Hellyer Drilling Co v Macdonald Hamilton & Co Pty Ltd

[1983] FCA 283

Re: HELLYER DRILLING COMPANY
And: MACDONALD HAMILTON & CO. PTY. LIMITED
No. QLD. G37 of 1981
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Fitzgerald J.

CATCHWORDS

TRADE PRACTICES - statements made by respondent concerning a drilling rig's capacity material to applicant's decision as to the rig's suitability - applicant caused a company to purchase the rig from the respondent - applicant leased the rig from the company - certain statements inaccurate and in the circumstances were misleading or deceptive when made (sub-s. 52(1) of the Trade Practices Act) - claim under s.82 of the Act to recover loss or damage suffered - claim for damages for alleged breach of contract - assessment of damages under s.82 of the Act.

Trade Practices Act, ss. 52(1), 53(a) and (c), 82

HEARING

BRISBANE

#DATE 13:10:1983

ORDER

1. There be judgment for the applicant against the respondent for $36,000.00.

JUDGE1

The applicant claims under s.82 of the Trade Practices Act 1974 ("the Act") to recover loss or damage allegedly suffered by conduct of the respondent in contravention of ss. 52(1), 53(a) and 53(c) of the Act. Damages are also sought for alleged breach of contract. Interest is also claimed.

The applicant, which is a firm consisting of two companies controlled by Arthur Patrick Hellyer, carries on business in Australia as a drilling contractor. The respondent is a corporation within the meaning of the Act and carries on business in Australia as a supplier of drilling rigs and equipment under the name Seismic Supply International. The respondent is the agent in Australia for the distribution of Midway rotary drilling rigs and equipment manufactured by Midway Manufacturing and Supply Inc. of Odessa, Texas, U.S.A.

In 1980, the applicant's business consisted principally of coal exploration drilling but also included exploration drilling for other minerals and for water, and water bore drilling. In August or September 1980, the applicant had obtained a quote from the respondent for the supply of a Midway 10M drilling rig but had not purchased the rig. In late September 1980, a drilling rig owned by the applicant, a Bourne 1000R drilling rig, was destroyed by fire. At that time, a large amount of work was available in the drilling industry and suitable equipment was in heavy demand. The applicant required another drilling rig urgently. There was no suitable and suitably priced drilling rig available in Australia within an acceptable period. However, a Midway 13M drilling rig was in transit by sea to the respondent from the United States of America.

A Midway 13M drilling rig consists of items manufactured by Midway Manufacturing and Supply Inc., such as the frame, the mast, the rotary table, the draw works, and the chain case, and components made by other specialist manufacturers, for example, the compressor, the mud pump, and the clutches. Such drilling rigs are truck mounted for exploration drilling. The truck both is the vehicle for transportation of the rig and provides power for the operation of the rig and associated equipment. Power passes from the truck engine through the truck gearbox into a power take-off unit when the truck is stationary. A Midway 13M drilling rig is larger and more expensive than either a Midway 10M or a Bourne 1000R, which are of broadly comparable size and drilling capacity.

On Friday 31 October 1980, Mr Hellyer telephoned the business premises of the respondent and spoke first with Mr Allan Davies, the respondent's Brisbane sales manager, and then with Mr James Melville Cronshaw, the Brisbane sales representative of the respondent who was responsible for sales of Midway drilling rigs. In the course of that telephone conversation, Mr Hellyer ascertained that the Midway 13M drilling rig which was soon to arrive in Australia was available for sale. Mr Hellyer informed Mr Cronshaw that he contemplated that, if he purchased the rig, it would be mounted on a new Mack truck of a type which he described to Mr Cronshaw. Mr Hellyer was informed by Mr Cronshaw that the price of the Midway 13M drilling rig, unmounted, was $212,950.00. Later, the price was increased to $225,000 to include a quantity of drilling pipe which the applicant wished included in the transaction to enable it to obtain finance in a greater amount.

There is some dispute between Mr Hellyer and Mr Cronshaw concerning the telephone conversation between them on 31 October 1980 but I do not consider that it is necessary to attempt to resolve the detail of that conflict. It was not in contest that Mr Hellyer asked questions concerning the Midway 13M drilling rig which were answered by Mr Cronshaw. Mr Hellyer said that "he was very careful to make specific enquiries of the specifications of the 13M", but he also says that the "telephone conversation was a very general one". Mr Cronshaw said that "it was only a basic conversation and his enquiries were not specifically directed". He also said that the only details which he provided to Mr Hellyer were provided by reference to "Midway literature". In any event, Mr Hellyer acknowledged that he was aware that Mr Cronshaw had no drilling qualifications or experience and that he was unwilling to make a decision to purchase until he had visited the respondent's office and had gone over the specifications for the Midway 13M drilling rig with Mr Cronshaw.

There is also some conflict between Mr Hellyer and Mr Cronshaw concerning the exact order of events subsequent to the telephone conversation of 31 October 1980, but many of the major points are not in dispute. I am satisfied that the applicants paid a "holding deposit of $5000" in order to ensure that it had a right of first refusal of the drilling rig until Mr Hellyer had a chance to visit the respondent's office and make a decision after considering the rig's specifications. The respondent furnished the applicant with a letter dated 31 October 1980, accompanied by documentation which contained information relative to the rig and associated equipment including specifications with respect to various component items. The letter and accompanying documentation is Exhibit 1 in these proceedings. Statements contained in the documentation were discussed at a meeting in the Brisbane City Office of the respondent in November 1980 between Mr Cronshaw, Mr Hellyer and one Stephen Robert Reynolds, an experienced driller who worked for the applicant on a sub-contract basis and who was to operate the Midway 13M drilling rig if it was purchased by the applicant. Mr Reynolds had not previously operated a Midway 13M drilling rig.

Subsequent to Mr Hellyer reading Exhibit 1 and the discussion at the respondent's office between Messrs. Hellyer, Reynolds and Cronshaw, the applicant caused United Dominions Corporation Ltd to purchase the Midway 13M drilling rig from the respondent and also to purchase a Mack R Model CAR 493 truck. By an agreement dated 12 December 1980, United Dominions Corporation Ltd leased the drilling rig and truck to the applicant for a period of 60 months. The lease required an initial deposit of $6,710.09 and 59 instalments, each of that same amount, payable monthly on the 12th of each month. The residual value fixed by the lease was $59,000. The lease required the applicant as lessee to insure the drilling rig and the truck. The drilling rig was mounted on the truck at an engineering works in Toowoomba and the applicant took delivery of the drilling rig mounted on the truck in mid-December 1980.

I am satisfied that Mr Hellyer, who made all relevant decisions for the applicant, relied upon, and only upon, statements in Exhibit 1 and made orally by Mr Cronshaw to the effect that:

(i) the compressor, on application of the power produced by the Mack truck which was to be purchased, would produce air at a pressure of 250 p.s.i. at a volume of 510 cubic feet per minute.

(ii) the drawworks had a maximum single line pull of 10,000 lbs and the Wichita ATD 211 Air Clutches with which the drawworks were equipped were rated for that performance;

(iii) the mast of the rig had a static capacity of 45,000 lbs;

(iv) the drilling rig was designed and engineered for drilling depths up to 2,000 feet using two and three eighth inch drill pipe. (Hellyer also knew that the depths to which drilling is possible depends upon drilling conditions and reduces with increased pipe diameter. Exhibit 1 shows a reduced drilling depth of 1300 feet for 2-7/8 drill pipe in favourable conditions. I do not accept that there was a further statement upon which Hellyer relied that the drilling rig had the capacity to drill at least to a depth of 1500 ft.

Each of these statements was material to a decision as to the drilling rig's suitability for the purpose for which it was required by the applicant and was intended to be and was a relevant factor which formed an integral part of the applicant's decision to proceed with the acquisition of the rig and truck and to enter into the transactions which it did, by which it committed itself to various expenditures and obligations. Each of the statements was a statement of existing fact. Further, the fact that all or some of the statements were also made in the "Midway literature" by the manufacturer of the drilling rig or the respective manufacturers of component parts by no means supports the conclusion in this case that the statements were not also made by the respondent. The respondent did not simply put such statements forward as statements by the manufacturers but, by the statements and conduct of Mr Cronshaw and the use of its own documentation in conjunction with the "Midway literature", itself adopted them and made them a basis for its dealings with the applicant. Again, in this case, it is appropriate to conclude, as I do, that the statements were not merely related to Midway 13M drilling rigs generally but extended in particular in the individual drilling rig which was on route to Australia at the time of the discussions between the parties and which was identified as the subject of those discussions and became the subject of the presently material transactions, or at least a Midway 13M drilling rig comprising the particular components contained in that rig. Not all Midway 13M drilling rigs are identical in all respects and the rig in question was an individual rig which included optional components which had been selected by the respondent.

It does not of course follow that subsequent events showed that the statements were inaccurate although, if they were, I am satisfied that it follows in the circumstances of this case that they were misleading or deceptive when made. I have expressed the matter thus by reference to sub-s. 52(1) of the Act because, in the circumstances of this case, nothing has emerged to suggest that the applicant might succeed under sub-s. 53(a) or sub-s. 53(c) of the Act if it cannot succeed under sub-s. 52(1), although it was conceded by the respondent that all three sub-sections were capable of applying.

The applicant also asserted a cause of action for damages for breach of contract. The respondent disputed that there was any contract between the parties, relying upon J.J. Savage and Sons Pty Ltd v. Blakney (1970) 119 C.L.R. 435, and Ross v. Allis-Chalmers Australia Pty Ltd (1981) 55 A.L.J.R. 8. The respondent seems to me probably correct so far as concerns the basis upon which the applicant claims damages for breach of contract as pleaded in paragraph 6B of the final version of the Statement of Claim, namely, that, by exhibit 1 and the conversation between Messrs Hellyer and Reynolds and Cronshaw, the applicant and the respondent entered into a collateral agreement whereby, in consideration of the statements made by the respondent orally by Mr Cronshaw and in Exhibit 1, "the applicant would arrange to have the purchase of the said rig and certain drilling pipe financed by a leasing company and the amount of $225,000 being the price of the rig and the said drilling pipe paid to the respondent". The applicant alternatively alleged, in paragraph 6A of its Statement of Claim, that there was an agreement entered into in terms of Exhibit 1 and the conversation between Messrs Hellyer and Reynolds and Cronshaw "that the respondent would, for the sum of Two hundred and twelve thousand, nine hundred and fifty dollars ($212,950.00) supply a Midway Model 13M drilling rig to be mounted on a truck to be supplied by the applicant". It seems to me that, if any such agreement had been entered into, it would have been superseded by the subsequent transaction involving the acquisition of the drilling rig by United Dominions Corporations Limited and the lease by that company of the rig to the applicant, and accordingly was never carried into effect: cf. Beaton v. Moore Acceptance Corporation Pty Ltd (1960) 104 C.L.R. 107, 118.

In any event, I am content to approach the matter on the basis that there was no contract between the parties. Such an approach involves no disadvantage to the applicant. In the circumstances of this case, the applicant would need to prove precisely the same matters to establish either a breach of contract, if one existed, or a contravention of the Act, and no alleged loss claimed by the applicant would be recoverable as damages for breach of contract, if a contract existed and was breached by the respondent, which is not recoverable under the Act if a contravention is established. Further, the absence of any contractual force in the statements made by the respondent seems to me, in this case at least, an essential ingredient of any assertion by the applicant that such statements constituted misleading or deceptive conduct or false representations: cf. Gates v. The City Mutual Life Insurance Society Limited (1983) 5 T.P.R. 1.

A summary of the alleged departures from the statements which I have held caused the applicant to acquire the drilling rig, is as follows:

(i) The compressor could not deliver air pressure of 250 p.s.i. and the volume of 510 cubic feet per minute. The clutches in the compressor drive train could only transmit 100 brake horse power and not the 156 brake horse power required. The clutches overheated, the drive-belts from the drive train to the compressor slipped and burnt, and the bearings adjacent to the clutches and the drive belts overheated.

(ii) The draw works did not have a maximum single line pull of 10,000 lbs. The clutches in the draw works were incapable of delivering the required power to the draw works and slipped and burnt out under operational load. The power transmitted in the draw works through its clutches to the winch drum permitted no more than a maximum single line pull of the order of 3850-3900 lbs.

(iii) The mast of the rig did not have a static capacity of 45,000 lbs. Under loads of much less than 45,000 lbs. the mast would twist to such an extent that it became difficult and dangerous to operate. The static capacity of the mast was 10,000 lbs.

(iv) The rig was incapable of drilling to 2,000 ft. The air pressure from the compressor was insufficient to clear material effectively from such a drill hole. The draw works could not pull out drilling pipe which was in the ground more than 300 ft. by a single line pull or more than 940 ft. by a triple line pull.

It is convenient to state immediately that there was no evidence on which I am prepared to rely that the mast of the rig did not have a static capacity of 45,000 lbs. That disposes of paragraph (iii) supra. Paragraph (iv) also requires no further reference. It is related to and dependent upon paragraphs (i) and (ii), rather than a separate matter of complaint.

As has already been mentioned, the applicant purchased the Midway 13M drilling rig to replace a Bourne 1000R drilling rig which had been destroyed by fire. Bourne drilling rigs are manufactured and supplied by a local company ("Bourne Engineering"), controlled by a gentleman of the same name. The applicant has had a long standing business relationship with Bourne Engineering and Mr Hellyer and Mr Bourne have known each other for quite some years.

The connection between Mr Hellyer and Mr Bourne, and their respective personalities, played a highly significant role in the events which have led to this expensive, protracted and complex litigation. Mr Hellyer was afforded less than satisfactory treatment by the respondent when problems with the drilling rig were encountered virtually immediately after the applicant received it, and he had justification for disappointment and annoyance. However, he would have been difficult to satisfy. He is intransigent and given to exaggeration. Within a little more than a month the parties were in serious dispute, not without fault on both sides. Mr Hellyer then turned to Mr Bourne, who seems to have built up a successful engineering business despite formal qualification only as a fitter and turner. Mr Bourne appeared to be strongly opinionated and instinctively critical of drilling rigs which possess features different from those in his own company's range. This attitude greatly influenced the course which was followed in the repair and modification of the rig. Another major factor was also important. The represented capacity of the Midway 13M drilling rig was in excess of the applicant's real needs; the work for which the applicant required the drilling rig was work for which a rig of the rated capacity of a Bourne 1000R or a Midway 10M was quite adequate. Finally, of course, the respondent and Bourne Engineering were business rivals, and the applicant and the respondent were completely at odds. The respondent was, accordingly, completely ignored in the steps which were taken.

After Mr Reynolds collected the Midway 13M drilling rig from the respondent on 11 December 1980, he took it to Bourne Engineering where he was to collect further equipment before proceeding to Wandoan to undertake coal test drilling. Mr Reynolds gave the drilling rig a "quick run in" while at the Bourne Engineering premises. His evidence was that he noticed the drive belts slipped and smoked but, although he thought that was unusual, he assumed that the belts were loose. Mr Bourne gave evidence that he gave the rig a cursory inspection on that occasion, but could not remember it being operated.

Mr Reynolds took the rig to Wandoan where it was used from 14-17 December 1980. Problems were experienced. The compressor forming part of the rig, another American product, a two-stage Le Roi 256SDSB compressor, did not produce the pressure which had been stated. Further, once drilling reached a depth of about 70 metres, the belts in the compressor drive train slipped and screeched and the belt drive and the bearings and the clutches in the compressor drive train overheated, smoked, and smelt.

On 18 December 1980, the rig was brought back to Brisbane. Some modifications and relatively minor repairs were performed by H.M.G. Engineering. In addition, Mr Cronshaw arranged for a Mr Hopper of "Allair", a compressor specialist, to travel to H.M.G. Engineering to inspect the compressor and to advise what ought be done. When Mr Hopper removed the high pressure inlet valves in the compressor, small pieces of welding wire were discovered. The complete unit, including the truck, the rig and the compressor, was then removed to Allair's workshop. Mr Bourne was the local representative for Le Roi compressors, but he was not consulted.

Mr Hopper gave evidence that he ascertained that the welding wire had damaged valve plates in the compressor and also had marked, but in his opinion not significantly damaged, the top of a piston. According to Mr Hopper, all necessary repairs were effected and full working tests were carried out, which showed that the compressor was fully operational at 50 p.s.i. in the low stage and 250 p.s.i. in the high stage. The unloader valves were then adjusted to ensure that the compressor did not exceed 230 p.s.i. in the high stage. No adequate explanation was offered as to why that was done. I do not accept that the compressor was adequately repaired on that occasion by Mr Hopper, nor do I accept Mr Hopper's evidence that it was apparent to him that Mr Reynolds was not familiar with the correct procedure for operating the compressor.

The drilling rig was re-delivered to the applicant on 20 December 1980, and taken by Mr Reynolds to Toowoomba where an incomplete modification was completed on about 23 December.

After a single water bore was drilled in Toowoomba, the drilling rig was taken to Maryvale to drill more water bores. Again the rig did not perform satisfactorily. The drive shaft and the drive shaft cover were modified. Although the compressor did achieve up to 250 p.s.i., the belts in the compressor drive slipped and smoked and became damaged and worn, and the bearings in the compressor drive train became very hot. Evidence for the applicant suggested that, while the rig was at Maryvale, the single line pull from the draw works was inadequate and less than had been stated prior to the acquisition of the rig, but I am satisfied that at that, time, the applicant's concern did not relate to the draw works but to the compressor and the compressor drive train.

The drilling rig was returned to the respondent on 10 January 1981 and, on 12 January 1981, Mr Cronshaw directed another of the respondent's employees, Mr Cilento, to inspect the rig and to perform any necessary repairs. Mr Cilento satisfied himself that there was no substance to the applicant's concern that the compressor drive bearings had been damaged but considered that other problems did exist. Mr Reynolds had been using a large amount of grease in the compressor drive bearings, but I do not accept that he caused or contributed to the problem. The compressor had not been rendered defect free by Mr Hopper earlier, in December 1980.

Under Mr Cilento's supervision, the compressor under drive was removed, a new seal was fitted, and the compressor under drive was reassembled. Other incidental work was also performed. After the belt drives were tensioned, Mr Cilento ran the compressor. Because of what occurred during the testing, he found it necessary to adjust the low stage (50 p.s.i.) unloader valve. He also adjusted the high stage (250 p.s.i.) unloader valve to about "240, 245 because at that stage it was fluctuating a little and was going over the 250 . . .".

Mr Hopper attended at the respondent's premises on 12 January 1981. He gave evidence that there appeared to be nothing wrong with the compressor on his inspection. However, I am satisfied that new valves were known to be required and that both applicant and respondent also knew that the compressor ought not be operating until that had been done. Parts were ordered by the respondent from the United States of America but, after 3 or 4 days, the rig with the compressor on board was taken from the respondent's premises by the applicant. Because the compressor was inoperable, an auxiliary compressor from another of the applicant's rigs was taken to Maryvale and the rig with the auxiliary compressor was used on 20 January 1981. More problems were experienced and the rig was returned to Brisbane and taken to the respondent's premises again on 27 January 1981.

Within the next few days, the compressor was removed from the rig and transferred to Allair's premises and the rig was taken to an equipment parking yard at Rocklea, Brisbane. According to Mr Reynolds, the applicant did not have a spare auxiliary air compressor to use with the rig. Further, by then, the applicant either had purchased a Bourne 1000R drilling rig or had its damaged Bourne 1000R drilling rig repaired and the Bourne 1000R was taken to Wandoan to drill. Mr Hellyer sought to trade the Le Roi compressor on the Midway 13M rig in on a smaller Le Roi compressor which would provide 125 p.s.i. but the respondent refused to do so.

There was delay in the necessary parts being obtained from America and the compressor was not available for collection by the applicant from Allair until 6 February 1981. According to Allair's records, 41 hours of work had been done on it and a number of parts had been replaced. It had been tested, but not beyond 120-150 p.s.i. because it was not mounted on the drilling rig.

By the time Mr Cronshaw notified the applicant that the compressor was again ready for collection from Allair on or about 6 February 1981, contentious correspondence was being exchanged. It was not until 11 March 1981 that the compressor was collected from the respondent's premises by a representative of the applicant's solicitors. The compressor was then taken to Bourne Engineering to be remounted on the truck and, so it is said by the applicant, "for inspection to ascertain, if possible, why the compressor and draw works and other components were either not operating properly or not operating at all". I do not accept that assertion. I find that, at that time, apart from a litany of presently immaterial complaints, some relatively minor and some unjustified, the focus of the applicant's concern was the compressor and the compressor drive train.

By 11 March 1981, the compressor had not been used with the rig for more than 2 or 3 weeks in total. I am satisfied that the compressor which was supplied to the applicant by the respondent as part of the Midway 13M drilling rig was faulty and did not accord with the statements which had been made to the applicant by the respondent and upon which the applicant relied, as I have earlier indicated. However, I also find that, by the time the applicant's solicitors collected the compressor on 11 March 1981 and delivered it to Bourne Engineering, the compressor had been repaired. It was only thereafter that it really came to be considered that the compressor might not be the only major problem.

Once the compressor was collected and taken to Bourne Engineering, it was remounted on the rig and tested using the compressor drive belts which were on the rig. When the compressor was cold, a maximum pressure of 220 p.s.i. was initially achieved in the high pressure stage. But, when the compressor had been operating for approximately 15 minutes, the belts and clutches began to slip, smoke and a distinct smell of burning rubber and asbestos clutch material was emitted from the compressor drive train, a rumbling sound emitted from the bearing housing, and, shortly after the sound commenced, sparks began to fly out of the housing. Mr Bourne's opinion was that the bearings adjacent to the belt drive were overheating due to the load which it was necessary to place upon it in order to provide the power required to the compressor. By then, the compressor was in working order and capable of operating satisfactorily to produce 250 p.s.i. The problem was not in the compressor but in the compressor drive train, which was inadequate to transmit the power required for the compressor to produce 250 p.s.i.

I accept that new clutches were required if the existing drive system was to be utilized, irrespective of whether a two-stage Le Roi compressor supplying 250 p.s.i. or one supplying a lesser pressure was to form part of the rig. The applicant asserted that the flywheel pulley also was deficient. I am satisfied that that was so. Further, I am content to make that finding without reliance upon the statement concerning the Le Roi recommended fly wheel effect contained in a telex, dated 25 July 1983 from the Product Manager of Le Roi, Exhibit 30 (Annexure "B"), or upon the opinion of Mr Bourne and other witnesses insofar as they were based on that statement in that telex. Technically, it is probably correct that the statement in the telex was inadmissible as hearsay and that opinions based upon it were either inadmissible or, if admissible, entitled to little if any weight. However, I am satisfied that there was other evidence which at least inferentially warranted the conclusion that the fly wheel pulley was inadequate having regard to the demands of the compressor drive train. Although he did not stand alone on the issue, it does not seem to me insignificant that Mr Bourne was a man of considerable experience in relation to Le Roi compressors and the local representative for that product. The telex was only obtained from Le Roi on the day on which the trial began, presumably for evidentiary purposes. The statement in it, were it to be relied on, could serve to confirm Mr Bourne's opinion, but it did not in fact constitute the foundation for his opinion at the time when it was formed.

On 12 March 1981, the compressor was removed from the rig which was taken away for use with another compressor. On the applicant's instructions, Bourne Engineering dismantled the high pressure cylinders of the compressor and rebuilt it, derating it to a maximum pressure of 125 p.s.i. Other modifications were also effected, including the upgrading of the clutch in the compressor drive train. Bourne Engineering's charges, which were contained in two invoices three months apart, are the subject of claims by the applicant which are dealt with within paragraph 13A of its final Statement of Claim in the following terms:

"(a) the applicant has been obliged to expend moneys on the repair and modification of the rig.

Particulars

(i) By Bourne Sales (Aust) Pty Ltd

DATE PAID DESCRIPTION 31.03.81 320.00 Refit compressor test and run. Remove compressor from rig for repairs.

. . .

30.06.81 8662.87 Rework Dressor Le Roi high pressure 256S2B air compressor to 100 SDS standard Upgrade air compressor drive clutch by new sintered iron clutch to increase horsepower rating. Supply and fit new power band drive belts to H.P. To manufacture new compressor base and belt tensioner system."

It will be necessary to come back to these claims in more detail at a later stage, but some further matters can conveniently be noted at this point. Most, but not all, of the first invoice, for an amount of $320.00, related to the mounting and testing of the compressor; only a relatively small sum should be attributed to the further removal of the compressor from the rig for derating. With respect to the second invoice, for $8662.87, evidence was given that $6697.12 related to parts and $1965.75 was for labour at $24.00 per hour. Approximately 50 hours were spent derating the compressor, another 15 hours approximately were otherwise spent "in the compressor area", and about 17 hours were spent removing the clutch and installing the substitute clutches, installing new belts, and testing and running the compressor. I am satisfied that the upgraded clutches installed were appropriate, given the other steps taken by Mr Bourne including the derating of the compressor which will be further discussed below, and that the new belts were necessary because the previous belts had deteriorated by reason of the problems which had been experienced with the compressor drive train and the compressor. However, I am not satisfied that there was any need to instal the new compressor base and belt tensioning system to facilitate the adjustment of the belts to permit proper tensioning to be obtained and maintained; I find that this modification was no more than a matter of preference on the part of the applicant and Mr Bourne. On the other hand, I find that neither the modifications to the compressor base and belt tensioning system nor any other modification effected by the applicant or on its behalf in any way caused or contributed to any of the problems with or in the drilling rig. Indeed, I am satisfied that neither the applicant's modifications, repairs, maintenance, service, adjustments, nor method or circumstances of operation, caused or contributed to any problems which were experienced prior to the derating of the compressor and I accept that the applicant and its operators and those who carried out work on its behalf were relevantly competent and experienced, although I do not in consequence accept either all their evidence or the wisdom or reasonableness of everything which they did. Further, I reject the respondent's allegation, insofar as it is related to this or other of the applicant's claims, that the applicant should have made the rig available for repair by the respondent. In my opinion, in the circumstances as they existed in March 1981 and thereafter, it was open to the applicant to seek advice and assistance from any competent person and it was not obliged to resort to the respondent. But, of course, it does not follow that the applicant was free to do whatever it chose to the rig and to charge the respondent with the consequences.

An obvious result of the compressor derating which Bourne effected would seem to have been to reduce the value of the compressor, viewed in isolation. The evidence suggests that a Le Roi two stage 250 p.s.i. compressor at the time cost about $23,000.00 while a similar 125 p.s.i. compressor cost about $19,000.00. However, that loss of value does not, as such, form any part of the applicant's claim which underwent a number of radical changes during the history of the litigation. The major component of the claim, in its ultimate form, may be shortly stated.

No attempt was made to establish any loss by reference to any lack of utility of the rig, or any diminution in the applicant's earnings or profits by reason of its deficiencies. The applicant's case founded instead on the proposition that, by reason of the rig's deficiencies (and/or consequential modifications of the rig), its performance could have been matched by a smaller less expensive rig (a Gardner 500M) mounted on a smaller less expensive truck (a Toyota DA115). From that premise it was argued that the Midway rig's value on the Mack truck was equivalent to the cost of a Gardner rig on a Toyota truck. A comparison was then attempted between the cost to the applicant of the Midway 13M on the Mack truck under the lease with United Dominions Corporation Limited (rental payments, insurance premiums and residual value), and what would have been the cost of leasing the Gardner rig and Toyota truck on a similar basis. Implicit in the applicant's argument was the proposition that, at the end of the Midway lease and the hypothetical lease, the equipment under each will be valueless or of similar value. The payments made and to be made by the applicant to United Dominions Corporation Limited and for insurance in accordance with the present lease of the Midway 13, including payment of the residual value at the end of that lease, were said to exceed the comparative figure for the Gardner rig and the Toyota truck by $251,530.80, which was alleged to be loss for which the respondent is liable. It may be noted immediately that the Midway rig figures were erroneously based on a cost price of $225,000.00, instead of the correct $212,950.00; the higher figure included an amount for additional pipe.

Other considerations aside, this approach by the applicant is obviously dependent upon the validity of the comparison which was sought to be made by the applicant, which comparison was in turn founded on the proposition that the capacity of the Midway 13M drilling rig was limited in the manner and to the extent contended. There was considerable confusion surrounding what the applicant did in and after March 1981, the reasons for what was done, and the way in which the applicant now seeks to use what was done against the respondent. Most, at least, of the confusion appears to be related to the derating of the compressor, an inevitable consequence of which was to limit the drilling capacity of the rig when that compressor and no other was used, irrespective of the rig's capacity otherwise, and more particularly to the derating of the compressor to 125 p.s.i. I will come back in some detail to this, the applicant's largest claim, but first it is convenient to notice briefly the subsequent history of the rig, and other claims made.

In paragraph 13A(b) of its Statement of Claim, the applicant made the following claim:

"The applicant has been obliged to hire other compressors and has incurred expense in relation to such hire; namely $6,617.50 paid to Atlas Copco Australia Pty Ltd. for hire from time to time between 19 March 1981 and 15 July 1981.

Particulars

(i) Invoice No. H89291 $1,759.29

(ii) Invoice No. H89360 1,536.21

(iii) Part Invoice No. H89611 3,454.00 Less Credit being 50% pro rata of Stamp Duty and Insurance on Invoice No. H89611 132.00 --------- SUB TOTAL $6,617.50 ---------"

This aspect of the applicant's case related in part to the alleged need for a substitute compressor because the Le Roi compressor was unavailable when work was being performed upon it, including the period of derating, and in part to the need for an auxiliary compressor to supplement the operation of the derated compressor. There is no reason in principle why, in a case such as this, hire charges for substitute or additional equipment should not be recoverable provided that care is taken to ensure that the claim is consistent with other claims and involves no duplication, and provided also that the claim is supported by appropriate evidence. The evidence adduced was extremely confused concerning the terms of the arrangements between the applicant and Atlas Copco, the capacity of the hired compressors, the uses to which the hired compressors were put, and which of the applicant's rigs the hired compressors were used with, but, despite the manifest confusion, no witness from Atlas Copco was called.

The applicant also claimed the cost of other repairs and modifications. In addition to matters already referred to and the drawworks, to which I will come, the applicant alleged that belts and bearings required replacement, that the transfer case was an inadequate design and did not allow for normal adjustments to the workings within the transfer case to be made, and that the compressor drive belts were unable to be finely adjusted. Accordingly, it was said, the transfer case required extensive repairs and modifications and, in addition to the need to replace the compressor drive belts, the system of adjustment required modification. Details of the items claimed appear within paragraph 13A(a)(i) of the final Statement of Claim in the following terms: "(a) the applicant has been obliged to expend moneys on the repair and modification of the rig.

Particulars

(i) By Bourne Sales (Aust) Pty Ltd

28.04.81 104.00 Supply 20 gallons 68 hydraulic oil (hydraulic oil tank split required to be emptied, welded and refilled) 16.07.81 220.35 Supply compressor drive train bearings (excluding pillar blocks) 31.07.81 678.00 Supply compressor drive train bearings (including pillar blocks) 11.01.82 450.00 Repair and rectify rust in mast 31.01.82 588.00 Replace bearings in compressor drive shaft and supply bearings 31.01.82 810.00 Rectify noise and jumping out of gear in spicer power take off unit 04.02.82 588.00 Supply compressor drive shaft bearings 30.04.82 3253.00 Repairs to Midway. Remove power take off. Dismantle repair and refit to truck. Fit air charge to unit. Check air compressor drive. Fit new bearings. Remove transfer case. Dismantle fit new bearings and seals. Drill caps for cam adjustment. Machine new hydraulic pump drive shaft. Fit new drive chain to mud pump. Refill with gear oil and hydraulic oil. Parts $1713 Labour $1540.

The repetitious bearing failures subsequent to the derating of the compressor were never explained to my satisfaction. Whether or not all or any of the claims now under consideration were related to the method of installation, operation, or maintenance of the rig by or on behalf of the applicant, I am not persuaded that any basis exists upon which responsibility can be attributed to the respondent. In my opinion, these charges relate to operational repairs and maintenance and elective modifications requested by the applicant and do not constitute loss or damage suffered by the applicant by the conduct of the respondent. Other considerations aside, both the work done and associated steps such as the efforts to obtain parts, and thus of course the cost, were affected by Mr Bourne's attitude to drilling rigs which differed from his own, a matter to which I will return below. I have not, in the circumstances, found it necessary to consider in relation to these claims the possibility that some at least could not, in any event be sufficiently causally related to the contraventions of the Act by the respondent which I have found to fall within s.82.

The applicant's remaining claim, which is also contained in para 13A(a)(1) of the Statement of Claim, is for another invoice by Bourne Engineering expressed as follows:

"17.01.838270.00 Remove and dismantle drawworks. Clean and check drawworks. Re-machining shaft and drums to fit new twin disc clutches. Fit new bearing wheels, locknuts, washers. Re-assemble drawworks re fit to rig. Run and test unit."

As appears from the date of the invoice, the work the subject of that claim was not done until January this year, considerably more than a year after these proceedings were commenced. I do not accept that problems with the drawworks were encountered prior to March 1981, or indeed at any time with the possible exception of an isolated occurrence in June or July 1981. No doubt, the work for which the rig was then used reflected that its capacity had been severely decreased by the derating of the compressor, although there is no proof that, otherwise, the rig would have been called upon to drill deeper holes. Tests took place in January and August 1982 but these were primarily occasioned by a search for complaints for the litigation, rather than past events; it is not now material if the tests were ineffectual because it was not recognized that a valve setting limited the drawworks pull, quite apart from any deficiencies in the drawworks.

Nonetheless, although the inadequacy did not in the event affect the applicant's use of the rig, I find that the drawworks did not accord with their represented capacity because the drawworks clutches were inadequate. Part of the work done in January this year related to the cost of inserting heavier drawworks clutches and associated work. However, the balance of the applicant's claim in relation to the drawworks falls into the same category as the list of repairs and modifications to which I have referred above.

It is appropriate at this point to revert to a more general consideration of the basis of the applicant's claims.

In Frith v. Gold Coast Mineral Springs Pty Ltd (1983) A.T.P.R. 44-072; (1983) 5 T.P.R 44, I suggested that, while the common law may provide useful guidance, ultimately it is a question of statutory construction what damages are recoverable under s.82 of the Act. One question which will no doubt fall for consideration on occasion is what, if any, relevance foreseeability has in relation to s.82. Some analogy to the major claim made by the applicant in these proceedings may be found in Doobay v. Mohabeer (1967) 2 A.C. 278, which may be contrasted with Millar v. Candy (1981) 38 A.L.R. 299, although each involved a different cause of action, neither of which was a claim under the Act. In the present case, the respondent had actual knowledge at all material times of the relationship between the applicant and United Dominions Corporation Limited. In principle, there is no reason why it was not open to the applicant to formulate its case as it did and the respondent did not really call that in question. There seems to me no reason, in principle, why the applicant's claim in this case should not include components for the constituent elements which it includes, namely:

(i) repairs

(ii) hire of substitute or auxillary equipment;

and

(iii) the extent to which payments under the lease are excessive by reason of the diminished value of the rig.

Further, I can perceive no reason why, in principle, the cost of any modification may not be included or why diminished value may not be assessed by reference to the modified equipment.

The common law has developed "connected doctrines" (McGregor on Damages), 14th ed. para. 181) in relation to issues of remoteness, mitigation, intervening acts or events, and contributory negligence with respect to damages both in tort and, more recently, for breach of contract: (ibid). It may be anticipated with some confidence that similar questions to those which have given rise to such doctrines will fall for consideration in due course in proceedings for relief under s.82. The ultimate test under s.82 is likely to be one of causation. There is no present need to seek to elaborate upon that observation beyond commenting that there seems no reason to doubt that, in general, loss or damage may not necessarily be irrecoverable because its immediate cause is not the contravention complained of; for example, if it is some action reasonably taken by the applicant in the circumstances in which he finds himself in consequence of the contravention, including such action taken in an attempt to mitigate loss or damage. Reasonableness is a question of fact and I have, for the purposes of this case, proceeded on the footing that, while reasonableness is to be determined in all the circumstances including the interests of the respondent as well as the applicant, the standard required of the applicant is not high and must be assessed by reference to the circumstances at the time not as they appeared with the advantage of hindsight, and that the applicant is not required to risk his money too far; neither steps which prove to have been mistakenly taken nor the fact that other measures would have proved less burdensome to a respondent necessarily mean a loss is not recoverable. Conversely, there seems no reason to doubt that, in general, it will be open to a respondent not merely to contest the elements of an applicant's claim, including the reasonableness of any action taken by the applicant, but to set up a positive case that the applicant ought have mitigated the loss or damage by other steps asserted to have been reasonably open. Again speaking only generally, it seems likely that the onus of proof of a particular issue, including reasonableness of conduct, will depend upon whether the applicant asserts that issue as a constituent element of its damages claim or whether the issue is raised only by the nature of the respondent's defence.

In the end, what must be remembered is that it is only loss or damage suffered by conduct of the respondent that an applicant is entitled to recover under s.82 and it is essential for an appropriate evidentiary basis to be established for the claim. Costs and consequences of one of a number of possible courses of conduct pursued by an applicant to meet a situation occasioned by a respondent's contravention of s.52 cannot, without more, be characterized as the result of an attempt to mitigate the loss or otherwise as loss or damage suffered by conduct of a respondent.

The derating of the compressor was an essential element of the applicant's case with respect to the alleged diminished value of the rig upon which its major claim related to the payments under the lease was founded. Derating would by no means have been the obvious solution had the fault lain solely with the compressor, which could have been replaced or used with an auxiliary compressor. In any event, as I have indicated, I am satisfied that, by March 1981 but prior to derating, the compressor was able to produce 250 p.s.i. if supplied with adequate power. The problem then was that the compressor drive train was inadequate to transmit the power required for the compressor to produce 250 p.s.i. The appropriateness, or at least the reasonableness, of the derating is therefore of central importance.

In the circumstances as they existed in March 1981, there were a number of possibilities. Accepting that the rig was not to have been left as it was and valued on that basis, the possibilities involved modification of the compressor drive train and/or the compressor, and assessment of the value of the modified rig. One theoretical possibility would have been to derate the compressor so that it required only the power which the compressor drive could transmit. Another would have been to upgrade the compressor drive and derate the compressor so that it required only the power which the upgraded compressor drive could transmit. (It may be added that each of these theoretical possibilities simply assumes that it would be necessary to derate the compressor, and that the same result could not be achieved, without modification; e.g., by appropriate valve settings.) Still another possibility would have been to upgrade the compressor drive so that it could transmit the power required by the compressor to 250 p.s.i.

All these possibilities were explored to greater or lesser degree in the evidence. The burden of proof lay upon the applicant. Had the respondent sought to show that another course not revealed by the applicant's case was open to the applicant and should have been taken by it to mitigate its loss, the onus in respect of the issue may well have rested upon the respondent; for example, that the applicant could and should have effected a different repair or modification not revealed as a possibility by the applicant's evidence or that the applicant could and should have terminated the lease and sold the rig. However, the resolution of the issues which I have been discussing was called for by the method of presentation by the applicant of its claim not some matter raised by the respondent. The appropriateness or at least reasonableness of derating and the other steps taken was an essential element of the applicant's claim, as was the subsequent capacity of the rig and its value. The applicant asserted the affirmative of these issues and necessarily raised them by its Statement of Claim and the footing upon which it sought to have its loss calculated. The denial of these issues did not set up matters in mitigation of damage in respect of which the probative burden lay upon the respondent; it merely involved a contest as to an element of the plaintiff's claim.

Mr Bourne told Mr Hellyer that the compressor drive train could be upgraded by taking the drive into a heavier duty transfer case and that the compressor could be shaft-driven from the transfer case to produce 250 p.s.i. Mr Hellyer rejected this, allegedly because of the estimated cost of "some $50,000.00". Difficult questions might have arisen had any suggestion been raised that the course of derating the compressor followed was or might have been influenced by the cost of any alternative course and the applicant's financial or liquidity position or its borrowing capacity: cf. Liesboch (Dredger) v. Edison (S.S.) (1933) A.C. 449, 460-461; Dodd Properties (Kent) Ltd v. Canterbury City Council (1980) 1 All E.R. 928; Companion Financiera "Soleada" S.A. v. Hamoor Tanker Corporation Inc. (1981) 1 W.L.R. 274; Fox v. Wood (1981) 35 A.L.R. 607, 613; Egan v. State Transport Authority (1982) 31 S.A.S.R. 482, 524 ff. In the event, none of these were questions fall for consideration. Comparable Bourne rigs possess shaft drive and Mr Bourne had a bias against belt drives. The suggestion made by Mr Bourne and rejected by Mr Hellyer was in no sense a practical solution to the problem which existed.

I do not accept that there was insufficient room in the compressor drive train as it stood to include the clutches and flywheel pulleys which Mr Bourne considered would be needed if the compressor was to be provided with sufficient power to produce 250 p.s.i. by a belt-driven compressor drive train. Further, I do not accept that Mr Bourne was correct in his assessment of what was necessary in the compressor drive train for the compressor to produce 250 p.s.i. I am satisfied that the compressor drive train could have been upgraded without expensive modification by the installation of clutches with a suitably increased rating and a larger flywheel.

It may not automatically follow from what I have said that the derating of the compressor was unreasonable. I have earlier mentioned the latitude which is afforded the victim of wrongdoing in the choice of which course should be followed. I am prepared to assume in favour of the applicant that apparently competent advice may be a factor to be brought to account in assessing whether what was done was reasonable. However, in the circumstances of this case, that does not avail the applicant. The course which was followed was so radical and involved such a dramatic effect upon the interests of the respondent-wrongdoer that the applicant could not reasonably have acted on that footing without a greater degree of certainty that it was appropriate to do so than was possible on the basis of Mr Bourne's opinion. That is not to say that it was not open to the applicant to act as it did. The limitation upon it relates only to what it can charge against the respondent. The real explanation for the derating of the compressor seems to me likely to lie in the fact that that action, and such upgrading of the clutches, as was carried out, provided the applicant with a rig of the capacity which it needed, although less than what had been represented, at the minimum additional outlay.

Certainly, the applicant failed to adduce acceptable evidence to support a conclusion that derating the compressor was reasonable. Evidence as to vital matters, including details of possible action and relative costs, was either missing or unsatisfactory. The applicant failed to persuade me that, in truth, the Midway rig mounted on the Mack truck was comparable in value to the suggested smaller and less expensive rig and truck. Accordingly, it did not prove a vital element of its claim.

The applicant did not attempt to establish any other basis for a calculation of its loss and, in consequence, it has been extremely difficult to assess any amount for damages.

In Ansett Transport Industries (Operations) Pty Ltd v. Halton and Ors (1979) 25 A.L.R. 639, Aickin J., whose judgment was affirmed on appeal, (33 A.L.R.) said at p.669:

"It has long been settled that the difficulty of ascertaining an amount of damages does not warrant their denial. This was established at least by the time of the decision in Chaplin v. Hicks (1911) 2 K.B. 786; (1911) 13 All E.R. Rep. 224 . . . . On the other hand, the ascertainment of damages is not an exercise in imagination. It is therefore necessary to examine the material in order to see what assumptions are involved and, insofar as they are not justifiable, to see what adjustments can be made which will enable a reasonable approximation to be obtained."

In Thurston v. Dodd (1966) 1 N.S.W.L.R. 321, Jacobs J.A. at p. 327 quoted with approval the following passage from Callaghan v. William W.M.C. Lynch Pty Ltd (1962) N.S.W.R. 871; 79 W.N. (N.S.W.) 830 at p.834:

"Lack of relevant evidence may of course make it impossible to assess damages at all, for example, when there are a number of other contingencies on which the loss may depend. But where it is established that damage has been incurred for which a defendant should be held liable, the plaintiff may be accorded the benefit of every reasonable presumption as to the loss suffered. Thus a jury doing the best it can, may have to form conclusions on matters of slender material and to make allowances for contingencies even to the extent of guesswork or speculation. Specific authority is not readily found as the matter is so taken for granted and it is unnecessary. For it is clear on principle that damages for future or prospective loss may be recovered if such is reasonably to be anticipated as a result of a defendant's wrong whether such damages certain or contingent . . ."

and continued:

"The words 'guesswork or speculation' must be carefully read in their limited context but in my view the passage correctly states the law and correctly states the principle applicable in the present case."

In Gamser v. Nominal Defendant (1977) 136 C.L.R. 145, Stephen J. at p.149 in the context of the need to reveal the process of reasoning leading to an assessment of damages, spoke against the intuitive assessment of damages. See also Andrews v. John Fairfax and Sons Ltd (1980) 2 N.S.W.L.R. 225, at 262E and 263E, where Mahoney J.A. discussed the limitations which exist in the drawing of inferences.

Nonetheless, the respondent in its final address substantially conceded that, while an alternative would be to direct a further hearing in respect of damages, the possibility existed of an estimate based on all the evidence. Although the assessment must of necessity be somewhat broad and imprecise, I have concluded that I am able to do more than guess and that I can arrive at a sufficiently reasoned estimate.

The commencing point for the final stage of the ascertainment of the applicant's damages is to be found in the basic findings in favour of the applicant that the compressor drive clutches and fly wheel pulley and the drawworks clutches were inadequate. I have no doubt that, in consequence, the rig was worth less than $212,950.00. The difficulty lies in quantifying the reduced value of the rig and extrapolating the difference to reflect the applicant's overall loss.

Much of the available evidence has already been referred to. There is evidence of the cost of the Midway 13M rig and of the respective costs of certain smaller rigs. There is evidence of the cost of various components and parts in the Midway 13M rig. There is evidence of the charges made for various repairs and modifications, although there was dispute as to the reasonableness of some of these charges. There is evidence that the derated rig is presently for sale for $145,000.00 although Bourne claims that it is worthless. There is evidence that the compressor drive train could have been replaced for "some $50,000" (which can I think be safely taken as an absolute maximum diminution in value related to the compressor drive train), and there is evidence from which a decrease in value relative to the drawworks clutches can be arrived at. There is evidence relating to the cost of testing by Bourne in March 1981. There is evidence with respect to both the rate of compressor hire charges and the "lease costs", and the range of interest rates in respect of loans during the relevant period are sufficiently a matter of common knowledge.

Any attempt to approach the assessment of damages by reference to the principle underlying the formulation of the applicant's major claim is fraught with difficulty. For example, the Midway rig is presently for sale, with two years of the lease still to run. I infer that the applicant does not intend to retain the rig and continue to make payments under the lease until the lease term expires. There is no evidence of the current payout figure under the lease or how that compares to the residual value, or of the present value of the rig assuming that it had neither been derated nor fitted with upgraded components.

The cost of modification necessary to remove the deficiencies which I have found existed would afford at least some evidence of diminution in value, as has been recognized in other contexts which I do not, however, suggest provide a clear analogy; see McGregor on Damages, supra, para. 998. On this approach the applicant would also be entitled to an increment to the diminution in value by reference to the cost to the applicant of borrowing to effect the modifications and some amount for hire of a substitute compressor while the rig was being modified. And, the applicant would also be entitled to amounts actually incurred in respect of testing to investigate the cause of the problems with the rig. Again, the cost of borrowing to make expenditures must be kept in mind. Not all the cost of borrowing should, however, be made the responsibility of the respondent. There has been significant delay in bringing this matter to trial on the part of the applicant and it must bear its share of the responsibility.

It is not practical as the evidence stands to attempt to attribute a specific amount to the cost of supply and installation of each individual item. I have arrived at an en globo amount from the available evidence as a whole, in the manner of a jury assessment of general damages. I fix the costs of the modifications needed to the compressor drive train and the drawworks at $30,000; included in such amount is an element for the cost of testing and an element for compressor hire. The amount of $6,000 should be added for interest on the cost of borrowing to pay for the modifications, tests, and compressor hire. Accordingly, I assess the applicant's loss at $36,000. It was not suggested by either party that any adjustment should be made by reference to income tax considerations.

The applicant has succeeded in obtaining a verdict and, as at present advised, I perceive no reason why the costs of the trial should not follow the event. However, at the hearing, it was agreed that the costs of the trial should be left until after judgment. The parties have 4 days within which to submit written submissions on the issue. Written submissions may also be made within the same time concerning the applicant's claim for interest, which was not made the subject of argument, although I doubt whether it remains a live issue in view of the basis upon which I have assessed the applicant's loss. Further, I repeat that, other considerations aside, much of the delay which has been occasioned in bringing this case to trial has been occasioned by the applicant. During the course of the numerous interlocutory applications in this matter, various costs were reserved. The parties have provided written submissions concerning the orders which should be made with respect to those costs. I have no doubt but that they must be taxed and paid by the applicant.

The only formal order which I make at this time is that there be judgment for the applicant against the respondent for $36,000.00.