Legion Heights Pty Ltd v Oaktech Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 4554 of 2005

LEGION HEIGHTS PTY LTD (trading as A M MACHINERY)	Plaintiff
v
OAKTECH PTY LTD (trading as EUREKA GARAGES AND SHEDS)	Defendant

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JUDGE:	HANSEN J
WHERE HELD:	Melbourne
DATE OF HEARING:	16 and 17, 20-24, 27 and 28 November 2006
DATE OF JUDGMENT:	20 December 2006
CASE MAY BE CITED AS:	Legion Heights Pty Ltd v Oaktech Pty Ltd
MEDIUM NEUTRAL CITATION:	[2006] VSC 497

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Sale of laser cutting machine to be installed and commissioned – Representations and warranties – Fitness for purpose – Whether representations false, and warranties and terms broken – Damages

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R M J Lombardi	Hassall & Byrne
For the Defendant	Mr D J Williams	Davis Zucco

HIS HONOUR:

The claim and counterclaim in this proceeding arise out of an agreement made in December 2003 between the plaintiff, Legion Heights Pty Ltd (“Legion Heights”) and the defendant, Oaktech Pty Ltd (“Oaktech”), under which the plaintiff agreed with the defendant to supply, install and commission a 2 kilowatt (“kw”) laser cutting machine DCO2O Model TLF510D for $400,000 plus GST. The machine was manufactured by a Taiwanese company called Favor Laser Inc (“Favor Laser”). The terms of payment were 90% on delivery and 10% on commissioning, payment to be made as to $50,000 on the trade-in of the defendant’s existing Amada laser cutting machine, and the balance by finance provided by Westpac Equipment Finance (“WEF”) under a Commercial Hire Purchase Agreement.

The directors and shareholders of Legion Heights are Alfred Charles Mollison and his wife Kaylene Louise Mollison. Legion Heights trades as A M Machinery (“AM”) from premises at 14 Park Drive, Dandenong.

Oaktech is owned by Domenic Sabatino who is the sole director and shareholder of the company. Oaktech trades as Eureka Garages and Sheds (“Eureka”).

In the evidence and the documents the parties referred to each other as AM and Eureka respectively.

There are two defendants to Oaktech’s counterclaim, Legion Heights and Mr Mollison.

The laser cutting machine was installed and commissioned by employees of Favor Laser at Oaktech’s factory premises at 24-26 Little Boundary Road, Laverton North in January 2004. Unfortunately, however, from the outset Sabatino experienced difficulty in using the machine, which difficulties continued notwithstanding efforts organised by Mr Mollison to deal with the problems advised by Sabatino. These efforts did not satisfy Sabatino. By March 2004 Sabatino was so disenchanted with the machine that he would not permit Favor Laser personnel to attend at Oaktech’s factory to inspect the machine and attend to such work as may have been necessary for it to operate as it should, unless Favor Laser first stated what work they were going to do. This produced an impasse that was never broken. In the result the defendant did not pay the balance of the purchase price of $40,000 that was due on commissioning. The defendant contends, among other things, that the machine was never properly commissioned.

On 25 August 2004 the plaintiff, without making formal demand for payment but in the circumstance of the impasse and being aware that Sabatino would not make payment and was himself threatening legal action, Legion Heights commenced a proceeding in the Magistrates’ Court to recover the unpaid balance of $40,000. Oaktech responded with a counterclaim for a sum so large that the entire proceeding was transferred to this Court. As particularised at trial, Oaktech claims damages assessed on the following alternative bases, $1,754,993.91 for breach of contract or $645,029.91 under the Trade Practices Act 1974 (Cth) (“TPA”) or Fair Trading Act 1999 (Vic) (“FTA”).

With this introduction I now refer to the pleadings.

The pleadings
Claim

The plaintiff’s claim is simple enough, being for the sum of $40,000 as the balance of the price owing under the agreement for the sale of the machine. There is no issue as to the amount. The case was fought over the issues in the counterclaim.

Counterclaim

The counterclaim was put on the following bases. First, as against the plaintiff:

(a)That Mr Mollison induced Sabatino to enter into the agreement by representations and warranties as to the abilities of the laser cutting machine and its suitability for Oaktech’s business that were false. The representations and warranties are alleged in para 8 and their falsity is alleged in para 12.
(b)Breach of the terms of the agreement. The terms are alleged in para 4. In addition to those terms, implied terms of fitness for purpose and merchantable quality are alleged in para 7.
(c)Contravention of several provisions of the TPA (s 52, s 53(a) and s 55) and/or the FTA (s 9, s 12(a) and (n), and s 10). The conduct constituting such contravention was the making of the representations. It was also alleged that the plaintiff did not have a reasonable basis for making the representations.
(d)Negligent statement.

Secondly, Mr Mollison was sued on the basis that by making the representations he aided and abetted the contraventions under the TPA and/or the FTA.

It was alleged that on or about 19 April 2004 Oaktech, as it was entitled to do, rescinded the agreement or, alternatively, did so by the counterclaim (para 16).

Finally, it was alleged that Oaktech had suffered loss and damage. Particulars of such loss and damage were provided (in para 20) but these were entirely overtaken by the particulars provided during the trial.

On these bases Oaktech sought the following relief:

(a)Against Legion Heights:
(i)A declaration that the agreement had been lawfully rescinded by Oaktech, alternatively rescission.
(ii)Pursuant to s 87 of the TPA and/or s 158 of the FTA, declarations as to contravention of the TPA and/or the FTA and orders declaring the agreement rescinded ab initio or from such date as the Court deemed appropriate and compensation for Oaktech’s loss.
(iii)Alternatively, damages pursuant to s 82 of the TPA and/or s 159 of the FTA or at common law.

(b)Against Mollison, orders for the payment of compensation or damages on the same basis as sought against Legion Heights.

Having given this general outline of the counterclaim it is necessary to refer with greater particularity to the alleged representations and terms and to an identification of that which Oaktech’s counsel relied on at trial as constituting the relevant breach or, to put it another way, the respects in which Oaktech contends that the machine did not meet the representations or terms.

The terms of the agreement are alleged in para 4 of the counterclaim and relevantly state that the machine was to be supplied, installed and commissioned in compliance with Australian Standard AS 4024 relating to the guarding of plant, and with an anti-reflective mirror.

In para 6 of the counterclaim it is alleged that prior to entering into the agreement Oaktech expressly or by implication made known to Legion Heights that the purpose or purposes for which the machine was being acquired were:

(a)for use in Oaktech’s business to cut steel,
(b)to cut 12 mm mild steel base plates,
(c)to cut aluminium without damaging the head,
(d)to comply with Australian Standard AS 4024,
(e)to expand Oaktech’s business into contract cutting for other parties,
(f)to be able to laser cut steel and other materials efficiently and with minimal wastage, including full nesting of irregular parts across a full sheet of metal of 1.5 m x 3.0 m (“a full sheet”) and pre-piercing of materials to be cut.

It was then alleged, in para 8 that in the course of negotiations leading to entry into the agreement Legion Heights represented and warranted to Oaktech that the machine:

(a)was just as good as a Bystronic machine for its capacity,
(b)would accord with Australian Standard AS 4024,
(c)would maintain optimal focal point for laser cutting processes,
(d)could fully nest on its computer system irregular parts across a full sheet and laser cut each of those parts,
(e)was identical to the machine viewed by Sabatino at a demonstration in China in November 2003 and had the same capabilities and functionality as that machine,
(f)would be fit for the purposes alleged in para 6,
(g)would be fitted with anti-reflective mirrors, at the cost of Legion Heights, to enable Oaktech to laser cut aluminium,
(h)would automatically laser cut according to previously programmed NC data created by a CAD/CAM system.

Paragraph 11 alleged breach of terms of the agreement and para 12 alleged that the representations were false and the warranties were broken. The breadth and seeming repetition of the pleas in these paragraphs was such that at an early stage of the trial I asked Oaktech’s counsel to provide me with a document which identified more precisely the respects in which it was alleged that the machine was deficient. Counsel duly provided me with such a document. The document was refined during the trial and served to clarify the issues and confine attention to that so identified as relevant. The document has been included in the Court Book at page 1088. The deficiencies alleged, and thus the respects in which it is alleged that the representations were false and the warranties and terms were broken are as follows:

(a)The machine does not comply with safety standard AS 4024.
(b)Legion Heights failed to fit the machine with an anti-reflective mirror.
(c)The machine could not perform full nesting of irregular parts across a full sheet and laser cut each of those parts.
(d)The machine could not perform pre-piercing of materials to be cut.
(e)The machine did not have systems in place to prevent it from operating, (and to prevent the laser beam from energising), when out of gas.
(f)The machine was unable to hold a “pause” such that the head drove itself into and across the material it was cutting.
(g)Full line gas pressure was intermittently self-activated.
(h)The machine was not just as good as a Bystronic machine for its capacity.
(i)The machine did not maintain optimal focal point for laser cutting processes.

It is convenient to indicate now, but only in broad outline, the nature of the damages claimed by Oaktech to have been suffered as a result of the above matters. Putting aside the distinction between that which might be recovered on a breach of contract or warranty basis on the one hand, and assessed on a tort basis for the purpose of the TPA and/or the FTA on the other hand, the items are these:

(a)       Loss of the purchase price (including the trade-in of            $50,000) and including finance costs paid and            payable $475,929.91

(b)      Loss of use of the laser traded in $135,000.00

(c)       Loss of contract cutting opportunity $1,000,050.00

(d)      Loss from need to have materials cut by external            contract cutters $72,000

(e)       Loss of use of factory floor space, depending on            basis of assessment $9,504 or $21,600

(f)       Gas wastage $4,000

(g)      Wasted material $3,000

(h)      Wasted software expense $5,500
Defences to counterclaim

Without overlooking all that is said in the defences to the counterclaim of Legion Heights and Mr Mollison it is sufficient to note that the several allegations of false representations and breach of warranty and terms of the agreement were denied. To the extent that positive assertions were made in the defences these will be dealt with as necessary in the course of dealing with the issues.

A summary description of the machine and its operation

The following description was provided by counsel at my request. It is not contentious. I include it as provided with a few inconsequential changes. The machine is more fully described in the Favor Laser handbook, which includes photographs of the machine, in the Court Book.[1]
[1]Court Book 153-231.

The laser in this proceeding, the Favor Laser TLF 510D, consists of:

a)Laser oscillator, Rofin Sinar, and Presitec head (both German made)
b)Table and pallet changer – 2 off 1500 x 3000
c)CNC Controller – Delta Tau brand (made in the USA)
d)Chiller (Gin Dai brand of Taiwan)
e)Voltage Regulator
f)Software Cad Cam System – FastCam (Australian made)
A diagram is included at the end of this section.

General principles of operation

The oscillator is the single most important, and expensive, part of the machine. It generates the laser beam which is then delivered down to the metal to be cut via a system of mirrors.

The head contains the lens which sits on a gantry which moves backwards and forwards across and along the tray which holds the metal to be cut. The head also moves up and down, that is, vertically as well.

The software, FastCam, is on the personal computer which sits in the office; the personal computer is not part of the machine as sold. The software essentially delineates the shapes and then nests them into the most efficient configuration. I interpolate that the expression “nesting” refers to the process of placing and arranging the shapes to be cut on the sheet.

The nested program then is sent to the CNC controller, which is a large box like tower next to the laser; it stands separate to the laser itself. The controller takes the software and drives the laser to cut the pre-configured shapes. The programme is sent to the CNC via a floppy disk. The CNC tower has a large screen at the top of it which allows inputting of information, as well as providing feedback information, such as several warning lights and alarms, such as for low gas, chiller overheating, etc.

The chiller sits separately to the laser and chills the oscillator with a flow of chilled water.

The machine has two trays which hold the metal to be cut. They overlap each other so that one tray can be loaded or unloaded while the other tray is in use by the laser.

Machine start up procedure (step by step)

The operator should turn the gas bottle on and check the regulator setting for correct pressure. Turn Rofin oscillator and CNC on.

The nozzle must be checked. Centering of nozzle.

Load the material on to the table. The material is normally so heavy it does not need clamps. Press Home button which sends the machine to its home position.

The information supplied by the programme will determine the operation of the Rofin Sinar oscillator. The Rofin Sinar is controlled by the CNC controller. This energizes the Rofin. The oscillator sends a beam via a series of mirrors (in the X, Y and Z axes) to the cutting head. The operation of the Rofin and cutting head is determined by the parameters which are inserted at the programming stage.

The gas is activated for the commencement of cutting, the head will move to the set position as advised by the programme.

The machine will then commence cutting of the various shapes that have been programmed. The programme cycle is completed.

The pallet changer can then be activated by a push button on the control panel. The pallet changers are then interchanged enabling the processed material to be unloaded whilst the new material is being processed. The cycle for cutting has recommenced.

Evidence

The evidence comprised a relatively modest Court Book and the oral evidence of 14 witnesses, 10 of whom were called by the plaintiff and four of whom were called by the defendant. All witnesses except two called by the defendant, Barry Raymond Toseland and Codrin Mitin, gave evidence in chief by witness statement. In addition there was a joint report of the expert witnesses. Finally, seven pieces of steel and aluminium cut by the machine were tendered.

For the plaintiff the following witnesses gave evidence:

(a)Mr Mollison. He negotiated and made the agreement with Sabatino, and dealt with him subsequent to the machine being installed. He gave evidence as to these matters. Following suffering a heart attack on Good Friday in April 2004 he was off work until approximately the end of May/early June that year when he resumed involvement.
(b)Mrs Mollison, who described herself as an accountant. She has a commerce degree and works full time for the plaintiff in marketing, accounts and office management. She described her involvement in relation to the transaction up to the time when Mr Mollison suffered his heart attack from when and until Mr Mollison returned she took over the conduct of the matter and dealt with Sabatino.
(c)Lai Yu Hsiang (“Mr Lai”) , a resident of Taipei City in Taiwan, the General Manager and one of the owners of Favor Laser which has its head office in Taiwan. He is also general manager of an associated company which conducts a manufacturing facility in Shanghai, China. He is a qualified mechanical engineer from a university in Taiwan. As general manager he knew what products the company should develop. His evidence indicated that while he did not personally design the subject machine, he had “experience” in designing. It was evident that he had a profound knowledge of the machine. It is reasonable to understand his evidence as meaning that as general manager he was familiar with the design work undertaken by Favor Laser employees in the course of developing the subject machine. He gave much evidence descriptive of the capacities and operation of the machine, in particular in relation to Sabatino’s experiences and complaints. He also gave evidence of his observations of the machine as he found it on inspection and test at Oaktech’s premises in April 2005.
(d)Lai Chun Wei, an employee of Favor Laser in Taiwan. He is referred to as Eric Lai. He is Vice Manager of the service division. He works in a different department to, and in the relevant hierarchy is below, Mr Lai. He is a qualified electronic engineer. His role involves commissioning (that is, installing) industrial lasers manufactured by Favor Laser and then training the purchasers’ staff in use of the laser, and also instructing customers on periodic maintenance. He gave evidence of commissioning the machine at Oaktech’s premises and of giving training, and of returning to inspect the machine in April 2005, and of his observations at these times including the operation of the machine.
(e)Richard Heath Ladley, who gave opinion evidence as an expert. As it was, he had made a service call to check the external alignment of the subject laser machine at Oaktech’s premises on 6 March 2004. He inspected the machine on 21 August 2006 following which he prepared a witness statement setting out his observations concerning the machine. Pursuant to my direction he and the expert engaged by Oaktech, Anthony Noel Higginson, conferred and provided a joint report (Exhibit M), the agreements expressed therein having the effect of reducing the differences between them and thus qualifying some of the evidence in Ladley’s witness statement.
(f)Trevor John Sivies, an engineer and the Product Development Manager of Fastcam Pty Ltd which specialises in supplying software for industrial profiling and laser machines around the world including machines made by Favor Laser. The subject machine was manufactured with FastCam software. At the request and cost of the plaintiff Sivies attended at Oaktech’s factory where the laser machine had been installed, and upgraded the FastCam software installed by the manufacturer in Taiwan by installing a more current program. He also initially trained Sabatino over a day and a half in February 2004 and returned to train an employee named Birhan who was the designated CAD operator. He discussed aspects of cutting techniques with Sabatino including pre-piercing, and said that Sabatino called him a few times with queries under the 12 month service and management agreement.

(g)David Andrew Beavis, an electrical contractor of Laser Electrical Hallam an employee of which, at the request and cost of the plaintiff, fitted circuit breakers to the supply transformer. The employee repositioned circuit breakers inside the transformer control box to an externally mounted circuit board to enable the operator of the laser machine easy access to the breakers to reset them, if that was required. Mr Mollison further requested the company fit a low level gas cut out and indication lights to the machine; this was done by fitting a pressor switch and indicator lights and relays. Subsequently, on 4 May 2005, the company quoted two options to supply and wire switches to shut off the laser, the options being to category 1 and category 4 standard respectively.
(h)James Malcolm Forrester, who works in the area of the repair of hydraulics in machinery. He also has an electrical disconnect licence. At the request of Mr Mollison, and at the plaintiff’s cost, in March 2004 he fitted some pressure switches into the oxygen and nitrogen feed lines for the Favor Laser machine at Oaktech’s premises. The switches duplicated those already fitted to the machine, a fact of which Forrester advised Mr Mollison who instructed that they be fitted to be 100% sure the electrician could find them for wiring.
(i)Kevin Douglas Newitt, a laser operator who at the request and cost of the plaintiff visited Oaktech’s premises to help with cutting conditions and determine if the machine was cutting 12 mm mild steel satisfactorily. He re-aligned the nozzle which rectified inconsistent piercing of the 12 mm mild steel. He also found that gas and speed settings needed minor adjustments which Sabatino made after Newitt instructed him how to do so. This improved the quality and he left with the machine cutting 12 mm mild steel without a problem. He again visited Oaktech about two weeks later when he found that the external alignment of the machine was out (the machine was not cutting the same over the complete envelope) which he thought was due to the machine settling after installation, which was not unusual. Re-alignment is sometimes required. In cross-examination he expressed some doubt as to whether the actions and events he described occurred on the earlier or later visit but nothing turns on this as I am otherwise satisfied as to the truth of his account.
(j)John Charles Peterson, an engineer and director of Integration Solutions Pty Ltd which provides engineering services in the area of electrical automation of manufacturing processes. Around 20 February 2004 he was retained by the plaintiff at its cost to assess the capabilities of the Favor Laser cutting machine at the defendant’s premises with a view to allowing direct programming of the Controller (CNC) from the defendant’s office programming system (CAD/CAM). Direct programming would enable the rapid preparation of programs, the transfer of programs to the machine and cutting of parts. He visited the premises twice. On his initial visit he advised Sabatino that an Ethernet (CATS) cable needed to run from the office to the machine which Sabatino said he would do. On his second visit he inspected the Favor CNC, obtained the exact specifications of various components of the system and clarified the defendant’s requirements. Having assessed the machine he obtained advice from Favor Laser as to the programming. He was not asked to visit the defendant’s premises again.

For the defendant the following witnesses gave evidence:

(a)Domenic Sabatino who gave evidence as to Oaktech’s business, the purchase of the Favor Laser cutting machine, and his experiences in using the machine.
(b)Barry Raymond Toseland, a WorkSafe inspector who gave evidence of inspecting the machine at Oaktech’s premises in November 2004 and of his opinion that the guarding around the cutting area of the machine did not comply with the Occupational Health & Safety (Plant) Regulations 1995 and with further reference to Australian Standard AS 4024. He described the action needed to rectify the situation as being either or both of the following, namely the provision of electrical interlocking so that the opening of the existing hinged guard would make the machine cease operation or the guard could be secured and be removable only by the use of a special tool. In addition, Mr Toseland referred to the risk by reason of persons being able to walk in the area of the plant and expressed views as to how that might be catered for. He also referred to the requirement under Regulation 603 that the supplier of plant designed and manufactured outside Victoria supply a risk assessment to the purchaser. As to the user of the machine, or the employer of those using it, there was an obligation under Regulation 705 to supply an item that is safe.
(c)Codrin Mitin, who owns a business conducted in Queensland by Bylaser Australia Pty Ltd, of which he is a director, which performs laser cutting services on a contract basis. His evidence covered a range of matters: his experience in and knowledge of the contract cutting business both in terms of his own business experience and his awareness of that area of business generally, and as to discussions he had with Sabatino concerning Oaktech purchasing a laser cutting machine for use in its business and for contract cutting and his recommendation to purchase a Bystronic laser cutting machine.
(d)Anthony Noel Higginson, the expert retained by Oaktech who gave opinion evidence as to the machine. He had received a letter of instructions from Oaktech’s solicitors on or about 14 September 2006 which letter set out 28 questions on which his answer was sought. He inspected the machine in October and provided written answers later that month. The answers are set out in his witness statement, Exhibit 4. However not all of the questions are relevant to the issues in the case, as they were refined by counsel at the trial. Counsel identified the questions and answers that were relevant. Furthermore, those answers that were relevant must be read subject to the agreements expressed in the joint report of Higginson and Ladley.

The facts

I now refer to the facts to identify the context in which the issues for determination arise. It is not necessary to, and I do not, set out all of the evidence, although in determining the case I have regard to it all. Nor is what follows in all respects the facts as I find them to be. I mean by that in particular that it will be seen that at times I refer to the evidence of Mr Mollison and Sabatino, and other witnesses, without referring to all of the evidence that they gave and, furthermore, without finding the facts. That is for a variety of reasons. It may simply be unnecessary keeping in mind the issues that are for determination. In some instances differences in the evidence do not matter as the substance is clear. In some instances I make findings later as necessary to deal with the issues.

It is pertinent to note concerning the evidence of Mr Mollison and Sabatino that neither kept a contemporaneous record of their discussions in the course of their negotiations leading to the agreement for the sale of the subject laser cutting machine. There are some documents but generally speaking much was left unrecorded. To an extent this explained why their evidence on pre-contractual matters differed in recollection of certain of the discussions and the sequence or timing of conversations. Each, of course, had his own interest to protect in what they said in evidence. Mr Mollison’s evidence was, as mentioned, given initially by witness statement. His witness statement was inexpertly drawn and seemed to be one of those where a lawyer had not paid sufficient attention to ensure completeness or accuracy in recounting. An example was his evidence recounting the visit to the factories in China. I did not see in this a lack of honesty as the overall position became clear on a consideration of the whole of his evidence, in my view. Indeed it may be said that if he had set out to give a deliberately false account his witness statement would have been a tighter document.

I consider that Sabatino’s evidence suffered from a high degree of over recollection and embellishment which favoured his case. He impressed me as an intelligent man but suffering a degree of overconfidence in his own abilities which contributed to him making an erroneous judgment concerning the machine and to an unfortunate attitude towards allowing the plaintiff and Favor Laser the opportunity to inspect the machine and carry out such work, if any, that may have been necessary to make it operational in accordance with its specification, and to further instruct him or a designated operator in the use of the machine.

The plaintiff established A M in September 1988 for the purpose of selling machinery to the engineering and sheet metal industry. It has conducted that business continuously since then, offering a wide range of machinery including lasers. It obtains new and second hand machinery from overseas sources. Second hand machinery is refurbished at the plaintiff’s premises, tested and generally demonstrated to a potential client. Some clients purchase machines sight unseen which are then refurbished, tested and installed at their premises. Over the years A M has sold several second hand machines to Oaktech including the Amada 1 kw CNC laser cutter which Oaktech traded in on the new Favor Laser.

Mr Mollison first made contact with Favor Laser in about 1998, visiting the company in Taiwan and viewing their manufacturing plant and the Favor Laser DCO2O model TLF150D. The plaintiff marketed Favor Laser extensively and decided to exhibit the DCO2O model TLF510D at the Amtil Exhibition in Sydney in early 2000. For this purpose in about April 2000 Mr and Mrs Mollison travelled to Taiwan and purchased a new DCO2O model TLF510D being, in fact, the machine that is the subject of this proceeding. The machine was delivered to Sydney where it was commissioned (that is, installed) by Favor Laser employees, Mr Lai, Eric Lai, Bernard Wang and John Kuo. The machine was run and demonstrated during the show. Sabatino attended the exhibition and, among other things, saw the machine in operation.

At the conclusion of the exhibition the machine was decommissioned by the Favor Laser personnel and transported to the plaintiff’s premises at Dandenong where it was re-commissioned, and worked properly, as it had in Sydney.

It is now convenient to say something about Sabatino and to refer to Oaktech’s business. Sabatino initially commenced, but did not complete, study in electronics at Footscray Institute of Technology and RMIT. He had established a business which increasingly took up his time. The business manufactured glass terrariums, later expanding to a nursery business in Werribee. In about the mid 1980s he discovered there was a market for ready-to-assemble garages and sheds, and established a small business re-selling kits, also assembling them on request. In the late 1980s the business acquired a metal roll forming machine for cutting parts and for cutting for others on a contract basis. That was followed by another roll forming machine which enabled them to make their own shed and garage parts and to cut metal on contract for the roofing industry. Thus they were able to make and sell complete garages and sheds. In about 1993 Oaktech was acquired as a shelf company and the business has been conducted by it since then, the Eureka business name being registered in March 1998. In August 2001, with continued expansion, the business shifted to the factory premises referred to earlier which Oaktech built on land it had purchased.

Oaktech purchased the Amada laser from the plaintiff in the late 1990s for about $100,000. It cut 5 mm mild steel, not 12 mm. For two years or so Oaktech had rented out the Amada laser to a friend of Sabatino in Warrnambool; when the friend obtained a larger machine Sabatino brought the Amada back to Melbourne where it was used in Oaktech’s business. Oaktech also contracted out the laser cutting of some parts.

By mid 2003 Oaktech had need for a new laser cutting machine in order to replace what was then a slow and tedious manual process of cutting base plates for the garages.

One of the companies to whom Oaktech outsourced part cutting was Profile Cutting where Codrin Mitin was the manager. Profile Cutting’s business was cutting on contract to others. Sabatino became friendly with Mitin. Sabatino said in evidence in chief that he observed Mitin was very busy, that he ran 24 hour shifts, and that he saw a business opportunity in contract cutting which he discussed with Mitin. Mitin strongly recommended the Bystronic range of laser cutting machines which he used in his business. He also told Sabatino that a 2 kw laser earned about $300 per hour doing contract cutting. Sabatino considered that he had the advantage of an existing business which needed its own laser cutting done and of premises in which to locate a laser cutting machine. Sabatino considered that a 2 kw laser could almost pay for itself from Oaktech’s business and that contract cutting would be a no-risk means of expanding his business. Mitin told him that he had bought two Bystronic machines, one for just under and the other (with more features) for over $1M. As the Australian dollar had strengthened the Bystronic machines were down to around $800,000. Mitin said they were a great opportunity.

It was in these circumstances that in about June/July 2003 Sabatino spoke to Mr Mollison and advised he was considering trading in the Amada and acquiring a new machine to do the work presently being done by the other machines and the outsourcing work. According to Sabatino (in his evidence in chief) he also told Mr Mollison he was looking at doing contract laser cutting and if that eventuated he would most likely buy a second, larger machine. He said that he had been told by Mitin that the Bystronic machines were very good value because of the high Australian dollar. He discussed with Mr Mollison that the Amada was inadequate for these requirements because it could not cut 12 mm mild steel, being the main requirement. Mr Mollison said that he would buy the Amada back. Sabatino did not ask Mr Mollison if he could obtain a Bystronic; he knew that he could not as he was not a distributor or dealer for Bystronic.

In August 2003 a client of the plaintiff agreed to purchase the Favor Laser machine which was accordingly decommissioned with a view to delivery and installation in September. However, the client did not proceed with the sale. Thus, the plaintiff retained the machine.

Subsequently, in September it would seem, Mr Mollison (according to his evidence in chief) told Sabatino that the Favor Laser machine exhibited at the trade show was available and was suitable for cutting 12 mm mild steel base plates. He said that the machine was still new and that he had it cutting up to 16 mm mild steel. Sabatino said in evidence in chief that he told Mr Mollison that he was looking at buying a Bystronic machine. Sabatino said in his evidence that Mr Mollison told him that the Favor Laser machine:

(a)was just as good as the Bystronic for its capacity;
(b)would do anything that the Bystronic would do except that it had less power;
(c)was much cheaper than the Bystronic;
(d)was “brand new and PC based” saying that “you will never have memory problems. You will never have to retrofit like you have had to do with the Amada. You can start your cutting straight away”;
(e)would enable Sabatino to do contract cutting.

I refer below to Mr Mollison’s evidence of what was said in the area of statements of the above type; he puts the discussion subsequent to the China trip and differs substantially as to content.

Mr Mollison provided a written quotation dated 9 October 2003. The price was $400,000 plus GST payable by three instalments.

Sabatino expressed interest. However, as the machine had been decommissioned he could not see it in operation. Mr Mollison suggested that Sabatino view the same model machine in operation in Shanghai, at the plaintiff’s expense, which Sabatino agreed to do. Mr Mollison and Sabatino departed Melbourne on different flights on 11 and 12 November 2003, as Mr Mollison spent a day in Tokyo to view machinery, and met at Pudong Airport, Shanghai, returning to Melbourne on 17 November.

They attended two factories in Shanghai. They saw different Favor Laser machines operating, one being a 2.5 kw machine. At one of the factories Sabatino was taken to the programming office where he saw a technician nesting components to minimise the wastage of steel. The parts were dissimilar and tightly packed across the sheet. According to Sabatino in his evidence in chief, Mr Mollison said words to the effect of “Look how many parts. You can fit as many as you want. It’s PC based so you will never have memory problems”. Mr Mollison denied making these statements. At the second factory they saw a machine similar to the subject machine cutting 4 - 5 mm steel.

In his evidence in chief Mr Mollison said that Sabatino asked whether the machine would cut 12 mm mild steel base plates and that he said it would and up to 16 mm mild steel base plates. Mr Mollison also confirmed that the machine was operating with a FastCam programming system. Mr Mollison further said that before leaving China he asked Sabatino if they had a deal and that Sabatino said “yes” and to liaise in Melbourne as to the terms.

Having returned to Melbourne, in November Mr Mollison and Sabatino further discussed the matter. Sabatino asked about anti-reflection mirrors in the Rofin Sinar, as to which Mr Mollison said he would check and advise cost. Sabatino asked about the warranty, saying that he had advice that the warranty on the Rofin was now 6000 hours/18 months, as to which Mr Mollison would advise; on 1 December Favor Laser agreed to such a warranty. Sabatino also advised, having spoken to FastCam, that the software in the subject machine was at least two years old and may no longer be supported and should be upgraded to the latest version. Sabatino also asked who would service or repair the Rofin Oscillator, as to which Mr Mollison advised that Laser Resources, the Melbourne agent, would do so.

Mr Mollison said (in para 16 of his witness statement) that in this period Sabatino:

“again … advised that he wanted to cut base plates 12 mm mild steel for his garages and shed and possibly top up the machine with some outside cutting as he would not have enough work for the machine at first, I answered that the machine would cut 12 mm mild steel plate without any problems and it would cut 16 mm mild steel on its limit. He also advised that within two years if all went well he would contemplate buying another machine from us. He told me the machine would suit his application and the price would be within his range dollar wise, as he could not afford a new Trumpf or Bystronic. Mr Sabatino also said he realises the Favor Laser was not a Bystronics or a Trumpf machine, however nor was the price (as those two brands are ‘Rolls Royce’ types and cost around $1,000,000 each, (that the TLF510D would meet all his expressed requirements at a reasonable price. I certainly never said to Mr Sabatino that the TLF510D was as good as a Bystronics or a Trumpf because, as just mentioned, they were in a totally different price category.”

According to Mr Mollison’s evidence in his witness statement the evidence just given was of a discussion that occurred at a meeting at the end of which they “agreed on a deal”. That was, I find, shortly after 1 December 2003 on which date Mr Mollison had met Sabatino at Oaktech’s factory and provided him with a written quotation dated 1 December 2003.

It is not necessary to set out the full terms of the quotation. Three Favor Laser machines were offered: machine DCO2O for $460,000; DCO25 for $510,000 and DCO3O for $532,000, plus GST. Each was model TLF510D. The subject machine, being a demonstration model held by A M, was offered ex stock at a discounted price of $400,000 plus GST. The payment terms offered differed according to whether the machine was ex stock or ex factory. It was stated that Favor currently had 32 lasers operating in the Asia Pacific region, that its strategy was to have in place 20 units in Australia in three years and that they required a laser in a working environment to demonstrate to potential clients. After setting out payment terms the following was stated:

“6. SERVICE
All mechanical services will be provided by our factory trained staff. The authorised Rofin Sinar Agents are Laser Resource Technologies. Laser Resource Technologies will provide your Laser Service.

7. TRAINING
••Machine Operations

A M Machinery has allowed 7 days (8hr/day) training at the customer’s premises. Training will include both operations and CAD CAM Programming.
Training will be supplied by Favor Laser.
Additional training can be provided upon request (P.O.A.)

8. INSTALLATION
The installation will be completed by a representative of Favor Laser and the factory trained staff of A M Machinery.

9. EXCLUSIONS
Air, electrical, plumbing connections, and unloading/cranage at site responsibility of client.

10. WARRANTY
18 Months From Date of Commissioning
In answer to your queries I would like to advise the following.
a.In the event that A.M. Machinery is no longer a trading entity, Favor Laser has advised that it will honour the warranty for a period of 18 months.
b.I am currently waiting on pricing to fit an anti deflection unit from Favor Laser, I believe this will be considerably cheaper than Laser Resources. As this item is not standard on this machine I would be prepared to fit this, with the cost price to be shared equally between Eureka and A.M. Machinery.”

At their meeting on 1 December, or perhaps as Sabatino suggested a meeting a few days later, Sabatino (as he said in evidence in chief) told Mr Mollison that he would not pay half the cost of anti-reflective mirrors as proposed in the quote. Mr Mollison then said that if that was what was required to get Sabatino across the line he would include the mirrors. In his evidence Mr Mollison denied that he had agreed to bear the full cost of the mirrors, saying that Sabatino did not respond on that matter with the result, accordingly, that the mirrors were not provided.

At the meeting on 1 December Sabatino said that he wanted a warranty from Favor Laser and not merely a warranty from A M. The response to this was a facsimile from Favor Laser received on 2 December by Mr Mollison and Sabatino stating the warranty which was, or was clarified to be, 6000 hours/18 months. That was satisfactory to Sabatino.

Sabatino said in his evidence in chief that he met Mr Mollison at his office shortly after 2 December and advised that he was interested in purchasing the subject machine but that he had to obtain finance. During the negotiations Mr Mollison had agreed to purchase (and remove) the Amada laser for $50,000 as a trade-in. Sabatino further said that Mr Mollison agreed to supply a water purifier (which cleans the water going to the chiller). Sabatino said that he asked for a contract but Mr Mollison said that he did not have one and would provide an invoice as with their previous transactions. Sabatino asked what if there is something major wrong with the machine to which Mr Mollison replied that he would take it back.

It is evident that by this stage an agreement had been reached subject to finance. On 3 December Sabatino provided Mr Mollison with a letter stating that “regarding the sale of” the Amada laser the machine was owned outright by Oaktech and was not subject to any encumbrance or finance. Then, on 10 December Sabatino advised Mr Mollison that he would be available in the new year from 10 January 2004; that was relevant to the timing of the Favor Laser personnel attending Oaktech’s premises to install the Favor Laser machine and train Sabatino in its use. Further, on 17 December a client of A M having agreed to purchase it, the Amada laser was disconnected and removed from Oaktech’s factory to the plaintiff’s premises. Also on 17 December the Favor Laser machine was delivered to Oaktech’s factory; by this time advice had been received that Oaktech’s finance was approved and that the sale would be settled on 8 January 2004.

On 19 December A M prepared its invoice to WEF for the sale of the machine. On 8 January 2004 A M received $390,000 from WEF. The parties dealt with GST.

After 17 December 2003 Mr Mollison attended Oaktech’s factory and started installing the machine by connecting the two pieces of the main body, reconnecting the generic wiring to the Rofin oscillator, the chiller and air connections, along with wiring to the main body in preparation for Favor Laser’s team to finalise the installation and commissioning of the machine. Oaktech was responsible to wire the chiller, oscillator and compressor from the switchboard to the machine, and to plumb the chiller and gas connections from the bottle to the machine as per item 9 in the quote.

The Hire Purchase Agreement required Oaktech to pay WEF 59 monthly payments of $7,099.80 commencing in January 2004 followed by one payment of $7,041.71 in December 2008. All payments have been made as and when they have been due.

On 6 January 2004 Favor Laser sent A M an invoice for US$2,780 for the updated FastCam software for installation in the machine being sold to Oaktech. A M duly paid the invoice and Sivies installed the upgraded software in early January 2004.

The Favor Laser team – Eric Lai and Bernard Wang – arrived in Melbourne from Taiwan on 8 January 2004. Mr Mollison drove them directly to Oaktech’s factory where they commenced installation and commissioning. As mentioned earlier Eric Lai gave evidence. Bernard Wang did not give evidence; it was said, and it was accepted, that illness prevented him from doing so.

The machine was duly re-commissioned and tested. Eric Lai said that he tested the laser and found it to be working perfectly in accordance with the specification. I accept that evidence.

The commissioning process included instruction of the relevant Oaktech personnel in the use of the machine. Sabatino indicated to Eric Lai that he would be using the machine and was to be trained. Eric Lai told him that the operation of the laser took considerable practice to become proficient and that generally a dedicated employee was given the role of operating the laser. He said it was unusual for the chief executive officer to be able to apply himself sufficiently to master the operation. Despite this Sabatino indicated that he would be operating the machine. Accordingly Eric Lai set about training Sabatino, going through the programs, software and specifications. He also trained him in ongoing maintenance. Such training ordinarily takes five days but he remained with Sabatino for twice the normal amount of time as Sabatino was constantly diverted by other matters and was unable to devote his time exclusively to training. Another employee, called Birhan, received some brief training when he returned to work. His training was in relation to programming, in the use of FastCam, how to create a program and nest a program. Sabatino also received training in programming, including nesting. Sabatino said that he was shown how to nest two or three different parts. I note that it was common ground that Sabatino did not request the Favor Laser team to show him how to nest and cut a large number of irregular parts on the same sheet.

Commissioning and training was completed on 16 January 2004. Eric Lai and Wang returned to Taiwan.

Eric Lai was concerned, and so advised Mr Lai on his return to Taiwan, that Sabatino had not dedicated enough time and attention to fully mastering the operation of the laser. Mr Mollison said that during the training period Wang expressed a similar concern to him. Further, Mr Lai rang Mr Mollison between 21 and 24 January to advise that there might be problems with Sabatino as his training had been limited due to him trying to run the business at the same time as receiving instructions. He suggested that Sabatino needed a full time operator which advice Mr Mollison passed on to Sabatino.

For his part Sabatino referred to difficulty in understanding what Eric Lai and Wang were saying. He even said that they were not able to communicate the necessary instructions to him. As to this it is to be noted that the same men have instructed people in countries other than Taiwan.

Sabatino said that Eric Lai and Wang cut aluminium and that they advised him not to do so to avoid the machine being damaged. Sabatino said that Mr Mollison had agreed to supply anti-reflective mirrors which were to come from Taiwan but the Favor Laser technicians knew nothing about that.

On learning that the machine did not have anti-reflective mirror guards Sabatino took the matter up with Mr Mollison saying that he had promised to supply them. Sabatino said that Mr Mollison said that he would source them locally and provide them, but he never did. Mr Mollison denies any such undertaking.

Commissioning having concluded, Sabatino now commenced to use the machine. It was not long before he advised Mr Mollison of problems he was experiencing commencing on 20 January and ongoing. I will refer to these events so as to indicate context although somewhat summarily as I deal later with the particular complaints on which the counterclaim rests.

Sabatino said in evidence that he was operating the machine on 20 January and put the machine on pause in the middle of a laser cutting job. He returned 45 minutes later to find, as he said, that the Z axis of the machine had driven itself on to the surface of the metal plate on which he was working. The Z axis is the vertical axis of the machine. In effect it governs the height of the cutting head above the material to be cut. In addition the bridge, which is the moving assembly by which the cutting head moves, had moved about one metre. The result was a large scratch across the metal sheet. On 21 January he sent an email to Wang stating what had happened, enclosing a photograph of the scratch, and requesting advice.[2]
[2]Court Book 550 photo.

On 27 January Wang replied on this issue and on another matter, “buffer overflow”, an error message on which Sabatino had sought advice. In his evidence Sabatino commented on Wang’s advice on these issues.

On 29 January Sabatino replied to Wang stating that he wanted a solution where all programs were stored and retreated when needed without the need to shuffle programs around to make room. He was, he said, seeking to make the point that the memory of the machine was too small. According to Sabatino, Mr Mollison said that this would be fixed up immediately.

After following Wang’s instructions on buffer overflow problems and having deleted all programs, Sabatino found that the machine would not accept even a relatively small program. He emailed Wang on 30 January requesting advice; he said that he did not receive a reply. Sabatino said in evidence that the problem in relation to memory was never remedied. As a result he had never been able to use the machine to cut irregular parts on a single sheet of metal.

Sabatino said that within days of the Favor Laser technicians leaving, the machine started to suffer from alarms going off. On 3 February he emailed Wang advising of an alarm message on the oscillator “UA LIMIT” which trips the oscillator off. He asked for advice saying that he was “most desperate”. Wang replied the next day; he advised two reasons and said that Mr Mollison would handle the matter to fix it. Mr Mollison arranged for Laser Resources to attend for this reason on 6 February, on which day they fixed the fault.

The next point to mention is that on 11 February Wang emailed Mr Mollison with advice on problems Sabatino had advised he was experiencing with the machine.

On 12 February Sabatino emailed Wang, with a copy to Mr Mollison, in relation to cutting conditions. He stated that he was having trouble cutting 12 mm mild steel in particular after initial pierce cutting the lead in. Wang responded with advice later that day. He stated, in part, that pre-piercing “is a new feature of FastCam not for your machine. After we discuss we will give you instruction to use it”. The matter of the ability of the machine to pre-pierce is a substantial complaint and I deal with it later. Sabatino said in evidence that he had been promised that the machine could pre-pierce.

Also on 12 February Laser Resources attended the factory to deal with the problem of a leaking gas bottle. This was an expensive gas. It energised the laser. The problem was rectified by A M under warranty.

On 13 February Sabatino emailed Mr Mollison with a new problem although it had occurred previously. On piercing the metal plate spattering occurred which caused the laser to stop. The spatter of material could then be cleaned off the metal plate. While the machine was off the gas pressure should cut off and generally that happened. However sometimes the gas pressure increased to full line pressure and the machine continued to cut at that pressure which damaged the material cut, rendering it unusable. It also wasted gas. To deal with this Sabatino pressed the “stop gas” button and, after clearing the spatter, pressed the “resume machine operation” button. On several occasions however the machine attempted to operate without any assist gas which can lead to increased heat and spatter and damage to the lens.

In these times Mr Mollison attended Sabatino’s premises. He observed that what Sabatino had cut was “very poor”. He suggested a few minor adjustments to the cutting conditions and cut 12 mm mild steel. The cut was 95% better and acceptable, according to Mr Mollison. Mr Mollison also engaged Newitt who attended as mentioned earlier and advised Sabatino on cutting techniques. Mr Mollison thought that the need to realign the machine was due to settlement. The machine had been placed on two separate concrete slabs at Sabatino’s direction. Mr Mollison contacted Ladley who checked the machine and realigned the external mounts and mirrors.

Following the nozzle realignment carried out with Newitt, and Sabatino being unable to conduct the more accurate centreing alignment, on 20 February he emailed Mr Mollison requesting him to arrange for someone from Precitec (the German nozzle manufacturer) to come to the factory and centre the beam. He said that the machine was not cutting 12 mm mild steel at all. He added that he needed pre-piercing and buffer expansion. Soon after Sabatino acquired a microscope to help obtain better alignment, but it did not help.

On 3 March Mrs Mollison emailed Sabatino on four points concerning the machine, namely mirror alignment, shut off gas valves to deal with “out of gas” warnings, a reply was awaited from Integration Solutions, and a target lens had been ordered.

On 9 March Ladley conducted a full beam realignment of the machine. He advised of certain matters concerning a bolt and screws that Sabatino referred to in his evidence, as did Ladley in cross-examination.

On 10 March Sabatino sent a letter to Mr Mollison in which he expressed his unhappiness with the laser machine. After some introductory paragraphs he said:

“For your information, this morning I was unable to cut 12mm. It was similar to the previous times. I have 2 lenses and both are damaged, I’m not buying lenses until the problems on the controller are dealt with. I’m very frustrated with this laser, as I have invested nearly 2 months of my time into learning to operate this machine only to be impeded by its inadequate, and out of date features, this is unacceptable.
I’ve now reverted back to producing parts the way I did before I had this machine, with the added $2000 per week repayment expense.
Please note I need firm commitment in writing addressing when and how all issues will be dealt with to my satisfaction, if this cannot be done I will consider the sale cancelled and money including interest refunded.
I trust you appreciate the seriousness of this matter and the impact it has on my business. As from Monday 15^th March 2004 I will be billing you $2000 per week until all work is carried out.
I have purchased 7 other machines from you and have found you committed to your word. I don’t think I’m being too unreasonable to expect a new laser to do what I was told and shown it would do.”

Mr Mollison said that he again advised Sabatino that incorrect cutting conditions, that is, piercing, would cause the problem of lens damage.

On 17 March the electrician arranged by Mr Mollison installed wiring to make the valves fitted by Forrester operational. Wang had advised that the machine would stop operating when it ran out of gas and, in that event, the procedure to follow. Nevertheless on 19 March Sabatino emailed Mr Mollison that although out of gas when he turned the oxygen off and the laser on, the laser started to cut for a few seconds before going on hold. That should not happen. Further, without assist gas the lens could be damaged.

A further matter which Sabatino raised with Mr Mollison was the memory capacity of the machine. Sabatino said that Mr Mollison said that he would require Favor Laser to supply a replacement controller which would enable a larger memory capacity. Having heard nothing on progress on this, and knowing that Mr Mollison was about to travel to China to meet with Favor Laser “to demand a replacement controller”, on 20 March Sabatino emailed Mr Mollison a computer file of drawings of parts he wanted to nest over a full sheet of material to assist Mr Mollison in quantifying the size of memory required in the machine controller to handle such a file. Sabatino believed about four times the current memory should be sufficient. Mr Mollison emailed the information to Favor Laser on 22 March requesting that the program “be checked by return”. The email also sought an answer on the machine operating before the optics and stated that he would meet with Mr Lai on 26 or 27 March.

Wang replied to Mr Mollison on the program matter on 23 March. He did not however answer Sabatino’s request.

On 23 March Sabatino wrote to Mr Mollison setting out some of the issues, nine in number, with the machine. I do not list them, they are set out in the letter and I deal with the relevant issues later. He referred to his earlier expression of displeasure with the machine and the course of action he would adopt which “still stands”.

On 24 March Wang wrote to Mr Mollison advising of the procedure when gas ran out.

Mr Mollison duly visited Favor Laser in Shanghai where the issues were discussed. It was decided that Wang would attend Australia as soon as possible to address issues with Sabatino, and that Mr Lai would attend to check modifications requested by Sabatino and further train the operator. On his return to Australia Mr Mollison told Sabatino that Favor Laser technicians would come out and, to quote Sabatino, “do some work on the machine”. Mr Mollison was not able to say what that work was. As a result, on 2 April Sabatino sent Mr Mollison an email stating that “I need to know in writing how each and every issue is to be addressed with the final outcome before any work can be started”.

Mrs Mollison responded to this email later that day. She advised that Peterson was coming in to check several things for Favor and that the plan “is to have Favor on site next week to address issues as stated in your letter”. She was waiting on Peterson to contact Favor and then would have the final details of work to be undertaken.

Mr Sabatino did not receive an itemisation of the work to be performed. That was, I find, because Favor Laser personnel needed to see and run the machine before determining what action, if any, was required for the machine to operate to its specification. As, however, Sabatino would not permit access to the machine in the absence of his requested advice the Favor Laser personnel did not come to Australia. There was no point in them flying from Taiwan if they would be denied access to the machine. Thus was the impasse reached.

Nevertheless Mr Mollison continued seeking answers from Favor Laser to matters raised by Sabatino. On 6 April he re-sent the file earlier received from Sabatino on the matter of nesting components, and on 7 April Favor Laser replied with answers to solve problems.

On 13 April Mrs Mollison replied to Sabatino’s letter dated 23 March. It is not necessary to set out what she said or Sabatino’s evidence as to those matters, as I deal with the relevant matters later. At the same time I do not overlook all that they said. I note that Mrs Mollison’s letter treats the situation as an ongoing one. She noted that Wang was to fly “this week to commence work on the machine” and advised that Mr Mollison had suffered a heart attack. She would seek to resolve issues and was confident of a positive outcome for all parties. It was evident that Mrs Mollison was endeavouring to handle the situation as best she could in the circumstances.

On 19 April Sabatino replied to Mrs Mollison saying that her reply was not what he was looking for and adding that:

“I requested that, all issues were to be suitably addressed in writing to my satisfaction. Before any technician could start work on the Laser, this has not been done.
I now advise you that I have no faith in getting all these problems solved, and request that you take the laser back with a full refund, including costs and fees.”

Mrs Mollison replied on 20 April stating that she believed the relevant issues had been addressed in her letter dated 19 April, advising that the controller on his machine was the same as that on the machines he saw in China and that they have been successfully programmed with Favor’s method, and expressing disappointment that Sabatino had no faith in the machine when he would not allow Favor to attend his premises to address the issues outlined in his correspondence.

In his evidence Sabatino said that it was obvious to him, contrary to Mrs Mollison’s statement in her letter, that she was not aware of all of the discussions between Mr Mollison and himself. The anti-reflective mirror issue made this obvious; I note that in her letter she had said that Laser Resources had quoted $4,500 plus GST to install these mirrors. Sabatino said that he decided there was no point dealing further with Mrs Mollison and that he would wait until Mr Mollison recovered before pressing the matter.

On 26 April Mrs Mollison sent a facsimile to Sabatino noting that she had received no reply to her letter dated 20 April and stating that Favor had that day asked when they can attend his premises “to attend to issues as outlined in your correspondence”.

Sabatino replied on 6 May stating that he had requested a refund and that the machine be taken away. He advised that “in 7 days I will be considering legal action, I do not want to proceed in this manner but clearly this machine is still at the experimental stage and has too many faults”.

In reply, on 8 May, Mrs Mollison sent a facsimile to Sabatino advising that she had ignored his request for a refund as Sabatino would not allow Favor Laser or Integration Solutions access to the machine to address the issue. There were two paths, allow access to the machine to address the issues or have legal action.

By reply also on 8 May Sabatino stated that “I will now undertake legal action for recovery of all money, fees, interest, legal costs and all other associated costs that resulted from the Favor Laser purchase”. Notwithstanding the terms of this letter Sabatino said in evidence that he held off action in the hope that once Mr Mollison recovered he may resolve the matter with him.

However, there was no resolution and in early July 2004 Sabatino instructed solicitors who wrote to A M on 13 July threatening action if a without prejudice offer was not accepted. A M responded by instructing solicitors.

Following a meeting between them on 10 August, on 12 August Mr Mollison wrote to Sabatino with advice on the nine matters he had raised in his letter dated 23 March 2004. He concluded the letter with advice that Favor Laser was ready to travel and attend to the issues immediately. He described the issues as minor and said that Mr Lai was prepared to train Sabatino, adding that Mr Lai believed it would be more beneficial if Sabatino had a designated machine operator. It was essential to run the machine at 100% capacity for a week with Sabatino’s operator. Sabatino regarded Mr Mollison’s letter as in large part repeating what Mrs Mollison had said in her earlier letter. In his evidence Sabatino commented on Mr Mollison’s letter. Again I do not set out these comments as I deal with the technical issues later.

In the result, on 25 August the plaintiff commenced its proceeding in the Magistrates’ Court for the recovery of the unpaid balance of the sale price of $40,000.

The machine has remained at Oaktech’s premises pending the determination of this proceeding. It has not been used since Sabatino ceased using it which seems to have been in early March 2004. With the litigation pending an arrangement was made with Oaktech for persons on behalf of the plaintiff to attend the premises and inspect and test the machine. This occurred in April 2005. Mr Lai, Eric Lai, Mr Mollison, Mark Fagan of FastCam, and legal representatives of the plaintiff were present. After two to three hours readying the machine for use a number of operations were conducted on the machine, with the results stated by Mr Lai, Eric Lai and Mr Mollison in their evidence. Mr Mollison invited Sabatino to view the machine cutting 12 mm mild steel and pre-piercing the sheet using the two methods he described in his witness statement, but Sabatino refused to do so.[3] I do not set out the description of events given by Mr Lai and Eric Lai, although I do not overlook their evidence. But that which is pertinent to the matters for determination is dealt with, or otherwise taken into account, later. For the moment I note that their view, based on their observations, was that the laser operated perfectly. They considered that Sabatino’s difficulties were due to his failure to properly train himself or a nominated operator in the use of the machine and to obtain sufficient practice in its use.
[3]The first method involved pre-piercing and then cutting each component, while the second method involved pre-piercing the whole sheet and then returning the cut each component.

Decision

I can now turn to decide the issues on which the case turns. As there is no issue as to the amount of the plaintiff’s claim or that it represents the unpaid balance of the sale price I proceed directly to the issues on the counterclaim.

The counterclaim alleged in essence that the machine did not, and cannot, perform numerous tasks which the plaintiff had said it could perform. In the result, it was not fit for the purpose for which it was acquired.

As mentioned at [19] above, during the trial counsel for the defendant provided a document which identified the respects in which it was alleged that the machine was deficient. The document grouped the deficiencies alleged in the counterclaim under nine separate headings. Under each heading the relevant part of the counterclaim was identified, together with a short summary statement of the issues. In final addresses, both counsel dealt with the question of the alleged deficiency of the machine by reference to the nine categories thus identified. Counsel for the defendant submitted that the alleged deficiencies were established and thus that the relevant terms were broken with the result that the machine was not fit for the purpose for which it was sold or of merchantable quality. Counsel for the plaintiff made some concessions but generally submitted that the machine conformed, indeed conforms, with the requirements of the agreement. I now deal in turn with each alleged deficiency. I proceed in this way, rather than first deal with the question whether the alleged representations were made, for the following reasons. First, it proceeds straight to the fundamental issues argued, which is how counsel approached the case. Secondly, I will deal with the representations as I proceed in the discussion, or at least to the extent that seems necessary.

The machine does not comply with safety standard AS 4024

Counsel for the defendant said that the machine lacked appropriate safety mechanisms to ensure that it immediately and safely ceased to operate in the event of a person being in an unsafe position on, in or near the machine. Counsel for the plaintiff conceded that the machine, as supplied, did not comply with the relevant safety standard[4]. In this regard, I accept Toseland’s evidence that the guarding on the machine did not comply with the regulations[5]. Toseland observed[6] that a hinge guard (supposed to prevent access to the laser cutting area) could be opened during operation, creating a risk that a person could enter that area. Also, there were further entry points at the ends of the machine (not covered by the hinge guard). The solution was to fit an electronic interlocking system on the hinge guard so that the plant would cease operating once the guard was opened, alternatively, one could attach the guard in such a way that it could only be removed with a special tool. As to the other entry points, one could fit several types of switches, effectively cutting power to the machine when relevant sensors were activated.
[4]This concession was made for the first time in opening addresses. Para 11(b) of the plaintiff’s defence to further amended counterclaim denied the allegation of non-compliance with AS 4024. Mrs Mollison had previously responded to Sabatino’s complaint that the machine did not comply by stating that, as far as she was aware, it did comply.
[5]Occupational Health and Safety (Plant) Regulations 1995 and Australian Standard 4024 (Guarding of Plant). Toseland said that the relevant regulations and standards were the same in January 2004 when the machine was sold.
[6]Transcript 740-746.

As to the cost of fitting the necessary safety devices, the plaintiff called Beavis who explained the work in his company’s quotation dated 4 May 2005. I accept his evidence. The quotation contained two options: (a) to supply and wire six Trojan 5 guard switches to shut off laser, installed to category 1 standard, $2,450 plus GST, and (b) to supply and wire six Jokab guard switches to monitor relays which would control the dual contactor, installed to category 4 standard, $6,275 plus GST[7]. He explained that category 4[8] provides a higher level of safety than category 1. The first option (category 1) would not require any adjustment to the machine’s control logic as it would probably be interfaced with the existing stop buttons. He did not know if this would comply with relevant safety standards. The second option (category 4) would comply with relevant safety standards, as the whole machine would de-energise and stop in an emergency. This option would involve some substantial wiring changes to the machine. It would not necessarily mean a more sophisticated interface with the machine’s control logic, although that would be required if one wanted to prevent the loss of jobs the machine was doing at the time of shutting down. Beavis would require information and authorisation from the manufacturer before undertaking that work and would liaise with Favor Laser in that regard.
[7]Court Book 523.
[8]Which he referred to as category 3 in oral evidence.

I note that Ladley estimated the cost of “bringing the machine up to standard” at “no more than $10,000”. He said “That’s how much I would charge, your Honour. I’ve done this before so it’s a pretty good estimate”[9]. Toseland said that he did not really know how much the work would cost but, when pressed by counsel for the plaintiff, he gave a “ball park figure” of $5000.
[9]Transcript 442-443.

In my view, it is reasonable to suppose that in light of the control logic issue and the likely time needed to liaise with the manufacturer, the task of fitting the safety equipment may be slightly more expensive than option 2 in Beavis’ quote. Further, the quotation was provided one and half years ago. In all the circumstances, I consider $10,000 to be a reasonable amount to allow as the cost to make the machine comply with the relevant safety standards.

As to who bears the responsibility for ensuring compliance with the regulations, Toseland noted that suppliers of plant are required[10] to supply a risk assessment to the purchaser. However, an employer must control risk in their plant in compliance with regulation 705. Perhaps consistent with the burden of responsibility being on the plaintiff and the defendant in their different respects, counsel for the plaintiff suggested in closing address that the plaintiff and the defendant should have ascertained what the relevant safety requirements were, that the plaintiff (through Mrs Mollison) had made a bona fide attempt to resolve the problem, and that the cost of fitting the necessary safety equipment was a trivial sum when compared with the cost of the machine. Counsel also said in opening that the plaintiff had been prepared to pay the cost of bringing the safety features up to standard, that the quotation was sought from Beavis to that end, but that the relationship with Sabatino broke down to the point that he refused access to the machine and they could not undertake the works. Thus, notwithstanding the allegation in the counterclaim and that counsel for the plaintiff never directly conceded that the plaintiff had breached the contract by not providing the machine with the appropriate safety equipment, (counsel saying in closing address that “if we lose on that then Sabatino would be entitled to that from the beginning”), counsel nevertheless made a practical concession that the plaintiff should bear the cost of the safety equipment. That is, the defendant was entitled to the cost of having the machine comply with the relevant safety standards but, in the circumstances, it had not on that account been entitled to rescind the contract. I defer a finding on this matter until later.
[10]Occupational Health and Safety (Plant) Regulations 1995, reg 603.

Legion Heights failed to fit the machine with an anti-reflective mirror

It was common ground that the machine was not fitted with anti-reflective mirrors (also called an anti-deflection unit). This item, which costs approximately $4,000, is designed to protect the optics of the machine while cutting highly reflective materials including aluminium. Counsel for the defendant submitted that I should accept the evidence of Sabatino that when Mr Mollison visited him on or shortly after 1 December 2003, he (Mr Mollison) initially said that if Sabatino paid half the cost of the mirrors, the plaintiff would supply them, but that ultimately Mr Mollison said that “if that was what we required to get me across the line then he would include the mirrors”[11]. Mr Mollison denies that he said this. Mr Mollison further said, as to why the mirrors were not provided, that Sabatino never agreed to the offer to bear half the cost. I note the criticism of Mr Mollison’s evidence that he would not have agreed to fit the mirrors in order to secure the deal because they already had a deal. That was not persuasive because, objectively considered, the details of the deal including issues as to the warranty were still to be worked out. But more importantly, the evidence had the air of an off-hand defensive remark. I note that the only written evidence as to the mirrors is that contained in the final quotation to the effect that the parties pay half each, and the inconclusive handwritten reference to mirrors made by Sabatino in the handbook. I regard the probability as being that Mr Mollison would have supplied the mirrors if he had agreed to do so. His subsequent conduct in meeting costs would indicate that. Regarding the evidence overall, it is not established that Mr Mollison agreed to pay the full cost of the mirrors. Nor is it established that Sabatino agreed to pay half the cost of the mirrors. The plaintiff’s failure to fit the mirrors is thus to be understood.

The machine could not perform full nesting of irregular parts across a full sheet and laser cut each of those parts

[11]Witness Statement, para 44.

Counsel for the defendant described this issue (together with the issue of pre-piercing, to which I refer below) as “the matters of greatest substance in terms of the functionality of this machine”[12]. In essence, counsel submitted that, to be successful, a contract cutting business must have a laser cutting machine which can nest, and then cut, numerous (perhaps hundreds of) irregular parts (different shapes) on the same sheet of metal, in a single automated process. Sabatino told Mr Mollison that he required the machine for “contract cutting” and Mr Mollison assured Sabatino that the machine had “practically unlimited memory” and “you will never have memory problems”. However, the machine supplied by the plaintiff has inadequate memory and, as a consequence, it cannot nest and cut irregular parts on the same sheet in a single automated process. Rather, the lack of memory can only be overcome by splitting the software program into smaller programs, which can be run sequentially, but this cannot be done as a single process of nesting and cutting. If laser cutting is done by means of splitting the program, a programmer is required to be on hand to select the programs sequentially so that they can run one after the other. This means that there is an additional labour cost and the cutting procedure is slower, to such an extent that the defendant could not compete in the contract cutting industry.
[12]Transcript 816.

Before turning to the plaintiff’s counsel’s submissions on this point, it is convenient to set out the relevant evidence. The expert witnesses agreed in their joint report that the machine’s controller memory has insufficient memory to receive computer numerical control (“CNC”) commands necessary to nest irregular parts across an entire sheet of metal measuring 1.5 x 3 metres. They said “It can only cut a large number of parts from an entire sheet if the parts are identical in size and shape, in which case the use of macros (a form of computer programming short-cut) can achieve multiple repetitions without exceeding the memory capacity of the machine”[13]. They concluded that “It may be that Favor Laser Inc have another method of running a large program but we are not aware of any”[14]. I interpolate that although the plaintiff’s expert Ladley agreed with the above, he said that he had limited his investigation of the CNC to the features that affect the cut quality. That is, it was Higginson who investigated the effect of the memory size on the machine’s functionality. Ladley said in the joint report that the memory limitations had “never been an issue on any other laser cutting systems that Higginson has used”[15]. Ladley was asked in cross-examination whether it was common to “split the program” in laser cutting in Australia. He said that it was not a common way of doing it, and he had not heard of anybody having to do that recently. He generally worked on top of the range machines (such as Trumpf, Bystronic, and Prima) and the high-powered laser cutting machines he worked on did not split the program. He has seen program splitting being used on lower powered and lower priced machines of say 100 or 200 watts but that is much less powerful than the Favor Laser[16]. Higginson agreed in cross-examination that the machine can nest irregular parts (because the software does that) but it cannot cut them in one hit because of memory limitations. He was not aware of any reason why splitting the program could not be used to cut irregular parts on the Favor Laser[17]. In re-examination, he said that splitting the program was undesirable in contract cutting, due to downtime in swapping programs, doing so 20 times a day, even at three or four minutes per swap, is a lot of time. It was desirable to have the machine on at all times[18].
[13]Exhibit M, pp 6-7.
[14]Exhibit M, pp 7 and 20.
[15]Exhibit M, p 20.
[16]Transcript 424.
[17]Transcript 795.
[18]Transcript 797.

Counsel for the plaintiff submitted in closing address that the experts agreed that there was a system in place to cut off the machine when out of gas, that Mr Lai said in his evidence that such a problem was impossible, and that Sabatino was the only person who thought there was a problem.

In my view, the evidence was somewhat ambiguous. In short, the experts agreed that the machine shuts down after a few seconds of operation but they did not explain whether this occurred automatically, or whether it had to be done manually by an operator after seeing the warning lights. This ambiguity was not clarified in cross-examination of the experts, notwithstanding the fact that Sabatino gave evidence to the effect that there was no in-built safeguard, that the system referred to by the experts was the lights which, it would seem, were merely an alarm rather than an automatic cut-off. Further, Sabatino ultimately agreed that the machine shuts itself down after a few seconds. Thus, regardless of whether shut-down occurs as part of an in-built safeguard or is attributable to the lights installed by Beavis or the pressure switch installed by Forrester, I am satisfied on the balance of probabilities that there is a system in place to prevent the machine from operating (and to prevent the laser beam from energising) when out of gas. The real question is whether the two to three second delay in the machine shutting down is too long, as contended by Higginson, or whether it is acceptable, as contended by Ladley. I have regard to the defendant’s counsel’s submission that I should accept Higginson’s evidence as he was not cross-examined on it, whereas Ladley’s evidence was challenged in cross-examination. But that is not determinative. Ladley did not waiver from his position in cross-examination. I note that Sabatino asserted that a two to three second delay was too long because he could burn a lens. As to this I note that he referred to a lens being “cooked” on 13 February and he referred to an earlier $400 lens being replaced, but there was no evidence that there were ongoing problems of burning lenses following the fitting of the lights. That is, during his “experiment” of 18 to 19 March 2004 he referred to the laser operating without assist gas for a few seconds which poses a risk to the lens, but the machine actually cut-off before there was any damage to the lens. In these circumstances, I find that the two to three second lapse in the machine shut-down is not a design deficiency. That there was no further damage to the lens, as opposed to Sabatino’s subjective fear that there might be, is consistent with Ladley’s evidence.

The machine was unable to hold a “pause” such that the head drove itself into and across the material it is cutting

Counsel for the defendant submitted that Sabatino was not challenged on his evidence that this problem occurred, albeit only on one occasion. The failure to hold a pause was a problem in itself, as the uncontrolled head scratched the metal sheet, as demonstrated by a photo in the Court Book[28]. Further, the problem relates to what the experts and Mr Lai referred to as the “feed hold mechanism”, which is the mechanism used to stop the machine in a number of safety or self-protective situations including: (a) when the temperature of the chiller water gets too high, (b) when the gas runs out. The failure to hold a pause demonstrated the unreliability of the feed hold mechanism, hence the potential unreliability of the other systems designed to shut the machine off where there was a safety issue or the risk of the machine damaging itself. The failure to hold a pause had not been adequately explained to Sabatino, hence it remained risky to use the machine.
[28]Court Book 550.

Counsel for the plaintiff submitted that the failure to hold a pause was not established by the evidence, Sabatino was the only witness who alleged this problem, and he was not cross-examined on this because he would have maintained his assertion that the problem did occur. None of the experts suggested that there was a problem, not even that there was an intermittent problem. Even if Sabatino was correct in saying that the problem occurred on one occasion, it may have been operator error rather than a fault in the machine.

I now consider the evidence. The experts’ evidence can be summarised as follows. They agreed that a laser cutting machine which is paused should hold that pause until directed otherwise by the operator. Neither expert observed any failure to hold a pause[29], though Higginson said in re-examination that he had only tested it once, and it would be very difficult to find an intermittent fault. They agreed that failure to calibrate the nozzle could result in the nozzle crashing into the metal plate. This would result in significant damage to the cutting head of the machine, causing potentially expensive repairs and machine down time[30]. Then, there was an apparent agreement in the joint report as follows:

“The machine appears to lack any software protection against the possibility of the cutting head referencing the height of the table rather than the height of material to be cut. If this occurs, the cutting head may crash into the material causing severe damage. Comparable industrial laser cutting machines contain built in software protection to guard against this possibility. The absence of such protection is a design weakness in the machine.”

But Ladley qualified this statement in cross-examination. He said, in essence, that the above statement is correct but does not represent the complete picture. That is because Higginson focused on software protection but not mechanical protection. Higginson was unaware that the machine used a Precitec cutting head with “tip touch feedback” built into the Precitec sensing system. This is an electronic system with a mechanical touch, linked to the software, to stop the drives exactly when the nozzle tip touches the plate. As to why the head might drive itself into the material being cut, Ladley said that a lack of calibration of the cutting head could be a reason and it was the area he would look at first. He said “I think it was probably not calibrated properly”. He explained that there is a knob which is manually adjusted “to get the right standoff between the nozzle and the material you want to cut” and that once that is set correctly, the head will come down and sense that it is approaching the material and stop at the pre-programmed point. I note that when Higginson was called to give evidence (after Ladley) he was not asked about Ladley's evidence on para 40 of the joint report.

[29]Exhibit M, para 19.

[30]Exhibit M, para 26.

Mr Lai said in cross-examination that he did not know what the problem was, that his people needed to see the machine to determine what the problem was, but that it was “impossible for a normal machine”. He said that he did not think there was any problem with the software or hardware, and “If we find it’s a problem or damage in the control or circuit we change it, we can fix it, that’s it. We don’t need to change any software”. He offered several explanations as to the cause of the problem, namely a power surge caused by lightning (which he admitted was unlikely), a problem with the grounding, or excessive vibrations or noise. He reiterated what Ladley said about the “tip touch” protection for the cutting head, and added that there is also “body touch” protection if the head is at an angle. When shown the photo of the scratched metal, he said it looked like the laser had been cutting without assist gas but he was not sure.

I have regard to all the circumstances and evidence but in the end conclude that it is not established that the machine was unable to hold a “pause” such that the head drove itself into and across the material it is cutting. I accept that the head drove itself into the material being cut on one occasion, but not that it was necessarily caused by a failure to hold a pause. In my view, operator error – the inexperienced Sabatino – may have caused the problem. I do not accept that the machine lacks protections (whether they be software or mechanical in nature) to prevent the cutting head crashing into the material being cut. Without detailed testing of the machine, it is impossible to say what the cause of the problem was. Nevertheless, I am not persuaded on the balance of probabilities that the machine was unable to hold a pause.

Full line gas pressure was intermittently self-activated

I have referred to (at [86] above), and do not repeat, Sabatino’s evidence of the circumstances in which the gas pressure problem arose. The experts agreed that they had not seen this problem however if it was to happen during cutting of thick metal plate it could cause a splash of molten steel which would most likely cause significant damage to the cutting nozzles[31]. Mr Lai said that he did not know what caused the problem, and that his engineers would have to check. It might be a problem with the valve or regulator. He explained that there is a regulator to ensure that gas pressure (which may be as high as 120 bars in a full gas bottle) is reduced to an appropriate level when entering the machine. The machine can take a maximum of 10 bars, and for cutting mild steel the pressure is normally under 3 bars. He said on various occasions that it was impossible that the pressure could rise to 10 bars at the nozzle while cutting. Counsel for the defendant submitted that Sabatino’s evidence was not challenged, apart from Mr Lai’s evidence that such a problem was impossible, and it should be inferred that the machine was not working properly “in some as yet undefined or undetermined way”. Counsel for the plaintiff submitted that Sabatino was the only witness who alleged that there was a problem.
[31]Exhibit M, para 20.

Regarding the matter overall, I accept that the problem occurred as Sabatino described. But it is impossible to say what caused the problem. It may have been caused by a defective part (say in the regulator) outside of the manufacturer’s responsibility or it may have been something the manufacturer was obliged to fix. In any event, it was necessary that the Favor Laser engineers see the machine in order to diagnose the problem.

The machine was not just as good as a Bystronic machine for its capacity

It was common ground that the above statement is true. Even Mr Lai, who was evidently proud of his company and the machines they built, recognised that their machines were not in the same market segment as the Swiss-made Bystronic machines. Given the difference in price, that is hardly surprising. Both counsel agreed that the issue here was whether the relevant representation was made and, if so, whether Mr Sabatino relied on it. I refer to this issue below.

The machine did not maintain optimal focal point for laser cutting processes

Counsel for the defendant submitted that the laser beam must remain in focus across the entire sheet being cut, and over time, if cutting is to be accurately performed. In this case, the cut quality was inadequate because the beam “wandered” or lost focus, particularly in hotter weather, potentially implicating the chiller as one source of the problem. I interpolate that a chiller is essentially a mechanism comprised of a refrigerator and a pump, which pumps cool water through the machine in order to maintain the laser beam within a certain temperature range. Other potential causes of the problem were the general build quality of the machine, absence of adaptive optics, and lack of refinement in alignment mechanisms.

Counsel for the plaintiff submitted that the machine does maintain an optimal focal point for laser cutting, as stated by Ladley and Mr Lai, though Higginson disagreed. As to the absence of adaptive optics, counsel accepted that while the Bystronic machine has self-adaptable optics, the Favor Laser does not, as its optics require manual adjustment by use of a wheel. But that is not the issue, as the plaintiff never represented that the machine had self-adaptable optics. The point is that the machine will maintain an optimal focal point, so long as it is operated properly with the wheel. Counsel disputed Higginson’s view that the chiller is too small for the machine, saying that Mr Lai was aware of the specifications required by the laser manufacturer Rofin, and that it would be gross negligence on his part and not credible that the chiller was so underpowered. At the highest, it is possible that the chiller was not working properly, but the plaintiff has not had a chance to test that theory, because the alleged deficiency in the chiller was not raised in the counterclaim, and only emerged at trial. Thus, when Ladley examined the machine he did not test the chiller in the way Higginson did. Further, the plaintiff’s engineers did not know the chiller was an alleged problem when they looked at the machine in May 2005, thus they did not do tests on it. I have regard to this matter when considering the evidence.

Turning then to the evidence about the chiller, it is convenient to deal first with the defendant’s counsel’s submission about inconsistencies in the evidence of the plaintiff’s witnesses regarding the chiller. In short, Mr Mollison said in cross-examination that there was an electrical problem with the chiller, “a micro switch inside it had gone” and that to run the machine at the show in Sydney, Eric Lai by-passed the chiller[32]. Eric Lai fixed the chiller once the machine had been returned to, and recommissioned at, the plaintiff’s Dandenong showroom. From memory, there were no further problems with the chiller[33]. Eric Lai said that he adjusted the sensor in the chiller to change the flow. He did this at the Sydney show and then shortly after (on the same trip to Australia) at the plaintiff’s showroom. Mrs Mollison, on the other hand, said that the chiller problem was in 2002 and occurred at a demonstration at their showroom. It is not necessary to set out all the details of this evidence. It is sufficient to note that counsel referred to an email Mrs Mollison sent to Favor Laser in September 2003 (in relation to the proposed installation of the machine in the premises of the customer who had agreed to but ultimately did not purchase it) in which she stated “The chiller was bypassed by Eric due to a fault. This will have to be sorted out”. In short, counsel submitted that Mrs Mollison’s evidence should be preferred to that of Mr Mollison and Eric Lai, as it was unlikely that she would send that email if the problem had arisen as long ago as 2000 and had already been fixed. Particularly, counsel sought to rely on the email as evidence that there were ongoing problems with the chiller. I am prepared to assume that Mrs Mollison’s evidence as to the time of the chiller problem is correct, and I accept that there were some problems with the chiller, but the evidence is equivocal as to whether the chiller did not work in the machine at times relevant to the present case. Mrs Mollison said that she was seeking assurance from Favor Laser out of an abundance of caution, and given my observations of the witness as a cautious person who paid attention to details, this is a plausible explanation. In my view, no inference can be drawn that the chiller was inherently faulty or otherwise did not work properly in the machine at times relevant to the present case.
[32]Transcript 76.
[33]Transcript 79-80.

Higginson’s evidence in the joint report can be summarised as follows. The machine lacks adequate cooling capacity for Australian conditions. To maintain accurate cutting, adequate cooling is essential in laser cutting machines because they are made of metal which tends to expand with heat. That is especially so with this machine as it is constructed primarily of mild steel, which expands more than the high quality aluminium which is used in the construction of many comparable machines. The chiller must be able to maintain the operating temperature in a narrow range, between 18 and 22ºC. To operate in Australian conditions, a machine like this one requires a chiller capable of delivering 60 litres of chilled water per minute through the cooling system. Higginson tested the chiller and used buckets to measure that the rate was 36 litres per minute. It appeared to be working correctly, but is simply undersized and/or underpowered for the task. The machine is thus not able to maintain an operating temperature within the accepted range, especially but not only during warmer weather. The operating temperature will gradually exceed 22ºC, resulting in minor distortions in metal components. As the machine is a precision tool, even these minor distortions are sufficient to prevent the machine cutting to an acceptable standard. Higginson said that his viewing of the video footage tended to confirm these observations, as the cutting he observed was of “irregular quality”.

Ladley agreed with Higginson as to the “system requirements” in respect of the chiller, but he stated that “The chiller may require a service or further monitoring. It is unlikely that it is the wrong specification”. As to the quality of the cutting, Ladley disagreed with Higginson. He stated that “The same quality of cutting can be obtained by an incorrectly set up laser system which is normally adjusted by the operator. The main reasons for lasers not operating correctly are due to incorrect set up by the operator or component failure (standard servicing issues). The only indication that there is a service issue is the water cooling flow rate that would seem to be low”[34]. Ladley added in his part of the joint report that “We both have not seen this system running at various ambient temperatures and Tony Higginson has checked the water flow out of the chiller and has reservations. We therefore cannot discount the fact that the water cooling unit (chiller) may not be within temperature tolerance”[35]. Ladley said in cross-examination that the expansion coefficient of mild steel is actually less than aluminium, so most machine tables are made of mild steel, and when he investigated the framework on the Favor Laser it was manufactured quite robustly. Further, Ladley said that inadequate cooling did not so much affect the focal point, but rather reduced power. Nevertheless, this could affect cutting quality. As to the low chiller flow rate stated by Higginson, Ladley said that the test seemed valid, and that he would suspect a faulty water cooling pump which needed investigation or servicing.
[34]Exhibit M, para 14.
[35]Exhibit M, p 18.

Counsel for the defendant recalled Mr Lai to cross-examine him about the chiller, among other matters. In short, Mr Lai accepted that the manufacturer’s specification for the Rofin Laser (used in the machine) was for 66 litres of water per minute from the chiller. The chiller capacity on the machine was 116 litres per minute, but if the actual flow was inadequate, it might be a problem with the chiller pump which they would need to check, and could easily fix. Mr Lai said the Rofin laser’s normal operating temperature was 0 to 40ºC. If the laser temperature exceeds that, an alarm shuts down the laser. As to the temperature of the chiller water, Mr Lai said that Rofin recommend a temperature range of 18 to 25ºC[36]. His company normally set the chiller at 22ºC. There was an interlock connected to the CNC to shut down the laser when the chiller water temperature reaches 35ºC.
[36]Counsel stated that the Rofin specifications were actually 19 to 27ºC.

Having regard to all the evidence, it is not established that the chiller is inherently faulty or underpowered for the machine. It is possible that the chiller was not operating properly due to the failure of some component in it, perhaps the pump. As Ladley said, neither expert saw the machine running at various ambient temperatures and there are doubts as to the flow rate. Thus, one cannot discount the possibility that the chiller was not working properly. But that is simply a possibility and I cannot engage in speculation as to whether the chiller worked properly or not.

Turning then to the question of adaptive optics, I note that the experts agreed in their description that “when the laser beam hits the lens of an industrial laser cutting machine it has a focal point, being the thinnest point of the beam. In the absence of adaptable optics, there is variance in the beam diameter … Adaptable optics enable a machine to cutting machine to keep a constant focal point … providing for greater cutting accuracy and more consistent quality of cut metal across the entire sheet. Bystronic machines all have adaptable optics. The machine does not have adaptable optics”[37]. Higginson then said that the machine is not capable of cutting consistently across an entire sheet of base metal, or over an extended cutting period, because it is unable to maintain a constant focal point, due to its lacking adaptive optics, which is a feature found on comparable laser cutting machines. Ladley disagreed, saying that “the beam diameter is controlled by the internal optics of the Rofin laser telescope assembly, so to allow the beam diameter to not vary more than +/- 0.75mm over the working length of the Favor laser system. The focussing head allows for manual adjustment of the focal point with respect to the nozzle tip, which is standard on many laser systems”[38]. The experts agreed that the cutting head may require a manual calibration when changing nozzles, material and temperature changes. The calibration can be carried out by a trained operator and would take some 30 seconds to complete. The procedure should be a simple task for the operator. They would be very surprised if the calibration was carried out more than 4 times per day[39]. I note that Ladley said in his part of the joint report that “The optics, mounts and optical accuracy are more than acceptable for good quality cutting over the whole cutting area.” It was then stated “We both agree on the above”[40]. Higginson agreed in cross-examination that if an operator is skilled and does a proper manual adjustment of the focal point, that should maintain a proper focal point.
[37]Exhibit M, para 33(c).
[38]Exhibit M, para 14.
[39]Exhibit M, para 24.
[40]Exhibit M, p 18.

I interpolate that Sabatino said in his evidence that when Ladley did the beam alignment, “he commented that the alignment mechanism was quite coarse. It required the use of a coarsely threaded bolt in order to make very fine adjustments. He said that the adjustment was so sensitive that even the expansion that would occur on a normal hot day would throw it out.” Ladley essentially agreed in cross-examination that he made these statements to Sabatino, except that he denied that he said that the expansion that would occur on a normal hot day would throw the beam alignment out. I accept Ladley’s evidence on this matter in preference to that of Sabatino.

Mr Lai agreed that a laser should keep the same focal point across the entire sheet. He explained that the cutting head can control the position of the focal lens accurately and the focal position can be changed using a very simple wheel. He said, in essence, that the laser beam should go through the centre of the nozzle, which a skilled operator can do quickly and easily, but the operator needs to be trained to align the beam. After installation, the first beam alignment may take two or three hours.

Regarding the evidence overall, I am not satisfied on the balance of probabilities that the machine did not maintain a proper focal point for laser cutting. It seems that much of the disagreement between the experts flowed from the use of the expression “optimal focal point”. As to this, it may be that the adaptable optics in the top-end machines provide a more precise focal point than does the machine here. To the extent that the machine is out-performed by a competitor, it may be said that it is not “optimal”. But this is merely a linguistic observation which cannot be permitted to divert attention from the real question, namely whether, by reason of the alleged problems with the chiller or the lack of adaptive optics, the machine could not maintain a proper focal point for laser cutting. In my view, while the method of adjusting the focal point was not as sophisticated or precise as that found on more expensive machines, it is not established that the machine could not maintain a proper focal point for laser cutting.

Fitness for purpose/merchantable quality

Having regard to my conclusions on the nine points relied on to sustain the counterclaim, I reject the defendant’s case that the machine was unfit for the purpose for which it was sold, or was not of merchantable quality. I find that it was. In this regard, I note the submission of counsel for the plaintiff that “there needs to be a reality check” and that it would be quite extraordinary if a complex machine like the present one could be installed, in premises where an operator has not used a machine of this type before, with no teething problems. In this regard, I mention that, in the context of explaining why he preferred Bystronic machines, Mitin emphasised that they are a product fully supported by a single company, that is the whole unit is developed, manufactured and supported by a single company, which he considered important given that “laser equipment is very temperamental” and “prone to difficulties and it’s complex equipment and the better support the easier it is to cope with these situations“. While not overlooking the fact that there were problems with this machine (the issue of safety standards standing out, but there were other faults and niggles with the machine which no doubt led Sabatino to feel frustrated) in my view the evidence establishes that these faults were of a nature readily to be overcome and those apparently existing would have been if Sabatino had allowed the Favor Laser technicians to inspect the machine in April 2004. Although the plaintiff was tardy on the safety issue, the plaintiff did what it could to provide technical support to Sabatino and to have the Favor Laser technicians assist in getting the machine operational. In these circumstances, it was unreasonable of Sabatino to not allow them access to his premises to inspect the machine and do what, if anything, was required including further training for Sabatino. As to the key issues of memory capacity and pre-piercing, the evidence establishes that the need to split the program (in some cases) and the inability to blow-pierce will mean that contract cutting is slower and less efficient than Sabatino apparently desired. But that does not mean that the machine was unfit for that purpose. I find that it was fit for that purpose. The counterclaim fails on this aspect.

The representations

Counsel for the defendant submitted that in assessing whether Mr Mollison had assured Sabatino that the machine had practically unlimited memory, it was relevant that Mr Mollison had admitted in cross-examination his belief at the time he sold the machine that it did have practically unlimited memory. As to that, I interpolate that the evidence of Mr Mollison in cross-examination was that he could not recall whether he had said to Sabatino words to the effect that “you will never have memory problems”. But he agreed that back in September 2003 he did not think that anyone who was using the Favor Laser could ever have a memory problem, nor were there any practical limitations on the memory of the machine. It followed, said counsel, that given Mr Mollison’s belief that memory problems could not arise, it was likely that he made the relevant representation to Sabatino in an attempt to sell the first Favor Laser in Australia. I note that Mr Mollison said in cross-examination that he did not tell Sabatino that he would have to split the program in order to cut large numbers of irregular parts across an entire sheet.

In my view, it is probable that Mr Mollison said to Sabatino something to the effect that he would not have memory problems with the machine. But that statement was vague and, in all the circumstances, I do not consider that it was false. Although it may be inconvenient to split the program, that can be done to get around memory limitations.

Turning now to the question of whether Mr Mollison told Sabatino that the machine was just as good as a Bystronic, counsel for the defendant submitted that, given that Mr Mollison told Sabatino about the high quality European components in the machine, it was likely that he made the alleged representation, and that Sabatino was inclined to accept it. Counsel for the plaintiff submitted that it was unlikely that the representation was made because, in circumstances where the asking price was half that of the Bystronic, it would be obvious to an experienced businessman like Sabatino that there was a difference in quality. Further, as the asking price was so much lower than that of the Bystronic, why would Mr Mollison need to make such a ridiculous statement? Even if he made the statement, it would be so vague as to be meaningless in light of the fact that Bystronic machines come with multiple options, such as self-centring nozzle and self-loading tray. That is, to say it was just as good as a Bystronic would beg the further question, which Bystronic, with which options? In short, Sabatino could not reasonably rely on the statement without the need to make further enquiries. If made, the statement was merely to be understood as a “puffing” statement, a bit of salesmanship not meant to be, or which should not have been, taken literally.

I now turn to the relevant evidence. Sabatino said in cross-examination that, at the time when he was thinking about purchasing a new laser cutting machine, he spoke to Mitin. Asked whether he spoke to other people about the matter, he said “I have a great deal of respect for Mr Mitin and what he says and the discussions that I had with him. So did I speak to other people about it? I had used other contract cutters in a small capacity but he was a trusted person, put it that way”. Sabatino agreed that he had seen Mitin’s Bystronic machines in operation and, after speaking to him, had made up his mind to buy a Bystronic. Thus, he did not do any research into other brands of laser cutting machines, although he did obtain a quote for a locally made machine from Laser Lab which cost about $520,000 to $550,000. Then, the opportunity came up to buy the Favor Laser, which Mr Mollison made him believe “over three or four visits” was just as good as the Bystronic, the only trade-off being slightly less power. As to whether different levels of quality might have been a factor in the price differential, Sabatino said “Absolutely, and I enquired about that and I looked at the brochure. The resonator was made in Germany. Now, German stuff is generally very good”. He agreed that the German made Rofin Sinar laser was an excellent brand, “so as a business decision that was not buying at the bottom end of the market as far as resonators is concerned. It was an American controller”. In effect, he considered that the important parts of the machine were made in Germany and the components were, if not the best, not far below that. When asked whether, at the time of purchase, he thought the machine was similar in quality to the Bystronic, he replied:

“What I considered is that the machine was offered as a – the first of its type as a company trying to break into the market. Okay, they are factors that I needed to consider. You could sell the same product once it’s been established in the market for a great deal more, perhaps 50% more, which brings it much closer [to the price of the Bystronic]… if that brand had been established and it was reliably established, it would demand an extra couple of hundred grand … What’s that, 20% difference? Did I think there was a 20% or 15% difference? Okay, I’m prepared to live with that.”

The following morning, but still in cross-examination, Sabatino said that in late 2003 he did not know that Bystronic had a reputation for being one of the best laser cutting machines in the world, but “It was a machine that I had been advised by people that I trusted and were using it in the industry that it was a reliable machine”. As to his view of the Taiwanese machines at that time, he said “I had at the time and still do have a high regard for Taiwanese machines. Taiwanese machines are not at the bottom end and as the most important parts of this machine were made in Germany my …”. Before the witness finished his answer, counsel asked whether he was putting a high premium on things made in Germany or Switzerland, to which Sabatino replied “Higher premium? I think their reputation stands up for German machines, yes”. As to what led him to purchase the Favor Laser machine, Sabatino said “I had a number of transactions with A M Machinery over the years – seven or eight – and as I trusted Codrin[41] I trusted Mr Mollison to advise me as he had advised me on the previous transactions, that what he gave me was a quality machine and the previous Amada machines, the Japanese ones, were quality machines. So I hadn’t purchased anything from him that didn’t live up to its promise …. I took him on his word”. A little bit later, Sabatino agreed that although he relies on the advice of others in business, he does not just gullibly accept anything they say. He said “That’s why I checked up on the individual components of it and Taiwanese machines are not rubbish”. Next, counsel asked Sabatino whether he asked Mitin what he thought about Mr Mollison’s recommendation that he purchase a Favor Laser as opposed to a Bystronic. Sabatino initially said that he did not ask Mitin that question, as “it was my decision”, but shortly after in cross-examination he said that Mitin suggested that he “stay with Bystronic”. Sabatino could not recall whether this advice came before or after he had committed himself to purchase the Favor Laser. Later in cross-examination he said “he wasn’t happy with what I was purchasing”. Later still in cross-examination, Sabatino said that Mr Mollison’s statement that the machine was just as good as a Bystronic did not trigger the contract, but was a trigger for him to consider the machine seriously. He agreed that the statement did not bring him over the line, as “That was just something that was conveyed to me. That wasn’t at the time of … agreeing to purchase”.

[41]Codrin Mitin.

Mitin said in evidence in chief that after he recommended the Bystronic machine to Sabatino, they did not speak for a period of time, after which “we caught up and he communicated to me that he had committed himself to a machine which I couldn’t really give an opinion on because I don’t know the machine and I don’t know the brand. But he explained to me the specs of the machine and I wished him all the best”.

Mr Mollison said in cross-examination that Sabatino told him that his friend Mitin had recommended he buy a Bystronic, but that Sabatino told him (Mr Mollison) the Bystronic was out of his price range. As to what he said regarding the comparison between the two machines, Mr Mollison said “I was asked the question, will it cut 12 millimetre mild steel for my base plates? The answer to that, yes it was, it will cut 12 millimetre steel as will Trumpf, Amada and Bystronics”.

I do not accept that Mr Mollison told Sabatino that the machine was just as good as a Bystronic. I generally accept Mr Mollison’s evidence as to what he said about the machines, namely that the machine would cut 12 mm steel, as would other machines. I do not however accept that in any promissory sense or in any sense that could have been understood as a reliable comparison between the Favor Laser and a Bystronic machine that the former was as good as the latter. In my view, and I find, Sabatino has quite misrepresented what was said, for the purpose of aiding him in the litigation. I do not accept that acting reasonably Sabatino could have considered that the Favor Laser was as good as a Bystronic. In short, in my view, he made a decision he regrets and has sought to pull a case up by the bootstraps by grasping at an odd comment made here and there by Mr Mollison that does not, and was not intended to, bear the meaning contended for. In my view, Sabatino was aware that the Favor Laser machine was not established in Australia and was not as good as a Bystronic. But it was about half the price and doubtlessly could be used to do laser cutting. Sabatino looked into the components used in the Favor Laser and concluded that, being quality German made parts, the machine would do what he required. It is simply not credible, and I do not accept, that an intelligent businessman like Sabatino was induced to purchase the machine on the basis of a vague statement that the machine was just as good as an unspecified Bystronic machine costing in the order of twice as much.

The result of this consideration of the defendant’s case is that with the one exception concerning compliance with the safety standards the counterclaim fails. That is, to be more precise, the way in which counsel put the defendant’s case was that it rested on the nine points considered above and which I identified at [19]. Those nine points were the points relied on to establish the counterclaim.

Having concluded on the nine points as I have the question remaining is the relief to be granted to the defendant as a result of its success on the safety standard issue. However it be regarded, I consider that the failure to supply the machine with guarding or mechanisms that rendered the machine compliant with the relevant standards did not, in the circumstances, entitle the defendant to rescind the agreement or to rescission whether at common law or under the TPA or FTA. It was a matter readily able to be dealt with and at relatively low cost. And given good sense it would have been dealt with at the plaintiff’s cost as I infer having regard to the efforts of Mr Mollison to have the machine operate. I also find that if it were not for Sabatino’s attitude it would have been so dealt with. Furthermore, the safety standard issue was not central to Sabatino’s decision to reject the machine. That is not to deny that rescission (at common law or under the TPA or FTA) can be supported on a ground not originally relied on or appreciated, but it is reflective of the realities. If safety standards had been the only issue the problems would not have occurred, there would have been no question of rescission and this litigation would not have occurred. In my view the breach of agreement, which the plaintiff effectively concedes it was, was not such as would have entitled the defendant to rescind as distinct from a right to damages for the cost of bringing the machine to compliance.

It follows that the relief to which the defendant is entitled on the counterclaim is an order for payment of the sum of $10,000 on which amount the defendant will be entitled to interest. The plaintiff of course is entitled to an order for $40,000 which will also carry interest.

In the circumstances it seems to me unnecessary to deal with the matter of the damages claimed by the defendant in addition to the amount to be paid on the safety standard issue, and I do not do so.

I will hear counsel on the orders to be made including as to costs.

(a) Loss of the purchase price (including the trade-in of $50,000) and including finance costs paid and payable	$475,929.91
(b) Loss of use of the laser traded in	$135,000.00
(c) Loss of contract cutting opportunity	$1,000,050.00
(d) Loss from need to have materials cut by external contract cutters	$72,000
(e) Loss of use of factory floor space, depending on basis of assessment	$9,504 or $21,600
(f) Gas wastage	$4,000
(g) Wasted material	$3,000
(h) Wasted software expense	$5,500

[2006] VSC 497

20 December 2006