Bonney Forge Pty Ltd (formerly called Arvo Pty Ltd) v Press & Shear Machinery Pty Ltd

Re: BONNEY FORGE PTY. LIMITED (formerly called ARVO PTY. LIMITED)
And: PRESS & SHEAR MACHINERY PTY. LIMITED
No. G608 of 1986
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Foster J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - alleged representations that Respondent's English principal able to construct and supply a machine to conform to the specifications and performance of a machine produced by another manufacturer - whether representations as to existing fact or future intent - application for declaration voiding agreement for sale - assessment of consequential damages.

Trade Practices Act, 1974 s. 52

HEARING

SYDNEY

#DATE 21:4:1988

Applicant: A. S. Martin, Esq.

Instructed by Messrs. Carneys.

Respondent: A. J. Meagher, Esq.

Instructed by Messrs. Blake Dawson Waldron.

ORDER

Declaration that the agreement between the applicant and the respondent of the 28th June, 1985 is void.

The respondent to pay to the applicant by way of return of deposit, damages and interest in the sum of $23,027.00.

The respondent to pay the applicant's costs of the application.

Each party to pay its own costs of the cross-claim.

JUDGE1

By its Application and Statement of Claim in these proceedings the Applicant, Bonney Forge Pty. Limited (formerly called ARVO PTY. LIMITED) ("Bonney Forge"), seeks declarations that a certain agreement entered into by it with the respondent, Press and Shear Machinery Pty. Limited ("Press and Shear"), on or about the 2nd of July, 1985 be declared void or void ab initio. It also seeks consequential damages.

The agreement was for the purchase of a machine, ultimately described in a quotation provided to the applicant by Press and Shear on the 14th June, 1985 as an "Engel Spin Collar Machine Model 8". In that quotation, the machine was further described as "generally as per Lockformer to accept maximum stock width of eight inches by 24G. Speed 40 fpm. 3/4 hp motor and electrix".
The machine was required to produce a certain product known as a "Spin Collar", an article forming a component part of certain types of air-conditioning ducting installations. The machine was not manufactured by the respondent but was purchased by it from an English manufacturing company with whom it regularly did business. That company was Engel Europa Pty. Limited ("Engel"). The evidence clearly establishes, that the production of the spin collar product was to be a critical part of the operations of the applicant, which at the time of the placing of the order in July, 1985 was about to enter into the business of providing various components for air-conditioning ducting installations. The spin collar component was to be its main product. It was, apparently, a new type of product and was to be used as a significant drawcard for the attraction of custom to the new business enterprise. There was considerable urgency in the obtaining of the machine. Agreed delivery dates would have involved the machine being delivered about the 1st October, 1985. However, this delivery date was far exceeded, the machine being ultimately delivered on the 21st February, 1986.
It is common ground that the machine, when delivered to Press and Shear for delivery by it to the applicant, was totally unacceptable. It did not produce the product required and was defective in many ways. The respondent had made numerous requests to Engel for it to expedite the delivery of this machine to Australia. When Mr. Law, the Sales Director of Press and Shear, saw the machine, he immediately formed the opinion that it was quite unsatisfactory. He so informed the applicant. It was not suggested at that time, has never been suggested since, and was not suggested in this litigation that the machine in any way complied with the requirements of the contract between the applicant and the respondent.
That contract, however, contained numerous exempting conditions. The respondent has, at all stages, been prepared to take back the machine, which was in fact delivered to the applicant and refund the deposit, which was paid. The applicant, however, having incurred financial loss through its inability to produce the spin collar product for a considerable period of time, has sought to recover damages which it is common ground are irrecoverable under the contract of sale itself.
It has sought to do so by bringing the present proceedings based upon alleged breaches of s. 52 of the Trade Practices Act, 1974 ("the Act").
It alleges that it was induced to enter into the contract as a result of misleading and deceptive representations and conduct on the part of the respondent, firstly to the effect that the machine to be purchased had the same specifications as a machine referred to as the Lockformer Machine, that it performed in the same manner as the Lockformer Machine, and accepted stock smaller than eight inches in width. It further relied upon an alleged representation on behalf of the respondent that the machine would be delivered within thirteen weeks from the date of the agreement.
These representations were said to arise from oral discussions between Mr. David Docherty and Mr. Hubert Schmid on behalf of the applicant, and Mr. Colin Law on behalf of the respondent, together with representations in documents. The respondent, by its defence, denies the making of representations of fact and says that such representations as were made were of a promissory nature only and that at the time they were made they were not false to the knowledge of the relevant representor nor were they made with reckless indifference to their truth or falsehood.
It is therefore necessary to consider the evidence as to the alleged representations and the relevant surrounding circumstances.
The evidence establishes that early in 1984 Mr. Docherty, the Company Manager of Bonney Forge, which was then known as Arvo Pty. Limited, and Mr. Schmid, a Director of the same company, were interested in establishing the company in the business of manufacturing duct accessories for the air-conditioning industry. The business was, at that stage, non-existent and required to be set up in every respect. Obviously, factory premises were to be acquired for lease; necessary machinery was to be obtained and installed; a production process designed; and a range of products established.
Early in 1984 Mr. Docherty attended the Sydney Trade Fair and examined machines, which were available on the market and which were designed for the production of ducting accessories. Amongst others, he observed a machine known as the Lockformer Spin Collar Maker. He was obviously impressed not only by the machine itself but more particularly by the product. This was an item described as a Spin Collar. The evidence establishes that it had the potential to be a most useful accessory as a linking device in ducting installations. It was also a fairly novel device; it performed its task well, was easy to produce through the use of this machine; and it significantly reduced installation times. If not at that time, then certainly later in the year, and early in 1985, both Mr. Docherty and Mr. Schmid saw this spin collar as being a product which would have considerable impact on the market and which could attract custom to the new company for this product and the other products contemplated as forming part of the company's range.
Mr. Docherty took with him the relevant brochure for the machine. It is Exhibit D. The machine was manufactured by the Lockformer Company, apparently incorporated in the United States of America. The agent which was promoting the Lockformer machines at the trade fair is referred to in the evidence as the Kleen organisation.
It appears that Mr. Docherty and Mr. Schmid continued their investigations into the acquisition of suitable machines for the proposed business throughout 1984 and into the early part of 1985. Although the intended production process has not been set out in any detail in the evidence, it is sufficiently clear that by the early part of 1985 what the men were seeking was something in the nature of a production line of machines which would produce ducting accessories with a particular emphasis on the spin collar. As I understand it, this production line would commence with the machining of appropriate sheet metal into particular sizes and configurations for the purpose, so far as the production of spin collars was concerned, of appropriate blanks being fed into the ultimate spin collar making machine. It is also clear that the applicant was working on a significantly tight financial budget.
Towards the end of 1984, Bonney Forge obtained a quote from the Kleen organisation for the Lockformer Spin Collar Maker. I gather that it also obtained quotes for other machines necessary in the proposed production line.
I am satisfied that approaches were made by Messrs. Docherty and Schmid to Press and Shear early in 1985, if not before, to obtain information about machines available for the production of air-conditioning ducting accessories through that organisation. I am satisfied that Messrs. Docherty and Schmid, in their evidence, have ascribed to one conversation with Mr. Law, the contents of other conversations taking place in a relatively short space of time. In my view, this is due to nothing more than an understandable error in recollection. It is perfectly clear, from documents tendered in the case, that before critical events in June and July of 1985 occurred, in relation to the Engel's machine ultimately ordered, that discussions had taken place about the possible acquisition of other and significantly more expensive Engel's machines to be used in the proposed production process. I am satisfied that Messrs. Docherty and Schmid were aware that Engel produced machinery designed for the production of ducting accessories and that Press and Shear sold such machinery in Australia.
In May, 1985 Press and Shear supplied a preliminary quotation for Engels machinery to the applicant. This quotation did not include any reference to a spin collar making machine. The quotation is unimportant in itself but is an indication that some significant contact had been made between the applicant and the respondent before conversations in relation to the relevant spin collar machine took place early in June. Indeed, it is clear from the evidence, that in prior discussions sketches had been made as to the applicant's requirements and correspondence had passed between Press and Shear and Engel in England in relation to these matters.
I am satisfied that the question of the supplying by Press and Shear of a spin collar machine was first mentioned in a meeting between Messrs. Docherty and Schmid and Mr. Law on the 2nd June, 1985. At this meeting, it is clear that Messrs. Docherty and Schmid produced the Lockformer brochure (Exhibit D). There is no dispute as to the fact that Mr. Law had not seen the particular machine before and, more particularly, had not seen its product, the spin collar. He was obviously interested in the product as a new development in air-conditioning ducting equipment. I am satisfied that he was far more intrigued with the spin collar device and its possible applications in his industry than he was in the machine itself. I consider that he regarded it as a basically simple machine, not difficult or expensive to make. Even at the price charged, the Lockformer machine was inexpensive in comparison with the other types of machine being considered by the applicant for its proposed production line. I am satisfied that Mr. Law genuinely believed that an equivalent machine could readily be manufactured by Engel in England and could be supplied along with the other equipment which was then under discussion. Obviously, if it could be supplied it would complete the range of equipment apparently required by the applicant for the purpose of its setting up in business.
The applicant, through Mr. Docherty and Mr. Schmid, asserts that Mr. Law, after examining the brochure and taking a photo-stat copy of it, made a statement to the effect that Engel, his principals in England, could build a machine exactly the same and which would produce an equivalent product. It is also asserted that Mr. Law said he would obtain a quote from Engel for the machine.
For his part, Mr. Law says that he made no positive assertion at that time that an equivalent machine producing an equivalent product could be supplied by the English manufacturer; he merely indicated that he would make inquiries as to whether this could be done and, if so, obtain a quotation for consideration.
I consider that, with the passage of time and with the inevitable processes of unconscious reconstruction that always affect the recollection of conversations, neither version represents the truth; in my view it falls somewhere between. I consider that Mr. Law certainly did more than indicate merely that he intended to make some inquiries on behalf of the applicant company. However, I do not think that he positively represented that an equivalent machine could be made. I think he did no more than express a firm opinion that it could be made. There is no evidence to suggest that he did not bona fide hold this opinion at that time. Indeed, the evidence satisfies me that he did. In these circumstances, the applicant fails to establish a case under s. 52 against the respondent based simply upon this conversation of the 2nd of June. I should add that, in my view, the telex (Exhibit 5) that Mr. Law sent to Engel the next day is quite inconsistent with his having expressed a positive assertion of fact that Engel had the ability to produce an equivalent machine to the Lockformer described in the brochure.
The relevant part of that telex, directed to Mr. Summerhayes of Engel was "They are interested in a Lockformer Spin Collar Maker. Do you know it? Catalogue no. 809. Can you come up with a price?" The catalogue reference related to information shown on the brochure identifying the particular Lockformer machine. It is clear that Lockformer produced, in America, machines for use in the same area of industry as those produced by Engel and that the respective companies would have a reasonable knowledge of each others products.
Mr. Law received an answering telex from Mr. Summerhayes on the 7th of June, 1985. It provided some information in relation to other machines being inquired about on behalf of the applicant. In relation to the spin collar machine, it said as follows:-

"Spin collar machine, as per Lockformer new pounds 5.250 exworks." (Exhibit 6)."

There is some dispute in the evidence as to whether Mr. Law contacted Mr. Docherty by telephone when he received this telex. I think that, on the balance of probabilities, he did. I accept that he said words to the effect:-

"Engel can do an equivalent machine"

and that he gave an approximate price. I am also satisfied that Mr. Docherty asked Mr. Law to go ahead and obtain a firm quotation from Engel for the supply of the machine.

In fact, Mr. Law, on the 11th of June, 1985, sent telex to Mr. Summerhayes (Exhibit 7) in which he referred to items of machinery, which had clearly been the subject of discussion between Mr. Docherty and Mr. Schmid and himself and in which he also referred to the spin collar machine in these terms:-

"Spin collar machine. Detailed quote required. Note "Lockformer offer 6 inches and 12 inch model. Client would prefer 8 inches"..."

Mr. Law received a response from England by telex of the 13th of June. This telex (Exhibit 8) provided information as to the other machines under discussion and said in respect of the spin collar machine:-

"Spin collar machine 8 inch wide - no problem."

I am satisfied that the inquiry as to whether the machine could be provided with a maximum eight inch receiving aperture had been the subject of discussion either at the meeting in June or in subsequent telephone conversations. I am satisfied that prior to receipt of this telex, Mr. Law did not on any occasion state as a matter of fact that the eight inch wide aperture was available, although he may have expressed an opinion to this effect. I am satisfied that after receipt of this telex he did inform Mr. Docherty, in a telephone conversation, that there was "No problem" about providing the eight inch aperture. It is clear, from other evidence in the case, that no great technical difficulty was involved in meeting this request.
It is apparent that Engel, in giving these assurances of the ability to produce an equivalent machine to the Lockformer, had failed to consider the question of whether there were any patent law difficulties in the way of producing such a machine. It appears sufficiently from later telexes in evidence that this problem surfaced whilst the machine was under construction, and resulted in an inability on the part of Engel to reproduce an automatic feature of the Lockformer machine. The absence of this feature made the machine, as delivered, useless for the applicant's purposes. I am quite satisfied, also, that the possibility of patent problems did not occur to Mr. Law in his discussions with the representatives of the applicant.
After the telexes and telephone conversations, to which I have referred, Mr. Law, on behalf of the respondent, prepared a quotation for the applicant dated the 14th June, 1985 (Exhibit E). This quotation gave prices for other machines, which had been under discussion. The machines were described and included modifications and variations, which had also been the subject of discussion. I am satisfied that the entire quotation had been produced with an eye to conforming with the budgetary requirements of the applicant, which had quite obviously been discussed on earlier occasions.
The spin collar machine was described as follows, being item 4 on the quotation.

"ONE ONLY ENGEL SPIN COLLAR MACHINE MODEL 8 Generally as per Lockformer to accept maximum stock width of 8" x 24G.

Speed 40 fpm

3/4 hp motor and electrics

PRICE: $12,000.00"

A delivery time of eight to ten weeks ex-works plus four to six weeks shipping was also given in respect of this machine.
On receipt of this quotation, Mr. Docherty and Mr. Schmid, after satisfying themselves that the price was significantly less than the price of purchasing a new Lockformer machine from the Kleen organisation, notified Mr. Law that they would accept the offer in relation to the spin collar machine, although it was apparently indicated by them that none of the other machines would be ordered.
Apart from a further conversation on the 2nd of July, at which time a price of $13,000 was finalised in order that a firm figure might be established, not subject to exchange fluctuation, nothing more of significance was said or done between the parties prior to the entering into the contract by the applicant to purchase the machine from the respondent. The machine was again described in a document in the nature of an invoice but described as an Acknowledgement no. 330429, which document, in my view, served only to record the agreement already reached. The description of the machine therein contained, viz:-

"ENGEL EUROPA Spin Collar machine to accept stock to 8" wide x 24G. with notching and execution and standard equipment as per Lockformer machine,"

accords with the description of the machine previously given. I do not think that the giving and receiving of this document, however, played any part in inducing the applicant to enter into the contract to purchase the Engel machine.

The critical question, therefore, is whether the contents of the quotation (Exhibit E), in the circumstances in which the document was provided to the applicant involved the respondent in any breach of s. 52 of the Act. Did it convey representations which were false or misleading? A fundamental issue also arises as to whether the representations contained in the document were representations of fact or promissory or predictive in nature.

The relevant principles of law have been discussed in a number of decided cases. In Global Sportsman Pty. Ltd. & Anor. v. Mirror Newspapers Ltd. & Anor. (1984) 55 ALR 25, at p 30-31, the Full Court of the Federal Court (Bowen, C.J., Lockhart and Fitzgerald, JJ.) made the following observations:-

"Evidence that an erroneous conclusion has been formed by reference to conduct is admissible to establish that the conduct was misleading or deceptive or likely to mislead or deceive; such evidence may be persuasive but it is not essential. Evidence of acts or omissions resulting from the erroneous belief may also be admissible but again is not essential. Section 52(1) is concerned with the effect or likely effect of conduct upon the minds of those by reference to whom the question of whether the conduct is or is likely to be misleading or deceptive falls to be tested. The test is objective and the court must determine the question for itself: Taco Co. of Australia Inc. v. Taco Bell Pty. Ltd. (1982) 42 ALR 177 at 202. ...

Whether and in what circumstances the mere communication of information is or may be sufficient to contravene sub-s (1) is a question to which it will be necessary to return. However, it is not in doubt that a corporation contravenes s. 52(1) if it makes a statement which is misleading or deceptive or likely to mislead or deceive: see, for example, Bill Acceptance Corporation Ltd. v. G.W.A. Ltd. (1983) 50 ALR 242.

...

If a corporation is alleged to have contravened s. 52(1) by making a statement of past or present fact, the corporation's state of mind is immaterial unless the statement involved the state of the corporation's mind. Whether or not s. 52(1) is contravened does not depend upon the corporation's intention or its belief concerning the accuracy of such statement, but upon whether the statement in fact contains or conveys a meaning which is false; that is to say whether the statement contains or conveys a misrepresentation. Most commonly, such a statement will contain or convey a false meaning if what is stated concerning the past or present fact is not accurate; but a statement which is literally true may contain or convey a meaning which is false.

Many statements, for example, promises, predictions and opinions, do involve the state of mind of the maker of the statement at the time when the statement is made. Precisely the same principles control the operation of s. 52(1) with respect to the making of such statements. A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, the making of the statement will have contravened s. 52(1) of the Act. Compare Lyons v. Kern Konstructions (Townsville) Pty. Ltd.

(1983) 47 ALR 114.

The non-fulfilment of a promise when the time for performance arrives does not of itself establish that the promisor did not intend to perform it when it was made or that the promisor's intention lacked any, or any adequate, foundation. Similarly, that a prediction proves inaccurate does not of itself establish that the maker of the prediction did not believe that it would eventuate or that the belief lacked any, or any adequate, foundation. Likewise, the incorrectness of an opinion (assuming that can be established) does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any, or any adequate information.

...

An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion. At least if those conditions are met, an expression of opinion, however erroneous, misrepresents nothing."

To like effect is the following statement from the judgment of Toohey, J. in James v. A.N.Z. Bank, 64 ALR 347 at p 372:-

(1) A corporation may be in contravention of s. 52, whatever its intention or the state of mind of those controlling it: Hornsby Building Information Centre Pty. Ltd. v. Sydney Building Information Centre Ltd. (1977) 140 CLR 216; 18 ALR 639; Parkdale Custom Built Furniture Pty. Ltd. v. Puxu Pty. Ltd. (1981) 149 CLR 191; 42 ALR 1.

(2) The mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive: Bill Acceptance Corporation Ltd. v. G.W.A. Ltd. (1983) 50 ALR 242.

(3) Nevertheless, a statement relating to the future may contain an implied statement as to present or past fact. It may represent impliedly that the promisor has a present intention to make good the promise and it may represent impliedly that he has the means to do so: Thompson v. Mastertouch TV Services Pty. Ltd. (1977) 15 ALR 487.

(4) A statement involving the state of mind of the maker of the statement, eg promises, predictions and opinions, ordinarily conveys the meaning that the maker of the statement had a particular state of mind when the statement was made and that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, there will have been a contravention of s. 52: Global Sportsman Pty. Ltd. v. Mirror Newspapers Ltd. (1984) 55 ALR 25; Australian Ocean Line Pty. Ltd. v. West Australian Newspapers Ltd. (1984) 58 ALR 549."

Additionally, the case of Bill Acceptance Corporation Ltd. v. G.W.A. Ltd. (50 ALR 242), is authority for the proposition that:-

"In cases of representations as to future events or conduct where issues as to the respondent's state of mind are involved, contravention of s. 52 requires that the maker did not believe what was stated or made the representations with reckless indifference to their accuracy."

I have already had regard to these principles when holding that Mr. Law and the respondent did not commit any breach of s. 52 in the opinion expressed by Mr. Law in the discussion of the 2nd of June.
On behalf of the respondent, it is submitted that any representations conveyed by the reference to the Engel Spin Collar Machine in the quotation, Exhibit E, were promissory in nature or were reresentations as to the future. If that be so, then, clearly, no breach of the section can be involved. I have no doubt that Mr. Law was of the opinion that Engel could provide a machine of the description set out in the quotation and that he believed on reasonable grounds, that it would do so in performance of any contract that should come into existence by the acceptance of the quotation. There is no suggestion, nor could there be, on the evidence, that Mr. Law's conduct was characterised in any way by fraud or reckless indifference to truth or falsehood.
On the other hand, it is submitted on behalf of the applicant that the giving of the quotation amounted, in the circumstances to a statement of present fact, which was misleading, i.e. that Engel had a capacity to produce and deliver a machine, which would perform in the same manner as the Lockformer machine, which had been the subject of discussion and which would accept stock up to a maximum width of eight inches.
After some hesitation I have come to the firm conclusion that this submission is sustained by the evidence.
As indicated previously, I am satisfied that in the meeting of the 2nd of June, Mr. Law expressed the firm opinion to Messrs. Docherty and Schmid that Engel would be able to provide a machine equivalent to the Lockformer in the brochure and informed them that he would make inquiries, in effect to confirm this opinion, and obtain a quote. At the conclusion of that meeting he had, accordingly, made no representation that could be construed as being one of present fact. After receiving the information, by way of telex, to which I have already made reference, I am satisfied that he was personally of the view that Engel could produce an equivalent machine which could produce an equivalent product. He was, indeed, himself misled into forming this view by representations made to him in the telexes. He had no reason to doubt the capacity of Engel to produce the machine. In his telephone conversation with Mr. Docherty, after receipt of the telex, he expressed no doubt as to that capacity. All this information, which was supplied orally, was in fact crystallised in written form, in the quotation, Exhibit E. That quotation amounted, in my view, to a clear representation of fact that Engel was able to make the machine as described.
The machine was in fact given a model number and finds its place in the quotation amongst other machines in respect of which specifications clearly existed and the making of which could clearly be undertaken by Engel as a matter of routine manufacture. Mr. Schmid was of the view that, as so represented, the machine was an item that Engel had produced before and could produce again. In all the circumstances, I am satisfied that the quotation reasonably conveyed this representation. It was a misleading representation and involved the respondent in a breach of s. 52.
The applicant relies also upon representations made as to the time of delivery of the machine. It is unnecessary for me to refer in detail to the evidence relating to this claim. I am clearly of the view that representations as to delivery times made progressively by Mr. Law were promissory or predictive in nature. The evidence, in no way, establishes that he knew them to be false or that he was making them with reckless indifference to their truth or falsehood. He was quite clearly relying upon information given to him from Engel in England, and was himself misled. No breach of the section is established in respect of these representations.
I turn to the question of relief.
There has been no contest in the matter that, if I should find liability established in favour of the applicant, as I have done, that it would be appropriate at least to make an order avoiding the contract and directing a return to the applicant of the deposit paid, $2,600.00; the respondent to be entitled to the return of the machine. I consider this to be an appropriate order and I accordingly make it. It should be noted, of course, that the applicant did not pay the balance of the purchase price, namely $10,400.00. This amount has in fact been claimed by Press and Shear by way of cross-claim. In the circumstances, this cross-claim must be dismissed. However, as it has always been the attitude of the respondent that it was willing to refund the deposit and take back the machine, which it acknowledged to be fundamentally defective from the time of its delivery, I consider that each party should bear its own costs of the cross-claim.
The applicant has made a detailed claim for consequential damages. I consider that the proper approach to damages in this case is as set out in Gates v. City Mutual Life Assurance Society Ltd. (63 ALR 600 at 608). It is necessary for me to determine:-

"What the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract ... on which he would have made a profit, then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation."

(See also Bateman v. Slayter (1987) ATPR 40,762 at 48,261.)

I am satisfied that had the applicant not been induced to purchase the defective Engel's machine, it would in fact have purchased the Lockformer machine at or about the time that it placed its order for the Engel's machine, namely the commencement of July, 1985. It would have had to accept the delivery time required for the machine to be made up in America and sent to it in Australia. The Lockformer machine was in fact purchased by the applicant after the delivery of the defective Engel's machine. The Engel's machine was delivered on the 21st February. The Lockformer machine was not ordered by the applicant until the 18th of March. I consider that it was reasonable for the applicant to do what it did, namely spend that period of time in having inspections made of the defective machine and giving consideration as to whether it could be made to work effectively. This period of delay must be laid at the door of the respondent.
The Lockformer machine ordered on the 18th March, was delivered to the applicant on the 19th of May. It is reasonable to assume that had the applicant purchased a Lockformer instead of the Engel's machine on the 2nd of July, 1985, that a similar period of time would have elapsed before it could have been delivered. Accordingly, in my view, as a result of being induced to purchase the Engel's machine, rather than the Lockformer machine, the applicant lost a period of potential production equivalent to the time which elapsed from what would have been the reasonable delivery date of the Lockformer machine to its actual delivery date on the 19th May, 1986. In so finding, I have taken into account the pre-profitmaking stockpiling period referred to in evidence. Obviously, this period would have been involved whether the Lockformer machine was delivered in September, 1985 or May, 1986.
Necessarily, the calculation of the delivery period can only be approximate. There is no direct evidence as to how long it would have taken for the Lockformer machine to be delivered on the basis of an order placed at the beginning of July, 1985. The applicant has produced calculations of loss of profit based upon a period from the 1st October, 1985, the date upon which it was entitled to receive delivery of the Engel machine and the 20th May, 1986 when the Lockformer was delivered. In all the circumstances, I think that this is a reasonable period to select as the period during which the applicant was prevented from putting a spin collar machine to profitable use. If anything, it is very slightly favourable to the respondent.
A calculation of loss of profit has been made by Mr. C. H. Smith, Public Accountant, in the amount of $10,756.07. The basis of this calculation is set out in his Affidavit of the 6th July, 1987. The calculation is based upon earning figures of Bonney Forge for the period 20th May to 30th November, 1986, during which period production occurred with the use of the Lockformer machine. The profit and loss statement for the period in fact shows a net loss of $6,088.44. However, by adding back amounts for accountancy fees, financial expenses and legal fees in the total sum of $7,185.70, as being amounts that would not have been expended by Bonney Forge if it had not commenced these proceedings together with an interest charge of $791.00 and a depreciation cost of $7,813.00, Mr. Smith arrives at an adjusted net profit of $9,611.17, producing a net profit per week of $346.97. This weekly figure is used for the calculation of the amount claimed for loss of profit.
In my view, it is simply not possible to calculate loss of profit to this order of accuracy. I do not know what the market situation would have been had the applicant received the Lockformer machine round about the commencement of October, 1986. I also have some doubt on the evidence as to whether the amount of $3,385.00 for accountancy fees and $2,300.70 for financial expenses, which were added back in the process of arriving at net profit should be entirely attributed to the bringing of this action. In particular, it would appear that the financial expenses include ordinary business expenses.
Doing the best that I can, I find that the applicant is entitled to $9,000.00 for loss of profits.
The evidence also establishes that had the Lockformer machine been purchased in July, 1985, it would have cost "roughly $15,000.00". The equivalent cost when it was purchased in 1986 was $16,850.00. The difference is claimed as damages by the applicant. I think it reasonable to allow $1,600.00 under this head.
A claim is made by the applicant for the amount of the rent of the factory premises for an eight month period. This is the period from the time when the applicant went into possession of its factory premises to the time when the Lockformer machine was delivered to it. The amount claimed is $6,760.00, the full amount of the rent paid over this period. It is claimed on the basis that the money was simply thrown away as the premises could not be put to any productive use in the absence of an efficient spin collar making machine. I do not consider that the applicant is entitled to the whole of this amount. The premises were in fact used over this period for the storage of a large number of items. It was necessary to have access to the premises in order to install other machinery. Obviously, the premises provided some use as an office. Doing the best I can, I think it reasonable to allow approximately two thirds of the amount claimed. I allow $4,500.00.
A claim is made for the amount paid to the Sydney County Council for electricity used in the factory premises over the relevant period. The claim is made on the same basis. The total amount of the claim is $227.31. I consider that this claim must be reduced on the basis that, obviously, the applicant used electricity in relation to some company operations being conducted in the premises. I allow $120.00.
A claim is made for $89.00 for telephone rental on the same basis. Obviously, the telephone was put to some company use. I allow $50.00.
A claim is made for the rental of a telex machine on the same basis. The total amount claimed is $876.00. I allow $700.00.
The total of these amounts, including the deposit, which I have ordered to be refunded, is $18,570.00.
A claim for interest is made. It is clear that the amounts outstanding have accrued due at different periods, although it can be said that the total has been owing since May, 1986. I consider that a just result is achieved if I allow interest at 12% on the total sum for a period of two years. The interest so calculated amounts to $4,457.00.
The total amount of damages that I award is therefore $23,027.00.
I make the following orders:-

1. Declaration that the agreement between the applicant and the respondent of the 28th June, 1985 is void.

2. The respondent to pay to the applicant by way of return of deposit, damages and interest, the sum of $23,027.00.

3. The respondent to pay the applicant's costs of the application.
4. Each party to pay its own costs of the cross-claim.

[1988] FCA 135

21 APRIL 1988