Loughnan (Principal Registrar, Family Court of Australia) v Altman

Re: CASLEC INDUSTRIES PTY LTD
And: WINDHOVER DATA SYSTEMS PTY LTD and DAVID JAMES ANDERSON
No. N G627 of 1990
FED No. 580
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Gummow J.(1)

CATCHWORDS

Trade Practices - Contract for supply of computer software - implied warranty - breach - measure of damages - misleading conduct - aiding and abetting contravention - Trade Practices Act 1974 - ss. 52, 74, 75B, 82.

Trade Practices Act 1974

Yorke v Lucas (1985) 158 CLR 661

ASX Operations Pty Ltd v Pont Data (Australia) Pty Ltd (No. 1) (1990) 27 FCR 460 at 468

E v Australian Red Cross Society (1991) 27 FCR 310 at 352, applied.

HEARING

SYDNEY

#DATE 13:8:1992

Counsel and solicitors for the applicant: Mr T.J. Hancock and Mr M. Zammit

instructed by Fred A. and John F. Newnham

Counsel and solicitors for the respondents: Mr M.C. Hines instructed by
(on 7, 8, 25, 26 May 1992) Fernon and Ludescher

ORDER

THE COURT ORDERS THAT:

The proceedings stand over to a time to be fixed for the bringing in of Short Minutes of Order to give effect to the Reasons for Judgment delivered today.

JUDGE1

The applicant ("Caslec") is trustee of a "trading trust". It carries on business as an electrical contractor which specialises in industrial and commercial installations, breakdown services, and data and telecommunications cabling and services. Caslec was incorporated in 1985 and its directors are Mr B R Cassidy and Mrs Cassidy. Mr Cassidy is General Manager of Caslec and the moving spirit of its business. The principal place of business of Caslec is at Fairfield, an outer suburb of Sydney. At the time of the events with which this litigation is concerned Caslec employed some 25 persons, of whom about 8 were qualified electricians and 4 apprentices.

In 1986 Caslec used a manual system to record its labour and material costs and to render invoices to its customers. Mr Cassidy found the system tedious and time consuming. Management accounts, profit and loss reports, creditors and debtors information and the general ledger were produced with the use of a Diablo 3200 computer. This was about 10 years old and in 1986 was developing serious mechanical faults, as well as being an obsolete system.
Accordingly Mr Cassidy commenced to look for a computer system which would be capable of taking over the functions of the manual system and integrating it with a modern accounting and invoicing system.
In this litigation, Caslec seeks to recover what it alleges are damages suffered by it following its entry into contracts with the first respondent ("Windhover") for the supply of a computer software system ("the Software Agreement") and for the provision of maintenance of that system and of the software ("the Maintenance Agreement"). The software system supplied under the Software Agreement comprised: -

(i) SCO Xenix operating system,

(ii) PROMIS, and

(iii) SERVICE.

PROMIS is an integrated project management system and SERVICE is an integrated service management and accounting system for use by organisations providing contract maintenance services. Both PROMIS and SERVICE were written in a computer language called DBL. This is a version of COBOL which was developed by Digital Equipment Corp Inc. SERVICE was developed by Windhover in 1985/86. PROMIS was designed at Windhover several years earlier, to assist a construction company to monitor costs of a building project.
At the trial Mr Peter Ferdinand was called by Caslec but in late 1985 and early 1987 he had been employed by Windhover and had worked on the adaptation and modification of both programs to enable them to run under another multi-user operator system called Xenix. Xenix is a version of an operating system called UNIX. This is a complicated operating system permitting the same application program to be run on different types of computers. Mr Ferdinand holds the degree of Bachelor of Applied Science in Computing. He graduated in 1983.
The contracts had been preceded by lengthy negotiations initiated in the last quarter of 1986. Both sides agree that the Software Agreement was partly written and partly oral and that it was concluded by late March 1988. But they disagree as to some of the essential terms. The Maintenance Agreement was a standard form written contract. It was executed by Caslec on 6 December 1988 and by Windhover on 17 December 1988.
The hardware, a Cleveland 80386 computer, was purchased by Caslec from Mitsui Computer Limited ("Mitsui"). The hardware, with the software system installed, was delivered to the premises of Caslec in October 1988. Mr Peter Fox, a computer programmer who has been employed by Windhover for some twelve years, gave evidence as to the installation of the operating software upon Caslec's hardware. He said there were difficulties with hardware supplied by Mitsui. But by October 1988 he was satisfied that the hardware was working correctly and reliably and as a result of reaching that stage of satisfaction with the hardware he went ahead with the installation of the software. When the system was delivered to Caslec everything appeared to be functioning satisfactorily. Caslec paid Windhover $24,481.40, upon an invoice dated 28 October 1988. The items in the invoice included $7,500 "To supply of Service System", $6,562 "To supply of . . . Promis System", $1,455 "To supply of . . . SCO Xenix License", and $3,000 "To supply of. . . Interim Invoicing Software in Promis."
The software system was abandoned by Caslec in April 1990 and it purchased another system from Micronet Systems Pty Ltd. The Mitsui hardware remains at Caslec's premises. Windhover contends that the significant problems experienced by Caslec stemmed not from the software it supplied but from the Mitsui hardware which Windhover says was acquired by Caslec on its initiative.
However, in his oral evidence, which I accept, Mr Ferdinand said he believed that the serious corruption in the data files which he observed during a visit to Caslec in April 1989 had been brought about by errors in certain of the programs installed in the PROMIS and SERVICE modules. The records of Mitsui show that it received a number of service calls from Caslec after October 1988. The Cleveland computer was brought into Mitsui's premises in mid 1989. The hard disk was examined by Mr Udovicic, Mitsui's New South Wales Field Service Manager, Engineering Division. His recollection, which I accept, is that the hard disk was functioning correctly but was making a whistling noise which required lubrication of the spindle. This need for lubrication did not affect the performance of the hard disk and could not have affected the operating system or applications software.
The second respondent, Mr Anderson, has been a director of Windhover since 1980. Windhover carried on business of installing and maintaining computer software systems, both bespoke and packaged. Its principal place of business at the time of the events with which this litigation is concerned, was at East Kew, a suburb of Melbourne.
Three members of the Windhover professional staff, Mr Avigdor Feiglin, Mr Bernard O'Dwyer, and Mr Ferdinand were responsible for the development and maintenance of programs in the DBL language. Mr Feiglin led the group. The three of them were authorised by Windhover to deal with its customers for the SERVICE and PROMIS products. Mr Anderson relied upon them to demonstrate the system to potential customers. Mr Ferdinand was employed by Windhover between March 1984 and February 1987 and then between January 1988 until his resignation in December 1989. Mr O'Dwyer left Windhover's employment in mid 1988. Mr Feiglin left in late August or early September 1988. (Neither Mr O'Dwyer nor Mr Feiglin was called at the trial.) Mr Ferdinand thereafter remained as the sole member of the DBL group. At that time Windhover had about 20 customers who were using PROMIS and SERVICE. Mr Ferdinand was responsible for providing service to them, but now lacked anyone to assist him. Mr Anderson did not become personally involved with Caslec's problems until the latter part of 1989.
In the amended statement of claim, Caslec alleges the following causes of action against Windhover:-

(i) breach of certain terms of the Software Agreement,

(ii) breach of certain terms of the Maintenance Agreement,

(iii) breach of conditions and warranties implied by ss. 70, 71 and 74 of the Trade Practices Act 1974 ("the TP Act),

(iv) contravention of ss. 74B, 74C, 74D, 74F and 74G of the TP Act,

(v) contraventions of s. 52 of the TP Act, resulting from certain misrepresentations, for some of which to attract s. 52, reliance is necessary upon s. 51A of the TP Act,

(vi) contraventions of paras. (a), (aa), (c) and (ea) of s. 53 of the TP Act, again with some reliance upon s. 51A, and

(vii) contraventions (so it would seem from the terms of para. 22(6) of the amended statement of claim filed 26 May 1992) of ss. 55 and 55A of the TP Act, again with some reliance upon s. 51A.

It will become apparent that the primary sources of obligation by Windhover to Caslec are to be found in breaches of express contractual terms and of the warranty implied by sub-s. 74(2) of the TP Act. In address, counsel for Caslec indicated the preferable basis for assessment of damages against Windhover was contractual rather than tortious. No submissions were made upon ss. 74B, 74C, 74D, 74F or 74G and it is unnecessary to deal with these claims.
Against the second respondent, Mr Anderson, the allegation is that pursuant to ss. 82 and 75B of the TP Act he is liable in damages to Caslec because (a) he aided, abetted, counselled or procured the contraventions by Windhover of ss. 52, 53, 55 and 55A which are listed above, and (b) was directly or indirectly knowingly concerned in or party to those contraventions by Windhover.
As regards the alleged liability of Mr Anderson, the parties accepted that it followed from Yorke v Lucas (1985) 158 CLR 661 that

(i) it would have to be shown that he intentionally aided, abetted, counselled or procured the contravention and that to form the necessary intent he must have had knowledge of the essential matters which made up the contravention whether or not he knew that those matters amounted to a contravention, and

(ii) before he could be said to have been a party to a

contravention he must have been an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.

In Yorke v Lucas, at 666-667, the High Court pointed out that the phrase "aided, abetted, counselled, or procured" was taken from the criminal law where it is used to designate participation in a crime as a principal in the second degree or as an accessory before the fact. The Court concluded that notwithstanding that s. 75B operates as an adjunct to the imposition of civil liability, there is nothing to support the view that the concepts involved should be given a new or special meaning which differs from their derivation in criminal law. The respondent in question was not liable for damages under s. 82 because he was insufficiently aware of the relevant facts for him to be involved in the contraventions by the corporate party.

I should indicate now that whatever the outcome of the claims made against Windhover of contravention of ss. 52, 53, 55 and 55A, Caslec has not brought Mr Anderson within the reach of s. 75B of the TP Act and that the claims against him must fail.
In his final address, counsel for Mr Anderson stressed that it had not been put to his client that he had done anything dishonest or had consciously attempted to mislead Caslec. In para. 17 of the Amended Statement of Claim it is alleged that before entry into the Software Agreement, in late March 1988, Windhover represented to Caslec that an interim invoicing facility for use with SERVICE could be provided and that it would work well with SERVICE. In a pre-contractual conversation on 9 March 1988, and in response to Mr Cassidy's comments as to the importance of interim invoicing Mr Anderson said "we can fix that, we can attend to that." It was not put to Mr Anderson that he did not then have reasonable grounds for making that statement. To the contrary, and as I later explain, for a time after the entry of Caslec and Windhover into the Software Agreement, Mr O'Dwyer was engaged in modifying SERVICE to meet Caslec's requirements.
The principal witnesses were Mr Cassidy and Mr Anderson. The trial extended over seven days. The respondents had legal representation up until the eve of the trial. For the first three days of the trial Mr Anderson appeared for himself and, by leave, for Windhover. The respondents then appeared by solicitors and counsel for the remainder of the trial.
Oral evidence was given also by Mr Ferdinand, Dr M B McGirr (a computer consultant), Mr R J Brewer (another expert), Mr Peter Fox, Mrs D A Dillon (an accounts administrator at Caslec), Mr R M S Quant (a chartered accountant who acts for Caslec and Mr Cassidy), and Mr P B Saunders (a contractor systems specialist).
All these witnesses were called by Caslec, save for Mr Brewer and Mr Fox who were called by the respondents. With regard to these witnesses, including Mr Cassidy and Mr Anderson no issue of credit arises. All endeavoured to assist the Court to the best of their recollection, although, as one might expect, recollections varied in some respects.
I turn to consider the essential express terms of the Software Agreement. I accept Caslec's submissions that these were (a) that Windhover would license Caslec to use the PROMIS and SERVICE computer software programs as well as some general accounting programs, (b) Windhover would license Caslec to use the computer operating system programs called XENIX, (c) Windhover would install the software on Caslec's computer hardware and would train Caslec's employees in its use. I also accept that the essential terms of the Software Agreement are to be found in conversations in Melbourne on 22 February 1988 and by telephone on 9 March 1988, and in the purchase order dated 25 March 1988, with Windhover's written response by letter dated 29 March 1988.
Caslec contends that there was an additional essential term that Windhover would modify the SERVICE program to enable Caslec to render interim invoices for service jobs. This is important because, on the issue of breach, Caslec contends that SERVICE had no ability to render interim invoices and that there was no menu item for this on the screen. On the other hand, the respondents contend that the interim invoicing was to be provided for only in the PROMIS program.
The Windhover invoice dated 28 October 1988, to which I have earlier referred, contains the item "Interim Invoicing Software in Promis $3,000". However, in his oral evidence Mr Anderson agreed there is no other material which mentioned interim invoicing in relation to PROMIS rather than SERVICE. Further, Mr Cassidy was not challenged in his evidence that when the software was delivered to Caslec in October 1988 he raised with Mr Ferdinand the entry on the invoice, stating that interim invoicing was shown as being in PROMIS where as it should have been in SERVICE. He accepted Mr Ferdinand's explanation that it was a typing error. Mr Ferdinand was called by Caslec. He was not cross-examined on this topic. Mr Cassidy was cross-examined upon it but it was not put to him that his account of events was wrong.
Further, Windhover's second written proposal issued to Caslec under cover of a letter dated 22 September 1987, at pages 47-49 had dealt with interim invoicing modifications to the SERVICE package. On 22 February 1988 Mr Cassidy and Mr Quant went to a meeting at the premises of Windhover in Melbourne. They met Mr Feiglin and Mr O'Dwyer. Mr Cassidy said he was not happy with the interim invoicing facility referred to in the revised proposal of 22 September 1987. A discussion followed in the course of which Mr Cassidy said: -

"I would not buy the program unless you provide interim invoicing in SERVICE."

He was told by either or both Messrs O'Dwyer and Feiglin that there would be no problems with that. On 9 March 1988 Mr Cassidy was telephoned by Mr Anderson. I have already referred to part of this conversation. Mr Cassidy reiterated that the interim invoicing in SERVICE as detailed in the second proposal was unsatisfactory. Asked whether he was going ahead with the purchase, Mr Cassidy said that he probably would but this would depend upon interim invoicing and the cost. Mr Anderson said he doubted if it would cost more than $5,000. On 25 March 1988 Mr O'Dwyer sent a fax message to Mr Cassidy responding to various questions posed to him by Mr Cassidy earlier that day. The fax included the statement that interim invoicing software was available at $3,000 (excluding sales tax). In the purchase order then placed by letter dated 25 March 1988 from Caslec to Windhover, the figure of $3,000 appears opposite "interim invoicing software".

Before he left his employment with Caslec in mid 1988 Mr O'Dwyer had been working on SERVICE, making modifications to meet the requirement of Caslec. However, no one at Windhover continued with that work after Mr O'Dwyer left.
I accept the submission by Caslec that one of the essential express terms of the Software Agreement was that Windhover would modify the SERVICE program to enable Caslec to render interim invoices. I will consider the question of implied terms later in these reasons.
The Maintenance Agreement obliged Windhover to provide continuing support to Caslec by way of advice and guidance, attention to reasonable enquires by Caslec and the provision of upgrades and enhancements to the software. Clause 5(a) obliged Windhover to maintain two copies of all relevant source code, one of which was to be kept "off site". Clause 5(e) obliged Windhover to respond to Caslec's enquires "within a maximum of four hours."
In address it was submitted for Caslec that Windhover had breached the first of these provisions. But Caslec's counsel said that a great deal would not turn upon it. No evidence was pointed to as bearing upon the issue. There was evidence of breach of the second provision. However, counsel for Windhover relied upon cl. 6 which states: -

"Windhover shall have no liability to (Caslec) or any other party for any general, special or consequential damages resulting from its actions or failure to act beyond the extent of one month's maintenance fees".

The maintenance fee was $200 per month. Accordingly, the computation of substantial damages put forward in address by counsel for Caslec was directed to the consequences of breaches of the Software Agreement and the relevant statutory warranties.

During the time between November 1989 and the abandonment of the system by Caslec in April 1990, Caslec alleges that it encountered certain difficulties using PROMIS, SERVICE and their associated financial programs. The evidence which was given in considerable detail supports findings of a series of difficulties: -

(1) Interim invoicing

SERVICE had no capacity to render an interim invoice. There was no menu item for this on the screen. The aberrations that resulted included the creation of two job files and the generation of two invoices for the same job.

(2) Double invoicing in SERVICE

Once the invoice had been rendered a job in SERVICE was supposedly complete and should have disappeared from the system. However, the version of SERVICE supplied to Caslec maintained the job file after invoicing thereby effectively creating a second job with the same number. The result was that the same job could be inadvertently invoiced twice. All invoices were typed manually by Caslec's staff until the Micronet system was introduced in 1990.

(3) Accounts Receivable

A record of payment would be entered into the computer by Caslec's operators upon payment of an account, but if the payment was for an amount with a four digit number of a higher number, the computer would drop the first digit.

(4) Aged trial balance and year-to-date balances When debtors' invoice amounts were entered and the menu option "Display Aged Grand Totals" had been selected, the screen display would show "nil" for those invoices. Whilst this problem eventually was rectified, Caslec was never able to obtain a year-to-date balance.

(5) "Fatal error" messages

This problem still existed in April 1990. The evidence shows that there were many faults that generated the message "Fatal Error". It appeared on the screen followed by a description of the error; automatically the program then in operation would terminate and the computer would return to the "Log-in" menu.

(6) "CLEAR STATUS FILE FLAG" messages

The program in use would terminate without warning and the message would be displayed "CLEAR FILE STATUS FLAGS". The Caslec operators then had to enter and use commands in XENIX to reset the file.

(7) Printing sticky labels, invoices and statements. The manuals and brochures supplied to Caslec indicated that the system had the ability to print sticky labels. This function would not work. A special computer print job file first had to be created before invoices and statements could be printed. After modifications the printing of invoices only was possible.

(8) Unpredictable errors and corruption

When the system was first used by Caslec early in November 1988 unpredictable and random errors appeared both in the operation of the programs and in the data files, on such a scale that the system was returned to Windhover on 18 November 1988. It was returned to Caslec on 1 December 1988. Difficulties persisted. Early in April 1989 Mr Ferdinand came to Sydney and tested the system. He told Mr Cassidy that the system was badly corrupted and it would have to go back to Melbourne so that the software could be reloaded. This then happened and the system was not returned and available to Caslec until June 1989.

(9) INIT program

Some data entered in SERVICE would not appear in the general ledger. Rather a message would appear on the screen that the account for which the transaction should be recorded was not known. In August 1989 Mr Ferdinand instructed Caslec's operators to run a program called INIT. This solved the problem but INIT had not been mentioned in the manuals.

(10) Rogue creditor entries

The software automatically allocated voucher numbers to the suppliers' invoices. However, voucher numbers would be duplicated, thus causing invoices to be entered twice and effectively double charging Caslec. This difficulty was still continuing early in 1990.

(11) Manuals

The manuals for the software were out of date. I have referred to the absence of the INIT program. Also General Ledger Period Maintenance, a procedure for allocating a code to a particular month, was not referred to. There was no operations manual dealing with the practical management of the system in daily operation, such as loading of data files, the meaning of error messages and other management procedures.

(12) Variable charge-out rates

SERVICE only permitted one employee classification. It ignored references to other classifications. However, in the electrical contracting industry it is normal practice to charge different labour rates for tradesmen of varying skills. Complaints about this deficiency were made by Mr Cassidy to Mr Ferdinand in September 1989 and continued in February 1990.

(13) Communications with Windhover

Communication by Caslec's staff with officers of Windhover was difficult from December 1988. Windhover operated a so-called software support system under which customers were able to talk to service staff at Windhover for a limited period after the installation of their systems. Thereafter customers were directed to deal with Windhover by fax. After the end of December 1988 Windhover required most communications to it from Caslec to be by fax. Windhover's response time to Caslec's faxes was slow.

In October 1988 Caslec purchased a Netcomm Smartmodem for use with the Windhover system and until October 1989 this modem was connected to the Mitsui computer on which the PROMIS and SERVICE software was installed. In this period Caslec received complaints from Windhover that the modem did not work. A modem is a device which encodes data for transmission over telephone lines and enables computers to communicate by telephone.
Caslec purchased a new Quadcraft modem from Windhover in April 1989. This worked without complaint until November 1989. Problems then arose which, on the evidence, lay more at Windhover's than Caslec's end.
By February 1990 the accounting system was substantially operating but major problems remained with SERVICE and PROMIS. These were lack of interim invoicing, lack of ability to make variable charge-outs, and rogue invoices. Further, the system was still unstable, for example, file flag status errors still occurred.
There was some debate in submissions as to whether the primary implied warranty upon which Caslec relied was that set out in sub-s. 71(2) or sub-s. 74(2) of the TP Act. The former deals with the supplies of goods to a consumer and the latter with supplies of services to a consumer. It is clear that, given the price charged by Windhover did not exceed the prescribed amount mentioned in s. 4B of the TP Act, that Caslec acquired the goods or services as a consumer. But was it supplied by Windhover with "goods"?
This term is defined in sub-s. 4(1) as including, inter alia, "gas and electricity". Counsel for Caslec stresses that in object code form software exists as electrical impulses recorded on magnetic media. But he accepts that, consistently with what was said in the Full Court in ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No. 1) (1990) 27 FCR 460 at 468, the sale of software should not be treated relevantly as a sale of goods. In address, it appeared that Caslec's preferred position was that the essence of the contract between Caslec and Windhover was for an "off the shelf" software package with incidental services of staff training and enhancement of the SERVICE package to provide for interim invoicing.
Looked at in this way, and it is correct to do so, the appropriate implied warranty is that in sub-s. 74(2). This states: -
"74(2) Where a corporation supplies services (other than services

of a professional nature provided by a qualified architect or engineer) to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation any particular purpose for which the services are required or the result that he desires the services to achieve, there is an implied warranty that the services supplied under the contract for the supply of the services and any materials supplied in connextion with those services will be reasonably fit for that purpose or are of such a nature and quality that they might reasonably be expected to achieve that result, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him to rely, on the corporation's skill or judgment."

The first question that arises is whether Caslec expressly or by implication made known to Windhover any particular purpose for which the services were required or the result which Caslec desired the services to achieve.
It is conceded on the pleading that at all material times the respondents were aware that Caslec was an electrical contracting company. A detailed proposal and revised proposal were forwarded to Caslec by Windhover in March and September 1987 respectively. It is clear from the recommendations in those proposals that Windhover had been told by Caslec that Caslec was an electrical and airconditioning contracting company which is interested in acquiring two software products from Windhover, namely SERVICE and PROMIS. In August 1987, some months after receiving the first proposal, Mr Cassidy prepared a list of queries about that proposal which he gave to Mr. O'Dwyer. This was a long document which raised numerous queries about the Windhover systems. Mr O'Dwyer gave hand written answers which he wrote on the document. He gave it to Mr Cassidy in the course of discussions at Windhover's premises on 3 September 1987. Mr and Mrs Cassidy spent most of the day observing demonstrations of the system by Mr Feiglin and Mr O'Dwyer.
Another meeting with Messrs Feiglin and O'Dwyer at the Melbourne premises of Windhover followed on 22 February 1988. Mr Cassidy and Mr Quant were in attendance. It was at this meeting that Mr Cassidy stressed the importance to him of the interim invoicing facility. Mr Cassidy took into account a report prepared for him by Mr Quant, whose advice on accountancy matters he valued. Mr Cassidy directed further questions to Mr O'Dwyer, which he answered on 25 March 1988. Mr Cassidy sent off the purchase order by letter later that day.
I infer from the facts that I have detailed that Windhover was well aware by February 1988 of the nature of Caslec's business. It was well aware and Caslec had made known to it that Caslec's purpose in acquiring the system from Windhover was to achieve greater efficiency in its business from an accounting system suitable for the requirements of its business, for project management and for the integration with accounting procedures of job costing and job invoicing accounting. I further conclude that Caslec relied on Windhover's skill and judgment with respect to the subject matter of the Software Agreement and the Maintenance Agreement.
The question then is whether the services which were supplied, together with any materials supplied in connection with them, were reasonably fit for the particular purposes or of such a nature and quality that they might reasonably be expected to achieve the result which Caslec desired them to achieve.
It follows from the findings indicated earlier in these reasons under thirteen headings, and from the further finding that at February 1990 major problems still remained with SERVICE and PROMIS, that Windhover breached the implied warranty set out in sub-s. 74(2) of the TP Act. Further, it also follows that there were breaches of the express terms that Windhover would install the software and train Caslec's employees and that the SERVICE program would be modified to permit the rendering of interim invoices for SERVICE jobs.
In these circumstances it is unnecessary to consider Caslec's alternative claims to damages against Windhover under s. 82 of the TP Act for contravention of ss. 52, 53, 55 and 55A.
In an action for breach of a warranty implied by s. 74 the measure of damages is referrable to contract law and is not governed by s. 82: E v Australian Red Cross Society (1991) 27 FCR 310 at 352, affd. 31 FCR 299.
There was no dispute as to the terms of the applicable contract law principles, though there was dispute as to the results of their application in the circumstances of this case.
As Mr Heydon QC points out in his work "Trade Practices Law", para. 16.1080, the alleged breach of contract must be shown to be causally related to the alleged loss, and, with that established, it also must be shown that the loss was not too remote from the breach. In that regard, counsel invoked the rule in Hadley v Baxendale (1854) 9 Ex 341 at 354, 156 ER 145 at 151, that the damages: -

". . . should be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach."

I turn to consider the various heads of damage claimed by Caslec and the submissions by counsel for Windhover as to the limitations which should be placed both upon various of these heads and also upon various amounts claimed.
Windhover Software
Under this head Caslec claims $24,481 in respect of the software purchase price, $3,600 for monthly maintenance and $6,630 for other Windhover charges. After an allowance of $2,000 as the cost of an "Attach " personal computer the total claimed is $32,711. The evidence as to the cost of the "Attach " varied. Sums of $2,000, $3,000 and $4,000 were suggested. I should pick the mean of $3,000. Further, there should be allowed a depreciation of 25% in respect of the software purchase price: see Sutton "Sales and Consumer Law in Australia and New Zealand" 3rd ed., 1983, pages 433-434. Counsel for Caslec, in reply, did not dispute the application of this method of assessment. Thus the $24,481 should be reduced to $18,360.
When these adjustments are made the total recoverable under this head is not $32,711 but $25,590.
Travelling costs
The sum of $3,176 is claimed in respect of expenses incurred by Caslec personnel in travelling to Melbourne to the premises of Windhover. As counsel for Windhover pointed out, some of these expenses were incurred before entry into the contract. What should be allowed is the sum of $2,237, in respect of expenses incurred on 17 and 18 May 1989 (see para. 4 of Mrs Dillon's affidavit, sworn 3 February 1992).
Micronet software
The sum of $6,149 is claimed under this head. It is arrived at by subtracting the Windhover purchase price ($24,481) from that of the Micronet software ($30,630). But, as counsel for Windhover pointed out, there should be allowed against the $30,630 a depreciation of 25%, and when this is done the balance does not favour Caslec. I would make no award under this head.
Mitsui hardware
The claim is made for $14,756. Against the cost of the Mitsui hardware of $23,756, Caslec would allow $9,000 in respect of the present sale value of the Mitsui hardware and the terminals and printer still in use. However, there should also be an allowance of one third, for depreciation, in respect of the cost of the Mitsui hardware, with the result that the balance properly claimed under this head is $6,838. The depreciation rates used in dealing with the claims for the Windhover and Micronet software and Mitsui hardware are those given by Mr Quant in his cross-examination.
Counsel for Windhover submitted that the amount recoverable under this head should be further reduced, if not extinguished, because Caslec had not shown that the Mitsui hardware was incompatible with the Micronet software. Mr Saunders gave evidence for Caslec on this point, and was cross-examined. Despite the submissions made by counsel for Windhover as to the significance of concessions made by Mr Saunders in that cross-examination, in my view there would be sufficient difficulties in achieving compatibility to make the sum I have indicated properly recoverable under this head.
Professional fees
Mr Quant's firm was employed by Caslec to assist and advise it in relation to the installation of the Windhover software and the problems arising thereafter. A claim is made in respect of fees of $14,643 paid to that firm. However, some of that sum was in respect of work done before Caslec entered into the Windhover contract. As to the balance, I accept the criticism of counsel for Windhover that his cross-examination of Mr Quant showed that a significant proportion of the sum billed was in relation to general accounting matters rather than work arising from the Windhover contract. In my view, only two thirds of the sum claimed, $14,643, is properly recoverable under this head. The sum recoverable is $9,762.
Additional staff
Caslec's case is that it employed additional staff to perform tasks which had been performed prior to the installation of the Windhover software and that it was necessary for it to take this step in order to deal with the consequences of the faulty software installed by Windhover. A claim of this nature was made in Westsub Discounts Pty Ltd v Idaps Australia Ltd (1990) 17 IPR 185 at 241-2. Woodward J considered that, on the evidence before him, none of the work wasted by staff on the defective system and its problems was sufficiently identifiable to be made the subject of a specific claim for damages; further, there would have to be an allowance for any benefit received by the claimant from the system, including any benefit from experience gained by the applicant's staff in grappling with the problems of the defective system.
I accept the submission made by counsel for Windhover in address (transcript 331-332) that the reliability of the assumptions made by Mr Quant in his evidence on this subject for Caslec, and the accuracy of the data upon which he relied, were significantly undermined in cross-examination. On the other hand, I am satisfied that it was necessary for Caslec to take additional staff to perform tasks which would have been unnecessary if there had not been the breach of contract by Windhover. Of the $27,312 claimed under this head I find $18,000 properly recoverable.
Loss of efficiency of labour
A particular purpose made known by Caslec to Windhover was the need to achieve greater efficiency in its business through use of the system. Caslec submits that accordingly there should be a sum recovered for loss of efficiency of labour as an expectation loss properly claimed in contract.
Mr Quant and Mr Cassidy gave evidence on the point and were cross-examined. I accept the submission of counsel for Windhover (transcript 332-334) that in cross-examination these gentlemen made significant concessions to qualify what was said in their affidavits. There were some errors and omissions. Some additional efficiencies claimed to have been not realised could have been achieved by other means, albeit with some additional labour and additional costs. A claim is made of $34,848. But on the whole of the evidence, and accepting the criticisms by counsel for Windhover, the proper sum recoverable is $15,000.
Diversion of Mr Cassidy from Caslec's business
Mr Cassidy is General Manager of Caslec and his deep involvement in the proposal to improve the efficiency of the business by dealing with Windhover would have been apparent before entry into the contract by Windhover. The sum of $41,140 is claimed to represent the value of the diversion of Mr Cassidy from Caslec's business by the need to cope with the series of crises which followed the installation of the Windhover software. Counsel for Windhover submitted that one could not say of such a head of damage that it might reasonably be supposed to have been in the contemplation of Caslec and Windhover at the time when they made the contract as the probable result of breach. I do not accept that submission. The evidence shows that Caslec brought home to Windhover in the course of the lengthy negotiations which preceded entry into the contract, not only the importance of the new software to Caslec's business but also the primary involvement in the project of Mr Cassidy.
However, I do accept the criticism that the computation of the claim involves an element of exaggeration such as to require a very significant qualification. I have reached the conclusion that $20,000 is all that is properly recoverable under this head.

A claim is made to compound interest under common law principles on the footing that but for the purchase of the Windhover software monies would have added to capital reserves and obtained interest; see Hungerfords v Walker (1989) 171 CLR 125. But in cross-examination Mr Quant agreed that in the course of its business Caslec could have used the monies claimed under various heads in ways other than by investing in revenue yielding investments.
I would allow simple interest pursuant to s. 51A of the Federal Court of Australia Act 1976. Such interest (which may not include compound interest (sub-s. 51A(2)(a)), should be computed using the rates specified for the periods set out in practice note 73 issued 21 February 1992 by the Chief Justice of the Supreme Court of New South Wales. Counsel for Caslec handed in a written submission providing for the computation of simple interest upon this basis in relation to the various heads of damages. Where claims were made ranging over a period of time the date used by counsel to calculate interest was the median date of that date range. Further, the final day of the month to which the claim related was used for the purpose of calculating the interest. I accept that these were proper methods to apply.
However, it will be necessary to recalculate the interest to take into account the lesser amounts of principal which I would award.

Those sums are: -

Windhover software: $ 25,590 Travelling costs: 2,237 Mitsui hardware: 6,838 Professional fees: 9,762 Additional staff: 18,000 Loss of efficiency of labour: 15,000 Diversion of Mr Cassidy from

Caslec's business: 20,000 Total $ 97,427

Judgment will be entered against the first respondent for a sum representing that amount increased by interest to date, computed as I have described. The first respondent should pay the costs of the applicant of the case against the first respondent.

The application against the second respondent should be dismissed. The applicant should pay the costs of the second respondent.
For the guidance of the taxing officer, I indicate that four fifths of the time taken by the trial and interlocutory processes should be attributed to the claim of the applicant against the first respondent and only one fifth to the claim against the second respondent.
I direct the applicant to bring in short minutes to give effect to these reasons.

[1992] FCA 580

13 AUGUST 1992