Johnson Controls v Webb
[2013] NSWSC 1511
•17 October 2013
Supreme Court
New South Wales
Medium Neutral Citation: Johnson Controls v Webb [2013] NSWSC 1511 Hearing dates: 26/08/2013, 27/08/2013, 29/08/2013, 03/09/2013, 04/09/2013 and 05/09/2013 Decision date: 17 October 2013 Jurisdiction: Equity Division - Technology and Construction List Before: McDougall J Decision: Plaintiff fails against first defendant but succeeds against second and third defendants. As between second and third defendants, the whole of the loss is apportioned to the latter. Plaintiff to bring in draft orders.
Catchwords: CONTRACTS - formation - acceptance - acceptance by conductCONTRACTS - breach of contract - where consultant engaged to obtain and review tenders to supply an electric generator to work in synchronisation with two existing generators - where generator supplied incompatible with existing generators - where consultant required tenderers to comply with performance specifications - whether consultant required to verify or audit compliance with performance specificationsCONTRACTS - breach of contract - where tenderer supplied an electric generator to work in synchronisation with two existing generators - where generator supplied incompatible with existing generators - whether compliance with tender performance specifications a term of the contractCONTRACTS - interpretation - meaning of phrase "performance specification"MISLEADING OR DECEPTIVE CONDUCT - misrepresentations - where successful tenderer retained to supply an electric generator to work in synchronisation with two existing generators - where successful tenderer asked manufacturer to identify the winding pitch of the existing generators - where manufacturer supplied incorrect winding pitch - where generator subsequently supplied incompatible with existing generators due to inconsistent winding pitches DAMAGES - action for damages - misleading or deceptive conduct - reliance - requirement of causation - requirement to consider the policy or rationale of the relevant legal normDAMAGES - assessment - apportionment Legislation Cited: Civil Liability Act 2002 (NSW)
Sale of Goods Act 1923 (NSW)
Trade Practices Act 1974 (Cth)Cases Cited: Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341
Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568
Azzi v Volvo Cars Australia Pty Ltd [2007] NSWSC 319
Chappell v Hart (1998) 195 CLR 232
Digi-Tech (Australia) Limited v Brand (2004) 62 IPR
Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410
Gates v City Mutual Life Assurance Limited (1986) 160 CLR 1
Hampic v Adams [1999] NSWCA 455
Henville v Walker (2001) 206 CLR 459
Ingot Capital Investment Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
Marks v GIO Australia Holdings Limited (1998) 196 CLR 494
Mitchell Morgan Nominees Pty Ltd v Vella (2011) 16 BPR 30,189
Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492
Travel Compensation Fund v Tambree (2005) 224 CLR 627Category: Principal judgment Parties: Johnson Controls Australia Pty Limited (Plaintiff)
Webb Australia Group (NSW) Pty Limited (First Defendant)
Energy Power Systems Australia Pty Ltd (Second Defendant)
Cummins Generator Technologies Germany GmbH (Third Defendant)Representation: Counsel:
I D Faulkner SC / A J McInerney SC (Plaintiff)
M R Elliott (First Defendant)
JAN Hogan-Doran / B J Lloyd (Second Defendant)
M Christie SC / H Pintos-Lopez (Third Defendant)
Solicitors:
Carneys Lawyers (Plaintiff)
McCabes Lawyers (First Defendant)
Winter Hilditch & Fotheringham Lawyers (Second Defendant)
Cummins (Third Defendant)
File Number(s): 2009/298865
Judgment
HIS HONOUR: IBM Australia (IBM) operates a Data Processing Centre (DPC) at Baulkham Hills. Continuity of electrical power supply is essential to IBM's data processing operations. Thus, the DPC is served by emergency, or backup, electricity generators.
In about August 2005, IBM gave consideration to augmenting the emergency power supply. Ultimately, it decided to install a third "generator set". The parties to these proceedings were involved, in different capacities and to different degrees, in the execution of that project.
The new generator set that was installed was completely unsuitable for its task, because the alternator (which is what actually generates electrical current) was not capable of working safely in parallel with the existing generators (as it was required to do). Rectification work was carried out, at a cost, net of GST, of a little under $988,000.00.
The essential question for decision in these proceedings is: who, among the parties, should bear that cost; and if more than one, in what proportions?
The parties and their respective roles
The plaintiff (Johnson; frequently referred to in documents as "JCI") acted as project manager and head contractor. Its responsibility was to deliver the completed project to IBM. Johnson entered into contracts relating to the project, paid the contractors, and was reimbursed by IBM with a 7.5% fee on the cost of the works.
Johnson engaged the first defendant (Webb) as a consultant. In broad outline, Webb's responsibilities were to prepare a specification for the works and, once the works had been put out to tender and responses had been received, to advise Johnson on the tenders. There is a dispute between Johnson and Webb as to the extent of Webb's obligations in respect of each of those activities.
The second defendant (EPSA) carries on a business that includes, among other things, the supply of generator sets for commercial purposes. It was one of the companies that responded to the tender. Ultimately, Johnson accepted a revised proposal submitted by EPSA, and engaged EPSA to supply and install the generator set.
The third defendant (Cummins Germany) is a German corporation. Under German law, Cummins Germany is the successor to, and responsible for the acts, omissions and liabilities of, a company referred to in these proceedings (and in these reasons) as AVK. AVK had supplied the alternators that formed part of the existing emergency power supply system. It was asked to provide a quotation to supply another alternator, to be used in the additional generator set. In doing so, AVK provided information as to the technical characteristics or features of the alternator that it proposed to supply. One of those characteristics was the "winding pitch ratio", often called "winding pitch" or "pitch".
It is common ground between the parties, and apparently was notorious among electrical engineers and suppliers of electrical generating equipment, that if alternators are to work in parallel with their neutral terminals interconnected (to jump ahead for a moment, that is what the specification required), then, among other things, they must have the same winding pitch.
The real issues in dispute
The parties produced a statement of the real issues in dispute. That statement is lengthy and repetitive. For that reason, and because the parties' submissions did not address directly the issues thus defined, I will not set it out. Instead, I will deal with the issues arising between each party in respect of the claims made by or against it. Before turning to the particular claims, I will set out what I hope is a sufficient explanation of some of the technical terms that must be understood, and then turn to the facts.
Some technical points
A generator set is a package of machinery that produces electrical current. In essence, it comprises four principal elements:
(1) a motor (usually, and in this case, a diesel engine);
(2) an alternator, which when driven by the motor will produce alternating current;
(3) a cooling system; and
(4) a control system.
In very simple outline, an alternator is a machine that enables coils of copper wire to be rotated through a magnetic field. That requires two fundamental components: a rotor and a stator. As their names suggest, the rotor turns (driven by the diesel engine) whereas the stator is fixed.
One way of constructing an alternator is to have the rotor, comprising magnets, set inside the stator, which is wound with copper wire. The rotor may then be rotated within the stator. The result will be the production of electrical current.
The stator has a number of "winding slots" to enable the copper wire to be wound onto it. For example, looking at a stator in cross-section, there may be 48 such slots in all. Where the alternator is a four pole alternator (because the rotor magnets have two north poles and two south poles), there will be (on my example) 12 winding slots per pole.
The winding pitch ratio is the ratio between the number of winding slots enclosed by each coil in the stator to the number of winding slots per pole. Sticking with the example I have given, if each coil spans ten slots, the ratio is 10/12, or 5/6. By contrast, if the coil spans 8 slots, the ratio will be 8/12, or 2/3.
It appears to be an inherent characteristic of alternators that they produce some voltage distortions because, as well as the fundamental voltage output, they produce harmonic voltages. These can have detrimental effects, depending on the use to which the alternator is put.
Third order harmonics are apparently a particular problem where alternators are to be operated in parallel with their neutral terminals interconnected. One advantage of an alternator having a 2/3 winding pitch is that the design eliminates third order harmonics.
Returning to the case at hand: the DPC had two banks of emergency power generators. One bank served the data processing operations. The other served the building's mechanical services. It was the former that IBM wished to augment. It comprised two generator sets, each of which included an alternator with a 13/15 winding pitch.
The additional generator set that was supplied and installed included an alternator with a 2/3 winding pitch. When the system was tested, dangerously high temperatures were experienced, in particular in the control panel. This was found to be the result of large circulating currents passing between the two existing generator sets (which produced third harmonic voltages) and the new generator set (which did not).
A decision was taken to remove the alternators from the existing generator sets and replace them with new alternators having a 2/3 winding pitch. Thus, the problems of third harmonic voltages and circulating currents were resolved.
Johnson retains Webb
Johnson had had a pre-existing relationship with IBM. In late 2005, representatives of IBM and Johnson started to discuss options for upgrading the emergency power supply for IBM's data processing operations. Webb, in the person of Mr Ken Heard, became involved at an early stage of these discussions. In early November 2005, Webb was asked to submit a fee proposal for its consultancy services.
On 9 November 2005, Mr Heard sent an email to Mr Paul Buttifant of Johnson, seeking clarification of the extent of the works for which Webb was to quote. Mr Buttifant provided that email to Mr Greg D'Arcy of IBM. Mr D'Arcy replied, adding his comments to Mr Heard's request for information. Mr Buttifant in turn passed that material on to Mr Heard, on 10 November 2005.
I set out the content of the email, including Mr D'Arcy's comments. Those comments were printed in red on the original. They are shown in italic script in what follows:
Further to our discussions yesterday, I've spoken with my Standby Generation Engineer, who was the original designer for the Cathay Pacific project and he has time available between now and the (5/12/05), in which we could assemble a document for the calling of tenders.
So that I can submit a fee on the works, can you firstly clarify if the extent of works is to include:-
1) Design and documentation for the addition of the 3rd machine (1875kVA) in Group (1)
Check that the D&D includes
1 - a performance specification of the Gen Set
2 - all the electrical and mechanical aux plant and controls
eg: pumps, controls, cooling water, Cooling towers, CT Chemical dosing pumps, BMS (note this has changed since the original install might need a site visit)
Fuel day tanks, installation methods, starting equipment, any upgrades to existing gen sets for paralleling, existing system hencements ie; removal of single points of failure items.
2) Review of tenders
3) Supervision if the works, with JCI as Project Managers
4) Testing and Commissioning - Witnessing
For single unit and System
Defects
5) Review of Workshop drawings
6) Review of as-built drawings and O & M Manuals
Webb submitted its fee proposal in a letter dated 11 November 2005. It comprised a letter of that date and a "Manhour Allocation".
Omitting formal parts, the letter commenced:
Further to your e-mail request of 10 November, 2005 [i.e., the email that Mr Buttifant sent to Mr Heard that forwarded Mr Heard's email of 9 November 2005 annotated by Mr D'Arcy's comments], Webb have reviewed the requirements for the above project and believe the Scope and Services you require to be as follows:-
There then followed some six sections, A to F. I set out the heading of each of those sections, and so much of each section as the parties referred to:
A. SCOPE
▪ Addition of 3rd Standby Generator in Group (1) at BHDC
...
▪ Integration into existing arrangement of (2) machines
...
B. SERVICE
...
▪ Obtaining existing as-built material
...
▪ Preparation of Documents suitable for the calling of Tenders
...
▪ Assistance with review of Tenders
...
C. PERSONNEL
Design and Documentation would be produced under the supervision of Mr Ken Heard (Senior Engineer) and original Electrical Designer for the site, with specific input from the original Standby Generator designer, Mr Rod Hoddinett
D. PROGRAMME
...
E. FEE
...
F. CONDITIONS
a) Only the Technical component of the Tender will be provided, with all contractual conditions supplied by JCI (Johnson Controls)
b) Webb assume the JCI Supply Partners Agreement will apply to our consultancy arrangement
...
d) Webb assume JCI will be the appointed Project Managers for the project
...
The manhour assessment set out an estimate of the number of hours of work required for the tasks of Site Review, Document Preparation, Meetings, Construction Activities and Other (activities or expenses). The allocation included two hours for obtaining as-built records, sixteen hours for preparing the specification and eight hours for reviewing tender submissions.
It is uncontentious that, at the time Webb submitted its quotation, Johnson had a standard form of "Supply Partner's Agreement". Johnson placed emphasis on clauses 6.1 and 7.1, the former being a warranty and the latter being an indemnity. I set them out:
6.1 The Services shall be performed by appropriately qualified and trained personnel with all due care, skill and diligence and to the highest standard of quality as it is reasonable for Johnson Controls to expect and with due consideration of all international quality standards.
...
7.1 The Supply Partner shall indemnify Johnson Controls in full against all or any loss damage costs and expenses of whatsoever nature incurred or suffered by Johnson Controls or by any third party whether direct or consequential (including but without limitation to economic loss or other loss of turnover profits business or goodwill) awarded against incurred or paid by Johnson Controls as a result of the negligent act or omission of the Supply Partner or the breach by the Supply Partner of this Agreement.
The expression "Services" was defined to mean "the services details of which are set out in Schedule 1". Schedule 1 in turn referred to "the Specification and/or Assignment Instructions issued by Johnson Controls from time to time and other such documentation that may be issued... and/or developed... defining our requirement".
It is clear that the draft, or pro forma, supply partner's agreement required significant information to be provided to make it complete: for example, the specification, the schedule of prices, information as to measurement of performance, and (if applicable) a "Risk and Reward Mechanism".
Johnson issued its purchase order to Webb on 20 December 2005. That purchase order comprised a number of headed columns. Under the heading "part no/description" the following appeared:
As per quote dated 11/11/05
Design and documentation of additional standby generator (3rd) in Group 1.
Group 1 was the bank of generators that provided emergency, or standby, power for the data processing operations.
The purchase order was for the amount quoted by Webb.
Although the face of the purchase order gave no indication of it, there were "terms and conditions of purchase" endorsed on the reverse. There was no reference made in the purchase order, or so far as the evidence shows elsewhere, to the assumption expressed by Webb in its quote that the terms of the supply partner's agreement would apply.
The specification
Mr Heard left Webb at the end of February 2006, and Mr Fred Bowers took over the project. By the time Mr Bowers became involved, Mr Heard and a Mr Rod Hoddinett had prepared a draft specification. Mr Bowers reviewed it and was satisfied with it. He then (presumably in consultation with Johnson and perhaps IBM) put it out to tender.
The specification is a lengthy document. It is divided into a number of sections. I set out the principal provisions on which, in the course of submissions, the parties placed reliance:
1. SCOPE
1.1 PREAMBLE
Throughout this specification reference is made to existing EPP equipment. Tenderers should offer equipment matching the existing equipment in performance and characteristics and in particular the engine, generator, control panel components and cooling tower.
1.1.1 General
...
Note 4: The following terms shall have the meanings assign to them hereunder:
Approved: Means approved or selected by Project Manager. Approval by the Project Manager of drawings, samples, prototypes, workmanship methods, or other matters in respect of the works in no way relieves the Contractor of responsibility in respect of the works or contract. All equipment offered in the Contract shall comply with the requirements of the Specification. If equipment is offered as complying with the Specification and at a later date this is found not to be so then the particular item of equipment will be rejected and shall be replaced with complying equipment at no additional cost.
...
Shall: Means to be understood as mandatory
Equipment capacities/functions shall be as scheduled and to specification requirements. The Emergency Power Plant Contractor shall clearly indicate where the equipment offered differs to that specified and/or clearly indicate basis for rating and model/type number (see also Schedule 12 Departure from the Specification).
Tenderers are encouraged to offer other manufactures equipment providing it complies with specification and performance of the existing equipment.
All equipment offered in the tender shall comply with the requirements of the Specification. If equipment is offered as complying with the Specification and at a later date this is found not to be so then the particular item of equipment will be rejected and shall be replaced with complying equipment at no additional cost.
1.2 BACKGROUND
The specification provides the supply and installation of an additional 1875 kVA (minimum) diesel engine driven generating set (No 3) to Plant Room 1 and to be able to synchronise and load share with the existing two (2) sets.
The development of the Emergency Power Plant (EPP) for BHDC Plantroom 1 Project to the ultimate design configuration, will comprise three (3) diesel generating set, in parallel operation, supplying a Emergency Power Plant (EPP) diesel generation switchboard to support major loads.
It shall be noted that it is obligatory that a failure of a component, including auxiliaries, for the new set shall not affect the operation of the other existing set/s. To achieve this obligatory requirement each set shall be treated completely as separate items, including control systems, except for synchronising, parallel operation and load sharing. In the event of any set failing when in synchronised mode the remaining configuration control system shall shed load should the total load reach 80% of that configuration.
1.3 EXTENT OF WORK
Note:
a) The operation of the Data Centre and the availability of the existing and new Emergency Power Plant to provide emergency supply to the UPS systems and associated plant is of paramount importance. During the installation of the 3rd Set and connection of fuel lines, compressed air, cooling water and electrical components etc to the existing equipment/facilities for the sets 1 & 2, the "down time" when sets 1 & 2 would be unavailable must be kept to a minimum.
...
b) The scope of new work covered by this specification shall comprise the work associated with the building and shall include all works and materials:
i) Specified and as shown on the drawings,
ii) Necessary for the satisfactory completion and operation of the Works,
iii) Generally provided in accordance with accepted trade practice.
The design, manufacture, testing at works, delivery, installation, site testing commissioning, warranty and maintenance of one (1) 1500rpm, 1875kVA (minimum) at 0.8Pf (Continuous Rated at site conditions) diesel generating set to be located in existing Plant Room No.1 with the two (2) existing identically rated sets.
...
In accepting this contract, the Emergency Power Plant (EPP) Contractor shall accept responsibility for the detailed design of the complete system. The complete design shall be to the satisfaction of Project Manager.
...
2. SYSTEM PARAMETERS
...
2.2 SYSTEM DESCRIPTION
Note: Throughout this specification reference is made to existing EPP equipment. Tenderers should offer equipment matching the existing equipment in performance and characteristics and in particular the engine, generator, control panel components and cooling tower.
The additional 3rd set shall be part of the Emergency Power Plant (EPP) diesel generation installation intended to provide emergency power supply to selected equipment within the building, including:
...
2.3 SUMMARY OF PERFORMANCE
This set shall be capable of automatic "ramp-up" starting upon mains failure and of accepting a minimum 50% full load in one stage within twenty (20) seconds of firing. However, it is envisaged the remaining load shall be progressive over 60 second period.
...
The set shall be capable of single operation with isochronous speed and voltage control and be capable of being parallelled with existing sets with power and VAR sharing.
...
Provide the design of the dynamic system comprising engine and generator and verify by calculation or measurement, that the vibration stresses in the crank and rotor shafts resulting from torsional critical speeds are not excessive under the varying load conditions which may arise and in particular, the impositions of 50% load in one step.
...
Tenderers should offer equipment matching the existing equipment in performance and characteristics.
...
The generator performance shall match the existing generator (AVK) in performance and characteristics.:
[there followed a list of performance and other characteristics that the new generator was to match.]
...
Parallelling To be suitable for parallelling with other similar machines with neutrals interconnecting and earthed.
...
The electrical performance criteria for these two modes of operation, is as detailed hereunder. It should be noted that in these modes, the load normally connected to the UPS output is the only load proposed to be connected to the EPP Generating System.
[There were further requirements to be listed]
...
The additional electrical performance criteria in the above is detailed hereunder.
...
Generator Output (Steady State)
[a list of performance criteria followed]
...
Generator Output (Transient Response)
[a further list of performance criteria followed]
...
3. DIESEL GENERATION EQUIPMENT
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3.2 GENERATOR (SEE ALSO CLAUSE/S 1.1 & 2.3)
(Tenderers should offer equipment matching the existing equipment in performance and characteristics ie AVK)
...
The requirement, expressed in various ways, that equipment should match the existing equipment and performance and characteristics was repeated, according to one witness, 22 times throughout the specification.
The specification included schedules that the tenderer was required to complete. Schedule 1 was headed "specified equipment". It included, in bold, the wellworn sentence:
Tenderers should offer equipment identical in performance and characteristics to the existing equipment.
Schedule 10 required the tenderer to insert "technical information", providing technical details of the new engine and new "generator". One of the matters required to be specified, in relation to the new generator, was the winding pitch ratio.
EPSA's inquires of AVK
EPSA was one of the parties to whom the tender documents were issued. However, it had become involved before those documents were issued, and began the process of preparing to submit a proposal.
On 23 January 2006, Mr Derek Morley of EPSA sent an email to Mr Eberhard Vogler of AVK in Germany. The email was copied to AVK's representative in Australia, Mr Theo Dragonas.
Leaving aside irrelevant matters, the email stated (and I adopt, without further comment, Mr Morley's idiosyncratic mode of punctuation and expression):
I need an updated cost on a unit to run in parallel with existing units, existing serial number 6817182A004 ETAL REFERS, THESE WERE 1875KVA UNITS I THINK.
Looking for unit to be here in August this year..... any problem.
It appeared at the end to be common ground, and in any event I conclude, that "ETAL" was intended to be the abbreviation "et al", or "et alia". Clearly enough, reading the email in context (which included a reference to the building as it was known when AVK had supplied the existing alternators), Mr Morley intended to convey that there were several alternators; that the serial number of one of them was the number that he stated; and that they had, he thought, the power rating that he indicated.
Mr Vogler forwarded Mr Morley's email to Ms Maja Spies of AVK in Germany on 23 January 2006. Ms Spies was described as a Sales Engineer, and her name is prefixed with the words "Dipl.-Ing", which I take to signify some formal engineering qualification.
Ms Spies referred to Mr Morley's email on 24 January 2006. After thanking him for his inquiry, she said:
Should the new unit be the same as existing alternator with D.M. series number?
Mr Morley said that he understood the phrase "D.M. series number" to mean "[t]he declared manufacturing serial number"; that is to say, for example, 6817182A004 (T116.11-15).
Mr Morley replied to Ms Spies' email on 25 January 2006. He said:
There [sic] want to stay with AVK
What are the options
The important point is the new unit will run in parallel with two of the existing units (the other two existing units stand alone in parallel)
do we need to match pitch
here is a scan or [sic; obviously "of"] the draft spec for the job webb brief spec.pdf
What, if anything is wrong with it for a new unit to match in with the old.
Could there be any upgrades to AVR's [automatic voltage regulators] on the old sets that would be beneficial.
Mr Morley was well aware, as was everyone else involved with this project (including, I infer, Ms Spies and Mr Vogler), that if the new alternator was to form part of a generator set that could operate in parallel with the existing generator sets, it was essential, among other things, "to match pitch". He gave this evidence on that question (T115.24-116.2):
CHRISTIE
Q. And then you pose what appears to be a question, "Do we need to match pitch"?
A. Yes.
Q. Now was that a question that you knew the answer to before you posed it?
A. It certainly was.
Q. "It certainly was"?
A. Yes.
Q. Then why did you ask it?
A. I did not know Maja. I didn't know her background. This is the first time I'd ever dealt with her and I was making certain, tongueincheek, that she went off and made certain that she understood that pitch was important.
Q. And so this is a serious enquiry and you tell his Honour that you are adding questions tongueincheek for the reason you just gave?
A. Well, I clearly said before that we needed an updated cost, "They're going to run in parallel with the existing units". We need an updated cost for a unit to run in parallel to the existing units to Eberhard Vogler. He passes the enquiry to a lady I have never met before. I am asking her over a two or three days' period, I think, or maybe no, a two or three days' period just making certain that she understands what's going on.
Q. And you weren't sure if she understood what was going on, did you?
A. I don't know. I mean I've read Maja's one beforehand. "Many thanks for your enquiry. Should the new unit be the same as the existing alternator?"
I have a little difficulty in accepting that a person in Mr Morley's position, with his knowledge and experience (including his understanding of the importance of matching pitch) would ask such a question "tongue in cheek". However, I think, what Mr Morley was trying to say was that he was a little perturbed by Ms Spies' question to which he referred, and was, in effect, making sure, as he said, "that she understood that pitch was important".
Mr Morley received no reply for some time. He followed up his inquiry with an email to Ms Spies sent on 31 January 2006.
Mr Dragonas became involved. On 22 February 2006 he sent an email to Ms Spies and Mr Vogler, trying to hurry things up. That email was copied to Mr Zaki Slgini of AVK. He was apparently senior to Mr Vogler and Ms Spies in AVK.
On 27 February 2006, Mr Morley sent his own email to Mr Slgini. It said:
Could you please let me know what the problem is in obtaining the offer fro Eberhard and Maja
The consultant is about to issue the spec and we need to know what the options are and what you suggest is the best approach.
That chain of emails appears to have provoked some action. On 28 February 2006, Ms Spies sent an email attaching an offer. Significantly, her email was headed, as was the offer:
Repeat of our previous order - no. 68 17 182 A004
It is clear from this that Ms Spies intended to offer, or thought that she was offering, to supply the same kind of alternator, or an equivalent, as had been supplied in fulfilment of the earlier order.
I note, at this stage, that it was common ground among the experts that, if one wished to ascertain the winding pitch ratio of an alternator, one way to do so was to contact the manufacturer and give the serial number of the alternator. The experts agreed that it was customary for manufacturers to keep detailed records, and to provide the winding pitch ratio if asked to do so. In fact, that happened in this case once it became clear that the new generator set was not capable of working satisfactorily and safely in parallel with the existing generator sets.
The offer quoted for the supply of:
1 each "AvK"-synchronous three phase alternators [sic], acc. to detailed technical specification attached".
The quoted price was €44,500.00. The delivery date was said to be "week 13, 2007 ex our works if receipt of your techn. and commercially clear order latest till 13.03.06".
The letter of offer was signed by Mr Vogler as "Key Account Manager" and by Ms Spies as "Sales Engineer".
A technical specification was attached. It set out a number of technical features of the proposed alternator. One section of that specification had a sub-heading:
Electrical data and characteristics
Under that heading the following was stated:
Parallel operation: Alternator suitable for parallel operation with other alternators.
Mr Christie of Senior Counsel, who appeared with Mr Pintos-Lopez of Counsel for AVK, submitted that this statement was correct, because the alternator was indeed capable of parallel operation with other alternators; and the correctness of the statement was not undermined by the unfortunate fact that the alternator was not capable of parallel operation with the existing alternators supplied by AVK some years earlier.
That submission borders on the surreal. AVK had been given the serial number of one of the existing alternators that it had supplied. It had been told in clear terms, and at least twice, that the new alternator was required to run in parallel with those existing alternators. Its attention had been directed to the need to match pitch. It had also been given a copy of the draft specification, in which it would have seen repeated many times the requirement for the new alternator to operate in parallel with the existing alternators.
Against that background, and bearing in mind the heading of the letter of offer and the email submitting it, the statement as to parallel operation could only be read, in my view, as a statement that the alternator that AVK offered to supply was capable of operating in parallel with the existing alternators that it had supplied some years earlier.
One thing that the technical specification did not state was the winding pitch ratio of the alternator proposed to be supplied. However, that situation was rectified, a little later, when AVK submitted a "Technical Data Sheet" dated 13 March 2003. That technical data sheet had a project reference which was identical to the project reference on AVK's quotation (P-06.20259/AUS). It stated, among other things, of the alternator proposed to be supplied:
Winding pitch: 2/3
Johnson invites EPSA to quote
On 3 March 2006, Mr Buttifant, who was Johnson's project manager for the project being undertaken by Johnson for IBM, gave a formal request to EPSA to submit a lump sum tender. That request stated, among other things:
Johnson Controls have been appointed by IBM Australia Pty Ltd as Project Managers for the supply and installation of an additional 1875kca diesel engine driven generating set (No3) to plant room No1. The new generator shall be able to synchronize and load share with the existing 2 generating sets currently existing on site for the IBM 3 Brookhollow Ave Baulkham Hills Data Centre (BHDC) facility in New South Wales.
You have been selected to submit a lump sum tender price to perform the works as explained in the statement of requirements which is detailed below.
Within the statement of requirements for this project, you are required to install, and commission, provide documentation and any necessary training. Your tender shall be based on specifications provide by and is as per attached (CD).
...
Details of the statement of requirements are listed below:
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g. Provide design and installation in accordance with Australian Standards, Statutory and Regulatory requirements.
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l. Full compliance with the specification as documented by Webb Australia Group, Specification A224ARSPEC001 Issue A dated 24/2/06.
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Tender evaluation
Tenders will be evaluated on the following criteria not in order of preference:
▪ Price
▪ Technical Compliance
▪ Environmental Health & Safety Process-OH&S Compliance
▪ Unit Rates if applicable
...
Contract:
The successful tenderer will enter into the following contracts with Johnson Controls Australia Pty Ltd:
▪ AS4000 - 1997 General Conditions of Contract
▪ Johnson Controls Supply Partners Agreement
The above contracts shall take precedence over any documentation supplied by the tenderer and shall form the basis of the Agreement.
...
Tender Clarifications
All tender clarifications will be directed to Webb Australia care of Fred Bowers with the Project Manager, Johnson Controls Aust Pty Ltd copied in on all correspondence.
All clarifications will be answered within 3 working days with no extension of the tender period.
...
Site Inspection
A site inspection can take place on site. If your company requires a site visit this can be arranged by contacting the project manager.
...
The letter required tenders to be submitted by 9:00am on 27 March 2006.
On 9 March 2006, Mr Morley sent an email to Ms Spies which stated:
Can you please send the tech data sheet with pitch / reactance etc and times etc for the schedules we need to complete
The reference to "schedules we need to complete" was a reference to the schedules in the tender documents to which I have referred already.
Mr Morley followed up that email the next day.
Ms Spies replied on 13 March 2006. Her email referred both to the repeat of the previous order (giving the number that has been set out many times already) and to the offer number on the quotation. It said:
pls. find attached the requested technical data sheet
Her email attached an electronic copy of the document referred to at [64] above.
EPSA submits quotations
EPSA submitted two quotations. One was described as a non-conforming quotation. The other was described as a conforming quotation. At least one of them appears to have been sent a few days late, on 30 March 2006. Another company also submitted quotations.
I do not think that it is necessary to go into the detail of either of the quotations. However, some points need to be made.
The non-conforming quotation was for a Caterpillar 2000 KVA rated diesel generator and associated equipment. It contained repeated statements that the offer "includes comparable and compatible, plant, equipment and components matching as near as possible to the existing units" and that "the components of this offer are fully compatible with the existing system". It stated also that "the scope of works has been reviewed and shall meet the tender requirements".
The quotation stated also that "the performance summary of the alternator is as described in the accompanying technical data sheets".
In the item of the schedule which required the winding pitch ratio of the alternator to be inserted, there appeared the words "See TMI": as I understand it, a reference to an accompanying data sheet which, among other things, specified:
Generator Pitch: 0.6667
The conforming quotation was somewhat similar, but included the AVK alternator rather than the Caterpillar alternator that was the subject of the non-conforming quotation. It contained the same statements as to compatibility, review of the scope, and ability to meet the tender requirements. However, the schedule, insofar as it related to the winding pitch ratio, was left blank.
As I understand it, AVK's quotation and technical data sheet were attached to the conforming tender.
The reason for the two tenders, and the problems that EPSA had in preparing them, were indicated in an email of 6 April 2006 from Mr John Murphy of EPSA to Mr Buttifant. So far as it is relevant, that email stated:
We have been continuing to work on this project even though we appreciate the closing date has passed for this tender.
EPSA made a statement in our submission indicating possibly an improvement in delivery was available if the nominated delivery date was unsuitable.
This statement is due to the fluid nature of world wide order intake and production levels at present for both Caterpillar and AVK.
If the delivery for the Cat - AVK product does not suit your program we can check with both parties to see if an improvement can be achieved.
Note At times these deliveries can only be verified on placement of orders onto the factory and we appreciate this gives our clients a dilemma
if you wish to retain the avk alternator for a 3rd machine please advise today so we can check with avk if any alternative frame size or model of avk alternator is available on a shorter lead time
However
The Cat engine and Cat alternator offer though is a different matter / situation
Here we have available for a direct order through you to EPSA a generator set, that is still at this point of time available for the Oct out of the works delivery
We have identified and provided details on a standard Caterpillar Alternator that closely matches the necessary characteristics of the EXISTING AVK units so much so that EPSA are able to say this with the controls we are offering will run in parallel with the existing sets and satisfactorily share KW and KVARS if the order were awarded to EPSA
...
Webb's evaluation of and reports on the tenders
Webb summarised the two offers made by EPSA, and two offers made by EPSA's competitor TSF, by reference to cost and delivery time:
3. SUMMARY
a) Offers in order of cost
EPSA offer 2 Cat/Cat A$1,600,445.00
EPSA 1 Cat/AVK A$1,643,642.00
TSF A Cat/AVK A$1,855,713.20
TSF B Deutz/AVK A$2,086,920.00
TSF C Deutz/AVK (ALT) A$2,136,967.80
b) Offers in order of Delivery (& completion time)
TSF C 38 weeks (Deutz & larger AVK)
EPSA 2 42-44 weeks (Cat/Cat)
TSF B 50 weeks (Deutz & AVK)
EPSA 1 52-56 weeks (Cat/AVK)
TSF A 65 weeks (Cat/AVK)
Nothing was said in this summary as to compliance or otherwise with the specification; as to the ability of the tendered equipment to meet the requirements of the specification; or, specifically, as to winding pitch ratios.
Thereafter, apparently because Johnson (or IBM) was concerned at the time required to complete the project, EPSA made inquiries of AVK to see if another AVK alternator could be delivered more quickly. Mr Morley sent an email to Ms Spies and Mr Vogler on 6 March 2006. That was apparently sent to Mr Dragonas. He replied, referring to an AVK alternator which was apparently available "ex-stock Singapore".
Mr Morley replied to that seeking assurances that the suggested machine could operate in parallel with the existing units.
Mr Dragonas replied on 13 April 2006, attaching a technical data sheet (which I do not think is in evidence) and stating among other things:
I don't know the exact specs for this job, using the quote as a guide there is a high harmonic content so careful analysis must be conducted to see if this unit is capable...
After further toing and froing, Webb submitted what appeared to be its final report on the tenders to Johnson on 16 May 2006. For reasons that need not be reported, Webb reported only on EPSA's two tenders. It said, among other things:
5. COMPLIANCE
5.1 General
The second lowest tender by EPSA of $1,494,220.00 offers the following:
▪ second engine manufacturer, same series engines (as existing) but higher power rating - this is acceptable
▪ same alternator manufacturer, same alternator characteristics (as existing) - this is as specified
▪ has a completion time of 60-62 weeks - this is not acceptable. Although a temporary installation would be in place, the cost of (set rental) and reliance on a temporary installation should be minimised.
The lowest tender by EPSA of $1,454,950.00 offers the following:
▪ same engine manufacturer, same series engine (as existing) but higher power rating - this is acceptable.
▪ different alternator manufacturer, different alternator characteristics (to existing) - this is acceptable
The characteristics of the alternator in this offer are comparable to the existing alternators; having 2/3 winding pitch and very similar reactance values.
▪ has a completion time of 40 weeks - this is acceptable. The completion time is based on the use of packaged generator set with the alternator being changed t one with 2/3 winding pitch to match the existing AVK alternators.
...
7. RECOMMENDATION
We recommend that the tender of Energy Power Systems Australia Pty Ltd for the Caterpillar engine/Caterpillar alternator offer be accepted at the sum of $1,454,950.00, adjusted for any of the optional items deleted by the client, noting the following:
a) Contract period to be confirmed
b) Downtime periods to be established during the works
c) Factory testing in Australia to be deleted if the completion time can be reduced
d) Alternator to have 2/3 winding pitch
...
Johnson reports to IBM
After receiving and considering Webb's reports, Johnson reported to IBM. It said, among other things:
TECHNICAL EVALUATION
A technical evaluation was carried out by the Webb Australia representative Mr Fred Bowers. Both suppliers met the requirements as set by Webb Australia after all technical clarifications had been closed out by both suppliers upon request of Webb Australia.
Webb Australia's technical evaluation and technical clarifications will be attached to this report with any other technical correspondence as raised by the IBM evaluation team.
...
RECOMMENDATION:
Based on the results of the tender assessment sheet, Energy Power Systems Australia are recommend to be selected as the successful applicant.
Energy Power Systems Australia tender submission (Offer 2) offers the most cost effective solution and also offers the best possible completion time for an acceptable solution as agreed by the consulting engineer.
Johnson contracts with EPSA
IBM accepted Johnson's recommendation. On 3 June 2006, Johnson issued a purchase order to EPSA. Under the heading "PART no. / DESCRIPTION" it stated:
AS PER QUOTATON No E256233
FOR SUPPLY & INSTALLATION OF 1 X 2000 KVA
STANDBY GENERATOR AS PER WEBB SPECIFICATION
A224ARSPE001 & ASSOCIATED DRAWINGS
The purchase order specified also the price, exclusive and inclusive of GST.
Mr Buttifant sent an email to Mr Morley on 14 June 2006 advising that EPSA had been successful and that "JCI will engage EPSA on its non complying offer...".
There was reference to finalisation of commercial terms. The email stated:
All technical requirements for the engine & alternator need to be sent to Webb & JCI for final workshop drawings / technical approval to ensure the engine & alternator from the US arrives as per the specification.
There was apparently a problem with timely supply of the engine that EPSA had offered in its tender. Accordingly, EPSA proposed an alternative. Mr Bowers sent an email to Mr Buttifant on 21 June 2006. He referred to the problem and the solution offered, and concluded:
We consider [the alternative] engine is satisfactory for the duty required and matches the capacity of the existing engines.
We recommend that the engine and alternator, as set out in the attached specification sheets from EPSA, be ordered by EPSA as soon as possible to enable the delivery programme to be maintained.
The first specification sheets (which came from Caterpillar) were incorrect. I return to this at [174] to [179] below. Further specification sheets were procured. They stated, in relation to the alternator, that its winding pitch was 0.6667.
A little later on 21 June 2006, Mr Buttifant sent an email to Mr Dean Mifsud and Mr Morley of EPSA, forwarding Mr Bowers' email, and stating:
Please find correspondence below from Webb confirming the prime rated genset & Webb specified alternator is acceptable & still complies with tender requirements.
Please proceed with placement of order as detailed below & confirm delivery dates are still in line with previous emails...
The evidence
Although most of the evidence was documentary, the parties did call witnesses of fact. Some of those witnesses were cross-examined. None of them was challenged as to credibility. It follows that I accept the testimonial evidence, so far as it goes and so far as it is relevant.
The parties also called expert evidence. In the result, that evidence was limited to a narrow issue: whether (as AVK initially put it) Johnson had mitigated its loss? This turned on a consideration of alternatives that, according to some experts, could have been put in place to address the problem of non-compliance, at substantially less cost (including because they could have been effected more quickly, and thus reduced the bill for temporary generator hire).
The "formal instrument of agreement" between Johnson and EPSA
On 8 October 2006, Johnson and EPSA recorded the full terms of their bargain in a "formal instrument of agreement". In that agreement, Johnson was described as "Superintendent" and EPSA as "Contractor".
Clauses 1 and 3 of that agreement provided as follows:
1. The Contractor must construct and complete the Works in accordance with the Contract.
...
3. The Superintendent and the Contractor agree that the following documents will together comprise the Contract between them:
(a) this formal instrument of agreement;
(b) AS 4910 - 2002 General conditions of contract for the supply of equipment with installation contract conditions as amended including Annexure Part A to E inclusive;
(c) The Contract scope documents as described in Annexure Part A Item 16 (subclause 8.2):, all of which have been agreed for and on behalf of the parties for the purpose of identification. Identified document Appendix A
(d) The Council Development Conditions, are not applicable for this contract.
The general conditions of contract referred to in cl 3(b) provided, by clause 2.1, that EPSA as contractor was required to "carry out and complete WUC in accordance with the Contract and directions authorised by the Contract."
"WUC" is an acronym for "work under the Contract". It was defined to mean work which EPSA is or may be required to carry out and complete under the contract. It included, as one might expect, supply and installation of the specified equipment, and carrying out any necessary remedial work.
The scope documents referred to in cl 3(c) included the specification prepared by Webb, together with its associated drawings.
The problem is discovered and a solution found
The new generator set was supplied and installed by December 2006. It was then tested by operating it in conjunction with the existing generator sets. Dangerously high temperatures were generated inside the control panel. Mr Buttifant said that the exterior surfaces of the control panel became too hot to touch.
Independent electrical engineers were engaged to inspect the alternators. They could not determine the winding pitch of the two existing alternators. However, as an email from Mr Gordon Ibels of IBM to Mr Buttifant dated 18 December 2006 stated, it was "apparent that the pitch of the new machine is different from [that of] the existing machines".
In the meantime, EPSA made further inquiries of AVK, to ascertain the winding pitch ratios of the existing machines. The answer came through on 19 December 2006. Each was 13/15. An alternator with that winding pitch will generate high third phase harmonic voltages. Thus, if it is operated in parallel with an alternator having a 2/3 winding pitch with their neutral terminals interconnected, there will be high circulating currents between the two machines. That would explain the high temperatures that were observed on testing.
The various parties began to look at alternatives. One matter that had to be addressed, in considering how the problem could be resolved, was IBM's insistent need for completely secure, or fail-safe, emergency power supplies to its data processing operations.
When the new (and incompatible) generator set had been connected to the existing generator sets and tested, emergency generators were hired to provide backup power. That was necessary because the existing generators had to be taken offline.
Because IBM required its emergency power supply to be fail-safe, Johnson decided that it was appropriate to retain the temporary generators as backups until the problem with the new permanent third generator could be resolved. The hire charges were substantial: of the order of $80,000.00 a month. Thus, an important consideration in evaluating the various options was the time that would be taken before they could be put in place.
The parties considered a number of what might be called bandaid solutions. However, these were not pursued.
As a permanent solution, it would have been simple, in conceptual terms, to replace the new alternator (having a 2/3 winding pitch) with another alternator having a 13/15 winding pitch. But apparently, such alternators were no longer common. AVK would have to make one, and that would take in excess of a year.
Ultimately, after a detailed evaluation of the options, Johnson decided to replace the two older (13/15 winding pitch) alternators with new alternators having a 2/3 winding pitch. It was determined that the existing diesel engines would be satisfactory to drive those new alternators. Since the new alternators would be effectively the same as the new one that had been supplied already, there would be no problem of compatibility.
The two new alternators were ordered. The existing generator sets were put back into service. The hired temporary generator sets were kept as the backup to the backup. They were not capable of operating in parallel with the two existing generator sets. However, if one of the generator sets failed, the other would be closed down and the temporary generators would swing into operation.
The new alternators were installed and commissioned. That work was completed on 28 May 2007. At that time, the hire of the temporary generators was terminated.
The two 13/15 winding pitch alternators that were replaced were retained. One of them has been used in some way in connection with an upgrade of the side 2 emergency power backup system (the system which supplies power to the building's mechanical services).
Johnson's claim against Webb
Brief outline of the claim
Johnson's claim against Webb asserts breach of contract and misleading or deceptive conduct. An alternative claim, for breach of an alleged common law duty of care, was dropped, on the sensible basis that it could add nothing to the claim in contract.
The claim in contract raises the following issues:
(1) what were the relevant terms of the contract?
(2) did Webb breach any of those terms?
(3) if Webb did breach those terms, what if any damage did Johnson suffer?
The claim based on alleged misleading or deceptive conduct asserts in substance that Webb's conduct in recommending EPSA's non-conforming tender to Johnson, and representing that it either complied or would enable compliance with the requirements of the tender, was misleading or deceptive. It is difficult to see how this claim could succeed if the claim in contract fails. Nonetheless, it was pursued and must be dealt with.
First issue: what were the terms of the contract?
Underlying this issue is a question as to what documents comprised the contract between Johnson and Webb. Johnson "pleaded" that the contract was constituted by:
(1) its request to Webb dated 10 November 2005, to submit a fee proposal for the works therein described;
(2) Webb's quotation dated 11 November 2005; and
(3) Johnson's purchase order dated 20 December 2005, accepting Webb's quotation.
That analysis of the contract appears from paras 7 to 10 of the Third Further Amended Technology and Construction List Statement (3FATCLS) and from para 10A, which asserts that the "Webb Contract" is pleaded in those earlier paragraphs.
Webb's list response does not engage directly with the proposition that the contract between it and Johnson is to be found in the documents on which Johnson relied (although see at [133] below). However, as appears from Webb's written closing submissions at para 18, its case is that the contract was made by "the quote and the immediately preceding emails" and the acceptance thereof by the purchase order, on the terms and conditions set out on the reverse of the purchase order.
The specific questions that arise, in relation to the identification of the contract documents, are:
(1) do they, as Webb contended, include the emails of 9 and 10 November 2005 that immediately preceded the provision of the quotation? Specifically, Webb asserted, and Johnson (notwithstanding its pleaded case) in submissions disputed, that the contract documents included the email sent by Mr D'Arcy of IBM to Mr Buttifant, forwarded on to Mr Heard of Webb, in which Mr D'Arcy responded to some of Webb's requests for clarification of "the extent of works" for which it was required to quote.
(2) do the contract documents include, as Johnson contended and Webb disputed, the terms of Johnson's standard form of supply partner's agreement?
Webb contended, further, that if the contract documents did not include Mr D'Arcy's email, then the terms of the contract - specifically the requirement for "design and documentation for the addition of the 3rd generator set" -were relevantly ambiguous, so that it was in any event open to the court to have recourse to Mr D'Arcy's email to resolve the ambiguity.
I find some difficulty in understanding Johnson's position on this point. The question is: what were the contract documents? Its written closing submissions state at para 99 that:
The contract... was constituted by Webb's offer of 10 November 2010 [sic; obviously, "2005"]... and Johnson Controls' acceptance of Webb's offer by Purchase Order... [of] 20 December 2005.
Johnson submitted that the contract did not include the terms of the emails that immediately proceeded the provision of Webb's quotation. That position is inconsistent with its pleaded case; and that is why I have said I find it difficult to understand Johnson's case on this question.
If one looks at the matter chronologically, it is apparent that:
(1) there were discussions between Johnson and Webb on 9 November 2005 (and, no doubt, in the days or weeks leading up to that date) concerning the role that Webb might play;
(2) on 9 November 2005, Webb sent an email to Johnson asking for clarification of "the extent of works". Specifically, Webb asked whether the works were to include "[d]esign and documentation for the addition of the 3rd machine...";
(3) Johnson passed that request for clarification on to IBM, and Mr D'Arcy replied on 10 November 2005, stating what it was that IBM required "the D&D" (obviously, design and documentation) to include. It was to include, among other things, "a performance specification of the Gen Set";
(4) Johnson forwarded that email to Webb the same day, asking Webb to "action these items and issue a fee proposal for these works"; and
(5) the next day, 11 October 2005, Webb submitted its quote, which was expressed to be "[f]urther to your e-mail request of 10 November, 2005".
Mr Elliott of Counsel, who appeared for Webb, submitted that Johnson should not be permitted to depart from its pleaded case on this issue. It is not necessary to resolve that point, because I consider that the way that Johnson has pleaded this aspect of its case is correct. The quotation called up the preceding email chain: specifically, Mr Buttifant's email to Mr Heard of 10 November 2005 which, among other things, forwarded Mr D'Arcy's comments on Webb's request for clarification of the scope of services. In circumstances where that email is referred to in the quotation, I conclude that it is to be read in effect as part of the quotation, and as giving content to, or defining, the scope of services for which Webb was quoting a price.
Thus, I conclude that, as Webb contends, the contract documents do include the email chain sent to Webb on 10 November 2005, and referred to in Webb's quotation of 11 November 2005.
I turn to the debate as to incorporation of the terms of the supply partner's agreement. Webb's quotation stated, under the heading "Conditions" that "Webb assume the JCI Supply Partner's Agreement will apply to our consultancy arrangement".
Mr Faulkner of Senior Counsel, who appeared with Mr McInerney of Senior Counsel for Johnson, submitted that this was a term of the quotation, and that it was accepted by Johnson's purchase order. Thus, he submitted, the terms of the supply partner's agreement were incorporated into the contract made between Johnson and Webb.
Mr Elliott submitted that there was no incorporation. He noted that there had been no express reference to the supply partner's agreement in any correspondence; nor had Johnson prepared a project-specific version of that agreement, complete with all the requisite details suggested by the proforma copy, and forwarded it to Webb for consideration and acceptance. Instead, Mr Elliott submitted, what Johnson had done was submit a purchase order which made no reference to the supply partner's agreement or its terms, and which contained its own specific "terms and conditions of purchase".
Further, Mr Elliott submitted, the purchase order referred to the quotation for the purpose only of identifying the scope of services that Johnson required Webb to perform.
I do not think that the terms of the supply partner's agreement were incorporated into the contract made between Johnson and Webb. Webb did not stipulate, as a condition of its offer, that the terms of the supply partner's agreement should apply. It stated an assumption that those terms would apply. Johnson did not respond to that assumption. Nor did it provide a completed form of the agreement for consideration and execution. Instead, as Mr Elliott submitted, Johnson accepted (or purported to accept) Webb's offer, by the issue of a purchase order which contained its own terms and conditions of purchase. Those terms state, in cl 2(a), that they "constitute a complete and exclusive statement of the agreements and understandings between [Webb and Johnson]."
However, the evidence on this point was clear. If Johnson were to take that course, it would have to wait many months for AVK to supply a new alternator having a 13/15 winding pitch ratio. Apparently such alternators are now uncommon, and are made only to special order. The cost of hiring temporary generators for those additional months would have eaten up the saving that might have been achieved by calling on EPSA to perform its contract.
On my findings, Webb's submission is not relevant. But I mention it because Mr Christie embraced the submission. The answer is the same. Following the contractually available course would have diminished the claim by the cost of the new alternators, but would have increased it by a balancing amount: the cost of hire of temporary generators.
Mr Christie relied on some expert evidence which suggested that there were alternative approaches to solving the problem, using various devices to attempt to isolate the relevant parts of the new generator set from the existing generator sets. It is not necessary to go to the detail of those solutions. They were demolished comprehensively by Johnson's expert witness, Dr Colin Grantham. He said, of the alternative approaches advanced by AVK, that they would not achieve the purpose of enabling the machines to work in parallel and safely. It is not necessary to go to the detail. It is enough to say that, although neither expert was cross-examined, Dr Grantham's reasoning was not challenged in any report in reply, and I find it persuasive.
There is, however, one argument that requires closer examination. Mr Christie submitted that there was another alternative rectification option, known as option 7. That involved taking one of the existing 13/15 AVK alternators on the side 2 emergency power supply (the side which provided standby power generations for the building's mechanical services) and putting it on the new diesel motor that EPSA supplied. The new AVK alternator could then have been used on the side 2 engine, because apparently it was not critical that the side 2 generators should operate in parallel.
Mr Christie submitted that this was in fact IBM's preferred approach. I do not agree. That was the view of Mr Ibels. But it was not the view of Mr D'Arcy. And Mr Buttifant made it clear that it was Mr D'Arcy who gave instructions.
More importantly, however, I do not see why Johnson (or IBM) should be required to accept some second-rate solution. IBM had two sets of emergency generators. Each set comprised two machines that could operate in parallel. It wanted a third machine to operate in parallel with the side 1 generators. If option 7 were to be followed, then the side 2 generators would no longer be capable of operating in parallel. IBM was entitled to have what it had bargained for; and Johnson was required to provide that. IBM should not be required to accept some lesser solution, and Johnson should not be held entitled to damages only on the basis that this lesser solution could be foisted on IBM.
The result of what has been done is that there are now two spare alternators. One of those has been put into service in some way at the DPC. The other is lying around, unused and awaiting its fate. Those machines have a salvage value, which on the unchallenged expert evidence of Mr Nirev Shah, is $90,000.00. That amount should be deducted from the damages claimed by Johnson.
Johnson is entitled in principle to the damages as it quantified them, but making an allowance for salvage value. However, it had quantified damages inclusive of GST. When I raised this point, Mr Faulkner accepted that damages should be awarded exclusive of GST.
Johnson also claimed interest. There is no reason why it should not have interest on the (GST exclusive) amount of its damages.
Apportionment
The primary position taken by the defendants was that if each were liable to Johnson then (unless Webb's liability flowed only from its indemnity liability under cl 7.1 of the supply partner's agreement), each was a concurrent wrongdoer. They argued for various apportionments between themselves.
On the conclusions to which I have come, each of EPSA and AVK is liable directly to Johnson. It is uncontroversial that, assuming the correctness of that conclusion, they are concurrent wrongdoers. It is therefore necessary to make an assessment of the responsibility of each for the overall loss.
I should note that EPSA cross-claimed against AVK to cover the possibility that AVK might not be found to be directly liable to Johnson, and thus might not be found to be a concurrent wrongdoer. In those circumstances, EPSA would carry the whole of the primary liability to Johnson, but would be entitled to contribution or indemnity from AVK if its claim against AVK succeeded. On my findings, even if AVK were not directly liable to Johnson, it nonetheless would be liable to EPSA for the consequences of its misleading or deceptive conduct.
The exercise of allocation or apportionment of responsibility would be the same in each case.
In Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492, the High Court was concerned with the basis on which contributory negligence should be assessed. Their Honours said at 495 (omitting citations):
The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, i.e. of the degree of departure from the standard of care of the reasonable man... and of the relative importance of the acts of the parties in causing the damage... It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case... .
That approach has been applied in the context of apportionment of liability between concurrent wrongdoers under s 35(1)(a) of the Civil Liability Act 2002 (NSW). See Mitchell Morgan Nominees Pty Ltd v Vella (2011) 16 BPR 30,189.
When one considers the circumstances of this case, ultimate responsibility for the situation that arose must be attributed to AVK. It was asked to supply an alternator that would operate in parallel with other alternators that it had supplied. It was given the serial number of one of those alternators. It has not been suggested that the information given to it was insufficient to enable it to identify the earlier alternator, nor to recover from its archives the technical characteristics of that machine.
The common view of the experts was that it was the practice of manufacturers of alternators, such as AVK, to retain records that would enable the technical characteristics to be identified, and that it was common and good practice to refer to manufacturers if technical details were required.
Further, when asked specifically to identify the winding pitch ratio of the existing alternators, AVK did so quickly (see at [103] above).
Thus, I conclude that AVK had in its records information as to, among other things, the winding pitch ratio of the existing alternators that it had supplied. There is no suggestion that EPSA had this information. It was not suggested to Mr Morley that his inquiries of AVK were a sham.
In those circumstances, EPSA was entirely dependent on AVK for information as to the winding pitch ratio of the existing alternators. It had no ability itself to ascertain that information from other sources. Although, in some cases, those records might be retained also by the owner of the premises where the alternators were stored, it was clear in this case that IBM did not have any such records.
Nor was it feasible for EPSA to carry out any check of the information supplied by AVK. In theory, it might have been possible for EPSA to dismantle one of the existing alternators, count the number of slots per pole, and count the number of slots covered by each core (see at [14], [15] above). But no one suggested that this was a practicable course for EPSA to take. Indeed, as I understand the evidence, the experts were of the view that this might not be an appropriate way to ascertain the winding pitch ratio of those alternators.
In those circumstances, if EPSA was to tender for the works, it had no practical choice but to do so on the basis of the information supplied to it by AVK. AVK should have known this.
Mr Christie criticised EPSA's failure to supply the serial numbers of all the generator sets that AVK had supplied earlier. I do not understand this criticism. Once it was known that the existing sets were formed up into two banks, or sides, with two machines operating in parallel on each side, it must have been obvious to anyone that at least each set of two machines had the same winding pitch ratio. Mr Christie's submissions did not explain why it would have been advantageous, or helpful, to give AVK more machines to research.
Mr Christie criticised also the informal language of Mr Morley's emails, and their deficiencies of orthography, syntax and punctuation. He pointed out, correctly, that they were inquiries addressed to people whose first language was not English. But when one looks at the replies, it is obvious that Ms Spies and Mr Vogler each had an excellent command of the English language. And one would have expected that, if they had had some difficulty in understanding Mr Morley's emails, they would have asked for clarification. Further, one might have expected that Mr Vogler at least would have been called to give evidence of any problems caused by the nature of Mr Morley's communications.
I refer back to what I said at [242] to [259] above. To my mind, those circumstances make it plain that ultimate responsibility must be attributed to AVK.
Mr Christie criticised EPSA (and others) for not making a formal written inquiry of AVK, and not asking for a certified response. That criticism seems to me to smack very heavily of hindsight. Informal as EPSA's inquiries might have been, the point of them was clear. The underlying engineering issue was equally clear. And I repeat that AVK has not called any evidence from which it could be inferred that its approach might have been different had a more formal approach been made. Indeed, I would find it very strange that what I understand to be a large, respected and competent manufacturer of industrial electrical equipment would suggest that its approach to serious inquiries was more or less thorough, and more or less serious, depending upon the formality of the inquiry.
The importance of formal inquiry and certified response might well be relevant if EPSA's quality certification process were in issue. But they are not, because the inquiries and responses have been proved through the less formal records that EPSA has produced.
Mr Christie submitted that AVK had no duty to provide information about the specifications or performance of the existing alternators. That is undoubtedly correct. But AVK chose to do so, effectively by necessary inference, when it supplied a quotation to supply a new alternator with a winding pitch ratio of 2/3, to operate in parallel with the existing ones. And its attention had been directed expressly to the need to match pitch (see at [47] above).
In similar vein, Mr Christie noted that AVK did not say expressly that it had checked the winding pitch ratio of the existing alternators, nor expressly certified what they were. But again, that seems to me to be beside the point. The quotation that it supplied necessarily conveyed both the inference that it had checked and the inference that it was satisfied that their winding pitch ratio was 2/3.
To my mind, the various criticisms made by Mr Christie of EPSA's conduct do not deflect the conclusion that, ultimately, it was his client's misleading or deceptive conduct that caused the problems experienced by the parties.
The question is not whether EPSA could have made more formal, and better written, inquiries. The question is whether it made plain to AVK the purpose for seeking the quotation and the duty or performance requirements that the new alternator must meet. EPSA did that, both in Mr Morley's emails and by sending the draft specification. AVK chose to respond in the way that it did. It is too late now to complain that more could have been done to enable it to respond more accurately.
I conclude that, as between EPSA and AVK, AVK should be responsible for the whole of the loss sustained by Johnson.
Conclusion and orders
Johnson should prepare and circulate draft orders to give effect to these reasons, including a quantification of interest up until the date that I will mention in a moment.
I stand the proceedings over for directions and orders to 9:30am on 7 November 2013. If there is to be any dispute as to costs, I will deal with it on that occasion.
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Decision last updated: 18 October 2013
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