SWICK NOMINEES PTY LTD -v- LEROI INTERNATIONAL INC [No 2] [2015] WASCA 35 (27 February 2015)

SWICK NOMINEES PTY LTD -v- LEROI INTERNATIONAL INC [No 2] [2015] WASCA 35 (27 February 2015) - WASCA 2015 case summary — Zoe

[307]

More fundamentally, the claim for the total cost of acquisition, in my opinion, goes beyond the amount required to put [Swick] in the same situation as if the contract had been performed. [Swick] is, in effect, asking for compensation as if the contract had been rescinded, with refund of the full purchase price. Yet it had the use of the compressor for over two years, and has been compensated for the loss of profit during this period caused by the breach of contract. Mr Swick reported 'production up by 30%' in using the compressor unit.

There was no evidence about the actual loss of value over time of equipment used in the mining industry. Depreciation scales used for accounting or tax deduction purposes do not necessarily help in calculating the actual value of a piece of machinery used in this environment.

The only evidence called as to value and loss of value was through Ron Wyndow, of Industrial Marketing Pty Ltd. Mr Wyndow gave, in effect, appraisals of value based on his experience in selling capital equipment to drilling contractors. Mr Wyndow gave evidence that, during the period June 1995 to June 1997, there was a strong demand for compressors. Since 2002, the market had contracted to the extent that in the earlier period, his company had sold 44 compressors. In the period 2002 to 2004 (the date of his report) it had sold four, two of them second hand.

The result of this approach was to value the compressor unit at the time it was commissioned at $230,000. On [Swick's] figures, the cost was approximately $223,000 including the Cummins diesel engine ($55,000) which was not fitted until February 1997. Mr Wyndow also estimated a difference in value of $130,000 in January 1997 between a reliable unit with a good reputation and a compressor unit with a TS24.

Mr Wyndow's evidence was affected by several assumptions that were shown to be incorrect. Most noticeably, he had been told the compressor unit was 'parked up' in January 1997, when it was still in operation until the second half of 1997. Mr Wyndow was not able to estimate what it would have sold for then and there is no evidence of its value or the relevant difference in value at that time. Mr Wyndow could only work with what he had. But his evidence was not a proper basis for establishing value [194] - [198].

[536]

I WANT TO UPDATE YOU ON WHERE WE ARE;

CONTINUED TESTING ON MODIFIED AE:

ADDITIONAL TESTING COMPLETED TODAY. THE LABYRINTH SEAL DOESN'T SEEM TO BE VERY BENEFICIAL, BUT WE INTEND TO STANDARDIZE ON IT FOR FUTURE BUILDS. WE WERE ABLE TO LOWER THE PRESSURE IN THE DISCHARGE AREA BEHIND THE BEARINGS WHICH DOES HELP. WE REDUCED THE OIL GOING INTO THE CYLINDER BY MAKING THE INJECTION ORIFICE OPENING SMALLER. (WAS .62 ; CHANGED TO .5) THIS WILL MEAN THERE WILL BE LESS OIL TO TRAVEL FROM THE CYLINDER THROUGH TO THE BEARINGS AND MORE OIL BEING INJECTED INTO THE BEARINGS FROM THE OIL FEED LINE. AT 210 F DISCHARGE TEMPERATURE, WE WERE ABLE TO DROP THE 2ND STG BRG DISCHARGE TEMPERATURE TO 180F. PLEASE CONFIRM YOUR AVERAGE DISCHARGE TEMPERATURE - NEED TO MAINTAIN 210-220F. ALSO INCREASED BRG DRAIN HOLES TO 1/2 IN AND INCREASED HOSE SIZE TO 1/2. ALSO RETURNING OIL TO NEW HOLES IN 1ST STG CYLINDER. ADDITIONAL TESTING MAY BE CONTINUED UPON FURTHER REVIEW OF RESULTS. WE'LL LET YOU KNOW.

GEAR CHANGE ON SCHRAMM AIR END

WE SUPPLIED SCHRAMM WITH THE INCORRECT GEARS (1.53 RATIO VS 1.33 RATIO). I'M SURE YOU ARE AWARE OF THIS. CORRECT GEARS BEING AIR FREIGHTED TO YOU. WE WILL COVER LABOR TO CHANGE OUT GEARS.

FAILURE OF FEMALE DISCHARGE BEARINGS

LARRY TOLD ME YOU HAVE HAD THREE FAILURES. WE WANT TO GET THESE BEARINGS BACK FOR ANALYSIS. PLEASE ADVISE WHICH S/N'S FAILED. WE HAD A VERY GOOD MEETING TODAY WITH MOBIL OIL TECHNICAL PEOPLE. THE FEMALE BEARING IS MUCH MORE SENSITIVE TO OIL VISCOSITY DUE TO ITS DISSIMILAR SPEED AS COMPARED TO THE MALE BEARING. THE 600 SERIES MOBIL OILS ARE DEFINITELY NOT RECOMMENDED BY THE MOBIL REPRESENTATIVE THAT WE MET WITH. THE REASON BEING THE GREAT TENDENCY TO FORM VERY HARD CARBON (AS WE FOUND IN THE MACHINE RETURNED TO LEROI). THEY WOULD RECOMMEND THE 900 SERIES (AS WE DISCUSSED SEVERAL MONTHS AGO) OR A NEWER 1000 SERIES. SPECIFICALLY THEY WOULD RECOMMEND SHC1026 FOR THIS APPLICATION AT TEMPERATURE LESS THAN 90C. FOR 90 TO 100 C THEY RECOMMEND 827 AND FOR GREATER THAN 100C THEY RECOMMEND 829. THE OIL WE ARE SENDING TO YOU IS ALSO HIGHLY RECOMMENDED. HOWEVER, MOBIL CONTENTS [sic] THAT THE ISO RATING SHOULD BE INCREASED IF THE TEMPERATURES EXCEED 100C. FROM OUR TEST TODAY, WE SHOULD BE ABLE TO MAINTAIN LESS THAN 90C SO 68 ISO IS FINE. PER MOBIL, THE 630 OIL COULD CAUSE SIGNIFICANT PROBLEMS ON THE FEMALE BRG BECAUSE LOCALLY HIGH LOAD SHEAR OF THE OIL CAUSES INCREASED TEMPERATURE. THEREBY REDUCING VISCOSITY FAR BELOW THAT OF A LOWER ISO RATING. PLEASE ADVISE WHAT OIL WAS IN MACHINES WHICH HAD FEMALE BRG FAILURE. PLEASE ADVISE IF MOBIL SHC926 OR 1026 IS READILY AVAILABLE.

BEARING LIFE

WE HAVE ALSO DONE SOME STUDIES AS TO THE THEORETICAL BEARING LIFE BASED ON NUMBER OF HOURS (OR % OF TIME) RUNNING AT 1200 / 500PSI. PLEASE LET US KNOW YOUR ESTIMATE OF % OF TIME SPENT AT THE VARIOUS OPERATING CONDITIONS AVAILABLE TO THE DRILLER. OUR FEELING IS THAT THE MAJORITY OF TIME IS SPENT AT THE MAXIMUM CONDITIONS. THIS WILL OBVIOUSLY REDUCE TO PREDICTED BRG LIFE.

MCKAY OIL COOLER (NOT SO GOOD QUALITY)

WAS THE COOLER REPLACED. KARMAZIN HAS AGREED TO SEND A NEW COOLER AT NO CHARGE BUT WILL WANT THIS ONE BACK. PLEASE ADVISE IF YOU WILL USE AS IS OR REPLACE. IF YOU WILL REPLACE, PLEASE ADVISE DATE CODE ON S/N PLATE.

[843]

151 But in my opinion, it is not sufficient for Swick Drilling to establish that there were repeated failures of the TS24 and it was unreliable. The evidence disclosed nothing about the operation of air compressors. There was evidence that people who were experienced in the drilling industry in Western Australia would not expect bearings to need replacement before 10,000 hours of operation. More generally, it is reasonable to expect that equipment with a purchase price of over $100,000 should normally last more than six months at a time without breakdown. But I cannot say that, in the ordinary affairs of mankind, the TS24 would not have suffered loss of oil pressure or premature bearing failure, in the conditions in which it was being used, without negligence in its design and manufacture. I am not sure that I could draw that inference. But in any event I am not satisfied that I should draw it.

152 First, whether LeRoi was negligent has to be determined by reference to the facts at the time of the alleged tortious conduct. The TS24 was designed and first manufactured some time before 1993. There is simply no evidence of the uses for the TS24 that were then in contemplation. At a later time, LeRoi either knew, or ought to have known, that the compressor would be used in mineral drilling by the customers of Air Drill. But not before 1994.

153 Second, Swick Drilling's case required expert evidence to show that the multiple failures or unreliability of the TS24 when it was used in mineral drilling were caused by a fault in design or manufacture that is attributable to LeRoi's failure to take reasonable care. It is tempting to assume negligence because there is no explanation of why the TS24 repeatedly failed, but that would be substituting an assumption for evidence. Swick Drilling was, for about four years after it began these proceedings, in possession of the compressor unit. Its failure to adduce any expert evidence on the design of the machine and what caused it to fail is, in my opinion, fatal to the claim.

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SWICK NOMINEES PTY LTD -v- LEROI INTERNATIONAL INC [No 2] [2015] WASCA 35 (27 February 2015)

Legislation Cited (4)

Cases Cited (51)