Specialised Printing Equipment v de Vries

Supreme Court of NSW|2003-08-14|Before: Austin J, Mr J

CITATION : Specialised Printing Equipment v de Vries [2003] NSWSC 1168 HEARING DATE(S) : 24 & 28 July, 5 & 14 August 2003 JUDGMENT DATE : 10 December 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Plaintiff's appeal against rejection of proof of debt dismissed; cross-claim partially successful

CATCHWORDS : CONTRACT - purchase price in Australian dollars to be paid by letter of credit in Great British pounds - effect of fluctuation in exchange rates - whether parties agreed to vary contract by buyer undertaking to procure forward exchange cover for seller - whether, under contract, work done on delivery of goods was installation work - TRADE AND COMMERCE - misleading and deceptive conduct - whether costs of receivership caused by misrepresentations as to plaintiff's claim CASES CITED : Re Bird's Stores Ltd (1931) 37 ALR 94 Re Kentwood Constructions Ltd [1960] 1 WLR 646 Specialised Printing Equipment (Australia) Pty Ltd (P, XD1) PARTIES : Antony Anne de Vries (D1, XC1) ACN 000 080 464 Pty Ltd (in liq) (D2, XC2) Riad Tayeh (D3, XC3) FILE NUMBER(S) : SC 1613/03 COUNSEL : Mr A P Spencer (P) Mr F G Lever SC with Mr J M Miller (D) SOLICITORS : Gadens (P) Gibsons Lawyers (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1613/03 SPECIALISED PRINTING EQUIPMENT (AUSTRALIA) PTY LTD V ANTONY ANNE DE VRIES & 2 ORS JUDGMENT 1 HIS HONOUR: The first and third defendants are the liquidators of the second defendant, which was previously called Kookaburra Industries Pty Ltd. I shall refer to the company as "Kookaburra" for convenience. This is an appeal by the plaintiff, Specialised Printing Equipment (Australia) Pty Ltd ("SPE"), seeking to reverse their decision as liquidators to reject SPE's claim to prove in the liquidation of Kookaburra. SPE is a person aggrieved by the liquidators' decision, and therefore has a statutory right to appeal to the Court against the decision under s 1321(d), within the time limit specified by reg 5.6.54(2) of the Corporations Regulations. The appeal is by way of a re-hearing de novo (Re Kentwood Constructions Ltd [1960] 1 WLR 646), and the parties are entitled to adduce fresh evidence in support of their contentions (Re Bird's Stores Ltd (1931) 37 ALR 94). 2 The best way to understand SPE's claim against Kookaburra in liquidation is to refer to the proof of debt, rather than SPE's "summons", which is a poorly drafted document. In these reasons for judgment, I shall adopt the definitions used in the proof of debt. 3 I note that the claims set out in the proof of debt were also made, prior to lodgement of that document, in proceedings brought by SPE against Kookaburra in the County Court of Victoria in January 2002. There were negotiations to settle that litigation, but the negotiations failed after the appointment of Neil Singleton and Anthony Sims as receivers of the business and assets of Kookaburra in March 2002, and the appointment of the first and third defendants as voluntary administrators of Kookaburra on about 15 March 2002. The plaintiff would need to obtain leave to proceed against Kookaburra in liquidation, before taking any further steps in the County Court. 4 The proof of debt, dated 17 September 2002, claims $95,628.94, particulars of which are set out in a schedule, which I shall quote in full: "Schedule

By agreement dated 20 March 2001 ('the Agreement') between Kookaburra Industries Pty Ltd (in liquidation) ('Kookaburra') and Specialised Printing (Aust) Pty Ltd ('SPE'), SPE agreed to sell and Kookaburra agreed to purchase a Heidelberg Speed Master 5 Colour Press model 72F serial number 521613 ('the Heidelberg 72F').
The Agreement contained, inter alia, the following terms: (a) The price of the Heidelberg 72F was AUD550,000.00 plus GST [in the sum of $55,000] ('the Purchase Price'); (b) Kookaburra would provide to SPE, by way of trade-in, with [sic] a 1976 model Heidelberg SORSZ ('the Trade in Machine') valued at AUD66,000.00 ('the Trade-in Price'); (c) AUD50,000.00 of the Trade-in Price was to be discounted from the Purchase Price at the date of transfer and a further AUD16,000.00 was to be paid to Kookaburra by SPE upon removal of the Trade-in Machine; (d) the Purchase Price was paid by Kookaburra to SPE by a transferable irrevocable documentary letter of credit for the Great British pound equivalent of AUD555,000.00 inclusive of GST ('Letter of Credit') as at the date of negotiation ('the Negotiation Date'); (e) full and clear title to the Heidelberg 72F would pass to Kookaburra's financiers upon negotiation of the Letter of Credit. 3. On or about 6 April 2001, SPE and Kookaburra entered into a variation of the Agreement ('the Variation'). The Variation required Kookaburra to provide forward exchange cover to protect the Letter of Credit from currency fluctuations. 4. The forward exchange cover was to be provided by Kookaburra to SPE for the purpose of securing the value of the Letter of Credit and thereby avoiding SPE's exposure to currency exchange fluctuations. 5. Kookaburra did not obtain the forward exchange cover thereby rendering the Letter of Credit subject to currency exchange fluctuations. 6. On or about 6 April 2001 ('the Provision Date'), Kookaburra provided SPE with an irrevocable documentary Letter of Credit number SD3BM800627 issued by Westpac Banking Corporation on behalf of Kookaburra for 185,869.50 Great British pounds. 7. The equivalent of 185,869.50 Great British pounds on the Provision Date was AUD555,000.00. 8. On 13 May 2001, the Letter of Credit was negotiated by SPE at an exchange rate of AUD0.3649. 9. The value of the Letter of Credit on the Negotiation Date was AUD509,371.06 ('the Negotiated Sum'). 10. The currency exchange rate between the Great British Pound and the Australian Dollar fluctuated from AUD555,000.00 on the Provision Date to AUD509,371.06 on the Negotiation Date. 11. On or about 13 June 2001, SPE delivered to Kookaburra the Heidelberg 72F. 12. In breach of the Agreement and the Variation: (a) SPE suffered a shortfall of AUD45,628.94 ('the Shortfall') on negotiation of the Letter of Credit; and (b) Kookaburra failed to deliver the Trade-in Machine to SPE. 13. Accordingly, Kookaburra is indebted to SPE in the sum of $95,628.94 made up as follows: (a) $45,628.94, being the amount of the Shortfall; and (b) $50,000.00, being the value of the Trade-in Machine." [The proof of debt attached a copy of the Agreement dated 20 March 2001, an invoice dated 15 March 2001, and the Letter of Credit dated 6 April 2001.] 5 By their Notice of Rejection dated 15 November 2002, the liquidators disallowed SPC's claim in full. The Notice of Rejection said: "The grounds for my decision are as follows: (a) As to the claim for $45,628.94, the allegation by SPE that the director of the Company had agreed that the Company would provide forward exchange cover to protect SPE from currency fluctuations, the claim: (i) is not substantiated by any documentary evidence; (ii) is contradicted by documents from both SPE and the Company; (iii) is denied by the director of the Company; and (iv) is not generally consistent with available information concerning negotiations between SPE and the Company. (b) As to the claim for $50,000.00, the Company is entitled to a set off being greater than the amount claimed by SPE which set off relates to the obligation by SPE to pay for commissioning and installation of a Heidelberg Speedmaster HD72F Five Colour Printing Press sold by SPE to the Company. (c) Accordingly, SPE is a net debtor to the Company and not a creditor." 6 The claim by Kookaburra to a set-off in respect of commissioning and installation costs has been reflected in the cross-claim filed in the present proceeding. In its summons, SPE admits that Kookaburra is entitled to a set-off, but only for $23,492.54. The cross-claim also asserts that Kookaburra (in liquidation) is entitled to recover damages from SPE for the latter's misleading and deceptive conduct, by virtue of representations for made by SPE to the receivers. 7 Thus, there are five issues to be determined: (a) Was it a term of the Agreement that Kookaburra would arrange forward exchange cover to protect SPE from its exposure to adverse movement in the Australian/Great Britain Pound exchange rate? (b) If so, what is the loss for which SPE is entitled to prove in the liquidation of Kookaburra? (c) Is SPE entitled to claim $50,000 in the liquidation of Kookaburra due to non-delivery of the Trade-in Machine? (d) Is Kookaburra (in liquidation) entitled under the Agreement to recover commissioning and installation costs and, if so, is it entitled to a set-off for the recoverable amount against any amount recoverable by SPE? (e) Is Kookaburra (in liquidation) entitled to recover damages from SPE for misleading or deceptive conduct by SPE in its representations to Mr Singleton? The witnesses 8 The plaintiff relied on the affidavit and oral evidence of Craig Power, a director of the company. Counsel for Kookaburra attacked Mr Power's evidence, submitting that wherever there was a conflict between his evidence and the evidence given by Kookaburra's witnesses, the latter should be preferred. Generally, and subject what I shall say on specific occasions, I agree with this submission. 9 Mr Power gave me the impression that he was not conscientious in the preparation and presentation of his evidence. It emerged in cross-examination that he had been careless in giving dates in his affidavits. He claimed that mistakes about dates were mistakes by his solicitor, and that he was told by his solicitor that there was no need to check the dates. That is inherently implausible, in circumstances where he was deposing to the truth of the statements in his affidavit, and he admitted that he understood the importance of making an affidavit that was as accurate as possible. Indeed, the plaintiff's solicitor was in court, and was not called to give evidence for the plaintiff confirming Mr Power's unlikely claim about his advice. 10 Gregory Crowe, the financial controller of Kookaburra, gave affidavit and oral evidence, including evidence of conversations with Mr Power. James Elliott, the general manager of Kookaburra, also gave affidavit and oral evidence. I regard both of them as reliable witnesses. Mr Lindroos, the director of Kookaburra with whom Mr Power dealt, was very ill and did not give oral evidence, although I allowed his affidavit to be read. 11 Evidence was also given by Neil Singleton, one of the receivers of Kookaburra, Riad Tayeh, the third defendant and one of the liquidators of Kookaburra, Greg Johnston and Kenneth McDonald, who worked on the installation of the printer that Kookaburra's premises, and Philip Spence and Haydn Lynch, who gave expert opinion evidence for SPE with respect to the reasonableness of installation costs and foreign currency movements respectively. I regarded all of these witnesses as reliable. Forward exchange cover

Negotiation of the Agreement 12 SPE is a supplier and installer of printing equipment, and also provides mechanical repairs for printing presses. Kookaburra operated a paper converting business which carried out some printing in the course of converting paper to the finished product. One of the products produced by Kookaburra early in 2001 was beer coasters. Kookaburra was interested in acquiring a five colour printing machine for the purpose of producing beer coasters, and made inquiries within the industry to ascertain the availability of such a machine. Negotiations took place between Mr Power, a director of SPE, and Mr Lindroos, a director of Kookaburra from late February or early March 2001. The negotiations were by telephone and correspondence. They never met face to face. 13 On 9 March 2001 Mr Power wrote to Mr Lindroos, following a telephone conversation, to provide details of a press currently available in England, the Heidelberg 72F. They then had discussions about Kookaburra trading in its existing Heidelberg SORSZ printer. On 12 March 2001 Mr Power wrote again to Mr Lindroos, after discussion between them, giving further information about the press and advising that it was ready for shipment and immediate installation upon arrival. Shortly afterwards, he received a pro forma invoice dated 15 March 2001 from the owner of the machine, Glancy Rawthore Graphics Limited of the United Kingdom, identifying the price as 140,000 Great Britain Pounds, payment to be by irrevocable transferable letter of credit, to be opened immediately in favour of the owners and advised through their stipulated bank. 14 Mr Power had a telephone conversation with Mr Lindroos on about 15 March 2001 in which they discussed the purchase price and the allowance for the trade-in, and Mr Lindroos said he had spoken to Kookaburra's bank which would raise a letter of credit on the following Monday. Mr Lindroos also said that Kookaburra had contact with an engineer called John Brown in the United Kingdom, and would like to have Mr Brown inspect the press in the United Kingdom. Mr Power agreed with this request. 15 Mr Power raised a form of invoice directed to Kookaburra dated 15 March 2001, stipulating the price of $550,000 plus $55,000 GST, less a trade-in allowance of $50,000 for the Trade-in Machine, leaving a balance of $555,000. Mr Power's invoice said "payment by means of irrevocable transferable letter of credit advised to" SPE at its stipulated bank, and "credit to be for the Great British Pounds equivalent of AUD555,000.00". Mr Power gave evidence that the invoice was "issued" to Kookaburra, although other evidence indicates that the terms of the Agreement were still under negotiation late in March 2001. Mr Power sent the invoice to Westpac Banking Corporation, Kookaburra's bank, on 5 April 2001 to facilitate the raising of a letter of credit for payment for the Press. 16 Mr Elliott gave evidence that when Kookaburra received the invoice dated 15 March 2001, he told Mr Lindroos that Kookaburra should not be involved in payment in British currency, and Mr Lindroos agreed. 17 On 20 March 2001 Mr Power wrote again to Mr Lindroos expressing some confusion about the transaction. He said he understood that Kookaburra was to have raised the letter of credit on the previous day, that he had instructed the Uniting Kingdom accordingly and that tentative arrangements to ship the machine had been made. He gave some information about the history of the machine and its state of repair. 18 On 22 March 2001 Mr Power and Mr Lindroos had a further telephone conversation, in which Mr Lindroos said Kookaburra had received a report from John Brown of J & P Graphics Limited, which raised a number of issues about the press. Mr Power asked him to fax through the report and said he would incorporate the key items into the draft contract. Mr Brown's report is relevant to the cross-claim for installation costs, and I shall give it further consideration under that heading. 19 Mr Power prepared a sales contract for the Heidelberg 72F, and revised it after discussion with Mr Lindroos and Greg Crowe, the financial controller at Kookaburra. Mr Power gave evidence in his affidavit that he sent a copy of a draft contract to Kookaburra on 22 March. Then, on or before 30 March Mr Power and Mr Lindroos had a telephone conversation in which the price for the Trade-in Machine was renegotiated to $65,000, $50,000 of which would be allowed against the purchase price of the new press and $15,000 of which would be paid upon delivery of the Trade-in Machine. 20 Mr Power revised the draft contract, which was dated 20 March 2001, and sent the revised draft to Kookaburra (still bearing the date 20 March 2001) on 30 March 2001. SPE now says that this document expresses the terms of the original contract between the parties. As far as payment was concerned, the draft stipulated a price of $550,000 plus GST, and said that the press would be shipped from the United Kingdom as soon as practicable after the raising of an irrevocable letter of credit, shipping transit time to take approximately 31 days. The following appeared under the heading "Payment Terms": "Buyer is to provide to the Seller a Transferable, Irrevocable Documentary Letter of Credit for the Great British Pounds equivalent of AUD555,000.00 ( Australian Dollars Five Hundred & Fifty Five Thousand Dollars ) being the purchase price, inclusive of GST less the trade-in allowance as per below." 21 Counsel for SPE urged me to infer that, by no later than 5 April 2001 (the day before the Provision Date), the parties had concluded a contract for the purchase of the Heidelberg 72F on the terms of the draft sales contract dated 20 March 2001. I have decided to accept this submission, for the following reasons. 22 First, Mr Power has given evidence that the draft sales contract dated 20 March 2001 was sent to Mr Lindroos on about 30 March 2001, before Kookaburra procured the Letter of Credit on about 6 April 2001. His evidence is consistent with the documentary evidence and I accept it on this point. The act of procuring the Letter of Credit was, clearly enough, an act of part performance of the contract between Kookaburra and SPE. There is no other evidence of the terms of the contract which had come into existence by that time, and in particular, no evidence by the defendants that they negotiated any terms different from the terms of the draft dated 20 March 2001. 23 Secondly, the defendants rely on an agreement made in or about March 2001 for the purposes of their cross-claim. They claim that, by that agreement, SPE undertook obligations with respect to the installation and commissioning of the Heidelberg 72F. There are relevant provisions in the draft sales contract of 20 March 2001. At no stage during the hearing have the defendants submitted that those provisions are not an accurate statement of SPE's relevant obligations. 24 Thirdly, the defendants' counsel informed the Court at the commencement of the final hearing that there was probably not a lot of controversy about the sales contract, and in his final written submissions he summarised the terms of the sales contract annexed to the proof of debt, together with the invoice dated 15 March 2001, saying at paragraph 8 that those documents provide for a "fairly straightforward regime for payment of the purchase price", without submitting that they should not be regarded as reflecting the contract initially made between the parties. 25 Consequently, in my view the draft sales contract dated 20 March 2001, annexed to Mr Power's letter to Mr Lindroos dated 30 March 2001, is the Agreement in its original form. What was the effect of the Agreement, as regards exchange rate risk?

Currency exchange rate risk under the original Agreement 26 The Agreement (that is, the draft sales contract dated 20 March 2001) contains terms to the effect of paragraphs 1 and 2 of the Schedule to the proof of debt, set out above, except that there is no express provision to stipulate that the Letter of Credit is to be for the Great British Pounds equivalent of AUD555,000.00 as at the Negotiation Date. 27 In my opinion, the terms of the Agreement imply that the Letter of Credit was to be made out for the Great British Pounds equivalent of AUD555,000.00 as at the Provision Date. I say this because the express requirement that the Letter of Credit be provided in Great British Pounds before shipping entails conversion of the Australian Dollar purchase price into Great British Pounds at the Provision Date. There is nothing in the Agreement stating or implying that the purchase price is payable on delivery of the press, or at any other time later than the Negotiation Date, and there is no other provision in the Agreement implying that Kookaburra's payment obligation, when it is called upon by its bank to provide funds, will be precisely AUD555,000 rather than the Australian Dollar amount required at the Payment Date to meet the face value of the Letter of Credit expressed in Great British Pounds. 28 In the absence of any supporting language in the draft contract, it is implausible to contend that the face value of the Letter of Credit, expressed in Great British Pounds, was a form of provisional payment to be adjusted between buyer and seller by reference to the exchange rate at some later date. Kookaburra's payment obligation was to provide to SPE a transferable, irrevocable documentary letter of credit for the Great British Pounds equivalent of AUD555,000. It provided such a letter of credit for 185,869.50 Great British Pounds on 6 April 2001. As the Schedule to SPE's proof of debt concedes, that amount was the equivalent, on that day, of AUD555,000. Therefore Kookaburra discharged its payment obligation under the Agreement. 29 Under the arrangements set out in the Agreement, Kookaburra was exposed to loss if the Australian Dollar depreciated in value against the Great British Pound after the Provision Date, while SPE was exposed to loss if the Australian Dollar appreciated in value against the Great British Pound after that date. These exposures were a consequence of the Agreement, construed in the manner set out above, and of the nature of an irrevocable documentary letter of credit. 30 Kookaburra's currency exposure arose as follows. The Letter of Credit would be issued for a face value being the Great Britain Pounds equivalent of AUD555,000, at an exchange rate selected on the Provision Date, prior to the shipping of the press. Kookaburra would be required to pay its bank the quantity of Australian dollars necessary to buy the quantity of Great British Pounds shown as the face value of the Letter of Credit. That payment obligation would arise at a time arranged between Kookaburra and its bank. The payment obligation may not have arisen until the time when Kookaburra's bank was called on to honour the Letter of Credit for its face value in Great British Pounds ("the Payment Date"). I assume, for the purposes of exposition, that this was the case. If the Australian Dollar depreciated in value against the Great British Pound in the period between the Provision Date and the Payment Date, Kookaburra would have to pay to its bank more in Australian Dollars than it would have paid if the exchange rate had remained constant between those two dates. 31 This is a different currency risk from the one borne by SPE. SPE contracted with Kookaburra to receive a negotiated value for the press, expressed in Australian dollars but payable in Great British Pounds by Letter of Credit to be provided before shipment. Insofar as it would use the purchase money to pay its supplier, Glancy Rawthore, it had no currency exposure because that payment would be in Great British Pounds. However, there was a currency exchange rate exposure in respect of the profit component of the payment, because of the delay between provision of the Letter of Credit and negotiation of it. 32 Necessarily the conversion rate used for the purpose of fixing the face value of the Letter of Credit would be a conversion rate applicable at a date prior to shipment (the Provision Date). After shipment, documents would be supplied enabling SPE to negotiate the Letter of Credit and thereby receive payment at a certain date ("the Negotiation Date") of the net proceeds of sale after payment of the UK supplier. International commercial law and practice has been developed to permit the seller to negotiate payment once the goods are shipped, but there may nevertheless be a lapse of time between shipping and negotiation - in the present case it appears that about five weeks elapsed. SPE would convert the net quantity of Great British Pounds into Australian Dollars at or shortly after the Negotiation Date, at a currency exchange rate available at that time. If the Australian Dollar appreciated against the Great British Pound during the period between the Provision Date and the Negotiation Date, the net quantity of Great British Pounds ultimately received by SPE would buy fewer Australian Dollars. 33 Of course, the converse is true both for Kookaburra and for SPE. If the Australian Dollar appreciated in value against the Great British Pound during the period from the Provision Date to the Payment Date, Kookaburra would benefit because it would need to provide fewer Australian Dollars to buy the quantity of Great British Pounds shown as the face value of the Letter of Credit. If the Australian Dollar depreciated in value against the Great British Pound during the period from the Provision Date to the Negotiation Date, SPE would benefit because the net quantity of Great British Pounds it would receive would buy a greater quantity of Australian Dollars.

The alleged variation to the Agreement 34 The next question is whether the Agreement was varied, and if so, in what way. If the Agreement was not varied, then it governs the contractual relationship of the parties in its original form. To the extent that SPE has suffered a currency exchange loss in the transaction, there is no provision in the original Agreement for Kookaburra to indemnify it for that loss, and so the loss must lie where it has fallen. 35 SPE contends that on about 2 April 2001, during the course of a telephone conversation between Mr Power and Mr Lindroos, agreement was reached to vary the terms of the Agreement by adding a requirement that Kookaburra would take out forward exchange cover in relation to the amount to be paid (namely AUD555,000) and SPE would accept that amount in full satisfaction of Kookaburra's obligation to make payment under the Agreement. 36 SPE's contention is that the parties agreed that Kookaburra would purchase a forward exchange contract. In its simplest form, this is a contract, typically between a bank and its customer, whereby it is agreed that at some future time (the settlement time) the customer will sell a fixed amount of a nominated currency and will in exchange receive a fixed amount of another nominated currency. Typically one currency is the local currency, and the other currency is a foreign currency, to fluctuations in which the customer is exposed in its business. It is usual that there is no real exchange of currencies upon settlement, but instead the contract is paid out in an amount of local currency reflecting the customer's net gain or loss. The rate of exchange is fixed and determined at the time of the making of the contract. The exchange rate selected for the purposes of the contract is usually not the spot exchange rate, but a forward exchange rate based upon estimates of currency and interest rate fluctuations. 37 A forward exchange contract binds the customer and the bank to exchange one nominated currency for another nominated currency at an agreed rate at a specified time. If the currency that is to be exchanged by the customer depreciates in value prior to settlement, then the contract operates to the customer's advantage. But if that currency appreciates in value, so that at the time of settlement it would buy more of the other currency than the contract provides for, the customer loses on the forward exchange contract, and must compensate the bank. A forward exchange contract is to be contrasted with a put and/or call option arrangement under which the customer has the option of exchanging one currency for another at an agreed forward rate, but is not required to do so. The option will be exercised if it is to the financial advantage of the customer to do so, but otherwise the option will lapse. 38 SPE's contention, as I understand it, is that Kookaburra was to enter into a forward exchange contract which would lock in the exchange rate of both parties whether the Australian dollar rose or fell against the Great British Pound, rather than merely an option. Under such an arrangement both SPE and Kookaburra would protect themselves against adverse currency exchange movements, while foregoing the benefits of favourable movements. 39 Mr Power gave evidence of two telephone conversations which he had with representatives of Kookaburra, upon which SPE relies to establish that the Agreement was varied in this manner. In his first affidavit, Mr Power gave evidence of these conversations in a descriptive form, and he re-visited them in his third affidavit, in which he gave an account of the conversations in direct speech. 40 The first conversation was with Mr Crowe on 25 March 2001. According to Mr Power's evidence, he rang Mr Crowe to find out when the Letter of Credit would be raised. Mr Power said the conversation then proceeded as follows: Mr Crowe: "No I cannot tell you when it will be raised but I am concerned that it is to be raised in Great British Pounds because Kookaburra does not wish to be exposed to currency fluctuations. I need you to confirm that we are paying Australian Dollars of $550,000.00 only for the machine plus GST." Mr Power: "Yes, I confirm that the purchase price is fixed at $550,000.00 Australian Dollars and that Kookaburra has no exposure to currency fluctuations whatsoever. We are asking for a Letter of Credit in Great British Pounds purely because a Transferable Letter of Credit must maintain the same currency throughout and SPE is buying in Great British Pounds. Kookaburra will pay the change over contracted price of $555,000.00 no more and no less." 41 I agree with counsel for SPE that I should accept Mr Power's evidence as to this conversation. Mr Crowe did not refer to this conversation in his affidavit made on 10 April 2003, sworn after Mr Power's first affidavit had been served, but before his third affidavit was made. Mr Crowe was cross-examined on 5 August 2003, well after service of Mr Power's third affidavit, and yet no leave was sought to adduce oral evidence from him denying the conversation. When Mr Power was cross-examined, counsel's questions tended to suggest that the conversation took place on 4 April 2001, and was in terms deposed to by Mr Crowe in his affidavit, but it was not put to Mr Power that the conversation of 25 March 2001 did not take place. Additionally, there appears to be some corroboration of the conversation in an entry in Mr Power's diary on 25 March 2001, in the following terms: "GREG EXCHANGE NOT KOOK - $550k ONLY". 42 In my opinion, however, the conversation of 25 March does not establish an agreement to vary the existing contractual arrangement. The thrust of Mr Power's observations was to give comfort to Mr Crowe that Kookaburra would have no exposure to currency risk. His statement that Kookaburra would pay the change over contracted price of $555,000 "no more and no less" appears on its face to be an account by Mr Power of Kookaburra's existing contractual obligation rather than an attempt to vary the contract. Mr Power's statement that Kookaburra had no exposure to currency fluctuations was incorrect, having regard to the analysis set out above, unless Kookaburra were to fund its bank for the Letter of Credit immediately at the Provision Date. Mr Crowe appears to have had a better understanding of Kookaburra's exposure, because (notwithstanding Mr Power's incorrect statement) he took advice from the company's bank and made arrangements to protect Kookaburra from its own currency exchange risk. 43 Mr Power gave evidence of a conversation between him and Mr Lindroos on or about 2 April 2001, as follows: Mr Lindroos: "I have spoken with a representative from Westpac regards Forward Exchange cover. He recommends that we should take Forward Exchange cover as he would not be surprised to see the Australian Dollar fall to 41 cents against the US Dollar. Whilst the rate is crap now, should it fall further Specialised could cop more loss again." Mr Power: "I actually expect that the Aussie dollar will rise again but he could be right. Given that the Letter of Credit is an agreement between Kookaburra and Westpac, Kookaburra will need to take out the Forward Exchange contract with Westpac." Mr Lindroos: "Well I can arrange that with Westpac then." Mr Power: "Yes, you ought to do that." 44 Counsel for Kookaburra urged me not to accept Mr Power's evidence as to this conversation, and attacked his credit generally (as noted above). It appears to me more likely than not that Mr Lindroos and Mr Power had a telephone conversation about foreign currency exposure on about 2 April 2001. Mr Lindroos did not have the opportunity to respond to Mr Power's third affidavit, because it was provided just before the hearing and Mr Lindroos' illness prevented him from giving oral evidence. But his affidavit denying the account of the conversation in Mr Power's first affidavit is a denial that there was any conversation about currency exchange protection for the benefit of SPE. It was not a denial of any conversation on about 2 April 2001 on the subject of Kookaburra's foreign currency exposure. 45 I find it unnecessary to decide whether the conversation was in the form deposed to by Mr Power. Properly construed, the conversation deposed to by Mr Power was not directed towards protection of SPC in respect its risk, but only protection of Kookaburra. Mr Lindroos reported a recommendation that "we" should take forward Exchange cover, having regard to the risk of depreciation of the Australian Dollar. That, as I have explained, was Kookaburra's risk. Therefore Westpac's advice was probably advice about protecting Kookaburra from risk. Mr Power's reply is curious. If he were saying that SPE could not arrange foreign exchange cover to protect itself from its own risk of an appreciation to the Australian Dollar, because the Letter of Credit was an arrangement between Westpac and Kookaburra, his statement would be manifestly wrong. SPE has given no reason in submissions to explain why its bank would refuse it forward exchange cover on the ground that its currency exposure emerged from a letter of credit between other parties, and no evidence has been produced to support Mr Power's statement. More likely, he was explaining why it would be better for Kookaburra rather than SPE to arrange foreign exchange cover with respect to Kookaburra's exposure. If the conversation is understood in that way, what was arranged was that Kookaburra would take out foreign exchange cover with Westpac in respect of its own risk but not to protect SPE. That is in fact what happened. 46 If, contrary to the view I have just expressed, the conversation were to be construed to extend to the mutual protection of the parties in respect of foreign exchange risk, it would be far too vague to constitute variation of a contract which contained a precise term as to payment by letter of credit for the Great Britain Pounds equivalent of a specified sum in Australian currency. Nothing was said, according to Mr Power's account, that would indicate that Kookaburra was expected by SPE to forgo the benefit of a favourable currency movement between the Provision Date and the Payment Date. Mr Power's statement to Mr Crowe, that Kookaburra would pay $555,000, no more no less, was not on its face directed to foreign currency movements and would not have conveyed to a reasonable listener that Kookaburra was expected to forgo any such benefit. 47 If, contrary to my view, it were necessary to decide whether to accept Mr Power's evidence of the conversation of 2 April, I would not do so. It is contrary to evidence given by Mr Crowe, which I accept. Mr Crowe gave evidence (denied by Mr Power) that on about 4 April 2001 he received a telephone call from Mr Power, in which Mr Crowe pointed out that if the Letter of Credit was issued in the Great British Pounds, Kookaburra would be exposed to currency exchange risk and would have to protect itself. He said Mr Power offered to meet the cost of whatever cover Kookaburra needed. That evidence implies that Kookaburra set out to obtain forward exchange cover to protect itself from its own risk, at SPE's expense, and not to protect SPE in relation to SPE's foreign currency exposure. 48 Mr Crowe said that on 6 April 2001 he had a meeting with Mr Lindroos and Mr Elliott, and representatives of Westpac Bank. One of the Westpac representatives explained to him that if Kookaburra bought currency protection and the Australian Dollar were to rise against the British Pound, Kookaburra might make a profit on the deal, but if the Australian Dollar were to go down against the Pound, Kookaburra would be protected.

Subsequent events 49 Westpac issued an irrevocable transferable documentary letter of credit on 6 April 2001, on the application of Kookaburra and for SPE as beneficiary, in the sum of 185,869.50 Great British Pounds. As I have said, it is accepted by both sides that this amount was the equivalent in Great British Pounds of AUD555,000, by the application of a commercial exchange rate applied on 6 April 2001. The documents required for payment were stipulated to include an inspection certificate by J and P Graphics (Mr Brown), but on 11 April 2001, when he was unavailable to attend at the wharf to inspect the packing of the printer, SPE negotiated with Kookaburra to amend the Letter of Credit to require an engineer's certificate that could be issued by someone else. 50 Kookaburra made currency protection arrangements with Westpac in the form a currency option, issued on 9 April 2001. The agreement entitled Kookaburra to call for Great British Pounds, for payment in Australian Dollars, to meet its obligation under the Letter of Credit up to 17 May 2001, at a stipulated exchange rate. The currency option would have value to Kookaburra if the Australian Dollar depreciated against the Great British Pound between 9 April and 17 May 2001, but if the Australian Dollar appreciated in that time, the option would not be exercised and would lapse. Thus, the arrangement did not purport to offer protection in respect of SPE's exposure to appreciation in the value of the Australian Dollar. 51 Mr Power gave evidence that on 6 April 2001 he spoke with Mr Lindroos, who told him that Kookaburra had obtained forward exchange cover for the benefit of SPE, to protect SPE against currency fluctuations on the Letter of Credit. Mr Power referred to his handwritten notes of the conversation, but they do no more than to record that a subject of the telephone conversation was forward exchange cover. In his affidavit Mr Lindroos denied that any such conversation took place. 52 I prefer the evidence of Mr Lindroos to Mr Power's evidence on this point. I have found that no variation was made to the Agreement so as to oblige Kookaburra to arrange forward exchange cover to protect SPE. A consequence of that finding is that the conversation deposed to by Mr Power is unlikely to have occurred. This is an occasion where I shall not accept Mr Power's evidence, in view of my observations as to his credit, there being no external corroboration. 53 On 23 April 2001 SPE issued another invoice, apparently in substitution for the invoice of 15 March 2001. It was directed to Kookaburra and referred to the supply of the Heidelberg 72F for a total invoice price of GBP185,869.50. This tends to reinforce my conclusion that the contract price was for the equivalent in Great British Pounds of AUD555,000, as at the Provision Date. 54 By a communication dated 3 May 2001, Westpac notified Kookaburra that it had received a drawing of the face value of the Letter of Credit, namely 185,869.50 Great British Pounds, and that it had refinanced the amount in accordance with Kookaburra's instructions. According to the notification, the amount refinanced to the account of Kookaburra was AUD517,598.16, calculated at an exchange rate of 0.35910. Thus, Kookaburra was required to pay substantially less than AUD555,000 to meet its obligations on under the Letter of Credit, because of the strengthening of the Australian Dollar in the period from 6 April to 3 May 2001. The currency option that Kookaburra had arranged with Westpac was not needed by Kookaburra, because it would have entitled Kookaburra to obtain Great British Pounds at a higher rate than the generally available conversion rate as at 3 May 2001. SPE's exchange loss 55 On 22 June 2001 Mr Power wrote to Westpac, seeking documentation to show the disbursement of the sum of AUD555,000 as per his invoice to Kookaburra, a copy of which enclosed. He said he understood that the funds may have been applied against a forward exchange contract, and asked for confirmation showing the amounts paid and exchange rates applied. He wrote to Mr Crowe at Kookaburra on the same day, asking for a copy of the forward exchange contract that was taken out for the Letter of Credit. Mr Power wrote follow-up letters to Westpac and Mr Lindroos on 26 June 2001, seeking similar information. In his letter to Mr Lindroos Mr Power said he had been led to believe that a forward exchange contract was in place, and as it seemed obvious that there was no forward exchange contract, SPE was entitled to expect the balance of the $555,000. 56 Although the situation remained unclear for some time, eventually it became clear that the Kookaburra had been required to pay AUD517,598.16 rather than AUD555,000, because of favourable exchange movement. SPE received the GBP140,000 that it needed to pay Glancy Rawthore, but the balance representing its profit, when converted into Australian Dollars, was less than it would have received if there had been no currency exchange rate fluctuation between March and May 2001. 57 Since I have concluded that SPE has no contractual right to recover this shortfall from Kookaburra, it is unnecessary for me to determine the amount of the shortfall. SPE claims that the shortfall was AUD 45,628.94. Haydn Lynch, a foreign currency expert, gave evidence on behalf of SPE to the effect that if a forward exchange contract had been entered into for maturity around mid-May 2001, SPE could expect to receive GBP191,031 on completion, at an exchange rate which he estimated at 0.3442. Mr Lynch's figures do not correspond with SPE's claim. It may be that SPE's claim was calculated on the basis that the whole of the amount payable under the Letter of Credit was to be converted back to Australian Dollars. That is wrong because most of the money was needed to pay Glancy Rawthore in Great British Pounds. The Trade-in Machine 58 There does not appear to be any disagreement between the parties that the Agreement provided for Kookaburra to deliver up the Trade-in Machine to SPE, and it did not do so. Under the Agreement the purchase price for the Heidelberg 72F was reduced by $50,000 as an allowance for the Trade-in Machine. 59 SPE's position is that either the Trade-in Machine should be delivered to it now, or that the $50,000 should be added back to the purchase price as an amount recoverable by SPE, which is therefore entitled to lodge a proof of debt in respect of it. However, Kookaburra has claimed, since shortly after delivery to it of the Heidelberg 72F, that there were substantial installation and repair costs payable by SPE, which should be settled prior to delivery of the Trade-in Machine. The defendants have asserted, in the present proceeding, that Kookaburra has a cross-claim to recover these costs, which should be set off against SPE's claim to recover the $50,000. Commissioning and installation costs 60 The Agreement contained the following relevant provisions: (i) the price was stated as "$550,000 Installed & Warranted, plus GST"; (ii) under the heading " INSTALLATION " the following appears: "Upon arrival Sydney and customs clearance, the press is to be delivered to Kookaburra Industries for cleaning and attention to the items noted herein as requiring attention. Installation to be complete up to running of the press in premises already prepared and deemed fit for same. Buyer to provide premises with normal, clear, ground floor access and to supply sufficient power to the press. Installation will be completed by the Buyer's agent at the Seller's expense." (iii) under the heading " WARRANTY WORK REQUIRED ON INSTALLATION ", the following appears: "1. Rollers to be replaced, if required by the Buyer at the Seller's expense. 2. Items noted on the report of Mr John Brown of J & P Graphics Ltd are to be monitored upon Installation & start-up and be attended to if required to assure the effective operation of the machine. Should such works be agreed to be necessary, then same will be undertaken at the Seller's expense." (iv) under the heading " WARRANTY " the following appears: "Upon completion of the installation, the seller warrants the machine to be free from defects in workmanship and material under normal use & service. The seller's entire liability under this warranty is to repair or replace free of charge, any item that, during a three-month period from the date of installation, is found to be defective in workmanship or materials. The benefits of this warranty shall apply only to the buyer." 61 As noted above, Kookaburra arranged for John Brown of J & P Graphics, printers' engineers in England, to inspect the Heidelberg 72F before committing to purchase it. Mr Brown gave a written report to Kookaburra dated 16 March 2003. He said that the machine had been dismantled and tightly packed so that close examination was difficult. However he made a number of observations, saying for example that the rubber inking rollers were soft and needed replacing, and that there was a damaged proximity switch. He listed a few general points to bear in mind when purchasing a printer. Mr Brown's report was a matter of concern for Kookaburra, and also for Mr Johnston who was engaged to install the machine. Mr Brown's report explains why the Agreement in its final form made provision for replacement of the rollers, and stated that the items noted in Mr Brown's report would be monitored upon installation and start-up and be attended to if required, at SPE's expense. 62 The Heidelberg 72F was delivered to Kookaburra on 13 June 2001. Mr Power wrote to Mr Lindroos on that day, announcing the arrival of the machine and saying that he looked forward to Mr Johnston having the press installed and running as soon as possible. He said he had informed Mr Johnston that Mr Johnston would be working for Kookaburra to Kookaburra's account, with SPE settling with Kookaburra once the press was finalised. That is consistent with Mr Johnston's evidence. The letter proposed some arrangements for delivery of the Trade-in Machine for shipping overseas. 63 Problems emerged with the condition of the printer once Kookaburra and its experts had the opportunity to inspect it. Mr Crowe gave evidence that during June 2001, after delivery of the printer to Kookaburra, he telephoned Mr Power on one or more occasions. He said that during each conversation, he told Mr Power that the printer was in very bad condition, and invited him to come and look at it. Mr Power replied that he could not fly to Sydney because he had a bad knee. This was confirmed by Mr Power, who wrote on 21 June 2001 apologising that he had not managed to fly up to Sydney, and explaining that he was having difficulty with his knee, which would need surgery before he could fly. 64 Kookaburra had engaged Reprint Engineering early in March 2001, to advise it on the acquisition of a printer to replace its existing to colour printer. Greg Johnston, the director of Reprint, gave affidavit and oral evidence. He said he had a conversation with Mr Power early in June, in which he told Mr Power that the installation cost would depend on the condition of the machine, but if the machine was in good condition and had been dismantled and stored properly, the cost would be around $22,000, subject to many variables. Mr Power gave evidence denying that he had discussed the cost of installation with Mr Johnston, and saying that if Mr Johnston had told him that the installation cost would be $22,000, he would have arranged an alternative installer. I prefer Mr Johnston's evidence to the evidence of Mr Power on this point, having regard to my general observations on Mr Power's credit, and also taking into account that in later correspondence SPE's solicitors indicated that they would accept an installation cost of over $23,000. 65 Mr Johnston said that he was instructed by Mr Lindroos on 20 June 2001 to clean the machine and lay a concrete stand for it. He said Mr Lindroos told him that anything that was obviously broken or needed to be fixed for the machine to run properly, should be fixed. If there was something that would not last for the three-month warranty period, it should be fixed immediately rather than later on a break-down call. 66 Mr Johnston was present when the printer was unpacked from a shipping container. He inspected it, and on the next day he took photographs of it. The photographs are in evidence. He prepared a report on the condition of the machine, addressed to SPE. The report said the machine was in average condition for its age, and needed to be cleaned. It said that the rubber rollers needed to be replaced, and noted various other items that needed to be attended to. He noted some damage to the second impression cylinder. 67 Reprint issued three itemised tax invoices dated 16 July 2001. The first was for cleaning the printer by dry ice blasting, in the sum of $11,187.55 (including GST). The second was for $7,404.54 (including GST) for inspecting and repairing the dampening and inking rollers for the machine. The third was for $11,088 (including GST) for installation of the machine. Reprint issued another itemised invoice to Kookaburra on 1 September 2001. It was a five-page invoice for $22,358.04 (including GST) for various itemised repairs to the printer, and replacement parts. 68 Kookaburra engaged Electrocon Sensors and Systems to carry out the electrical work on installation of the printer, and to make it operate safely. Kenneth McDonald, a director of the company that trades as Electrocon, gave evidence that Mr Lindroos approached him to do the work early in 2001, before Kookaburra had selected the printer. He was engaged to do the work in June 2001. He said the work involved advising on installation of electrical conduit and layout requirements, additional lighting, and electrical work on the printer. He identified some problems, such as that the powering up of the system caused fuses to blow, parts of the printer engine were inoperative, the press would not function, and there were worn contacts, seized contactors and broken microswitches. 69 Electrocon issued three itemised invoices, all dated 23 July 2001. The first was an invoice for $20,542.50 (including GST) to Kookaburra for installation and repairs. The second was for $1,183.88 (including GST) for supply of various items of equipment installed in the printer. The third was for $12,710.37 (including GST) for various items used in the repairs. 70 Philip Spence, a printing engineer with extensive experience, gave expert opinion evidence on behalf of SPE. He was engaged to assess the reasonableness and value of the work performed and invoices to Kookaburra by Reprint and have Electrocon. He explained that he had in-depth knowledge of the condition of the machine and of the work that was carried out on it, since he moved the machine and reinstalled it at the premises of the new owner who purchased the machine at the receivers' auction. 71 Mr Spence's evidence, which I accept, amounted to no more than an expression of opinion as to whether the work listed on the invoices of Reprint and Electrocon was of a kind usually or normally undertaken upon the installation of such a printer. He said, for example, that it would be very unusual to have several dampener motors that needed to be skimmed at one time, and that the refitting of worn chain guides is not normally carried out unless they would prevent the machine from running. Given the evidence of Mr Johnston and Mr McDonald, to the effect that the work was in fact carried out and fell within their instructions in respect of installation of the machine, the fact that it may have been unusual for such work to be carried out is beside the point. 72 The defendants conceded that some of the items in the Reprint and Electrocon invoices were not recoverable from SPE. As to Reprint, they conceded that $850 should be deducted from invoice number 1420, being the cost of preparing a report on the condition of the Trade-in Machine and labour carried out prior to the installation of the Heidelberg 72F. As to Electrocon, they conceded that $2661 should be deducted from invoice number 4793, being the cost of a "CPC light pen", which was not supplied, and the cost of a "Short Wave Heater" which was not supplied. They said that Kookaburra's claim was therefore the total amount of the Reprint and Electrocon invoices, $84,718.50, less the conceded amounts of $3511, giving a net claim of $81,207.50 73 The provisions of the Agreement relevant to recovery of these costs were set out above. One of the relevant clauses, headed "installation", made provision for Kookaburra's agent to complete the installation at SPE's expense. Counsel for SPE noted that in the Macquarie Dictionary, "install" is defined as "to place in position for service or use". He submitted that this was the appropriate sense of the word when used in the Agreement. He contended that it was clear from the invoices that much more was done to the printer than mere installation. He referred to the cost of unpacking and preparation for dry ice cleaning, and submitted that cleaning was not installation, noting that Mr Elliott had conceded this in cross-examination.

74 In my opinion, "installation" for the purposes of the installation clause in the Agreement has, in its context, a wider meaning than the dictionary definition would suggest. Cleaning, and also attention to the items noted in the Agreement as requiring attention, were under the terms of the Agreement costs to be borne by SPE. The relevant clause of the Agreement required that the printer be delivered to Kookaburra "for cleaning and attention to the items noted herein as requiring attention". The clause proceeded to say that installation was to be complete up to the running of the press in premises already prepared and deemed fit for same. The buyer had the obligation of providing premises with normal, clear ground floor access and of supplying sufficient power to the press. It was then that the Agreement stated that "installation" would be completed at the seller's expense. In my opinion, when the clause is read as a whole, it provides that the costs to be incurred in bringing the printer to the stage where it is completely installed and ready to run effectively, were costs to be borne by SPE. Those costs included cleaning and also attention to other items noted. The items noted, under the heading "warranty work required on installation", included replacement of the rollers and the items noted in Mr Brown's report, to the extent that they needed to be attended to "to assure the effective operation of the machine".

75 Once the Agreement is properly construed in that manner, it is apparent that the work itemised in the invoices, except as noted above, is installation work. The work was carried out by Reprint and Electrocon in order to put the printer in place in Kookaburra's premises, and also to put it in such a state that it was ready to run effectively. The latter part of the installation process entailed not only cleaning but also such things as removing parts that were already worn at the time when the machine was delivered, as identified in Reprint's invoices. It also included doing such electrical work as was necessary to put the printer in place and in a condition to run effectively. The Agreement had the effect of requiring the buyer to pay for any work necessary to supply sufficient power to the printer, but it appears from Mr McDonald's evidence and the itemised invoices that Electrocon's work was not work for the supply of sufficient power to the printer, but additional electrical work, undertaken to bring the printer to a proper operational state.

76 Counsel for SPE made submissions directed towards the warranty clause in the Agreement. He drew attention to the limitations in the warranty clause, according to which SPE's liability was limited to repairing or replacing free of charge any item that, during the three-month period from the date of installation, was found to be defective in workmanship or materials. Counsel submitted that Kookaburra had failed to give SPE the opportunity to repair or replace the items identified in the invoices, because the work commenced without specific reference to SPE and before the question of Mr Power visiting Kookaburra's premises was raised. Additionally, counsel submitted, much of the work itemised in the invoices was not referable to defective workmanship or materials.

77 In my opinion, that submission should be rejected because Kookaburra's entitlement to recover the cost of performance of the work itemised in the invoices arises out of the installation clause of the Agreement, rather than out of the warranty clause. Since the work undertaken by Reprint and Electrocon fell within the scope of the installation clause, the limitations in the warranty clause were irrelevant to its entitlement.

78 Counsel for SPE placed reliance on Mr Johnston's evidence that Mr Lindroos told him that if he found something that would not last the warranty period, he should fix it now. In my opinion that instruction did not prevent Kookaburra from claiming recovery of Reprint's costs as installation expenses. Mr Lindroos was directing Mr Johnston's attention to observable defects in the printer as delivered, of a kind that should be fixed prior to the commencement of running and for the purpose of bringing the printer into an effective running state.

79 I agree with counsel for SPE that the defendants had the onus of proof in relation to the cross-claim. In my opinion they have discharged that onus. They have made out Kookaburra's entitlement to recoup from SPE the invoice costs adjusted as explained above, in the net amount of $81,207.50. 80 The defendants contended in their defence that they were entitled to set off their claim for installation costs against SPE's claim for $50,000 in respect of the Trade-in Machine, leaving SPE as a net debtor to Kookaburra rather than a net creditor. The question whether the two amounts should be set off against one another was not addressed in submissions, perhaps because SPE might have concluded that it would be worse off if it were a permitted to prove in Kookaburra's liquidation for the $50,000 and receive a rateable distribution, while being liable for the whole of the claim for instalment costs. In any event, the two amounts arose out of the same contract, under which they were treated as "mutual credits, mutual debts or other mutual dealings", and therefore they were the proper subject of set-off in the liquidation of Kookaburra under s 553C of the Corporations Act. The cross-claim is successful as to the balance, $31,207.50. The development of the dispute 81 In his first affidavit, Mr Power gave evidence of conversation he claimed to have had with Mr Lindroos on 17 July 2001. He said Mr Lindroos told him that the Heidelberg 72F had been delivered, and other than requiring new rollers, it was in good condition and would be ready to print shortly. Mr Power said that Mr Lindroos told him that he would have the rollers within a few days and would then release the Trade-in Machine to SPE. It seems to me unlikely that Mr Lindroos would have said this on 17 July, given that repair work was continuing to be undertaken on the printer at that stage, at considerable expense. Mr Lindroos denied the conversation. He said he was outside Australia from about 6 July until about 23 August 2001. I prefer the evidence of Mr Lindroos to the evidence of Mr Power on this matter. 82 In his third affidavit, made after Mr Lindroos' affidavit was filed and presumably served, Mr Power revised his evidence as to this conversation. He re-located the conversation to 26 June, placing it before Mr Lindroos' departure for overseas and including it as part of a conversation which also discussed documentation and forward exchange cover. Mr Power's evidence was that, when he asked Mr Lindroos about the machine, Mr Lindroos said: "All the parts were dirty, it took 3.5 days to clean but it looks like new. Someone has stepped on a switch bow and broken a bracket but that is all the damage there is. The rubber rollers are at Brissets and we did not need to use the new seals, the old ones seem fine. We should be right to release the trade in machine by next Wednesday at the latest, as soon as the rollers are back." 83 Mr Lindroos, who is ill, has not responded to Mr Power's third affidavit. Nevertheless it seems to me that Mr Lindroos' denial of the conversation alleged by Mr Power in his first affidavit is a denial of conversation dealing with that subject matter, and consequently I infer that he would deny Mr Power's account of conversation given in his third affidavit. I reject Mr Power's evidence. 84 According to Mr Elliott, on 13 July 2001 he received a telephone call from Mr Power, in which he told Mr Power that a lot of work still needed to be done on the printer, including new rollers. Mr Power said he would come up to collect the Trade-in Machine. Mr Elliott replied that Mr Power should come to Sydney to inspect the printer, and that the Trade-in Machine could not be released until Kookaburra was satisfied with the new machine. 85 On 17 July 2001 Mr Power wrote to Mr Crowe saying that he would like to fly up to Sydney to discuss the overall situation, and asking him to nominate what days would be acceptable. He said he wished to work towards shipping the Trade-in Machine on 27 July 2001. 86 On 20 July 2001 Mr Power wrote to Mr Elliott at Kookaburra noting that it had not been possible to arrange a discussion, but expressing the hope that Agreement could be reached on that day so that the Trade-in Machine would be released for shipping in the following week. Mr Power said the SPE would cover the cost of installation "as previously defined", and the cost of rollers. Mr Elliott sent a facsimile to Mr Power on the same day, saying he would forward Mr Power's letter to Kookaburra's solicitors for advice, adding that "to date the machine has not been commissioned due to continual power supply problems". Mr Elliott gave evidence that the "power supply problems" referred to fuses blowing in the printer when electrical power was connected to it. 87 On 20 July 2001 Kookaburra's solicitors wrote to Mr Power. They asserted that Kookaburra had to that time expended more than half $1 million without receiving any benefit. They said that the press had not been commissioned, and that Kookaburra did not know precisely when commissioning would take place. They said that the cost of commissioning might well exceed $50,000. They asked Mr Power to forward details of the evidence which would substantiate the allegations in his letter of 26 June 2001 (presumably, including the allegation that Kookaburra had agreed to provide forward exchange cover for the benefit SPE). 88 On 26 July 2001 Kookaburra's solicitors wrote to Mr Power asking for evidence that SPE was the owner of the Heidelberg 72F, and that the machine was not subject to certain registered charges over SPE's assets. On 1 August 2001 the solicitors wrote again, reiterating their request for evidence and enclosing some invoices from Electrocon Sensors and Systems and Reprint Engineering for SPE's attention. 89 SP's solicitors wrote to Kookaburra's solicitors on 14 August 2001, explaining their client's claim for the shortfall in purchase price and asserting that the installation costs incurred by Kookaburra were excessive, and accepting liability on SPE's behalf for installation costs of $23,492.54. The letter complained that Kookaburra had failed to deliver the Trade-in Machine, and demanded that it be delivered up. 90 After further correspondence between the solicitors, generally unproductive except that SPE's title to the Heidelberg 72F appears to have been addressed satisfactorily, SPE instituted proceedings in the County Court of Victoria, by writ dated 11 January 2002. There were negotiations for settlement of this action, reaching the stage that terms of settlement were prepared on 20 February 2002. However, settlement did not take place and in March 2002, receivers were appointed to Kookaburra. The misleading or deceptive conduct claim 91 Neil Singleton and Anthony Sims were appointed joint receivers and managers of Kookaburra by Westpac as secured creditor on 19 March 2002. 92 On 10 April 2002 SPE's solicitors wrote to Mr Singleton with respect to the County Court proceeding. The letter set out particulars of SPE's claim for the payment shortfall. It asserted that SPE delivered the Heidelberg 72F to Kookaburra on 13 June 2001 but it made no reference to Kookaburra's claim for installation costs. The letter noted that Kookaburra had not paid to the shortfall in price or delivered the Trade-in Machine to SPE. It claimed that Kookaburra had offered to settle the County Court proceedings by delivering the Trade-in Machine to SPE, but Kookaburra did not sign the terms of settlement subsequently prepared by SPE. The letter claimed that Westpac had acknowledged the validity of the Agreement and the alleged variation to it, and the provision of the Trade-in Machine to SPE. It said that Westpac had indicated that it would increase its lending facility to Kookaburra in order to provide clear title to the Trade-in Machine to SPE. The letter demanded immediate release of the Trade-in Machine. 93 The receivers' solicitors replied on 24 April 2002, seeking particulars of the Agreement for sale of the Heidelberg 72F, Westpac's alleged acknowledgement of the validity of the Agreement, and Westpac's alleged representation that it would increase Kookaburra's facilities to enable clear title to the Trade-in Machine to pass to SPE. SPE's solicitors replied, purporting to supply particulars, on 13 May 2002. 94 On 17 May 2002 they wrote to the receivers' solicitors again, noting that an auction of Kookaburra's assets was proposed for 30 May 2002, and that both the Heidelberg 72F and the Trade-in Machine were listed as assets available for auction. The letter asserted that SPE claimed an interest in the machines arising from Kookaburra's failure to provide for payments under the terms of the Agreement. The letter said that unless confirmation was received within a stated time that the printers would be withdrawn from sale, the solicitors would take SPE's instructions to seek injunctive relief. 95 After negotiations, SPE made an agreement with the receivers, which SPE's solicitors sought to confirm by letter dated 5 June 2002. According to that letter, the receivers agreed to pay the shortfall in the purchase price into their trust account, and to withdraw the Trade-in Machine from auction on 30 May 2002, in consideration of SPE consenting to the sale of the Heidelberg 72F at the auction on 30 May. 96 Mr Singleton gave affidavit and oral evidence at the hearing. He referred to the correspondence from SPE's solicitors, noting the allegations that the original Agreement had been varied to provide for forward exchange cover, that in breach of the Agreement and its variation SPE suffered a shortfall of $45,628.94, that SPE claimed an interest in both printers because of Kookaburra's failure to pay, that SPE would seek injunctive relief unless the printers were withdrawn from sale, and that before the receivers were appointed Kookaburra had agreed with SPE to deliver up the Trade-in Machine in settlement of SPE's claim. Mr Singleton said that having received those letters, he took various steps including the sanctioning of the Agreement reflected in the letter of 5 June 2002. He withdrew the Trade-in Machine from sale and arranged for it to be placed in storage. 97 Mr Singleton said that as a result of carrying out those tasks, the receivership incurred direct expenditure during the period from 21 March 2002 to 21 February 2003, that it would not otherwise have incurred, totalling $13,455.9, together with delivery and storage fees of $4950, and legal fees of $33,647.35. 98 On 17 June 2002 SPE's solicitors wrote to the first and third defendants, who were appointed administrators of Kookaburra on about 15 March 2002. The letter is very similar to their letter to the receivers dated 10 April 2002. Once again, no mention was made of Kookaburra's claim to recover installation costs. The letter said that on about 5 June 2002 SPE and the receivers reached an agreement under which the shortfall would be paid by the receivers into the solicitors' trust account pending resolution of the dispute, and the Trade-in Machine would not be sold. The letter sought confirmation of these arrangements and threatened further proceedings. 99 On 30 October 2002 Australian Guarantee Corporation wrote to the first and third defendants enclosing a hire purchase agreement with respect to the Trade-in Machine, which appeared to show a substantial amount outstanding. Documents produced to the Court indicate that the amount currently owed to AGC by Kookaburra, up to 10 September 2003, was $77,216.10. As a practical matter, it appears that delivery up of the Trade-in Machine is no longer feasible unless some arrangement is made with AGC to forgo its rights. 100 The defendants claim that SPE, by its solicitors, engaged in misleading conduct in making the representations in correspondence referred to by Mr Singleton in his affidavit. They say that Mr Singleton relied on these representations and consequently incurred costs in the receivership that would not have been incurred if the misrepresentations had not been made. Those costs were chargeable to Kookaburra which has accordingly suffered loss. 101 In my opinion, this claim fails because it has not been established, on the balance of probabilities, that the costs incurred in the receivership were caused by the representations made in the letters written by SPE's solicitors. Some light is shed on the question of causation by a letter written by the receivers to the first and third defendants as liquidators of Kookaburra on 6 March 2003. 102 The letter replied to a request by the liquidators for a list of the documents used by the receivers to make their decision to enter into the agreement with SPE that was made on 5 June 2002, and any other considerations the receivers regarded as relevant that time. The receivers explained that before reaching agreement with SPE, they had formed the view that the lengthy background to the dispute between Kookaburra and SPE would require extensive analysis and legal opinion, before they could form a definitive conclusion regarding Kookaburra's rights and obligations. The costs of doing so were likely to be significant. The receivers also took into account the length of time that would be required to resolve the dispute. It appeared to the receivers that Kookaburra's liability to Westpac, secured creditor, was likely to be paid in full within six months, while any continuing dispute between Kookaburra and SPE would ultimately come under the control of Kookaburra's liquidators, who might duplicate any work undertaken by the receivers. 103 The letter said that the receivers' agreement with SPE permitted the receivers to sell the Heidelberg 72F, which had been offered for sale by an auction that had been advertised. The letter said that the receivers relied on the representations and assertions contained in the correspondence from SPE's solicitors to the extent that the existence of those allegations caused them to reach an agreement with SPE, although they did not accept any of the allegations or assertions made on behalf of SPE as necessarily being true or accurate. 104 However, according to the letter the receivers did rely on the assertions by the solicitors for SPE that SPE claimed an interest in the machines due to Kookaburra's failure to provide for payment, and that if the receivers did not confirm that the two printers would be withdrawn from sale pending final resolution of SPE's claims, the solicitors would seek instructions to apply for injunctive relief against the receivers. The letter gave an estimate of the approximate fees incurred by the receivers in dealing with SPE's claim, saying that the expenses amounted to $45,200, comprising the receivers' fees of $10,200 and legal fees of $35,000. 105 There is no basis for suggesting that the representations that SPE claimed an interest in the machines and that if they were not withdrawn from sale, SPE's instructions to apply for an injunction would be sought, were themselves misleading. It appears from a letter of 6 March 2003 that the receivers acted as a did, by entering into the agreement of 5 June 2002, on the basis of practical and commercial considerations which were not affected at all by representations about the existence of the shortfall and the other matters specified in Mr Singleton's affidavit. His evidence, which I accept, is that he had regard to those other matters. But the letter makes it clear that the decision was driven by more practical factors. In my opinion the cross-claim based on misleading and deceptive conduct is therefore unsuccessful. Conclusions 106 SPE has failed to establish its entitlement to recover its claimed currency shortfall, and is therefore not entitled to prove for that amount. It would have been entitled to prove for $50,000, representing the price discount for the Trade-in Machine that was not delivered, but for the set-off of that amount against commissioning and installation costs. Kookaburra has succeeded in its cross-claim to recover the remainder of the commissioning and installation costs of $31,207.50. The cross-claim based on misleading and deceptive conduct is unsuccessful. 107 I shall direct the defendants to prepare draft short minutes of orders to reflect my reasons for judgment, and I shall stand the matter over to hear submissions with respect to the form of my orders, and costs. As regards costs, subject to such submissions as I may receive, I would be inclined to order the plaintiff to play the defendants' costs of the proceeding and the cross-claim, except to the extent that the cross-claim relates to misleading and deceptive conduct. On the latter aspect of the cross-claim, I would order the defendants to pay the plaintiff's costs. For the purpose of assessment of costs, I would apportion the hearing time as 10% for the misleading and deceptive conduct claim and 90% for the other matters.

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Judgment (15 paragraphs)

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