Explorer Pty Ltd t/as I&D Industries v System Logix Pty Ltd

[2020] NSWSC 1198

Supreme Court

New South Wales

Medium Neutral Citation:

Explorer Pty Ltd t/as I&D Industries v System Logix Pty Ltd [2020] NSWSC 1198

Hearing dates:

24 to 26 August 2020

Decision date:

04 September 2020

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

(1) The proceedings (including the cross-claim) are dismissed;

(2) The plaintiff pay the second defendant’s costs of the proceedings (other than the cross-claim); and

(3) Liberty to apply to the plaintiff and second defendant to vary order (2) within 21 days’ of the date of this judgment

Catchwords:

CONTRACT – Whether representations misleading and deceptive under Australian Consumer Law, s 18 – Where some of the representations were mere puffs – Where some representations were false – Whether Plaintiff entitled to damages under Australian Consumer Law, s 236 – Whether Defendant involved in making false representation under Australian Consumer Law, s 2 – Where Defendant did not know representations were false at the time they were made

PRACTICE AND PROCEDURE – Admissions – Where Defendants/Cross-claimants repeated Plaintiff’s claims in their cross-claim against third party – Held not an admission

EVIDENCE – Expert evidence – Where expert did not personally conduct inspection – Where expert report based on photographs taken by others

Legislation Cited:

Australian Consumer Law

Evidence Act 1995 (NSW)

Trade Practices Act 1974 (Cth)

Cases Cited:

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342

Pereira v Director of Public Prosecutions (1988) 82 ALR 217

Yorke v Lucas (1985) 158 CLR 661

Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537; [2012] FCAFC 107

Category:

Principal judgment

Parties:

Explorer Pty Ltd t/as I&D Industries (Plaintiff)
System Logix Pty Ltd (First Defendant)
Brian Christopher Gatt (Second Defendant)

Representation:

Counsel:
T Vernier (Plaintiff)
C Stomo (Second Defendant)

Solicitors:
HWL Ebsworth (Plaintiff)
Kedron Legal (Second Defendant)

File Number(s):

2018/318314

Publication restriction:

None

Judgment

Introduction

1. The plaintiff, Explorer Pty Ltd t/as I & D Industries (Explorer), carries on the business of manufacturing, repairing, renovating and valuing motor homes and special purpose vehicles. It was established in 1993 by Mr Igor Muriti (Mr Muriti Snr), who remains a director of the company, although the company is now run by his son, Mr Grant Muriti (Mr Muriti).

2. As part of its business, Explorer fits out mobile coffee vans for an entity referred to as the Mobile Coffee Group, which supplies fitted out vans to individual operators. The vans typically include electrical appliances such as a coffee machine, refrigerator, grinder, blender, water pump, hot water service and pie warmer. Since about mid-2014, the power for those electrical appliances in vans fitted out by Explorer has been supplied by industrial batteries. The batteries are attached to an inverter/charger, which converts the 12 volt DC current from the batteries to standard 240 volt AC current and which permits the batteries to be recharged from the mains supply or the vehicle’s alternator.

3. Between 2014 and 2016, Explorer used Ritar AGM (Absorbed Glass Matt) 120 amp batteries in the vans that it fitted out. Those batteries came with a warranty of one year and in some cases lasted up to three years before needing replacement.

4. The first defendant, System Logix Pty Ltd, which is now in liquidation, is one of a group of companies known as Logix Enterprises which was formed by the second defendant, Mr Brian Gatt, and his wife, Mrs Jessica Gatt, in 2013. System Logix supplied components to the marine industry, emergency services, corrective services and the automotive industry, including batteries. Mrs Gatt was System Logix’s sole director. Mr Gatt described his position as that of “Technical Director”.

5. On 30 June 2016, Mr Jason Marshall of Betta Batteries Pty Ltd sent Mr Gatt an email attaching a series of price lists and product sheets for a range of lead crystal batteries (LCBs) supplied by Betta Batteries. At about the same time, Mr Marshall provided Mr Gatt with an article he had written about LCBs that had been published in Automotive Electrical & Air Conditioning News. Also at about the same time, Mr Gatt met with Mr Marshall and Mr Jacques Addinall, another employee of Betta Batteries, at System Logix’s facility in West Gosford. How the meeting came about is not clear from the evidence, but it seems that it was part of the activities engaged in by Betta Batteries to promote its range of LCBs, which at that time were a relatively new product in the Australian industrial batteries market.

6. Mr Gatt and Mr Muriti had known one another for a number of years through work. In the past, Mr Gatt had worked for Bainbridge Technologies which had supplied batteries to Explorer and he had also programmed a Victron inverter/charger installed in a demonstrator van owned by Explorer.

7. Following Mr Gatt’s meeting with Mr Marshall and Mr Addinall, System Logix prepared its own brochure promoting LCBs. Mr Gatt emailed a copy of that brochure to Mr Muriti on 7 July 2016. Mr Muriti says that following receipt of the email and brochure he became interested in LCBs and shortly after the email was sent a meeting was arranged to discuss them. The meeting, which occurred at Explorer’s premises, was attended by Mr Gatt, Mr Addinall, Mr Marshall, Mr Muriti, Mr Muriti Snr and Mr Ryan Lehepuu, the leading hand at Explorer.

8. Mr Muriti says that, relying on the information contained in Mr Gatt’s email and the attachment and what Mr Gatt said at the meeting, he decided to start installing LCBs in coffee vans fitted out by Explorer. He spoke to Mr Rob Kirkpatrick of the Mobile Coffee Group about the proposal who replied “Ok let’s see how it goes”.

9. Between 17 August 2016 and 28 September 2017, Explorer purchased a total of 119 LCBs from System Logix for a total price of $82,944.11, which it installed in 47 mobile coffee vans.

10. In February 2017, Explorer received a complaint from a customer that the battery in his van would not charge. Mr Gatt arranged for the battery to be replaced. At the time, Mr Muriti thought that the problem was an isolated one. However, from November 2017, the complaints began to increase. In all, complaints have been made in relation to 31 of the 47 coffee vans which were fitted with LCBs. In a number of cases, Mr Gatt arranged for the batteries to be replaced and, so far as the evidence goes, it seems that some customers have not, at least to date, had problems with the replacements. In other cases, Mr Muriti has arranged for different types of battery to be installed. Explorer has ceased using LCBs.

11. In these proceedings, Explorer alleges that System Logix made a number of representations in Mr Gatt’s email dated 7 July 2016, the attachment to that email and at the meeting that occurred shortly after the email was sent concerning the performance characteristics of the LCBs supplied by it which were misleading and deceptive in contravention of s 18 of the Australian Consumer Law (ACL). It also alleges that Mr Gatt was a person involved in those contraventions. Relying on those representations, Explorer says that it acquired the batteries and installed them in the 47 coffee vans and as a consequence it has suffered loss and damage. Originally, it sought to recover that loss and damage under s 236 of the ACL from both System Logix and Mr Gatt. The proceeding against System Logix has been stayed as a consequence of its liquidation. The claim is now only pressed against Mr Gatt.

12. Mr Gatt (and System Logix) filed a cross-claim against Betta Batteries. However, for reasons which are not explained, it appears that Mr Gatt’s former solicitors did not serve the cross-claim and Mr Stomo, who appeared for Mr Gatt at the hearing, accepted that it should be dismissed.

The representations

13. Mr Gatt’s email dated 7 July 2016 was in the following terms:

Gentleman

Please see the latest product suite to be released

- A battery that is not classified as a Dangerous good.

- can be left flat ( 3v ) and not be affected

- will not sulphate and fail

- extremely high charge rate and retention is off the chart

- 3 year warranty

Same life cycles as "LITHIUM"

Looks and feels like a high end AGM

Performs like a lithium

14. The brochure attached to it contained the following text:

About

Lead Crystal Batteries are designed and manufactured by Betta Batteries - a market leading power solutions company that develops and commercializes next generation batteries specialiising [sic] in groundbreaking innovations and green technologies.

Lead Crystal Batteries are robust, reslient [sic] and high performing. With less acid, no cadmium and no antimony, Lead Crystal Batteries are cleaner and safe. They are up to 99% recyclable and are classified as non-hazardous goods for air, sea and land transport.

Our batteries are being used in all industries where conventional lead based batteries like lead acid, lead gel and AGM batteries are used. A few of industries include telecoms, ups, petrochem/marine, defence, renewable energy, health care, manufacturing, transportation and electric motion (wheelchairs, golf carts & trolleys).

Compared to mainstream rechargeable industrial batteries, Lead Crystal Batteries always perform better due to their unique characteristics.

Lead Crystal batteries can be charged faster, charged below 0 degrees Celsius, discharged deeper (to 0 volt), discharged more often, used in a wider temperature range (-40 to +65) and be stored for 2 years without special handling. They require no special ventilation and cooling and offer the best value for money.

The material under the heading “Advantages” was lifted largely word for word from the brochure that Betta Batteries had supplied to Mr Gatt.

15. According to Mr Muriti, during the meeting, Mr Gatt, Mr Addinall and Mr Marshall showed the representatives of Explorer a demonstration battery which had clear plastic around it, so that the inside components were visible. During the discussion concerning the battery, Mr Gatt is alleged to have said words to the effect of:

[T]hese batteries are very durable, can be run down to zero volts without any damage and are extremely tolerant to heat.

16. According to Mr Muriti, the group then inspected several coffee vans during which Mr Gatt is alleged to have said words to the effect of:

[T]hese batteries will be perfect for you.

17. Mr Gatt accepts that he made the first of these statements. He says he cannot recall making the second and says that he was on the phone to another customer for a substantial part of the meeting and that during the meeting most of the talking was done by Mr Marshall and Mr Addinall. He denies that the group inspected several coffee vans. Mr Muriti Snr gave evidence that he could not recall anything said at the meeting. Mr Lehepuu does not refer to the meeting in his affidavit evidence.

18. In para 19 of its List Statement, Explorer pleads that the brochure contained the following representations:

(a)   The LCB are robust, resilient and high performing (Representation 1);

(b)    The LCB are used in all industries where conventional lead based batteries like lead acid, lead gel and AGM batteries are used such as telecoms, ups, petrochem/marine, defence, renewable energy, health care, manufacturing, transportation and electric motion (Representation 2);

(c)   LCB perform better than non-lead crystal batteries (Representation 3);

(d)   LCB can be used in a wider temperature range (-40 to + 65 degrees Celsius) (Representation 4);

(e)   LCB require no special ventilation and cooling (Representation 5); and

(f)   Full recovery can be 100% discharge and then restored to full rated capacity daily (Representation 6).

19. It also pleads that the email made the following representations regarding the LCBs:

(a)   can be left flat (3v) and not be affected (Representation 7);

(b)   will not sulphate and fail (Representation 8);

(c)   extremely high charge rate and retention is off the chart (Representation 9);

(d)   same life cycles as “LITHIUM” (Representation 10); and

(e)   performs like a lithium (Representation 11).

20. Lastly, it pleads that Mr Gatt represented to Mr Muriti on behalf of the plaintiff that the LCBs “would be perfect” for the system installed in the coffee vans (Representation 12).

21. Mr Gatt admits that the brochure made Representations 1, 2, 4, 5 and 6 and that the email made Representations 7, 8, 9, 10 and 11. He denies that the brochure made Representation 3, but says that the brochure stated ‘Compared to mainstream rechargeable industrial batteries, Lead Crystal Batteries always perform better due to their unique characteristics’. He does not admit making Representation 12.

22. Representation 3 clearly contains an error. What was intended to be pleaded is that LCBs perform better than non-crystal lead batteries. There is no evidence that a non-lead crystal battery exists. Understood in that way, Representation 3 was made in the brochure.

23. I accept that Mr Gatt said something along the lines of Representation 12. He does not deny that he said something along those lines. It is not improbable that he would have and Mr Muriti has a recollection that he did. It follows that each of the pleaded representations (properly understood) was made.

Were the representations misleading or deceptive?

24. It is convenient to begin with Representation 12. In the context, I do not think that that representation was anything more than a puff. I accept Mr Gatt’s evidence that Mr Marshall and Mr Addinall did most of the talking at the meeting at which the representation was made. That seems likely, given that they were obviously the ones who knew most about the batteries and were the representatives of the company selling them. A curious feature of Mr Muriti’s evidence is that he says nothing about what he was told by Mr Marshall and Mr Addinall.

25. Mr Muriti had some familiarity with industrial batteries that he had gained in fitting out various types of vehicle in which they were installed, including mobile coffee vans. He undoubtedly had a better knowledge than Mr Gatt of the conditions under which mobile coffee vans were operated and the precise power demands that particular customers had. So, for example, he was responsible for choosing the precise model of battery that was fitted to a particular van, how many batteries would be fitted and their location in the van. It is likely that he also had an understanding of the costs of different types of battery. Mr Muriti was given some technical information in relation to the LCBs in the brochure that had been sent to him by Mr Gatt. The likelihood is that he was given additional technical information by Mr Marshall and Mr Addinall during the meeting. Consequently, when Mr Gatt said that the batteries would be perfect for Explorer, he must have been understood as simply making a comment based on what Mr Marshall and Mr Addinall had said and on his understanding of the requirements of mobile coffee vans, with a view to encouraging Mr Muriti to consider buying LCBs. He was doing no more than engaging in the normal sort of exaggeration that is typical of commercial dealings. Mr Muriti would have understood that to be the case. Accordingly, I do not think that the representation was misleading or deceptive in the context.

26. In my opinion, Representations 1, 8 and 9 are in a similar category.

27. Representation 1 (that the LCBs are robust, resilient and high performing) must be understood in context. It is a general description in positive terms of the specific characteristics of the battery identified in the brochure. It cannot be understood as anything but a puff or hyperbole seeking to describe those characteristics in positive terms.

28. Representations 8 and 9 are contained in Mr Gatt’s email. Although the representations made in the email are admitted, those representations cannot be viewed in isolation. On any fair reading of the email, the paragraphs in the email with the hyphens are seeking to summarise the information contained in the attached brochure and the email is obviously directing the reader’s attention to the information contained in that brochure. To the extent that any of the representations in the email are qualified by what is contained in the brochure, the representations in the email must be understood as being qualified in that way.

29. Moreover, Representation 8 (that the LCBs will not sulphate and fail) cannot be taken literally. No one reading the statement in the email to that effect could have understood that what was being represented was that the batteries would never sulphate and would last forever. Rather, to the extent that the representation added anything to what was contained in the brochure it was a puff – part of the hyperbole that is typical of normal commercial dealings. The same is true of Representation 9 (that the batteries had an extremely high charge rate and retention that was “off the chart”).

30. Explorer seeks to demonstrate that the other representations made by System Logix were misleading and deceptive in three ways. First, it relies on the complaints and experiences of its customers as demonstrating that the representations were false. Second, it relies on what are said to be admissions. Third, it relies on data sheets relating to LCBs published by Zhejiang EGE Battery Manufacturing Co Ltd (EGE), the actual manufacturer of the batteries.

31. Much of the evidence in the case concerns customer complaints. The evidence falls into three main categories. First, there is evidence given by Explorer concerning individual customer complaints. The primary form of that evidence is contained in customer records kept by Mr Muriti. Mr Muriti’s evidence is that it was his practice when he received a complaint from a customer immediately to create a Customer Record for that customer that recorded the batteries installed by Explorer in the customer’s van, the installation date, whether and when replacement batteries were installed and a brief summary of what the complaint was and how it was dealt with. In his affidavit evidence, Mr Muriti seeks to expand on that evidence. To the extent that the evidence is led as evidence of the truth of the complaints made by customers, it is hearsay. However, it was admitted under s 64(2) of the Evidence Act 1995 (NSW) on the basis that it would cause undue expense and delay and not be reasonably practical to call each customer to give evidence.

32. Second, Mr Gatt relied on expert evidence from Dr Jeff Johns, an electrical engineer. Dr Johns gives some helpful background on battery technology and inverter/chargers, which is largely uncontroversial; and certainly not contradicted by any evidence given by Explorer. Relevantly, Dr Johns points out that lead acid batteries (which include the AGM class of battery) operate with lead plates submerged in a sulphuric acid based electrolyte. The life of lead acid batteries is limited due to the crystallization of lead sulphate on the plates (referred to as “sulphation”). They generally have lower tolerances to heat and overcharging than other types of battery. They also have a “discharge curve” in which the voltage of the battery drops gradually as the battery becomes flat. They are cheaper to manufacture than other types of battery. It appears from other evidence in the case that some of those limitations of lead acid batteries can be improved on by using gel in the batteries rather than liquid.

33. According to Dr Johns, LCBs use a small volume of electrolyte liquid between the lead plates that crystallises during the first few cycles (that is charge and discharge) which occur during the manufacturing process. Their discharge curve is more like that of a lithium battery in that they discharge at the required voltage for longer before dropping off quickly at the end of the cycle. They also suffer from less sulphation on the plates, with the result that they have a longer life than lead acid batteries. According to Dr Johns – and again there seems little doubt about this – LCBs have been available for a number of years in a variety of applications without any reported catastrophic failure rates.

24. Dr Johns also points out that all batteries are affected by heat due to increases in internal resistance. The heat may be ambient or may be internal resulting from overcharging or excessive load currents, which can cause the battery to swell.

25. According to Dr Johns, the performance of the Victron inverter/charger used by Explorer may be affected by two factors. First, it is designed to stop operating if the temperature exceeded 50^oC, to protect itself and the batteries. Second, its performance may be affected by the length and cross section of the cabling connecting it to the batteries and used for charging the batteries from an external source.

26. Dr Johns did not inspect any of the mobile coffee vans. However, he expresses the opinion on the basis of photographs, very few of which are included in his report, that the problems identified by customers were the result of “a “cluster of failures” with the common factor being their “subsequent use and installation”. He points in particular to what he says is the use of undersized cabling and to poor ventilation of the batteries, causing them to overheat. His evidence is contradicted by evidence of Mr Chris Espitalier-Noel, who is a qualified electrician, who was employed by Explorer to supervise the installation of the 240V AC electrical systems of the vans and, if satisfied that they were compliant, certify the installations as complying with the relevant standard.

27. The third category of evidence relating to the customer complaints consists of reports included in the court book prepared by Betta Batteries following testing of a number of the failed batteries. The batteries were tested by Betta Batteries in accordance with directions given by the Court on 15 March 2019 on the application of System Logix. Although the reports were included in the court book, which was admitted into evidence without objection, the reports themselves are not admissible as business records of Betta Batteries, since they were obviously prepared for the purposes of these proceedings: see Evidence Act 1995 s 69(3)(a). During the course of submissions, Mr Vernier, who appeared for Explorer, objected to the reports on that basis. I did not exclude them from the evidence at that time, leaving what weight should be placed on them to this judgment. The reports indicate that a number of the batteries had swollen, suggesting that they had been subjected to excessive heat. Each report contains a qualification to the effect that “The internal condition of this battery cannot be determined without destructive testing and therefore, the assessment results remain inconclusive”.

28. In my opinion, none of this evidence is of much assistance in answering the question whether Representations 2 to 7, 10 and 11 were misleading or deceptive. All of the representations are concerned with the general qualities of LCBs compared with other types of battery. It was for Explorer to prove that the representations were misleading and deceptive. The fact that a substantial number of the batteries failed in the particular vans in which they were installed does not demonstrate that LCBs did not have the general characteristics attributed to them. It was equally possible that the failures were caused by the way in which the batteries were installed or the way in which they were used. The fact that only some of the batteries failed – albeit a very substantial number – supports that view.

29. Explorer relies on the fact that it did not have problems with batteries previously used by it and with substitute batteries installed by it. But the evidence relating to those matters is scant. There is, for example, no evidence concerning precisely how the AGM batteries previously used by it were installed or how they performed. Whether one battery will out-perform another depends on a range of factors, including how they are installed and how they are charged. Any of the representations made by System Logix concerning the performance of the batteries must be understood as representations concerning their performance when properly installed and operated. But in circumstances where it appears that 16 out of the 47 mobile coffee vans have not experienced any difficulties, it was necessary for Explorer to lead some evidence to satisfy the Court that it was more likely than not that the difficulties that were experienced reflected some innate characteristics of the batteries, rather than the way that they were installed or were operated. It did not do that.

30. On the other hand, no weight can be placed on Dr Johns’ report. He purports to express an opinion that the LCBs were improperly installed and operated. However, he inspected none of the installations. He refers to only two in his report and the views he expresses are based on photographs that he did not take. There is no evidence of precisely what those photographs depicted.

31. Nor are the reports prepared by Betta Batteries of any assistance. There is no apparent reason why the person from Betta Batteries could not have given evidence. The reports were not admissible as business records. They are themselves heavily qualified. Consequently, even assuming they were admitted into evidence by agreement, no weight can be put on them.

32. Lastly, there is no evidence in the material referred to that Representation 2 (concerning the widespread use of crystal lead batteries) was false. The only evidence on the matter suggests that the representation was true.

33. The second way in which Explorer seeks to demonstrate that the representations were misleading and deceptive is to rely on what is said to be admissions made by System Logix. The admissions are said to fall into two categories. First, Explorer relies on the cross-claim filed by System Logix and Mr Gatt against Betta Batteries. Second, it relies on invoices sent by System Logix.

34. In the cross-claim, System Logix and Mr Gatt assert that Betta Batteries made many of the same representations to them that they are alleged to have made to Explorer. They then plead in para 55 “For the purpose of this Commercial List Statement only, the Cross-claimants repeat the pleadings at paragraph 39 of the plaintiff’s Amended Commercial List Statement”. They then plead that by reason of the pleaded representations and the allegations in para 55, Betta Batteries contravened s 18 of the ACL. Paragraph 39 of the Amended Commercial List Statement is the paragraph in which it is alleged that the representations made by System Logix contravened s 18 of the ACL. It is plain from these pleadings that the Cross-claim does not contain an admission. It is the pleading of an orthodox case that if Explorer is entitled to succeed against System Logix, then System Logix and Mr Gatt are entitled to succeed against Betta Batteries.

35. In the invoices relied on, System Logix claims amounts paid by it to Betta Batteries. The invoices have descriptions such as “Trade price refund due to incorrect charging profiles supplied by Betta Batteries. Manufacturer EGE determines that the charging requirements stipulated by Betta Batteries in their technical data sheets are incorrect. Logix to completely refund our customers” and “Complete refund at Trade Price to completely refund our customers. Units not fit for purpose – subsequent evidence from the manufacturer EGE determines that the 6-CNFJ-200 battery was never to be used in mobile applications. 100% of sales to our customers were in mobile applications as guided by Jacques Addinall and Betta Batteries Australia”. Whatever else may be said about these statements, they are not admissions. They do no more than purport to give hearsay evidence of the conclusions of EGE, which appear to have no apparent basis. They are not admissible to prove the truth of what is asserted.

36. The third way in which Explorer seeks to demonstrate that the representations were misleading and deceptive has more force, although limited attention was devoted to it during the course of the hearing.

37. As I have said, when Mr Gatt was first approached by Betta Batteries he was given some information concerning the performance of LCBs that appeared to justify many of the claims made about them. More about that information is said in the context of Mr Gatt’s accessorial liability. However, between August and October 2019, Mr Gatt was given data sheets apparently prepared by EGE for at least some of the specific types of batteries sold to Explorer. Those data sheets, which were admitted into evidence without objection, indicate that the characteristics of the batteries sold to Explorer were substantially different from the characteristics of the batteries as shown in the information originally supplied to System Logix and which formed the basis of a number of the representations made by it.

38. Explorer’s submissions were confined to two graphs in one of the data sheets given to Mr Gatt in October 2019. The first graph showed the charging characteristics of one model of battery (the 6-CNFJ-200) which was sold to Explorer. The characteristics were as expected, but the graph suggested that the battery should be charged at a rate of 0.2 of its maximum output. Its maximum output was 200 amps. Consequently, the chart suggested that it should be charged with a current of 40 amps. In fact, until Mr Gatt received that data sheet, System Logix had, on the basis of information provided by Betta Batteries, recommended a charging rate of 60 amps. It may be that this advice explains why a number of customers were having the problems they had. However, it has nothing to do with the representations or whether they were misleading or deceptive.

39. The second graph is more relevant. It described the cycle life of the 6-CNFJ-200 battery. The cycle life of the battery represents the number of times it can be charged and discharged. That varies with the depth of discharge (DOD) – that is, the percentage of the battery’s charge that is used before it is recharged. According to the graph, at a DOD of 100 percent, the battery had a cycle life of about 350. At a DOD of 80 percent it had a cycle life of about 700. At a DOD of 20 percent, it had a cycle life of about 3,000. On the other hand, according to the information contained in Mr Marshall’s article, at a DOD of 100 percent, the battery had a cycle life of 629 and at a DOD of 80 percent it had a cycle life of 1507 and at a DOD of 20 percent a cycle life of 6031.

40. There is a question of when the data sheets from EGE were prepared. However, it seems likely that they reflect the characteristics of that model of battery at the time the representations were made. It hardly seems likely that the design of the battery would have changed so as to reduce its performance. And although the data sheet relates to only one model of the battery, it was the model most often bought by Explorer and appears to be the model by reference to which the representations were made.

41. Although nothing was made of it in submissions, it is also worth pointing out that both the data sheet prepared by EGE and the material originally given to Mr Gatt contain a graph setting out the expected life of the battery under different temperature conditions. The graph from EGE shows that at an operating temperature of 25°C, the 6-CNFJ-200 battery has a service life of about 10.5 years. At an operating temperature of 50°C, it had a service life of about 3.3 years. At an operating temperature of 60°C, it has a service life of about 1.8 years. The corresponding figures from the material originally supplied to Mr Gatt are approximately 10.5 years at 25°C, approximately 4 years at 50°C and approximately 2 years at 60°C. The corresponding figures for other types of battery are not known. Again, this information may assist in explaining why many of the batteries failed. However, it is not directly relevant to the question whether any of the representations were misleading or deceptive.

42. None of the information I have referred to establishes that Representations 4, 5, 6 and 7 were misleading or deceptive. Explorer does not point to any information which demonstrates that the batteries cannot be operated in the temperature range of -40 to + 65 degrees Celsius. As to Representation 5, it is difficult to know what is meant by “special ventilation and cooling”. It seems to be saying no more than that the batteries can operate within a normal temperature range, which again is not shown to be false on the evidence. Similarly, there is no evidence to show that Representations 6 and 7 are false. The evidence simply does not address those representations.

43. The brochure given to Mr Gatt by Betta Batteries, from which System Logix took much of the information contained in its own brochure, contains a table comparing lead acid, lead gel, lead crystal and lithium batteries according to various criteria. One criterion was usage life. Another was 80 percent discharge cycle. Against those criteria, the table gave the following information:

Lead Acid	Lead Gel	Lead Crystal	Lithium
Usage life	2-3 years	3-4 years	8-12 years	5-6 years
80% discharge cycle	350	400	1,400	1,000

54. The data published by EGE indicates that the correct figure for an 80 percent discharge cycle for an LCB is 700. That figure is still significantly more than other types of lead battery. On the other hand, it is substantially less than the number of discharge cycles that can be obtained from a lithium battery. In my opinion, the difference is sufficiently substantial to establish that Representations 10 and 11 (but not 3) were false. Plainly, on the correct figures, the LCBs did not have the same life cycles as a lithium battery and, for that reason, it could not be said that LCBs “perform like a lithium”.

55. It follows that Representations 10 and 11 were misleading and deceptive. I do not accept that any of the other representations were.

Reliance

56. No argument was advanced by Mr Gatt in support of a contention that Explorer did not rely on the pleaded representations. On the findings I have made, Representations 10 and 11 were misleading and deceptive. I accept that Explorer relied on them in deciding to acquire LCBs from System Logix. The life cycle of the batteries was obviously important and was important in determining the overall economics of using LCBs instead of other types of lead based batteries. The actual performance of the LCBs was substantially inferior to what had been represented to Mr Muriti. There is no reason to think that Explorer would still have bought the LCBs if he had known that.

Mr Gatt’s liability

57. Section 236 of the ACL permits a person who suffers loss or damage because of the conduct of another person to recover the amount of the loss or damage “by action against that other person, or against any person involved in the contravention”. Section 2 defines “involved” relevantly in the following terms:

… a person is involved, in a contravention of a provision of this Schedule [that is, the ACL] or in conduct that constitutes such a contravention, if the person:

(a)   has aided, abetted, counselled or procured the contravention; or

(b)   has induced, whether by threats or promises or otherwise, the contravention;

(c)   has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention: or

(d)   …

58. Although Explorer relies on sub-paragraphs (a), (b) and (c), it is difficult to see how it could be said that Mr Gatt induced the misleading and deceptive conduct on which Explorer relies. Mr Gatt is said to have been involved in the conduct because it is his conduct that is attributed to System Logix. He did not induce System Logix to do anything.

59. It is well established that, in order to make out a case under sub-paragraphs (a) and (c), it is necessary to prove that the person said to have been involved had knowledge of the essential facts constituting the contravention: Yorke v Lucas (1985) 158 CLR 661 at 667, 670 per Mason ACJ, Wilson, Deane and Dawson JJ (a decision dealing with the identically worded provisions of s 75B of the Trade Practices Act 1974 (Cth)).

60. Actual knowledge of the essential elements of the contravention is required. Imputed or constructive knowledge is insufficient: Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342 at [399] per White J, citing Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537; [2012] FCAFC 107 at [11]. However, as the High Court pointed out in Pereira v Director of Public Prosecutions (1988) 82 ALR 217 at 220, “a combination of suspicious circumstances and failure to make inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter”.

61. The question in the present case is whether Mr Gatt knew at the time the representations were made that the LCBs did not have the same life cycles and did not perform like a lithium battery. In my opinion, Mr Gatt did not know those matters. The information that Mr Gatt had at the time the representations were made about the LCBs was the information that had been supplied to him by Mr Marshall. He had no reason to doubt that that information was accurate. The table comparing different types of battery in the Betta Batteries brochure that was given to Mr Gatt (part of which is reproduced above) contained the following information comparing LCB and lithium batteries:

62. This table suggests that the two types of battery are comparable or that LCBs are superior. In particular, the table indicates that the operating temperature range of the two types of battery is similar, that the usage life of LCBs is superior to that of lithium batteries, as are the number of discharge cycles that can be obtained from LCBs (at 80 percent DOD), their current discharge ability and their general performance.

63. Explorer submits that Mr Gatt should have been placed on enquiry concerning these claims by Mr Marshall’s article. In that article, Mr Marshall says:

… the battery holds a charge for extremely long periods, has an incredible cycle rate (Some 6000 cycles at 20% depth of discharge and 1800 at 80%) and has a very low acid content ..

Later, Mr Marshall says:

A normal AGM battery will achieve around 1500 to 1800 cycles when discharged to 20% depth of discharge. A Lead Crystal^® will achieve around 6000 cycles. At 80% depth of discharge the Lead Crystal^® will still cycle an astonishing 1800 times.

The graph included in Mr Marshall’s article shows LCBs tested at 25°C as achieving 1507 cycles at a depth of discharge of 80 percent and 6031 at a depth of discharge of 20 percent.

64. Explorer submits that Mr Gatt should have been put on enquiry by the fact that the figures quoted in Mr Marshall’s article were higher than those actually shown in the graph (at least in the case of a depth of discharge of 80 percent) and in the table that was included in the brochure Mr Marshall sent Mr Gatt. I do not accept that submission. All of the figures given for LCBs were higher than the figure given for lithium batteries. It is to be expected that the graph included in Mr Marshall’s article would contain the most accurate and detailed information; and that graph clearly suggested that LCBs outperformed lithium batteries on that measure. Moreover, the fact that there were discrepancies in some of the figures which might have put a reasonable person on enquiry is not sufficient to suggest that Mr Gatt knew that LCBs performed more poorly that lithium batteries on this measure or that that was likely the case. All the figures suggested that LCBs performed better, and there could have been any number of reasons to explain the discrepancies, including the exact model of the battery and the precise conditions under which it was tested. The information available to Mr Gatt provided a sufficient basis for him to believe that Representations 10 and 11 were true. It could not seriously be suggested that Mr Gatt knew that the representations were false because the representations suggested that the two types of battery were comparable, whereas the information available to Mr Gatt suggested that in a number of significant respects LCBs were superior.

64. It follows that the case against Mr Gatt must fail.

Damages

66. Even if I had concluded that the case against Mr Gatt succeeded, I am not satisfied that Explorer has proved the damages it claims.

67. Originally, Explorer claimed damages for the cost of acquiring and installing replacement batteries. It also appears from some of the evidence given by Mr Muriti that Explorer claimed as consequential damages the loss of business from the Mobile Coffee Group. In particular, Mr Muriti gives evidence that the Mobile Coffee Group accounted for sales of $854,715.86 (excluding GST) in 2018, which represented 48.5 percent of Explorer’s business (the figures are similar in earlier years) but in the period 1 January 2019 to 16 August 2019, the figure is $157,572.64 (excluding GST), representing 19.2 percent of Explorer’s business in that period.

68. One difficulty with the claim put in this way is that it was not supported by any primary evidence. Explorer produced no evidence, such as invoices or other documents, showing the amount it paid for replacement batteries. It claimed the cost of installing the replacement batteries. But there are no primary records indicating the work that it did. Nor are there any primary records showing the revenue earned by Explorer in 2019 and earlier years and how that revenue is broken down.

69. More significantly in relation to Explorer’s claim that it is entitled to recover the costs of installing the replacement batteries, the only evidence of the work done and the amount charged is information contained in the customer records. The following is an example extracted from record no 43:

Replacement batteries	1 X Victron super cycle battery	$574.20 each
Replacement Box	$
Fans fitted	2 X 120 mm	$36.00 each
Replacement Dc to Dc charger	$
Labour time	15 hours X $90.00	$1350
Freight on Victron equipment	$45.00
Total cost	$2041.20	$2245.32

70. None of the information in the table is supported by any other evidence. Moreover, it is apparent from the table that Explorer has done other work besides replacing the batteries (installing fans). In addition, the amount claimed does not represent the cost to Explorer but rather includes a profit component as if the work was new work. Explorer sought to justify that claim on the basis that it would have been able to earn profit on other work it could have done if it had not spent time in replacing the batteries. However, there was no evidence to justify that assertion.

71. Similarly, there is no evidence that Explorer lost work from the Mobile Coffee Group because of problems with the batteries; and no submissions were advanced orally or in writing to support that claim. It should be taken as having been abandoned.

72. Explorer’s alternative claim advanced in final submissions is that it should be entitled to recover the amount that it paid to acquire the batteries from System Logix – that is, the $82,944.11. However, the difficulty with that claim is that it is apparent that some of the LCBs sold by System Logix continue to perform adequately, since there has been no complaint in relation to those. There is no reason why Explorer should be entitled to recover the costs of those batteries; and there is no evidence concerning how many batteries fall into that category or what their cost was. For that reason, Explorer has failed to prove this aspect of its claim for damages.

Orders

73. It follows that the proceedings including the cross-claim must be dismissed. There is no apparent reason why Explorer should not pay Mr Gatt’s costs (other than the costs of the cross-claim). However, I did not hear submissions in relation to costs. The orders I propose to make give the parties an opportunity to make submissions on costs if they wish to do so.

74. The orders of the Court are:

1. The proceedings (including the cross-claim) are dismissed;

2. The plaintiff pay the second defendant’s costs of the proceedings (other than the cross-claim);

3. Liberty to apply to the plaintiff and second defendant to vary order (2) within 21 days’ of the date of this judgment.

**********

Decision last updated: 04 September 2020