Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : SWICK NOMINEES PTY LTD T/As SWICK DRILLING AUSTRALIA -v- NORNCOTT PTY LTD [No 3] [2013] WASC 173

Tort - Product liability - Manufacturers liability - Pure economic loss - Duty of care - Standard of care - Proof of negligence - Res ipsa loquitur

Contract - Sale of goods - Goods not reasonably fit for purpose - Goods not of merchantable quality - Measure of damages - Proof of loss

Sales of Goods Act 1895 (WA), s 14(1), s 14(2), s 52

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Beaton v Moore Acceptance Corporation Pty Ltd [1959] HCA 59; (1959) 104 CLR 107

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36; (2014) 88 ALJR 911

Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609

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Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13; (1994) 179 CLR 520

Burrowes v Lock [1805] EngR 89; (1805) 10 Ves 470; (1805) 32 ER 927

Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529

Canadian National Railway Co v Norsk Pacific Steamship Co [1992] 1 SCR 1021

Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] AC 1

Cashfield House Ltd v David & Heather Sinclair Ltd [1995] 1 NZLR 452

Clark v Macourt [2013] HCA 56; (2013) 304 ALR 220

Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co-Operative Assurance Co of Australia Ltd [1931] HCA 53; (1931) 46 CLR 41

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Council of the Shire of Sutherland v Heyman [1985] HCA 41; (1985) 157 CLR 424

Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1

D & F Estates Ltd v Church Commissioners for England [1988] UKHL 4; [1989] AC 177

Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337

Donoghue v Stevenson [1932] UKHL 100; [1932] AC 562

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Dutton v Bognor Regis Urban District Council [1972] 1 QB 373

Elsee v Gatward [1793] EngR 1377; (1793) 5 TR 143; (1793) 101 ER 82

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Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1998] QCA 404; [1999] 2 Qd R 236

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Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540

Grant v Australian Knitting Mills Ltd [1936] AC 85

Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd [2010] SASC 37; (2010) 106 SASR 167

Hadley v Baxendale (1854) 9 Exch 341

Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 311 ALR 494

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465

Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159

Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549

JJ Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27

Junior Books Ltd v Veitchi Co Ltd [1982] UKHL 4; [1983] 1 AC 520

King v Sexton & Green [2000] NSWCA 340

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Louisville and Nashville Railroad Co v M/V Bayou Lacombe [1979] USCA5 930; (1979) 597 F 2d 469

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Muirhead v Industrial Tank Specialities Ltd [1985] EWCA Civ 16; [1986] QB 507

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1 BUSS JA: The appellant in each of these appeals, Swick Nominees Pty Ltd (Swick), appeals against a judgment of Allanson J entered after a trial in the Supreme Court of Swick's action for damages against the respondent in CACV 61 of 2013, LeRoi International Inc (LeRoi), and the respondent in CACV 128 of 2013, Norncott Pty Ltd (Norncott), in connection with the purchase by Swick of an air compressor unit.

2 The trial judge dismissed Swick's claim against LeRoi but entered judgment for Swick against Norncott in the sum of $284,407.39. That amount comprised damages and interest on damages.

3 Swick asserts that his Honour erred in dismissing its claim against LeRoi. Swick also asserts that his Honour erred in assessing the quantum of damages.

(a) Swick, trading under the name Swick Drilling, carried on business in Western Australia as a drilling contractor.

(b) Swick, in carrying on its business, was engaged principally in mineral exploration drilling in this State.

(c) LeRoi, a company incorporated in the United States of America, carried on business as a designer, manufacturer and supplier of air compressors.

(d) Norncott, trading under the name Air Drill, carried on business as a supplier, distributor and repairer of drilling equipment, including as a distributor of air compressors manufactured by LeRoi.

Swick's purchase of the air compressor unit

5 In about June 1994, Swick and Norncott agreed that Swick would purchase from Norncott an item of equipment described as a LeRoi model TS24 1200 cfm/500 psi compressor (the TS24). The TS24 would then be fitted to a diesel engine, an air receiver vessel and other components. The components, including the TS24, would, when fitted together, comprise an air compressor unit. The function of the unit was to provide a supply of compressed air for a drilling rig. I will use the term 'compressor unit' to describe the assembled item which included the TS24.

6 In about January 1995, Norncott delivered the compressor unit to Swick.

7 In July 1995, the compressor unit failed while Swick was operating it. Swick alleged that further failures occurred on 10 October 1995, 7 December 1995, 27 March 1996, 29 June 1996 and 24 October 1996. On each occasion, Swick could not use the compressor unit until it was repaired.

8 Swick claimed damages against Norncott and LeRoi for the losses it allegedly suffered as a result of alleged defects in the TS24.

9 Swick claimed against Norncott for breach of contract (including breach of the conditions implied by s 14(1) and s 14(2) of the Sale of Goods Act 1895 (WA)) and for negligent misstatement. Swick pleaded its claim as follows.

10 In or about March 1994, Ian Speer on behalf of Norncott expressly represented to Randal Swick on behalf of Swick that:

7.1 the best and most suitable compressor for [Swick] to purchase would be a LeRoi 500 psi compressor;

7.2 such a compressor had a bearing life of 30,000 hours whereas the bearing life of a Sullair compressor was only 10,000 hours;

7.3 the LeRoi compressor operated at pressures of 500 psi and that the high pressure which it developed in operation would significantly improve [Swick's] performance in carrying out drilling; and

7.4 such compressors had been in operation over a period of some years prior to 1994.

11 By letter dated 24 June 1994, Norncott made further express representations to Swick, including that:

(a) 'the compressor had extra-large bearings and operated at a low RPM, thereby producing a long life'; and

(b) 'the compressor would be the perfect compressor to supply the new range of super boosters which would emerge in the following 3 to 5 years to operate emerging very high pressure hammers so that the compressor would enable [Swick] to be drilling faster and longer well into the future'.

12 Between 24 June 1994 and 30 June 1994, Swick and Norncott agreed that Swick would purchase a TS24 from Norncott (the contract). Pursuant to the contract:

(a) Swick provided a Detroit diesel engine to Norncott;

(b) Norncott procured a TS24, serial number 5228X35, from LeRoi; and

(c) Norncott fitted the engine to, and supplied Swick with, the TS24 'together with an air receiver vessel ... and numerous component parts (the compressor)'.

13 The contract incorporated the following express oral terms, being the representations pleaded in pars 7.2 and 7.3 of the statement of claim:

13.1 the set of bearings used in the compressor would enable the compressor to be used in normal operation, that being at operating pressures of 500 psi, for 30,000 hours without bearing failure occurring; and

13.2 the compressor was designed to operate, and was capable of operating, at air pressures of 500 psi and would perform well in operating at such pressures.

14 By reason of the express representations in the letter dated 24 June 1994, the contract incorporated express written terms that:

14.1 in operation, the compressor was capable of producing and would produce, air pressures such as to produce a state-of-the-art air supply;

14.2 the bearings used in the compressor were very large and the compressor would operate at a low number of revolutions per minute and the compressor would thereby last for a long time in operation;

14.3 the performance of the compressor in operation would be such as to enable [Swick] to carry out drilling at greater operating pressures and for longer periods of time than it had been capable of doing in the past utilising its existing equipment, particularly the existing compressor; and

14.4 the performance of the compressor in operation would be such as to enable [Swick] to do the things referred to in paragraph 14.3 above over a period well into the future.

15 Norncott breached each of the terms pleaded in pars 13 and 14 of the statement of claim. In particular:

(a) the 'set of bearings used in the compressor was not such as to enable the compressor to be used in normal operation for 30,000 hours without bearing failure occurring';

(b) on 20 July 1995, the compressor failed 'because of failure of the bearing pack of the second stage screw of the compressor';

(c) the failure occurred after the compressor had been operating for a total period of about 950 hours;

(d) '[f]urther bearing failures' occurred on five later occasions, namely on 10 October 1995, 7 December 1995, 27 March 1996, 29 June 1996 and 24 October 1996; and

(e) the compressor was not capable of operating reliably at air pressures of 500 psi and did not perform well when being operated at such pressures.

See pars 15 and 16 of the statement of claim. See also pars 17, 18, 19 and 20 of the statement of claim.

16 Swick alleged, in the alternative, that the representations pleaded in par 7 of the statement of claim, and the circumstances in which those representations were made, 'incorporated' implied representations that the TS24 'would be the most appropriate compressor for [Swick] to purchase'; the TS24 'would be capable of performing in the manner, and achieving the effect, referred to in [par 7.3 of the statement of claim] in a consistently reliable manner'; and the TS24 'had been in operation carrying out mineral drilling work for some years prior to 1994 in a consistently reliable manner'. See par 22 of the statement of claim.

17 Swick also alleged that the representations pleaded in par 10 of the statement of claim, and the circumstances in which those representations were made, 'incorporated' an implied representation that 'in operation [the TS24] would produce air pressures so as to produce a state-of-the-art air supply in a consistently reliable manner'. See par 23 of the statement of claim.

18 Swick, in reliance on the representations pleaded in pars 7, 10, 22 and 23, and induced by them, entered into the contract with Norncott. See par 24 of the statement of claim.

19 Most of the representations 'constituted statements of advice, information or opinion'; and the representation that the compressor would enable Swick to drill 'faster and longer well into the future', 'was promissory'. Further, in the circumstances in which they were made, the representations 'incorporated...implied representations of existing or past facts' as follows:

(a) Norncott believed, or alternatively had reason to believe, that each of the statements was in fact accurate;

(b) Norncott had made enquiries to establish that the statements were reliable and well-informed;

(c) Norncott knew of facts which justified the statements being made; and

(d) Norncott was making the statements in circumstances in which it was exercising all due care, skill and diligence.

20 The representations referred to in par 25 were false in that:

(a) the compressor performed poorly and unreliably in operation 'as a result of repeated bearing failure';

(b) compressors such as that purchased by Swick had not been operating reliably in performing mineral drilling for some years prior to 1994;

(c) the compressor did not operate so as to provide any form of reliable air supply and, in particular, did not operate so as to provide a reliable state-of-the-art air supply;

(d) the purchase of the compressor was not beneficial to Swick as it failed to operate as reliably as its existing compressor; and

(e) Norncott never believed, or alternatively never had reason to believe, that the statements were in fact accurate; failed to make any adequate enquiries to establish that the statements were reliable and well-informed; knew of no sufficient facts to justify the statements being made; and made the statements in circumstances in which it had failed to exercise all reasonable care, skill and diligence.

21 The representations were negligent misstatements made in circumstances in which Norncott 'possessed special skill or knowledge concerning the representations or was otherwise in a special relationship with [Swick] and with the intention of inducing [Swick] to enter into the contract [with Norncott] and in so doing it failed to use reasonable care to ensure the accuracy of the representations'. See par 28 of the statement of claim.

22 Swick, in reliance on the negligent misstatements, entered into the contract with Norncott. See par 29 of the statement of claim.

23 The contract contained conditions implied under s 14(1) and s 14(2) of the Sale of Goods Act. In breach of the implied conditions, the compressor was not reasonably fit for the purpose for which it was required and was not of merchantable quality. See pars 32 - 40 of the statement of claim.

24 Swick claimed, relevantly, damages, and interest on damages, from Norncott.

25 Norncott had ceased trading some years before the trial. It filed a defence denying liability. After filing an amended defence in 2005, Norncott was deregistered. In 2012 Swick procured the re-registration of Norncott. Norncott did not participate in the trial or in the appeal.

(a) LeRoi designed, manufactured and supplied air compressors, including the TS24 serial number 5228X35 that Swick agreed to purchase from Norncott;

(b) LeRoi, in the course of its business, designed and manufactured, and supplied to Norncott, the 'manufactured compressor' (being the TS24), to which Norncott fitted the diesel engine, the air receiver vessel and other components before delivering the assembled compressor unit to Swick;

(c) Norncott was the distributor within Western Australia of LeRoi's products including the TS24;

(d) LeRoi manufactured air compressors, including the TS24, with the intention of promoting their sale to mineral exploration drilling contractors such as Swick 'on the basis that such mineral exploration drilling contractors would use [the TS24] in carrying out mineral exploration drilling';

(e) prior to entering into the contract with Swick, Norncott 'promoted to mineral exploration drilling contractors, including [Swick], the sale of [the TS24] on the basis that the compressor would be useful to them in carrying out mineral exploration drilling';

(f) LeRoi knew, or ought to have known, that the TS24 would be sold by Norncott to 'an individual or company such as [Swick]';

(g) further or alternatively, before Norncott supplied the TS24 to Swick, LeRoi knew that Norncott had sold the TS24 to Swick;

(h) it was reasonably foreseeable that, if LeRoi failed to take reasonable care in the design and manufacture of the TS24, Swick would suffer economic loss;

(i) '[b]y reason of the acquisition cost of [the TS24], the contract [with Norncott] represented a very significant investment for [Swick]';

(j) Swick was not a designer or manufacturer of compressors such as the TS24;

(k) LeRoi manufactured the TS24 in question in the United States of America and delivered it to Norncott in Western Australia, and Swick therefore had no opportunity, before entering into the contract with Norncott, 'to ascertain the defects in the design and manufacture of [the TS24]';

(l) Swick was unable, by reason of the acquisition cost of compressors such as or similar to the TS24, to purchase another compressor as a contingency against the risk that the TS24 would suffer from defects or that those defects would cause Swick to suffer economic loss;

(m) in the circumstances, Swick was 'vulnerable and unable to protect itself from the consequences of [LeRoi] failing to take reasonable care in the design and manufacture of [the TS24]';

(n) LeRoi knew or ought to have known of the matters referred to at [26] (i) - (m) above;

(o) in the circumstances, the relationship between Swick and LeRoi was 'close';

(p) the class of individuals or companies who would suffer economic loss in the event of LeRoi failing to take reasonable care in the design and manufacture of the TS24 was 'at all material times clear and inherently limited';

(q) LeRoi 'was in a position sufficiently to control, and did in fact control, the conduct giving rise to [Swick's] economic loss'; and

(r) LeRoi therefore owed Swick 'a duty to take reasonable care in the design and manufacture of [the TS24]'.

27 Swick alleged that LeRoi failed to take reasonable care in the design and manufacture of the TS24. The particulars of negligence were these:

62.1 failing to design the manufactured compressor in such a way as to ensure that the manufactured compressor's air end second stage was adequate to enable the manufactured compressor to function reliably;

62.2 failing to manufacture the manufactured compressor in such a way as to ensure that the manufactured compressor's air end second stage was adequate to enable the manufactured compressor to function reliably;

62.3 the set of bearings used in the manufactured compressor was not such as to enable it to be used in normal operation without bearing failure occurring because of failure of the bearing pack of the second stage screw of the manufactured compressor [the expression normal operation is used also in paragraph 13 as meaning 'operating at pressures of 500 psi'];

62.4 the manufactured compressor was not capable of operating reliably at air pressures of 500 psi and did not perform well when being operated at such pressures in that the failures occurred at operating pressures of, or less than, 500 psi;

62.5 the manufactured compressor failed to produce good operating air pressures in operation with any reliability; and

62.6 [LeRoi] failed to take prompt steps to remedy the defects referred to above in circumstances where it knew, or ought to have been aware, of those defects by the date upon which the compressor was provided to [Swick] by [Norncott].

28 Although Swick pleaded the existence of a 'close relationship' between LeRoi and Norncott, in pleading the circumstances which gave rise to the alleged duty of care, Swick did not advance a claim that LeRoi was liable, either vicariously or otherwise, for Norncott's conduct.

29 At the trial, counsel for Swick confirmed, in his opening address, that the sole basis for Swick's claim against LeRoi was that LeRoi had failed to take reasonable care in the design and manufacture of the TS24 (ts 281).

30 Swick relied on claims for breach of contract, breach of the conditions implied under s 14(1) and s 14(2) of the Sale of Goods Act, misrepresentations and negligent misstatements solely in its case against Norncott.

(a) admitted that it was incorporated in the United States of America; and

(b) said that 'at times' it had been a manufacturer of 'high pressure air compressors'.

32 LeRoi admitted that it designed and manufactured, and supplied to Norncott, the TS24 in question. See par 4 of the defence.

(a) the TS24 had 'a maximum airflow rating of 1200 cfm and a maximum pressure delivery rating of 500 psi';

(b) the TS24 'was not designed to operate constantly at its maximum possible output pressure'; and

(c) the bearings used in the TS24 were designed, manufactured and supplied to LeRoi by 'independent bearing manufacturers being corporations trading under the name or style of NTN Bearings and Timken Bearings'.

34 LeRoi alleged that Swick failed to take steps adequately to protect itself from the risk of business interruption and other losses in that it failed to obtain insurance, negotiate adequate warranty terms with Norncott or purchase secure back-up equipment. See pars 17 and 18 of the defence.

35 LeRoi said that, before it supplied the TS24 to Norncott, and before the TS24 was supplied by Norncott to Swick, LeRoi had 'no communication whatsoever with [Swick] and had no relationship with [Swick] whatsoever'. See par 22 of the defence.

36 LeRoi pleaded that air compressors can be used in different environments, in different industries and for numerous applications other than mineral drilling. LeRoi alleged that it had 'no direct knowledge' of the persons or entities within the class of persons or entities who would purchase compressors from Norncott. See par 23 of the defence.

37 LeRoi did not admit in its defence that it owed a duty to Swick 'to take reasonable care in the design and manufacture of [the TS24]'. See par 25 of the defence. However, counsel for LeRoi, in his written outline of closing address, accepted that LeRoi did owe Swick a 'duty of care', but maintained that, as pleaded in its defence, LeRoi in fact exercised reasonable care. I will examine the terms of the concession and its significance later in these reasons.

(a) In any event it did take all reasonable and prudent steps in relation to the design and manufacture of [the TS24].

(b) That in so far as the bearings used in that compressor were concerned, it did not design or manufacture those bearings and relied on independent expert bearing manufacturers to supply bearings suitable for the specific application and which were then incorporated into the manufacture of the compressor.

(c) By reason of the design of the bearings supplied by the independent expert bearing manufacturers for the specific application, that it was not reasonably possible for [LeRoi] to know or otherwise learn of any fault or deficiency that may be present in those bearings prior to their installation into the compressor during the manufacturing process.

39 LeRoi pleaded that the TS24 was designed and manufactured by it for use in the following manner:

(a) for 'normal use' at 350 psi, with 'occasional use' at 500 psi;

(c) with use of, and regular replacement of, air filters.

40 LeRoi alleged that, if Swick suffered any loss as a result of any of the matters pleaded in the statement of claim (all of which LeRoi denied), Swick had failed to take any, alternatively any reasonable, steps to mitigate the alleged loss. The particulars of the alleged failure to mitigate were:

(a) Swick's failure to take steps adequately to protect itself from the risk of business interruption and other losses in the manner recounted at [34] above; and

(b) Swick's 'wholly unreasonable' decision to sell the TS24 'for scrap'.

The applicable law in Swick's claim against LeRoi

41 At the trial, Swick and LeRoi proceeded on the assumption that the law of Western Australia was to be applied in determining Swick's claim against LeRoi even though Swick relied on acts or omissions in the design and manufacture of the TS24 which occurred in the United States of America. Like the parties, the trial judge proceeded on that basis. The point was not raised in the appeal.

42 At the trial Swick called two primary witnesses of fact, namely Mr Swick and Mr Speer.

43 The only witness called by LeRoi was Ralph King, who was the former managing director of Norncott.

(a) Robert Martin, as to the cause of the failures in the TS24;

(b) Ronald Wyndow, as to the market value of the TS24 at particular dates; and

(c) Michael Fry, as to the financial impact on Swick of the failures in the TS24.

45 Mr Speer, Mr King and Mr Martin directly observed the TS24. They were experienced in working with and maintaining mining equipment, including air compressors. None of them had any formal qualifications.

46 Although the litigation was concerned with the design and manufacture of the TS24, neither party called any evidence on that issue from an engineer.

47 There was no evidence of any comparison having been made between the design of the TS24 and the design of other comparable compressors.

48 The compressor unit, as assembled by Norncott and supplied to Swick, comprised:

(b) a frame on which the engine and the TS24 were mounted; and

(c) other necessary items, namely an engine and compressor radiator, a cooling fan, a filtration system, a control system, an exhaust system and a control box with monitoring equipment [64].

49 The trial judge found that '[n]one of the components was compatible only with the LeRoi TS24, and the LeRoi could have been replaced with another brand' [65].

The purchase price of the assembled compressor unit

50 The purchase price payable by Swick to Norncott for the assembled compressor unit was itemised in an invoice dated 23 June 1995 (exhibit 4). In particular:

(a) The price of the TS24 and the Detroit diesel engine was in total $88,050. Of this total, $34,000 was attributable to the engine and the balance to the TS24 [66].

(b) The total price of the component parts used to assemble the compressor unit was $30,441.77.

(c) The price of the labour required to build and test the compressor unit was $27,100.

(d) The overall price, as set out in the invoice, was $145,591.77.

51 In February 1997, the Detroit diesel engine was replaced with a Cummins diesel engine. The cost of the new engine was $55,000 [197].

52 It appears that Swick incurred other costs in order to complete the construction of the compressor unit. His Honour said that '[o]n [Swick's] figures, the cost was approximately $223,000 including the Cummins diesel engine ($55,000) which was not fitted until February 1997' [197]. See also Mr Swick's witness statement dated 27 March 2009 (exhibit 1A) pars 102 - 114. Subject to some corrections, this witness statement was tendered as part of Mr Swick's evidence-in-chief (ts 326).

53 The compressor unit, including the TS24, was assembled between October 1994 and January 1995 [63].

54 In January 1995, the compressor unit was commissioned [63].

55 Mr Swick gave evidence that in the 15-month period commencing in July 1995 the TS24 failed in operation on six occasions.

56 After the compressor unit was commissioned it underwent several changes. The original TS24, serial number 5228X35, was replaced with another, at no cost to Swick, after the first failure of the machine. Later, in 1997, the original Detroit engine was replaced by a more powerful engine. Some time after the second failure, probably after the fifth failure, the gear set in the TS24 was changed. The object of the change was to increase the discharged volume of air to 1400 cfm and to reduce the pressure to 350 psi. The change also enabled Swick to operate the engine at a lower speed and to reduce fuel consumption. Mr Swick gave evidence that the change 'was to a different operating configuration of the compressor, but was within its design specifications' [70].

(b) the job cards maintained by Norncott in carrying out repairs;

that the compressor unit failed on eight occasions between January 1995 (when it was commissioned) and July 1997, although one of those failures was caused by an engine failure [72].

The paucity of evidence as to the design and manufacture of the TS24

58 The trial judge said that, although Swick alleged LeRoi had been negligent in the design and manufacture of the TS24, the evidence adduced by Swick in relation to design was 'minimal' [126].

59 Swick relied on the evidence of Mr Martin. His Honour summarised Mr Martin's qualifications, experience and evidence as follows:

[Mr Martin] was a witness with no formal expert qualifications, but extensive experience as a mechanical fitter in the drilling industry on the maintenance side. He currently operates a business specialising in the repair and servicing of high pressure compressors used in the drilling industry. Mr Martin's experience with the TS24 was limited to installing three of them for Drillcorp, in around 1996. He said that while he tested the TS24 while investigating operational issues, he did not dismantle any TS24 and he had never worked on the internals.

Mr Martin saw, and reported to [Norncott], a problem with oil flow on the high pressure end of the TS24 when he 'ran the first one up'. He described how the compressors use large quantities of oil for cooling, lubrication and sealing. If the flow of oil is reduced it will lead to severe vibration and failure of the bearings. As I understood his evidence, Mr Martin was not suggesting that the bearings were the cause of the problem, but that reduction in oil flow led the bearings to fail.

Mr Martin was asked his opinion as to the source of the problem in oil supply to the bearings. He said there were numerous things that could cause the problem, including dirty filters (a problem he saw regularly) and design of the machine. Mr Martin had not examined the filters on any of the LeRoi machines that he had worked on. He had not dismantled a TS24 and could say nothing more about design.

Mr Martin also said, from his experience, that a high pressure compressor does not normally require a major overhaul for the first 10,000 hours, and 10,000 hours was 'accepted' in the industry [127] - [130].

60 The trial judge accepted Mr Martin's evidence that there was 'a lubrication problem and failing of the bearings in the second stage of the compressor' [131]. His Honour could not, however, on the basis of Mr Martin's evidence, determine whether the bearings were inadequate or whether a lubrication problem caused otherwise suitable bearings to fail [131].

61 Mr Speer had 'long experience with mining equipment' [132]. Before Norncott, he had worked for Atlas Copco (a manufacturer and distributor of compressors and mining equipment) and Sullair (a manufacturer of compressors), but he did not give any evidence as to the capacity in which he worked for those companies. Mr Speer had no formal qualifications. His Honour found that Mr Speer may have been qualified by experience to give evidence on 'some aspects of compressors and mining equipment', but he was not qualified to give expert evidence about design [132].

(a) no witness explained how a compressor works or the role of the bearings in the operation of a compressor;

(b) no witness identified any aspect of the design of the TS24 that could 'in any way' explain the failures of the TS24 in question; and

(c) neither party called any evidence comparing the design of the TS24 with other compressors designed to perform the same function [133].

63 LeRoi did not call any evidence regarding the design or manufacture of the TS24.

64 The evidence did not reveal what happened to the original TS24 owned by Swick after Norncott had replaced it in the compressor unit after the first failure of the original TS24 [135].

65 There was no evidence from an independent expert who had examined the TS24 [135].

66 The trial judge made the following findings of fact.

67 First, the compressor unit failed on multiple occasions. The first failure occurred while the original TS24, serial number 5228X35, was incorporated in the compressor unit. The TS24 was damaged. The compressor unit was repaired and the damaged TS24 was replaced with another. At about the time of the fifth failure, the TS24 was reconfigured 'to a 1400/350 - that is higher volume but lower pressure' [136]. The reconfiguration enabled the compressor unit to be operated at lower engine speeds and with a reduced fuel consumption. The six failures occurred in less than two years [136].

68 Secondly, the TS24 compressors in the units of other drilling contractors had failed, including units operated by Grimwood Davies, Drillcorp and Drill Torque. At least some of those failures were similar to the failures experienced by Swick. Mr King estimated in his evidence that two-thirds of the TS24 compressors in the Western Australian mining industry had failed, but the number of failures was not the subject of any specific evidence. Swick did not call any evidence from any other drilling contractors about the failures they had experienced with the TS24 [137].

69 Thirdly, the multiple failures of Swick's TS24 were characterised by a loss of oil pressure and a failure of the bearings in the second stage of the compressor. The trial judge was unable to make a finding as to the 'ultimate cause' of the failures [138]. There was no evidence that anyone had identified the cause. Mr Martin's evidence, which his Honour found 'helpful', suggested it was more likely that the bearings failed because of reduced oil flow in the compressor [138]. However, his Honour was unable to make any finding as to why there was a reduction in oil flow [138].

70 Fourthly, the failures of the TS24 were 'probably universal in units with Timken bearings fitted, but not necessarily universal in units with the NTN bearings' [139]. The trial judge said the evidence on this issue was 'quite impressionistic' [139]. His Honour preferred the evidence of Mr Speer to that of Mr King on the point because Mr Speer had 'a more direct knowledge of what was happening' [139]. His Honour found that it was likely there were failures in compressor units with NTN bearings, but the period between failures was greater [139].

71 His Honour then made the following observations:

There was also evidence given about two other TS24 compressors which did not present with problems, or at least the same level of problems. The first compressor purchased by [Norncott] was the one Mr Speer saw in the yard at Schramm. It was sold to Western Deep Hole Drilling. Mr Speer said this one did not fail prematurely. Mr Speer also referred to the unit owned by Mr Wolski which suffered no failures after the operating procedure was modified. The little evidence there is suggests that operating practices may have made a difference to his being able to use his machine without problems.

Were I satisfied that the failures occurred only in units with the Timken bearings, then the problem would be more readily attributable to the bearing rather than other aspects of the TS24. Even then, the evidence of Mr Martin leaves open a finding that the Timken bearings failed earlier than the NTN bearings, but the cause of the failure lay in whatever reduced the oil flow to the bearings [140] - [141].

72 Fifthly, there was no evidence as to the performance of the TS24 in any other markets. The trial judge found that a majority of the TS24 machines used in the Western Australian mining industry, 'up to two thirds', had failed [142].

73 Sixthly, there was no evidence concerning the design, manufacture or reputation of the Timken bearings. Also, there was no evidence as to whether it should have been reasonably foreseeable that compressor units incorporating those bearings would fail because 'they were either substandard or incompatible with application in the particular machine' [143].

74 After making those findings of fact, the trial judge said:

The evidence is quite unsatisfactory. Something resulted in the majority of the TS24 compressors sold in Western Australia failing. I infer, from the fact that different operators experienced problems, that the cause of the failure was not in every case poor practice by the operator (for example, by failing to clean oil filters). It is possible that the failure of the bearings was the cause, but it also may have been the result of the problem [144].

The trial judge's findings and conclusions: Swick's case against LeRoi

75 The trial judge decided that although there was evidence that the TS24 was damaged, at least on the first occasion, 'when metal shards were produced and contaminated the machine', Swick's case against LeRoi was 'properly considered overall as a claim for pure economic loss' [145]. His Honour elaborated [145]:

The loss claimed by Swick ... is not for damage to property but for loss of value, lost productivity and, ultimately, the need to write-off the compressor unit as a piece of working equipment because it was seen as unreliable. The fact that some damage to the compressor itself was caused in the first failure does not alter that characterisation of the claim: see Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 [20].

76 LeRoi accepted, in its closing submissions, that 'a manufacturer owes to a consumer of the manufacturer's product the duty to exercise reasonable care to prevent the product causing foreseeable risk of injury or loss' [146]. There was 'no doubt this is so where there is a risk of injury' [146]. His Honour added that he 'believe[d] that is also the case where the loss caused is confined to economic loss' [146].

77 The trial judge noted that the 'relevant occurrence' in the proceedings being tried was 'the failure of the TS24 in operation, typically by a drop in the oil pressure' [148]. Swick bore the onus of persuading the court that it was more likely than not that 'the relevant occurrence was brought about by the negligence of LeRoi in designing and manufacturing the TS24' [148].

78 His Honour observed that Swick could have established the cause of the failure and facts justifying an inference that LeRoi's negligence in designing or manufacturing the TS24 caused the failure. However, his Honour said Swick 'has not proved negligence in this way, as it has not established the cause of the failure' [149]. His Honour added:

I accept that Swick ... has proved that at least some of the failures were due either to a defect or the inadequacy of the TS24 for the particular task it was being used for, rather than due to operator error. The number of occurrences, and the failures of machines operated by others in mineral drilling applications, point to something to do with the machine rather than the circumstances of its use on each occasion. But Swick ... has not established what caused the TS24 to fail, either on any occasion when it failed, or on all occasions. If anything, the evidence shows that a man of Mr Speer's experience did not identify the cause of the failures over a period of many months [149].

79 The trial judge noted that, alternatively, Swick could have proved that the failure occurred in circumstances justifying an inference that LeRoi's negligence in designing or manufacturing the TS24 caused the failure, even though it may not be possible to establish the precise cause. His Honour then said:

An inference of negligence may be drawn where, in the ordinary course of human affairs, such an occurrence is unlikely without want of care on the part of a person in the situation of the defendant. The fact that Swick ... sought to establish the cause of the various failures does not preclude it from relying upon facts giving rise to an inference of negligence. [Swick's] pleadings are sufficiently wide to permit this [150].

80 However, his Honour was of the opinion that it was not sufficient for Swick merely to establish that the TS24 failed repeatedly and was unreliable. His Honour explained:

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 [151].

81 The trial judge went on to decide that, in any event, he was not satisfied that an inference of negligence should be drawn. His reasoning was as follows.

(a) whether LeRoi was negligent had to be determined by reference to the facts and circumstances existing when the alleged breach of duty occurred;

(b) the TS24 was designed and first manufactured before 1993;

(c) there was no evidence as to 'the uses for the TS24 that were then in contemplation';

(d) at a later time, but not before 1994, LeRoi either knew, or ought to have known, that the TS24 would be used by customers of Norncott for mineral drilling [152].

(a) the proof of Swick's case required expert evidence to establish 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 was attributable to LeRoi's failure to take reasonable care;

(b) although it was 'tempting to assume negligence because there is no explanation of why the TS24 repeatedly failed', that would involve 'substituting an assumption for evidence';

(c) for about four years after it commenced the Supreme Court action, Swick was in possession of the TS24; and

(d) Swick's failure to adduce any expert evidence in relation to the design or manufacture of the TS24, and what caused it to fail, was 'fatal to [Swick's] claim' [153].

84 At the trial, counsel for Swick endeavoured to rely on inferences that the TS24 had not been tested adequately and submitted that the alleged failure to test adequately was an element of design and manufacture. His Honour rejected this aspect of Swick's claim for several reasons.

(a) there was no evidence concerning the testing of the TS24, apart from the testing carried out by Norncott to commission the TS24 purchased by Swick;

(b) in particular, there was no evidence as to whether the TS24 was or was not tested in the United States of America; and

(c) similarly, there was no evidence about the testing or reputation of the bearings used in the TS24 [155].

(a) there was no evidence as to what testing was required in relation to the TS24;

(b) there was evidence that LeRoi had manufactured other types of compressors, but no evidence as to their history or performance; and

(c) there was no evidence as to whether the TS24 differed from the other compressors in respects that might lead to the conclusion that some (and, if so, what) testing regime was necessary [156].

(a) the alleged failure to test adequately was not pleaded;

(b) any issue at the trial in relation to testing could not reasonably have been anticipated from the witness statements exchanged before the trial or the agreed bundle of documents;

(c) counsel for LeRoi submitted, in his closing address at the trial, that Swick's case was based entirely on the adequacy of the bearings, in particular the Timken bearings;

(d) his Honour did not accept that Swick's case was limited to that extent, but did accept that 'there was nothing to give notice of an issue based on adequacy of testing';

(e) counsel for Swick did not apply to amend the statement of claim but relied, instead, on the alleged width of the particulars of negligence; and

(f) his Honour did not accept that the particulars of negligence were sufficiently wide to encompass a case based on inadequacy of testing [157].

The trial judge's findings and conclusions: Swick's case against Norncott

(a) the representation regarding a bearing life of 30,000 hours was not promissory [167];

(b) his Honour was not satisfied that the parties intended 'what was said in the conversation of March 1994 to be contractual' [168];

(c) the terms of the letter dated 24 June 1994 were not promissory [170]; and

(d) Norncott had breached each of the conditions implied under s 14(2) and s 14(3) of the Sale of Goods Act:

The compressor unit was commissioned in January 1995 and the first failure was in July 1995. The failure on that occasion required return of the compressor unit for replacement of the TS24. Subsequent failures over the next 18 months required return of the compressor unit for either repair or replacement of the TS24 five more times. The compressor unit was not functional as a compressor to operate machinery used in mineral drilling. On the findings I have made regarding the repeated failures of the compressor unit over the 18 month period after its purchase, I am satisfied that Swick ... has shown breach of both conditions [172].

89 The trial judge said the 'crucial question', in assessing the damages payable by Norncott to Swick for breach of the conditions implied by the Sale of Goods Act, was 'whether, at the time the contract was made, [Norncott] should have had the loss of profits from drilling, including the time required to convey the compressor from a remote location for repair, in its contemplation, or whether those losses would have been in the contemplation of a reasonable person in [Norncott's] position' [174].

(a) Norncott was aware of the nature of Swick's business, including that Swick operated at remote locations; and

(b) Norncott was, or should have been, aware that the compressor unit was a substantial investment for Swick and that it was replacing Swick's existing air compressor [175].

91 The trial judge said the proper measure of Swick's damages included the profits it had lost during the period when it could not operate because the TS24 was unserviceable. The cost of hire equipment, and transport and crane costs, if proved by Swick, 'would also flow naturally from the breach and should have been in [Norncott's] contemplation' [175].

92 His Honour was satisfied that Swick had not failed to mitigate its damage. It was true that Swick persisted in using the TS24 for some months after the first failure. However, the TS24 had been represented to Swick as a 'reliable long-lasting unit' and Swick had 'continuous work from existing contracts' [176]. His Honour was satisfied that nothing had been identified that should reasonably have led Swick to conclude that 'the TS24 was inherently unsuitable or unreliable and had to be replaced' [176]. His Honour was unable to see what else Swick could or should have done.

93 The trial judge noted the general rule that damages are to be assessed at the date of breach and also noted that the rule is not universal [177]. His Honour was of the view that, in the present case, 'the only way to properly assess the amount that can fairly compensate [Swick] is to take into account the loss of productive use, and consequent loss of profit, in the period from when the compressor unit was commissioned to the last of the pleaded failures' [177]. An evaluation had to be made as to whether the compressor unit 'would have remained in productive use throughout the relevant period, taking into account the continuity of [Swick's] contracts and the time required for mobilisation and demobilisation' [178].

94 Swick relied on the evidence of Mr Fry, an accountant, in relation to the assessment of damages. His Honour summarised Mr Fry's methodology as follows:

The method proposed by Mr Fry was to estimate the average daily income generated by the compressor unit over the period during which the failures occurred. He chose a period bounded by the contracts on which Swick ... was working when the failures occurred. There were 25 days on which the compressor was not working because of the six failures: for each failure the periods were 7.5 days, 5 days, 3.5 days, 1 day, 7 days, and 1 day.

Mr Fry calculated a daily figure of $6,015.06 by dividing the total of the invoices attributed to the drilling rig which used the compressor unit by the total number of operational days. He then subtracted the amount that was not spent on consumables, again by calculating an average spending on consumables for each day in which the rig operated [181] - [182].

95 The trial judge observed that Mr Fry's method was not 'perfect' and that counsel for LeRoi had challenged it [183].

96 First, LeRoi challenged the assumption that the drilling rig would have worked continuously. Its counsel asserted that this assumption was based on nothing more than Mr Swick's evidence that the relevant period was 'very busy, with inquiries for work that he just could not act on because he did not have equipment available' [184]. His Honour accepted that this evidence was 'imprecise, and gives an overall conclusion about events that happened over 15 years ago' [184]. Nevertheless, his Honour found that Mr Swick was an honest witness. He rejected counsel for LeRoi's submission that Mr Swick's evidence should not be accepted where it was not corroborated by documentary evidence. Although the evidence suggested that 'the drilling business declined significantly in 1997', his Honour accepted, on the basis of Mr Swick's evidence and the income generated, that Swick 'was continuously employed, or nearly so, during the relevant period from July 1995 to October 1996' [184].

97 Secondly, LeRoi argued that Mr Fry's calculation was flawed because it included mobilisation days. His Honour dismissed that argument on this basis:

(a) any 'averaging exercise' will have 'some discrepancies and exercises in rounding';

(b) if mobilisation days were excluded, and the calculation took into account only days when the rig was drilling, the number of days would be reduced but the daily rate of earning would be higher; and

(c) it is 'an assessment that will lack the last degree of precision', but it was 'fundamentally sound' [185].

98 Thirdly, LeRoi submitted that there was 'a degree of inaccuracy in the calculation of daily expenses because they include an apportionment of costs to a rig used by Swick ... on a subcontract basis' [186]. According to counsel for LeRoi, this feature rendered Mr Fry's report 'defective and of no probative value'. His Honour said the submission involved an overstatement. He explained:

In allowing for the expenses that would have been incurred in operating the rigs, I must recognise that they have been underestimated. The lawyers for Swick ... attempted a recalculation to enable a more accurate assessment. Although LeRoi argues this cannot be done, and the whole exercise must be thrown out, I cannot agree. There is no doubt that loss was incurred and I must do the best I can to calculate it on the available evidence. The calculation done by [Swick] to correct the under-estimation of costs is not evidence, but it is based on the evidence and does help with the mathematics [186].

99 The trial judge concluded that 'a proper estimate of the amount of profit that Swick ... was likely to have earned on the days when its rig was unproductive due to the compressor unit being unserviceable [was] as follows: there were 25 days of lost production, during a period when the average amount earned on each day was about $6,000. The average spent on consumables for each day was about $1,500. Accordingly, the loss of income was $112,500' [187].

100 His Honour also concluded that Swick was entitled to amounts reasonably expended in order to mitigate the effect of the breach. His Honour accepted Mr Swick's evidence to the effect that, as a result of the delay caused by the fifth failure, he negotiated a discount of $5,010 with the principal, Goldfields Exploration NL, which was deducted from the invoice. His Honour said a loss of that kind resulted 'naturally, and in the ordinary course of events, from the breach', and should be allowed [188].

101 Swick also claimed for the hire of equipment to replace the compressor unit while the TS24 was being repaired. The trial judge allowed an amount of $4,512.80 for the period between 26 October 1996 and 2 November 1996 [189]. His Honour also allowed an amount of $24,488.36 which Swick expended on the hire of a compressor and booster during July, August and September 1996 while the TS24 was reconfigured to reduce the pressure to 350 psi in order to 'ease the load on the bearings and increase their life' [190].

102 His Honour dismissed Swick's claim for the cost of cranes used to lift the TS24, and transport it from the various sites where breakdowns occurred, on each occasion of failure. Swick's damages in respect of this item were not proved [191].

103 The trial judge also dismissed Swick's claim for the total cost of acquisition of the compressor unit, including the TS24 and all other components and labour, less the $55,000 recovered on the sale of the TS24 and other items in 2004 [192]. There was a dispute at the trial as to whether there should also be a deduction for depreciation and, if so, at what rate.

104 Swick's claim for this item of damages was based on the premise that, if it had been fit for purpose, the compressor unit would have had a useful life of about 50,000 hours (or 15 years), subject to the compressor unit being maintained with regular overhauls at 10,000 hourly intervals. His Honour held that the underlying premise had not been proved. His Honour also held that he could not assume that, to be fit for purpose or of merchantable quality, a compressor unit has, or is expected to have, an operating life of 50,000 hours (or 15 years) [193]. His Honour expanded on these conclusions in detail:

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].

105 Finally, the trial judge said he would have allowed 'the difference in value between the compressor unit, had it been fit for purpose, and the actual value at the time Swick ... stopped using it', but he was not satisfied that Swick had proved those values and, accordingly, it had not proved this item of its claim [199].

106 In summary, his Honour awarded Swick damages against Norncott as follows:

107 The trial judge ordered the payment of interest on the damages pursuant to s 32 of the Supreme Court Act 1935 (WA).

Swick's grounds of appeal in the appeal against LeRoi

108 Swick relies on seven grounds in its appeal against LeRoi. The grounds read:

1. The learned trial judge erred in fact in failing to find that [LeRoi] was negligent in the design and manufacture of the LeRoi model TS24 1200cfm/500psi compressor ('TS24') when the weight of the evidence proved directly or inferentially that that was so.
2. The learned trial judge erred in law in holding (at [152]):

(1) that the time at which the alleged tortious conduct (for the purpose of this ground, negligent manufacturing) must be determined was when the LeRoi model TS24 1200 cfm/500 psi compressor (the TS24) was designed and first manufactured by [LeRoi]. The relevant time was when [LeRoi] manufactured the TS24 supplied to [Swick], which was not earlier than the date of the contract for its purchase (24 June 1994 to 30 June 1994), at which time [LeRoi] was aware that the TS24 would be used for mineral drilling; and

(2) that for [LeRoi] to be liable to [Swick] [LeRoi] had to know that the TS24 would be used by [Swick] in mineral drilling. [LeRoi] did not, by reference to any particular use of the TS24 or the conditions in which it would be used, qualify its claim that [the] TS24 would operate at 500 psi.

1. The learned trial judge erred in law in misapplying the principle of res ipsa loquitur, in that the learned trial judge (at [151]) wrongly identified the occurrence as loss of oil pressure or premature bearing failure when the occurrence was the catastrophic failure of the TS24.
2. The learned trial judge erred in law in misapplying the principle of res ipsa loquitur in that the learned trial judge held (at [153]) that he could not draw an inference of negligence, because [Swick's] case required expert evidence to show that the multiple failures or unreliability of the TS24 when used in mineral drilling were caused by a fault in design or manufacture attributable to [LeRoi's] failure to take reasonable care. Res ipsa loquitur may apply when the cause of the loss has not been established.
3. The learned trial judge erred in law and fact in holding that [Swick] had failed to prove what would have been the value of the TS24 in the second half of 1997 had it been reasonably fit for the purpose for which it was required. [Swick] adduced sufficient evidence to allow the learned trial judge to make a finding that the TS24 was decommissioned (parked up) as at July - August 1997, and as to that value at that time.
4. The learned trial judge erred in fact in finding (at [193]) that [Swick] did not prove that the TS24, had it been fit for its purpose, would have had a useful life of approximately 50,000 hours (or 15 years) if maintained with regular overhauls at 10,000 hour intervals. Randal Swick of [Swick] gave unchallenged evidence of those matters.
5. The learned trial judge erred in law in rejecting [Swick's] claim for the acquisition cost less depreciation on the ground that the claim failed to take into account that [Swick] had the use of the TS24 for over two years and was compensated separately for loss of profit during that period. The depreciation credited by [Swick] against the acquisition cost averted any double recovery.

Swick's grounds of appeal in the appeal against Norncott

109 Swick relies on three grounds in its appeal against Norncott. Those grounds are identical to grounds 5, 6 and 7 in Swick's appeal against LeRoi.

The appeal against LeRoi: the duty of care alleged by Swick: LeRoi's concession

110 The term 'pure economic loss', in the context of the law of tort, describes loss suffered by a plaintiff that is not a consequence of injury or damage caused by the defendant to the plaintiff's person or property.

111 It is well-established that, in general, a person does not owe a duty in tort to another to take care not to cause reasonably foreseeable economic loss. See Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529, 555 (Gibbs J), 558 - 559 (Stephen J), 592 (Mason J), 598 (Jacobs J).

112 In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465, the Privy Council restated the law on negligent misstatement and permitted the recovery of pure economic loss in that area of the law of tort. Since Hedley Byrne, the High Court has recognised that, in some circumstances, a duty in tort will arise that will enable a plaintiff to recover pure economic loss. See my review of the High Court cases in Apache Energy Ltd v Alcoa of Australia Ltd [No 2] [2013] WASCA 213; (2013) 45 WAR 379 [108] - [174], [183] - [184], [198] - [199], [232] - [239], [250] - [262]. See also Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36; (2014) 313 ALR 408.

113 In the present case, the fact that there was physical damage to the TS24 itself, as a result of LeRoi's alleged breach of duty, did not require or permit Swick's alleged loss to be characterised as a consequence of damage caused by LeRoi to Swick's property. Swick's claim against LeRoi was for pure economic loss. See Council of the Shire of Sutherland v Heyman [1985] HCA 41; (1985) 157 CLR 424, 503 - 504 (Deane J); Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609, 617 (Mason CJ, Deane & Gaudron JJ), 657 (Toohey J); Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 [19] - [20] (Gleeson CJ, Gummow, Hayne & Heydon JJ). See also Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] EWCA Civ 15; [1988] 1 QB 758, 781 - 782 (Bingham LJ, Lord Donaldson of Lymington MR agreeing).

114 Swick alleged in par 61 of its statement of claim that, by reason of various matters pleaded in par 42 - par 60, LeRoi owed Swick 'a duty to take reasonable care in the design and manufacture of [the TS24]'.

115 The pleading of the duty of care in par 61 was defective. The content of the asserted duty was not identified. That is, the plea did not allege that LeRoi was under a duty to take reasonable care in the design and manufacture of the TS24 to achieve or avoid a particular result or outcome. Also, the duty was not pleaded in reference to the kind of damage which Swick allegedly suffered.

116 As Kirby J observed in Romeo v Conservation Commission (NT) [1998] HCA 5; (1998) 192 CLR 431:

It is one thing to hold that a person owes a duty of care of some kind to another. But the critical question is commonly the measure or scope of that duty. The failure to distinguish these concepts can only lead to confusion [122].

See also Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 [8] (Gleeson CJ); Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 [59] - [60] (Gummow J).

117 Swick's defective pleading of the duty of care was not clarified by its counsel at the trial. This is illustrated by the following exchange between counsel for Swick and the trial judge, about breach of the duty, in counsel's closing address:

MORISON, MR: [LeRoi] failed to take reasonable care in the design and manufacture of the manufactured compressor.

MORISON, MR: So that is our claim. That is a claim that allows us to rely upon not any single incident or possible cause or explanation, but rely upon negligence in the design and manufacture and to draw upon an inference from the facts.

ALLANSON J: Are you saying that that enables you to rely on particulars that aren't in your particulars of negligence?

MORISON, MR: Yes ...

ALLANSON J: So what's the function of giving particulars?

...

MORISON, MR: To identify the particular matters that are dealt with in relation to the allegation (ts 981). (emphasis added)

118 LeRoi stated in par 25 of its defence that it did not admit the allegations in par 61 of the statement of claim. LeRoi then pleaded:

(a) In any event it did take all reasonable and prudent steps in relation to the design and manufacture of the [TS24].

(b) That in so far as the bearings used in [the TS24] were concerned, it did not design or manufacture those bearings and relied on independent expert bearing manufacturers to supply bearings suitable for the specific application and which were then incorporated into the manufacture of the [TS24].

(c) By reason of the design of the bearings supplied by the independent expert bearing manufacturers for the specific application, that it was not reasonably possible for [LeRoi] to know or otherwise learn of any fault or deficiency that may be present in those bearings prior to their installation into the [TS24] during the manufacturing process.

119 However, in his closing address at the trial, counsel for LeRoi (who also appeared for LeRoi in the appeal) departed from LeRoi's pleaded non-admission of the alleged duty of care, and conceded that LeRoi owed a duty of care to Swick under the law of negligence.

120 Counsel for LeRoi's written outline of closing address reads, relevantly:

1. As manufacturer and designer of the [TS24], [LeRoi] owed a duty of care to take reasonable care to avoid a reasonably foreseeable and real risk of loss (Suosaari v Steinhardt [1988] 2 Qd R 477).
2. However, in so far as the law of negligence is concerned, there is no absolute duty on a manufacturer to design or manufacture a defect free or accident-proof product. Liability in this regard is not strict (Bull v Rover Mowers (Aust) Pty Ltd [1984] 2 Qd R 489 at 499; Suosaari v Steinhardt (supra) at 487).

121 Counsel for LeRoi said, in his closing address, consistent with the concession in his written outline:

The crucial issue is what was the manufacturer's duty in terms of its reliability or not.

There is plenty of authority for the proposition that a manufacturer is not under an absolute or strict duty to provide a piece of equipment that is free of all possible defects and accident proof. The manufacturer's duty is to undertake his role as manufacturer or designer within the compass of what would be reasonably expected of a manufacturer of that particular type of equipment.

There is no evidence before you in relation to what standard the manufacturer or designer was supposed to achieve in circumstances of a developed piece of equipment, which was meeting production standards which had been higher than the other competitors in the market had been providing, and there is no evidence before [you] in relation to the level of what is loosely pleaded in the statement of claim as what would be the reliability that that manufacturer would be required to meet (ts 913).

122 At the hearing of the appeal, counsel for LeRoi made the following submissions about his concession at the trial:

DILLON, MR: ... The only concession was that we accepted we had a duty of care which would be owed by a general manufacturer to end user clients. We certainly were not conceding, by recollection, that we accepted that there was a specification in relation to the type of equipment that was being provided and we had to meet that specification, 10,000 hours or whatever the specification was said to be, nor that we conceded that it was to be used in mineral drilling purposes.

EDELMAN J: So the duty of care that was owed for the manufacturer to the end user to avoid economic loss generally.

DILLON, MR: Yes, the general duty of care of someone manufacturing and selling something in a market. That was the extent of the concession (appeal ts 66).

(c) the kind of loss and damage allegedly suffered by Swick; and

(d) the characterisation of Swick's cause of action against LeRoi as a claim for pure economic loss,

in the context of the ordinary use to which a TS24 is put, that the essence of the plea was that LeRoi owed a duty to commercial users of the TS24 (including Swick) under the law of negligence to exercise reasonable care in the design and manufacture of the TS24 to avoid commercial users of the machine (including Swick) suffering economic loss as a result of the machine being unable reliably to perform its ordinary functions.

124 The terms of the concession at the trial and its significance must be determined on an objective basis and not by reference to the subjective understanding of counsel for LeRoi.

125 I am satisfied, on an objective appraisal of the trial record, that counsel for LeRoi's concession corresponded in substance to the essence of the pleaded duty, as I have explained it.

126 Counsel for LeRoi did not attempt in the appeal to resile from the concession. LeRoi was, of course, bound by it. See Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165; (2012) 268 FLR 433 [99] - [101] (Buss JA, Pullin & Murphy JJA agreeing) and the cases there cited.

127 LeRoi did not file a notice of contention in the appeal.

128 It is unnecessary to consider the correctness of counsel for LeRoi's concession.

The appeal against LeRoi: negligence and standard of care: relevant legal principles

129 The particulars of negligence that were relied on by Swick at the trial are set out at [27] above.

130 The principles concerning the standard of care to be exercised in the design and manufacture of a good or chattel have been developed in the course of litigation by plaintiffs who have suffered personal injury or damage to property as distinct from pure economic loss. In my opinion, those principles apply, by analogy, in the present case.

(a) designs and manufactures a machine intended for commercial use; and

(b) owes a duty to a commercial user of the machine under the law of negligence to exercise reasonable care in the design and manufacture of the machine to avoid the commercial user suffering economic loss as a result of the machine being unable reliably to perform its ordinary functions,

must exercise reasonable care (including reasonable skill and diligence) in the design and manufacturing process to produce a machine that is able reliably to perform its ordinary functions. See, by analogy, Donoghue v Stevenson [1932] UKHL 100; [1932] AC 562, 580, 599 (Lord Atkin); Grant v Australian Knitting Mills Ltd [1936] AC 85, 104 - 105 (Lord Wright delivering the advice of the Privy Council); Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549, 579 (Deane J); Bull v Rover Mowers (Aust) Pty Ltd [1984] 2 Qd R 489, 498 - 499 (Kelly J, Connolly J agreeing); Suosaari v Steinhardt [1989] 2 Qd R 477, 486 - 487 (Cooper J, Connolly & Ryan JJ agreeing); Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 [29] (McHugh J); Fitzpatrick v Job t/as Jobs Engineering [2007] WASCA 63; (2007) Aust Torts Reports 81-891 [196] (Buss JA, Steytler P agreeing).

132 The designer and manufacturer of the machine is not, of course, an insurer, and is not under an absolute duty to design and manufacture a product that is free from any defect. See Bull (499); Suosaari (487 - 488); Fitzpatrick [202].

133 The applicable standard of care is to be determined by reference to what a reasonably competent engineer in the position of the designer and manufacturer would have done, in the circumstances, to produce a machine that was able reliably to perform its ordinary functions. This involves identifying, with some precision, the design and the manufacturing process that the reasonably competent engineer would have adopted. See, by analogy, Metropolitan Gas Co v City of Melbourne [1924] HCA 46; (1924) 35 CLR 186, 194 (Isaacs A-CJ); Graham Barclay [192] (Gummow & Hayne JJ).

134 The evaluation of whether reasonable care was exercised in the manufacturing of a machine will usually be less complex than the evaluation of whether reasonable care was exercised in the formulation and adoption of a particular design for the machine. See the discussion in Fleming's The Law of Torts (10th ed, 2011) [23.40]; Australian Law Reform Commission, Product Liability Research Paper 1: Laws and Policies (September 1988) par 192.

(a) designs and manufactures a machine intended for commercial use; and

(b) owes a duty to a commercial user of the machine under the law of negligence to exercise reasonable care in the design and manufacture of the machine to avoid the commercial user suffering economic loss as a result of the machine being unable reliably to perform its ordinary functions,

the duty is not confined to those parts which the person actually designs and manufactures, but extends to composite parts designed, manufactured and supplied by others (including by independent contractors) which are incorporated into the machine.

136 In Taylor v Rover Co Ltd [1966] 1 WLR 1491, the plaintiff was injured while using a hammer and a cold chisel in the course of his employment. A piece of metal broke off the top of the chisel and entered his eye. The plaintiff sued his employer and also the manufacturer of the chisel for damages for negligence. The defect in the chisel was caused by negligent heat treatment during the process of hardening the metal. This process was carried out by a specialist independent contractor engaged by the manufacturer. The plaintiff's claim against the manufacturer failed.

137 Baker J cited this passage from Charlesworth on Negligence (4th ed) par 797, page 796:

A manufacturer's duty is not limited to those parts of his product which he makes himself. It extends to component parts, supplied by his sub-manufacturers or others, which he uses in the manufacture of his own products. He must take reasonable care, by inspection or otherwise, to see that those parts can properly be used to put his products in a condition in which it can be safely used or consumed in the contemplated manner by the ultimate user or consumer. (emphasis added)

138 His Lordship said that passage correctly stated the applicable law (1499). He then continued:

But what is reasonable care? The second defendants [that is, the manufacturer of the chisel] were entitled to assume, in my view, having got competent hardeners to do the hardening of this guilty chisel for them, that the work was properly done, and it was no part of their duty in law or in good sense to set about the chisel when they received it from the hardeners and examine it and test it by hardness test to see that the top was no more than Vickers 350, and that the tip was Vickers 700 (1499).

139 In Peake v Steriline Manufacturing Pty Ltd (1988) Aust Torts Reports 80-154, the plaintiff was injured in the course of his employment while operating a machine manufactured and assembled by the first defendant (the manufacturer). The plaintiff's injury was caused by the failure of a hydraulic ram in the machine. The manufacturer had purchased the ram from Baker Hydraulics Pty Ltd, a reputable company specialising in the manufacture of hydraulically operated equipment and component parts. Baker Hydraulics, by its employees, had designed the ram at the manufacturer's request and to the manufacturer's specifications. Baker Hydraulics had supplied rams to the manufacturer over a period of years without any problems. The failure of the ram which caused the plaintiff's injury arose because of a faulty weld in the ram. The weld was hidden once it had been assembled by Baker Hydraulics. The defect could only have been revealed by an X-ray examination. The plaintiff sued his employer and also the manufacturer (but not Baker Hydraulics) in the Supreme Court of Victoria for damages for negligence. The plaintiff's claim against the manufacturer was dismissed.

(a) The decision of Baker J in Taylor 'seems to have been accepted without significant criticism' (67,380).

(b) The manufacturer was not vicariously liable for the negligence of Baker Hydraulics (67,383).

(c) The duty owed by the manufacturer to the plaintiff was not of such a nature that it was not possible to discharge it by the engagement of a competent independent contractor:

The duty was a duty to take reasonable care, and in my view it cannot be said not to have been discharged by the engaging of a reputable and specialist manufacturer of hydraulic equipment as Baker Hydraulics was to manufacture the ram in question (67,383).

141 In Cashfield House Ltd v David & Heather Sinclair Ltd [1995] 1 NZLR 452, the appellant owned an arcade known as Cashfield Arcade. The first and second respondents (Sinclair and Syme) were tenants of the arcade. The appellant wished to renovate the mezzanine floor above the premises occupied by Sinclair and Syme. The appellant engaged an independent contractor, namely the third respondent (Portcullis), to carry out the demolition work. While Portcullis was undertaking the work an automatic sprinkler system attached to the roof of the mezzanine floor fell and ruptured. Water flooded the premises occupied by Sinclair and Syme, causing significant damage. The trial judge held that Portcullis owed a duty of care to Sinclair and Syme, it had breached that duty and it was liable in damages. The trial judge also held that the appellant was vicariously liable for the negligence of Portcullis. The High Court of New Zealand allowed the appellant's appeal against, relevantly, the trial judge's decision that the appellant was vicariously liable for the negligence of Portcullis.

142 Tipping J noted that there is 'much potential for confusion between vicarious liability, non-delegable duties, and primary duties' where a principal engages an independent contractor (465). After observing that the principal may, in some circumstances, owe a primary non-delegable duty of care and, as a consequence, be liable to those to whom the independent contractor is liable in the event of the independent contractor's negligence, his Honour continued:

The principal may well also owe a primary duty of care to those who could foreseeably be damaged by the acts or omissions of the independent contractor. That duty may include a duty to select, instruct and sometimes to supervise the independent contractor with reasonable care. The greater the expertise of the independent contractor and the more specialised the task the less call there may well be for the involvement of the principal beyond selection and instruction. If the principal has selected and instructed the independent contractor with the skill and care appropriate to the occasion, the principal should generally be entitled to leave the task to the independent contractor without further supervision. If the principal does so there will be no liability unless, of course, the principal owes a non-delegable primary duty to those damaged by the independent contractor's negligence (466).

143 In King v Sexton & Green [2000] NSWCA 340, the appellant was injured when the Holden Rodeo utility truck he was driving ran off a highway, collided with an embankment and overturned. At the time he was intoxicated. He had a blood alcohol reading of 0.229% some hours after the accident. When the vehicle was inspected it was discovered that the linkage to the front left steering was broken. The appellant sued the first and second respondents for damages. The first respondent sold the vehicle to the appellant 11 months earlier and had serviced it after the sale. The second respondent was the importer and general distributor of the vehicle. The critical issue at trial and on appeal was at what point in the accident the vehicle's steering linkage broke. The trial judge found, based on the opinion of an expert witness called by one of the respondents, that the vehicle veered across the road in a 'yaw condition' and that this was inconsistent with the steering linkage having broken before impact. The appellant's claim against the first and second respondents was dismissed.

144 The Court of Appeal of New South Wales allowed the appeal against the first respondent and dismissed the appeal against the second respondent. It held that the trial judge erred in accepting the opinion of the expert witness. The evidence overwhelmingly favoured a finding that the steering linkage broke before, and was the cause of, the accident. A vehicle whose steering linkage breaks within 11 months of purchase as a new vehicle is not, without an alternative explanation, of merchantable quality under s 19(2) of the Sale of Goods Act 1923 (NSW). There was no alternative explanation. As to the claim against the second respondent, Beazley JA (Handley & Heydon JJA agreeing) said:

The case against the second respondent raises different issues. The Sale of Goods Act does not apply as between the appellant and second respondent. The claim brought against it under the Trade Practices Act was, as senior counsel for the appellant conceded, out of time. As senior counsel also effectively conceded, it could not succeed in its claim in negligence (see Peake v Steriline (1988) Aust Torts Rep 80-154), although he did not abandon the claim. It has not been demonstrated, let alone argued before us, that Peake v Steriline was wrongly decided.

It follows that the appeal against the second respondent must fail [100] - [101].

145 In Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co-Operative Assurance Co of Australia Ltd [1931] HCA 53; (1931) 46 CLR 41, the appellant engaged a person, for whose statements the appellant was sought to be made vicariously liable, to canvass for proposals for life insurance. The person allegedly made statements in the course of his attempts to induce others to make proposals for life insurance by the appellant. The alleged statements were slanderous of the respondent. The person was not the appellant's servant or employee. However, the High Court held that the appellant was vicariously liable for his statements because he made them while acting as the appellant's agent. Dixon J (Rich J agreeing) said:

In most cases in which a tort is committed in the course of the performance of work for the benefit of another person, he cannot be vicariously responsible if the actual tortfeasor is not his servant and he has not directly authorized the doing of the act which amounts to a tort. The work, although done at his request and for his benefit, is considered as the independent function of the person who undertakes it, and not as something which the person obtaining the benefit does by his representative standing in his place and, therefore, identified with him for the purpose of liability arising in the course of its performance. The independent contractor carries out his work, not as a representative but as a principal (48).

146 In Northern Sandblasting Pty Ltd v Harris [1997] HCA 39; (1997) 188 CLR 313, Brennan CJ cited that passage from Dixon J's reasons in Colonial Mutual Life and then observed:

When this rule applies, no vicarious liability for the independent contractor's negligence is imposed on a defendant who requested the performance of the task in the course of which the relevant negligent act was done or the relevant negligent omission was made. In such a case, there is no basis for sheeting home to the defendant either liability for the independent contractor's tort or responsibility for the independent contractor's act or omission (as to the alternative bases for imposing vicarious liability for another's negligence, see Darling Island Stevedoring and Lighterage Co Ltd v Long [1957] HCA 26; (1957) 97 CLR 36) (330).

147 In Scott v Davis [2000] HCA 52; (2000) 204 CLR 333, a majority of the High Court refused to recognise that an 'agent', in a non-technical sense, was a person in respect of whom the principles of vicarious liability applied [18] (Gleeson CJ), [268] - [273] (Gummow J), [311] (Hayne J), [357] - [358] (Callinan J).

148 In Sweeney v Boylan Nominees Pty Ltd [2006] HCA 19; (2006) 226 CLR 161, Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ enunciated the following propositions.

149 First, the decision in Colonial Mutual Life is to be understood as follows:

Colonial Mutual Life establishes that if an independent contractor is engaged to solicit the bringing about of legal relations between the principal who engages the contractor and third parties, the principal will be held liable for slanders uttered to persuade the third party to make an agreement with the principal. It is a conclusion that depends directly upon the identification of the independent contractor as the principal's agent (properly so called) and the recognition that the conduct of which complaint is made was conduct undertaken in the course of, and for the purpose of, executing that agency [22].

150 Secondly, 'the distinction between independent contractors and employees has been critical to the definition of the ambit of vicarious liability' [27].

151 Thirdly, the view that the distinction between independent contractors and employees should be abandoned in favour of a wider principle has never been accepted by a majority of the High Court [27].

152 Fourthly, the High Court cases do not support any principle that 'A is vicariously liable for the conduct of B if B "represents" A (in the sense of B acting for the benefit or advantage of A)' [29].

153 Fifthly, '[w]hatever may be the logical and doctrinal imperfections and difficulties in the origins of the law relating to vicarious liability, the two central conceptions of distinguishing between independent contractors and employees and attaching determinative significance to course of employment are now too deeply rooted to be pulled out' [33].

154 Those propositions were in substance reiterated by the High Court in Leighton Contractors Pty Ltd v Fox [2009] HCA 35; (2009) 240 CLR 1 [21] - [22] (French CJ, Gummow, Hayne, Heydon & Bell JJ).

(a) designs and manufactures a machine intended for commercial use; and

(b) owes a duty to a commercial user of the machine under the law of negligence to exercise reasonable care in the design and manufacture of the machine to avoid the commercial user suffering economic loss as a result of the machine being unable reliably to perform its ordinary functions,

will ordinarily discharge the duty in relation to composite parts designed, manufactured and supplied by an independent contractor, which are incorporated by the person into the machine, if:

(c) the person does not owe a primary non-delegable duty of care;

(d) the person has selected and properly instructed a reputable specialist independent contractor to design, manufacture and supply the composite parts;

(e) the independent contractor has the skill and experience appropriate to the tasks it is engaged to perform; and

(f) the person does not know, and ought not reasonably to know, that the composite parts are or may be defective.

The appeal against LeRoi: admissions against interest in relation to negligence: relevant legal principles

156 In Dovuro, the appellant distributed in Australia canola seed produced in New Zealand. One of the respondents, who conducted a farming business in Western Australia, bought and planted one tonne of the seed. The purchaser of the seed claimed that the appellant had breached a duty of care owed to it in that the appellant had failed to inform it that the seed contained weed seeds. The purchaser, in endeavouring to prove negligence, relied on an out of court statement made by the appellant. In the statement the appellant said that it had '[failed] in its duty of care to inform growers as to the presence of these weed seeds'.

157 Gleeson CJ said the appellant's out of court statement 'cannot be an admission of law, and it is not useful as an admission of failure to comply with a legal standard of conduct. There is no evidence that the author of the statement knew the legal standard' [25].

158 Gummow J (McHugh & Heydon JJ agreeing) was also of the opinion that the 'admission' in the appellant's out of court statement provided no basis for a finding of negligence on the appellant's part. His Honour said:

What did [the appellant's out of court statement] admit? A statement on behalf of a corporation that it has 'failed in its duty of care' involves the proposition that the facts demonstrate that the corporation failed a standard fixed by law. ...

Admissions on the pleadings are one thing. Modern rules of court commonly provide that a party may, by its pleading, raise any point of law (eg, Federal Court Rules, O11, r 9). That which is so raised may be admitted. But that is not the present case. Certainly a party may admit the facts from which a conclusion of law may then be drawn. ...

Different questions arise where, as here, the suggested admission includes a conclusion which depends upon the application of a legal standard. In Grey ([1976] 1 NSWLR 669 at 675), Glass JA considered an admission sought from a witness to the effect that he had assigned certain choses in action at law or in equity. His Honour said (Grey [1976] 1 NSWLR 669 at 676):

'By extorting from a party an admission that he was negligent, or that he was not provoked, or that his grandfather possessed testamentary capacity, there is added to the record something which is, not merely of dubious value, but by definition valueless, owing to the witness' unfamiliarity with the standard governing his answer.'

That reasoning ... in terms applies to the suggested 'admission' by [the appellant] [68] - [71].

The appeal against LeRoi: the principle of res ipsa loquitur: relevant legal principles

159 The principle of res ipsa loquitur is not a distinct, substantive rule of law. Rather, it involves a form of inferential reasoning in matters of proof. The plaintiff continues to bear the onus of proving negligence even when the principle applies. See Sweeney v Erving [1913] USSC 120; (1913) 228 US 233, 240 (Pitney J delivering the opinion of the Supreme Court); Franklin v Victorian Railways Commissioners [1959] HCA 48; (1959) 101 CLR 197, 201 (Dixon CJ, Fullagar & Taylor JJ agreeing); Anchor Products Ltd v Hedges [1966] HCA 70; (1966) 115 CLR 493, 500 - 501 (Windeyer J); Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121 [22] - [23] (Gleeson CJ & McHugh J).

160 The process of reasoning which enables the drawing of an inference of negligence from the mere occurrence of an event is only available if:

(a) there is an absence of explanation of the occurrence that caused the injury;

(b) the occurrence was of a kind that, in the ordinary course of things, does not happen without negligence; and

(c) the instrument or agency that caused the injury was under the defendant's control.

See Mummery v Irvings Pty Ltd [1956] HCA 45; (1956) 96 CLR 99, 117 (Dixon CJ, Webb, Fullagar & Taylor JJ); Government Insurance Office of NSW v Fredrichberg [1968] HCA 54; (1968) 118 CLR 403, 413 (Barwick CJ); Schellenberg [25].

161 In Schellenberg, Gleeson CJ and McHugh J emphasised:

[W]hile res ipsa loquitur may ameliorate difficulties that arise from a lack of evidence as to the specific cause of an accident, the inference to which it gives rise is merely a conclusion that is derived by the trier of fact from all the circumstances of the occurrence. When it applies, the trier of fact may conclude that the defendant has been negligent although the plaintiff has not particularised a specific claim in negligence or adduced evidence of the cause of the accident. But it does nothing more. For example, it does not reverse the onus of proof or displace the principle in Jones v Dunkel ((1959) [1959] HCA 8; 101 CLR 298) [24].

162 The principle of res ipsa loquitur has no application once the cause of an accident has been established. The question then becomes whether the plaintiff has proved that the accident occurred in circumstances of negligence; that is, the cause was the product of negligence. See Mummery (115 - 116); Piening v Wanless [1968] HCA 7; (1968) 117 CLR 498, 506 - 507 (Barwick CJ, McTiernan & Kitto JJ agreeing); Schellenberg [26] - [28], [32], [36].

163 In Schellenberg, Gleeson CJ and McHugh J said that, '[i]n principle ... the relevant cause must be the immediate cause of the occurrence, which means the occurrence must be defined with reasonable precision if the principle [of res ipsa loquitur] is to operate effectively' [33]. Their Honours then said:

Definition of the occurrence will determine whether the accident is of a class that does not ordinarily happen if those who have the management use proper care. Definition of the occurrence will also determine whether the cause of the occurrence has been established. To a large extent, the definition of the occurrence will depend on how much the tribunal of fact knows about the accident. Thus, in Mummery v Irvings Pty Ltd ((1956) [1956] HCA 45; 96 CLR 99 at 116), the Court pointed out that res ipsa loquitur would have applied if the evidence had established no more than that, upon entering the defendant's premises, the plaintiff had been 'violently struck by a piece of wood flying through the air'. However, the evidence tended to establish that the wood was thrown by a circular saw and this was not res ipsa loquitur. The Court said (Mummery [1956] HCA 45; (1956) 96 CLR 99 at 117):

'In these circumstances a court must ask itself, not whether negligence may be inferred from the mere fact that a piece of wood struck the appellant immediately after he had entered the respondent's premises, but whether it may be inferred from the fact that a piece of wood was thrown from the circular saw.'

Definition of the occurrence will also depend upon at what level of abstraction it is defined and upon what facts and circumstances are taken into account in defining the occurrence. No doubt the occurrence may sometimes, perhaps often, be defined at particular levels of abstraction, and judges may disagree as to what are the facts and circumstances that constitute the occurrence ...

Once the occurrence is defined, however, we do not think that there can be an infinite regression in which each 'cause' can be traced to its cause with the result that the plaintiff can continue to rely on a claim of unspecified negligence no matter how far back down the causal chain you go. Once what can be properly described as the cause of the occurrence has been identified, it is not necessary that every circumstance surrounding that cause or every cause of that cause also be identified [33] - [35].

164 The plaintiff may rely on inferential reasoning to prove negligence even though the principle of res ipsa loquitur has no application once the cause of the accident has been established. See Schellenberg [37].

165 In Piening, Barwick CJ said that if the occurrence in question is to provide evidence of negligence 'it can only be that, within the common knowledge and experience of mankind, that occurrence is unlikely to occur without negligence on the part of the party sued' (508). His Honour continued:

By that very statement, the occurrence is unlikely to provide evidence except in connection with machines or machinery of whose working and use the ordinary man has knowledge and experience. I do not think that the mechanical make-up of, and the forces operating on or with, the steering mechanism of a car are within such knowledge or experience (508).

166 In Schellenberg, Gleeson CJ and McHugh J noted that expert evidence may be adduced at trial to suggest that 'an unexplained occurrence would not ordinarily occur without negligence' [42]. Their Honours then explained the role of expert evidence in the context of the principle of res ipsa loquitur:

[T]he expert evidence may be unable to isolate a single hypothesis suggestive of negligence. Nevertheless, the expert evidence may suggest a number of hypotheses, all of which indicate negligence but none of which indicate a greater likelihood of having occurred than any other of them. As is pointed out in The Liability of Employers in Damages for Personal Injury (Glass, McHugh and Douglas, 2nd ed (1979), p 215; see also Fleming, The Law of Torts, 9th ed (1998), pp 355-356), it is no more than a dispute about terminology to determine whether that sort of case is an instance of expert evidence facilitating the doctrine or a case of unspecified negligence based on affirmative evidence. In our opinion, however, if the expert evidence suggests a number of causes that enjoy an equal probability of occurrence and all involve negligence, the occurrence should be regarded as an unexplained occurrence to which the doctrine applies. It is only when the expert evidence assigns a particular cause as the most probable cause of the occurrence that the case should be regarded as outside the doctrine of res ipsa loquitur [42].

167 Accordingly, the principle of res ipsa loquitur does not apply where the occurrence is outside the knowledge and experience of the lay person, and any expert or other evidence fails to establish that the kind of occurrence in question ordinarily does not happen without negligence.

168 It is well established that the principle of res ipsa loquitur does not apply if the defendant is not in control. As Clarke JA explained in Doval v Anka Builders Pty Ltd (1992) 28 NSWLR 1, this follows from the fact that it is not enough that the occurrence speaks of negligence generally: the evidence must point to the defendant's negligence (13). See also Schellenberg [48].

169 Gleeson CJ and McHugh J noted in Schellenberg that the question whether the defendant still has control, for the purpose of the principle of res ipsa loquitur, 'when an object or instrument is in the sole custody or possession of the plaintiff' is difficult [49]. Their Honours continued:

In the United States, courts have often held that the principle applies although the plaintiff has sole custody or possession or de facto control where the defendant retains the legal right of control or where it is more probable than not that the negligence occurred while the defendant had control (See, eg, Mobil Chemical Co v Bell (1974) 517 SW 2d 245 (Tex); Qualls v United States Elevator Corporation (1993) 863 P 2d 457 (Okl); Giles v City of New Haven (1994) 636 A 2d 1335 (Conn); Trujeque v Service Merchandise Co (1994) 872 P 2d 361 (NM)). In Fletcher v Toppers Drinks Pty Ltd ([1981] 2 NSWLR 911), the New South Wales Court of Appeal held that a tribunal of fact was entitled, but not required, to draw an inference of unspecified negligence against the bottler of a soft drink when the bottle exploded as the plaintiff unscrewed its top. The Court so held notwithstanding that there was no evidence as to how the bottle was handled by a third party from the time it left the bottler's premises until the time it reached the plaintiff's home. As it is not necessary to decide the issue of control in this case, we need say nothing more about it [49].

170 The principle of res ipsa loquitur has been developed in the context of causes of action in negligence for personal injury. I am satisfied, however, that the principle applies, by analogy, to pure economic loss claims under the law of negligence.

The appeal against LeRoi: the essence of ground 1: the trial judge's alleged error

171 Ground 1 alleges that the trial judge erred in fact in failing to find that LeRoi was negligent in the design and manufacture of the TS24.

172 Ground 1 also alleges that the weight of the evidence at the trial directly or inferentially established that LeRoi had been negligent.

The appeal against LeRoi: ground 1: Swick's submissions

173 Counsel for Swick submitted that the evidence 'overwhelmingly pointed to negligence in the design or manufacture of the TS24'.

174 Counsel referred, in particular, to evidence of:

(a) 'multiple catastrophic failures' experienced by 'multiple users' without a cogent explanation other than fault in design or manufacture; and

(b) admissions 'directly or implicitly' by LeRoi that the design or manufacture was faulty.

The appeal against LeRoi: the essence of ground 2: the trial judge's alleged error

175 Ground 2 alleges that the trial judge erred in law in holding, at [152] of his reasons, that:

(a) the time at which LeRoi's alleged negligence (in the context of the allegation of negligent manufacturing) must be determined was when the TS24 was designed and first manufactured by LeRoi; and

(b) LeRoi would not be liable to Swick in negligence unless LeRoi knew that Swick would use the TS24 in connection with mineral drilling.

(a) the relevant time at which LeRoi's alleged negligence must be determined was when LeRoi manufactured the particular TS24 that was supplied to Swick;

(b) the TS24 in question was manufactured not earlier than the date on which Swick agreed to purchase the machine (between 24 June 1994 and 30 June 1994);

(c) at that time LeRoi knew Swick would use the TS24 in connection with mineral drilling; and

(d) LeRoi did not, by reference to any particular use of the TS24 or the conditions in which it would be used, qualify its claim that the TS24 would operate at 500 psi.

The appeal against LeRoi: ground 2: Swick's submissions

(a) LeRoi 'must have been aware', before it manufactured the particular TS24 supplied to Swick, that Swick would use the TS24 in mineral drilling. Counsel referred to a facsimile sent by LeRoi to Norncott on 28 February 1994 which provided information about the operation of the TS24. The name 'Air Drill' (being Norncott's trading name) put LeRoi on notice that Norncott's customers were mineral drillers. LeRoi had supplied Norncott with machinery for more than 18 years before February 1994.

(b) It may be inferred that LeRoi did not commence manufacturing the particular TS24 supplied to Swick until after 1 July 1994, in that:

(i) the contract for the sale of the TS24 made between Norncott and Swick was entered into, at the latest, on 30 June 1994;

(ii) Swick placed the order for the TS24 with Norncott on 29 June 1994;

(iii) the proposed distributorship agreement between Norncott and LeRoi was not sent by LeRoi to Norncott until on or about 1 July 1994; and

(iv) the particular TS24 was not delivered by LeRoi to Norncott until about October 1994.

(c) During the course of dealings between Norncott and LeRoi there was no mention made by or on behalf of LeRoi, by reference to any particular use of the TS24 or the conditions in which it would be used, qualifying LeRoi's claim that the TS24 would operate at 500 psi.

The appeal against LeRoi: the essence of grounds 3 and 4: the trial judge's alleged errors

178 Ground 3 alleges that the trial judge erred in law in that he wrongly identified, for the purpose of the principle of res ipsa loquitur, the occurrence as 'loss of oil pressure or premature bearing failure'. It is alleged his Honour should have identified the occurrence as 'the catastrophic failure of the TS24'.

179 Ground 4 alleges that the trial judge erred in law in that he misapplied the principle of res ipsa loquitur by holding that he could not draw an inference of negligence because Swick's case required expert evidence to show that the multiple failures or unreliability of the TS24, when used in mineral drilling, were caused by a fault in design or manufacture attributable to LeRoi's failure to take reasonable care.

The appeal against LeRoi: grounds 3 and 4: Swick's submissions

180 Counsel for Swick submitted that the 'occurrence', for the purpose of the principle of res ipsa loquitur, was not loss of oil pressure or premature bearing failure, but 'the multiple catastrophic failures of the compressor'. It was argued that a machine does not ordinarily suffer multiple catastrophic failures without negligence. Swick's claim was for pure economic loss. The cause of the multiple catastrophic failures was 'wholly within the compressor'. It was submitted that a 'lay person would be entitled to infer that a catastrophic failure of a machine does not in the ordinary course of events occur without negligence'. That inference arises from common knowledge and experience, not from expert knowledge. A 'lay person [would] not, in order to draw the inference, need to know anything about the inner workings of the compressor'. There was an absence of explanation from LeRoi of the occurrence that caused the loss or damage. According to counsel for Swick, 'the instrument or agency (the TS24 as manufactured) that caused the injury (economic loss) was under the control of [LeRoi] which manufactured it'. It followed, so it was submitted, that it was unnecessary to adduce expert evidence as to the design of the TS24 or what caused it to fail.

The appeal against LeRoi: grounds 1, 2, 3 and 4: their merits

181 It is convenient, first, to consider grounds 3 and 4, then ground 2 and, finally, ground 1.

182 As to grounds 3 and 4, Swick did not plead a case based on the principle of res ipsa loquitur.

183 Initially, in his closing address, counsel for Swick (who was not counsel for Swick in the appeal) disavowed any reliance on res ipsa loquitur. Counsel said Swick relied on 'inferences', but not res ipsa loquitur (ts 946, 949).

184 Later, however, in his closing address, counsel for Swick resiled from his initial position. Counsel informed the trial judge that he 'respectfully [withdrew] the concession ... that res ipsa loquitur does not apply' (ts 979 - 980).

185 Counsel for Swick then proceeded, in his closing address, to advance a case in reliance on the principle of res ipsa loquitur. He argued that the relevant occurrence was 'the catastrophic failure of the machine, of the compressor' (ts 980). Counsel went on to tell his Honour that 'we principally rely on res ipsa loquitur' (ts 990).

186 The trial judge found, on the basis of evidence adduced by Swick, that the multiple failures of the TS24 in its compressor unit were 'manifested in loss of oil pressure and failure of the bearings in the high pressure second stage of the compressor' [138]. He was unable to find 'the ultimate cause' of the loss of oil pressure or the failure of the bearings. However, his Honour found, in reliance on Mr Martin's evidence, that 'it is more likely that the bearings failed because of a reduction in oil flow in the compressor' [138]. He was unable to make a finding as to why there was a reduction in oil flow [138]. The findings which I have mentioned are not challenged in the appeal.

187 His Honour also found that other compressor units owned and operated by other drilling contractors had suffered failures, and that some of those failures were similar in nature to the failures suffered by Swick's compressor unit [137].

188 The trial judge said that, although Mr Martin's evidence left open a finding that the Timken bearings failed earlier than the NTN bearings, his evidence also '[left] open a finding' that the cause of the failure of the bearings 'lay in whatever reduced the oil flow to the bearings' [141].

189 His Honour noted that the evidence 'disclosed nothing about the operation of air compressors' [151]. He thought that '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 he '[could not] 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' [151]. His Honour was 'not sure that [he] could draw that inference' but, in any event, he was 'not satisfied that [he] should draw it' [151].

190 In my opinion, the relevant occurrence, for the purpose of the principle of res ipsa loquitur, was the multiple failures of the TS24 in Swick's compressor unit.

191 I am satisfied the trial judge did not err, as alleged in grounds 3 and 4, in deciding that the principle of res ipsa loquitur was inapplicable. My reasons are as follows.

192 First, the evidence at trial did not merely establish that the TS24 in Swick's compressor unit had suffered multiple failures and that the TS24 in other compressor units owned and operated by other drilling contractors had suffered failures that were similar in nature. Significantly, the evidence at trial tended to establish, and his Honour made unchallenged findings, that:

(a) the multiple failures of the TS24 in Swick's compressor unit were manifested in loss of oil pressure and failure of the bearings in the high pressure second stage of the compressor; and

(b) it was 'more likely' that the bearings failed because of a reduction in oil flow in the compressor [138].

193 In these circumstances, the relevant occurrence, namely the multiple failures of the TS24 in Swick's compressor unit, were not unexplained for the purpose of the principle of res ipsa loquitur.

194 Secondly, it was outside the knowledge and experience of the lay person as to whether the relevant occurrence was unlikely to occur without negligence on the part of the designer or manufacturer of the TS24. The evidence at the trial did not establish that the kind of occurrence in question ordinarily does not happen unless the designer or manufacturer has been negligent.

(c) what standards LeRoi intended, by its design, that the TS24 should achieve in the performance of its ordinary functions; or

(d) the range of commercial compressors that are designed and manufactured in Australia, the United States of America or elsewhere, and how those compressors differ, as between themselves, in their design, ordinary functions and performance.

196 The trial judge was entitled to conclude, on the evidence, that he '[could not] 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' [151].

197 Thirdly, on a fair reading of his reasons as a whole, his Honour did not identify the relevant occurrence, for the purpose of the principle of res ipsa loquitur, as 'loss of oil pressure or premature bearing failure', as alleged in ground 3. Rather, his Honour identified 'loss of oil pressure or premature bearing failure' as the cause of the relevant occurrence, namely the multiple failures of the TS24 in Swick's compressor unit.

198 Fourthly, the trial judge did not misapply the principle of res ipsa loquitur, as alleged in ground 4, by making the following findings:

[Swick'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] 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 [153].

199 Those findings did not relate to the principle of res ipsa loquitur. Rather, they were concerned with his Honour's conclusion, on the evidence, that it should not be inferred that the multiple failures of the TS24 in Swick's compressor unit were caused by LeRoi's negligence in the design or manufacture of the TS24.

202 Swick's pleaded case against LeRoi at trial was, relevantly, that:

(a) by reason of the matters pleaded in par 42 - par 60 of its statement of claim, LeRoi owed Swick 'a duty to take reasonable care in the design and manufacture of the manufactured compressor' (par 61); and

(b) in breach of that duty, LeRoi failed 'to take reasonable care in the design and manufacture of the manufactured compressor' (par 62).

203 The term 'manufactured compressor', as used in par 61 and par 62, was defined in par 43 of the statement of claim to mean 'the LeRoi model TS24 air screw kit serial number 5228X35' supplied by Norncott to Swick.

204 The particulars of LeRoi's alleged negligence are set out at [27] above. It is unnecessary to repeat them. It is sufficient to note that the particulars of negligence are expressed by reference to alleged failures in the design and manufacture of the 'manufactured compressor'.

205 As the trial judge observed, Swick's case against LeRoi at the trial was confined to alleged negligence in manufacture and design [57]. For example, Swick did not run its case against LeRoi on the basis of alleged misrepresentations or negligent misstatements.

206 LeRoi admitted in its defence that it 'designed, manufactured and supplied the LeRoi model TS24 compressor' and that it 'designed, manufactured and supplied [Norncott] with the [manufactured compressor]'. See par 4 and par 6 of the defence.

207 Ground 2 alleges that his Honour made express errors in [152] of his reasons, which reads:

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 [Norncott]. But not before 1994 [152].

208 That passage contains the first of two explanations the trial judge gave for concluding, at [151] of his reasons, that Swick's case based on the principle of res ipsa loquitur should fail; in particular, for concluding that he should not infer 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' [151].

209 The second explanation given by his Honour for concluding, at [151] of his reasons, that Swick's case based on the principle of res ipsa loquitur should fail was that Swick'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' [153].

210 In my opinion, the trial judge's statement, at [152] of his reasons, that whether LeRoi was negligent, as alleged in the statement of claim, 'has to be determined by reference to the facts at the time of the alleged tortious conduct', was correct.

211 As to design, the alleged tortious conduct concerned the design used by LeRoi in the manufacture of the TS24 supplied by Norncott to Swick. The alleged negligence relating to design occurred when LeRoi settled or adopted the design specifications for the TS24 which it later used in the manufacture of the TS24 acquired by Swick. LeRoi was requested by Norncott to make available its standard TS24. LeRoi was not retained to design and manufacture a particular air compressor that would achieve specific standards of performance for Swick.

212 As to manufacture, the alleged tortious conduct concerned the manufacture by LeRoi of the TS24 supplied by Norncott to Swick. The alleged negligence relating to manufacture occurred when LeRoi manufactured or purported to manufacture the TS24 acquired by Swick in accordance with the design specifications that LeRoi had previously settled or adopted.

213 His Honour found, and was entitled to find, that the TS24 was designed and first manufactured 'some time before 1993' [152].

(b) the particular design specifications settled or adopted by LeRoi before 1993 or their appropriateness;

(c) whether those particular design specifications were subsequently amended or varied;

(d) what standards LeRoi intended, by its design, that the TS24 should achieve in the performance of its ordinary functions; or

(e) the range of commercial compressors that are designed and manufactured in Australia, the United States of America or elsewhere, and how those compressors differ, as between themselves, in their design, ordinary functions and performance.

215 As I have mentioned, Swick's case against LeRoi was confined to alleged negligence in manufacture and design and did not include any allegation of misrepresentation or negligent misstatement. For example, Swick did not allege that LeRoi had misrepresented or negligently misstated the design parameters of the TS24 or the suitability of the TS24 for use in connection with mineral drilling work of the kind undertaken by Swick.

216 The trial judge did not make a finding as to when LeRoi manufactured the TS24 supplied by Norncott to Swick. There was no evidence on the point. However, I am willing to infer, as submitted by counsel for Swick, that on the balance of probabilities LeRoi manufactured the TS24 in question not earlier than the date in about June 1994 when Swick agreed to purchase a TS24 from Norncott. But, as I will explain, a finding to that effect does not advance Swick's case on appeal.

217 In my opinion, for the reasons which follow, his Honour did not make the errors attributed to him in ground 2.

218 First, on a fair reading of [152] in the context of his reasons as a whole, the trial judge did not hold (as alleged in ground 2) that Swick's allegation of negligent manufacturing, in relation to the TS24 it acquired from Norncott, had to be determined by reference to the facts at the time the TS24 was designed and first manufactured by LeRoi. Rather, his Honour held, relevantly and in essence, at [152], that whether LeRoi was negligent in the manufacture of the TS24 acquired by Swick from Norncott depended on whether, as a result of a failure to exercise reasonable care, LeRoi produced a flawed TS24 that did not conform to its design specifications.

219 Secondly, a finding on the balance of probabilities that LeRoi manufactured the TS24 in question not earlier than the date in about June 1994, when Swick agreed to purchase a TS24 from Norncott, does not advance Swick's case on appeal because Swick's allegation of negligent manufacturing is necessarily a complaint about a failure to exercise reasonable care in manufacturing the TS24 in question in accordance with LeRoi's design specifications.

220 Thirdly, his Honour's observations, at [152] of his reasons, that:

(a) there was 'no evidence of the uses for the TS24 that were ... in contemplation' when the TS24 was designed and first manufactured; and

(b) LeRoi 'either knew, or ought to have known', but not before 1994, that 'the compressor would be used in mineral drilling by ... customers of [Norncott]',

related to a number of allegations pleaded by Swick in its statement of claim.

(a) In par 45 of its statement of claim, Swick alleged that LeRoi 'manufactured air compressors such as [the TS24], including the manufactured compressor, with the intention of promoting their sale to mineral exploration drilling contractors such as [Swick] on the basis that such mineral exploration drilling contractors would use [the TS24] in carrying out mineral exploration drilling'.

(b) In par 47, Swick alleged that LeRoi 'knew, or ought to have known, that the manufactured compressor would be sold by [Norncott] to an individual or company such as [Swick]'.

(c) In par 48, Swick alleged, further or in the alternative to par 47, that 'prior to [Norncott] supplying the compressor to [Swick] ... [LeRoi] knew that [Norncott] had sold the manufactured compressor to [Swick]'.

(d) In par 49, Swick alleged, relevantly, that it was 'reasonably foreseeable that, if [LeRoi] failed to take reasonable care in the design and manufacture of the manufactured compressor, [Swick] would suffer economic loss', including if 'the manufactured compressor failed in operation when mineral exploration drilling was being conducted'.

(e) In par 58.4, Swick alleged that the relationship between Swick and LeRoi was 'close' in that LeRoi 'knew or ought to have known that [Swick] was acquiring the manufactured compressor for use in conducting mineral exploration drilling'.

222 Swick relied on the matters pleaded in par 42 to par 60 of its statement of claim (including the allegations I have just specified) to support its plea in par 61 that LeRoi owed Swick 'a duty to take reasonable care in the design and manufacture of the manufactured compressor'.

223 Fourthly, his Honour did not hold, at [152] of his reasons, that LeRoi would not be liable to Swick in negligence unless LeRoi knew that Swick would use the TS24 in connection with mineral drilling. It is true that his Honour said, at [152], that at some time after 1993 LeRoi either knew, or ought to have known, that the TS24 would be used in mineral drilling by Norncott's customers. However, that finding was made in the context of Swick's pleaded case; in particular, the allegations in pars 45, 47, 48, 49 and 58.4 of its statement of claim which, as I have mentioned, were relied on by Swick to support its plea in par 61 that LeRoi owed Swick a duty of care.

226 At the hearing of the appeal, counsel for Swick submitted that the essence of Swick's case against LeRoi in negligence was that a reasonable designer and manufacturer of the TS24 would have designed the machine to operate, for at least 10,000 hours and at 500 psi without an overhaul, in any form of use (including mineral drilling) in Western Australia and elsewhere (appeal ts 24 - 26). According to counsel, that was the 'benchmark' the TS24 should have been designed to achieve (appeal ts 26 - 27).

227 If that was in fact the essence of Swick's case against LeRoi then the manner in which Swick's case was run at the trial, and the absence or paucity of evidence on important issues, was remarkable.

228 As the trial judge noted, the evidence adduced by Swick in relation to design was 'minimal' [126].

229 Swick's witness, Mr Martin, had only a limited working knowledge of the operation of a TS24 and he had never worked on its internal parts [127], [129]. See Mr Martin's evidence at ts 598 - 609. See also his report dated 28 May 2004 (exhibit 20, subject to the paragraphs deleted upon LeRoi's objection to their admissibility). Further, see his Honour's reasons at [129].

230 The appellant's non-expert witnesses asserted that the TS24 had failed as a result of bearing failure. See, in particular, Mr Speer's evidence.

231 At the trial, Mr Martin advanced a theory that the bearing failure was caused by a reduction in the oil flow to the bearings, rather than a defect in the bearings themselves.

232 His Honour accepted Mr Martin's evidence to the effect that 'there was a lubrication problem and failing of the bearings in the second stage of the compressor' [131]. However, his Honour was unable, on the evidence, to determine whether the bearings were inadequate, or whether a 'lubrication problem' caused otherwise suitable bearings to fail [131].

233 Mr Martin could not explain why there was a reduction in the oil flow to the bearings. He suggested that the reduction may have been caused by:

234 Unfortunately, Mr Martin had not examined the filters on any TS24 [129]. Also, he had not dismantled a TS24 and could say nothing about its design [129].

235 Mr Speer had extensive experience with mining equipment. However, the trial judge found that, although Mr Speer 'may have been qualified by experience to give evidence of some aspects of compressors and mining equipment', he was not qualified to give expert evidence about design [132].

(a) no witness explained how a compressor worked or what role the bearings had in the operation of a compressor;

(b) no witness identified any aspect of the design of the TS24 that could, in any way, explain the failures; and

(c) neither Swick nor LeRoi called any evidence comparing the design of the TS24 with the design of other compressors intended to perform the same function as the TS24 [133].

237 Also, as I have mentioned, there was no evidence as to:

(a) the particular design specifications settled or adopted by LeRoi before 1993 or their appropriateness;

(b) whether those particular design specifications were subsequently amended or varied; or

(c) what standards LeRoi intended, by its design, that the TS24 should achieve in the performance of its ordinary functions.

238 His Honour found that the failures in the Swick compressor unit were 'manifested in loss of oil pressure and failure of the bearings in the high pressure second stage of the compressor', but there was no evidence that anyone had succeeded in identifying the 'ultimate cause' of these failures and his Honour was unable to make a finding as to the ultimate cause [138]. Although Mr Martin's evidence, which his Honour found 'helpful', suggested it was more likely that the bearings failed because of a reduction in oil flow in the compressor, his Honour was unable to make a finding as to why there was a reduction in oil flow [138].

239 At the trial, Swick relied on documentary evidence which, it alleged, contained express or implied admissions by LeRoi that the design or manufacture of the TS24 was 'faulty'. In particular, Swick relied on a memorandum dated 24 August 1995 from Rod Mitton, LeRoi's 'Technical Director', to Mr Speer; a memorandum dated 12 December 1995 from Mr Mitton to Mr Speer; a letter dated 6 September 1996 from Mr Mitton to Mr Speer; and a letter dated 1 October 1998 from Mr Swick to Mr King.

240 The memorandum dated 24 August 1995 from Mr Mitton reads:

I'D LIKE TO GET UP TO SPEED ON SEVERAL ITEMS;

1. SWICK - WHERE DO YOU STAND ON REINFORCING THE FRAME AND CHANGING THE OIL COOLER.? KARMAZAN IS PUTTING TOGETHER A PROPOSAL TO STRENGTHEN THE COOLERS FOR FUTURE SHIPMENTS BUT I HAVE NOT YET RECEIVED IT.

2. DRILLTORQUE OIL LEAK. HAVE YOU BEEN SUCCESSFUL IN CORRECTING THE PROBLEM? GARY KASER WILL SEND YOU FORMS TO USE TO FILE WARRANTY CLAIM.

3. SWICK AIR END FAILED PARTS - HAD TIMKIN [sic: TIMKEN] IN TODAY AND REVIEWED FAILED BEARINGS THAT YOU RETURNED. THEY ARE GOING TO HAVE THEIR EXPERTS REVIEW AND PROVIDE A REPORT. SPOKE TO THE OIL ANALYSIS LAB TODAY - CAN YOU PROVIDE THE NAME OF THE OIL USED OR THE OIL DATA SHEETS? THIS WILL HELP. MINERAL OIL, IN GENERAL, IS ONLY GOOD FOR 200 F OPERATION. THE OIL IS QUITE FULL OF 'NON METALLIC' DEBRIS. THIS INDICATES POOR FILTRATION WHICH COULD BE DUE TO PLUGGED OIL FILTERS OR NO AIR FILTER[S]. PERHAPS THE DEBRIS PLUGGED AN OIL LINE. MORE TESTS WILL BE DONE TO TRY AND DETERMINE WHAT THE MATERIAL IS. AGAIN, THE QUESTION HAS BEEN RAISED ABOUT A FLASH FIRE. THE OIL HAS A FIRE ODOR [sic]. I'LL UPDATE YOU AS MORE INFORMATION BECOME[S] AVAILABLE.

241 The memorandum dated 12 December 1995 from Mr Mitton provides:

I WANT TO UPDATE YOU ON WHERE WE ARE;

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

242 The letter dated 6 September 1996 from Mr Mitton provides:

I want to assure you that LeROI is committed to the resolution of the bearing problems with the current units. The first step is to provide the NTN bearings which have worked successfully. Four sets of bearings (male and female) will be air shipped to you in the next few days. We currently have a plentiful supply of the female bearings and are working very closely with NTN to get an equal supply of the male bearings.

In the next few days, LeROI will also begin the assembly of the three units now on order for [Norncott] and the single Schramm unit.

The use of the originally specified NTN bearings will be the first and most important step in providing an air end to serve your market requirements. These NTN bearings continue to perform well with no known problems.

Concurrent with this effort, LeROI has begun a design upgrade project to select alternate bearings which will yield the maximum bearing life while still meeting the physical restraints of the existing components. The goal of this project is to be able to retrofit the larger bearings into existing designs.

LeROI has always been committed to providing specialized products into markets and applications where no other suppliers have successfully ventured. New and specialized uses for our products may sometimes not be the easy path for a supplier or end user to follow, but we believe that the TS24 has tremendous potential to meet your tough drilling applications. LeROI looks forward to putting the bearing problems behind and moving forward to supplying additional equipment.

243 The letter dated 1 October 1998 from Mr Swick reads:

At our last meeting relating to the [LeRoi TS24 Compressor], that was attended by yourself, Ian Speer and Rob Mitten at our offices, in October of last year, it was stated that a new design for the problematic bearing pack in the second stage of the TS24 compressor had been finalised. It was also stated that the new bearing pack was [to] be systematically installed in existing TS24 units, to rectify the situation of premature failures.

Could you please advise what is the current state of play in regards to solving the problems of the TS24. In particular if the new design does in fact rectify the problems associated with the original unit and, if so, when our unit will be upgraded.

As you are aware, several issues of contention exist between our companies in regards to this problematic unit and the expenses incurred due to the seven failures incurred. As you may have noticed we currently consider the Le Roi compressor to be uneconomical to employ in the field until the unit's reliability is demonstrated.

As we believe the elapsed time is sufficient to evaluate and rectify [any] problems, we feel the fate of the unit must finally be determined and as such await your reply.

244 In my opinion, Mr Mitton's correspondence dated 24 August 1995, 12 December 1995 and 6 September 1996 does not contain any admissions of a failure by LeRoi to comply with a legal standard of conduct. These out of court statements do not provide a proper basis for a finding of negligence on LeRoi's part in relation to the design or manufacture of the TS24 supplied by Norncott to Swick. The correspondence reveals that LeRoi was endeavouring to investigate the failures in the TS24 operated by Swick including issues relating to the bearings and the delivery of oil to the bearings. The correspondence does not, however, support a conclusion that those issues were attributable to negligence by LeRoi in the design or manufacture of the TS24 in question.

245 The letter dated 1 October 1998 from Mr Swick to Mr King was not written by Mr Swick as agent for or otherwise on behalf of LeRoi. Mr Swick did not have any authority to make any admissions against interest on behalf of LeRoi.

246 There is no doubt that the TS24 supplied by Norncott to Swick was not reasonably fit for the particular purpose for which it was required, as made known by Swick to Norncott, and was not of merchantable quality. His Honour made those findings in the context of Swick's case against Norncott, and held that Norncott had breached the conditions implied by s 14(1) and s 14(2) of the Sale of Goods Act [172].

247 However, the trial judge's conclusion that Norncott had breached the conditions implied by s 14(1) and s 14(2) of the Sale of Goods Act did not involve any finding of negligence. Norncott was strictly liable as a result of the TS24 not being reasonably fit for the particular purpose for which it was required, as made known by Swick to Norncott, and not being of merchantable quality. It does not follow that, if a machine is not reasonably fit for the particular purpose for which it is required or is not of merchantable quality, there must have been negligence in its design or manufacture.

248 In my opinion, his Honour was correct in concluding that, in the circumstances, Swick's case against LeRoi required expert evidence to demonstrate that the multiple failures of the TS24 were caused by a fault in design or manufacture that was attributable to LeRoi's failure to exercise reasonable care [153].

249 There was no evidence at the trial, apart from the TS24 not being reasonably fit for Swick's purpose and not being of merchantable quality, that LeRoi had been negligent in designing or manufacturing the TS24.

250 The unsatisfactory state of the evidence resulted in the trial judge being unable to evaluate or determine whether the multiple failures of the TS24 were caused by a design flaw or a manufacturing defect.

251 His Honour did not err in deciding that Swick's failure to adduce any expert evidence concerning the design of the TS24 or the cause of the multiple failures was fatal to its claim [153].

252 It was not reasonably open to the trial judge, on the evidence, to conclude that the only reasonable explanation for the failure of the TS24 to operate, for at least 10,000 hours and at 500 psi without an overhaul, was negligence by LeRoi in its design or manufacture.

253 On my review of the trial record, the weight of the evidence did not prove, on the balance of probabilities, either directly or inferentially, that the multiple failures of the TS24 were caused by LeRoi's negligence in the design or manufacture of the machine.

255 It follows, from my opinion that grounds 1, 2, 3 and 4 have not been made out, that Swick's appeal against LeRoi must be dismissed.

The appeals against Norncott and LeRoi in relation to damages

256 As I have mentioned, grounds 5, 6 and 7 of Swick's appeal against LeRoi (which relate to damages) are identical to the three grounds Swick relies on in its appeal against Norncott.

257 Also, Swick's written submissions on grounds 5, 6 and 7 of its appeal against LeRoi are identical to its written submissions on the three grounds of its appeal against Norncott.

258 The grounds and the written submissions are identical despite Swick's claim in damages against Norncott being in contract and its claim in damages against LeRoi being in tort.

259 I raised with counsel for Swick, at the hearing of the appeal, that feature of Swick's grounds of appeal and written submissions:

BUSS JA: ... does the application of the contract measure differ in the present case from the application of the tort measure?

CLAVEY, MR: We think it may do, yes.

BUSS JA: Well, is that reflected in the grounds of appeal [or in] the [written] submissions.

CLAVEY, MR: No.

BUSS JA: If there's a problem, you will need to address it (appeal ts 36).

260 Counsel for Swick did not, however, seek to amend any of the grounds of appeal or any of the written submissions.

261 It is unnecessary, given my conclusion that Swick's appeal against LeRoi on liability must be dismissed, to consider Swick's claim in damages against LeRoi.

The appeal against Norncott: damages in contract

262 The general principle governing the contractual measure of damages is that the innocent party suing for breach of contract is to be placed in the same position, so far as money can do it, as if the contract had been performed. See Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272 [13] (French CJ, Gummow, Heydon, Crennan & Kiefel JJ); Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 80 (Mason CJ & Dawson J); Shaddock & Associates Pty Ltd v The Council of the City of Parramatta [No 1] [1981] HCA 59; (1981) 150 CLR 225, 237 (Gibbs CJ); Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454, 471 (Gibbs J).

263 The innocent party is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). See Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1, 11 - 12 (Mason, Wilson & Dawson JJ).

264 The innocent party should receive the monetary sum which, so far as money can, represents fair and adequate compensation for the loss suffered by reason of the breach of contract. Ordinarily, this involves a comparison between the position in which the innocent party would have been if the breach of contract had not occurred and what, relevantly, represents the position in which the innocent party is in after the occurrence of the breach. See Amann Aviation (116) (Deane J).

265 The loss in respect of which the innocent party claims compensation must not be too remote. The classic formulation by Alderson B in Hadley v Baxendale (1854) 9 Exch 341, is that the innocent party is entitled to recover such damages as arise naturally, that is, according to the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach (354). As Mason CJ and Dawson J observed in Amann Aviation, Alderson B stated a single principle and its application may depend on the degree of relevant knowledge possessed by the defendant in the particular case (92).

266 The Sale of Goods Act makes specific provision in relation to the buyer's rights of action against the seller, where the seller has breached a contract of sale or a contract for the sale of goods.

(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may -

(a) set up against the seller the breach of warranty in diminution or extinction of the price; or

(b) maintain an action against the seller for damages for the breach of warranty.

(2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.

(3) In the case of breach of warranty of quality such loss is, prima facie, the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.

(4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage.

268 So, by s 52(1), if the goods have been delivered and they are defective, but the buyer elects to retain the goods or the defects constitute a breach of warranty only, the buyer may sue the seller for damages for the breach or, if the whole of the purchase price has not been paid, may set up the breach as a complete or a partial defence to an action by the seller for the price.

269 In the present case, the original TS24, serial number 5228X35, was replaced with another, at no cost to Swick, after the first failure of the machine. It is apparent that Swick, by retaining and continuing to use the replacement TS24 as a composite part of the compressor unit, elected to treat the breach of the conditions in s 14(1) and s 14(2) of the Sale of Goods Act as a breach of warranty. In the circumstances, Swick, having paid the purchase price, was entitled to claim damages for the breach of warranty.

270 Section 52 distinguishes between a breach of warranty of quality (s 52(3)) and a breach of other kinds of warranty (s 52(2)). By s 52(3), the loss suffered by the buyer is, prima facie, the difference between the value of the goods at the time of delivery and the value they would have had if they had fulfilled the warranty. However, in an appropriate case, the basic rule in s 52(2) will override s 52(3).

271 Section 52(3) is merely a particular application of the more general principle in s 52(2). The more general principle, namely that the measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from that breach, is a statement of the general measure of damages for breach of contract established in Hadley v Baxendale, as developed in later decisions. See Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472 [18] - [20] (McPherson JA).

272 Where the prima facie rule in s 52(3) applies, the time at which the value of the goods is assessed is the date on which they were delivered to the buyer.

273 Subject to the test for remoteness of damage, a buyer may recover consequential damages in an action for breach of a contract of sale or a contract for the sale of goods. See Beaton v Moore Acceptance Corporation Pty Ltd [1959] HCA 59; (1959) 104 CLR 107, 122 (Dixon CJ, Taylor & Windeyer JJ); TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130, 138 - 144 (Kitto, Windeyer & Owen JJ); Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd [2010] SASC 37; (2010) 106 SASR 167 [47] - [59] (Gray J, Kelly J agreeing), [169] - [181] (White J, Kelly J agreeing).

274 In TC Industrial, the High Court held that the buyer of a stone-crushing machine that was supplied in breach of warranty could claim from the seller not only the outlay incurred, but also loss of profits. That is, the buyer did not have to elect between loss of profits and wasted expenditure. However, the High Court said that, in calculating the loss of profits, it was necessary to deduct depreciation and capital expenses to ensure that the buyer was not compensated for lost profit without taking into account the expense of earning it (140).

The appeal against Norncott: damages: the amounts allowed by the trial judge

275 As I have mentioned, the trial judge allowed the following amounts as damages in connection with Swick's claim against Norncott:

(a) Loss of profit that Swick would otherwise have earned on the days when its drilling rig was unproductive due to the compressor unit being unserviceable: $112,500 [187].

(b) The amount of a discount reasonably given by Swick to a customer in order to mitigate the effect of Norncott's breach of contract: $5,010 [188].

(c) An amount expended by Swick for the hire of equipment to replace the compressor unit while the TS24 was being repaired: $4,512.80 [189].

(d) An amount expended by Swick to reconfigure the TS24 by reducing the pressure to 350 psi in order to reduce the load on the bearings and increase their life: $24,488.36 [190].

276 His Honour awarded interest on the damages pursuant to s 32 of the Supreme Court Act.

The appeal against Norncott: damages: the amount the trial judge refused to allow

277 The trial judge refused to allow an amount of $130,000 claimed by Swick, being the alleged difference in value between the compressor unit when Swick stopped using it, had it been fit for purpose, on the one hand, and the actual value of the compressor unit when Swick stopped using it, on the other. His Honour was not satisfied, on the evidence, that Swick had proved those values. Consequently, Swick had not proved that component of its claim [199].

The appeal against Norncott: damages: the amount the trial judge refused to allow: how the case was run at the trial

278 At the trial, the damages claimed by Swick against Norncott comprised, relevantly, capital loss in relation to the acquisition of the compressor unit, loss of profits and consequential damages.

279 A feature of the manner in which Swick ran its damages claim against Norncott at the trial was that the capital loss was claimed and calculated as at the date Swick stopped using the compressor unit, and not as at the date on which the compressor unit was delivered. See s 52(3) of the Sale of Goods Act.

280 As I have mentioned, Norncott did not appear at the trial and the trial judge accepted that the date on which Swick stopped using the compressor unit was an appropriate time for the assessment of Swick's alleged capital loss [177] - [179].

The appeal against Norncott: ground 1: the trial judge's alleged error

281 Ground 1 alleges that the trial judge erred in law and fact in holding that Swick had failed to prove what would have been the value of the 'TS24' in question during the second half of 1997 if it had been reasonably fit for the purpose for which it was acquired.

282 Ground 1 further alleges that Swick adduced sufficient evidence to enable his Honour to make a finding that the 'TS24' was decommissioned ('parked up') as at July-August 1997 and as to its value at that time.

283 Although ground 1 refers to the 'TS24', it is apparent from the context and the submissions that the ground was intended to refer to the compressor unit.

284 Ground 1 is concerned solely with Swick's alleged capital loss. It does not relate to losses on revenue account.

The appeal against Norncott: ground 1: the relevant evidence

285 The only evidence called by Swick as to the value, or loss in the value, of the compressor unit was from Mr Wyndow.

286 The trial judge's unchallenged finding was that it was necessary for Swick to prove the value of the compressor unit as at the date Swick ceased to operate it [199]. Swick's evidence, as disclosed prior to trial, was that it had ceased operating the compressor unit as at January 1997. However, at the trial it was established that Swick had in fact ceased operating the compressor unit in July or August 1997 and, consequently, by that time the compressor unit had been operated for a greater number of hours [41]. See, for example, Mr Swick's evidence in re-examination that he believed he 'parked it up after the seventh failure which was in August or July 97' (ts 456).

287 Mr Wyndow prepared a report dated 1 June 2004 (exhibit 21). He noted in the report that Mr Swick had requested him to value Swick's compressor unit as at January 1995 (when it was commissioned), as at January 1997 ('being on or about the date it was parked up') and as at May 2004 ('in an as is condition').

288 Mr Wyndow had inspected the compressor unit on 26 May 2004 at Swick's storage yard.

289 Mr Wyndow said he valued the compressor unit as follows:

(a) as at January 1995 (when it was commissioned), $230,000;

(b) as at January 1997 (being on or about the date it was 'parked up'), $50,000;

(c) as at January 1997 ('assuming that the LeRoi air end had worked 500 hours and was a reliable unit'), $180,000; and

(d) as at May 2004 ('in an as is condition'), $35,000.

290 Mr Wyndow's report contains a number of notes relating to the valuations:

The value on commissioning is the then replacement cost of the unit.

At January 1997 - being on or about the date it was parked up.

I am aware that by 1997 the LeRoi TS24 held a reputation in the drilling industry as being an unreliable unit with a short service life, a view formed after several conversations with drilling contractors during the course of my business. However the demand for air compressors suitable as auxiliary drill compressors was strong and it could be converted to a standard 350psi compressor with Sullair or Ingersoll-Rand air end.

At January 1997 - assuming that the LeRoi air end had worked 500 hours and was a reliable unit.

The value given here is what I believe a reliable, well-regarded 500psi compressor with low hours and good presentation would sell for in a strong market.

The unit is now very untidy looking, there is no demand for the brand / model and the package is worth only the sum of its parts; either as a wrecking proposition or to convert to a Sullair 1150cfm @ 500psi compressor. ...

291 Mr Wyndow expressed the following views about the market for air compressors, relevantly:

At the time Swick Drilling purchased the LeRoi primary compressor there was strong demand for primary compressors for exploration drilling applications. During the period 30 June 1995 to 30 June 1997, Industrial Marketing sold 44 primary air compressors, either packaged or bare air ends - this included one second-hand unit. Over the last two years, 30 June 2002 up until today, Industrial Marketing has sold only two new compressors and two second hand units. All units were 350psi or less. (In the last two years other companies may have sold a lot more new units as Industrial Marketing no longer represents Champion Compressors in Western Australia and consequently no longer has access to a ready supply of competitively priced new compressor[s]; however the figures do illustrate the strong demand in 1995-97 and the reduced demand for used drill compressors over the last two years.)

At the time Swick Drilling purchased, operated and then de-commissioned the subject LeRoi compressor, primary compressors were in demand and there were few second-hand units available. Whereas over the last two years the demand has not been strong, demonstrated by the fact we have second hand drill compressors listed for sale and there is little market interest.

In what was probably the last sale of LeRoi TS24 air ends, [Norncott] sold five units in July 2003 to Davies International. I understand that three were rebuilt and two were new. The sale price for all five units was a total of $22,727, excluding GST. This is an average price of $4,545 each, a sum I consider to be well below the market price of reliable 500psi compressor units, whether new or rebuilt. By way of comparison and relevant to the value of your compressor, today's price for a comparable Sullair air end from the Australian distributor is $58,300 excluding GST and calculated at an exchange rate of US$0.70 to the Australian dollar.

292 Accordingly, Mr Wyndow valued the compressor unit in his report, relevantly, as at January 1997 and not as at July or August 1997.

293 Mr Wyndow gave oral evidence at the trial as follows:

(a) He did not know whether a valuation as at August 1997 would be different from the valuation as at January 1997:

That would've depended [on] what happened to the market between January and August and how many other machines were sold or what was available. I don't know the answer to that (ts 641 - 642).

(b) He was unable to say what the state of the market was between January 1997 and August 1997 without examining his records (ts 642).

(c) After being referred to the notes in his report relating to the valuation as at January 1997 (which stated 'assuming that the LeRoi air end had worked 500 hours and was a reliable unit'), he said that if in fact the compressor unit had worked longer hours, that circumstance would reduce the value of the unit (ts 652). He added that he was unable to say by what proportion the compressor unit's value would have been reduced on that scenario because it would depend on many factors, including the number of hours, the number of kilometres, presentation and engine wear (ts 653).

294 Subject to some corrections, Mr King's witness statement dated 23 September 2009 (exhibit 31) was tendered as part of his evidence-in-chief (ts 817). He said in pars 64 and 65 of the statement:

From my knowledge of the industry at the time I say that from 1995 through to some time in 1997 there was a high demand for RC drilling contractors in Western Australia.

I do not know the precise date but either towards the end of 1997 or in 1998 the amount of work available to RC drilling contractors significantly declined to the extent that there was only a fraction of the work available compared to what was available 2 years earlier [64] - [65].

295 Mr Swick gave this evidence in cross-examination about a downturn in drilling work in 1997 and 1998:

While you're with that document, Mr Swick, you've given some evidence in your second statement of a downturn in drilling in 1997 and 98. Is that correct?---There was generally, yes.

And did that affect the rates which you would charge for drilling?---Yes, it did.

...

... when did it change that you were actually having to charge less?---There was a downturn in the industry about the 97 mark, but I recall that we weren't really affected by that until 99, even though our rates came down. It's very hard to say - to put things in perspective, because depending on the air that we drilled with Murrin Murrin, the rates varied, and just by example, we would charge as high as $24 a metre but our highest income was earnt in an area where we charged only $12 a metre.

... The downturn, though, how did that affect your business generally?---From memory, there was not as much work available. Again whilst the industry downturned in 97, I don't think that we were really affected until 98.

How severe or not was the change in 1998, 1999?---Certainly by 2000 it was very significant, a tremendous downturn, and so it was a slippery slope between 98 and 2000 (ts 397 - 398).

The appeal against Norncott: ground 1: Swick's submissions

296 Counsel for Swick submitted that if the trial judge considered there was some decrease in value between January 1997 and July or August 1997 then, doing the best he could, he should have determined the amount of the decrease in value. It was argued that there were two methods available for undertaking that task.

297 First, it was submitted his Honour could have determined the value of the compressor unit in July or August 1997 by 'a straight-line method'. Counsel explained how, in his submission, this method worked and should have been applied:

The compressor unit cost $223,780 on its delivery to [Swick] in January 1995. According to Wyndow, the compressor unit, had it been reasonably fit for the purpose for which it was required, would have been worth $180,000 in January 1997, a drop in value of $47,780 in two years or $1,990 per month. The value which it should have had in July/August 1997, which was probably before any downturn occurred in the market let alone any downturn in plant values, would therefore be $11,940 or $13,930 less than it was in January 1997, or $168,060 in July 1997 and $166,070 in August 1997.

298 Secondly, it was submitted his Honour could have proceeded on the following basis (which, it was asserted, was 'generous to [Norncott] because it assumes the value drops at the same time as rates drop: in reality the latter would occur after the former'):

(a) a reduction in drilling rates from $24 per metre in January 1997 (when the compressor unit, had it been reasonably fit for the purpose for which it was required, would have been valued at $180,000) down to $12 a metre in 1999 (in [Norncott's] favour say January 1999) gives an average reduction of 50 cents per metre per month between those dates;

(b) the rates in August 1997 would be 14.58% less than those in ... January 1997 ($3.50 divided by $24,000); and

(c) equating a drop in rates with a drop in value of the TS24, the value of the TS24 in August 1997 (had it been reasonably fit for the purpose for which it was required) was 85.42% of $180,000 (Wyndow's valuation at January 1997 had it been reasonably fit for the purpose for which it was required), or $153,756.

The appeal against Norncott: ground 1: its merits

299 Neither of the two methods for ascertaining value relied on by counsel for Swick in the appeal formed part of Swick's case at the trial. The trial judge was not requested to ascertain value on the basis of either of those methods and, consequently, his reasons do not refer to them. Counsel for LeRoi did not object to Swick advancing this different case in the appeal against LeRoi. Norncott did not appear at the trial or in the appeal.

300 In my opinion, whether the demand for drilling service contracts between January 1997 and August 1997 would have resulted in second hand drilling equipment maintaining its value was a matter on which expert evidence was necessary. No expert evidence on that issue was given at the trial.

301 More significantly, the only valuation expert called at the trial, namely Mr Wyndow, said the value of Swick's compressor unit as at August 1997 would depend upon the 'market' at that time (ts 641 - 642). That is, the value of the compressor unit as at August 1997 would depend upon the market for second hand drilling equipment, and not the demand for drilling services contracts, at that time.

302 Also, Mr Wyndow said the value of Swick's compressor unit as at August 1997 would depend on 'how many other machines were sold or what was available' at that time; in other words, on supply and demand (ts 641 - 642).

303 Accordingly, Mr Wyndow gave evidence that to provide a valuation as at August 1997 would require research into the market at that time for second hand air drilling equipment. He declined to make a valuation as at August 1997 without undertaking proper research. Counsel for Swick did not seek leave from the trial judge to instruct Mr Wyndow (who, as I have mentioned, was called by Swick) to undertake the requisite research and then to recall him to give additional evidence.

304 Further, Mr Wyndow based his valuation of Swick's compressor unit as at January 1997 on the assumption that the unit had been used for 500 hours. When he was asked in examination-in-chief what the value would be if the hours of use were in fact higher than 500, Mr Wyndow said that circumstance would reduce the value, but he was unable to estimate the reduced value because it would depend on a number of factors, including the number of hours, the number of kilometres, presentation and engine wear (ts 652 - 653).

305 Swick did not adduce any evidence to validate Mr Wyndow's assumption that as at January 1997 the compressor unit had been used for 500 hours.

306 Indeed, the evidence was that the compressor unit had been operated by Swick for well in excess of 500 hours. Mr Swick said in his witness statement (exhibit 1A):

I recall noting after the first failure that the hour meter reading was about 950 hours [149].

307 This is consistent with Mr Swick's evidence in re-examination that the compressor unit operated for between 1,000 - 1,400 hours per five months (ts 447).

308 In addition, Mr Fry said in his report dated 31 May 2004 (exhibit 26) that Mr Swick had informed him that 'the compressor unit was decommissioned in early 1997 after it had operated for a total of approximately 5,000 hours'.

309 So, on the basis of Swick's own evidence that the compressor unit operated between January 1997 and July or August 1997, the number of hours for which the unit would have been used by July or August 1997 would have greatly exceeded 500.

310 The first method relied on by Swick in its submissions (namely, that his Honour could, and should, have determined the value of the compressor unit in July or August 1997 by 'a straight-line method') is not sustainable, in that:

(a) Mr Wyndow's valuation as at January 1997 was based on the erroneous assumption that the compressor unit had operated for only 500 hours;

(b) the contingencies affecting the compressor unit and its value between January 1997 and July or August 1997 were not the subject of any cogent evidence at the trial; and

(c) the plausibility of the straight-line method was not explored with Mr Wyndow, who was the only witness with any expertise in valuation, at the trial.

311 The second method relied on by Swick in its submissions (namely, that his Honour could, and should, have determined the value of the compressor unit in July or August 1997 by reference to drilling rates in the market) is without merit. There was no expert evidence at the trial as to the nature and extent of the correlation (if any) between increases or decreases in drilling rates, on the one hand, and the actual or market value of second-hand drilling equipment, on the other. The second method involves impermissible speculation.

312 I am satisfied that the trial judge did not make the error alleged in ground 1.

The appeal against Norncott: ground 2: the trial judge's alleged error

314 Ground 2 alleges that the trial judge erred in fact in finding, at [193] of his reasons, that Swick did not prove that the 'TS24', had it been fit for its purpose, would have had a useful life of approximately 50,000 hours (or 15 years) if maintained with regular overhauls at 10,000 hourly intervals.

315 Ground 2 further alleges that Mr Swick gave unchallenged evidence to that effect.

(a) Although ground 2 refers to the 'TS24', it is apparent from the context and the submissions that the ground was intended to refer to the compressor unit.

(b) Ground 2 is concerned solely with Swick's alleged capital loss. It does not relate to losses on revenue account.

The appeal against Norncott: ground 2: the trial judge's reasons

317 I have already reproduced what the trial judge said at [194] - [198] of his reasons. See [104] above. It is useful, however, in view of the focus of ground 2, to set out again the text of [193] and [195]:

[Swick's] case had an underlying premise that, had it been fit for purpose, the compressor unit would have a useful life of approximately 50,000 hours (or 15 years) if maintained with regular overhauls at 10,000 hour intervals. The premise was not proved. Nor can I assume that, to be fit for purpose or of merchantable quality, a compressor unit has, or is expected to have, an operating life of 50,000 hours or 15 years.

...

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 [193], [195].

The appeal against Norncott: ground 2: the relevant evidence

318 Mr Swick said in his witness statement (exhibit 1A):

I advised Mr Fry, and it is the fact, that when [Swick] entered into the contract to buy the LeROI TS24 compressor I expected that the compressor would last in operation for about 50,000 hours of use (or 15 years).

I also told him, and it is the fact, that I expected, however, that both the TS24's air end and the relevant engine would need to be overhauled after every 10,000 hours of service.

Further, I told him, and it is the fact, that I believed that, with every 10,000 hours of usage, the cost of overhauling the engine would be approximately $45,000.00 and that the cost of overhauling the TS24 air end would be approximately $18,000.00 [264] - [266].

The appeal against Norncott: ground 2: Swick's submissions

319 Counsel for Swick submitted that 'Mr Swick was able to give [the] evidence' in pars 264, 265 and 266 of his witness statement because it was apparent from pars 6 - 9 of his witness statement that:

(a) Swick was originally operated by Mr Swick's parents, who originally conducted water well drilling before switching to mineral exploration drilling in the late 1980s;

(b) between 1994 and 2005 Mr Swick was Swick's manager and, in that capacity, 'he carried out a great deal of drilling work himself'; and

(c) between 1998 and 2007 Mr Swick was a director of Swick.

320 It was also submitted that, in any event, even if the trial judge was entitled to reject Mr Swick's evidence, his Honour could and should have adopted 'the Commissioner of Taxation's determination that mining equipment of a general nature had a useful life of 13 and one-third years'. That determination was set out in Mr Fry's report dated 31 May 2004 (exhibit 26) in the context of depreciation. Mr Fry gave evidence that he considered air compressors were appropriately classified as mining equipment of a general nature.

321 Finally, in the context of ground 2, it was argued that there was no basis for his Honour's failure 'to treat depreciation scales used for accounting or tax deduction purposes as being helpful in calculating the actual value of a piece of machinery used in the environment in which [Swick] used the TS24'. According to counsel for Swick, Mr Swick's evidence and the Commissioner's determination 'gave the Court all it required to calculate the actual value of the TS24, had it been reasonably fit for the purpose for which it was required, used in that environment'.

The appeal against Norncott: ground 2: its merits

322 In my opinion, Mr Swick was not qualified to give expert evidence in relation to the operational life of Swick's compressor unit. Swick had owned only one air compressor manufactured by LeRoi. In any event, Mr Swick's evidence in relation to the operational life of Swick's compressor unit merely related to his 'expectation'. See par 264 of his witness statement. There was no evidence as to the basis for, or the reasonableness of, that expectation. Mr Swick's expectation merely provided Swick's experts, who were retained to provide reports and give evidence at the trial, with assumptions. It was necessary for Swick to prove those assumptions. The accuracy of the assumptions was not established by any cogent evidence at the trial. In particular, the assumption on which Mr Fry relied in preparing his report dated 31 May 2004 (exhibit 26) that the compressor unit, had it been fit for its purpose, would have had a useful life of approximately 50,000 hours (or 15 years) if maintained with regular overhauls at 10,000 hourly intervals was not proved.

323 The Commissioner of Taxation's depreciation scales in relation to the useful life of mining equipment are adopted by the Commissioner for depreciation and other taxation purposes. They are not an appropriate basis for determining the actual or market value of a discrete item of specialist mining equipment. Mr Fry gave evidence to the effect that depreciation scales, and values calculated in accordance with depreciation scales, do not relate to the actual or market value of an item of mining equipment at any time. The following exchange occurred between the trial judge and Mr Fry in the course of Mr Fry's evidence:

ALLANSON J: The depreciation gives you the book value for accounting purpose[s].

...

ALLANSON J: What is the relationship of that to what it's actually worth or what it could sell for?---Accounting depreciation isn't supposed to relate to what an item's market value is at any point in time. It's - - -

That's what I thought?---The expectation is that when you buy something, that you will continue to operate it for its useful life and you're not going to sell it at, you know, a day into the - into operating it or a year. You're going to scrap it or sell it at the end of its life (ts 720).

The appeal against Norncott: ground 3: the trial judge's alleged error

325 Ground 3 alleges that the trial judge erred in law in rejecting Swick's claim for 'the acquisition cost less depreciation' on the ground that the claim failed to take into account that Swick had the use of the 'TS24' for more than two years and was compensated separately for loss of profit during that period.

326 Ground 3 also alleges that the depreciation credited by Swick against the acquisition cost avoided any double recovery.

(a) Although ground 3 refers to the 'TS24', it is apparent from the context and the submissions that the ground was intended to refer to the compressor unit.

(b) Ground 3 is concerned solely with Swick's alleged capital loss. It does not relate to losses on revenue account.

The appeal against Norncott: ground 3: the trial judge's reasons

328 I have already set out what the trial judge said at [194] of his reasons. See [104] above. It is convenient, however, to reproduce the text:

More fundamentally, the claim for the total cost of acquisition, in my opinion, goes beyond the amount required to put the plaintiff in the same situation as if the contract had been performed. The plaintiff 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 [194].

The appeal against Norncott: ground 3: Swick's submissions

329 Counsel for Swick made these submissions in support of ground 3:

Fry's report, Exhibit 26, contained an assumption that the build cost was $230,000.00. That assumption, and the assumption that 15 years of service translated to 50,000 hours, was supported by the evidence. Fry assumed that the TS24 lasted 5,000 hours (1/10th). Fry added the overhaul costs that would be needed from time to time ($252,000) and divided the sum of the Build Cost and the Overhaul Costs by 10% to produce a depreciation figure of $48,200. Thus the compressor unit had a book value of $181,800 ($230,000.00 less $48,200). That value did not depend on the date of decommissioning (parking up) of the TS24. If there was any increase in hours from 5,000 hours, all that was needed to arrive at the book value was an arithmetic calculation.

Depreciating the compressor unit was another way of taking account of the use of, and profit made from, the TS24.

The appeal against Norncott: ground 3: its merits

330 The trial judge held that, if Swick had been entirely successful in its claim, his Honour would have allowed 'the difference in value between the compressor unit, had it been fit for purpose, and the actual value at the time Swick ... stopped using it' [199]. However, on the evidence, his Honour was not satisfied that Swick had proved those values [199].

331 As I have mentioned in the context of ground 1, his Honour found that Mr Wyndow, who was the only expert valuer called at the trial, did not give any evidence as to the actual or market value of the compressor unit as at July or August 1997, or as to any difference between the value of the compressor unit as at January 1997 and its value as at July or August 1997 [198]. His Honour's conclusion on that issue was correct.

332 Further, as I have mentioned in the context of ground 2, his Honour was correct in rejecting Swick's reliance on the Commissioner of Taxation's depreciation scales for the purpose of establishing the actual or market value of the compressor unit as at July or August 1997.

333 His Honour found that, by using the compressor unit, Swick had increased its production by 30% [194]. That finding has not been challenged.

334 In his report dated 31 May 2004 (exhibit 26), Mr Fry recorded his instructions to advise Swick:

(a) as to how the compressor unit should have been depreciated for accounting purposes; and

(b) the amount of depreciation which should have been charged against the compressor unit after approximately 5,000 hours of operation.

335 Mr Fry assumed, for the purposes of his advice, that the compressor unit, had it been fit for its purpose, would have had a useful life of approximately 50,000 hours (or 15 years) if maintained with regular overhauls at 10,000 hourly intervals.

4.1.1 In our opinion, the compressor unit should be depreciated based on its reported useful life of 50,000 hours. On this basis, the item should have had depreciation charged against it in the amount of $48,200 on the basis that it is advised that it had operated for a total of 5,000 hours.

4.1.2 On the above basis, it is our opinion that on being decommissioned the compressor unit had a book value for accounting purposes of $181,800.

337 Mr Fry's assumption in relation to the useful life of the compressor unit was not proved.

338 In my opinion, for the reasons I have given in relation to grounds 2 and 3, and generally for the reasons given by the trial judge [194], ground 3 is without merit.

The appeal against Norncott: the merits of grounds 1, 2 and 3: a more fundamental difficulty

340 There is a more fundamental difficulty with Swick's appeal against Norncott, as set out in grounds 1, 2 and 3, in relation to Swick's alleged capital loss.

341 Although the purchase price payable by Swick to Norncott for the assembled compressor unit, as set out in the invoice dated 23 June 1995 (exhibit 4) was $145,591.77, the part of the price referable to the TS24 was only $54,050. See [50] above. Also, although the overall costs incurred by Swick in connection with the acquisition of the compressor unit appear to have been about $223,000 [197], including the cost of the Cummins diesel engine fitted in February 1997 [197], there is no evidence that the cost payable by Swick for the acquisition of the TS24 exceeded $54,050.

342 Significantly, the trial judge made an unchallenged finding that '[n]one of the components [in the assembled compressor unit] was compatible only with the LeRoi TS24, and the LeRoi could have been replaced with another brand' [65].

343 In 2004, Swick sold the TS24 and other items forming part of the compressor unit for $55,000 [192].

344 Swick's case at trial was that the TS24 was defective. Swick did not assert that any of the other component parts of the compressor unit were defective.

345 The trial judge ordered that Norncott compensate Swick for loss of profit and consequential losses (but not its alleged capital loss).

346 In these circumstances, there is a fundamental difficulty in Swick claiming compensation for its alleged capital loss by reference to:

(a) the overall costs incurred by Swick in connection with the acquisition of the compressor unit; and

(b) the actual or market value of the compressor unit,

347 It follows from my opinion that grounds 1, 2 and 3 have not been made out that Swick's appeal against Norncott must be dismissed.

348 Both Swick's appeal against LeRoi and its appeal against Norncott fail.

349 The background to this appeal is set out in the reasons of Buss JA. The facts of this case concern multiple failures of a complex piece of machinery, a TS24. The TS24 formed part of an air compressor unit, together with other components including (i) a Detroit diesel engine, (ii) a frame upon which the engine and the TS24 were mounted, (iii) an engine and compressor radiator, (iv) a cooling fan, (v) a filtration system, (vi) a control system, (vii) an exhaust system, and (viii) a control box with monitoring equipment. The TS24 component could have been replaced with another brand as part of the air compressor.

350 The air compressor unit failed on eight occasions between the time of its commission in January 1995 and July 1997, although one of these

failures was due to engine failure. After the first failure the TS24 was damaged. It was replaced. After the fifth failure the TS24 was reconfigured.

351 The appellant, Swick, sued the manufacturer and the supplier of the TS24.

352 Swick's claim against the manufacturer (LeRoi) was for negligence in the design and manufacture of the TS24. The trial judge held that LeRoi had not breached any duty of care to Swick.

353 Swick's claim against the supplier (Norncott) was for breach of contract and negligent misstatement. Swick succeeded in its claim against Norncott for breach of contract based upon implied conditions in s 14(2) and s 14(3) of the Sale of Goods Act 1895 (WA).

354 Swick now appeals from the failure to find LeRoi liable for negligence (the LeRoi appeal), and against the quantum of damages awarded against Norncott (the Norncott appeal).

355 As to the LeRoi appeal, there are broadly two related issues in this case concerning the liability of the manufacturer, LeRoi:

(1) whether the trial judge should have found, based on direct evidence or inference, that LeRoi breached a duty of care in design and manufacture of the TS24 which caused pure economic loss.

(2) Whether the principle of res ipsa loquitur should have led to a conclusion of negligence.

356 Issue (1) was the focus of grounds 1 and 2 of the LeRoi appeal. Issue (2) was the focus of grounds 3 and 4 of the LeRoi appeal.

357 The issues all focused upon breach of a duty of care. An assessment of breach of duty requires an answer to the anterior question of the nature of the duty of care. It is necessary to know the nature of the duty of care in order to assess whether that duty has been breached.

358 The nature of the duty of care was never clearly enunciated at trial. It was said to have been conceded but on this appeal each counsel took a different view of the terms of any concession that was said to have been made. The nature of the relevant concession made at trial by counsel for LeRoi is unclear. Our exposition of the underlying principles in this area is designed to show the great legal significance of any concession that Swick said LeRoi had made at trial.

359 In the absence of any substantial submissions on this point on appeal, it is unnecessary to determine the existence or scope of any duty of care or the extent of any concession made. It suffices to say that even if a concession had been made in the terms asserted by counsel for Swick, the trial judge was correct to conclude that there was no breach of that duty by LeRoi. Hence, no issue about quantification of damages arises in relation to LeRoi.

360 In relation to the supplier, Norncott, the grounds of appeal all alleged that the trial judge erred in his application of the principles concerning assessment of damages for breach of contract. These grounds must also be dismissed.

The duty of care in this case and the scope of any concession The importance of defining a duty of care

361 At the heart of the grounds of appeal concerning the liability of LeRoi was an alleged concession made at trial by counsel for LeRoi. Counsel for Swick said that LeRoi had conceded that it owed Swick a duty of care. Before the terms of that concession are considered in these reasons it is appropriate to consider the importance of a precise definition of a duty of care in a case such as this before breach can be assessed.

362 As Gummow J observed in Kuhl v Zurich Financial Services Australia Ltd:[1]

Different classes of care may give rise to different problems in determining the nature or scope of a duty of care. In many cases a duty formulated as being one to take 'reasonable care' may suffice for the finding of duty in that particular case. Cases that involve the duty of a solicitor to his or her client to exercise professional skill in accordance with the retainer, the duty of a motorist towards other users of the road, or the duty owed by an occupier of land to an entrant with respect to the condition of the premises , ordinarily involve no real controversy over the scope and content of the duty of care; these are considered at the 'high level of abstraction' spoken of by Glass JA in Shirt v Wyong Shire Council. But where the relationship falls outside of a recognised relationship giving rise to a duty of care , or the circumstances of the case are such that the alleged negligent act or omission has little to do with that aspect of a recognised relationship which gives rise to a duty of care, a duty formulated at too high a level of abstraction may leave unanswered the critical questions respecting the content of the term 'reasonable' and hence the content of the duty of care. These are matters essential for the determination of this case, for without them the issue of breach cannot be decided. The appropriate level of specificity when formulating the scope and content of the duty will necessarily depend on the circumstances of the case. (footnotes omitted)

363 In Modbury Triangle Shopping Centre Pty Ltd v Anzil,[2] Hayne J explained that 'the extent of a duty falls for decision in relation to "concrete facts arising from real life activities"'.[3] If the duty of care is defined narrowly then a finding of breach might prove difficult. If it is defined broadly then breach might be established more readily.

364 This problem arose in Dovuro Pty Ltd v Wilkins.[4] In that case, Dovuro imported into Australia canola seeds from New Zealand. The canola seeds were advertised as 'minimum 99% purity'. But the canola contained weed seeds. Dovuro sold the seeds to suppliers who, in turn, sold them to consumers who were canola growers. After the canola growers bought the seeds, the Western Australian agricultural authorities declared the weeds to be a prohibited species. Later the declarations were cancelled. The canola growers suffered financial losses in the meantime arising from the declaration.

365 The canola growers alleged that Dovuro had been negligent. Towards the end of the trial, Dovuro conceded that it owed Wilkins a duty of care. But Dovuro denied that it had breached that duty. The content of the conceded duty of care was expressed in general terms. It was interpreted in different ways. As Gummow J observed in his judgment in the High Court, the concession was framed in different ways in the reasons of the Full Federal Court.[5]

366 A majority of the High Court held that Dovuro had not breached its duty of care. But different approaches were taken to the characterisation of the duty of care:

(i) Gleeson CJ held that the duty was 'a duty of care to take reasonable care to avoid the risk of economic loss to farmers who bought the seed'.[6]

(ii) McHugh J considered that it was 'not a case where the Wilkins interests could succeed only on proof of a special duty to prevent economic loss to them'.[7] Instead, McHugh J and (in dissent) Kirby J,[8] considered that the case was one concerning the ordinary duty of a 'manufacturer of any product ... to a consumer to take reasonable care to prevent the product causing injury or loss to the consumer'.[9] A similar approach was taken by Gummow J,[10] although his Honour explained that it was unnecessary to rule on the submissions concerning the concession and existence of the duty of care.[11]

(iii) Hayne and Callinan JJ (with whom Heydon J agreed) said that the duty of care was 'a duty to exercise reasonable care not to expose [the purchasers of the canola seeds] to a risk of injury of which Dovuro knew or ought to have known'.[12] Hayne and Callinan JJ then characterised the risk of injury that had been conceded to be the injury about which a duty was owed in the following terms:[13]

financial loss occasioned by pursuing a course of action recommended by government authorities to guard against the possible emergence of plants which had been declared to be harmful only after Dovuro had distributed the seed and the farmers had acquired it. Only if that sort of loss was reasonably foreseeable by Dovuro would the duty asserted by the Wilkins have been engaged.

367 These different characterisations of the duty for the purposes of assessing whether there had been a breach of duty illustrate the importance, emphasised on many occasions,[14] of defining the scope and content of the duty of care before assessing whether that duty was breached. As Hayne and Callinan JJ (Heydon J agreeing) said:[15]

In the present case, however, in determining the effect of the concession made at trial, that Dovuro did owe the Wilkins and other farmers a duty of care, it is necessary to identify what was conceded. That is a task which is not assisted by introducing consideration of what was, or might be, said about breach, if only because the duty conceded was cast at a high level of abstraction and generality.

Duties of care in cases of 'pure' economic loss

368 In Woolcock Street Investments Pty Ltd v CDG Pty Ltd[16] McHugh J said that since 'the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd,[17] confusion approaching chaos has reigned in the law of negligence' in circumstances where a plaintiff suffers economic loss that does not result from injury to the plaintiff's person or other property.

369 In order to appreciate the context in which the law concerning such pure economic loss has developed, and the current law against which LeRoi's alleged concession falls to be construed, some historical background to Hedley Byrne is necessary.

370 By 1598, after the emergence of the doctrine of consideration,[18] it was held that good consideration was unnecessary in an action for misperformance of an undertaken duty.[19] In 1793, in Elsee v Gatward,[20] Ashurst J explained that 'if a party undertake to perform work, and proceed on the employment, he makes himself liable for any misfeasance in the course of that work'. As Professor Ibbetson has explained, in 'substantive terms this meant that an action could be brought for the negligent performance of a gratuitous undertaking'.[21] The action upon such a voluntarily assumed responsibility was consistent with the etymology and pleading of the form of action for assumpsit.[22]

371 An understanding of the enforceability of undertaken duties became confused during the 19th century. The greatest difficulty was in the context of actionable misrepresentations. The focus was not upon whether a person had undertaken that a statement had been made with care or undertaken only that the statement had been made honestly. Instead, the question was generally posed in absolute terms: a person would be liable only for having made a statement fraudulently. The focus was on the meaning of 'fraud' rather than the content of the undertaking. Until Derry v Peek,[23] the meaning of 'fraud' was the subject of much dispute, particularly between the courts of common law (which tended to view the meaning strictly)[24] and courts of equity (which, during various periods, accepted liability for 'constructive fraud' and 'innocent mistake').[25] As Leeming JA has said, quoting Professor Hanbury, 'common law and equity practitioners "quarrelled over the possession of the word 'fraud' like two dogs over a bone, off which neither side was sufficiently strong to tear all the meat"'.[26]

372 In Nocton v Lord Ashburton,[27] the old law was reiterated by Lord Shaw. Lord Shaw quoted from Sir Roundell Palmer (later Lord Selborne LC) who had spoken in Peek v Gurney[28] of a 'representation in equity ... equivalent to a contract'.

373 Half a century later, in obiter dicta in Hedley Byrne, the House of Lords again restated the old orthodoxy. Lord Devlin, in particular, spoke of the basis for the action for economic loss as being a relationship 'equivalent to contract' where 'but for the absence of consideration, there would be a contract'.[29] As Crennan, Kiefel and Keane JJ said in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288,[30] 'the expanded liability for economic loss established by Hedley Byrne & Co Ltd v Heller & Partners Ltd depended upon proof of the fact of assumption of responsibility by a person giving advice to another, and that other having relied upon the advice'. Hence, as Professor Paul Mitchell has said, Hedley Byrne is a landmark case 'not because it established something very new, but, paradoxically, because it repeated something very old'.[31]

374 It is possible that if Hedley Byrne had confined the recognition of pure economic loss for negligence to cases involving an assumption of responsibility then the ensuing confusion described by McHugh J may not have resulted.[32] But although assumption of responsibility lay at the core of the speeches in Hedley Byrne, their Lordships also made remarks which could be seen to support an expansion of liability for pure economic loss beyond cases of assumption of responsibility.[33] The difficulty came in determining the principle by which any expansion should occur.

375 The principal Australian development was the decision of the High Court of Australia in Caltex Oil (Australia) Pty Ltd v Dredge 'Willemstad'.[34] In that case, a dredge damaged an oil pipeline which transported oil to a terminal. Due to the damage to the pipeline, Caltex lost its normal ability to obtain delivery of oil. The new methods of transport caused Caltex additional expense. Since Caltex did not own or lease the damaged pipeline, this additional expense was 'pure economic loss' which was not consequent upon damage to person or property. The High Court held that Caltex could recover this economic loss. Each judge in Caltex went beyond the suggestion that the owners of the dredge had assumed responsibility to Caltex to take care not to cause economic loss to Caltex.

376 Although the Privy Council later observed that the decision in Caltex did not disclose 'any single ratio decidendi',[35] there are some common strands to the reasoning of various judges. Gibbs J said that it is necessary to 'consider the particular relationship at hand' in each case.[36] His Honour also said that as 'a general rule damages are not recoverable for economic loss which is not consequential upon injury to the plaintiff's person or property'.[37] The key principle for recovery, according to Gibbs J, was that the case was an exceptional one in which the defendant had 'knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of his negligence'.[38] Similar factors were relied upon by Stephen and Mason JJ.[39] The approach of Murphy J was the most expansive. His Honour rejected the contention that economic loss not connected with physical damage to the plaintiff's property is not recoverable and simply considered whether there was any reason for limiting recovery. He found none in that case.[40]

377 In the later decision of Perre v Apand,[41] McHugh J said that the 'common thread' from the judgments in Caltex was that 'more than reasonable foreseeability of harm to a person is required before the defendant comes under a duty of care. Knowledge of harm to the plaintiff is a minimum requirement'.[42]

378 The decision in Caltex was not well received outside Australia. It was subsequently rejected in Canada.[43] It was subsequently rejected by the Privy Council on appeal from New South Wales, despite the powerful arguments of A M Gleeson QC.[44] The principle which it embodies was, and is, widely rejected in the United States. In s7(b) of the September 2013 draft of the Restatement of the Law Third Torts: Liability for Economic Harm,[45] the Reporter says that subject to public nuisance claims there is no liability for pure economic loss caused by 'unintentional injury to property in which the claimant has no proprietary interest'. Illustration 6, based on Louisville and Nashville Railroad Co v M/V Bayou Lacombe,[46] was expressed in the following unqualified terms:

Vessel negligently damages a railroad bridge that Railroad has a right to use. The bridge is owned and maintained by another. The damage forces Railroad to send its trains by an alternate route that is more expensive than using the bridge. Railroad cannot recover its losses from owner of Vessel.

379 However, the decision in Caltex has been relied upon or applied by the High Court of Australia in a series of cases,[47] including particularly Perre[48] and Barclay v Penberthy.[49]

380 In Barclay, the High Court examined the question of recovery of pure economic loss in the context of the coherence with other private law doctrines involving liability for economic loss arising from the diminution of the value of contractual rights. The 'particular conceptual difficulties'[50] in Barclay concerned the relationship between liability for negligently inflicted pure economic loss and the action per quod servitium amisit. The action per quod lies for the intentional or negligent deprivation of a master of the services of his servant. The action was initially based in notions of property but, over time, its basis shifted to a concern with the negligent deprivation of contractual rights.[51] But the action per quod did not become an action for negligently caused pure economic loss.[52] There was still a requirement that an actionable wrong be committed by the tortfeasor to the servant.[53] The action per quod was essentially parasitic upon a wrong to the servant. Quantum of recovery was also more restricted than a general action for negligence. In Barclay, the High Court therefore concluded that a duty of care to avoid negligently inflicted pure economic loss could co-exist with the action per quod. The two doctrines were separate and independent and based upon different rationales.[54]

381 The identification of the rationale for liability for pure economic loss where a defendant has not assumed responsibility for that loss remains a difficult task. On one view, the liability is for loss caused by fault, with the concept of duty of care serving to direct attention to the reasons why carelessness by a defendant should not lead to liability. On this view, the rationale lies in the notion of 'a general public sentiment of moral wrongdoing for which the offender must pay'.[55] This approach is most clearly expressed by Murphy J in Caltex. It is the model generally expressed in Art 1382 of the French Civil Code: 'any act whatever of a [person] which causes damage to another obliges [the person] by whose fault it occurred to make reparation'. It shifts the focus from the rights of the plaintiff that are protected. The focus becomes the meaning and boundaries of liability for fault.[56]

382 On this view of the rationale of liability for negligence, and particularly cases of pure economic loss, there is tension between (i) a law of negligence based upon a general rationale of compensation for fault and (ii) the existence of liability for the many torts that are based upon the protection, even with strict liability, of particular rights. This includes torts which protect rights to liberty, bodily integrity, reputation and property. For instance, if a careless, and false, allegation of sexual assault were actionable as negligence based on this general rationale then there would be[57]

an intersection with the law of defamation which resolves the competing interests of the parties through well-developed principles about privilege and the like. To apply the law of negligence in the present case would resolve that competition on an altogether different basis.

383 In the case of liability for negligence causing pure economic loss there might sometimes also be a tension between (i) allowing liability for negligently caused pure economic loss in some circumstances arising from the reduction in the value of contractual rights and (ii) the rejection of liability for intentionally caused pure economic loss unless the plaintiff satisfies the strict requirements for proof of the tort of inducing a breach of contract. The action for inducing breach of contract requires intention; negligence is insufficient for liability.[58] Inducing breach of contract also requires proof of a breach of contract upon which the action was parasitic; merely reducing the value of contractual rights is insufficient.[59] This might be particularly relevant where the liability for pure economic loss concerns a loss suffered by an ultimate consumer where defective goods were provided by a supplier to an ultimate purchaser in breach of contract but where the breach was not intentionally induced by the defendant manufacturer.

384 Putting aside these difficulties concerning the boundary of the principles deriving from Caltex, the liability recognised in Caltex, based on a claim based upon a duty of care to avoid pure economic loss in those circumstances, plainly extends beyond cases involving an assumption of responsibility. The Australian approach endorsed in that case and subsequently has been to focus on the 'salient features' of each particular case to determine whether a duty of care exists. In Perre,[60] McHugh J said that five features that were relevant in determining whether a duty exists in all cases of liability for pure economic loss were (i) foreseeability of loss, (ii) indeterminacy of liability, (iii) autonomy of the individual, (iv) vulnerability to risk, and (v) knowledge of the risk and its magnitude. In a later case, these salient features were described as including the following:[61]

• actual foresight of the likelihood or possibility of harm of the kind suffered;
• or, absent actual foresight, reasonable foreseeability of that harm to the extent of recognition of it being an unreasonable risk created for others;
• who are either known to the person causing damage, or members of an ascertainable group or class reasonably foreseen as subject to that risk;
• in respect of whom there is known or reasonably foreseen vulnerability of those others suffering damage to harm of that type (often arising from those others relying on the person causing harm to take care) and against which harm the person injured could not otherwise take steps adequately to protect themselves;
• in the absence of preventative action by reasonable care taken to avoid causing that damage;
• because of the degree of control exercised by the person causing the damage in or over the activity which causes it;
• and often relevant is the physical, geographic, or commercial propinquity of the parties, in the activities of each in which one suffered and the other caused the harm.

385 The salient features are not limited to these matters. It might be difficult to predict the matters that might be said to be salient. In one case parties led abstract economic evidence as an alleged salient factor concerning the impact upon tort law of a recognition of a duty of care to avoid economic loss in those circumstances.[62] As McHugh J has said, there is an 'inherent indeterminacy'[63] in the salient features approach.

386 A further difficulty in applying the salient factors approach is deciding the weight to be given to the different factors. With Gleeson CJ agreeing, McHugh J has said that the focus on salient factors has led to the result of a proliferation of factors[64]

without a chain of reasoning linking these factors with the ultimate conclusion. Left unchecked, this approach becomes nothing more than the exercise of a discretion - like the process of sentencing, where the final result is determined by the individual judge's instinctive synthesis of all the various aspects. There will be no predictability or certainty in decision making because each novel case will be decided by a selection of factors particular to itself. Because each factor is only one among many, few will be subject to rigourous scrutiny to determine whether they are in truth relevant or applicable. (Footnotes omitted).

387 For those reasons, McHugh J favoured, and the law has developed, an incremental approach where reasoning proceeds by reference to analogous cases. As Lord Devlin said of the extension of duties of care in Hedley Byrne, 'the first step in such an enquiry is to see how far the authorities have gone, for new categories in the law do not spring into existence overnight'.[65]

A claim by an ultimate purchaser against the manufacturer for pure economic loss

388 A classic claim of pure economic loss would be where an action is brought by a consumer against the manufacturer of defective goods. There is not usually a contract between the consumer and the manufacturer. So, in the absence of a contract, if the provision of defective goods causes no damage to the consumer's person or property then the loss to the consumer is 'pure' economic loss which can be measured as the value of the goods less the price that was paid for them. As Crennan, Bell and Keane JJ said in Brookfield [66]

the crucial distinction is between a person who supplies something which is defective and a person who supplies something (whether a building, goods or a service) which, because of its defects, causes loss or damage to something else...

389 One circumstance in which a duty of care to avoid pure economic loss might arise in is where the supplier assumes direct responsibility to the ultimate purchaser or client, albeit that there is no direct contractual relationship between the two. The decision in Junior Books Ltd v Veitchi Co Ltd[67] has been seen as a good example of this.[68] In that case, Veitchi was a specialist floor laying company. They were sub-contracted to supply and install floors for Junior Books' premises. They were alleged to have supplied and laid the floor defectively, resulting in the floor cracking and lifting from its concrete base.[69] The question for the House of Lords, on appeal from Scotland, was whether the subcontractor owed a duty of care to the ultimate client, the building owner, whose contractual relationship was with the head contractor. The majority held that there was a duty of care owed, based on an assumption of responsibility.

390 Although the majority in Junior Books considered that cases of assumption of responsibility by a manufacturer to a ultimate purchaser would be very rare, Lord Fraser of Tullybelton said that the very close proximity between the parties distinguished the case before him from the general 'case of producers of goods to be offered for sale to the public'.[70] Lord Roskill also distinguished cases by ultimate purchasers against manufacturers in respect of goods purchased under ordinary everyday transactions where 'it is obvious that in truth the real reliance was upon the immediate vendor and not upon the manufacturer'.[71] As Robert Goff LJ later said, after a careful analysis of the majority speeches in Junior Books, 'on the facts in the Junior Books case, it was considered by the majority of the House of Lords that the nominated sub-contractor had assumed a direct responsibility to the building owner'.[72] Junior Books did not involve simply the manufacture of a chattel. It concerned the fabrication, supply and installation of flooring in a building structure for a known party for whose benefit the work was being undertaken.

391 Despite the distinguished history of the notion of assumption of responsibility, some reservations have been expressed about its significance or at least sufficiency as a determinant for liability in negligence in modern Australian law.[73] Recently, however, the concept has been endorsed in a context which is analogous to the present case.[74]

392 Beyond cases of assumption of direct responsibility there is limited scope for a duty of care being owed by a manufacturer to non-contracting parties to avoid carelessly inflicting pure economic loss. One example of a case where a manufacturer was held liable for pure economic loss, although not to the ultimate purchaser, is the decision of the Queensland Court of Appeal in Suosaari v Steinhardt.[75]

393 In Suosaari the appellant had manufactured trailers for use in transporting sugar cane tramway bins. The trailer was negligently designed due to the position on it of a wire winching rope. A farm labourer employed by the respondents was injured as a result. But the claim which was the subject of the appeal was not brought by the farm labourer. It was brought by the employer for the economic loss suffered by the employer due to the compensation that the employer was ordered to pay to the farm labourer. As Cooper J, with whom Connolly and Ryan JJ agreed, said in the Court of Appeal, the employer's loss in being ordered to pay damages 'is pure economic loss'.[76]

394 Although the employer's claim was one for pure economic loss, the Court of Appeal treated the legal principles concerning the duty of care owed to the employer as the same as those owed by a manufacturer to persons who were physically injured or whose other property had been damaged.[77] This was because the same 'proximity' was said to exist between the manufacturer and the employer as that which existed between the manufacturer and the farm labourer.[78] Cooper J applied the standard test for negligence that a manufacturer owes a duty to take reasonable care to avoid a reasonably foreseeable and real risk of injury.[79] In treating the manufacturer and the farm labourer in the same way, Cooper J emphasised that the test of reasonable foreseeability of harm should include asking 'what would a reasonable user understand to be the intended use or operation of the product?'[80]

395 The decision in Suosaari was subsequently confined closely to its facts in Minchillo v Ford Motor Company of Australia Ltd.[81] In that case, the lessee and lessor of a truck sued the manufacturer for defects in the truck. One of the grounds for their claim was negligence. Two substantive judgments were given by Ormiston J (with whom Fullagar J agreed) and Brooking J.

396 Ormiston J adopted the conclusion of Southwell J who had held in an earlier case that there was no support for a general duty of care being owed by a chattel manufacturer to any ultimate user who suffers economic loss from faulty manufacture.[82] Nor were there any 'specific circumstances' that could give rise to the 'required proximity' between the manufacturer and the ultimate purchaser.[83] The decision in Suosaari was treated as giving rise to the possibility of a duty of care being owed to persons obliged to indemnify against physical injury or damage to other property where 'a negligently manufactured article results in physical injury or property loss'.[84]

397 Brooking J also rejected the existence of a duty of care in the case. His Honour held that '[o]ne cannot speak of a duty, in relation to the manufacture of goods, to take reasonable care to avoid a reasonably foreseeable and real risk of economic injury to another: the expression of the duty is altogether too wide and vague to afford a workable test'.[85] His Honour also rejected the possibility of a duty of care formulated as a duty to take reasonable care to avoid manufacturing goods which contain defects, referring to numerous English authorities that had doubted or rejected such a duty.[86]

398 The decision in Minchillo predated the particular expansion of the duty of care recognised in Bryan v Maloney.[87] In contrast with the development of the law in England,[88] a majority of the High Court of Australia in Bryan held that a builder owed a duty of care to a subsequent purchaser to avoid the pure economic loss of the diminution in value of the house.[89] The majority was comprised of joint reasons by Mason CJ, Deane and Gaudron JJ and reasons of Toohey J which 'although differently expressed, did not depend upon the application of any principles different from those applied in the joint reasons'.[90]

399 It was common ground in the High Court that the builder had carelessly built the house with inadequate footings which caused cracks to appear in the walls. As the joint judgment of Mason CJ, Deane and Gaudron JJ expressed the question for the High Court, it was whether[91]

a professional builder who constructs a house for the then owner of the land owes a prima facie duty to a subsequent owner of the house to exercise reasonable care to avoid ... the diminution in value of the house when a latent and previously unknown defect in its footings or structure first becomes manifest.

400 The decision in Bryan might have afforded some hope for an action in negligence by ultimate purchasers against manufacturers. The hope would be based upon a loose analogy between, on the one hand, the 'salient features' of a relationship involving a builder of premises and the ultimate purchaser of the land on which the premises are built and, on the other hand, the 'salient features' of a relationship between a manufacturer of chattels and an ultimate purchaser. However, although Bryan has not been overruled[92] the scope for this analogy is limited for four reasons.

401 First, the majority in Bryan relied heavily upon the concept of 'proximity' as a conceptual determinant for the extension of a duty of care to the builder. In Woolcock,[93] Gleeson CJ, Gummow, Hayne and Heydon JJ observed that a line of decisions of the High Court since 1997 has rejected the 'conceptual determinant' view of proximity that had been applied as the 'conceptual determinant' in Bryan. As the High Court said in Sullivan v Moody,[94] proximity 'might be a convenient short-hand method of formulating the ultimate question in the case, but it provides no assistance in deciding how to answer the question'.

402 Secondly, the reasons of the majority in Bryan depended in part upon the nature of the subject matter being a 'house' rather than a chattel. In the joint reasons, Mason CJ, Deane and Gaudron JJ said that[95]

The connecting link of the house is itself a substantial one. It is a permanent structure to be used indefinitely and, in this country, is likely to represent one of the most significant, and possibly the most significant, investment which the subsequent owner will make during his or her lifetime.

403 Although some intermediate courts of appeal,[96] and some judgments in the High Court,[97] have treated Bryan as confined to dwelling houses, the dominant approach in the High Court is to doubt whether Bryan should be confined only to pure economic loss involving the building of dwelling houses.[98] Nevertheless, this context remains a significant factor.

404 Thirdly, Bryan was distinguished in Woolcock[99] and Brookfield[100] due to the presence of legislation in the area. Both cases involved claims for 'pure economic loss' by subsequent purchasers or owners of commercial premises against the original consulting engineers or builders. Both claims failed.

405 In Woolcock,[101] a joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ observed that the actual decision in Bryan had been 'overtaken, at least to a significant extent, by various statutory forms of protection for those who buy dwelling houses which turn out to be defective'.

406 In Brookfield,[102] Crennan, Bell and Keane JJ said of the legislative policy in that legislation to favour consumers over investors:

That is not the kind of policy choice with which courts responsible for the incremental development of the common law are familiar;[103] and to the extent that deference to policy considerations of this kind might be seen to be the leitmotif of this Court's decision in Bryan v Maloney, the action taken by the New South Wales legislature served to relieve the pressure, in terms of policy, to expand the protection available to consumers.

407 Similarly, Gageler J, who would have confined Bryan to facts involving dwelling houses, said that if 'legal protection is now to be extended, it is best done by legislative extension of those statutory forms of protection'.[104]

408 This reasoning also applies to cases involving the liability of manufacturers to ultimate purchasers, where liability is governed by legislation including detailed provisions in the Australian Consumer Law concerning liability of manufacturers to consumers_._

409 Fourthly, in Bryan no submissions had been made about the terms of the initial contract between the owners and the builder. Submissions were made on this point in Woolcock and Brookfield and this served as a basis to distinguish Bryan.

410 In Brookfield,[105] the question that arose was whether a duty of care was owed by a builder of strata-titled apartments to a subsequent owner of the common property in the building (the Owners Corporation). The builder had assumed responsibility for careful performance of its work to the initial owner (the developer). It did so by a contract with the developer which defined the limits of that responsibility and which did not extend to latent defects. The damage suffered from alleged defects in the building was said to be the diminished value of the building and the loss of rent and income during the period of rectifying the defects. One of the reasons for denying a duty of care owed by the developer to the subsequent owner was the lack of provision for contractual liability for defects in the builder's contract with the developer.[106] As Hayne and Kiefel JJ said:[107]

The making of contracts which expressly provided for what quality of work was promised demonstrates the ability of the parties to protect against, and denies their vulnerability to, any lack of care by the builder in performance of its contractual obligations. It was not suggested that the parties could not protect their own interests.

411 An assessment of any duty of care between a manufacturer and an ultimate purchaser of goods would also require attention to be directed to the terms of any contract between the manufacturer and the seller of the goods.

The existence and scope of any concession of a duty of care by LeRoi

412 Whether a concession is made, and the extent of the concession, is a matter to be determined objectively by the words and conduct communicated to the other party and the court by the trial counsel. It is not determined according to the subjective expressions of counsel on appeal as to what he considered to have been subjectively intended at trial.

413 The nature of any concession by LeRoi also falls to be considered in light of the legal principles we have discussed above. For the reasons we have explained, it would have been a very significant concession if LeRoi had accepted that a duty of care is generally owed by a manufacturer to an ultimate purchaser.

414 At trial, Swick's statement of claim had alleged a duty of care in very general terms. It was alleged to be a duty of care to take reasonable care in the design and manufacture of the TS24. The same allegation of a general duty in these terms was repeated in closing submissions by counsel for Swick.[108] This plea of a general duty to take reasonable care in the design and manufacture of the TS24 was not admitted by LeRoi's pleading. The trial was run on the basis that duty of care was in contest.

415 In closing written submissions counsel for LeRoi said that '[a]s manufacturer and designer of the [TS24], [LeRoi] owed a duty of care to take reasonable care to avoid a reasonably foreseeable and real risk of loss'. Reference was made, in support of this statement, to the decision of the Queensland Court of Appeal in Suosaari.[109] The written submissions continued, saying that in the law of negligence, 'there is no absolute duty on a manufacturer to design or manufacture a defect free or accident-proof product. Liability in this regard is not strict'.

416 Although it appears that counsel may have been making a concession, the scope of this concession in the written submissions is opaque for seven reasons.

417 First, the statement that LeRoi, as a manufacturer, owed a duty of care to avoid a reasonably foreseeable and real risk of loss might be saying no more than that LeRoi owed a duty to take care not to cause physical injury or damage to other property by a user of the TS24. This would be a wholly unremarkable statement: 'it is clearly settled that where personal injury or physical damage to property has been caused by a negligent act, the damages ... include compensation for all pecuniary loss suffered as a result of the injury or damage'.[110] That is particularly so where High Court authority establishes that reasonable foreseeability is insufficient for a duty of care to avoid pure economic loss. In Woolcock,[111] Gleeson CJ, Gummow, Hayne and Heydon JJ said that if liability were imposed when all that is shown is that the defendant's negligence was a cause of the plaintiff's loss and the plaintiff's loss was reasonably foreseeable then 'the tort of negligence would destroy commercial competition, sterilise many contracts and ... expose defendants to potential liability in an indeterminate amount for an indeterminate time to an indeterminate class'.

418 Secondly, it might also be thought that insofar as reference was made to Suosaari, the concession related to relational economic loss consequent upon personal injury or damage to other property.

419 Thirdly, and related to the second matter, there are some difficulties in construing the reference to Suosaari as extending this concession to a duty of care to avoid economic loss to ultimate purchasers generally (which is not what was expressed in the submissions) or a duty of care to ultimate purchasers to avoid a defect free product. The decision in Suosaari does not stand for such a broad proposition and, as we have explained, the later decision in Minchillo had expressly confined the decision in Suosaari well short of any such proposition.

420 Fourthly, counsel for LeRoi did not expressly abandon LeRoi's pleaded non-admission of a duty of care to avoid pure economic loss. Nor was reference made to any of the modern authorities since Suosaari. Nor was any reference made to any 'salient factors' which could give rise to a duty of care to avoid pure economic loss. Swick had pleaded salient factors including (i) 'vulnerability' (par [55]), (ii) the closeness of the relationship between Swick and LeRoi including knowledge that a person in Swick's position would acquire the TS24 (par [58]), (iii) a limited class of persons to whom the duty could be owed (par [59]), and (iv) the control by LeRoi of any economic loss suffered by Swick (par [60]). The trial had also been run without admission of any duty of care; it was for the plaintiff to have established the existence of sufficient salient factors.

421 Fifthly, as the trial judge observed,[112] Swick spent some time in submissions concerning whether LeRoi was under a duty of care to avoid causing purely economic loss. Counsel for LeRoi made no mention of those submissions in the alleged concession.

422 Sixthly, in oral closing submissions, counsel for LeRoi made remarks that might be construed as suggesting that LeRoi had not proved any duty of care to avoid pure economic loss:[113]

[t]he crucial issue is what was the manufacturer's duty in terms of reliability or not.

There is plenty of authority for the proposition that a manufacturer is not under an absolute or strict duty to provide a piece of equipment that is free of all possible defects and accident proof. The manufacturer's duty is to undertake his role as manufacturer or designer within the compass of what would be reasonably expected of a manufacturer of that particular type of equipment.

There is no evidence before you in relation to what standard the manufacturer or designer was supposed to achieve in circumstances of a developed piece of equipment, which was meeting production standards which had been higher than the other competitors in the market had been providing, and there is no evidence before in relation to the level of what is loosely pleaded in the statement of claim as what would be the reliability that that manufacturer would be required to meet.

423 In other words, counsel might have been understood to be accepting that a manufacturer owes a duty of care to undertake its role within the compass of what was reasonably expected (including, one assumes, to take care not to produce goods which cause damage to person or other property). But counsel submitted that there was no evidence of what was reasonably expected of LeRoi as manufacturer in developing the TS24.

424 Shortly after this, counsel for LeRoi suggested that the relevant duty of care might have been a duty to take care to select the supplier of bearings for the TS24 rather than a duty of care in the manufacture of the TS24:[114]

it's accepted that [LeRoi] didn't manufacture the bearings. This is an element of the [TS24] which is in fact manufactured by a third party, NTN being the third party or Timken being the other third party. So what is the duty of care of a manufacturer who has supplied a piece of equipment which has within it another piece of equipment supplied by a specialist supplier?

Now, the duty of care I identify is that you may be under a duty to have carefully selected the supplier and to ensure that the supplier is somebody who has sufficient skills to ensure that they can supply this type of item. It would perhaps, and I only say "perhaps" for the purpose of this submission, be negligent of a party to go and get a supplier who he knows creates defective materials and gets a cheap price, et cetera, et cetera, knowing that it's going to break down.

That might be negligent, but if the manufacturer uses a reputable supplier for the purposes of providing the particular specialist's piece of equipment, then the only negligence for that party could be if, as I say, there was some other case developed, that it had acted negligently in fulfilling its duties in that regard.

425 Counsel then explained, however, that such a duty of care to take care in selecting the supplier of bearings was not the duty of care that was pleaded against LeRoi.[115]

426 Seventhly, if a duty of care had been conceded at trial, there is real difficulty in construing the terms of the concession. Was it a concession of law based upon construction of the facts such as a concession that an assumption of responsibility existed between the parties? Or was it a concession of law concerning some or all of the pleaded salient factual features sufficient to establish a duty of care? If so, then what were the salient features that were conceded? Or was it simply a concession of law, without any apparent basis, that a duty of care generally existed upon a manufacturer of a chattel to take care to avoid pure economic loss to an ultimate purchaser of the chattel? If so, then what were the precise terms of the legal duty that was conceded?

427 If the conceded duty was to take care to avoid pure economic loss to an ultimate purchaser then, although it was never expressed in this way, the legal concession might have been to take care not to cause economic loss by designing or manufacturing a TS24 which was free from defects. This would be a very large concession. It is directly contrary to the decision in Minchillo.

428 Another difficulty in determining the nature of any concession that had been made at trial is that despite the ambiguities described above there was very little argument on this point on this appeal and there was no agreement on this appeal concerning the scope of any concession. Although the construction of any concession is an objective question for the court, the lack of agreement between the parties to this appeal illustrates the difficulty in identifying the scope of any concession.

429 Counsel for Swick on this appeal initially expressed the terms of the duty as one which was owed to both the supplier (Norncott) and the ultimate user (LeRoi) to manufacture or design a TS24 which was of 'merchantable quality'.[116] The case did not clearly appear to have been pleaded or run in this way. In any event, even if such a duty could exist, it would have been necessary to particularise what was meant by 'merchantable quality' for a TS24. On this appeal, counsel was pressed to explain the terms of such a duty. Counsel said that the essence of the case in negligence was that a reasonable manufacturer would have designed and manufactured a compressor to achieve at least 10,000 operating hours operating at 500 pounds per square inch (psi) for mineral drilling in Western Australia so that the failure to do so was negligent.[117] So formulated, the asserted duty would have a remarkable degree of specificity and would wear the appearance of what the law would conventionally regard as a promissory or representational statement.[118]

430 Counsel for LeRoi on this appeal denied that any concession of such a duty had been made at trial.[119] He accepted that LeRoi had conceded that it owed a 'duty of care which would be owed by a general manufacturer to end user clients'.[120] He was asked whether this was a duty of care to avoid economic loss generally, but he responded in terms which were not clearly expressed as a duty of care to avoid pure economic loss. Counsel repeated his submission that what had been conceded was 'the general duty of care of someone manufacturing and selling something in a market'.[121]

The basic difficulty with the four grounds of LeRoi's liability appeal

431 The seven reasons above, in combination, create a serious obstacle to determining the nature and extent of any duty of care that was owed by Swick to LeRoi. However, neither counsel on this appeal focused closely upon the terms of any concession that were made. Nor was any legal argument directed to the appropriate legal test for any duty of care owed by a manufacturer to an ultimate purchaser of goods. In the absence of any substantial argument on this point, we do not express any concluded view as to whether any relevant concession was made and, if so, the extent of such a concession.

432 It is not necessary to hear any submissions on this point because it suffices to approach the grounds of appeal on the premise upon which they were argued by counsel for Swick. That premise, which we do not necessarily accept, was that LeRoi had conceded that it owed a duty of care to end users to manufacture or design a TS24 that was of merchantable quality, and that it is 'hard to conceive that a manufacturer of a good could produce a good that [was] not fit for any of its intended purposes without some carelessness'.[122] It suffices to approach LeRoi's four appeal grounds concerning liability on this basis because we conclude that the appeal must nevertheless fail because the trial judge was correct in determining that there was no breach of duty.

The first four grounds of appeal against LeRoi: breach of duty Grounds 1 and 2 against LeRoi: Direct evidence or inference of breach of duty

433 Ground 1 of Swick's appeal alleged that the trial judge should have concluded that the evidence directly or inferentially established negligence by LeRoi. In support of this ground, counsel relied upon the evidence of multiple failures in the TS24, which were said to be without a cogent explanation other than fault in design or manufacture. Counsel also alleged that LeRoi had made direct or implicit admissions of a fault in the design or manufacture of the TS24.

434 As we have explained, counsel for Swick on this appeal said that the duty of care that LeRoi breached was in failing to act carefully to ensure that the compressor that was designed and manufactured achieved at least 10,000 operating hours operating at 500 psi for mineral drilling in Western Australia.

435 There was insufficient evidence from which the trial judge could have reached a conclusion that any such failure was a consequence of carelessness amounting to a breach of duty by LeRoi. The relevant evidence, and its limitations, is discussed by Buss JA at [227] - [238]. As his Honour concludes, and as the trial judge found, that evidence was 'minimal'. Nor, as Buss JA has explained at [239] - [245], did LeRoi make any admissions of a failure to comply with a legal standard in manufacture or design of the TS24.

437 Ground 2 of Swick's appeal alleged that the trial judge erred by holding that the time for assessing whether LeRoi had breached its duty was when the TS24 was designed and first manufactured. Swick asserted that the trial judge failed to conclude that the relevant time was later when the particular TS24 was manufactured by LeRoi. Ground 2 also alleged that the trial judge erred in concluding that LeRoi had to know that the TS24 would be used by Swick for mineral drilling when LeRoi did not qualify its claim that the TS24 would operate at 500 psi.

438 The paragraph of the trial judge's reasons, par [152], upon which Swick fastened for ground 2 was as follows:[123]

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.

440 First, par [152] is concerned with the rejection by the trial judge of Swick's argument based on res ipsa loquitur. That argument was the subject of separate grounds of appeal and is addressed separately below. In par [152] the trial judge was not addressing some independent point about proof or inference of negligence separately from the res ipsa loquitur submission.

441 Secondly, Swick is incorrect in its submission that the relevant time for the alleged tortious conduct is fixed at the time of manufacture of the particular TS24. The allegation of tortious conduct was an allegation of negligence in design and manufacture. Unless there were some relevant later change in design before manufacture of the particular TS24, then the relevant time to assess negligence in design was when LeRoi first settled on the design for the manufacture of the TS24. As to manufacture, unless there were some relevant alteration prior to the supply of the TS24 by LeRoi, any negligence in manufacture due to a failure to follow design specifications would fall to be assessed when LeRoi manufactured the particular TS24. In relation to both design and manufacture, the trial judge was correct at par [152] to say that the relevant time when negligence had to be determined was the time of the alleged tortious conduct. There was no evidence from which the trial judge could have differentiated whether any defect was to be attributed to a defect in design or a defect due to failure to follow design specifications.

442 Thirdly, and in any event, there was no evidence from which his Honour could have determined the time when the particular TS24 was manufactured by LeRoi. Hence the trial judge did not determine the time at which the particular TS24 was manufactured. Any failure to conclude that the relevant time for assessing negligence was at the time of manufacture of the particular TS24 would have been inconsequential because no factual determination about that time could have been made.

443 Fourthly, the purpose of this allegation of error by Swick was based on counsel's incorrect assumption that the trial judge had denied that LeRoi was negligent on the ground that LeRoi was unaware that the TS24 would be used for mineral drilling. Hence, counsel for Swick asserted that if the trial judge had concluded that the relevant date was the (later) date of manufacture when this information was known, then he assumed that the trial judge would have concluded that LeRoi was negligent.

444 This assumption is incorrect. As we have explained, even if LeRoi had known of the intended use of the TS24 for mining at the date when breach fell to be determined, there was insufficient evidence from which the trial judge could have reached a conclusion that any failure of the TS24 was a consequence of carelessness amounting to a breach of duty by LeRoi.

Grounds 3 and 4 against Le Roi: the doctrine of res ipsa loquitur

446 The doctrine of res ipsa loquitur ('the thing speaks for itself') is not one of the greatest sources of pride for the common law. When an established doctrine continues to be described in Latin or in French, there is sometimes cause to suspect that the reason for this is because of a lack of clarity in the doctrine itself. What is the 'thing' that is speaking? Why does the 'thing speak for itself'? What is the effect that this has on the burden of proof?

447 The origin of res ipsa loquitur was probably a casual remark by Baron Pollock during the course of argument in Byrne v Boadle[124] where he spoke of the mere fact of an accident being evidence of negligence in some cases. Over the next century the doctrine flourished, particularly in the United States,[125] but the course of authority diverged in different jurisdictions including between English and Australian law.[126] In Canada, the doctrine was abolished.[127]

448 In Schellenberg v Tunnel Holdings Pty Ltd,[128] Gleeson CJ and McHugh J observed that a series of decisions in Australia had settled the scope and effect of the doctrine.[129] After quoting from some of these decisions, their Honours said that,[130]

What flows from these statements of principle is that, while res ipsa loquitur may ameliorate the difficulties that arise from a lack of evidence as to the specific cause of an accident, the inference to which it gives rise is merely a conclusion that is derived by the trier of fact from all the circumstances of the occurrence. When it applies, the trier of fact may conclude that the defendant has been negligent although the plaintiff has not particularised a specific claim in negligence or adduced evidence of the cause of the accident. But it does nothing more. For example, it does not reverse the onus of proof or displace the principle in Jones v Dunkel.

449 Their Honours explained, relying upon earlier decisions of the High Court,[131] that a plaintiff may rely on res ipsa loquitur even though he or she has also pleaded particular acts or omissions of negligence on the part of the defendant provided that the tribunal of fact concludes that:[132]

1. there is an "absence of explanation" of the occurrence that caused the injury;
2. the occurrence was of such a kind that it does not ordinarily occur without negligence; and
3. the instrument or agency that caused the injury was under the control of the defendant.

450 The difficulty in establishing (2) can be illustrated by the reasoning in the various judgments in Schellenberg. In that case the question was whether the plaintiff could rely on res ipsa loquitur to establish negligence by his employer. The plaintiff had been using a hose, carrying compressed air, in the course of his employment. The hose became loose and swung upwards striking him on the face. The Full Court of the Supreme Court of Western Australia held that there had been no negligence. A majority of the High Court (Gaudron J dissenting) dismissed the appeal. Different reasons were given in the different judgments in the majority for rejecting the application of res ipsa loquitur.

451 Gleeson CJ and McHugh J held that the doctrine did not apply because, amongst other reasons, the trial judge had made 'no finding that this was a case where the accident would not ordinarily have occurred without negligence on the part of the defendant'.[133]

452 Kirby J held that the doctrine did not apply because the air pressure hose is not one of those 'simple implements with which the ordinary decision-maker (judge or jury) is familiar in daily life or which are so rudimentary that they may be readily understood'.[134] There was ample scope for speculation and conjecture including the possibility that the defect was latent, the incident unpredictable, and that any reasonable system of inspection and maintenance instituted by the employer would not have detected and predicted it.

453 Hayne J said that despite the heavy obligations owed by the employer to the employee, including the duty to provide safe equipment for the employee to use, where the equipment is complex, and there are many possible reasons for its failure, then the failure does not 'probably [point] to the employer being the negligent party. There are too many different intermediate steps that must be taken before that conclusion can be drawn, even on the relatively undemanding standard of the balance of probabilities'.[135]

454 Ground of appeal 3 alleged that the trial judge misapplied the principle of res ipsa loquitur because his Honour identified the relevant occurrence as the loss of oil pressure or premature bearing failure when he should have identified the occurrence as the catastrophic failure of the TS24.

455 Ground of appeal 4 alleged that the trial judge erred in failing to apply the doctrine of res ipsa loquitur by erroneously considering that expert evidence was required to establish that the unreliability of the TS24 was due to a fault in design or manufacture. Swick submitted that the doctrine of res ipsa loquitur did not require expert evidence to be adduced.

457 As to ground 3, the premise of this ground is incorrect. The trial judge did not identify the relevant occurrence that required explanation as the loss of oil pressure or premature bearing failure. His Honour was concerned with the cause of the failure of the TS24. His reasoning focused upon the loss of oil pressure and the premature bearing failure as an intermediate consequence of the relevant cause of the failure of the TS24.

458 For instance, his Honour said that 'the failures in the Swick Drilling machines were manifested in loss of oil pressure and failure of the bearings in the high pressure second stage of the compressor. I cannot find what the ultimate cause was'.[136] Later, his Honour said 'the relevant occurrence here is the failure of the TS24 in operation, typically by a drop in the oil pressure. Swick Drilling bears the onus of persuading the court that it is more likely that the relevant occurrence was brought about by the negligence of LeRoi in designing and manufacturing the TS24'.[137]

460 Ground 4 is also based on an incorrect premise. Properly construed, the trial judge's reasons were not based upon an assumption that expert evidence was required before the doctrine of res ipsa loquitur could apply.

461 Swick's submissions on ground 4 relied upon par [153] of the trial judges' reasons. In that paragraph, placed in its context, his Honour said the following:[138]

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.

462 The point being made by the trial judge in these paragraphs was that in the ordinary affairs of mankind it was not possible to say that the failures of the TS24 were due to negligence in its design and manufacture. In the absence of such a conclusion, expert evidence was necessary.

463 The trial judge was correct to conclude that the doctrine of res ipsa loquitur did not apply because the failure of the TS24 was not of such a kind that it does not ordinarily occur without negligence. Many of the points made in Schellenberg which we have discussed above, apply equally to this case.

464 First, as Gleeson CJ and McHugh J observed in Schellenberg, the trial judge in this case also made no finding that this was a case where the accident would not ordinarily have occurred without negligence on the part of the defendant.

465 Secondly, consistently with the remarks of Kirby J in Schellenberg, the TS24 is not an implement with which the ordinary decision-maker is familiar in daily life or which is so rudimentary that it may be readily understood. There was ample scope for speculation and conjecture, including the trial judge's unchallenged conclusion that operating practices may have made a difference to being able to use the TS24 without problems.[139]

466 Thirdly, consistently with the remarks of Hayne J in Schellenberg, there were too many different intermediate steps that must be taken before the conclusion could be drawn of negligence by the manufacturer. Even putting aside operating practices, although the multiple failures in the TS24 were characterised by a loss of oil pressure and failure of the bearings at the second stage of the air compressor, and although evidence had been given that it was likely that the bearings failed because of reduced oil flow in the compressor, the trial judge was unable to make any finding about why this reduced oil flow occurred.[140] Another of the trial judge's unchallenged findings was that failures in the TS24 were 'probably universal in units with Timken bearings fitted, but not necessarily universal in units with the NTN bearings'.[141] None of the bearings was manufactured by LeRoi.

The appeals concerning damages The appeal in relation to LeRoi

468 Identical submissions were made in relation to an award of damages against the manufacturer, LeRoi, as well as the quantum of the award made in relation to Norncott. Swick's assumption was that damages in this case for breach of contract and for the tort of negligence would be the same.

469 It is unnecessary to address any damages issues concerning LeRoi, or to confront Swick's assumption that the same principles apply in this case to the measurement of damages for breach of contract and torts. The reason these points can be put to one side for LeRoi is because, as we have explained, the trial judge, with respect, correctly concluded that LeRoi was not negligent.

470 In relation to Norncott's breach of contract, the trial judge awarded damages for breach of contract comprised of the following amounts:

(i) loss of profit caused by the compressor unit being unserviceable: $112,500;[142]

(ii) a deduction given to a customer arising from a delay caused by a TS24 failure: $5,010;[143]

(iii) the cost of equipment hire to replace the compressor unit being repaired: $4512.80;[144] and

(iv) the cost of hire of a compressor and booster during the period when the TS24 was being reconfigured: $24,488.36.[145]

471 The trial judge did not allow a claim for $130,000 which had been estimated by Mr Wyndow, the expert valuer, to be the difference in value in January 1997 between a reliable unit with a good reputation and a compressor unit with a TS24.[146] The trial judge refused this claim saying:[147]

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.

I would have allowed the difference in value between the compressor unit, had it been fit for purpose, and the actual value at the time Swick Drilling stopped using it. On the evidence presented, I am not satisfied that Swick Drilling has proved those values and it has not proved this component of its claim.

472 Each of the three grounds of appeal concerns the trial judge's refusal to allow this component of damages for the capital loss of value. The factual basis for each of Swick's three grounds of appeal is not sufficiently supported by evidence for the reasons given by Buss JA at [299] - [311] (ground 1), [322] - [323] (ground 2), [331] - [334] (ground 3), with which we agree.

473 There is also a fundamental problem with the manner in which the appeal was argued in relation to ground 1 of Swick's claim for the capital loss. The problem is that the date at which Swick assumed the loss was required to be proved was incorrect. Swick assumed in ground 1, and it ran its case at trial, on the basis that it could recover the capital loss if it could prove the value of the compressor unit at the date that it ceased to use it (said to be in July/August 1997).

474 Difficult and controversial issues may arise concerning the assessment of damages under s 52 of the Sale of Goods Act for a breach of contract, including, as in this case, a breach of the implied conditions in s 14(2) and s 14(3) of the Sale of Goods Act. The Western Australian provision,[148] based on the English provision,[149] which in turn codified the common law, provides as follows:

52 (2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.

(3) In the case of breach of warranty of quality such loss is, prima facie, the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.

475 On one view, the law in relation to delivery of defective goods is the same as that in relation to non-delivery. In other words the buyer is entitled to damages measured at the time of delivery representing the difference between the market value of the goods and the contract price, and that the rule cannot be displaced by showing that the buyer ultimately suffered no loss consequent upon the seller's breach.[150]

476 Some support for this approach appears in the judgment of Keane J (with whom Hayne, Crennan, and Bell JJ agreed) in Clark v Macourt.[151] Keane J quoted with approval the remarks of Warrington LJ in Slater v Hoyle & Smith Ltd where his Lordship said:[152]

The purchaser here has received inferior goods of smaller value than those he ought to have received. He has lost the difference in the two values, and it seems to me immaterial that by some good fortune, with which the [sellers] have nothing to do, he has been able to recoup himself what he paid for the goods.

477 On this approach, upon which some doubt has been cast recently in England, although subsequent amelioration of the loss might sometimes be disregarded, damages for consequential loss might be recoverable in addition to this prima facie amount, provided there is no double recovery.[153]

478 These questions need not be decided in this case. Whether, and when, the prima facie rule of difference in value can be disapplied, and the relationship between s 52(2) and s 52(3), are not matters that require resolution. Swick ran its case at trial on the basis that the capital loss was to be measured at the date on which Swick ceased to use the compressor unit.

479 Putting aside compensation for the loss measured at the date of delivery, the dates assumed by Swick in ground 1 are not the relevant dates for assessment of loss. If the question was what was the actual capital loss incurred by Swick as a result of a defective TS24 then the relevant time to assess damages should have been the date when the TS24 was sold. Prior to that date any capital loss had not crystallised. At the date of sale, the loss could then be measured as the value of a reliable TS24 compared with the sale price obtained from the sale of the TS24.

480 The TS24 was sold in 2004 with the compressor unit for $55,000.[154] But there was no evidence in 2004 of the difference between the sale price of the compressor unit with a defective TS24 ($55,000) compared with the value of a compressor unit with a functioning TS24. And even if there were such evidence, in circumstances in which the TS24 is a replaceable component, there may have been difficulty for Swick to establish that the difference between the compressor unit with a functioning TS24 and the $55,000 received is entirely attributable to the loss from the defective TS24.

[1] Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361, 371 [22].

[2] Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] HCA 61; (2000) 205 CLR 254, 290 [103].

[3] Quoting Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180, 211 [80] (McHugh J).

[4] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317.

[5] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 333 [49].

[6] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 322 [5].

[7] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 328 [29].

[8] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 344 [81] (Kirby J).

[9] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 328 [29].

[10] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 334 [49].

[11] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 334 [50].

[12] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 367 [156].

[13] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 368 [159].

[14] Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1, 13 [5] (Gleeson CJ); Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540, 555 [8] (Gleeson CJ); Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422, 443 [60] (Gummow J).

[15] Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317, 367 [158].

[16] Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515, 536 [45].

[17] Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465.

[18] See Simpson A W B, A History of the Common Law of Contract: The Rise of the Action of Assumpsit (Repr 2005) 238.

[19] Powtuary v Walton (1598) Ro Abr 1.10, Action sur Case, P5; Ibbetson D, A Historical Introduction to the Law of Obligations (1999) 133 - 134.

[20] Elsee v Gatward [1793] EngR 1377; (1793) 5 TR 143, 150; [1793] EngR 1377; (1793) 101 ER 82, 86.

[21] Ibbetson D, A Historical Introduction to the Law of Obligations (1999) 133 - 134.

[22] Simpson A W B, A History of the Common Law of Contract: The Rise of the Action of Assumpsit (Repr 2005) 215 - 218.

[23] Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337.

[24] Evans v Bicknell [1801] EngR 371; (1801) 6 Ves Jun 174, 181 - 182; [1801] EngR 371; (1801) 31 ER 998, 1006 (Lord Eldon).

[25] Burrowes v Lock [1805] EngR 89; (1805) 10 Ves 470, 475; [1805] EngR 89; (1805) 32 ER 927, 929 (Sir William Grant); Slim v Croucher (1860) 1 De G F & J 513, 525; [1860] EngR 544; (1860) 45 ER 462, 465 (the Lord Chancellor); Ramshire v Bolton (1869) LR 8 Eq 294, 301 (Sir Richard Malins VC).

[26] Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 311 ALR 494, 518 - 519 [122], quoting Hanbury H G, Modern Equity: The Principles of Equity (8th ed, 1962) 643.

[27] Nocton v Lord Ashburton [1914] AC 932, 971.

[28] Peek v Gurney (1871) LR 13 Eq 79, 97.

[29] Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465, 529.

[30] Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36; (2014) 88 ALJR 911, 934 [122].