JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BARNEL INVESTMENTS PTY LTD -v- CONCEPTUAL TECHNOLOGIES PTY LTD [No 3] [2023] WASC 486
CORAM: HILL J
HEARD: 16 - 25 MAY 2022
DELIVERED : 22 DECEMBER 2023
FILE NO/S: CIV 1347 of 2019
BETWEEN: BARNEL INVESTMENTS PTY LTD
First Plaintiff
TZANEEN KOELKAMERS CC
Second Plaintiff
SOUTPANSBERG KOELKAMERS PTY LTD
Third Plaintiff
AND
CONCEPTUAL TECHNOLOGIES PTY LTD
First Defendant
STEELE CHRISTIAN WEST
Second Defendant
STEPHEN MARK WEST
Third Defendant
Catchwords:
Contract - Contracts for design and supply of components for a micro hydro pump up power station - Power stations did not supply the power output warranted under the contracts - Whether failure was a design issue or caused by incorrect installation - Whether inability to supply power is a breach of contract - Turns on own facts
Evidence - Admissibility - Expert evidence - Whether expert qualified to give evidence on computational fluid dynamics simulation or modelling - Turns on own facts
Misleading and deceptive conduct - Whether representations made - Whether representations made by second and third defendants as directors of first defendant - Whether second and third defendants personally liable for conduct - Turns on own facts
Loss - Whether plaintiffs failed to mitigate loss - Turns on own facts
Legislation:
Competition and Consumer Act 2010 (Cth) sch 2, s 4, s 18
Sale of Goods Act 1895 (WA)
Result:
Judgment entered for the plaintiffs
Category: B
Representation:
Counsel:
| First Plaintiff | : | W C J Zappia & A C Paterson |
| Second Plaintiff | : | W C J Zappia & A C Paterson |
| Third Plaintiff | : | W C J Zappia & A C Paterson |
| First Defendant | : | M T McKenna |
| Second Defendant | : | M T McKenna |
| Third Defendant | : | M T McKenna |
Solicitors:
| First Plaintiff | : | MinterEllison |
| Second Plaintiff | : | MinterEllison |
| Third Plaintiff | : | MinterEllison |
| First Defendant | : | Gilbert + Tobin |
| Second Defendant | : | Gilbert + Tobin |
| Third Defendant | : | Gilbert + Tobin |
Case(s) referred to in decision(s):
All Options Pty Ltd v Flightdeck Geelong Pty Ltd [2019] FCA 588
Australian and New Zealand Banking Group Ltd v Aldrick Family Co Pty Ltd [2010] NSWSC 1000; (2010) 16 BPR 28
Australian Competition & Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114
Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682
Australian Competition and Consumer Commission v Jones (No 5) [2011] FCA 49
Australian Competition and Consumer Commission v Telstra Corp Ltd [2007] FCA 1904; (2007) 244 ALR 470
Australian Securities & Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211
Automasters Australia Pty Ltd v Bruness Pty Ltd [2004] WASCA 229
Beer v Duracraft Pty Ltd [2004] WASCA 192
Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 6] [2019] WASC 5
BHP Billiton Iron Ore Pty Ltd v National Competition Council [2007] FCAFC 157; (2007) 162 FCR 234
Blacket v Barnett [2017] NSWSC 1032
Browne v Dunn (1893) 6 R 67 (HL)
Cleary v Australian Co-Operative Foods (No 2) [1999] NSWSC 991; (1999) 32 ACSR 701
Coal Hub Pty Ltd v NSL Consolidated Ltd [No 2] [2016] WASC 257
Coles Supermarkets Australia Pty Ltd v FKP Ltd [2008] FCA 1915
Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588
Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2017] WASC 348
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599
George v Rockett [1990] HCA 26; (1990) 170 CLR 104
Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215
Grubisic v The State of Western Australia [2011] WASCA 147; (2011) 41 WAR 524
Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) ATPR 41-687
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640
Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160
In the matter of Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Jones v Acfold Investments Pty Ltd (1985) 6 FCR 512
Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (trading as Uncle Ben's of Australia) (Unreported, FCA, 29 June 1995)
Lepoidevin v State of Western Australia [No 2] [2021] WASCA 19
Liyanage v The State of Western Australia [2017] WASCA 112; (2017) 51 WAR 359
Luxer Holdings Pty Ltd v Glentham Pty Ltd [2007] WASCA 209; (2007) 35 WAR 254
Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705
McKay v Commissioner of Main Roads [No 3] [2010] WASC 232
Nankivell v Insurance Commission of Western Australia [2017] WASCA 143
Nominal Defendant v Cordin [2017] NSWCA 6
Pave Wealth Services Pty Ltd v Jones [2021] WASCA 7
Pollock v Wellington (1996) 15 WAR 1
Pownall v Conlan Management Pty Ltd [1995] WASC 117; (1995) 12 WAR 370
Rhoden v Wingate [2002] NSWCA 165
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11; (2019) 99 NSWLR 317
TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130
The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9] [2008] WASC 239
Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson [2019] WASCA 114
Table of Contents
Factual background
Procedural background
Delay in judgment
Pleadings
Issues for determination
Onus, approach to the evidence and general observations on crediblity
Onus and standard of proof
Approach to the evidence
Browne v Dunn
The witnesses
Gerrit van der Merwe
Steele Christian West
Stephen William Owen
The parties
Discussions between the parties prior to entry into the Contracts
Relevant terms of Contracts
Barnel Contract
Tzaneen Contract
Soutpansberg Contract
Design of Units
Visit in August 2016
Entry into Sales representative agreement
Installation and commissioning of the power station at Barnel
May 2017 site visits
July 2017 site visits
November 2017 site visit
Replacement of WEG drives
Installation of Yaskawa units in April 2018
Termination of agreements
Status of plaintiffs
Could the power stations designed by Conceptual Technologies provide the contracted output of electricity?
Admissibility of expert evidence
Legal principles governing admissibility of expert evidence
Admissibility of the evidence of Dr Green
Admissibility of the evidence of Mr Rodde
Disposition
Did Conceptual Technologies breach its contracts with each of the plaintiffs?
Did Conceptual Technologies breach its obligations under the Sale of Goods Act 1895 (WA)?
Damages
Did the defendants engage in misleading and deceptive conduct?
Legal principles
Representations regarding Yaskawa drives
Representations under the contracts
Alternative claim that representations were as to a future matter
Conclusion
HILL J:
These proceedings arise out of the supply by the first defendant to each of the plaintiffs of a power generation system, which the parties referred to at trial as the Micro Hydro Pump Up Power Station or MHPUPS (power station).
It was not in dispute that the power station supplied to the first plaintiff (Barnel) did not supply the power required under the relevant contract. The primary issue between the parties at trial was why this was the case. The plaintiffs say this was because of a fundamental concept or design issue. They contend the power stations were designed as perpetual energy machines[1] and, as a consequence, did not and could not generate electricity. On this basis, the plaintiffs say the power stations were unable to and incapable of generating the contracted requirement.
[1] This refers to a machine that can do work infinitely without there being an external source of energy.
The defendants deny there was any design issue with the power station and say it was the installation by Barnel, for which the first defendant (Conceptual Technologies) was not responsible, that was the cause of the failure of the power station to generate power. In relation to the power stations designed for the second plaintiff (Tzaneen) and the third plaintiff (Soutpansberg), these power stations were never installed. The defendants say this is why they did not achieve the contracted output.
The resolution of whether the issue with the power station was with its design or installation raised relatively complex technical and scientific issues, including those of computational fluid dynamics modelling. To a significant extent, the answer depended on which (if any) of the parties' expert evidence adduced at trial should be accepted. Given this, the court appointed two experts, Dr Stepien and Dr Gilmore, as assessors to assist in the understanding and assessment of the expert evidence led by each of the parties.
Ultimately, for the reasons set out below, it is my view that the expert evidence of Mr Rodde, which was sought to be adduced by the defendants, is not admissible. I accept that Dr Green's opinion (which was supported by the opinions expressed by Mr Vullo and Mr McKeon) that the power stations did not generate any electricity is admissible. On this basis, I am satisfied, on the balance of probabilities, that the power stations designed by Conceptual Technologies were not capable of generating the contracted outputs, that Conceptual Technologies breached the warranties contained in each contract, and the plaintiffs are entitled to damages. Accordingly, I consider that judgment ought to be entered for the plaintiffs for the amounts claimed, being the amounts that each paid to Conceptual Technologies for the power stations.
In relation to the claims under the Competition and Consumer Act 2010 (Cth) sch 2 (Australian Consumer Law), I am satisfied on the balance of probabilities that Conceptual Technologies and Mr West, the third defendant, engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law, both in respect of the representations concerning the Yaskawa drives as well as the representations by Mr West as to the design of the power station set out in the contracts. I am not satisfied that the second defendant, Dr West, is personally liable for the representations made by Conceptual Technologies.
The detailed basis of my reasons is set out below.
Factual background
Many of the background facts were not in dispute between the parties and can be summarised as follows.
The plaintiffs are located in different regional areas of the Republic of South Africa (South Africa). Barnel owns and operates an abattoir, while each of Tzaneen and Soutpansberg own and operate cold meat wholesale businesses.
Conceptual Technologies is a private company based in Western Australia which develops and sells proprietary turbine pump and energy‑efficient technology. At the time of the hearing, the directors of Conceptual Technologies were Dr Steele West and his father, Mr Stephen West. Dr West is an applied economist and Mr West is a mechanical engineer.
One of the products sold by Conceptual Technologies is a turbine unit and assembly (CTL Turbine) which is the subject of patents both in Australia and overseas. The patents record the co-inventors of the CTL Turbine as being Mr West and Dr West. The patents are currently owned by Braddell Ltd and sub‑licensed to Conceptual Technologies.[2]
[2] ts 315.
The CTL Turbine is a core component of the power station, which is the subject of the claims in these proceedings.
On 15 June 2016, Barnel entered into a design and supply contract with Conceptual Technologies for the supply of 'Micro Hydro Pump Up Components' (Barnel Contract).[3] Similar contracts were entered into by Tzaneen on 12 December 2016 (Tzaneen Contract)[4] and Soutpansberg on 15 December 2016 (Soutpansberg Contract).[5] Under the contracts, the plaintiffs collectively paid Conceptual Technologies USD $663,300.
[3] Ex 362.
[4] Ex 54.
[5] Ex 49.
Between August 2016 and January 2017, Conceptual Technologies provided the plaintiffs with design reports for each of the power stations.[6] From early April 2017, Conceptual Technologies delivered to each of the plaintiffs the components for the power stations.
[6] Ex 23 - Ex 40 (Barnel); Ex 91 ‑ Ex 106 (Tzaneen); Ex 70 ‑ Ex 85 (Soutpansberg).
Installation of the power station was completed at Barnel by 6 May 2017 and commissioning commenced on about that date. The power station did not work as anticipated and investigations began as to why this was the case.
The plaintiffs accept there were defects with the installation of the power station in relation to the pre-charge circuit, the synchroniser and the induction motor settings.[7] However, they contend the installation was done in accordance with the design documents, which is denied by the defendants.[8]
[7] ts 118; ts 184.
[8] ts 184.
Initially, the view was taken by the defendants that the problem was caused by the WEG drives. In March 2018, Yaskawa drives were purchased to replace these drives. Following the installation of the Yaskawa drives, the power station still did not work.
On 29 August 2018, each of the plaintiffs sent notices of breach of their respective contracts to Conceptual Technologies.[9]
[9] Ex 348 (Barnel); Ex 349 (Soutpansberg); Ex 350 (Tzaneen).
On 29 January 2019, each of the plaintiffs purported to terminate their contracts with Conceptual Technologies,[10] and commenced these proceedings against Conceptual Technologies in February 2019.
[10] Ex 352 (Barnel); Ex 353 (Soutpansberg); Ex 354 (Tzaneen).
Procedural background
These proceedings were commenced by writ of summons on 26 February 2019, indorsed with an indorsement of claim. At that stage, the only parties to this action were the first plaintiff and the first defendant. Separate actions were commenced on the same date by the second plaintiff and third plaintiff against the first defendant.
On 10 April 2019, these proceedings were ordered to be consolidated with the proceedings commenced by the second and third plaintiffs and carried on as one action with these proceedings as the lead proceedings.
On 25 November 2020, orders were made joining the second and third defendants to the proceedings.
On 21 September 2021, orders were made for the nomination and appointment of assessors to take part in the proceedings. The nomination of assessors was done by the President of Engineers Australia. The orders also set out the role of the assessors, who were to take such part in the proceedings as directed by the trial judge including:
(a)advising the trial judge on any matter within the skill and experience of the assessor;
(b)attending the whole or any part of the trial and reading any admissible document or documents; and
(c)providing his or her opinion or advice (whether in a written or oral form) to the trial judge in relation to any issue arising in the proceeding.
On 18 November 2021, Dr Peter Stepien was appointed as an assessor together with another person, who was ultimately replaced by Dr Duncan Gilmore on 26 November 2021.
Ultimately, both Dr Stepien and Dr Gilmore attended the opening addresses at trial, as well as the concurrent expert evidence, and were provided with the transcript of the proceedings. Both Dr Stepien and Dr Gilmore were of significant assistance in preparing for the trial, asking questions of the experts in the concurrent sessions, and providing their opinion or advice in relation to the issues raised in these proceedings.
The trial in these proceedings was initially listed before Tottle J in January 2022. In November 2021, an application was made to recuse his Honour from hearing the trial. On 13 December 2021, Tottle J allowed the application. As a consequence, the proceedings were referred to me. On 16 December 2021, orders were made provisionally listing this matter for trial for eight days in the period 16 ‑ 27 May 2022. These dates were confirmed on 17 January 2022.
The trial was run as an electronic trial with some witnesses attending in person and many giving their evidence remotely, including Mr van der Merwe and Mr Rodde. For much of the trial, this did not present any issue. There was, however, one issue which arose on the evening of 23 May 2023 when the oral recording of Mr Owen's evidence was interrupted and no transcript exists of the last 10 minutes of his evidence. I took extensive notes of the evidence of each of the witnesses (including Mr Owen) and have used those to record the relevant aspects of Mr Owen's testimony.
This trial was also impacted, in part, by the COVID‑19 pandemic. During the course of the trial, as a consequence of testing positive to COVID‑19, counsel for the defendant was not able to appear in person but appeared remotely. Once again, for much of the trial, this did not present any issues. Where it did present a problem, steps were taken to ensure the interests of the defendants were not impacted.
Since the conclusion of the trial, there have been two relevant developments. First, Mr West has passed away.[11] Second, on 27 January 2023, at a general meeting of Conceptual Technologies, the members resolved to wind up the company voluntarily and appoint Mr Tribut as liquidator.[12] On 9 June 2023, on the application of the plaintiffs, I granted leave to the plaintiffs pursuant to s 500(2) of the Corporations Act 2001 (Cth) to proceed with these proceedings against Conceptual Technology nunc pro tunc.
[11] Letter from Gilbert + Tobin to Associate to Justice Hill received 9 May 2023 (NB the letter is dated 9 May 2022 but is sent by an email dated 9 May 2023).
[12] Affidavit of Angus Charles Paterson filed 19 May 2023, 'ACP-2'.
Delay in judgment
The hearing of this matter took place in May 2022. It has not been possible to complete the reasons for my decision as quickly as I would have liked.
In order to properly assess the parties' cases and the evidence that was given at trial and to ensure this has not been impaired by the delay between the hearing and the publication of these reasons, I have done the following.
First, I have refreshed my memory by re-reading the transcript of the evidence of the witnesses and re-listening to portions of the evidence of each of the witnesses who gave evidence at trial. During the course of the trial, I made contemporaneous notes of their evidence and my observations of each of them as witnesses. My assessment of the witnesses has been assisted by my review of these notes, my review of the transcript, as well as the documents that were tendered in evidence.
Second, I had the benefit of detailed written and oral closing submissions from counsel for the plaintiffs and defendants. Each made submissions on the evidence given by the witnesses, including as to the findings of fact that each contends should be made. In addition, both counsel made submissions on the credibility of the witnesses, whose evidence I should prefer and the reasons for this.
Third, my conclusions as to the credit and reliability of the witnesses are primarily based on the consistency of the evidence they gave, and whether this evidence was consistent with contemporaneous records and the facts that were objectively established.
Pleadings
The plaintiffs' pleaded case is relatively straightforward. They contend that between 15 June 2016 and 15 December 2016, each of them entered into a design and supply agreement with Conceptual Technologies for the supply of components for a power station.[13] The power stations supplied to each of the plaintiffs were to have different capacities and were for different prices. Relevantly:
(a)the power station supplied to Barnel was required to have a capacity of 300 amps, or the equivalent of approximately 216 kW, for the price of USD $245,000;[14]
(b)the power station supplied to Tzaneen was required to have a capacity of 339 amps, or the equivalent of approximately 244 kW, for the price of USD $225,000;[15] and
(c)the power station supplied to Soutpansberg was required to have a capacity of 390 amps, or the equivalent of approximately 280 kW, for the price of USD $267,000.[16]
[13] Third further amended statement of claim filed 18 March 2022 (Statement of claim) [8], [9], [10].
[14] Statement of claim [12(a)], [12(b)].
[15] Statement of claim [13(a)], [13(b)].
[16] Statement of claim [14(a)], [14(b)].
Conceptual Technologies warranted each of the power stations would be designed to have capacity to deliver this gross output[17] and agreed that any items supplied were to be of merchantable quality and fit for their usual purpose or any purpose which Conceptual Technologies was informed about.[18] If Conceptual Technologies failed to comply with its obligations under the contacts or was in breach of any obligation and failed to remedy any breach or non-compliance within 30 days of a request to do so, each of the plaintiffs was entitled to terminate their respective contracts by notice in writing.[19]
[17] Statement of claim [12(c)], [13(c)], [14(c)].
[18] Statement of claim [12(d)], [13(d)], [14(d)].
[19] Statement of claim [12(e)], [13(e)], [14(e)].
Under the contracts, Conceptual Technologies agreed to commission the power stations at the locations in South Africa specified in the respective contracts.[20]
[20] Statement of claim [11].
The plaintiffs plead they have made the following payments to Conceptual Technologies under the contracts:[21]
(a)Barnel has paid USD $220,500;
(b)Tzaneen has paid USD $202,500; and
(c)Soutpansberg has paid USD $240,300.
[21] Statement of claim [15].
The design of each of the power stations contemplated that:
(a)in relation to Barnel, the output power of the micro hydro pump would be 30 kW which would drive three turbines, each of which was connected to an induction motor;[22] and
(b)in relation to Tzaneen and Soutpansberg, the output power of each of the two micro hydro pumps would be 32 kW which would drive four turbines, each of which was connected to an induction motor.[23]
[22] Statement of claim [15A(a)].
[23] Statement of claim [15A(b)], [15A(c)].
The power stations were designed and the components delivered to the locations specified in the supply contracts.[24] The power station for Barnel was installed.[25] Due to the issues with this power station, Conceptual Technologies did not install or commission the Tzaneen or Soutpansberg power stations.[26]
[24] Statement of claim [16].
[25] Statement of claim [16A].
[26] Statement of claim [16B].
The plaintiffs say that none of the power stations delivered by Conceptual Technologies are capable of generating electricity at the level set out at [35].[27]
[27] Statement of claim [17B].
The plaintiffs plead 12 different reasons for the power station not working.[28] These reasons include both concept and design issues. Two of the issues are conceptual issues. The remaining issues raise specific design issues. In addition, the plaintiffs contend the components supplied by the defendants did not meet their description and were not fit for purpose.
[28] Statement of claim [17]. These issues are listed in the order set out in the plaintiffs' opening submissions which is different to the order in which they are pleaded.
The conceptual issues pleaded by the plaintiffs are:
(a)the micro hydro pumps, which were the only sources of energy for the power stations, were incapable of generating the power required to enable the turbines to function at the capacity required to generate electricity;[29] and
(b)the power stations were not capable of starting or operating without mains power supply.[30]
[29] Statement of claim [17] Particular (a).
[30] Statement of claim [17] Particular (b).
The design issues pleaded by the plaintiffs can be summarised as follows:
(a)the turbines included in the designs of the power station and supplied by Conceptual Technologies were incapable of generating the minimum amount of power required to maintain continuous operation;[31]
[31] Statement of claim [17] Particular (f).
(b)the induction motors included in the designs and supplied by Conceptual Technologies had a rating of 75 kW, which was below the rating required to maintain continuous operation;[32]
(c)the only source of magnetising current in the designs was mains supply. The variable speed drive could not simultaneously deliver magnetising current to the induction motors and accept current generated by the induction motors;[33]
(d)the design of the power station assumed each of the components would operate at 100% efficiency and did not take into account the inefficiencies of each of the components or other 'design losses';[34]
(e)the design provided for an actual net pressure suction head at the inlet to the micro hydro pump which is below the minimum net pressure suction head requirement for that micro hydro pump and as a result the micro hydro pump could not produce the flow rate required;[35]
(f)the design included multiple variable speed drives in parallel and series using pulse width modulation technologies. This causes damage to equipment, unpredictable system behaviour and posed a possible risk of harm to staff operating the power station;[36]
(g)the design did not include a dynamic control system which was necessary to avoid premature shutdown;[37]
(h)the design did not take into account the energy required to return the water to the tank after it flowed from the exit of the final CTL turbine;[38]
(i)Conceptual Technologies failed to provide a regenerative drive system and instead provided a non-regenerative drive system;[39]
(j)the design of the synchronising circuit was incorrect because it was not connected to the incoming mains power supply;[40] and
(k)in relation to the power station for Soutpansberg, the power station designed and delivered by the defendants had a variable speed drive included in the design with a current rating of 477 amps, which was below the 504 amps required for continuous operation of the power station.[41]
[32] Statement of claim [17] Particular (g).
[33] Statement of claim [17] Particular (b).
[34] Statement of claim [17] Particular (c).
[35] Statement of claim [17] Particular (l).
[36] Statement of claim [17] Particular (h).
[37] Statement of claim [17] Particular (j).
[38] Statement of claim [17] Particular (i).
[39] Statement of claim [17] Particular (e).
[40] Statement of claim [17] Particular (d).
[41] Statement of claim [17A].
The plaintiffs plead that Conceptual Technologies was in breach of its obligations under the contracts as well as the warranties it provided.[42] They also contend the conduct was breach of the terms of the contract implied as a matter of law under the Sale of Goods Act 1895 (WA).[43]
[42] Statement of claim [18].
[43] Statement of claim [19] ‑ [23].
On 29 January 2019, the plaintiffs terminated each of the contracts.[44] They seek damages of the amounts each of them paid to Conceptual Technologies, which totals USD $663,300.
[44] Statement of claim [26].
The plaintiffs also contend that each of Conceptual Technologies and Mr West represented (both orally and in writing) that if Barnel purchased three 75 kW Yaskawa regenerative drives, the power station would produce the contracted output. Barnel says that it purchased the Yaskawa regenerative drives for AUD $53,580 but the power station still did not work. Barnel says these representations were false, alternatively were made without any reasonable basis, contrary to s 18, alternatively s 29(g) and s 33, of the Australian Consumer Law and seeks damages of the amount it paid to purchase these drives.[45]
[45] Statement of claim [28] ‑ [36].
The plaintiffs also contend that both Dr West and Mr West represented in writing (in each of the contracts) that Conceptual Technologies would design, supply and commission power stations with the gross outputs set out in the contracts and that any items supplied would be of merchantable quality and fit for purpose. The plaintiffs rely on the execution of the contracts by Mr West and Dr West as well as their involvement in drafting the relevant terms of these contracts. The plaintiffs says that these representations were false, alternatively were made without any reasonable basis, contrary to s 18, alternatively s 29(g) and s 33, of the Australian Consumer Law and seek damages of the amounts each paid to Conceptual Technologies under their respective contracts.[46]
[46] Statement of claim [37] ‑ [44].
The plaintiffs seek orders for repayment of the sums each has paid (of USD $663,300 and AUD $53,580), interest at the rate of 6% per annum, as well as their costs of the proceedings.
The defendants deny each of the plaintiffs' claims. The defendants say that two of the products sold by Conceptual Technologies are first, what is described as a unique Turbine Unit and Assembly,[47] and second, the power station.[48] Each is the subject of a number of global patents.[49] The inventor of the power station is recorded as Stephen West.
[47] Second further amended defence filed 28 March 2022 (Defence) [4(c)].
[48] Defence [4(ca)].
[49] Defence [4(c)(i)], [4(ca)(i)].
The defendants accept that Conceptual Technologies entered into each of the contracts with the plaintiffs but say that these contracts were procured by Mr van der Merwe (the chief executive officer of Barnel and director of both Tzaneen and Soutpansberg) or CTL North East, a company of which Mr van der Merwe was a director.[50]
[50] Defence [8] ‑ [10].
The defendants accept that Conceptual Technologies issued design reports to each of the plaintiffs for the power stations and that it and Mr West had carried out computational fluid dynamic modelling to verify the capacity of these designs to deliver the gross outputs required.[51]
[51] Defence [15A].
The defendants admit they delivered the components of the power stations to each of the plaintiffs. The defendants say that Barnel failed to install, assemble or commission the power station correctly and that the other power stations were not installed or commissioned.[52] The defendants admit the plaintiffs paid Conceptual Technologies USD $663,300 in accordance with the various contracts.[53]
[52] Defence [16] ‑ [16B].
[53] Defence [15].
The defendants plead there were a number of issues with the installation of the power station by Barnel namely:[54]
(a)the induction motors were installed incorrectly as motors rather than generators;
(b)the equipment was not configured correctly which resulted in a circuit breaker in the WEG regenerative drive being burnt out;
(c)the WEG regenerative drive had a charge circuit supplied by a circuit breaker rather than a contactor as set out in the design; and
(d)the WEG regenerative drive circuit was not installed in accordance with the recommended arrangement.
[54] Defence [17].
The defendants deny Conceptual Technologies admitted the power stations do not work,[55] or that they have breached any term of the contracts or the terms implied at law under the Sale of Goods Act 1895 (WA).[56]
[55] Defence [17B].
[56] Defence [18] ‑ [23].
The defendants accept the plaintiffs have purported to terminate the contracts but deny they were entitled to do so or that the contracts have been terminated.[57] For these reasons, the defendants deny the plaintiffs are entitled to the damages claimed, or any amount at all.[58]
[57] Defence [26].
[58] Defence [27].
Each of the defendants also denies that they have engaged in any misleading or deceptive conduct contrary to the Australian Consumer Law. In relation to the representations concerning the Yaskawa regenerative drives, they say they represented they would only reimburse Barnel for the costs of these drives if the WEG regenerative drives were faulty, which they were not.[59] In relation to the representations concerning the power stations, the defendants repeat their contention that the power stations would have worked if installed, assembled and commissioned correctly.[60] As a result, the defendants deny the plaintiffs are entitled to the amounts claimed, or any amount at all.
[59] Defence [28].
[60] Defence [30].
In the event the defendants are found to be liable to the plaintiffs, the defendant plead two further matters which are said to be relevant to the assessment of damages. First, the defendants say they are entitled to set‑off the price of the equipment (of AUD $444,528.98) against any amount they are required to pay the plaintiffs.[61] Second, they contend the plaintiffs failed to take reasonable steps to mitigate their loss in failing to sell any of the components or Yaskawa drives and that any damages should be reduced by these amounts.[62] In opening submissions, counsel for the defendants accepted that set‑off was not available and that the defendants only pressed the contention that the plaintiffs failed to mitigate their loss.[63]
[61] Defence [47] ‑ [48].
[62] Defence [49].
[63] ts 215.
In reply, the plaintiffs relevantly plead the following matters. First, even if computational fluid dynamic modelling was undertaken by the defendants, this did not mean the power stations would work in practice and that Mr West was not sufficiently qualified to undertake this modelling.[64] Second, Barnel installed, assembled and commissioned the power station in compliance with Conceptual Technologies' instructions. Even if this is not the case, they say that the power station installed by Barnel was not capable of generating electricity to the level required by the agreement.[65] Third, Conceptual Technologies never requested the plaintiffs return the equipment and deny that they are entitled to any set‑off.[66] Fourth, the plaintiffs say the equipment is unsaleable.[67]
[64] Second further amended reply filed 4 April 2022 (Reply) [5].
[65] Reply [12].
[66] Reply [24] - [25].
[67] Reply [26].
Issues for determination
The issues that I am required to decide in these proceedings are:
(a)Were the power stations capable of generating electricity?
(b)If so, was the actual design and components supplied by Conceptual Technologies to each of the plaintiffs able to produce the contracted levels of electricity with the capacity requirement set out in sch B of each of the contracts? In the case of Barnel, this was 300 amps in operation; for Tzaneen, 339 amps in operation[68] and for Soutpansberg 235 kW (or 390 amps).
(c)Were the components installed in accordance with the design of the Barnel power station? If not, did this cause the failure of the power station to generate electricity?
(d)Were the goods supplied by Conceptual Technologies fit for purpose and of merchantable quality?
(e)Were the Yaskawa drives capable of fixing the issues with the power station? If not, are Conceptual Technologies and Stephen West liable to compensate Barnel for the purchase of these drives?
(f)Are Stephen West and Steele West (or either of them) personally liable to the plaintiffs under s 18 of the Australian Consumer Law?
[68] While the text of the Tzaneen contract refers to 300 amps, the defendants accept this is an error and the contract should be construed as meaning 339 amps.
In closing submissions, counsel for the defendants agreed the fundamental issue raised in these proceedings was whether the power stations 'could work'.[69] Put another way, the primary question which must be determined is whether the power stations were capable of generating electricity. If the answer to this question is 'no', all of the other issues, apart from the question of the liability of the defendants for the claims under the Australian Consumer Law (and, in particular, the claims against the second and third defendants), fall away.
[69] ts 653.
Onus, approach to the evidence and general observations on crediblity
Onus and standard of proof
The plaintiffs accept they bear the onus of proving their claims. In respect of the defendants' contention that the plaintiffs failed to mitigate their loss, the defendants bear the onus of proving this.
The standard of proof, at all times, is the balance of probabilities.
Approach to the evidence
The plaintiffs' claims under the Australian Consumer Law concerned (at least in part) oral discussions which were not documented. Previous authorities have discussed the approach that should be taken by the court in these circumstances.[70]
[70] Blacket v Barnett [2017] NSWSC 1032 [243] ‑ [257]. See also Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 6] [2019] WASC 5 [26].
It is important to recognise there is a significant risk that conversations have been reconstructed by witnesses. There are dangers in relying on evidence of what may have been a casual observation made to a person who had no reason to remember the exact words used at the time of the conversation. For this reason, a substantial evidentiary burden is on a party whose case relies upon such evidence.[71]
[71] Webb v Ryan [2012] VSC 377 [22] (Whelan J).
In determining the terms of the representations in the absence of a contemporaneous record or other corroboration, the court must be alive to the reality that words that are spoken are capable of bearing different and potentially opposed meanings depending on the nuance and emphasis that is given to particular words. A person's appreciation of the significance of these matters must necessarily be considerably diminished if there is a significant delay between the date when the conversation took place and the hearing at which the evidence of that conversation is given.
As Hammerschlag J stated in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd:[72]
Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved.
[72] John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 [94].
In considering the evidence in this case, I have applied the following principles.
First, the court must recognise that human memory of what was said in a conversation is fallible for a variety of reasons. Ordinarily, this will increase over time, particularly where disputes or litigation intervene. This is because the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed.[73]
[73] Watson v Foxman (1995) 49 NSWLR 315, 318 - 319 (McLelland CJ in Eq).
Second, the credibility of a witness and their veracity may be tested by reference to the objective facts which can be proved independently, particularly by reference to documents. It is preferable to rely on contemporaneous documents in cases which involve events which occurred long before the litigation. Often the only safe course in such cases is to place primary emphasis on the objective factual surrounding material, the inherent commercial probabilities and the contemporaneous documents. Documents will often provide more valuable information than the attempted recollection of the facts by witnesses with an interest in the outcome of the litigation. This is particularly the case when the documents are accepted as genuine and were prepared by a person who had no reason to misstate the facts in these documents.[74]
[74] In the matter of Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 [7] (Black J); Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599 [15]; Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160 [157] (Martin J).
Third, contemporaneous statements and documents are likely to be a more accurate reflection of events than later statements. This is because false memories can intrude, especially when the person recalling events has tried to assemble recollections logically. In doing so, the person can attempt to have some rational explanation in the person's mind as to what has happened. It is important to keep in mind that memories are both fluid and malleable and are constantly rewritten whenever they are retrieved.[75]
[75] Nominal Defendant v Cordin [2017] NSWCA 6 [165], [167] (Davies J, with whom Emmett AJA agreed).
Fourth, the court must be alive to the reality that words are capable of bearing different and potentially opposed meanings depending on the nuance and emphasis that is given to particular words. A person's appreciation of the significance of these matters must necessarily be considerably diminished if there is a significant delay between the date when the conversation took place and the hearing at which the evidence of that conversation is given.[76]
Browne v Dunn
[76] Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (trading as Uncle Ben's of Australia) (Unreported, FCA, 29 June 1995) 122 - 123 (Tamberlin J).
In closing submissions, the plaintiffs sought to rely on the rule in Browne v Dunn.[77] It was contended the defendants failed to cross‑examine Mr van der Merwe on two matters: first, his observations of the performance of the power stations, and second, a visit to Tzaneen that was said to have occurred on 25 November 2016.
[77] Browne v Dunn (1893) 6 R 67 (HL).
The general principles that arise from Browne v Dunn were summarised comprehensively by Owen J in The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9],[78] with which I respectfully agree.
[78] The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9] [2008] WASC 239 [1023] ‑ [1041].
For the purposes of this case, the relevant principles can be summarised as follows.
The policy rationale which underlies the rule is fairness in the conduct of proceedings. The rule facilitates a court's assessment of the reliability and accuracy of a witness' evidence.[79]
[79] Nankivell v Insurance Commission of Western Australia [2017] WASCA 143 [53].
There are two limbs to the rule. First, fairness to witnesses and ensuring there is a fair trial between the parties. This requires a party, where it is intended to invite the court to disbelieve a witness, to put to the witness in cross‑examination the grounds on which the evidence is to be disbelieved. The second is the requirement to put to an opponent's witness in cross‑examination the case on which it is proposed to rely in contradicting a witness' evidence. This is particularly the case where the challenge to the evidence relies on inferences to be drawn from other evidence in the proceedings.[80]
[80] The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9] [1028].
These limbs apply unless notice has been given of the party's intention to rely on these matters. Notice can be given in a number of ways,[81] including in opening submissions or the general manner in which the case is conducted.[82]
[81] See, for example, The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9] [1030] ‑ [1034].
[82] The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9] [1026].
The rule in Browne v Dunn is not absolute and must be applied with flexibility. Given this, I have considered the application of the rule in Browne v Dunn in the two instances referred to by the plaintiffs when considering the relevant evidence of the witnesses.
The witnesses
In support of their claim, the plaintiffs called one lay witness, Gerrit van der Merwe, and three expert witnesses. The first expert witness was Mr Stoler, an attorney from South Africa, who gave evidence as to the incorporation of each of the plaintiffs under the laws of South Africa. Mr Stoler's report was tendered in evidence and he was not cross‑examined on his report. I accept his evidence in its entirety.
The other experts called by the plaintiffs were Dr Walter Green and Mr Daniel McKeon, both of whom are engineers.
The defendants called two lay witnesses, Dr Steele West and Mr Stephen Owen. The third defendant, Mr Stephen West, did not give evidence at trial. A medical report from his treating specialist was tendered in evidence which indicated Mr West was unable to give oral evidence at trial because he was diagnosed with stage IV cancer in March 2022.[83]
[83] Ex 846.
The defendants also called two expert witnesses: Mr Daniel Rodde, an engineer, and Mr John Vullo, an electrical engineer.
At trial, extensive challenges were raised as to the admissibility of the expert evidence called by both parties. For this reason, I have addressed all of the expert evidence at the relevant part of these reasons and limit my initial observations to the lay witnesses called by the parties.
Gerrit van der Merwe
Mr van der Merwe gave his evidence remotely from South Africa. Mr van der Merwe is a director and the chief executive officer of Barnel and the financial officer of both Tzaneen and Soutpansberg. Mr van der Merwe explained that each of the plaintiffs has the same directors and shareholders. Each is also a shareholder in a Unitrade 768 (Pty) Ltd (Unitrade 768),[84] which he described as a cash management company for the group.[85] Mr van der Merwe is a director of Unitrade 768.[86]
[84] Ex 847, p 9 ‑ 28.
[85] ts 223.
[86] ts 218.
Counsel for the plaintiffs submitted that Mr van der Merwe was an honest witness who gave direct answers and was not evasive or non‑responsive.[87]
[87] Plaintiffs' closing submissions [1].
In my view, this is a fair characterisation of Mr van der Merwe's evidence. I accept that Mr van der Merwe was an honest witness who answered the questions asked of him directly and succinctly. Mr van der Merwe was not cross‑examined on most of his evidence. His cross‑examination was essentially limited to his observations on the CTL Turbines as well as statements Mr van der Merwe made in emails about whether the power station produced electricity. For the reasons set out below, I accept Mr van der Merwe's explanation about these statements.
In my view, Mr van der Merwe's evidence is consistent with the contemporaneous documents and the objective facts that are not in dispute. I accept his evidence in its entirety.
Steele Christian West
Dr West is a director and employee of Conceptual Technologies and the son of Stephen West. He is an economist and financial analyst.[88] Dr West has worked in 'agricultural energy and resource developments infrastructure' for approximately 14 to 15 years. He described his role within Conceptual Technologies as primarily attending to the financial and administration side of the company, including invoicing and other 'commercial-type things'.[89]
[88] ts 299.
[89] ts 307.
Dr West has a Bachelor of Arts, with a major in Business Economics, from Brown University and a PhD in Applied Economics from the University of Western Australia.[90]
[90] ts 299.
Dr West gave evidence in person at a time when counsel for the defendants was appearing remotely.
The parties made contrasting submissions about the evidence of Dr West. The plaintiffs contended that I should not accept his evidence, alternatively should carefully question its reliability, for three primary reasons. First, it was submitted that he made a series of 'demonstrably false assertions'. Second, Dr West was unable to recall a number of events, particularly where those events were 'damaging to the defendants' case', and third, he gave evasive answers which did not address the questions he was asked.[91] Counsel for the defendants submitted these criticisms were unfair and that the court should not be overly critical of Dr West or the evidence he gave.
[91] Plaintiffs' closing submissions [9].
I accept that, in his evidence, Dr West emphasised the administrative nature of his role and downplayed the role he had in Conceptual Technologies, particularly as compared to Mr West. An example of this was when he was asked whether one of his roles was to issue invoices. His response was that he was 'informed to issue the invoices'.[92] While I accept that Dr West is not an engineer and was not intimately involved with the technical aspects of the company, I do not accept that his role within Conceptual Technologies was limited to purely administrative matters. In his email signature, Dr West was described as 'Commercial adviser'. In my view, this is consistent with both his tertiary qualifications and his role within the company.
[92] ts 361.
I also accept that, on occasions, Dr West gave evasive answers to the questions he was asked. An example was in relation to a series of questions he was asked about the affidavit he swore in support of the application to withdraw an admission, which was made shortly before trial. Dr West accepted that at the time he swore the affidavit, he knew that Renovo Power was the import agent for Conceptual Technologies and that he did not disclose this in his affidavit. Dr West was then asked a series of questions about what he knew at the time of swearing the affidavit, to which he responded 'I don't recall' or words to this effect. He was also asked about the failure in this affidavit to disclose the fees payable to the agent as an explanation for the difference between the amounts specified in the contracts and the amounts paid to Conceptual Technologies. Dr West denied he sought to give the impression he was unaware who paid the invoices or the reason for the difference in these amounts from the obligations under the contracts. His evidence was that he took advice from his solicitors in respect of this application. Dr West's evidence on these matters was unsatisfactory and reflects poorly on his credit. It is clear that Dr West was aware of the invoicing requirements, namely that the invoices were required to be issued to the export agent, as well as the terms of the agency fee which entitled the agent to payment of a 5% fee before the balance was paid to Conceptual Technologies. Neither of these matters were disclosed in Dr West's affidavit that was filed in support of the application.
While I accept these criticisms of Dr West's evidence, I accept that Dr West had a lesser role in Conceptual Technologies as compared to Mr West and that Mr West was the driving force of the company. However, given these well‑founded criticisms, I am not satisfied that I can treat Dr West's evidence as generally reliable. For this reason, in considering Dr West's evidence, I have considered whether there is corroboration of his evidence. Where there is no independent corroboration and the evidence is not supported by the objective facts that have been proved or are not in issue, I do not accept Dr West's evidence.
Stephen William Owen
Mr Owen is a chartered civil engineer who gave evidence by video conference from the United Kingdom. Mr Owen gave evidence of his observations in March 2011 of the operation of the CTL Turbines.
Counsel for the plaintiffs submitted his evidence should be accepted in its entirety, although, it was contended it was of limited probative value.[93]
[93] Plaintiffs' closing submissions [8].
Mr Owen answered the questions asked of him directly and relatively succinctly. In circumstances where counsel for the plaintiffs did not cross‑examine Mr Owen, I accept Mr Owen's evidence in its entirety.
The parties
Barnel carries on an abattoir business in Barberton, South Africa which is a town approximately 350 km east of Johannesburg.[94] Mr van der Merwe explained that at the start of 2016, Barnel was slaughtering approximately 100 cattle per day and wanted to increase the capacity of the abattoir. The primary limitation in increasing its capacity was both the supply of electricity and the reliability of the electricity supply.[95] At that time, electricity supply could be cut for four hours per day and on occasions was cut twice per day for periods of four hours at a time.[96]
[94] ts 219.
[95] ts 220.
[96] ts 222.
Both Tzaneen and Soutpansberg are wholesalers in frozen fish and meat and are located in separate towns (Tzaneen and Limpopo respectively) outside of Polekwane in South Africa.[97]
[97] ts 223.
Conceptual Technologies is a provider of specialist water energy and water related products, primarily pumps and turbines, including the CTL Turbine.[98] While Dr West is listed as a co‑inventor of the CTL Turbine on the relevant patents, his evidence was that he had a limited contribution to the invention and was listed as co‑inventor on the advice of their patent attorneys.[99]
[98] ts 299.
[99] ts 299 - 300.
The 'Turbine Apparatus' (which, broadly speaking, is the power station) is also the subject of grants of patents. Braddell Ltd was granted a patent in Japan for the 'Turbine Apparatus' on 2 December 2016. The patent records the inventor as Stephen West.[100] Patents were also granted in South Korea (April 2018)[101] and Malaysia (in December 2019).[102]
[100] Ex 553; Ex 555.
[101] Ex 554; Ex 556.
[102] Ex 551; Ex 552.
Discussions between the parties prior to entry into the Contracts
Between June 2015 and 30 November 2016, Conceptual Technologies was represented in South Africa by Renovo Power Solutions (Renovo).[103]
[103] Ex 6. In submissions, the defendants submitted that agreement was from 1 August 2015. The agreement is dated 2 June 2015.
In about November 2015, Mr van der Merwe received a telephone call from Mr von Hasseln of Renovo. Mr von Hasseln told him he had a product that could help 'sort out the problem of electricity supply' and briefly explained how the system worked. At the end of the conversation, Mr van der Merwe asked Mr von Hasseln to come and see him, which occurred in March 2016.[104]
[104] ts 225 ‑ 226.
In March 2016, Mr von Hasseln and Giovanni van der Walt of Renovo met Mr van der Merwe at Barnel's business at Barberton. Mr van der Merwe had arranged for Mr Lundsberg, an electrical engineer, to also be present at the meeting. At the meeting, Mr von Hasseln again explained how the power station worked by giving a PowerPoint presentation. This was a schematic presentation of how the power station worked and included photos of the CTL Turbine. He also played a video. Mr van der Merwe's evidence was that Mr von Hasseln explained that:[105]
the system will - once it's started, it will generate its own electricity and feed the supply pump so that if there's load shedding, the system will carry on working.
[105] ts 226.
During the meeting, they discussed what capacity Mr van der Merwe needed and he told Mr von Hasseln that he needed at least 300 amps to be supplied.[106]
[106] ts 227.
Following this meeting, on 9 May 2016, Mr van der Merwe informed Mr von Hasseln of Renovo that the 'other shareholders' of the plaintiffs had agreed to purchasing the power station but that he needed a letter from Conceptual Technologies which confirmed 'the Amps that we will get out of the system'. He explained that he did not want to 'operate on estimates that range from 279 amps to 306 amps'.[107] Later that day, Mr van der Merwe sent through to Mr von Hasseln a list of what he described as a list of concerns/issues. These included 'confirmation of the amp output' and a query as to whether any other power stations were installed and working in South Africa.
[107] Ex 9, p 3.
Mr von Hasseln responded on 10 May 2016 stating, in answer to the request for confirmation of the amp output, that '[Conceptual Technologies] the turbine manufacturer has confirmed they will send it today with the manufacturers specification (Siemens, ABB, WEG) for the induction motors and will forward it'. Mr von Hasseln confirmed there were currently no power stations installed and working in South Africa, although two units were currently being installed.[108] Mr von Hasseln subsequently forwarded a copy of the exchange to Mr West on 18 May 2016, who in turn forwarded it to Dr West.[109]
[108] Ex 9, p 3.
[109] Ex 9, p 1.
Following this exchange, Mr von Hasseln sent a copy of a draft agreement to Mr van der Merwe on 18 May 2016.
Dr West explained that he prepared the quotation and agreement for Barnel, after being told by Mr West what should be included in it.[110] The agreement was a template agreement that originally had been drafted by solicitors and used previously by Conceptual Technologies. Dr West described his role as populating the information in the schedules, based on what he was told by Mr West.[111] Dr West said he had a similar involvement in the preparation of the contracts for Tzaneen and Soutpansberg.[112]
[110] ts 321‑ 322.
[111] ts 322.
[112] ts 324 - 325.
On 13 June 2016, the solicitors for Barnel requested an amendment to the draft agreement to insert a clause which guaranteed the power station would yield an output of 300 amps.[113] Mr von Hasseln forwarded the request to Mr West and Dr West on the same day. Mr West asked Dr West to amend the draft agreement to include this clause,[114] which Dr West accepted he did.[115] Dr West understood the request was to include some kind of guarantee regarding the 300 amps.[116]
[113] Ex 13. [Note that an identical exhibit is Ex 798, p 1.]
[114] Ex 798, p 1.
[115] ts 356.
[116] ts 357.
On 15 June 2016, Dr West sent an amended agreement to Mr von Hasseln,[117] who then provided it to Barnel's solicitor.[118] The amended agreement included a warranty in sch D that the power station would be designed to have the capacity to deliver 300 amps.
[117] Ex 805; Ex 806. The email refers to sch B, which I find is an error as there is no reference in sch B to 300 amps. The warranty is contained in sch D.
[118] Ex 16; Ex 17, p 8. The email refers to sch B, which I find is an error as there is no reference in sch B to 300 amps. The warranty is contained in sch D.
Dr West confirmed that at this time, Conceptual Technologies had sold two power stations: one to Botha and the other to CYC Concrete Pty Ltd.[119] At the time of entry into the Barnel agreement, neither of these power stations had been installed or was functioning.[120] Dr West also accepted that, at that time, Conceptual Technologies had not supplied any power station that was producing electricity.[121]
[119] ts 350.
[120] ts 351.
[121] ts 358.
Relevant terms of Contracts
Each of the contracts between the parties is a design and supply agreement for 'Micro Hydro Pump Up Components'. The Barnel Contract and Tzaneen Contract are each executed by Mr van der Merwe (as the authorised officer of the respective plaintiff), whose signature is witnessed by H Hand in respect of the Barnel Contract, and by Michael van der Merwe in respect of the Tzaneen Contract. The Soutpansberg Contract was executed by Mr Smit, as authorised officer,[122] and witnessed by Riaan Smit. In relation to the Soutpansberg Contract, Mr van der Merwe explained that he sent the contract through to Mr Smit and took him through it, page by page. During this conversation, Mr van der Merwe explained to Mr Smit his understanding of how the power station worked.[123] I accept that this understanding was based on what he had been told by Renovo.
[122] Mr Smit is a director of Soutpansberg. See Ex 661.
[123] ts 232.
Mr West executed each of the contracts on behalf of Conceptual Technologies as an authorised officer. His signature was witnessed by Dr West.
Each of the contracts comprised five schedules (Schedule A ‑ General Information; Schedule B ‑ Scope of Work, Schedule C ‑ Pricing Schedule, Schedule D ‑ Drawings, MDRS and Specifications, and Schedule E ‑ Special Conditions), General Conditions, and an Appendix A.
Each of the contracts stated that the contract 'supersedes all previous communications and negotiations in relation to the Goods and/or Services'. Where there was an inconsistency between any terms of the contract, schs B, C and E prevailed to extent of any inconsistency, then the General Conditions and then any terms and conditions in any attachment and annexure.
Schedule B (which set out the scope of work to be performed) and sch C (the pricing schedule) were unique to each contract and are set out in more detail below.
The general conditions of each of the contracts were in identical terms. Relevantly, these provided that:
(a)under the heading 'Basic Obligations', Conceptual Technologies agreed to 'supply the Equipment and/or perform Services' on the terms and conditions set out in the contract (cl 3.1, cl 6.1 (Equipment), cl 6.2 (Services));
(b)any items used or supplied by Conceptual Technologies must be of merchantable quality and fit for purpose (cl 5.1);
(c)any performance figures were based on Conceptual Technologies' experience and were expected to be obtained on testing. Conceptual Technologies was not liable if these figures were not attained unless specifically guaranteed in writing (cl 6.3);
(d)where a performance guarantee was provided, this would specify the sole and exclusive remedies for any liability arising out of the supply of equipment under the contract, subject to the limitation of liability in cl 14.2 (cl 6.4);
(e)the warranties for equipment and services expired 12 months after delivery or performance (as the case may be) (cl 12.1);
(f)Conceptual Technologies was required (at its expense and option) to make good or replace all defects during the warranty period provided that Conceptual Technologies was notified as soon as the relevant plaintiff became aware of the defect and the goods had been properly handled, used and maintained and no unauthorised repairs or alterations done (cl 12.4);
(g)Conceptual Technologies gave an indemnity from any liability and any loss or damage arising 'directly in connection' with the contract except to the extent that it was caused by the plaintiffs' 'wilful misconduct or negligence', or their personnel or representatives (cl 13.2);
(h)Conceptual Technologies' liability under the contract was capped at the contractual sum (cl 14.1);
(i)either party was entitled to terminate the contract by notice in writing if the other party failed to comply with or was in breach of the contract and failed to remedy such non-compliance or breach within 30 days of a request in writing to do so (cl 16.1(a));
(j)the relevant plaintiff was not liable for any claim made by Conceptual Technologies 'in respect of any matter arising out of or in any way connected with' the contract unless the claim was notified within 14 days of the claim arising (cl 24.1); and
(k)the governing law of the contract was the law of Western Australia (cl 24.11).
Barnel Contract
Under the Barnel Contract, Conceptual Technologies agreed to supply Barnel with the following: a design report for a power station with a capacity requirement of 300 amps, as well as the components of the power station. This comprised three energy recovery units, also referred to as ERUs (which effectively comprised the CTL Turbines),[124] three convertors (with a projected rated capacity of 65 kW), three motors (with a projected rated capacity of 60 kW), one centrifugal supply pump (with a projected rated capacity of 210 litres per second at 5‑metre head), miscellaneous pipework and valves, and a communications system.[125]
[124] In these reasons, I have generally referred to the energy recovery units as CTL Turbines as this was the terminology primarily used during the concurrent expert evidence sessions.
[125] Schedule B.
Matters that were excluded from the scope of work were the housing for the turbine and electrical components (which Conceptual Technologies was to design and Barnel was to purchase), as well as the site preparation works (including land clearing), labour for installation works (to be supervised by Conceptual Technologies), utilities, water supply, the 'off loading, onsite installation on site and erection of all equipment and housing' and transfer switches to the existing mains supply.
The agreed price for the design and supply was USD $24,500 for the design report and USD $220,500 for the supply and commissioning of the components.[126] This was payable in agreed tranches, namely a deposit of 10% on execution of the Barnel Contract, 60% on the issue of the design report, 20% on presentation of the bill of lading and the final 10% on system commissioning or the Conceptual Technologies' statement of commissioning.[127]
[126] Schedule C.
[127] Schedule C, (ii).
In sch D, Conceptual Technologies warranted that the power station 'shall' be designed to have a capacity to deliver a gross output of 300 amps in operation.[128]
Tzaneen Contract
[128] Schedule D, General (1).
Under the Tzaneen Contract, Conceptual Technologies agreed to supply Tzaneen with the following: a design report for a power station with a capacity requirement of 200 kW (339 amps), components, four energy recovery units, four soft start variable speed drives (with a projected rated capacity of 37 kW), four synchronisers (with a projected rated capacity of 65 kW), a switchboard (with a projected rated capacity of 220 kW); four motors (with a projected rated capacity of 65 kW), two supply pumps (with a projected rated capacity of 240 litres per second at 7‑metre head), miscellaneous pipework and valves, and a communications system.[129]
[129] Schedule B.
The agreed price for the design and supply was USD $22,500 for the design report and USD $202,500 for the supply and commissioning of the components.[130] This was payable in agreed tranches, namely a deposit of 10% on execution of the Tzaneen Contract, 60% on the issue of the design report, 20% on presentation of the bill of lading and the final 10% on system commission or the Conceptual Technologies' statement of commissioning.[131]
[130] Schedule C.
[131] Schedule C, (ii).
In sch D, Conceptual Technologies warranted that the power station 'shall' be designed to have a capacity to deliver a gross output of 339 amps in operation.[132]
Soutpansberg Contract
[132] Schedule D, General (1). See fn 67.
Under the Soutpansberg Contract, Conceptual Technologies agreed to supply Soutpansberg with the following: a design report for a power station with a capacity requirement of 235 kW (390 amps), components, four energy recovery units, four soft start variable speed drives (with a projected rated capacity of 37 kW), four synchronisers (with a projected rated capacity of 75 kW), a switchboard (with a projected rated capacity of 235 kW), four motors (with a projected rated capacity of 75 kW), two supply pumps (with a projected rated capacity of 240 litres per second at 7‑metre head), miscellaneous pipework and valves (with a reservoir capacity of 60,000 litres), and a communications system.[133]
[133] Schedule B.
The agreed price for the design and supply was USD $26,700 for the design report and USD $240,300 for the supply and commissioning of the components.[134] This was payable in agreed tranches, namely a deposit of 10% on execution of the Soutpansberg Contract, 60% on the issue of the design report, 20% on presentation of the bill of lading and the final 10% on system commissioning or the Conceptual Technologies' statement of commissioning.[135]
[134] Schedule C.
[135] Schedule C, (ii).
In sch D, Conceptual Technologies warranted that the power station 'shall' be designed to have a capacity to deliver a gross output of 390 amps in operation.[136]
[136] Schedule D, General (1).
Design of Units
In accordance with its obligations under each of the contracts, Conceptual Technologies provided each of the plaintiffs with design reports for a power station.[137]
[137] There was no dispute between the parties as to what comprised the design reports (ts 118). These comprise Ex 23 ‑ Ex 40 (Barnel); Ex 91 ‑ Ex 108 (Tzaneen); Ex 68; Ex 70 ‑ Ex 88 (Soutpansberg).
The design report was provided to Barnel by Mr West by email (copied to Mr van der Walt, Renovo Power and Dr West) on 13 August 2016.[138] The design report for Barnel included a 'pump performance datasheet'.[139] The datasheet provided the following information in respect of the Braybar pump:
(a)efficiency of 82%;
(b)power required for the pump ‑ 30.22 kW;
(c)net pressure suction head (the height between the top of the water in the tank and the inlet for the pump) - 4.45 m; and
(d)a differential head (or differential pressure) of 11.50 m.[140]
[138] Ex 22.
[139] Ex 37.
[140] This is the difference in the head or pressure between the suction and discharge of the pump.
The information from the datasheet was incorporated in the design document. On the performance charts, using this data, the gross power generated from the three units in series was anticipated to be 161 kW.[141]
[141] Ex 24, Table 7, p 13.
Dr West's evidence was that he had little involvement in the preparation of the design reports. His involvement was limited to checking them for spelling mistakes.[142]
[142] ts 323 - 325.
Broadly speaking, there is little dispute between the parties as to how the power station was designed to work, which can be summarised as follows.[143]
[143] Plaintiffs' opening submissions [7]; Defendants' opening submissions [5] ‑ [20].
Electrical power is supplied from the mains power to variable speed drives. The variable speed drives in turn supply electrical power to a simulation pump motor which initiates the flow of water, stored in a tank, through a pipe on to the energy recovery units (or CTL Turbines). In doing so, the simulation pump converts the electrical power into rotational energy.
The energy recovery units in the power station comprised two turbine blade sets: a driving set and a pumping set, which are mounted on a common shaft. The water flowing through the pipe causes the driving turbine blade set to rotate. This in turn causes the pumping blade set to rotate. As the pumping blade set rotates, it creates a lower pressure region between the two turbine blade sets. This in turn causes an increase in the speed (or velocity) and mass of the flow of the water, increasing the force at which the water strikes the driving turbine blade set, which in turn increases the torque applied to the shaft. The shaft is coupled to an induction motor, which allows the energy in the rotation of the shaft to be transformed into electrical energy.
After the water has flowed through the driving turbine blade set, it flows back into the tank to be used again in the system. That is, the system is designed as a closed hydraulic loop or a water circuit.
The induction motors have a dual functionality. They can operate as motors (where the revolutions per minute (RPMs) of the turbines are below 1500) or as generators (when the RPMs are above 1500).
The electrical energy from the induction motors operating as generators is transferred to a larger variable speed drive which converts the electrical energy into direct current energy. This flows into an input terminal which is connected to a regenerative power station output variable speed drive, which converts the combined direct current output into a stable voltage and alternating current form of electricity, which is suitable for commercial use.
Once a stable alternating current output and voltage is achieved, the electrical power is distributed from the output variable speed drive to the simulation pump or pumps to supply the electrical power for the simulation pumps in the power station as well as to the electrical equipment of the relevant customer.
The defendants contend that by maximising the flow and velocity of the water up to and in excess of 26 metres per second, the CTL Turbine 'enhances the electrical energy that can be recovered from the kinetic energy of fluid in the system.'[144] The defendants submit the distinguishing feature of the CTL Turbine is its ability to create a negative pressure differential between the turbines and increase the force at which the water strikes the driving turbine blade set. This distinguishes it from a conventional hydro turbine which causes a deceleration of the water as it approaches the drive turbine.
[144] Defendants' opening submissions [12].
The plaintiffs reject this explanation and say the only source of energy for each of the power stations supplied to them are the pumps and that the power stations did not have any other source of energy.
Visit in August 2016
On 13 August 2016, Mr van der Merwe emailed Mr West expressing an interest in visiting the site where Mr West was commissioning a power station. He also asked that Mr West meet him in Barberton where the Barnel power station was to be installed.[145] In his response dated 14 August 2016, Mr West explained that he planned to have the electrical equipment arriving on site that week and wanted to be on site to visit the installation works. He set out what was required to commission the power station, including the need to coordinate with the electrical engineer or technician from WEG to 'calibrate and set all of the VSD's [variable speed drives] and Regenerative drive [a motor which can operate as a generator above 1500 RPMs]'.[146] Mr West confirmed that similar work was being done on another project located in Mpumalanga, which he would be visiting while in South Africa.
[145] Ex 808.
[146] Ex 808.
Mr West and Dr West met with Mr van der Merwe in Barberton in August 2016. Mr van der Merwe believed the meeting occurred about a week after this exchange of emails. During the meeting, Mr West informed Mr van der Merwe that Mr von Hasseln had passed away and that he would be taking over the project. Mr van der Merwe and Mr West discussed the project and Mr West explained how the system worked in broad terms.[147]
[147] ts 228 ‑ 229.
Dr West gave evidence of a meeting he attended at Tzaneen with Mr Jacobs, Mr van der Merwe and Mr West on 25 November 2016. His evidence was that the meeting lasted for approximately five minutes as Mr Jacobs was not a fluent English speaker.[148] Counsel for the defendant did not ask Mr van der Merwe about this meeting nor was it clear what was the relevance of anything that occurred at this meeting. To the extent necessary, I am not satisfied that any such meeting occurred. There is no reference to this meeting in any of the contemporaneous documents. This is inconsistent with the approach adopted by all parties which was to exchange emails recording visits contemporaneously or shortly after the meeting occurred.
[148] ts 324.
Entry into Sales representative agreement
On 1 December 2016, Conceptual Technologies appointed CTL North East SA (Pty) Ltd (CTL North East), a related company of the plaintiffs, as its sales representative in Mpumalanga and Limpopo in South Africa for the CTL Turbines and products used in the 'generation of electricity'.[149] On 22 December 2016, Dr West forwarded to Mr van der Merwe a restatement of the Export Supply Agreement.[150]
[149] Ex 164. An identical copy of this document is Ex 570.
[150] Ex 50.
Mr van der Merwe's evidence was that he was chief executive officer and director of CTL North East, although he did not appear on the company search. He explained that this was an error by the accountants. Mr van der Merwe said that from day one, he did all the work required for CTL North East. This company has been deregistered because there is no reason for it to exist anymore.[151]
[151] ts 231.
Installation and commissioning of the power station at Barnel
Following entry into the Barnel Contract, Dr West prepared the purchase orders and invoices for the components for the power station and paid the relevant invoices.[152]
[152] ts 323.
The installation of the power station at Barnel commenced in early 2017 and was 'basically finalised by March 2017'.[153] Over the course of the installation, Mr West sent various instructions (which he described as 'simple and straightforward') to Mr van der Merwe (copied to Dr West) by email.[154] These instructions were detailed and included photographs.
[153] ts 234.
[154] See, for example, Ex 160; Ex 161.
Mr van der Merwe explained that when he received the email and attachment from Mr West on 26 March 2017, the installation of the power station had basically been finished and the final stage was to install the CTL Turbines and WEG drives.[155] Mr van der Merwe observed Mr van der Walt following the instructions 'exactly', including in connecting the turbines to the pumps.[156] The WEG drives did not arrive onsite until April 2017.
[155] ts 234.
[156] ts 235.
On 27 April 2017, Conceptual Technologies wrote to Mr van der Merwe regarding the commissioning of the Barnel power station.[157] On its face, it is not clear who the author of the letter was. The letter referred to a series of tests done on the pump and 'CTL ERU' in April 2017 and attached copies of the test results and the findings, based on these results. These included that:
(a)Conceptual Technologies had to assume based on these results and performance curves that the fluid flow was '220 l/sec to a 11.5 metre head'; and
(b)the gross power output was 270 kW, after the deduction of the 27 kW from the supply pump with a new power output of 216 kW.
[157] Ex 819. An identical copy is Ex 166 with attachment Ex 167.
The test results attached to this letter recorded that the maximum RPM's of the CTL Turbines were 812.8 (for CTL Turbine 1), 836.4 (for CTL Turbine 2) and 850.8 (for CTL Turbine 3).[158]
[158] Ex 167.
In April 2018, Conceptual Technologies prepared a report on the commissioning of the Barnel power station.[159] The report recorded that:[160]
The 69 Amps required to operate the motive supply pump to that delivered water to drive the CTL ERU's was to be initially supplied from the incumbent electrical grid via [Barnel's] Switchboard. Once the generators were operational, the power supplied by from (sic) these generators would deliver the requisite power to operate the motive supply pump. The Net Power of the system was required to be 300 Amps.
[159] Ex 340.
[160] Ex 340, p 1.
The report also recorded a series of site visits on 6 May 2017 and 16 May 2017, and what occurred after these visits, which I have addressed below.
May 2017 site visits
On 6 May 2017, Mr West, Dr West, Mr Ronald Masemola (a representative of WEG), and Percy Hollamby (a local electrician) attended the Barberton abattoir (Barnel site) to meet with Mr van der Merwe for the connection of the WEG regenerative drive to the induction motors in the power station. The WEG drives were installed by Mr Hollamby.
Mr van der Merwe's evidence was that at this site visit, Mr West took over and spoke to Mr Masemola instructing him to make sure all of the settings were where they should be because he was there to commission the system. Dr West participated in this discussion and confirmed that the settings needed to be set and proceeded to commission the system. When asked what precise words were used by Dr West, Mr van der Merwe said he heard Dr West say:[161]
The settings - the settings of - of all the WEG components was crucial to be correct, and none of us knew - not - not - only Mr Masemola knew, basically, how to do all those settings and set it perfectly and all that. So that was, basically, the discussion. It was around the settings to make sure that all the settings are correct.
[161] ts 237.
After this was done, the power station was started and:[162]
then Stephen West told us that the system is generating electricity. He showed - he indicated meters on - on - on - on the - on the WEG drives showing amps. And he concluded that the system was generating electricity. And then he identified the issue of the cable connecting the - the system to the mains supply, and that - that that cable was - was connected at the wrong place. And - and the conclusion that he made was that it's the - the reason for - that that's - electricity doesn't go to the board is because of the cable.
[162] ts 238.
A report subsequently prepared by Conceptual Technologies records that on the commissioning of the regenerative drive, the total amperage observed on the CTL Turbine Induction Motors was 186.8 amps (compared to an incoming current from the grid of 70 amps). This measurement was said to have been taken by Mr Masemola in the presence of representatives of Barnel and Conceptual Technologies and repeated by Mr Masemola orally.[163]
[163] Ex 205, p 4 -5.
Representations regarding Yaskawa drives
[363] Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357; (1999) ATPR 41-687 [45].
The plaintiffs contend that Conceptual Technologies and Mr West made three representations in relation to the Yaskawa drives. First, that if Barnel purchased and installed them to replace the WEG drives, the power station would produce the contracted output. Second, if Barnel purchased the Yaskawa drives, Conceptual Technologies would reimburse it for this cost. Third, once the Yaskawa drives were installed and functioning in the Barnel power station, the same drives could be purchased and installed at Tzaneen and Soutpansberg.
The plaintiffs rely on a series of emails from Mr West to Mr van der Merwe and a telephone call between them as the basis for these representations. The details of these matters are set out above at [200], [201] and [208].
On the basis of these emails and the conversation between Mr West and Mr van der Merwe, I accept and find the following.
First, at the time of the initial call and email between them in February 2018, Mr West and Conceptual Technologies had continually asserted that the reason the power station at Barnel did not work was because of the WEG drives. In particular, it was contended that the WEG drives were not regenerative drives but were variable speed drives.
Second, by Mr West, in his email of 3 February 2018, referring to the Yaskawa drives as the drives Conceptual Technologies 'will use now', Mr West and Conceptual Technologies represented that the WEG drives be replaced by the Yaskawa drives in the power station.
Third, by stating that the design variation for the Yaskawa drives would be simple (in his email of 8 March 2018), Mr West and Conceptual Technologies represented that the replacement of the WEG drives with the Yaskawa drives was simple or straightforward. This represented that the purchase of the Yaskawa drives together with some minor amendments to the electrical design would remedy the issues with the Barnel power station and that if these were done, it would resolve the issues with the power station and the power station would then produce the contracted output.
Fourth, by Mr West stating that he would reimburse Barnel the full amount of the purchase order 'as soon as this other project is signed off', Mr West and Conceptual Technologies represented that if Barnel purchased the Yaskawa drives, Conceptual Technologies would reimburse Barnel for these costs.
Given these findings, I accept that representations were made by Mr West and Conceptual Technologies that if the Yaskawa drives were purchased, this would fix the problem with the Barnel power station and that Conceptual Technologies would reimburse Barnel the full amount of the purchase order. This second representation was not conditional in the manner contended by the defendants, namely on the WEG drives being shown to be faulty. No evidence was adduced at trial to support this contention. Importantly, the email from Mr West to Mr van der Merwe does not include any condition of this nature.
I also accept that these representations were false and, as a result, misleading or deceptive. This is because the replacement of the WEG drives with the Yaskawa drives was incapable of addressing the conceptual design issue that I have found was the primary issue with the power station and the reason for its inability to produce the contracted gross output. In relation to the second representation, Conceptual Technologies accepts that it has not reimbursed Barnel.
Each of these representations were made by Mr West and Conceptual Technologies in the context of their discussions about the performance of the Barnel Contract. As a consequence, I am satisfied that each of these representations was made in trade or commerce. As such, I am satisfied that these representations were misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law.
Turning to the question as to whether Mr West is also primarily liable for these representations, for the following reasons, I find that he is.
First, each of the matters relied upon by the plaintiffs were statements by Mr West orally or in writing. In making these statements, I do not accept that Mr West was acting in an administrative or ministerial capacity or as a corporate organ of Conceptual Technologies.
Second, on the basis of the evidence before the court, it is clear that it was Mr West who identified the Yaskawa drives and information about these drives and sent them to Mr van der Merwe. As such, Mr West was the person principally involved in the making of these representations by Conceptual Technologies.
Third, the weight of the evidence in this case is that Mr West developed both the CTL Turbines and the power station and was central to the efforts to sell these. It is clear from the totality of this evidence that Mr West was vitally invested in addressing what he believed was the issue with the power station and in ensuring the power station worked.
The plaintiffs contend and I accept that the representations made by Mr West and Conceptual Technologies caused Mr van der Merwe of Barnel to agree to purchase the Yaskawa drives. Had these representations not been made, I accept that Mr van der Merwe never would have agreed to purchase them.
As a consequence, I am satisfied that each of these representations was misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law and that the appropriate measure of damage is the amount paid by the plaintiff to purchase the Yaskawa drives.
The evidence before the court is that Unitrade paid the relevant invoice and that this is recorded in the books and records of both Unitrade and Barnel as a loan from Unitrade to Barnel. On this basis, I am satisfied that Barnel has suffered the loss claimed of AUD $53,580.
Representations under the contracts
The plaintiffs assert that the second and third plaintiffs made two representations in the contracts. First, that Conceptual Technologies would design, supply and commission a power station with the gross output specified in each of the contracts. Second, that the components used or supplied by Conceptual Technologies were of merchantable quality or fit for their usual purpose.
Turning first to the question as to whether the express contractual promise gives rise to a claim under the Australian Consumer Law, it is necessary to consider first, what the contractual promise made by Conceptual Technologies was and second, whether at the time the promise was made, Conceptual Technologies had the intention and ability to carry the promise out.
In this case, the specific promise relied upon by the plaintiffs is the promise to design, supply and commission a power station which:
(a)in the case of Barnel, had the capacity to deliver a gross output of 300 amps in operation;
(b)in the case of Tzaneen, had the capacity to deliver a gross output of 339 amps in operation; and
(c)in the case of Soutpansberg, had the capacity to deliver a gross output of 390 amps in operation.
In this case, the plaintiffs properly accept that Conceptual Technologies intended to carry out the promises contained in each of the contracts. The more pertinent question is whether at the time the representations were made, Conceptual Technologies had the ability to carry out these promises. The plaintiffs submit the answer to this is 'no', and the defendants say it is 'yes'. More particularly, the defendants say there is no evidence that at the time the representations were made, Conceptual Technologies was unable to design 'a power station in a different configuration that could have delivered the contractual power output'.[364]
[364] Defendants' closing submissions [3(a)].
One of the matters in dispute at trial was whether the plaintiffs needed to prove that the defendants could not have designed any micro hydro pump up station that was able to deliver the contracted gross output or whether they simply needed to prove that the defendants could not have designed a micro hydro pump up station in the form of that designed and supplied by Conceptual Technologies to the plaintiffs which delivered the contracted electricity gross output.
The resolution of this issue is a factual one which turns on the precise nature of the representation alleged.
In this case, the pleaded representation is limited to representations which are contained in the contracts. In contrast to the manner in which this aspect of the case was presented at trial by the plaintiffs (which the defendants objected to), there is no reference in the pleadings to the discussions that occurred prior to entry into the contracts. For this reason, I have not addressed these matters in my reasons but have limited my findings to the case that is pleaded.
Each of the contracts refers to the supply of a micro hydro pump up power station and describe the specific components to be supplied under the contract. Each of the contracts specifically excludes the supply of a water supply tank from the scope of the work of Conceptual Technologies. That is, the specific promise in the contracts is that Conceptual Technologies was at that time capable of designing and supplying to each of the plaintiffs a power station (comprising the elements set out in sch B of the contracts together with a water supply tank) capable of delivering the gross output specified in each of the contracts. On this basis, it is my view that, in respect of each contract, this was a representation as to an existing state of affairs and was not a representation as to a future matter.
At the time of entry into the contracts, I do not accept that Conceptual Technologies had any ability to carry out this promise. For the reasons that are set out above at [305] ‑ [320], the components to be supplied by Conceptual Technologies were for a closed loop system. This system did not generate any energy or, as a result, electricity which would enable the power station to supply the contracted output. Accordingly, I accept that the contractual representations that were made were misleading or deceptive or likely to mislead or deceive.
It is important to stress that no claim is advanced against Conceptual Technologies in respect of this second representation. This aspect of the claim is advanced only against Mr West and Dr West.
In respect of Mr West and Dr West, the plaintiffs contend that each made these representations to the plaintiffs as:
(a)Mr West executed the agreements on behalf of Conceptual Technologies and either drafted or instructed another to draft the contracts to include the representations; and
(b)Dr West drafted or instructed another to draft the contracts to include the representations.
The evidence that was adduced at trial in relation to the drafting of the relevant terms of the contracts is set out at [110] ‑ [113]. On the basis of this evidence, I find that Mr West gave instructions to Dr West about what was required to be included in the schedules of each contract and that Dr West then populated the schedules, including the warranty contained in sch D.
In relation to Mr West, for the following reasons, I am satisfied that Mr West made the representations pleaded. First, Mr West was the inventor of both the CTL Turbine and the power station. From the totality of the evidence that was tendered at trial, it is clear that Mr West was the guiding mind and force of Conceptual Technologies. Second, I accept that Mr West was personally responsible for considering what components were required in the power stations to be supplied to each plaintiff and gave instructions to Dr West to include the specific number of components in the schedules of the contracts. In doing so, Mr West knew or must have known that once amended, the contracts containing these representations would be sent to the plaintiffs. Third, I also accept that Mr West considered the request for a warranty in the contracts and gave instructions to Dr West to include the requested warranty. In doing so, I accept that Mr West on behalf of Conceptual Technologies represented the power stations were capable of producing the contracted output.
The situation with Dr West is more nuanced. While I accept that Dr West's role within the company was not purely administrative and that he had responsibilities as a commercial manager consistent with his qualifications and background, this does not mean that he was personally engaged in the representations that I have found were made by Conceptual Technologies.
For the following reasons, I am not satisfied that Dr West made the representations pleaded. First, Dr West is not listed as an inventor of the relevant patents for the power station; the inventor is listed as Mr West solely. While Dr West is listed as an inventor of the CTL Turbines, as the plaintiffs were at pains to stress during the trial, this case did not concern these turbines. There is no evidence which would support a conclusion that Dr West had any involvement in the design of the power station, or consideration of what components should be incorporated in each power station.
Second, while I accept that Dr West drafted the relevant schedules in the contracts, including the warranties given in sch D of each contract, this is not, in my view, sufficient to demonstrate that Dr West personally made the representations pleaded. I accept that Mr West gave instructions to Dr West as to what should be included in these schedules and that Dr West drafted the amendments to the standard contract in accordance with these instructions. In doing so, I accept that Dr West's role was either as Mr West's agent, alternatively that Dr West's actions should be attributed to Mr West.
In this case, the evidence is that Mr van der Merwe asked for confirmation of the output of each power station. He subsequently requested an amendment to the Contractual Technologies' standard form contract to include a warranty as to the gross output of each power station. Subsequent to receiving confirmation of the output and an amended contract, the plaintiffs entered into each of the agreements.
Given these matters, as was stated by Wilson J in Gould v Vaggelas,[365] 'common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract'. I accept and infer from these matters that each of the plaintiffs entered into the contracts in reliance of the representation that the power stations could produce the contracted output, which was misleading and deceptive.
[365] Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215, 238 ‑ 239.
Finally, in relation to the damages that flow from the contravention of s 18 of the Australian Consumer Law, as set out above, the express terms of the contracts limit the damages payable to the plaintiffs by Conceptual Technologies to the consideration paid by each of the plaintiffs under their respective contracts. This contractual limitation does not apply to the claims made by the plaintiffs against the third defendant. However, in this case, the distinction is of no moment as the plaintiffs' claims in relation to this second representation are limited to the amounts paid under their respective contracts. I accept that this is the appropriate measure of damage that flows by reason of the misleading or deceptive conduct of the third defendant.
Alternative claim that representations were as to a future matter
Given these findings, it is not strictly necessary for me to consider the alternate case of the plaintiffs or the defendants' contention that these representations were representations of a future matter. However, in case I am wrong in my conclusion that these representations were representations of a current fact, I will briefly set out my conclusions on the alternative case.
As set out above, I am satisfied that the representations pleaded were made. The only additional issue that requires determination is whether the defendants had reasonable grounds for the representations that were made.
The defendants relied on a number of documents in support of this contention as constituting the reasonable grounds for the representations, as well as the evidence of both Dr West and Mr Owen. These included evidence of computational fluid dynamic modelling,[366] marketing material produced by Conceptual Technologies,[367] the fact that the CTL Turbine was the subject of patents in various jurisdictions including Australia[368] and the United States,[369] the fact that the power station was the subject of patents in a number of jurisdictions[370] as well as reports prepared by GE,[371] Flash Engineering,[372] and Zander van der Walt,[373] and some videos taken of a test plant. The defendants also relied on the fact that it sourced components for the power stations from reputable suppliers and obtained test certificates for these components.[374]
[366] Ex 638; Ex 639.
[367] Ex 541; Ex 615; Ex 616.
[368] Ex 370; Ex 371; Ex 369.
[369] Ex 625; Ex 637.
[370] Ex 623 and Ex 635 (Europe). See also Ex 622 (New Zealand); Ex 624 (China); Ex 626 ‑ Ex 633; Ex 636.
[371] Ex 544.
[372] Ex 546.
[373] Ex 543.
[374] Defendants' opening submissions [133(l)], [133(m)]. See also Ex 147 ‑ Ex 149; Ex 179 ‑ Ex 185; Ex 207; Ex 329; Ex 517; Ex 525.
Dr West's evidence was that he observed computational fluid dynamic modelling being done by Mr West and others on computers, prototypes being operated, as well as validations and inspections of works in relation to both the turbines and the power station. He was unable to provide any specific details of these matters as he was 'not qualified - not capable' of doing so.[375] He estimated that 50,000 to 60,000 hours of modelling were done. This estimate was based on the number of hours the computers were running in the offices over a 10 to 15 year period.[376]
[375] ts 304; ts 316.
[376] ts 305.
In relation to the reports that were received by Conceptual Technologies, Dr West's evidence was that he read each of the reports at about the time they were received.[377]
[377] ts 307.
The report from Flash Engineering, which is a computational fluid dynamic analysis of the 'West energy turbine generator', confirmed it was able to generate 'high torque'.[378] However, this report does not analyse the power station as one of the inputs assumes the machinery would be immersed 10 m underwater.[379] The report expresses an opinion about the turbine's ability to generate high torque, which is not the issue raised by the plaintiffs in these proceedings.
[378] Ex 546, p 1.
[379] Ex 546, p 5.
On its face, the GE report appears to be a powerpoint presentation about the power station, although there was no explanation of this document at trial. The report does not confirm the power station produces energy.
The only document that models the power generation unit and calculates an energy balance is the report of Mr van der Walt. I accept that the modelling in the report states that energy can be extracted by a generator from the power station (of between 726 kW and 934 kW).
In his evidence, Dr West was taken to a video he took at a warehouse in Bibra Lake at which a water tank had been connected to a motor, a pump and a CTL Turbine and was asked to explain what he observed.[380] Dr West explained that:[381]
Well, that gauge there shows a - between those two gauges, there's a drop is pressure and then a drop in pressure below zero, which is atmospheric. So it shows a very low pressure zone. And then it goes - that pressure gauge is at zero. So it's probably consistent with atmospheric pressure. And then this shows the water flowing back into the - the tank.
[380] Ex 617.
[381] ts 319.
In cross-examination, Dr West accepted that the system was plugged into the mains power at all times.[382]
[382] ts 381.
Counsel for the defendants accepted the power station was never built to scale nor was it built for test purposes. In this regard, it was accepted that these observations were made in relation to components of the power station and not the whole of the power station.[383]
[383] ts 214.
The records of Conceptual Technologies also include measurements that have been taken of the pressure gauges and water flow under different percentages the butterfly valve was open.[384] It is not clear how this provides any basis for the representations that were made.
[384] Ex 568, p 8 – 9.
The evidence of Mr Owen was that he came across the CTL Turbines when he was at the University of Wales and the managing director of Awen Cymru Ltd (a company which was established to liaise with industry) and was introduced to Mr West at that time. He gave evidence of his visit to Western Australia to see the CTL Turbine in operation and to take measurements of the flowrate and pressure readings along the pipeline. His evidence was that the measurements that were taken were 'pretty much in line' with the CFD modelling and what they were expecting. Following this visit, he reported back to the board of Awen Cymru but ultimately, nothing was pursued. In my view, the evidence of Mr Owen, which was limited to the CTL Turbines, is of no assistance in establishing whether the defendants had reasonable grounds for making representations in relation to the power station.
In cross-examination, Dr West was asked whether over the years, Conceptual Technologies had been told the power station did not work. Dr West accepted that there had been 'expressions of scepticism',[385] although he did not recall whether this was prior to March 2016. Dr West accepted that there were people over the years who had expressed this view and that Mr West had a 'fairly passionate set of expressions' and 'became very frustrated over time'. Dr West also expressed the view that people had told him the CTL Turbine couldn't work, which was wrong, similarly in relation to the air pumps, which was also wrong.[386]
[385] ts 382.
[386] ts 383.
Given I have found that the representations were made only by Mr West and Conceptual Technologies, I have limited my consideration of the question as to whether there were reasonable grounds for the making of the representations to them and have not considered the position of Dr West.
It is clear from the totality of the evidence adduced at trial that Mr West subjectively believed the representations made about the replacement of the WEG drives and the power station were correct. However, this is not a complete answer to the claims. In order to establish the defendants had reasonable grounds for making these representations, it is necessary that this belief be reasonable. In my view, for the following reasons, this belief was not reasonable.
First, none of the documents, apart from the report of Mr van der Walt, consider the entirety of the power station as designed or suggest that the power station can produce energy. In relation to the report of Mr van der Walt, no evidence was led at trial as to his qualifications, the basis for this report or whether it was reasonable to rely on the contents. The fundamental issue with the power station is that there is no source of energy for the output which it is said it can produce. Without an explanation as to what the source of energy is and why it can work in a closed loop system, I do not accept that this report alone is sufficient to constitute reasonable grounds for the representations.
Second, while a test rig was built by Conceptual Technologies, there was no evidence that a complete model of the power station had ever been built or tested. Without this, I do not consider it was possible to have a reasonable basis for the belief that the power station could produce energy in the absence of the identification of an energy source for the power station.
Third, the first of the patents for the power station were not obtained until after entry into the Barnel Contract and very shortly before entry into the Tzaneen Contract and Soutpansberg Contract. On this basis, these patents do not provide a ground for making any representation in respect of the Barnel Contract. In any event, the grant of a patent itself is not evidence the invention works.[387] Accordingly, I am not satisfied that the grant of a patent by itself is a sufficient basis to establish there were reasonable grounds for the representations.
[387] The definition of 'invention' in the Patents Act 1990 (Cth) includes an alleged invention.
Third, I accept that Mr West was told the power station could not work but did not accept these views. It is not clear as to the grounds on which these views were rejected apart from Mr West's strongly held belief.
For these reasons, even if I am wrong that the representations made by Conceptual Technologies and Mr West were as to present matters and not representations as to future matters, it would not alter my ultimate conclusion. In my view, these defendants have not established there were reasonable grounds for making these representations. As a result, I find that each has contravened s 18 of the Australian Consumer Law.
Conclusion
For these reasons, it is my view that judgment ought to be entered for the plaintiffs in the amounts claimed. My preliminary view is that costs should follow the event. However, before making any orders, I will hear from the parties in relation to costs, particularly in relation to special costs orders. Given the complexity of the issues raised in this case, my preliminary view is that this is an appropriate case for special costs orders to be made. However, prior to making any orders, particularly given the status of the first defendant and the death of the third defendant, I will hear from the parties.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JN
Associate to the Honourable Justice Hill
22 DECEMBER 2023
- AGLC
- Barnel Investments Pty Ltd v Conceptual Technologies Pty Ltd [No 3] [2023] WASC 486
- Case
- [2023] WASC 486
- Decision Date
CaseChat Overview and Summary
The legal issues before the court included whether the failure to supply the warranted power output constituted a breach of contract, the admissibility of expert evidence, and the personal liability of the defendants for the alleged misleading and deceptive conduct. The court had to consider whether the defendants' conduct constituted misleading and deceptive conduct, whether such conduct was made by the defendants as directors of the first defendant, and whether the plaintiffs had failed to mitigate their loss.
The court addressed the admissibility of expert evidence, noting that challenges were raised as to the qualifications and relevance of the experts called by both parties. The court found that Gerrit van der Merwe, the lay witness for the plaintiffs, was an honest witness who gave direct and succinct answers. The court accepted his evidence in its entirety, including his explanations regarding statements made in emails about the power station's electricity production. The court also considered the evidence of the expert witnesses, Dr Walter Green and Mr Daniel McKeon, who were engineers, and the evidence of the defendants' experts, Mr Daniel Rodde and Mr John Vullo. The court found that the defendants' expert evidence was admissible and relevant to the issues before it.
The court concluded that the failure to supply the warranted power output was due to a design issue, and the defendants were liable for the breach of contract. The court also found that the defendants were personally liable for the misleading and deceptive conduct, as they made representations as directors of the first defendant. The court held that the plaintiffs had not failed to mitigate their loss. The court ordered the defendants to pay damages to the plaintiffs for the breach of contract and the misleading and deceptive conduct. The court also made orders regarding the costs of the proceedings.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
These limbs apply unless notice has been given of the party's intention to rely on these matters. Notice can be given in a number of ways,[81] including in opening submissions or the general manner in which the case is conducted.[82][81] See, for example, The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9] [1030] ‑ [1034].[82] The Bell Group Ltd (in liq) v Westpac Banking Corporation Ltd [No 9] [1026]. The rule in Browne v Dunn is not absolute and must be applied with flexibility. Given this, I have considered the application of the rule in Browne v Dunn in the two instances referred to by the plaintiffs when considering the relevant evidence of the witnesses. In support of their claim, the plaintiffs called one lay witness, Gerrit van der Merwe, and three expert witnesses. The first expert witness was Mr Stoler, an attorney from South Africa, who gave evidence as to the incorporation of each of the plaintiffs under the laws of South Africa. Mr Stoler's report was tendered in evidence and he was not cross‑examined on his report. I accept his evidence in its entirety. The other experts called by the plaintiffs were Dr Walter Green and Mr Daniel McKeon, both of whom are engineers. The defendants called two lay witnesses, Dr Steele West and Mr Stephen Owen. The third defendant, Mr Stephen West, did not give evidence at trial. A medical report from his treating specialist was tendered in evidence which indicated Mr West was unable to give oral evidence at trial because he was diagnosed with stage IV cancer in March 2022.[83][83] Ex 846. The defendants also called two expert witnesses: Mr Daniel Rodde, an engineer, and Mr John Vullo, an electrical engineer. At trial, extensive challenges were raised as to the admissibility of the expert evidence called by both parties. For this reason, I have addressed all of the expert evidence at the relevant part of these reasons and limit my initial observations to the lay witnesses called by the parties. Mr van der Merwe gave his evidence remotely from South Africa. Mr van der Merwe is a director and the chief executive officer of Barnel and the financial officer of both Tzaneen and Soutpansberg. Mr van der Merwe explained that each of the plaintiffs has the same directors and shareholders. Each is also a shareholder in a Unitrade 768 (Pty) Ltd (Unitrade 768),[84] which he described as a cash management company for the group.[85] Mr van der Merwe is a director of Unitrade 768.[86][84] Ex 847, p 9 ‑ 28.[85] ts 223.[86] ts 218. Counsel for the plaintiffs submitted that Mr van der Merwe was an honest witness who gave direct answers and was not evasive or non‑responsive.[87][87] Plaintiffs' closing submissions [1]. In my view, this is a fair characterisation of Mr van der Merwe's evidence. I accept that Mr van der Merwe was an honest witness who answered the questions asked of him directly and succinctly. Mr van der Merwe was not cross‑examined on most of his evidence. His cross‑examination was essentially limited to his observations on the CTL Turbines as well as statements Mr van der Merwe made in emails about whether the power station produced electricity. For the reasons set out below, I accept Mr van der Merwe's explanation about these statements.