Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Ltd - [2004] NSWSC 943

CITATION: Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Ltd; Dynamic Lifter Pty Ltd v Linfox Transport (Aust) Pty Ltd [2004] NSWSC 943

HEARING DATE(S): 3 /11/2002 - 18/2/2004

JUDGMENT DATE:
21 October 2004

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF: Brownie AJ

DECISION: In proceeding No 50125/2000 I give judgment for the plaintiff against the defendant for $706,917 and judgment for the cross-claimant against the cross-defendant for $4,983,218. In proceeding No.50112/2003 I give judgment for the defendant.

CATCHWORDS: A claim by Linfox against Yates was compromised during the hearing. Yates brought a cross-claim against Linfox, essentially for breach of a contract to project manager a move from one Yates warehouse to another. The contract had been made informally. Several questions were litigated, and resolved in accordance with established principles, concerning the terms of the contract. - Illegality: Linfox said that Yates' claim for damages was defeated because it involved the occupation and use of a new building, without an occupation certificate, in breach of s109 M (i) of the Environmental Planning and Assessment Act 1979. Defence rejected. - Practice and Procedure: In an action in contract, as in an action in negligence, it may be appropriate to direct a party to amend its pleadings, so as to reflect the issues litigated. - Evidence: inferences to be drawn from the failure to call a witness - no inference if the evidence would go only to questions about credit. - Damages: held that certain claims in respect of lost sales to hypothetical questions, to be assessed not on the balance of probabilities, but upon an assessment of the probabilities. - Damages: it is not an essential ingredient to a claim for loss of profits on the sale of goods that the claimant owns the goods. - Legal Practitioners: Directions given about possible misconduct and possible costs orders.

LEGISLATION CITED: Corporations Act 2001 (Cth)
Environmental Planning and Assessment Act 1979
Evidence Act 1997
Insurance Contracts Act 1984 (Cth)
Supreme Court Act 1970 (NSW)
Trade Practices Act

CASES CITED: Alexander v Cambridge Credit Corporation Limited (1987) 9 NSWLR 310
Allen v Tobias (1958) 98 CLR 367
Allied Maples Group Limited v Simmons & Simmons [1995] 1 WLR 1602
Armory v Delamirie (1722) 1 Stra 505, 93 ER 664
Babcock International Ltd v Babcock Australia Ltd [2003] NSWCA 6; 56 NSWLR 51
Biggin & Co Limited v Permanite Limited [1951] 1 KB 422
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Browne v Dunn (1893) 6 R 67
Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410
Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Limited & Anor (1991) 22 NSWLR 389
Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64
Davies v Taylor [1974] AC 207
Fink v Fink (1946) 74 CLR 127
Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215
GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50
G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Hawkins v Clayton (1988) 164 CLR 539
Henville v Walker (2001) 206 CLR 459
Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120
Houghton v Immer (No 155) Pty Limited (1997) 44 NSWLR 46
I & L Securities Pty Limited v HTW Valuers (Brisbane) Limited (2002) 210 CLR 109
Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111
Insurance Commissioner v Joyce (1948) 77 CLR 39
Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (1988) 5 BPR 11,110
Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666
L J P Investments Pty Limited v Howard Chia Investments Pty Limited (No 2) (1990) 24 NSWLR 499
Makita (Australia) Pty Limited v Sprowles (2001) 52 NSWLR 705
Malec v JC Hutton Pty Limited (1990) 169 CLR 638
Maloney v Commissioner for Railways (NSW) (1978) 52 ALJR 292
March v E & M H Stramare Pty Limited (1991) 171 CLR 506
Mummery v Irvings Pty Ltd (1956) 96 CLR 99
Murphy v Overton Investments Pty Limited (2004) 78 ALJR 324
Nelson v Nelson (1995) 184 CLR 538
Nilon v Bezzina [1988] 2 Qd R 420
Ophelia, The [1916] 2 AC 206
Payne v Parker [1976] 1 NSWLR 191
Placer (Granny Smith) Pty Limited v Thiess Contractors Pty Limited (2003) 77 ALJR 768
Poseidon Limited & Sellars v Adelaide Petroleum NL (1994) 179 CLR 332
Ratcliffe v Evans [1892] 2 QB 524
Richardson v Mellish
Robinson v Harman (1848) 1 Exch 850; 154 ER 363
Sabag v Health Care Complaints Commission [2001] NSWCA 411
Shorey v P T Limited (2003) 197 ALR 410
Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310
SS Pharmaceutical Company Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288
State of New South Wales v Moss (2000) 54 NSWLR 536
Water Board v Moustakas (1988) 180 CLR 491
Watts v Rake (1960) 108 CLR 158
White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266
White v Overland [2001] FCA 1333

PARTIES :
Linfox Transport (Aust) Pty Ltd (Plaintiff in 50125/2000, Defendant in 50112/2003)
Arthur Yates & Co Ltd (Defendant in 50125/2000)
Dynamic Lifter Pty Ltd (Plaintiff in 50112/2003)

FILE NUMBER(S): SC 50125/2000; 50112/2003

COUNSEL: Mr SK Wilson QC, Mr GL Meehan (Plaintiff in 50125/2000, Defendant in 50112/2003)
Mr RM Smith SC, Mr NJ Kidd (Defendant in 50125/2000, Plaintiff in 50112/2003)

SOLICITORS: Corrs Chambers Westgarth (Plaintiff in 50125/2000, Defendant in 50112/2003)
Coudert Brothers (Defendant in 50125/2000, Plaintiff in 50112/2003)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Brownie AJ

Thursday 21 October 2004

50125/2000 Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Ltd

50112/2003 - Dynamic Lifter Pty Ltd v Linfox Transport (Aust) Pty Ltd

JUDGMENT

1 Arthur Yates & Co Pty Ltd (“Yates”) is a manufacturer and wholesaler of gardening products. It entered into negotiations with Linfox Transport (Aust) Pty Ltd (“Linfox”) for the long-term provision by Linfox of logistical and warehouse management services. They could not agree upon the terms of an appropriate contract, but whilst they were negotiating about this, Linfox performed various services for Yates. Linfox sued for fees owing for these services. Yates disputed these claims. After a time the parties agreed to compromise the issues raised by these claims, subject to the resolution of a cross-claim brought by Yates against Linfox; and they litigated the cross-claim. In short, Yates says in its cross-claim that Linfox, having the management of a move by Yates from a warehouse at Clyde to a warehouse at Mt Druitt, mismanaged that move, and Yates claims damages for breach of contract, negligence and misleading conduct.

2 In the course of the hearing of Yates’ cross-claim, Linfox contended that part of the loss, that Yates said it had suffered, had in fact been suffered, not by Yates, but by Yates’ subsidiary company, Dynamic Lifter Pty Ltd. That company then commenced an action against Linfox, claiming damages for the alleged loss in question, and thereafter the two actions were heard together.

The Background Facts

3 In 1997 Yates embarked upon a project it called Operation Leapfrog. That project included these strategies: reducing the number of Yates’ operating sites, so as to reduce costs; setting up new purpose built sites; appointing a warehouse contractor to manage its warehouses and to perform other services; installing a computerised warehouse management system (WMS); and outsourcing some manufacturing functions. Since Yates’ business was seasonal, peaking in spring each year, the project was regarded as “time critical”, in the sense that either Yates completed the project before the commencement of its spring peak activities in a given year, or, practically speaking, there would be a delay of a year. Yates decided that it wanted to complete the project by its spring 1999 season, a decision that imposed urgency in relation to the details that had to be implemented.

4 The plan was to undertake the project in two stages. The first stage included disposing of premises at Milperra, where there was located Yates’ head office and a warehouse; relocating the head office to other premises at Homebush; acquiring a temporary warehouse (at Clyde, as it happened); and relocating from the Milperra warehouse to the temporary warehouse. The second stage including acquiring new premises (at Wyee, as it happened), and setting up a new manufacturing centre there; building a new distribution centre at Mt Druitt, adjacent to Yates’ then existing manufacturing plant there, and relocating from the temporary (Clyde) warehouse to that new warehouse, or distribution centre; and also closing down and setting up various other sites.

5 Yates saw it as desirable to appoint a specialist contractor to handle its warehouses, and its distribution work, so as to enable its management personnel to concentrate on manufacturing, marketing and sales issues. After negotiations, Linfox was appointed to this position, and it performed the functions of warehouse contractor for some time. During this period, it and Yates had lengthy discussions about, amongst other things, the introduction of a WMS. In 1997 Yates had a computer system called PRMS, which it used amongst other purposes to control its inventory. To state matter briefly at this stage, it proposed to continue to use the PRMS as its host computer system, but to add a WMS that would interface with the PRMS. There was a question dividing Linfox and Yates as to which brand of WMS would be most suitable, Linfox advocating the “Exceed” brand, and Yates advocating the “Paperless” brand. In general terms, they expected to choose one, and then to install it, before the commencement of the move from the temporary warehouse at Clyde to the new distribution centre at Mt Druitt. However, delays occurred.

6 By arrangement with Yates, Maincon Holdings Pty Ltd (Maincon Holdings) acquired the land upon which the Mt Druitt distribution centre was later erected, and Maincon Holdings entered into an agreement with Yates to the effect that it would lease the land to Yates, upon the completion of the construction of the new warehouse. Maincon Pty Ltd (Maincon) entered into a separate agreement with Yates, to the effect that Maincon would construct this building for Yates. If Operation Leapfrog was to be implemented as planned, it was critical that Maincon complete the construction of the warehouse in sufficient time for Yates to move into it before the commencement of the spring 1999 season.

7 Another complication arose from the circumstances surrounding Yates’ occupation of the temporary warehouse facility at Clyde. Yates took possession of these premises as a sublessee, but the relevant head lease was about to expire, and the head lessor was negotiating with a proposed new tenant. As matters developed, it was regarded as critical that Yates vacate the Clyde premises by 16 August 1999, and fulfil its obligation under the sublease to “make good” those premises by that date.

8 That is, Yates needed to vacate Clyde by then, and it needed Maincon to complete the construction of the new Mt Druitt warehouse before it could be fitted out and occupied, and Yates perceived that it needed to complete the move to Mt Druitt before the commencement of the 1999 spring season; and this meant that various matters had to be attended to in a timely manner.

9 The Clyde warehouse contained a significant quantity of racking, that is, racks in which products on pallets could be stored. Good practice required the move from Clyde to Mt Druitt to be conducted on a “rack-to-rack” basis. That is, each pallet would be taken from its then position on a rack at the Clyde facility, and placed on a rack in the new warehouse at Mt Druitt. This required considerable planning, so that those actually placing the pallets into the racks at Mt Druitt could know where each pallet was to be placed; and, of course, the racking had to be in place before the pallets arrived at Mt Druitt. Simply stated, Yates says that Linfox failed to arrange the timely procurement of all the racking components necessary to set up the racks needed at Mt Druitt. It says that as a result of this failure, when stock was moved from Clyde to Mt Druitt, there was insufficient racking available to permit a rack-to-rack transfer. As a further result, some thousands of pallets of product were placed on the floor of the warehouse, and in the open air outside the warehouse, leading to great congestion in and around the warehouse. Yates also says that Linfox failed to act in a timely manner, more generally, neither commencing the move out of Clyde at the appropriate time, nor completing the move into Mt Druitt at the appropriate time. It says that, in consequence, there was a profound disorder in and outside the Mt Druitt warehouse; its staff could not find stock, needed to make up orders for its customers; delays and errors in deliveries resulted; sales were lost, and therefore profits were lost; and it suffered significant losses.

10 Linfox disputed most of the factual allegations made. It asserted that there were a number of causes of the congestion and disorder, so that issues arise as to the extent, if at all, to which Linfox might be held responsible for the congestion, and for the difficulties and delays encountered in filling orders for Yates’ customers. Linfox also said that there were other, additional causes for the lost sales, and for the other alleged losses. That is, there are two separate groups of causation issues: whether the congestion and disorder were caused by Linfox’s conduct; and whether the various losses made were the result of the congestion and disorder mentioned.

The Pleadings

11 By its amended cross-claim (hereafter “cross-claim”) Yates pleaded in paragraphs 1–10 a variety of formal and preliminary matters. By its further amended defence to the amended cross-claim (hereafter “defence”) Linfox put several of these matters in issue, but some of them are no longer really in contention. In short, it is now accepted or readily established that Linfox conducted a business of providing some warehouse and logistical services; and that in early 1998 Yates operated various distribution centres, including one at Milperra and another at Laverton, in Victoria. By paragraph 7 of the cross-claim Yates pleaded that from about April 1998, at the request of Yates, Linfox managed and operated the Laverton Distribution Centre (DC), and that Linfox managed and assisted in relation to Yates’ Milperra DC, and in the operation of the Clyde DC, and that Yates provided logistical services to Yates. Linfox pleaded that at the request of Yates it had assisted Yates in these respects. Similarly, in paragraph 8 of the cross-claim, Yates pleaded that from about June 1998, at the request of Yates, Linfox managed and operated the Clyde DC, while Linfox pleaded that it had only assisted Yates in this regard.

12 In paragraph 9 of the cross-claim Yates pleaded what it called “The Agreement”, although one needs to bear in mind that this agreement is not the agreement said to have been breached. It said that from at least June 1998 Yates and Linfox agreed that Linfox would operate the Clyde DC, and subsequently the Mt Druitt DC. Linfox pleaded that it was agreed that, subject to Yates’ direction, it would be involved in the operation of the Clyde DC, and that it was implied that upon the relocation of the Clyde DC to the Mt Druitt DC Linfox would be involved in the operation of the Mt Druitt DC, subject to Yates’ direction.

13 In paragraph 10 of the cross-claim Yates pleaded that, from about early 1999, at the request of Yates, Linfox provided advice to Maincon as to the design and layout of the Mt Druitt DC. Linfox pleaded that it provided information to Maincon as to certain aspects of the internal fit out, and as to the provision of certain services at the Mt Druitt DC.

14 In paragraph 11 of the cross-claim, Yates pleaded the making of what it called the Relocation Management Agreement, being the agreement said to have been breached. It said: “In about May 1999 Yates and Linfox agreed that Linfox would manage the fit out of the Mt Druitt DC and the relocation of the NSW distribution centre from the Clyde DC to the Mt Druitt DC.”

15 By paragraph 11 of its defence, Linfox “admitted” an allegation not pleaded by Yates, namely that in about early June (not May) 1999 it agreed to “project manage the installation of racking at Yates’ Mt Druitt DC [and] to relocate Yates’ distribution centre from Clyde to Mt Druitt subject to Yates’ direction”. Contrary to the submissions of Linfox, this does not mean that Yates bore the onus of proving that Linfox had to act, or not act "subject to Yates' direction". Yates bore the onus of proving what it had alleged. The defence did not define or describe what the expression “project manage” meant, and it otherwise denied the allegations in paragraph 11 of the cross-claim.

16 In paragraph 12 of the cross-claim Yates pleaded that the Relocation Management Agreement contained five terms: first, that Linfox would arrange the timely procurement of all necessary racking for the Mt Druitt DC; second, that Linfox would ensure that the relocation from Clyde to Mt Druitt was carried out on a “rack-to-rack” basis; third, that Linfox would commence the installation of racking at Mt Druitt on 5 July 1999 and complete the installation by 26 July 1999; fourth, that Linfox would commence the transfer of equipment and stock from Clyde to Mt Druitt from 26 July 1999 and complete the transfer by 2 August 1999; and fifth, that Linfox would exercise reasonable care in the exercise of its management functions. The fifth term in effect picks up the allegations pleaded in paragraphs 7 and 8 of the cross–claim.

17 By paragraph 12 of its defence, Linfox said:

Linfox denies the allegations in paragraph 12 of the Cross-Claim, and further says that:

(a) there were terms of the initial June agreement;

(i) that, in exercising reasonable care, Linfox would undertake the relocation of the Clyde warehouse to the Mt Druitt DC, with the objective of achieving:

(ii) the earliest possible occupation of the Mt Druitt DC:

(A) by transferring goods commencing on what was then estimated to be the earliest possible transfer date, namely 26 July 1999;

(B) by commencing full operations on what was then estimated to be the earliest possible commencement date, namely 3 August 1999;

(iii) The earliest possible departure from the Clyde warehouse on or before 13 August 1999 being the date that Yates told Linfox was the latest possible departure date;

all subject to the matters set out in sub-paragraphs (1) – (10) below:

(1) Access to the whole of the Mt Druitt DC being available to Linfox’s racking contractor commencing 5 July 1999;

(2) The racking at Mt Druitt being fully installed, with location labels, on or before 26 July 1999;

(3) The first pallets of stock being able to be received at the Mt Druitt DC on or before 26 July 1999;

(4) As at 26 July 1999, stock held at Clyde having been reduced by Yates to no more than approximately 7,500 pallets;

(5) The whole of the Mt Druitt DC being completed on or before 29 July 1999 (including amenities, plumbing, fire systems, painting and electrical services);

(5A) There being adequate power supply and power outlets to enable the materials handling equipment to operate at peak capacity for the timely put away of stock;

(6) The Mt Druitt DC being handed over to Yates for occupation on 30 July 1999;

(7) Yates’ spring season peak business cycle not having commenced at the time of the move;

(8) Linfox being permitted by Yates to use Linfox’s Smithfield warehouse, if necessary, between 1 July and 31 August 1999, as a transit warehouse for non-essential (reserve) stock from the Clyde warehouse, and for output from Yates’ facilities at Revesby, Rouse Hill and Tamworth;

(9) Yates’ directions; and

(10) A WMS having been established at the Mt Druitt DC and interfaced with PRMS to record the receipt of stock and perform stock control and management functions, including the put away of stock to pre-allocated locations, electronic confirmation of orders, automatic adjustment of stock inventory, identification of multiple stock locations and radio frequency direction of pickers.

18 The effect of paragraph 12(b) – the assertion that Yates represented to Linfox the matters mentioned in subparagraphs (i) to (iii), subject to the matters mentioned (1) to (10) – is obscure. Linfox pleaded elsewhere various matters said to estop Yates from making various allegations.

19 In paragraph 13 of the cross-claim Yates pleaded that Linfox beached the Relocation Management Agreement by failing to arrange the timely procurement of all necessary racking for the Mt Druitt DC, failing to carry out the relocation from Clyde to Mt Druitt on a “rack-to-rack” transfer of stock, failing to commence the installation of racking at Mt Druitt on 5 July 1999 and complete it on 26 July 1999, failing to commence the transfer of stock and equipment from Clyde to Mt Druitt on 26 July 1999 and complete it by 2 August 1999, and failing “to exercise reasonable care in its management functions”. The particulars of breach given were in these terms:

(b) The transfer of stock and equipment from Clyde to Mt Druitt commenced in or about the end of July 1999 and was not completed until mid to late August 1999;

(c) As the racking was not installed at the time of transfer of stock, the stock was not transferred "rack to rack". Instead, approximately 3,000 of the approximately 4,500 pallets of stock transferred were stored on the Mt Druitt warehouse floor or in open yard areas (including loading bays) at the Mt Druitt site. Linfox failed to record the stock in a timely and proper manner in the warehouse inventory system;

(d) As a consequence, warehouse staff were unable to efficiently locate and extract stock to fulfil sales orders and were unable to accurately record such sales orders as were fulfilled on the warehouse system. Sales orders were not fulfilled. Sales orders were delayed and not accepted by customers. Customers cancelled purchase orders due to the delay. No or inadequate records were kept of the sales. Carriers were kept waiting at the site to be loaded. Carriers were dispatched partially loaded. Full particulars will be provided prior to trial;

[There is no (e)]

(f) Linfox commenced the relocation of stock from reserve shelves at the Clyde warehouse on or about 2 August 1999, without there being sufficient reserve racking erected at the Mt Druitt warehouse to permit product removed from the reserve racks at the Clyde warehouse to be relocated into reserve racks at Mt Druitt;

(g) In the absence of reserve racking at the Mt Druitt warehouse, product removed from reserve racks at Clyde was block stacked at the Mt Druitt warehouse, initially within the warehouse in the area in which the racking contractor was erecting reserve racking then in the staging area within the warehouse, then underneath the awning in front of the loading dock at the warehouse and subsequently in the driveway and along the boundaries of the driveway at the warehouse;

(h) When block stacking product, Linfox failed to:

(i) implement any system or procedure to record the precise product or products and the quantities of such products which were located within the block stacks;

(ii) constructed the block stacks in a way which made access to the products making up such stacks impossible;

(i) Failed to plan the locations at which product would be placed in the reserve stacks at Mt Druitt;

(j) Allowed product which was block stacked in the area in which the racking contractor was working in the warehouse to be removed from block stacks in that area and placed into reserve racking when erected without any plan as to where such product should be placed within the reserve racking shelves and failed to keep any record as to where such product was placed in those racks; and

(k) Failed to plan in relation to product received into the Mt Druitt warehouse from manufacturing plants and suppliers where:

(i) such product would be located during the relocation; and

(ii) where such product was block stacked in the location of that product and access to such product.

20 By paragraph 13 of its defence Linfox denied each allegation made in paragraph 13 of the cross-claim, and then pleaded that between 31 July and 15 August 1999 Linfox effected the relocation from the Clyde DC to the Mt Druitt DC with all reasonable care, having regard to the circumstances it had pleaded in subparagraphs (1) to (10) of paragraph 12 of the defence not being met.

21 The cross-claim went on to allege loss, and then to assert the existence of what were in substance alternative claims, in negligence, and for breach of the provisions of sections 51A and 52 of the Trade Practices Act, and to raise a claim in respect of the ownership of certain racking, located in the Clyde DC and sold by Linfox on behalf of Yates at about the time of the move. It said that Linfox had not accounted to it for certain proceeds of sale. This issue can be put aside for the time being.

22 By paragraph 17B of the defence, Linfox asserted that the Relocation Management Agreement, which Linfox described as the Initial June Agreement, was replaced or varied by what Linfox called the July Agreement. It said that, by the new agreement, it had agreed that it would, commencing on 31 July 1999, implement the relocation of stock, equipment and personnel from Yates’ Clyde DC to the incomplete Mt Druitt DC, with the objective of completing the relocation within 14 days or, in any event, no longer than 19 days (that is, before the date upon which Yates had to move out of the Clyde DC).

23 The terms of this agreement were pleaded in paragraph 17C of the Defence:

that Linfox would not be responsible to Yates for the consequences of having to effect the relocation:

(a) not on a rack-to-rack basis and before the racking was complete with the consequence that a significant quantity of at least 2,000 pallets of stock would have to be stored on the floor of the Mt Druitt DC;

(b) while the Mt Druitt DC was still incomplete;

(d) when – absent an Occupation Certificate – Yates was without insurance cover for the relocated stock or the Mt Druitt DC;

(e) while racking and construction works were still in progress;

(f) by fully evacuating the Clyde warehouse into Mt Druitt inside 14 days (31 July – 13 August 1999), when the Mt Druitt facility was underpowered to run the mobile put-away machinery necessary to service deliveries and dispatches;

(g) without a WMS to record the receipt of stock and perform stock control and management functions, including the put away of stock to pre-allocated locations, electronic confirmation of orders, automatic adjustment of stock inventory, identification of multiple stock locations and radio frequency direction of pickers.

24 The particulars given in respect of paragraph 17B and 17C might be summarised by saying that the contract arose from conversations that took place on 21 and 30 July 1999, and by implication. Linfox personnel told Yates personnel of a lack of progress in relation to the move; Mr Jacob of Linfox then advised Mr Ballantyne of Yates against moving, generally having regard to the lack of progress concerning the racking and to the lack of an Occupation Certificate from the local council, leading, it was said, to some insurance problem; but Mr Ballantyne instructed Linfox that the move should go ahead. Linfox said that the terms it had pleaded were implied “to give business efficacy to the agreement in the circumstances that, to the knowledge of the parties, prevailed at the time of the making the contract”.

25 Then, between paragraphs 17D and 17FA Linfox pleaded that Yates was estopped from making the claims made. In paragraph 17E it pleaded that Yates directed Linfox to transfer its stock and equipment to the Mt Druitt DC, when both Yates and Linfox knew or assumed what Yates described as “the commonly assumed facts”, namely:

(a) not all of the necessary racking for the Mt Druitt DC had been procured with the result that a significant quantity of at least 2,000 pallets of stock would have to be stored on the floor of the Mt Druitt DC;

(aa) the spring season had come early and as a result the move from Clyde to Mt Druitt DC would coincide with the onset of increased customer orders for the spring season;

(b) Linfox had neither commenced installation of the racking on 5 July 1999 nor completed it on 26 July 1999;

(c) Linfox had not commenced the transfer of stock to Mt Druitt on 26 July 1999 and Linfox could not and would not complete any transfer by 2 August 1999;

(d) the transfer of stock that it was directing Linfox to implement could not and would not be a rack-to-rack transfer;

(e) building and racking works were in progress at the Mt Druitt site;

(f) the Mt Druitt DC was still incomplete, and unfit for occupation and use;

(ff) a WMS had not been established at the Mt Druitt DC and interfaced with PRMS to record the receipt of stock and perform stock control and management functions, including the put away of stock to pre-allocated locations, electronic confirmation of orders, automatic adjustment of stock inventory, identification of multiple stock locations and radio frequency direction of pickers, and would not be installed until in or about November 1999;

(g) no Occupation Certificate had been issued;

(h) absent an Occupation Certificate, Yates could not expect to have insurance cover for the building or the stock moved in to it;

(i) Yates was not lawfully entitled to occupy or use its Clyde warehouse past 13 August 1999;

(j) the Mt Druitt facility was underpowered to run the mobile put-away machinery necessary to service deliveries and dispatches; and

(k) of the consequences that might attend a transfer in these circumstances;

(l) Linfox had advised Yates that it should not undertake the move to Mt Druitt at that time and in the circumstances set further above, which advice Yates had declined to accept;

(m) Linfox had offered Yates the use of an alternative warehouse located at Smithfield, which offer Yates had rejected.

26 In paragraph 17EA Linfox pleaded that by varying the Initial June Agreement and/or entering into the July Agreement and/or giving Linfox the directions pleaded in paragraph 17E, Yates caused Linfox to assume, or knew or ought to have known that Linfox would be induced to assume that “in carrying out the move from Clyde to Mt Druitt and in Linfox’s subsequent management of the Mt Druitt DC Linfox would not be liable to Yates in respect of any loss or damage suffered by Yates caused by the move taking place in the circumstances of any one or more of the commonly assumed facts, and that Yates accepted the risk of such loss and damage”.

27 In paragraphs 17EB to 17EF Linfox pleaded, additionally or in the alternative to paragraph 17EA, that Yates and Linfox varied the Initial June Agreement or entered into the July Agreement on the basis of what it called the “commonly assumed facts”, that is, the facts set out in paragraphs 17EA just quoted, that Yates did not correct the assumption made by Linfox as to the accuracy of the commonly assumed facts, and that Linfox would not have carried out the move otherwise. In paragraph 17EE Linfox pleaded that as a result of the move in the circumstances and upon the basis of the commonly assumed facts, there was a measure of disruption caused to the move and the subsequent management by Linfox of the Mt Druitt DC; and Linfox then said that it would be unconscionable for Linfox to be held liable to Yates for the consequences of Linfox acting as directed by Yates and for Linfox carrying out the move in the circumstances of the commonly assumed facts, or for Linfox to resile from any one or more of the commonly assumed facts, or for Linfox’s having assumed those facts.

28 Paragraph 17G asserted the absence of a duty of care in the circumstances previously pleaded, and paragraph 17H asserted the existence of a waiver, given the circumstances said to have founded the estoppels already pleaded.

29 Paragraphs 17HA to 17HJ asserted the existence of a different estoppel. Linfox pleaded that on or before 30 July 1999, Yates, through Mr Ballantyne, knew, as was the fact:

(a) the spring season had come early and that as a result, if the move from Clyde to the Mt Druitt DC went ahead as planned, it would coincide with the onset of a significant increase in customer orders;

(b) not all of the racking would be erected at the Mt Druitt DC in time for the move and in fact, a substantial proportion of the reserve racking would not be erected by reason of which at least 2,000 pallets of stock would have to be placed on the floor of the Mt Druitt DC;

(c) the move from Clyde to the Mt Druitt DC, originally planned to take place over a period of 14 days and if necessary up to 19 days, would have to be effected over a period of between 8 to 9 days;

(d) there would be no WMS established at the Mt Druitt DC and interfaced with PRMS to record the receipt of stock and perform stock control and management functions, including the put away of stock to pre-allocated locations, electronic confirmation of orders, automatic adjustment of stock inventory, identification of multiple stock locations and radio frequency direction of pickers;

(e) the WMS system would not be installed at the Mt Druitt DC until at least November 1999;

(f) there would be inadequate power supply and power outlets to enable the materials handling equipment to operate at peak capacity for the timely put away of stock and handling of deliveries and dispatches.

30 The pleading then asserted that Linfox, through Mr Jacob, advised Yates, through Mr Ballantyne, not to undertake the move then, but to delay it until the Mt Druitt DC had been completed, including the erection of the racking, and the obtaining of an Occupation Certificate; that Linfox “offered Yates … the use of Linfox’s fully racked warehouse at Smithfield as an interim warehouse in which to locate the whole of Yates’ stock pending the satisfactory completion and establishment of the Mt Druitt DC including the erection of the racking therein”; that Yates, through Mr Ballantyne, rejected that advice and the offer of the use of the Smithfield warehouse, and informed Linfox, through Mr Jacob, that Yates, through Mr Ballantyne, was aware of the difficulties that would be encountered with the timing of the move, but that Mr Ballantyne had decided to proceed with the move, and directed Linfox to proceed; that Yates thereby represented to Linfox that if Linfox accepted Yates’ direction to move, Yates would accept the risk of any loss or damage occurring to Yates in the circumstances pleaded in paragraph 17HA; that Mr Jacob of Linfox reported these matters to Mr Bennett of Linfox who, on behalf of Linfox, acted accordingly, that is, relying on Yates’ representation that Yates would not hold Linfox relevantly responsible; and that Linfox would not have otherwise undertaken the move or the subsequent management of the Mt Druitt warehouse.

31 In paragraph 17HH Linfox pleaded that, as a result, there was a level of disruption caused to the move and the subsequent management of the Mt Druitt warehouse; and the pleading went on to assert an estoppel.

32 Paragraph 23A raised a defence of illegality. Linfox said that no Occupation Certificate was issued with respect of the Mt Druitt DC until 21 October 1999; that section 109M of the Environmental Planning and Assessment Act 1979 prohibited the occupation or use of the Mt Druitt DC in the absence of that certificate; that all occupation and use of the Mt Druitt DC without the certificate was unlawful and illegal; and that Yates could not sue for lost profits in respect of the illegal occupation and use of the Mt Druitt DC.

33 Paragraphs 23B and 23C asserted the existence of an agreement that Linfox would not be responsible for any stock deficiency existing or recorded, said to have been suffered by Yates until an effective warehouse management system had been installed by Yates; and no such system had been installed.

34 Then, by paragraph 23D, Linfox pleaded contributory negligence on the part of Yates. On the face of the pleading, paragraph 23D extends to all of the causes of action pleaded by Yates, but in submissions it was limited to the claim in negligence. The particulars given were as follows:

(i) Failing to ensure that a WMS was installed and functioning at the Mt Druitt DC within a reasonable time after the termination of Linfox on or about 1 September 1999. The WMS project had progressed to the point whereby at the termination of Linfox, Yates using its best endeavours ought to have been able to have a fully installed WMS operative at the Mt Druitt DC by no later than early November 1999, whereas it did not have a fully functional operating WMS in place at the Mt Druitt DC until in or about mid-2000;

(ia) Failing after 10 September 1999 to use the racking location plan identifying the location of all Yates stock in the Mt Druitt DC as at September 1999 which plan was prepared by Higgins and provided by him to Yates on or about 10 September 1999, alternatively, failing to implement its own stock management and location plan after its termination of Linfox;

(ii) Yates' own stock management, stock records and stock control systems were deficient and were not properly maintained by Yates;

(iii) On various occasions during July and August 1999 Yates' PRMS either incorrectly printed invoices or alternatively failed to operate at all;

[There is no (iv)]

(v) In July and August 1999 Yates failed and refused to:

(A) acquire sufficient material handling equipment for use at Yates' Mt Druitt warehouse site;

(B) failed and refused to install sufficient re-charging facilities for material handling equipment at the Mt Druitt warehouse;

(vi) In August 1999, Yates engaged Mr Ken Wilkinson to work in the Mt Druitt warehouse to direct Linfox regarding order and delivery priorities. Mr Wilkinson delayed the order picking process and misplaced crucial documents that caused delays and errors at the Mt Druitt warehouse;

(vii) Yates failed and refused to adopt, accept or rely upon Linfox's advice regarding the timing of the relocation of stock from the temporary warehouse at Clyde to Mt Druitt. Yates:

(A) refused and failed to delay the relocation from Clyde to Mt Druitt;

(B) refused and failed to extend the lease at the Clyde temporary warehouse facility beyond approximately 13 August 1999;

(C) refused and failed to accept Linfox's advice that stock should be moved to Linfox's Smithfield and/or Homebush warehouse(s) until all construction at the Mt Druitt site was complete and a final certificate of occupancy issued;

(D) refused and failed to accept Linfox's offer to utilise Linfox's Smithfield and/or Homebush warehouse(s) as a temporary warehouse facility until all construction at the Mt Druitt site was complete and a final certificate of occupancy issued.

(viii) Yates decided to effect the relocation in late July and August 1999, rather than delaying the relocation until after the spring season;

(ix) Yates failed to extend the lease at the Clyde temporary warehouse and facility beyond 13 August 1999;

(x) Yates sold pallet racking at the Clyde warehouse site when the racking could have been used at the Mt Druitt warehouse;

(xi) Yates failed to provide Linfox with all relevant information and specifications regarding floor loadings at the Mt Druitt warehouse, which information was relevant to Linfox's logistic operations;

(xii) Yates failed to effect a stock reduction program at the Clyde warehouse prior to the relocation to Mt Druitt with the effect that after taking into account stock transferred to the Mt Druitt DC from Yates' other warehouses, manufacturing plants and third party suppliers there was, within about two weeks of the move, stock located at the Mt Druitt DC that was in excess of its racked capacity;

(xiii) In July and August 1999 Yates increased the output of its manufacturing facilities including Mt Druitt and Wyee without making any or sufficient provision for that product to be accommodated at warehouses other than the Mt Druitt warehouse;

(xiv) Yates failed to advise Linfox of the quantity, type and timing of stock deliveries to the Mt Druitt warehouse during the relocation in July and August 1999;

(xv) During July and August 1999 Yates moved substantial quantities of stock from its adjoining factory into the Mt Druitt warehouse without informing Linfox or making any other provision for its incorporation into the warehouse;

(xvi) After 1 September 1999 Yates operated the Mt Druitt warehouse without appropriately qualified or experienced staff;

(xvii) After 1 September 1999 Yates operated the Mt Druitt warehouse without due care or skill.

(xviii) After 1 September 1999 Yates damaged and lost stock at the Mt Druitt warehouse;

(xix) Linfox repeats paragraph 17E above.

35 Paragraph 23E pleaded, in substance, a lack of causal connection between the conduct of Linfox, the subject of Yates’ complaints, and the damage suffered by Yates. Paragraph 23F pleaded that Yates had failed to mitigate its loss. Virtually the same particulars were given in respect of this as were given in respect of paragraph 23D; and I will return to this detail later.

36 Then, in paragraph 29, Linfox raised a defence of voluntary assumption of risk, in substance relying upon the matters that had been pleaded in paragraph 17E.

37 Otherwise, Linfox put in issue virtually every allegation that had been made by Yates. The hearing proceeded on the basis that all the matters of fact pleaded by Linfox in its defence to the cross-claim had been the subject of an implied joinder of issue: SCR Pt 15 r 21.

38 It should be noted that the defence raised by Linfox, that there was a lack of causal connection between Linfox’s alleged conduct and Yates’ alleged damage, was founded upon the conduct, not only of Yates itself, but also the conduct of EXE Technologies, Inc (EXE), the company that was to have supplied the Exceed WMS computer facilities.

39 The pleadings between Dynamic Lifter Pty Limited and Linfox generally follow a similar pattern, but also raised issues concerning the right of Dynamic Lifter Pty Limited to sue.

The Contract between Yates and Linfox

40 One aspect of Operation Leapfrog was the appointment of a warehouse contractor. There were negotiations between Yates and Linfox concerning the possible appointment of Linfox in this role.

41 The parties reached an initial agreement that Linfox would carry out certain work, charging Yates for the cost incurred, plus a margin. They also agreed to conduct monthly “Board of Review” (BOR) meetings, where representatives of the parties negotiated with a view to entering into a long term (that is, five years) contract, and also concerning other matters. There resulted what might be described as incidental contracts for the performance of various functions on a temporary basis. The compromise of Linfox’s claims for fees means that much of this detail in no longer significant.

42 The negotiations concerning the formation of a long term contract failed. In short, this was because the parties could not agree about the mechanism necessary to work out a long term pricing arrangement, and because of a difference of opinion as to whether and in what circumstances Linfox might be liable to Yates in respect of stock shortages, pending the adoption of a WMS and the integration of the information stored in the WMS with the information stored in the PRMS In the meantime, there were at least eight drafts prepared of the proposed written contract, and if one puts aside disputes about pricing and responsibility for lost stock, it seems clear that the parties had agreed, at least in a general way, what work Linfox would do if the proposed contract came into being. The eighth draft is marked “issue date 26 June 1998”, but, it seems, the negotiations after that date focused upon pricing and stock control questions, and matters incidental to them, and upon Linfox performing various tasks the subject of particular requests made by Yates.

43 Earlier, Linfox conducted a study called “Optima” and then submitted a proposal to Yates dated 24 March 1998, offering to provide various services. That document contained the following passages:

MANAGEMENT SUMMARY

Linfox has undertaken to provide Arthur Yates & Co with a Lead Logistics Management proposal for the distribution of Yates products from Sydney and Melbourne to various customer destinations and Yates warehouses in Australia.

Linfox was commissioned to undertake an Optima study to determine the best-fit operation for warehousing and distribution activities in the Australian operation. Subsequent to this exercise a series of Cost Modelling exercises were completed to form the basis of the proposal contained in this document.

· Source, negotiate a lease and set up a Warehouse/Distribution facility at Clyde, NSW.

· Commission and operate the facility for approximately eighteen months.

· Relocate to the Yates warehouse being built at Mt Druitt, NSW.

· Commission and operate the Mt Druitt warehouse

· Take over the Warehouse operations at the Yates plant at Laverton Victoria.

· Operate the facility as a warehouse for locally sourced product and a cross-dock operation servicing the Victorian market from the centralised warehouse operation in Sydney.

· Source, commission and operate a replacement facility in Melbourne once the Laverton property has been sold.

· Operate as a Lead Logistics manager in utilising the present Yates transport providers of both local and interstate transport and to assess and improve these arrangements as to service, reliability and economy.

· Facilitate the expansion of direct delivery operations to major retailers’ Distribution Centres.

OBJECTIVES

· Restructure their manufacturing and distribution operations in Australia.

· Put in place an interim Warehouse/Distribution Centre/Cross Dock operation.

· Put in place a long-term solution based upon the restructure planning supported by the Optima project.

· Achieve “Best Practice” logistics, distribution and transport arrangements appropriate to the Yates operation.

OPERATIONS

CLYDE
This warehouse will service as the prototype for a centralised Distribution Centre for the range of Yates products. Major bulk product lines will be produced at various locations and shipped directly to customers where possible. For the product range where this is not feasible orders will be assembled at Clyde and distributed to customers throughout Australia.

Linfox will commission this warehouse. This will involve the recruitment of appropriate staff including former staff and management from the Milperra warehouse together with the acquisition of Materials Handling Equipment from Yates (where suitable) and externally sourced otherwise. Additionally, Linfox will plan the warehouse layout and acquire the pallet racking necessary to implement such a plan.

A Warehouse Management System will be sourced that is appropriate to the requirement of the task. This issue is dealt with later in the documents.

The lease for the Clyde property will be taken by Arthur Yates & Co, and Linfox will assist by negotiating the lease in conjunction with our legal advisers.

It is expected that the occupation of the Clyde Warehouse will be for a period of approximately eighteen months after which Linfox will relocate the operation to the Warehouse that is to be constructed for Yates at Mt Druitt, NSW, adjacent to the factory site.

Once again Linfox will commission the new site. It is expected that as much equipment as possible from Clyde will be utilised in the Mt Druitt development …

RELATIONSHIP

The relationship between Yates and Linfox will be based upon a Board of Review process. On a day-to-day basis Linfox will liaise with the nominated Yates representative. In the initial stages of the Agreement a Board of Review will meet on a regular basis; fortnightly as a suggestion.

Later the Board of Review could be conducted monthly and ultimately quarterly, dependant upon the requirements of Yates.

The Board of Review consists of an operational review of the performance of the business based upon KPIs [Key Performance Indicators] appropriate to the task. The make up of the Board is usually three senior representatives from the Customer and three from Linfox. The report is submitted to the Board and serves as a vehicle for monitoring progress towards stated goals, revising those goals in light of performance and recording changes in the Agreement as a result of agreed changes.

The Review will initially focus upon the implementation of the agreement and the commencement of the operation. There would be reports on the Warehouse and Cross-dock operations and an assessment of the transport operations. Any proposed changes that could affect service or cost levels would be reported and approval attained in advance of their implementation.

SYSTEMS

Linfox propose to introduce a suitable Warehouse Management System. At present the Paperless Warehouse system and the EXE WMS are being considered and assessed as to their suitability for the Yates operation.

The systems utilise Radio Frequency (RF) technology and the operation includes receiving, directed put away, replenishment, order picking, inventory control cycle counting, despatching and manifesting. Batch and lot tracking are also available. The system would be used to develop reporting systems to measure the efficiency and productivity of the operation.

In addition to the WMS, Linfox will also make available the Lintrac Freight Tracking System to track all consignments from dispatch to consignee. Additionally a digitised proof of delivery retrieval system is available to be utilised in order to provide delivery receipts immediately upon request.

The Lindis monitoring system will bring all of the many transport requirements under the control of a single system to control the overall operation and to provide management KPIs.

INVENTORY CONTROL

The introduction of a modem WMS will greatly contribute towards improvements in inventory control and accuracy.
To commence with it is the intention for Linfox to continue the current Order Cycle.
That is where an order is received on Day 1 by Customer Service, it is picked and prepared for dispatch on Day 2 and distributed to metropolitan customers on Day 3.

ORDER ACCURACY

Upon installation of a suitable WMS substantial improvements in order accuracy and meeting customer service requirements would be possible.

44 The eighth draft of the proposed contract defines the term “Logistics Services” as meaning “Warehouse Services and Transport Services”. There was a definition of “Transport Services” that is no longer relevant, but “Warehouse Services” were defined in different ways, according to whether the relevant warehouse operations were carried out in New South Wales or in Victoria. Services in the former category were defined in these terms:

Manage and operate the Transport Centre for Yates initially at the temporary location at Clyde for the period of approximately fourteen (14) months from commencement of operation and subsequently at the permanent facility to be developed at Mount Druitt. The scope of services includes:

· Provision of site management, supervision and administration.

· Offering employment to Yates permanent warehouse staff based at Milperra.

· Purchase from Yates of materials handling equipment (MHE) and storage equipment at market value, subject to such equipment being determined suitable in an Assessment of Assets.

· Purchase or lease of materials handling equipment (MHE) at the Transport Centre

· Provision of a Warehouse Management System.

· Provision of office equipment and a PC based reporting system.

The warehouse tasks to be undertaken are defined as follows:-

a) Receiving and Putaway

· Receiving of the products sent from Yates factories including Mt Druitt and Revesby.

· Receiving of other products purchased by Yates from other suppliers and manufacturers.

· Goods received loose stacked are to be either palletised for putaway or allocated storage locations according to Linfox defined pallet layouts and storage locations and methods.

· Product requiring a quality inspection by Yates as to the suitability for storage is to be quarantined until inspected or cleared by Yates.

· Returns from customers are to be received into a quarantine area for approval by Yates prior to being put away in a warehouse location or otherwise disposed of as directed.

b) Inventory Management

· Each SKU [Stock Keeping Unit] shall be mapped to a specific storage location.

· Stock shall be managed on a FIFO [First In First Out] basis, or Batch, or Best by Date.

· Damaged product shall be quarantined and Yates notified for inspection.

· The accuracy of stock information shall be maintained through cyclical stock counts.

· Stock discrepancies are to be notified to Yates for update of their PRMS system.

c) Picking, Loading and Dispatch

· Picking will be pre-planned from the allocation of picking slips received on the day prior to the pick.

· Results of the order pick will be recorded by the picker and, where appropriate, a reason for unavailability recorded. This will subsequently be passed onto Yates.

· Completed orders will be loaded according to transport delivery/dispatch times.

· Dispatch of replenishment orders for Yates Queensland and Western Australia warehouses will be in palletised format …

45 The draft contract contained the following provisions:

2.1 Appointment

a) Appoints Linfox to provide the Logistics Services; and

b) Agrees that all its requirements for Logistics Services and services substitutable for the Logistic Services, as described in Schedule 1, will be provided by Linfox during the Term.

2.2 Logistics Service Levels

a) Maintain the Logistics Service Levels; and

b) Comply with all reasonable directions which are consistent with this Agreement …

4.2 Warehouse Management System (WMS)

a) Linfox will provide and maintain the Warehouse Management System and Yates will provide the Software interface and equipment to enable the Warehouse Management System to interface with Yates’ host PRMS / AS 400 computer system. The NSW and Victorian warehouses will be maintained on the Yates host PRMS system on the AS 400.

b) If the Agreement is terminated after less than five years for any reason whatsoever the ownership of the Warehouse Management System hardware, software and data will pass to Yates and Yates will reimburse Linfox … [there were provisions about pricing] …

7.1 Inaccuracies

The parties acknowledge that, in determining the Logistics Charges applicable on the Commencement Date, Linfox has relied on the key assumptions set out in Schedule 3.

If any of those key assumptions are inaccurate or become inaccurate at any time during the Term as a result of changed circumstances, Linfox may adjust each relevant component of the Warehouse Charges and the Transport Charges to what the relevant charge would have been had Linfox known the true position in relation to each of the key assumptions …

46 Schedule 3 to the draft contract, titled “Key Assumptions”, recorded various assumptions, including:

· Linfox is responsible for the procurement, installation, servicing and development of;

The Warehouse Management System (WMS) software and associated hardware.

· Orders placed on Day 1 are received by Linfox on Day 1 for prioritising for picking on Day 2. The orders are then despatched for receipt by metropolitan customers on Day 3 …

47 “Warehouse Management System” was defined as meaning:-

a) sufficient to maintain an adequate warehouse operations management system at the Transport Centre:

b) having the components and/or capabilities specified in Schedule 8…

48 Schedule 8 was in these terms:

WAREHOUSE MANAGEMENT SYSTEM

Type of System
Linfox acknowledge Yates’ preference is for the Paperless Warehousing Warehouse Management System (WMS) as this will provide a single system interfacing to the host PRMS / AS400.

Linfox will source, procure and project manage the WMS software and associated hardware (including RF equipment, printers and other peripheral equipment) to operate the WMS

Linfox are not responsible for any interfaces to the host AS 400 system.

General Description of Operation
Orders are received by Yates Customer Service and entered onto the host PRMS system. Orders received for Victorian customers are retained as one order against both the Sydney and Melbourne warehouses.

For EDI orders [electronic data interface orders, or orders received electronically, that is, by a customer’s computer placing the order directly onto Yates’ computer system] the order lines are allocated automatically to the relevant warehouse for picking based on criteria defined by Yates on the host system.

For manual orders the order will have to be manually allocated to the relevant warehouse by product line. This is the responsibility of Yates and the host system.

For manual confirmation of orders, there will be a requirement for the storeman to enter on the RF unit the number of pallets or cases picked for transmitting to the host PRMS so that the invoicing can take place.

Confirmation to the host must include quantity picked. If no stock was available to be picked, zero (0) must be specified.

For orders not requiring manual confirmation, a program will be available as a menu option on the host PRMS for both Sydney and Melbourne warehouses. This program will check each line on every open order to determine whether the pick for the order is complete. If so, the invoice will be released for printing at the order warehouse.

For orders requiring manual confirmation, there will need to be a query screen listing those completed picks so that the dispatch clerk can make necessary alterations and print the invoice.

49 These documents provide a deal of background information, and provide a general description of what it was that Yates wanted Linfox to do, so far as concerns the day to day provision of warehouse management services, but provide less help in coming to an understanding about what Linfox was to do, precisely, concerning particularly the planning for and execution of the move from Clyde to Mt Druitt. There is a significant dispute about this, dealt with below. Nobody has suggested that the draft contracts were other than non-binding drafts.

The Clyde Distribution Centre

50 Zandean Pty Ltd (“Zandean”) purchased the land in question on a date that is not clear. The previous owner had leased the land to Southcorp Wines Pty Ltd (“Southcorp”), and Southcorp vacated the property in the early part of 1998. There were two old warehouses on the property, described as the large warehouse, and the small warehouse. Linfox suggested to Yates that the premises would be suitable for use as a temporary warehouse facility or “distribution centre”, and Yates accepted this suggestion, and later Yates became the sublessee of Southcorp. Before this happened, Linfox obtained a dilapidation report dated 18 April 1998. In general terms, it described the warehouses as being in a poor state of maintenance and repair.

51 The warehouses were about 8,000 square metres in size overall, and had a capacity to hold about 8,500 pallets, in approximately 1,000 different Stock Keeping Units (“SKUs”). After Yates moved there, its PRMS was used to control the inventory, and this was supplemented by a manually operated system devised and put into place by Linfox.

52 As the expiry of the term of the lease to Southcorp approached, Mr Wiener, who effectively represented Zandean at all relevant times, looked for and found a potential new tenant, Academy Warehousing and Storage (NSW) Pty Ltd (“Academy”). As affairs progressed, Zandean agreed that Yates might hold over beyond the date of the expiry of the sublease, but required Yates to vacate the premises and to make them “good” by 16 August 1999, and that date became non-negotiable. The head lease is not in evidence. However, without objection, there was attached to Linfox's 4 May 2004 submissions a copy of an annexure to the lease. That document suggests that the term of the lease expired on 31 January 2000, and its clause 7 provided, in summary, that the lessee was to maintain the premises and yield them up "in good repair and condition", subject to a qualification in respect of fair wear and tear; and the lessee acknowledged that the premises were in good repair and condition at the commencement of the term of the lease.

53 When appropriate Mr Wiener on behalf of Zandean dealt with Linfox, as Yates’ warehouse manager, and in that capacity he spoke to Mr Pearce of Linfox in May 1999. There is a dispute as to what was said, but it is clear that Academy was interested in taking a lease of the premises, with there being in place at the commencement of the proposed lease the racking that then stood in the two warehouses at Clyde, and that Mr Wiener considered that it was desirable, from Zandean’s point of view, to be able to grant a lease on terms that the racking was in place.

54 After the disputed conversation, Mr Wiener took the stance that Yates, through Linfox, had agreed to sell the racking, or some of it, to Zandean (or its nominee, Academy), whilst Linfox took the stance that there was no such agreement, as distinct from a preliminary inquiry on the subject. Mr Wiener spoke to Mr Ballantyne of Yates. In time, Mr Wiener in substance threatened to require a substantial amount of work to be done to make the premises good when Yates vacated them, and Mr Ballantyne considered that this was a significant threat to Yates, so that he on behalf of Yates effectively put pressure on Linfox to somehow compromise Zandean’s claim, with the result that it was agreed that Yates and Linfox would leave certain racking behind when Yates vacated the premises. Yates and Linfox agreed that between them they owned that quantity of racking that was left behind, but there is a dispute to be resolved as to the details of this shared ownership.

55 One practical consequence of this chain of events is that some of the racking at Clyde remained there, and could not be dismantled, and taken to Mt Druitt for re-erection and use there; and this circumstance is linked to other circumstances, concerning Yates’ claim that Linfox was relevantly at fault in not procuring in a timely manner the purchase of a sufficient quantity of the parts needed for the racking at Mt Druitt, so that there was not sufficient racking in place at Mt Druitt at the relevant time, and so that a rack-to-rack transfer to Mt Druitt of the stock that had been stored at Clyde could not be effected.

The Mt Druitt Distribution Centre

56 Yates already had a manufacturing facility at Mt Druitt. Arrangements were made for Maincon Holdings to buy another parcel of land, which it later leased to Yates. Generally speaking, the newly acquired land is to the north and to the east of the land that Yates already held, and both lots are on the southern side of Kurrajong Avenue.

57 In September 1998 Yates and Maincon agreed between themselves, after some input from Linfox, upon a design for the then proposed building, and a development application was made to and later approved by the local council. Generally speaking, the ground covered by the building is in the shape of the letter “L”, formed by two rectangles. The larger rectangle is 100 metres (east to west) by 71 metres (north to south) in size; and the smaller rectangle is situated on the northern side of the larger rectangle, at its eastern end, and is 49 metres (east to west) by 30 metres (north to south) in size.

58 The construction drawings for the building show a grid pattern for the steel columns of the building. Broadly speaking, and omitting some complexities, there are rows of columns, identified as grids 1 - 7, going from north to south, and there are rows of columns, identified as grids A – M, going from east to west. There are no columns within the area covered by the prolongations of the grids 1 – 4 and E – M, reflecting the “L” shape of the building.

59 There are a series of docks on the northern face of the eastern part of the building. The docking area generally is within the space covered by grids 1 – 3 and A – E. Immediately to the north of the docking area, outside the building, there is a large concreted apron, where heavy vehicles can manoeuvre, and a driveway leads northwards from the apron towards Kurrajong Avenue. An awning that extends northwards from the docking area covers the southernmost part of the apron area.

60 To the south of the docking area, within the space covered by grids 3 – 5 and A – E, there is an area variously described as the staging area, the packing area, or the receiving and dispatch area. In substance, this is a large area of open floor, kept free so that incoming and outgoing goods can be marshalled here. More precisely, the eastern part of the staging area was called the dispatch area, and was used to marshal outgoing goods, whilst the western part was called the receipt or receiving area, and used to marshal incoming goods.

61 Another area, located to the south of the staging area within the space covered by grids 5 – 7 and A – F, is called the pick face area. There are racks located here, each of which runs from north to south. Using mechanical handling equipment, or “MHE”, persons known as pickers “pick” stock from the racks here. That is, they pick out items of stock stored (on pallets) in these racks, and take those items of stock over to the dispatch area, so that orders placed by customers can be made up there, for later loading onto vehicles in the docking area.

62 There is a further area of the warehouse, within the space covered by grids 4 – 7 and F – M, generally to the west of the pick face area, and also to the west of the southern part of the staging area, knows as the reserve stock area. Here there are located rows of racks, running from east to west, where stock is stored, on pallets, in bulk. Generally speaking, as products are delivered into the warehouse, whether from Yates’ various manufacturing plants, or from its other suppliers, it is off loaded from vehicles, moved initially into the receiving area, and then moved again, and placed in racks in the reserve stock area, using MHE.

63 As pickers pick stock for delivery to customers, the pick face racks are depleted. They are then replenished, initially from stock stored in the pick face racks, but at a higher level, not so conveniently accessible as to allow prompt picking to fulfil orders. In turn these “replenishment racks”, situated at the higher levels of the pick face racks, are themselves periodically replenished by stock being moved from the reserve stock area, where stock is stored in bulk.

64 For environmental reasons the mechanical handling equipment used within the warehouse consists of battery powered vehicles. This means that it is necessary to have battery recharging facilities close at hand. Broadly speaking, each piece of this equipment requires its battery to be recharged after each shift. These batteries are very large: each one weighs about sixty or seventy kilograms, and stands about thigh high.

65 The September 1998 design of the warehouse provided for a battery recharging area, located at the eastern end of the northern wall of the reserve racking area, that is, approximately along the line of grid 4, near grid F. It later became apparent that there had been inadequate provision made for battery recharging; and eventually the recharging area was extended so that it ran along the line of the northern wall of the reserve racking area, approximately from grid F to grid J along the line of grid 4. This was still inadequate, and in the period immediately after Yates moved into the new warehouse, various items of machinery handling equipment frequently exhausted their batteries.

66 That came about, in part, in this way. Insufficient racking had been erected in the reserve racking area. Therefore, some thousands of pallets of goods were stacked in blocks, or “block stacked”, on the floor in this area, because there was nowhere else to put them. Later, a contractor had to erect the racking. The pallets had to be moved to permit this, and later still, when the racking had been erected, the pallets were moved into the racks.

67 Additionally, when products were block stacked, it was not always easy to find products within the stacks, or to remove goods from the middle of a stack. This meant that, sometimes, in order to obtain product so located in a stack that it was not readily accessible, other product in the stack had first to be moved; and later this other product might have to be moved back again into the stack. That is, sometimes pallets of stock to be double or triple handled.

68 Yates procured additional items of equipment, as well as additional batteries, but the lack of equipment, the lack of batteries, and the insufficient provision of battery recharging facilities, considered together, contributed to the congestion, and to the difficulties and delays encountered in meeting the orders of customers. A significant area of disputation concerns the responsibility of Linfox for this set of circumstances.

The Disputed Facts about the Contract and its Terms: the events of April and May

69 The issues identified by the pleadings are those set out at [12]-[17] and [22]-[24]. In support of their respective contentions about the terms of the contract, each of the parties referred to various aspects of their conduct, both before and after the supposed date of the contract. By about the end of April 1999 the position had been reached where Linfox was managing Yates’ warehouses at Laverton and Clyde, and it was known that Yates would have to move from Clyde to the new distribution centre at Mt Druitt, then in the course of construction. There was a general expectation that the new premises might be occupied from about 31 July. This date had been mentioned to Mr Bennett of Linfox on 19 October 1998, when he made a note recording, he says of his thinking at the time, that this would result in an “interesting August” of 1999, a reference to his expectation that the move might coincide with Yates’ spring season. Linfox had negotiated the terms of Yates’ sublease of the Clyde premises. By early 1999, generally speaking, Linfox was charging Yates fees representing the costs incurred by Linfox plus a margin for profit.

70 The negotiations concerning a long-term agreement between the parties were faltering. The eighth draft of the proposed agreement had been circulated in June 1998, and this seems to have been the last such draft. Yates expressed concern that Linfox had not produced the expected costs savings. Mr Bennett considered that this view was misguided. The evidence does not permit a finding to be made as to which position was correct, and it probably does not matter.

71 A question arose concerning the adequacy of Linfox’s performance at the Clyde Distribution Centre at about Easter 1999. Yates complained, and sought compensation. Mr Bennett said that he considered that the complaint was without substance, but upon the instructions of Mr Brockhoff (the managing director of Linfox), and for reasons of commercial expediency (Linfox wanted to keep Yates as a customer) he in substance compromised the claim. The incident is not significant in itself, except that it may well have been one of the matters that helped to sour the relationship of the parties, and except to the extent that it was used by the parties in aid of arguments advanced at other points, and it is because of the latter circumstance that I need to say something about it, noting that the evidence to what happened or did not happen at the Clyde warehouse at this time is generally quite indirect.

72 Mr Frost had been retained by Linfox to act as manager of the Clyde Distribution Centre. Whilst he was on holidays, a Mr Bakasetas (whose name is spelled in various ways at different places in the evidence) acted in that position. On 31 March 1999 Mr Rich of Yates wrote to Messrs Brockhoff and Bennett of Linfox complaining, saying that he understood that the situation at Clyde that morning was “chaotic”, seeking compensation, and saying:

I cannot overstate the seriousness of this unprofessional conduct from Linfox. Apart from discussing the future relationship between our companies, I assume you will take account of my comments noted above.

73 Mr Bennett reported to Mr Brockhoff and Mr Dixon (a director of Linfox) on 18 April. Amongst other things he said:

Although T. Bakasetas had previously been shown up as inadequate under the pressure of the peak period, it was thought in the less busy period just prior to Easter, he would be able to cope well. Indeed it was considered a bonus that we had the services of this person who was so familiar with the Yates operation and able to provide depth to the management of the site.

The performance of this employee was far worse than anticipated. His employment was terminated. The result of his dereliction of his duty was:

· Delays in the dispatch of some orders.

· Reduced labour costs in the lead up to end of the month.

· Increased overtime in the two days prior to Easter and in the couple of days after.

· Some additional delivery charges on Easter Saturday - $300 at the most …

Putting the matter into perspective, for the two weeks that Gary Frost was absent, the environment at Clyde reverted to the previous Yates culture. As a result, 30 to 50 orders were delayed up to two weeks …

74 I have omitted a good deal of material in which Mr Bennett said, in short, that Yates’ claim was exaggerated and unreliable, and dealt with other topics.

75 In a memo dated 10 December 1999, presumably written in response to a letter of demand sent by Yates to Linfox, Mr Jacob (the National Operations Manager of one of Linfox's divisions) spoke of “the Easter stuffup.”

76 One matter that flowed from this incident and the way that the parties treated it, was that during the course of the trial, Messrs Bennett, Jacob, Frost and Morrow of Linfox accepted that, subject to the availability of stock, it was Linfox’s responsibility as manager of the Clyde Distribution Centre, and later when it was manager of the Mt Druitt Distribution Centre, to make sure that orders for goods placed on Yates by its customers were filled and delivered, on or before the date nominated by the customers’ orders. (In final address, Linfox questioned the breadth of Mr Bennett’s acceptance of this. In the circumstances this hardly matters.) This meant that, unless the customer nominated a later delivery date, each order had to be filled and delivered within 48 hours of receipt, except when the product ordered was out of stock. Further, in cross-examination Mr Jacob accepted that not to fulfil 30 to 50 orders for two weeks would constitute a serious delay that could potentially cause Yates to lose sales and therefore profits. In cross-examination, Mr Frost accepted that the incident indicated a serious failure within the Clyde warehouse.

77 Mr Bennett disputed the proposition, advanced by Yates, that Linfox had dismissed Mr Bakasetas because of this incident. He also questioned the extent to which Mr Bakasetas had been guilty of a “dereliction” of his duty. Again, the evidence does not permit a finding to be made about these matters, but it does not seem to matter. Either Mr Bakasetas was dismissed, or he resigned upon being reprimanded. Mr Jacob agreed in re-examination that Mr Bakasetas was “sacked”. Mr Bennett said that he had only responded to Yates’ claim in a placatory manner in order to keep Yates’ business, and he said that he had done this on the instructions of Mr Brockhoff, who did not give evidence.

78 By the end of April 1999, Linfox personnel were conscious that Yates personnel were unhappy with Linfox’s performance. Mr Pearce advanced a view to other Linfox personnel that Yates might terminate Linfox’s services. Some of the Linfox personnel considered that Yates, particularly through Mr Ballantyne, resented paying Linfox the fees that Linfox was charging Yates, thinking that Yates could do the work (or some of the work) being done by Linfox, for less.

79 Mr Bennett, for his part, wanted at that stage to keep Yates’ business and considered that Linfox needed to change Yates’ perception about Linfox.

80 In the meantime, the proposal that a WMS be introduced had not progressed, as had been anticipated. I will deal later with this topic, which is the subject of considerable contention, but for the moment, it is sufficient to say that by May the project was well in arrears.

81 By May the commercial relationship between Yates and Linfox was tense and strained. In general terms, Yates personnel considered that Linfox personnel were not as efficient as had been expected, and that the cost savings foreshadowed had not been realised. Linfox personnel considered that Mr Ballantyne in particular was trying to save money at the expense of Linfox, and considered that Yates’ claims in respect of the Easter incident were exaggerated. They also questioned the competence of Mr Ballantyne. Later the relationship deteriorated further, with Yates personnel considering that Linfox personnel had not been frank and truthful.

82 At some stage, the date of which is not established, Mr Rich said to Mr Bennett:

83 Then, according to Mr Bennett, Mr Frost provided him with a schedule. Later, on 10 June Mr Bennett wrote to Mr Ballantyne describing Mr Frost as the “Project manager for the relocation”; and later Linfox charged Yates a fee for the relocation.

1176 Mr Sherwood said that it was not his practice to involve himself with details as to the quantities of goods to be ordered (he left it, in this case, to Ms Gocher), but that circumstance does not seem to me to mean that Mr Trevarthan’s account should be regarded as unreliable. Mr Sherwood said that in the first half of 2000 he had negative feelings about Yates’ delivery performance during the second half of 1999, and Ms Gocher said that it was her practice to consider such matters as delivery performance when deciding from whom goods should be purchased. The parties also referred to various statistical material showing what quantities had been purchased by Woolworths by Yates.

1177 It was not suggested to Mr Trevarthan in cross-examination that his account of the conversation was wrong, and I accept him as a truthful and reliable witness. There is a considerable bulk of other material, set out in the written submissions of the parties, that seems to me to generally support his evidence. Woolworths was dissatisfied with Yates’ delivery performance, it was its practice to consider these matters, neither Mr Sherwood nor Ms Gocher said anything inconsistent with Mr Trevarthan’s evidence about this, and the general trend of Woolworths’ business with Yates seems to provide, if not some measure of corroboration for his evidence, at least nothing substantially inconsistent with his evidence. I find that, more probably than not, the conversation took place as he described it.

1178 Yates says that it lost the commercial opportunity to sell $2 million worth of products to Woolworths. Inconsistently with its submissions at other points in the case: [775] and following, Linfox, citing the decision in Sellars at 355 submits that this is a "category 4” claim; that if any damages are to be awarded there needs to be an assessment of the degree of the probabilities or possibilities; and it submits that the lost opportunity had negligible value. This submission leads one into some of the detail of the statistical material just mentioned.

1179 There are two sets of (relevant) figures in evidence, showing the total sales made by Yates to Woolworths in successive years, and with those sales figures divided up into the categories of bulbs, plant food, seeds, merchandise, plant protection and growing media. For the years F 1997 to F 2000 one set of statistics gives total sales figures of $11.215 million, $12.153 million, $12.787 million and $12.264 million, whilst the other set gives figures of $11.215 million, $12.153 million, $12.777 million and $12.213 million. The first set also gives figures for F 2001 and F 2002: $12.697 million and $16.366 million. The second set does not give any figures for these years.

1180 The differences between these two sets of figures ($10,000 in F 1999 and $51,000 in F 2000, out of sales figures exceeding $12 million) do not seem to me to be such as to justify discarding the figures as unreliable. At [809] I referred to the limited evidence that there is exploring differences of this type.

1181 Yates submitted that one could see from the figures a general upwards trend in the sales made to Woolworths, interrupted in F 2000, followed by a relatively modest increase in F 2001, and then a significant increase in F 2002; and it linked this with other evidence pointing generally to its sales to its top ten customers generally increasing at the expense of its sales to its smaller customers (I do not understand it to be suggested that this trend is peculiar to Yates, rather than a general trend towards members of the public who buy garden products buying them from chain stores rather than from nurseries and other small businesses), and to the evidence showing Woolworth’s dissatisfaction with Yates, resulting from the spring 1999 delivery difficulties in particular.

1182 Linfox referred to the figures showing a relative decline in the sales of seeds and bulbs, and to an increase in the sale of merchandise, but, as a reason for not accepting the claim now under consideration, this does not appear to have been raised with any witness.

1183 Linfox referred again to the evidence of Ms Burles about ranging decisions, and to the failure of Yates to tender documents produced upon subpoena, but see [1017] and [845].

1184 One of the group of products the subject of complaints was “Tuscan pots”, mentioned at [871]. There were particular difficulties concerning these, arising in part from the fact that Woolworths ordered a larger quantity of them than it had earlier foreshadowed, and Yates was unable to manufacture sufficient of them in time to meet the orders placed for them. This was a continuing problem for some time, and it was not connected with anything done or omitted by Linfox, but the debate about it does not affect the overall position in any significant way.

1185 I am quite comfortably satisfied that Yates lost a valuable commercial opportunity to sell to Woolworths in spring 2000 more product than it in fact sold, and that Woolworths purchased a smaller quantity of goods from Yates than it would have done, but for the delivery difficulties which Yates encountered in spring 1999 (that is, what I have called the first set of events). The only real difficulty in the end appears to lie in the assessment of the value of that lost opportunity. Finding as I do that Mr Sherwood put the figure of $2 million on the value of the lost sales, I conclude that I should resist any temptation to settle upon any other figure; and I award $665,000 in damages in respect of this claim.

1186 The total amount for damages for lost profits resulting from lost sales during the Second Loss Period is therefore $750,652.

Dynamic Lifter

1187 Yates’ claim for damages for lost profits resulting from lost sales includes claims made in respect of the sales of products consisting of palletised chicken manure, sold under the brand name of Dynamic Lifter. A company called Dynamic Lifter Pty Limited originally dealt with these products, and at some time before 1 July 1998 it became a wholly owned subsidiary of Yates.

1188 Then Mr Ho (Yates’ Chief Financial Officer, and at relevant times a Director and the Secretary of Dynamic Lifter Pty Limited) gave advice to Mr Rich (Yates’ Managing Director) that Mr Rich accepted – that Yates take over from Dynamic Lifter Pty Limited a variety of functions. Thereafter, in the ordinary course of events, Yates rather than Dynamic Lifter Pty Limited purchased all raw materials, employed all personnel, apparently paid for all other outgoings, made all sales of finished products, issued invoices in respect of those sales, and received the proceeds of sale. In the books of both companies, Yates and not Dynamic Lifter Pty Limited was treated as the company doing all these things.

1189 However, at the end of the financial year, by book entries, Yates transferred back to Dynamic Lifter Pty Limited the sales and the gross margin “to justify the carrying of the brand values of $6.6 million in the books of Dynamic Lifter Brands Pty Limited”, another Yates subsidiary. In its income tax returns, Dynamic Lifter Pty Limited treated the sales and resultant profits as its.

1190 Linfox now says that only Dynamic Lifter Pty Limited might sue for any lost profits. It says that only Dynamic Lifter Pty Limited had a legal or beneficial interest in the products sold. It relies upon a report of Mr Ross, in which he referred to various records he had seen, and continued:

I conclude that, although the information provided is not unequivocal, in the Coudert Brothers’ letter the description of the process involved in the production and sale of Dynamic Lifter products, and the recording of that production and those sales, does not confirm with the financial records of DLPL. Rather, those records suggest that it was DLPL, not Yates, which manufactured and sold Dynamic Lifter products.

1191 Coudert Brothers are the solicitors for Yates. “DLPL” refers to Dynamic Lifter Pty Limited.

1192 Mr Ross’s statement is plainly the product of investigative work, and not properly the subject of expert opinion evidence. This statement, made as late as 20 November 2003, demonstrates the unwillingness or inability of Mr Ross, and for that matter of Linfox, to accept the reasoning in Makita or my decision accepting that reasoning, but in any event neither the report nor the submissions notice the fact that it was Yates and not Dynamic Lifter Pty Limited that contracted to sell the Dynamic Lifter brand products, issued invoices for them and received payment for them.

1193 As between Yates and Linfox, it is no defence to Linfox that Yates did not have a legal or beneficial interest or the whole of the beneficial interest in the goods; it was Yates that had bought the ingredients for them and had carried out all manufacturing work on them, Yates that enjoyed possession of them, Yates that sold them, Yates that was entitled to be paid, and Yates that would have been entitled to any profit that came from the transactions; and whether and if so how Yates accounted for the proceeds of sale, whether to Dynamic Lifter Pty Limited or anyone else, is not a matter of defence. Linfox advanced no legal proposition in support of this line of defence, except that Dynamic Lifter Pty Limited owned the goods.

1194 If that view be wrong, Yates advanced a further argument, that it was the undisclosed principal for Dynamic Lifter Pty Limited; and Dynamic Lifter Pty Limited brought a separate action, by way of an alternative claim to Yates’ claim. I need not consider either of these matters, but I should record my view that the failure of Linfox to raise this defensive argument much earlier than it did constituted a breach of the provisions of Part 15, Rule 13 (1) (b), particularly when that rule is read together with Part 1, Rule 3. See also White v Overland [2001] FCA 1333, 4.

The result

1195 I raised with the parties the question whether there should be judgment for Linfox on its claim and a judgment for Yates on its cross-claim, assuming then that Yates succeeded on the cross-claim, or a single judgment for the relevant party for the sums awarded on their respective claims as envisaged by s91 of the Supreme Court Act. Linfox submitted that the former should be the position and Yates said nothing by way of opposition. I will therefore give judgment for the plaintiff against the defendant for the agreed sum of $475,000, and interest. The parties agreed that interest should run from 1 October 1999, being the approximate mid point in the range of dates from which the debts were payable. I assess interest pursuant to the provisions of s 94 of the Supreme Court Act at the rates specified in Schedule J to the Rules, a total of $706,917.

1196 On the cross-claim I give judgment for the cross-claimant for $3,244,869 and interest, assessed pursuant to the same provisions. I calculate that interest as from 1 October 1999, being the approximate mid point in the range of dates when the damages were incurred, with two exceptions. As to the damages sustained in the Second Loss Period, interest will run from 1 October , 2000, being once again the approximate mid point of the period during which those damages were sustained. As to the money payable in respect of the Clyde racking, interest will run from 21 January 2000.

The amount of $3,244,869 is made up as follows:

Clyde Racking $ 57,131

First Loss Period $1,620,168

Second Loss Period $ 750,652

Travel and Accommodation $ 25,871

Outside Storage $ 8,494

Additional Labour $ 71,105

Stock Loss $ 570,076

Big W $ 100,000

Coles $ 41,372

Total: $3,244,869

Other matters

1197 It might be that I ought to refer to the Legal Services Commission for consideration by him the question whether one or more of Mr Simon K Wilson QC, Mr Gerard Meehan of counsel or Ms Janet Whiting of Corrs Chambers Westgarth, Solicitors, Melbourne has been guilty of professional misconduct or unsatisfactory professional conduct in relation to the conduct of the proceedings generally, and in particular in relation to the undue prolongation of the trial, the incurring of unnecessary or inappropriate costs, the drafting of affidavits, or the making of submissions not justified by the evidence or by other circumstances.

1198 It might also be that I ought to make an order disallowing some parts of the costs of one or more of these three people, pursuant to the provisions of Part 52A rule 43 or 43A.

1199 I do not express any view at this stage, and without seeking to distinguish now between these two topics, which may overlap, I draw attention to what I have set out above, particularly at paras 102, 185, 186, 191, 193, 216, 229, 337, 349, 364 to 366, 372, 418, 434 to 443, 557, 597, 617, 645 to 647, 715, 716, 808, 813, 817, 883, 922, 950, 981, 995, 1019, 1026, 1039, 1040, 1070 and 1079.

1200 Without going through them, I also refer to the submissions made by Yates criticising submissions made by Linfox as not being appropriately based, and concerning Yates’ foreshadowed application for indemnity costs.

1201 It might be that the principal point of concern will relate not to particular aspects of the conduct of the lawyers in question, but whether there is some general pattern of conduct to be discerned.

1202 I take it that it goes without saying that lawyers are not only entitled, but often obliged to put their clients’ cases forcefully and if appropriate pungently; and that courts are entitled to reject the evidence of a witness in appropriate circumstances, notwithstanding that the witness has not been cross-examined, either in whole or in part about matters referred to in address. The question might be whether, in relation to the first topic, the lawyers I have mentioned went too far.

Judgments and orders

1203 In proceeding No 50125/2000 I give judgment for the plaintiff against the defendant for $706,917 and judgment for the cross-claimant against the cross-defendant for $4,983,218. I grant liberty to either party to apply if any question arises about the calculation of interest.

1204 In proceeding No.50112/2003 I give judgment for the defendant.

1205 In each case I direct Yates and Dynamic Lifter Pty Limited to amend their pleadings, so as to conform with these reasons for judgment, and I invite submissions as to costs. A good deal has already been foreshadowed about costs, but it might be more helpful if the parties now make submissions based upon the above findings of fact and/or specific references to the evidence.

1206 I direct Mr Simon K Wilson QC, Mr Gerard L Meehan of Counsel and Ms Janet Whiting of Corrs Chambers Westgarth, Solicitors, Melbourne to show cause why I should not refer to the Legal Services Commissioner for his consideration the question whether one or more of them have been guilty of professional misconduct or unsatisfactory legal conduct, and the further question whether I should make an order disallowing some part of the costs charged by them. When I deliver these reasons for judgment will fix a date for a directions hearing in respect of these matters.

I certify that paragraphs 1 -1206
are a true copy of the reasons
for judgment herein of
the Hon. Acting Justice Brownie
given on Thursday 21October 2004

___________________
Susan Piggott
Associate

21 October 2004

PEOPLE, PRODUCTS AND ABBREVIATIONS

Ahearn, Richard Project manager employed by Maincon

AIW Australian Independent Wholesalers, a wholesaler, and a customer of Yates

Bakasetas, Theo Employed by Linfox to manage the Clyde warehouse for a time

Ballantyne, John Yates’ logistics manager in 1999

Barrett, Paul A business manager employed by Big W

Bayer A manufacturer, and supplier to Yates

Bennett, Paul Manager of Linfox’s Industrial Division

Boehm, Geoff A major accounts manager for Yates, responsible for the Coles, K-Mart, Danks and Mitre 10 accounts

Brabant, Warren An officer of Yates in New Zealand

Brockhoff, Michael Managing director of Linfox

Brunnings A competitor of Yates

Bunnings A retailer, a customer of Yates

Burles, Tania A major accounts manager for Yates, responsible for the Woolworths, Big W, BBC and Davids accounts

Carroll, Selwyn Employee of Yates

Carmody, Colin Construction manager for Pallet Racking Supply Co

Carty, John Managing director of GreenGold

Case, Bill Employee of Dexion

Chia A brand name for clay pots sold by Yates

CLS Carton life storage

Coles A customer of Yates

Danks A wholesale hardware business, a customer of Yates

DataTracker A computer software program used by Yates

Davids Davids Holdings, a customer of Yates

DC Distribution centre

Dexion Supplier of racking components

DIR Document incident report

Dixon, John A director of Linfox

Dynamic Lifter A fertiliser (palletised chicken manure) sold by Yates

EDI Electronic data interface: a system whereby the computer of Yates interfaces with the computers of certain of its customers, so that those customers can place orders for goods electronically.

EXE Technologies An entity that distributed a brand of WMS called Exceed, sometimes called EXE. In the evidence, sometimes the expression EXE refers to the entity and sometimes to the product.

F and a number The financial year ending 30 June for that year. For example, F2000 means the financial year ending 30 June 2000

Flower Power A group of retailers, customers of Yates

Fox, Peter Chairman of Linfox

Frost, Gary Employed by Linfox as project manager, in relation to the move to Mount Druitt

Garland, Peter Yates’ IT manager

Garden Claw A digging tool sold by Yates

Gocher, Cassandra A Woolworths buyer

GreenGold A group of garden centre retailers, customers of Yates

Gro-Plus A packaged fertiliser sold by Yates

Hansen, Peter A marketing analyst employed by Yates

Hartley, Peter An accountant employed by Yates

Higgins, Michael Employed by Linfox as shift supervisor; at the commencement of the move, he was in charge of despatching product from Clyde to Mr Druitt

Humphreys, David Yates’ Western Australia Sales Manager

IOR Incomplete order reports

Iwaszkiewicz, Peter Employed by Yates as demand manager in logistics department

Jackson, Eileen Yates’ Queensland sales manager

Jacob, Ross Employed by Linfox as (divisional) national operations manager

Johns, Geoff A buyer for Coles

Kowal, Victor Assistant to Gerry Ward, a buyer for Big W

Maincon Holdings Maincon Holdings Pty Ltd, lessor to Yates of the Mount Druitt property

Maincon Maincon Pty Ltd, builder of the Mount Druitt warehouse

Malloch, Gavin Yates’ Southern Region Sales Manager

McClintock, Steve An accountant, an expert witness for Yates

Mercier A computer software package used by Yates for forecasting

Mitre 10 A customer of Yates

Moore, Ben A clerk employed by Yates to organise delivery runs etc from August – October 1999

Moore, Helen Yates’ NSW Sales Manager

Morrow, Rohan Employed by Linfox as project co-ordinator; at the time of the move, subject to the direction of Mr Frost, he was in charge of receiving product into the Mt Druitt warehouse, and putting it away

Pagacs, John Yates’ production and manufacturing manager

Pearce, Mark Employed by Linfox as (divisional) project manager

Prince, Robert The general manager of Yates’ customer services division at one time

PRMS A proprietary computer software system used by Yates. Perhaps the letters stand for Production, Resources Management System

Rast Bros A partnership, conducting a nursery business, a customer of Yates

RF Radio frequency

Rich, Greg Managing director of Yates in 1999

Ross, Andrew An accountant, an expert witness for Linfox

Sherwood, Warwick Woolworths buyer

SKU Stock keeping unit

Southwell, Geoffrey Employed by Linfox as general manager of its IT division

Tam, Brian Employed by Yates as system development officer, responsible for dealing with computer hardware and software issues

Thompson, Bill Planning manager of Yates

Thompson, Ian General manager of Yates until May 1999

Ti-hi The maximum height of a loaded pallet

Toomey, Jason IT system manager for Linfox

Trevarthan, Peter General manager of Yates’ national sales and marketing division

Tuscan The brand name of a range of products, such as pots, sold by Yates

Vary Linfox in-house lawyer, and director of Linfox (according to bundle used to xx mp)

Viney, Bruce National merchandise manager for Coles

Ward, Gerry A buyer for Big W

Webb, Adam General manager of Pallet Racking Supply Co

Whitehead, Peter A director of Greengold, and a partner in Rast Bros

Wiener, Michael Representative of Zandean

Wilkinson, Grant Employee of Maincon

Wilkinson, Ken A Yates employee: in spring 1999 he “prioritised” orders for deliveries from Mt Druitt

Wise, Andrew Managing director of Clyde warehouse

Zandean Pty Ltd, owner of the warehouse at Clyde

Last Modified: 10/21/2004

CITATION:	Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Ltd; Dynamic Lifter Pty Ltd v Linfox Transport (Aust) Pty Ltd [2004] NSWSC 943
HEARING DATE(S):	3 /11/2002 - 18/2/2004
JUDGMENT DATE:	21 October 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Brownie AJ
DECISION:	In proceeding No 50125/2000 I give judgment for the plaintiff against the defendant for $706,917 and judgment for the cross-claimant against the cross-defendant for $4,983,218. In proceeding No.50112/2003 I give judgment for the defendant.
CATCHWORDS:	A claim by Linfox against Yates was compromised during the hearing. Yates brought a cross-claim against Linfox, essentially for breach of a contract to project manager a move from one Yates warehouse to another. The contract had been made informally. Several questions were litigated, and resolved in accordance with established principles, concerning the terms of the contract. - Illegality: Linfox said that Yates' claim for damages was defeated because it involved the occupation and use of a new building, without an occupation certificate, in breach of s109 M (i) of the Environmental Planning and Assessment Act 1979. Defence rejected. - Practice and Procedure: In an action in contract, as in an action in negligence, it may be appropriate to direct a party to amend its pleadings, so as to reflect the issues litigated. - Evidence: inferences to be drawn from the failure to call a witness - no inference if the evidence would go only to questions about credit. - Damages: held that certain claims in respect of lost sales to hypothetical questions, to be assessed not on the balance of probabilities, but upon an assessment of the probabilities. - Damages: it is not an essential ingredient to a claim for loss of profits on the sale of goods that the claimant owns the goods. - Legal Practitioners: Directions given about possible misconduct and possible costs orders.
LEGISLATION CITED:	Corporations Act 2001 (Cth) Environmental Planning and Assessment Act 1979 Evidence Act 1997 Insurance Contracts Act 1984 (Cth) Supreme Court Act 1970 (NSW) Trade Practices Act
CASES CITED:	Alexander v Cambridge Credit Corporation Limited (1987) 9 NSWLR 310 Allen v Tobias (1958) 98 CLR 367 Allied Maples Group Limited v Simmons & Simmons [1995] 1 WLR 1602 Armory v Delamirie (1722) 1 Stra 505, 93 ER 664 Babcock International Ltd v Babcock Australia Ltd [2003] NSWCA 6; 56 NSWLR 51 Biggin & Co Limited v Permanite Limited [1951] 1 KB 422 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Browne v Dunn (1893) 6 R 67 Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 Commercial Union Assurance Company of Australia Limited v Ferrcom Pty Limited & Anor (1991) 22 NSWLR 389 Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64 Davies v Taylor [1974] AC 207 Fink v Fink (1946) 74 CLR 127 Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 Hawkins v Clayton (1988) 164 CLR 539 Henville v Walker (2001) 206 CLR 459 Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120 Houghton v Immer (No 155) Pty Limited (1997) 44 NSWLR 46 I & L Securities Pty Limited v HTW Valuers (Brisbane) Limited (2002) 210 CLR 109 Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd [2001] NSWCA 111 Insurance Commissioner v Joyce (1948) 77 CLR 39 Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (1988) 5 BPR 11,110 Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 L J P Investments Pty Limited v Howard Chia Investments Pty Limited (No 2) (1990) 24 NSWLR 499 Makita (Australia) Pty Limited v Sprowles (2001) 52 NSWLR 705 Malec v JC Hutton Pty Limited (1990) 169 CLR 638 Maloney v Commissioner for Railways (NSW) (1978) 52 ALJR 292 March v E & M H Stramare Pty Limited (1991) 171 CLR 506 Mummery v Irvings Pty Ltd (1956) 96 CLR 99 Murphy v Overton Investments Pty Limited (2004) 78 ALJR 324 Nelson v Nelson (1995) 184 CLR 538 Nilon v Bezzina [1988] 2 Qd R 420 Ophelia, The [1916] 2 AC 206 Payne v Parker [1976] 1 NSWLR 191 Placer (Granny Smith) Pty Limited v Thiess Contractors Pty Limited (2003) 77 ALJR 768 Poseidon Limited & Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Ratcliffe v Evans [1892] 2 QB 524 Richardson v Mellish Robinson v Harman (1848) 1 Exch 850; 154 ER 363 Sabag v Health Care Complaints Commission [2001] NSWCA 411 Shorey v P T Limited (2003) 197 ALR 410 Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 SS Pharmaceutical Company Ltd v Qantas Airways Ltd [1991] 1 Lloyd's Rep 288 State of New South Wales v Moss (2000) 54 NSWLR 536 Water Board v Moustakas (1988) 180 CLR 491 Watts v Rake (1960) 108 CLR 158 White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 White v Overland [2001] FCA 1333
PARTIES :	Linfox Transport (Aust) Pty Ltd (Plaintiff in 50125/2000, Defendant in 50112/2003) Arthur Yates & Co Ltd (Defendant in 50125/2000) Dynamic Lifter Pty Ltd (Plaintiff in 50112/2003)
FILE NUMBER(S):	SC 50125/2000; 50112/2003
COUNSEL:	Mr SK Wilson QC, Mr GL Meehan (Plaintiff in 50125/2000, Defendant in 50112/2003) Mr RM Smith SC, Mr NJ Kidd (Defendant in 50125/2000, Plaintiff in 50112/2003)
SOLICITORS:	Corrs Chambers Westgarth (Plaintiff in 50125/2000, Defendant in 50112/2003) Coudert Brothers (Defendant in 50125/2000, Plaintiff in 50112/2003)