Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited

[2024] FCA 441

FEDERAL COURT OF AUSTRALIA

Ezy‑Fit Engineering Group Pty Limited v Microm Nominees Pty Limited [2024] FCA 441

File number:

SAD 99 of 2019

Judgment of:

BANKS-SMITH J

Date of judgment:

3 May 2024

Catchwords:

CONTRACT - agency - principal and agent - ostensible authority - implied actual authority - general principles - contract to buy lathe and milling machine - whether contract made between purchaser and dealer in Australia or between purchaser and manufacturer in Poland

CONTRACT - construction - pre-contractual representations - whether terms implied - whether statements in technical brochures incorporated as express terms

SALE OF GOODS - general principles - liability of seller - fitness for purpose - whether breach of term implied under s 14(a) Sale of Goods Act 1895 (SA)

CONSUMER LAW - allegation of misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law (ACL) - conduct by way of representations made in technical brochures - pre-contractual representations - whether machine was defective and failed to perform in accordance with representations - reliance - whether representations were misleading

CONSUMER LAW - pleading of numerous disaggregated representations - whether pre‑commissioning and post-commissioning representations made

DAMAGES - where delivery time estimated - whether delay in performance caused applicants to lose tender for lucrative opportunity to manufacture periscopes - whether delay in performance had impact on receipt of government grant

DAMAGES - general principles - whether machine capable of repair - whether rectification reasonable - rectification costs - whether allowance should be made for rectification costs where damages assessed under s 236 of the ACL

DAMAGES - assessment of damages - loss of profits - whether defective machine resulted in lost opportunity to profit from high-end work - appropriate method of calculating damages - hypothetical alternative purchase - assessment of probability of opportunity eventuating - fair compensation - date and period of assessment - calculation

TORT - negligence - standard of care of manufacturer

EVIDENCE - expert evidence - where evidence of valuer rejected at trial - whether reasoning of valuer disclosed

EVIDENCE - parliamentary privilege - whether s 16 of the Parliamentary Privileges Act 1987 (Cth) prohibits using statements made in a Senate Estimates Committee hearing for making factual findings

EVIDENCE - whether failure to call witnesses gives rise to Jones v Dunkel inference

Legislation:

Competition and Consumer Act 2010 (Cth) s 139B, Schedule 2 (Australian Consumer Law) ss 18, 29, 236, 237

Evidence Act 1995 (Cth) s 79

Parliamentary Privileges Act 1987 (Cth) s 16

Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 6

Sale of Goods Act 1895 (SA) ss 11, 14

Cases cited:

Amadio Pty Ltd v Henderson (1998) 81 FCR 149

Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441

Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640

Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196

Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200

Bellgrove v Eldridge (1954) 90 CLR 613

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Brown Falconer Group Pty Ltd v South Parklands Hockey & Tennis Centre [2005] SASC 75; (2005) 91 SASR 152

Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592

Cammell Laird & Co Ltd v Manganese Bronze & Brass Co Ltd [1934] AC 402

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304

Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64

Dalecoast Pty Ltd v Guardian International Pty Ltd [2003] WASCA 142

Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588

Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

Fitzpatrick v Job t/as Jobs Engineering [2007] WASCA 63

Fortuna Seafoods Pty Ltd (as trustee for The Rowley Family Trust) v Ship 'Eternal Wind' [2005] QCA 405; [2008] 1 Qd R 429

George and Courtier Pty Ltd v Terrey [1996] NSWCA 206

Goodman Fielder Consumer Foods Ltd v Cospak International Pty Ltd [2004] NSWSC 704

Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; (2013) 249 CLR 435

Gould v Vaggelas (1984) 157 CLR 215

Greco v Bendigo Machinery Pty Ltd (1985) ATPR 40-521

Gurdag v BS Stillwell Ford Pty Ltd (1985) 8 FCR 526

Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd [2008] FCA 1591

Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1

Henville v Walker [2001] HCA 52; (2001) 206 CLR 459

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640

Hungerfords v Walker (1989) 171 CLR 125

International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644

Jones v Dunkel (1959) 101 CLR 298

Jones v Schiffmann (1971) 124 CLR 303

Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281

La Trobe Capital and Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd [2011] FCAFC 4; (2011) 190 FCR 299

Leyonhjelm v Hanson-Young [2021] FCAFC 22; (2021) 282 FCR 341

Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421

Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705

March v E & MH Stramare Pty Ltd (1991) 171 CLR 506

Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494

McBride v Christie's Australia Pty Ltd [2014] NSWSC 1729

Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited [2010] HCA 31; (2010) 241 CLR 357

Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1

Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388

Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302

Outback Health Screening Pty Ltd v Gwam Investments Pty Ltd [2010] SASC 37

Payne v Parker [1976] 1 NSWLR 191

Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180

Potts v Miller (1940) 64 CLR 282

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183

Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338

Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq) [2013] FCAFC 5; (2013) 209 FCR 368

Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993) 41 FCR 229

Rider v Pix [2019] QCA 182; (2019) 2 QR 205

Robinson v Harman (1848) 1 Exch 850; (1848) 154 ER 363

Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332

Shepard v Noyes Bros Pty Ltd [1985] ATPR 40-588

Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2013] VSCA 237

Swick Nominees Pty Ltd v Leroi International Inc (No 2) [2015] WASCA 35

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272

Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177

Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514

Wilson v Arwon Finance Pty Ltd [2020] WASCA 137

Yorke v Lucas (1985) 158 CLR 661

Seddon NC and Bigwood RA, Cheshire and Fifoot Law of Contract (11th Aust ed, LexisNexis Butterworths, 2017)

Sutton KCT, Sales and Consumer Law (4th ed, LBC Information Services, 1995)

Division:

General Division

Registry:

South Australia

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs:

1122

Date of last submissions:

7 February 2022

Date of hearing:

11-15, 18, 20-22 October 2021 and 22 December 2021

Counsel for the Applicants:

Mr NJ Floreani with Mr JP Vozzo

Solicitor for the Applicants:

Cosoff Cudmore Knox

Counsel for the First Respondent:

The first respondent did not appear

Counsel for the Second Respondent:

Mr RD Williams with Ms M Conduit

Solicitor for the Second Respondent:

Hall & Wilcox

Counsel for the Cross‑Claimant

Mr RD Williams with Ms M Conduit

Solicitor for the Cross‑Claimant

Hall & Wilcox

Counsel for the Cross‑Respondent

The cross‑respondent did not appear

ORDERS

SAD 99 of 2019

BETWEEN:

EZY-FIT ENGINEERING GROUP PTY LIMITED (ACN 060 465 385)

First Applicant

EZY-FIT MARINE PTY LIMITED (ACN 144 828 188)

Second Applicant

AND:

MICROM NOMINEES PTY LIMITED (ACN 008 867 258)

First Respondent

FABRYKA AUTOMATOW TOKARSKICH WE WROCLAWIU SA

Second Respondent

AND BETWEEN:

FABRYKA AUTOMATOW TOKARSKICH WE WROCLAWIU SA

Cross-Claimant

AND

MICROM NOMINEES PTY LIMITED (ACN 008 867 258)

Cross-Respondent

ORDER MADE BY:	BANKS-SMITH J
DATE OF ORDER:	3 MAY 2024

THE COURT ORDERS THAT:

1.The matter is adjourned for a directions hearing on a date to be fixed.

2.Prior to the hearing the parties are to confer and submit a joint minute of proposed orders, or competing minutes, which address the proposed steps to be undertaken to finalise the calculation of the lost profits assessment, having regard to these reasons.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Table of Contents

PART A:  INTRODUCTION	[1]
The machine	[1]
The parties	[8]
Brief chronology	[13]
Proceeding issued	[19]
Summary of outcome	[22]
PART B:  OVERVIEW OF THE WITNESSES	[23]
Ezy-Fit's lay witnesses	[25]
Phil Green	[25]
Chris Loughlin	[26]
Terry Kerin	[27]
Michael Klappers	[29]
Robert Hollamby	[29]
Steven Stewart	[31]
FAT HACO's lay witnesses	[31]
Adrian Maicher	[32]
Irek Ostrowski	[33]
Norbert Misiolek	[34]
Grzegorz Hoppe	[35]
Expert witnesses	[36]
Thomas Hegmann	[37]
David Miller	[38]
Joint Technical Report	[40]
Brian Morris	[41]
Anh Nguyen	[42]
Joint accounting report	[43]
Valuation evidence	[44]
PART C:  THE BAE TENDER, THE GOVERNMENT GRANT AND OTHER PREPARATION	[45]
Events concurrent with contract negotiations	[45]
Why the BAE evidence is relevant	[46]
Ezy-Fit's 'defence readiness' strategy	[48]
Summary of the BAE tender process	[49]
The BAE tender evidence	[56]
The Commonwealth Government grant and the delivery timeline	[87]
Progress of the building works	[103]
Purchase of DMF600	[105]
Purchase of CMM and the CMM room build	[108]
The debrief and evidence as to why Ezy-Fit was unsuccessful	[111]
Determination - grant not affected by delay	[120]
Determination - delay in delivery did not cause Ezy-Fit to lose BAE tender	[123]
PART D:  THE CONTRACT TO PURCHASE THE FTM1000	[137]
The evidence - formation of contract to purchase the FTM1000	[137]
Mr Green's background	[140]
Preliminary contact with FAT HACO	[145]
Communications commence with Ron Mack	[147]
Communication between Ezy-Fit and Ron Mack and Ron Mak and FAT HACO	[148]
Ezy-Fit's offer	[180]
14 October 2015 Quote	[186]
15 October 2015 Quote	[195]
29 October 2015 Ron Mack purchase order	[199]
The invoicing and payments	[201]
Mr Green's oral evidence	[203]
Determination - the date of the contract	[206]
PART E:  AGENCY	[220]
The competing arguments	[220]
Principles	[223]
Examples from case law	[226]
Further evidence	[234]
Mr Green	[235]
Mr Ostrowski	[239]
First direct communication between Mr Green and FAT HACO	[244]
Second contract as between Ron Mack and FAT HACO	[245]
Differences in the contracts	[248]
Additional email exchanges October 2015	[249]
Demands issued to Ron Mack	[254]
Ostensible authority - analysis	[256]
Implied actual authority - analysis	[281]
PART F:  PURPOSE AND TERMS OF THE CONTRACT	[290]
Purpose of buying machine	[290]
Was purpose known to Ron Mack at time of contract?	[296]
High precision and tolerances - meaning	[306]
Was purpose known to FAT HACO at time of contract?	[325]
Terms of contract	[329]
Express terms	[329]
Implied terms	[336]
Fitness for purpose	[338]
Merchantable quality	[345]
Applicable standards	[346]
Programming	[347]
Delivery and commissioning time of the essence	[348]
FTM1000 would be delivered complete and fully tested	[355]
PART G:  DELAYS, COMMISSIONING AND TESTS	[356]
The pre-commissioning visit to Poland	[356]
Variation to specifications	[367]
Delay in delivery	[368]
Commissioning	[372]
Tests in Poland	[372]
Commissioning in Australia	[376]
PART H:  DEFECTS AND RECTIFICATION VISITS	[392]
Preliminary	[392]
Defects and the First Rectification Visit	[406]
Defects notified	[406]
The First Rectification Visit	[407]
Defects outstanding after the First Rectification Visit	[417]
Machine testing undertaken by Mr Loughlin	[419]
Further defects and the Second Rectification Visit	[423]
Additional defects notified	[423]
The Second Rectification Visit	[424]
Defects outstanding after the Second Rectification Visit	[433]
Additional defects notified	[438]
The Third Rectification Visit	[441]
The Siemens Report	[448]
The recalibration and alleged reversal	[449]
Further defects notified after the Third Rectification Visit	[455]
Conclusion	[459]
PART I:  IMPACT OF COLLISIONS	[461]
The collisions	[461]
PART J:  THE STATE OF THE MACHINE - DEFECTS	[477]
A preliminary note	[477]
Some details about the FTM1000	[478]
Overview of expert evidence	[484]
Mr Hegmann's visit and tests	[491]
Mr Miller's visit and tests	[498]
The squareness issue	[502]
The ball bar test - circularity deviation	[502]
Comparing the ball bar test results	[509]
Mr Hegmann	[510]
Mr Miller	[514]
Renishaw testing on 27 February 2020	[523]
The FAT HACO testing at the Second Rectification Visit	[526]
The results and the squareness issue	[527]
Repeatability	[540]
Programming compensation	[546]
The cause and repairs	[550]
The B-Axis alignment error (originally Item 37)	[568]
The B-Axis clamped v unclamped error	[582]
The Schedule 1 defects	[590]
Item 2 - Tool calibration issue	[590]
Item 3 - Multiple tool holder	[593]
Item 19 - C-Axis home position (main chuck)	[597]
Item 20 - Spindle alignment	[611]
Item 21 - Centre alignment	[613]
Item 26 - Main chuck S1 - pressure of jaws	[617]
Item 27 - Chuck covers	[628]
Item 29 - Main C-Axis vibration	[632]
Item 30 - Circular and helical machining - vibration	[638]
Item 35 - SP2 standstill monitoring (alarm)	[639]
Item 36 - Machining inaccuracy (B-Axis misalignment)	[642]
Item 37 - B-Axis	[643]
Item 45 - Visiport window	[644]
Item 46 - Visiport window - positioning	[645]
Item 48 - Coolant leaking from behind the main head	[646]
Item 49 - Coolant does not stop when low	[647]
Item 50 - Hydraulic oil leak	[650]
Item 51 - Rear coolant cover	[654]
Item 54 - Swarf in rear machine cabinet	[657]
Item 55 - Z-Axis 'creep'	[660]
Item 56 - Graphics	[665]
Item 57 - Manufacture mode	[667]
Item 58 - Software issue	[670]
Item 59 - Standard G codes and machine function	[671]
Item 60 - Touch probe	[673]
Item 65 - Paint	[677]
Item 66 - Y-Axis	[687]
Item 68 - 5-Axes machining	[690]
Conclusion on defects	[706]
Subsequent use of the machine	[708]
PART K:  LIABILITY - CONTRACT	[709]
Late delivery	[711]
Defects	[716]
Implied term - fitness for purpose	[718]
Section 14(a) Sale of Goods Act	[723]
Determination - breach of contract	[734]
PART L: LIABILITY - AUSTRALIAN CONSUMER LAW	[737]
Statutory context	[737]
Principles	[744]
Two preliminary issues	[752]
A pleading point	[753]
Conduits, attribution and direct liability	[758]
The Pre-contractual representations	[773]
Pleading	[773]
The Technical Document and General Brochure	[777]
Reliance on Technical Document and General Brochure	[780]
The 22 representations	[793]
(1)       'the FTM 1000 brings together the requirements for better machining high precision, easy to operation, quick way from drawing to workpiece, low maintenance and special features'	[795]
(2)       ‘User friendly: generate the program with graphical support, no ISO/DIN knowledge required'	[796]
(3)       'Fast and simple programming, even during the machining process.'	[797]
(4)       the FTM1000 would be 'low maintenance' with '… optimum swarf removal …' and '… [e]asy chip disposal from within work area to a chip conveyor …'	[798]
(5)       '… construction ensures optimum swarf removal, easy setting and inspection of tools, optimal access to the workpiece for the operator and best cutting force distribution'	[802]
(6)       'High number of machining possibilities:  the FTM 1000 can be equipped with C-axis and driven tools, direct measuring system on all axes, tool presetter, hydraulic steady rest, Y axis, milling B-axis with tool changer, sub-spindle, NC operated hydraulic rest and tailstock, special boring bar attachment'	[805]
(7)       'Complete flexibility … for a maximum number of machining options'	[807]
(8)       'Shortest machining time for large series and special applications'	[808]
(9)       'Cycles:  stock removal, drilling, tapping, threading, grooving, undercut, milling cycles with C-axis …'	[810]
(10)     'the machine can carry out complicated milling, drilling and tapping operations'	[812]
(11)     '… the requirements for better machining high precision …'	[819]
(12)     'large premium-quality ballscrews ensure precise positioning'	[820]
(13)     'High precision of all axes'	[824]
(14)     'the Linear Measuring System ensures a high positioning accuracy and higher repeatability'	[830]
(15)     the FTM1000 could perform '… heavy milling…'	[833]
(16)     the FTM1000 could '… make eccentric drilling, tapping, key-slot milling with static spindle …'	[835]
(17)     the FTM1000 could perform '… complicated contour milling operation during slow rotation of the spindle …'	[838]
(18)     the FTM1000 could perform '… precise positioning …'	[839]
(19)     the FTM1000 would have '… high precision of all axes …'	[840]
(20)     'B-axis of milling/turning head has the ability to stop on an accuracy every 1 deg,	[841]
(21)     '… [the FTM1000] can carry out complicated milling, drilling and tapping operations …'	[845]
(22)     the 'C-Axis … enables very high positioning precision and high torque during slow spindle rotation …'	[846]
Two other Pre-contractual representations	[852]
The quality and performance representations	[858]
The warranty representations	[859]
Conclusion - FAT HACO's liability for the Pre-contractual representations	[860]
Conclusion - Ron Mack's liability for the Pre-contractual representations	[864]
The Pre-commissioning representations	[874]
The Post-commissioning representations	[885]
Determination - misleading conduct by representations	[890]
PART M:  LIABILITY - NEGLIGENCE	[892]
Ezy Fit's case	[898]
Insufficient evidence of carelessness amounting to a breach of duty	[906]
An assumption about a duty of care	[906]
No negligence relating to delay in delivery or commissioning	[912]
Standard of care at the time FAT HACO began manufacture or design	[913]
Standard of care on commissioning	[918]
Standard of care on repairs	[930]
PART N:  LOSS AND DAMAGES	[945]
Ezy Fit's pleaded claim for relief	[945]
Summary of competing positions	[948]
Contract claim - principles	[957]
ACL claim - principles	[967]
Sellars and the assessment of hypothetical loss	[977]
Causation, mitigation, and limits to claims for lost opportunity	[978]
Assessment of rectification costs	[983]
Difference in value	[990]
Ezy Fit's lost opportunity case	[1002]
Comparison	[1002]
Manner of assessment	[1007]
The complexity of the task	[1010]
Relevant findings	[1017]
Was there a commercial opportunity to perform high-end work?	[1018]
Does the opportunity and hypothetical model extend to use of the other machines?	[1035]
What is the degree of probability of the commercial opportunity eventuating?	[1046]
If Ezy Fit had not bought the FTM1000, would it have bought an alternative machine?	[1053]
When would an alternative machine have arrived?	[1057]
What is the start date for assessing when Ezy Fit would have commenced the additional	[1058]
What hourly rates would be charged for work on an alternative machine?	[1059]
What is the period of the lost opportunity?	[1062]
Utilisation of the FTM1000	[1073]
How should lost profits be calculated?	[1076]
Rejection of the 'recruitment' model	[1077]
The contract measure of damages	[1081]
Mitigation	[1083]
What about Ezy Fit Marine?	[1095]
Wasted expenditure basis for assessment	[1102]
PART O:  OTHER MATTERS	[1106]
Jones v Dunkel rulings	[1106]
Apportionment	[1117]
Cross-claim	[1118]
CONCLUSION	[1120]
Attachment A
Attachment B
Attachment C
Attachment D

REASONS FOR JUDGMENT

BANKS-SMITH J:

PART A:  INTRODUCTION

The machine

1. This proceeding centres around the supply and performance of a specialised automated turn‑mill known as the FTM1000.

2. A turn-mill is a dual-purpose machine that is principally a lathe used for turning metal, but is also capable of undertaking milling work.  A lathe engages in turning, a process whereby metal is removed by turning (rotating) the workpiece while engaging a stationary cutting tool.  Milling is a process of removing metal with a rotating cutting tool.  For milling, generally the workpiece remains stationary while the cutting tool moves along various axes.  Such a dual‑purpose machine has the intended benefit of reducing the double-handling of workpieces.

3. The FTM1000 is a CNC turn-mill.  CNC is an acronym for 'computer numerical control'.  This means it is computer automated and programmable.  CNC machining is a manufacturing process of removing metal with a machine tool that is computer controlled, and may be done by milling, grinding or turning.  The key advantage of a CNC machine is that once a part has been manufactured and the machine is properly set up, the machining is easily repeatable and should produce identical results over multiple copies.

4. The term 'turn-mill' indicates a machine that operates predominantly as a lathe but can also perform milling work.  The term 'mill-turn' indicates a machine that operates predominantly as a mill but can also operate as a lathe.

5. The FTM1000 is large - over 7 m in length.  Attachment A to these reasons includes photos of the external view of the FTM1000 (closed and open).  The machine operates utilising three linear axes (X, Y and Z) and two rotational axes (A and B).

6. There are two themes that underlie this proceeding.  First, the applicants contend that the machine was delivered late, denying them the opportunity to successfully tender for a lucrative job relating to submarine periscope tubes.  Second, they contend that once delivered, the machine was a 'lemon', and as a result they were denied the opportunity to profit from other high-end work.

7. As to the first theme, the second respondent denied any late delivery was causally connected to the lack of success in tendering for the periscope work and contended that the applicants would not have been successful in securing the work in any event.  As to the second theme, it contended that although the machine had some defects, they were capable of rectification.

   The parties

8. The first applicant, Ezy‑Fit Engineering, is a manufacturing business with a focus on machining hydraulic cylinders.  Its headquarters and workshop are in South Australia.  It utilises more than 45 machine tools of various sizes in its business, including CNC and manual lathes, mills, and equipment for honing and welding.  It is one of Australia's largest hydraulic cylinder manufacturers.

9. The second applicant, Ezy‑Fit Marine, is an arm of the Ezy‑Fit group.  It is not a subsidiary of Ezy‑Fit Engineering.  It has the same directors and shareholding as Ezy‑Fit Engineering, and was used to market similar services, but with a focus on marine and defence customers.  It ceased operations in early 2019, although it remains registered.

10. At the outset it should be noted that the applicants, and to a lesser extent the second respondent, rarely distinguished between the two entities during the course of the trial or submissions, referring generally, and apparently cumulatively, to Ezy‑Fit.  In these reasons I will generally adopt this convention for convenience, but in doing so I do not disregard particular questions of relief applicable to the distinct legal entities and will address such issues separately.  Where it is of particular relevance (for example, when I introduce the fact that Ezy‑Fit Engineering was the contracting party and in relation to any quantum), I will identify the entity by name.

11. The first respondent, which trades under the name Ron Mack, is an Australian supplier of specialist metalwork machinery, including CNC machines.  Ron Mack originally filed a notice of address for service and a defence, and had some early involvement in procedural matters, but declined to participate in the trial.  It indicated it would abide by the judgment of the Court.

12. The second respondent, Fabryka Automatow Tokarskich we Wroclawiu (which at some point became part of the HACO group and traded as FAT HACO) is a joint stock company incorporated under the laws of Poland.  It manufactures, supplies, exports and installs industrial equipment such as lathes, turn-mills and CNC variants of these machines.  FAT HACO has defended the proceeding, which in effect proceeded as a dispute between Ezy‑Fit and FAT HACO.

    Brief chronology

13. In about 2014 the Ezy‑Fit group decided to seek work in respect of the repair or manufacturing of periscopes for the Australian Navy's Collins Class submarines.  Various precision equipment was required for such work.

14. In December 2014 Ezy‑Fit Engineering submitted an application for a Government grant for the acquisition of equipment, and in July 2015 was told that it was successful.

15. As I find below, after considering different options, on 15 October 2015 Ezy‑Fit Engineering entered into an agreement with Ron Mack to purchase the FTM1000.  Ron Mack in turn entered into an agreement with FAT HACO to purchase the FTM1000 in order to on-sell to Ezy‑Fit.

16. Between October 2014 and October 2016, Ezy‑Fit Marine submitted a number of quotations to BAE Systems Australia Pty Ltd with respect to the periscope project.  Ezy‑Fit was informed in February 2017 that it was unsuccessful.

17. The FTM1000 left the factory in Poland in April 2017 and was delivered to Ezy‑Fit's premises in May 2017.  Commissioning of the machine continued on site for some time.  Issues arose between the parties as to its alleged late delivery and commissioning.  FAT HACO representatives visited Australia for rectification or adjustment works on three occasions during 2017 and 2018.

18. Despite those rectification visits, the applicants contended that the FTM1000 continued to be defective and did not perform in accordance with Ezy‑Fit's requirements.  Adding to issues about the cause or nature of such defects were 'collisions' that occurred whilst the machine was being used in August 2019, February 2020 and February 2021 respectively.

    Proceeding issued

19. In May 2019 the applicants issued this proceeding, claiming damages for breach of contract, damages under the Australian Consumer Law (ACL) on the basis of misleading or deceptive conduct, and damages for negligence.

20. FAT HACO filed a notice of cross-claim against Ron Mack, seeking relief only if it is found liable to one or both of the applicants. The relief sought by FAT HACO relevantly includes damages for breach of contract, under the ACL, and for negligent misstatement. It seeks contribution from Ron Mack pursuant to s 6 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (Apportionment Act) and an indemnity from Ron Mack in relation to FAT HACO's legal costs.

21. The matters that arose at trial were factually dense and the causes of action intertwined.  The applicants' closing submissions set out some 173 contested findings of fact that they said were to be determined.

    Summary of outcome

22. I have determined that:

    (a)Ezy‑Fit Engineering entered into a contract to purchase the FTM1000 with Ron Mack, and not with FAT HACO;

    (b)Ron Mack was not the agent of FAT HACO;

    (c)alleged delay by FAT HACO in relation to the delivery of the FTM1000 was not the reason why Ezy‑Fit Marine failed to succeed in its tender for the BAE periscope project work;

    (d)nor did the alleged delay affect the receipt of the Government grant;

    (e)once commissioned, the FTM1000 had a number of defects;

    (f)some of those defects led to failure by the machine to mill with high precision on all axes and to undertake complicated milling;

    (g)it was an implied term of the contract between Ezy‑Fit and Ron Mack that the machine would be fit for purpose;

    (h)Ezy‑Fit has made out a claim against Ron Mack for breach of the implied term as to fitness for purpose;

    (i)both Ron Mack and FAT HACO made certain pre-contractual representations as to the ability of the FTM1000 to operate with high precision on all axes and to undertake complicated milling;

    (j)in light of the defects, the representations were misleading or deceptive within the meaning of s 18 of the ACL;

    (k)a 'backstop' claim in negligence against Ron Mack and FAT HACO has not been proved;

    (l)the defects in the machine are able to be rectified, and a reasonable time period during which those repairs might be undertaken is six months;

    (m)the assessment of damages that fairly compensates Ezy‑Fit Engineering is a sum that accords with the estimated rectification costs ($193,200), together with compensation for loss of profits from the hypothetical use of an alternative machine from 25 July 2017 until six months after judgment (as to which the parties are to be heard further);

    (n)the probability of success of Ezy-Fit Engineering securing the opportunity for high-end work utilising an alternative machine had it been pursued is assessed at 30%; and

    (o)Ezy‑Fit Marine has not established a separate entitlement to damages.

    PART B:  OVERVIEW OF THE WITNESSES

23. It will be necessary to delve into the evidence in some detail when dealing with particular events.  However, it is useful to commence with a general description of the role of the various lay and expert witnesses.  At the time of the trial, which was conducted remotely as a result of COVID19 restrictions on travel then in place, I made detailed notes as to my impression of witnesses and the evidence they gave.  I reconsidered these matters and made further notes when the various written closing submissions were filed.  Despite submissions requesting that I do so, I make no adverse credibility findings in relation to the witnesses.

    Ezy-Fit's lay witnesses

24. The applicants called six lay witnesses, all of whom provided witness statements and were cross-examined.  Other than where specifically noted below, there were no significant reliability issues with respect to the witnesses, who on the whole gave their evidence in a straightforward manner.

    Phil Green

25. Mr Green was a sales executive at Ezy‑Fit until his retirement in February 2018.  He gave evidence with respect to many matters relating to the proceeding:  Ezy‑Fit's bid for Commonwealth Government grant funding; its bid to manufacture periscopes for BAE; the communications with Mr Tim Walker of Ron Mack about the purchase of the FTM1000, including contractual documentation; communications with FAT HACO; the commissioning of the machine; the machine's maintenance records; the rectification site visits; and the manner in which the machine was utilised.  I had reservations about aspects of Mr Green's evidence during the hearing.  Although very knowledgeable and experienced, Mr Green exuded a certain stubbornness which at times undermined the objectivity of his evidence.  He appeared to be personally invested in an outcome that would benefit the applicants and justify the decisions he had made on their behalf, and at times this coloured his answers.  However, these matters did not give rise to a credibility issue in relation to Mr Green's relevant evidence.  I did take them into account in considering the reliability of some of Mr Green's evidence.  This is explained below where relevant (for example at [170] and [300] in relation to what was said at a meeting of 9 September 2015 at Ezy‑Fit's premises).

    Chris Loughlin

26. Mr Loughlin was a machine operator at Ezy‑Fit who obtained some experience using the FTM1000.  He gave evidence about:  the training he received from the FAT HACO representatives during the commissioning of the machine; the process by which defects were documented cumulatively; the rectification site visits; and the performance of the FTM1000 after collisions occurred in the use of the machine on site.  He also machined a sample test piece that was the subject of some evidence.  I consider that Mr Loughlin was a somewhat reluctant witness who approached the task of giving evidence carefully, but with Ezy‑Fit's interests in mind.  On the whole I have accepted his evidence and no credibility issues arises.  However, I had some reservations about aspects of Mr Loughlin's evidence during the hearing, and where relevant this is explained in the reasons (for example, at [428] in the context of his recollection of his response to certain test results).

    Terry Kerin

27. Mr Kerin is the owner and managing director of Ezy‑Fit.  He gave evidence about:  various matters including the business structure and work of Ezy‑Fit generally; the Government grant; and the construction of a new building to accommodate precision machinery.  He gave his evidence in a straightforward manner, with no unnecessary elaboration or hesitation.  Much of his evidence about events was at a general level, the day-to-day conduct of matters and detail having been left to others.  To the extent he was unsure of a number of details, I consider this to be a product of his reliance on others and the result of the passage of time since events, rather than indicating any obfuscation on his part.

    Michael Klappers

28. Mr Klappers was the general manager of Ezy‑Fit.  He gave evidence about:  the pricing of work by Ezy‑Fit; Ezy‑Fit's finances; the work that was undertaken by Ezy‑Fit using the FTM1000; communications with BAE; and other work undertaken by Ezy‑Fit, for example, use of the coordinate measuring machine (CMM) for dimension inspection reports.  Mr Klappers was an impressive witness who was precise, careful and appropriately objective.

    Robert Hollamby

29. Mr Hollamby was employed by Ezy‑Fit as an estimator.  He gave evidence about charge out rates for work using the FTM1000.

    Steven Stewart

30. Mr Stewart was a machine operator at Ezy‑Fit and worked exclusively with the FTM1000 from around September 2018.  In particular, he gave evidence about a collision during his use of the machine in February 2021.

    FAT HACO's lay witnesses

31. FAT HACO called four lay witnesses, all of whom provided witness statements and were cross‑examined.  There were no particular reliability issues with respect to the witnesses, who gave their evidence in a straightforward and responsive manner.

    Adrian Maicher

32. Mr Maicher was an electrical engineer and head of the electronics department at FAT HACO.  He gave evidence about:  two rectification visits that were undertaken; the Siemens software utilised in the machine; kinematics work and testing undertaken on site; and matters relevant to the commissioning of the machine, including calibrations.

    Irek Ostrowski

33. Mr Ostrowski was the sales and marketing director of FAT HACO and the key witness as to the contractual arrangements for the sale of the FTM1000.  He gave evidence about the nature of the relationship between FAT HACO and Ron Mack; the visit to the factory in Poland by Mr Green; the process for requested variations to the FTM1000; and the alleged delays with delivery of the machine.  My impression was that he answered questions honestly, and when he did not recall particular details, he said as much without hesitation.

    Norbert Misiolek

34. Mr Misiolek was a mechanical engineer and head of the service department at FAT HACO.  He gave evidence about:  the testing of the FTM1000 prior to shipment; its commissioning; the second rectification visit; issues of paint stripping from the machine; and other testing work carried out on the machine.

    Grzegorz Hoppe

35. Mr Hoppe was an engineer at FAT HACO and, with the assistance of a Polish interpreter, gave evidence about the third rectification visit, and the involvement of an engineer from Siemens.

    Expert witnesses

36. Expert technical evidence relating to the FTM1000 was adduced by Mr Thomas Hegmann on behalf of the applicants and by Mr David Miller on behalf of FAT HACO.  Mr Miller also provided evidence as to costs of rectification.  Expert quantum evidence was adduced by Mr Brian Morris and Mr Anh Nguyen respectively.

    Thomas Hegmann

37. Mr Hegmann is an engineer with over 30 years' experience in manufacturing and servicing complex machine tools and related systems, including turn-mills.  Mr Hegmann has his own company, H & H Machine Tools, which builds machines for the manufacturing of aircraft, including for Boeing.  His business operates primarily in the aviation sector.  Mr Hegmann carried out an inspection of the FTM1000 on 6 and 7 November 2019 and prepared three reports dated 12 December 2019 (First Hegmann Report); 8 May 2020 (Second Hegmann Report); and 28 September 2021.

    David Miller

38. Mr Miller is an engineer with a PhD in mechanical engineering (specialising in 3D milling) and the owner of his own CNC workshop.  He provided evidence on issues of liability and quantum.  He carried out inspections of the FTM1000 on 19-21 February 2020 and 25 March 2021.

39. Mr Miller provided seven reports dated 23 April 2020 (First Miller Report on liability); 14 August 2020 (on liability); 1 January 2021 (Third Miller Report on quantum); 6 July 2021 (on liability); 30 July 2021 (on liability and quantum); 15 September 2021 (Sixth Miller Report on liability); and 8 October 2021 (on liability and quantum).

    Joint Technical Report

40. Mr Hegmann and Mr Miller also prepared a Joint Technical Report dated 20 September 2021.  Although there were few areas of agreement in the report, there was a greater level of agreement during oral evidence, which was heard concurrently.

    Brian Morris

41. Mr Morris is a forensic accountant engaged by the applicants.  He considered the quantification of Ezy‑Fit's alleged loss on two bases, being loss of profits and wasted expenditure.  He prepared two written reports and was cross-examined.

    Anh Nguyen

42. Mr Nguyen is a forensic accountant engaged by FAT HACO.  He provided a quantification of Ezy‑Fit's and Ezy‑Fit Marine's loss based on assumptions provided to him by FAT HACO.  He prepared two written reports and was cross-examined.

    Joint accounting report

43. In addition, Mr Morris and Mr Nguyen prepared a joint accounting report dated 21 October 2021 which narrowed many of the issues.  It was apparent that the large difference in their conclusions was the result of different assumptions they were instructed to make.

    Valuation evidence

44. During the trial I upheld an objection to the tender by the applicants of a valuation report prepared by the valuing firm Mason Gray Strange.  The reasons for upholding the objection are given later in these reasons.  No other valuation evidence was tendered.

    PART C:  THE BAE TENDER, THE GOVERNMENT GRANT AND OTHER PREPARATION

    Events concurrent with contract negotiations

45. Organisation of the evidence in these reasons has been complicated by the overlap in the relevance of some of the evidence going to the many issues, and by its at-times overwhelming level of detail.  Although there are different ways in which the evidence could have been collected, I will commence with the process by which Ezy‑Fit Marine unsuccessfully tendered for the periscope work, and then address Ezy‑Fit Engineering's application for a Government grant to assist in the acquisition of machinery.  These matters were playing out at the same time as Ezy‑Fit Engineering was negotiating with Ron Mack about the purchase and delivery of the FTM1000, and provide context to those negotiations.

    Why the BAE evidence is relevant

46. In summary, the evidence about the BAE tender process is relevant to the proposition that, but for the delay in procuring the FTM1000, Ezy‑Fit Marine would have been the successful tenderer for the periscope work, and so it lost the opportunity to secure this high-end work.  Communications with BAE during the tender process and information given to Ezy‑Fit Marine (and Ezy‑Fit) about why it was unsuccessful inform this exercise.

47. The evidence about the Government grant process provides background to concerns expressed by Ezy‑Fit about estimates given by Ron Mack and FAT HACO of the delivery date for the FTM1000.  The grant process involved deadlines.  Those deadlines were extended, ultimately to a date that accommodated extensions in the delivery estimates.  The evidence informs the contention by Ezy‑Fit that (to paraphrase) time was of the essence.

    Ezy-Fit's 'defence readiness' strategy

1. In about 2010 Ezy‑Fit decided to pursue what it considered might be lucrative work in the field of defence.  Mr Kerin said he was aware that the car industry in South Australia was winding down, agricultural work was also dwindling, and many products were being imported from China.  Accordingly, he considered that defence work would be the next big opportunity.  Ezy‑Fit set on a course of what Mr Kerin referred to as 'defence readiness', in order to better position itself to tender for or otherwise secure such work.  This course included acquiring new machinery as necessary in order to compete for and undertake precision defence work.

   Summary of the BAE tender process

2. BAE is a defence and security company which provides services to, amongst other clients, the Australian Defence Force.  According to Mr Kerin, there were discussions 'for a couple of years' with BAE about potential periscope work prior to the events the subject of this proceeding.  For example, at some point BAE invited Ezy‑Fit to do some repair work on a periscope, although in the end the work was not actually undertaken.

3. On 11 August 2014 Ezy‑Fit formally received a request from BAE, as service provider to the Commonwealth, to provide a quotation for Collins Class periscope system tubes.

4. Mr Green determined that the periscope work could be undertaken by Ezy‑Fit, but that it would require the use of three machines which would need to be acquired:  a CNC turn-mill, a CNC milling machine and a CMM.  A CMM is used to confirm critical measurements and is used for quality assurance purposes to measure work undertaken by other machines.

5. Between November 2014 and November 2016 Ezy‑Fit Marine submitted some seven quotes to BAE in respect of the periscope work.

6. The first quote of 20 November 2014 was for a price of $3,245,000 (all quoted figures referred to are GST inclusive).  Subsequent quotes included a quote of 5 May 2016 where the number of periscopes was reduced from ten to four, a quote of 25 October 2016 where the style of quote and prices proposed changed significantly, and a final quote on 18 November 2016.  The final quote included three options, ranging from quoted prices of $5,245,516 to $6,298,890.  The precise amounts are not important, and I recount them only because they are consistent with evidence from Ezy‑Fit that it was asked to increase its quote but was then told it was too expensive.

7. On 28 February 2017 Ezy‑Fit received a letter from BAE confirming that it was unsuccessful in its bid for the periscope project.

8. In summary, it is the applicants' case that Ezy‑Fit Marine was unsuccessful in the periscope tender because of delays relating to the acquisition of the FTM1000.

   The BAE tender evidence

9. Leaving aside the documentary evidence, the main evidence about the BAE tender was given by Mr Klappers.  He provided useful general information about Ezy‑Fit's experience and the nature of the tender process.  For example, he explained that the periscope work was the largest tender that it had sought at that time and was a shift in focus for the companies; although Ezy‑Fit had undertaken some work in the naval sector, it had been its standard hydraulic cylinders type work; it was a massive investment for Ezy‑Fit to undertake the periscope work; defence work requires considerable skill, precise measurements, technical requirements and more complex equipment; as at 2017 Ezy‑Fit was a smaller player and was trying to grow and establish that part of its business and to develop their understanding of the defence market; the defence sector is highly competitive with high and exacting standards; and that the periscope project was worth a lot of money, but if things went wrong 'it could be the opposite' and could be very costly.

10. Another Ezy‑Fit employee, Mr Haydn Powell, undertook most of the negotiations and quoting for the periscope project.  Mr Powell did not give evidence.  Despite Mr Powell's role, Mr Klappers said he was kept in the loop.  Further, Mr Klappers was one of four people from Ezy‑Fit who attended meetings with BAE throughout 2014, 2015 and 2016.

11. As noted, the first invitation to quote was received by Ezy‑Fit on 11 August 2014.  It was addressed to Mr Powell.  The original request related to the supply of five attack and five search periscope tubes, with an anticipated execution of a contract with the successful bidder in November 2014.  That timeline was clearly extended at some point.

12. The first quote provided by Ezy‑Fit, being the quote dated 20 November 2014, was addressed to Mr Kevin Harness, the project manager for the periscope project at BAE.  It was for a price of $3,245,000 and included the following 'clarifications and exclusions':

    1)  [Ezy‑Fit Marine] intends, at our own cost, to increase the scope of our manufacturing premises to allow the installation of additional equipment to ensure successful manufacture of the periscope tubes.  This will include installation of a new CNC lathe capable of high accuracy and close tolerance machining, a new CNC milling machine and machine tooling, and Coordinate Measuring Machine (CMM) Quality Control Station.  The CMM will be housed in its own climate controlled clean room.  The time factor for such building improvements, which would include a climate controlled purpose built premises to house the long turning and milling equipment, and installation of the related equipment is approximately 1 year but subject to extension of that time if impractical.

    2)  This quote is subject to The Ezy‑Fit Group achieving a successful outcome of an application for funding through the Australian Governments' Next Generation Manufacturing Investment Programme.  If the grant application fails to achieve the necessary level of funding EFM reserves the right to withdraw this quote without penalty.

13. Mr Klappers confirmed in his evidence that as at 20 November 2014 Ezy‑Fit was looking to complete the building works and acquire new machinery by about November 2015.

14. According to Mr Green, there was a meeting on 28 November 2014 which he attended with Mr Powell and Mr Harness at which there were 'advanced' discussions about Ezy‑Fit manufacturing the periscope tubes.

15. On 4 December 2014 Mr Powell provided a further periscope tubes quote, offering to present it to BAE.

16. This was followed up by a meeting with Ms Sharon Wilson and Mr Adam Watson of BAE at Ezy‑Fit's premises on 15 December 2014.  Mr Green prepared a note of the meeting, stating that the visit was 'highly informative and encouraging' and that Ezy‑Fit informed BAE of its history, capabilities, future potential, and aspirations.  Case histories were provided and Mr Green stated that Ezy‑Fit was encouraged to add those 'achievements' into a revised presentation.

17. Meanwhile, and as discussed further below, on 22 December 2014 Mr Green submitted Ezy‑Fit's application for a Commonwealth Government grant to assist in the purchase of machinery for the periscope project.

18. A further quote, dated 27 February 2015, was provided by Mr Powell to Mr Harness in similar terms to that of November 2014.  Mr Klappers did not recall the reason why the revised quote was provided but was aware that matters did 'drag out' and that there had been 'toing and froing' between BAE and Mr Powell.  According to Mr Klappers, as at 27 February 2015 it was the position that it would be another year for the building work to be undertaken and for machinery to be acquired, as those tasks had not by then commenced.

19. A further revised quote was provided in March 2015, but nothing significant arises from the revisions.

20. According to Mr Green, on 3 August 2015 he attended a meeting with Mr Harness in order to try and obtain some indication of whether Ezy‑Fit might be successful in its tender.  He said that Mr Harness told him he (Mr Harness) couldn't say anything - but that he indicated the Government's preference was that the products be made in Australia and that only Ezy‑Fit was preparing its quotation on this basis.  Mr Green took from the conversation that Ezy‑Fit Marine was in a good position to win the periscope work, but that Mr Harness would not be held to any obligation.

21. On 4 August 2015 Mr Green provided the information required by the Government in order to accept the Government grant.

22. During October 2015 Ezy-Fit ordered the FTM1000 from Ron Mack, and Ron Mack estimated that the machine would leave Poland in approximately mid- January 2017.

23. In November 2015 Mr Kerin, Mr Green, Mr Powell and Mr Klappers attended an Ezy‑Fit management meeting.  The minutes reflect that Ezy‑Fit was unsure whether it should continue to bid on two machines for the periscope work because of financial conditions, but it decided to do so.  Mr Klappers' evidence was that the two machines referred to in the minutes were the FAT HACO lathe and the DMF600 (defined below).

24. From 1 April 2016 Ezy‑Fit made a number of inquiries with Ron Mack about the estimated delivery time for the FTM1000 (discussed further below).

25. On 5 May 2016 Mr Powell provided a further quote, addressed to Mr Andrew Prettejohn at BAE.  The quote was for a reduced number of periscope tubes (four) and was in the sum of $1.5 million.  The quote stated that 'the equipment has been ordered and is due … at the very end of 2016', and that 'the time factor for such building improvements … and installation of related equipment is approximately 1 year but subject to extension of that time if impractical'.  Mr Klappers confirmed that at that point the time frame for completion of the machine installation and building works was May 2017.

26. On 30 June 2016 Mr Powell sent an email to Mr Prettejohn of BAE, seeking an update on the project and stating relevantly:

    … Could you please give me an update of the current status of the periscope poles requirement.

    Just to fill you in, we have ordered 2 machines from Europe that we would use to manufacture the poles.  Our investment in these machines is several millions, and we are now about to embark on the building of the factory to house them which will be purpose built with the poles in mind.  We are expecting the first of the machines to arrive around Christmas and it would be greatly appreciated to know where we stand with the project.

    If at all possible, I'd like to pay you a visit and discuss the project, this will help me to make some projections.

27. In September 2016 Ms Wilson gave a speech in which the periscope project was apparently mentioned.  Neither the date of the speech nor its audience is clear.  However, the document evidencing the speech is an online news article published by 'Defence Connect' dated 22 September 2016.  Mr Kerin gave evidence that he was 'buoyed' by the speech (although he dated it as being published in December 2016 and this date is likely an error on his part).  The article provided a transcript of the speech, which included the following:

    A local supplier was integral to our success on this program - Ezy Fit marine, based in SA, has invested in a new CNC machine to produce tubes, a CMM measurement machine in a environmentally controlled room and a new facility.  I know Thales is looking at the company to make tubes for other customers.

28. Also in about September 2016, according to Mr Kerin, BAE representatives attended on site to conduct an audit of the building works.  Mr Kerin said that the auditors noted an absence of marked lines and the presence of storage on walkways.  Mr Kerin told them that Ezy‑Fit was in the process of construction, and that the building would be ready between December 2016 and January 2017.  He said the auditors made comments to the effect that Ezy‑Fit had a long way to go, and he assured them with words to the effect that 'we would get it done'.

29. On 25 October 2016 Ezy‑Fit submitted a further quote to BAE for the complete set of 10 periscope tubes for a total sum of $9,685,430.  This quote was in a different form, with various subcategories, but it was accepted by Mr Klappers that it reflected a significant increase in price.  Mr Klappers also said it was his understanding that BAE had spoken to Mr Powell and had asked for a quote to be re-submitted because previous offers were 'a little bit low'.

30. A version of this quote with marked-up comments, apparently made by BAE, was in evidence.  By those comments it was apparent that there were issues regarding the level of any downpayment to Ezy‑Fit.  Further, Ezy‑Fit set out in the quote that:

    Initial delivery of the first tube is expected to be approximately 9 months … but is subject to change should there be any supply delays beyond the control of Ezy‑Fit Marine.

31. By its comment in response, BAE said that it required Ezy‑Fit to commit to a definitive schedule and so (according to Mr Klappers) put the risk of delays in the supply of materials onto Ezy‑Fit.  Mr Klappers accepted that in general if Ezy‑Fit was let down by suppliers, there could be significant issues, including penalties.

32. At about this time Mr Prettejohn informed Ezy‑Fit that Ezy‑Fit was third in the list of tenderers after Thales and Hoffman (as later confirmed by Mr Kerin in an email exchange with Ms Taylor of 17 March 2017).

33. On 10 November 2016 Mr Powell emailed Mr Prettejohn, apparently responding on behalf of Ezy‑Fit to the BAE comments.  Mr Powell's comments included the following:

    I will provide a Manufacturing Plan but I can only offer what the raw material supplier can provide and this means at least 29 weeks for manufacture and then another 6 weeks for freight, 35 weeks in all.  We then have to complete manufacture of the tubes, qualify welding procedures as we will not have access to equivalent strength materials until the billets are forged, and this will take some time.  I've spoken with the provider, and they will not promise early delivery so therefore I can't offer something that is unreasonable.  I will provide the quote with a reasonable delivery date but I already know this will not be to the liking of BAE or the CoA, but we warned about this several times over the last couple of years.  Undue delays to the project have been out of our control and it will be difficult to deliver in an unreasonable time frame.

    …

    Considering the outlay we have already invested in this project, approximately $6 million, and given a further $4 million would need to be spent on materials, weld procedure qualifications and other costs, Ezy‑Fit does not believe to ask a down payment of $4 million is unreasonable.  We are willing to negotiate this but we would believe it unreasonable of BAE to attempt to reduce the down payment to a much lesser figure.  Additionally, we are being asked for financials which due to our expenditure puts us at a disadvantage when the money we have spent was spent in good faith that we would eventually receive an order for this job.  To reduce the down payment will also reduce our financial viability which of course exacerbates any negatives that may result due to our high expenditure.  We have set this up to be able to offer the best manufacturing facility on the planet for manufacture of these tubes, and in comparison any competitor using manual equipment will have a high risk of failure in comparison to a pre-tested sample manufactured and proven on a CNC Lathe of the capacity we are installing.  Additionally we have one of the world's finest tube hones to guarantee internal tolerances can be achieved.  I was quite taken aback the other day when I was told our quote is not looking the best currently, when we above all other companies worldwide have invested so much to deliver the lowest risk and most accurate and repeatable results BAE and CoA could ask for.

    However, this takes time and money but there is no competitor that could match our facilities and capabilities in one house.  Even our manual 12m lathe, being only around 6 years old, is arguably superior to the much older lathes our competitors are offering.  This gives us current capacity to produce the tubes, and the installation of the CNC lathe will increase our capability enormously whilst reducing our risk by a like amount.

    …

    In summary, it seems that now the CoA needs these items quick smart the pressure is being put on the supply chain to improve a reasonable delivery schedule to one that is unreasonable.  We cannot promise what we don't think is achievable, however much the CoA would like us to do this.  Also delivering a fixed price with a quote validity until February poses a challenge, especially as the money markets are now experiencing the most volatility we've seen in quite a while.

34. Mr Powell's comment in this extract to the effect that he had been told Ezy‑Fit's quote 'was not looking the best currently' is consistent with Mr Klappers' evidence about a meeting in November 2016 with BAE which he attended, where the various BAE comments were discussed.  Mr Klappers' evidence was that the question of the price was discussed at length because BAE had previously told Ezy‑Fit to put its price up, and was now being told that it looked 'a little bit dear'.  Mr Klappers said that the goalposts continued to change at about this time; that BAE and the Commonwealth seemed to be 'toing and froing' and that things 'just seemed to be changing all the time'; and that things had 'dragged on for three years and then all of a sudden the Commonwealth wanted new submarine periscope tubes in nine months, which was highly unlikely to happen with anyone'.  Mr Klappers agreed that the driving force for the BAE tenders at that time appeared to be time and costs.  Mr Klappers also said that BAE mentioned that Ezy‑Fit did not at that time have the equipment to perform the work, but that Ezy‑Fit kept telling them that the machine was on order.

35. Separately, I note that at around this time (relevantly on 15 November 2016) the information provided to Ezy‑Fit by Mr Walker was that the estimated ex-factory date for the FTM1000 was 'mid-end February', being a month later than estimated in the 15 October 2015 contract.

36. On 18 November 2016 Ezy‑Fit provided its final quote to BAE, 'splitting' the tubes as requested by BAE and quoting separately for attack tubes and search tubes The clarifications and exclusions stated that initial delivery of the first tube was expected to be 12 months after placement of the order and subsequent ordering of raw materials in accordance with the production schedule.

37. Separately, as at 23 January 2017, Mr Green had estimated that based on information provided by Ron Mack, delivery of the FTM1000 to Ezy‑Fit's factory was likely to be in the week commencing 29 May 2017.  Mr Green did not go back to BAE at this time seeking to amend the clarification or exclusions, or indicating that the initial delivery date needed to be extended.  I infer that Mr Green did not consider the 29 May 2017 delivery estimate required him to alter the tender quote and did not consider that the delivery estimate would prevent Ezy‑Fit meeting the BAE timeline indications.

38. On 28 February 2017 Ezy‑Fit received a letter from BAE confirming that it was unsuccessful in its bid for the periscope project.  The letter relevantly read:

    RE:  TENDER OPPORTUNITY FOR THE MANUFACTURE OF PERISCOPE TUBES

    Dear Haydn,

    The purpose of this letter is to inform Ezy‑Fit Marine Pty Ltd (Ezy‑Fit) that another party has been identified as the preferred tenderer for the abovementioned opportunity with whom we intend to enter into final contract negotiations.

    BAE Systems Australia Limited … would like to thank Ezy‑Fit for its participation to date in the tendering process.  We are happy to provide Ezy‑Fit with a debrief in due course should Ezy‑Fit request this.

    The Commonwealth Government grant and the delivery timeline

39. Around the same time that Ezy‑Fit became interested in participating in the BAE tender, it became aware of a Commonwealth Government program known as the Next Generation Manufacturing Investment Program.  Ezy‑Fit saw this as an opportunity to obtain funding towards the procurement of new machinery.  Mr Green was responsible for seeking a grant under the grant scheme on behalf of Ezy‑Fit.

1. Mr Green was also responsible for developing the methodology for the periscope project on behalf of Ezy‑Fit.  In that role, Mr Green identified and recommended to Mr Kerin that Ezy‑Fit acquire the FTM1000, a CNC milling machine known as the DMF600 and the CMM as the set of machines for the periscope project and Ezy‑Fit's wider defence readiness strategy.

2. On 22 December 2014 Ezy‑Fit applied for the Government grant.  It gave the project the title 'Collins Class Attack and Search Periscope Tubes', and described the project as:

   Ezy‑Fit Hydraulics (the manufacturing division of [Ezy‑Fit Pty Ltd]).  A leading hydraulic cylinder manufacturer is planning to extend its considerable expertise into the machining and processing of periscope assemblies and allied services.

3. The application provided an estimate of expenditure over the course of the financial years ending June 2015 and June 2016 respectively in the total sum of $5,065,700.  Of that amount, a total of $3,865,700 was said to be 'eligible project costs'.

4. In support of the grant application, Ezy‑Fit listed the quotes that it said supported the estimated project costs.  The list included a 'Ron Mack Machinery Quote No:- 141208 - FAT FTM 1000 x 7500 Long Bed CNC Lathe' (the quote included was actually for a FAT FTM 700 x 7100 lathe, rather than a turn-mill, but nothing apparently turns on this, and after the application was made Mr Green pursued the acquisition of a turn-mill, being the FTM1000, rather than the FTM700).

5. In the grant application Ezy-Fit also said:

   Value Added Operations - The project is currently being manufactured off shore at extensive additional cost and with long delays in delivery.  The Ezyfit Group plan to bring this work into Australia and thereby open up a new capability market for future periscope projects and to promote this expertise to additional new customers in the defence and allied fields.

   …

   Project Timeline - Ezyfit are obligated to complete the project within 18 months of receipt of material, the current material delivery is provisionally advised as 12 months

6. Ezy‑Fit applied for funding on the basis that its own contribution to the $3,865,700 eligible project costs was 50%, being $1,932,850.  Ezy‑Fit disclosed that $1,000,000 of this sum would be obtained by way of loan from a specified bank over the course of 10 years.  The program grant amount sought was the remaining 50%, being $1,932,850.

7. In terms of timing milestones set out in the application, the first milestone provided that the workshop facilities and CMM were to be completed and installed by 30 October 2015.  A second milestone provided that the equipment installation and commissioning for the CNC lathe and the milling machine would be completed by 31 March 2016.

8. Mr Green confirmed that Ezy‑Fit was informed in July 2015 that the grant application was successful.

9. By letter dated 24 September 2015 Mr Green received a funding agreement for execution.  It was executed by Ezy‑Fit on 25 September 2015.

10. The funding agreement required the grantee (Ezy‑Fit) to undertake the 'Project' to achieve the 'Outcomes', those terms being defined respectively as follows:

    The project involves the purchase and installation of a CNC milling machine, a CNC turning machine and a co-ordinate measuring machine.  The project also includes the purchase of new tooling for the CNC machines, and extensions to the grantee's [Ezy‑Fit's] manufacturing premises in Salisbury South, South Australia.

    …

    The grantee will use the capability provided by the new equipment to manufacture periscopes for the Collins class submarines.  In addition, the project will also allow the grantee to develop a world class periscope machine capability and strengthen its position in the manufacture of high value custom made cylinder and other applications for customers in the defence and commercial marine and offshore oil and gas markets.

11. The funding agreement included updated milestones.  Relevantly, the milestone for the equipment installation and commissioning was a start date of 1 October 2016 with an end date of 16 January 2017.

12. From Mr Green's perspective, 16 January 2017 was therefore a critical date for Ezy‑Fit in terms of receiving the grant funding.

13. Ron Mack stated in its quote dated 15 October 2015 (15 October 2015 Quote) that the estimated delivery time for the FTM1000 would be approximately 'mid-January 2017 ex‑factory Poland'.

14. In anticipation of the critical date of 16 January 2017, Mr Green followed up the anticipated delivery date on a number of occasions.  Evidence included the following:

    (a)an email from Mr Green to Mr Walker of 8 April 2016 in which Mr Green said:

    I placed the order for this machine on the 12th October last year in good faith and on advice from yourself that the factory needed 12 months + shipping to deliver this machine - if shipment does not take place until January we will not expect to see this machine until Late March / Early April making 18 months from order.  I have to advise that our financial arrangements with the banks for forward exchange will expire in late December.  I also advise that the government milestone under the grant agreement is due for documentation settlement on the 16th January 2017.  I would remind you that our order explicitly states delivery dates etc.  I suggest you discuss this situation further with the factory to expedite the delivery within the agreed time frame.

    (b)an email exchange between Mr Walker and Mr Green on 7 and 8 April 2016 in which Mr Walker indicated that FAT HACO had suggested a shipment date of mid-January 2017, consistent with the date referred to in the 15 October 2015 Quote, but had said FAT HACO would give a more accurate delivery date in August 2016;

    (c)Mr Green's evidence under cross-examination:

    … And the issue that I had, which was - the main issue that I had was that these guys could not give me a firm delivery date.  It wasn't the fact that it was going to be one month or the other.  The fact of the matter was every time I asked I couldn't get a firm delivery date.  And that was - so I couldn't put an extension claim in with the government because I didn't know what I was working on, and that became my biggest issue, that the - that they didn't know when they were going to finish it and I couldn't make the financial arrangements in Australia to pay for it.

    Yes.  And you say that in this email, that you - your concerns are that you - the financial arrangements and, in particular, the government milestone under the grant agreement being due on 16 January?---Yes.  Well, that's what it says on the government milestone.

    Yes.  So your concern, again, at this time was a delivery date in order to meet the government grant milestones?---Yes.

    (d)an email from Mr Green to Mr Walker of 14 April 2016 in which Mr Green indicated he could split a milestone payment across the lathe and the mill to accommodate a later delivery date for the FTM1000, but that a date was still required.  He stated:

    … however if the delivery does not enable us to process all paperwork prior to the end of the financial year 2017 then the order has to be cancelled as we will lose the government funding.

    (e)an email of 2 September 2016 in which Mr Green said the following to Mr Walker:

    I have to apply for a variation to the machine [deliveries] and payments which is currently set down for December 2016 for both machines - I have to split the DMG & FAT machines as we have to supply invoices / photos etc of the machine on site to be able to submit claims - I need to vary this milestone payment - so I need an approximate date we can expect delivery on-site.

    (f)an email of 11 October 2016 in which Mr Green again sought an indication from Mr Walker of 'which month the machine will be delivered';

    (g)an email of 18 October 2016 in which Mr Green said the following to Mr Walker:

    It is becoming increasingly important that I receive information regarding the delivery of the machine - our bank is requesting information when funding is required for payment and I have to modify the government milestone to ensure we do not lose the funding for this machine.  Please advise.

    (h)an email of 31 October 2016 in which Mr Green asked Mr Walker for a machine delivery schedule that week, and said he needed to advise the Federal Government of the change of delivery from the original advice;

    (i)as at 8 November 2016 Mr Walker had passed onto Mr Green a comment from FAT HACO that it would be preferable for FAT HACO 'and for the lathe' if the shipment date was the end of February 2017 or beginning of March 2017, as this would give a little more time for final testing;

    (j)on 14 November 2016 Mr Green informed Mr Walker that he had spoken to the grant office and that a May 2017 delivery could put the grant at risk, as a number of weeks are required to process milestone claims and the grant was to expire in June, but that he had been advised an April 2017 delivery was acceptable.  He asked Mr Walker to confirm whether delivery and commissioning by the end of April 2017 was possible;

    (k)on 15 November 2016 Mr Walker replied, stating:

    Hi Phil, it is not possible for ourselves or FAT to give a specific delivery date for the FTM-1000.  As you know all too well there are so many variables that may come into play (especially when shipping is involved) that no one can give an exact date, this is why all our quotations state delivery dates as estimated / approximate.

    The delivery date quoted when the machine order was finalised and the exact specification nailed down was estimated to be on or before mid Jan 2017.  As we have advised, FAT have told us that the estimated revised ex‑factory date is mid - end Feb (which I don't think too unreasonable considering the length of delivery time and complexity of the machine) and they have said they will do everything in their power to make this happen.

    I know you want us to tie exact dates down but this is the best information that can be offered at the moment.

    (l)on 17 November 2016 Mr Green wrote to Mr Walker stating, relevantly, that he intended to submit to the Government a variation of the delivery date to the first week in May 2017;

    (m)on 29 November 2016 Mr Green provided a proposed variation request to the grant office, submitting:

    Variation to Milestone 4.  Due to delayed delivery of the CNC Lathe we request an additional milestone be inserted to separate the finalisation of the CNC Milling Machine installation & commissioning from the CNC Lathe installation & commissioning.  The revised date request for the completion of the CNC Lathe Installation & Commissioning is 12 May 2017.  There are no implications or obligations within this request on the financial year payments.

    (n)on 23 January 2016 Mr Green went 'above Mr Walker's head' and wrote to Mr Darryl Mack, setting out his concerns about the delays in delivery, and indicating that by his estimation delivery of the machine would now be the week commencing 29 May 2017.  Mr Green referred to the critical timing of the delivery and the obligations under the grant, and sought a guaranteed delivery week for the purpose of making a submission to the Government for an extension under the grant scheme.  Mr Green also sought some financial allowance to cover additional costs to extend the arrangement to late May 2017 (a second letter referring to pressure from the Government grant body to seek a delivery variation was sent by Mr Green to Mr Mack on the next day);

    (o)on 6 February 2017 Mr Green wrote to Mr Walker, stating:

    As advised I have to put a closure of the Milestone that includes this machine.  I have had discussions today with the Federal Government department responsible for allocating funding and have negotiated a completion date of the 11 June 2017.  Once this variation is submitted, this is a line we are unable to cross, if we had been made aware of the delivery situation at the time of your quoting we could have made different arrangements for grants / bank loans / forward exchange cover.  We are incurring significant extra costs for the extension of late delivery from January to late May and we will need to have a discussion with you regarding these unexpected charges.

    (p)on 9 February 2017 Mr Green provided a further variation milestone request to the grant office, with a revised completion date for installation and commissioning of the CNC lathe of 11 June 2017, a revised date that was accepted.

15. For completeness, I note that none of these communications reference BAE or discussions with BAE, and Mr Green did not suggest in his oral evidence that he was concerned about a connection between any delay in delivery of the machine and the BAE tender.  He accepted on a number of occasions under cross-examination that his concern during this period was in relation to the Government grant milestone and the impact of delay upon funding.

16. Ultimately Ezy‑Fit received all of the Government grant for which it had applied.

    Progress of the building works

17. According to Mr Klappers, building works for the brand-new purpose-built factory that housed the FTM1000 and the DMF600 were almost complete as at May 2017, but works continued throughout the whole of 2017.  This was supported by an email dated 31 May 2017 sent by Mr Powell to a potential customer, in which Mr Klappers and Mr Kerin were included.  The email stated that:

    As a point of interest, the Ezy‑Fit Engineering Group is in the final phase of building a brand new, purpose built factory for the production of large to very large marine components for the defence industry.

18. I note that Mr Green's evidence was that those building works were complete in about December 2016 or January 2017.  However, in light of the email of 31 May 2017 that supports Mr Klappers' evidence, it is more likely that Mr Klappers' evidence is correct on this point and I accept it.

    Purchase of DMF600

19. The Government grant covered the purchase of machinery in addition to the FTM1000.  Mr Green gave evidence about the acquisition from DMG of the DMF600, a mill that, according to Mr Green's model for periscope production, was required because of specific milling work that could not be undertaken on the FTM1000, and because it would have been inefficient to do all milling on the FTM1000.  Mr Green's evidence was that the DMF600 mill could be used by Ezy‑Fit for high-end milling work regardless of the periscope project.

20. Mr Green gave evidence that the DMF600 was a 'very large, high calibre machine' and was ordered in December 2015 at a cost of $1.683 million.

21. There is no indication that the date of delivery of the DMF600 caused any concern in relation to the Government grant or the BAE tender.

    Purchase of CMM and the CMM room build

22. According to Mr Green, this building project involved making use of a void between two existing factories to create a space for the CMM by moving air conditioning units to the roof and adding insulation.  The CMM room was referred to in the Government grant and was completed for a cost of $184,300.

23. The CMM order was arranged and finalised around May and June 2016.

24. Again, there is no indication that these works caused any concern in relation to the Government grant or BAE tender.

    The debrief and evidence as to why Ezy-Fit was unsuccessful

25. Mr Klappers recalled that the failure to be awarded the periscope tender was a significant blow to Ezy‑Fit.  No evidence was called from BAE as to why the tender was unsuccessful.  However, Ezy‑Fit sought to rely on information it was given at the time from BAE and indirectly.

26. According to a note apparently prepared by Mr Green, Ezy‑Fit Marine was told by BAE that it did not win the BAE periscope project because it presented a higher risk than another competitor, Thales, and that its price was too high.

27. Mr Kerin said he was told at a debrief meeting with BAE representatives that the bid was rejected because Ezy‑Fit were not going to be ready in time.  The representatives also said words to the effect that BAE needed to minimise risk.

28. In March 2017 Mr Kerin met with Ms Sarah Taylor, who was described as 'Member and Government Relations Manager/Defence Teaming Centre'.  Mr Green prepared a paper that he provided to Ms Taylor about the tender process.  The purpose of the meeting appears to have been to request that Ms Taylor lobby (then) Minister Pyne's office about the failed bid.  Ms Taylor wrote to Mr Pyne's office.  There were also communications with Senator Xenophon's office.  According to Mr Klappers, at the time it was hoped that Senator Xenophon might be able to persuade Minister Pyne to review the tender decision or obtain some clarification as to why Ezy‑Fit had been unsuccessful.

29. Mr Klappers gave evidence that he was told, likely by BAE, that the decision maker made the decision not to make the periscopes in Australia because they did not want to take the risk of them being made in Australia.  The relevant evidence under cross-examination (and to which no objection was taken) was as follows:

    They didn't want to take the risk with choosing - - -?---Making them here in Australia.

    And having them made by Ezy‑Fit?---Or - or anyone, even Hoffmann's.  I think the - the - the Commonwealth was very scared about the risk situation.  I think one of the comments was that, 'No one has ever made periscope tubes in Australia before'.  That was - that was a Commonwealth Government line.

    And the risk was that no one in Australia would have the capability to do this work - - -?---I don't know about the capability but the expertise maybe.

    We might be splitting hairs.  How would you distinguish expertise from capability?---Well, I suppose it's both the same.  It - because we know for a fact that Thales have made these in the past, for the last 30, 40, 50 years, whatever it may be.  But it's - it's obviously critical that you have the right equipment and the right people;  they go hand in hand.

    Yes.  And to your understanding the navy or the Commonwealth went above BAEs head and determined that Thales were the people with the right equipment and the right people for this job?---I would say that they - they went that way - it was a comfort thing knowing that Thales had made them before.  No one in Australia had - had attempted to make them before, and I think it was just much easier to go back to buy them from where you bought them from before.

30. Mr Klappers also referred to an email in which Mr Powell said that the real reason Ezy‑Fit was not awarded the contract was because the contract could not be awarded in time 'due to delays by the government'.  Timeframes that were being imposed were a result of how long it had taken to get to that point.  Mr Klappers agreed with Mr Powell's view, and said that:

    BAE went backwards and forwards for three years and then, I think, in the end, the Commonwealth had had enough of it and said, you know, 'You need to get cracking.'

    Yes?---

    And then, of course, no one was ready to get cracking in nine months.

31. On 29 May 2017 there was a Senate Estimates committee hearing, properly referred to as 'Senate of the Foreign Affairs, Defence and Trade Legislation Committee, for Estimates' at which various people gave evidence. Certain transcript extracts were provided to Ezy‑Fit by Senator Xenophon's office, and the parties sought to rely on those extracts. I received no submissions in relation to s 16 of the Parliamentary Privileges Act 1987 (Cth). However, it is apparent that the parties were potentially inviting me to infer certain matters from the transcripts.

32. Parliamentary privilege as it applies to the Commonwealth Parliament is codified in the Parliamentary Privileges Act. Relevantly, s 16 provides:

    16       Parliamentary privilege in court proceedings

    (1)For the avoidance of doubt, it is hereby declared and enacted that the provisions of article 9 of the Bill of Rights, 1688 apply in relation to the Parliament of the Commonwealth and, as so applying, are to be taken to have, in addition to any other operation, the effect of the subsequent provisions of this section.

    (2)For the purposes of the provisions of article 9 of the Bill of Rights, 1688 as applying in relation to the Parliament, and for the purposes of this section, proceedings in Parliament means all words spoken and acts done in the course of, or for purposes of or incidental to, the transacting of the business of a House or of a committee, and, without limiting the generality of the foregoing, includes:

    (a)the giving of evidence before a House or a committee, and evidence so given;

    …

    (3)In proceedings in any court or tribunal, it is not lawful for evidence to be tendered or received, questions asked or statements, submissions or comments made, concerning proceedings in Parliament, by way of, or for the purpose of:

    (a)questioning or relying on the truth, motive, intention or good faith of anything forming part of those proceedings in Parliament;

    (b)otherwise questioning or establishing the credibility, motive, intention or good faith of any person; or

    (c)drawing, or inviting the drawing of, inferences or conclusions wholly or partly from anything forming part of those proceedings in Parliament.

1. I also accept that Ezy‑Fit usually operated its factory for two shifts a day and would operate an alternative machine for two shifts a day, five days a week.  Had it been relevant, I would not have accepted that the analysis should proceed on the basis of three shifts a day.  Although there was a suggestion in Mr Hollamby's evidence that Ezy‑Fit could move to using an alternative machine for three shifts a day, that seemed to me to be speculative and not something that Ezy‑Fit had seriously contemplated.

   What is the period of the lost opportunity?

2. Mr Morris was asked to assume that the period when loss would cease was February 2032, on the assumption that the FTM1000 would have had a lifespan of 15 years.  When Mr Nguyen responded to Mr Morris's report, he made the same assumption.

3. Although an applicant is not compelled to sell a defective asset in order to mitigate loss, some challenge is required to the proposition that it is appropriate that Ezy‑Fit simply keep the FTM1000 until 2032, having claimed large lost profits from FAT HACO.  The question is whether and when it was reasonable for Ezy‑Fit to stem its losses by repairing the machine.

4. I have referred to some of the relevant authorities in this regard above at [981]-[982].  I also note that the question is relevant from the perspective of both causation and mitigation.

5. It is apparent that shortly after the Third Rectification Visit (April 2018), Ezy‑Fit formed the view that the machine still did not perform consistently with the representations made.  In July 2018 its lawyers sent a letter of demand to Ron Mack.  It commenced proceedings in May 2019.

6. Should the Court find that Ezy-Fit ought to have taken some step in the interim rather than simply retaining the defective FTM1000?  The parties did not address this issue in any detail.  The expert accounting evidence assumed that the period of lost opportunity profits extended for the life of the FTM1000, apparently being 2032.  Although Mr Hegmann anticipated a life expectancy of 10-15 years, as no real issue was taken with the estimate of 15 years assumed by the accountants, I will accept that its life expectancy is 15 years.

7. In the absence of any other submission as to other points in time that might be relevant, I will focus on Ezy‑Fit's submission, made in the alternative, that if the Court were to decide that rectification damages were appropriate, then Ezy-Fit should still be entitled to damages for lost opportunity up to the date of judgment, and post judgment for a period that would facilitate repairs.

8. In short, I accept this submission.  I do not consider it appropriate that damages be assessed on the basis that the date on which the lost opportunity ceased should be taken to be 2032, in circumstances where, as I have found, the outcome that accords with the probabilities is that rectification of the machine is possible.

9. I have considered whether, by way of mitigation or in assessing causation, I should find that Ezy‑Fit ought to have taken steps to repair the FTM1000 so as to reap the lost profits it now seeks from FAT HACO, such that it is not entitled to lost profits after a certain point.  In light of the uncertainty after the Third Rectification Visit as to the cause of the underperformance of the machine, it is not surprising that (failing any compromise) Ezy‑Fit chose to issue proceedings.

10. As to the question of repair, Ezy‑Fit and FAT HACO had cooperated over a considerable period of time in order to seek to improve the performance of the machine, as evidenced by the rectification visits.  Ezy‑Fit was not satisfied that the defects had been addressed.  The matter then quickly became the subject of formal dispute and litigation.  Accordingly, I do not consider Ezy‑Fit acted unreasonably in refraining from further attempts to repair the machine at the time.

11. However, the iterative progress of the expert evidence during the trial has established to the requisite standard that the FTM1000 can be repaired.  Whilst it may not agree, Ezy‑Fit is no longer reasonably justified in proceeding on an assumption that the machine cannot be.  Accordingly, in my view, and as Ezy‑Fit appears to accept, an award of damages that reflects rectification costs would support a conclusion that the period of lost opportunity is to be curtailed.  In my view, allowing six months for repairs notionally to be carried out, damages for lost opportunity should be assessed from the hypothetical date of commissioning of an alternative machine (25 July 2017) until six months after the date of judgment.  Notional loss of extra profits after that six-month period would not be caused by the contravening conduct of FAT HACO (or Ron Mack) and so would over-compensate Ezy-Fit.  I am not satisfied an additional period of 12 months for repairs should be provided for (as suggested by Ezy-Fit).  That suggested time period is objectively excessive.

12. I have also considered, in the alternative to repair, whether Ezy‑Fit ought to have sold the FTM1000 and acquired another machine in order to undertake the work it had hoped to undertake on the FTM1000.  There is no evidence that indicates it was in a position to expend the significant cost that would be involved in replacing the FTM1000 by purchasing a non‑defective FTM1000 or another alternative machine.  There was some very limited evidence from Mr Kerin to the effect that (as at October 2019) he was not 'currently' in a position to purchase a new expensive machine.  He also said he didn't know how he would remove the FTM1000.  He did not refer to attempting to sell it.  On the other hand, according to Mr Klappers, Ezy‑Fit had so much work during 2019 that it had difficulty managing the current workload and the business was performing well financially.  It may be that Ezy‑Fit could have organised its financial affairs so as to finance an alternative machine.  I note, for example, that Mr Kerin said that in 2019 he had spent $100,000 on a new boring machine.  Ezy‑Fit's hypothetical model of recruiting another machine (the Takang) assumed acquisition costs of some $770,000.  There would appear to have been some financial capacity on Ezy‑Fit's part.  However, there is insufficient evidence from which I can infer that Ezy‑Fit could or should have bought another machine that would perform the work intended to be done by the (non‑defective) FTM1000 at any relevant time.

    Utilisation of the FTM1000

13. Mr Hollamby gave evidence that the defective FTM1000 was used almost solely for Bombardier train wheel work and work relating to the Liebherr barrels.  He estimated there was a sufficient amount of that work to keep it busy for (at that time) about 18 months.

14. At the time of trial the FTM1000 had been used for at least one shift a day over the previous few years and from time to time for two shifts a day.  Mr Klappers confirmed this to be so.  At the time of trial it was being used for one shift a day.  Between September 2018 and June 2020 it operated for two shifts a day.  After the February 2021 collision the FTM1000 was repaired because Ezy‑Fit wanted to keep using it.

15. In other words, there remained opportunities for Ezy‑Fit to utilise the defective FTM1000 for certain work and at certain rates, and opportunities were in fact identified and secured by Ezy‑Fit.  These opportunities were not lost opportunities, but opportunities that were secured by Ezy‑Fit.  It is to be assumed that Ezy-Fit continued to use and make profits from the FTM1000 during the period of assessment.  This is to be taken into account in the assessment of loss.  It is also to be assumed for that purpose that Ezy-Fit continued to use and make profits from the FTM1000 during the downtime caused by the third collision (Ezy-Fit seemed to accept that it was to bear the consequence of the third collision).

    How should lost profits be calculated?

16. As Ezy‑Fit anticipated, it will be necessary for the parties to consider and for the quantum experts to re-calculate the quantum of lost profits, relevantly taking into account these findings.  I will hear from the parties further as to directions in this regard.  As requested by FAT HACO, I will also defer any finding in relation to the experts' purported provision for tax on losses.  It will be necessary to hear from the parties as to matters such as any other discounts to be applied, other factors said to affect profit apart from the hourly rate, and any entitlement to interest, having regard to these findings.  As I have indicated, this is not an invitation to file new evidence.

    Rejection of the 'recruitment' model

17. As mentioned above, Mr Morris was instructed to assume that Ezy‑Fit would have purchased an additional Takang mill-turn in November 2017 at a cost of $722,000 (adjusted for inflation).  It would have recruited that machine to undertake the work then being undertaken by the FTM1000 and the DMF600, freeing up the FTM1000 and the DMF600 to exclusively perform new high-end work for two, alternatively three, shifts a day for each machine.  The effect of this assumption is that in this hypothetical scenario, Ezy-Fit would perform the work it did in reality perform, plus two shifts of work a day on the FTM1000 and DMF600 of hypothetical high-end work.

18. FAT HACO's position is that leaving aside the other issues with Mr Morris's assumptions, the Takang could not undertake all of that work, and that it would have been necessary to recruit two machines, the Takang and a MACO ($741,354), to undertake all of the work then being done by the FTM1000 and the DMF600.  Accordingly, Mr Nguyen's analysis took into account the cost of acquiring two machines.

19. There was no evidence to support the assumption that Ezy‑Fit would recruit an additional machine (or machines). Indeed, Mr Kerin had suggested Ezy‑Fit was not in a position to buy an additional machine (at [1072] above).

20. The hind-sight approach of recruiting additional machines seems to me to be speculative and is not anticipated by the pleaded case.  I do not accept that the recruitment model is an appropriate or realistic assumption for the task undertaken by the quantum experts in the context of an assessment for the purpose of s 236(1) of the ACL.

    The contract measure of damages

21. It may be that Mr Morris was initially invited to make certain assumptions on the basis of a contract case.  As Ezy‑Fit has failed in its agency case against FAT HACO, it has been necessary to approach the assessment from the perspective of s 18 and s 236(1) of the ACL, rather than contract.  The ACL case was relevantly pleaded on the basis that Ezy‑Fit would not have bought the FTM1000 and would have bought another machine.  That is an orthodox case and I have accepted it.  I have sought to assess damages under s 236 and s 237 of the ACL accordingly.

22. Ezy‑Fit appeared to proceed on the basis that the outcome of an assessment of damages for any cause of action would be the same.  In the face of that approach, any damages assessment against Ron Mack for its breach of contract could not properly exceed the assessment of damages made under the ACL (and it goes without saying that there must be no double recovery).  It will be necessary to hear from Ezy‑Fit as to whether having regard to the findings it pursues any measure of damages in contract and how it asserts it is calculated (and again, this course does not permit the tender of further evidence).

    Mitigation

23. FAT HACO did not address how the alleged failure to mitigate is said to relate to a specific head of loss.  It only claimed that the alleged failure to mitigate should reinforce the view that Ezy-Fit's loss should be limited to the costs of rectification.

24. FAT HACO pleaded that Ezy‑Fit failed to take reasonable steps to mitigate its loss.  I will refer to the steps that FAT HACO identified in the closing submissions:

    (a)failure to carry out proper maintenance;

    (b)failure to avoid collisions and utilise their best machinist (Mr Loughlin);

    (c)failure to have Mr Loughlin present every day during the April 2018 Third Rectification Visit and his conduct in reversing certain calibrations;

    (d)refusal to provide FAT HACO with remote access to the FTM1000 in order to address issues that had been raised; and

    (e)failure to perform regular levelling.

25. It is not clear why failure on the part of Ezy‑Fit to take those steps in relation to the defective FTM1000 impacts upon the hypothetical profit generated by using an alternative machine:  see, by analogy a similar conclusion reached in Doppstadt Australia at [218].

26. Similarly, it is not clear why downtime in actual use of the FTM1000 as a result of the third collision would impact on the use of an alternative machine.

27. To return to the quote extracted above from Henville v Walker, it was for FAT HACO to disentangle these factors.

28. However, to the extent mitigation is otherwise relevant, the evidence indicates the following.

29. The complaint about failure to maintain is not established.  There are particular items referred to in the context of the consideration of the purported defects where maintenance matters are raised.  Prior to trial, Ezy‑Fit had not produced its maintenance records for the FTM1000.  FAT HACO appeared to draw certain inferences from this, but the records were subsequently produced.  Mr Green gave evidence that he assisted with arranging maintenance of the machine.  Mr Klappers gave evidence of occasions from May 2019 when repair specialists were called in to deal with specific matters.  I prefer the cumulative weight of these matters to the generalised statement by Mr Hegmann and Mr Miller in their joint report to the effect that the machine did not appear to have been property maintained.  It is unclear whether Mr Hegmann or Mr Miller were aware of the maintenance records.  Further, the evidence that there was a hiatus in maintenance did not reveal that it caused any defect.  I am not satisfied that any failure to maintain the machine has been the cause of any defect.

30. The collisions have been addressed separately.  Whilst it would no doubt have been preferable to avoid them, no loss from the first two collisions was established.  The relevance of the third collision in the assessment has been addressed above.

31. Ezy‑Fit submitted that experienced machinists operated the FTM1000. I accept that to be the case. Both Mr Loughlin and Mr Stewart had extensive experience. Mr Green was generally available to provide assistance. According to Mr Maicher, Mr Loughlin was able to discuss machining matters at an appropriate level. The fact that Mr Loughlin did not observe all of the Third Rectification Visit does not evidence a failure to take reasonable steps to mitigate loss. Mr Maicher did not say that Mr Loughlin's presence was required at all times. There was no suggestion that Ezy‑Fit declined to make other senior staff available if required. I have addressed the reversing of the calibration above (at [449]-[454] above). Mr Loughlin's conduct does not prove any failure to reasonably mitigate loss.

32. As to the allegation that Ezy‑Fit denied FAT HACO remote access to the machine, it is not established that the defects or loss could have been mitigated by such access.  In fact, it was accepted by FAT HACO that certain issues could not be resolved remotely.  At most, some issues that may have been resolved remotely may have been resolved sooner, if access had been available, but the evidence in this regard was equivocal.  It is perhaps disappointing that more endeavours were not made by Ezy‑Fit to facilitate remote access to the machine, but I am not satisfied that it would have made any difference of substance, having regard to the nature of the defects that were being addressed by the FAT HACO and Siemens engineers.

33. As to levelling, I have accepted in relation to some of the purported defects that Ezy‑Fit needed to undertake levelling.  These purported defects have been found generally to be issues of maintenance and not defects that were causative of loss.  The difficulties with performing precision work were the product of defects of more significance than any failure to regularly level the machine.

34. Failure by Ezy‑Fit to reasonably mitigate its loss as alleged by FAT HACO is not established.

    What about Ezy Fit Marine?

35. Ezy‑Fit Marine has no entitlement to contractual damages.

36. Further, it has no claim in relation to the loss of the BAE periscope project, for the reasons given.

37. Although I have found that Ezy‑Fit Marine relied upon the impugned Pre-contractual representations, Ezy-Fit's counsel conceded during closing submissions that Ezy‑Fit Marine has no claim for loss of opportunity under Scenario 2.  Having lost the BAE tender it appears to have wound down its attempts to secure or be allocated new work in its name, and in the end stopped trading in early 2019.  More to the point, based on counsel's submissions, the work done under Scenario 2 was undertaken and anticipated to be undertaken by Ezy‑Fit Engineering.  There was support for this submission in the evidence of Mr Klappers, who confirmed that work previously contracted and invoiced by Ezy-Fit Marine was now contracted to and invoiced by Ezy-Fit Engineering.

38. It must be borne in mind that the companies are separate legal entities.  Mr Kerin's evidence was that Ezy‑Fit Marine was set up for accounting, risk management and insurance reasons.

39. There was previously an informal process (confirmed by Mr Klappers and Mr Kerin) that when Ezy‑Fit Marine was awarded work, the work was submitted to Ezy‑Fit Engineering to undertake, Ezy-Fit would invoice Ezy-Fit Marine, and Ezy-Fit Marine would issue the invoice to the client.  Mr Klappers considered Ezy‑Fit Marine to be no more than a 'sales arm' of Ezy‑Fit Engineering.  In the past Ezy‑Fit Engineering would charge Ezy‑Fit Marine at cost.

40. Having set up two distinct legal entities, the distinction is to be maintained where relevant.  Revenue or profits are not to be considered globally as belonging to 'the group'.

41. Taking into account counsel's concession, Ezy‑Fit Marine has failed to make out a claim for damages or other relief against FAT HACO or Ron Mack.

    Wasted expenditure basis for assessment

42. Ezy‑Fit submitted that wasted expenditure was not the right fit for an assessment in this case.  I have proceeded to assess damages in the manner it contended was the right fit, that is, on a lost opportunity basis.  Accordingly, it is not necessary to consider this alternative further.

43. However, should it be relevant for any purpose, I note that Ezy‑Fit contended that it had overcapitalised in building the factory having regard to the space to be occupied by the FTM1000.

44. Unless Ezy‑Fit pursued a no-transaction model, where it bought neither the FTM1000 nor an equivalent machine, nor any other machines (and that was not its pleaded case), I am not persuaded that it has established a case for overcapitalising that would see such loss being borne by FAT HACO or Ron Mack.  The factory was intended to be used for other machines, not only the FTM1000, and has been used for other machines.  Whether the factory would have cost less or more for a configuration of different machines and any effect on its value are largely speculative.  It appears on the limited calculations undertaken by Mr Morris that the factory was built to a scale that anticipated housing more machines and operating space than were required for the FTM1000, the DMF600 and the CMM (Mr Morris recalled from a visit that perhaps 50% of the factory space was taken up by the operations of the FTM1000 and the DMF600).

45. Nor has it been necessary to resolve disputes between the parties as to the manner in which any foreign exchange losses or the receipt of the Government grant are to be taken into account, matters said to arise on a wasted expenditure assessment.  I note, however, that as Ezy‑Fit was unsuccessful in its claims about delay, the grounds for the foreign exchange contention fall away.  As to the Government grant, its receipt or retention was not conditional upon success with the BAE tender.  Nor was Ezy‑Fit obliged to apply it towards the acquisition of the FTM1000 (see generally [96] above).  In my view, Ezy-Fit was entitled to retain the benefit of the Government grant for the reasons expressed in Brown Falconer Group Pty Ltd v South Parklands Hockey & Tennis Centre [2005] SASC 75; (2005) 91 SASR 152.

    PART O:  OTHER MATTERS

    Jones v Dunkel rulings

1. Ezy‑Fit submitted that the Court should draw a Jones v Dunkel inference with respect to the failure to call the engineers who attended the commissioning of the machine, the Siemens engineer Mr Van Vlaenderen, Mr Walker and Mr Wigmore (or any other Ron Mack service engineer).

2. FAT HACO submitted that the Court should similarly draw an inference in relation to Ezy‑Fit's failure to call Mr Powell, who was involved in the BAE negotiations for Ezy‑Fit Marine.

3. Jones v Dunkel (1959) 101 CLR 298 indicates that where a particular inference is fairly available on the evidence, the court may more readily draw the inference by the unexplained failure of a party to call a witness who is likely to have relevant knowledge and may be regarded as having been 'in the camp' of that party.

4. As elucidated by Glass JA in Payne v Parker [1976] 1 NSWLR 191 at 201-202, whether Jones v Dunkel should be applied depends on the establishment of three conditions:

   (a)the missing witness would be expected to be called by one party rather than the other;

   (b)their evidence would elucidate a particular matter; and

   (c)their absence is unexplained.

5. Ezy‑Fit has not identified particular inferences that might be affected by the application of Jones v Dunkel.

6. As to the engineers who attended commissioning, Mr Maicher said under cross-examination that all three still worked for FAT HACO and he did not know why they did not give evidence.

7. Relevantly in relation to commissioning, for the reasons given, the findings which I have made on the balance of probabilities were that:  levelling was conducted (as to which there was evidence from Mr Green); that practical machining tests were undertaken (having regard to evidence from Mr Misiolek that he saw the results); and that geometric tests were conducted (as recorded in in the Second Geometrical Accuracy Inspection Sheet, and supported by references to the testing in the service report).  Had I found that no such steps had been undertaken, I may have been assisted in such a finding by the failure to call the engineers, but that was not the outcome.  I was satisfied that there was sufficient evidence that those tests were undertaken.

8. As to Mr Van Vlaenderen, Mr Hoppe was present during the visit and he gave evidence about the testing undertaken.  In the circumstances, it is not apparent that evidence from a second engineer present at the same time would have meaningfully added to the evidence available.  Mr Hoppe was available for cross-examination and was cross-examined.  No questions were asked of him about Mr Van Vlaenderen's capacity to give evidence.  The Siemens Report was in evidence.  Mr Miller was asked questions about it.  I have found that Mr Hoppe and Mr Van Vlaenderen undertook both drilling and milling.  I accepted Mr Hoppe's direct evidence about this.  Mr Hegmann said in oral evidence that the Siemens engineer referred only to drilling.  To the extent Ezy‑Fit might have invited me to infer that no milling was carried out, then I have had regard to the absence of Mr Van Vlaenderen, but in the end I have no reason to reject Mr Hoppe's evidence and I have accepted it.

9. As to Mr Walker, Mr Wigmore or any other Ron Mack service engineer, the position is clear.  Ron Mack is the subject of a cross-claim brought against it by FAT HACO.  There is no basis upon which Mr Walker, Mr Wigmore or any other Ron Mack service engineer might be regarded as having been 'in the camp' of FAT HACO.  I would not apply Jones v Dunkel in those circumstances.

10. Turning to Mr Powell, Mr Klappers said that although Mr Powell no longer worked for Ezy‑Fit Marine, having left in 2019, he understood that he was working for a company in the United Kingdom.  Mr Klappers did not know whether Mr Powell had been asked to give evidence or not.

11. There is no doubt that Mr Powell was heavily involved in the BAE tender communications. The many written communications to which he was a party were adduced in evidence and were self-explanatory. As to meetings, they were generally also attended by Mr Klappers, who gave evidence about the BAE tender process generally on behalf of Ezy‑Fit. Mr Klappers' evidence was consistent with written communications by Mr Powell (for example, at [80]-[81] above). There is no reason to doubt Mr Klappers' evidence. It is not necessary to call all persons present at a meeting to give evidence about that meeting, absent some conflict about what was or was not said (and there was no suggestion of such conflict here), or some credibility issue. Mr Green also gave evidence about the tender process. Having regard to Mr Klappers' evidence generally about the BAE tender process and the role of Ezy‑Fit Marine, I am not satisfied that Mr Powell would have elucidated any particular relevant matter in issue. FAT HACO has not identified particular inferences to which an application of Jones v Dunkel might be relevant.  Accordingly, I do not consider it appropriate to apply Jones v Dunkel in relation to any particular finding based on inference as a result of Mr Powell not being called to give evidence.

    Apportionment

12. The parties agreed during the trial that questions of apportionment of liability under the Apportionment Act would be deferred until after these reasons are published.

    Cross-claim

13. FAT HACO made it clear in closing submissions that although it made no substantive submissions about its cross-claim against Ron Mack, it is maintained.

14. It seems to me likely that issues as between FAT HACO and Ron Mack will be dealt with in the course of submissions relating to apportionment, and the cross-claim for all intents and purposes falls away.  However, I will hear from FAT HACO before making orders that might otherwise dismiss it.

    CONCLUSION

15. For the above reasons, Ezy‑Fit has succeeded in relation to its claims in contract and under s 18 of the ACL against Ron Mack.  It has succeeded in its claim against FAT HACO under s 18 of the ACL.  The claims brought by Ezy‑Fit are otherwise to be dismissed.

16. I propose to discuss the making of further directions with the parties concerning the calculation of the quantum of damages in a manner that reflects the reasons for judgment, and as to orders that otherwise give effect to these reasons.

17. The proceedings are therefore adjourned for further directions on a date to be allocated.

I certify that the preceding one thousand one hundred and twenty twol (1122) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.

Associate:

Dated:       3 May 2024

Attachment A

Attachment B

(1)General representation of 5 axes:

(2)Ezy‑Fit's explanation of the axes on the FTM1000

Y-Axismovement from the doors at the 'front' of FTM1000 to the back (e.g. milling head moving from the left side of a workpiece to the right side of a workpiece).

X-Axismovement from the floor of the FTM1000 to the ceiling of the FTM1000.

Z-Axismovement along the main axis of rotation of the FTM1000 - that is, the length of the FTM1000 between spindle 1 and spindle 3.

B-Axisrotation around the Y-Axis (e.g. the milling head swinging back and forth).

C-Axisrotation around the Z-Axis (e.g. 'spinning' cylindrical workpieces for turning or for 'facing' during milling operations).

Attachment C

Bundle of photos of FTM1000 showing axes/spindles/chuck/jaw

Attachment D

Figure 1:

Figure 2:

Figure 3:

Figure 4:

Figure 5: