Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd
[2014] NSWCA 158
•21 May 2014
This decision has been amended. Please see the end of the decision for a list of the amendments.
Court of Appeal
New South Wales
Case Title: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd Medium Neutral Citation: [2014] NSWCA 158 Hearing Date(s): 29 - 30 October 2013 and 17 December 2013 (on the papers) Decision Date: 21 May 2014 Before: Ward JA at [1];
Emmett JA at [2];
Gleeson JA at [18]Decision: 1. Appeal allowed in part.
2. Cross-appeal allowed in part.
3. Vary orders 1 and 2 made by the primary judge on 27 February 2013 by amending the reference to "the plaintiffs" to read "the second plaintiff" and by inserting the figure of "$216,424.32" in place of "$254,468.80".
4. Set aside order 2 made by the primary judge on 18 April 2013 in respect of the amount of interest on the judgment from 1 March 2005 to 27 February 2013.
5. Direct the parties to agree upon and provide to the Court the calculation of interest required by order 2 made on 27 February 2013, as varied, by order 3 above.
6. Vary order 6 made by the primary on 27 February 2013 by inserting the words "s 101(4)" in place of "s 100".
7. The respondents' notice of motion filed 14 November 2013 be dismissed with costs.
8. Direct the parties to file within 14 days agreed short minutes of order giving effect to these reasons.
9. In default of agreement:
(a) the appellants file and serve within 14 days proposed short minutes of order, together with brief written submissions in support;
(b) the respondents file and serve within a further 14 days their proposed short minutes of order, together with brief written submissions in support.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: COSTS - Challenge to costs orders - ss98, 100, 101 Civil Procedure Act 2005 - Failure to demonstrate House v R error in exercise of discretion
DAMAGES - General Principles - Mitigation of Damages - Plaintiff's duty to mitigate - Whether there was a failure to mitigate or causation of loss on the part of the respondent - Onus of proof - Relevance of respondents' conduct to their claim for lost profits - Whether the Court erred in reducing awardable damages
DAMAGES - General Principles - Part VIA Trade Practices Act 1974 and Part 4 Civil Liability Act 2002 - Proportionate Liability - Concurrent Wrongdoers - Apportionable Claim - Whether a duty of care was owed - Legislation only applies if civil liability arose before 26 July 2004
DAMAGES - Calculation of Damages - Loss of Profits Claim
EVIDENCE - General - Whether failure to call witness and to tender certain documents should have given rise to a Jones v Dunkel inference - Whether the inferences for which the respondents contended should have been treated with greater reserve - Principles in Payne v Parker
PROCEDURE - Application to adduce additional evidence and make further submissions - s 75A Supreme Court Act 1970
TRADE AND COMMERCE - Consumer Protection - Misleading or Deceptive Conduct - s 52 Trade Practices Act 1974 and s 42 Fair Trading Act 1987 - Whether particular representations made by the appellants were misleading and deceptive - Whether evidentiary hurdle has been satisfied
TRADE AND COMMERCE - Consumer Protection - Representations as to future matters - s51A Trade Practices Act 1974 and s41 Fair Trading Act 1987 - Impact of the legislation upon legal or evidential onus of proof - Where representor denies making the representation but also contends reasonable grounds exist - Principles in Sykes v Reserve Bank of Australia - Establishing actual belief on the part of the representor - Distinction between circumstances where the representor is an individual or a corporationLegislation Cited: Civil Liability Act 2002 ss 3B(3), 34, 35, Schedule 1 Part 4
Civil Liability Amendment Act 2003 Schedule 1
Civil Liability Amendment (Personal Responsibility) Act 2002 Schedule 1 Pt 3
Civil Liability Amendment (Proportionate Liability) Regulation 2004 cl 3
Civil Liability Regulation 2009 reg 5
Civil Procedure Act 2005 ss 98, 100, 101
Corporations Act 2001 ss 1453, 1466
Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 Schedule 3
Fair Trading Act 1987 ss 41, 42
Supreme Court Act 1970 s 75A
Trade Practices Act 1974 ss 51A, 52, 75B, 82, 87CD
Uniform Civil Procedure Rules r 42.34,Cases Cited: Akins v National Australia Bank (1994) 34 NSWLR 155
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1
Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 52 FCR 474
Bale & Anor v Mills [2011] NSWCA 226
Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37
Bill Acceptance Corporation Ltd v GWA Ltd [1982] FCA 269; 78 FLR 171
Brandi v Mingot (1976) 12 ALR 551
Browne v Dunn (1893) 6 R. 67
City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94
Commercial Union Assurance Company of Australia Ltd v Ferrcom (1991) 22 NSWLR 389
Coulton v Holcombe [1968] HCA 33; 162 CLR 1
Cummings v Lewis (1993) 41 FCR 559
Daniels v Anderson (1995) 37 NSWLR 438
Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300
Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; 62 IPR 184
Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199
Drummond and Rosen Pty Ltd v Easey & Ors (No 2) [2009] NSWCA 331
Earle v Castlemaine District Hospital [1974] VR 722
General Newspapers Pty Ltd v Telstra Corporation [1993] FCA 473; 45 FCR 164
Harrison v Schipp [2002] NSWCA 78; 54 NSWLR 612
House v R [1936] HCA 40; 55 CLR 499
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640
Hutchinson v Equititour Pty Ltd [2011] 2 QD R 99
Illawarra Hotel Co Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; 84 NSWLR 436
Jazabas Pty Ltd v City of Botany Bay Council [2002] HCATrans 131
Jones v Dunkel [1959] HCA 8; 101 CLR 298
Kalls Enterprises Pty Ltd (in liq) & Ors v Baloglow & Anor (No 3) [2007] NSWCA 298
Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; 10 BPR 18,735
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361
Lahoud v Lahoud [2006] NSWCA 126
Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor [2012] NSWSC 529
Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 2) [2012] NSWSC 1579
Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 3) [2013] NSWSC 135
Metwally v University of Wollongong [1985] HCA 28; 60 ALR 68
MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416
Origin Energy LPG Ltd v Bestcare Foods Ltd [2007] NSWCA 321
Origin Energy LPG Ltd v BestCare Foods Ltd [2013] NSWCA 90
Payne v Parker [1976] 1 NSWLR 191
Potts v Miller [1940] HCA 43; 64 CLR 282
Re McGrath; Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; 165 FCR 230
Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170
Ronchi v Portland Smelter Services Ltd [2005] VSCA 83
Sanders v Glev Franchises Pty Ltd [2002] FCA 1332
Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332
Sykes v Reserve Bank of Australia (1998) 88 FCR 511
Trade Right (NSW) v Bank of Queensland [2014] NSWSC 55
West v Mead [2003] NSWSC 161
Willett v Thomas [2012] NSWCA 97Texts Cited: D Byrne and J D Heydon, Cross on Evidence (Australian loose-leaf edition, Butterworths) at [1215] Category: Principal judgment Parties: Doppstadt Australia Pty Ltd (First appellant)
Raymond John Davis (Second appellant)
Lovick & Son Developments Pty Ltd (First respondent)
Lovick Engineering Pty Ltd (Second respondent)Representation - Counsel: Counsel:
C C Hodgekiss SC with H Woods (Appellants)
I Pike SC with D A Lloyd (Respondents)- Solicitors: Solicitors:
Michael Flaherty (Appellants)
Campbell Paton & Taylor (Respondents)File Number(s): 2013/87009 Decision Under Appeal - Court / Tribunal: Supreme Court - Before: Slattery J - Date of Decision: 21 May 2012 - Citation: Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor [2012] NSWSC 529Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 2) [2012] NSWSC 1579Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 3) [2013] NSWSC 135 - Court File Number(s): 2006/255184
JUDGMENT
WARD JA: I have had the advantage of reading in draft the comprehensive reasons of Gleeson JA. I agree with the orders proposed by his Honour for the reasons his Honour gives.
EMMETT JA: This appeal and cross-appeal concern the sale, in February 2004, of a Doppstadt AK430K high-speed timber shredder (the Doppstadt shredder) by the first appellant, Doppstadt Australia Pty Limited (Doppstadt), to the first respondent, Lovick & Son Developments Pty Ltd (Developments). Developments let the Doppstadt shredder on hire to the second respondent, Lovick Engineering Pty Limited (Engineering).
The business of Developments consisted of acquiring heavy machinery and leasing it to Engineering. Engineering's business included the repair and external hire of heavy plant and equipment. Mr John Lovick was a director and controlling shareholder of both Developments and Engineering.
Developments and Engineering sued Doppstadt on the basis that they had been the victims of misleading and deceptive conduct on the part of Doppstadt, in that they had been induced to buy the Doppstadt Shredder in reliance on false representations made on behalf of Doppstadt. They alleged that the second appellant, Mr Raymond Davis, who was the sole director of Doppstadt, was knowingly concerned in the wrongful conduct that they alleged on the part of Doppstadt.
The allegations made by Developments and Engineering in their amended statement of claim, so far as relevant to the appeal, may be summarised as follows:
·In February 2004, Developments entered into a contract with Doppstadt whereby Developments agreed to buy and Doppstadt agreed to sell and deliver the Doppstadt shredder, together with a screening basket, for a total price of $662,561 (the Contract);
·On taking delivery of the Doppstadt shredder, Developments hired it to Engineering for use in its land clearing and green mulching business;
·Prior to the making of the Contract, Doppstadt made various representations to Developments and Engineering (the Representations);
·The conduct of Doppstadt in making the Representations was misleading and deceptive in that the Representations were false and Doppstadt thereby contravened s 52 of the Trade Practices Act1974 (Cth);
·By reason of that contravention, Developments suffered loss and damage, in that the Doppstadt shredder has no value as a shredder and Developments has suffered damage in the amount of the purchase price paid;
·By reason of the contraventions of s 52, Engineering also suffered loss and damage, including loss of profits.
The causal connection between the alleged damage and the contravention is not dealt with expressly in the pleading. The case that was ultimately prosecuted by Developments and Engineering was that, in reliance upon the Representations, Developments bought the Doppstadt shredder and hired it to Engineering and that Developments refrained from buying a Peterson machine (a different brand of shredder) and hiring that machine to Engineering. It also appears to be asserted that, in some way, Engineering, in reliance on the Representations, took the Doppstadt shredder on hire and refrained from taking a Peterson machine on hire from Developments.
In February 2005, Developments bought a Peterson machine. Thus, Developments and Engineering used the Doppstadt shredder for a year before acquiring the Peterson machine. They claimed that they had no problems with the Peterson machine, in contrast with the Doppstadt shredder. In March 2007, Developments sold the Doppstadt shredder for $255,000.
The primary judge found that some of the Representations had been made out. His Honour also found that certain of the Representations were misleading and deceptive and that Mr Davis was knowingly involved in making the Representations. However, his Honour found that Developments and Engineering failed to mitigate their losses and that they were responsible for their losses to the extent of one third. His Honour also applied a twenty percent discount to Engineering's claim for loss of profits from February 2004 to February 2005. His Honour dismissed allegations of contributory negligence made by Doppstadt. Finally, his Honour found that Mr Lovick and Engineering were concurrent wrongdoers in respect of Developments' claim and that Mr Lovick and Developments were concurrent wrongdoers in respect of Engineering's claim, but did not proceed to determine questions of apportionment.
Having made those findings, the primary judge heard further submissions from the parties on the question of damages. His Honour concluded that Developments and Engineering had failed to establish any loss at the time of their acquisition of the Doppstadt shredder in February 2004 by reason of a difference between the price paid and the actual market value. On the other hand, his Honour concluded that Developments and Engineering had succeeded in establishing that, after discounts, a loss of profits in the sum of $254,468.80 was suffered by reason of operating the Doppstadt shredder, rather than a Peterson machine, between February 2004 and February 2005.
The primary judge then received further submissions on the question of interest and costs and concluded that interest should run on the judgment sum from 1 March 2005. His Honour ordered that Doppstadt and Mr Davis pay 40 percent of the costs of Developments and Engineering of the proceedings. Finally, his Honour ordered Doppstadt and Mr Davis to pay interest on the costs payable to Developments and Engineering.
In their amended notice of appeal, filed on 16 July 2013, Doppstadt and Mr Davis raised 36 separate grounds. In their amended notice of cross-appeal, filed on 30 October 2013, Developments and Engineering raised eight separate grounds. The grounds raised by Doppstadt and Mr Davis may be divided into five categories as follows:
·evidentiary matters, primarily in respect of the operation or performance of the Doppstadt shredder;
·the findings of the primary judge that certain of the Representations were misleading and deceptive;
·his Honour's conclusions concerning the apportionment claim;
·the findings and conclusions of the primary judge in relation to damages;
·the orders concerning interests and costs.
The grounds raised by Developments and Engineering may be divided into separate categories as follows:
·findings concerning the failure to mitigate damage;
·the discount applied to the quantum of damages;
·rejection of the claim for damages based on the value of the Doppstadt shredder at the time of purchase;
·costs;
·the calculation of the damages awarded to Developments.
There was some confusion in the submissions concerning the distinction between causation and mitigation of loss. The primary judge referred to the allegation that Developments and Engineering failed to take reasonable steps to service, maintain and repair the Doppstadt shredder, thereby contributing to its poor condition and loss of value. That was characterised as an issue of causation and mitigation. The real question was whether or not Developments and Engineering established that they had suffered loss and damage. The existence of a causal connection between contravention and damage is a matter upon which a plaintiff bears the onus. On the other hand, questions of mitigation raise an onus for a defendant.
I have had the advantage of reading in draft form the very thorough and detailed reasons of Gleeson JA. I agree with the conclusions reached by his Honour on all of the issues and with the orders proposed by his Honour for the reasons given by him.
In particular, I agree with Gleeson JA that there was no error on the part of the primary judge in failing to draw an inference against Engineering and Developments by reason of the failure to call either Mr Missingham or Mr Gold. While evidence that might have been contradicted by a witness can be accepted the more readily if the witness fails to give evidence, the absence of a witness cannot be used to make up a deficiency in the evidence. Where an inference is open from facts proved by direct evidence, and the question is whether that inference should be drawn, the fact that a witness who might have been called to prove the contrary is not called may properly be taken into account as a circumstance in favour of drawing the inference (Jones v Dunkel [1959] HCA 8; 101 CLR 298 at 312). Where the evidence supports the drawing of an inference favourable to one party, a person able to put the true complexion on the facts relied on for drawing that inference has not been called as a witness by the other party and there is no sufficient explanation for the absence of the witness, that inference can be more confidently drawn (Jones v Dunkel at 308).
Where a party who is capable of testifying fails to give evidence, or where an available witness is not called and the failure is not explained, an inference may be drawn that the evidence would not help that party's case. That is to say, an inference can be drawn where a relevant witness does not give evidence that counsel for the relevant party concluded that the client is more likely to succeed without the evidence (Jones v Dunkel, 321-322).
I also agree with Gleeson JA's treatment of the contention by Doppstadt that Engineering's claim was an "apportionable claim" in so far as his Honour concludes that Mr Lovick and Developments were not "concurrent wrongdoers". As his Honour says, that conclusion is sufficient to dispose of that issue. Without expressing any doubt as to the correctness of Gleeson JA's conclusion that the relevant legislation had no application, I express no view on that question.
By notice of motion filed on 14 November 2013, Developments and Engineering sought leave to adduce additional evidence and to make supplementary submissions on appeal. I agree with Gleeson JA that leave should be refused.
GLEESON JA: This appeal concerns a German manufactured timber shredder machine, referred to as a Doppstadt AK430K high-speed shredder (Doppstadt shredder), which the first appellant (Doppstadt Australia) marketed and sold to the first respondent (Developments) in February 2004 for $602,328 (ex GST). Developments leased the machine to the second respondent (Engineering) for use in its business, which included a contracting business. Mr John Lovick was a director and the controlling shareholder of both respondents.
Doppstadt Australia is the Australian distributor of the Doppstadt range of high-speed timber shredders. The second appellant, Mr Raymond Davis (Mr Davis), is the sole director of Doppstadt Australia.
The Doppstadt shredder did not perform in accordance with the respondents' expectations. In February 2005 the respondents ceased using it and replaced it with a different brand of shredder/grinder, a Peterson, which was manufactured in the United States. The respondents subsequently sold the Doppstadt shredder to a third party in February 2007 for $255,000 (ex GST), an amount considerably less than its original purchase price.
In February 2006 the respondents commenced proceedings against the appellants claiming damages for breach of contract, breach of collateral warranty, misleading or deceptive conduct prior to purchase of the shredder, and negligent misrepresentation. The proceedings did not come on for trial until December 2010. The only claims pursued at trial were the misleading conduct claim against both appellants and the negligent misrepresentation claim against Mr Davis.
The hearing before the primary judge (Slattery J) took place over nine days in December 2010 and one day in June 2011. His Honour reserved his decision on 4 July 2011. Judgment on liability issues was given on 21 May 2012. His Honour found the appellants liable to the respondents for misleading conduct, but assessed the respondents as being responsible for causing themselves one third of their loss and damage in respect of the machine: Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor [2012] NSWSC 529 (Judgment No 1).
A hearing on the assessment of damages occurred in May 2012 and judgment was given on 17 December 2012. His Honour awarded no damages to Developments. He awarded damages to Engineering of "$254,468.80": Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 2) [2012] NSWSC 1579 (Judgment No 2).
A further hearing on the questions of interest and costs took place in February 2013 and judgment was given on 27 February 2013: Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor (No 3) [2013] NSWSC 135 (Judgment No 3).
The result of the proceedings was that the primary judge ordered that:
(1)judgment be entered for the respondents for $254,468.80;
(2)interest be paid to the respondents on that sum from 1 March 2005 to 27 February 2013. (Note: following agreement between the parties as to the calculation of interest the Court gave judgment on 18 April 2013 for interest in the sum of $183,046.69);
(3)the appellants pay 40% of the respondents' costs of the proceedings, as agreed or assessed; and
(4)the appellants pay interest at the rates prescribed under Civil Procedure Act 2005 (NSW), s 100 on amounts of costs actually paid by the respondents. (Note: the reference in the orders to "s 100" was an error. It should have been "s 101(4)": see [410] below.)
The appellants have appealed against each of the judgments in respect of liability, damages, interest, and costs. The respondents have cross-appealed against the judgments on damages and costs.
The purchase of a shredder
Commencing in August 2003 Mr Lovick investigated the purchase of a "shredder" or "grinder" from a number of different suppliers - Peterson, Vermeer, and Van Gelder. Mr Lovick was seeking such a machine to expand Engineering's contracting business to process green waste for local councils to a finer end product suitable for sale as horticultural mulch, which is resaleable by local councils.
Mr Lovick inspected a Peterson machine at a dealership at Albury and was impressed with what he saw, but was informed that there was a six-month waiting list for delivery. Following a recommendation by an officer of a local council he made contact with Doppstadt Australia on 31 October 2003. Between that date and the first week of February 2004 Mr Lovick met or communicated with representatives of Doppstadt Australia, including Mr Davis, on at least five occasions. He claimed that certain representations were made to him orally and in writing in relation to the suitability, reliability, and performance of a Doppstadt AK430K high-speed shredder. Ultimately, Developments purchased such a shredder, serial number 371, from Doppstadt Australia in February 2004.
Performance of the shredder
The primary judge explained the operation of mechanical shredders, such as the Doppstadt shredder, in the following terms in Judgment No 1:
"45 Mechanical shredders of green waste generally require the use of other ancillary machinery to aid their operations. An excavator is required to shear oversized material into smaller sized pieces and then load the sheared and other material into the shredder. The extent to which mechanical shredding requires pre-shearing is one of the issues in these proceedings. At the end of the shredding process the shredding-product must be taken away by a truck or conveyor. Except for tracked vehicle shredders such as the AK430K, shredders can only be moved with the assistance of other powered transport vehicles.
46 The centre of any grinder or shredder is a hammermill which is a rotating steel cylinder from which hard faced steel hammers protrude and which strike the material to be ground, reducing it to a mulch. The particle size of the product is controlled by varying the screen through which the material is pushed at the end of the process, acting like a sieve.
47 Doppstadt Australia distributed Doppstadt shredders described as 'horizontal end-feed grinders'. Such shredders are essentially designed as a large open topped bin into which the green waste can be dropped by tractor or excavator at one end. The bottom of the bin has a travelling floor that moves from that end to the other. This floor draws the material towards a compression roller which compacts it, so it can then be struck and reduced by the rotating cylinder with its metal hammers. Then the machine feeds the end-product onto a conveyor belt and discharges it into stockpiles. Even this description of the process makes clear it requires high amounts of energy, and large horsepowered engines. The shredding machine's chassis is subjected to high mechanical stress. Although there are only a limited number of moving parts, the conveyor, the compressor, the hammer, they too are subjected to considerable mechanical stress.
48 The AK430K, as with most other mechanical shredders of green waste, was controlled by electrical and hydraulic systems and was diesel powered. The problems Mr Lovick described with the AK430K in this case, covered most of the components and operating systems, just described."
Engineering operated the Doppstadt shredder from February 2004 until February 2005. The respondents' case at trial was that Engineering experienced problems with the shredder very shortly after it was first delivered. There was a significant factual dispute in relation to the reasons for the shredder's stoppages - were they caused by operator error and the alleged failure by the respondents to service, maintain, and repair the shredder, or was the shredder defective and not as represented by the appellants.
Two of Engineering's operators of the shredder in the first 12 months gave evidence and were cross-examined - Mr Triantafyllou who operated the machine from 25 February until 15 June 2004, and Mr Wilton, the last operator of the shredder between November 2004 and February 2005. The respondents did not call either Mr Missingham or Mr Gold who operated the shredder between June 2004 and November/December 2004. Their absence is the subject of one of the appellants' complaints on appeal, which asserts that the primary judge should have, but failed to, draw a Jones v Dunkel [1959] HCA 8; 101 CLR 298 inference against the respondents.
The primary judgments
Liability - Judgment No 1
The primary judge found that Doppstadt Australia made 14 of the pleaded representations concerning the Doppstadt shredder (both written and oral) to Mr Lovick, on behalf of the respondents, and that 10 of those representations were misleading or deceptive. These included representations that:
·the machine was suitable for Mr Lovick's operations;
·it was reliable and required less maintenance than rival shredders;
·its operation was smooth and powerful; and
·it was particularly good in dealing with the common problem of contamination (being a reference to hard non-timber material such as steel).
His Honour's finding that certain representations were misleading and deceptive was based upon his findings that the shredder did not perform consistently with the representations made.
It is with respect to these findings (in relation to the performance of the shredder) that a large number of the appellants' grounds of appeal are directed. Grounds 3-12 relate to evidentiary matters concerning the performance of the shredder and assert that the primary judge failed to find the correct facts, or drew the wrong inference. Grounds 13-21 assert error in finding that the representations as found by his Honour (the making of which is not challenged on appeal) were misleading and deceptive.
The primary judge found that Mr Lovick, acting on behalf of both respondents, relied upon each of the representations that were found to be misleading and deceptive: at [225]-[229]. This finding is not challenged on appeal.
The primary judge found that Mr Davis was liable as an accessory under s 75B of the Trade Practices Act 1974 (Cth) for all of Doppstadt's contraventions of s 52 of the Trade Practices Act, with the exception of those representations made only by Mr Gillen of Doppstadt Australia: at [235]. His Honour also found that Mr Davis was liable under the Fair Trading Act 1987 (NSW) ss 41 and 42 for all representations as to future matters: at [237]. The primary judge found that Mr Davis' potential liability in tort did not add anything to the scope of his overall liability to the respondents: at [238]-[239].
The primary judge found that the respondents had failed to take reasonable steps to service, maintain, and repair the Doppstadt shredder: at [246]-[247], and had also failed to take reasonable steps to operate the machine properly: at [249], in each instance, "contributing to its poor condition and loss of value". As a consequence, his Honour found that the respondents were "responsible for causing themselves and in failing to mitigate their losses, a proportion of one third of the loss and damage they claim in respect of the machine" [emphasis added]: at [252].
The respondents assert error in respect of the finding that they failed to mitigate their own losses "in respect of the machine" (grounds 1 and 2 of the cross-appeal).
The primary judge found that each respondent's claim for damages under s 82 of the Trade Practices Act and s 42 of the Fair Trading Act was an "apportionable claim", by reason of s 87CD of the Trade Practices Act and 34(1)(b) of the Civil Liability Act 2002 (NSW) respectively: at [256]. His Honour viewed Mr Lovick's conduct to be exactly identified with that of Engineering and Developments as he was the controlling mind of those entities: at [259]. Although his Honour accepted that: (1) Mr Lovick/Engineering were concurrent wrongdoers with the appellants in respect of Developments' claims; and (2) Mr Lovick/Developments were concurrent wrongdoers with the appellants in respect of Engineering's claim, he did not proceed to determine the proportion of liability of the concurrent wrongdoers. This was because he found that no separate proportion of each respondent's damage should justly be attributed to these concurrent wrongdoers: at [261].
It is with respect to the failure to apportion liability in respect of Engineering's claim for lost profits that the appellants assert error (ground 21A).
Damages - Judgment No 2
The claim by Developments was for capital loss, being the difference between the price paid for the Doppstadt shredder and the market value of the shredder at the date of acquisition. The primary judge dismissed this claim because of the absence of evidence of the actual market value of the Doppstadt shredder at the time of purchase: at [23] and [29].
The respondents assert error with respect to the rejection of Developments' damages claim (grounds 5 and 6 cross-appeal).
The claim by Engineering was for lost profits during the first 12 months of operation of the Doppstadt shredder. The primary judge found that "but for" the representations of the appellants, the respondents would have purchased a Peterson machine, and that a Peterson would have been available for purchase in late 2003 or early 2004: at [8]-[9]. On this basis his Honour found that the respondents were entitled to damages, calculated as the difference between the profits they would have made utilising the Peterson machine between February 2004 and February 2005 and the actual profit they made using the Doppstadt shredder during the same period: at [35]-[36].
It is with respect to this finding that the appellants assert error on the grounds that there was no evidence to support a finding that the respondents would have purchased a Peterson machine in February 2004. Alternatively, it was contended that if a Peterson was ordered instead of the Doppstadt shredder in February 2004, his Honour should have found that it would have taken six months for the Peterson to have been delivered. This would mean a consequent reduction in the period during which the lost profits from the hypothetical Peterson machine should have been calculated (grounds 22-24).
The primary judge assessed Engineering's lost profits as $477,129. This amount was reduced by 20% to reflect his Honour's finding that the respondents would have been less competent operating the Peterson machine in early 2004, as opposed to early 2005, and the "slight possibility" that something may have gone wrong with the purchase of the Peterson machine, giving a loss of earnings figure of $381,703.20: at [39]. Taking into account his earlier finding in Judgment No 1 at [252] that the respondents failed to mitigate their loss, his Honour reduced the award of damages by a discount of one third to the amount of $254,468.80: at [40].
The appellants and the respondents both assert error with respect to his Honour's calculation of Engineering's lost profits and the 20% discount for contingencies (grounds 22-32 appeal, and ground 8 cross-appeal).
Relief - Judgment No 3
The primary judge found that the respondents' delay in prosecuting the proceedings was substantial. However, his Honour held that this was not a sufficient basis on its own to disallow the claim for prejudgment interest by either adjusting the rate of interest up to judgment, or the date from which such interest was to be calculated: at [19]. Nor did he consider that the delay in advancing the claim, which ultimately succeeded, was unreasonable: at [20]. Accordingly, prejudgment interest was calculated from 1 March 2005 up to the date of judgment: at [23].
It is with respect to the award of interest that the appellants assert error in the exercise of his Honour's discretion not to make any adjustment to the period of time in which interest was payable (grounds 33 and 34).
As to costs, the primary judge rejected the appellants' contention that an order for costs should be made against Developments because it did not succeed on its damages claim. His Honour reasoned that this submission was overly simplistic and that the Court could infer that Developments suffered a nominal loss in leasing to Engineering an asset of less income earning potential with the Doppstadt shredder than it would have with the Peterson: at [27]. He also considered that, having regard to the way the case was run on both sides, it was impossible to separate out costs incurred in relation to Developments' claim rather than Engineering's claim: at [29].
Next his Honour dealt with the contention that there should be a reduction in the costs awarded to the respondents on the grounds that they had succeeded on only a fraction of the amount originally claimed and that resulted in a judgment well within the District Court jurisdiction. The appellants also contended that there should be some adjustment to costs in recognition of the changes to the respondents' damages case and their abandonment of several causes of action. His Honour considered the appropriate course to be to apportion costs, recognising that this was necessarily broad brush: at [42]. His Honour considered that the appellants should pay 40% of the respondents' costs of the proceedings: at [43].
As to the submission that there should be a cap on costs, his Honour noted the evidence that the respondents were claiming legal costs totalling $636,558.27: at [47]. His Honour was not prepared to place a cap on the respondents' costs pursuant to Civil Procedure Act, s 98(4)(d). Taking into account that the respondents' costs had already been reduced to an award of 40% of their costs, his Honour considered it unjust to place a further cap on such costs: at [48].
Finally, as to interest on costs, his Honour observed that the appellants were not realistically able to resist such an order: at [49].
The appellants assert error in his Honour's finding that no costs order should have been made against Developments, in not capping the respondents' costs pursuant to s 98(4)(d) of the Civil Procedure Act, and in ordering interest on costs (grounds 35 and 36). The respondents assert error with respect to the award of only 40% of their costs (ground 7 cross-appeal).
Issues on appeal
The appellants raised 36 appeal grounds in their amended notice of appeal (notice of appeal). There is no challenge to his Honour's findings as to the making of certain of the representations. The respondents raised 8 grounds in their amended notice of cross-appeal (cross-appeal).
The issues on appeal may be conveniently grouped as follows:
(1)whether the representations by Doppstadt Australia and Mr Davis, in the terms found by the primary judge, were misleading or deceptive. This issue included the appellants' challenges to evidentiary matters, primarily the findings by the primary judge in respect of the operation and performance of the Doppstadt shredder;
(2)failure to mitigate: whether the respondents, in particular Engineering, caused or failed to mitigate part of their own losses, justifying the one third reduction in their damages;
(3)the apportionment claim that Engineering's damages should be reduced under the proportionate liability legislation because Developments and Mr Lovick were "concurrent wrongdoers";
(4)damages - in particular:
(a)whether Developments' claim for damages was properly rejected;
(b)as to Engineering's claim for loss of profits:
(i)would the respondents have purchased a Peterson machine in February 2004;
(ii)alternatively, would there have been a six-month delay in delivery of a Peterson machine if ordered by Engineering in February 2004;
(iii)whether there was sufficient work available in 2004 for a Peterson machine to work at the same capacity as it did in the February-June 2005 period;
(iv)whether Engineering's claim for loss of profit should be discounted by 20% to reflect that it would have been less competent operating a Peterson machine in early 2004 as opposed to 2005;
(v)the calculation of Engineering's claim for loss of profits;
(5)interest and costs.
Application to adduce additional evidence and make further submissions
Following the hearing of the appeal, the respondents filed a notice of motion on 14 November 2013 seeking leave to adduce additional evidence pursuant to s 75A(7) of the Supreme Court Act 1970 (NSW) and for leave to make further submissions.
The additional evidence and further submissions both related to Engineering's claim for lost profits. The evidence was contained in an affidavit of Mr Lovick, sworn 13 November 2013.
The appellants opposed the respondents' application. The parties filed written submissions in support of their competing contentions. The respondents' notice of motion was fixed for hearing before the Court on 17 December 2013. Shortly prior to this date the parties indicated to the Court that they were content for the respondents' motion to be determined on the papers without the need for oral hearing. The appellants acknowledged that the evidence on the respondents' motion could be taken as read without objection.
The Court agreed with the parties' request to deal with this application on the papers. For the reasons which follow, the respondents' application should be dismissed.
Issue 1: Were the representations misleading?
The primary judge's reasoning
The primary judge found that the respondents had established that a number of the pleaded representations were made by the appellants: at [141]-[156] Judgment No 1. There were 15 such representations. Two of these representations were characterised by his Honour as representations as to future matters.
At [158] Judgment No 1 the primary judge noted that how the Doppstadt shredder actually performed was not a basis on its own to infer that the representations were misleading or deceptive. Rather this was to be judged by reference to the true state of affairs at the time the representations were made, including whether there were reasonable grounds for the making of the representations (so far as they related to future matters).
The primary judge accepted that an account of the problems with the shredder in its first 12 months of operation was conveniently given through an assessment of Mr Triantafyllou's and Mr Wilton's evidence: at [162] Judgment No 1. His Honour found Mr Triantafyllou to be a blunt, direct, and convincing witness and accepted his opinions as a correct account of the performance of the shredder: at [163] Judgment No 1. Mr Triantafyllou kept a "little red diary" to record his daily operations of the shredder. He started keeping this pocket sized book about a month after the shredder was acquired, and he wrote down in the diary all the faults and problems he had with the machine. His Honour accepted Mr Triantafyllou's "workbook" as an accurate and contemporaneous account of the shredder's stoppages and other problems. This workbook became exhibit GA in the proceedings. His Honour also accepted Mr Triantafyllou's evidence that at the end of each shift he would transfer the material from his workbook into what he described as his "day diary": at [164] Judgment No 1. The information in Mr Triantafyllou's day diary was later transcribed into a typed diary which was in evidence at the trial, but his Honour found that the "little red book" was a better primary record than the day diary: at [167] Judgment No 1.
His Honour also accepted what he described as other important evidence of Mr Triantafyllou concerning his operation of the Doppstadt shredder, which included:
(1)that it was not possible to place anything greater than 250mm into the feed unit of the shredder - colloquially referred to as the "pineapple" - that is, the part of the machine which progresses the logs into the grinder. This was based on an acceptance of Mr Triantafyllou's evidence that anything greater in size would stall the machine "straightaway": at [169] Judgment No 1;
(2)that it was not rational behaviour to put large logs into the machine as this would cause the machine to stall. Mr Triantafyllou said that he was always vigilant to make sure that he put reduced sized timber into the shredder: at [170] Judgment No 1;
(3)that Mr Triantafyllou's workbook was an accurate record of shutdowns, overheating, excessive vibration, feeder jams, grinder jams, gear problems, and parts deficiencies occurring about every two days between February 2004 and June 2004: at [172] Judgment No 1.
His Honour found that Mr Wilton was also an excellent witness who was not prone to exaggeration. He accepted all of his evidence about the shredder's stoppages and its difficulty in handling material being feed into it: at [176] Judgment No 1. This included Mr Wilton's evidence that:
(1)he had no reason to put excessive sized logs or excessive quantities of material into the shredder for grinding: at [178] Judgment No 1;
(2)he did shear material in excess of approximately 200mm before feeding into the shredder: at [181] Judgment No 1.
His Honour found that neither Mr Triantafyllou or Mr Wilton deliberately nor consciously put oversized logs into the shredder. He accepted that they may have done so occasionally in error, but the machine's problems were not as a result of overloading or feeding oversized material into it: at [170] and [183] Judgment No 1.
His Honour inferred that the problems Mr Triantafyllou encountered with the shredder between February 2004 and June 2004 were continuing with Mr Wilton between November 2004 and February 2005: at [179] Judgment No 1.
However, his Honour was not prepared to infer, in the absence of evidence from Mr Missingham and Mr Gold, that they were as good at operating the machine as Mr Triantafyllou and Mr Wilton: at [182] Judgment No 1.
His Honour found that correspondence from Doppstadt Australia to Doppstadt Germany in March 2004 and April 2004 about the problems with the machine, which was authored by Mr Gillen, was an accurate account of what was wrong with the machine. His Honour found that Mr Gillen genuinely thought the problems were well beyond normal ones to be expected from a new machine: at [187] Judgment No 1.
The appellants called Mr D'Apollonio who purchased the shredder from Developments in February 2007 to rebut the respondents' claims that the shredder was defective. Mr D'Apollonio gave evidence of almost trouble-free operation of the shredder from that time: at [197] Judgment No 1. However, his Honour was not convinced that the shredder's operation by Mr D'Apollonio in the Adelaide Hills was comparable to the environment in which the respondents were operating the machine: at [198] Judgment No 1. His Honour also noted that a significant difference between Mr D'Apollonio's experience and the respondents' experience was that the shredder had been altered by the time it was acquired by Mr D'Apollonio. In particular, welding had been done to the machine to rectify the excessive vibration that Mr Lovick had experienced, which the technical evidence indicated contributed to other problems with the shredder including electrical problems and reduced capacities to deal with contamination: at [205] Judgment No 1.
His Honour did however observe that Mr Lovick seemed less diligent about the quality of the operators he engaged (but found that he mostly had good ones): at [204] Judgment No 1. His Honour considered that Mr D'Apollonio's management of his operators was better than Mr Lovick's, and this was a deficiency in Mr Lovick's operation which did cause him some problems. However, his Honour viewed this as a matter to be addressed under the subject of mitigation of loss: at [206] Judgment No 1.
Submissions
A significant factual dispute raised by the appeal is whether the failures of the Doppstadt shredder were due to operator error and failure to service and maintain the shredder in accordance with the Doppstadt operator manual. In particular, the appellants challenge the primary judge's finding that the problems with the Doppstadt shredder were established by the evidence of Mr Triantafyllou and Mr Wilton; the finding that correspondence from Mr Gillen of Doppstadt Australia to Doppstadt Germany in March 2004 and April 2004 was an accurate account of what was wrong with the Doppstadt shredder and that Mr Gillen genuinely thought the problems were well beyond normal ones; the finding that the respondents did not misuse or put larger logs through the Doppstadt shredder; and the way in which his Honour dealt with the credit finding made against Mr Lovick in relation to the inconsistency between his affidavit evidence that the Peterson machine performed very efficiently and reliably in 2005 and a letter of complaint sent by Mr Lovick on 29 July 2005 to the supplier of that machine.
The appellants contend that it is insufficient for the respondents to point to alleged failures in the operation of the shredder. They argue that the respondents failed to also prove that they used the shredder in accordance with the training provided by Doppstadt Australia and in accordance with Doppstadt's operators manual. They submit that the respondents failed at this evidentiary hurdle and therefore have not proved that any of the representations about the operation of the shredder were misleading or deceptive.
In summary, the appellants relied on four matters:
(1)his Honour failed to take into account gaps in the respondents' evidence as to the performance of the shredder, in particular:
(a)the Jones v Dunkel inference that ought to have been drawn from the failure to explain not calling Mr Missingham and Mr Gold;
(b)the failure of the respondents to put the "day sheets" into evidence;
(c)the lack of any written complaint (save for a letter in October 2004) between May 2004 and February 2005; and
(d)the lack of servicing records;
(2)his Honour did not consider his findings concerning failures in the respondents' operation, servicing, and maintenance of the shredder in the context of whether the representations were misleading or deceptive;
(3)his Honour did not consider:
(a)Mr Lovick's evidence in his October 2010 affidavit to the effect that it was the practice of Engineering to place logs with a diameter of greater than 200mm in the shredder; or
(b)Mr Lovick's concession in cross-examination that material with a diameter of greater than 200mm was placed through the shredder and that this was contrary to Mr Lovick's own operating manual;
(4)his Honour failed to have proper regard to, or place sufficient weight on, the evidence of Mr D'Apollonio as to his inspection of the shredder in February 2007.
It is convenient to deal with the appellants' factual challenges, the subject of the appeal grounds 3-12, as they arise in relation to each of the above complaints.
Failure to call Mr Missingham and Mr Gold and to tender the "day sheets"
The appellants contend that no explanation was provided by the respondents for the failure to call Mr Missingham or Mr Gold, who operated the shredder between June 2004 and November/December 2004, nor did the respondents provide an explanation for their failure to put into evidence the "day sheets" which both Mr Triantafyllou and Mr Wilton gave evidence of (which recorded the quantity of material shredded each day and the periods the shredder was inoperable).
The appellants submit that his Honour should have drawn a Jones v Dunkel inference that any evidence to be called from Mr Missingham or Mr Gold, or the "day sheets", would not have assisted the respondents' case that the shredder was defective at the time of purchase.
As explained by the plurality in Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361:
"[63] The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. ... The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. ...
[64] The rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party. ...". [Citations omitted.]
In the present case the relevant question was whether the failure to call Mr Missingham, Mr Gold, and to tender the "day sheets" could mean that the direct evidence of Mr Triantafyllou, Mr Wilton, Mr Haigh, and Mr Agland concerning the problems with the shredder may be more readily rejected, and the inferences for which the respondents contended may be treated with greater reserve: Payne v Parker [1976] 1 NSWLR 191 at 201 per Glass JA.
It is necessary to separately consider the position in relation to each piece of evidence.
Mr Gold
The primary operator of the shredder from November 2004 to February 2005 was Mr Wilton not Mr Gold. Mr Gold operated the shredder for approximately two weeks in early November 2004 before Mr Wilton took over as operator, and Mr Gold then moved onto the float work - driving the shredder on a float from one site to another. Mr Gold trained Mr Wilton in the operation of the shredder (Blue 543U; Black 755Q). Mr Wilton was called and gave evidence about the poor performance of the shredder during that period. Mr Wilton's evidence was to the effect that during this period Mr Gold "occasionally" operated the shredder (Blue 543U; Black 285P). Mr Lovick gave Mr Wilton instructions in relation to shearing logs greater than 200mm in diameter (Black 301C), and his Honour accepted Mr Wilton's evidence that he did shear material in excess of approximately 200mm: at [181] Judgment No 1.
The rule in Jones v Dunkel only applies where a party is required to explain or contradict something: Jones v Dunkel at 321. Nor is it necessary to call cumulative evidence: D Byrne and J D Heydon, Cross on Evidence (Australian loose-leaf edition, Butterworths) at [1215]. Just as the rule does not operate where junior decision makers are not called so long as the senior decision makers have been (see Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 52 FCR 474 at 490), the rule does not operate, in my view, in the present case where the primary operator (Mr Wilton) during the period to which Mr Gold's evidence could have been relevant was called.
Nor was there a basis for suggesting that the inference which his Honour drew - that the problems with the shredder during Mr Wilton's period with the machine were not as a result of Mr Wilton, or persons with him, overloading the machine (at [183] Judgment No 1) - should have been treated with greater reserve.
Mr Missingham
Three matters call for consideration: see Payne v Parker at 201 per Glass JA. The first is whether Mr Missingham would be expected to be called by the respondents rather than the appellants. The second is whether his evidence would have elucidated a particular matter. The third is whether his absence was unexplained at trial.
As to the first matter, a convenient summary of the relevant principles is to be found in MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 at [53] per Macfarlan JA (Ward JA and Gleeson JA agreeing) as follows:
"54 The High Court has described the foundation of the Jones v Dunkel principle as that 'the party or his advisers are presumed to know the content of the absent witness's evidence, otherwise he would not be a witness whom 'that party might reasonably be expected to call' (Brandi v Mingot (1976) 12 ALR 551 at 560). As Glass JA observed in Payne v Parker, the condition that the missing witness would be expected to be called by one party rather than the other has been described in different terms (at 201). These include descriptions of it being 'natural for one party to produce the witness" and the witness being 'in the camp of one party, so as to make it unrealistic for the other party to call him' (ibid)."
Counsel for the respondents suggested several reasons why Mr Missingham would not be expected to be called by the respondents rather than the appellants. These included that Mr Missingham was a former employee who worked for the respondents for about six months in 2004 and had long ceased to be in their employ at the time of trial. A further matter was that it could be inferred, from the evidence at trial, that the respondents had served an affidavit from Mr Missingham (and indeed also from Mr Gold) as Mr Eric Davis had responded to their affidavits in his affidavit, which was read at trial by the appellants (Blue 855 and 857). It was argued that Mr Missingham was not in the respondents' camp as he was merely a former employee, his evidence was available to the appellants by way of the affidavit he had sworn, and that it was not unrealistic for the appellants to call him if they wished to.
It was common ground on the appeal that Mr Missingham was no longer employed by the respondents at the time of trial, but his absence was otherwise unexplained.
The mere fact that an absent witness is or has been an employee of one party is not of itself sufficient to place him or her in the other party's camp. However the higher the person stands in the structure or confidence of the employer the more likely it is that the witness may be considered to be in the camp of his employer or former employer: Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [33]; Earle v Castlemaine District Hospital [1974] VR 722 at 734 per Lush J.
In Earle v Castlemaine District Hospital, Lush J observed that it may be relevant to whether a Jones v Dunkel inference is drawn that the knowledge of the absent witness is of a kind which an employee would or should be unlikely to disclose to the opposing party (at 734). In my view, the same may be said in relation to a former employee.
In the present case, it was not suggested by the appellants that Mr Missingham's knowledge of his operation of the Doppstadt shredder in 2004 should be treated as a matter which he was required to hold in confidence for the respondents after he had ceased employment. Furthermore, I do not consider that Mr Missingham's knowledge was of a kind which he would or should be unlikely to disclose to the appellants, in circumstances where the respondents had served an affidavit from Mr Missingham on that very topic. In my view, Mr Missingham was equally available to both parties and there was no basis for a Jones v Dunkel inference against the respondents.
Should others be of a different view, it is appropriate to consider the second condition referred to in Payne v Parker, that is, whether Mr Missingham's evidence would have elucidated a particular matter. The relevant inquiry is whether there was evidence against the respondents of operator error, or failure to maintain or service the shredder during the period Mr Missingham operated the shredder, which was required to be explained or contradicted. The appellants contend that the inference of operator error and failure to service and maintain the shredder during the period June to November 2004 may be drawn from the evidence of Mr Davis and Mr D'Apollonio who gave evidence of their observations of the condition of the shredder in February 2007. His Honour accepted Mr D'Apollonio's evidence and, to a lesser extent Mr Davis' evidence, as the basis for his findings that the respondents had failed to mitigate their losses in respect of the machine. However, I have concluded below that the respondents' challenge to his Honour's findings of failure to mitigate their losses is made out. This leaves for consideration the evidence of the problems encountered during the June to November 2004 period. There was direct evidence given by Mr Hurley, Mr Haigh, and Mr Agland of the problems with the shredder, none of which suggested operator error, or failure to service or maintain the shredder. This evidence included first, Mr Hurley's affidavit evidence relating to:
(1)telephone conversations with Mr Trommer of Doppstadt Germany commencing in about July 2004, complaining of difficulties with the shredder not starting, that it operated erratically, and that he also noticed that cracks were arising in the doors (Blue 506Q-X);
(2)Mr Hurley's observations on inspection of replacement of the drive belt in about July 2004, that other belts had been damaged and were unserviceable, and that there were whip marks in the belt enclosure, which was consistent with a power transmission belt failure. He explained that with multiple drive belts sitting immediately beside one another, when one belt snapped, it often took out the adjacent belts (Blue 507U-508D);
(3)travelling to Mudgee in "about December 2004" and meeting Mr Missingham who told him that a bearing had broken and that parts of it had fallen onto the power transmission belts and damaged them (Blue 513R-T). The date of this conversation appears to be inaccurate, as Mr Missingham was not operating the shredder at this time. As noted in (2) above, the problem with the drive belts had emerged in about July 2004. This discrepancy in dates in Mr Hurley's affidavit was not explored by the appellants at the trial with Mr Wilton, who was the primary operator in December 2004;
(4)visiting Mudgee on two other occasions in "December 2004" and being informed by Mr Missingham of serious structural problems with the shredder (Blue 514P-516N). Again, the reference to "December 2004" appears to be an error and should be taken as referring to about July 2004, being the time when Mr Missingham was operating the shredder and, as referred to in (1) above, when Mr Hurley first noticed cracks in the doors;
(5)telephone conversations with Mr Agland relating to electrical problems with the circuit boards in the shredder and a number of failures observed by Mr Agland, including that the floor of the shredder would operate in the wrong direction when the hammer mill was operating; the floor of the shredder would unexpectedly reverse direction; the floor of the shredder would cease to operate, thus preventing material from entering the hammer mill; and the rear door failed to lift (Blue 509E-510N). As a result of ongoing problems Mr Hurley made a number of complaints by telephone in early October 2004 directly to representatives of Doppstadt Germany concerning the replacement of electrical circuit boards, but he said that the shredder still did not operate reliably after these were replaced (Blue 510W-512X).
Secondly, there was unchallenged evidence from Mr Agland, a licensed auto electrician, relating to multiple electrical problems which he observed caused operating difficulties with the shredder, commencing in late February 2004. His evidence included his observations of the types of failure of the shredder that he was called out to fix; his opinion that the shredder was unreliable having regard to the nature and causes of the breakdowns; his observation that the shredder suffered vibration in its whole frame and that he saw cracks developing, which the respondents' workmen repaired from time to time; his observation of continuous vibration in the housing structure to which the electronic switch gear was connected when the shredder was operated under load; his observation that parts of the bearing of the main rotor had fallen off and there was cracking in the structure around the main bearing holding walls (Blue 577K-578Y). Mr Agland explained that the reason for the need to bypass the wiring system was in an attempt to ascertain the source of electrical circuit failures (Blue 574F-M). It was not put to Mr Agland that bypassing the electrical safety switches was the cause of any operating problems experienced by the respondents. He also gave unchallenged evidence relating to the cause of electrical failures, including that the relay units wired into the electrical circuit board were, to his observation, of poor quality manufacture and were subject to excessive vibration (Blue 575L-U).
Thirdly, Mr Haigh, a fitter and machinist who worked for Engineering, gave unchallenged evidence that in about September 2004, when the shredder was brought in for service and maintenance, it was Mr Missingham who pointed out some cracking which had occurred on the shredder and which required repair. This, and a number of other repairs, took approximately two weeks at the respondents' yard in Orange (Blue 562K-P and 563C-D). Mr Haigh gave evidence of other repairs which he undertook in December 2004 at Gulgong, later in December at Kandos, and in January 2005 at Mudgee (Blue 564H-565H). It was not put to Mr Haigh that any of the repairs he carried out were due to operator error.
I do not consider that the primary judge erred in not drawing a Jones v Dunkel inference against the respondents when determining whether the representations as found were misleading and deceptive, based on the absence of either Mr Missingham or Mr Gold.
Absence of the day sheets
Contrary to the appellants' contention, the absence of the "day sheets" or "time sheets" was explained in the respondents' evidence. Accordingly, the third condition referred to in Payne v Parker was not satisfied. Mr Tancred, the respondents' solicitor, provided affidavit evidence, which was unchallenged, that when he received the files from the respondents' former solicitor there appeared to be documents missing; in particular, he was unable to locate the time sheets for Mr Triantafyllou and Mr Wilton or Mr Triantafyllou's diary (Blue 629L-T). Mr Lovick gave evidence that he had handed his original documents to his former solicitor and he had not seen the originals since that time (Black 201E-G).
Absence of complaints between May 2004 and February 2005
The appellants contend that his Honour failed to take into account the significance of the lack of any "written" complaint by the respondents between May 2004 and February 2005, save for a letter dated 22 October 2004. Implicit in this contention was the proposition that the respondents were not encountering performance problems with the Doppstadt shredder during this period. However the evidence at trial revealed that other complaints, albeit not in writing, were made by the respondents during this period.
First, Mr Hurley telephoned Mr Ray Davis on 15 June 2004 to complain that in the previous two weeks the shredder had stopped running twice. This was after new circuit boards had been fitted to the machine. A letter from Mr Davis to Mr Lovick dated 22 June 2004 recorded that this telephone conversation ended in a shouting match. The parties were in disagreement as to whether the machine stopping twice in two weeks was a consistent problem or not (see Blue 785-786).
Next, the nature and seriousness of Mr Lovick's complaint in his letter to Mr Davis of 22 October 2004 (Blue 789) is itself of some significance. Mr Lovick complained that the shredder had stopped once again, exhibiting the same problems that had been encountered in Armidale during the month of May 2004. This was the failure of the scraper floor to operate in the forward direction and the failure of the rear to function without the engine running. This problem had been earlier reported by Mr Hurley to Mr Chiu of Doppstadt Australia during a telephone call on 19 October 2004 (Blue 792).
There was also evidence from Mr Hurley of his telephone communications, both with Doppstadt Australia and Doppstadt Germany, concerning various failures of the machine including: in about June 2004 with Doppstadt Germany, when the belts snapped as a result of one belt failing (Blue 505F-506K); in July 2004, with Mr Trommer of Doppstadt Germany, concerning the shredder not starting, operating erratically, and cracks appearing in the doors (Blue 506Q-Y); in September 2004, with Mr Thorsten Krause of Doppstadt Germany, requesting new circuit boards (Blue 508M); and in early October 2004 with Mr Thomas Deckman, an expert associated with Doppstadt Germany, concerning the shredder intermittently starting and stopping, the floor changing direction, and the rear door failing to lift (Blue 510W-511R and 512P-513H).
It was not incumbent on the primary judge to refer to every piece of evidence in his reasons. It is clear that there were a number of other complaints, albeit not in writing, made by the respondents to the appellants and to Doppstadt Germany over the period May 2004 to February 2005. The appellants did not submit that these complaints were not genuine. The inference that the appellants contend should have been drawn - that the respondents encountered only one performance problem in the period May 2004 to February 2005 - must be rejected. The objective circumstances revealed by the evidence of Mr Hurley, and the unchallenged evidence of Mr Agland and Mr Haigh, together with the evidence of Mr Wilton, was one of continuing performance problems during this period.
Failures in the respondents' operations, servicing, and maintenance of the shredder
It is convenient to deal with the appellants' contentions under this heading together with their related complaints that his Honour failed to take into account the lack of servicing records kept by the respondents, and failed to have proper regard to or place sufficient weight on Mr D'Apollonio's evidence as to his experience with the shredder in 2007.
The appellants' case at trial was that the problems encountered by the respondents with the Doppstadt shredder were as a result of:
(a)operator error, primarily placing oversized logs into the shredder and failing to check for contaminants such as steel; and
(b)a failure to service, maintain, and repair the shredder in accordance with the Doppstadt manual provided to Mr Lovick.
I will deal with each of these contentions in turn.
Operator error
(1) Oversized logs
The appellants relied on evidence of Mr Davis that he told Mr Lovick to pre-shear timber material with a diameter greater than 200mm before putting it through the shredder. His Honour found that such a warning was given: at [137]-[138] Judgment No 1. Indeed, Mr Lovick included this instruction in his own operating manual prepared for use by his operators which stated that:
"material over 200mm in diameter and 500mm in length should be put aside. Shearing will downsize the material and allow it to be ground and processed." (Blue 178).
The primary judge accepted the evidence of Mr Triantafyllou that, other than accidentally, from time-to-time, he complied with this direction about shearing: at [173] Judgment No 1. His Honour also accepted the evidence of Mr Wilton that he would shear material with the excavator that was in excess of approximately 200mm: at [181] Judgment No 1.
The appellants did not challenge these factual findings in their notice of appeal but, in oral argument, counsel for the appellants submitted that Mr Triantafyllou's evidence in cross-examination should be read as an admission that his practice was not to shear material unless it exceeded 250mm in diameter. The appellants relied upon the following answers given by Mr Triantafyllou:
"Q. I suggest to you that that arose when oversized or irregular shaped logs ended up in the hammer wheel?
A. That could be so if you were not observant but we had a set of shears as I explained to you outside - that we purchased shears because, the material was hard and you could not place anything greater than 250 millimetres into that what we call the feed unit, the pineapple, which progresses the logs into the grinder. Anything greater than that, would stall the machine straight away.
Q. I suggest that on a number of occasions material that was bigger than that ended up in the machine and stalled it?
A. No. Again, I would say you would not purposely go and make work for yourself. You were always vigilant and made sure that you put reduced sized timber in that, there." (Black 363N-S)
Counsel for the appellants accepted that it was never put to Mr Triantafyllou that he regularly put material in excess of 200mm into the shredder (AT 28, lines 23-38). It is also to be observed that the cross-examination referring to "oversized or irregular shaped logs" did not make clear to the witness whether "oversized" meant over 200mm in diameter. In my view, this evidence is not inconsistent with his Honour's finding that Mr Triantafyllou complied with the direction about shearing.
It is appropriate at this point to refer to one piece of evidence given by Mr D'Apollonio to which his Honour did not refer. Mr D'Apollonio said that he observed a large tree stump in the machine when he inspected it in February 2007.
In my view, it could not be inferred from Mr D'Apollonio's single observation two years after the respondents ceased using the shredder, that the respondents processed oversized logs or tree stumps through the machine during 2004. Nor could it be inferred that the respondents were responsible for the tree stump which he observed when he inspected the shredder at an agent's yard in Queensland. It was not established that no one other than the respondents had used the shredder, whether as a trial or otherwise, since February 2005. Mr Wilton was the last operator of the shredder in February 2005, but the proposition that he attempted to process a large tree stump was never put to him.
Accordingly, there was no error in his Honour concluding that the machine was not misused by either Mr Triantafyllou or Mr Wilton, when making findings that the machine did not perform consistently with the representations made: at [210] Judgment No 1.
The appellants next complain that his Honour failed to reconcile his acceptance of this evidence with his later findings (based on the evidence of Mr D'Apollonio and Mr Davis) regarding the respondents' failure to mitigate their losses, which they argued was relevant to whether the machine performed consistently with the representations made. It may be accepted that his Honour did not attempt that task. As already noted, his Honour expressly based his findings, that the machine did not perform consistently with the representations made, largely on his conclusion that the machine was not misused by Mr Triantafyllou and Mr Wilton. In my view, it was not necessary for his Honour to go beyond the nine month period covered by those two operators, and whose evidence his Honour accepted. Their evidence covered a substantial period of the respondents' operations.
Even if it is assumed that some operator error had occurred in the intervening period of June to November 2004 (a matter which is considered below), this would not militate against a finding that the machine did not, over two continuous periods totalling nine months, perform consistently with the representations made.
(2) Steel contamination
The primary judge dealt with the issue of failing to check for steel contamination later in his reasons on the issue of failure to mitigate. His Honour did not find that either Mr Triantafyllou or Mr Wilton acted unreasonably (at [248] Judgment No 1), but was not prepared to infer that the shredder was always operated well by Mr Missingham and Mr Gold, who did not give evidence. It seems that his Honour had in mind both oversized logs being processed through the shredder and failing to avoid steel contamination: at [247] and [249] Judgment No 1.
His Honour's findings were based on his acceptance of the evidence of Mr D'Apollonio, and to a lesser extent, Mr Davis, relating to the condition of the shredder on inspection by each of them in February 2007. However, his Honour erred when stating that Mr D'Apollonio's observations were consistent with a failure to avoid steel contamination. This is not an observation recorded by Mr D'Apollonio in his affidavit (Blue 864G-Q). In cross-examination, Mr D'Apollonio agreed that no matter how diligent the operator or the shearing of materials by the excavator, it was not possible to avoid any contamination (Black 616E-F). His evidence did not support a finding that the respondents' operators failed to take reasonable care to avoid contamination being fed into the shredder.
This leaves for consideration the evidence of Mr Davis (Blue 658C-F). Mr Davis also agreed in cross-examination that it was not possible to avoid contamination. He said that one could not stop small metal objects such as hinges being processed. He said that a problem would occur with a big piece of steel, and that he observed a "great dent" on the machine cutter, which was a consequence of "steel on steel" (Black 620F-K). His Honour considered that he should somewhat discount Mr Davis' evidence because of self-interest: at [247] Judgment No 1. His Honour was correct to do so but erred, in my view, in concluding that steel contamination must have occurred because the respondents' operators had not exercised reasonable care.
First, his Honour seems to have overlooked his earlier findings relating to the "contamination" representation, which he found was misleading and deceptive: at [211] Judgment No 1. Those findings included that Mr Gillen, Doppstadt Australia's sales manager, had told Mr Lovick that the machine was particularly good with dealing with contamination (which included steel contamination (see Blue 12G-M)), because it was designed with "swinging hammers" rather than "fixed hammers": at [58] and [71] Judgment No 1. However his Honour found that it could be inferred from the evidence of Mr Triantafyllou and Mr Wilton that the machine could not handle contamination: at [211] Judgment No 1.
Secondly, it was not put to the respondents' two operators who were called that they put large pieces of steel into the machine. Mr Lovick said that the operators took care to look for contaminants to ensure that they did not go through the machine (Black 252V). This was consistent with the respondents' operating manual which required the operators to carefully work through the stockpile before shredding to identify steel, concrete, and rocks (Blue 178L).
Thirdly, the appellants bore the onus of proof on this issue which they had raised as part of the failure to mitigate defence. The relevant question was whether the appellants had established that any of the respondents' operators had misused the machine, it not being in dispute that steel contamination was a common problem which could not always be avoided. In my view, his Honour erred in finding that two of the respondents' operators - Mr Missingham and Mr Gold - had misused the machine by failing to take care to avoid steel contaminants. Whilst his Honour correctly discounted Mr Davis' evidence, he erred in justifying his finding as being supported by Mr D'Apollonio's evidence, which it was not. His Honour also erred in ignoring his earlier finding that the machine could not handle contamination well (which included steel contamination) when operated by Mr Triantafyllou and Mr Wilton. Accepting that limited weight could be given to Mr Davis' evidence, I do not consider that the appellants satisfied their onus of proof on this issue. The appellants did not establish that the damage to the machine which Mr Davis said he observed in 2007 was greater than that which could have been expected if the machine had handled contamination in the manner which the appellants had represented the machine was capable of.
Servicing, maintenance, and repair
His Honour's finding that the respondents failed to service, maintain, and repair the machine at all times (at [242] and [248] Judgment No 1), was based upon an acceptance of the evidence of Mr D'Apollonio, and to a lesser extent Mr Davis' evidence. His Honour specifically found that there had been a failure to maintain the machine's belts, a failure to grease the shredder's moving parts, and a bypassing of safety switches (at [247] Judgment No 1). He also found that the absence of maintenance records meant that it could not be inferred that the maintenance which Mr Lovick said had been done had in fact been carried out: at [248] Judgment No 1.
The respondents challenge these factual findings.
As a preliminary matter, Mr D'Apollonio's evidence suffered from the general difficulty that his observations were made two years after the respondents ceased using the machine. Turning to each of his observations.
(1) Machine belts
I have earlier referred to the evidence of Mr Hurley concerning the need to replace the drive belts in about July 2004 and the problems associated with damage caused by one of multiple drive belts snapping and taking out the adjacent belts. Mr Hurley's evidence was that the damage to the belts in July 2004 was consistent with a power transmission belt failure. As the respondents continued to encounter performance problems after July 2004 it is unsurprising that the machine's belts were not in good condition when Mr D'Apollonio inspected the machine over two years later.
Moreover the condition of the drive belts in 2007 did not establish that the respondents operated the shredder with loose machine belts in 2004 and thereby contributed to its poor performance. In my view, his Honour erred in accepting that the appellants had made out this allegation.
(2) Greasing of machine
As to the alleged failure to grease moving parts, little if any weight could be given to this evidence in view of the temporal gap between the respondents' last use of the machine in February 2005 and the inspection by Mr D'Apollonio two years later.
Moreover there was direct evidence to the contrary given by both Mr Triantafyllou and Mr Wilton. In the case of Mr Triantafyllou the typed transcription of his daily diary, which was made in about June 2004, contains numerous entries relating to inspection and maintenance of the Doppstadt shredder carried out by him. It is sufficient to refer to the following entries:
"... At the end of the day, I would do service, refuel, grease the 32 grease points (other than the rotor with its 45 hammers which also had to be greased each day). This service would take until around 2.5 hrs. ...". (28 March 2004: Blue 1269).
"... About 40% of operator time was spent in maintenance." (30 March 2004: Blue 1269).
"Service and replace filters." (6 April 2004: Blue 1271).
"I cleaned and serviced the Doppstadt." (20 April 2004: Blue 1273).
This evidence was not challenged.
In the case of Mr Wilton, he gave evidence that at the time of the handover by the then operator Mr Gold in November 2004, Mr Gold showed him the daily checking procedure (Blue 541B-S). It may be inferred that Mr Gold also carried out this procedure in the two weeks he operated the machine in early November 2004, and when he "occasionally" operated the machine during the November 2004 to February 2005 period, when Mr Wilton was the main operator. Mr Wilton gave unchallenged evidence that he spent approximately 1 to 1.5 hours per day in the daily inspection and service of the machine before use as follows:
"Q. What was involved in the day to day service? Just give me a typical list of things that you would do on a daily basis which would fall into the category of services.
A. Before you start you just go round, you would grease the machine and whilst doing that you would check for any breakages or cracking or deterioration of any part of the machine. You check all fluids, levels, to make sure that they were all good. Then you would go into the hopper and check all the hammer faces for wear and you would re-tension all the bolts on the hammers themselves to make sure everything was up to speed so that you could have a bit of a crack at it before you had to re-service it, which was an ongoing thing through the day." (Black 285V-286D)
First, although Mr Lovick originally gave evidence in his affidavit sworn on 16 June 2008 that the second Peterson machine was received in "about May 2005" (Blue 352P), this was qualified in his later affidavit, sworn on 9 September 2009, that the second Peterson machine was purchased in "approximately July 2005" (Blue 418R). He also gave evidence distinguishing between the sales revenue for the first Peterson machine, which he said related to the period from its purchase to 30 June 2005, and the sales revenue from the two Peterson machines, which he said related to the period from 30 June 2005 to 30 June 2006 (Blue 418W-Y). Mr Lovick was not challenged on either aspect of his later affidavit.
Secondly, the finance application documents annexed to Mr Lovick's affidavit of 16 June 2008 established that Esanda provided the finance for the acquisition of the second Peterson machine on 10 June 2005 (Blue 388). It would seem that this is the earliest date upon which Developments would have taken possession of the second Peterson machine. It is reasonable to infer that some short period of time was spent by the respondents familiarising themselves with and commissioning the new machine. The dates of the disputed invoices are 30 May, 31 May, 6 June, 15 June, 21 June, and 28 June 2005. The dates of the first three disputed invoices precede the date upon which Esanda provided finance for the acquisition of the second Peterson machine. To this extent, at least, the documentary evidence supports the respondents' position.
Thirdly, Mr Lovick was not challenged on his further affidavit evidence of 6 December 2010 which annexed the (disputed) invoices and stated that they related to the first Peterson machine delivered in February 2005 (Blue 455N-O). On one view, the disputed invoices are business records which speak for themselves. An inference might be drawn from the description used in those invoices that the "Peterson Grinder/Recycler 760" was a different machine to the "Peterson 660", being the first Peterson machine delivered in mid February 2005. It might also be said that little weight should be attached to Mr Lovick's conclusionary statement that the (disputed) invoices relate to the first Peterson machine delivered in February 2005.
On the other hand, when Mr Lovick's affidavit evidence of 6 December 2010 is read together with his earlier affidavit evidence of 9 November 2009 - that the second Peterson machine was delivered in "approximately July 2005" - and viewed in light of the date of the finance documents in relation to the acquisition of the second Peterson machine, there is a firmer basis for accepting Mr Lovick's evidence that the (disputed) invoices relate to the first Peterson machine.
Fourthly, even though there had been an exchange of affidavits at trial, counsel for the appellants was obliged to put to Mr Lovick the implications which counsel proposed to submit could be drawn from the evidence, if those implications were not obvious from the evidence, or from other pre-trial procedures, or from the course of the case: West v Mead [2003] NSWSC 161 at [99] per Campbell J. In my view, the implications were not obvious, and counsel for the appellants failed to put the relevant implication to Mr Lovick in cross-examination.
It follows that the appellants were not free to later put the submission which they did in closing that all of the invoices in May and June 2005 might not relate to the first Peterson machine (Black 898H-N). Although counsel for the respondents failed to take the Browne v Dunn point at trial, upon receiving the appellants' closing submissions which suggested such a doubt (Black 898K-L), it is clear from his Honour's acceptance of Engineering's loss of profits claim, that he did not accept the appellants' submission casting doubt on some of the invoices relied upon by Engineering.
The position on appeal is that the appellants now contend, in far stronger terms than they did at trial (which was merely to suggest some doubt), that some of the invoices do not relate to the second Peterson machine. In my view, the appellants should not be permitted to raise this contention on appeal, not having put the proposition on which they now rely directly to Mr Lovick at trial.
Accordingly, the third category of the disputed invoices is properly included in the Peterson sales revenue for the purposes of Engineering's damages calculation.
Conclusions on Engineering's loss of profits
The effect of the above adjustments, which I consider ought to be made in respect of Engineering's damages claim, are as follows. All figures are exclusive of GST, which was the common approach by the parties.
First, the Peterson sales revenue, which his Honour found was $734,044.45, should be reduced by $84,458.82 to $649,585.63.
Secondly, the figure for the Peterson expenses in the Agreed Damages Schedule may be accepted as $258,926.
Thirdly, the Peterson average monthly profit over the five-month period is $78,131.92 ($649,585.63 less $258,926 divided by 5).
Fourthly, the Peterson projected monthly profit on the relevant scenario addressed in the Agreed Damages Schedule is $585,989.40 - assuming delivery in June 2004 (that is, 7.5 months profit).
Fifthly, the agreed revised Doppstadt sales revenue ($538,041) less the agreed Doppstadt expenses ($222,582), gives a Doppstadt profit for February 2004 to February 2005 of $315,459.
Accordingly, Engineering's loss of profits is to be calculated as $270,530.40, being the difference between the Peterson projected profit figure for February 2004 to February 2005 ($585,989, assuming 7.5 months profits based on delivery in June 2004) and the Doppstadt profit figure for that same period ($315,459).
Applying his Honour's approach that the 20% discount for contingencies is to be applied to the net figure in the above calculations (as to which there was no challenge on appeal: see [305] above), the amount of $270,530.40 is to be reduced by 20% resulting in Engineering's damages being $216,424.32. To this amount is to be added prejudgment interest from 1 March 2005 to 27 February 2013. (The appellants' challenge to his Honour's award of pre-judgment interest should be rejected, in my view, for the reasons given below.)
Application to adduce additional evidence and make further submissions
The context of the respondents' application to adduce additional evidence and make further submissions on appeal is as follows.
The hearing of the appeal concluded on 30 October 2013. The parties were requested to provide the Court with an agreed schedule of damages in relation to the lost profits claim by Engineering setting out those items of the calculation that were agreed and, insofar as items were not agreed, how those items were calculated and upon what assumptions. On 12 November 2013 an agreed schedule dated 8 November 2013 was provided to the Court. On 14 November 2013 the respondents filed a notice of motion seeking leave to adduce additional evidence and to make supplementary submissions on appeal.
Additional evidence on appeal
Under s 75A of the Supreme Court Act 1970 further evidence is not received on appeal except on special grounds (s 75A(8)), other than where it is evidence concerning matters occurring after the trial: s 75A(9).
Although it is not possible to formulate a universal test, in general, special grounds calls for three conditions to be satisfied: (1) that the evidence could not have been obtained by reasonable diligence for use at the trial; (2) that the evidence is credible; and (3) that the evidence is such that there is a high degree of probability that there would be a different result: Akins v National Australia Bank (1994) 34 NSWLR 155 at 160 per Clarke J; Harrison v Schipp [2002] NSWCA 78; 54 NSWLR 612 at 642 [195] per Giles JA.
The evidence sought to be adduced by the affidavit of Mr Lovick sworn 13 November 2013 concerned two issues, one relating to the date on which the respondents received the second Peterson machine and the other relating to references to a "Peterson Grinder/Recycler 760" in certain invoices which were in evidence at the trial. In each case the further evidence sought to be adduced concerned matters occurring before the trial.
(a) Date of receipt of second Peterson machine
On the first issue, the additional evidence seeks to establish that the respondents did not receive the second Peterson machine until approximately mid June 2005, that Mr Lovick worked on that machine for approximately one week setting up the service truck and excavator and familiarising himself with the machine, and that the first job on which Engineering used the second Peterson machine was for Orange City Council, the subject of an invoice dated 18 July 2005 (Annexure "F").
The additional evidence also included financing documents in relation to the purchase of the second Peterson machine. However, some of these documents were already in evidence.
Insofar as the documents sought to be adduced were already in evidence, there is no basis to grant leave to rely upon these documents on appeal. They are already before the Court. This applies to annexures "B" and "C" to Mr Lovick's affidavit of 13 November 2013: (see Blue 389, 388, and 405-413, and 404, and 401-402).
Annexure "A" to Mr Lovick's affidavit is the contract to purchase the second Peterson machine and records the "Expected Delivery Date" as "Early may-05". This does not advance the respondents' case. Annexures "D" and "E" simply confirm that Esanda paid the supplier of the second Peterson machine on 10 June 2005. But this inference is otherwise established by the Esanda letter of 10 June 2005 which is already in evidence (Blue 388). There is no basis to adduce these further documents.
Annexure "F", being an invoice from Engineering dated 18 July 2005, seems to be the only document not already in evidence on this issue. However, this invoice and Mr Lovick's affidavit evidence was not required to qualify the evidence given in Mr Lovick's affidavit sworn 16 June 2008 that he received the second Peterson machine in "about May 2005". As noted above, Mr Lovick's evidence at trial was already qualified by: (a) his later affidavit sworn 9 September 2009 in which he said that he received the second Peterson machine in "approximately July 2005" and that the sales revenue for the second Peterson machine only related to the period from 30 June 2005 onwards; and (b) the finance documents which were already in evidence which established that Esanda had provided the finance for the acquisition of the second Peterson machine on 10 June 2005.
The respondents did not advance any special grounds for receiving annexures "A", "D", "E" and "F" or Mr Lovick's explanation concerning the actual date of receipt of the second Peterson machine, and that it was first put into use by Engineering in July 2005. Leave should not be granted to adduce this evidence.
In any event, having regard to my conclusions in relation to the disputed invoices, the additional evidence sought to be adduced is not required to advance Engineering's case.
(b) Explanation of disputed invoices
On the second issue, the additional evidence seeks to explain that the references in certain invoices issued by Engineering in May and June 2005 to the "Peterson Grinder/Recycler 760" or "Peterson Timber Grinder 760" are a coding error by Engineering, and that those invoices relate to work done with the first Peterson machine which is described in other invoices issued by Engineering as the "Peterson 660".
The grounds advanced by the respondents for leave to rely upon this evidence on the appeal were the substantial injustice that would otherwise arise to the respondents since it could be expected that Mr Lovick would have given that evidence if he had been challenged at the trial with the proposition subsequently advanced in Doppstadt's written submissions. It was not suggested that Mr Lovick's further evidence could not have been obtained with reasonable diligence for use at the trial.
There are two reasons, in my view, why the respondents have not established special grounds to rely upon this further evidence. The first is that, having regard to the view I have taken concerning the appellants' failure at the trial to challenge Mr Lovick's evidence concerning the disputed invoices issued by Engineering in May and June 2005, no injustice arises because the appellants' challenge to those invoices should be rejected.
Secondly, if I am wrong in concluding that the appellants are precluded from advancing the submission that Mr Lovick's evidence concerning disputed invoices should not be accepted, then the suggested injustice to the respondents arises solely because they failed to raise the Browne v Dunn point at trial.
Supplementary submissions on appeal
The respondents also sought leave to rely upon supplementary submissions on damages. These submissions departed from the way in which the respondents had put their case on damages both at trial and on the appeal. There were two aspects of this departure. The first related to Engineering's lost profits claim.
The respondents' supplementary submission was to the effect that if the Court found that the first Peterson machine would not have been delivered until sometime after March 2004, then the actual profit made by the use of the Doppstadt shredder in 2004 should be divided by 12 to give a monthly figure, and then multiplied by the same number of months that the Court finds that Engineering would have had the Peterson machine available for use prior to February 2005, if ordered in February 2004.
The second departure from the respondents' earlier submissions related to the figure to be used for the expenses for the first Peterson machine for the period February to June 2005. At trial and on appeal it was common ground that the expense figure was $258,926. The respondents' supplementary submissions sought to substitute a lower figure of $220,087.
(a) New methodology
The new case which the respondents sought to argue involved a different methodology to that advanced at trial and on appeal. It would allow the calculation of Engineering's lost profit not to include a deduction for the benefit of earnings received from the Doppstadt shredder, to the extent that such earnings related to months not the subject of a proportional comparison between the actual profit on the Doppstadt shredder and the hypothetical profit from the Peterson.
The consequence of the new methodology would be that if, for example, damages for lost profits were based on a 7.5 month period only (as I have concluded), the "notional" Peterson machine compared with the "actual" Doppstadt shredder would result in the other 4.5 months of actual Doppstadt earnings for February 2004 to February 2005 not being taken into account as a benefit received by Engineering when determining its lost profits.
The appellants submit that the respondents should not be permitted to raise this "new methodology" after the hearing of the appeal. This submission must be accepted. The respondents are bound by the way in which they conducted their case at trial (and indeed on appeal). No exceptional circumstances have been shown as to why the respondents should be allowed to raise such a new point on appeal let alone after the hearing has concluded: Metwally v University of Wollongong at [71].
(b) Peterson expenses
The respondents' explanation for seeking to rely on a lower expense figure for the Peterson machine was largely defensive. That is, should the Court determine that certain of Engineering's invoices in the month of June 2005 be disallowed on the basis that they are referable to the second Peterson machine (as the appellants contend), then the period for the determination of the Peterson expenses, and thus the Peterson net profit, should be reduced from 5 months to 4.25 months, because in that event the only revenue referable to the first Peterson machine in June 2005 would be an invoice dated 6 June 2005. It was argued that the expense figure for the entire 5 month period would be inappropriate when no revenue was earned in respect of the Peterson shredder from 7 to 30 June 2005, and it should not be assumed that expenses were being incurred after 6 June 2005 with no revenue being earned.
In my view, this new submission should not be permitted. Having agreed both at the trial, and on the appeal, that the amount of the expenses relating to the first Peterson machine for the five-month period from February to June 2005 was $258,296, it is purely speculative for the respondents to now contend that no expenses were being incurred by Engineering from 7 to 30 June 2005, because the only invoice in respect of that five-month period was dated 6 June 2005.
As this Court stated in Bale & Anor v Mills [2011] NSWCA 226 at [60]:
"The appeal is not an occasion merely for a discussion of the issues so that the parties can go away to marshal and develop their ideas further, bearing in mind the discussion with the court. It is the time and place when and where argument, and sometimes decision, occurs. Once the appeal is reserved, the parties' rights to argument and to be heard have been exhausted."
Accordingly, leave should not be granted to the respondents to rely on the proposed supplementary submissions on damages.
In any event, having regard to my rejection of the appellants' challenge to the disputed invoices, the second issue to which the respondents' supplementary submissions are directed does not arise, at least in relation to the figure adopted for the Peterson expenses.
Issue 5: Interest and costs
Interest (ground 33)
The appellants challenge the discretionary decision of the primary judge to award interest on damages between 1 March 2005 and 27 February 2013 relying on s 100(1) of the Civil Procedure Act. The interest as calculated by the parties was $183,046.69. Judgment was given for this amount on 18 April 2013.
The appellants submit that prejudgment interest should run only from 10 December 2010, being the Friday of the second trial week, when the respondents finally formulated their damages claim and served all the material upon which they relied.
The challenge to his Honour's exercise of discretionary power to include interest in the amount for which judgment is given is subject to the constraints of House v R [1936] HCA 40; 55 CLR 499. It was not suggested that his Honour acted upon a wrong principle. His Honour referred to relevant authorities including Kalls Enterprises Pty Ltd (in liq) & Ors v Baloglow & Anor (No 3) [2007] NSWCA 298: Judgment No 3 at [11]. Nor was it suggested that his Honour took into account an irrelevant consideration, or failed to take into account a relevant consideration.
Rather, reliance was placed on the last limb of House v R, that the result was plainly unjust, and that his Honour failed to take sufficient account of the matters which were relevant to his discretion to award prejudgment interest. The latter was in reference to the history of the proceedings between 2006 and 2010 and the respondents' delay in claiming the relief in respect of which Engineering was ultimately successful.
In my view, no such error has been established. His Honour considered the respondents' delay (at [13]-[18] Judgment No 3), and took this matter into account in exercising his discretion: at [19]-[21] Judgment No 3. While accepting that there was substantial delay in the respondents formulating the case on which they ultimately succeeded at trial, his Honour found that the appellants had not demonstrated that the delay was unreasonable. The appellants did not challenge his Honour's finding that the evidence presented in support of the respondents' case which was ultimately successful would have taken some years to prepare, plead, and present at trial: at [21] Judgment No 3. Nor did the appellants contend that the absence of financial evidence demonstrating any long-term disadvantage to the appellants, having regard to interest rate differentials between commercial interest rates and the prescribed rates under s 100 of the Civil Procedure Act, was not a relevant consideration for his Honour to take into account, which he did: see Kalls Enterprises Pty Ltd (in liq) & Ors v Baloglow & Anor (No 3) at [11]: at [19] Judgment No 3.
The conclusion reached by his Honour on prejudgment interest was open to him. It has not been demonstrated that the decision is clearly outside what could be justified by correct reasoning.
Costs (grounds 34 - 46 and cross-appeal ground 7)
It is convenient to deal with the competing challenges to his Honour's costs orders together. The starting point is to recall that his Honour ordered the appellants to pay 40% of the respondents' costs.
The appellants contend that:
(1)Developments should have been ordered to pay the appellants' costs, because it was unsuccessful in the only claim that it ultimately pursued - the loss of capital arising from the undervalue of the Doppstadt shredder at the date of acquisition;
(2)Engineering should have been ordered to pay the appellants' costs up to 10 December 2010 and the appellants should only be liable to pay 20% of Engineering's costs from 10 December 2010.
(3)The respondents' costs, which were said at trial to be in excess of $630,000, should have been capped pursuant to s 98(4)(d) of the Civil Procedure Act, because they are disproportionate to the amount of the claim that was advanced and the amount ultimately ordered in favour of Engineering.
(4)The primary judge should not have ordered interest on legal costs, because the respondents' costs are out of all proportion to the issues and the quantum for which Engineering was ultimately successful.
The respondents contend that the primary judge should have ordered the appellants to pay the whole of the respondents' costs of the proceedings.
Again, the constraints in House v R on appellate review of discretionary decisions apply to each parties' challenge to his Honour's exercise of discretion on costs.
These challenges are to be considered in the context of ss 98, 100 and 101 of the Civil Procedure Act which relevantly provide:
"98 Courts powers as to costs
(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
...
(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:
...
(d) such proportion of the assessed costs as does not exceed a specified amount."
"100 Interest up to judgment
(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit:
(a) on the whole or any part of the money, and
(b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect.
...
101 Interest after judgment
...
(4) The court may order that interest is to be paid on any amount payable under an order for the payment of costs."
(1) Developments
The primary judge rejected, as being "overly simplistic", the appellants' submission that Developments should pay the appellants' costs of its claim because Developments was unsuccessful in establishing damages: at [27] Judgment No 3. His Honour reasoned that the appellants' misleading conduct had caused Developments to purchase the Doppstadt shredder instead of the Peterson machine and that: (a) the Court should infer that Developments leased to Engineering an asset with less income earning potential in February 2004, than it would have if it had acquired the Peterson machine: at [27] Judgment No 3; (b) the appellants did not conduct the case in a way that distinguished between the two entities: at [28] Judgment No 3; and (c) it was impossible to separate out costs incurred in relation to Development's claim rather than Engineering's claim: at [29] Judgment No 3.
In my view, there was no error in his Honour's assessment of the appellants' contention as being "overly simplistic", at least for the first reason given by his Honour. It is unnecessary to consider whether the second and third reasons reveal error because, as the appellants contend, the respondents advanced separate damages claims, and as separate legal entities, they should not have been treated by his Honour as if they were one legal entity.
As to the first reason, the appellants did not challenge his Honour's finding that Developments had suffered at least a nominal loss, being the difference in the income earning potential in February 2004 of the Doppstadt shredder, which was defective, and the Peterson machine. The appellants did not submit that a costs order could not have been made in favour of Developments, based on his Honour's finding of, at least, a nominal loss. No basis has been shown to disturb the costs order made in favour of Developments.
(2) Engineering
The competing contentions are whether Engineering should pay the appellants' costs up to 10 December 2010 and thereafter the appellants should pay 20% of the respondents' costs, or whether the appellants should pay the whole of Engineering's costs of the proceedings.
Again, it was not suggested by the appellants that his Honour acted upon a wrong principle, or took into account an irrelevant consideration, or failed to take into account a relevant consideration, when making the costs order in favour of the respondents. Rather, reliance was placed on the last limb of House v R that the result was plainly unjust or unreasonable.
The appellants submit that an order for costs should not have been made in favour of Engineering as the judgment was significantly less than $500,000, and the claim on which Engineering succeeded was first raised shortly before the hearing. The appellants referred to Uniform Civil Procedure Rules (UCPR) r 42.34 which requires in the case of a verdict of less than $500,000 that:
"(2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted."
The appellants' submission ignored the short answer which was given to this same submission by the primary judge: at [46] Judgment No 3. UCPR r 42.34 was introduced in September 2010, approximately three months before the hearing. The proceedings were already listed for hearing and transfer to the District Court would have been impractical without incurring costs of vacation of the hearing. Moreover, his Honour was satisfied that the complexity of the proceedings warranted action in the Supreme Court, particularly having regard to the fact that the proceedings had been conducted for approximately four years before the rule was introduced, and this was sufficient to take the case outside the ordinary application of the rule in any event. The appellants' reliance on UCPR r 42.34 is misconceived.
The appellants next submit that a general costs order in favour of the respondents would involve substantial injustice for the appellants, having regard to the significant amount of the respondents' costs ($630,000), and that a large proportion of those costs related to work duplicated by various legal representatives and to work in respect of claims that were either abandoned very late, were amended on a number of occasions, or were unsuccessful.
As to the appellants' first contention (duplication of the respondents' costs occasioned by changes of legal representatives), his Honour considered this factor but took the view that the extent of duplication was far less obvious to him than it would be to a costs assessor, and that it was more appropriate for the costs assessor to address the effects of costs duplication: at [44] Judgment No 3.
As to the appellants' second contention (that the costs order should be reduced to take into account those claims by Engineering which were either abandoned, amended, or unsuccessful), his Honour did so in arriving at his 40% apportionment in favour of the respondents: at [32]-[43] Judgment No 3.
Reassessment of costs of proceedings below
In my view, no error has been established. That however is not the end of the matter. This is because the outcome on appeal should be somewhat different, in my view, to that which his Honour found. For this reason, it is necessary for this Court to reconsider the question of costs of the proceedings below, taking into account the somewhat different outcome on appeal, which I would favour. This involves success for the respondents in overturning the failure to mitigate finding. However this is offset by the appellants' success on the damages issues, taking into account the different finding I favour in relation to the six-month delay in the delivery of the Peterson machine, although the effect of this finding is militated somewhat by the further finding I favour that Mr Lovick would have placed this order by December 2003. The outcome in monetary terms is a judgment (before including interest) in favour of Engineering, approximately $38,000 lower than that awarded by the primary judge. In these circumstances, I would not disturb the costs order below.
(3) Cap on costs
Alternatively, the appellants submit that the respondents' costs should be capped pursuant to s 98(4)(d) of the Civil Procedure Act as the amount of costs claimed ($630,000) is out of all proportion to the claim that was advanced and ultimately successful.
The primary judge rejected this contention. His Honour reasoned that, having awarded the respondents only 40% of their costs, it would be unjust to cap their costs beyond that limit: at [48] Judgment No 3. His Honour noted the general reluctance in the authorities to impose arbitrary limits on the amount of costs recovered unless Court cost scales exist to warrant the lower recovery, or other misconduct has occurred warranting cost reduction.
The appellants place reliance on the last limb of House v R that the result was plainly unjust or unreasonable. However, the appellants' written submissions did not identify any specific cap on the respondents' costs which his Honour should have ordered. Nor did the appellants' submissions attempt to engage with, or demonstrate why, his Honour's reasoning for refusing to place a cap on the respondents' costs was unreasonable. In my view, no error has been demonstrated.
(4) Interest on costs
Finally, the appellants contend that the primary judge erred in the exercise of his discretion to order interest on costs which were awarded to the respondents. The appellants accept that there is power to make an order pursuant to s 101(4), but resist such an order in the present case relying upon essentially the same factors as referred to above for limiting or capping Engineering's costs - the disproportion between the respondents' costs and the quantum of Engineering's successful claim, the alleged significant duplication of costs by the respondents' solicitors, and the costs incurred in respect of matters which were abandoned or unsuccessful.
No issue was raised on appeal as to the principles applied by the primary judge at [49] Judgment No 3. The payment of interest is intended to be compensatory, on the basis that the person entitled to costs has been wrongly required to spend money on litigation to enforce established rights: Robb Evans of Robb Evans & Associates v European Bank Ltd (No 2) [2009] NSWCA 170 as [44] per Basten JA (Campbell JA agreeing). Thus in the absence of any countervailing discretionary factor, it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it had paid. There is no requirement to establish that the circumstances of the case are out of the ordinary: Drummond and Rosen Pty Ltd v Easey & Ors (No 2) [2009] NSWCA 331 at [4] per Macfarlan JA (Tobias JA agreeing) citing Lahoudv Lahoud [2006] NSWCA 126 at [82]-[83] per Campbell J.
In this case, there was evidence before the primary judge by way of affidavit from Mrs Vicki Lovick, the administration officer of the respondents, of the amounts paid, and the dates of payment of legal costs totalling $636,558.27 as at 21 June 2012 (Black 936M). Thus no issue arises on the present appeal as to whether a special order for interest on costs can and should be made in the absence of such evidence: Drummond and Rosen Pty Ltd v Easey & Ors (No 2) at [3] per Macfarlan JA (Tobias JA agreeing); contra Handley AJA at [49]; cf Illawarra Hotel Co Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; 84 NSWLR 436 at [36] per Meagher, Barrett and Ward JJA.
The first and third of the countervailing factors relied upon by the appellants (see [402] above) are effectively negated by the circumstance that his Honour awarded the respondents only 40% of their costs. The second countervailing factor relied upon by the appellants (the alleged duplication of costs by the respondents' solicitors) is a matter which his Honour considered (in the context of whether a cap should be ordered on costs), correctly in my view, is better addressed by the costs assessor. The same reasoning applies in the context of the appellants' challenge to interest on costs. In my view, no error has been demonstrated in his Honour's exercise of discretionary judgment to order interest on costs.
Conclusion and orders
The appeal fails on all grounds other than: (a) the successful challenge to two of his Honour's findings: that the remote control representation was misleading and that Mr Lovick gave "direct evidence" that if he did not purchase the Doppstadt shredder he would have purchased a Peterson machine in February 2004; (b) the issue of the estimated six-month delay in delivery of the Peterson machine; and (c) some adjustments to the calculation of Engineering's damages for lost profits.
The cross-appeal is successful except in relation to: (a) the challenge to Developments' unsuccessful damages claim; (b) the challenge to the 20% discount to Engineering's loss of profits claim; and (c) the challenge to the costs orders below. The issues on which the respondents were unsuccessful were the subject of only brief written submissions and occupied relatively little time at the hearing.
The respondents' application to adduce further evidence and supplementary submissions on appeal must be dismissed.
My present view is that since the appellants' limited success on the appeal is largely offset by the respondents' success on the cross-appeal, and this translates into only a small reduction in the amount of the judgment (before interest) in favour of Engineering, then each party should pay their own costs in this Court. However, the parties should also be given the opportunity to make further submissions on costs.
Although not raised by either of the parties, there is an obvious typographical error in order 6 made by the primary judge on 27 February 2013. The correct reference should be to s 101(4) of the Civil Procedure Act, not s 100 of that Act. This will be corrected in the orders proposed below.
The orders I propose are as follows:
(1)Appeal allowed in part.
(2)Cross-appeal allowed in part.
(3)Vary orders 1 and 2 made by the primary judge on 27 February 2013 by amending the reference to "the plaintiffs" to read "the second plaintiff" and by inserting the figure of "$216,424.32" in place of "$254,468.80".
(4)Set aside order 2 made by the primary judge on 18 April 2013 in respect of the amount of interest on the judgment from 1 March 2005 to 27 February 2013.
(5)Direct the parties to agree upon and provide to the Court the calculation of interest required by order 2 made on 27 February 2013, as varied, by order 3 above.
(6)Vary order 6 made by the primary on 27 February 2013 by inserting the words "s 101(4)" in place of "s 100".
(7)The respondents' notice of motion filed 14 November 2013 be dismissed.
(8)Direct the parties to file within 14 days agreed short minutes of order giving effect to these reasons.
(9)In default of agreement:
(a)the appellants file and serve within 14 days proposed short minutes of order, together with brief written submissions in support;
(b)the respondents file and serve within a further 14 days their proposed short minutes of order, together with brief written submissions in support.
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Amendments
22 May 2014 Typo Paragraphs: Heading above para 147
44