Negligence - failure to exercise due skill and care in inspection of work completed

> Misleading and deceptive conduct - breach of implied warranty alone insufficient to constitute breach of section 52 of the Trade Practices Act 1974 or indicate incompetence and inexperience.

Trade Practices Act 1974 Sections 52, 74

McCutcheon v. David MacBrayne Ltd. [1964] UKHL 7; (1964) 1 WLR 125

Thomas Nation Transport (Melbourne) Pty. Ltd. v. May and Baker D.J. Hill and Co. Pty. Ltd. v. Walter H. Wright Pty. Ltd. [1971] VicRp 92; (1971) VR 749

Oceanic Sunline Special Shipping Company Inc. v. Fay [1988] HCA 32; (1988) 165 CLR 197

Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association

(1966) 1 WLR 287; on appeal as Henry Kendall and Sons v. William Lillico and Sons Limited [1968] UKHL 3; (1969) 2 AC 31

Hood v. Anchor Line (Henderson Brothers) Limited [1918] UKHL 2; (1918) AC 837

Balmain New Ferry Co. Ltd. v. Robertson [1906] HCA 83; (1906) 4 CLR 379

Rinaldi and Patroni Pty. Ltd. v. Precision Mouldings Pty. Ltd. (1986) WAR

SIAT di del Ferro v. Tradax Overseas S.A. (1978) 2 Lloyd's Rep 470

Johnson Matthey Bankers Ltd. v. The State Trading Corporation of India Ltd.

(1984) 1 Lloyd's Rep 427

Keeton Sons and Co. Ltd. v. Carl Prior Ltd. (1986) ETLC 30

Salcombe Investments Pty. Ltd. v. Cement Aids (Q) Pty. Ltd. (1987) ASC

March v. E. and M.H. Stramare Pty. Ltd. [1991] HCA 12; (1991) 171 CLR 506

Bennett v. Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408

Comalco Aluminium Ltd. v. Mogal Freight Services Pty. Ltd. (1993) 113 ALR

1. Judgment be entered for the respondent on the applicants' claim. 2. Judgment be entered for the respondent against the applicants

Note: Settlement and entry of orders is dealt with in Order 36 of the

COOPER J Starline Rentals Pty. Ltd. ("Starline") is and at all material times was the owner of the vessel "Atlantic Clipper". In or about October, 1987 Starline chartered the vessel to Pondcil Pty. Ltd. ("Pondcil") for an unspecified period. Pondcil was to pay charter hire of $12,066.02 per month and to meet all costs and outgoings of the vessel including the cost of crewing and maintaining it and keeping it in survey, licensed and insured.

2. Pondcil first operated the vessel out of Townsville in 1987, then out of Sydney in 1988 to coincide with the bicentennial period. After approximately 6 - 8 months in Sydney the vessel was relocated to Cairns and commenced to operate as a cruise vessel plying between Cairns, Thursday Island and return. Pondcil carried on business in Cairns under the business name "Clipper Sailaway Cruises".

3. On 3 April, 1990 the vessel was slipped at a slipway owned and operated by the respondent. While slipped, the propeller shaft was removed and new inner and outer bearings inserted, work was performed on the rudder bearings and some anti-fouling was applied to the hull. Other work was also performed on the vessel. The vessel was unslipped on 6 April, 1990.

4. On 16 May, 1990 the propeller shaft seized when the vessel was travelling from Thursday Island to Cairns. In consequence it was necessary for the vessel to be towed back to Cairns. The vessel was re-slipped on 29 May, 1990 whereupon it was found that the aft outer bearing had seized to the propeller shaft. Additionally it was observed that the anti-fouling had lifted and torn away from the underlying surface of the hull below the waterline. Repairs were effected and the vessel returned to service on 9 June, 1990.

5. The applicants commenced proceedings against the respondent for damages for alleged breach of contract, negligence and/or misleading and deceptive conduct under section 52 of the Trade Practices Act 1974 as amended.

6. The contract contended for by the applicants is one partly oral, partly implied and partly in writing. The applicants by their statement of claim alleged that in or about April, 1990 the respondent, by Mr. Tom Jones, agreed with Mr. Terence Russell on behalf of the applicants to slip the vessel "for survey, the annual overhaul of her shaft, the renewal of forward and aft stern tube bearings and rudder bearings and for application of antifouling paint, together with other incidental work" and that "Russell prepared a job specification list for slipping", a copy of which was furnished to the respondent by the applicants at the time of the slipping.

7. The applicants by their statement of claim pleaded the following implied conditions and warranties of the contract arising from the circumstances of the contract and section 74 of the Trade Practices Act 1974 :-

"(a) the respondent would provide good

and skilful workmanship and

materials and parts of good quality

and reasonably fit for their

purpose;

(b) the respondent would exercise all

reasonable care and skill in

performing the services;

(c) the services would be rendered with

due care and skill;

(d) any materials supplied in connection

with the services would be

reasonably fit for the purpose for

which they were supplied;

(e) the respondent would supply all

necessary materials and services to

enable the services to be completed;

(f) the services and materials supplied

would be reasonably fit for the

purpose or of such a nature to

achieve the result made known to the

respondent."

8. Each of these conditions and/or warranties the applicants alleged in paragraph 8 of the statement of claim was breached and additionally they alleged that the work was performed negligently. Originally, the applicants particularised the breaches and negligence simply by citing a report of P.A. Colley, a marine surveyor, dated 1 June, 1990 and a report of Captain G.B. Copeland, a marine surveyor, dated 24 June, 1990. However further particulars of the breaches and negligence alleged in paragraph 8 of the statement of claim were provided as follows :-

"As part of the overhaul of the propulsion

system of the vessel, the respondent was to

renew the forward and aft stern tube bearings.

New bearing bushes were machined and fitted. In

performing the work and refitting the bearings,

the respondent failed to clean out all the old

hardened grease in the bearings. This failure

to remove the grease resulted in a failure of

the new grease packed into the bearing by the

ship's engineer to properly lubricate the

bearing with the result that the bearing seized.

The respondent failed to ensure that a pressure

greasing machine was available to re-grease the

stern when it was re-fitted. As a result of

this, the bearing had to be hand packed with

grease by the ship's engineer in an attempt to

grease the bearing adequately for a return to

service.

The coat of anti-fouling paint applied to the

vessel was allowed insufficient drying time and

applied with insufficient preparatory work being

undertaken. As a consequence, the paint began

to peel off the hull of the vessel and had to be

replaced".

9. The allegation of misleading and deceptive conduct pleaded was that the conduct of the respondent and its servants or agents led the applicants to believe and expect that the services and materials supplied by the respondent would be fit for the purpose for which they were so supplied, and that the applicants' requirement that proper workmanlike services would be provided. The conduct was misleading and deceptive, so it was alleged, because the result achieved was not of the quality expected and the applicants suffered loss and damage. However in their final submissions the applicants alleged that the misleading and deceptive conduct was the respondent by its yard engineer attending on the vessel at Trinity Wharf, Cairns, after the vessel was unslipped and failing to ascertain by inspection that the stern tube was not fully greased. This conduct, it was alleged, caused the applicants to mistakenly believe that the stern tube was properly greased and that the vessel was fit for service.

10. The respondent denied that it had contracted on the terms pleaded against it and pleaded that it had agreed to slip the vessel "For such reasonable repairs as could be performed within a maximum period of 48 hours slip time and at the request of the applicants under supervision and assistance of the applicants' engineer".

11. The contract contended for by the respondent was partly oral and partly in writing. The respondent contended that which was orally agreed was agreed in conversations between Mr. Terence Russell and Mr. Peppi Iovannella on behalf of the applicants and Mr. Thomas Jones on behalf of the respondent. The writing alleged was the trading terms contained on the respondent's job cards which the respondent pleaded were incorporated into the contract by notice or by the previous course of dealings between the applicants and the respondent, and, the knowledge and awareness of the applicants of the respondent's usual trading terms and conditions. The trading terms, it was pleaded, operated to exclude or limit the liability of the respondent for any loss or damage sustained by a party acquiring or using the services of the respondent from any cause whatsoever.

12. The respondent alleged that it was a term of the contract implied by custom or usage that the applicants' engineer would be responsible for ensuring that the stern tube of the vessel was properly greased.

13. The respondent alleged that the applicants, by Mr. Russell, requested on 4 April, 1990 that the respondent spot grit blast, patch and anti-foul the below waterline hull of the vessel. The respondent alleged that Mr. Russell was advised that because the vessel suffered from electrolysis the entire hull required grit blasting and repainting but rejected such advice, and directed that only spot grit blasting, patching and repainting be undertaken. The respondent alleged that it agreed to undertake the work conditional upon it not being responsible for any deficiencies in the paintwork in consequence of the respondent performing the grit blasting, patching and repainting as directed.

14. The respondent denied that it breached any implied condition or was negligent as alleged or at all. It further denied that the seizure of the shaft was caused by it and pleaded that the seizure, and any loss or damage flowing from it, was caused or contributed to by the conduct of the applicants. Alternatively, it was pleaded that the applicants were by their conduct estopped from contending that the final fixing and adjusting of the stuffing gland and the packing of grease to the stern tube of the vessel and the provision of lubrication were the responsibility of the respondent, or that the work performed below the waterline would provide a good and workmanlike and satisfactory result.

15. Notwithstanding that Starline does not carry on the cruising business, the damages claimed are claimed by both applicants.

16. The respondent cross-claims for the cost of repairs effected and work carried out on the re-slipping of the vessel on 29 May, 1990, which work has not bee paid for by the applicants. The Principal Witnesses On the Applicants Side -

17. Mr. Peppi Iovannella is the managing director and shareholder of both applicants. Mr. Iovannella, through various companies, operates motor coaches and a coachline business in Victoria. He resides in Melbourne and at the relevant time would spend approximately one week each month or six week period in Cairns concerning himself with the cruise business carried on by Pondcil using the "Atlantic Clipper".

18. Mr. Terence Russell is an experienced Master Mariner who obtained a degree in nautical science from London University and qualified as a Foreign Going Master in 1969. He gained experience in cruise operations with P. and O. Lines and was engaged by Pondcil in 1988 to manage the Cairns office of Clipper Sailaway Cruises.

19. Mr. Robert Laskey qualified in New Zealand for the Third Marine and Second Coastal Motor Certificates. This entitled him to obtain in Australia a Grade 1A prawn trawling engineer's certificate. That certificate, on his evidence, operated as follows:-

"Yes. And what would be your designation with

that certificate, as you understand it?---Engine

driver.

Yes. And when you say engine driver, what do

you mean by that?---Well, someone who's

appointed by the ship owner to look after his

machinery by - by just mainly reading pressures

and temperatures and keeping it topped up with

oil and doing minor repairs on board, but no

major repairs".

20. Nonetheless, Mr. Laskey held himself out and was held out by the applicants as the Chief Engineer of the vessel. He commenced employment on the vessel in August, 1989 and worked as ship's engineer for approximately twelve months. Mr. Laskey's experience as a ship's engineer was, on his evidence, as a junior or second engineer on coastal vessels in New Zealand for about three years, 20 - 30 years ago. Mr. Laskey was at pains to point out he was merely the engine driver of the "Atlantic Clipper" and not the ship's engineer: a distinction neither he nor the applicants were concerned to make prior to the trial.

21. Mr. Peter Colley is a qualified Marine Engineer and a Fellow of the Institute of Marine Engineers, with substantial seagoing experience. He is a classification society surveyor and the exclusive marine surveyor to Det Norske Veritas based in Cairns. Mr. Colley inspected the shaft after the seizure and provided a written report.

22. Captain B. Copeland is a qualified Master Mariner Foreign Going. He carries on business through Captain B. Copeland and Associates Pty. Ltd. as marine surveyors and nautical consultants. His company also provided a report and opinion as to the cause of the seizure and certifying as to the reasonableness of the cost of repairs and expenses incurred and the period the vessel was out of service.

23. Mr. Thomas Jones is the managing director of the respondent. He and his family have operated a slipway on the site and undertaken ships repairs since at least 1977.

24. Mr. Dale Alderdice is a certificated Chief Marine Engineer, having obtained his Chief Engineers Certificate in 1968. He obtained sea experience as an engineer with Bank Line and other shipping companies, engineering experience in the oil fields in the Middle East and marine engineering experience with Australian Ship Building Industries. He commenced employment with the respondent in August, 1984 as the yard engineer.

25. The essential difference between the two versions as to what was agreed concerned whether Pondcil agreed to supply the grease for lubrication of the stern tube of the vessel and the labour of the ship's engineer. Supply of both of these elements would save Pondcil money. Their supply was unnecessary to the respondent who could and would have supplied both in the ordinary course at an appropriate cost to Pondcil.

26. Pondcil operated its business in such a way as to minimise cost and chose the least costly available alternative. This is reflected in the employment of Mr. Laskey, an engine driver as the ship's engineer, the choice of spot blasting of the hull area instead of full blasting, and the supply of paint product obtained by it instead of the respondent supplying the product.

27. The evidence of Mr. Jones and Mr. Alderdice that the grease and ship engineer's labour were to be supplied by the applicants is consistent, in my view, with the attitude of Mr. Iovannella and Mr. Russell to the question of costs and the way they ran the business. The conduct of the ship's engineer in using general purpose grease from the ship's store to commence to grease the stern tube is consistent with the agreement contended for by the respondent. Additionally, the use of general purpose grease instead of cannary grease is inconsistent with the usual practice of the respondent and only explicable on the basis of the agreement contended for by the respondent.

28. The contract pleaded by the applicants was never sought to be proved, and the painting, as Mr. Russell admitted, under cross-examination, was only sought and agreed to after the vessel had been slipped. Mr. Russell was less than candid in his evidence. He gave evidence that Mr. C.J. King had been provided with an airline ticket, or the cost of it, to replace a airline ticket which lapsed due to the delayed return of the vessel to Cairns. The clear import of his evidence was that this had occurred at the time of the vessel's return to Cairns to allow Mr. King to leave Cairns, and inferentially as an act to preserve goodwill and customer satisfaction. In fact it transpired in Mr. Iovannella's evidence that no ticket was provided to Mr. King. Mr. King purchased his own ticket and only obtained re-imbursement of the cost of it when he took, or threatened to take, Pondcil to the Small Claims Tribunal.

29. Mr. Russell and Mr. Iovannella both attempted in their evidence to give the impression that the unslipping was rushed, was out of the ordinary and was unexpected. This was not the case in fact. What does come out of their evidence was that they knew that the stern tube was not greased. They relied upon Mr. Laskey to complete the greasing competently and this he did not do. In consequence I have gained the clear impression that they have sought to downplay the role of Mr. Laskey in order to attempt to fix the respondent with liability for the seizure. This was notwithstanding that they were prepared to hold Mr. Laskey out as the Chief Engineer of the vessel when it suited their purposes to do so. The case pleaded and particularised in the statement of claim has not sought to be proved up and was consciously, in my view, overstated in the pleading and in the damages. claimed. This is particularly so in relation to the cause of the failure of the painting and the claim for the repair to the rudder bearing. Mr. Russell and Mr. Iovannella have a real interest in denying any agreement on their part to supply the grease or to provide the labour of Mr. Laskey, having regard to the use of the ship's own grease and Mr. Laskey's part in greasing the stern tube.

30. Where there is a divergence in the versions of events given by Mr. Alderdice and Mr. Jones on the one hand, and Mr. Russell and Mr. Iovannella on the other, I accept the version of Mr. Alderdice and Mr. Jones. Likewise the evidence called by the respondent touching on the actions of Mr. Laskey on the night of 5 April in greasing the stern tube I accept. It is internally consistent and comes from persons who have no interest in not telling the truth. Mr. Laskey on the other hand had a real interest in downplaying his role. He insisted he was no more than an engine driver when the contemporary documentation shows he was holding himself as chief engineer of the vessel.

31. The applicants sought to prove by their statement of claim a contract partly oral, partly implied and partly in writing. The writing pleaded was a job specification list for slipping, allegedly prepared by Mr. Russell and given to the respondent at the time of the slipping of the vessel. On the trial no attempt was made to prove up a case of a written specification for the work.

32. I do not accept that either Mr. Russell or Mr. Iovannella have any clear recollection of the discussions leading up to the agreement to slip the vessel. I accept the evidence of Mr. Jones and Mr. Alderdice as to the circumstances leading up to the slipping of the vessel. Specifically, I find that Mr. Jones originally refused a request to slip the vessel because of commitments already in hand. I find that he later agreed to slip the vessel for a period of forty-eight hours and advised Mr. Russell of the limitation. Although Mr. Russell denies that forty-eight hours was mentioned, he concedes that he knew the shipyard was busy and under pressure because of an incoming vessel. Likewise Mr. Iovannella conceded he knew the yard was busy, that there was a tight schedule for performing the work and that another vessel was coming in to be slipped.

33. I find that the work to be done was discussed generally between Mr. Jones, Mr. Alderdice and Mr. Russell and involved annual maintenance and engineering work for survey purposes. The specific work to be performed, aside from the painting, was, I find, agreed between Mr. Russell and Mr. Alderdice at the time the vessel was slipped and recorded in a job list (exhibit 34) originally prepared by Mr. Alderdice at the time of slipping and later added to by another employee of the respondent.

34. I find that Mr. Russell did ask whether the respondent would allow Mr. Laskey, the ship's engineer, to assist with the work for the purpose of keeping down the cost and expediting performance of the work in the available time.

35. I accept the evidence of Mr. Alderdice that at the time of the slipping when the work to be performed was being discussed, he asked Mr. Russell if he would be supplying the grease, and Mr. Russell replied that he would supply the grease that day. The agreement to supply the grease is consistent with the supply of the paint by the applicants to the respondent in order to allow the respondent's employees to anti-foul and paint the underside of the vessel. As I have stated above on the issue of credibility, I have formed a clear impression, after hearing Mr. Iovannella and Mr. Russell give evidence and having heard the evidence of Mr. Laskey, that the business operation of the vessel was conducted in such a way as to minimise wherever possible the costs of the operation by spending the minimum amount of money necessary to have the work performed. Consequently if the vessel owner or operator could supply consumables cheaper than the shipyard, it would do so. Further, as Pondcil was paying wages to Mr. Laskey, I have no doubt that Mr. Iovannella would seek to utilise Mr. Laskey if he could, and save the cost of additional shipyard labour.

36. Contrary to the case pleaded by the applicants, the painting work on the underside of the vessel was not part of the original work agreed to be done. I find that the question of painting was first mentioned by Mr. Russell the day after the vessel was slipped. I find that Mr. Jones advised Mr. Russell that because of the poor condition of the paint system on the vessel that it should be fully grit-blasted to take off all paint and rust and to go back to bare metal. I also accept that Mr. Russell said :-

"Well, the owners don't want to go spending that

sort of money. We want a patch job done".

37. Mr. Russell accepted in cross-examination that he made his own judgment as to what was needed by way of blasting and decided spot blasting was sufficient.

38. I also accept the evidence of Mr. Jones that he told Mr. Russell that the respondent would not be responsible for the anti-fouling and painting if spot blasting only was undertaken and that Mr. Russell nonetheless instructed him to proceed with the work.

39. Mr. Russell requested a Mr. Farfor of Farfor Marine to obtain a coating specification and to supply the paint and anti-fouling. The coating specification was prepared by a Mr. Schilling of Dulux Marine in Cairns and specified for surface preparation - "water jet + scrape spot sweep blast where necessary". The paint was supplied by Mr. Farfor. The respondent played no part in the preparation of the specification or in the supply of the paint products used. The applicants placed no reliance on the skill and judgment of the respondent as to the choice of or adequacy of the surface preparation, paint products used, or, the specification as to their application.

40. The respondent contended that the agreement which it entered into with the applicants for the slipping of the vessel "Atlantic Clipper" and for the performance of work on the vessel included the respondent's usual trading terms and conditions. The terms and conditions, it is contended, are those contained on the printed form of job card used by the respondent in the conduct of its business. On one side of the job card below the section where "Materials" are recorded, the following appears :-

" TERMS AND CONDITIONS OF TROPICAL

REEF SHIPYARD PTY. LTD.

1. Where the customer is a consumer as defined by any

relevant law such as the Trade Practices Act 1974 or

similar State laws, then certain terms and rights will

be implied into this contract for the benefit of the

consumer which terms and rights, and any liability of

the supplier flowing from them, cannot be excluded,

restricted or modified by any provision of this

contract. In all other cases and except where

inconsistent with the above and subject to the

provisions of clause (iv) hereof the following terms

shall apply :-

(i) Tropical Reef Shipyard Pty. Ltd. (hereinafter referred

to as the Company) does not accept any responsibility

for the loss of or damage to any boat, ship or other

vessel or any goods, articles or things of any

description whilst the Company is repairing or

otherwise working upon such boat, ship, vessel, goods,

articles or things and/or whilst any such boat, ship,

vessel, goods, articles or things are moored,

anchored, stored, parked, slipped at or within the

confines of the premises of the Company or are

otherwise in the actual custody of the Company and/or

under its actual control, nor does the Company accept

any responsibility for the loss of or damage to any

article or thing in or about any such boat, ship,

vessel, goods, articles or things or for any injury to

any person, howsoever such loss, damage or injury may

arise or be caused.

(ii) All work and/or services to be executed, performed

and/or carried out and/or provided by the Company, are

executed, performed, provided or carried out subject

to the condition that the Company, its servants or

agents shall not be responsible in tort or contract or

otherwise for any default, negligence or error on the

part of the Company's servants or agents.

(iii) Every exemption from liability and every right defence

and immunity of whatsoever nature applicable to the

Company or to which the Company is entitled hereunder

shall also be available and shall extend to protect

every servant or agent of the Company (including every

independent contractor from time to time employed by

the Company) while acting in the course of or in

connection with his employment and for the purposes of

all the foregoing provisions set out in clauses (i)

and (ii) hereof the carrier is or shall be deemed to

be acting as agent or trustee on behalf of and for the

benefit of all persons who are or might be his

servants or agents from time to time (including

independent contractors as aforesaid) and all such

persons shall to that extent be or deemed be parties

to the contract entered into by the Company.

(iv) (a) Pursuant to 68A of the Trade Practices Act 1974

this clause applies in respect of any of the

goods or services supplied under this contract

which are not of a kind ordinarily acquired for

personal, domestic or household use or

consumption, provided that this clause will not

apply if the customer establishes that reliance

on it would not be fair and reasonable.

(b) Liability for breach of condition or warranty

implied into this contract by the Trade

Practices Act 1974 other than a condition

implied by Section 69 is limited to -

(a) In the case of goods any of the following

as determined by the Company.

(i) The replacement of the goods or the

supply of equivalent goods; or

(ii) The repair of the goods; or

(iii) The payment of the cost of replacing

the goods or acquiring equivalent

goods; or

(iv) The payment of the cost of having

the goods repaired.

(b) In the case of services any one of the

following is determined by the Company.

(i) The supplying of the services again;

or

(ii) The payment of the cost of having

the services supplied again.

41. `The customer hereby acknowledges that the contract for the

work, goods or services to be supplied by Tropical Reef

Shipyard Pty. Ltd. is subject to the terms and conditions as

set out on this document.

Date

Signed for and on behalf of the Customer.

............................................................

..'"

42. Neither the applicants, nor either of them, were asked to sign as provided for on the job card at or before the making of the contract in question. Nor were the terms and conditions specifically brought to the attention of the applicants or anybody on their behalf.

43. The respondent contended that the printed conditions formed part of the contract conditions because of a notice affixed to the outside of the office building at the slipway. The notice was erected to the right and above the doorway. It read :-

"All work and/or services to be executed and/or

performed and/or carried out and/or provided by

the company are executed performed provided or

carried out subject to the usual trading terms

and conditions of Tropical Reef ....... and a

copy of such terms and conditions may be

obtained from the company office on request".

44. Alternatively, the respondent contended that the standard terms and conditions contained on the job cards were incorporated into the contract because of a past consistent course of conduct between the parties in relation to the provision of services by the respondent.

45. The applicants contended that in order for there to be incorporated into the terms of the contract the conditions contained on the job card, there must be shown a previous course of dealings in which there was actual knowledge of the terms and conditions contended for, or alternatively in this particular case, that the course of previous dealing was drawn to the attention of the applicants.

46. In support of their submission the applicants relied upon the judgment of Lord Devlin in McCutcheon v. David MacBrayne Ltd. [1964] UKHL 7; (1964) 1 WLR 125 at 134. There, his Lordship said :-

"They (the respondents) say that the previous

dealings between themselves and the appellant,

being always on the terms of their `risk note,'

as they call their written conditions, the

contract between themselves and the appellant

must be deemed to import the same conditions.

In my opinion, the bare fact that there have

been previous dealings between the parties does

not assist the respondents at all. The fact

that a man has made a contract in the same form

99 times (let alone three or four times which

are here alleged) will not of itself affect the

hundredth contract in which the form is not

used. Previous dealings are relevant only if

they prove knowledge of the terms, actual and

not constructive, and assent to them. If a term

is not expressed in a contract, there is only

one other way in which it can come into it and

that is by implication. No implication can be

made against a party of a term which was unknown

to him. If previous dealings show that a man

knew of and agreed to a term on 99 occasions

there is a basis for saying that it can be

imported into the hundredth contract without an

express statement. It may or may not be

sufficient to justify the importation, - that

depends on the circumstances; but at least by

proving knowledge the essential beginning is

made. Without knowledge there is nothing.

.....

It seems to me that when a party assents to a

document forming the whole or a part of his

contract, he is bound by the terms of the

document, read or unread, signed or unsigned,

simply because they are in the contract; and it

is unnecessary and possibly misleading to say

that he is bound by them because he represents

to the other party that he has made himself

acquainted with them. But if there be an

estoppel of this sort, its effect is, in my

opinion, limited to the contract in relation to

which the representation is made; and it cannot

(unless of course there be something else on

which the estoppel is founded besides the mere

receipt of the document) assist the other party

in relation to other transactions. The

respondents in the present case have quite

failed to prove that the appellant made himself

acquainted with the conditions they had

introduced into previous dealings. He is not

estopped from saying that, for good reasons or

bad, he signed the previous contracts without

the slightest idea of what was in them. If that

is so, previous dealings are no evidence of

knowledge and so are of little or no use to the

respondents in this case".

47. The applicants also relied upon the judgment of Mr. Justice Windeyer in Thomas Nation Transport (Melbourne) Pty. Ltd. v. May and Baker (Australia) Pty. Ltd. [1966] HCA 46; (1966) 115 CLR 353. His Honour said (at 373) :-

"There is no doubt that the terms of the freight

note were brought fully to the notice of May and

Baker, that it had ample opportunity to read

them, and that it was bound by them. This was

no hasty engagement; and there was no

inequality between the parties to trouble a

court as to the justice of enforcing the

contract according to its terms".

48. Reference was also made by the applicants to the decision of the Full Court of the Supreme Court of Victoria in D.J. Hill and Co. Pty. Ltd. v. Walter H. Wright Pty. Ltd. [1971] VicRp 92; (1971) VR 749 at 753 and the judgment of Brennan J in Oceanic Sunline Special Shipping Company Inc. v. Fay [1988] HCA 32; (1988) 165 CLR 197 at 229, where it was submitted his Honour approved and applied the decision in McCutcheon v. David MacBrayne Ltd.

49. The observations of Lord Devlin in McCutcheon v. David MacBrayne Ltd. have been treated as obiter dicta and as being wrong in principle. (See Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association (1966) 1 WLR 287 at 316 - 317 per Davies LJ, at 339 per Diplock LJ; and on appeal as Henry Kendall and Sons v. William Lillico and Sons Limited [1968] UKHL 3; (1969) 2 AC 31 at 90 per Lord Morris of Borth-Y-Gest, at 104 per Lord Guest, at 113 per Lord Pearce, at 130 per Lord Wilberforce).

50. Contrary to the submissions of the applicants, the judgment of Lord Devlin in McCutcheon was not approved and applied by Brennan J in Oceanic Sunline Special Shipping Company Inc. v. Fay. Rather, it was the judgment of Lord Hobson ((1964) 1 WLR at 129) with which Brennan J agreed, where his Lordship, as did Brennan J, cited Hood v. Anchor Line (Henderson Brothers) Limited [1918] UKHL 2; (1918) AC 837 as authority for the proposition that where an exemption clause is contained in a ticket or other document intended by a carrier to contain the terms of carriage, and the other party is not in fact aware when the contract is made that the exemption clause is intended to be a term of the contract, the carrier cannot rely on that clause unless at the time of the contract the carrier had done all that was reasonably necessary to bring the exemption clause to the passenger's notice. Such a test has consistently been applied in Australia (see The Balmain New Ferry Co. Ltd. v. Robertson [1906] HCA 83; (1906) 4 CLR 379 at 386). Nor do the applicants gain any assistance from the comments of Windeyer J in Thomas Nation Transport (Melbourne) Pty. Ltd. v. May and Baker (Australia) Pty. Ltd. as set out above. I do not read the statement as requiring standard terms and conditions to be brought specifically to the attention of the other contracting party before they can be incorporated into the contract. His Honour is merely saying that as a matter of fact the terms and conditions of the freight note were brought fully to the notice of May and Baker and with full knowledge of them it proceeded to contract.

51. Likewise, I do not read the judgment of the Full Court in D.J. Hill and Co. Pty. Ltd. v. Walter Wright and Co. Pty. Ltd. as approving or applying the dictum of Lord Devlin in McCutcheon. Rather, their Honours have treated the case as one where the document containing the condition was not a contractual document in the sense of being a document coming into the hands of or to the notice of one of the parties at the time of the making of the contract. Accordingly, their Honours rely upon the observations of Lord Reid and Lord Hodson in McCutcheon in this regard. The appellant in D.J. Hill and Co. Pty. Ltd. v. Walter H. Wright Pty. Ltd. failed because, in their Honours' view, the document relied upon had never become a contractual document or been mutually treated by the parties as such. That is, the course of conduct was to contract orally without the incorporation of written terms, and the prior conduct had never deviated from that course. That the decision of the Supreme Court of Victoria in D.J. Hill and Co. Pty. Ltd.'s case was not dependent upon anything said by Lord Devlin in McCutcheon was also the view of the Full Court of the Supreme Court of Western Australia in Rinaldi and Patroni Pty. Ltd. v. Precision Mouldings Pty. Ltd. (1986) WAR 131 at 138 per Burt CJ, with whom Smith J agreed.

52. In my opinion, the correct approach as to the incorporation of standard terms and conditions into contractual arrangements between parties is to be found in the judgment of Diplock LJ (as he then was) in Hardwick Game Farm v. Suffolk Agricultural Poultry Producers Association. His Lordship said (at 339) :-

"The task of ascertaining what the parties to a

contract of any kind have agreed shall be their

legal rights and liabilities to one another as a

result of the contract is a familiar one in all

systems of law. It is accomplished not by

determining what each party actually thought

those rights and liabilities would be, but by

what each party by his words and conduct

reasonably led the other party to believe were

the acts which he was undertaking a legal

obligation to perform. There are some rights

and liabilities which arise by implication of

law from the nature of the contract itself such

as a contract of sale of goods or land, a

contract of carriage or bailment, a contract of

service or a contract of insurance. In offering

to enter into a contract of a particular kind a

party leads the other party reasonably to

believe that he undertakes a legal obligation to

perform all those acts which a person entering

into a contract of that kind usually performs,

unless his words or conduct are such as would

make it reasonably clear to the other party that

this is not so and also makes it clear which of

those acts he does not intend to undertake to

perform and which of them he intends to

undertake to perform only in some other and

specified manner.

In English law this general rule has become

subject to a special rule that where parties

have agreed to embody their contract in a

written document they are presumed to have

agreed to be bound by all the terms included in

the written document and by no other terms

except those which arise by implication of law

from the nature of the contract itself; and

this is so whether they have both read and

understood the written document or not.

Whatever the historical origin of this rule,

which since 1677 may well have been influenced

by the Statute of Frauds, its justification

today is that it is so well established that any

party to a contract by agreeing that its terms

shall be embodied in a written document so

conducts himself as to lead the other to believe

that he intended the written document to set out

all the rights and liabilities of each party

towards the other which do not arise by

implication of law from the nature of the

contract itself.

This is the relevant distinction between

contracts which the parties have agreed shall be

embodied in a written document and other kinds

of contracts. The ticket cases are examples of

the former. The only question there is whether

the party proffering the ticket has so conducted

himself as to lead the other party reasonably to

believe that the written term upon which he

seeks to rely formed part of the terms upon

which alone he was willing to contract. He may

fail because he has not taken reasonable steps

to draw the term to the attention of the other

party. But if he has taken such reasonable

steps it matters not that the other party has

never read the term and would not have entered

into the contract if he had read it. His

acceptance of the ticket without demur as

embodying the terms of the contract is conduct

which would lead the other party reasonably to

believe that he intends to contract upon its

terms and not otherwise.

Where, as in the case of the contract between

SAPPA and Grimsdale, the parties have not agreed

to embody their contract in a written document

but have entered into an oral contract with the

intention of thereby creating legal rights and

liabilities and it is sought to rely upon a term

contained in some written document as modifying

the respective rights and liabilities which

would arise by implication of law from the

nature of the contract, the only question is

whether each party has led the other reasonably

to believe that he intended that the rights and

liabilities towards one another which would

otherwise arise by implication of law from the

nature of the contract, namely, a contract for

the sale of goods, should be modified in the

manner specified in the written document".

53. This statement of principle of Diplock LJ is consistent with the approach taken by Lord Reid in McCutcheon where his Lordship said (at 128) :-

"`The judicial task is not to discover the

actual intentions of each party; it is to

decide what each was reasonably entitled to

conclude from the attitude of the other' (Gloag

on Contract, 2nd ed., p.7). In this case I do

not think that either party was reasonably bound

or entitled to conclude from the attitude of the

other, as known to him, that these conditions

were intended by the other party to be part of

this contract".

54. It is also consistent with the approach taken by Lord Pearce in Henry Kendall and Sons v. William Lillico and Sons Limited where his Lordship said (at 113) :-

"In the present case, SAPPA had regularly

received more than a hundred similar contract

notes from Grimsdale in the course of dealing

over three years. They knew of the existence of

the conditions on the back of the contract note.

They never raised any query or objection (Havers

J (1964) 2 Lloyd's Rep 227, 267). The court's

task is to decide what each party to an alleged

contract would reasonably conclude from the

utterances, writings or conduct of the other.

The question, therefore, is not what SAPPA

themselves thought or knew about the matter but

what they should be taken as representing to

Grimsdale about it or leading Grimsdale to

believe. The only reasonable inference from the

regular course of dealing over so long a period

is that SAPPA were evincing an acceptance of,

and a readiness to be bound by, the printed

conditions of whose existence they were well

aware although they had not troubled to read

them. Thus the general conditions became part

of the oral contract".

55. It is clear from the reasoning of Diplock LJ that upon analysis there is no different principle operating in respect of the ticket cases from that which applies to the prior consistent course of dealing cases. Rather, one looks at the particular circumstances operating in each case and decides "What each party by his words and conduct reasonably led the other party to believe were the acts which he was undertaking a legal obligation to perform". Thus in the ticket cases, where a carrier wishes to impose limitations on the basis upon which carriage is offered to be undertaken, the question relevantly is "has reasonable notice of the terms been given?"

56. The reasonable objective expectation test has consistently been applied in the United Kingdom. In SIAT di del Ferro v. Tradax Overseas SA (1978) 2 Lloyd's Rep 470, Mr. Justice Donaldson (as he then was) said (at 490) :-

"Both Mr. Johnson and Mr. Evans approached the

matter on the basis that terms can be

incorporated into a contract either as a result

of a course of dealing or by the application of

the British Crane doctrine which they seemed to

regard as different approaches. I do not think

that they are different. They are two different

examples of a much wider concept, namely, that a

contract is not made in a vacuum, but against a

background of present and past facts and future

expectations and that its terms, and indeed the

consensus itself, are to be gathered not only

from expressed words, but also from conduct

viewed against that background.

Lord Justice Diplock, (as he then was) pointed

out in the Hardwick Game case, (1966) 1 Lloyd's

Rep 197; (1966) 1 WLR 287, at pp.241 and

339D, that the test to be applied is not what

the parties actually thought were their rights

and liabilities, but what each by his words and

conduct led the other party to believe were the

liabilities which he was accepting and the

concomitant rights which he was granting. In

this context I do not think that Lord Justice

Diplock was referring to the other party

actually believing anything. He meant that the

words and conduct of Party A had to be

considered with a view to what Party B, as a

reasonable man, could and would, if he had

applied his mind to the point, have been led to

believe. This is a variant on the officious

bystander test applied by Lord Reid in

McCutcheon's case[1964] UKHL 7; , (1964) 1 Lloyd's Rep 16;

[1964] UKHL 7; (1964) 1 WLR 125, at pp. 21 and 128. I would

offer a further variant, which may be easier for

commercial men to apply. Would the parties have

agreed that a particular term formed part of the

contract if they were reasonable men looking at

the matter objectively in the knowledge that no

adverse consequences could flow from the answer.

I add this latter qualification because even the

most reasonable commercial man will become a

little less than objective when told that the

answer could cost him U.S. $3 million. The term

will only be contractual if the parties' answer

would have been a definite `Yes'. `Possibly'

will not do."

57. The approach taken by Donaldson J was followed by Staughton J (as he then was) in Johnson Matthey Bankers Ltd. v. The State Trading Corporation of India Ltd. (1984) 1 Lloyd's Rep 427 at 433.

58. More recently the Court of Appeal in England has had occasion to review the authorities in Circle Freight International Ltd. v. Medeast Gulf Exports Ltd. (1988) 2 Lloyd's Rep 427. The plaintiff in the case was a freight forwarding agent. The defendant was the exporter of various goods to the Middle East Between March and August, 1983 the defendant exported dresses on a number of occasions to the Middle East utilising the services of the plaintiff. When the plaintiff sued for the balance of its account, the defendant cross-claimed for damages for the value of dresses collected by the plaintiff for export which were stolen from the plaintiff's van which was left unattended in Fleet Street by the plaintiff's driver. The plaintiff conceded negligence, but contended that the liability for the defendant's loss was excluded by trading terms incorporated into the contract. Between March and August, 1983 the defendant engaged the plaintiff orally by telephone to arrange for the carriage of goods to the Middle East. After the goods were received in the plaintiff's warehouse at Heathrow Airport, an invoice would be sent to the defendant which document was the only document which passed between the parties. At least eleven invoices were sent in the relevant period between March and August, 1983. At the bottom right hand corner of the invoice were the following words :-

"All business transacted by the company under

the current trading conditions of the Institute

of Freight Forwarders a copy of which is

available on request".

59. The defendant never asked for a copy of the conditions and was never sent one.

60. At first instance the trial judge adopted as the relevant test that applied by Ackner LJ (as he then was), with whom Goff LJ (as he then was) and Sir Roger Ormrod agreed, in Keeton Sons and Co. Ltd. v. Carl Prior Ltd. (1986) ETLC 30 (at 4) :-

"I do not consider there is any real issue as to

the law. The question in a case of this kind

must always be: has reasonable notice of the

terms been given? This is essentially a

question of fact depending on the circumstances

of the case, and in particular on the nature of

the business and position of the parties to the

transaction".

61. The trial judge in Circle Freight International then concluded that no reasonable notice had been given and that the defence to the counterclaim failed.

62. In the English Court of Appeal, Taylor LJ (as he then was) identified the two propositions which were in issue before that court. His Lordship said (at 430) :-

"First, that the specific condition relied upon

must be drawn in terms to the customer's

attention, and a reference to the conditions

generally with the offer of a copy of them on

request will not suffice. Secondly, that notice

of the condition must be in a contractual

document".

63. After a review of the authorities his Lordship concluded (at 433): -

"The effect of those authorities is to show in

my judgment that the two propositions which

guided the learned Judge in his approach to the

first issue in this case were incorrect. He was

right to apply the test laid down by Lord

Justice Ackner. But whether one applies Lord

Justice Ackner's simple test, or that stated by

Mr. Justice Donaldson and applied by Mr. Justice

Staughton, it is not necessary to the

incorporation of trading terms into a contract

that they should be specifically set out

provided that they are conditions in common form

or usual terms in the relevant business. It is

sufficient if adequate notice is given

identifying and relying upon the conditions and

they are available on request. Other

considerations apply if the conditions or any of

them are particularly onerous or unusual.

Again, it is not necessary that notice of the

conditions should be contained in a contractual

document where there has been a course of

dealing.

Here, the parties were commercial companies.

There had been a course of dealing in which at

least 11 invoices had been sent giving notice

that business was conducted on the IFF terms at

a place on the document where it was plain to be

seen. Mr. Zacaria knew that some terms applied.

He knew that forwarding agents might impose

terms which would frequently be standard terms

and would sometimes or frequently deal with

risk. He never sought to ask for or about the

terms of business. The IFF conditions are not

particularly onerous or unusual and, indeed, are

in common use. In these circumstances, despite

Mr. Gompertz's clear and succinct argument to

the contrary, I consider that reasonable notice

of the terms was given by the plaintiffs.

Putting it another way, I consider that the

defendants' conduct in continuing the course of

business after at least 11 notices of the terms

and omitting to request a sight of them would

have led and did lead the plaintiffs reasonably

to believe the defendants accepted their terms.

In those circumstances it is irrelevant that in

fact Mr. Zacaria did not read the notices.

Accordingly, I consider that the learned Judge

erred in his conclusion on the first issue and I

would hold that the IFF conditions were

incorporated in this contract".

64. There is nothing in the Australian authorities of D.J. Hill and Co. Pty. Ltd. v. Walter H. Wright Pty. Ltd., Rinaldi and Patroni Pty. Ltd. v. Precision Mouldings Pty. Ltd., or Salcombe Investments Pty. Ltd. v. Cement Aids (Q) Pty. Ltd. (1987) ASC 55-565 inconsistent with the application of principle which is reflected in the recent English cases. Each of the Australian cases is explicable on the basis that on the facts as found there was nothing in the conduct of one party which would objectively reasonably lead the other party to believe that the contractual arrangements operating between them contained terms and conditions not expressly made known by the other party at the time of the original contract, which terms and conditions that party asserts as the basis upon which it was prepared to contract.

65. In the instant case prior to March/April, 1990 the applicants, or one of them, contracted with the respondent for its services on four occasions. The first was in November, 1988 when the vessel was slipped; the second was in May, 1989 when a diver was engaged to check the propeller shaft of the vessel; the third was in August, 1989 when the vessel was slipped; and the fourth was in November, 1989 when the respondent carried out repairs to an aluminium dinghy used on the vessel. So far as the evidence reveals each of those contracts was arranged orally, either by a telephone call or somebody calling and speaking to a person in authority at the respondent's yard. The applicants were never asked to sign the acknowledgment contained on the job card. The previous practice had been for Mr. Russell to go through the job cards with Ms. Christine Jones, the respondent's book-keeper, at the end of each day to agree the quantum of work carried out either that day or the previous day. There is no evidence that Mr. Russell saw or took any notice of the printed heading or the specific clauses printed underneath the "Materials" section of the card. The occasions upon which the cards were being used in this manner were concerned with agreeing the quantum of the work performed and occurred after the contract had been agreed and after the work was performed. The focus of attention on these occasions was the handwritten entry of the labour and materials; not the printed conditions. The respondent also, in relation to each of these contracts, sent an invoice to Mr. Iovannella in Melbourne with a photocopy of the job card attached to the invoice. The photocopy where materials had been supplied would contain copies of the terms and conditions. Otherwise, as appears from exhibit 37, only the "Labour" side of the job card would be photocopied and sent in support of the invoice.

66. In my view, a notice on the outside of a building at a shipyard in the terms of the notice displayed in the instant case is not reasonable notice to any person intending to contract with the shipyard that the respondent contracts on the basis of an exclusion of liability from all contractual or tortious default on its part or the part of those whose acts it would otherwise be responsible for, or, where the Trade Practices Act 1974 applies to the contract that the statutory limitation of liability provided in section 68A of that Act is to be incorporated as a contractual term. There is no evidence that such conditions are usual or reasonable in the provision of shipyard services or that the applicants reasonably expected that any such conditions would apply. Nor is there any acceptable evidence that the location and height at which the notice is placed on the exterior of the building is such that it is reasonably likely that the notice would come to the conscious observation of anyone present on the site. I would not be prepared to make such a finding from the one photograph showing the relevant notice tendered into evidence.

67. The respondent must therefore rely upon the dealings between the parties and the use made of the job card in those dealings in order to contend that the conditions on the job card were incorporated into the contract made in April, 1990. The conditions contained on the job card have never operated contractually between the parties by express agreement in the sense that prior to the work being performed, the job card was tendered to and signed by the applicants or either of them or someone on their behalf. The case is therefore not one where there is a prior course of conduct clearly and expressly incorporating the conditions contended for and where it may be argued that the failure to obtain the signature in April, 1990 was a mere oversight. As a matter of construction, the printed conditions are to apply where, prior to the performance of the agreed work, the customer acknowledges the terms by signature. That is, the printed conditions have no necessary or obvious operation as between the parties after the performance of the work and in circumstances where signature was neither sought nor obtained. The job cards, when used by the respondent to record the work done and to agree the work with the applicants or the applicants' representative, could not reasonably have been intended as an occasion to give to the applicants notice of the terms and conditions set out on the card as applicable to a contract already agreed and wholly or partly performed nor as to the terms and conditions which will apply in the future. Similarly, when a photocopy of a job card or part of a card was sent as supporting material attached to the invoice, it cannot reasonably be said that they were sent to give the applicants notice of the respondent's usual trading conditions.

68. There was, in my view, nothing in the conduct of the applicants or their representatives in their failure to expressly reject the terms and conditions contained on the job card as being terms incorporated into the oral contracts made with the respondent, which would entitle the respondent reasonably to assume that the applicants, or either of them, were agreeing to contract on such printed terms and conditions in April, 1990. Accordingly, I find that the printed terms and conditions contained on the job cards formed no part of the agreement between the applicants, or either of them, and the respondent for the performance of work in April, 1990 on the vessel "Atlantic Clipper".

69. The services and materials supplied by the respondent were supplied at a price of $25,492.46, which price is less than the prescribed amount in section 4B of the Trade Practices Act 1974. The applicants were therefore "consumers" within the meaning of that Act and the contract between the parties was one to which section 74(1) of the Act applied. Accordingly, there was an implied term that the services would be rendered with due care and attention and that any materials supplied in connection with those services would be reasonably fit for the purpose for which they were supplied.

70. Having regard to my findings that the applicants, or one of them by Mr. Russell, agreed to supply the grease necessary to grease the shaft and bearings, there was no implied term that the respondent would supply the necessary grease to enable the work to be completed. Similarly, there was no implied term that the respondent would provide the paint products. Otherwise, it was an implied term that the respondent would supply all necessary incidental materials to enable the work specified in exhibit 34 to be undertaken.

71. Having regard to my findings as to the circumstances giving rise to agreement to anti-foul and paint the underside of the vessel and the applicants' total absence of reliance on the skill and judgment of the respondent in the respects set out above, there was no warranty that the painting services and the paint products used for the anti-fouling and painting were reasonably fit for the purpose or that they might be expected to achieve a particular result, namely an adhering and durable anti-fouling and paint finish below the waterline. The applicants did not rely on the skill and judgment of the respondent in this regard and thus section 74(2) of the Trade Practices Act had no relevant operation.

72. I find that it was part of the work to be performed by the respondent to grease the shaft with grease to be supplied by the applicants or one of them. This was recognised by Mr. Alderdice in his dealing with the ship's engineer on the afternoon of 5 April, 1990. In evidence Mr. Alderdice said :-

"MS PHILIPPIDES: Now, on the afternoon of the

5th, that is the day before the slipping, did

you speak to the engineer about grease?---Oh,

very much so.

What did you say?---About 4 o'clock I asked him,

`Would you please hurry up and get your grease

so we can pump it in.' Then around 8 o'clock I

said, `Make sure you get the grease in. Where

is your grease so we could pump it in?' And he

said he would do that because there was no

grease there at the time to be pumped in.

Did you see him later on pumping in grease?---I

saw him with a little two kilo pot pumping in

through the stern - - -

And can you explain what sort of grease gun or

pump he was using?---Just a two kilo pot with a

little pressure - well, you push down and you

pump the handle. You have just got to keep

pushing it down and pumping the handle.

And there was a hose connected to the pump?---

Yes, there was a hose connected from the pot to

the gun.

Can you tell me what type of grease he was

using?---It looked to me like a general purpose

grease, I think. I couldn't remember the brand

name or anything like that."

73. The agreement that the labour of Mr. Laskey, the ships engineer, was available to, and would be used by, the respondent as it saw fit did not alter the nature of the services to be provided by the respondent to the applicants. The contract required that the work of the employees of the respondent and Mr. Laskey be supervised and inspected to ensure that it had been done in a good and workmanlike manner and that all necessary or incidental tasks had been completed. As I have found there was an implied term that the task of supervision and inspection would be performed with due care and attention. The exercise of due care and attention required that prior to the vessel being unslipped to return to its ordinary service, the respondent inspect the stern tube to satisfy itself that Mr. Laskey had properly completed the greasing of the stern tube and that in this respect the vessel was fit for ordinary service. This the respondent did not do. The question which then arises is whether the respondent's failure to exercise due care and attention in this regard caused or substantially contributed to the seizure of the shaft on 16 May, 1990. Causation

74. I find that the engineer, Mr. Laskey, on the night of 5 April, 1990 himself commenced to grease the stern tube using grease which had been supplied to him by the applicants or one of them after his earlier conversation with Mr. Alderdice, or which he took from the ship's store. The grease was general purpose grease and not grease of a type which the respondent would ordinarily use for that purpose. Mr. Laskey also used the ship's grease gun attached to the grease container.

75. I reject the evidence of Mr. Laskey that he merely assisted employees of the respondent to pump in the grease. I accept the evidence of Mr. Clark, the fitter and turner, and Mr. Poppi, the leading hand/fitter who worked on the vessel on the night in question, and the evidence of Mr. Alderdice as to their observations on that night. Mr. Laskey did not complete the greasing of the stern tube and retired about midnight on 5 April. Although Mr. Keith Reynolds, who was at the relevant time a crane driver, was not called by either party and his absence not explained, I am satisfied that Mr. Laskey made some arrangement with Mr. Reynolds for Mr. Reynolds to crane onboard grease and a power grease gun to enable Mr. Laskey to complete the greasing of the stern tube. The only power grease gun and grease supply available at that time was a grease gun and graphite grease used to grease the slipway bogey and rails. Whether or not it was Mr. Laskey's intention to complete the task using this equipment and grease, I am unable to say. However, in the events which occurred he did not attempt to do so.

76. A power grease gun was not an essential piece of equipment to grease the stern tube. Its attraction was the speed at which it operated and its ease of use. However, I find that the stern tube could have been adequately and competently greased using a manual grease pump.

77. The respondent commenced to unslip the vessel at 0600 hours on 6 April, 1990.

78. Mr. Laskey, Mr. Russell and Mr. Iovannella sought to give the impression that the unslipping commenced unexpectedly and in haste early on the morning of 6 April, 1990. This I reject. Messrs. Russell and Iovannella, I find, were at the slipway by arrangement with the respondent to unslip the vessel. Mr. Russell was to act as Master of the vessel to trial it after it was unslipped. They therefore knew that the vessel was to be unslipped that morning. Further, the slipping and unslipping of vessels is regulated by the time at which maximum slack high tide occurs, and I am satisfied that both Mr. Russell and Mr. Iovannella were aware of that fact. The maximum high tide on the morning of 6 April, 1990 was, I find, at around 0720 hours.

79. Mr. Alderdice in his evidence described the process of unslipping and what occurred on 6 April, 1990 as follows :-

"MS PHILIPPIDES: Now, what time was the vessel

scheduled to be unslipped?---We started to start

rolling at 6 o'clock.

And was there any particular reason for that?---

Yes, because it takes - the tides at 7.20, or at

that time, around 7 - after 7, and I wanted to

take that vessel down really slow, and it takes

us about an hour to get it in the water, an hour

and a bit to get it in the water.

Now, on the morning of the unslipping, can you

just explain to us what occurred with respect to

the actual unslipping manoeuvres?---We get in

there about half an hour before we start off so

we can get the ladder off, take the safety

chains off, make sure everything is all right,

there is nothing on the rails, and I just have a

quick check from underneath the vessel to see if

there is nothing left open. Then I stand on one

side of the vessel, the southern side, and Tom

stands on the thing by the winch, and we

communicated with each other and just let the

vessel go down slowly, and we watch all the

blocks and everything like this. When it goes

into the water - - -

You have still got time, Mr. Alderdice?---When

it goes into the - when the vessel is, sort of,

in the water and I can't see the bogies anymore

I usually just go and walk over to Tom's side

because that is the jetty side, and we walk down

the jetty and usually watch it going till we can

see when it is going to float. And we usually

just keep it in the water before the vessel

actually floats until we make sure everything is

already, and we have always got everything -

doing this could take half an hour, but we like

to be there before the top of the tide. And as

I went down there I saw Terry Rus(s)ell, and the

engineer, and I just - the first time I had seen

them - - -

Where were they?---On starboard side of the

vessel on the deck.

And where were you?---On the barge - on the

jetty.

Yes. And what did you say?---I just - more or

less my mornings greetings, and asked them how

the greasing went into the stern tube that

night, and they said it didn't. So I said don't

start anything up I'll go and get you some

grease. So I walked all the way back and picked

up five cartridges of grease, that is all we had

in the rack, and a grease gun.

Now, where - what stage of the unslipping was

the vessel at that stage?---It was just in the

water and the cradle and bogie would have been

half way.

Right. And what did you do after you got the

grease gun and the five cartridges?---I threw

them up to the engineer.

And what happened after that?---I said we will

probably start up if you let us know when you've

got some grease in there - the grease in there

before you start up, and we will carry on

slipping once you're ready.

And can you remember roughly how long that delay

was?---It would be in excess of a half an hour.

Was it? And before you did let go and the

vessel left the yard, did you say anything else

after they had put - - -?---Yes. Like I said,

when they come up and said they have got the

grease in the thing, they said, `Yes, we've got

enough in there to get us down there.' I said -

- -

Down where was that?---Down to Trinity Wharf.

Yes?---And I - I - make sure you pump more

grease into that stern tube.

Did you indicate where that should be done?---

Down at the Trinity Wharf.

Why were you prepared to let the vessel go on that

basis?---Because I knew in that distance they couldn't

hurt the bearings because the grease we installed it

with, and plus the five cartridges that were pumped

into the system, it was only a very short distance and

no way in the world would it hurt it that much".

80. I accept his evidence. On the evidence of Mr. Iovannella and Mr. Russell the vessel was allowed to progress down to the water while the conversation over the rail took place. The sense of their evidence is that the vessel was not stopped until it reached the water. On the evidence of Mr. Alderdice the vessel had reached, or almost reached, the water before the conversation occurred and the unslipping stopped.

81. There may in fact be no difference between the versions given as to when the unslipping stopped after the conversation over the ship's rail. What is clear is that the vessel was not taken down the slipway at 0530 or 0600 hours at speed, over a very short time span, and immediately floated off the slip. Even allowing 5 - 10 minutes steaming before abandoning a trial run of the shaft, on Mr. Iovannella's own evidence the vessel did not tie up at Trinity Wharf, which is a few hundred metres from the slipway, until around 0900 hours.

82. When the vessel was unslipped and proceeded to Trinity Wharf I find that Mr. Alderdice, Mr. Russell, Mr. Iovannella and Mr. Laskey knew that the stern tube had not been fully greased. Further, I find that each of them knew that the vessel could not safely return to normal cruising operations until the stern tube was fully greased. Neither Mr. Alderdice nor any other person on behalf of the respondent was asked to complete the greasing of the stern tube. Instead the greasing was left to Mr. Laskey, the ship's engineer, to be completed with grease obtained by the applicants, or one of them, from their petroleum products supplier.

83. The stern tube of the vessel required 20 - 30 litres of lubricating grease to fill it to capacity. On the night of 5 April and on the morning of 6 April Mr. Laskey pumped 15 - 20 litres of lubricating grease into the stern tube. I am satisfied that as the stern tube accepted 15 - 20 litres of grease, the lubrication grooves at the inner bearing were not clogged with old or contaminated grease. Nor were the lubrication grooves in any way functionally impaired by any act or omission of the respondent or its employees occurring at the slipway. I accept the evidence of Mr. Laskey that he observed grease coming out of the gland packing when he pumped grease into the stern tube while the vessel was moored at Trinity Wharf. The grease was coming out of the gland packing, I find, because the packing was at that stage not sufficiently tightened so that the grease followed the course of least resistance and exuded through the packing rather than going down the stern tube to its outer end. Mr. Laskey believed that as grease was being expressed out of the gland packing at the inner bearing, the stern tube was full of lubricating grease. His belief was wrong. I find that the quantity of grease pumped into the stern tube was insufficient to allow the grease to reach the outer end of the shaft and lubricate it at the aft bearing. Mr. Laskey did not look to see whether grease was being expressed around the sand seal into the water at the stern of the vessel indicating that the stern tube was fully lubricated. Had he done so he would have been aware that the stern tube was not fully lubricated.

84. After the vessel was unslipped and the shaft engaged to propel the vessel, it was noticed that the inner bearing was over-heating. It was this over-heating which led to the abandonment of any substantial trials being immediately undertaken and the vessel being brought alongside at Trinity Wharf. Mr. Alderdice was contacted and went to Trinity Wharf. The gland was unpacked and fully re-packed by Mr. Alderdice. Mr. Alderdice performed no other work. Nor was he asked to do any.

85. On 13 April, 1990 the vessel was taken on a voyage to Hinchinbrook and Dunk Islands which voyage involved approximately 30 hours steaming. On the evidence of the engineer the voyage was taken to satisfy those concerned with the ship that the shaft would not seize in the expectation that if it was going to seize, it would do so in the first few hours. During the voyage the engineer continuously applied approximately 150 litres of water per hour to the inner bearing to cool it and applied grease to the inner bearing hourly.

86. At the conclusion of the voyage the inner bearing was still substantially over-heating. The performance of the bearing was such that any competent engineer ought to have realised that there was a serious problem with the inner bearing. The engineer knew that there was a serious problem and expressed his concern to the master of the vessel, who in turn expressed his concern to the ship's management. The problem was not communicated to the respondent.

87. The applicants, through their managers, master and engineer determined to continue to operate the vessel in the hope that the bearing would bed-in over time. The engineer was aware that to investigate the problem was a "major operation" which would involve re-slipping the vessel. Re-slipping appears not to have been an option which was looked upon favourably. Mr. Laskey said "You can't take it out of the water again". This would have had the consequence that the incoming earning trip to Thursday Island and return would have had to be cancelled with subsequent loss of income. After the initial trip the vessel was in port in Cairns from 17 - 20 April. As to what was done during this period, the engineer replied :-

"Nothing was done?---No. To do anything, the

ship would have to come out of the water again".

88. The vessel left for Thursday Island on 20 April, 1990. During the trip water was pumped onto the bearing continuously at 150 litres per hour and the bearing was greased hourly. The engineer explained the greasing operation :-

"MS. PHILIPPIDES: How much grease did you have

on board on each trip?---On each trip? We had

these five litre containers - when I say

`greased the shaft every hour', it's only a

couple of squirts. It's - because you can't get

any in if it's not oozing out. It's just to

make sure that the gland - that the stern tube

is packed full of grease.

I see?---If it becomes hard straight away, no

more is put in, and very little grease probably

went in over the 130 hours of steaming that it

takes to get there and back.

You were just putting a few squirts in?---Till

it felt hard, yes. What oozed out the gland was

being replaced, so to speak.

Can I just get - correct me if I am wrong. You

were just squirting in a few squirts every hour

or so?---Yes.

At that stage, when you would apply the grease,

it felt hard; that is, the grease gun, did it;

hard to operate?---Yes, that's right, yes.

Yes".

89. Prior to commencing the trip to Thursday Island and return on 12 May, on which trip the shaft seized, the vessel had been operating under power for not less than 190 hours and probably closer to 200 hours. The problem with the over-heating of the inner bearing remained throughout and was serious. On the voyage to Thursday Island and to the point were the shaft seized, the engineer continued to treat the symptoms of the problem with the continual application of large quantities of water and hourly greasing with a squirt of grease.

90. The need to apply 150 litres of water per hour to the bearing to cool it should have indicated to a competent engineer in the view of Mr. Colley, the expert marine engineer called by the applicants, "That there was a gross malfunction in that area" which was "a massive problem, a very serious problem" and one where a competent engineer would "absolutely not" allow the situation to go on for a week or two weeks or more. A similar view was expressed by Captain Copeland, an experienced ship's master.

91. When the vessel sailed on 12 May, 1990 the management, master and engineer of the vessel knew that there was a serious problem with over-heating of the inner bearing which had not been overcome.

92. After the seized shaft was removed from the vessel on the re-slipping in May, 1990 it was inspected by Mr. Colley. As a result of that examination Mr. Colley said of the grease which had been pumped into the tube :-

"It was close to the aft bearing but it hadn't

arrived".

93. Mr. Colley said in re-examination that he could not say when the scouring evident in the inner bearing occurred other than to say that it was consistent with prolonged running at elevated temperatures in the region of the gland packing and the shafting. However, he gave the following evidence as to the blocking of the lubrication grooves in the inner bearing, which I accept :-

"MS. PHILIPPIDES: Could you comment on this

proposition: if the engineer stated that he

quickly pumped the grease until it extruded

through the gland packing, and that is -

supposedly that occurred when the vessel was

being unslipped but before it entered into the

water. Just a moment and I will get the - yes -

if the engineer in fact did the following:

proceeded to apply by hand the five grease

cartridges and continued to do so as the ship

entered the water, after entering the water, but

continued to pack grease into the stern tube

until it was seen to extrude from the stuffing

box - now, if that situation had occurred, given

the tightening of the packing which in your

report you said was packed so tightly that it

caused blueing, would it be possible to see the

grease extruding from the stern gland?---That

doesn't make any sense at all. The - if the

gland had been overtightened, which is obviously

the case, then the grease could not have got -

worked up past the gland packing. If grease was

seen coming past the gland packing, then the

gland must necessarily have been very, very

slack indeed. So somebody afterwards must have

tightened the packing up again - after that

grease was seen.

Yes. If the gland was packed so tightly as to

cause blueing, and that occurred before the

unslipping - that was when the tightening

occurred, then you would not expect, you say, to

see the grease extruding from the gland packing.

You would - where would you expect it to go?---

Well, you'd be able to take the line of least

resistance down into the inter-bearing space.

Right. and what is the effect of tightening the

gland - the packing? Now, I am not talking now

at any particular time, but what is generally

the effect of tightening the gland packing to

the extent of causing the blueing which was in

your photograph in your report?---The effect of

tightening the gland to such a degree that it

raises the steel of the shaft to blue heat would

be to raise the temperature of the shafting

material to in excess of 300 degrees C and that

would, without any shadow of a doubt, cause the

grease as used to burn hot, harden, denature and

become packed.

And where would it be packed?---In the immediate

vicinity of this stern tube bearing.

And in particular in respect of the bearing,

would it block the grooves in the bearing?---It

did block the grooves in the bearing. The

photographs in my report show that quite

clearly.

.....

Right. And that would mean that any grease

being applied would not reach the aft bearing?--

-No, it couldn't possibly.

And the five cartridges that were applied, would

that explain the reasonably well-lubricated

forward end of the shaft that you referred to in

your report - I think it was on page 8 - 8A.

You said that the inter-bearing space appeared

to have a co(r)pulent quantity of grease. You

are referring to the forward part of the shaft

there, are you?---Yes.

And that would possibly be the five cartridges,

would it?---That would be the initial five

cartridges that were pumped in, and possibly any

extra that was pumped in afterwards until the

bearing on the gland reached the temperatures

that are indicated in those photographs, after

which time the grooves would have blocked;

therefore no further grease could have been

pumped into the bearing, and it would obviously

seem very hard to whoever was presumably

administering grease to the stern tube.

Once the engine was engaged and running, that

hardening as a result of the packing being so

tight would occur fairly quickly, would it?---It

depends on the speed of the engine.

Yes?---I'm not being obtuse, but it would depend

on the speed of the engine - the shaft rotation,

and it could happen very, very - it could happen

fairly quickly, because as tight as it would

appear to have been, then it would have happened

very quickly. Bear in mind that we are talking

about somebody pouring 150 litres an hour of

water over it to keep it cool".

94. The evidence of the engineer as to the adjusting of the gland after the repacking at Trinity Wharf was as follows :-

"Now, do you recollect the gland that you

mentioned at Trinity Wharf that you and Dale

looked at and there was an adjustment of the

gland? Were there any further adjustments of

that gland on any of those voyages?---Well, the

gland is something you're adjusting all the

time. The initial settling in period - you've

got to monitor it very closely because once it's

- because the bearing was running so hot, it was

obviously affecting the gland, and it was very

hard to tell if you had it adjusted right. To

be on the safe side, we had the gland slackened

off more than we should have rather than have it

over-tight, and, of course, this let grease

trickle out of it all the time as we were

pumping it in, but it was better to waste grease

rather than have the gland over-tight".

95. As to the greasing over the period the vessel operated after the repacking of the gland at Trinity Wharf he also said :-

"Just one moment, please. The fact that the

grease was difficult to pump in after only a

few squirts, and you know that you were not

really putting very much in over the whole of

the voyage - each voyage - did that alert you to

anything? ---No. You shouldn't really have to

put grease into the - I mean, not huge amounts

of it. Once it's packed, it's just like a motor

car bearing. You don't go packing that up every

five minutes.

This is for almost a month, this happened. This

happened three weeks - for three weeks from

about the 6th to the - sorry, the 6th to the

16th this procedure?---Yes.

It was always hard. You did not - that did not

sort of give you a warning bell that something

might be wrong?---No, because it was always hard

in the past or it's - there's a little bit more

to it than that. We're pumping it in, then

you'll see it start to ooze out of the ground.

So you know it's cool. Yes. A lot of ships

have an automatic greaser and they don't have to

worry about it".

96. This evidence and his statement that very little grease went in over 130 hours steaming is only consistent with the evidence of Mr. Colley if the grease grooves were blocked with baked grease earlier rather than later after the repacking of the gland at Trinity Wharf on 6 April, 1990. This follows on Mr. Colley's evidence because if the grooves were not blocked, the grease when applied would have then taken the course of least resistance against the packing and gone down the annular space around the shaft. Additionally, the rotation of the shaft was such as to drive the grease down the inclined shaft. The pressure of the grease gun was approximately 1000 psi and would have been sufficient to force the grease through the spaces in the stern tube, and expel any air void through the sand seal which had a pressure of 20 psi. The fact that this did not occur indicates that the grooves were blocked and that it became impossible to pump grease beyond them. In consequence, only a minimal amount of grease was required to fill the space at the inner bearing before it was observed to exude from the gland. Mr. Colley expressed the opinion that with the gland tightened to the extent that it caused blueing of the shaft, grease could not have worked up past the packing. That the engineer observed grease exuding from the packing throughout the voyages after minimal pumping of grease hourly, indicates that more probably than not the engineer on the voyage to Hinchinbrook and Dunk Islands and return, in the process of adjusting the packing, over-tightened it to the extent that the grease baked in the lubrication grooves. I also find that the engineer thereafter released the packing sufficiently to enable him to observe grease ooze out of the packing because "...that's how we know it's full, when it comes out of the gland".

97. I find that the proximate cause of seizure of the shaft while the vessel was steaming from Thursday Island to Cairns on 16 May, 1990 was the failure of the engineer at Trinity Wharf on 6 April, 1990 to completely fill the rear tube with grease so that the grease did not reach the aft bearing and his subsequent over-tightening of the gland packing of the inner bearing which resulted in the baking of grease and the blocking of the lubrication grooves. The grease which was baked was the general purpose grease which had been pumped by him into the stern tube at the slipway and at Trinity Wharf. The blocked lubrication grooves prevented grease being pumped by the engineer in the weeks following the unslipping reaching the aft bearing. I also find that a major contributing factor to the failure was the continued operation of the vessel in service when the engineer, master and management of the vessel knew that there was a serious problem with the inner bearing and ought to have known that proper lubrication of the shaft as a whole required grease to pass through this bearing to the annular spaces and the aft bearing. A proper investigation of the problem of the inner bearing would have revealed that the lubrication system to the stern tube was not operating and that the aft bearing was being starved of lubrication. It is not unreasonable to infer that a reasonably prudent owner or ship's engineer would, upon finding a failure in the system, inspect the space aft of the blocked grooves to ascertain whether any damage had occurred and the state of the lubrication. A proper inspection would have revealed that the stern tube was not fully packed with grease. On the evidence, and in particular that of Mr. Colley and Captain Copeland, the continued operation of the vessel in the known circumstances was unreasonable, if not dangerous, and even if the stern tube had been fully greased so that seizure at the outer bearing would have been unlikely, it was equally likely that seizure would have occurred at the inner bearing.

98. The question remains, was the failure of the respondent to exercise due care and attention to inspect the stern tube and to satisfy itself as to the adequacy of the greasing by Mr. Laskey causative of any loss to the applicants or either of them.

99. The respondent submits that the conduct of Mr. Laskey, and the management of the vessel, was the sole cause of the seizing of the shaft or operated as a "novus actus interveniens". The relevant omissions of the respondent were to inspect the work or satisfy itself the work had been properly done. Would the exercise of reasonable care and skill have avoided the seizure of the shaft? If the respondent had inspected the work on 6 April prior to the unslipping of the vessel it would have ascertained that the stern tube had not been fully greased on the prior night and that there was insufficient grease onboard to complete the task. Mr. Russell and Mr. Iovannella would have been advised accordingly. Thereafter, I am satisfied that events would essentially have followed the same course as they did.

100. The task of greasing the tube was not one which could only be performed on the slipway. It would no doubt have been easier with the vessel slipped to inspect the aft end of the tube to observe that grease was expressed signifying that the tube was full. However the necessary volume of grease could have been satisfactorily pumped into the annular space with the vessel afloat. That this is clearly so comes from the evidence of Mr. Colley, which I accept, and the fact that neither Mr. Russell nor Mr. Iovannella insisted that the vessel be re-slipped to enable the greasing to be completed. Mr. Russell was too experienced a Master to have allowed the vessel to leave the slipway if he considered that it could not have been safely and properly greased at the wharf. I find that the probability is that Mr. Alderdice would have supplied the five cartridges to those onboard the vessel to enable sufficient grease to be pumped into the stern tube to allow the motor to run and the shaft to be engaged in order to move the vessel to Trinity Wharf for the greasing to be completed.

101. I am satisfied that the vessel would have been unslipped so that the applicants did not incur the additional cost that missing the high tide would involve. The respondent had no grease beyond the five cartridges supplied available to complete the greasing. There was no further grease available on the vessel. In these circumstances there would necessarily had been some delay until grease was procured from some source at or about 0530 - 0600 hours. Additionally, the respondent needed the slip for an incoming vessel and thus if the "Atlantic Clipper" could be moved safely as it could, the respondent would have attempted to persuade the applicants to adopt this course. That Mr. Russell and Mr. Iovannella allowed Mr. Laskey to obtain additional grease and himself undertake the greasing satisfies me that they considered him competent to undertake the task. The applicants did not ask the respondent to complete the greasing at Trinity Wharf and thereby avoided the additional cost of labour and materials if the respondent performed the work. This was consistent with the way the business was operated. Accordingly, I find that if the respondent had performed its duty and ascertained that the greasing had not been completed at the time the vessel was scheduled to be unslipped and advised the applicants accordingly, the applicants would, as a matter of probability, have used Mr. Laskey to complete the greasing at Trinity Wharf. It cannot therefore be said that but for the failure of the respondent to exercise due care and attention in the matter of inspection the shaft would not have seized, or, as a matter of common sense and experience the failure of the respondent caused or substantially contributed to the seizure (March v. E. and M.H. Stramare Pty. Ltd. [1991] HCA 12; (1991) 171 CLR 506 at 515-516, 522-523, 528; Bennett v. Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 at 413, 419 - 421, 428).

102. Additionally, in my view, any chain of causation was effectively severed because all parties knew at the time the vessel was unslipped and before the seizure that the stern tube was not completely greased and that it was necessary that the greasing be properly completed before the vessel could be safely returned to service. Completion of the task was undertaken by the applicants, or one of them, by Mr. Laskey, the engineer. The task was not properly performed. The foreseeable risk of loss and damage from the respondent's failure to inspect and ascertain the state of the greasing of the stern tube was the operation of the vessel by Pondcil in the mistaken belief that the respondent had fully greased the stern tube, such operation leading to a seizure of the shaft. That did not occur. The applicants knew when the vessel had been unslipped that the greasing was incomplete and that the vessel could not be returned to service until the greasing was completed.

103. I am satisfied on the evidence of Mr. Colley, and by the fact that the stern tube accepted 15 - 20 litres of grease, that the method of cleaning out the shaft originally used by the respondent did not cause or contribute to the seizure of the shaft or the blockage of the lubrication grooves at the inner bearing. When Mr. Colley spoke of baked old grease he was not speaking of residual grease left in the annular space after the cleaning rags had been pulled through. He was referring to new grease applied by Mr. Laskey which was baked in the vicinity of the lubrication grooves due to the over-tightening of the packing by Mr. Laskey, and the "blueing" of the shaft. Likewise I am satisfied that the tolerance allowed by the respondent for the new bearings which it manufactured and installed did not cause or contribute to the seizure and were within normal limits.

104. The applicants alleged in the statement of claim as particularised that the paint began to peel off the hull of the vessel as a consequence of it having been allowed insufficient drying time and applied with insufficient preparatory work being undertaken. There is simply no evidence to support these allegations. The applicants called no evidence as to the cause of the peeling of the paint. The submission was put that the paint peeled off, therefore the work was unsatisfactory. That is insufficient in the circumstances of this case where all relevant decisions as to paint product, surface preparation and specification were taken by the applicants on the advice of persons other than the respondents.

105. Mr. Robert Glyde, one of the employees of the respondent who spot blasted and painted the underwater hull area of the vessel, gave evidence and was cross-examined. He was the main painter on the job. Beyond the assertion that the photographs showed that "the anti-fouling paint that had been applied was not applied properly", an assertion not agreed to by Mr. Glyde, it was not suggested to him that insufficient time had been allowed for the paint to dry or that the surface had been insufficiently prepared. There was no suggestion that the respondent had done other than prepare the surface in accordance with the directions given by Mr. Russell for spot cleaning and applied the paint supplied by the applicants in accordance with the painting schedule and specification also provided by the applicants to the respondent. Such evidence as to the cause of the paint lifting as was called by the respondent satisfies me that, having regard to the condition of the hull, spot blasting was an inadequate preparation of the surface. Mr. Russell had experience in marine paints. He rejected the advice of Mr. Jones to blast the area back to bare metal. In this he took a calculated risk to save money. In the result Mr. Russell made the wrong decision. Additionally, there is a strong suggestion that the condition of the surface before it was spot blasted was as a result of electrolysis and that electrolysis continued to play a part in the failure of the bond of the paint to the underlying surface. However, the expertise of those giving evidence of electrolysis, while gained from practical experience in the marine paint industry, is not such as would satisfy me as a matter of probability that electrolysis was the cause of the failure.

106. The applicants have failed to show that any conduct of the respondent was causative of the paint lifting off the hull and the need for re-painting to be undertaken. Further, the applicants did not rely upon the skill and knowledge of the respondent in relation to the method and manner of the re-paint or the materials supplied. The applicants relied totally upon the skill and judgment of others. Accordingly, there was no implied term that the paint supplied or the painting specification or the preparation work undertaken were fit for the purpose or would produce a particular result.

107. The applicants' claim in relation to the rudder bearing is, to say the least, difficult to understand. The applicants at no time particularise any alleged act or omission on the part of the respondent in removing the rudder and modifying the existing rudder bearing and replacing the rudder on completion, which it is alleged breached an implied warranty or was negligent. It is simply contended that because the top rudder bearing was renewed in work done by N.Q.E.A. Australia Pty. Ltd. in June, 1991, the work done by the respondent in April, 1990 was defective.

108. It is clear on the evidence of Mr. Russell that some time late in 1989 the vessel had suffered rudder damage when the rudder was struck by some object. As a result of the rudder being damaged temporary repairs were carried out. Mr. Russell gave the following evidence in relation to the rudder :-

"MR. GILLIES: Yes. And the rudder - what work

was performed on the rudder at the slipping in

April?---Well, originally there was a temporary

repair done on the - on the rudder earlier that

year, and then final repairs - it was just

enough to get us through earlier that year, and

then further repairs were done on the rudder at

that time.

Now, what were those further repairs; are you

able to say? ---There was replacement of

bearings, there was - a lot of the bolts had to

be re-cut off and welding was done, and so on.

And was that then attended to on 26 May, or -

sorry - 29 May?---Yes.

Was that then again attended at a later time?---

Yes. It had to be looked at again later on in

the year.

And so what in broad general terms was the

problem with the rudder, do you say?---Well, the

- the rudder was never really fixed properly, is

the best way of describing it. It was - we - we

had problems with it after that, continued

problems".

109. Similarly, the Master of the vessel, Mr. Smith, said "The rudder was audibly loose in the top bearing going clunk clunk" and remained in that condition until N.Q.E.A. fixed it. No evidence was called by any person from N.Q.E.A. as to what work that organisation undertook in relation to the rudder and the need for it. The applicants tendered an N.Q.E.A. Australia Pty. Ltd. invoice dated 6 June, 1991 which included the following :-

"JOB NO. 0409-007

RENEW TOP RUDDER BEARING.

LABOUR - 52 HRS. @ $36.00 1872.00

MATERIALS - PACKING 241.74

HOLLOW BRONZE BAR 724.80

HIRE CHARGES - M/C PREMIUM 64.00

2902.54"

110. There is no evidence that the work undertaken by N.Q.E.A. was the same work set forth in the work sheets and the invoice of the respondent (exhibit 15). So far as the evidence goes, there has never been any complaint by the applicants or either of them to the respondent prior to these proceedings as to any alleged inadequacy in relation to the work undertaken. No witness called by the respondent was cross-examined in relation to performance of the work set forth in exhibit 15.

111. The applicants have failed to make out any case that the respondent agreed to do any work other than that recorded in the invoice of 11 April, 1990 and that such work as was undertaken was in any way defective, negligently done or productive of loss to the applicants or either of them.

Section 52 of the Trade Practices Act 1974

112. A mere breach of an implied warranty to exercise due care and attention and an implied warranty that the services and materials provided will be reasonably fit for the purpose do not constitute a breach of section 52 of the Trade Practices Act. In Comalco Aluminium Ltd. v. Mogal Freight Services Pty. Ltd. (1993) 113 ALR 677, Sheppard J said (at 693) :-

"As counsel for Mogal submitted, the fact that a

person engaged in a profession or trade may

occasionally do work incompetently or badly does

not of itself establish a general incompetence

or a general lack of capacity to do what is

required. It may amount to a breach of a

contract or warranty, but it will not be

generally indicative of incompetence. Here we

know that there were three earlier consignments

of coils carried out by Mogal for Comalco

Aluminium. Apparently these were undertaken

without damage.

The evidence, particularly that of Mr Mackie,

establishes that the containers and coils in

question arrived in a badly damaged condition.

The evidence establishes that that damage was

caused by inadequate packing. That is the

finding which I have made. However, if there

were no more, I would not regard the case as

being one in which Comalco had established

incompetence and lack of skill on Mogal's part.

I would have taken the view that the evidence

established no more than that there had been a

lapse on one occasion from a standard which

usually applied."

113. In Comalco there were in fact specific representations by the freight forwarder as to its competence and experience. That is not this case. Additionally, there was evidence in Comalco which went directly to general incompetence which again is not this case.

114. The final submission that the presence of Mr. Alderdice at Trinity Wharf, without testing and filling the stern tube for and with grease was misleading and deceptive conduct because it misled the applicants to believe that the engine was properly prepared, is not made out in fact. Mr. Alderdice was attending to deal with an overheating inner bearing. He was not attending to either complete the greasing or to inspect Mr. Laskey's work. The applicants knew that Mr. Laskey, in his capacity of ship's engineer, was to complete the greasing with grease supplied by the applicants. If the applicants believed mistakenly that the shaft was properly greased, it was because the ship's engineer had purported to do the job; not because of anything Mr. Alderdice did or said at Trinity Wharf or conveyed by his presence there.

115. Although I am satisfied that there is no conduct on the part of the respondent which was causative of any loss to the applicants, I will nevertheless deal with the question of damages in the event that this matter proceeds further.

116. The vessel "Atlantic Clipper" was chartered by Starline as owner to Pondcil as charterer. The terms of the Charter Agreement are contained in the Minutes of Meeting of Directors of Starline of 21 October, 1987. Throughout the relevant period, Starline received the charter hire agreed to be paid and Pondcil made all other outgoings agreed to be paid. Starline did not carry on the business of Clipper Sailaway Cruises. That business was carried on by Pondcil. Starline suffered no loss or damage in consequence of the seizure of the shaft of the vessel nor from the delamination of the paint on the underside of the hull.

117. The following loss and expense consequent upon the seizure of the shaft is not in dispute :-

"A. Expenses incurred in connection with towage of vessel to

Cairns and in connection with repairs undertaken to date

(a) Tow - "Queen of the Isles" $ 8,000.00

(b) Harbour tug $ 816.48

(c) Tow to dry dock $ 175.00

(d) Anchorage/berthage charges, Cairns

Port Authority $ 659.98

(e) Dry docking and repairs (accounts

submitted by Tropical Reef Shipyard

Pty Ltd but not paid) $ 7,228.90

(f) Telephone and fax charges $ 399.58

(g) Administration charges $ 3,134.00

(h) Travel (Iovannella) $ 482.00

(i) Radio calls $ 450.00

(j) Fuel used during period of repairs $ 3,862.85

(k) Wages paid to crew during period

of repairs $ 5,770.00

(l) Cost of food provided to crew whilst

vessel undergoing repair $ 719.40

(m) Cost of repainting deck of vessel

following repairs (paint taken from

stock) $ 100.00

B. Trading losses from cruises

12th May 1990 - Airline ticket $ 567.40

$32,365.59"

The above loss and expense was incurred by Pondcil.

118. The applicants claim the sum of $6,000.00 as wasted advertising because the vessel was out of commission for three weeks. The claim is calculated by taking the annual advertising budget and dividing it by 52 to obtain an average weekly expenditure of approximately $2,000.00. Because the vessel was not operating for three weeks it is claimed that advertising for those three weeks was lost and wasted. I do not accept that this is a correct approach. Advertising is merely one of the costs associated with conducting the business. As a result of being laid up for a three week period Pondcil lost the opportunity to earn income from the use of the vessel. Loss of profits for the three week period has been claimed and it is the loss of these profits which is the proper head of damage and not some notional apportionment of the year's costs of advertising.

119. The applicants have claimed loss of profits for three voyages, those of 19 May, 1990, 26 May, 1990 and 2 June, 1990. The applicants claimed lost revenue of $25,240.00 for the first voyage; $22,689.00 for the second voyage; and $23,649.00 for the third voyage. The losses were calculated by Mr. Iovannella on the basis of a percentage of total cost to total revenue of respectively 32.35%, 34.39%, 33.47%. The costs relied upon by Mr. Iovannella were estimates only.

120. Evidence was given by Mr. Alan Bottommer, a chartered accountant and member of the firm of Mann Judd Bottommer of Cairns. Mr. Bottommer prepared a report (exhibit 32) whereby he has calculated potential net revenue losses of $11,723.00, $10,867.00 and $11,169.00 respectively for the voyages of 19 May, 26 May and 2 June, 1990. Mr. Bottommer has used the same revenue flows as Mr. Iovannella. However, Mr. Bottommer has calculated the actual direct costs of sales using the figures contained in the financial accounts of Pondcil for the year ended 30 June, 1990. Those financial records show net sales of $700,186.00 and total costs of sales and direct expenses of $486,675.00, being 69.51% of revenue. Certain adjustments were made by Mr. Bottommer to exclude parts and repairs as a cost of purchase and to include a sum for crew wages. The adjusted figures show a percentage of direct cost to net sales of 68.58%. Applying that percentage to the revenue flows used by Mr. Iovannella, the potential net revenue figures referred to above are ascertained.

121. It was suggested to Mr. Bottommer that the sum of $74,681.00, being the cost of office services provided to Pondcil by Cairns Rent-A-Yacht as sub-contractor was a fixed cost and not a variable cost. Mr. Bottommer did not accept this, the sum being shown as a variable cost in the books and accounts of Pondcil and the applicants did not prove otherwise.

122. I am satisfied that the exercise undertaken by Mr. Bottommer represents the true financial position and cost of sales of Pondcil for the financial year ended 30 June, 1990. However, for reasons which appear later in this judgment, I am satisfied that in May and June, 1990 Pondcil was operating at a higher level of profitability per voyage due to higher average prices being charged. Pondcil's financial records disclose that the average profit per voyage for the financial year ended 30 June, 1990 was $7,635.00. The average profit per voyage for the financial year ended 30 June, 1991 was $13,409.00, achieved on a higher fare base. In my view, the probabilities are that voyages lost would have been contributing to profits for the 1989/1990 financial year at an average profit per voyage closer to the 1991 average than the 1989 average. I therefore assess the lost profit from the three voyages at $13,000.00 per voyage; totalling $39,000.00.

123. The applicants claim loss of goodwill as a result of disruptions and inconvenience caused by the seizure of the shaft. Additionally, there was alleged to be a loss of credibility and good name with local and interstate travel agents, as well as a loss of established reputation and reliability. It was further alleged that the competitor of the vessel "Atlantic Clipper", the "Queen of the Isles", gained passengers which would otherwise have travelled with the "Atlantic Clipper" and that abnormal costs were incurred in order to re-establish credibility and good name and to attract custom. The loss of goodwill was pleaded and claimed as being $36,000.00. The goodwill was pleaded as being a percentage of the capital cost of the vessel.

124. On the trial of the action no evidence was called to indicate that the business reputation of the "Atlantic Clipper" was in any way impaired. To the extent that business was lost to the competitor, the only evidence called related directly to the loss of profits claim which I have assessed above.

125. In order to attempt to prove damage to and loss of goodwill and to value it, evidence was called on trial from Mr. B.W. Peden, chartered accountant. Mr. Peden is a member of Hall Chadwick, chartered accountants of Cairns. In a report dated 27 September, 1993 Mr. Peden expressed the opinion that in the 1990/1991 financial year, Pondcil lost potential net revenue of between $37,800.00 and $73,238.00. The underlying thesis of the report is that in the 1990/1991 year other tourist operators in Cairns had achieved significant increases in turnover from the 1989 season. Of the other tourist operations Mr. Peden used as a model, one was a cruise operator whose business had increased 35.05% in the 1990/1991 financial year, and the other two were land-based tourist operators who showed an average increase of 41% over the same period. As the "Atlantic Clipper" had a maximum comfortable load limit of 34 passengers per trip, it was contended that a mere increase of 9.7% in 1990/1991 was all that was necessary to achieve maximum returns from the vessel. Because the vessel was not carrying a maximum of 34 persons each voyage in the season 1990/1991, Mr. Peden drew the conclusion that the failure to carry maximum loads was somehow attributable to the incident on 16 May, 1990. Alternatively, he contended that the number of passengers carried was less in 1991 than in 1989/1990 for selected periods of the year which he identified as "the season" and that this was proof of a loss of goodwill.

126. Exhibit 23 is a schedule of the actual number of passengers who travelled on each of the various cruises listed for the years 1989, 1990 and 1991. The list was not a complete list of all cruises for the relevant period and was limited to those operated during "the season". The exhibit was partially reproduced in typed form as exhibit 20. A written summary attached to exhibit 23, which was prepared by Mr. Iovannella, shows the total passengers and total cruises for the three years. In 1989, 39 cruises were completed carrying 1,014 passengers. In 1990, 32 cruises were completed carrying 832 passengers. In 1991, 27 cruises were completed carrying 646 passengers. On these figures the average number of passengers per voyage in 1989 and 1990 was 26 in each year. In 1991 the figure had fallen to 24 passengers per cruise. However, whereas in 1989 and 1990 cruises had been operated in the first quarter of the year, in 1991 no cruises were operated and no explanation was given in evidence as to why this was so.

127. During the trial, Mr. Iovannella prepared exhibit 27 which contained the cruises undertaken and passenger numbers for the period September to year end for 1989 and 1990. The financial accounts of Pondcil for the years ended 30 June, 1989, 30 June, 1990, 30 June, 1991 and 30 June, 1992 were tendered into evidence (exhibit 22). From the information contained in exhibits 20, 22, 23 and 27 I have constructed the following table.

Year Ended 30.6.89 30.6.90 30.6.91 30.6.92

Sales - 604,753 725,965 847,293 717,456

Less Refunds - 11,443 25,779 9,305 23,130

593,310 700,186 837,988 694,326

Less cost of

sales - 250,516 292,092 251,822 254,909

Less direct

costs - 54,188 194,583 197,608 159,703

304,704 486,675 449,430 414,612

Net trading

profit - 288,606 213,511 388,558 279,714

Percentage of

direct costs

to net sales - 51.35% 69.50% 53.63% 59.71%

Cruises undertaken - 28 29

Total passengers - 845 770

Average cost to

each passenger - 829 1,088

Trading profit

per passenger - 253 505

Average trading

profit per voyage - 7,635 13,409

128. The sales each year have been adjusted to reflect the refunds made to arrive at net sale figures. I have not further adjusted the figures in order that a straight comparison of the accounts prepared by Pondcil can be made. The only financial years during which it is possible to identify the total number of cruises undertaken in each year are the years ending 30 June, 1990 and 30 June, 1991. These are the only years where it is possible to identify the total number of passengers carried.

129. The seizure of the shaft occurred on 16 May and the vessel lost cruises scheduled for 19 May, 26 May and 2 June, 1990. The vessel returned to service on 9 June, 1990. Although it may be said that in the year following the seizure of the shaft the vessel carried 75 passengers less than in the prior financial year, what the table shows is that the average cost of that voyage to a passenger in the financial year ended 30 June, 1991 had increased by 31.24%, from the average price charged in the previous financial year. Thus, the average cost to a passenger had risen from $829.00 to an average cost in the year ended 30 June, 1991 of $1,088.00. In the same period the average trading profit to Pondcil per voyage had risen 75.62% from $7,635.00 in the year ended 30 June, 1990 to $13,409.00 in the year ended 30 June, 1991.

130. Clearly what has occurred and what I find is that Pondcil increased the average price of a voyage per passenger at some point in time during the two financial years. The price increase has translated into a 31.24% increase for the year ended 30 June, 1991. Attached to the documentation for the loss of profits claim for the voyages scheduled for 19, 26 May and 2 June, 1990 (exhibit 21) are cabin accommodation summaries. The summaries include the cabin number, the date of inquiry (which one assumes is the booking date or cost quote as it is claimed as a firm booking for the loss of profits claim) and the cost of the cabin to the passenger. The following table, constructed from information contained in the summaries, shows what was occurring with the prices charged at different booking times. The table only includes double or twin cabins with dual occupation. Other multiple occupancies have been ignored as they are not directly comparable.

Voyage 19 May Voyage 26 May Voyage 2 June

Cabin Date Charge Date Charge Date Charge

No. Booked Booked Booked

D1 9.1.90 1950 9.4.90 2250 8.5.90 2500

T2 9.1.90 1950 5.9.89 2100 23.4.90 2500

T3 28.4.90 2500 22.1.90 2500

D4 1.3.90 2250 15.4.90 2500 27.2.90 2500

T5 12.5.90 2500

T6 23.3.90 2250 23.5.90 2500

D7 23.3.90 2250 9.3.90 2200 10.4.90 2500

D10 23.3.90 2250 28.7.89 1900 4.12.89 1710

T11 23.3.90 2250 2.5.90 2200 30.4.90 2500

T12 1.5.90 2500 25.5.90 2500

D14 15.5.90 2500 17.5.90 2500 13.5.90 2500

D16 16.5.90 2500 22.4.90 2500 20.5.90 2500

131. The table shows that from early 1990 Pondcil was attempting to market double or twin cabins at $2,500.00. May bookings made shortly before the scheduled voyages in question were generally achieving that figure although the summaries show that few deposits had been paid on these late bookings. Bookings made earlier in 1990 were being sold at $2,250.00 or thereabouts. Whereas 1989 bookings generally (cabin D10) achieved less than $2,000.00, although achieving $2,250.00 when booked on 23 March, 1990. Likewise cabins D1 and T1 show the upward pressure on cost although the booking of 5.9.89 was a better result than the other 1989 bookings. The table indicates that immediately prior to the seizure, Pondcil was not discounting or charging below the $2,500.00 per cabin charge as it had been earlier in 1990 and 1989. There is no evidence as to whether the 1990 bookings were being sold by Pondcil, the agents who sold the 1989 bookings or some other travel agents. What is clear however, is that by May, 1990 Pondcil had stopped selling cheaper passages which in the financial year ended 30 June, 1990 had resulted in a greater number of passengers being carried for a substantially lower price per passenger.

132. I do not accept the evidence of Mr. Iovannella that the business of Pondcil was effected in any way beyond the loss of the three voyages in May and early June. Specifically, in the absence of evidence from Ansett Airlines or Australian Airlines, I do not accept his evidence that the shaft seizure and cancellation of the voyages in some way effected his relationship with those airlines operators. If Pondcil had difficulties with the airline operators, on the evidence before me it is equally open that the problem was caused by the substantial fare increase which occurred in the second half of the 1989/1990 financial year and the 1990/1991 financial year.

133. Additionally, it is not possible to compare the operation of the "Atlantic Clipper", which was a seven day cruise ship, with land-based tour operators or day trip boat journeys from Cairns to the Great Barrier Reef and return. The business against which a clear comparison could have been made, and was not, was that conducted by the competitor cruise ship the "Queen of the Isles".

134. There is no evidence which would satisfy me that the drop in passenger numbers in the year following 30 June, 1990 was attributable to the seizing of the shaft on 16 May, 1990. Nor is there any evidence which would satisfy me that the failure to carry the maximum of 34 passengers on each subsequent voyage was attributable to the seizure.

135. If the respondent had been liable to the applicants, or either of them, in respect of the painting of the vessel or the rudder repairs, then the proper award of damages would in my opinion be the costs thrown away in having the original painting undertaken and the modification of the rudder bearing carried out. The reason for so finding is that there is no evidence that the work subsequently done by N.Q.E.A. Australia Pty. Ltd. was the same work as that undertaken by the respondent, or that, if it was the same work, that costs had increased over time. No person from N.Q.E.A. Australia Pty. Ltd. was called to give any evidence as to exactly what work was undertaken and how this work compared with the work originally undertaken by the respondent. The cost of the original painting and rudder repairs totalled $13,336.00.

136. The respondent performed additional work when the vessel was re-slipped on 29 May, 1990. It performed work on the seized shaft and additional painting was undertaken. That work has not been paid for. The work is set out and the costings recorded in exhibit 4. Captain Copeland has certified as to the reasonableness of the cost of work other than painting at $7,288.90. He does not deal with the cost of repainting recorded on job card 57294.

137. I find that all the work was done and that the charges charged are fair and reasonable charges. The applicants did not suggest otherwise.

138. The parties have throughout these proceedings treated the contractual arrangements as being between the applicants and the respondent. Therefore judgment should be entered against both applicants on the cross-claim.

139. In the result, there will be judgment for the respondent on the applicants' claim and judgment for the respondent against the applicants on the cross-claim in the sum of $8,366.63.