Industrial Conveying (Aust) Pty Ltd v SKM Recycling Pty Ltd

[2012] VSC 278

 

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No 7589 of 2008

BETWEEN
INDUSTRIAL CONVEYING (AUST) PTY LTD (ACN 006 490 544)	Plaintiff
and
SKM RECYCLING PTY LTD (ACN 086 098 660)	Defendant
AND BETWEEN
SKM RECYCLING PTY LTD (ACN 086 098 660)	Plaintiff by counterclaim
and
INDUSTRIAL CONVEYING (AUST) PTY LTD (ACN 006 490 544)	First defendant by counterclaim
DONALD JAMES ERSKINE	Second defendant by counterclaim

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	17, 18, 19, 20, 21, 24, 25, 26, 27, 28 October and 2, 3, and 4 November 2011
DATE OF JUDGMENT:	28 June 2012
CASE MAY BE CITED AS:	Industrial Conveying (Aust) Pty Ltd v SKM Recycling Pty Ltd
MEDIUM NEUTRAL CITATION:	[2012] VSC 278

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CONTRACT – Preliminary questions – Agreement to build a recycling waste recycling plant – Dispute as to terms – Determination of contractual terms – Whether implied terms of merchantable quality in respect of machinery manufactured to the purchaser’s design – Determination of alleged misleading representations.

QUANTUM MERUIT – Claim where contract also pleaded – Whether open to make quantum meruit claim.

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APPEARANCES:	Counsel	Solicitors
For the plaintiff and the defendants to counterclaim	Mr T J Walker with Mr R J Harris	Logie-Smith Lanyon
For the defendant and the plaintiff to the counterclaim	Mr A K Panna SC with Mr P Nugent	Lander & Rogers

TABLE OF CONTENTS

Introduction

The trial

ICA witnesses

SKM witnesses

The pleadings

Written submissions

SKM’s business

The Coolaroo Project

Conveyors

Stage 1

ICA supplied equipment

SKM supplied equipment

Stage 2

ICA supplied equipment stage 2

SKM supplied equipment for stage 2

Further works

The nature of the contract between SKM and ICA.

Mr Erskine’s evidence on the formation of the stage 1 and stage 2 contracts

17 May 2003 meeting

28 May 2003 meeting

6 June 2003 meeting

July 2003

10 July 2003 quotation

10 July 2003 meeting and follow up events

August 2003

6 August 2003 quotation – stage 1

Stage 1 works

Stage 2

Disc screens

13 October 2003 – quotation for stage 2

12 November 2003 meeting

Stage 2 works

Evidence of Robert Italiano

The first meeting at Thornbury

Robert’s evidence on the second meeting at Bendigo

Robert’s evidence of the third meeting - Thornbury

Credit issues

Numbering the issues to be resolved

Preliminary questions raised in ICA’s claim

Paragraph 6 – ICA claim that the defendant accepted the plaintiff’s written quotation and they parties entered into an agreement for the first stage of the works.

Paragraph 7- ICA claim - that in consideration of the agreement ICA carried out the works and issued the relevant invoices.

Paragraphs 8-9 – ICA claim - that variations to the works were requested by the defendant and invoiced and SKM is indebted to ICA for those variations.

The variations to stage 1

Variation 5 – Stage 4 – the supply of additional conveyors for the glass clean up line and waste delivery conveyors – issue 57.

Variation 6 – connection of equipment supplied by SKM – issue 58

Variation 7 – optimisation project- issue 59

Paragraphs 10 – 13 – ICA claim - Stage 2 works (issue 60)

Conclusion – issue 60

Paragraphs 14 – ICA claim - Variations to stage 2 – issue 61

Conclusion -  issue 61

Paragraphs 15-16 – ICA claim - Optimisation claim stage 2 – issue 62

Invoice 113006 – Stage 2

Findings on optimisation stage 2 – issue 62

Conclusion – optimisation stage 2 – issue 62

Paragraph 17 – ICA claim – issue 63

Paragraphs 18-23 – ICA claim – Upgrade belting - C2 installation -issue 64

The evidence – issue 64

Findings – issue 64

Conclusion – issue 64

Paragraphs 24-25 – ICA claim - Recovery on a quantum meruit basis – issue 65

SKM’s submissions on quantum meruit

SKM and the optimisation claims and quantum meruit

The first element:

Second element:

The third element:

Findings on quantum meruit and optimisation

Conclusion – issue 65

Preliminary questions - SKM’s defence

Paragraphs 18A, 19B and 20A – SKM defence - the terms of the contracts – issue 66

Replacement Contract

Was it an implied term that in performance of the work ICA would comply with applicable Australian Standards?

Was it an implied term that ICA would complete a risk assessment of the works under the Elevator Agreement?

Was it and implied term that ICA would provide SKM with procedural guidance regarding cleaning and maintenance of the components forming part of the works?

Was it an implied term that ICA would complete the works with all due skill, care, and diligence and leave the elevator forming the subject matter of the works in good working order?

Conclusion – Replacement Contract – paragraph 18A SKM defence - issue 67

The C2 Contract – Frame Contract – paragraph 19B SKM defence - issue 63

Conclusion – Frame Contract – paragraph 19B SKM defence - issue 63

The C2  Installation Contract – paragraph 20A  SKM defence - issue 63

Conclusion – Installation Contract – paragraph 20A  SKM defence - issue 63

Paragraphs 24 – 24B – SKM defence – issue 64

Findings – issue 64

Conclusion – issue 64

SKM’s claims and counterclaims

The contractual issues

Stage 1-

SKM’s claims as to the terms of the stage 1 agreement

Paragraph 3 - SKM claim - agreement to design, supply and construct – issue 1

Paragraph 4(a) – SKM claim – perform works in accordance with drawing – issue 2

Paragraph 4(b) – SKM claim – Australian standards – issue 3

Paragraph 4(c) – SKM claim – processing 15 tonnes per line per hour – issue 4

Paragraph 4(d) -  SKM claim - processing co-mingled waste – issue 5

Paragraph 4(e) - SKM claim - risk assessment- issue 6

Paragraph 4(f) - SKM claim - completion by 15 September 2003 – issue 7

Paragraph 4(g) – SKM claim - warranty – issue 8

Paragraph 4(h) - SKM claim - provide detailed drawings – issue 9

Paragraph 4(i) - SKM claim - rectify parts not operating – issue 10

Paragraph 4(j) - SKM claim - conveyor belts - issue 11

Paragraph 4(k) - SKM claim - materials fit for the purpose – issue 12

Paragraph 4(l) - SKM claim - merchantable quality –issue 13

Paragraph 4(m) - SKM claim – enclose moving parts of conveyor system – issue 14

Paragraph 4(o) - SKM claim – sum for stage 1 works – issue 15

Paragraph 4(p) - SKM claim - professional indemnity insurance – issue 16

Stage 2

Paragraph (5) – SKM claim - Stage 2 agreement – issue 17

Paragraph 6(a) - SKM claim - stage 2 agreement in accordance with drawings – issue 18

Paragraph 6(b) - SKM claim - price of stage 2 works – issue 19

Paragraph 6(c) – SKM claim - electrical control and wiring – issue 20

Paragraph 6(d) - SKM claim - risk assessment of the stage 2 works – issue 21

Paragraph 6(e) - SKM claim – OH&S Regulations – issue 22

Paragraph 6(f) - SKM claim – fully operational within approximately 8 weeks – issue 23

Paragraph 6(g) - SKM claim – capable of processing 25 tonnes of co-mingled waste – issue 24

Paragraph 6(h) - SKM claim - capable of processing co-mingled waste – issue 25

Paragraph 6(i) - SKM claim - design to Australian standards – issue 26

Paragraph 6(j) - SKM claim - documentation for stage 2  – issue 27

Paragraph 6(k) - SKM claim - warranty for stage 2  – issue 28

Paragraph 6(l) - SKM claim - design suitable for commercial grade recycling – issue 29

Paragraph 6(m) - SKM claim - incorporate moveable splitter – issue 30

Paragraph 6(n) - SKM claim - rectify any parts not operating in stage 2 – issue 31

Paragraph 6(o) - SKM claim - producing grade 6 paper – issue 32

Paragraph 6(p) - SKM claim - producing ’mixed plastic’ grade – issue 33

Paragraph 6(q) - SKM claim - provide detailed drawings for approval – issue 34

Paragraph 6(r)  - SKM claim - materials fit for the purpose in stages 2 – issue 35

Paragraph 6(s) - SKM claim - merchantable quality – issue 36 (6(s))

Paragraph 6(t) - SKM claim - properly enclose moving parts – issue 37 (6(t))

Paragraph 6(u) - SKM claim -professional indemnity insurance – issue 38

SKM allegations of representations by ICA – SKM claim 10

Paragraph 10(a) - SKM claim – capable of designing heavy duty conveyors – issue 46

Paragraph 10(b) - SKM claim – capable of designing disc screens – issue 47

Paragraph 10(c) - SKM claim – manufactured a plastic plant for Visy – issue 48

Paragraph 10(d) - SKM claim – manufactured a plastics plant for Waverley – issue 49

Paragraph 10(e) - SKM claim – co-mingled commercial grade recycling plant – issue 50

Paragraph 10(f) - SKM claim – ‘ins and outs’ – issue 51

Paragraph 10(g) - SKM claim – repair, replace and rectify – issue 52

Allegation against Mr Erskine

Conclusion – alleged representations by Mr Erskine

Conclusion as to issues

HIS HONOUR:

Introduction

1. This case arises out of the construction of a waste recycling plant at Coolaroo, north of Melbourne.  The plant separated recyclable household waste into its components, such as glass, paper and metal cans.  The plant was owned and operated by the defendant, SKM.  It has since burnt down.

1. SKM operated a waste recycling plant in Thornbury.  SKM was conducted by Mr Joe Italiano and his two sons, Robert and Anthony Italiano.  In 2003, SKM had succeeded in obtaining from the City of Burandoora a significant contract for the recycling of domestic recyclable waste.  SKM did not have sufficient capacity at its Thornbury plant to recycle this waste.  To fulfil that contract, SKM acquired the site at Coolaroo to build and operate a recycling plant.

1. The plaintiff, ICA, carries on business manufacturing and installing conveying platforms.  ICA has a manufacturing plant in Bendigo, which is managed by Mr Donald Erskine.  The company is owned by Mr Erskine and his staff.  ICA is one of the largest manufacturers of conveying systems in Australia and has supplied conveyors to customers such as mining companies, tobacco businesses and Coca Cola.

1. In 2003, SKM retained ICA to manufacture and install conveyors and other components of the recycling plant at Coolaroo.  The recycling plant at Coolaroo was made up of conveying platforms and systems and other equipment that separates the recyclable products.  The conveying platforms and systems constitute a significant part of the recycling plant.

1. Between September 2003 and 2006, under various separate contracts, ICA supplied and installed conveying platforms and other plant and equipment at the Coolaroo plant.

1. In May 2007, ICA instituted proceedings against SKM in the Magistrates’ Court at Bendigo for $52,392.64 said to be owing in relation to work on what is called in that proceeding the C2 incline elevator. SKM disputed the debt and counterclaimed for some $3,955,627.08, alleging breach of contract by ICA, and also alleging misleading and deceptive conduct by ICA in breach of s 52 of the Trade Practices Act 1974. The matter was uplifted to the Supreme Court of Victoria. There, ICA amended its claim to seek $820,117.20 as debts owing.

1. The claims and counterclaims in this matter are extensive.  SKM claims that in the order of fifty contractual terms have been breached.  ICA in turn claims moneys due under many different invoices.  Multiple court books have been filed and expert witness reports tendered.  The technical issues in the matter are not simple.  The parties estimated the matter would run ten days, a less than reasonable estimate.  It soon became apparent to me that to properly hear the matter considerably more than ten days would be required.  I considered that it might be more expeditious to resolve the multiple contractual issues as preliminary questions.  I made Orders accordingly, included as annexure 1 to this judgment.

1. One of the main contractual issues between the parties is whether ICA was retained to design the recycling plant and whether ICA agreed to achieve certain performance characteristics of the plant as a whole.  That is, whether ICA agreed with SKM  to design and build a plant that could achieve a certain quantity and rate of output.  SKM claims ICA was under a contractual obligation to do so.  ICA deny that claim and says that it was only retained to build certain items of plant to be installed in a plant designed by SKM.

1. In summary, I have upheld the contracts relied on by ICA to make out its claims against SKM.  I have not found that ICA was retained to design the plant, nor that it had agreed to design and construct it to achieve the output claimed by SKM.  Due to the large number of contractual issues I have been asked to decide, it is not possible to include a summary of them all here.  I refer to them in detail below.

The trial

1. The trial of the preliminary issues took place over thirteen days.  The court book comprised five folders.  The following persons gave evidence.

ICA witnesses

1. (a)       Donald James Erskine, managing director of ICA.[1]

   [1]Exhibit P14A and exhibit P15 (attached photographs), unredacted version CB volume 2, 1158-1258; exhibit P 16A, unredacted version CB volume 3, 2656-2695

(b)      Shane Byleveld, project manager employed by ICA since 1998.[2]

[2]Exhibit P24A, unredacted version CB volume 2, 1076-1157; exhibit P25A, unredacted version CB volume 3, 2624-2647.

(c)       Clinton Robert Miller, from 1 May 2001 to 9 February 2007 contracted by ICA as a design draftsman: witness statement of 20 June 2011.[3]

[3]Exhibit P26A, unredacted version CB volume 2, 1284-1288, exhibit P27, CB volume 3, 2654-2655.

(d)      Jason Mathew Downing, since 2003 employed by ICA as an electrical design engineer.[4]

[4]Exhibit P29, CB volume 2, 1273-1281, exhibit P30,  CB volume 3, 2648-2651.

(e)       Shane David Normoyle, from 1996 to 2003 worked with ICA as an A Grade Electrician and 2003 to 2008 as a Site Installation Electrician.[5]

(f)       Rodney Baldock, employed by ICA as general supervisor from 1997 to 2004, in 2004 promoted to production planning, sales and general administration of a division of ICA.[6]

(g)      Bruce Robert Granger, general manager of ICA, at time of ICA work in 2003-2006 held position of Senior Project Manager.[7]

[5]Exhibit P31, CB volume 2, 1259-1263.

[6]Exhibit P32, CB volume 2, 1289-1294.

[7]Exhibit P38, CB volume 2, 977-1075.

SKM witnesses

1. (a)       Robert Italiano, in the period relevant to the dispute held the position of administration and business manager of SKM.[8]

   [8]Exhibit D9A, unredacted version, CB volume 2, 1295-1340 (attachments 1341-2393), exhibit D10A, unredacted version, CB volume 4, 2696-2730.

(b)      Anthony Italiano, in the period relevant to the dispute ensured the plant was operating and maintained the plant.[9]

(c)       Richard Collins, employed by ICA between 1997 and 2010, started as a boilermaker, promoted to a leading hand and then to supervisor.[10]

(d)      Anthony Ian Metcalf, employed by ICA from 1993 to 2010 as a boiler maker.[11]

[9]Exhibit D11A, unredacted version, CB volume 3, 2394-2451 (attachments 2452-2467), exhibit D12A, unredacted version, CB volume 4, 2731-2796 (attachments 2797-2802).

[10]Exhibit D13, CB volume 3, 2648-2476 (attachments 2477-2602).

[11]Exhibit D14, CB volume 3, 2603-2623 (attachments photographs 2453-2455).

The pleadings

1. The relevant pleadings are as follows:

(a)       ICA’s amended statement of claim of 21 December 2009[12] (ICA claim);

[12]21 December 2009, CB 23-32.

(b)      SKM amended defence of 5 March 2010 to ICA ASC[13] (SKM defence);

[13]CB 43-52.

(c)       SKM further amended counterclaim of 3 December 2009[14] (SKM claim);

(d)      ICA defence of 19 February 2010 to SKM FACC[15] (ICA defence);

(e)       Erskine defence of 19 February 2010 to SKM FACC[16] (Erskine defence).

[14]CB 3-22.

[15]CB 33-40.

[16]CB 41-42.

1. There are also further and better particulars of various pleadings.

Written submissions

1. ICA:

(a)       ICA’s outline of closing submissions of 4 November 2011;[17]

(b)      ICA’s summary of final submissions of 8 November 2011.

[17]Exhibit MFI P44.

1. SKM:

(a)       SKM outline of submissions, including: [18]

[18]Exhibit MFI D15.

(i)       Summary of legal issues to be determined SKM counterclaim;

(ii)      Contractual issues SKM counterclaim;

(iii)     Provenance of drawings and sketches;

(iv)     Clinton Miller invoices;

(v)      Throughput calculation.

(b)      Addendum to SKM’s submissions (undated).

SKM’s business

1. SKM is a family owned company under the control of Mr Joe Italiano.  He is assisted in his business by his two sons Mr Roberto Italiano and Mr Anthony Italiano.  Robert attends to financial and business matters.  Anthony attends to mechanical and technical matters.  The company carries on business separating recyclable waste into its component parts.  The recyclable waste is essentially obtained from household bins provided to each home by local councils.

1. Recyclable waste generally consists of co-mingled glass and plastic bottles, aluminium and metal cans, cardboard and paper.  The plant that carries out the separating is called a recycling plant.  SKM owned and operated such a plant in Thornbury.

1. Some time prior to May 2003, SKM obtained a new contract to process recyclable waste.  In order to process this waste, SKM decided it needed a new recycling plant.  A site was found at Coolaroo, north of Melbourne.  The site had an existing building into which the new plant would be installed.

1. Generally speaking, the plant functioned by putting the co-mingled recyclable waste on a series of conveyors.  At various stages along the series of conveyors types of waste were removed by hand, or by some sort of machinery.  The recyclable waste also contains non-recyclable products such as household rubbish including items such as old prams and toys.  In the plant to be built at Coolaroo non-recyclable waste was to be removed by hand as it travelled along a conveyor.  Other recyclable waste such as tin cans would be removed by the conveyor passing under a magnet that attracted the cans.  As the co-mingled waste travelled along a series of conveyors it would be further separated and placed in bins or such like.

The Coolaroo Project

1. Before turning to the contract issues between the parties, it is useful to describe the Coolaroo project in a little more detail.  I propose to use the description provided by Mr Erskine,[19] with reference to contemporaneous documents, as I have no reason to doubt what they record.

   [19]20 June 2011, Exhibit P14.

1. ICA was retained to manufacture and install conveyors and other components of the Coolaroo plant.  The Coolaroo project was divided into stages.  SKM specified and supplied all the sorting equipment and a number of other items incorporated into the plant.  As a general observation, ICA supplied and installed most, but not all, of the conveyors and platforms, and SKM supplied the equipment which performed the role of sorting and separating the co-mingled product into its different types, and the balers (which were located at the end of the different product lines and would compact material after it had been separated).  ICA also built the disc screens that separated paper from the co-mingled product.

Conveyors

1. Although I am addressing contractual issues, it is necessary to provide some detail of the equipment used in the plant including the conveyors supplied by ICA.  A conveyor consists of the following essential components:

(a)       a moving belt of any width or length which rotates around two ends, often referred to as the head drum (or pulley) and the tail drum;  and

(b)      a motor/gearbox which drives/rotates the head drum which, in turn, drives the belt.

1. The tail drum is usually adjustable to provide the appropriate amount of tension on the belt to create friction on the head drum.

1. The motors that ICA supply for the conveyors are electric.  They range in size (motor horse power) depending on requirements.  The motor is connected to a motor control station (switchboard) and mains power.  The motor control station has motor overload protection which is adjustable, depending on motor power.

1. Belts are made of various types of materials.  For the Coolaroo project, most belts were made from rubber with a polyester type carcase.  The belts require replacement periodically.

1. On its return from the head drum, the belt is carried on a number of support rollers, which are often approximately 50mm in diameter, and are spaced at varying intervals to support the belt on its return to the tail drum.  For heavy duty applications, a chain-guided belt using sprockets to transmit torque/pull to the belt might be used instead of pulleys.  Only one of these was used in the SKM project.

1. To operate properly, a belt must ‘track’ in a straight line continuously.  A belt can ’track off’ the head drum if the conveyor pulleys are incorrectly adjusted or go out of alignment.  In poorly maintained situations, produce can build up on rollers and cause the belt to run off line.  Tracking can be adjusted by:

(a)       adjusting the angle of the head drum;

(b)      adjusting the angle of the tail drum;  or

(c)       adjusting the angle of the return rollers.

1. Conveyors can be flat or inclined, depending on the position of the head and tail drum.  Inclined conveyors often have a cleated belt for elevating (carrying) materials.

1. Belts can be flat or can be troughed, depending on the type of material and process requirements.  Flat belt conveyors usually have skirts which provide a seal between the vertical side guard and the belt.  These need to be regularly checked, adjusted and maintained to prevent spillage and leaking of material.  Troughed conveyors usually do not have side guards.

1. When adjusted correctly, scrapers remove material that has stuck to the belt in order to prevent a build-up of foreign matter which can affect belt tracking, which in turn can damage the belt.  Scraper blades can be made of metal or plastic and are consumable items.

1. Conveyors will also have guards and safety barriers to stop personnel from being injured.  They are usually located at a point where a person could be caught or injured by moving components.

Stage 1

1. Stage 1 involved the building of a material processing line to process recycled product other than paper and cardboard, i.e. plastics, glass, aluminium and steel cans.  ICA performed the stage 1 works from August to mid-October 2003.

1. The design layout for the stage 1 works is set out in drawing number 24620 Revision 4.[20]  Stage 1 used one in-feed line (process line).  Product delivered by recycled waste collection vehicles was dumped onto the floor of the plant and would then be placed onto the in-feed line at the first conveyor (in-ground conveyor) by a tractor or front-end loader (i.e. manual input).  The weight, volume and bulk density of the feed material was affected by the mix of product.  SKM provided ICA with details of loads, volume and percentages of light product and heavy product on 1 July 2003[21] and 29 July 2003.[22]

   [20]CB 230.

   [21]CB 175.

   [22]CB 206.

1. Product placed onto the in-ground conveyor was then conveyed to an elevator conveyor that took the product up to a platform where a primary sorting of the product was to be done by four people stationed there (two on each side of the conveyor) whose job it was to remove foreign objects from the waste stream such as ropes, large items and general rubbish.  Foreign objects were to be dropped into chutes.  It was important that this primary sorting removed the majority of those foreign objects at this stage of the process because otherwise, if such objects continued down the line, it could reduce the efficiency of the later sorting processes.

1. After primary sorting, the product went under a magnetic conveyor (supplied by SKM) for the removal of ferrous metal objects.  The metal objects, such as metal cans, dropped into a chute and then into a steel baler (i.e. a compactor).  The steel baler was supplied by SKM.

1. The product then went onto a disc screen conveyor which removed fine material.  From the disc screen conveyor, product went through the ‘classifier’ (supplied by SKM), which is a unit which removed light product (e.g. aluminium cans and plastic) from glass product (which is heavier).

1. The remaining product then passed over a bounce conveyor (supplied by SKM) to separate paper from the plastic product.[23]  Plastic product then passed a quality control station, where any foreign product still remaining was manually removed from the plastic screen by hand.  The plastic material was then delivered to a plastic baler unit (supplied by SKM).

   [23]Erskine witness statement in chief [47], CB 2 1165.

1. The remaining heavy product was conveyed along a conveyor referred to as a glass sorting line where three types of glass (clear, green and brown) were manually separated and placed into chutes.  Any remaining product continued on as general rubbish to a collection bin.

ICA supplied equipment

1. For stage 1, ICA provided the individual conveyors and support structure (including platforms) to deliver product to the SKM-supplied sorting equipment.  ICA supplied approximately 12 conveyors for stage 1, along with associated electrical equipment and controllers, safety equipment (such as emergency stop switches) and operating manuals.  ICA did not supply equipment, such as classifiers, to actually sort product on the stage 1 line.  The only handling equipment supplied was the individual conveyors to connect the SKM-supplied sorting equipment.  The conveyor widths and locations were nominated by Robert Italiano in his email dated 28 July 2003.[24]

   [24]CB 205.

SKM supplied equipment

1. The major sorting equipment supplied by SKM for stage 1 was:

(a)       a magnetic separation conveyor to remove metal objects;

(b)      the classifier unit referred to above to separate light product from heavy items, such as glass;

(c)       the eddy current unit which uses a fast-spinning magnet to remove aluminium cans from the light product;

(d)      a bounce conveyor for removing paper from plastic beverage waste; and

(e)       a number of balers which compacted product at the end of a product line.

1. All other materials were removed by manual sorting personnel.  These supplied items and personnel determined the quality and volume of product sorted.

Stage 2

1. Stage 2 of the project involved the processing of co-mingled product, for the removal of paper, cardboard and foreign objects, before the remaining product passed to stage 1 for further processing.  This was called stages 2 and 3.  For convenience I will refer to stages 2 and 3 as merely stage 2.  Drawing 24622 dated 11 November 2003 shows the layout plans for stage 2.[25]  Mr Erskine instructed ICA personnel to design the plant based on 30 tonne input to ensure there was enough capacity.  ICA performed stage 2 works from November 2003 to early March 2004.

   [25]CB 420.

1. Mr Erskine explained the process performed by stage 2 in his witness statement as follows.[26]  At the end of the incline belt, the product was then split into two lines by a moveable splitter (the moveable splitter allowed adjustment so that more or less product could be directed to each of the two sorting lines).  The lines were split/duplicated so that a sufficient number of manual sorters could have physical access to the product to perform manual sorting.

   [26]Erskine witness statement in chief [60] and following, CB 2 1166.

1. In the first part of the line, ten sorters sorting per line (20 people) would manually remove general waste from the line and drop it down chutes, where it would be conveyed to a collection bin.

1. The remaining recyclable waste product then continued along and over a coarse disc screen which separated out newspaper and cardboard (which continued along the line).  Plastic, glass, metal, aluminium and smaller paper items would fall through the first disc screen and drop onto a second fine disc screen which removed further paper items.  Beverage products such as glass, plastic, aluminium and metal cans were then conveyed to a point where they could be manually re-inserted into the stage 1 system.

1. The product that passed over the coarse and fine disc screens, mostly paper and cardboard, would then be conveyed along two sorting lines, one above the other, with eight manual sorters on the upper deck and eight on the lower deck (16 people on each of the two lines) who would sort product to manually remove cardboard and any remaining foreign items that were mixed with the paper.

1. Paper product would then continue through and be combined from the two lines as mixed paper before entering the baling unit, which produced large bales of compressed paper.  Originally, Robert Italiano’s concept had been to separate paper into two grades, coarse and fine paper, but the system he designed and ordered joined two paper lines up to produce mixed paper, which was baled.

ICA supplied equipment stage 2

1. For stage 2, ICA supplied the following equipment:

(a)       approximately 17 conveyors and support/platforms;

(b)      the moveable splitter (which split the single line into two sorting lines referred to above);

(c)       four disc screens (i.e. two coarse and two fine disc screens); and

(d)      associated electrical equipment and controllers, safety equipment and maintenance/operations manuals.

SKM supplied equipment for stage 2

1. For stage 2, SKM supplied the paper baler and the design for the disc screens.

Further works

1. ICA contends that in addition to the stage 1 and stage 2 works, ICA performed the additional works that are the subject of its claim.  These are discussed in detail below.

The nature of the contract between SKM and ICA

1. In May 2003, SKM contacted ICA to provide conveyors for the new plant.  The exact nature of what ICA was retained for is one of the main issues I need to resolve.

1. The parties agree that the first meeting between them was held at SKM’s Thornbury office in May 2003.  There is considerable dispute as to what transpired at this first meeting.

1. Subsequently, ICA was asked to provide a quotation for the supply of equipment for the plant.  Again the exact nature of what ICA was requested to do is a matter in issue between the parties.  There is no dispute, however, that the plant was to have two sections.  One section was to separate out glass and plastic.  It was called the bottle line.  The second, was to separate out paper and cardboard.  That was called the paper line.  Ultimately, the plant was to operate with paper being separated out first before the feed travelled on to the bottle line.  As events transpired, the sections were built in two stages.  Stage one, the bottle line, was built first and then the paper line and connecting conveyor to stage one was built, this being stage 2.

1. The two main witnesses as to the negotiations between ICA and SKM are Mr Erskine and Robert Italiano.  Their recollections of the negotiations differ considerably.  For reasons that I explain below, I consider that Mr Erskine’s recollections are the more reliable.  I will, however, set out the substance of the evidence in chief of both Mr Erskine and Mr Robert Italiano.

Mr Erskine’s evidence on the formation of the stage 1 and stage 2 contracts

1. Mr Erskine, in his witness statement, gave the following evidence of the initial contact with SKM and negotiations leading up to the contracts:

1. On or around 14 May 2003, Mr Erskine received a telephone call from Robert Italiano inquiring as to whether ICA made conveying equipment and whether ICA would be interested in tendering for a project requiring a number of conveyors.  A meeting was organised.

17 May 2003 meeting

1. Mr Erskine attended SKM’s premises in Thornbury on or about 17 May 2003 and met with Robert Italiano, Anthony Italiano and their father Joe Italiano.  They discussed the equipment required for a recycling plant and ICA’s ability to manufacture the conveying components for such a plant.  Robert Italiano did most of the talking for SKM.  Robert said that they had their design for the plant that they had in mind, that the design was being drafted, and that these drawings would be provided to ICA following their inspection of ICA’s Bendigo facility.  Joe Italiano told Mr Erskine that strict confidentiality had to be observed, to which Mr Erskine agreed.  This meeting concluded on the basis that the Italianos would visit the ICA workshop in Bendigo to determine for themselves ICA’s suitability to manufacture the equipment they required.  There was no discussion with regard to location, volumes or type of product at this meeting.

28 May 2003 meeting

1. On 28 May 2003, Anthony, Robert and Joe Italiano attended ICA’s premises at Howard Street, Epsom (Bendigo) at approximately 10.00 am.  Following a full inspection of the manufacturing facilities, a meeting was convened in the ICA boardroom.  Mr Bruce Granger (senior project manager) and Mr Clinton Miller (draftsman) from ICA attended this meeting.

1. Joe Italiano told ICA that SKM had won a major contract to process product that had been collected from the kerbside by, Mr Erskine believes, Cleanaway, for a northern suburbs municipality, and that SKM had sourced a green fill site, being the ex-Smorgon’s steel premises at Maffra Street, Coolaroo.

1. Robert Italiano said that the design work, including the length and width of the conveyors, and their location, had been completed and that these conveyors were to form the interconnection for the delivery of product between the various processes.  ICA was told that SKM would source and supply the various sorting components required for the plant.  Mr Erskine does not recall being given any details about those components at this meeting.

1. Robert Italiano said that his idea was that SKM would manage the project and be responsible for the plant layout, the process control, the sorting equipment, the throughput of the recyclable product and the determination of manning levels.  He said that SKM would prepare the detailed drawings of the individual conveyors, which ICA would then manufacture and install, along with the associated support structure, platforms and walkways, electrical control and wiring.  Robert said that as he was responsible for the design, he would approve ICA’s drawings.  All the other equipment (i.e. sorting equipment), which was being provided by SKM, would be installed by SKM.  Robert said that ICA would be provided with detailed layout drawings, showing elevations and locations, early the following week.  Discussion also took place regarding the possibility of ICA providing extra drafting services to help speed up the project.

6 June 2003 meeting

1. On Monday 2 June 2003, ICA received, via email, a number of drawings from Anthony Italiano.  These drawings showed the main dimensions, including width, length and elevation of each conveyor, but were, according to Mr Erskine, no where near comprehensive enough to allow ICA to quote for the manufacture of the individual conveyors.

1. The next morning, on 3 June 2003, Mr Erskine telephoned Anthony and expressed his concern that there was not enough information in the drawings he had provided for ICA to give a quotation.  Mr Erskine was told that further drawings would be sent to ICA once they had been received from SKM’s drafting service.  A second batch of drawings was received by ICA on Wednesday 4 June 2003.[27]

   [27]CB 156.

1. The additional drawings provided by SKM were very sketchy and did not provide the detail Mr Erskine expected or required in order to quote, so he organised a meeting with SKM.  A meeting was held at SKM’s Thornbury premises on or about Friday 6 June 2003.  In attendance at this meeting were Anthony, Robert and Joe Italiano, Mr Erskine and Clinton Miller.  Mr Erskine offered to second Mr Miller to SKM to provide drafting services so that SKM could properly document the proposed project design and ICA could then provide a quote.  Robert agreed with this suggestion and said that he would direct Mr Miller on the design.  Mr Erskine said that if ICA was successful in winning the project, then these drawing costs would be amortised within the project and if ICA did not win the project, then ICA would be paid for hours expended for producing the drawings at a rate of $58 per hour.  Mr Erskine’s recollection is that Robert seemed happy with that arrangement.

1. From this point on, Robert was ICA’s main point of contact with SKM.  Robert was in regular contact with Mr Miller in developing the concept and the design.  Some preliminary drawings were provided by Mr Miller to Robert on 20 and 23 June 2003.[28]

   [28]CB 165.

July 2003

1. On 1 July 2003, Anthony Italiano provided by email details of the product mix, volume and density of the proposed plant.[29]  A meeting was held on or about 8 July 2003 at SKM’s premises at Thornbury.  Those present were Robert and Anthony Italiano, Mr Miller and Mr Erskine.  Mr Erskine requested specific details on the general layout and manning levels of the plant.  This was necessary because ICA needed, for the purposes of providing a quote, to know where personnel were to be located within the plant so that ICA could provide for platforms and access (stairs, etc) to their work stations.  At the meeting, Robert indicated where personnel were to be located.  (The locations and manning levels were then included in the next layout drawings.)

   [29]Email 1 July 2003, CB 175.

1. An email records that on 9 July 2003, Mr Miller sent Robert a PDF of the Coolaroo recycling plant, telling him that they would bring some section drawings and a full size layout to the meeting on the following day.[30]

   [30]CB 176.

10 July 2003 quotation

1. Using the information that had been provided to ICA by SKM, Mr Erskine prepared a quotation on 10 July 2003 (quotation number 1628) which was given to SKM the same day at a meeting at Thornbury.[31]  This quotation outlined and covered all the points that had been raised by Robert Italiano up until this time and was based on layout drawing number 24620.[32]  In the quotation, the various stages had been separated with individual pricing for each stage.  The total price for stage 1 was $1,171,853.46, stage 2 was $1,351,751.34 and the price for a future stage was $451,590.78, giving an overall package for stages 1, 2 and the future stage of $2,975,194 excluding GST.  Specific exclusions within this quotation were item seven, liquidated damages; item eight, any retention; and item nine, any conditions unknown to ICA at the time of quotation.

   [31]CB 178.

   [32]CB 230.

1. Included in the quotation was a clause to the effect that any additional guarding which may be required due to the final application of the equipment was not included.  Mr Erskine said that this type of clause is usual in installations because additional guarding which is required at the interface between the various components of equipment is usually fabricated and installed after the equipment is in place at site.

10 July 2003 meeting and follow up events

1. On 10 July 2003, Bruce Granger, Mr Miller and Mr Erskine met with Robert and Anthony Italiano at Thornbury to discuss the 10 July 2003 quotation.  According to Mr Erskine, at this meeting Robert became quite agitated.  He said that the prices quoted were way above his budget and that they had only been able to secure a leasing finance from the bank for a much smaller amount.  He then went through each item in the quotation, making comments such as ‘that’s ridiculous’, and ‘there’s no way I’m paying for that’.  They then discussed taking items of equipment out of the quotation or doing a re-design to simplify the project to reduce the cost.  The layout was changed and items such as the second glass line were taken out, however Mr Erskine says that provision had to be made to provide for its future inclusion.[33]

   [33]Erskine witness statement in chief [95], CB 2 1171.

1. After this meeting, Mr Miller prepared a new layout drawing.  Mr Erskine then prepared a further quotation (quotation number 1628 Revision B, dated 21 July 2003) based on the discussions of 10 July 2003 and layout drawing number 24620 Revision 3.[34]  Mr Erskine emailed it to SKM on the afternoon of 11 July 2003.  This quotation related specifically to the stage 1 glass line and outlined individual costing for each item, including the future stage.

   [34]CB 192.

1. The same day, Robert Italiano telephoned Mr Erskine.  According to Mr Erskine, Robert was still agitated and said that Mr Erskine had not carried out his instructions, that the quotation was unacceptable, and that he required further reduction.  Robert requested the removal of all items not relating to the direct supply of the item of equipment, such as maintenance, warranty, documentation and project management.  Robert stated that ICA was competing directly with SKM manufacturing the equipment themselves and that he wanted a ‘bare bones’ price based on supply for individual items of equipment.  He said that SKM would take over and run the plant as soon as it was ready to run, and any extra work required to optimise the plant would be done on a cost plus basis under instruction from himself or Anthony Italiano.  Robert also instructed Mr Erskine to concentrate on stage 1 and said that the remaining stages of the project would be considered by SKM at a later date.

1. On 22 July 2003, Mr Erskine prepared another quotation and emailed it to Robert Italiano.[35]  This quotation was a base price ‘bare bones’ quotation, further reduced to $934,762.89 excluding GST and was based on items of supply and installation only.  Further drawings showing the simplified version of plant were produced by Mr Miller under instruction from Robert and were provided by ICA to SKM on 23 July 2003.[36]

   [35]CB 192.

   [36]CB 200-202.

1. On 28 July 2003, Robert Italiano provided conveyor width details to Mr Miller and instructed ICA to make the glass sorting line (i.e. the stage 1 line) as close to the factory wall as possible to allow the platform to accept another glass sorting line at a future stage if required.  He also resized the conveyor width to 1200mm to further reduce the price of the quotation.[37]

   [37]CB 205.

1. On 29 July 2003, Robert Italiano provided Mr Miller with details of the brick wall for the plant, and details of volumes and the densities of the products making up the mixed product (glass, plastic, aluminium and liquid paperboard).[38]

   [38]CB 206.

1. On 29 July 2003, Jason Downing of ICA requested details of the kilowatt rating for each of the balers and details of the main switchboard and location from Robert Italiano.[39]

   [39]CB 207.

1. On 29 July 2003, Mr Miller and Robert Italiano corresponded on the location of equipment.[40]

   [40]Mr Erskine refers to Mr Miller’s email dated 29 July 2003 at CB 209, and Robert Italiano’s email dated 29 July 2003 at CB 211 providing instruction to Mr Miller.

1. On 31 July 2003, Mr Downing sought details on the classifiers, electro-magnet and transfer belt from Robert Italiano.[41]  Mr Erskine said that Robert provided details for the classifier the same afternoon.[42]

   [41]CB 215.

   [42]CB 216.

August 2003

1. On 1 August 2003, Robert and Anthony Italiano travelled to Bendigo to inspect the prototype conveyor that had been manufactured by ICA at SKM’s request, prior to an order being placed, so that SKM could be satisfied that the conveyor design and construction and the materials used were to their satisfaction.

1. On inspection, they praised the prototype and approved it without any modifications.  This conveyor design was then used on stages 1 and 2.

1. After the inspection, a meeting was held between Mr Erskine, Mr Shane Byleveld, Mr Miller, and Anthony and Robert Italiano.

1. Shane Byleveld was the project engineer assigned to the project.  He was responsible for co-ordinating the manufacture of equipment at ICA’s workshop in Bendigo, its delivery to site, and installation.  Mr Byleveld was based in Bendigo but would go out to Coolaroo as required by the project activities, sometimes on a weekly basis and sometimes daily (for example, during commissioning).  Mr Byleveld reported to Mr Bruce Granger and also kept Mr Erskine informed of progress on the project.

1. At the meeting on 1 August 2003, Robert Italiano gave ICA final details for the throughput, manning levels and equipment supply.  Robert said that the throughput for the stage 1 system was to be 10 tonne per hour, and that the product coming from the stage 2 system would be a further 10 tonne per hour being distributed to the additional glass line to be built at a future date.  As it was an additional stage 1 glass line was not built by ICA.

1. Mr Miller prepared further drawings relating to items discussed at the 1 August 2003 meeting, including a revised version of drawing number 24620, which he provided to Mr Erskine.[43]

   [43]CB 230.

6 August 2003 quotation – stage 1

1. Mr Erskine then prepared quotation 1628 Revision 4 dated 6 August 2003 for Stage 1 which was sent to Robert Italiano on that day.[44]  Drawing number 24620 was attached to the quotation.[45]

   [44]CB 231.

   [45]CB 230.

1. Robert Italiano requested that Mr Erskine provide two versions of this quotation, one showing itemised pricing, the other showing only the total price.  Mr Erskine understood that the second version, showing only the total price, was for the Italiano’s bank.

1. Quotation 1628 Revision 4 allowed for extra items of equipment that Robert Italiano now required for Stage 1.  It described each individual item to be supplied, together with the width, length and type of conveyor and equipment.

1. The quotation also set out a list of exclusions.  One exclusion (number 11) noted that ICA assumed that all SKM-supplied items would be provided fully assembled and fit for purpose, and that should extra work be required to modify equipment supplied by others to fit into the system, then this would be via agreed variation as required.

1. The final quoted price for stage 1 was $742,620 plus GST.  This reflected the extra equipment added by Robert Italiano at the last minute and reductions that were brought about by reducing the scope of supply and providing for a manufacture and supply contract.

1. Mr Erskine said that it is important to appreciate that there were no specification or efficiency requirements.  He said this would not have been appropriate given the scope, and Robert Italiano’s design, of the project.

1. The final go ahead for the stage 1 works was given by payment of the deposit.[46]  The invoice was paid in two parts - $148,524 on 12 August 2003 and $14,852.40 on 14 October 2003.

   [46]CB 272.

1. Other than the payment of the deposit, SKM did not provide an order placement or written confirmation, nor did they provide any specification or efficiency requirement.

1. Robert Italiano had promised during the meeting on 10 July 2003 and 1 September 2003 that a specification would be written, detailing the requirements of the project, including terms and conditions, however this was never produced.

Stage 1 works

1. The 6 August 2003 quotation noted that ICA would need access to the site commencing on the fourth week of August to begin installation work.[47]  It also noted that ICA was confident of having product run through the system by 15 September 2003 provided there were no major changes and the supplied components were available and ready for installation when required.

   [47]CB 231.

1. ICA performed the stage 1 works referred to in the 6 August 2003 quotation from August to October 2003.  Mr Byleveld was the project engineer.  Mr Erskine instructed him and other employees on the project – Mr Downing, Mr Shane Normoyle, Mr Rodney Baldock and Mr Richard Collins – to do everything possible to ensure the work was completed in a timely manner.

1. All ICA-supplied equipment was installed and ready to run on 3 October 2003, and stage 1 was completed and ready for operation in mid-October 2003.  This was done despite the fact that:

(a)       A large section of floor area for the glass collection had not been completed by SKM and was not ready for ICA’s work to begin there.  SKM had not organised for the laying of the concrete in this area and the seven day curing time before the concrete could accept any load.

(b)      Some SKM-supplied equipment – compaction equipment and delivery conveyors supplied by SKM – was delivered to site late.[48]

(c)       The classifier supplied by SKM was missing necessary components, was under-powered and required modification.

[48]CB 1202.

1. Production commenced between 14 - 16 October 2003.  Due to the late arrival of SKM supplied equipment, commissioning phase activities in making adjustments, corrections and modifications were carried out during normal operation.

1. The plant system was heavily dependent on having proper manning levels for manual sorting in particular.  When production first began and testing and commissioning activities were still taking place, ICA site personnel manned the unmanned stations so that the system could be properly tested.  This testing and commissioning phase went on for about a week – Mr Erskine was in attendance for about half the week – after which SKM took over the running and manning of the line.

1. From Mr Erskine’s observations of the early stage production (he was on site about every second day in mid to late October), when the system was correctly manned and the manual in-feed was loaded by an experienced operator, the stage 1 project operated satisfactorily.  Joe Italiano, on several occasions, pointed out to Robert Italiano, in discussions at site that Mr Erskine and others were present at, that when he was operating the front-end loader in a controlled manner, then the limited staff was achieving the production rates and in fact on one extended period had doubled SKM’s throughput target.[49]

   [49]CB 1175.

1. Stage 1 was completed and handed over to SKM by 30 October 2003.  SKM assumed full responsibility for all maintenance and running of stage 1 lines from this date.  ICA personnel remained on the site until July 2004.  The number of personnel varied, depending on the work requirements as requested by both Anthony Italiano and Robert Italiano.  All hours worked by ICA personnel were recorded on time sheets and were charged at a rate of $54 for ordinary time, $65 for time and a half and $78 for double time, plus $100 a day for accommodation, meal allowance, travel expenses and living away from home allowance.

1. From the commencement of operation of stage 1 in mid-October 2003 until ICA left the site in July 2004, it was Mr Erskine’s observation that the plant (i.e. stage 1 and stage 2 lines) was substantially overloaded with product because of the maximum speeds and volumes that were set on the equipment by SKM in order to reduce the large amount of product being held in the yard.[50]

   [50]CB 1176.

1. Because SKM’s management were having great difficulty in sourcing suitable staff to man the equipment, ICA’s personnel were used as stand-ins during this period.  The cost for this labour was part of the extra site costs.  Mr Erskine refers to disputed invoice number 113005 dated 16 June 2004.[51]

   [51]CB 511.

Stage 2

1. The process for the stage 2 works was progressed in much the same way as for stage 1.  Robert Italiano had given instructions on the stage 2 parts of the project in May-July 2003, and gave further instructions to ICA during the stage 1 works phase, on which ICA quoted and did the work after payment of the deposit.

1. Mr Miller submitted a number of drawings to Robert Italiano regarding the layout of the Stage 2/3 area.[52]

   [52]Mr Erskine refers to emails dated 15, 17, 18, 20, 21, 22 and 24 September 2003 at CB 352 and 369.

1. Based on Robert Italiano’s instructions, and the layout drawing, Mr Erskine produced a new quotation for stage 2 dated 1 September 2003.[53]  In that quotation, Mr Erskine specifically excluded work outside normal working hours, liquidated damages, retention, any conditions unknown to ICA at the time of quotation and any additional guarding which might be required due to the final application of equipment.  Mr Erskine said that guarding could not be produced until the equipment was actually installed on site.

   [53]CB 318.

1. Several quotations were produced, and the layouts and drawings were revised by Robert Italiano to try and get the project within his tight financial requirements.[54]

   [54]Mr Erskine refers to the quotations dated 1 September 2003 and 3 September 2003 at CB 318  and 334.

Disc screens

1. The responsibility for disc screens is a significant issue in the case.  Mr Erskine says that Robert Italiano first provided instructions to ICA regarding the manufacture of the disc screens from in or around late June 2003 and at each subsequent meeting discussions took place regarding the disc screens.  Instructions were given to Mr Miller by Robert.  Mr Erskine was present at these meetings.  Mr Erskine said that drawings were then subsequently produced by Mr Miller and sent through to Robert for his approval.  The disc screens were included in ICA’s quotation as a fixed price based on the information that Robert had provided.

1. During October 2003, several discussions took place both at SKM’s premises at Thornbury and at Coolaroo.  These meetings were attended by Mr Erskine, Mr Miller, Mr Byleveld, Robert Italiano and Anthony Italiano, and were held to discuss matters that related to design of the disc screens.

1. ICA had no experience with disc screens. and had never previously manufactured them, so relied totally on Robert Italiano for the principle of operation and the design criteria required to construct the disc screens.  The details and drawings were provided to ICA, together with a short video clip showing the operation of a disc screen in (as Mr Erskine recalls) a plant in the USA.  Mr Erskine understood the use of disc screens was relatively new technology that Robert Italiano was adapting from overseas design.  The design Robert was using was based on disc screens that SKM had manufactured for their own operations.

1. Around this time, Anthony Italiano was manufacturing his own disc screens for another part of the process.  On several occasions, Mr Erskine says that Anthony disagreed with Robert as to the design of the disc screens Robert was proposing,  in particular to the diameter, the shape and the spacing of the discs.  Heated discussions took place on several occasions which Mr Erskine witnessed, and where their father, Joe, stepped in.  The altercations were normally quickly put to one side and the meetings got back on course.

1. ICA manufactured the disc screens.  Mr Miller gave evidence that Robert Italiano gave detailed instructions as to their manufacture.

1. Mr Erskine says that there were a large number of modifications needed to improve the performance of the disc screens designed by Robert, and when ICA left the site in June 2004, these modifications were still being carried out by SKM.

1. The disc screens were the only item that ICA manufactured in this project that related directly to the separation of product.  All other items manufactured by ICA related to the transport of product between items of equipment that had been supplied by SKM, the support structure, and electrical control of the supplied equipment.

13 October 2003 – quotation for stage 2

1. Mr Erskine prepared quotation number 1714 Rev 2 dated 13 October 2003[55] based on layout drawing number 24622,[56] and sent it to Robert Italiano on or about that date. The layout drawing continued to be developed through until 11 November 2003.[57]  This was the drawing that was current at the time SKM gave the go ahead to proceed and pay the deposit on 26 November 2003.

   [55]CB 399.

   [56]CB 352.

   [57]Exhibit P18, CB 422.

12 November 2003 meeting

1. On 12 November 2003, Mr Byleveld, Mr Miller and Mr Erskine met with Robert Italiano at Thornbury.  As discussed below, Robert disputes this meeting took place.

1. Mr Erskine had been seeking confirmation from SKM on throughputs and there were discussions about product mix and input.  Robert confirmed that the input was to be 25 tonnes per hour.  (Robert’s idea was that there would be two in-feed lines for stages 2 and 4 of 25 tonnes per hour each, however the second in-feed line and sorting lines never eventuated, so the in-feed for stage 2 was 25 tonne per hour.)  This reduced the need to install the second ten tonne glass line that had been previously proposed and was to be part of the stage 2 line.  Robert wanted to reduce the amount of product going into landfill.  His proposal was to convey waste product to the outside of the building to be deposited into a garbage compaction unit (provided by SKM) and to deliver binda (fine glass) to a separate holding bin.

1. At this meeting, Robert Italiano also confirmed that he was satisfied with the drawings and design of the disc screens that had been prepared by Mr Miller as per Robert’s instructions.  There was some discussion about using square shafts for the disc screens.  These points were noted on the drawing used during these discussions.[58]

   [58]Mr Erskine refers to drawing number 24622 dated 11 November 2003 with handwritten notes that he made at the meeting- Exhibit P18; CB 420.

1. In his oral evidence in chief, Mr Erskine elaborated on this meeting of 12 November 2003.  I deal with this in some detail, as it does provide a better idea of ICA’s case as to the dealings between ICA and SKM.

1. Mr Erskine says that at this meeting he was told by Robert Italiano that the infeed line for stage 2 was 25 tonnes.  He said that he instructed his people at the meeting to design the plant at 30 tonnes so that there was a bit of a buffer in the design and he marked as such on the drawing.[59]  Mr Erskine says he also marked on the drawing the conveyor C17 that ran across to the bottle line: 10 tonnes.

   [59]Transcript 136.

1. Mr Erskine referred to the disc screens for stage 2.  He said that he wrote on the drawing ’SKM to provide disc details, spacing and pitch and shape and angle for 6 and 8 paper.’ He also wrote ‘Anthony to get disc material info he uses and supplier.’  Mr Erskine said that there was a debate between Anthony and Robert about the shape and size of the shafts and either during or after the meeting it was decided to go for the square shafts.  Mr Erskine said that the issue was resolved at the meeting and on the back of the drawing there are sketches of the disc made by himself.

1. Mr Erskine says that there was also debate about the material to be used on the surface (of the discs) because the surface was in contact with the paper and determined how the paper would be secured.  Mr Erskine noted that Anthony was to provide the disc material.  Mr Erskine said that Robert provided detail of the shape of the discs.[60]

   [60]Transcript 139 line 16.

1. Mr Erskine said that Anthony provided ICA with the name of his supplier of the disc material and that ICA contacted the supplier but the material referred to by Anthony was not used.  Mr Erskine said that at the same discussion someone indicated that ICA had a problem getting the material in time and on the sketch on the back of the drawing an alternative was put up using conveyor belting.  Mr Erskine says that it was basically agreed between himself, Robert and Anthony that that was what they would use.[61]

   [61]Transcript 140.

1. Mr Erskine was asked about completion.  He said this was critical to SKM.  Originally the equipment was to be installed by Christmas.  Mr Erskine says that Robert told him the delay was due to the bank approving their loan facility.[62]

   [62]Transcript 140.

1. At the time of quoting on 13 October 2003, the target delivery date was before Christmas.  SKM’s delay in confirming the go ahead for the works created problems for ICA because it pushed the work into the Christmas period.  Under ICA’s enterprise bargaining agreement, ICA was required to give its employees at least six to eight weeks’ notice in advance if ICA wanted them to work over the Christmas period.  This issue was discussed with Robert Italiano at the meeting on 12 November 2003.  Mr Erskine said that ICA would use its best endeavours to complete the project in as short a period of time as possible.

1. Mr Erskine pointed out, however, that ICA could not force its employees to work over the Christmas period, but that ICA would call for volunteers.  Robert would not agree to any increase in the price due to the extra cost of labour working the holiday period, stating that he had only just got the finance package through with the bank and he was not prepared to go back and ask for more.

1. Mr Erskine referred to the two sorting lines on the drawing and his note of 15 tonnes on each.  He said that Robert nominated all the points where he wanted the sorters placed on the sorting lines.

1. Mr Erskine says that initially stage 1 was to have a second bottle line so that the bottle line would produce 20 tonnes, but this plan was not proceeded with.

1. Mr Erskine referred to his note on the drawing stating ‘temporary dump until capacity lifted for 1C’.  Mr Erskine explained that the bottle line was handling 10 tonnes per hour of waste and stage 2 was to have two lines handling 10 tonnes an hour each.  Mr Erskine said the plant couldn’t handle the proposed input on the paper lines due to the limit on the bottle line.

1. Mr Erskine said that in order to handle the product coming from the paper line the idea was discussed to dump the product coming from the paper line across the wall onto the storage area and then manually load that product back into the infeed hopper for the bottle line.

1. Mr Erskine explained his notation ‘New alternative glass clean up and waste – Rob provide design required to Clinton.’  Mr Erskine said that at this time there was in existence another quote.  Mr Erskine said another conveyor was proposed to deliver waste product from the paper line to another location.  He said that ‘right through all these projects Robert was instructing Clinton on what he required, how he wanted the layout done and how he wanted the plant put together.’  He said that ICA’s draftsmen had been seconded to SKM did draw up Robert’s requirements.[63]

   [63]Transcript 142.

1. Mr Erskine referred to his notation on the drawing for a new eddy current unit that was to be provided by SKM.  He said it was not installed while ICA was at the plant.

1. Mr Erskine said that prior to ICA’s quote of 13 October 2003, the plan was to deliver course (grade 6) and fine (grade 8) paper.  He said that prior to the meeting on 12 November 2003, Robert had told him that he had found a new buyer who would require mixed paper and to save some money he was eliminating the storage silo and the system would only provide mixed paper.  Mr Erskine said he  wrote on the drawing ‘combine 6 & 8 paper’ to reflect that change.

1. Mr Erskine identified on the drawing the two storage silos that were included in the stage 2 layout sent from Mr Miller to Robert on 17 September 2003.[64]  He then referred to the quote revision of 15 October 2003 that removed the silos, with $240,000 being deducted from the quote.

   [64]Exhibit P11.

1. Mr Erskine referred to his note on the drawing stating ‘Mix of infeed.  Now with more paper. Less through this infeed.’[65] Mr Erskine said that this related to information that the Council was delivering waste with more paper in it.

   [65]Grid B4, exhibit P18.

1. Mr Erskine referred to the information provided by Robert and Anthony on the density of the infeed product.[66]  Mr Erskine said that those figures were very important to ICA because if gave them ‘bulk density.  Even though the belt widths and lengths had been given to us by Robert or had been given to Clinton we still need to calculate [indistinct] of our requirements to conveyor the product.’[67]

   [66]CB 175 and CB 339.

   [67]Transcript 147.

1. Mr Erskine referred to his note on the drawing stating ‘SKM provide packers.’[68]  Mr Erskine said that SKM were providing everything other than the conveyors in this part of the project.  SKM were providing second hand packers coming from one of their plants and ICA had to deliver product to those packers.[69]

   [68]Grid E1, exhibit P18.

   [69]Transcript 148.

1. Mr Erskine referred to his note on the drawing stating ’10/20% waste’[70] relating to the waste hopper.  He said they were told at the meeting that 10 to 20 per cent of all material coming into the place would have finished up having to be carted to the tip.

   [70]Grid G2, exhibit P18.

1. Mr Erskine said that at the meeting the parties discussed shortening the long conveyor C17 and putting another conveyor in place to dump the feed over the wall.[71]  He said that ICA provided a tilt wall works so the conveyor equipment was isolated from the front end loaders and trucks entering the building, and also to contain the waste sitting on the floor.  He said that a little conveyor feeding the circle where the waste was dumped over the wall was provided by shortening C17.

   [71]Grid D4, exhibit P18.

1. Mr Erskine identified the variation in the drawing also dated 11 November 2003 24622.[72]  The drawing identifies a small conveyor at right angles to C17 described as C25.  Mr Erskine says that this drawing was the final drawing of stage 2 that was used after the meeting of 12 November.[73]

   [72]Transcript 150, exhibit P19, CB 422.

   [73]Transcript 150-151.

1. I now return to Mr Erskine’s witness statement to complete the summary of his evidence in chief.

1. Even though ICA had not given final confirmation of the stage 2 works, in early November 2003 Mr Erskine gave instructions to purchase the material for the support structure in an endeavour to have the bulk of it installed prior to Christmas.  Robert’s delay in giving confirmation put ICA into an awkward position because not only did ICA have an EBA and union commitments to consider for the Christmas shutdown period, it also put works into a period when suppliers were not available – the majority of ICA suppliers returned to work during the second and third weeks of January.

1. SKM paid a deposit for the stage 2 works on 26 November 2003,[74] which was the first official notification to proceed.  This was regarded by ICA as the commencement date for the stage 2 works.[75]

   [74]Invoice 112662.

   [75]CB 425.

Stage 2 works

1. ICA performed the stage 2 works referred to in the 13 October 2003 quotation.  The works were commissioned and in use in mid-February 2004 and fully taken over by SKM in or around early March 2004.  The key ICA employees for the stage 2 works were essentially the same as those for the stage 1 works.

1. There was delay on stage 2 due to SKM failing to have the concrete installed until 1 February 2004 allowing for curing time.[76]

   [76]Note dated 23 January 2004;  CB 448A.

1. On 22 March 2004, Mr Erskine visited the site and observed the front-end loader operator moving a pile of glass from the discharge from stage 2 and depositing the glass by the front-end loader bucket onto the in-feed to stage 1.  Mr Erskine said the system was never designed to take glass in those volumes.  The glass was supposed to be mixed with lighter products as per the product mix provided by Anthony Italiano on 1 July 2003.[77]  The concentration of glass caused the conveyors to drop out in overload due to the excessive weight.  When this happened, the operator went to the control cubicle and turned up the overload to force the motor to drive.  Following this observation, Mr Erskine agreed to install a larger drive with more torque on the main incline conveyor as part of the cost plus work ICA was performing for SKM on site, separate to the stage 1 and 2 contracts.  Further works were done by ICA at the site up until early June 2004, and then in 2006.

   [77]CB 175.

Evidence of Robert Italiano

1. I now summarise the evidence of Robert Italiano concerning the contract negotiations.

The first meeting at Thornbury

1. Robert says that the first occasion he met representatives of ICA was at SKM’s plant in Thornbury in about May 2003.  He says that Mr Erskine and Mr Granger were the representatives of ICA who were present.[78]

   [78]R Italiano witness statement in chief [43].

1. Robert says that at that meeting he told Mr Erskine, ‘in substance’ that:

(a)       SKM wanted to build a modern and efficient recycling plant at a property in Coolaroo.

(b)      The new plant, once completed, would be required to process fully co-mingled materials comprising paper, glass, aluminium, steel and plastics which were delivered to it.

(c)       One of the most important requirements of the new plant was that it had to be capable of processing fully co-mingled recyclable materials.

(d)      SKM processed a variety of types of plastic, which Robert says in the         industry is referred to as ‘mixed plastics’.

(e)       SKM wanted the new plant to process about 50 tonnes of material per        hour.

1. Robert says that he told Mr Erskine about some of the issues that SKM had experienced at its Thornbury plant.  He says he can recall, in particular, that he said the chain-linked conveyors at the Thornbury plant could not handle glass recycling well and the links had a relatively short life cycle.  Robert said that he told Mr Erskine that when the new plant was built, he did not want to have the same issue with glass falling off the conveyor.  He said that he wanted the components in the system to have a long life cycle, unlike the chain conveyors that SKM was then using.

1. Mr Erskine replied that ICA knew all of the ’ins and outs’ and problems that could arise during the design and construction of recycling plants, including the problems which could arise in relation to power consumption and the motors and gearboxes which are used in the plants.[79]

   [79]R Italiano witness statement in chief [46].

1. Robert then told Mr Erskine that SKM had already engaged a firm of designers called Indecon to provide a preliminary design for a recycling plant for SKM and to provide ideas for a possible solution for building a plant.  Mr Erskine said that ICA would not need any of the drawings which SKM had obtained.  Mr Erskine said that ICA had the expertise to design and manufacture a recycling plant and that Mr Erskine preferred to use ICA’s own designers.  Mr Erskine said that if ICA got the job, it would do the whole job from design to manufacture and installation.[80]

   [80]R Italiano witness statement in chief [48].

1. Robert said that Mr Erskine said that ICA had undertaken jobs for Visy, including designing and building a plastics plant for them, and that he was familiar with recycling conveying systems.  Either during Robert’s first meeting with Mr Erskine, or at a subsequent meeting or telephone conversation, Mr Erskine said that ICA had built a plastics plant for a company called Waverly Industries which used industrial conveyors.[81]

   [81]R Italiano witness statement in chief [49].

1. Mr Erskine said to Robert that ICA designed and built their own conveyors.  He said that ICA had done a lot of work in both the tobacco industry and the recycling industry.  He said that ICA had performed work for CUB or Fosters which involved devising a new way of loading their trucks.  Mr Erskine also said that ICA had designed and constructed mobile trailers for use in the sheep industry.  He said that ICA had extensive experience in designing, building and installing heavy duty conveyors.[82]

   [82]R Italiano witness statement in chief [50].

1. Mr Erskine and Robert discussed the research which Robert had undertaken into recycling plants.  Robert said to Mr Erskine that disc screens were, in his view, an important development in recycling.  Robert said to Mr Erskine that SKM wanted easily moveable disc screens as part of the plant system.[83]

   [83]R Italiano witness statement in chief [53].

1. Robert asked Mr Erskine whether ICA had any experience with disc screens.  Mr Erskine said, in substance, that he was familiar with the screens and that he had seen screens at ICA’s last project for Visy.  Mr Erskine said that his company was experienced with disc screens and garbage packers, and that he could design a disc screen that would be suitable for SKM’s needs.  Mr Erskine said that he was aware of the importance of having the right amount of friction and angle for the disc screen to function properly and to be able to separate the paper from the plastic, steel, aluminium and glass being processed at a plant.[84]

   [84]R Italiano witness statement in chief [54].

1. Robert had a drawing of a disc screen with him that had been prepared by Indecon during this first meeting with Mr Erskine.  Robert showed Mr Erskine a copy of the drawing prepared by Indecon during the meeting and gave Mr Erskine a copy to take away with him.[85]

   [85]R Italiano witness statement in chief [55].

1. Robert said that during this discussion, or possibly at a later face-to-face discussion with Mr Erskine, he said to Mr Erskine that the Coolaroo plant would need to be capable of producing grade 6 and grade 8 recycled paper.  Robert said that Mr Erskine responded that that would not be a problem.[86]

   [86]R Italiano witness statement in chief [56].

1. Robert said to Mr Erskine that SKM had won a number of contracts, and would need to have the new plant up and running by mid-September 2003.  Robert also said that SKM had won a contract with the Mornington Shire Council that would come online in December 2003 and that that contract would supply SKM with a large quantity of recyclable material.

1. Mr Erskine told Robert that one of the strengths of his company was that it had expertise and capacity to design and manufacture the recycling plant quickly.  Mr Erskine said that ICA could design and build a recycling plant, that met SKM’s performance criteria, by mid-September 2003.  He also said, in substance, that SKM could rest assured that the plant would be built properly by ICA and would be in accordance with all relevant Australian Standards.

1. Robert said that his brother Anthony showed Mr Erskine and Mr Granger through the Thornbury plant so that they could see the recycling system which was presently in use and operating.

Robert’s evidence on the second meeting at Bendigo

1. Robert says that he attended a second meeting with representatives of ICA in Bendigo on or about 24 June 2003.  He attended the meeting with his father and brother, Anthony.  The representatives of ICA present were Mr Erskine, Mr Miller and Mr Byleveld.[87]

   [87]R Italiano witness statement in chief [68].

1. Mr Erskine showed Joe, Anthony and Robert a film or video of a disc screen in operation.  Robert said that the disc screen which was shown on the film was smaller than the one which had been drawn by Indecon.  He said that the film showed a close-up of a disc screen in operation.  Robert said that his recollection is that the film only showed two or three shafts.[88]

   [88]R Italiano witness statement in chief [70].

1. After seeing the film, Robert said to Mr Erskine that the disc screen on the film was the type of thing which SKM was interested in, but that the disc screen shown was a lot smaller than the one he had seen in a video which he had received which showed a disc screen in a BHS plant.[89]  Mr Erskine said that the screen he was proposing would do the same job.  Mr Erskine said that if ICA got the job, it would design and build everything and that ICA would not need the Indecon plant design.

   [89]This video showed a screen in a plant owned by an American company called Bulk Handling Systems.

1. At some stage, Mr Erskine said to Robert that it may be helpful for him to see the drawings which had been prepared by Indecon.  Robert said that the plant drawings and the disc designs prepared by Indecon were subsequently provided to ICA.[90]

   [90]R Italiano witness statement in chief [71].

1. Robert said to Mr Erskine that Mr Erskine should see the BHS video as it showed the type of plant the Italiano’s were interested in.  Robert said he subsequently showed the BHS video to Mr Erskine.  Robert was present with Mr Erskine when Mr Erskine saw the video at SKM’s Thornbury plant.  Robert gave the video to Mr Erskine to show to Mr Miller.  He said that ICA has not returned the video to SKM.[91]

   [91]R Italiano witness statement in chief [72].

1. The subject of the plans and drawings which ICA would produce if awarded the contract was discussed at this meeting with Mr Erskine or a short time afterwards.[92]  Robert said to Mr Erskine that he wanted to see the finished drawings for all of the equipment.

   [92]R Italiano witness statement in chief [73].

1. During the meeting, a number of suggestions or proposals for the type of plant to be built were made by Mr Erskine and the others present on behalf of ICA.  Robert  recalled discussing what he wanted to achieve as an outcome in relation to the flow of material through the new plant.  He said he cannot now recall the specific detail of what each person said, other than that Mr Erskine said that ICA had the experience to produce what SKM was looking for.  He said that Mr Erskine showed him some references praising ICA’s work that ICA had received.[93]

   [93]R Italiano witness statement in chief [75].

1. Robert remembers saying to Mr Erskine that although he, Robert, had some experience with managing the recycling plant at Thornbury, that he would need to be guided by the company who got the contract to design and build the new plant, because SKM had only limited knowledge of building a recycling plant.  Robert said that SKM was looking for advice as to the most appropriate way to design and construct a new plant to achieve SKM’s objectives.  Robert said that it was for this reason that SKM initially sought to purchase a recycling plant from a United States company that had a proven track record.  Mr Erskine said that he understood what was involved and ICA was capable of performing the work.[94]

   [94]R Italiano witness statement in chief [76].

1. Robert recalls that Mr Erskine gave Joe, Anthony and Robert a tour of ICA’s manufacturing plant in Bendigo, where ICA built a conveyors.[95]  Robert said to Mr Erskine that he was impressed with his expertise in designing and manufacturing plants and it appeared to him that ICA had the skills, knowledge and expertise to design and build the plant for SKM.[96]

   [95]R Italiano witness statement in chief [77].

   [96]R Italiano witness statement in chief [79].

1. Robert said that he told Mr Erskine that one of the priorities for the plant was to have a new bottle line up and running by mid-September 2003.  Mr Erskine said that that timeframe would not be a problem and ICA would be able to build the bottle line by then.[97]

   [97]R Italiano witness statement in chief [80].

1. Robert recalls saying to Mr Erskine that SKM wanted a plant that was able to process a total of about 50 tonnes of fully co-mingled material per hour and that the processing was to take place on two separate lines.  Robert referred to the BHS video which showed a sorting line which processed 25 tonnes per hour.  Robert said the figure of 50 tonnes per hour came from having the equivalent of two of the BHS lines.  Robert told Mr Erskine that after the paper and cardboard products were separated from the other recyclable materials, the plant would be required to process about 15 tonnes of glass, plastic, steel and aluminium per line per hour.[98]

   [98]R Italiano witness statement in chief [81].

1. Mr Erskine asked Robert to provide him with a breakdown of the volume of each type of product which SKM was processing.  Robert said that SKM would provide some figures based on the co-mingled recyclable materials which had previously been collected from Boroondara residents, but the new plant would be processing fully co-mingled recyclable materials, hence the need for the plant to remove paper, cardboard and other fibrous materials.[99]  Mr Erskine said in substance that that would be fine and that he was only after a working guide.  Anthony prepared a summary document which was sent to Mr Erskine on 1 July 2003.[100]

   [99]R Italiano witness statement in chief [83].

   [100]CB 1381.

[405]SKM claim [6(i)];  CB 8.

1. ICA admits the allegation.

1. Answer:        yes.

Paragraph 6(j) - SKM claim - documentation for stage 2  – issue 27

Was it a term of the stage 2 agreement that upon completion of the stage 2 works, ICA would provide documentation including maintenance manuals and written standard operating procedures concerning the co-mingled sorting line, single in-feed line, and other components comprising the stage 2 works.[406]

[406]SKM claim [6(j)];  CB 8.

1. SKM says that the  term was constituted by conversations between Mr Erskine, Mr Miller and Mr Byleveld and Anthony and Robert Italiano.  SKM says that the term  is to be implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[407]

   [407]Particulars subjoined to [6] SKM claim;  CB 9.

1. ICA denies that allegation.  ICA says that during negotiations the offer of provision of such documentation by ICA was rejected by SKM to reduce the project cost. [408]

   [408]ICA defence [6(j)];  CB 36.

1. ICA says that on or about 10 July 2003 Mr Erskine emailed Robert Italiano with written quotation No 1628 Revision 1.  As a standard item, quotation No 1628 Revision 1 provides that documentation including maintenance manuals were to be supplied by ICA to SKM.[409]  ICA says that subsequent to receiving this written quotation, in conversations between Robert Italiano and Anthony Italiano and Mr Erskine which occurred on or about July 2003 to August 2003, it was requested by SKM that the provision of documentation including maintenance manuals be excluded from the relevant quotation to reduce the final cost to SKM to build the proposed recycling plant. [410]  ICA says that in accordance with this request, Mr Erskine subsequently provided Robert Italiano with a revised written quotation No 1628 Revision 4 which excluded the provision of documentation including maintenance manuals to be provided to SKM by ICA. [411]

   [409]ICA’s F&B particulars, 6 August 2010, [12];  CB 103.

   [410]ICA’s F&B particulars, 6 August 2010, [12];  CB 103.

   [411]ICA’s F&B particulars, 6 August 2010, [12];  CB 103.

1. Robert Italiano says in his witness statement that he  had a conversation with Mr Erskine, between the award of the stage 1 contract and 1 September 2003, the substance of which was that upon completing the stage 2 works, ICA would provide SKM with formal documentation, including maintenance manuals and written standard operating procedures, in relation to the co-mingled sorting line, single infeed line, and other components comprising the stage 2 works.

1. He says that a statement, to similar effect, was contained in the quote of 1 September 2003.[412]  Robert Italiano says that at no time did anyone from ICA ever say to him, whether after the quote of 1 September 2003 or at any other time, that maintenance manuals and written standard operating procedures would not be provided by ICA.[413]

   [412]PDD-111 (6 pages) – Annexure 5.

   [413]Robert Italiano witness statement in chief [137]-[138].

1. Mr Erskine’s says in his witness statement in reply that he had no discussion with Robert Italiano regarding documentation.

1. Mr Erskine says  that a full set of documentation – including full sets of drawings for both mechanical and electrical components, maintenance manuals and computer discs with the program for software associated with the control system - was hand delivered by himself to Anthony Italiano in early June 2004.  He says that he gave it to Anthony while he was working on the bottle line on the sorting platform.

1. Mr Erskine says that in June 2004 there were further requests from Anthony for the computer program to allow his contract electricians to make adjustments.

1. Mr Erskine’s witness statement does not support ICA’s defence that there was a conversation about the documentation being excluded.  The subsequent conduct of ICA in providing the manuals does not support the allegation of ICA in any event.

1. I am satisfied such an agreement was made.

1. Answer:        yes

Paragraph 6(k) - SKM claim - warranty for stage 2  – issue 28

Was it  a term of the stage 2 agreement that ICA would provide a 12 month warranty from completion of manufacture and design of workmanship in relation to the stage 2 works?[414]

[414]SKM claim [6(k)];  CB 8.

1. SKM says that the term was agreed in conversations between Mr Erskine, Mr Miller and Mr Byleveld and Anthony and Robert Italiano.[415]  SKM also says it was constituted by statements made by Mr Erskine, during the four face-to-face meetings held between ICA and SKM, that ICA would provide a 12 month warranty from completion of manufacture on the design and workmanship in relation to the stage 2 works.[416]

   [415]Particulars subjoined to [6] SKM claim;  CB 9.

   [416]SKM F&B particulars, contained in Lander & Rogers Letter dated 12 August 2009, [9]; (not in CB).

1. SKM says that the term was implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[417]

   [417]Particulars subjoined to [6] SKM claim;  CB 9.

1. ICA denies the alleged term.  ICA refers to the discussions about the warranty and the stage 1 agreement set out above.

1. SKM relies on the alleged conversations about the warranty and the stage 1 agreement.  SKM also relies on matters arising after the making of the stage 1 agreement.

1. Between 8 August 2003 and 1 September 2003, Robert Italiano says that Mr Erskine said to him, on several occasions, in relation to the stage 2 works that ICA would ensure that the system operated properly, to his satisfaction, or words to the same effect.  He says that at no time did Mr Erskine, or any other person on behalf of ICA, ever say to him that the stage 2 works would not be covered by a 12 month warranty.  He says that, nor did Mr Erskine, or any other person on behalf of ICA, ever say to him that if anything designed or constructed by ICA as part of the stage 2 works did not work properly, ICA would not fix it. [418]

   [418]R Italiano witness statement in chief [140]-[141].

1. In response, Mr Erskine says that contrary to Robert Italiano’s statements he did not personally guarantee that if the system did not work properly then ICA would fix it.  I accept Mr Erskine’s evidence.  It is unlikely that ICA would have provided the warranty in the terms alleged.  SKM designed the system, not ICA.  Whether or not there were terms of warranty in relation to the conveyors provided by ICA has not been raised by SKM in this particular issue.

1. Answer:        no.

Paragraph 6(l) - SKM claim - design suitable for commercial grade recycling – issue 29

Was a term of the stage 2 agreement that ICA would design, construct, supply and install the stage 2 level works as a system suitable for the purpose of commercial grade recycling?[419]

[419]SKM claim [6(l)];  CB 8.

1. SKM says that the term was agreed in conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano.  SKM says that the term was implied to give business efficacy to the stage 2 agreement. [420]

   [420]Particulars subjoined to [6] of SKM claim; CB 9.  See also SKM F&B particulars of 4 August 2010, [30];  CB 82.

1. ICA denies that it designed the stage 2 works.  It does admit that it agreed to construct, supply and install conveyers for use in the stage 2 works in accordance with the agreement reached between the parties as admitted previously by ICA.[421]

   [421]ICA defence [6(l)];  CB 36.

1. ICA says that the G5 screens or disc screens were manufactured by ICA to the design of SKM.[422]

   [422]Transcript 99-100.

1. SKM rely on the evidence of Robert Italiano and Anthony Italiano contained in their witness statements[423]

   [423]Robert Italiano witness statement paragraphs 44 to 48; 54 – 56; 60; 70 – 76; 80 – 81; 83 – 86; 95 – 100; 105; 128 – 129; 131 – 132; 133 – 135; 139 – 141; 142; 143 – 147.  Anthony Italiano witness statement paragraphs 31 and 39.

1. Robert Italiano relies on the  purported conversation he had with Mr Erskine at the first meeting in Thornbury.  I have rejected Robert’s version of the alleged conversation.  As discussed above, I do not accept that Mr Erskine said the matters alleged at the first meeting at Thornbury.

1. I find that the alleged term was not a term of the stage 2 agreement.

1. Answer:        no.

Paragraph 6(m) - SKM claim - incorporate moveable splitter – issue 30

Was it a term of the stage 2 agreement that ICA would incorporate a moveable splitter rather than a static splitter into the sorting components of the Stage 2 works?[424]

[424]SKM claim [6(m)];  CB 8.

1. ICA admits the allegations and say further that the splitter it supplied was a moveable splitter in accordance with the relevant drawings and was installed as such by directions of SKM.[425]

   [425]ICA defence [6(m)];  CB 36.

1. SKM make no submissions in their final address about this issue.

1. As the question is not pressed, it is unnecessary for me to make any finding on this issue.

1. Answer:        unnecessary to answer.

Paragraph 6(n) - SKM claim - rectify any parts not operating in stage 2 – issue 31

Was it a term of the stage 2 agreement that ICA would rectify any parts of the design, installation and/or construction of the stage 2 works which did not operate to the standards required by SKM?[426]

[426]SKM claim [6(n)];  CB 9.

1. SKM says the agreement was constituted by:

(a)conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano. [427]

(b)assurances given by Mr Erskine to Robert Italiano, during each of the face-to-face meetings and during several telephone conversations with Roberto Italiano.[428]

[427]Particulars subjoined to [6] of SKM claim;  CB 9.

[428]SKM F&B particulars, contained in Lander & Rogers Letter dated 12 August 2009, [10];  (not in CB).

1. SKM alleges it is to be implied by the conduct of the parties and the need to give business efficacy to the stage 2 agreement.[429]  SKM says that the ‘standards required’ are set out in paragraphs 6(e), (g), (h),(i), (l), (o), (p), (r) and (s) of the SKM’s claim.[430]

   [429]SKM particulars subjoined to [6] of SKM claim;  CB 9.

   [430]SKM F&B particulars, 4 August 2010, [32];  CB 82.

1. ICA says that such term was not agreed by ICA or even discussed between the parties.[431]

   [431]ICA defence [6(n)];  CB 36.

1. SKM relies on the evidence of Robert and Anthony Italiano in their witness statements.[432]  Robert Italiano relies on the evidence he gave in relation to the alleged warranty relating to the stage 1 agreement.  I have already dealt with that evidence when dealing with issue 10.  Robert Italiano also relies on alleged further conversations in relation to stage 2.

   [432]Robert Italiano witness statement in chief, [87] – [89]; [105]; [139] – [141]; and Anthony Italiano witness statement in chief, [31].

1. Robert Italiano says that:[433]

Between 8 August 2003 and 1 September 2003 Don said to me, on several occasions, in relation to the stage 2 to 4 works, that ICA would ensure that the system operated properly, to my satisfaction, or words to the same effect.  At no time did Don Erskine, or any other person on behalf of ICA, ever say to me that the stage 2 to 4 works would not be covered by a 12 month warranty.  Nor did Don Erskine, or any other person on behalf of ICA, ever say to me that if anything designed or constructed by ICA as part of the stage 2 to 4 works did not work properly, ICA would not fix it.

[433]Robert Italiano witness statement in chief [141].

1. Anthony Italiano says that he has a:

… clear recollection of Don saying, in substance, that if we have any issues with the plant that he will ‘fix it’.  In the course of his dealings with me and SKM, whenever there was any discussion with him about the plant or any his proposed designs, Don repeatedly said ‘Don’t worry I will fix it’.

1. In response Mr Erskine says that he did not personally guarantee that ICA would fix the system if it did not work properly.

1. I do not accept the evidence of Robert or Anthony Italiano on this issue.  In addition to my observations on the reliability of Robert Italiano’s evidence, it is unlikely that ICA would have provided such a guarantee when it was not responsible for the design of stage 2 and its design responsibilities were limited to the design of the conveyors, as Mr Erskine says.

1. I am not satisfied that the alleged term was a term of the stage 2 agreement.

1. Answer:        no.

Paragraph 6(o) - SKM claim - producing grade 6 paper – issue 32

Was it a term of the stage 2 agreement that once completed, the recycling plant comprising the stage 1 works and stage 2 to 4 works would be capable of producing recycled paper product of grade 6?[434]

[434]SKM claim [6(o)];  CB 9.

1. SKM relies on  conversations allegedly between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano.[435]  SKM also relies on statements allegedly made by Mr Erskine to Robert Italiano, during the four face-to-face meetings, that the recycling plant would be capable of producing grade 6 recycled paper.[436] SKM relies on alleged conduct of the parties and the need to give business efficacy to the stage 2 agreement. [437]

   [435]SKM particulars subjoined to [6] SKM claim;  CB 9.

   [436]SKM F&B Particulars, Contained in Lander & Rogers Letter dated 12 August 2009, [16];  (not in CB).

   [437]SKM particulars subjoined to [6] SKM claim;  CB 9.

1. ICA denies the allegations.  ICA says that grade 6 paper was not produced by the plant and says that the plant as designed by SKM was never intended to produce grade 6 paper.[438]  ICA says that on or about 3 November 2003 during a meeting at SKM’s premises between Robert Italiano, Anthony Italiano, Joe Italiano and Mr Erskine, Mr Byleveld and Mr Miller, Robert Italiano instructed ICA that the two storage silos for grade 6 and grade 8 paper were to be removed to reduce the contract price and that holding conveyor C20, which could only accept mixed paper, was to be included.  ICA says that this removed the ability of the plant to process grade 6 and grade 8 paper as independent streams.[439]

   [438]ICA defence [6(o)];  CB 36.

   [439]ICA F&B particulars of 6 August 2010, [15];  CB 104.

1. SKM rely the evidence of Robert Italiano in his witness statement[440] I have considered the evidence relied on and in particular the evidence of Robert Italiano as follows:[441]

I can recall discussing the matter with him during either our first face to face meeting, … or our second face to meeting … I can also recall having a conversation, to similar effect, with Don during the time that ICA was tendering for the stage 2 to 4 works.  My recollection is that I said that SKM intends to produce grade 6 paper and grade 8 paper.  In reply, Don said, in substance, that the plant would produce the grade of paper required by SKM.

[440]R Italiano witness statement in chief, [44], [55] – [56]; [129], [143] – [144].

[441]R Italiano witness statement in chief [144].

1. I do not accept the evidence of Robert Italiano on this issue.  I accept the evidence of Mr Erskine discussed previously that Robert Italiano told Mr Erskine that SKM had secured a buyer for mixed paper and that it was unnecessary to produce two grades of paper.  In any event, I do not accept that ICA did agree that the plant would be capable of producing any particular output.  As I have said previously, I accept that ICA was only concerned with the input and the performance of the conveyors.  SKM were  responsible for the output.

1. I find that the term alleged was not a term of the stage 2 agreement.

1. Answer:        no.

Paragraph 6(p) - SKM claim - producing ’mixed plastic’ grade – issue 33

Was it a term of the stage 2 agreement that once completed the recycling plant comprising the stage 1 and stage 2 works would be capable of producing recycled plastic of ‘mixed plastic’ grade?[442]

[442]SKM claim [6(p)]; CB 9.  SKM says that “mixed plastic grade” is a common term in the industry and refers to a mixture of plastics of different types capable of being recycled into a usable product:  see SKM F&B particulars, 4 August 2010, [33];  CB 82.

1. SKM relies on alleged conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano.[443]  SKM relies further on several alleged assurances given by Mr Erskine to Roberto Italiano, during the face-to-face meetings.[444]  SKM relies on alleged conduct of the parties and the need to give business efficacy to the stage 2 agreement. [445]  ICA denies the allegation.[446]

   [443]Particulars subjoined to [6] SKM claim.

   [444]SKM F&B Particulars, contained in Lander & Rogers Letter dated 12 August 2009, [11] & [17];  (not in CB).

   [445]SKM particulars subjoined to [6] SKM claim;  CB 9.

   [446]ICA defence [6(p)];  CB 36.

1. SKM relies on the evidence of Robert Italiano in his witness statement.[447]  In particular Robert Italiano says:[448]

The topic of the type of materials which SKM was involved in recycling was discussed at my first face-to-face meeting with representatives of ICA in May 2003.

During that first meeting I said to Don Erskine that SKM processes a variety of different types of materials and plastics.  During our meeting at Bendigo, on or about 23 June 2003, Don and I again discussed the composition of the various types of recyclable materials which SKM was then processing.

…

Following the meeting at Bendigo, SKM provided ICA with an email, setting out the composition of the materials which it had processed in 2001-2002.

…

The document provided stated that in the 2001-2002 year that SKM collected and recycled some 469 tonnes of ‘mixed plastic’, 423 tonnes of PET and 236 tonne of HDPE.

[447]R Italiano witness statement in chief, [44], 129, 145 - 147.

[448]R Italiano witness statement in chief, [145].

1. I accept that the email referred to was sent by SKM to ICA.  Nevertheless, as discussed elsewhere I do not accept that ICA accepted responsibility for the quality and type of produce produced.  The term alleged is inconsistent with SKM being responsible for the design and thus performance characteristics of the plant.

1. I find that the term alleged was not a term of the stage 2 agreement.

1. Answer:        no.

Paragraph 6(q) - SKM claim - provide detailed drawings for approval – issue 34

Was it a term of the stage 2 agreement that ICA would provide SKM with detailed drawings of stage 2 works for SKM’s approval?[449]

[449]SKM claim [6(q)];  CB 9.

1. SKM relies on alleged conversations between Mr Erskine, Mr Miller, Mr Byleveld and Anthony and Robert Italiano.  SKM alleges the term was implied to give business efficacy to the agreement.

1. ICA denies the allegations and says that all layout and assembly drawings were provided to SKM for its approval prior to the commencement of construction of the plant.[450]

   [450]ICA defence [6(q)];  CB 36.

1. SKM does not address this issue specifically in its written submissions.[451]

   [451]SKM closing final submissions, exhibit D15 MFI; [7] and tab 1 no 34.

1. As the matter was not pressed, it is unnecessary for me to decide this issue.

1. Answer:        unnecessary to answer.

Paragraph 6(r)  - SKM claim - materials fit for the purpose in stages 2 – issue 35

Was it a term of the stage 2 agreement that the materials provided by and or on behalf of ICA in the construction of stage 2 works would be fit for the purpose of constructing a commercial grade recycling facility?[452]

[452]SKM claim [6(r)]; CB 9. SKM F&B particulars, 4 August 2010, [35(b)];  CB 82.

1. SKM alleges that this term was implied by law. [453]  ICA denies the allegation.[454]

   [453]SKM particulars subjoined to [6] SKM claim;  CB 9.

   [454]ICA defence [6(r)]; CB 36; see also Transcript 102.

1. I have already dealt with this issue in relation to stage 1.  I will not repeat what I have said there.  I take a similar approach to the term alleged as a term of the stage 2 agreement.

1. As mentioned when dealing with issue 12, SKM alleges that in breach of the stage 1 and  stage 2 agreement ICA:

(a)       designed and installed rake conveyor belts that were not fit for the purpose of a commercial grade recycling plant;[455]

[455]SKM claim [7(f)].

(b)      installed G5 screens that were not fit for the purpose of a commercial recycling plant;[456]

[456]SKM claim [7(l)].

(c)       designed and installed paper disc screens that were not fit for the purpose of a commercial grade recycling plant;[457]

[457]SKM claim [7(n)].

(d)      failed to design a system that was fit for the purpose of a commercial grade recycling plant;[458]

[458]SKM claim [7(r)].

.

(e)       designed and installed motors and gearboxes on the conveyors that were fit for the purpose of a commercial grade recycling plant;[459]

[459]SKM claim [7(t)].

(f)       designed and installed conveyors that were not fit for the purpose of a commercial grade recycling plant;[460]  and

(g)      designed and installed a glass clean up system that was not fit for the purpose of a commercial grade recycling plant.[461]

[460]SKM claim [7(u)].

[461]SKM claim [7(w)].

1. As I held when dealing with issue 12, the term alleged purports to attach to the materials provided by and on behalf of ICA.  I have not heard submissions on whether the term alleged could apply to a specific items of equipment.  No such pleading has been made in any event.  It is inappropriate for me to make a finding beyond the precise terms I have been asked to rule on.  As it is, I am not satisfied that it was an implied term that the materials provided by and on behalf of ICA would be fit for the purpose  of constructing a commercial grade recycling facility.

1. Answer:        no.

Paragraph 6(s) - SKM claim - merchantable quality – issue 36 (6(s))

As it a term of the stage 2 to 4 agreement that the materials provided by and or on behalf of ICA in the construction of stage 2 to 4 works would be of merchantable quality.[462]  SKM alleges that this term was implied by law.

[462]SKM claim  [6(s)];  CB 9.

1. ICA denies the allegation.[463]

   [463]ICA defence [6(s)];  CB 36;  see also transcript 102.

1. I have already dealt with this allegation when dealing with issue 13.  For the reasons there expressed, I am not satisfied that this was a term of the state 2 agreement.

1. Answer:        no.

Paragraph 6(t) - SKM claim - properly enclose moving parts – issue 37 (6(t))

Was it a term of the stage 2 agreement that ICA would properly enclose the moving parts of the conveyor system installed during the construction of the stage 2 works.[464]

[464]SKM claim [6(t)];  CB 9.

1. ICA admits the term and says further that in accordance with the quotation dated 1 September 2003 No. 1714, any final and necessary guards that were required by virtue of the location and set out of the installed plant would be supplied and installed on a cost plus basis and that the supply and fitting of such guards was not part of the quoted price.[465]

   [465]ICA defence [6(t)];  CB 37.

1. Answer:        yes.

Paragraph 6(u) - SKM claim -professional indemnity insurance – issue 38

Was it a term of the stage 2 to 4 agreement that ICA would maintain a current and effective professional indemnity insurance policy in relation to the stage 2 to 4 works?[466]  SKM allege that the term was partly oral and partly implied.[467]

[466]SKM claim [6(u]);  CB 9.

[467]SKM particulars subjoined to [6] SKM claim;  CB 9.

1. ICA denies the allegation.[468]

   [468]ICA defence [6((u)];  CB 37.

1. SKM makes no submissions on this issue directly in its final address.[469]

   [469]SKM final submissions, Tab 1 [39].

1. As the question was not pressed, it is unnecessary for me to rule on this issue.

1. Answer:        unnecessary to answer.

SKM allegations of representations by ICA – SKM claim 10

1. SKM also alleges that ICA made certain representations to it as follows.

Paragraph 10(a) - SKM claim – capable of designing heavy duty conveyors – issue 46

Did ICA, in or about mid 2003, represent to SKM that it had experience in and was capable of designing, constructing and installing heavy duty conveyors?[470]

[470]SKM claim [10(a)];  CB 18.

1. ICA admits the allegations.[471]

   [471]ICA defence [10(a)];  CB 39.

1. Answer:        yes.

Paragraph 10(b) - SKM claim – capable of designing disc screens – issue 47

Did ICA, in or about mid 2003, represent that it had experience in and was capable of designing, constructing and installing disc screens for use in a heavy duty fully co-mingled recycling plant with the requisite degrees of friction and angle to properly function as a separator of the paper from the plastic, steel, aluminium and glass being processed in the plant?[472]

[472]SKM claim. 10(b);  CB 18.

1. ICA denies the allegations.

1. For the reasons previously canvassed, I do not find the alleged representation was made.

1. Answer:        no.

Paragraph 10(c) - SKM claim – manufactured a plastic plant for Visy – issue 48

Did ICA, in or about mid 2003, represent that it had manufactured a plastics plant for Visy?[473]

[473]SKM claim 10(c);  CB 18.

1. ICA denies the allegations and says further that it told SKM that it had constructed conveyors for Visy that were intended by Visy for use in a plastics plant.

1. For the reasons already discussed, I do not find such a representation was made.

1. Answer:        no.

Paragraph 10(d) - SKM claim – manufactured a plastics plant for Waverley – issue 49

Did ICA, in or about mid 2003, represent that it had manufactured a plastics plant for Waverley Industries which comprised industrial conveyors?[474]

[474]SKM claim 10(d);  CB 18.

1. ICA denies the allegations and says further that it told SKM that subsequent to quoting for SKM it was approached by Waverley Industries to construct conveyors for use in a manual sorting line for Waverley Industries (a sheltered workshop) but that this approach was not made until after the quotation was accepted by SKM.

1. I do not accept the evidence of Robert Italiano on this issue.  I accept the evidence of Mr Erskine.

1. I do not find that the representation was made as alleged.

1. Answer:        no.

Paragraph 10(e) - SKM claim – co-mingled commercial grade recycling plant – issue 50

Did ICA, in or about mid 2003, represent that it had the requisite knowledge and experience to build a fully co-mingled commercial grade recycling plant which was capable of processing an input tonnage of 25 tonnes per line per hour?[475]

[475]SKM claim 10(e);  CB 18.

1. ICA denies the allegations and says further that ICA never at any stage represented to SKM that it possessed such experience as it had never designed or constructed such a facility in the past.  ICA says that its expertise lay in the design manufacture and commissioning of conveyors, which it says SKM knew at all times material, saying further that SKM in any event relied on its own skill and judgment as to the capacity of ICA having, by its servants and or agents, inspected ICA’s facilities in Bendigo prior to engaging ICA to do anything for it.

1. For the reasons given when this representation was pleaded as a term of the agreement, I do not accept that ICA made the representation.

1. I do not find that the representation was made as alleged.

1. Answer:        no.

Paragraph 10(f) - SKM claim – ‘ins and outs’ – issue 51

Did ICA, in or about mid 2003, represent that it knew all the ‘ins and outs’ and problems that could arise during the design, construction and installation of a fully co-mingled commercial grade recycling plant (including issues related to power consumptions, motors and gearboxes)?[476]

[476]SKM claim 10(f);  CB 18.

1. ICA denies the allegation.[477]

   [477]ICA defence 10(f);  CB 39.

1. I do not accept the evidence of Mr Italiano on this alleged representation.

1. I do not find that the representation was made as alleged.

1. Answer:        no.

Paragraph 10(g) - SKM claim – repair, replace and rectify – issue 52

Did ICA, in or about mid 2003, represent that it would construct a fully co-mingled commercial grade recycling plant for the recycling plant for SKM and that if any parts comprising the plant did not work for whatever reason, ICA would repair, replace and or rectify the relevant parts so that they did work?[478]

[478]SKM claim [10(g)];  CB 18.

1. ICA denies each allegation.[479]

   [479]ICA defence [10(g)];  CB 39.

1. For the reasons given in discussing the alleged term this representation gave rise to, I do not find this representation was made by ICA as alleged.

1. Answer:        no.

Allegation against Mr Erskine

1. The preliminary question order requires the Court to determine the issues set forth in paragraph 5 of the Mr Erskine’s defence to SKM’s claim.[480]

   [480]Order 1(c)(iii).

1. SKM alleges that Mr Erskine made the representations pleaded in paragraph [10] of SKM’s claim.

1. As it is, I find that ICA made the representation pleaded in 10(a).  It admits that allegation.  I find that it the representation was made by Mr Erskine.  Save for this representation, I have found ICA did not make the representations alleged.

Conclusion – alleged representations by Mr Erskine

Did Mr Erskine make any and which representations alleged in paragraph [10] of the SKM claim – issue 53

1. Answer:        Yes, Mr Erskine made the representation pleaded in [10(a).], otherwise no.

Conclusion as to issues

1. I propose to direct that ICA bring in short minutes of orders to reflect the findings on the preliminary issues decided in this judgment.

1. I will order that the trial be resumed on a date to be fixed to consider and make the said orders and to make further orders and directions for the hearing of the balance of the trial.

Annexure 1

1.    Pursuant to rule 47.04, the following questions be determined first at this trial:

(a)       The matters and issues set forth in paragraphs 6 to 25 inclusive (save for paragraph 23) of the Amended Statement of Claim dated 21 December 2009.

(b)      The matters and issues set forth in paragraphs 6 to 26 inclusive (save for paragraphs 22A and 23) of the Amended Defence dated 22 February 2010.

(c)       The matters and issues set forth in:

(i)       paragraphs 3, 4, 5, 6, 7(a), (b), (c) and (d), 10 and 11 of the Further Amended Counterclaim dated 3 December 2009;

(ii)      paragraphs 3, 4 5, 6, 7(a), (b), (c) and (d), 10 and 11 of the First  Defendant’s Defence to the Further Amended Counterclaim   dated 19 February 2010; and

(iii)     paragraph 5 of the Second Defendant’s Defence to the Further Amended Counterclaim dated 19 February 2009,

save for the quantification of any loss or damage the Defendant may have suffered as alleged in paragraphs 13, 17 and 20 of the Further Amended Counterclaim.

2    The following questions be determined separately from and after determination of the questions referred to in paragraph 1 above:

(a)       the allegations of breach of the Stage One Agreement and the Stage Two to Four Agreement set forth in paragraphs 7(e)-(z) (incl.) and paragraphs 22A and 23 of the Further Amended Counterclaim;

(b)      whether the defendant suffered the loss and damage claimed in paragraphs 9, 13, 17 and 20 of the Further Amended Counterclaim.

3    Reserve the question of whether, pursuant to rule 50.01, to order that the questions referred to in paragraph 2 above be referred to a special referee, and direct that affidavit material be filed by the parties for this to be considered in due course.

Replacement Contract                   Elevator Agreement

C2 Contract  Frame Agreement

C2 Installation Contract                Installation Agreement