Fine Braid Pty Ltd v Ada Articoli Diamantali Affini s a s Di Gariglio Claudio E C

Re: FINE BRAID PTY LIMITED; BUDAI HOLDINGS PTY LIMITED AND ASTOR GLASS
WORKS PTY LIMITED trading as "ASTOR GLASS INDUSTRIES"
And: A D A ARTICOLI DIAMANTATI AFFINI s a s DI GARIGLIO CLAUDIO E C
No. NG 121 of 1985
FED No. 424
Conflict of Laws - Trade Practices - Negligence

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Conflict of Laws - Contract for supply of machines - Contract made between Italian manufacturer and Australian purchaser - Claim of breach of conditions implied by New South Wales legislation - Whether New South Wales law is proper law of contract - Place where contract made - Significance of obligation by manufacturer to install machines in purchaser's factory - Quantum of damages.

Trade Practices - Alleged breach of ss.52 and 53 of Act - Claim brought more than three years after damages incurred.

Negligence - Negligent misrepresentation - Representations as to capacity of machine - Negligence not established by proof that particular machines supplied to applicants did not conform with representations.

Trade Practices Act 1974 ss.52, 53, 82.

Sale of Goods Act (NSW) 1923 s.19.

HEARING

SYDNEY

#DATE 7:8:1989

Counsel for the Applicants: Mr R L Hunter QC with Mr R E Montgomery

and Mr J R S Bowers

Solicitors for the Applicants: Westgarth Middletons

Counsel for the Respondent: Mr S D Robb with Mr J Stevenson

Solicitors for the Respondent: Michell Sillar Brown

ORDER

Judgment be entered in favour of the applicants against the respondent in the sum of five hundred and fifty-two thousand two hundred and twenty-nine dollars ($552,229.00).

The respondent pay to the applicants their costs of the proceeeding.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

The applicants, Fine Braid Pty Limited, Budai Holdings Pty Limited and Astor Glass Works Pty Limited trade in partnership under the business name "Astor Glass Industries" ("Astor"). Their business includes the cutting, grinding and polishing of glass, including small sheets of glass intended for use in the manufacture and/or assembly of appliances and items of furniture. The business has been conducted since about 1956. Gabriel Ivan Budai, the present General Manager of the business, has been involved in various capacities since 1971. The date when Mr Budai became General Manager is not revealed by the evidence but he appears to have had executive responsibility for the operation of the business since a date not later than 1977.

Articoli Diamantati Affini s a s Di Gariglio Claudio E C ("ADA") is a limited partnership constituted under Italian law. ADA carries on business as a manufacturer of glass processing equipment. At all material times ADA has been under the control of Paolo Gariglio. This case concerns some glass processing machines purchased by Astor from ADA.
The evidence adduced by the parties was considerable. I do not propose to summarize the whole of the evidence. Some of it related to issues which were abandoned during the course of the trial. Much of the evidence related to the technical defects of the subject machines. Although the existence of such defects was initially hotly disputed, and no concession of defectiveness was even formally made on behalf of ADA, the applicants' evidence on this matter proved so overwhelming that the issue disappeared from the case, in practical terms. Consequently, it is unnecessary for me to do more than to identify the evidence upon that matter which I adopt, without any summary.
The evidence relating to the history of the transaction comes primarily from Mr Budai. Much of his evidence is uncontested; but, in view of the importance of his evidence to the case, I record that I was impressed by Mr Budai as a person and as a witness. Notwithstanding some criticisms made of him by counsel for the respondent, I thought Mr Budai to be honest and reliable. But there is one element of Mr Budai's evidence which I do not accept: his predictions as to the likely demand for glass of the type processed by the subject machines. In connection with that matter, I think that Mr Budai has indulged in some retrospective optimism, not unnaturally fuelled by his frustration at the machines' poor performance. Upon a couple of minor matters Mr Budai's recollection may be erroneous. But, on all significant matters of past fact, I accept his evidence.
Finally, I should note that where in this judgment telexes between the parties have been reproduced, no attempt has been made to correct the numerous typographical errors contained therein.
The negotiations
In about September 1977 Mr Budai came into contact with James Cornish, the manager of a business known as Industrial Glass Manufacturing ("IGM"). It is common ground between the parties that IGM was at that time the agent of ADA and that this relationship continued until the appointment of a new agent, A J Flick & Co, in October 1981. There is, however, a dispute between the parties as to the extent of IGM's authority to act on behalf of ADA, and particularly as to whether it was authorised to bind ADA contractually.
In September 1977 Astor purchased from IGM the first of two ADA vertical plane grinding and polishing machines, known as series 3500 machines. These machines operated upon the principle that the bottom edge of a sheet of glass would be passed through the grinding and polishing mechanism of the machine. The sheet would then be removed from the machine and inverted, so that the opposite end could be ground and polished. The same process would then be repeated to grind the other two sides of the sheet. Accordingly, to grind all four edges of a single sheet it was necessary to feed the sheet manually into the machine on four separate occasions. Notwithstanding the laboriousness of this process, the 3500 machine was apparently an improvement upon the equipment Astor already had. In March 1978 Astor purchased from IGM a second 3500 machine.
During the period September 1977 to October 1981 Mr Budai saw Mr Cornish frequently. In his evidence Mr Budai estimated that he dealt with Mr Cornish, on average, at least once per week, purchasing from him spare parts and consumable items, such as polishing and grinding wheels, for the 3500 machines. Mr Cornish regularly visited Astor's factory and was familiar with its operations.
In 1978 Mr Budai learned of the existence of a machine, produced by ADA, which was known by the series number 4006. This machine was a horizontal edging machine: the edges of the glass were ground and polished as the glass lay flat on a conveyor belt transporting it through the grinding and polishing agents. There were grinding and polishing mechanisms on each side of the conveyor belt, so that two edges could be simultaneously treated. If all four edges were to be ground or polished, the sheet of glass had to be fed into the machine twice.
In the course of discussions with Mr Cornish, Mr Budai spoke of the amount of overtime he was paying, his difficulty in meeting orders and his need to improve the squaring and sizing of the panels and to increase productivity. Mr Cornish said that he understood the problem and he recommended the 4006 machine. This machine was said not only to have the advantage of being more labour efficient but, because the glass was held flat, to be able to size and square the glass more accurately.
However, the 4006 machine could not handle glass as thin as 3mm. At the time, a major part of Astor's production related to 3mm glass, so Mr Budai did not pursue the purchase of a 4006 machine. Nonetheless, Mr Budai maintained his contact with Mr Cornish, informing him of Astor's problems in coping with demand.
In July 1980 Mr Cornish gave to Mr Budai an ADA pamphlet describing a new machine, called an automatic double edger ADA 4008. This machine was a more sophisticated version of the 4006 machine. The pamphlet made a number of claims which are relevant to the present proceeding:

"Grinds and polishes, with extra-bright finish, all thicknesses of glass between 3mm. and 20mm. with flat and arrised edge on both parallel sides at the same time. Adjustable feed speed according to thickness. ...

Patented squaring system (tolerance: 3/10 of mm. on the diagonal of a glass size 2 mt. x 2 mt.).

Feed speed: 0.60 to 6 meters/min. ...

A special patented dubbing device to remove sharp corners supplied on request. To carry out a complete working cycle on all four sides automatically, two machines are installed and equipped with a transfer table to convey the glass from the first machine to the second one."

At that time Mr Budai was planning to move into a new factory in the Sydney suburb of Lansvale by January 1981. The new factory, of about 50,000 square feet, would provide about five times the floor area of Astor's existing premises. Either before or after seeing the ADA pamphlet, Mr Budai made a decision to install in the new factory a twin double edger machine, subject to his selection of the most suitable model. Mr Budai was aware that a United Kingdom company also offered a double edger machine.
Discussions continued between Mr Budai and Mr Cornish. At some time between July and September 1980 Mr Budai indicated to Mr Cornish his interest in buying two 4008 machines, with a connecting transfer table, subject to his observing the 4008 machine in operation. Mr Cornish undertook to arrange an opportunity for this.
Each second year, apparently in about September or October, an international Glass Fair is held in Dusseldorf, West Germany. Mr Budai had attended the Fair on at least one earlier occasion. He decided to attend again in 1980. Mr Cornish also decided to attend and the two men travelled together to Europe. Before he left Australia Mr Budai prepared a list of a week's orders for grinding and polishing. The list did not represent a typical week. Mr Budai deliberately took a week of high demand. He wanted to indicate what would be expected of any new machines on a regular basis. During the flight to Europe he showed this list to Mr Cornish and discussed it with him. A reproduction of this list is in evidence. Each item is identified by reference to the name of the customer, the number of glass pieces required by the order, the piece size and whether the edges are to be merely ground or both ground and polished. The number of square metres involved in each order is then stated (that is the total area of all the sheets which are to be processed), as is the number of lineal metres (that is the total length of all processed edges). The list shows a total of 5,660 pieces containing a total of 1,379 square metres and 11,262 lineal metres. The evidence shows that the list sets out fairly typical sizes. The parties agree that a sheet size of 500 mm x 500 mm (two lineal metres) is both common and in about the middle of the range of sheet sizes processed by Astor. Processing 5,660 pieces to two lineal metres per sheet would have resulted in a total production of 11,320 lineal metres for the week -- almost exactly the figure shown in the list. The list requires that, upon average, 1,112 pieces, containing 2,252 lineal metres, be processed each working day.
Mr Budai and Mr Cornish travelled to Turin, where ADA was located. Mr Cornish introduced Mr Budai to Mr Gariglio. Mr Budai told Mr Gariglio that he wished to achieve squaring to a tolerance of 1/2 mm and to increase the rate of production in excess of the 3500 machine speed, but without loss of quality. Mr Budai referred to his new factory and said that it was of such a size as to be potentially the largest processing plant in Australia. Mr Gariglio said to Mr Cornish: "This machine because of its capacity I am sure it will earn you a lot of profit. There is not another one like it in all of Australia".
Mr Gariglio arranged for Mr Budai to visit two factories near Turin. One factory was operated by a company identified in the evidence as "Longhi". This factory had a 4006 machine installed. Mr Budai watched its operations and he came to the conclusion that it was processing 2600 lineal metres per day, or 5.42 linear metres per minute over an eight hour day. Mr Budai's note was that one machine was processing 125 pieces per hour. (At the time of giving evidence Mr Budai could not interpret all of the rather cryptic notes he made about the Longhi machine or his calculation of its output. It is probable that Mr Budai made some errors in that calculation, so his evidence upon that matter should not be taken as evidence of the actual output of that machine. But the performance of the machine impressed Mr Budai; so his calculation provides some insight into what he regarded as an acceptable result.
Mr Budai then went on to Dusseldorf. Mr Cornish was there, as were Mr Gariglio and Ms Luciana Pallard, Sales Manager of ADA. ADA had set up, for exhibition purposes, two 4008 machines linked at right-angles by a transfer table. The purpose of the transfer table was to turn the sheets of glass as they came off the first machine and to feed them onto the second machine. In this manner the two machines, acting together, could grind, or grind and polish, all four sides of a sheet of glass with only a single manual feed and pick-up. Two operators could perform the whole operation.
The demonstration machines were operated in Mr Budai's presence. He was impressed by their processing speed and spent some time, over two days, observing the machines. He questioned Mr Walter Basso, the chief technician of ADA, who was involved in operating the machines, about them. In company with Mr Cornish he inspected similar machines exhibited by two other companies. Mr Cornish offered to him reasons for preferring the ADA machine. At some stage Mr Budai had a lengthy conversation with Ms Pallard regarding certain modifications which he would require. Ms Pallard consulted Mr Gariglio who indicated that there would be no difficulty in making those modifications. Mr Budai showed Ms Pallard and Mr Gariglio his list of a week's orders. Mr Budai told them that, having seen the 4006 machines at Turin and having observed the 4008 machines at Dusseldorf, he thought that one machine might handle this volume of orders and produce a commercially acceptable finish, with a good quality polish. After discussion between them, Ms Pallard and Mr Gariglio agreed that this could be so. There was discussion about price. The list price, for two machines with a transfer table, was apparently $US173,000. However, after negotiations, the ADA representatives agreed to accept $US160,000. There was some discussion about a delivery date, Ms Pallard saying that the machines could be shipped in January 1981 for installation by ADA's technician in Astor's premises in Sydney in April 1981. Mr Budai said in evidence that there was also mention of the method of payment, but he did not recall the details.
After Mr Budai returned to Australia he gave the purchase of the 4008 machines further thought. He carried out some calculations in which he examined the likely savings in labour costs. He made various calculations, assuming feed speeds of 4.5 metres per minute and 5 metres per minute. Upon the basis of 5 metres per minute Mr Budai considered that, with two machines, he would be able to process 1500 pieces of glass per day. He compared that figure with the output of the 3500 single edger machines. He spoke to Mr Cornish about this, who telexed ADA on 22 October 1980. That telex is not in evidence, but the reply is. In her reply Ms Pallard said: "A double edger gives always better results because of the horizontal tracking system". Mr Budai was still not satisfied. He raised another query, which again was passed on to ADA. On 29 October 1980 Ms Pallard again telexed Mr Cornish, answering a telex which also is not in evidence. In her telex, Ms Pallard said

"1)OK

2)WE CAN'T SAY NOM EXACTLY. THE SPACE BETWEEN TWO SQUARE PIECES MUST BE 30-35 CM., DEPENDING ON DIMENSIONS AND FEED SPEED FOR LONG RECTANGULAR SHEETS THIS SPACE CAN BE REDUCED TO 15-20 CM. THE TRANSFER TABLE IS STUDIED TO GUARANTEE 6 BITS PER MINUTES WE CAN SAY THAT FOR SMALL SIZES (EX 250X250 AND 500X500) THEY CAN WORK 6/7 PCS. PER MINUTE. FOR BIGGER SIZES (EX. 1000X1000) 4/5 PCS. 3)3500 MODULAR MAX SPEED 5 MT. MINUTE. THE F1 MODELS WERE NOT HEAVY ENOUGH AND THE MOTORS NOT STRONG ENOUGH (NOW WE HAVE ALL EXLLECTROSPINDLES) TO GUARANTI A GOOD RESULT AT 5 MT/MINUTE. IN ANY CASE YOU KNOW THAT ALSO ON F1 MODELS SOME CUSTOMERS CHANGED THE REDUCTION GEAR TO INCREASE THE SPEED AT 5MT. AND THE RESULT WAS ACCEPTABLE. NOW IT IS EASY TO UNDERSTAND, THAT, BEING THE HORIZONTAL TRACKING SYSTEM SMOOTHER THAN THE VERTICAL, IS NOT DIFFICULT TO OBTAIN BETTER EDGING RESULTS AT HIGHER SPEED. REGARDS."

Two points of interest arise from this telex. Firstly, item 2 speaks of a transfer table capacity of 6 pieces of glass per minute, subject to size. Although it is theoretically possible for the table to handle more pieces per minute than the machines, there would be no point in its being designed to do so. Consequently item 2 may be regarded as providing some indication of the intended speed of the whole complex, considered as a whole. Six pieces per minute equates to 360 pieces per hour or 2160 pieces per six hour working day. Secondly, item 3 makes a comparison between the speed of the 3500 machines and that of the 4008 machine. In that item Ms Pallard is saying that the original 3500 machines (the F1 models) were not able to guarantee a good result at a feed speed of 5 metres per minute, but that the improved (electrospindle) models could do so. She proceeds, in effect, to represent that the 4008 machine, using a horizontal tracking system which is smoother than a vertical system, is able "to obtain better edging results at higher speed". Consequently, the telex may reasonably be understood as indicating that a 4008 machine will achieve satisfactory results at a feed speed above 5 metres per minute. That indication may be compared with the statement in the brochure, given by Mr Cornish to Mr Budai, that the feed speed ranges up to six metres per minute.
The contract
Both of Ms Pallard's telexes were passed on to Mr Budai. On 2 November 1980 he gave Mr Cornish a purchase order addressed to IGM requiring the supply to Astor of "2 x 4008 double edgers, 1 x 1 transfer, as ordered to be shipped early/mid January 1981 (details as per our letter 2/11/80)". The accompanying letter repeated the description but added references to the extras and design changes discussed at Dusseldorf. One of the required extras was a dubbing device for blunting corners of the glass sheets. The price was noted as "$US160,000 FOB (installed at ADA's cost)". The purchase order made no reference to the terms of payment.
On 4 November 1980 Mr Cornish sent to Ms Pallard a telex which included the following:

"AGAINST MY ORDER NO. 1728 PLEASE SUPPLY:

(2) TWO ONLY ADA 4008 DOUBLE EDGERS, MINIMUM GLASS SIZE, 250MM MAXIMUM GLASS SIZE 2,000MM : PLUS (1) ONE ONLY ADA TRANSFER TABLE FOR ''L'' CONFIGURATION OF MACHINE LAYOUT. COMPLETE WITH , (1) ONE ONLY DUBBING DEVICE. ALL THEIR GRINDING AND RUBBER BONDED POLISHING WHEELS- ...

DELIVERY EARLY/MID JANUARY 1981. PAYMENT BY INVOICE 120 DAYS, FROM SHIPMENT. MACHINERY IS BEING LEASED AND LETTING COMPANIES WILL NOT ESTABLISH LETTERS OF CREDIT, HOWEVER, PAYOUT WHEN MACHINERY IS INSTALLED ON CUSTOMERS FLOOR. ..."

In response to that telex Ms Pallard sent a telex to IGM which read as follows:

"ASTRO GLASS: WE CONFIRM THAT 2 ADA 4008 WITH TRANSFER TABLE WILL BE READY END APRIL 81. WE NEED YOUR CONFIRMATION BY RETURN. PAYMENT: WE ACCEPT 120 DAYS AFTER INVOICE DATE, PROVIDED THAT WE RECEIVE 30% DEPOSIT BEFORE SHIPMENT. I.E. 30% ADVANCED PAYMENT 70% 120 DAYS AFTER INVOICE DATE BY ACCEPTED DRAFT DRAWN ON LEASING COMPANY."

The evidence does not disclose any reply by IGM to that telex. The demand for a 30% advance payment was apparently left unresolved. Nonetheless, as will appear, Ms Pallard informed the ADA factory of the order. She kept it in mind. In a telex to IGM of 21 December 1980 she referred to the order, saying:

"2) 4008 DOUBLE EDGERS FOR ASTOR SYDNEY. DELIVERY END APRIL 1981 AT OUR FACTORY (PROVIDED THAT WE RECEIVE YOUR INFORMATION BY RETURN)"

The "information" referred to was apparently confirmation that an April delivery would be acceptable. Perhaps it also referred to the requirement of a 30% advance. However, for reasons which are not explained in the evidence, this confirmation was not immediately given by IGM. Mr Budai became concerned at the position. On 19 January 1981 he forwarded a telex directly to ADA, marked for the attention of Mr Gariglio and Ms Pallard, which read as follows:

"WE HAVE HELD DISCUSSIONS WITH YOUR AGENT MR. JIM CORNISH REGARDING LATE DELIVERY OF ADA DOUBLE EDGERS.

YOUR COMPANY HAS HELD OUR OFFICIAL ORDER SINCE 4/11/80 (ORDER NO 1728). EVEN THOUGH YOU ADVISE THAT ASTOR HAS DELAYED EIGHT WEEKS IN FINALISING CONFIRMATION OF VERBAL ORDER GIVEN TO YOU ON 30/9/80, WE STILL FIND IT UNBELIEVALBE YOU STILL HAVE NOT COMMENCED PRODUCTION OF THE DOUBLE EDGERS AT TODAYS DATE OF 19/1/81.

WE HAVE STRESSED TO YOU THE IMPORTANCE OF EARLY DELIVERY BASED ON SPECIFICATION DISCUSSIONS HELD WITH YOUR TECHNICIAN, NINI, AND MRS. LUCIANO PALLARD, FOR SHIPOMENT END FEB/EARLY MARCH, INCLUDING INSTALLATION VBY YOUR TECHNICIAN.

WE HAVE CONTRACTED TO ASUYPPLY CONSIDERABLE QUANTITIES OF PROCESSED GLASS IN THE FIRST HALF OF 1981 BASED ON YOUR VERBAL ADVISES TO YOUR AGENT HERE AS LATE AS DECEMBER 80, THAT YOU WILL DELIVERY FEB/MARCH '81. YOU ARE NOW ADVISING THAT THE MACHINERY MAY BVE DELIVERED EX FACTOPRY LATE APRIL '81 SUBJECT TO ASTORS COMFIRMATION OF ORDER. YOUR ACTIONS MAY CAUSE OUR COMPANY SEVERE PENALTIES FOR NON DELIVERY OF PROCESSED GLASS. WE CAN ONLY AGAIN CONFIRM TO YOU THE ORDER WHICH HAS BEEN VERBALLY GIVEN AT DUESELDORF 30/9/80 AND WHICH HAS BEEN CONFIRMED BY TLX AND OFFICIAL ORDER AT 4/11/80 WHEN WE HAVE CVONFIRMED TO YOU OUR EVERY SINGLE POINT OF AGREEMENT TO OUR VERBAL ORDER. WE CAN ONLY AGAIN CONFIRM TO YOU THAT YOU STILL HOLD OUR OFFICIAL ORDER DATED 4/11/80, AND THAT WE CONSIDER YOUR ACTIONS, INCLUDING THOSE OF ALTERING AN AGREED UPON PAYMENT TERM, TO BE TOTALLY UNBUSINESSLIKE AND DISCREDITING TO YOUR REPUTATION AS AN ITALIAN MACHINERY MANUFACTURUER AND SUPPLIER. WE AGAIN CONFIRM TO YOU TO URGENTLY COMMENCE WITH OUR ORDER, AND WE REQUEST THAT YOU URGENTLY ADVISE YR EARLIEST SHIPMENT DATE."

In reply Ms Pallard forwarded a lengthy telex:

"DEAR MR. BUDAI, WE ANSWER YOUR TLX NO. 10 OF 19.1.81. WE ARE REALLY SORRY ABT THE MISUNDERSTANDING OCCURED. DURING THE GLAS 80 WE FINALIZED OUR DEALING. YOU HAD TO CONFIRM. THE ORDER WAS AT 90$ OBTAINED BUT NOT YET OPERATING AND ONE OF THE MOST IMPORTANT POINTS WAS TO BE DECIDED: THE MAX. LENGHT OF THE BODY. ON 22/10 YOUR ASKED THROUGH IGM SOME TECHNICAL INFO WITHOUT CONFIRMING THE ORDER. ON 24.10 WE GOT ANOTHER TELEX FROM IGM SAYING ''MR. BUDAI REQUIRES ADDITIONAL INFORMATION BEFORE PLACING THE ORDER...'' FULL ANSWER WAS GIVEN ON 28/11.

ON 4/11 MR. CORNISH CONFIRMED YOUR DECISION TO BUY THE THE DOUBLE EDGERS FROM ADA. WE GAVE IMMEDIATELY THIS NEWS TO OUR FACTORY BUT AT THAT TIME, ALSO IN CONSIDERATION OF THE ORDERS RECEIVED IMMEDIATELY AFTER DUESSELDORF FOR OTHER TOUR DOUBLE EDGERS (TWO IN GERMAY, ONE IN FRANCE AND ONE IN ENGLAND), WE HAVE BEEN TOLD THAT IT WAS NO LONGER POSSIBLE TO GIVE END-JANUARY DELIVERY. WE GAVE IMMEDIATELY THE NEW DELIVERY-TIME (END APRIL) REQUIRING YOUR ACCEPTANCE TO START THE PRODUCTION. WE DIDN'T RECEIVE, NOT ONLY, BUT WE HAVE BEEN INFORMED THAT YOU HAD THE INTENTION TO CANCEL THE ORDER BECAUSE THIS LATE DELIVERY WAS NOT ACCEPTABLE. ON 9/11/81 MR. CORNISH INFORMED ONCE MORE THAT ''IF WE WANT TO HOLD THE ORDER WE MUST IMPROVE THE DELIVERY'' AND NOW YOU SAY THAT IT IS UNBELIEVABLE WE STILL NOT HAVE NOT YET COMMENCED PRODUCTION OF YOUR MACHINES........ YOU MUST UNDERSTAND THAT THESE MACHINES WILL BE PRODUCED EXPRESS FOR YOU AS IT IS NOT POSSIBLE TO GIVE YOU THE STANDARD PRODUCTION. THE TRACKING SYSTEM ITSELF MUST BE ENTERELY MODIFIED BECAUSE OF THE MIN. SIZE 250 MM. THE FRAME MUST BE SHORTED ETC, WE CAN START ONLY WHEN YOU CONFIRM THAT YOU ACCEPT OUR DELIVERY AND ENGAGE YOURSELF TO WITHDROW THESE MACHINES WHICH CANNOT BE SOLD TO OTHER PEOPLE. WE THINK TO UNDERSTAND FROM YOUR TLX THAT YOU HAVE NOT THE INTENTION NOW TO CANCEL THE ORDER. WE HAD A MEETING YESTERDAY WITH OUR FACTORY THEY ACCEPTED AFTER LONG DISCUSSIONS TO INTRODUCE THIS MACHINE IN MARCH PRODUCTION (FEBRUARY WAS REALLY IMPOSSIBLE) WE SHOULD HAVE ALL THE PARTS READY BY END OF MARCH/BEGINNING OF APRIL AND WILL DO OUR UTMOST TO COMPLETE ASSEMBLING OF MACHINES BY END APRIL/BEGINNING OF MAY. BUT IT COULD ALSO BE POSSIBLE TO BE LATE, AS THE TECHNICAL MODIFICATIONS WILL CERTAINLY GIVE SOME DIFFICULTIES TO OUR WORKERS DURING THE ASSEMBLING.

THIS IS OUR SITUATION AND WE THINK YOU WILL PERFECTLY REALIZED IT IS NOT POSSIBLE FOR US TO DO BETTER. WE ASK YOU, IF YOU INTEND TO MAINTAIN YOUR ORDER WITH US, TO CONFIRM THAT YOU ACCEPT. YOUR ANSWER MUST BE SENT BY RETURN IMMEDIATELY, OTHERWISE WE CANNOT INCLUDE YOUR MACHINE IN THE MARCH PRODUCTION. AS FAR AS PAYMENT IS CONCERNED, YOU WILL REMEMBER THAT THE FULL PRICE WAS 173,000. WE GAVE A SPECILA PRICE OF 165,000. YOU ASKED FOR 160,000 PAYMENT BY CASH THROUGH THE LEASING COMPANY. I SPOKE WITH MR GARIGLIO AND OBTAAINED 160,000 ONLY BECAUSE I COULD ASSURE THAT PAYMENT WAS 100$ BY CASH UPON DELIVERY. YOU SAY THAT WE WANT TO ALTER THE AGREED PAYMENT TERMS AND IT IS TRUE, BECAUSE WE ARE NOT INSISTING TO HAVE 100$ BY CASH BUT ACCEPT YOUR COUNTERPROPOSAL.

AWAITING YOUR DECISION BY RETURN. KINDEST REGARDS."

On 27 January 1981 Mr Cornish telexed Ms Pallard in these terms:

"RE 4008 MACHINES WITH TRANSFER TABLE FOR ASTOR GLASS IND.

MR BUDAI HAS REQUESTED ME TO CONFIRM THE ORDER FOR ABOVE MACHINES VOLTAGE 415 VOLTS 3 PHASE 5042 AND ACCEPTS THE DELIVERY DATE OF END APRIL 81. YOU SHOULD PUT MAVHINES INTO IMMEDIATE PRODUCTION AS THE LATER SHIPMENT DATE WILL MEAN INSTALLATION BY YOUT TECHNICIAN JULY / AUGUST 81.

IN REFERENCE TO TERMS OF PAYMENT YOU CAN HAVE 100 ERCENT CASH THROUGH LEASING COY. HOWEVER LEASING COYS WILL ONLY PAYOUT WHEN MACHINE IS INSTALLED ON CUSTOMERS FACTORY FLOOR. YOU WOULD OBVIOUSLY RAISE YOUR INVOICE FOR PAYMENT AGAINST 30 DAYS AFTER MACHINE INSTALLED BY YOUR TECHNICIAN OTHERWISE STATE YOUR BEST TERMS FOR MR BUDAI TO CONSIDER."

Ms Pallard replied to IGM on 29 January seeking 30% of the purchase price against shipping documents and the balance 120 days after invoice date. Mr Budai responded directly to this telex, on 30 January 1981:

"RE 4008 MACHINES PLUS TRANSFER TABLE. CONFIRMING ADVICE FROM JIM CORNISH WITH MANY THANKS.

SHIPMENT EX FACTORY LATE APRIL. PAYMENT: 30 PERCENT AT SIGHT OF SHIPPING DOCUMENTS AND 70 PERCENT AT 120 DAYS AFTER INVOICE DATE."

The problems with the machines

It is not necessary to refer to the various delays which occurred during the manufacture and shipment of the machines to Australia or to Mr Budai's complaints regarding those delays. It is enough to say that the machines were shipped from Genoa in mid-September 1981 and that they arrived in Sydney about 26 October 1981. They were taken to the new factory at Lansvale, into which Astor had moved during the previous December. Payment for the machines was made by Astor, through a New York branch of the ANZ Bank.
In November 1981 Mr Basso arrived to install the machines. A J Flick & Co had recently replaced IGM as the Australian agent of ADA. Mr Ken Frye of A J Flick met Mr Basso at that time, but there is no evidence to suggest that Mr Frye, who had technical expertise, played any part in Mr Basso's work of installation. This work was completed in a few days and the machines were commissioned.
It was not long before problems emerged. Mr Budai complained both to Mr Frye and directly to ADA. As a result of those complaints Mr Basso returned to Sydney in February 1982. He stayed for about a week, during which time he carried out work on the machines. But, after his departure, there were further problems. Mr Budai complained to Mr Frye, who informed ADA of the position.
On 13 May 1982 Mr Budai sent a lengthy telex to Mr Gariglio outlining the problems and seeking ADA's urgent advice "as we are having to undertake immediate rebuilding work on the 4008's at your expense". This telex was acknowledged, with a promise of advice on the following Monday; but there is no evidence that this promise was honoured.
Sometime in May 1982 Mr Frye set out to rectify the problems himself. According to a telex from Mr Frye to Mr Gariglio of 17 July 1982, in the period from May to that date Mr Frye and his technicians worked for about 140 hours, in attempting to overcome the problems. At an early stage of this work Mr Frye told ADA what he was doing. On 31 May 1982 he sent a telex to Mr Gariglio in which he said:

"RE: ASTOR GLASS

WE HAVE COMMENCED WORK ON THEIR MACHINE. SEVERAL FAULTS HAVE OCCURRED DUE TO POOR DESIGN IT WILL BE NECESSARY FOR US TO MANUFACTURE NEW COMPONENTS FOR ALL BRAKES. I HAVE AIRMAILED TO YOU, FAULTY UNIT WITH LETTER OF EXPLANATION.

WE TRUST YOU WILL AGREE WITH OUT ACTION AND ACCEPT COSTS FOR WORK WE CARRY OUT."

Mr Gariglio responded:

"- ASTOR GLASS

WE APOLOGIZE FOR FAULTS AND AGREE IN PAYING THE RIGHT PRICE FOR YR WORK. ALL THESE PROBLEMS HAVE BEEN CAUSED BY AN ASSOCIATED CARPENTRY WORKSHOP OF OURS WORKING ON ADA

4008. THEY HAVE SECRETLY PLOTTED FROM THE INSIDE AGAINST US SUPPORTED BY LUCIANA'S GROUP IN ORDER TO DISCREDIT OUR COMPANY WITH CUSTOMERS. NOW ALL THESE MEMBERS HAVE BEEN FIRED.

IN DUESSELDORF YOU WILL SURELY APPRECIATE THE WORK AND CARE WE HAVE SPENT FOR MANUFACTURING THE NEW MACHINES."

On 11 June 1982 Mr Frye wrote a letter to ADA outlining some of the faults in the machine. He commented that the "quality of workmanship was found to be very poor as you will see from the cylinder being returned to you". He mentioned the losses being sustained by Astor and the possibility of legal action, commenting:

"The machine has not run for one full week without a breakdown since installation and even when running cannot run faster than half speed without breakages occurring."

On that same day Mr Budai made a further complaint, this time directly to ADA. In his telex he spoke of "intolerable problems with breakdowns." He said that "each half day of non-production is costing us Italian lire 3 million and the machines are regularly out of order".
In response to those complaints ADA sent some new parts. But the problems continued. On 8 July 1982 Mr Budai sent another telex to Mr Gariglio in which he claimed:

"OVER THE LAST SIX MONTHS WE HAVE NOT HAD THREE UNINTERRUPTED DAYS OF PRODUCTION WITHOUT GLASS BREAKAGES, BRAKE FAILURES, SQUARING AND TIPPING PROBLEMS."

Mr Budai demanded that:

"ADA MUST SEND THEIR BEST TECHNICIAN TO REPAIR AND TO STAY WITH US UNTIL WE CAN RUN THE MACHINE SATISFACTORILY WITHOUT BREAKDOWN AND AT SPEEDS FOR WHICH THE 4008S WERE DESIGNED."

Mr Gariglio did not immediately accede to the request to send a technician. However, Mr Budai pressed his request and he was supported by Mr Frye. Finally, it was agreed that Mr Basso would return. He worked on the machines from 20 July 1982 to 12 August 1982. Although, on 4 August 1982, Mr Budai had complained in a telex to Mr Gariglio that Astor could obtain a satisfactory quality of polished 5mm glass only at a maximum speed of 2.5 metres per minute, Mr Budai signed at Mr Basso's request, on his departure, a certificate which contained the text:

"We agree with the test and inspection carried out by your technician and declare that the machine works properly. We carefully looked into all operations related to a proper use and maintenance of the machine."

The evidence establishes that, whether or not the machines were working properly on 12 August 1982, the problems continued. They were tackled by D H Swayn, a consultant mechanical engineer and fitter who was employed in that capacity upon a regular basis by Astor. Although Mr Budai informed Mr Frye of his continuing problems, he ceased, for a time, to complain directly to ADA.
Early in 1984 Mr Budai retained Planner West Pty Ltd, consulting chartered engineers, to advise on the machines. They prepared a report, in which they recommended certain rectification work. In May 1984 H M Dawkins, a qualified fitter and turner with long experience in connection with machinery, commenced employment with Astor as its Works Manager. He set about a complete appraisal of the 4008 machines.
On 20 June 1984 Astor's solicitors sent a copy of this report to ADA under cover of a letter in which they stated that the cost of rectification would be in the order of $30,000-$60,000. ADA did not respond directly but Mr Gariglio sent a telex to Mr Frye in which he said:

"I JUST RECEIVED THE TECHNICAL REPORT AND THE SOLICITORS LETTER CONCERNING ASTOR GLASS. FROM A VERY ROUGH READING AND ANALYSIS, I DO NOT INTEND TO TAKE THE RESPONSABILITY (AFTER 4 YEARS) IN THE TERMS IN WHICH IT HAS BEEN DRAWN BY MR. BUDAI.

NEVERTHELESS I A READY TO COOPERATE WITH MR. BUDAI TO OVERCOME HIS PROBLEMS. ON MY OPINION, THE AMOUNT OF MONEY REQUESTED (BUDGET) FOR THE RECTIFICATION OF THE PLANT IS EXAGGERATED. IT IS POSSIBLE THAT, AFTER A DEEP TECHN. ANALYSIS FRON ADA'S SIDE, BASED ON THE TECHN. REPORT, THIS AMOUNT OF MONEY CAN BE REDUCED TO MORE REASONABLE TERMS."

Mr Frye had a meeting with Astor Glass following which he wrote two letters to Mr Gariglio. A copy of the first letter was sent to Astor. In that letter Mr Frye said:

"As you are aware, these machines have not operated satisfactorily from the time when they were first installed. Astor Glass has been forced to commence this work without your approval as these machines play a critical role in the operation of the company and with an upturn in orders Astor Glass would be in a vulnerable position without these machines operating efficiently."

In his other letter, not sent to Astor, Mr Frye elaborated his views:

"I personally feel that Astor Glass are warranted in making a claim against ADA or the manufacturers of the machines as it is not a good design. I should like to make the following points:

K.J. Frye

(a)The brake and spring system requires constant adjustment.

(b)The transfer table is badly designed and does not pick up the glass and present it to the second machine with repetitive accuracy. A major contributor to this problem is water. It would appear that the transfer table would work well with products presented dry. However, this is not the case when used with the ADA double edger.

(c)The squareing (sic) device causes many problems and allows glass to go into the machine out of square. ...

Do you think it is the right time to involve other parties who were involved in the manufacture of these machines? If compensation is to be paid then it does not seem fair that the burden should rest entirely with ADA.

I should also point out that neither I nor my staff have been called to service these machines for at least one year and I therefore cannot give an accurate assessment of the current condition of the machine nor of the work that has been carried out in that period."

Mr Gariglio suggested to Mr Frye, in response, that Mr Budai be invited to attend the 1984 Dusseldorf Fair to see the improvements on the latest 4008 machines. It is not surprising to find that Mr Frye reported back to Mr Gariglio that Mr Budai was not interested in this proposal, but sought compensation. No compensation being forthcoming, this action was commenced on 27 May 1985.
The applicants' claims
In their Amended Statement of Claim, the applicants relied upon six causes of action. However, two causes of action were abandoned during the course of the trial, so that only four causes of action remain for consideration: alleged breaches of ss.52 and 53 of the Trade Practices Act 1974, the making of negligent misrepresentations, breach of the condition of fitness implied by s.19(1) of the Sale of Goods Act (NSW) 1923 and breach of the condition of merchantable quality implied by s.19(2) of that Act.
The first two of these causes of action may be disposed of shortly. Section 82 of the Trade Practices Act permits the bringing of an action for damages for breach of a provision of Part V of the Act -- which Part contains both ss.52 and 53 -- at any time within three years after the date on which the cause of action occurred. The subject machines were installed in November 1981 and problems occasioning losses occurred almost immediately thereafter. Upon the applicants' own case the machines never performed in accordance with the representations upon which they rely for their Trade Practices Act claims. The respondent has pleaded that the claims made under ss.52 and 53 of that Act are barred by s.82. Although the applicants made no concession, their counsel put no submissions to the contrary. I think that the respondent's reliance upon s.82 is well-founded. The Trade Practices Act claims must fail.
The representations relied upon in connection with the second cause of action were the representations allegedly made to Mr Budai by Mr Cornish prior to the two men travelling to Europe and the representations contained in the telexes sent by ADA to Mr Cornish -- and passed on by him to Mr Budai -- immediately before Mr Budai's decision to purchase the machines. All of these alleged representations related to the performance characteristics of 4008 series machines; in particular its speed of satisfactory operation.

The machines supplied by ADA to Astor were seriously defective. In their affidavits read at the hearing, Mr Dawkins and Mr Swayn set out in detail the problems which they encountered. Although Mr Basso gave evidence suggesting the theoretical impossibility or unlikelihood of some of these problems occurring, I accept the evidence of Mr Dawkins and Mr Swayn that they did in fact occur. Under cross-examination both men proved to be impressive witnesses, with a profound knowledge of the machines and their performance, but fair in their approach and ready to concede the occasional point where a complaint had been put too high. In relation to some repair items Mr Dawkins readily conceded that a cost which had been claimed might have been incurred in any event; as, for example, because of ordinary wear and tear. By contrast, I found the evidence of Mr Basso unsatisfactory. There is no reason to doubt his basic honesty and truthfulness, but Mr Basso was very defensive in manner. Perhaps because he was the sole ADA employee to give evidence, Mr Basso was inclined to argue the case, rather than to report his actions and observations. Upon a number of occasions I felt that his answers were less complete than they might have been.
Furthermore, the evidence of Mr Dawkins and Mr Swayn receives powerful support from Mr Frye. I have already quoted some of his communications to ADA, in 1982 and 1984, in which he made clear his view that the machines were seriously defective. Although, in his affidavit, he sought to play down his involvement in the problems of the machine, under cross-examination Mr Frye affirmed his previous criticisms. It is sufficient to quote the following portion of his evidence:

Q "You had spent some hundreds of hours yourself - I do not necessarily mean you personally, your organisation - in trying to get these machines operational?" A "Up until the period round about July 1982, yes."

Q "And that was an inordinate amount of time to spend on machines in such new condition, was it not?" A "Yes."

Q "And that was because there was a host of problems with the machines?" A "Yes."

Q "And as soon as one was attended to some other problem would present itself?" A "Correct."

Q "And that would operate one on the other, that is right?"

A "Yes."

Q "It was a highly complicated technical problem trying to cope with it?" A "Yes."

Q "You in fact regarded the workmanship on this machine as poor workmanship; did not you?"

A "I did not make that statement." Q "Did not you? Do you wish to reflect on that answer please? Do you want to reflect on that answer?" A "Okay."

Q "You regarded the workmanship on this machine as poor; did not you?" A "I made that comment." Q "Yes, and that comment expressed your genuinely held opinion of its workmanship; did not it?" A "It applied to certain aspects of the machine."

Q "The braking mechanism?" A "Yes."

Q "That is a vital part of the machine; is not it?"

A "Yes."

Q "That was the part that was giving so much trouble to the operation of the machine; was not it?"

A "Yes."

Q "So a pretty serious observation; was not it?"

A "Yes."

Q "Proper for you to pass on to your principal?"

A "Yes."

Q "You also formed the view that it was a machine that was poorly designed; did not you?"

A "Yes."

Q "And you passed on that observation to your principal?"

A "Yes."

Q "And you are aware that your principal accepted those criticisms and apologised for the faults; did not they?" A "Yes."

Q "They explained the faults as simply being the result of some sabotage or other within their own organisation?" A "That is correct."

Q "You had no reason to disbelieve that description; did you?" A "No."

Finally, the telex of 3 June 1982 from Mr Gariglio to Mr Frye, in which he apologised for faults, agreed to pay the expenses of rectification and blamed saboteurs in the carpentry shop, is a damning admission of defects.
In the end, there was no live issue upon the matter of defects. Counsel for the respondent did not contend that the applicant's case should be rejected on that basis.
In relation to speed, the matter is less clear-cut, but I am satisfied that the machines did not perform in accordance with the pre-sale representations. There was an issue as to what representations were made, but it seems to me to be clear that ADA represented that the 4008 machine would satisfactorily grind and polish glass as thin as 3 mm and as thick as 19 mm and, except at the extremities of thickness, at a feed speed of not less than the rate of five metres per minute achieved by the improved 3500 machine.
I reach that conclusion for a number of reasons. In the first place, as I have said, I was impressed with Mr Budai. I had the opportunity of observing him in the witness box over a period of some days. He is an intelligent and cautious man. It is clear that he went into the matter of choosing a double edger machine very thoroughly, even to the extent of making a special trip to Europe for that purpose. It was an expensive purchase. He did not rush his decision, preferring to come back to Australia and consider the matter further, notwithstanding that he had been impressed by what he saw at Dusseldorf and the satisfactory terms he had negotiated. Even then, he sought reassurance from Mr Cornish on key points, including feed speed. The telex of 29 October 1980 is of considerable importance. It clearly demonstrates that Mr Budai was concerned about feed speed. He knew the capabilities of the 3500 machine, which apparently sold at about one third the cost of a 4008 machine. He was looking for an assurance that the 4008 machine would outperform the 3500 machine, and an explanation as to why this would be possible. He received both.
The respondent's case was that, although the 4008 machine would actually run at a feed speed of up to six metres per minute, Mr Budai must have realised that he would not obtain a satisfactory result at a speed as high as five metres per minute. It is true that Mr Budai conceded that he understood that the machine must be operated at below its maximum speed when grinding very thin or very thick glass. But Astor's "bread and butter" work involved glass about 5 mm thick. Mr Budai was looking for a machine that would do that work at a speed higher than that achievable by the 3500 machine. And, he wanted the machine for both grinding and polishing, not merely grinding. The fact that polishing was a major component of Astor's work was made known to Mr Cornish, Mr Gariglio and Ms Pallard by the list of orders which he showed to them. There is no evidence that, in any discussion about throughput, any ADA representative ever made a distinction between the achievable speed for grinding alone and that for both grinding and polishing. No such distinction was made in the telex of 29 October.
In accepting Mr Budai's evidence as to the oral negotiations, I am fortified by the fact that ADA placed no evidence before the Court from either Mr Cornish or Ms Pallard. Apparently neither of these persons has a continuing association with ADA, but there is no evidence to suggest that either is unavailable. No explanation has been given for their absence. In the case of Mr Gariglio an affidavit was read. In this affidavit Mr Gariglio stated that he recalled meeting Mr Budai at about the time of the 1980 Dusseldorf Fair. He thought they met in Turin. He said that he had no recollection of having any conversation with Mr Budai at that time. He denied that Mr Budai showed him a schedule setting out details of Astor's business or that he otherwise conveyed information upon that matter. He denied any conversation with Mr Budai regarding the purchase of the 4008 machine or that he has ever said to anyone that the 4008 machine was capable of achieving a high polish finish at a speed of five metres per minute, or anything like it.
Unfortunately, according to a statement made from the bar table by counsel for the respondent, Mr Gariglio is not in good health. It was thought undesirable for him to travel to Australia for the purpose of giving evidence. Accordingly, an agreement was reached between counsel permitting the reading of the affidavit without cross-examination; but, of course, without any concession thereby being made by the applicants.
It is never a happy position for a judge to have to choose between contradictory versions of particular events without seeing and hearing each of the persons deposing to those versions. But, in the present case, the factors supporting Mr Budai's version are so substantial that I feel confident in accepting it, notwithstanding Mr Gariglio's affidavit. Mr Gariglio admits having met Mr Budai. He does not deny that he was present at Dusseldorf, where the 4008 machine was being demonstrated. Having regard to Mr Budai's personality and his almost obsessive desire for reassurance about the purchase, it is to me inconceivable that he would not have engaged Mr Gariglio in substantive discussion about the 4008 machine. In not accepting Mr Gariglio's denials, I do not suggest that Mr Gariglio is intending to deceive the Court. No doubt he has had numerous conversations with potential customers over the years. It would not be surprising if he could not recall a particular conversation nearly nine years ago. By way of contrast, the transaction was more important to Mr Budai and quite different from any other transaction in which he has engaged.
However, my acceptance of the applicant's case regarding the making of representations does not mean that the negligent misrepresentation claim succeeds. The misrepresentations related to the capabilities of 4008 series machines generally. That case is only made out if it is shown that, as a class, 4008 machines lacked the relevant capabilities. That fact cannot be established merely by proof that a particular member of the class lacked the requisite capabilities. Depending upon the nature of the deficiency, there may be an explanation peculiar to that particular machine. In the present case there is no evidence to establish that the machines supplied by ADA to Astor Glass were typical of all 4008 machines. On the contrary, there are reasons for believing they were not. The design embodied in the machines demonstrated at Dusseldorf was modified in several respects in the manufacture of the machines supplied to Astor. These modifications, or some of them, may have played a part in the problems which Astor experienced. The Dusseldorf machines were satisfactory to Mr Budai. They apparently achieved the represented capabilities; thus it would appear the basic design of the 4008 machine was not inconsistent with the achievement of those capabilities.
The contemporaneous documents contain two indications that the problems experienced by Astor were unusual. Mr Frye reported that, after some initial problems, the 4008 machines purchased by Pilkington-ACI, of Melbourne, were operating satisfactorily. Secondly, there is Mr Gariglio's suggestion that the particular machines supplied to Astor had been affected by industrial sabotage. Although this suggestion is not proven, Mr Frye thought it to be not inconsistent with his observations of the machines.
Counsel for the applicants recognise their problem in connection with the negligent misrepresentation claim. But they point out that there is evidence to suggest that the Astor machines were the first, or amongst the first, 4008 machines to be wholly or substantially manufactured by ADA itself. The earlier 4008 machines had apparently been manufactured by others on ADA's behalf; although they may have been assembled by ADA itself. Counsel say that while the representations about the earlier 4008 machines may have been justified, those about the machines subsequently manufactured by ADA itself were not.
This submission must be rejected. Not only is it not shown that the Astor machines were typical of the more limited class of machines answering the description of ADA manufactured 4008 machines, it appears that they were not. Furthermore, if the fundamental design of the machine was satisfactory, and was capable of providing a working machine with the represented capabilities, there is no proved reason to regard ADA as negligent in representing that any 4008 machines which it might manufacture would have those same characteristics. The business conducted by ADA had been founded in 1951. By 1980 ADA had become one of the leading manufacturers of glass processing equipment in the world. Whatever the deficiencies in the machines supplied to Astor, there is no basis for a finding that the fact that the machines were to be manufactured by ADA itself, rather than by a contractor on its behalf, made the representations to Astor negligent.
The Sale of Goods Act claims: generally
Section 19(1) and (2) of the Sale of Goods Act (NSW) provide:

"19. Subject to the provisions of this Act, and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows--

(1)Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.

(2)Where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed."

If these sub-sections apply to the subject transaction, breaches of the conditions implied by each of them are proved. In relation to subs.(1), I accept Mr Budai's evidence that he made known to Mr Cornish, Mr Gariglio and Ms Pallard the purpose for which the relevant goods were required. I understand the word "purpose" as embracing not merely the function of the machines -- grinding and polishing glass -- but also its capacity to do so, except at the specified limits of thinness and thickness, at a feed speed of not less than five metres per minute. In connection with that matter, I need do no more than to refer back to my findings regarding the making of the representations.
As to the other elements in s.19(1), it is conceded that the subject goods are goods of a description which it is in the course of ADA's business to supply and that Mr Budai made known to ADA his reliance upon ADA's skill and judgment. I have already found that the goods were not reasonably fit for the purposes conveyed by Mr Budai to the ADA representatives.
As regards s.19(2), the goods were bought by description -- see the purchase order -- from a seller who dealt in goods of that description and they were not of merchantable quality. Mr Swayn gave evidence, which was not challenged, that the machine was not "fit for commercial production of processed glass" at the time of installation.
The application of the Sale of Goods Act to the transaction
The only real issue which arises in connection with the s.19 claims is whether the Sale of Goods Act applies to the transaction. The applicants so contend; but the respondent suggests that the proper law of the contract is Italian law. If Italian law governs the contract, the New South Wales Act is, of course, inapplicable. According to the position agreed by counsel, under Italian law any claim made by Astor against ADA must fail, the right of action having been extinguished by the effluxion of time.
It is clear upon the authorities, and it is common ground between the parties, that the choice of law question does not depend solely upon the question of where the contract was made. But it is equally clear, and accepted by the parties, that the place of contract is an element in the choice of law question. As the parties are in dispute about the place of contract, it is desirable to deal first with that matter.
The case pleaded by the respondent in its Defence was that there was no contract between the applicants and the respondent, that the applicants agreed to purchase the machines from IGM and not from the respondent. In the particulars of the Defence which they supplied the solicitors for ADA denied that IGM was the agent of ADA. They stated that "(b)y arrangement between the parties and IGM, the Respondent delivered directly to the Applicants, in performance of the Respondent's obligation to sell to IGM". Upon this case, of course, there was no question of the contract being made in Italy. Upon that case the offer contained in the purchase order delivered by Astor to IGM was accepted, in some way which is not disclosed by the evidence, by IGM in Australia.
During the course of the trial ADA adopted a different position. By its counsel, ADA formally admitted that a contract was created between it and Astor. This contract was said to have been made directly between the parties. Counsel denies that IGM was the agent of ADA for this purpose. However, counsel did accept that IGM was an agent for some purposes, saying "that to speak of Mr Cornish as an agent is only proper in the sense that he passed communications from one party to the other and back again". In their submissions, counsel for ADA used the word "conduit" to describe Mr Cornish's role.
I do not think that Mr Cornish may be dismissed as a mere conduit. Astor had dealt with Mr Cornish over a number of years before October 1980, ordering directly from him (that is, from IGM) a variety of goods, including the two 3500 machines. One of the two 3500 machines was imported from Italy pursuant to an order given to IGM. The evidence includes a number of invoices, bearing dates in the years 1980 and 1981, by which IGM claimed from ADA commission at 15% on sales of various items to customers in Australia and New Zealand. Those items included two rectilinear machines sold for $US 30,000 each. The invoices suggest a practice whereunder sales of equipment were made by IGM on behalf of ADA upon the basis that IGM would be remunerated by the payment of a commission.
It appears that in mid-1981 Mr Cornish became upset about the fact that Mr Frye had supplied some ADA parts to persons in Australia. Although his telex is not in evidence, it appears that Mr Cornish complained to Mr Gariglio. On 19 June 1981 Mr Gariglio wrote a letter in response. In that letter, which he described as an "opportunity to resume the whole matter of our relationship", Mr Gariglio said this:

"After your financial trouble, I found myself in an emergency situation, having to face the problem to further guarantee ADA presence on the Australian market to avoid that the after sale service could became (sic) a reason of upsetting customers with the consequent damage to the commercial image of my Company. I therefore accepted to supply customers directly with spare parts, including Mr. Ken Frye.

However a fair way of dealing towards you, has always been the object of my action and a commission has been reserved to you on each transaction ... "

This letter suggests that the course adopted by ADA and IGM, before the recent direct supply by ADA, had been that ADA sales in Australia were made by IGM on ADA's behalf. IGM was what Mr Gariglio called the "ADA presence on the Australian market".

The respondent had ample notice that Astor would contend that IGM effected the sale as agent for ADA; yet, as I have mentioned, Mr Cornish gave no evidence and Mr Gariglio did not deal with this question. Under the circumstances it may be assumed that neither man would have been able to give evidence to rebut the applicants' case that Mr Cornish had authority to contract on ADA's behalf or to support the "conduit" argument: see Jones v Dunkel (1958) 101 CLR 298. I think that the proper inference is that Mr Cornish had authority to contract on behalf of ADA.
As I have indicated, the evidence establishes that Astor lodged its order for the subject machines with IGM. The evidence does not establish any response. There is no evidence of an act of acceptance. But Mr Cornish did pass on the order to ADA. It is apparent from Mr Budai's telex of 19 January 1981 to ADA that he believed that he had made a firm agreement for the purchase of the machines. So it is reasonable to assume that something was said to him by Mr Cornish to indicate that his order was accepted. Moreover, the IGM order to ADA of 4 November 1980 deals with terms of payment, a matter upon which the Astor purchase order was silent. It is inconceivable that Mr Cornish selected these terms unilaterally. The terms must have been discussed between Mr Budai and Mr Cornish at the time. I think that the proper inference is that the telex of 4 December 1980 from IGM to ADA set out the terms of the agreement negotiated between Mr Cornish and Mr Budai. Those terms are complete upon their face and, if it be correct to say that IGM had authority to contract on behalf of ADA, the contract was made in New South Wales between Mr Budai on behalf of Astor and Mr Cornish on behalf of ADA. It is true that a difficulty immediately arose, in that one of the terms which had been accepted by Mr Cornish -- as to delivery date, and perhaps also as to terms of payment -- was not acceptable to Ms Pallard. This fact had practical ramifications, occasioning some delay and forcing Mr Budai, if he wanted the transaction to proceed smoothly, to accept modifications of the agreed terms. But, if a binding contract had been made between Mr Budai and Mr Cornish on about 4 November 1980, these subsequent events do not derogate from that fact.
An alternative view is that, whether for lack of authority or for lack of consensus as to terms, no binding agreement was made between Mr Budai and Mr Cornish in early November 1980. This is the respondent's current position. Upon that view, it is necessary to consider the subsequent communication in order to determine the point at which negotiation ripened into contract.
Upon the view of the facts now under consideration the parties remained in negotiation until late January 1981. The telex of 21 January asked Mr Budai to confirm that he accepted the term that delivery be at the end of April. This was the only matter left outstanding; Ms Pollard expressly accepted what she called Mr Budai's "counterproposal" in relation to terms of payment. As already indicated, Mr Cornish notified Mr Budai's acceptance of the April delivery date on 27 January. Thus there was a contract by that date, if not earlier. The last step in the sequence of offer, counter-offer, etc, if Mr Cornish had authority to contract on behalf of ADA, was Mr Budai's notification to Mr Cornish, in Australia, of his acceptance of the April delivery date. On that view the contract was made in New South Wales. If Mr Cornish had no such authority but was a mere conduit for negotiations, the last step was the communication of Mr Budai's acceptance of the delivery date by Mr Cornish to Ms Pallard on 27 January. However, on that view Mr Cornish was, as the respondent contends, a mere conduit or "post box"; so it is difficult to see why the contract should not be regarded as having been made when the acceptance was despatched by Mr Budai through Mr Cornish, in the same way as if Mr Budai had posted a letter at the post office. If that analysis be correct, once again the contract was made in New South Wales.
In their submission counsel for ADA contend that the contract came into existence upon the receipt by ADA of Mr Budai's telex. I do not agree that this is so, since all the terms were settled by the time of Mr Cornish's telex of 27 January. But it makes no difference. If Mr Cornish had authority to bind ADA contractually, the contract was made in New South Wales, whether about 4 November 1980 or about 27 January. If Mr Cornish had no such authority and if the "post box" analogy is inappropriate, the contract was made in Italy upon the receipt by ADA either of Mr Cornish's telex of 27 January or Mr Budai's telex of 30 January.
For the reasons I have given, I am of the opinion that Mr Cornish did have authority to bind ADA, so that the contract should be regarded as having been made in New South Wales.
The place of contract is not, of itself, decisive of the question whether New South Wales law governs the contract. The relevant principles are stated by Dicey and Morris in a series of propositions which are set out at p 1161 of their work "The Conflict of Laws" (11th edition). The fundamental principle is that contained in the learned authors' Rule 180:

"The term 'proper law of a contract' means the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection."

In determining the system of law with which the transaction has its closest and most real connection, the Court must look at the situation objectively, free of any preference towards its own law or distaste for any perceived harshness in the law of another country. At one time major emphasis was placed upon the place of contract, to the point where courts sometimes spoke of a "presumption" that the law of the place of contract would govern rights and obligations under the contract: see, for example, Mount Albert Borough Council v Australasian Temperance and General Mutual Life Assurance Society (1938) AC 224 at p 240. But, more recently, the place of contract has been seen as merely one of a number of factors to be considered in determining the proper choice of law. The modern rule was expressed by Jenkins LJ in In re United Railways of The Havana and Regla Warehouses Ltd (1960) Ch 52 at p 91:

"... many matters have to be taken into consideration. Of these, the principal are the place of contracting, the place of performance, the places of residence or business of the parties respectively, and the nature and subject-matter of the contract..."

In the present case some of the relevant factors cancel each other out. The applicants are Australian companies; ADA is an Italian company. The negotiations were carried out in three different countries: Australia, Italy and Germany. The German discussions were particularly important. It was in Dusseldorf that Mr Budai first saw 4008 machines in operation. It was there that the price and other important terms were settled. If it is necessary to compare the negotiations in Australia and in Italy, the discussions in Australia were much more significant than those in Italy. In their initial discussions in Australia, before the trip to Europe, Mr Cornish interested Mr Budai in these particular machines. In final discussions, after their return, the two men agreed on the outstanding terms of the contract. By contrast, the discussions in Italy were mainly involved in the obtaining of more detailed information about performance.
If, contrary to my own opinion, it is correct to say that the contract was made in Italy, this is the result of a fortuitous application of a technical rule. A contract which is brought into existence by an acceptance communicated by telex is deemed to be made at the place at which the telex was received: see Brinkibon Ltd v Stahag Stahl Und Stahlwarenhandelsgesellschaft m b H (1983) 2 AC 34. If the information contained in Mr Cornish's telex of 27 January 1981 -- or, upon another view of the situation, in Mr Budai's telex of 30 January -- had been conveyed by letter, it would be clear beyond contest that the contract was made in New South Wales; this being the place of posting of the letter. Upon such subtleties does the place of contract depend, under modern methods of communications. As Lord Wilberforce said in Brinkibon at p 40 the "answer", as to place of contract, "may be difficult to find" and artificial in result. As his Lordship observed, in relation to negotiations by telephone, at p 40: "if one asked the parties" the place of contract "they might say they did not know -- or care. The place of making a contract is usually irrelevant as regards validity, or interpretation, or enforcement". Even if it be correct to say that the contract was made in Italy, this is a factor which cannot be given much weight in the present case.
To my mind the most important factor in the present case is the place of performance. Counsel for the respondent claim that this factor favours their client. The goods were to be shipped FOB Italy; so property was to pass when the goods were delivered to the ship at Genoa. But the applicants point out that the terms of the contract required ADA to install the machine in the premises of Astor in Sydney. Although the goods were to travel from Genoa to Sydney at the risk of Astor or of its insurer, it was intended that ADA's performance would extend to installation. Accordingly, the applicants say, the place of ultimate performance of the contract by ADA was New South Wales. (In relation to the other aspect of performance, payment, there is no available argument either way. The contract provided for payment, in American dollars, at an unspecified place. As it happens, payment was made in a third country, the United States.)
I think that the applicants' argument regarding place of performance must be accepted. The installation of the machines by ADA was of critical importance. Without installation, of course, the machines were useless; and Astor lacked the expertise to install the machines itself.
In the present case, in which other relevant factors tend to cancel each other out, I think that the place of performance ought to be regarded as decisive, even to the point of outweighing, if necessary, the place of contract. If the place of contract was indeed Italy, this is a technical result having nothing to do with the intention of the parties and little to do with its substance; whereas the requirement that ADA install the machines was both intended and of significant importance.
It follows, in my judgment, that New South Wales law governs the contract. The Sale of Goods Act (NSW) applies. The claims made by Astor pursuant to s.19 of that Act succeed.
Damages
The damages claimed by Astor fall into two broad categories: expenses actually incurred and foregone income. In relation to each category Astor claims pre-judgment interest. This claim is not made under s.51A of the Federal Court of Australia Act 1976. Because of the date when the causes of action arose that provision is inapplicable. The claim is made pursuant to the principle applied by the High Court of Australia in Hungerfords v Walker (1989) 63 ALJR 210 wherein it was held that, in awarding damages at common law for breach of contract, a court may include a sum representing the interest lost, or paid, by the plaintiff as a consequence of that breach. In the present case there is evidence that, at all material times, Astor used loan funds, supplied by various lenders, to supplement its capital resources. During most of the time Astor held some moneys in reserve -- in quickly realisable securities such as interest bearing deposits -- for its day to day needs. To the extent that the deficiencies in the subject machines added to Astor's outgoings or reduced its income, they served either to reduce the partnership's reserves or to increase its borrowings. Whichever position applied at a particular time -- either a loss of income or an increase in outgoings -- the result was to reduce the profits, or to increase the losses, of Astor for the relevant period. In principle it is appropriate to take interest into account in the computation of damages.
Detailed evidence was placed before the Court as to the rates of interest which were paid by Astor from time to time and the return to it upon its short term investments. To calculate the actual loss at particular times over six years would be an extremely complex task. Sometimes the loss took the form of increased outgoings, for interest payments; sometimes of foregone interest on investments. In an endeavour to simplify the calculation, counsel have assumed that all losses were in the form of lost income. This is a conservative approach. The evidence shows that, on average, during relevant years the return to Astor on its investments equalled 81.38% of the rate of interest paid by it. This percentage was applied so as to ascertain an appropriate rate of interest in any particular year. The calculation disregards interest during the year of actual expenditure, taking its starting point on the following 1 July, but compounding in subsequent years.
No challenge has been made to the applicants' approach to interest. It seems reasonable to me and I propose to apply it.
The details of the direct costs claimed by the applicant are set out in ex BQ. The respondent does not concede that any of the expenses stemmed from deficiencies in the machine but I reject that position. The general issue is covered in Mr Dawkin's evidence, which I accept. Some particular items were abandoned during the hearing and there remain a few particular items upon which a ruling is required. I will deal with them shortly, omitting reference to those items which are not the subject of particular submissions by the respondent.
Item 2 in ex BQ relates to polishing mechanism. The claim for moneys paid to Chapman Hydraulics ($1,730) was abandoned during the hearing, reducing the total of this item to $2,143, which I allow.
Item 4 claims $14,381.50 for rectifying the dubbing device. The evidence is that the original dubbing device never worked. It is true, as the respondent points out, that this work was not done until 1988-89. But I do not find that a reason to disallow the claim, which involved making good a non-obvious defect in the machine as supplied. Any increase in the cost of rectification occasioned by the delay and inflation is very likely to have been offset by interest saved. I allow this item in full.
Item 5 is a claim for $11,860 for work on the transfer table. During the hearing the applicants conceded that $200 should be deducted. The respondent objects to the remainder upon the basis that the purpose of the work was to improve, rather than to rectify, the transfer table, principally by providing an independent speed control device. But the evidence shows that the lack of such a device caused substantial problems militating against the capacity of the machine to perform satisfactorily. Although this was a design improvement, it was one which was necessary to obtain a reasonable result. I allow the remaining $11,660 of the claim.
Item 8 relates to the installation of a Vernier Scale ($2728). This was a design improvement, but in relation to a limitation which was obvious to Mr Budai upon inspection in Dusseldorf. I uphold the respondent's submission and disallow this item.
Item 10, track pads, amounts to $5,026. Of this $813 is not pressed. The remaining $4,213 is not the subject of particular submissions and is allowed.
Item 11, track guide rods, is not pressed by the applicant. It is disallowed.
The respondent objects to four invoices, totalling $988, in item 13 relating to polishing motor brakes. The invoices are all dated 1985 and 1986 and they referred to "general maintenance". Mr Dawkins was unable to say that these involved remedial work. They should be disallowed, reducing this item to $1,049.
Item 14 relates to clamping belt rollers and clamping belt roller bearings. The applicants do not press one invoice of $44. The respondent says that the whole item should be disallowed as general maintenance. But, although Mr Dawkins conceded that maintenance was involved, this was because of a design fault which was not obvious to a person in the position of Mr Budai. I think that the remainder of the item, $4,349, should be allowed.
Item 23 involves electrical cabling, $1,707. The respondent objects to this upon the basis that the installed cabling did not impede the operation of the machine. But Mr Dawkins' evidence was that the cabling was replaced because it was substandard in quality. I think that the claim should be allowed.
Finally, item 24 deals with production improvement investigation, $14,746. The applicant does not press one invoice ($512) from Cravino; but the respondent objects to all of the Cravino accounts upon the basis that, as it turned out, the overhaul of the motors at Christmas 1984 did not succeed in eliminating a fault (vibration) then being investigated. But there was a vibration problem. It is not suggested that Astor acted unreasonably in overhauling the motors in an attempt to eliminate that problem. The remainder of the account should be allowed.
The modifications to the claim mentioned above require some revision of the interest claim. I set out in summary form the amounts allowed for direct costs on each item and the interest thereon:

Item Item Amount Interest No Allowed $ $ 2 Polishing mechanism 2,143 1,339 3 Poor squaring 6,474 4,769 4 Dubbing device 14,382 702 5 Transfer table 11,660 6,405 8 Vernier Scale nil nil 10 Track pads 4,213 2,887 11 Track guide rods nil nil 12 Polishing motor brakes 1,049 1,166 14 Clamping belt rollers

and bearings 4,349 2,874 17 Water troughs 3,994 2,708 23 Electrical cabling 1,707 800 24 Production improvement

investigations 14,234 9,069 TOTALS 64,205 32,719

In addition to direct costs the applicants claim sums of $22,137 for excessive glass wastage, $95,732 for additional wages costs and $21,162 for overtime payments; all caused by the problems of the machines. These figures are accepted by the respondent, which however puts some submissions in connection with the items. The calculation of excessive wastage depends upon an assumption that normal wastage would be not more than 0.5%. The respondent says that this fact is not proved. But the evidence is that normal wastage on the 3500 machines is even lower than 0.5%. As Astor has never operated a "normal" 4008 machine, it has no experience of the normal wastage of that machine; but, of course, ADA does. I think that the applicants' approach is reasonable and that it is significant that it was not contradicted by evidence on behalf of the respondent. I allow the claim for excessive wastage, together with interest thereon of $14,192.

The claim for additional wages relates to the calendar year 1985, it being contended that, if the 4008 machines had operated satisfactorily, the number of persons employed at that time could have been reduced by three. The evidence on this point is most unsatisfactory, no analysis of this specific period having been offered. But, in any event and for reasons which I will elaborate, I am of the opinion that Astor was under a duty by 1 July 1984 to mitigate its damage by replacing the machines, if recurring losses were still being suffered. I reject this claim.
The overtime claim extends over the two years from 1 July 1983 to 30 June 1985. It includes the cost of all overtime worked during this period, after allowing a "normal" rate of 1000 hours per six months. This course is said to be warranted by the fact that the purpose of the 4008 machines was to increase production so that overtime would substantially be eliminated.
For the reasons I have indicated, I am not prepared to allow overtime worked after 30 June 1984. As to the year from 1 July 1983 to 30 June 1984, it seems reasonable to assume that the poor production rate achieved by the 4008 machines did significantly affect the volume of overtime. The total overtime worked in this period was 3,707 hours. The effect of the claim is to attribute 1,707 hours to the poor performance of the 4008 machines. In an area where precision is impossible, this seems to be a reasonable approach. I will allow the claim for this period, $10,161, together with interest thereon of $9,011.
The most significant item in connection with damages is the applicants' claim for loss of income. This claim is based upon the thesis that two 4008 machines, linked together with a transfer table, would have yielded Astor substantial costs savings, as compared with the position at the time of purchase when the equivalent operations were effected by the 3500 machines. Although there is room for some argument as to the precise extent to which the 4008 machines would result in a saving of labour, there is no question that, with these machines operating at full capacity and at a feed speed of five metres per minute, the 4008 series machines would process several times more glass than the 3500 machines, but with less labour. Clearly, the unit cost of processing would be lower.
Mr J W Bracher, an accountant with considerable experience in loss assessment, made a calculation of the loss of income resulting from the shortfall in performance of the machines, taking the difference between what Mr Budai says was represented to him and what was achieved in practice. He took as the higher figure in the comparison a production rate of 2,000 saleable pieces per day. This figure assumes an output of six pieces per minute -- the rate which the transfer table was designed to handle -- for eight hours per day, but with 30% down time. I note that the figure of 2,000 pieces compares with Mr Budai's, admittedly incorrect, 1980 calculation of 1,500 pieces per day. It compares also with the total of 1,112 pieces shown as that required for a typical week in the list of customer orders which Mr Budai showed to Mr Cornish, Mr Gariglio and Ms Pallard whilst he was en route to, or in, Europe; and as to which the opinion was expressed that the order might be handled by one machine. Upon the basis of two machines, the list figure is the equivalent of 2,224 pieces per day. Expressed in square metres, the list required 1,379 square metres per week. If that figure be doubled, to take into account a second machine, and divided by five to obtain a daily figure, the result is 551 square metres per day. Mr Bracher's assumption was for 2,000 pieces at an average size of 500 mm x 500 mm, that is 500 square metres per day.
The above comparisons indicate that Mr Bracher's assumed production is of a similar order of magnitude to that contemplated during the course of the negotiations. But I think that it is at the top of the range of figures which might fairly be given as estimates of the throughput of two machines. It is interesting to recall that, although in discussions between Mr Budai and the ADA representatives it was generally agreed that, theoretically, the weekly order could be handled by one machine, there was agreement that it would be prudent for Astor to acquire two machines. I see this as a recognition that, in practice, something less than 1,100 pieces per day per machine would be achievable. A corrected revision of Mr Budai's arithmetic shows that, averaging output at separation distances of 300 mm and 350 mm, each at feed speeds of both four metres per minute and five metres per minute and assuming 30% downtime, two machines would produce 1,935 pieces per day. If Mr Brasher's approach were to be applied I would reduce his assumed output to take account of all the vicissitudes of day-to-day production to 1,800 pieces per day.
The comment just made significantly affects Mr Bracher's calculation but it is not the most serious problem about his approach. Two thousand pieces per day calculates out at 115,000 square metres per year, over a 46 week production year. Mr Bracher assumed what he called a "core business" of 70,000 square metres per year, the core business production being sold at normal rates. Production above the core 70,000 square metres was to be discounted to 70% of the core price. In the financial year 1982-1983 there was a recession in the industry. Consequently, Mr Bracher reduced his assumed output to 80,500 square metres. Mr Bracher further assumed that the recession would have affected the first half of the following year, 1983-1984, so he reduced his assumed rate of output during this period by 30%. Notwithstanding these concessions, Mr Bracher's calculation was that the shortfall of sales for the two financial years amounted to $1,157,786 and the resultant loss of contribution to profits to $618,192. The equivalent figures over the following two year period, from 1 July 1984 to 30 June 1986, were sales of $2,513,964 and profits of $1,345,888.
Apart from the problem about the assumed production rate, other difficulties beset these conclusions. There is no evidence of the existence of a level of demand sufficient to sustain the sales assumed by Mr Bracher. Records of the operation of the 4008 machines were kept during the period from February 1982 to April 1983. A report sheet was provided for each day, although some days are missing from the file. These report sheets show high levels of downtime, confirming my opinion that the performance of the machines was unsatisfactory. The items "breakdown" and "process fault" accounted for significant proportions of total downtime and total production hours lost. But not all of the downtime stemmed from faults in the machine. Preventative maintenance and change-over time would, in any event, have been required, although admittedly, the time taken for change-overs was, on the evidence, increased by the problems of the machines.
However, in the present context, the significance of the daily sheets lies in the fact that there were many days during which the machines were not worked to the fullest possible extent. Indeed, the situation in relation to demand deteriorated so badly that the practice of keeping the worksheets was abandoned in April 1983. The lack of work for the machines had rendered the exercise meaningless.
It is clear that the recession hit Astor badly. Mr Budai gave evidence that he dropped his prices in an attempt to maintain turnover. Nonetheless there was insufficient work to keep the 4008 machines operating, even at the unsatisfactory output level which they were achieving.
Counsel for the applicants argue that Astor's experience during the recession period does not truly indicate what might have been the position if the machines had worked well. If the machines had operated in accordance with the representations made on behalf of ADA, they say, unit costs would have been lower, so that Mr Budai would have been able to drop his prices further and thereby retain sales volume. Although prices would have been lower, the reduction in unit costs would have enabled Astor to retain an appropriate profit margin. Counsel point out that Astor was the first processor in Australia to install the 4008 series machines, thus giving it a potential edge on its competitors, the benefits of which it lost because of the defects in the machines.
I have some sympathy for the applicants' submission on this matter. At the time when the machines were ordered Astor was in the course of moving to larger premises. I accept Mr Budai's evidence that, in deciding to take larger premises, he had in mind the desirability of installing two horizontal double edger machines. Undoubtedly, he also had in mind the possibility of increasing Astor's market share by reducing unit costs. Mr Budai impressed me as a knowledgeable person. There is no reason to doubt his judgment that, at least initially, whilst Astor was in the position of having "stolen a march" on its competitors, possession of two 4008 machines operating at the represented capacity would have allowed him to win extra orders. Nor is there any reason to doubt Mr Budai's willingness to compete vigorously. He is a hard working and enthusiastic person.
However, it is another thing to accept the expansion assumed by Mr Bracher. Treating the schedule of orders shown by Mr Budai to the ADA representatives as an accurate indication of the level of demand before the purchase of the 4008 machines -- that is, 1,379 square metres per week -- the computation made by Mr Bracher (2,500 square metres per week) assumes an increase in demand of over 81%. Yet, the figure of 1,379 square metres reflected demand in a good week. The evidence is that the industry is highly competitive and there must be a question whether Astor's competitors would have allowed this situation to occur. It is noteworthy that one competitor, Pilkington ACI, reacted to the Astor purchase of 4008 machines by itself purchasing two machines.
A schedule of sales figures tendered in evidence by the respondent showed that, in the financial year 1981-1982, Astor's sales from its glass processing activities amounted to $1,247,374. The figure fell to $806,053 in 1982-1983, during the recession, but recovered to $1,289,742 in 1983-1984. Sales rose to $1,452,837 in 1984-1985 but fell again to $1,341,758 in 1985-1986, despite improvements to the 4008 machines. In the absence of any other explanation, I can only conclude that this fall was caused by reduced demand, presumably because of competition.
The sales figures assumed by Mr Bracher for the years 1982-1983 and 1983-1984 are, in each case, about 50% higher than those actually achieved. While giving full weight to both the difficulties being experienced by Astor in connection with the machines and to Mr Budai's enthusiasm, I cannot accept such an increase in sales, as a result of the installation of the 4008 machines. Nonetheless, it is clear that Astor's competitive position in this difficult period was adversely affected by the poor performance of the 4008 machines, making it difficult for Mr Budai to drop his prices to those being offered by his competitors. It seems to me that the poor performance of the machines must have cost Astor sales opportunities. The difficulty is that, if Mr Bracher's figures are rejected, there are no other figures by reference to which the extent of that loss may be calculated.
Nonetheless the applicant is entitled to compensation for any losses flowing from the failure of the machines to comply with the conditions implied by s.19 of the Sale of Goods Act, whether they be easily calculable or not: see Enzed Holdings Pty Limited v Wynthea Pty Limited (1984) 57 ALR 167 at pp 182-183 and the cases there cited. If precise computation is impossible, a broad estimate must be made; even to the extent of giving effect to the Court's best guess.
In the present case it would be pretentious to suggest that any particular figure was much better than a guess. But, after consideration of the whole of the evidence, including the figures which are collected in Mr Bracher's report, I think that it is fair to allow $200,000 for the loss of income resulting from Astor's uncompetitive position during the period 1 July 1982 to 30 June 1984. Without attempting to assert that the correctness of the figure may be demonstrated by those facts, I note that total sales during this period amounted to $2,050,014. Cost of materials was $987,667, leaving a gross profit of $1,092,347. $200,000, therefore, represents a little under 20% of the gross profit earned in the period. To allow $200,000 is to say that, with the machines performing according to ADA's representations, Astor would have been able to increase its gross profit by about 20%. Looking at the overall position, such a result appears to me to be of the right order of magnitude.
For the same reasons as were previously expressed in connection with other claims, interest should be allowed on this amount. I will apportion $100,000 to each of the relevant financial years. Calculated at the rates applied in respect of the other items, interest comes to $199,804.
I am of the opinion that nothing should be allowed in respect of the period after 1 July 1984. Astor was under an obligation to take reasonable steps to mitigate its damage. In considering whether Astor acted reasonably in relation to mitigation, regard must be had to the surrounding circumstances. Although it is clear that alternative machines were available, albeit at greater cost, Astor was not bound to replace the 4008 machines the moment problems emerged. It was entitled to take a reasonable period of time in which to ascertain the extent of the problems and to endeavour to resolve them.
Although, perhaps, it errs on the side of generosity to do so, I am prepared to accept that it was reasonable for Astor to defer any decisive action until the end of June 1984. I am influenced in that regard by the fact of the recession, making it both less imperative to increase productivity and more difficult to finance a replacement machine. But, according to Mr Bracher's analysis, the effect of the recession was spent by the end of 1983. By 1 July 1984 the machines had been in operation for some 21-2 years. Mr Dawkins had been employed by Astor for approximately two months. A report upon the machines had been produced by Planner West and a letter of demand had been sent to ADA by the applicants' solicitors.
In my opinion, at that time, it was incumbent upon Astor to soberly assess its position. If, as was assumed by Mr Bracher, Astor was entering a period when additional sales, exceeding $1 million per year, would be available to it with efficient machines, it was unreasonable for Astor to fail to take steps to mitigate the loss of those sales by obtaining efficient replacement machines.
Mr Budai's response, when this matter was raised with him in general terms in the course of his evidence, was to refer to the partnership's financial position. However, I am not convinced that Astor would not have been able to obtain substitute machines, by one means or another. The financial evidence indicates that total sales, from all activities, improved considerably in 1983-1984: $2.458 million compared with only $1.531 million in the previous year. In contrast with its 1982-1983 activities, Astor's activities in 1983-1984 resulted in a profit, although a small one ($36,609). At 30 June 1984 Astor held $156,456 on interest bearing deposit. I can understand that Mr Budai may have been reluctant to expend that deposit on new machines. It was his buffer against unexpected expenses. But, in the absence of evidence to suggest the contrary, it seems to me to be a reasonable inference that Astor was in a position either to lease new machines or to borrow the capital sum required; in either case offsetting the cost of those machines against the rich pickings which -- according to Mr Bracher's analysis -- were there for the taking.
There is no evidence that Astor contemplated the replacement of the 4008 machines at any time. On the contrary, it adopted the course of attempting to improve performance by making modifications. This policy was continued even in later years when very substantial profits were being made. If Mr Bracher is correct, the course taken by Astor was a serious error of judgment. As I have developed, during the course of this case, some respect for Mr Budai's business acumen, that fact itself raises doubts in my mind about the assumptions underlying Mr Bracher's analysis. But whether Astor was right or wrong in the course it took in mid-1984, the fact is that, with full knowledge of all of the problems, it elected to retain, and to attempt to improve, the subject machines rather than to replace them with machines which would achieve the represented performance. Under those circumstances Astor is not entitled to recover compensation for the additional sales which it might have made if the machines had performed in accordance with the representations.
In the result, I hold that Astor is entitled to succeed on its claim under s.19 of the Sales of Goods Act, the total amount of damages awarded being $552,229. That sum comprises the following elements:
Direct costs: $ 64,205 plus interest $ 32,719
Excessive wastage: $ 22,137 plus interest $ 14,192
Overtime: $ 10,161 plus interest $ 9,011
Loss of contribution: $200,000 plus interest $199,804
There will be judgment accordingly. The respondent must pay the costs of the applicants.

[1989] FCA 424

07 August 1989