a manufacture and supply contract.

91 Mr Erskine said that it is important to appreciate that there were no specification or efficiency requirements. He said this would not have been appropriate given the scope, and Robert Italiano's design, of the project.

92 The final go ahead for the stage 1 works was given by payment of the deposit.[46] The invoice was paid in two parts - $148,524 on 12 August 2003 and $14,852.40 on 14 October 2003.

93 Other than the payment of the deposit, SKM did not provide an order placement or written confirmation, nor did they provide any specification or efficiency requirement.

94 Robert Italiano had promised during the meeting on 10 July 2003 and 1 September 2003 that a specification would be written, detailing the requirements of the project, including terms and conditions, however this was never produced.**

**95 The 6 August 2003 quotation noted that ICA would need access to the site commencing on the fourth week of August to begin installation work.[47] It also noted that ICA was confident of having product run through the system by 15 September 2003 provided there were no major changes and the supplied components were available and ready for installation when required.

96 ICA performed the stage 1 works referred to in the 6 August 2003 quotation from August to October 2003. Mr Byleveld was the project engineer. Mr Erskine instructed him and other employees on the project - Mr Downing, Mr Shane Normoyle, Mr Rodney Baldock and Mr Richard Collins - to do everything possible to ensure the work was completed in a timely manner.

97 All ICA-supplied equipment was installed and ready to run on 3 October 2003, and stage 1 was completed and ready for operation in mid-October 2003. This was done despite the fact that:

(a) A large section of floor area for the glass collection had not been completed by SKM and was not ready for ICA's work to begin there. SKM had not organised for the laying of the concrete in this area and the seven day curing time before the concrete could accept any load.

(b) Some SKM-supplied equipment - compaction equipment and delivery conveyors supplied by SKM - was delivered to site late.[48]

(c) The classifier supplied by SKM was missing necessary components, was under-powered and required modification.

98 Production commenced between 14 - 16 October 2003. Due to the late arrival of SKM supplied equipment, commissioning phase activities in making adjustments, corrections and modifications were carried out during normal operation.

99 The plant system was heavily dependent on having proper manning levels for manual sorting in particular. When production first began and testing and commissioning activities were still taking place, ICA site personnel manned the unmanned stations so that the system could be properly tested. This testing and commissioning phase went on for about a week - Mr Erskine was in attendance for about half the week - after which SKM took over the running and manning of the line.

100 From Mr Erskine's observations of the early stage production (he was on site about every second day in mid to late October), when the system was correctly manned and the manual in-feed was loaded by an experienced operator, the stage 1 project operated satisfactorily. Joe Italiano, on several occasions, pointed out to Robert Italiano, in discussions at site that Mr Erskine and others were present at, that when he was operating the front-end loader in a controlled manner, then the limited staff was achieving the production rates and in fact on one extended period had doubled SKM's throughput target.[49]

101 Stage 1 was completed and handed over to SKM by 30 October 2003. SKM assumed full responsibility for all maintenance and running of stage 1 lines from this date. ICA personnel remained on the site until July 2004. The number of personnel varied, depending on the work requirements as requested by both Anthony Italiano and Robert Italiano. All hours worked by ICA personnel were recorded on time sheets and were charged at a rate of $54 for ordinary time, $65 for time and a half and $78 for double time, plus $100 a day for accommodation, meal allowance, travel expenses and living away from home allowance.

102 From the commencement of operation of stage 1 in mid-October 2003 until ICA left the site in July 2004, it was Mr Erskine's observation that the plant (i.e. stage 1 and stage 2 lines) was substantially overloaded with product because of the maximum speeds and volumes that were set on the equipment by SKM in order to reduce the large amount of product being held in the yard.[50]

103 Because SKM's management were having great difficulty in sourcing suitable staff to man the equipment, ICA's personnel were used as stand-ins during this period. The cost for this labour was part of the extra site costs. Mr Erskine refers to disputed invoice number 113005 dated 16 June 2004.[51]**

**104 The process for the stage 2 works was progressed in much the same way as for stage 1. Robert Italiano had given instructions on the stage 2 parts of the project in May-July 2003, and gave further instructions to ICA during the stage 1 works phase, on which ICA quoted and did the work after payment of the deposit.

105 Mr Miller submitted a number of drawings to Robert Italiano regarding the layout of the Stage 2/3 area.[52]

106 Based on Robert Italiano's instructions, and the layout drawing, Mr Erskine produced a new quotation for stage 2 dated 1 September 2003.[53] In that quotation, Mr Erskine specifically excluded work outside normal working hours, liquidated damages, retention, any conditions unknown to ICA at the time of quotation and any additional guarding which might be required due to the final application of equipment. Mr Erskine said that guarding could not be produced until the equipment was actually installed on site.

107 Several quotations were produced, and the layouts and drawings were revised by Robert Italiano to try and get the project within his tight financial requirements.[54]**

**108 The responsibility for disc screens is a significant issue in the case. Mr Erskine says that Robert Italiano first provided instructions to ICA regarding the manufacture of the disc screens from in or around late June 2003 and at each subsequent meeting discussions took place regarding the disc screens. Instructions were given to Mr Miller by Robert. Mr Erskine was present at these meetings. Mr Erskine said that drawings were then subsequently produced by Mr Miller and sent through to Robert for his approval. The disc screens were included in ICA's quotation as a fixed price based on the information that Robert had provided.

109 During October 2003, several discussions took place both at SKM's premises at Thornbury and at Coolaroo. These meetings were attended by Mr Erskine, Mr Miller, Mr Byleveld, Robert Italiano and Anthony Italiano, and were held to discuss matters that related to design of the disc screens.

110 ICA had no experience with disc screens. and had never previously manufactured them, so relied totally on Robert Italiano for the principle of operation and the design criteria required to construct the disc screens. The details and drawings were provided to ICA, together with a short video clip showing the operation of a disc screen in (as Mr Erskine recalls) a plant in the USA. Mr Erskine understood the use of disc screens was relatively new technology that Robert Italiano was adapting from overseas design. The design Robert was using was based on disc screens that SKM had manufactured for their own operations.

111 Around this time, Anthony Italiano was manufacturing his own disc screens for another part of the process. On several occasions, Mr Erskine says that Anthony disagreed with Robert as to the design of the disc screens Robert was proposing, in particular to the diameter, the shape and the spacing of the discs. Heated discussions took place on several occasions which Mr Erskine witnessed, and where their father, Joe, stepped in. The altercations were normally quickly put to one side and the meetings got back on course.

112 ICA manufactured the disc screens. Mr Miller gave evidence that Robert Italiano gave detailed instructions as to their manufacture.

113 Mr Erskine says that there were a large number of modifications needed to improve the performance of the disc screens designed by Robert, and when ICA left the site in June 2004, these modifications were still being carried out by SKM.

114 The disc screens were the only item that ICA manufactured in this project that related directly to the separation of product. All other items manufactured by ICA related to the transport of product between items of equipment that had been supplied by SKM, the support structure, and electrical control of the supplied equipment.**

115 Mr Erskine prepared quotation number 1714 Rev 2 dated 13 October 2003[55] based on layout drawing number 24622,[56] and sent it to Robert Italiano on or about that date. The layout drawing continued to be developed through until 11 November 2003.[57] This was the drawing that was current at the time SKM gave the go ahead to proceed and pay the deposit on 26 November 2003.

**116 On 12 November 2003, Mr Byleveld, Mr Miller and Mr Erskine met with Robert Italiano at Thornbury. As discussed below, Robert disputes this meeting took place.

117 Mr Erskine had been seeking confirmation from SKM on throughputs and there were discussions about product mix and input. Robert confirmed that the input was to be 25 tonnes per hour. (Robert's idea was that there would be two in-feed lines for stages 2 and 4 of 25 tonnes per hour each, however the second in-feed line and sorting lines never eventuated, so the in-feed for stage 2 was 25 tonne per hour.) This reduced the need to install the second ten tonne glass line that had been previously proposed and was to be part of the stage 2 line. Robert wanted to reduce the amount of product going into landfill. His proposal was to convey waste product to the outside of the building to be deposited into a garbage compaction unit (provided by SKM) and to deliver binda (fine glass) to a separate holding bin.

118 At this meeting, Robert Italiano also confirmed that he was satisfied with the drawings and design of the disc screens that had been prepared by Mr Miller as per Robert's instructions. There was some discussion about using square shafts for the disc screens. These points were noted on the drawing used during these discussions.[58]

119 In his oral evidence in chief, Mr Erskine elaborated on this meeting of 12 November 2003. I deal with this in some detail, as it does provide a better idea of ICA's case as to the dealings between ICA and SKM.

120 Mr Erskine says that at this meeting he was told by Robert Italiano that the infeed line for stage 2 was 25 tonnes. He said that he instructed his people at the meeting to design the plant at 30 tonnes so that there was a bit of a buffer in the design and he marked as such on the drawing.[59] Mr Erskine says he also marked on the drawing the conveyor C17 that ran across to the bottle line: 10 tonnes.

121 Mr Erskine referred to the disc screens for stage 2. He said that he wrote on the drawing 'SKM to provide disc details, spacing and pitch and shape and angle for 6 and 8 paper.' He also wrote 'Anthony to get disc material info he uses and supplier.' Mr Erskine said that there was a debate between Anthony and Robert about the shape and size of the shafts and either during or after the meeting it was decided to go for the square shafts. Mr Erskine said that the issue was resolved at the meeting and on the back of the drawing there are sketches of the disc made by himself.

122 Mr Erskine says that there was also debate about the material to be used on the surface (of the discs) because the surface was in contact with the paper and determined how the paper would be secured. Mr Erskine noted that Anthony was to provide the disc material. Mr Erskine said that Robert provided detail of the shape of the discs.[60]

123 Mr Erskine said that Anthony provided ICA with the name of his supplier of the disc material and that ICA contacted the supplier but the material referred to by Anthony was not used. Mr Erskine said that at the same discussion someone indicated that ICA had a problem getting the material in time and on the sketch on the back of the drawing an alternative was put up using conveyor belting. Mr Erskine says that it was basically agreed between himself, Robert and Anthony that that was what they would use.[61]

124 Mr Erskine was asked about completion. He said this was critical to SKM. Originally the equipment was to be installed by Christmas. Mr Erskine says that Robert told him the delay was due to the bank approving their loan facility.[62]

125 At the time of quoting on 13 October 2003, the target delivery date was before Christmas. SKM's delay in confirming the go ahead for the works created problems for ICA because it pushed the work into the Christmas period. Under ICA's enterprise bargaining agreement, ICA was required to give its employees at least six to eight weeks' notice in advance if ICA wanted them to work over the Christmas period. This issue was discussed with Robert Italiano at the meeting on 12 November 2003. Mr Erskine said that ICA would use its best endeavours to complete the project in as short a period of time as possible.

126 Mr Erskine pointed out, however, that ICA could not force its employees to work over the Christmas period, but that ICA would call for volunteers. Robert would not agree to any increase in the price due to the extra cost of labour working the holiday period, stating that he had only just got the finance package through with the bank and he was not prepared to go back and ask for more.

127 Mr Erskine referred to the two sorting lines on the drawing and his note of 15 tonnes on each. He said that Robert nominated all the points where he wanted the sorters placed on the sorting lines.

128 Mr Erskine says that initially stage 1 was to have a second bottle line so that the bottle line would produce 20 tonnes, but this plan was not proceeded with.

129 Mr Erskine referred to his note on the drawing stating 'temporary dump until capacity lifted for 1C'. Mr Erskine explained that the bottle line was handling 10 tonnes per hour of waste and stage 2 was to have two lines handling 10 tonnes an hour each. Mr Erskine said the plant couldn't handle the proposed input on the paper lines due to the limit on the bottle line.

130 Mr Erskine said that in order to handle the product coming from the paper line the idea was discussed to dump the product coming from the paper line across the wall onto the storage area and then manually load that product back into the infeed hopper for the bottle line.

131 Mr Erskine explained his notation 'New alternative glass clean up and waste - Rob provide design required to Clinton.' Mr Erskine said that at this time there was in existence another quote. Mr Erskine said another conveyor was proposed to deliver waste product from the paper line to another location. He said that 'right through all these projects Robert was instructing Clinton on what he required, how he wanted the layout done and how he wanted the plant put together.' He said that ICA's draftsmen had been seconded to SKM did draw up Robert's requirements.[63]

132 Mr Erskine referred to his notation on the drawing for a new eddy current unit that was to be provided by SKM. He said it was not installed while ICA was at the plant.

133 Mr Erskine said that prior to ICA's quote of 13 October 2003, the plan was to deliver course (grade 6) and fine (grade 8) paper. He said that prior to the meeting on 12 November 2003, Robert had told him that he had found a new buyer who would require mixed paper and to save some money he was eliminating the storage silo and the system would only provide mixed paper. Mr Erskine said he wrote on the drawing 'combine 6 & 8 paper' to reflect that change.

134 Mr Erskine identified on the drawing the two storage silos that were included in the stage 2 layout sent from Mr Miller to Robert on 17 September 2003.[64] He then referred to the quote revision of 15 October 2003 that removed the silos, with $240,000 being deducted from the quote.

135 Mr Erskine referred to his note on the drawing stating 'Mix of infeed. Now with more paper. Less through this infeed.'[65] Mr Erskine said that this related to information that the Council was delivering waste with more paper in it.

136 Mr Erskine referred to the information provided by Robert and Anthony on the density of the infeed product.[66] Mr Erskine said that those figures were very important to ICA because if gave them 'bulk density. Even though the belt widths and lengths had been given to us by Robert or had been given to Clinton we still need to calculate [indistinct] of our requirements to conveyor the product.'[67]

137 Mr Erskine referred to his note on the drawing stating 'SKM provide packers.'[68] Mr Erskine said that SKM were providing everything other than the conveyors in this part of the project. SKM were providing second hand packers coming from one of their plants and ICA had to deliver product to those packers.[69]

138 Mr Erskine referred to his note on the drawing stating '10/20% waste'[70] relating to the waste hopper. He said they were told at the meeting that 10 to 20 per cent of all material coming into the place would have finished up having to be carted to the tip.

139 Mr Erskine said that at the meeting the parties discussed shortening the long conveyor C17 and putting another conveyor in place to dump the feed over the wall.[71] He said that ICA provided a tilt wall works so the conveyor equipment was isolated from the front end loaders and trucks entering the building, and also to contain the waste sitting on the floor. He said that a little conveyor feeding the circle where the waste was dumped over the wall was provided by shortening C17.

140 Mr Erskine identified the variation in the drawing also dated 11 November 2003 24622.[72] The drawing identifies a small conveyor at right angles to C17 described as C25. Mr Erskine says that this drawing was the final drawing of stage 2 that was used after the meeting of 12 November.[73]

141 I now return to Mr Erskine's witness statement to complete the summary of his evidence in chief.

142 Even though ICA had not given final confirmation of the stage 2 works, in early November 2003 Mr Erskine gave instructions to purchase the material for the support structure in an endeavour to have the bulk of it installed prior to Christmas. Robert's delay in giving confirmation put ICA into an awkward position because not only did ICA have an EBA and union commitments to consider for the Christmas shutdown period, it also put works into a period when suppliers were not available - the majority of ICA suppliers returned to work during the second and third weeks of January.

143 SKM paid a deposit for the stage 2 works on 26 November 2003,[74] which was the first official notification to proceed. This was regarded by ICA as the commencement date for the stage 2 works.[75]**

**144 ICA performed the stage 2 works referred to in the 13 October 2003 quotation. The works were commissioned and in use in mid-February 2004 and fully taken over by SKM in or around early March 2004. The key ICA employees for the stage 2 works were essentially the same as those for the stage 1 works.

145 There was delay on stage 2 due to SKM failing to have the concrete installed until 1 February 2004 allowing for curing time.[76]

146 On 22 March 2004, Mr Erskine visited the site and observed the front-end loader operator moving a pile of glass from the discharge from stage 2 and depositing the glass by the front-end loader bucket onto the in-feed to stage 1. Mr Erskine said the system was never designed to take glass in those volumes. The glass was supposed to be mixed with lighter products as per the product mix provided by Anthony Italiano on 1 July 2003.[77] The concentration of glass caused the conveyors to drop out in overload due to the excessive weight. When this happened, the operator went to the control cubicle and turned up the overload to force the motor to drive. Following this observation, Mr Erskine agreed to install a larger drive with more torque on the main incline conveyor as part of the cost plus work ICA was performing for SKM on site, separate to the stage 1 and 2 contracts. Further works were done by ICA at the site up until early June 2004, and then in 2006.**

147 I now summarise the evidence of Robert Italiano concerning the contract negotiations.

**148 Robert says that the first occasion he met representatives of ICA was at SKM's plant in Thornbury in about May 2003. He says that Mr Erskine and Mr Granger were the representatives of ICA who were present.[78]

149 Robert says that at that meeting he told Mr Erskine, 'in substance' that:

(a) SKM wanted to build a modern and efficient recycling plant at a property in Coolaroo.

(b) The new plant, once completed, would be required to process fully co-mingled materials comprising paper, glass, aluminium, steel and plastics which were delivered to it.

(c) One of the most important requirements of the new plant was that it had to be capable of processing fully co-mingled recyclable materials.

(d) SKM processed a variety of types of plastic, which Robert says in the industry is referred to as 'mixed plastics'.

(e) SKM wanted the new plant to process about 50 tonnes of material per hour.

150 Robert says that he told Mr Erskine about some of the issues that SKM had experienced at its Thornbury plant. He says he can recall, in particular, that he said the chain-linked conveyors at the Thornbury plant could not handle glass recycling well and the links had a relatively short life cycle. Robert said that he told Mr Erskine that when the new plant was built, he did not want to have the same issue with glass falling off the conveyor. He said that he wanted the components in the system to have a long life cycle, unlike the chain conveyors that SKM was then using.

151 Mr Erskine replied that ICA knew all of the 'ins and outs' and problems that could arise during the design and construction of recycling plants, including the problems which could arise in relation to power consumption and the motors and gearboxes which are used in the plants.[79]

152 Robert then told Mr Erskine that SKM had already engaged a firm of designers called Indecon to provide a preliminary design for a recycling plant for SKM and to provide ideas for a possible solution for building a plant. Mr Erskine said that ICA would not need any of the drawings which SKM had obtained. Mr Erskine said that ICA had the expertise to design and manufacture a recycling plant and that Mr Erskine preferred to use ICA's own designers. Mr Erskine said that if ICA got the job, it would do the whole job from design to manufacture and installation.[80]

153 Robert said that Mr Erskine said that ICA had undertaken jobs for Visy, including designing and building a plastics plant for them, and that he was familiar with recycling conveying systems. Either during Robert's first meeting with Mr Erskine, or at a subsequent meeting or telephone conversation, Mr Erskine said that ICA had built a plastics plant for a company called Waverly Industries which used industrial conveyors.[81]

154 Mr Erskine said to Robert that ICA designed and built their own conveyors. He said that ICA had done a lot of work in both the tobacco industry and the recycling industry. He said that ICA had performed work for CUB or Fosters which involved devising a new way of loading their trucks. Mr Erskine also said that ICA had designed and constructed mobile trailers for use in the sheep industry. He said that ICA had extensive experience in designing, building and installing heavy duty conveyors.[82]

155 Mr Erskine and Robert discussed the research which Robert had undertaken into recycling plants. Robert said to Mr Erskine that disc screens were, in his view, an important development in recycling. Robert said to Mr Erskine that SKM wanted easily moveable disc screens as part of the plant system.[83]

156 Robert asked Mr Erskine whether ICA had any experience with disc screens. Mr Erskine said, in substance, that he was familiar with the screens and that he had seen screens at ICA's last project for Visy. Mr Erskine said that his company was experienced with disc screens and garbage packers, and that he could design a disc screen that would be suitable for SKM's needs. Mr Erskine said that he was aware of the importance of having the right amount of friction and angle for the disc screen to function properly and to be able to separate the paper from the plastic, steel, aluminium and glass being processed at a plant.[84]

157 Robert had a drawing of a disc screen with him that had been prepared by Indecon during this first meeting with Mr Erskine. Robert showed Mr Erskine a copy of the drawing prepared by Indecon during the meeting and gave Mr Erskine a copy to take away with him.[85]

158 Robert said that during this discussion, or possibly at a later face-to-face discussion with Mr Erskine, he said to Mr Erskine that the Coolaroo plant would need to be capable of producing grade 6 and grade 8 recycled paper. Robert said that Mr Erskine responded that that would not be a problem.[86]

159 Robert said to Mr Erskine that SKM had won a number of contracts, and would need to have the new plant up and running by mid-September 2003. Robert also said that SKM had won a contract with the Mornington Shire Council that would come online in December 2003 and that that contract would supply SKM with a large quantity of recyclable material.

160 Mr Erskine told Robert that one of the strengths of his company was that it had expertise and capacity to design and manufacture the recycling plant quickly. Mr Erskine said that ICA could design and build a recycling plant, that met SKM's performance criteria, by mid-September 2003. He also said, in substance, that SKM could rest assured that the plant would be built properly by ICA and would be in accordance with all relevant Australian Standards.

161 Robert said that his brother Anthony showed Mr Erskine and Mr Granger through the Thornbury plant so that they could see the recycling system which was presently in use and operating.**

Robert's evidence on the second meeting at Bendigo

**162 Robert says that he attended a second meeting with representatives of ICA in Bendigo on or about 24 June 2003. He attended the meeting with his father and brother, Anthony. The representatives of ICA present were Mr Erskine, Mr Miller and Mr Byleveld.[87]

163 Mr Erskine showed Joe, Anthony and Robert a film or video of a disc screen in operation. Robert said that the disc screen which was shown on the film was smaller than the one which had been drawn by Indecon. He said that the film showed a close-up of a disc screen in operation. Robert said that his recollection is that the film only showed two or three shafts.[88]

164 After seeing the film, Robert said to Mr Erskine that the disc screen on the film was the type of thing which SKM was interested in, but that the disc screen shown was a lot smaller than the one he had seen in a video which he had received which showed a disc screen in a BHS plant.[89] Mr Erskine said that the screen he was proposing would do the same job. Mr Erskine said that if ICA got the job, it would design and build everything and that ICA would not need the Indecon plant design.

165 At some stage, Mr Erskine said to Robert that it may be helpful for him to see the drawings which had been prepared by Indecon. Robert said that the plant drawings and the disc designs prepared by Indecon were subsequently provided to ICA.[90]

166 Robert said to Mr Erskine that Mr Erskine should see the BHS video as it showed the type of plant the Italiano's were interested in. Robert said he subsequently showed the BHS video to Mr Erskine. Robert was present with Mr Erskine when Mr Erskine saw the video at SKM's Thornbury plant. Robert gave the video to Mr Erskine to show to Mr Miller. He said that ICA has not returned the video to SKM.[91]

167 The subject of the plans and drawings which ICA would produce if awarded the contract was discussed at this meeting with Mr Erskine or a short time afterwards.[92] Robert said to Mr Erskine that he wanted to see the finished drawings for all of the equipment.

168 During the meeting, a number of suggestions or proposals for the type of plant to be built were made by Mr Erskine and the others present on behalf of ICA. Robert recalled discussing what he wanted to achieve as an outcome in relation to the flow of material through the new plant. He said he cannot now recall the specific detail of what each person said, other than that Mr Erskine said that ICA had the experience to produce what SKM was looking for. He said that Mr Erskine showed him some references praising ICA's work that ICA had received.[93]

169 Robert remembers saying to Mr Erskine that although he, Robert, had some experience with managing the recycling plant at Thornbury, that he would need to be guided by the company who got the contract to design and build the new plant, because SKM had only limited knowledge of building a recycling plant. Robert said that SKM was looking for advice as to the most appropriate way to design and construct a new plant to achieve SKM's objectives. Robert said that it was for this reason that SKM initially sought to purchase a recycling plant from a United States company that had a proven track record. Mr Erskine said that he understood what was involved and ICA was capable of performing the work.[94]

170 Robert recalls that Mr Erskine gave Joe, Anthony and Robert a tour of ICA's manufacturing plant in Bendigo, where ICA built a conveyors.[95] Robert said to Mr Erskine that he was impressed with his expertise in designing and manufacturing plants and it appeared to him that ICA had the skills, knowledge and expertise to design and build the plant for SKM.[96]

171 Robert said that he told Mr Erskine that one of the priorities for the plant was to have a new bottle line up and running by mid-September 2003. Mr Erskine said that that timeframe would not be a problem and ICA would be able to build the bottle line by then.[97]

172 Robert recalls saying to Mr Erskine that SKM wanted a plant that was able to process a total of about 50 tonnes of fully co-mingled material per hour and that the processing was to take place on two separate lines. Robert referred to the BHS video which showed a sorting line which processed 25 tonnes per hour. Robert said the figure of 50 tonnes per hour came from having the equivalent of two of the BHS lines. Robert told Mr Erskine that after the paper and cardboard products were separated from the other recyclable materials, the plant would be required to process about 15 tonnes of glass, plastic, steel and aluminium per line per hour.[98]

173 Mr Erskine asked Robert to provide him with a breakdown of the volume of each type of product which SKM was processing. Robert said that SKM would provide some figures based on the co-mingled recyclable materials which had previously been collected from Boroondara residents, but the new plant would be processing fully co-mingled recyclable materials, hence the need for the plant to remove paper, cardboard and other fibrous materials.[99] Mr Erskine said in substance that that would be fine and that he was only after a working guide. Anthony prepared a summary document which was sent to Mr Erskine on 1 July 2003.[100]

174 During the discussion at ICA's Bendigo plant (or possibly the earlier face-to-face discussion with Mr Erskine at Thornbury), Robert said that SKM's plant would need to be capable of producing grade 6 and grade 8 recycled paper. Mr Erskine said that that would not be a problem and that ICA would be able to build the plant to achieve those paper grades.

175 Robert also give evidence about alleged terms of the agreements with ICA that I will deal with when I address the specific alleged terms of the stage 1 and stage 2 agreements.**

Robert's evidence of the third meeting - Thornbury

**176 Robert says that the next meeting was held on or about 10 July 2003 in Thornbury.[101] Mr Erskine and Mr Miller attended that meeting on behalf of ICA, at which SKM was given the quotation dated 10 July 2003 for $2,975.194.

177 Robert says that he told Mr Erskine that the price was too much and asked whether ICA could reduce it by removing one of the sorting lines and bottle line, but leave space in the design for these to be included later. Mr Erskine said that he would see what he could do.[102]

178 Robert can recall saying to Mr Erskine that if they could agree on a price, the works could be performed in stages. He told Mr Erskine that:

(a) stage 1 of the works would include the design, manufacture and installation of the bottle line, which would be used to separate the glass, plastic bottles, steel and aluminium; and

(b) stage 2 and the subsequent stages would be for the design and manufacture of the paper line and other lines.[103]

179 During the meeting in Thornbury, Mr Erskine said that he wanted to use what he called a 'scalping machine' or a 'rake' screen instead of a disc screen. Robert said to Mr Erskine that he had some concerns about the design he had proposed. Robert said that he did not think it would work and that he had not heard of anyone else using this process. Mr Erskine told Robert not to worry, and to leave it to him. Robert said that Mr Erskine said, in substance, 'tell me what you want and I'll design it - if it doesn't work, I'll replace it. The scalping machine was then included as item G5A in ICA's subsequent quote of 21 July 2003.[104]**

**180 I have had the advantage of observing Robert Italiano's demeanour in giving evidence over a considerable period of time. I found Robert Italiano's evidence unreliable. It was often vague, imprecise and irrational. He was unable to give a clear and concise answer to simple questions that were fundamental to SKM's case. He clearly sought to reconstruct evidence. He gave inconsistent evidence. He contradicted himself. He gave incorrect evidence that he subsequently corrected when it was obvious to all that it was incorrect. From my observation of him in the witness box, I formed the clear impression he would say whatever he thought was necessary to advance SKM's case.

181 There are many areas where I have not accepted Robert's evidence. For instance, I do not accept his evidence that at the first meeting Mr Erskine said that ICA had undertaken jobs for Visy, including designing and building a plastics plant for Visy and that he was familiar with recycling conveying systems. I do not accept that Mr Erskine said that ICA had done a lot of work in the recycling industry.

182 I do not accept that disc screens were discussed at the first meeting or that Mr Erskine was given a drawing by Indecon of the disc screen. Under cross-examination, Robert initially said that Mr Erskine said that he had worked on a disc screen previously, then immediately withdrew that and, after considerable dissembling, settled on stating that Mr Erskine had seen one or was shown one.[105] When pressed, after a considerable number of evasive answers, Robert agreed that Mr Erskine did not say he had any experience in manufacturing recycling equipment.[106]

183 I do not accept Robert's evidence about showing the supposed BHS video to Mr Erskine at the second meeting in May 2003, or at all. Under cross-examination, Robert changed his evidence and said that he showed the video to Mr Erskine around July or August 2003 and ultimately settled on August to the best of his recollection.[107] Robert also said in cross-examination that he had received information from BHS on disc screens and passed this information onto Mr Erskine before ICA quoted. He did not refer to this in his witness statement. The suggestion that Robert gave this information to Mr Erskine was not put to Mr Erskine. I do not accept that there was any discussion with Mr Erskine of a BHS video.

184 Under cross-examination, Robert was asked what SKM alleges ICA failed to do in accordance with the BHS video. He said that ICA failed to build a disc screen that worked.[108] He was asked for details of the difference between those built and those shown in the BHS video. Robert said that he could not say, save that the one built did not send paper over the top while the one on the video did.[109]

185 Robert denies that any meeting was held with Mr Erskine on 12 November 2003 at which a proposal to shorten C17 was discussed. Robert says that the proposal to shorten C17 was first raised by him in February or March of 2004 with Mr Byleveld. Robert gave a completely different version to that of Mr Erskine about the shortening of C17 and the product being diverted over the wall. Robert first said that in March 2004 he instructed Mr Byleveld to re-direct the C17 conveyor to go over the wall. Subsequently, he said he spoke to Mr Byleveld about it in February 2004.[110] He said he cannot recall any meeting of 12 November and said he had not seen the relevant drawings with the handwritten notes. I accept Mr Erskine's evidence about the notes he made on the drawing discussed at the meeting of 12 November 2003. I do not accept Robert's evidence denying the meeting or his evidence on when the proposal to shorten C17.

186 I do not accept Robert Italiano's evidence on any of the relevant issues unless it is supported by other evidence.

187 On the other hand, I found Mr Erskine to be a relatively reliable witness. While, on occasion, I felt that he was extrapolating from contemporaneous documents without any clear recollection, he was in my view seeking to give an honest account of ICA's dealings with SKM. In the event of a conflict between Mr Erskine's evidence and Robert Italiano's evidence, I prefer that of Mr Erskine.**

188 I now turn to consider the various claims made by ICA and SKM. ICA has made several claims relating to outstanding invoices. SKM has raised several defences to these claims of ICA in addition to its counterclaim. On the other hand, under its counterclaim, SKM has alleged several terms of the agreements to build stages 1 and 2. SKM alleges these terms were breached and it has suffered damage. At this stage, I am only deciding whether or not the alleged terms were agreed. SKM alleges some 53 contractual issues and also some alleged representations. The claims are numbered 1-53 accordingly. For ease of management, I have also numbered the claims made by ICA in its statement of claim and SKM in its defence that I am required to answer under the order to determine preliminary questions. These run from 57- 70. There are no issues numbered 54-56.

189 Under Order 1(a) of 21 October 2011 I am to determine the matters and issues set forth in paragraphs 6 to 25 (save for paragraph 23) of the Amended Statement of Claim dated 21 December 2009.[111]

Paragraph 6 - ICA claim - that the defendant accepted the plaintiff's written quotation and the parties entered into an agreement for the first stage of the works.

190 It is not disputed that SKM accepted ICA's quotation of 6 August 2003. The plea in [6] is not relied on by ICA to found any further claim other than to set the background for the variation and other claims that follow.

Paragraph 7 - ICA claim - that in consideration of the agreement ICA carried out the works and issued the relevant invoices.

Paragraphs 8-9 - ICA claim - that variations to the works were requested by the defendant and invoiced and SKM is indebted to ICA for those variations.

192 As explained above, I shall call these claims issues 57, 58 and 59

Variations to stage 1 $282,553.06[112]

(5) Variation 5 (issue 57) $88,276.56[113]

(6) Variation 6 (issue 58) $5,076.50[114]

(7) Variation 7 (issue 59) $189,200[115]

Total $282,553.00[116]

193 In its defence, SKM denies these allegations.[117] SKM alleges that it was a term of the RCS agreement that any variations were to be approved at the time in writing by a signed agreement or order between both parties, and the works the subject of invoices for claims 5, 6 and 7 were not approved in writing by a signed agreement or order between both parties.[118]

Variation 5 - Stage 4 - the supply of additional conveyors for the glass clean up line and waste delivery conveyors - issue 57.

**194 The claim identified as variation 5 is made under an alleged contract made on or about 12 November 2003 between ICA and SKM for modifications to stage 1. Mr Erskine says that the variation relates to additional conveyors required to transfer product from stage 2 works to stage 1, and collect waste material from stage 1 and deliver it to waste bins outside the building. I have difficulty in reconciling Mr Erskine's description with the written quotation that describes the work as 'modifications to the existing stage 1 system.' The quotation itself only itemises equipment that appears to be part of the stage 1 bottle line.[119] Be that as it may, Mr Erskine says that this system was called stage 4 and was invoiced as variation order number 5. The subject matter of the contract is also called the glass clean up line or glass clean up system. This line was installed and made operational by April 2004.[120]

195 The pleadings about the glass clean up system are somewhat confusing. I have set out the allegations of ICA in its amended statement of claim and the defence of SKM above. The second main contract pleaded by SKM in its further amended counterclaim is described as the 'Stage Two to Four Agreement.' Insofar as it was in writing, it is alleged to have been made by the quotation 1714 Rev2 of 13 October 2003.[121] The further amended counterclaim of SKM alleges that in breach of the 'Stage Two to Four Agreement' the glass clean up system was not fit for the purpose and was not of merchantable quality[122] and seeks damages for the cost of replacing the glass clean up system.[123] As discussed below, the contract for the modification to the stage 1 system, which the parties call the glass clean up system,[124] was made on the acceptance of ICA's written quotation of 10 November 2003 on or about 12 November 2003. The contract for the glass clean-up system was not part of the agreement of 13 October 2003 but described by ICA as 'modifications to the existing stage 1.'[125]

196 Accordingly, the further amended counterclaim of SKM complains about the glass clean-up system but does not plead the contract under which ICA built and supplied the glass clean-up equipment nor does it plead the terms of any such contract giving rise to the alleged breach or damages referred to in the further amended statement of claim. In those circumstances, my ability to make findings is constrained by the ambit of the current pleadings.**

**197 According to Mr Erskine, in or around August 2003, discussions were held between Robert Italiano and Mr Miller regarding the interconnection of stage 1 with stage 2. These discussions revolved around a cleanup system to separate out the glass fines from the waste stream.[126]

198 Mr Erskine says that on 19 August 2003[127] Robert sent to Mr Miller a sketch showing how he wished this to be done.[128] Mr Erskine says that this line was further developed on the same basis as stages 1, 2 and 3, resulting in him providing SKM with the quotation dated 10 November 2003.[129]

199 Mr Miller in his witness statement in chief does not specifically refer to the drawing he did for variation no 1 to stage 1, being the modifications to stage 1. He does say that Robert sent him details of an air blower on 19 August 2003.[130] He also says that under Robert's direction he continued to develop layout drawings and prepared a final version of these on 11 November 2003. As far as I can ascertain by inspecting the drawing of 11 November 2003, the drawing does include the modifications made to stage 1 as referred to in the quotation discussed below.[131]

200 Mr Miller was not cross-examined on his drawing of 11 November 2003 in relation to the modifications to stage 1 nor, for that matter, on the glass clean up system.

201 The contract for the modifications came about as follows. On 10 November 2003, Mr Erskine wrote to Robert providing a quotation for 'stage 1 additions' 'to allow further separation of the fines products coming from fines screens and the eddy current unit by removing light products from the broken glass stream.'[132]

202 The quotation states that it 'has been based on discussions you (Robert Italiano) have had with Clinton Miller and your faxed layout sketch'. The faxed layout sketch referred to has not been produced in evidence.

Attached is the layout drawing showing new conveyors and locations.

Should you have any required changes to this layout could you please inform us as soon as possible as we will require to commence detail drafting immediately in order to achieve an installation period for January. Every effort will be made to try and complete this section as soon as possible and this will not affect the Stage 2 project with is already in manufacture.

Due to the short delivery requirements for this section we will only require 2 payments. One on completion of manufacture and the other on completion installation and commissioning of this section.

We have allowed for the following:

(1) Conveyor C 18 to carry product from the disk screen to the eddy current unit.

(2) Support structure for the eddy current unit (to be provided by SKM).

(3) C 18A glass cleaning system with air blower.

(4) C 19 elevated cleated belt conveyor to carry fine product to the packer (SKM supply).

(5) C 22 to carry pre-sorted product and fines to the packer.

(6) C 23 cleated elevating conveyor to carry fines glass to conveyor C 24.

(7) C 24 delivery conveyor.

(8) All chutes.

(a) $113,565 + GST at completion of manufacture and delivery to site;

(b) $22,675 + GST at completion of installation and commissioning, or when the system in [sic] placed into service, which ever is the sooner.

205 On 12 November 2003, Mr Miller emailed Robert asking him to advise on the stage 1 additional conveyors quote sent on 10 November 2003.[133] On the same day, Robert telephoned ICA advising that the stage 1 additions as sent on 10 November 2003 are 'OK. Please give price with new 35 deg. X 7580lg. x 600m conveyor as option.'[134]

206 Mr Erskine says that verbal approval was given by Robert during a phone call with him on 12 November 2003. No evidence was given of the option sought by Robert or whether the contract was varied to accommodate the option referred to by Robert.

207 Mr Erskine says that the equipment referred to in the quotation was designed by Robert in conjunction with Mr Miller who produced the drawings. He says that it was manufactured and installed on the same basis as the stage 1, 2 and 3 works, and invoiced.[135] By that I understand Mr Erskine to mean that Mr Miller merely drew the equipment as designed and specified by Robert. In particular, insofar as the equipment in combination gave rise to a system that system was wholly the design of Robert Italiano.

208 Two invoices were raised in relation to this contract. Invoice number 112892 (the first invoice) was for the value of $124,921.50.[136] The description for the invoice states 'for the design and manufacture and supply of stage 1 additional conveyors as per quotation 1 additions dated 10 November 2003.' The invoice states that the total order value was $136,240.00 with GST of $13,624.00 making a total of $149,864. The invoice claims a first payment of $113,565 plus GST making a total of $124,921.50. The invoice in evidence notes that on 21 April 2004, SKM paid $61,587.44 leaving a balance owing of $63,334.06.

209 ICA rely on a further invoice of 20 April 2004,[137] (the second invoice), sent on the day the initial sum of $61,587.44 was paid by SKM, that claims the balance claimed in the first invoice of $22,675 and GST of $2,267.50 making a total of $24,942.50.

210 Mr Erskine claims that SKM's management and supervision of the glass line area was poor. Mr Erskine says that the equipment delivered product to external packing machines and bins mounted outside of the building, which were not supervised and which caused stoppages due to packing bins being full and left to overflow.[138] He says that the equipment was external to the building and would become blocked, with compactors becoming full without attention from SKM personnel. He says that once the screen had become blocked this caused stoppages in the rest of the system, which became inoperative. I take it that Mr Erskine puts this forward in answer to the allegation made by Mr Robert Italiano in his witness statement that the glass clean up system did not work properly.**

**211 Evidence of a further quotation given in June 2004 is relevant as SKM rely on it to advance a case that ICA in someway abandoned or varied its claim to the money outstanding on the variation contract.

212 Mr Erskine says that in May 2004, Mr Miller, Mr Byleveld and he had a meeting with Robert and Anthony Italiano. He says that at this meeting an alternative route for the glass line was discussed, the idea being to keep the bulk of the equipment inside the building and to link stage 2 to the plastic line (the bottle line).

213 Mr Erskine says that he prepared a quotation on 4 June 2004 and sent it to Robert.[139] He says that this quotation was for a value of $196,600 and it took into consideration the re-use of equipment from the previous glass cleanup line which had not been paid for.

214 Mr Erskine says that Robert gave the verbal go ahead by phone for this project in June 2004. Mr Erskine refers to Robert's email of 6 July 2004 where he wrote 'you were given the go ahead some 6 weeks ago for the glass cleanup to occur, where is it?'.[140]

215 Mr Erskine says that the equipment for this project was held at ICA's workshop ready for installation on 26 July 2004, however, as SKM owed ICA substantial funds at that stage he was reluctant to allow the equipment for this project to go to site until ICA had received further payment. Mr Erskine sent Robert and email dated 23 July 2004,[141] in which Mr Erskine says 'we have proceeded on both projects in good faith ..." He says that the projects he was referring to were first the glass cleanup re-routing, and second, work on modifying the disc screens which was also occurring on the weekend following his email.

216 Mr Erskine continued in his email 'as previously stated, we will issue a credit for the first system (providing the second line is paid for).' Mr Erskine says that this credit was for re-using conveyors from the existing glass cleanup and waste line (that is, the glass cleanup line that was routed outside the plant).

But enough is enough. I am prepared to forgo the monies owed to us, rather than risk continuing to work under your instructions and then be told, show me the proof. The price we have quoted for the waste line is fair and reasonable. Each item has been individually priced.

**218 Mr Erskine says that he was prepared to not be paid for the equipment ICA had already manufactured on the waste line project (that is, the off-site manufacturing of conveyors for the waste line) rather than install it and still risk not being paid at all. Mr Erskine says that the statement was made in relation to the glass cleanup and waste line project (ie the re-routing works).

219 Mr Erskine says that his statement was not in relation to other projects ICA had completed and invoiced. He says that the reference to the 'price we have quoted' was to the quotation of 4 June 2004.[142]

220 Robert sent Mr Erskine an email on 26 July 2004 informing Mr Erskine that SKM would engage its lawyers. Mr Erskine says that he received a request during the following week from a legal firm (unknown) asking for all keys to be returned. Mr Erskine says that ICA had no other communication or correspondence with any legal firm up until these proceedings commenced.[143]

221 Mr Erskine says that in or around August 2004, he was told by ICA's on-site personnel (Richard Collins) that Robert had made further changes and that what ICA had manufactured for the re-routing was no longer applicable. Mr Erskine says that ICA did not get paid for this work.**

222 In his witness statement, Robert Italiano responds to the claims about variation no 5.[144] Robert says that many of the items that he details from the quotation did not work, as follows:[145]

[239] Item 1 on the quote of 10 November 2003 is in relation to Conveyor C18 which was to carry product from the disc screen to the eddy current unit. The conveyor did not work.

[240] Item 3 was for the glass clean up system which was to include an air blower. ICA never supplied a working glass clean up system. Rather, ICA supplied a second hand fan which it obtained from its workshop. The area shown as 18 in [the] plan which is included in the Annexure 10, is the area in which the glass clean up system was to operate. The fan which ICA supplied was supposed to blow materials onto the conveyor, which is numbered 19 on the plan. The second hand fan supplied by ICA did not remove the paper and other materials from the glass.

[241] Item 4 was the C19 elevating cleated belt which was to carry the fine product to the packer. SKM supplied this item.

[242] Item 5 was the C22 conveyor to carry the pre-sorted product and the fines to the packer. ICA supplied this conveyor. It was, however, of little use, as the glass clean up system would not work without an adequate blower which ICA did not supply.

[243] Item 6 was the C23 cleated elevating conveyor to carry the fines glass to conveyor 24. ICA supplied this conveyor. Again, it was of little use, as the glass clean up system would not work without an adequate blower which ICA did not supply. Further, ICA failed to supply troughing for the conveyor. As a consequence, glass regularly fell off the conveyor.

[244] Item 7 was the C24 delivery conveyor to carry fines glass to the mixed glass bin. ICA supplied this conveyor. Again, it was of little use, as the glass clean up system would not work without an adequate blower which ICA did not supply. Further, ICA failed to supply troughing for the conveyor. As a consequence, glass fell off the conveyor. As the conveyor was flat, less glass fell of the conveyor than fell off C23.

[245] Item 8 was the chutes. ICA supplied the chutes but again they were of little use, as the glass clean up system would not work without an adequate blower which ICA did not supply.

**223 Robert summarises the position by saying that the 'total price quoted by ICA for the completion of the glass clean up system, was $136,240 plus GST being a total of $149,864.[146] He says SKM paid $61,587.44 in respect of the glass clean up system.[147] He says that '[a]s the glass clean up system supplied by ICA did not work SKM refused to pay the balance of the moneys sought.'

224 Robert says that in a telephone conversation with Mr Erskine, a couple of months after the glass clean up system was installed, he said to Mr Erskine that SKM would not be paying the rest of the invoice until the glass clean up system was working properly. He says that during the conversation he said that SKM would be prepared to pay up to $50,000 more for the glass cleanup system provided it worked properly. He says that Mr Erskine said that he would make sure that the glass clean up system worked properly.

225 Robert agrees that in about May 2004, he met with Mr Miller and Mr Byleveld in relation to the glass clean up system.[148] He says that he cannot recall if Anthony Italiano was present. He says that the meeting was called because the first glass clean up system which had been installed by ICA had failed. He says that a possible solution, which had been drawn by Mr Miller, was discussed. Robert says that he had no input into the new glass clean up system which ICA proposed.

226 After the meeting, Robert says Mr Erskine said to him that he wanted around $50,000 more to get the new system going. The original glass cleanup system was about $127,000. In the quote which subsequently arrived ICA sought a total of $196,600 for the new system. The quote of $196,600 made no reference to the $127,000 which was the price of the original system which did not work. Robert says that he assumed that the quote for $196,600 included the original $127,000 and that the difference would be about $69,600. He says that while this was a little more than the $50,000 or so which Mr Erskine had originally quoted, it was within the ball park of what he was expecting.

227 After getting the quote Robert says that he called someone from ICA to ask what was happening with the replacement glass clean up system. He says that he spoke with Mr Erskine. He says that Mr Erskine said that unless SKM paid the $196,600 ICA was not going to replace the disc screens at their cost. Robert says that he said to Mr Erskine words to the effect that it was his, Mr Erskine's, responsibility to replace the disc screens as they were under warranty and he had promised Robert that if they didn't work, Mr Erskine would personally fix them. Robert says that Mr Erskine then sent him the email dated 23 July 2004, discussed above, referring to proceeding in good faith.[149]

228 Robert says that he emailed Mr Byleveld on 6 July 2004 asking when the glass clean up system was to be completed.[150] He says that he further emailed Mr Byleveld on 20 July 2004 asking him when the glass clean up system would be put in and what the hold-up was.[151] Mr Byleveld emailed Robert on 21 July 2004[152] saying that ICA was:**

... awaiting written authorisation from SKM for the acceptance of the quoted costs and layout (attached) for the system as per previous instructions.

We have however commenced with the fabrication to the attached layout and expect to be ready for mechanical installation on the weekend of 31st July provided that the quoted costs and attached layout are approved.

229 Robert says that he responded to Mr Byleveld's email on 21 July 2004[153]saying:

Shane

What are the costs Shane? No one has sent anything to us. You better get them to us now because if its too expensive we'll can it.

**230 Robert says that on 21 July 2004 Mr Byleveld emailed him providing him with a quote dated 4 June 2004.[154] Robert says that prior to that, he had not been provided with a written quote for the additional works to the glass clean up system.

231 Robert say that he emailed Mr Byleveld on 21 July 2004[155] saying:**

Shane.

Do not bother going ahead with this. We have never seen a quote and I am not sending [sic] $200k on it.

Rob.

232 Robert says that Mr Erskine emailed him on 22 July 2004 asserting that SKM had not paid for the existing glass line.[156] Mr Erskine stated:

6. This line was to replace completely the existing line, for which their [sic] would be a credit issued, as this new line completely replaces the existing line. However, we shall abide by your instructions.

233 Robert says that he emailed Mr Erskine in reply on 22 July 2004[157] staying:

Don

Firstly, we have never seen a quote for the second glass cleanup system. Please show me any email or fax correspondence that shows proof that we have seen a quote. Secondly, you have been given permission to proceed on the basis that the original glass cleanup line which you have not charged us for was costed at $50,000 and not $200,000. Where is that we have signed off on a $200,000 glass clean up system.

**234 Robert says that ICA responded by the email sent to him on 23 July 2004 (the good faith email.)[158] Robert responded by email sent on 26 July 2004 stating SKM had engaged lawyers.[159]

235 Robert says that the glass clean up system designed and installed by ICA never worked properly. He says that, eventually, in about June 2008, SKM bought a glass clean up system from the USA from a company known as CP Manufacturing for about US$60,000 (AUD $75,000) that was installed about February 2009.**

**236 There appears to be no dispute as to the contract for the performance of variation 5. I find that SKM ordered the work to be done the subject of variation 5. I find that the contract for the modifications to stage 1 was made on or around 12 November 2003. I find that the contract was purportedly carried out and completed by April 2004. I find that SKM has only paid $61,857.44 and that $88,276.56 is purportedly outstanding.

237 I find that Robert Italiano designed the modifications to the stage 1 system. Mr Miller said, and I accept, that he merely drew to the design of Robert. The initial quote says that the quotation was based on discussions Robert had with Mr Miller and Robert's layout sketch provided by fax to Mr Miller. This contemporaneous note is consistent with the evidence of Mr Miller that Robert designed the systems used in the plant.

238 I believe that SKM wishes to allege that there were terms of the stage 1 modifications contract that ICA allegedly breached. As discussed, the current pleadings suggest as much, however do not overtly lay out the claim. Robert Italiano also provides details of the alleged defects to the modifications to stage 1 in his witness statement as discussed above. Due to the incomplete material, at this stage I am unable to make further findings as to the terms of the contract that SKM may seek to rely on in its claim for damages. I defer for later consideration of the claim that the contract was not properly performed by ICA.**

**239 Question: Was there a variation to the RCS Works (as defined in the ICA's amended statement of claim) requested by Robert Italiano on behalf of SKM and invoiced as variation order number 5; supply of additional conveyors; invoice number 112892 in the amount of $124,921.50 and invoice number 112925 in the amount of $24,942.50 of which the SKM has not paid $88,276.56?

Question: Pursuant to invoice number 11982 and 112925 does SKM owe ICA $88,276.56.

Answer: This question is not able to be answered at this stage of the proceeding.**

Variation 6 - connection of equipment supplied by SKM - issue 58

**240 ICA claims as variation order no 6, that additional electrical work was performed, and relies on invoice number 112988 dated 14 May 2004 for the amount of $5,076.50 which ICA alleges SKM has refused or neglected to pay.[160] Mr Erskine says that Anthony Italiano requested this work to be done and refers to the invoice.[161]

241 The invoice refers to an 'attached sheet detailing variations.' The attached sheet is headed 'Stage 1 Additions Electrical Variations to Date 14 May 2004' and describes the work as relating to the 'Eddy Current Unit' and 'Baler Fix-up' and provides details of the work that was done. [162]

242 Robert Italiano says that he does not know what additional electrical work is alleged to have been performed under variation 6 as he was not been sent the attached sheet.

243 In response to Mr Erskine's evidence, Anthony Italiano says:[163]**

Don Erskine suggests in paragraph 139 that I requested that the work referred to in Invoice No. 112988 to be undertaken. The description on the invoice is 'Electrical Variation Claim'. I do not know what this claim relates to. I can recall asking for a change to the design of the plant, so that if one line on the paper line broke down, the other line could be operated independently. It was my expectation that the plant, as originally designed, would be able to be operated so that if one line in the paper line stopped the other line could continue. That was one of the reasons why the plant was designed with two paper lines rather than a single paper line.

This work was done. I do not know whether this invoice relates to that work or some other work.

**244 Under cross-examination, Anthony was taken to the attached sheet and said that he had no reason to believe the work referred to in the sheet was not done. He said he assumed the work was done because the aluminium baler was running.[164]

245 No objection was taken to the invoice and the document recording the work done. Relying on the evidence of Mr Erskine and s 69 of the Evidence Act 2008, I find that the work was done.

246 In those circumstances, I find that the moneys are outstanding and due subject to any set off SKM may have. The amended defence of SKM seeks to set off the loss and damage claimed in the further amended statement of claim. As that claim has not been determined, I am unable to find that the amount claimed is due and payable as yet.**

**247 Question: Was there a variation to the RCS Works (as defined in the ICA amended statement of claim) requested by Anthony Italiano on behalf of SKM and invoiced as variation order number 6; additional electrical work; invoice number 112988 dated 14 May 2004 in the amount of $5,076.50 which ICA has not paid?

248 ICA issued to SKM two invoices; 113005[165] for $189,200 and 113006[166] for $352,660, for what it calls 'optimisation' services. The first is the subject of variation 7 (issue 59). The second invoice forms part of the alleged variations to stage 2 that I deal with below. As both invoices are alleged to arise out of the one agreement, it is convenient to deal with their alleged contractual basis and the attacks against them by SKM at the same time.

**249 ICA alleges that there were variations to the RCS Works requested by Robert Italiano on behalf of SKM and invoiced, inter alia, as variation order no 7 for provision of staff to SKM during stage 1 optimisation and modification works, invoice number 113005 in the amount of $189,000 dated 16 June 2004, that SKM has refused or neglected to pay.

250 ICA says that the variations were the subject of an 'optimisation agreement.' ICA says that to the extent that the agreement was in writing, it was comprised by ICA's written quotation dated 10 November 2003, emails passing between employees of ICA and Robert and Anthony Italiano for SKM in the period between November 2003 and May 2004, and the invoices listed in the plea. To the extent that the agreement was oral, ICA says that it was contained in a series of conversations between Robert and Anthony Italiano for SKM and representatives of ICA including Messrs Erskine, Byleveld, Collins, Baldock and Normoyle.

251 These particulars are common to each of the variations 1 to 7 to the stage 1 works, save that the written quotation of 10 November 2003 does not relate to the optimisation claim. Rather, it relates to the glass clean up quotation the subject of variation 5 (issue 57) that I have dealt with above.

252 Both optimisation invoices[167] are dated 16 June 2004. ICA vacated the Coolaroo site in early June 2004. The invoice, numbered 113005 relating to stage 1, does not provide any break up of the invoiced amount of $189,200 other than identifying the GST element. Under the heading 'description' it states 'stage 1 optimisation and modification works carried out to increase the throughput of plastic and glass lines' but offers no further detail of the work undertaken to which the invoice relates. The second invoice, numbered 113006, suffers from the same lack of information. It also does not break up the invoiced amount of $352,660 save for identifying the GST component. Under the heading 'description' the invoice provides 'stage 2 optimisation and upgrade works to increase the throughput of paper line including disc screen modifications'.

253 ICA submits that the contractual basis for the optimisation invoices 113005 and 113006 arises from the following:[168]

(a) Robert Italiano telling Mr Erskine on 10 July 2003 that SKM had no capacity to carry out any additional work that would be required and therefore ICA personnel were to be used as required by SKM to optimise the project, and in particular to gain maximum efficiency and throughput once installation of the plant was complete and the plant was operating.[169]

(b) Robert's request on 21 July 2003 for Mr Erskine to provide a 'bare bones' price based on the supply of individual items of equipment, and Robert's statement that any extra work required to optimise the plant would be done on a cost plus basis under instruction from himself or Anthony Italiano.[170]

(c) ICA subsequently providing quotations for stage 1 and stage 2 works based on items of supply and installation only (work outside normal working hours being specifically excluded)[171] and undertaking the work and suppling the materials referred to below and claimed in the optimisation invoices.

254 ICA says that the work performed and costs claimed under the optimisation invoices comprises:

(a) work outside normal working hours;[172]

(b) extra or additional work performed after installation of the stage 1 works and handover,[173] such as fitting of guarding, chutes and interconnection with existing equipment;[174] maintenance work[175]; and modification works required by SKM, including modifications to the Stage 2 paper disc screens;[176] and

(c) materials supplied on a cost plus basis.[177]

255 Mr Granger, the general manager of ICA, produced accounting records that were used to calculate the sums claimed.[178] Mr Grainger created invoice 113005 on 16 June 2004[179] using information extracted from ICA's Online 2000 accounting system, which information is set out in the Job Transaction Report.[180] Mr Granger said in evidence that he instructed ICA's administration manger Mr Ian Bowles to extract the relevant information from ICA's records.[181]

256 Mr Granger said that there were three categories of charges[182] making up invoice 113005:

(a) out of hours work (being work outside 6 am to 6 pm Monday to Friday) carried out before handover of the stage 1 project, applying rates of $65/hr for time-and-a-half and $78/hr for double time.[183] Handover of the stage 1 works for the purposes of the invoice was 31 October 2003;[184]

(b) work (labour) that was carried out after the handover and during what was referred to as the stage 1 optimisation phase being from 1 November 2003 to 16 June 2004;[185] and

(c) the cost of materials supplied during the stage 1 optimisation phase from 1 November 2003 to 16 June 2004 and applying a margin of approximately 30 per cent.[186]

257 Mr Granger also gave evidence that the total amount of invoice 113005 comprised the following amounts for each of the three categories referred to above:

(a) out of hours work (5 September 2003 - 31 October 2003) - $73,755.50;

(b) labour during the stage 1 optimisation period from 1 November 2003 to 16 June 2004 - $83,628.27;

(c) materials supplied during the stage 1 optimisation period from 1 November 2003 to 16 June 2004 - $14,616.35,

totalling $172,000.12, which relates to the invoice amount of $172,000 (not including GST).[187]

258 Mr Granger said that he had extracted from the Job Transaction Report the information used to prepare invoice 113005 and recorded it an Excel spreadsheet that was tendered in evidence.[188]

259 Mr Erskine gave evidence that the invoices were posted to SKM. SKM denies receiving them. On 16 May 2007, SKM took proceedings against ICA in the Bendigo Magistrates' Court to recover $52,392.64 for amounts allegedly owing from SKM for the C2 components and other work.[189] At that stage, no claim was made by ICA against SKM for the 'optimisation' invoices. SKM counterclaimed against ICA in the Magistrates' Court for damages for breach of the contracts to supply and build the plant. The matter was then uplifted to the Supreme Court when, for the first time, ICA raised the issue that it was owed some $541,000 on the two optimisation invoices.**

**260 As indicated above, ICA contends that Robert Italiano told Mr Erskine on 10 July 2003 that SKM had no capacity to carry out any additional work that would be required and it was agreed that ICA would provide SKM labour on site, to be directed by SKM to perform any extra work required to complete the project.

261 In his written witness statement, Mr Erskine said that during the course of the works, Robert and Anthony Italiano requested that further works be carried out by ICA that were outside the scope of the stage 1 and 2 works. He says these instructions were usually verbal and were made to ICA personnel working on the site. Mr Erskine says these additional works were raised as variations, namely 1-7 in stage 1.[190] As to variation 7, the 'optimisation project' Mr Erskine said that this was for the substantial amount of extra work required on site to make improvements to the line, which was work carried out at the request of both Robert and Anthony by direct verbal communication with ICA site personnel.

262 Mr Erskine says that the work carried out under the 'optimisation project' included modifications to SKM-supplied equipment, including installation of items of equipment removed from the Thornbury plant that Anthony Italiano required in the Coolaroo plant; the fitting of guards and safety devices that had been specifically excluded in the quotations for stage 1; ICA personnel carrying out maintenance works due to SKM having no maintenance personnel employed on the site at this time; work carried out on production lines that were not part of the ICA-supplied equipment; the provision of labour required by SKM for the day-to-day operation of the plant; and out of hours work which was specifically excluded from the quotation.

263 Under the heading 'further works', and after summarising the variations in relation to which ICA alleges that it is owed money, Mr Erskine says in his witness statement that ICA was unable to quantify the labour for quotation purposes but SKM required a fixed quotation for conveyors and supporting structures to be presented to the bank it intended to approach for funding for the project.[191] In his witness statement Mr Erskine continues as follows:[192]**

[70] Robert Italiano told me that SKM had no capacity to carry out any additional work that would be required, therefore ICA's personnel were to be used as required by SKM to optimise the project i.e. gain maximum efficiency and throughput once installation of the plant was complete and the plant was operating.

[71] This additional work covered areas such as fitting of guarding, chutes, interconnection with existing equipment and modification works required by SKM and out of house work that had been excluded in the quotation. In the quotation dated 13 October 2003, we specifically excluded work outside of normal working hours (normal working hours is considered 6am to 6pm weekdays). Any work carried out outside of this time would attract penalty rates.

[72] The guarding and chute work had been exclusively excluded from the quotations.

[73] The defects liability period of 12 months was also excluded in the final quotations based on instruction from Robert Italiano in order to reduce the overall cost of the project.

[74] Anthony Italiano told me that he was the only person on the site carrying out maintenance and running the plant.

[75] The continuing modifications that Robert Italiano required on the disc screens (discussed below) was also carried out as a part of optimisation and included all labour and materials required by SKM from ICA on a cost plus basis.

**264 Robert Italiano in his witness statement in reply denies the alleged conversations in paragraphs [70] - [73] and ]75] of Mr Erskine's statement quoted above.[193]

265 ICA also relies on the conversation where Mr Erskine says that Robert asked ICA to provide a 'bare bones' price. In that conversation, Mr Erskine says:[194]**

The same day Robert Italiano telephoned me. He was very agitated and said that I had not carried out his instructions, that the quotation was unacceptable, and that he required further reductions. He requested the removal of all items not relating to the direct supply of the item of equipment, such as maintenance, warranty, documentation and the project management. He stated that we were competing directly with SKM manufacturing the equipment themselves and that he wanted a 'bare bones' price based on supply or individual items of equipment, that SKM would takeover and run the plant as soon as it was ready to run, and any extra work required to optimise the plant would be done on a cost plus basis under instruction from himself or Anthony Italiano.

266 ICA also relies on Mr Erskine's evidence in cross-examination whereby he agreed the 'optimisation' agreement was not included in the written quotation.[195] Mr Erskine was asked:[196]

Question: Do you recall at a meeting on 10 July 2003 an agreement being reached that ICA would provide SKM with labour on site [to] be directed by SKM to provide extra work which was required to complete the project?

Answer: Yes.

Question: What was actually said?

Answer: Robert asked for any extra work that was required could we provide the labour to carry out that work. I agreed certainly. We had the people on site and that work would be charged at an hourly rate and I think the rate that I quoted at that date was $58 an hour for any extra work required.

**267 Subsequently in cross-examination, Mr Erskine said that the intial optimisation agreement was in July 2003.[197] Mr Erskine was asked why the $58 per hour agreement was not included in the written quote. Mr Erskine said he wasn't asked to include it and that it was a passing comment at a meeting that if required ICA would install SKM supplied equipment.[198] Mr Erskine agreed, however, that ICA quoted to install other SKM supplied equipment.[199] He agreed that the optimisation works was something separate from this.[200]

268 Finally, ICA relies on evidence that Mr Erskine gave in cross-examination where he identified the agreement as being made at a meeting on 2 June 2003 (not July as first suggested).[201] He again sought to repeat what was said during the relevant conversation:[202]**

Well, it was explained to - at the meeting by Robert and Anthony they did not have people available to install the equipment that they were supplying. They were able to remove it from the Thornbury plant and they required assistance for it to be installed at the Coolaroo plant, could we provide the labour to help that. I agreed at that stage that yes, we would had, we had people on site and were more than happy to do it and any extra work would be done on an hourly rate basis.

269 Mr Erskine was asked what equipment was to be installed that was not part of the quote for stage 1. Mr Erskine said:[203]

---I don't know. I don't know. They said to me we've got a lot of equipment or there's a lot of work that needs to be done, we haven't got any people in that area, can your people be involved in that and I said, yes. We had no idea what the quantum was.

**270 When pressed, Mr Erskine identified all interconnecting chute work, safety guarding, work outside of normal hours and maintenance work.[204]

271 Mr Erskine was cross-examined about the failure of ICA's then solicitors to discover the optimisation invoices in discovery initally given in these proceedings in this court. During cross-examination, Mr Erskine said that Mr Byleveld, the project engineer, raised the invoices and knew where they were stored in ICA's files.[205] Mr Erskine was asked who in ICA's office may have provided invoices to ICA's first solicitors and he identified Ian Bowles and Brooke Telfer, neither of whom were called to give evidence.

272 Mr Byleveld gave evidence that he did not raise the optimisation invoices. He said he 'had nothing to do with these two invoices' when asked about the optimisation invoices.[206] He said he was not aware of any agreement between ICA and SKM to optimise stage 1 or 2 works. He said he couldn't recall anything about optimisation.**

SKM case on optimisation invoices[207]

**273 SKM denies that there was ever an agreement, pursuant to which it agreed to pay ICA for any 'optimisation' works. Further, SKM denies that it obtained any benefit from any of the works which are said to fall within the meaning of 'optimisation' works. SKM does not dispute that ICA staff have worked the hours claimed by ICA. The issue between the parties is that SKM denies that there was ever an agreement in respect of what is called the 'optimisation' works.[208]

274 SKM have raised detailed arguments to meet the optimisation claim. As it is I do not need to address these issues, as I have found below that no liability does arise for the sum claimed on the basis currently pleaded and argued by ICA.

275 I would envisage that the matters raised by SKM may be relevant on the hearing of a quantum meruit claim. As discussed below, I have been asked to consider contractual issues. It is not possible for me to deal with the quantum meruit claim when I am only dealing with essentially contractual issues.**

**276 I am satisfied that the optimisation invoices were prepared in June 2004. I accept Mr Granger's evidence of the break up of the two invoices and how he calculated and prepared the invoices. I find that the invoices accurately record the information kept in the financial records of ICA as to the materials and services provided to SKM by ICA. On the other hand, the financial records that were tendered do not establish who, if anybody, from SKM requested the material and labour be provided, or who the request was made to. There is no record of the precise tasks carried out by ICA in respect of the materials and labour provided.

277 ICA has conducted its case on the first optimisation invoice on the basis that the liability arises under an agreement between ICA and SKM made prior to the agreement for stage 1 being entered into.**

**278 According to Mr Erskine's written statement the agreement the agreement to provide optimisation services was made on 10 July 2003 as discussed above. [209]

279 Mr Erskine, however, gave evidence of other alleged versions of the agreement. Under cross-examination Mr Erskine gave three further versions of the conversation giving rise to the optimisation agreement. I have set these out above.[210] In the first, the agreement was a general one to provide labour as required by SKM. The second version said the agreement related to installing SKM-supplied equipment. In the third version Mr Erskine said the conversation took place in June and the agreement was to supply labour to install equipment SKM were supplying from the Thornbury plant.

280 A major contention of SKM is that the claims under the invoices were not raised until very late in the piece. SKM contends that ICA's conduct suggests that the agreement it now seeks to rely on was never made. I accept that ICA's conduct does not fit easily with its claim that it has always had a contractual right to claim the $541,000 alleged to be outstanding under the optimisation invoices. On the other hand, I have given considerable weight to the fact that the agreements are ones that would be expected where the parties have otherwise agreed on a fixed price contract. Variations on fixed price contracts are common in building contracts. It goes without saying that additional work over and above the contract requested by SKM would normally have to be paid for.

281 What is clear from the evidence is that whatever the agreement was, if there was an agreement, it contemplated a request by SKM for ICA to provide material and labour in addition to that to be provided under the contemplated written agreements. This is recognised by ICA itself in its pleadings in paragraphs 15 and 16 in respect of the stage 2 optimisation claim. It there pleads numerous requests to Messrs Erskine, Byleveld, Collins, Baldock and Normoyle, even though insufficient evidence or particulars were provided, as I discuss below in dealing with the stage 2 optimisation claim.

282 Accordingly, any liability of SKM to ICA under the optimisation agreement would only arise under a request by SKM for materials and labour in addition to that provided for under the written agreements and ICA's provision of the same.

283 The liability of SKM to ICA would not arise under the agreement of 10 July 2003 (if there be one) or any other version of the optimisation agreement entered into prior to the stage 1 agreement, this being an agreement to work once a request had been made. While what was discussed and agreed on 10 July 2003 or thereabouts may be relevant to determining the terms of any later agreement when material or labour was requested, it will be the later agreement, when a request is made, that gives rise to the liability of SKM to ICA and not the earlier agreement, if there be one.

284 As it is, ICA has not pleaded the various requests and consequent agreements (if any) that give rise to the sums incorporated into the invoice, nor has it tendered evidence of the any particular requests made by SKM for ICA to provide materials and labour over and above those agreed to be provided in the written agreements.

285 The accounting records tendered merely record the hours worked or materials provided. The accounting records do not identify what was done and at whose request. The accounting records do not establish the relevant requests required.

286 If no agreement or agreements were subsequently reached when ICA says that it did provide materials and labour over and above that required under the written agreements, then the claim of ICA does not fall under any optimisation agreement. Rather if may fall to be dealt with under the claim of quantum meruit in paragraphs [24] and [25] of ICA's claim.

287 At this point of the proceedings, in determining the issues raised in paragraph 8(g) of ICA's claim, I do not find that SKM owes ICA the invoiced amount based on any agreement of 10 July 2003 or thereabouts as alleged by ICA in its submissions. Any liability for that sum or any other lesser sum, on a contractual basis, would depend upon ICA establishing requests made of it that currently have not been pleaded or proved.**

**288 Question: Was there a variation to the [stage 1 works] requested by Robert Italiano on behalf of SKM and invoiced as variation order number 7: provision of staff to SKM during Stage 1 optimisation and modification works; invoice number 113005 in the amount of $189,200.00 dated 16 June 2004 which SKM has refused or neglected to pay?[211]

Answer: No, not on the basis of any agreement reached between ICA and SKM prior to the stage 1 agreement.**

Paragraphs 10 - 13 - ICA claim - Stage 2 works (issue 60)

**289 ICA claims that it invoiced SKM on the stage 2 works. It pleads five invoices. SKM admits receiving those invoices. It otherwise denies the allegations of ICA. It admits paying $1,463,000 on account of those invoices and otherwise denies ICA's allegations.

290 The only defence raised by SKM is that raised in SKM's counterclaim.**

**291 Question: Is SKM indebted to ICA for the sum of $115,500 being the sum unpaid on the five stage 2 invoices[212]?

Answer: Yes, subject to any set off SKM may establish in its counterclaim against ICA.**

Paragraphs 14 - ICA claim - Variations to stage 2 - issue 61

**292 ICA alleges that in respect of stage 2, Robert Italiano gave ICA two separate variation orders. ICA alleges variation 1 was paid but variation 2 for $17,100.50 has not been paid.

293 ICA alleges that variation 2 related to electrical work ordered by SKM requested by Anthony Italiano.[213] ICA invoiced SKM in invoice number 112987 describing the work as 'stage 2 electrical variations to date 14th May 2004, as per attached sheet detailing variations.'[214] The attached list is headed 'stage 2 electrical variations to date 14 May 2004' and gives a detailed list of items and labour time spent on electrical work in relation to a rubbish baler, cardboard baler and paper baler.[215]

294 SKM does not admit the allegations.[216] Anthony Italiano says in response to Mr Erskine's witness statement that he does not know what this claim relates to.[217] Under cross-examination, Anthony agreed that the equipment identified in the attached list was SKM items of equipment. He agreed that he had no doubt that the work was in fact done by ICA on stage 2 works.[218]

295 I find that the materials and work invoiced were done by ICA at the request of SKM.**

**296 Question: Is SKM indebted to ICA for electrical work invoiced in invoice number 112987 dated 14 May 2004 in the amount of $17,011.50?

Answer: Yes, subject to any set off SKM may establish in its counterclaim against ICA.**

Paragraphs 15-16 - ICA claim - Optimisation claim stage 2 - issue 62

**297 ICA alleges that Robert and Anthony Italiano made numerous requests to Messrs Erskine, Byleveld, Collins, Baldock and Normoyle from November 2003 until June 2004 for ICA to provide additional staff to be deployed at SKM's direction in optimisation, operational management and upgrade works carried out in relation to the recycling plant run by SKM.[219]

298 ICA alleges that the work was carried out by ICA who invoiced SKM pursuant to invoice number 113006 dated 16 June 2004 in the amount of $352,660. ICA says that SKM has neglected or refused to pay any of the amount claimed.[220]**

**299 Invoice 113006 dated 16 June 2004[221] is for $352,660.00 for stage 2 optimisation works and costs. The work performed and costs claimed under the stage 2 optimisation invoice allegedly comprises work outside normal working hours prior to handover,[222] extra or additional work performed after stage 2 had been installed and handed over to SKM and was operating, including fitting chutes and guards.[223]

300 Stage 2 optimisation allegedly includes work done by ICA in modifying the paper disc screens as requested by Robert and Anthony Italiano.[224] ICA says that Anthony Italiano, Richard Collins and Anthony Metcalf each gave evidence that significant work was done by ICA staff in respect of the paper disc screens in the period from handover of stage 2 until mid-2004.

301 As discussed above, Mr Granger gave evidence that he created invoice 113006 on 16 June 2004 using information extracted from ICA's Online 2000 accounting system which information is set out in the Job Transaction Report.[225]

302 Bruce Granger said in evidence that the three categories of charges making up invoice 113006 are as follows:[226]

(a) out of hours work (being work outside 6 am to 6 pm Monday to Friday) carried out from 10 October 2003 to 31 October 2003 being before handover of stage 2.

(b) work (labour) that was carried out after the handover and during stage 2 optimisation being from 19 March 2004 to 16 June 2004; and

(c) the cost of materials supplied during the stage 2 optimisation period from 19 March 2004 to 16 June 2004.

303 Mr Granger gave evidence[227] that the total amount of the invoice of $320,600 (not including GST) comprised the following amounts derived from information recorded in the Job Transaction Report:[228]

(a) out of hours work (10 October 2003 - 31 October 2003) - $5,603.00;

(b) labour during the Stage 2 optimisation period from 19 March 2004 to 16 June 2004 - $183,931.24; and

(c) materials supplied during the Stage 2 optimisation period from 19 March 2004 to 16 June 2004 - $131,066.12.

304 ICA relies on the alleged contract that supported the optimisation invoice for stage 1. In this case, however, ICA also rely on numerous requests to Messrs Erskine, Byleveld, Collins, Baldock and Normoyle. At this stage of the trial, no evidence has been led or particulars provided of the requests that give details of who requested whom to do what work, what work was done in response to that request, and how that work has been costed.

305 SKM alleges that certain of the machinery and its installation was not done in a proper and workmanlike manner. The resolution of such issues is not the subject of the preliminary issues. At this stage I am resolving contractual and representation issues. It is not possible for me to rule that all work done during the optimisation period that allegedly ran from 19 March 2004 to 16 June 2004 was work that fell outside the written contracts for stage 1 and stage 2 and also for the glass line and C2 installation without hearing the evidence on those issues. As I understand such evidence will involve expert evidence that has yet to be led and a detailed consideration of technical matters that have not been addressed by the parties at this stage of the hearing.**

306 As I said in relation to the optimisation claim for stage 1, I am satisfied that the optimisation invoices were prepared in June 2004. I accept Mr Granger's evidence of the break down of the two invoices and how he calculated and prepared them. I find that the invoices accurately record the information kept in the financial records of ICA as to the materials and services provided to SKM by ICA. On the other hand, the financial records that were tendered do not establish who, if anybody, from SKM requested the material and labour to be provided, or who the request was made to. There is no record of the precise tasks being carried out in respect of the materials and labour provided.

**307 Question: Did Robert and Anthony Italiano make numerous requests to Messrs Erskine, Byleveld, Collins, Baldock and Normoyle from November 2003 until June 2004 for ICA to provide additional staff to be deployed at SKM's direction in optimisation, operational management and upgrade works carried out in relation to the recycling plant run by SKM.[229]

Answer: I am unable to say at this stage of the hearing.

Question: Was that work carried out by ICA who invoiced SKM pursuant to invoice number 113006 dated 16 June 2004 in the amount of $352,660?

Answer: I am unable to say at this stage of the hearing

Question: Has SKM has neglected or refused to pay any of the amount claimed.[230]

Answer: I am unable to say at this stage of the hearing.**

**308 ICA alleges that, in the premises, pursuant to the stage 2 agreement, SKM is indebted to ICA for the stage 2 works and variations thereto in the amount of $369,671.50.

309 For the reasons given above I am not able to answer the issues raised in this allegation save to the extent I have upheld variations to stage 2 and the GST owing as alleged in paragraph 13 of the ICA claim.**

Paragraphs 18-23 - ICA claim - Upgrade belting - C2 installation - issue 64

**310 ICA alleges that in or about December 2005, Robert Italiano on behalf of SKM requested ICA and ICA agreed to supply to SKM equipment to upgrade an existing elevator with steel type conveyor belting (the Replacement Contract).

311 ICA alleges that subsequent to the parties entering into the Replacement Contract, ICA was requested by SKM to manufacture a new frame to replace the existing worn frame (the C2 Contract). Further, ICA alleges that subsequent to the parties entering into the C2 Contract, SKM requested ICA to install the components supplied under the Replacement Contract onto the frame made under the C2 Contract in the premises of SKM (the C2 Installation Contract).

312 ICA alleges that it completed the Replacement Contract, the C2 Contract and the C2 Installation Contract (collectively, the Elevator Contracts) on or about 14 May 2006 to the satisfaction of SKM who thereafter used the materials supplied under the contracts.

313 ICA claims $52,392.64 as moneys under outstanding under those contracts:

(a) balance due on invoice number 113874 dated 13 March 2006 for $2,452.64;

(b) balance due on invoice number 113900 dated 3 May 2006 for $38,500.00; and

(c) balance due on invoice number 113909 dated 12 May 2006 for $11,440.00.

314 In substance, SKM admits the contracts but pleads that there were terms of the three agreements that ICA allegedly breached. SKM also gives each agreement a different name to that given by ICA.[231] For convenience I use the ICA names.

315 SKM admits that it engaged ICA to upgrade an existing elevator with steel type conveyor belting in or about December 2004 (the Replacement Contract). SKM alleges that there were terms of the Replacement Contract as follows:

(a) in its performance of the works forming the subject of the Replacement Contract, ICA would comply with applicable Australian Standards;

(b) ICA would complete a risk assessment of the Replacement Contract;

(c) ICA would provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the Replacement Contract; and

(d) ICA would complete the Replacement Contract with all due skill, care and diligence and leave the elevator forming the subject matter of the Replacement Contract in good working order.[232]

316 Further, in response to the allegation that ICA agreed to supply a steel frame, SKM says that it entered into an agreement with ICA to manufacture a steel frame to be installed into an existing elevator (the C2 Contract).

317 SKM alleges that the C2 Contract contained the following terms:

(a) in its performance of the works forming the subject matter of the C2 Contract, ICA would comply with applicable Australian Standards;

(b) ICA would complete a risk assessment of the C2 Contract;

(c) ICA would provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the C2 Contract; and

(d) ICA would complete the FA Works with all due skill, care and diligence and leave the elevator forming the subject matter of the C2 Contract in good working order.[233]

318 In response to the allegation of the Installation Contract, SKM admits it engaged ICA to install various components on a frame (the C2 Installation Contract). SKM says that there were similar terms of the C2 Installation Contract as pleaded in respect of the Replacement Contract and the C2 Contract.

319 SKM denies that ICA completed the works the subject of the alleged Replacement Contract, C2 Contract and/or the Installation Contract. SKM denies it was satisfied with ICA's performance in respect of the said contracts.

320 SKM admits receiving the relevant invoices from ICA, denies it is obliged to pay those amounts because of alleged breaches of the contracts, and otherwise denies ICA's allegations.

321 SKM alleges that ICA breached the Replacement Contract, the C2 Contract and the C2 Installation Contract in that it failed to:

(a) comply with the applicable Australian Standards;

(b) complete a risk assessment of the various Works;

(c) provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the various Works; and

(d) complete the various Works with all due skill, care and diligence and leave the elevator forming the subject matter of the Works in good working order.[234]

322 SKM denies that it is indebted to ICA in respect of the work and alleges that as a result of the alleged breaches SKM has suffered loss and damage.**

**323 Mr Erskine says[235] that general arrangement drawings were provided to Robert Italiano for his approval in December 2003 for conveyor C2, a chain guided incline belt conveyor on Stage 2. He says that Robert questioned the use of a 3 inch pitch chain as his preference was for a 6 inch pitch chain, even though the 3 inch pitch chain had the same tensile rating as the 6 inch pitch chain.

324 Mr Erskine says that because of the very short delivery period and the Christmas shutdown period, the six inch pitch chain was not available and had to be manufactured, whereas the three inch pitch chain was available (ex stock). He says that he discussed this with Robert and they agreed that to proceed with the three inch pitch chain due to the time constraint. They also agreed that conveyor C2 would then be used in the planned future upgrade for the 4th and 5th sorting line and that a new conveyor would be built to replace the C2 conveyor during this proposed future upgrade presumably with the six inch pitch chain.

325 Mr Erskine says that the C2 conveyor was supplied as part of the Stage 2 works. Mr Erskine says that, as far as he is aware, the 4th and 5th sorting line upgrade works never proceeded. He says that a quotation for the works had been prepared on 29 September 2005 (quotation number 2672), but ICA was not given the go-ahead.[236]

326 Mr Erskine says that on 10 October 2005 he visited the Coolaroo site. He says that he called in to check on the progress of the installation of conveyors for the new plastic line, a new project they had been asked to do. Mr Erskine says that he observed that the chain on conveyor C2 had jumped a sprocket tooth on the right hand side drive sprocket. He says that this was due to incorrect adjustment on the take up screws on the tail shaft in that while the left hand take up screw had been adjusted and locked with the correct chain tension, the right hand thread had not been tightened or locked causing the chain on that side to be loose. When the conveyor was loaded, or overloaded, the loose chain had jumped the drive sprocket on the right hand side causing one chain to be carrying the entire load. This was causing excessive wear on the conveyor, and it appeared to have been running like this for some time. Mr Erskine says that he pointed this out to Anthony Italiano who said he would have it fixed.

327 Mr Erskine says that he prepared a brief summary of the components required to repair the conveyor on 11 October 2005, together with photographs of a steel belt that could be incorporated.[237] Following a request from Robert Italiano on 7 December 2005 Mr Erskine sent an email with a suggested course of action for SKM to repair the C2 conveyor.[238] He says that on 8 December 2005 he received an email from Robert questioning the prices for the repair.[239] Mr Erskine says that on 10 February 2006 he prepared quotation number 2812.[240]

328 On 13 February 2006, Mr Erskine says that ICA was given the go ahead by Robert to supply the various components that SKM required to repair the conveyor. Mr Erskine says that the go ahead was given four months after he had observed the problem and brought it to the attention of Anthony.[241] Mr Erskine says that the lack of remedial action and general maintenance resulted in a much larger repair job being required. He refers to the emails of 13 February 2006.[242]

329 Mr Erskine says that he received a telephone call from Robert on around 16 February 2006 asking if ICA could provide him with labour to install the components (this was in addition to ICA supplying the components). Mr Erskine says that he agreed to do so.

330 Mr Erskine says that at around this time it was also discovered that the existing C2 conveyor support frame was badly worn due to the excessive wear caused by the chain being left to run while misaligned, and due to the poor maintenance carried out (the misaligned sprockets had caused excessive wear on the frame). Mr Erskine says that Robert wanted the conveyor to be operational as soon as possible, with as little down time as possible, and he decided it would be easier to manufacture a new frame and re-use the old frame for future works. Mr Erskine says that ICA then manufactured and supplied the components.

(a) invoice number 113874 dated 31 March 2006 was issued by ICA for the supply of the components to the value of $24,526.40 ex GST;[243]

(b) invoice number 113900 dated 3 May 2006 for the value of $35,000.00 ex GST relates to the provision of the new frame;[244] and

(c) invoice number 113909 dated 12 May 2006 to the value of $10,400.00 ex GST was for the provision of labour on the site to install the components.[245]

332 Mr Erskine says that despite completion of the work and protracted attempts by ICA to get payment for these works, ICA has not been paid. Mr Erskine says that instead, ICA was met with delaying tactics with SKM seeking additional work for things that ICA had not been contracted to do.

333 In response to this evidence,[246] all that Robert Italiano says in his witness statements is that it is correct that Mr Erskine and he had a discussion in relation to the pitch of the chain. Robert says that it is not correct that he said to Mr Erskine that the 3 inch pitch chain could be used in the future upgrade for the 4th and 5th sorting line. Robert says that he said that if it works, he was happy to keep it, but if it doesn't work, he wanted it replaced. He says that Mr Erskine said that if he didn't use the 3 inch pitch chain the system wouldn't be running by January and if it needed replacing, he would replace it.**

**334 Invoice 113874 was rendered pursuant to ICA quotation 2812[247] of 10 February 2006 for the supply of equipment to upgrade the existing elevator with steel slat-type conveyor belting. The quotation included labour to strip and install. The quote was $34,454.40 plus GST. By email dated 10 February 2006, Robert Italiano accepted the quotation.[248] There is no dispute the quote was performed.

335 On 31 March 2006, ICA invoiced SKM for the equipment supplied under quote 2812 at $24,526.40 plus GST of $2,452,64.[249] On 19 July 2007, SKM paid $24,526.40 leaving a balance owing of $2,452.64 which is the GST component of the account.[250] Subject to the damages claim by SKM, I find that this amount is due from SKM to ICA.

336 Invoice 113900 dated 3 May 2006 for $38,500[251] is for the 'manufacture and supply of the elevated conveyor frame to replace C2 associated with stage 2 equipment as per discussions with Mr Erskine.' There is no suggestion the frame was not supplied. It is alleged that certain alleged terms of the agreement for the supply of the frame were breached. Subject to the damages claim by SKM, I find that this amount is due from SKM to ICA.

337 Invoice 113909 dated 12 May 2006 for $11,440 is the final claim for quotation no 2812. The invoice claims for the labour to strip and install of $10,400 plus GST of $1040 that had not previously been charged for but was included in the quote.[252] There is no suggestion the labour quoted was not supplied. Subject to the damages claim by SKM, I find that this amount is due from SKM to ICA.**

**338 Question: Is SKM indebted to ICA under the Contracts in the sum of $52,392.64?

Answer: Subject to the damages claim of SKM, yes.**

Paragraphs 24-25 - ICA claim - Recovery on a quantum meruit basis - issue 65

**339 ICA alleges that ICA performed words and supplied goods, as previously pleaded, at the request of SKM and ICA is entitled to payment of its costs of so doing together with reasonable remuneration. Accordingly ICA alleges SKM is indebted to ICA in the sums claimed.

340 Further, ICA alleges that SKM has had and retains the benefit of the goods and services provided by ICA in performance of the:

as aforesaid in circumstances where by retention of such benefit without compensating ICA would result in SKM being unjustly enriched at ICA's expense so that it would be unconscionable for SKM to retain such benefit without compensating ICA.

341 ICA contends that if it is determined that the work done and materials supplied under the optimisation invoice claims is not recoverable on a contractual basis, ICA is entitled to the amounts claimed on a quantum meruit basis. ICA relies on the principles summarised in the Chapter 'Building Contracts' in Court Forms Precedents & Pleadings, Victoria.[253]

342 ICA says that the quantum meruit plea in paragraph 25 of ICA's claim invokes the restitutionary basis of quantum meruit recovery in the alternative to contractual recovery. ICA contends that as noted in the text above, where work has been performed pursuant to an agreement which is ineffective by reason, for example, of uncertainty, the restitutionary principle of recovery will apply independently of contract; that is, the obligation to pay arises not out of contract but out of acceptance by the proprietor of the benefit of the work of the contractor in circumstances where it would be unjust for the proprietor to enjoy the benefit without payment.[254]**

**343 SKM deals with this claim on two basis. The first is in response to the claims other than the optimisation claims. SKM says that the contractual claims cannot be the subject of a quantum meruit claim as there are extant contracts that govern the rights of the parties.

344 The authorities establish that where an extant contract governs the dealings between the parties, a party can not rely on quantum meruit to alter the existing contractual arrangement.[255] In Pavey & Matthews v Paul[256] Deane J rejected the suggestion that quantum meruit was based on an implied contract. He said:**

Indeed, if there was a valid and enforceable agreement governing the claimant's right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.

345 I accept SKM's submissions on the non optimisation claims. ICA's rights are limited to the contractual rights that it otherwise relies on.

SKM and the optimisation claims and quantum meruit

**346 SKM contends that there are three basic elements of an unjust enrichment claim:[257]

(a) there must be a benefit provided by the plaintiff to the defendant;

(b) the benefit must be at the plaintiff's expense; and

(c) an element of injustice, that is some recognised circumstances showing that it is unjust, unfair or unconscionable for the Defendant to retain the benefit without payment.**

**347 SKM asserts that ICA must demonstrate what incontrovertible benefit was conferred on SKM under this claim. SKM says that all that ICA has produced is a record of work and materials provided in respect of the stage 1 and 2 works post handover. It says that there was no attempt to identify the nature of the work performed on site by ICA employees.

348 SKM says that none of ICA's witnesses could give any evidence of the type of work done. It says that the mere fact that ICA employees were doing work on site post handover does not necessarily result in an incontrovertible benefit to SKM, especially in circumstances where SKM says that the reason the further work and materials was provided was to rectify faults in the equipment supplied by ICA.

349 SKM contends that there was no incontrovertible benefit to SKM by the provision of the alleged goods and services by ICA. It says that ICA provided equipment that did not operate properly as intended and the equipment was constantly breaking down, which caused loss and damage to SKM. ICA was under a contractual obligation to repair or replace the faulty equipment so that it operated properly and effectively.

350 SKM says that the cost of providing such services, to rectify defective equipment, is not an 'incontrovertible benefit' to SKM in the sense required by this aspect of the law of restitution. Repairing faulty equipment supplied is not an incontrovertible benefit.

351 SKM says that in the absence of any optimisation agreements, ICA cannot recover for any goods or services it may have provided by seeking to rely on restitutionary claims, such as quantum meruit or unjust enrichment because such doctrines rely substantially on the proposition that a person who receives an incontrovertible benefit from the claimant should in justice pay for such benefit.**

352 SKM says that in circumstances where a plaintiff has supplied goods or services which require further goods or services to bring the original goods or services to a workable condition, the 'benefit' supplied to a defendant is not at the plaintiff's expense. Rather, it is simply a case of the plaintiff performing its contractual obligations to supply equipment that properly performed their intended functions.

**353 Intrinsic to a restitutionary claim is that the person who receives goods or services must be aware that it is receiving the same on the basis that it will be liable to pay a reasonable sum for those goods and services and, therefore, has an opportunity to refuse the provision of the goods and services.

354 On the evidence, the earliest notice that SKM had of the work performed under the optimisation works was in about April 2009, when ICA's claim was amended to include the optimisation claims, over 5 years after the goods and services were purportedly provided.

355 Even on ICA's evidence, it was not until about 16 June 2004 that the optimisation invoices were created. That is long after the services are alleged to have been provided. On the evidence given by Mr Granger, the 'optimisation' services in respect of stage 1 commenced being provided after handover which occurred, he said, on 31 October 2003. At no time was SKM informed that optimisation services were being provided and that it would be required to pay a reasonable sum for such services. Accordingly, SKM had no opportunity to accept or reject such services.

356 There is no injustice or unconscientiousness in rejecting such claims where the person receiving the alleged benefit did not request or accept the benefit and was not aware that the person was providing such benefit on the basis that it would be paid for on top of the contract price.

357 ICA took a risk by not negotiating a different contract which ensured that it had a contractual right to payment for the alleged 'optimisation' claims, especially in circumstances where right from the start of the negotiations SKM was insistent that it wanted to fix and limit its costs.[258]

358 ICA contends that if SKM's defence (which is not pleaded) is that some part of the work done and materials supplied by ICA were for the purpose of rectifying or remedying some alleged defective performance on the part of ICA, that issue relates to assessment of the quantum meruit value of the work performed, and therefore should be determined at the quantification stage of the proceeding.

359 ICA says that it has filed the expert evidence of Mr Lynch in this regard (there is no expert evidence in reply by SKM) and has agreed to SKM's suggestion that assessment of the fair and reasonable value of the work be heard and determined separately (along with quantification of SKM's amended counterclaim).**

**360 In this case, ICA alleges that it had an agreement with SKM for the provision of services and materials over and above the fixed price contracts. I have found that such an agreement was made and that the agreement was that liability would be activated if SKM requested the additional work or materials. ICA only seeks to rely on quantum meruit in the alternative to there being no agreement. ICA's inability to recover under the agreements that it has established arises from its failure to establish the necessary requests of SKM that would give rise to liability.

361 SKM makes submissions on the basis that ICA does not make out the optimisation agreement. It argues that in those circumstances the necessary elements giving rise to a quantum meruit claim do not arise.

362 As the authorities establish, it may not be open to ICA to contend that as it cannot establish that SKM requested the work and materials the subject of the optimisation invoices it may nevertheless seek to recover compensation on a quantum meruit basis.

363 As it is, at this stage of the hearing I am not able to decide whether all or any of the alleged variations over and above the written contracts were the subject of additional contracts or not. If some of the work was not provided under any contracts then a claim may arise.**

**364 Question: Is ICA entitled to make the claims that it does in paragraphs 24 and 25 of its claim?

365 Answer: I am unable to answer this question at this stage of the hearing.**

**366 Order 2(b) of the Order of 21 October 2011, provides that the Court determine the matters and issues set forth in paragraphs 6 to 26 inclusive (save for paragraphs 22A and 23) of SKM's defence.

367 I will deal with the terms of the agreements to build stage 1 and stage 2 when I address SKM's counterclaims. Otherwise, the answers to the questions above determine the issues raised by those paragraphs save for the terms of the Replacement Contract, the C2 Contract and the C2 Installation Contract, and the questions raised in paragraphs 24 - 26 inclusive. I now turn to those issues.**

Paragraphs 18A, 19B and 20A - SKM defence - the terms of the contracts - issue 66

368 I am not aware of any submissions concerning the terms alleged by SKM made by either ICA or SKM. Despite the absence of any submissions, I will determine the issues in accordance with the Order.

369 SKM alleges the terms of this agreement were partially oral and partially to be implied. Insofar as they were oral, SKM rely on conversations between Robert Italiano and Mr Erskine, however no evidence was led by SKM to support the allegation that the terms were oral. Insofar as they were implied it is alleged that they were implied to give business efficacy to the dealings between ICA and SKM.

Was it an implied term that in performance of the work ICA would comply with applicable Australian Standards?

370 Halsbury's Laws of Australia states:[259]

In a building contract, unless the circumstances indicate otherwise, there is a warranty by the contractor implied by common law to carry out and complete2 the work in a careful and competent manner, in accordance with applicable statutory controls and within a reasonable time. Where the contractor supplies materials for the work, there is also an implied warranty that the materials are of good quality and of an acceptable quality. The contractor is in breach of this obligation where the materials supplied conform to specification but contain a defect, whether latent or patent, unless the latent defect is inherent in the materials specified by the proprietor. (citations omitted)

371 If there was a statutory obligation on ICA to comply with Australian Standards, then I find that it was an implied term of the contract that the work would comply with applicable Australian Standards.

Was it an implied term that ICA would complete a risk assessment of the works under the Replacement Contract?

372 No submission was made in support of this contention and unless ICA was required by some construction code to do so, I can see no basis for so finding.

Was it and implied term that ICA would provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the works?

373 I find that such a term was not necessary to give efficacy to the contract.

Was it an implied term that ICA would complete the works with all due skill, care, and diligence and leave the elevator forming the subject matter of the works in good working order?

**374 In accordance with the common law referred to above in the quotation from Halsbury's Laws of Australia, I find that it was an implied term of the contract that ICA would carry out the contract exercising reasonable care and skill.

375 I am not satisfied that it was an implied term of the contract that ICA would leave the elevator in good working order. The contract was only to upgrade an existing elevator with steel type conveyor belting. The subject matter of this contract was the supply and installation of the steel belting. The conveyor may have had other features that impacted on its working order. No evidence was led by SKM on this issue sufficient to enable me to find such a term.**

Conclusion - Replacement Contract - paragraph 18A SKM defence - issue 67

**376 Question: Was it an implied term that in performance of the work ICA would comply with applicable Australian Standards?

Answer: Yes, if ICA was independently required to observe Australian Standards in carrying out the contract.

Question: Was it an implied term that ICA would complete a risk assessment of the works under the Replacement Contract?

Question: Was it and implied term that ICA would provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the works?

Question: Was it an implied term that ICA would complete the works with all due skill, care, and diligence and leave the elevator forming the subject matter of the works in good working order?

Answer: It was an implied term of the contract that ICA would carry out the contract exercising reasonable care and skill, otherwise no.**

The C2 Contract - paragraph 19B SKM defence - issue 63

**377 Paragraph 19B of SKM's defence alleges the same terms in relation to this contract as alleged in relation to the Replacement Contract. SKM relies on similar particulars. There is no evidence to support that the terms were oral.

378 As to the implied terms, I find, for the reasons given in relation to the Replacement Contract, the following:**

Conclusion - Frame Contract - paragraph 19B SKM defence - issue 63

**379 Question: Was it an implied term that in performance of the work ICA would comply with applicable Australian Standards?

Answer: Yes, if ICA was independently required to observe Australian Standards in carrying out the contract.

Question: Was it an implied term that ICA would complete a risk assessment of the works under the C2 Contract?

Question: Was it and implied term that ICA would provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the works?

Question: Was it an implied term that ICA would complete the works with all due skill, care, and diligence and leave the elevator forming the subject matter of the works in good working order?

Answer: It was an implied term of the contract that ICA would carry out the contract exercising reasonable care and skill, otherwise no.**

The C2 Installation Contract - paragraph 20A SKM defence - issue 63

**380 Paragraph 20A of SKM's defence alleges the same terms in relation to this contract as alleged in relation to the Replacement Contract. SKM relies on similar particulars. There is no evidence to support that the terms were oral.

381 As to the implied terms, I find, for the reasons given in relation to the Replacement Contract, the following:**

Conclusion -C2 Installation Contract - paragraph 20A SKM defence - issue 63

**382 Question: Was it an implied term that in performance of the work ICA would comply with applicable Australian Standards?

Answer: Yes, if ICA was independently required to observe Australian Standards in carrying out the contract.

Question: Was it an implied term that ICA would complete a risk assessment of the works under the C2 Installation Contract?

Question: Was it and implied term that ICA would provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the works?

Question: Was it an implied term that ICA would complete the works with all due skill, care, and diligence and leave the elevator forming the subject matter of the works in good working order?

Answer: It was an implied term of the contract that ICA would carry out the contract exercising reasonable care and skill, otherwise no.**

**383 I am not aware of any submissions on these issues by either ICA or SKM. Despite the absence of submissions, I will determine the issues in accordance with the Order.

384 SKM alleges that by email sent from Mr Erskine to Robert Italiano on 23 July 2004, Mr Erskine agreed to forgo all amounts said to be owing by SKM to ICA as at the date of the email (Foregoing Representation) and ICA subsequently ceased all works at the recycling plant on or about 23 July 2004.

385 SKM alleges that in reliance on the Foregoing Representation, SKM did not insist on ICA completing all of the work required by both the RCS Agreement and the MPS agreement.

386 SKM alleges that it would be unconscionable for ICA to resile from the Foregoing Representation and now seek to recover the amounts said to be owing in respect of the RCS works and variations, and the MPS works and variations (Amounts Claimed). SKM alleges that ICA is thereby estopped from contending that it is entitled to payment of the Amounts Claimed.

387 SKM alleges that by reason of those matters, ICA is not entitled to the relief it claims (the quantum meruit claim) as ICA has by inaction placed SKM in a situation in which it would be inequitable and unreasonable to now assert an entitlement to the Amounts Claimed.

388 SKM further alleges that ICA has by reason of accord and satisfaction agreed to release SKM from any liability in respect of the Amounts Claimed.[260]**

**389 I find that in his email of 24 July 2004, Mr Erskine did not agree as alleged in the Foregoing Representation. Mr Erskine's explanation of the background to the email is set out above in discussing variation 5 to stage 1, being the supply and installation of the glass clean up line. While it is true that ICA thereafter ceased work at Coolaroo, I find that ICA did so because SKM refused to pay for work done and because it refused to accept it had agreed to the June quote for the supply and installation of the glass clean up line.

390 SKM alleges that ICA is not entitled to rely on its quantum meruit claim as, by its inaction, it has placed SKM in a situation in which it would be inequitable and unreasonable to now assert an entitlement to the Amounts Claimed. I find that the email of Mr Erskine does not make it inequitable for ICA to make a claim on quantum meruit basis. As it is, I have not been able to rule on the quantum meruit claim at this point.

391 SKM also claims that Mr Erskine's email gives rise to an accord and satisfaction defence. As I have found, Mr Erskine did not express his agreement as alleged by SKM.**

**392 Question: Did Mr Erskine in his email of 23 July 2004 represent to Robert Italiano that ICA agreed to forgo all amounts said to be owing by SKM to ICA as at the date of the email?[261]

Question: Is ICA not entitled to rely on its quantum meruit claim in paragraph 24 of the ICA claim as by its inaction is has placed SKM in a situation in which it would be inequitable and unreasonable to now assert an entitlement to the Amounts Claimed.[262]

Question: Did Mr Erskine's email gives rise to an accord and satisfaction defence to its claims against SKM?[263]

**393 I now turn to SKM's claims and counterclaims. SKM agrees that there was an agreement with ICA relating to stage 1 but alleges a series of additional terms that I will deal with below. SKM also agrees there was an agreement relating to stage 2 but alleges a series of disputed terms that I will also deal with below.

394 SKM alleges that ICA breached both the stage 1 and stage 2 agreements. It claims by reason of these breaches it has suffered loss and damage of at least $3,955,627.08.

395 SKM also alleges that ICA made certain representations to SKM concerning ICA's experience and abilities. SKM alleges those representations were false and that it relied on the representations to its loss. SKM alleges that ICA engaged in misleading and deceptive conduct and is liable to ICA for its loss and damage.

396 SKM further alleges that Mr Erskine aided, abetted, counselled, procured, was a party to and was knowingly involved in ICA's alleged contraventions of the Trade Practices Act 1974 and is liable to SKM for its loss and damage.**

397 At this stage of the trial, I am resolving the contractual issues of the various alleged agreements and deciding whether the representations alleged were made. I have already set out the basic assertions of ICA and SKM on the making of the stage 1 and stage 2 agreements. It is convenient, however, to set out the various issues relating to the various agreements, before returning to make findings on the particular terms that support SKM's claims damages.

Stage 1 - SKM's claims as to the terms of the stage 1 agreement

398 As indicated above, there is no dispute that the stage 1 agreement was constituted in part by ICA's written quotation 1628 Revision 4 dated 6 August 2003.[264] SKM alleges further terms of the stage 1 agreement. Essentially, ICA denies these terms.[265] For convenience I shall identify the issues using SKM's numbering system. I will also adopt SKM's approach of framing the terms alleged as a question. Otherwise I will set out the pleadings and particulars as pleaded.

Paragraph 3 - SKM claim - agreement to design, supply and construct - issue 1

Did ICA and SKM, in or about August 2003, enter into an agreement whereby SKM engaged ICA to design, supply and construct a main infeed recycling conveyor and other systems (stage 1 works) for the purposes of recycling product at premises leased by SKM at Coolaroo, Victoria (recycling plant)?[266]

**399 SKM alleges that this was the agreement. In other words, that ICA agreed to design the supply and construct the plant.

400 ICA contends that the contract for stage 1 was a contract for the supply of individual items of equipment and the performance of certain defined works rather than for the design and construction of a plant that was to have certain performance requirements. ICA says that it was not responsible for the provision of all the elements of the recycling plant; for example, it was not responsible for supplying the items of equipment that carried out the sorting. ICA says the contract was not a design and construct contract, where ICA was retained to design the entire plant together with the supply of individual items that go to making up that plant. ICA says that if that was the case, one would expect to see in the contract a great deal of specificity in the operating requirements of the plant.[267]

401 I have considered the evidence of Mr Erskine and Robert Italiano. I find that the contract did not require ICA to design the plant. As discussed above, the evidence of Messrs Miller and Erskine establishes that before the agreement for stage 1 was entered into, it was agreed that SKM would design the plant. I accept that ICA made available its draftsman Mr Miller to assist SKM designing the plant.

Paragraph 4(a) - SKM claim - perform works in accordance with drawing - issue 2

Was it a term of the stage 1 agreement that ICA would perform the stage 1 work in accordance with drawing no 24620 revision 4?[268]

Paragraph 4(b) - SKM claim - Australian standards - issue 3

Was it a term of the stage one agreement that ICA would conduct the stage 1 works in compliance with the relevant legislation and Australian Standards.[269]

**404 ICA objects to this pleading. It says that it is unclear and embarrassing.[270]

405 SKM says the term was in writing and refers to the written quotation of 6 August 2003 that relevantly provides:[271]**

All conveyors will be designed to comply with the relevant legislation and Australian Standards for Conveyor design. AS 1755-2000, Safe Guarding Machinery AS 4024. This will include risk assessment and hazard analysis. The access platforms will be designed to Australian Standard AS 1657-1992.

**406 The term is limited to the design of conveyors and access platforms, to risk assessment and to hazard analysis. The term does not to apply the stage 1 works as a whole.

407 I find the alleged term was not a term of the stage 1 agreement.

Paragraph 4(c) - SKM claim - processing 15 tonnes per line per hour - issue 4

Was it a term of the stage 1 agreement that ICA would perform the stage 1 works such that upon completion the recycling plant would be capable of processing an input tonnage of 15 tonnes of co-mingled waste per line per hour?[272]

**409 SKM alleges that this term was agreed in conversations between Mr Erskine and Anthony and Roberto Italiano in or around July/August 2003.[273]

410 ICA denies this term, says that the correct figure was 10 tonnes per hour, and says that there was only ever one line installed.[274]

411 ICA argues, firstly, that SKM only ever stipulated that the product to be fed onto the conveyor belt at the commencement of the process would be 10 tonnes per hour.[275] ICA deny that there was any agreement as to output.

412 Secondly, ICA says that insofar as that term refers to co-mingled waste, ICA accepts that co-mingled waste means recycled produce that includes plastics, glass, aluminium, steel cans and the like but did not include paper and cardboard. ICA says there is a distinction between what is referred to as 'co-mingled waste' and what is referred to as 'fully co-mingled waste.' Fully co-mingled waste contains paper and cardboard whereas co-mingled waste does not.[276]

413 Thirdly, ICA says that the stage 1 works related to one line only, which was sometimes referred to as the 'glass line.' The second line, which was initially discussed between the parties, was not proceeded with. The stage 2 works only included one infeed line but the design for the stage 2 works contemplated a second infeed line.[277]

414 In his written witness statement, Robert Italiano says that when he first met Mr Erskine in about May 2003 at SKM's offices at Thornbury he told Mr Erskine that the new Coolaroo plant was to process fully co-mingled materials at a rate of about 50 tonnes of material per hour.[278]

415 Robert says that at the meeting with ICA was at Bendigo on about 24 June 2003, he told Mr Erskine that SKM wanted a plant that was able to process a total of about 50 tonnes of fully co-mingled material per hour, and that the processing was to take place on two separate lines. He says that the figure came from having the equivalent of two of the BHS lines. He says that the BHS lines were shown to Mr Erskine on the BHS video.

416 Mr Erskine says in his written reply statement that there was never any performance guarantee or processing requirement that ICA was required to achieve. He says that he would not have agreed to such a requirement - at any level of throughput - when ICA was not responsible for the overall design of the plant; where ICA did not supply key items of processing/sorting equipment; and where ICA had no ongoing oversight or control of SKM's operation of the plant.[279]

417 For reasons previously explained, I do not accept the evidence of Roberto Italiano unless corroborated. He was not corroborated on the alleged term. SKM did not call Joe Italiano who was present at the meetings where Robert says the agreement was made. I infer that his evidence would not have assisted SKM's case. Anthony Italiano did not support his brother on this term.

418 In my opinion, it is most unlikely the term alleged was agreed to. ICA had no experience in building or operating a recycling plant. The plant was designed by SKM and SKM were to supply the sorting equipment. ICA specified the width of the input conveyor, however SKM determined manning levels and the method of operating the plant.

419 The written quotation that was accepted provides that the quotation covers the supply and installation of the main infeed line through to delivery of product into bins and discharge of plastic onto the bounce conveyor. The quote allows for the installation and commissioning of all ICA components and free issue equipment (that is, the SKM supplied equipment.)

420 Nevertheless, the extent of the input by SKM into the design and operation means it was unlikely that there was any promise that the plant would be capable of achieving a guaranteed level of throughput.

421 I am not satisfied that the term alleged was agreed to.

Paragraph 4(d) - SKM claim - processing co-mingled waste - issue 5

Was it a term of the stage 1 agreement that upon completion of the stage 1 works the recycling plant would be capable of processing the type of co-mingled waste received at the recycling plant prior to entry into the stage 1 agreement?[280]

**423 SKM alleges this term was oral and was constituted by conversations between Mr Erskine and Roberto and Anthony Italiano in or around July/August 2003.

424 ICA denies the term and says that the plant was capable of carrying out only the tasks that are described in the quotation and nothing more, and that in any event the sorting plant and equipment was designed and supplied by SKM.[281] As such, ICA contends that its only undertaking was to supply equipment and perform works in accordance with the quotation 1628 Revision 4.[282]

425 ICA says, further, that the term alleged is a 'vague term.' The quotation did not specify any performance requirements of this kind or any criteria by which performance requirements might be measured.[283] ICA says that it is to be expected that if a performance standard or performance criteria was specified in a contract, there would likewise be some assumptions or a set of specified operating parameters by which the performance standards could be measured. ICA says that the contract would need to set out volumes of material; the bulk density and the composition of material; the controls on feeding the product into the process stream; conveyer speeds; and manning levels. ICA says it is to be expected that these operating parameters and specific requirements would be included, if there was some performance undertaking concerning the process or the processing standard of the equipment to be supplied.[284]

426 ICA say that the only information that was provided to them in relation to the material was contained in an email from Anthony of 1 July 2003[285] and another from Robert of 29 July 2003.[286] ICA says that those emails do not contain the sort of information needed to enter into an undertaking in relation to the type of processing that the plant would be capable of after the conveyor equipment was supplied.[287]

427 ICA says that the information supplied was to assist ICA to work out the conveyor speeds and the ability of the conveyor to process product at the stipulated input of 10 tonnes per hour. The break up provided in the emails does not include paper and cardboard and does not include glass fines and glass binder, which is a very dense form of glass product.

428 SKM rely on the evidence of Robert and Anthony Italiano. Anthony said in his written witness statement:[288]**

I have a clear recollection of Don Erskine saying that he knew what he was doing about building plants - that he had built recycling plants before, and that he had built recycling conveyors for Visy. Visy were, at the time, the biggest recycler in Australia.

I have a clear recollection of Don saying, in substance, that if we have any issues with the plant that he will 'fix it'. In the course of his dealings with me and SKM, whenever there was any discussion with him about the plant or any his proposed designs, Don repeatedly said 'don't worry I will fix it'. He said that ICA had experience in building automatic plastic sorting equipment.

**429 This evidence does not support the term alleged. As previously discussed, I am not satisfied that Mr Erskine claimed that he had built recycling plants before, when in fact he had not. I do not accept this evidence of Anthony Italiano.

430 For similar reasons given in relation to the term alleged in issue 4, I find that it is unlikely that ICA would have made any contractual guarantee of the capability of the plant. The sorting equipment was all being supplied by SKM, save for the disc screens, though they were designed by SKM. Whether the plant was capable of processing the type of co-mingled waste received at the recycling plant prior to entry into the stage 1 agreement was dependent on the design and operation of the plant which were matters that SKM were responsible for.

431 I am not satisfied that the term alleged was agreed to.

Paragraph 4(e) - SKM claim - risk assessment- issue 6

SKM alleges and ICA admits that it would complete a risk assessment and hazard analysis of the stage one works.

Paragraph 4(f) - SKM claim - completion by 15 September 2003 - issue 7

Was it a term of the stage 1 agreement that ICA would complete stage 1 and ensure that the stage 1 works were fully operational on or before 15 September 2003?[289]

434 SKM did not address this issue specifically in its written submissions.[290] ICA denies the alleged term[291] and refers to the quotation where it said: [292]

We will require access to the site commencing 4th week of August to install the main platform followed by the various items of equipment.

Provided there are no major changes and supplied components are available ready for installation when required, we are confident of having product run through the system by 15 September 2003.

To achieve this and [sic] order and deposit is required ASAP.

**435 Access to the site was not granted until 2 September 2003. When ICA gained access to the site it was not clear of existing equipment and it was not in a fit state for installation.

436 I find that the term was agreed to but was subject to a condition that ICA gain access to the site and the other qualifications referred to in the quotation.

437 Answer: Yes, but subject to the conditions specified in the quotation.**

Paragraph 4(g) - SKM claim - warranty - issue 8

Was a term of the stage 1 agreement that ICA would provide a twelve month warranty from completion of manufacture on design and workmanship in relation to the stage 1 works?

**438 SKM alleges this term was oral and was constituted by conversations between Mr Erskine and Anthony and Roberto Italiano in or around July/August 2003.[293]

439 ICA denies the term. ICA says that the alleged warranty was contained in a provision in the initial quotation that was dropped, at the request of SKM, in the course of the discussions between the parties following the initial quotation in July 2003, largely due to cost,[294] and was not part of the quote accepted by SKM. The warranty appeared in the quotation of 10 July 2003.[295] The quotation provided as follows:[296]**

Warranty:

Twelve months on design and workmanship from completion of manufacture. Individual manufacturer's warranties apply to purchased equipment items that are incorporated.

**440 ICA says that the first part of the warranty: - 'twelve months on design and workmanship from completion of manufacture' - applies to ICA's equipment. The warranty had no price assigned to it, unlike the items of equipment, project management, transport to the site, installation, and commissioning. The total package for stage 1 was $1,171,853.46.

441 ICA says that it is highly relevant how this term came to be excluded from the accepted quotation. ICA refers to the quotation of 21 July 2003[297] where the warranty provision still appears. That quotation for stage 1 works was for $934,000. Similarly to the quotation of 10 July 2003, the quote had prices assigned to items of equipment, engineering, drafting, project administration, transport, installation, and commissioning.[298]

442 The next quotation is of 22 July 2003, described as 'Proposal 4.'.[299] This quotation incorporates further changes to reduce the price. The base price for the stage 1 work is now $530,000 excluding GST. The quote concludes 'Robert this is the bare minimum you may need to add to it.' The quotation does not have the warranty in it. The quotation, however, also does not contain all the terms of a full quotation as the one of 21 July 2003 did. Rather, the quote is expressed as a variation to the earlier quote. The relevant parts of the quote are as follows:**

Robert,

I have revisited the system and made the following changes in order to try and reduce the price to something that is acceptable.

Some of these issues may effect your operation and need to have careful consideration. The main areas would be:

(1) The infeed conveyor being 6 metres long, is this sufficient??

(2) The bin system. No allowance has been made for moving of handling the bins ... Another alternative may be a winch system to allow you to pull the bins through.

...

(3) The number of sorters should handle both streams of produce. You need to confirm this.

(4) Note that if required a second line as per Proposal 3 could be added at a later date.

Consideration should also be given to access for personnel, a full length platform will reduce the personnel required to be at floor level (option).

Revised pricing based on the following:

[ICA then lists 8 items of equipment that have dropped or altered}

Base price $530,000 excluding GST.

Options

Including installation and electrical

Option 1) 4 Glass conveyors 6m long $63,700 ex GST

2. Shuttle drive to glass conveyor (4 only) $60,000

...

Robert, this is the bare minimum system you may need to add to it.\

**443 The normal construction of this document is that it amends the quotation of 21 July 2003 and on that basis the warranty might remain. Mr Erskine valued the warranty at around 5 to 7 per cent of the project value. SKM submits that the project value of stage 1 as at 22 July 2003 was $934,762,89; 7 per cent of that figure is $65,433.34.

444 Whatever the precise calculation, it is a significant sum of money. However, no cost was assigned to it in the quote of 21 July 2003. SKM says that if the warranty was excluded from the quotation it is unlikely that such a significant item would not have been mentioned in the email of 22 July 2003.

445 Robert Italiano gave this evidence concerning a warranty:**

I discussed with Don the type of warranty which ICA would provide on its work. While I cannot now be sure whether the warranty was discussed during a face to face meeting or on the telephone, I am certain that I spoke with Don about the warranty which ICA was prepared to give. The conversation about the warranty was prior to SKM receiving ICA's first quote on or about 10 July 2003. Don said to me that ICA would provide a 12 months warranty on its design and workmanship and would rectify any parts or materials which did not operate as they were required to operate.

In the course of our discussions, between the date of our first meeting and when the final quote of 8 August 2003 was accepted, Don repeatedly said to me that if any parts or materials or the design did not function properly, for any reason, ICA would repair or replace or rectify the parts so that they did work properly and that he personally guaranteed to ensure it was done properly.

I was very impressed by Don's statements that if any parts or materials or the design did not function properly, for any reason, ICA would repair, replace, or rectify the parts so that they did work properly and that he personally guaranteed to ensure it was done properly. He expressed great confidence in his company's expertise to achieve what SKM wanted from the new recycling plant. I relied on these statements and they were a significant factor in my assessment of ICA's ability to design and build the recycling plant.[300]

During the meeting in Thornbury, being the meeting at which Don gave me the first quote he said that he wanted to use what he called a 'scalping machine' or a 'rake' screen instead of a disc screen. I said to Don that I had some concerns about the design he had proposed. I said that I did not think it would work and that I had not heard of anyone else using such a process. Don said to me, in substance, not to worry, and to leave it to him. He said, in substance, 'tell me what you want and I'll design it' and if it doesn't work I'll replace it. The scalping machine was subsequently included as item G5A in ICA's subsequent quote of 21 July 2003.[301]

**446 Mr Erskine, for his part, said that the removal of the warranty was first raised in July 2003 after the provision of the 10 July 2003 quotation.[302] He later said that he thought Robert Italiano raised it on 10 July 2003 or the first meeting after 10 July 2003, but that on the subsequent quote he left the warranty in because he thought it was important.[303]

447 Subsequently, Mr Erskine said that the exclusion of the warranty was not expressly referred to until he had a conversation with Robert Italiano after he had sent the quotation of 21 July 2003. He said that previously Robert had asked him to remove any surplus items that were in the quotation such as the defects liability period and project management fees, because he wanted a rock bottom price.[304] Mr Erskine says that in this conversation Robert did not specifically refer to removing the warranty. Mr Erskine said that after he sent to SKM the quotation of 21 September 2003 (in which the warranty had been included) he received a telephone call from Robert 'ranting and raving' that Mr Erskine had not carried out his instructions. I have already referred to this conversation. Nevertheless I will quote precisely what Mr Erskine says :**

... [Robert said] that I hadn't carried out his so and so wishes and if we wanted the project we were competing against SKM's own manufacture. He was only after the conveyors. He wanted everything removed, that warranty was in still in there. He wanted everything brought back to a bare bones quotation with the supply of the components, including the platform and the electrical.

Sorry, are you saying that he said the warranty is still in there and he wants a bare bones quotation?---Yes. He brought up the subject of the warranty still being included.

What if anything did Mr Robert Italiano say in relation to that warranty?---He wanted it removed. He wanted a rock bottom price with all the surplus stuff including warranty removed.

So is it your evidence he expressly asked you to remove that warranty?---He expressly asked me to remove it.

What else if anything was said with Mr Italiano and you during that conversation?---He referred me to the fact that SKM, we were competing against SKM, their own workshop in the manufacture and supply of the components. The conversation was mainly around get the so and so price down to a - - -

Is there anything else you can recall from that conversation?

---Not at this point, no.[305]

448 Mr Granger says that he attended a meeting at Thornbury with Mr Erskine, Mr Miller, and Robert and Anthony Italiano to discuss quotation no 1628 dated 10 July 2003. He says that Robert became quite angry when he read the total price quoted for the works. Mr Granger says that:[306]

Robert Italiano wanted us strip the quote right back to a very basic system and to remove non-direct items such as warranty and project management costs because he was providing the design and instructions. There was discussion of how guarding could be charged on a cost-plus basis at the installation phase. After some discussion, it was agreed that further modifications would be made to the layout drawings to reduce costs and that ICA would then provide a further quotation.

**449 I accept Mr Erskine's and Mr Granger's evidence. I do not accept Robert Italiano's denial of this conversation. The evidence establishes that Robert sought to reduce the quote to rock bottom.

450 SKM does not place reliance on the construction of the quotation email of 22 July 2003 and in particular on the fact that email does not expressly refer to the warranty being excluded. Rather, SKM relies on an oral term. I am not satisfied that on oral term exists. I do not accept the evidence of Robert Italiano. I accept the evidence of Mr Erskine. Accordingly, if there was any oral term it was that the warranty was not included.

Paragraph 4(h) - SKM claim - provide detailed drawings - issue 9

Was it a term of the stage 1 agreement that ICA would provide SKM with detailed drawings of the stage 1 works for SKM's approval?

**452 SKM alleges that this term was oral and was constituted by conversations between Mr Erskine and Anthony and Robert Italiano in or around July/August 2003.

453 ICA denies this term. ICA says that in any event layout drawings were provided to and approved by SKM prior to construction commencing.[307] I find that there is ample evidence that the layout drawings were provided to and approved by Robert Italiano prior to the stage 1 agreement being reached.

454 SKM does not address this issue specifically in its written submissions.[308] As the matter is not pressed, it is unnecessary to determine this issue.

Paragraph 4(i) - SKM claim - rectify parts not operating - issue 10

Was it a term of the stage 1 agreement that ICA would rectify any parts of the stage 1 works which did not operate as required by SKM?[309]

**456 SKM alleges this term was oral and was constituted by conversations between Messrs Miller, Byleveld and Erskine, and Robert and Anthony Italiano.[310]

457 ICA deny this was a term. It says that no such term was ever agreed to by ICA, or even discussed by ICA and SKM, and did not form part of the quotation.[311]

458 SKM rely on the witness statements of Robert and Anthony Italiano. I have already quoted what Robert said in dealing with issue 8. SKM also rely on Anthony's written witness statement:[312]**

I have a clear recollection of Don saying, in substance, that if we have any issues with the plant that he will 'fix it'. In the course of his dealings with me and SKM, whenever there was any discussion with him about the plant or any his proposed designs, Don repeatedly said 'don't worry I will fix it'. He said that ICA had experience in building automatic plastic sorting equipment.

459 Mr Erskine denies making the statements alleged. Mr Erskine says that:[313]

I did not state that ICA would repair, replace or rectify any parts that did not perform satisfactorily in the design. The design was Robert Italiano's responsibility. When Warranty was discussed it was on the basis of design and workmanship relating to the conveyors and as previously stated this was specifically removed from the quotation on Robert Italiano's request.

460 Mr Erskine was cross-examined on this issue. He was asked did he recall saying from time to time to Anthony that if there were ever any problems with the plant ICA would fix it. Mr Erskine replied saying:[314]

I've read that in their witness statements. It's not a statement that I would make. We weren't supplying the plant, we were supplying the conveyors. There's certainly no way in the world that I would make a statement that if there's a problem with the plant we would fix it.

So in answer to my question where Anthony Italiano says that from time to time you did say that do you deny that you said that?---Yes, I do.

**461 The term alleged is very wide. It does not relate to the items of equipment manufactured and installed by ICA, but rather extends to all items of equipment including the items supplied by SKM. The alleged trigger for rectifying a part of the plant is that the part did not operate as required by SKM.

462 I consider that it is unlikely that such a contractual promise was made, particularly as SKM was responsible for the design of the plant and for the manner in which the plant operated. Mr Erskine may have made statements about the conveyors and items that he manufactured, but the alleged term goes well beyond those items of equipment.

463 SKM have not satisfied me that the alleged term was a term of the stage 1 agreement.

Paragraph 4(j) - SKM claim - conveyor belts - issue 11

Was it a term of the stage 1 agreement that the conveyor belts forming part of the stage 1 works would be constructed of Nytrol rubber?

**465 SKM alleges this term was implied by law to give business efficacy to the stage 1 agreement[315] and by operation of s 19 of the Goods Act 1958.[316]

466 SKM also allege that in or about August 2003, Mr Byleveld, Mr Miller and another person on behalf of ICA, advised Robert Italiano that ICA would construct the conveyor belts forming part of stage 1 works with Nytrol rubber as, if the belts were not constructed of Nytrol rubber, they would be eroded by the acid released from the co-mingled waste.[317]

467 ICA denies this was a term of the agreement and says further that the belting used was as described in the quotation dated 6 August 2003.[318] The accepted quotation of 6 August 2003, specified that 'belting will be three ply nylon carcase with 3mm rubber top covers and 1mm bottom covers.'[319] ICA says that description does not indicate Nytrol rubber.[320]

468 SKM rely on the evidence of Robert Italiano contained in his written witness statement as follows:[321]**

I attended another meeting at ICA's plant in Bendigo. I believe that this meeting was on about 1 August 2003. The meeting was in the morning and it lasted about an hour. I met with Jason Downing, Clinton Miller and Shane Byleveld on behalf of ICA. While I saw Don Erskine and said hello to him he was not at the this meeting.

The main topic of conversation during this meeting was the type of belts which SKM wanted to use at the new plant. I said that SKM wanted nitrile rubber belts because they were less susceptible to damage and erosion from the acids, oils and other corrosive materials which are present in recyclable materials and which have a highly destructive effect upon the rubber conveyor belts. Either Shane or Clinton showed me a couple of different types of belts which are known as Timberkings. The belts were 3 ply, and had a deck of about 5 mm of rubber. I said that I did not know whether Timberkings came in nitrile belts. Either Shane or Clinton said that they would have to check, as they did not know about nitrile belts. I said that it was my understanding that the nitrile belts were about the same price as the Timberking belts.

While the main topic of discussion at the meeting was nitrile belts, I can also recall having had a general discussion about electrical works and, I believe, bearings.

**469 Mr Byleveld was cross-examined on the issue of the belting for the conveyors. He accepted that it was important when selecting the belt to know something of the material that it was going to be on the conveyor.[322] Mr Byleveld accepted that conveyor belt characteristics should change to suit the product conveyed.[323] He said that ICA discussed with Robert Italiano belting widths and belting supplies, and also had discussions with belting suppliers.

470 Mr Byleveld agreed that ICA and himself had had no experience with conveying recycling material.[324] He was asked how ICA came to chose the particular belts to put on the conveyors being built for SKM. He replied that ICA did so in discussions with SKM and with their belting suppliers.[325]

471 It was not put to Mr Byleveld that Robert had specified something different to what was provided in the quotation or in particular that he had specified that the conveyor belts forming part of the stage 1 works should be constructed of Nytrol rubber. I do not recall Mr Miller being asked about the belting for the conveyors. It was not an issue about which he was concerned.

472 I am not satisfied that term is to be implied to give business efficacy to the stage 1 agreement.**

The Goods Act 1958

**473 Section 19 of the Goods Act 1958 provides for the implication of a term that goods are fit for a particular purpose or are of merchantable quality in certain circumstances. The section does not imply any other term.

474 I accept the evidence of Mr Byleveld that ICA chose the belt material. In that event, there is no scope for the Goods Act to imply the term sought.

Paragraph 4(k) - SKM claim - materials fit for the purpose - issue 12

Was it a term of the stage 1 agreement that the materials specified and provided by ICA in the construction of the stage 1 works would be fit for their intended purpose?[326]

**476 SKM alleges that the term is implied by law to give business efficacy to the stage 1 agreement.[327] The term is also to be implied by the conduct of the parties regarding the need to give business efficacy to the stage 1 agreement, and by operation of s 19 of the Goods Act 1958.[328]

477 Section 19 provides:**

Subject to the provisions of this Part and of any Act in that behalf there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows -

(a) where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgment and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not) there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose;

(b) where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not) there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed;

(c) an implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade;

(d) an express warranty or condition does not negative a warranty or condition implied by this Part unless inconsistent therewith.

**478 ICA denies the allegation.[329] ICA addresses this alleged term (along with issue 13 concerning merchantable quality) as follows.

479 ICA accepts that a contractor in the position of ICA that is supplying plant and equipment and doing works and providing goods or materials for supply to a recycling plant of the kind discussed here, would be obliged to exercise reasonable skill and care in the performance of the works and the selection of the materials or goods that are supplied. ICA contends that if the contractual negotiations excluded the warranty undertaking then that might well affect the question of whether or not there were other implied terms in the contract such as merchantable quality or fit for their intended purpose. ICA contends that the these terms are not implied by necessary implication. [330]

480 Turning to the Goods Act 1958, ICA says that they treat the fitness for purpose allegation to apply to the individual items of equipment.[331] ICA says that if, for example, a particular conveyor that has been quoted for and supplied is fit for the purpose of conveying the recyclable product, the question then becomes is there some greater purpose than the mechanical purpose of it conveying the material? ICA says that the counterclaim is drafted in a way such that the allegations of fitness for purpose and merchantable quality are not referrable so much to the individual items of equipment but to the overall operation of the plant itself, as also evidenced by the way in which the heads of damages are framed.[332]

481 ICA submits that terms to be implied by the Goods Act 1958 can only apply to goods supplied under contract (chattels personal, not 'systems' or 'a commercial grade recycling plant'), so that the implication of fitness for purpose and merchantable quality terms pursuant to the Act needs to be considered only by reference to the specific goods the subject of allegations of breach in this regard, as set out in paragraph 7 of SKM's further amended counter claim:**

(f) and (g) - rake conveyor belts;

(l) and (m) - G5 screens;

(n) and (o) - paper disc screens;

(t) - motors and gearboxes on conveyors;

(u) and (v) - conveyors.[333]

483 ICA further submits that in relation to the specific chattels alleged to be the subject of the Goods Act 1958 implied terms[334], such implication depends on inter alia the reliance by SKM on ICA's skill in supply of the goods and the particular respect in which it is established they failed to meet the specified purpose which SKM does not plead.**

**484 SKM contends that s 19(a) of the Goods Act 1958 will imply into the contracts, pursuant to which the stage 1 and stage 2 works were performed, a condition that the goods supplied be reasonably fit for the purpose for which they are supplied, provided the following four elements are satisfied:

(a) SKM must have communicated the 'particular purpose' for which the goods were required;

(b) SKM must have relied on ICA's skill or judgment in the supply of the goods;

(c) the goods must be within the description of goods which ICA supplied during the course of its business;

(d) the sale is not in respect of goods sold under its patent or other trade name.

485 SKM submits that each of the four elements are present here. With regard to the first element, SKM says that it identified the specific purpose for which it required ICA to supply and install the equipment for stages 1 and 2. The equipment had to be fit for the purpose of use in a recycling plant. In order for the equipment to be fit for such a specific use, it had to be designed and constructed to be able to operate effectively and robustly for a reasonable period in the recycling plant environment.

486 SKM contends that the provision contemplates the communication of knowledge by express means or by implication. SKM says that in the general course of events, communication is done by implication, especially where goods have a defined purpose for which they are normally used.[335]

487 SKM contends that reliance has been established. It says that Robert Italiano provided information about the flow of product through the plant and informed Mr Erskine and Mr Miller what he wanted to achieve from the plant to be built by ICA. Mr Miller said that he and Robert had about 30 hours of conversations about the design of the plant. Mr Miller estimated that he spent about 840 hours designing the plant and the various equipment such as the disc screens.

488 SKM says that the scope of the buyer's reliance need not be complete or total and cases have held that partial reliance can be sufficient to bring this section into operation.[336] SKM contends that it also follows that it is possible for reliance to precede the formation of the contract of sale.[337]

489 In relation to the third element, SKM says that the goods are of a kind supplied by ICA in the course of its business.[338] SKM says that it is the task of the Court to characterise the seller's business and then to determine whether the particular goods supplied constitute part of the characterisation as goods of a kind normally supplied.

490 SKM says, in relation to the fourth element, that on the facts of this case it is clear that the goods supplied by ICA to SKM were not supplied by trade name or patent.

491 SKM contends that under s 19(b) of the Goods Act 1958 where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that the goods shall be of a merchantable quality. SKM says that the definition of 'merchantable quality' requires a determination of two matters:

(a) the identification of the purpose or purposes for which goods of that kind are commonly bought; and

(b) whether the goods are fit for the purpose or purposes so identified as is reasonable to expect having regard to the listed criteria. This is an objective test.

492 SKM contends that the expression 'merchantable' also refers to the attributes of acceptability as well as usability of the goods.[339] Merchantability is a composite quality comprising the elements of description, purpose, condition and price.[340] The word 'description' in the merchantable quality context bears the same meaning as the word 'description' bears in the reasonable fitness for purpose context, namely that they are goods of a kind supplied by the seller.[341] In other words it is 'goods of that kind', and not the exact contract description by which the goods were sold. A sub-element of the first element of the implied condition of merchantability is that the seller must deal in goods of that description. In Christopher Hill v. Ashington Piggeries[342] the Law Lords held that a sale of particular goods for the first time by the seller could activate this dealing requirement.

493 SKM says in relation to this case, that the mere fact that ICA had not sold disc screens previously does not take it outside the implied condition, because it accepted an order for the supply of that those goods and said that it was able to design, manufacture and install that type of good.

494 SKM cites Dixon J in Australian Knitting Mills Limited v. Grant[343] where his Honour gave a formulation of what is meant by merchantable quality. His Honour said:[344]**

.... the condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition, would buy them without abatement of the price obtainable for such goods if in a reasonably sound order and condition without special terms.

**495 SKM asserts that on the facts of this case SKM would not have bought the goods supplied by ICA had it known all of the facts including the hidden defects which existed in the goods supplied.

496 SKM submits that under s 61 of the Goods Act 1958, it is possible to exclude or vary any right, duty, or liability that would arise under a contract of sale by implication of law or varied by:

(b) by the course of dealing between the parties; or

(c) by usage if the usage be such as to bind both parties to the contract.

497 SKM says that none of the above exclusions apply to the facts of this case. It says that the phrase 'course of dealing' means a course of past dealings between the parties. SKM contends that there was no evidence of any course of dealing between SKM and ICA, excluding the implied warranties or condition provisions of s 19 Goods Act 1958. ICA do not contend that there was an express agreement to exclude the terms implied under s 19 of the Goods Act 1958.**

**498 The term alleged by SKM is broadly drafted. The term does not specify the relevant purpose for each of item of equipment, but rather refers to the materials specified and provided by ICA in the construction of stage 1. As discussed previously, Robert Italiano designed the recycling plant and specified what items of equipment were to go where. In stage 1, Robert specified a great deal of detail in relation to the conveyors. Mr Miller said that Robert gave the details of the conveyor dimensions, and specified the width, length, and speed of conveyors.[345] I accept Mr Miller's evidence on these matters.

499 In the case of the disc screens for stage 1, Robert Italiano specified the design of the screens. Mr Miller said that he had no experience at all in disc screens and Robert described their purpose and how they worked. Mr Miller said Robert gave him sketches and showed him a screen at Thornbury.[346] Robert directed how big the shaft holes for the disc should be and how the discs should be arranged,[347] including the dimensions,[348] the shape of the shafts[349] and the spacing of the shafts.[350] Robert also instructed him on the size of the disc.

500 Mr Miller said that the stage 2 disc screens were different in nature to the stage 1 disc screen as they allowed paper to go up the device rather than drop through the device. He said that all the information that he got in relation to the paper disc screens came from Robert.[351] Mr Miller was shown a drawing of screen angles to be used for the paper screens.[352] He said the angle measurements came from Robert. I accept the evidence of Mr Miller on the issue of disc screens.

501 I accept ICA's submission that the Goods Act 1958 implied terms do not apply to systems, but only to goods supplied under contract.

502 As I have said, the term relating to goods being fit for the purpose is alleged as a general term applying to 'the materials specified and provided' by ICA for stage 1. Also as discussed above, in this plea SKM does not specify the precise purpose for which it alleges the particular materials were supplied by ICA. SKM merely says they would be fit for the 'intended purpose.' As discussed above, SKM say the purpose is use in a recycling plant. This purpose is identified in the plea on the alleged breach of the term. SKM claims a breach of this term in relation to specific items. SKM alleges that:[353]

(a) ICA designed and installed rake conveyor belts that were not fit for the purpose of commercial grade recycling.

(b) ICA installed G5 screens that were not fit for the purpose of a commercial grade recycling plant.

(c) ICA designed and installed paper disc screens that were not fit for the purpose of a commercial grade recycling plant.

(d) ICA failed to design a system that was fit for the purpose of a commercial grade recycling plant.

(e) ICA designed and installed motors and gearboxes on the conveyors that were not fit for the purpose of a commercial grade recycling plant.

(f) ICA designed and installed conveyors that were not fit for the purpose of a commercial grade recycling plant.

(g) ICA designed and installed a glass clean up system that was not fit for the purpose of a commercial grade recycling plant.

503 I will deal with each of these below. Generally, however, in my opinion, the pleaded term, construed with the alleged breaches, does not allege a 'particular purpose' that SKM made known to ICA so as to show that SKM relied on ICA's skill or judgment so as to give rise to an implied term as alleged.**

**504 SKM alleges that ICA designed and installed rake conveyor belts that were not fit for the purpose of commercial grade recycling. In my opinion, the relevant purpose for the rake conveyor belts might relate to the process of conveying recyclable product. The relevant 'particular purpose' for which the goods were required so as to show that SKM relied on ICA's skill or judgment was not the general one of the purpose of commercial grade recycling.

505 As discussed previously, SKM designed the plant and in my opinion it is not appropriate to relate the purpose of the rake conveyor belts that ICA supplied to the operation of a commercial grade recycling plant designed by SKM.

506 Even an alleged purpose relating to the process of conveying recyclable product may need to take into account the fact that SKM specified many aspects of the design of the conveyors.**

507 SKM alleges that ICA installed G5 screens and paper disc screens that were not fit for the purpose of a commercial grade recycling plant. Insofar as the disc screens are concerned, I am not satisfied that SKM expressly or by implication made known to ICA the particular purpose for which the screens were required so as so show that SKM relied on ICA's skill or judgment or that the goods were of a description which it was in the course of ICA's business to supply. As mentioned previously, I am satisfied that SKM designed the disc screens. Disc screens were not goods of a description which it was in the course of ICA's business to supply.

508 The implied term does not apply to the design of a system.

509 ICA did supply and install motors and gearboxes on conveyors. For each of these items SKM may have made known the purpose the item was to perform. I am not satisfied, however, that SKM made known the purpose of 'a commercial grade recycling plant' in relation to each or any of these items so that SKM relied on ICA's skill or judgment. Whether the items ordered by SKM were suitable for a commercial grade recycling plant was a matter on which SKM did not rely on ICA.

510 ICA did supply and install conveyors for the recycling plant. For each of the conveyors SKM may have made known the purpose it was to perform. I am not satisfied, however, that SKM made known the purpose of 'a commercial grade recycling plant' in relation to each or any of the conveyors so that SKM relied on ICA's skill or judgment. In addition, whether the conveyors ordered by SKM were suitable for a commercial grade recycling plant was a matter on which SKM did not rely on ICA. SKM designed the plant and specified the type of conveyors it required to fit into its design of the plant. Whether or not the conveyors it ordered were suitable for a commercial recycling plant was a matter for SKM.

511 I am not satisfied that ICA designed the glass clean up system. I find that SKM designed the system. In any event, I accept that the implied term does not apply to a system that otherwise does not constitute 'goods.'

**512 Accordingly, I do not consider that the pleading of the breaches in respect of the alleged implied term of being fit for the purpose properly completes the plea in issue 12 pleaded in paragraph 4(k) of the SKM claim.

513 Accordingly, I am not satisfied that the term alleged in paragraph 4(k) was a term of the stage 1 agreement. As I have sought to make clear, that is not to say that it may not have been a term of the supply of particular items of equipment under the stage 1 and stage 2 agreements that a particular item be fit for a particular purpose. However, for the reasons given, the term as pleaded was not a term of the stage 1 and stage 2 agreements.

Paragraph 4(l) - SKM claim - merchantable quality -issue 13

Was a term of the stage 1 agreement that the goods provided for the stage 1 works would be of merchantable quality?[354]

**515 SKM alleges this term was implied by law to give business efficacy to the stage 1 agreement.[355] SKM also allege that the term is implied by the conduct of the parties and the need to give business efficacy to the stage 1 agreement, and by operation of s 19 of the Goods Act 1958.[356]

516 The allegation that goods were not of merchantable quality is limited to the following items:

517 ICA denies the alleged term was a term of the agreement.[358] Similar observations to those made in relation to 'fit for the purpose' apply to this alleged term. The disc screens were designed by SKM. They were not purchased by description from a seller who deals in goods of that description. In my view, the implied term of merchantable quality applies to individual goods, not a system or a recycling plant made up of various goods all serving different functions but which when put together in some sought of system achieve a desired result or output. These observations particularly apply to the glass clean up system.**

**518 The conveyors may have been goods bought by description from a seller (ICA) that dealt in conveyors. I have not heard submissions on this term in relation to the purchase of the individual conveyors. As discussed above, many aspects of the conveyors were specified by SKM. I have not heard submissions on whether in those circumstances, a term of merchantable quality would be applicable. In those circumstances, it is inappropriate that I deal with the term without hearing such submissions.

519 As it is, SKM's case has been conducted on the basis that ICA designed the plant and the equipment it supplied to make the plant. SKM has not pleaded an alternate case, that the implied term of merchantable quality would apply even if SKM did specify certain aspects of the conveyors.**

G5 screens and paper disc screens and Glass clean up system

520 I refer to and repeat my observations above.

**521 For these reasons, I am not satisfied that the pleaded term was a term of the stage 1 agreement.

Paragraph 4(m) - SKM claim - enclose moving parts of conveyor system - issue 14

Was it was a term of the stage 1 agreement that ICA would properly enclose the moving parts of the conveyor system constructed during the stage 1 works?[359]

Paragraph 4(o) - SKM claim - sum for stage 1 works - issue 15

Was a term of the stage 1 agreement that SKM would pay ICA the sum of $742,620 plus GST for the stage 1 works?[360]

Paragraph 4(p) - SKM claim - professional indemnity insurance - issue 16

Was it a term of the stage 1 agreement that ICA would maintain current and effective professional indemnity insurance in relation to the stage 1 works?

**527 SKM alleges that this term was oral and was constituted by conversations between Mr Erskine and Anthony and Roberto Italiano in or around July/August 2003.

528 ICA denies this was a term of the agreement. ICA says that it did not have at the time alleged, and does not now have, the insurance cover referred to, and did not make the representations to the effect alleged.[361]

529 SKM does not address this issue specifically in its written submissions.[362]

530 I accept the evidence of Mr Erskine. I find that the term alleged was not a term of the stage 1 agreement.

**532 Both parties agree that the letter dated 13 October 2003[363] constituted the written terms of the contract relating to stage 2.

533 ICA contends that there can be no doubt about what the subject matter of the agreement was in terms of the supply of equipment. The letter provides in the opening paragraph a reference to the project having:[364]**

Evolved over a number of weeks and through the joint involvement of both organisations a large amount of floor space has been saved together with the reduction in the number and length of conveyors and a more user friendly layout which will add to the efficiencies of the plant. Throughout the process consideration has been given to future expansion and future inclusion of alternative equipment and sorting technologies. Following is our quotation based on the revised layout No.24662.

**534 ICA contend that as with the stage 1 agreement, the stage 2 agreement evolved over the course of discussions and the proposal of a number of different layouts and configurations. ICA says that similar to the stage 1 works, the stage 2 works were a pared down or reduced version of what was originally contemplated or proposed.[365]

535 ICA says that the quotation evolved through several quotes: 1 September 2003,[366] 17 September 2003,[367] and 13 October 2003.[368] The lump sum agreement was $1.435 million as $240,000 was deducted for silos.[369] After 13 October 2003, the layout plan changed to 24622 of 11 November 2003.[370] Final agreement was reached on 12 November 2003.

536 ICA say that invoices for $1.435 million were paid as were invoices for variations 1 and 2. But the subsequent invoices for optimisation and modification carried out in relation to stage 2 are in dispute.[371] I now turn to the specific issues raised by SKM concerning stage 2.**

Paragraph (5) - SKM claim - Stage 2 agreement - issue 17

Did ICA and SKM, in or about October 2003, enter into an agreement (stage 2 agreement) pursuant to which ICA was engaged by SKM to conduct further design and construct works in other areas of the recycling plant including the design, manufacture and supply of a fully co-mingled sorting line comprising all components required for a single infeed line and dual sorting line, through to delivery of recycled product to storage bins and for glass, plastic, aluminium and steel to be delivered to an area of the recycling plant constructed as a result of the stage 1 works for further processing (stage 2 works)?[372]

**537 SKM and ICA agree that the stage 2 agreement was constituted in part by the quotation number 1714 Revision 2 dated 13 October 2003.[373]

538 SKM says that there were also oral terms agreed to between Mr Erskine, Mr Miller and Mr Byleveld on behalf of ICA, and Robert and Anthony Italiano in or around September/October 2003. SKM further alleges that the agreement was implied by the conduct of the parties, the need to give business efficacy to the stage 2 agreement and by operation of s 19 of the Goods Act 1958.

539 ICA denies these allegations, save that it says it entered into a further agreement with SKM in or around late October or early November 2003, being the 'MPS Agreement'[374] and being for the construction of what was identified as stage 2 and not including any construction of stage 4. ICA further says:

(a) it agreed that it would construct stages 2 in accordance with drawings Number 24622 and 24633 (issue 3) dated 7 November 2003 ????, which drawings were designed and approved by SKM, and that by agreement between the parties the design was subsequently varied culminating in drawing number 24622 Revision ? dated 11 November 2003 which was used for construction and which was SKM's design. Once this was agreed, SKM paid the deposit and gave the go ahead to proceed on 26 November 2003;

(b) the agreement to construct stages 2 was not entered into until after 13 October 2003, which was the date of the stage 2 quotation, and the agreement did not commence, in the terms of the stage 2 quotation, until the deposit was paid on 26 November 2003;

(c) it denies that it conducted further design work saying that the design of the stage 2 works was done by SKM.

540 I do not accept the agreement as alleged by SKM. In particular, I accept the evidence of Mr Erskine and Mr Miller that the design of stage 2 was the that of SKM. The same observations that I made in relation to the similar term alleged in relation to stage 1 apply.

541 I also accept the evidence of Mr Erskine of the amendments that were affected to the drawing on 11 November 2003. I reject SKM's allegation that the hand written notes on the drawing were made well after the contract was entered into.

542 Accordingly, I find that the alleged term was not a term of the stage 2 agreement.

Paragraph 6(a) - SKM claim - stage 2 agreement in accordance with drawings - issue 18

Was it a term of the stage 2 agreement that ICA would perform the stage 2 works in accordance with the drawings attached to the stage 2 quotation (that is, the quotation of 13 October 2003) provided in or around September 2003? [375]

**544 SKM alleges this was a written term contained in the quotation.

545 ICA says that, save that it denies that the drawings were provided in or about September 2003, it admits the allegations therein and says further that the final layout drawing was not completed until 11 November 2003.

546 I find that that the drawings were provided in or about September 2003 and that the final layout drawings were not completed until 11 November 2003 as described by Mr Erskine. Accordingly ICA was to perform the stage 2 agreement with the drawings completed on or about 11 November 2003 rather than the drawings provided in September.

Paragraph 6(b) - SKM claim - price of stage 2 works - issue 19

Was it a term of the stage 2 agreement that SKM would pay ICA the sum of approximately $1,450,000 for the stage 2 works?[376]

**548 ICA denies the allegation and says that the agreed consideration was $1,435,000 plus GST with the combining of the paper line.

549 SKM agrees that it is common ground that the agreed consideration was $1,435,000 plus GST.[377]

550 Answer: no, the consideration was $1,435,000 plus GST.**

Paragraph 6(c) - SKM claim - electrical control and wiring - issue 20

Was it a term of the stage 2 agreement that ICA would be responsible for all electrical control and wiring required to operate the stage 2 works?[378]

**551 SKM says that the term is in writing and is contained in the stage 2 quotation.[379] SKM says that the quotation dated 13 October 2003[380] updated earlier quotations, namely quotation No. 1714 dated 1 September 2003[381] which expressly provided that ICA had allowed for all electrical control and wiring required to operate the system.[382] SKM says that the reference to electrical control and wiring is a reference to this work to be undertaken as part of the stage 2 works.[383]

552 ICA admits that it was responsible for the ICA equipment control and associated wiring and otherwise denies the allegation of SKM.[384]

553 ICA says that on or about 6 August 2003, Mr Erskine emailed Robert Italiano with written quotation No. 1628 Revision 4 that detailed the items of the plant that were to be supplied by ICA, and which specifically provided that ICA would not be responsible for the supply of electricity and the wiring of equipment provided by third parties.[385]

554 ICA says that on 13 October 2003 Mr Erskine emailed Robert Italiano with a revised written quotation that detailed the works to be undertaken by ICA in relation to the co-mingled product sorting line, and which specifically identified that ICA would not be responsible for the installation and electrical wiring of paper bailers and bailer feed conveyors and chutes supplied by others.[386]

555 ICA says that it was responsible for the ICA equipment control and associated wiring so that if the allegation is to be read or understood as referring to ICA equipment then there is no controversy. It says that if there is some suggestion that the responsibility was in relation to electrical control and wiring for sorting equipment and other items of equipment or plant for which SKM was responsible and in which SKM contracted with third party suppliers, then ICA is not responsible for that.[387]

556 I find that the term alleged was not a term of the stage 2 agreement. I accept ICA's contention that it was not responsible for electrical wiring relating to SKM supplied equipment.

Paragraph 6(d) - SKM claim - risk assessment of the stage 2 works - issue 21

Was it was a term of the stage 2 agreement that ICA would complete a risk assessment and hazard analysis of the stage 2 works.[388]

Paragraph 6(e) - SKM claim - OH&S Regulations - issue 22

Was it a term of the stage 2 agreement that ICA would perform the stage 2 works in compliance with the Occupational Health and Safety (Plant) Regulations (Vic) 1995?[389]

**560 ICA pleads that the allegation is unclear and embarrassing for want of full and proper particulars and requires SKM to provide particulars. It denies the allegation.

561 SKM says that this term was in writing and in contained in the stage 2 quotation[390] a copy of which was in SKM's possession but no longer is.

562 SKM does not address this issue specifically in its written submissions.[391]

563 As the question is not pressed, it is unnecessary for me to resolve this issue.

Paragraph 6(f) - SKM claim - fully operational within approximately 8 weeks - issue 23

Was it a term of the stage 2 agreement that ICA would perform the stage 2 works and ensure it was fully operation within approximately 8 weeks from the date of the stage 2 agreement?[392]

**565 SKM says that this term is contained in the stage 2 quotation a copy of which was in SKM's possession but no longer is.[393]

566 ICA denies the allegation and says that in accordance with the quotation dated 13 October 2003 a total of 11 weeks was estimated for the commissioning of the plant from the date that the deposit was paid. ICA says that the deposit was not paid until 28 November 2003 and that SKM was informed on or about that time that the delay in paying the deposit would further delay production because of the annual shut down at Christmas of the plant of SKM.[394]

567 SKM does not address this issue specifically in its written submissions.[395]

568 As the question is not pressed, it is unnecessary for me to resolve this issue.

Paragraph 6(g) - SKM claim - capable of processing 25 tonnes of co-mingled waste - issue 24

Was it a term of the stage 2 agreement that ICA would design and construct the stage 2 works such that it would be capable of processing an input tonnage of 25 tonnes of co-mingled waste per line per hour.[396]

**570 SKM says that the term was constituted by conversations between Mr Erskine, Mr Miller and Mr Byleveld and Anthony and Robert Italiano. SKM says that the term is to be implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[397]

571 ICA denies the allegation. ICA says that it did not design the stage 2 works. As discussed above in issue 17, ICA agrees that it agreed to construct the stage 2 works in accordance with the quotation and drawings referred to.[398]

572 Mr Erskine says that in the meeting of 12 November 2003, previously referred to, when the layout design was finally settled, he told the meeting that the infeed conveyor would be designed for an infeed load of 30 tonnes per hour in order to allow some redundancy or margin for error. Mr Erskine made a note to that effect on the layout drawing.[399]

573 ICA says that the 30 tonnes relates to the capability of that conveyor to handle an infeed load of 30 tonnes[400] but that does not mean that the plant as a whole through stage 2 is capable of processing 25 tonnes per hour. ICA says that it accepted no responsibility for the processed output of the plant whereas SKM are alleging that ICA did.

574 I accept the evidence of Mr Erskine that the discussion between ICA and SKM related to the input capability of the paper line and did not refer to the capacity of the plant as a whole to process co-mingled paper. I do not accept the evidence of Robert Italiano to the effect that ICA agreed to achieve a certain processed output from the plant. As I have previously discussed, it is inherently unlikely that ICA would warrant the capacity of the plant as a whole when it was not supplying the sorting equipment and did not design or operate the plant.

575 As discussed above, Robert Italiano sought to establish this term by reference to the video that he purportedly showed Mr Erskine. He said that the video identified the plant shown on the video as one that achieved a 25 tonne output. Mr Erskine denied being shown such a video. Mr Byleveld remembered a video although he did not recall any reference to an out put of 25 tonne. I do not accept, however, that the showing of any video that may have identified the output of the plant led to the making of the term alleged.

Paragraph 6(h) - SKM claim - capable of processing co-mingled waste - issue 25

Was it a term of the stage 2 agreement that the stage 2 works would ensure the recycling plant was capable of processing the type of co-mingled waste received at the recycling plant.[401]

**577 SKM says that the term was constituted by conversations between Mr Erskine, Mr Miller and Mr Byleveld and Anthony and Robert Italiano. SKM says that term is to be implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[402]

579 I have dealt with a similar term alleged in relation to stage 1.[404] For the reasons there given, I do not find this term was a term of the stage 2 agreement. ICA was not responsible for the design of stage 2. I am not satisfied that Mr Erskine, Mr Miller or Mr Byleveld made the agreement alleged.

580 In my opinion, the term is not necessary to give business efficacy to the stage 2 agreement. ICA was not responsible for the design of stage 2 or the sorting equipment. As previously discussed, the paper disc screens were designed by Robert Italiano

Paragraph 6(i) - SKM claim - design to Australian standards - issue 26

Was it a term of the stage 2 agreement that ICA would design, construct, supply and install all conveyers forming part of the stage 2 works in compliance with relevant legislation and Australian standards?[405]

Paragraph 6(j) - SKM claim - documentation for stage 2 - issue 27

Was it a term of the stage 2 agreement that upon completion of the stage 2 works, ICA would provide documentation including maintenance manuals and written standard operating procedures concerning the co-mingled sorting line, single in-feed line, and other components comprising the stage 2 works.[406]

**584 SKM says that the term was constituted by conversations between Mr Erskine, Mr Miller and Mr Byleveld and Anthony and Robert Italiano. SKM says that the term is to be implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[407]

585 ICA denies that allegation. ICA says that during negotiations the offer of provision of such documentation by ICA was rejected by SKM to reduce the project cost. [408]

586 ICA says that on or about 10 July 2003 Mr Erskine emailed Robert Italiano with written quotation No 1628 Revision 1. As a standard item, quotation No 1628 Revision 1 provides that documentation including maintenance manuals were to be supplied by ICA to SKM.[409] ICA says that subsequent to receiving this written quotation, in conversations between Robert Italiano and Anthony Italiano and Mr Erskine which occurred on or about July 2003 to August 2003, it was requested by SKM that the provision of documentation including maintenance manuals be excluded from the relevant quotation to reduce the final cost to SKM to build the proposed recycling plant. [410] ICA says that in accordance with this request, Mr Erskine subsequently provided Robert Italiano with a revised written quotation No 1628 Revision 4 which excluded the provision of documentation including maintenance manuals to be provided to SKM by ICA. [411]

587 Robert Italiano says in his witness statement that he had a conversation with Mr Erskine, between the award of the stage 1 contract and 1 September 2003, the substance of which was that upon completing the stage 2 works, ICA would provide SKM with formal documentation, including maintenance manuals and written standard operating procedures, in relation to the co-mingled sorting line, single infeed line, and other components comprising the stage 2 works.

588 He says that a statement, to similar effect, was contained in the quote of 1 September 2003.[412] Robert Italiano says that at no time did anyone from ICA ever say to him, whether after the quote of 1 September 2003 or at any other time, that maintenance manuals and written standard operating procedures would not be provided by ICA.[413]

589 Mr Erskine's says in his witness statement in reply that he had no discussion with Robert Italiano regarding documentation.

590 Mr Erskine says that a full set of documentation - including full sets of drawings for both mechanical and electrical components, maintenance manuals and computer discs with the program for software associated with the control system - was hand delivered by himself to Anthony Italiano in early June 2004. He says that he gave it to Anthony while he was working on the bottle line on the sorting platform.

591 Mr Erskine says that in June 2004 there were further requests from Anthony for the computer program to allow his contract electricians to make adjustments.

592 Mr Erskine's witness statement does not support ICA's defence that there was a conversation about the documentation being excluded. The subsequent conduct of ICA in providing the manuals does not support the allegation of ICA in any event.

Paragraph 6(k) - SKM claim - warranty for stage 2 - issue 28

Was it a term of the stage 2 agreement that ICA would provide a 12 month warranty from completion of manufacture and design of workmanship in relation to the stage 2 works?[414]

**595 SKM says that the term was agreed in conversations between Mr Erskine, Mr Miller and Mr Byleveld and Anthony and Robert Italiano.[415] SKM also says it was constituted by statements made by Mr Erskine, during the four face-to-face meetings held between ICA and SKM, that ICA would provide a 12 month warranty from completion of manufacture on the design and workmanship in relation to the stage 2 works.[416]

596 SKM says that the term was implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[417]

597 ICA denies the alleged term. ICA refers to the discussions about the warranty and the stage 1 agreement set out above.

598 SKM relies on the alleged conversations about the warranty and the stage 1 agreement. SKM also relies on matters arising after the making of the stage 1 agreement.

599 Between 8 August 2003 and 1 September 2003, Robert Italiano says that Mr Erskine said to him, on several occasions, in relation to the stage 2 works that ICA would ensure that the system operated properly, to his satisfaction, or words to the same effect. He says that at no time did Mr Erskine, or any other person on behalf of ICA, ever say to him that the stage 2 works would not be covered by a 12 month warranty. He says that, nor did Mr Erskine, or any other person on behalf of ICA, ever say to him that if anything designed or constructed by ICA as part of the stage 2 works did not work properly, ICA would not fix it. [418]

600 In response, Mr Erskine says that contrary to Robert Italiano's statements he did not personally guarantee that if the system did not work properly then ICA would fix it. I accept Mr Erskine's evidence. It is unlikely that ICA would have provided the warranty in the terms alleged. SKM designed the system, not ICA. Whether or not there were terms of warranty in relation to the conveyors provided by ICA has not been raised by SKM in this particular issue.

Paragraph 6(l) - SKM claim - design suitable for commercial grade recycling - issue 29

Was a term of the stage 2 agreement that ICA would design, construct, supply and install the stage 2 level works as a system suitable for the purpose of commercial grade recycling?[419]

**602 SKM says that the term was agreed in conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano. SKM says that the term was implied to give business efficacy to the stage 2 agreement. [420]

603 ICA denies that it designed the stage 2 works. It does admit that it agreed to construct, supply and install conveyers for use in the stage 2 works in accordance with the agreement reached between the parties as admitted previously by ICA.[421]

604 ICA says that the G5 screens or disc screens were manufactured by ICA to the design of SKM.[422]

605 SKM rely on the evidence of Robert Italiano and Anthony Italiano contained in their witness statements[423]

606 Robert Italiano relies on the purported conversation he had with Mr Erskine at the first meeting in Thornbury. I have rejected Robert's version of the alleged conversation. As discussed above, I do not accept that Mr Erskine said the matters alleged at the first meeting at Thornbury.

607 I find that the alleged term was not a term of the stage 2 agreement.

Paragraph 6(m) - SKM claim - incorporate moveable splitter - issue 30

Was it a term of the stage 2 agreement that ICA would incorporate a moveable splitter rather than a static splitter into the sorting components of the Stage 2 works?[424]

**609 ICA admits the allegations and say further that the splitter it supplied was a moveable splitter in accordance with the relevant drawings and was installed as such by directions of SKM.[425]

610 SKM make no submissions in their final address about this issue.

611 As the question is not pressed, it is unnecessary for me to make any finding on this issue.

Paragraph 6(n) - SKM claim - rectify any parts not operating in stage 2 - issue 31

Was it a term of the stage 2 agreement that ICA would rectify any parts of the design, installation and/or construction of the stage 2 works which did not operate to the standards required by SKM?[426]

(a) conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano. [427]

(b) assurances given by Mr Erskine to Robert Italiano, during each of the face-to-face meetings and during several telephone conversations with Roberto Italiano.[428]

**614 SKM alleges it is to be implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[429] SKM says that the 'standards required' are set out in paragraphs 6(e), (g), (h),(i), (l), (o), (p), (r) and (s) of the SKM's claim.[430]

615 ICA says that such term was not agreed by ICA or even discussed between the parties.[431]

616 SKM relies on the evidence of Robert and Anthony Italiano in their witness statements.[432] Robert Italiano relies on the evidence he gave in relation to the alleged warranty relating to the stage 1 agreement. I have already dealt with that evidence when dealing with issue 10. Robert Italiano also relies on alleged further conversations in relation to stage 2.

Between 8 August 2003 and 1 September 2003 Don said to me, on several occasions, in relation to the stage 2 to 4 works, that ICA would ensure that the system operated properly, to my satisfaction, or words to the same effect. At no time did Don Erskine, or any other person on behalf of ICA, ever say to me that the stage 2 to 4 works would not be covered by a 12 month warranty. Nor did Don Erskine, or any other person on behalf of ICA, ever say to me that if anything designed or constructed by ICA as part of the stage 2 to 4 works did not work properly, ICA would not fix it.

... clear recollection of Don saying, in substance, that if we have any issues with the plant that he will 'fix it'. In the course of his dealings with me and SKM, whenever there was any discussion with him about the plant or any his proposed designs, Don repeatedly said 'Don't worry I will fix it'.

**619 In response Mr Erskine says that he did not personally guarantee that ICA would fix the system if it did not work properly.

620 I do not accept the evidence of Robert or Anthony Italiano on this issue. In addition to my observations on the reliability of Robert Italiano's evidence, it is unlikely that ICA would have provided such a guarantee when it was not responsible for the design of stage 2 and its design responsibilities were limited to the design of the conveyors, as Mr Erskine says.

621 I am not satisfied that the alleged term was a term of the stage 2 agreement.

Paragraph 6(o) - SKM claim - producing grade 6 paper - issue 32

Was it a term of the stage 2 agreement that once completed, the recycling plant comprising the stage 1 works and stage 2 to 4 works would be capable of producing recycled paper product of grade 6?[434]

**623 SKM relies on conversations allegedly between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano.[435] SKM also relies on statements allegedly made by Mr Erskine to Robert Italiano, during the four face-to-face meetings, that the recycling plant would be capable of producing grade 6 recycled paper.[436] SKM relies on alleged conduct of the parties and the need to give business efficacy to the stage 2 agreement. [437]

624 ICA denies the allegations. ICA says that grade 6 paper was not produced by the plant and says that the plant as designed by SKM was never intended to produce grade 6 paper.[438] ICA says that on or about 3 November 2003 during a meeting at SKM's premises between Robert Italiano, Anthony Italiano, Joe Italiano and Mr Erskine, Mr Byleveld and Mr Miller, Robert Italiano instructed ICA that the two storage silos for grade 6 and grade 8 paper were to be removed to reduce the contract price and that holding conveyor C20, which could only accept mixed paper, was to be included. ICA says that this removed the ability of the plant to process grade 6 and grade 8 paper as independent streams.[439]

625 SKM rely the evidence of Robert Italiano in his witness statement[440] I have considered the evidence relied on and in particular the evidence of Robert Italiano as follows:[441]**

I can recall discussing the matter with him during either our first face to face meeting, ... or our second face to meeting ... I can also recall having a conversation, to similar effect, with Don during the time that ICA was tendering for the stage 2 to 4 works. My recollection is that I said that SKM intends to produce grade 6 paper and grade 8 paper. In reply, Don said, in substance, that the plant would produce the grade of paper required by SKM.

**626 I do not accept the evidence of Robert Italiano on this issue. I accept the evidence of Mr Erskine discussed previously that Robert Italiano told Mr Erskine that SKM had secured a buyer for mixed paper and that it was unnecessary to produce two grades of paper. In any event, I do not accept that ICA did agree that the plant would be capable of producing any particular output. As I have said previously, I accept that ICA was only concerned with the input and the performance of the conveyors. SKM were responsible for the output.

627 I find that the term alleged was not a term of the stage 2 agreement.

Paragraph 6(p) - SKM claim - producing 'mixed plastic' grade - issue 33

Was it a term of the stage 2 agreement that once completed the recycling plant comprising the stage 1 and stage 2 works would be capable of producing recycled plastic of 'mixed plastic' grade?[442]

**629 SKM relies on alleged conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano.[443] SKM relies further on several alleged assurances given by Mr Erskine to Roberto Italiano, during the face-to-face meetings.[444] SKM relies on alleged conduct of the parties and the need to give business efficacy to the stage 2 agreement. [445] ICA denies the allegation.[446]

630 SKM relies on the evidence of Robert Italiano in his witness statement.[447] In particular Robert Italiano says:[448]**

The topic of the type of materials which SKM was involved in recycling was discussed at my first face-to-face meeting with representatives of ICA in May 2003.

During that first meeting I said to Don Erskine that SKM processes a variety of different types of materials and plastics. During our meeting at Bendigo, on or about 23 June 2003, Don and I again discussed the composition of the various types of recyclable materials which SKM was then processing.

...

Following the meeting at Bendigo, SKM provided ICA with an email, setting out the composition of the materials which it had processed in 2001-2002.

...

The document provided stated that in the 2001-2002 year that SKM collected and recycled some 469 tonnes of 'mixed plastic', 423 tonnes of PET and 236 tonne of HDPE.

**631 I accept that the email referred to was sent by SKM to ICA. Nevertheless, as discussed elsewhere I do not accept that ICA accepted responsibility for the quality and type of produce produced. The term alleged is inconsistent with SKM being responsible for the design and thus performance characteristics of the plant.

632 I find that the term alleged was not a term of the stage 2 agreement.

Paragraph 6(q) - SKM claim - provide detailed drawings for approval - issue 34

Was it a term of the stage 2 agreement that ICA would provide SKM with detailed drawings of stage 2 works for SKM's approval?[449]

**634 SKM relies on alleged conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano. SKM alleges the term was implied to give business efficacy to the agreement.

635 ICA denies the allegations and says that all layout and assembly drawings were provided to SKM for its approval prior to the commencement of construction of the plant.[4]

636 SKM does not address this issue specifically in its written submissions.[451]

637 As the matter was not pressed, it is unnecessary for me to decide this issue.

Paragraph 6(r) - SKM claim - materials fit for the purpose in stages 2 - issue 35

Was it a term of the stage 2 agreement that the materials provided by and or on behalf of ICA in the construction of stage 2 works would be fit for the purpose of constructing a commercial grade recycling facility?[452]

**639 SKM alleges that this term was implied by law. [453] ICA denies the allegation.[454]

640 I have already dealt with this issue in relation to stage 1. I will not repeat what I have said there. I take a similar approach to the term alleged as a term of the stage 2 agreement.

641 As mentioned when dealing with issue 12, SKM alleges that in breach of the stage 1 and stage 2 agreement ICA:

(a) designed and installed rake conveyor belts that were not fit for the purpose of a commercial grade recycling plant;[455]

(b) installed G5 screens that were not fit for the purpose of a commercial recycling plant;[456]

(c) designed and installed paper disc screens that were not fit for the purpose of a commercial grade recycling plant;[457]

(d) failed to design a system that was fit for the purpose of a commercial grade recycling plant;[458]

(e) designed and installed motors and gearboxes on the conveyors that were fit for the purpose of a commercial grade recycling plant;[459]

(f) designed and installed conveyors that were not fit for the purpose of a commercial grade recycling plant;[460] and

(g) designed and installed a glass clean up system that was not fit for the purpose of a commercial grade recycling plant.[461]

642 As I held when dealing with issue 12, the term alleged purports to attach to the materials provided by and on behalf of ICA. I have not heard submissions on whether the term alleged could apply to a specific items of equipment. No such pleading has been made in any event. It is inappropriate for me to make a finding beyond the precise terms I have been asked to rule on. As it is, I am not satisfied that it was an implied term that the materials provided by and on behalf of ICA would be fit for the purpose of constructing a commercial grade recycling facility.

Paragraph 6(s) - SKM claim - merchantable quality - issue 36 (6(s))

As it a term of the stage 2 to 4 agreement that the materials provided by and or on behalf of ICA in the construction of stage 2 to 4 works would be of merchantable quality.[462] SKM alleges that this term was implied by law.

645 I have already dealt with this allegation when dealing with issue 13. For the reasons there expressed, I am not satisfied that this was a term of the state 2 agreement.

Paragraph 6(t) - SKM claim - properly enclose moving parts - issue 37 (6(t))

Was it a term of the stage 2 agreement that ICA would properly enclose the moving parts of the conveyor system installed during the construction of the stage 2 works.[464]

**647 ICA admits the term and says further that in accordance with the quotation dated 1 September 2003 No. 1714, any final and necessary guards that were required by virtue of the location and set out of the installed plant would be supplied and installed on a cost plus basis and that the supply and fitting of such guards was not part of the quoted price.[465]

Paragraph 6(u) - SKM claim -professional indemnity insurance - issue 38

Was it a term of the stage 2 to 4 agreement that ICA would maintain a current and effective professional indemnity insurance policy in relation to the stage 2 to 4 works?[466] SKM allege that the term was partly oral and partly implied.[467]

650 SKM makes no submissions on this issue directly in its final address.[469]

651 As the question was not pressed, it is unnecessary for me to rule on this issue.

SKM allegations of representations by ICA - SKM claim 10

653 SKM also alleges that ICA made certain representations to it as follows.

Paragraph 10(a) - SKM claim - capable of designing heavy duty conveyors - issue 46

Did ICA, in or about mid 2003, represent to SKM that it had experience in and was capable of designing, constructing and installing heavy duty conveyors?[470]

Paragraph 10(b) - SKM claim - capable of designing disc screens - issue 47

Did ICA, in or about mid 2003, represent that it had experience in and was capable of designing, constructing and installing disc screens for use in a heavy duty fully co-mingled recycling plant with the requisite degrees of friction and angle to properly function as a separator of the paper from the plastic, steel, aluminium and glass being processed in the plant?[472]

657 For the reasons previously canvassed, I do not find the alleged representation was made.

Paragraph 10(c) - SKM claim - manufactured a plastic plant for Visy - issue 48

Did ICA, in or about mid 2003, represent that it had manufactured a plastics plant for Visy?[473]

**659 ICA denies the allegations and says further that it told SKM that it had constructed conveyors for Visy that were intended by Visy for use in a plastics plant.

660 For the reasons already discussed, I do not find such a representation was made.

Paragraph 10(d) - SKM claim - manufactured a plastics plant for Waverley - issue 49

Did ICA, in or about mid 2003, represent that it had manufactured a plastics plant for Waverley Industries which comprised industrial conveyors?[474]

**662 ICA denies the allegations and says further that it told SKM that subsequent to quoting for SKM it was approached by Waverley Industries to construct conveyors for use in a manual sorting line for Waverley Industries (a sheltered workshop) but that this approach was not made until after the quotation was accepted by SKM.

663 I do not accept the evidence of Robert Italiano on this issue. I accept the evidence of Mr Erskine.

664 I do not find that the representation was made as alleged.

Paragraph 10(e) - SKM claim - co-mingled commercial grade recycling plant - issue 50

Did ICA, in or about mid 2003, represent that it had the requisite knowledge and experience to build a fully co-mingled commercial grade recycling plant which was capable of processing an input tonnage of 25 tonnes per line per hour?[475]

**666 ICA denies the allegations and says further that ICA never at any stage represented to SKM that it possessed such experience as it had never designed or constructed such a facility in the past. ICA says that its expertise lay in the design manufacture and commissioning of conveyors, which it says SKM knew at all times material, saying further that SKM in any event relied on its own skill and judgment as to the capacity of ICA having, by its servants and or agents, inspected ICA's facilities in Bendigo prior to engaging ICA to do anything for it.

667 For the reasons given when this representation was pleaded as a term of the agreement, I do not accept that ICA made the representation.

668 I do not find that the representation was made as alleged.

Paragraph 10(f) - SKM claim - 'ins and outs' - issue 51

Did ICA, in or about mid 2003, represent that it knew all the 'ins and outs' and problems that could arise during the design, construction and installation of a fully co-mingled commercial grade recycling plant (including issues related to power consumptions, motors and gearboxes)?[476]

671 I do not accept the evidence of Mr Italiano on this alleged representation.

672 I do not find that the representation was made as alleged.

Paragraph 10(g) - SKM claim - repair, replace and rectify - issue 52

Did ICA, in or about mid 2003, represent that it would construct a fully co-mingled commercial grade recycling plant for the recycling plant for SKM and that if any parts comprising the plant did not work for whatever reason, ICA would repair, replace and or rectify the relevant parts so that they did work?[478]

675 For the reasons given in discussing the alleged term this representation gave rise to, I do not find this representation was made by ICA as alleged.

**677 The preliminary question order requires the Court to determine the issues set forth in paragraph 5 of the Mr Erskine's defence to SKM's claim.[480]

678 SKM alleges that Mr Erskine made the representations pleaded in paragraph [10] of SKM's claim.

679 As it is, I find that ICA made the representation pleaded in 10(a). It admits that allegation. I find that it the representation was made by Mr Erskine. Save for this representation, I have found ICA did not make the representations alleged.**

Conclusion - alleged representations by Mr Erskine

Did Mr Erskine make any and which representations alleged in paragraph [10] of the SKM claim - issue 53

680 Answer: Yes, Mr Erskine made the representation pleaded in [10(a).], otherwise no.

**681 I propose to direct that ICA bring in short minutes of orders to reflect the findings on the preliminary issues decided in this judgment.

682 I will order that the trial be resumed on a date to be fixed to consider and make the said orders and to make further orders and directions for the hearing of the balance of the trial.**

**1. Pursuant to rule 47.04, the following questions be determined first at this trial:

(a) The matters and issues set forth in paragraphs 6 to 25 inclusive (save for paragraph 23) of the Amended Statement of Claim dated 21 December 2009.

(b) The matters and issues set forth in paragraphs 6 to 26 inclusive (save for paragraphs 22A and 23) of the Amended Defence dated 22 February 2010.

(i) paragraphs 3, 4, 5, 6, 7(a), (b), (c) and (d), 10 and 11 of the Further Amended Counterclaim dated 3 December 2009;

(ii) paragraphs 3, 4 5, 6, 7(a), (b), (c) and (d), 10 and 11 of the First Defendant's Defence to the Further Amended Counterclaim dated 19 February 2010; and

(iii) paragraph 5 of the Second Defendant's Defence to the Further Amended Counterclaim dated 19 February 2009,

save for the quantification of any loss or damage the Defendant may have suffered as alleged in paragraphs 13, 17 and 20 of the Further Amended Counterclaim.

2 The following questions be determined separately from and after determination of the questions referred to in paragraph 1 above:

(a) the allegations of breach of the Stage One Agreement and the Stage Two to Four Agreement set forth in paragraphs 7(e)-(z) (incl.) and paragraphs 22A and 23 of the Further Amended Counterclaim;

(b) whether the defendant suffered the loss and damage claimed in paragraphs 9, 13, 17 and 20 of the Further Amended Counterclaim.

3 Reserve the question of whether, pursuant to rule 50.01, to order that the questions referred to in paragraph 2 above be referred to a special referee, and direct that affidavit material be filed by the parties for this to be considered in due course.**

[1] Exhibit P14A and exhibit P15 (attached photographs), unredacted version CB volume 2, 1158-1258; exhibit P 16A, unredacted version CB volume 3, 2656-2695

[2] Exhibit P24A, unredacted version CB volume 2, 1076-1157; exhibit P25A, unredacted version CB volume 3, 2624-2647.

[3] Exhibit P26A, unredacted version CB volume 2, 1284-1288, exhibit P27, CB volume 3, 2654-2655.

[4] Exhibit P29, CB volume 2, 1273-1281, exhibit P30, CB volume 3, 2648-2651.

[5] Exhibit P31, CB volume 2, 1259-1263.

[6] Exhibit P32, CB volume 2, 1289-1294.

[8] Exhibit D9A, unredacted version, CB volume 2, 1295-1340 (attachments 1341-2393), exhibit D10A, unredacted version, CB volume 4, 2696-2730.

[9] Exhibit D11A, unredacted version, CB volume 3, 2394-2451 (attachments 2452-2467), exhibit D12A, unredacted version, CB volume 4, 2731-2796 (attachments 2797-2802).

[10] Exhibit D13, CB volume 3, 2648-2476 (attachments 2477-2602).

[11] Exhibit D14, CB volume 3, 2603-2623 (attachments photographs 2453-2455).

[12] 21 December 2009, CB 23-32.

[23] Erskine witness statement in chief [47], CB 2 1165.

[26] Erskine witness statement in chief [60] and following, CB 2 1166.

[29] Email 1 July 2003, CB 175.

[33] Erskine witness statement in chief [95], CB 2 1171.

[40] Mr Erskine refers to Mr Miller's email dated 29 July 2003 at CB 209, and Robert Italiano's email dated 29 July 2003 at CB 211 providing instruction to Mr Miller.

[52] Mr Erskine refers to emails dated 15, 17, 18, 20, 21, 22 and 24 September 2003 at CB 352 and 369.

[54] Mr Erskine refers to the quotations dated 1 September 2003 and 3 September 2003 at CB 318 and 334.

[58] Mr Erskine refers to drawing number 24622 dated 11 November 2003 with handwritten notes that he made at the meeting- Exhibit P18; CB 420.

[72] Transcript 150, exhibit P19, CB 422.

[76] Note dated 23 January 2004; CB 448A.

[78] R Italiano witness statement in chief [43].

[79] R Italiano witness statement in chief [46].

[80] R Italiano witness statement in chief [48].

[81] R Italiano witness statement in chief [49].

[82] R Italiano witness statement in chief [50].

[83] R Italiano witness statement in chief [53].

[84] R Italiano witness statement in chief [54].

[85] R Italiano witness statement in chief [55].

[86] R Italiano witness statement in chief [56].

[87] R Italiano witness statement in chief [68].

[88] R Italiano witness statement in chief [70].

[89] This video showed a screen in a plant owned by an American company called Bulk Handling Systems.

[90] R Italiano witness statement in chief [71].

[91] R Italiano witness statement in chief [72].

[92] R Italiano witness statement in chief [73].

[93] R Italiano witness statement in chief [75].

[94] R Italiano witness statement in chief [76].

[95] R Italiano witness statement in chief [77].

[96] R Italiano witness statement in chief [79].

[97] R Italiano witness statement in chief [80].