Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor
[2012] NSWSC 529
•21 May 2012
Supreme Court
New South Wales
Medium Neutral Citation: Lovick & Son Developments Pty Ltd & Anor v Doppstadt Australia Pty Ltd & Anor [2012] NSWSC 529 Hearing dates: 1, 2, 3, 6, 7, 8, 9, 10, 13 December 2010 and 21 June 2011, Reserved 4 July 2011 Decision date: 21 May 2012 Jurisdiction: Equity Division Before: Slattery J Decision: The defendants made misleading and deceptive representations to the plaintiffs, that there was a failure by the plaintiffs to mitigate loss, that the allegations of contributory negligence were not made out and that there were no concurrent wrongdoers. Further directions given.
Catchwords: TRADE AND COMMERCE - Trade Practices Act 1974 and related legislation - engineering company purchases green waste shredder for approximately $6 million - representations alleged before purchase as to the performance and suitability of the machine for the purchaser's purposes - whether shredding machine did not perform in accordance with representations - whether representations misleading and deceptive - representations as to future matters - operation of Trade Practices Act, s 51A - future matters - proof of reasonable grounds - HELD: some representations made but others not - defendants not established reasonable grounds for representations made - representations misleading and deceptive. Legislation Cited: Civil Liability Act 2002 (NSW)
Fair Trading Act 1987 (NSW)
Law Reform (Miscellaneous Provisions) Act 1946 (NSW)
Trade Practices Act 1974 (Cth)Cases Cited: ACCC v IMB Group Pty Ltd [2002] FCA 402
Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242
Chandra v Perpetual Trustees Victoria Limited [2007] NSWSC 694
Daniels v Anderson (1995) 37 NSWLR 438
Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58
Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199
Duke Group (in Liq) v Pilmer (No 2) [2000] SASC 418
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546
Jacques v Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102
King & Rylands v Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory (1996) 66 FCR 474
Lewarne v Momentum Productions Pty Ltd [2007] FCA 1136
Quinlivan v ACCC [2004] FCAFC 175
Re McGrath; Pan Pharmaceuticals Limited (in liq) v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230
Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187
Rexstraw v Johnson [2003] NSWCA 287
Sykes v Reserve Bank of Australia (1998) 88 FCR 511
Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463
Vella v Permanent Mortgages Pty Ltd (2008) 13 BPR 25,343
Vinidex Tubemakers Pty Ltd v Thiess Contractors Pty Ltd [2000] NSWCA 67Category: Principal judgment Parties: First Plaintiff:- Lovick & Son Developments Pty Ltd
Second Plaintiff:- Engineering Pty Ltd
First Defendant:- Doppstadt Australia Pty Ltd
Second Defendant:-Raymond James DavisRepresentation: Counsel:
Plaintiffs:- D.A. Lloyd
Plaintiffs:- T.J. Tancred, Whiteley, Ironside & Shillington
Defendants:- H. Woods
Solicitors:
Defendants:- M. Flaherty, Michael Flaherty Solicitor
File Number(s): 2006/255184 Publication restriction: No
Judgment
In February 2004, Lovick & Son Developments Pty Limited ("Developments") purchased a Doppstadt AK430K high-speed shredder from Doppstadt Australia Pty Ltd ("Doppstadt Australia") for $602,328.00. Mr Paul John Lovick negotiated the purchase on behalf of Developments over the period November 2003 to February 2004. On the other side of the transaction Mr Raymond Davis represented Doppstadt Australia, the Australian distributor of a range of German-manufactured high-speed timber shredders. After purchase the AK430K shredder did not perform in accordance with Mr Lovick's expectations. He replaced it in February 2005 with one of a different brand, a Petersen . Developments and a related entity now bring proceedings against Doppstadt Australia for alleged misleading and deceptive conduct at the time of sale.
The proceedings involve a contest at every level of liability, causation and quantum of damages. At issue is: whether there was misleading or deceptive conduct, either orally or in writing; whether any such misleading or deceptive conduct was relied upon; whether it caused any loss or damage to Lovick & Son; and, whether Developments has mitigated its loss and can establish the quantum of any loss claimed.
The Plaintiffs Buy a Shredder - An Overview
Two plaintiffs bring these proceedings, Developments and Lovick Engineering Pty Limited ("Engineering"). Mr Lovick is a director and controlling shareholder of both these companies, which operated from common premises in Orange. The principal business of Developments is the acquisition of heavy machinery and then leasing it to Engineering for use in Engineering's general business activities, which include the repair and external hire of heavy plant and equipment. In accordance with this pattern of acquisition, Mr Lovick intended Developments to acquire the Doppstadt AK430K shredder and then lease it to Engineering, with a view to Engineering hiring it out to a number of groups of regional councils in the Central West of New South Wales. Mr Lovick seemed particularly interested at all times in the purchase of a high-speed timber shredder, as that seemed to him best for Developments and Engineering's purposes.
After investigating a number of alternatives, on 31 October 2003, Mr Lovick first came into contact with Doppstadt Australia, the Australian distributor of Doppstadt high-speed timber shredders. Mr Lovick met or communicated with representatives of Doppstadt Australia on at least five occasions between 31 October 2003 and Development's ultimate purchase of the AK430K shredder in the first week of February 2004. There was a sixth contact on 23 February 2004, after the purchase but just before delivery of the machine on 24 February 2004. Whether that sixth contact has any legal consequences is a matter in issue. The plaintiff's misleading and deceptive conduct case is based upon the statements made and documents said to have been given to Mr Lovick on behalf of Doppstadt Australia on the six occasions during this period.
Two people represented Doppstadt Australia in the negotiations, Mr Raymond Davis and Mr John Gillen. Doppstadt Australia was not a large local operation, selling only a small number of Doppstadt shredding machines to a specialised market. Mr Gillen was Doppstadt Australia's only employee, also acting as its sales manager. He worked from the same office premises in Terry Hills as Mr Raymond Davis, the sole director of Doppstadt Australia, himself an experienced operator of and contractor with heavy earth moving equipment. Mr Davis was the director and controlling shareholder of Davis Earthmoving and Quarrying Pty Limited ("Davis Earthmoving"). Doppstadt Australia and Davis Earthmoving maintained premises close to one another at Terry Hills. Only Mr Gillen and Mr Davis dealt with Mr Lovick before the AK430K was purchased. The plaintiffs joined both Doppstadt Australia and Mr Davis as defendants in the proceedings. Mr Davis was alleged to be knowingly concerned in Doppstadt Australia's alleged misleading and deceptive conduct.
Much is in dispute about the contact between the parties over the three month period November 2003 to January 2004: disputes about what was said; disputes about what documents were given over; disputes about the sequence of communication events; and, disputes about what was inspected on some of these occasions. But there is common ground about the period: the parties' representatives did meet or communicate on six occasions, the approximate dates of which are not greatly in dispute; and Mr Lovick was invited to and did inspect other Doppstadt machines before acquiring the subject AK430K.
The contract documentation, analysed later in these reasons was signed in the first week of February 2004. Although the plaintiffs do not bring a claim in contract based on this documentation, only one for alleged misleading and deceptive conduct.
The AK430K was delivered into the possession of Developments on 24 February 2004. Delivery was effected by Mr Raymond Davis' son, Mr Eric Davis. The machine was received by Mr Lovick. It was put to work immediately.
As Mr Lovick originally planned, Developments purchased the shredder and leased it to Lovick Engineering. The relationship between these two entities and the distribution of the claimed loss between them is one of the issues in the proceedings, dealt with in relation to damages.
The plaintiffs' case was that the machine had problems from the first. These problems were said to have included repeated mechanical breakdowns, electrical problems, and a failure to perform at the output rate (200 cubic metres per hour) that Mr Davis is alleged to have stated on behalf of Doppstadt Australia before the purchase. Mr Lovick called evidence from a number of the operators of the AK430K during the period that the Developments or Engineering operators were using the machine up to February 2005.
Mr Lovick used the AK430K shredder for almost exactly 12 months from 25 February 2004 until February 2005, when Developments purchased a replacement, a Petersen high-speed mechanical shredder. The performance of the Petersen shredder in the business became another contested issue. Mr Lovick's case is that the Petersen shredder did everything that the Doppstadt AK430K did not and had no significant problems. The defendants' case was that Mr Lovick was prone to making complaints about machines of this character and that he also complained about the Petersen machine. The defendants said that Mr Lovick's complaints about the Petersen showed: (1) that he exaggerated the problems with all his machines; and (2) that he is not to be accepted in his criticisms of the Doppstadt AK430K. This subject became an important contest.
Mr Lovick eventually sold the Doppstadt AK430K in March 2007 to Adelaide Hills Recycling Pty Limited ("Adelaide Hills") for $255,000 exclusive of GST. The operations of the AK430K in the hands of Adelaide Hills, a recycling operation in metropolitan South Australia, became another important area of contest. Adelaide Hills' operation of the machine became a proxy for assessing Mr Lovick's operation of it. The defendants' contention, based upon the evidence of employees of Adelaide Hills, was that the machine operated satisfactorily after March 2007. In contrast, the plaintiffs said that such evidence should be steeply discounted because alterations had been made to the machine after it had been sold by Developments to Adelaide Hills and that in any event the nature of Adelaide Hills operations were less demanding on the machine.
Thus, the case presented an unusual evidentiary picture. The defendants complained about the plaintiffs' misuse of the Doppstadt AK430K between February 2004 and February 2005. On the other hand, the plaintiffs complained about Adelaide Hills' unrepresentative use of the machine after February 2007. Two sets of operators were cross-examined: the plaintiffs' operators about the period before March 2005 and the Adelaide Hills' operators about the period after March 2007.
The evidence of business losses that the plaintiff relied upon was incomplete and at times confusing. The plaintiff made out a case of the impact on its business an assumption that the shredder was not able to produce 200 cubic metres per hour of shredded material: the representation Mr Lovick said Mr Davis had made to him. Apart from denying making that representation, the defendants challenged the economic consequences of this evidence.
In the result, neither case has been entirely successful. The plaintiffs abandoned their original claims in contract. Some misleading and deceptive conduct has been found, but only part of that which was pleaded. The economic consequences of that are less than the plaintiff contended. The Court's reasoning in relation to quantum involves analysing the evidence and the actual commercial impact, if any, of the representations that were established.
The parties agreed upon the structure of their submissions, a structure adopted in this judgment. Such agreement was typical of the efficient co-operation between the solicitors and counsel in a case, which was presented by the legal representatives on both sides to a high standard.
This judgment is organised under the following subject areas:
A. what oral and documentary representations were made?
B. whether the representations were misleading and deceptive?
C. whether the plaintiffs relied upon the representations to their detriment?
D. whether Mr Raymond Davis is liable as an accessory for any misleading and deceptive conduct?
E. whether the plaintiffs are guilty of contributory negligence or have failed to mitigate their loss?
F. whether the plaintiffs and/or Mr Lovick are concurrent wrongdoers in respect of which proportionate liability should be assessed?
G. in the result, to what damages is the plaintiff entitled in light of the previous findings?
The proceedings involved a large number of factual disputes, not all of which the Court has needed to decide.
Credibility - An Overview
Observations about credibility in these reasons are mostly made in the course of making findings about the events and other matters in issue. But some introductory observations about the two principals, Mr Lovick and Mr Davis follow.
Mr Lovick's Evidence. Mr Lovick was a single-minded witness. At times he seemed stubbornly convinced of the correctness of his opinions, no matter what the countervailing evidence. He talked quickly, jumping from topic to topic and often interrupting himself. He did not focus on questions he was asked. He sometimes seemed more concerned to provide his own answer to the questions he believed he had been asked rather than the ones that had truly been asked. Often the Court could not have great confidence in the reliability of his evidence. But much of what he says about what Mr Davis said to him, is to be accepted and is inherently probable. His case about the performance of the machine after purchase was much assisted by the quality of his operator's evidence.
I had the impression that Mr Lovick's damages case was constructed in part to accommodate his own convictions that he had a claim, rather than always from a genuine recollection or record of the things that had gone wrong with the machine. Correlation between actual losses the plaintiffs are said to have incurred and the shredder's downtime was poor. Damages was a weakness in his case and much of the damages case was abandoned for want of supporting evidence in the end.
Mr Lovick was a hard-driving businessman who was hungry to make a dollar. He was keen to maximize his earnings from his machines, by his working them very hard. This was an impression, which Mr Davis said he had of Mr Lovick. I think Mr Davis was right. It was also the Court's impression. But despite all of this the Court has found that the defendants made some misleading representations to him, and that the plaintiffs suffered some loss as a result.
Mr Davis' Evidence. Mr Davis was often a reliable witness too. But he also showed a capacity to exaggerate his evidence. He was prepared to say things in cross-examination, which he could not back up. At one point early in his cross-examination he claimed that there was an operating brochure for the Doppstadt AK430 that showed that it was capable of producing, and ordinarily should produce, about 80 to 85 cubic metres of shredded material per hour. He did a search for that document and had to confess on a subsequent hearing day that no such pamphlet existed. Instead he took the Court to the AK430's operating brochure, which showed no reference to 80 or 85 cubic metres per hour but was an operator's manual that was wholly ambiguous and created intense debate between the parties.
At one point late in the proceedings, Mr Davis was being cross-examined about some letters, which the defendants' sole sales employee Mr Gillen had written to Doppstadt Germany, letters discussing defects in the AK430K. The letters were potentially damaging to a defendants' case that said that there was little if anything wrong with this machine. In a small organisation the size of the Doppstadt Australia it should be inferred that Mr Davis had some general knowledge of what its employee was writing back to Germany. Instead Mr Davis disowned Mr Gillen and said, "John's got to do something with himself and there's lots of letters from John, he writes to many letters, but they're not important letters. On the manager of the company and you've got to relate to a letter from John Gillen, it's got to have substance, there is no substance in that letter." In context this was strange evidence indeed: evidence that was very difficult to accept, given that I found Mr Gillen to be an excellent witness.
Although initially giving a quite good impression, after some time in the witness box, Mr Ray Davis' qualities as a witness slipped. He showed himself to be argumentative, quick to interrupt the questioner, and anxious to press his own point of view upon the questioner, and unwilling to listen to the question. Later he began to emerge as an author of some quite disconnected ideas, without clear logical synthesis. Importantly at times he had a singular inability to see any point of view other than his own.
What Happened. These observations about the credibility of these two men point to why this litigation has arisen. The course of evidence strongly suggests a failure of Mr Lovick and Mr Davis to listen to what each other was saying at the time of their late 2003 and early 2004 conversations. Both were individuals entirely focused upon their own outlook and their own affairs, paying little regard to what the other was saying. Mr Lovick seemed to assume he that he was getting a machine that could do anything. Mr Davis seemed oblivious to the problem of Mr Lovick's inexperience with machines of this kind. To be fair to Mr Davis, I find that in the negotiations Mr Lovick displayed a somewhat haughty confidence in his own opinions about heavy machinery, although he was dependent on Mr Davis for information about this new class of machinery. Whether it was a product of the size of Mr Lovick's existing engineering business or simply of his business style, there is no doubt in my mind that Mr Lovick approached the acquisition and particularly the operation of the AK430 with an attitude that he already knew a great deal about how to operate it.
But that being said, the AK430K had operating problems and Mr Lovick did, although begrudgingly, accept and rely upon Mr Davis' expertise. These problems were not consistent with the representations Mr Davis and Mr Gillen had made to Mr Lovick. But assessing the economic effect of that misleading conduct is difficult in this case.
The chronological account begins with some background about each of the parties and their first contact on 31 October 2003.
A. The Oral and Documentary Representations
The Parties' Background
Both Mr Paul Lovick and Mr Raymond Davis had lengthy experience with heavy machinery before October - November 2003. Mr Lovick commenced working full time in automotive and heavy diesel engineering equipment in 1980. Since then he has specialised with repairing and working with heavy engines and machinery, including farm machinery, earth-moving equipment and trucks. His interest in the field is partly explained by his father operating an engine reconditioning business from 1959 in the Orange District of New South Wales, where Mr Lovick also now lives.
Some of Mr Lovick's expertise is relevant to the judgments that must be made later in these proceedings. He has expertise in diesel engine diagnostics called "failure analysis" and is a professional consultant for and undertakes "trouble shooting" for other engine reconditioning companies. He is thus not a stranger to diagnosing failures in heavy-duty mechanical equipment.
Mr Lovick founded Engineering in January 1992. The company now comprises two major businesses: a heavy diesel engineering repair and servicing business, and a contracting business. These businesses are quite substantial.
The engineering business employs about 25 work shop staff, including mechanics, fitter/machinists, boiler makers and tool makers. Mr Lovick oversees the workshop operations assisted by a manager, workshop foreman and departmental heads. The engineering business also deploys electronic equipment to undertake sophisticated engine component analysis, machining and repairs. It undertakes mechanical work that includes the grinding of crank shafts and cylinder heads for heavy machinery. The engineering business consults to original equipment manufacturers such as Caterpillar, Mack and Komatsu about their engine failures. Engineering's, engineering related-business has not since the early 1990's involved work directly for the retail purchasers of equipment.
Mr Lovick's contracting business was of much more recent origins. In mid-2003, it was only in its early stages of development. His interest in the area of contracting only arose in 2002 when he purchased rural land to build a home for himself. Until then he had not ever conducted business that operated, as distinct from repaired or maintained, large and heavy plant and equipment. Throughout 2003 Mr Lovick was personally involved in conducting trials for the Junee Shire Council in Engineering's contracting business to mulch and process the Council's green waste stockpiles. The expression "green waste" generally describes cuttings and prunings of domestic and commercial tree and vegetation. It is to be distinguished from other waste such as domestic waste, tyres, steel and demolition materials.
By June 2003 Developments, another company in the Lovick group, had purchased a single tractor and mulcher combination which was bidding for work from regional councils.
Mr Lovick had been successful in orienting the engineering business model towards the large original equipment manufacturers. He says, and I accept, that he took the same approach to his fledgling contracting business and only aimed to bid for the larger clients who would provide regular and repeat work, such as infrastructure authorities and councils.
Developments and Engineering are related entities which hold and deploy assets in a mutually co-operative arrangement. Both Mr Lovick and his wife are the directors of Developments and Mr Lovick is the sole director of Engineering. Between them they are the controlling shareholders in both companies. From June 2003 when the contracting business was established the plan was for Developments to acquire the equipment for the business and then make it available to Engineering. Engineering would request and hire the necessary equipment from Developments on an ad hoc basis. These arrangements were recorded in resolutions passed by the two companies on 30 June 2003. The looseness of these arrangements raised their own problems in the assessment of damages in this case.
Thus, Engineering operated two businesses: an engineering business, the economics of which have nothing to do with this case; and a contracting business, using equipment that Developments hired to it, and the financial elements of which business were highly relevant to the damages case in these proceedings.
In about August 2003 Mr Lovick began to realise that Engineering's contracting work would be assisted if he could process green waste for councils to a finer end-product than was possible with the tractor-mulchers that he had already started to use. The fine grade product, which is re-saleable by councils can only be produced using a machine known as a "shredder", also known as a "grinder". The end product of a shredder is suitable for sale as horticultural mulch, and therefore has economic value for councils. Mr Lovick intended to expand Engineering's contracting business into this market, mainly in regional New South Wales.
The major manufacturers of shredders in the western world are, Petersen , Vemeer (made in the USA), Van Gelder (an Australian manufacturer) and Doppstadt (a German manufacturer). I accept Mr Lovick's evidence that he inspected Petersen, Vemeer and Van Gelder machines before purchasing the Doppstadt. I accept Mr Lovick's evidence that for different reasons he had doubts about the purchase of these machines at the time. It was then that he turned to investigate what Doppstadt Australia had to offer.
Like Mr Lovick, Mr Raymond Davis has extensive work experience with heavy machinery. He has worked with heavy machinery since 1969, and has been involved with the purchase sale and servicing of such machinery since about 2000. He has been an apprentice tool maker and machinist until 1967, undertaken mechanical servicing for heavy machinery of various kinds.
Mr Davis is a director of Davis Earthmoving which conducts a business for the hire and operation of heavy machinery, excavators, shredders and trucks. Davis Earthmoving also performs contracting work for the shredding of green waste and general recycling works. Mr Davis came into contact with Doppstadt shredders in 1999 and has been working with them since. Werner Doppstadt Umwelttechnik GmbH & Co. KG ("Doppstadt Germany") is a manufacturer of heavy machinery based in the Federal Republic of Germany. In 2000 Mr Davis set up Doppstadt Australia and negotiated a licence from Doppstadt Germany to import and sell Werner Doppstadt machinery.
In November 2003 Doppstadt Germany manufactured four types of high-speed shredders that were available in Australia. The shredders are distinguished within the Doppstadt model number system. The number in a Doppstadt machine model indicates the shredder's approximate horsepower. Doppstadt Australia was distributing at that time an AK230 (a 230 hp shredder), an AK430 (with a 430 hp Mercedes engine), an AK430K (with a 425 hp KAT engine) and an AK600 (with a 600 hp Mercedes Benz engine). Apart from the AK430K all these models were trailer mounted. A special feature of the AK430K was that it was tractor mounted and mobile without the assistance of external motive power.
The only employees of Doppstadt Australia who had relevant contact with Mr Lovick during the plaintiffs' negotiations were Mr Davis himself and Mr Gillen, who Doppstadt Australia employed as a sales representative between 2001 and 2007.
Mechanical Green Waste Shredders
Mechanical shredders of green waste are constructed as variations of a number of basic mechanical models. Understanding the principles of their operation assists an early appreciation of the competing evidence about contested representations and machine performance in this case.
Mechanical shredders of green waste generally require the use of other ancillary machinery to aid their operations. An excavator is required to shear oversized material into smaller sized pieces and then load the sheared and other material into the shredder. The extent to which mechanical shredding requires pre-shearing is one of the issues in these proceedings. At the end of the shredding process the shredding-product must be taken away by a truck or conveyor. Except for tracked vehicle shredders such as the AK430K, shredders can only be moved with the assistance of other powered transport vehicles.
The centre of any grinder or shredder is a hammermill which is a rotating steel cylinder from which hard faced steel hammers protrude and which strike the material to be ground, reducing it to a mulch. The particle size of the product is controlled by varying the screen through which the material is pushed at the end of the process, acting like a sieve.
Doppstadt Australia distributed Doppstadt shredders described as "horizontal end-feed grinders". Such shredders are essentially designed as a large open topped bin into which the green waste can be dropped by tractor or excavator at one end. The bottom of the bin has a travelling floor that moves from that end to the other. This floor draws the material towards a compression roller which compacts it, so it can then be struck and reduced by the rotating cylinder with its metal hammers. Then the machine feeds the end-product onto a conveyor belt and discharges it into stockpiles. Even this description of the process makes clear it requires high amounts of energy, and large horsepowered engines. The shredding machine's chassis is subjected to high mechanical stress. Although there are only a limited number of moving parts, the conveyor, the compressor, the hammer, they too are subjected to considerable mechanical stress.
The AK430K, as with most other mechanical shredders of green waste, was controlled by electrical and hydraulic systems and was diesel powered. The problems Mr Lovick described with the AK430K in this case, covered most of the components and operating systems, just described.
Deciding what, if any, oral and documentary representations were made requires an assessment of the parties' contacts during the period November 2003 to February 2004.
Six Conversations over Four Months
Mr Lovick says that he had six main conversations or contacts with representatives of Doppstadt relating to his purchase of the machine. The conversations all take place between 31 October 2003 and 23 February 2004. The place and time of each of the conversations is mostly uncontentious. The 31 October 2003 conversation was Mr Lovick's first-ever contact with Doppstadt Australia. The 23 February 2004 conversation took place just after Mr Lovick's purchase of the machine. The conversations together with the alleged provision of certain materials, are the framework around which the plaintiffs' misleading and deceptive conduct case was built.
The content of the six conversations is disputed. Mr Lovick's affidavit and Mr Davis' affidavit evidence loosely identified when each is alleged to have taken place. The Court directed the parties to orally adduce evidence in chief about the conversations. The Court adopted this method only for Mr Lovick's and Mr Davis' evidence, to observe both of the principal witnesses giving a narrative of their own version of events and the testing of that narrative. The method assisted the Court to reach a view about the credibility of each of the principal witnesses.
The six conversations were on the following dates and occasions:
(i) On 31 October 2003 a telephone conversation between Mr Lovick and Mr Gillen;
(ii) On 6 November 2003 at the offices of Doppstadt and between Mr Lovick, Mr Gillen and Mr Raymond Davis and the same day with Mr Gillen at the Ryde Transfer Station;
(iii) On 14 November 2003 a telephone conversation between Mr Lovick and Mr Raymond Davis;
(iv) Between 9 and 16 December 2003 a meeting between Mr Lovick and Mr Raymond Davis;
(v) On 29 January 2004 a telephone conversation between Mr Lovick and Mr Raymond Davis;
(vi) On 23 February 2004 a meeting between Mr Lovick and Mr Raymond Davis at Terry Hills;
These reasons set out in summary form the competing versions of these six conversations and then making findings as to what took place.
(i) The 31 October 2003 Telephone Call
Mr Lovick says that on 31 October 2003 he introduced himself to Mr Gillen over the telephone and explained to him that he (Mr Lovick) was in the business of "doing land clearing" and that he "had started to do some green waste processing with some mulching tractors" that he owned. Mr Lovick says he further explained to Mr Gillen that he was "looking to expand and purchase a grinding machine to do the green waste and to do land clearing". I accept that Mr Lovick did say these things to Mr Gillen to explain his purpose in calling. Mr Gillen only recalls Mr Lovick talking about "processing green waste in landfill sites" as the main point of this part of the conversation. But I accept that Mr Lovick's recollection in this respect is more accurate: he did declare his intention to use the machine for "land clearing". That was indeed one of the purposes he sought to serve in buying a shredder. Also Mr Lovick is more likely to remember this. For Mr Gillen it was just a casual enquiry. I also accept that Mr Lovick indicated that he was using mulching tractors at that point, a smaller and less efficient form of processing. In my view it would have been clear from this conversation to anyone of Mr Gillen's experience that Mr Lovick was looking for a bigger and more efficient machine that could produce higher quality, higher volume and more saleable processed green waste.
Mr Gillen's evidence about this conversation was credible partly because he maintained an electronic record of his customer contacts, and made handwritten diary entries. His recollection was aided by these materials, which I accept as the accurate and reliable records maintained by a careful employee.
There are two other major areas of contention about this first conversation. On one of them I prefer Mr Lovick's evidence and on the other Mr Gillen's evidence. The first related to processing "contamination", or material other than green waste, that can be accidentally mixed with it. The second related to the output of the AK430K machine.
Mr Lovick said Mr Gillen went through the range of Doppstadt machines available for sale and explained that Doppstadt had timber grinding machines and a range of models from about 300 up to 600 horsepower. His account on this accords largely with Mr Gillen's somewhat "hazy memory" of this telephone discussion. Mr Gillen recalls Mr Lovick wanting to know what type of machines that Doppstadt Australia had available to fulfil a role of shredding green waste in landfill sites. Mr Gillen says he went through an explanation of the Doppstadt machines and types, including the "entire range". I accept that he did.
Mr Gillen explained that the Doppstadt machines were "were able to process all types of timber and palm" and "they were particularly good with dealing with contamination". On the subject of contamination Mr Lovick says that Mr Gillen said "the Doppstadt machines were the best machines on the market", because they were designed with "swinging hammers" which were "particularly good when dealing with contamination". I accept that Mr Lovick had an early concern about dealing with contamination. He had enough experience with mulchers even by then to realise what problems contamination with building materials and metal could cause in processing green waste. His evidence that he asked about this at an early stage is credible. The same cannot be said in respect of his evidence about the rate of output.
Mr Lovick also recalls Mr Gillen explaining that the AK430K's operator has a special remote control for the machine which is of considerable assistance in the operator being able to manage contamination. I accept Mr Gillen said this.
Mr Lovick's recollection is that during this conversation Mr Gillen made a statement, to the effect, "that two hundred cubic metres per hour was an expected output from the equipment". I am not convinced that Mr Gillen stated that 200 cubic metres per hour was the expected output of the machine. It seems improbable that this would have been said during such an early contact. It is also improbable in my view, that Doppstadt Australia ever made such a claim about its machines. They could not produce at that rate. Moreover, given the range of machines for possible purchase that were being discussed at this first meeting, it is unlikely that that statement would have been made in such general terms. It is not a statement that is likely to have been true of all the different models of Doppstadt machine in any event. By then Mr Lovick had not elected to take the AK430K.
According to Mr Lovick, Mr Gillen also explained there was a 600 horsepower version of the Doppstadt grinder which had been sold to Australian Native Landscapes and which could be viewed in Sydney. Mr Davis explained that Davis Earthmoving is "a company which is associated with Doppstadt grinders themselves" and that they operate an AK430K grinder. Mr Lovick says that he then made arrangements with Mr Gillen to come from Orange to Sydney. I accept that is what happened.
(ii) The 6 November 2003 Meeting at Terry Hills and Ryde
Mr Lovick says, and I accept, that he attended the Doppstadt head office at Terry Hills on 6 November 2003. Mr Lovick says he there met Mr John Gillen who introduced him to Mr Ray Davis. Mr Lovick recollects that at the moment of introduction Mr Davis said to him, "John will take you down to a yard and show you our machines. You won't find a better machine in the world". Mr Davis denies that he said this but I find that he did. He had been using these machines for four years and selling them for three. He believed in them. He was proud to be Doppstadt's Australia dealer. Mr Lovick and Mr Gillen then proceeded to the Davis Earthmoving yard at Ingleside, about 5 kilometres away from the Doppstadt yard.
When Mr Lovick and Mr Gillen arrived at the yard the pair commenced a thorough inspection of an orange coloured Doppstadt AK430K situated there. Mr Gillen and Mr Lovick agree that Mr Gillen gave a detailed explanation of how the AK430K operated and its features. Mr Gillen took Mr Lovick right over the machine.
Mr Lovick says that on this occasion he expressed an interest in seeing the AK430K machine operating in practice. The machine they were examining at the Ingleside yard was not then operating. In response, he says, Mr Gillen told him a Doppstadt machine was then operating in Port Macquarie but another one could be inspected at the Ryde Transfer Station in suburban Sydney. I accept that this subject was discussed as Mr Lovick says it was. He and Mr Gillen decided on the spot to go together to the Ryde Transfer Station the same day and look at it.
The output representation. The Doppstadt at the Ryde Transfer Station was a 600 horsepower machine, 170 horsepower bigger than the AK430K on offer. But at least they could see it in operation. Mr Lovick says Mr Gillen explained to Mr Lovick "this machine will do at least 200 cubic metres an hour of green waste". Mr Lovick says there was some pallet material distributed about the Transfer Station and with reference to that material Mr Gillen said "the machine will do at least 300 plus cubic metres an hour of pallet material".
I accept that the subject of the machine's output was discussed on 6 November, but not in the terms that Mr Lovick says it was. Mr Gillen has a different recollection of the occasion, which I prefer. He could not deny there may have been discussion about pallet material but he thinks that would have only been a conversation about the AK600, not the AK430K, producing an output of up to 300 cubic metres per hour with pallet material.
But Mr Gillen does also recall a conversation about the output of the AK430K with Mr Lovick. He agrees, and I accept as accurate, that he would not have said to Mr Lovick that the AK430K "will do at least 200 cubic metres an hour of green waste". But he says he would have said to Mr Lovick that the AK430K could do "up to 200 cubic metres per hour". I find this is what he did say. Moreover he believes, and I find, that he conveyed to Mr Lovick that 200 cubic metres per hour would have been a peak value for the AK430K.
Mr Davis denies associating any such output value with the Doppstadt AK430K. I accept Mr Davis' own evidence about that. But Mr Lovick has initially obtained the idea about 200 cubic metres per hour for the AK430K from Mr Gillen, in my view. But Mr Gillen did not represent it as an average output rate but as Mr Gillen explained, merely a "peak value".
Mr Davis was convinced that on any occasion when he had discussed the output of the AK430K he had not said it could process 200 cubic metres per hour; but rather that he used a figure of about half that magnitude, about 100 cubic metres per hour. He accepts that he may have said up to about "120 cubic metres per hour" was the "maximum achievable", but it was possible to "average about 100 cubic metres per hour". I later find that Mr Davis repeated what Mr Gillen said here, but did not go any further.
Moreover, I accept Mr Davis' evidence when he says that the only way that the machine could produce 200 cubic metres per hour was in a highly specialised situation where the material had been pre-shredded through the machine once and was being reprocessed. I further accept his evidence that only his son did this and it was not information he would have shared with a potential purchaser. Nor is the output figure of 200 cubic metres per hour supported in any of the Doppstadt written literature. Mr Davis did not strike the Court as someone who would grossly overstate the capacity of these machines, and I find that he did not.
Mr Lovick recalls Mr Gillen explaining on this occasion that the machine's swinging, rather than fixed, hammers assist dealing with contamination and would reduce the damage that might result from the presence of such contamination. Mr Lovick also recalls that Mr Gillen emphasised the Doppstadt's special feature, a remote control device, was an additional means of dealing with contamination by allowing the operator an early response time. I also accept that the issue of contamination was discussed on this occasion in the terms Mr Lovick claims. Contamination was a special concern of Mr Lovick's. His discussing this issue, and his later perception of the machine's actual performance with contamination, was one of the reasons that Mr Lovick became disenchanted with the AK430K, within about 12 months.
Mr Lovick also recalls Mr Gillen explained on this occasion the role of Doppstadt Australia as dealer in communications with Doppstadt Germany. He explained that Doppstadt had sold a number of these machines; and that over time as dealers they had requested Doppstadt Germany to make modifications to the machines in order "to make a better machine basically".
A warning to shear into smaller pieces. Mr Lovick thought that the topic of shearing material down into smaller pieces was discussed between himself and Mr Gillen on 6 November. I accept that this topic was discussed. Mr Gillen says, on this subject, and I accept, that a conversation between them about the shearing material took place at Terry Hills, before they went down to the Ryde Transfer Station. Mr Gillen there showed Mr Lovick the hydraulic shears that Davis Earthmoving had purchased for shearing up larger timber. I also accept Mr Gillen's evidence that on that occasion and in that context he "would have made some suggestions about size of material so that he [Mr Lovick] would not damage the machine". Mr Gillen was not a witness that Doppstadt Australia employed at the time of trial. He did not appear prone to exaggeration. I also accept that in the context of shearing material he "would have made some suggestions [to Mr Lovick] about size of material" that needed to be sheared. Mr Gillen's standard limit on material that could be fed into the machine without shearing, which in my view he communicated to Mr Lovick, was a diameter of 100 to 150 millimetres. In his view material beyond that should first be sheared. I find this was a warning he gave to Mr Lovick on this occasion.
I accept that a conversation also occurred on this occasion between Mr Gillen and Mr Lovick about the combination of options that were possible with the Doppstadt machines. I accept that Mr Gillen explained that Doppstadt Germany did not make a 600 horsepower machine on tracks; only the 430 horsepower machine, the AK430K, was tracked. The Australian dealership then had three machines for sale, one new, and two used. The conversation ended with Mr Gillen offering to provide Mr Lovick with a "proposal", outlining the costs associated with each of the three machines. That proposal was sent a few weeks later.
A "very good machine" representation. Mr Lovick says that he asked Mr Gillen how the smaller machine, the AK430K, would cope with grinding larger material. Mr Lovick says he had an interest in the smaller machine, because it was tracked. He recalls Mr Gillen said about the smaller machine handling the larger material, "well you just shear the larger material up". Mr Gillen also said, according to Mr Lovick, "we charge $145 an hour to shear material as well as charge to grind it". Mr Lovick says Mr Gillen continued "they [the Doppstadt AK430K] are a very good machine" and reiterated how "well" the Doppstadt AK430K's deal with contamination including palm trees. Mr Lovick says and I accept that this conversation all took place in the car park at the Ryde Transfer Station.
In my view Mr Lovick was genuinely trying to make up his mind which of the machines on offer he actually wanted. I accept that he was interested in the tracked machine because of its mobility. It is logical, in my view, in that context Mr Lovick would have raised the question of the capacity of the machine to deal with contamination and difficult material that might be more easily handed by the 600 horsepower machine. The relevant context was the grinding of larger material and dealing with contamination, in which I find Mr Gillen said to Mr Lovick that the Doppstadt AK430K was "a very good machine" and that it dealt with contamination including palm trees "well".
(iii) The 14 November 2003 Lovick - Raymond Davis Telephone Call
There was a dispute between the parties about whether this third conversation on 14 November 2003 took place at all. Mr Davis denied any conversation at this time.
Mr Lovick says that he was sent by email two photographs of Doppstadt machines operating at a site in Sutherland in suburban Sydney. After receiving those photographs Mr Lovick says that he rang Mr Davis "to ask him about the machine and what it was processing", because "I could see in the photograph that it was only processing small material". Mr Lovick seemed to find out "whether the machine could process larger material than that" shown in the photographs. The response from Mr Davis was "yes, the machine can handle much larger material than that".
Mr Lovick said that he had these photographs when he telephoned Mr Davis, on 14 November. This was disputed. The email evidence about when they were actually received was a basis to infer that Mr Lovick had received these photographs by 14 November, and I do. One of the photographed machines was the one, which was ultimately purchased. But I am not prepared to infer that Mr Lovick had the conversation he claims about these photographs with Mr Davis.
Mr Davis denied any recollection of this conversation. He denied that the conversation occurred, saying, in a way, which in my view rings true, "nobody rings you up and says I sent you those photos have you got a copy in front of you? You have a look at those photos and you can make it a comment about that". Mr Davis said, "it didn't happen".
Mr Davis says that is not the kind of conversation that he would have had with Mr Lovick. I accept him on this. The conversation has some inherently odd characteristics. It is inherently improbable that Mr Lovick would have simply telephoned Mr Davis to interrogate him about the AK430K's capacity from what he could see by trying to examine certain photographs. It is even more improbable, from what I saw of him, that Mr Davis would submit to such an odd interrogation. Mr Lovick was entitled to go and look at the machine in operation whenever he wanted. In my view, Mr Lovick's testimony involved a degree of inaccurate reconstruction on this issue.
The November Brochures
Mr Lovick alleged that in November 2003 Doppstadt Australia gave him several documents, containing representations on which he relied. A central issue became which brochures Doppstadt Australia actually gave Mr Lovick.
I accept Mr Davis' evidence that he was aware of the importance of keeping copies of documents he gave to potential customers. Mr Davis therefore had an evidentiary advantage over Mr Lovick: he had a system of photocopying what he gave to customers. It is necessary to go through the various contested documents, to decide which was given to Mr Lovick.
Mr Lovick's own evidence of what was given to him was unsatisfactory. He swore an affidavit 30 March 2006 attaching the various bundles of documents that he said that Doppstadt Australia gave to him. The defendants issued a Notice to Produce, pressing for production of the originals of those documents. Some concessions were made as a result of this procedural skirmish: that the documents Mr Lovick says that he received from Doppstadt Australia in his affidavit were not correctly described in that affidavit. There had been a change of plaintiffs' solicitors. Counsel for the plaintiffs conceded, with some justification, that the exhibit to Mr Lovick's principal affidavit was not right.
The procedural solution to this was for Mr Lovick to physically identify in Court the originals of the documents that he said Doppstadt Australia gave to him. In oral evidence, he divided this material into the following five bundles: (1) a 21 November 2003 proposal, and a colour brochure with a September 2005 print date (MFI 2(i)/ later Exhibit B(i)); (2) another bundle of documents that Mr Lovick said that Mr Gillen gave him (MFI 2 (ii)/ later Exhibit B(ii)); (3) two photographs that Mr Lovick said Mr Davis gave him (MFI 2(iii)/ later Exhibit B(iii); (4) a buy back letter - referred to in more detail later in these reasons - (MFI 2(iv)/ later Exhibit B(iv); and (5) an operator's manual Mr Lovick said he was given on 24 February 2004 (MFI 2(v)/ later Exhibit B(v)). Of these five bundles, only the first two contained material that related to the contest about the documentary representations.
The remaining three exhibits, Exhibit B(iii), Exhibit B(iv) and Exhibit B(v) were irrelevant to issues of representations made, for the following reasons. I find, Mr Davis did give the photographs in Exhibit B (iii) to Mr Lovick. But as these reasons earlier explain, I do not accept that Mr Lovick and Mr Davis had the conversation about them before the purchase that Mr Lovick alleges. They therefore can be ignored. The buy back letter, Exhibit B(iv), was sent by facsimile to Mr Lovick in late January 2004. But the plaintiffs abandoned their contract case and did not seek to make out any contractual right of "buy back". This letter was not relied upon as a source of any representations. But it raised some residual credit issues. I find that Doppstadt Australia gave Mr Lovick the last document, the operator's manual, Exhibit B(v), after the purchase, on 24 February 2004. The manual is of relevance to the performance of the machine but not to any documentary representation to Mr Lovick. The remaining contest therefore was about Exhibit B(i) and Exhibit B(ii).
Exhibit B(i). The original orange 4 page brochure, Exhibit B(i) cannot have been given to Mr Lovick in November 2003. It is dated September 2005. Mr Lovick went to trade shows in the United States after August 2005. I find that it was given to him at one of these trade shows. As it was not available to him before his purchase of the AK430K it can be ignored. Moreover, it appears to be a brochure not about the tracked AK430K that the plaintiffs purchased, but about the trailer version, the AK430 model. This particular brochure, Exhibit B(i) could not have been a source of any documentary representations in the proceedings. But this was not the end of the contest about a brochure in the form of Exhibit B(i).
Mr Lovick pursued an alternative, based upon secondary evidence. He said he had received a brochure identical in content to that marked Exhibit B(i), but which was dated May 2003; a brochure that could have been received prior to the plaintiffs' purchase. Mr Lovick pointed to the brochure attached to his original affidavit, which seemed in material respects to be identical to Exhibit B(i), except that the date on the back page was May 2003, not September 2005. The plaintiffs' case inferred that the original of that had been given to Mr Lovick and lost by previous lawyers. The evidence from Mr Tancred, which I accept, about the state in which the plaintiffs' files were received from previous lawyers, makes this explanation not improbable. For certainty, the May 2003 copy brochure in Mr Lovick's original sworn affidavit of 30 May 2006 was tendered and became Exhibit C.
But Mr Davis continued to insist that he had given Mr Lovick a different document, a photocopy of which he had kept in his files. This document was exhibited as part of Tab 4 to Mr Davis' principal affidavit. This contest was important because the May 2003 - Exhibit C document contained a few distinctly more positive representations about the performance of the AK430K than did the Tab 4 document. But the Tab 4 document was not itself without some representational content. What decides this issue against Mr Lovick is Mr Davis' superior record keeping system and Mr Lovick's failure to persuade the Court that he had more probably not picked up the May 2003 - Exhibit C document at a U.S. trade fair sometime after the plaintiffs' purchase. The reasons for this follow.
I accept Mr Davis' evidence that he did give the Tab 4 document to Mr Lovick, not the Exhibit C document. A difficulty with Exhibit C, is that even if the orginal were dated May 2003, Mr Lovick has not satisfied the Court that he acquired the document in Australia. It is not self-evident that it was a brochure even produced for the Australian market. Mr Davis denied seeing any brochure like the May 2003 brochure (Exhibit C) during his distributorship. I accept his denial. The structure and presentation of the Exhibit C May 2003 brochure did seem different from other brochures Mr Davis used in his business.
The plaintiff asked the Court to infer that Exhibit C must have been the brochure given to Mr Lovick, because the particular CAT12 (Caterpillar) engine, described in Exhibit C, was also referred to in the invoice that was sent out with the November proposal, which is described in more detail below. Most AK430K's had Mercedes not Caterpillar engines. But I do not think that it can be inferred from the November proposal invoice that a brochure referring to the CAT12 must have existed at the same time. It is equally plausible that the May 2003 - Exhibit C brochure, that mentions the CAT12, was produced for some other English speaking heavy equipment market, such as the United States.
Mr Davis gave evidence, which I accept, that the CAT12 was only first put into Doppstadt machines in about November 2003 and that he had not seen any brochure referring to the CAT12 in Australia by then. Even so, just because the May 2003 - Exhibit C brochure refers to the CAT12 that Doppstadt Australia was selling to Mr Davis, does not mean that particular brochure was available in Australia in November 2003. Because I accept that Mr Davis had good records of what he gave customers, he is more likely to be right than Mr Lovick about what he gave to Mr Lovick.
But the Tab 4 document did contain representations: that the shredder was "capable of most shredding jobs, equipped with patented load sensing feed control"; that he had "three - swinging hammer holders with quickly replaceable hammer tips, heavy rotational hammer mill mass ensures smooth operation at a thousand rpm"; and that it was for the "shredding of waste, wood, wooden pallets, small round wood, joinery offcuts, demolition timbers, green waste, organic waste, substitute fuels...". The impression even of these representations was one of a powerful machine able to undertake a variety of shredding jobs without much interruption.
Exhibit B(ii). I find that Mr Gillen did give to Mr Lovick the bundle of documents containing what could best be described as newsletters and another document entitled "advantages of the Doppstadt high-speed shredders". In my view, Mr Gillen did give both these groups of documents to Mr Lovick. Mr Gillen admitted that they were sent to Mr Lovick. I accept both his and Mr Lovick's evidence about this.
The "advantages" document is mostly irrelevant. It makes many representations through some 23 arrow points but none of them are particularly relevant to the performance difficulties that Mr Lovick says he later experienced. Much of the "advantages" document is concerned with issues of safety, superior design for accessibility, fuel efficiency and ease of access for repair. In my view, there is nothing in the document that much assists the plaintiffs' case, with the possible exception of two entries which say, in support of other statements: the "rotor turns at a thousand rpm" and "the motor is good on fuel and handles the workload". In my view, these statements reinforce the idea of a smooth operation in the face of contamination and management of a load even though contaminated to a degree.
The newsletter documents contained more positive representations about the AK430K. Although these newsletters are written in a narrative style, explaining the stories of customers of Doppstadt Australia, they have, for that very reason, a powerful impact. There were two such newsletters. One was not specific to any model (a two page newsletter). The other (a one page newsletter) was specific to the Doppstadt AK600, although it makes comments about the AK430K. It said that the AK430K on tracks was a "great way to go" from a contractor's point of view. Mr Gillen sent this newsletter to Mr Lovick before he had made up his mind, which of the models the plaintiffs would be acquiring. But it makes a representation about the AK430K to this extent. The other Exhibit B(ii) newsletter document which speaks generally, because its subject matter is parts and servicing support, a subject which is relevant to all shredders sold by Doppstadt Australia. On that subject it makes a number of important statements: (1) "we are way out in front when it comes to parts and service supply"; (2) "its not the cost of the part - it's the loss in time and revenue which results, if the machine is not working"; (3) the principles of Doppstadt Australia "come from an earth moving contractor background [as they did] and know only too well the importance of good parts and service backup"; and, (4) because waste processing is capital intensive "you need an equipment supply [Doppstadt Australia] with a seriously professional attitude to supply of parts and service". The two page brochure also, on another subject, states that AK430K "high-speed shredder" is "for one man operation".
In addition to these brochures, Doppstadt Australia sent Mr Lovick in November 2003 a formal proposal for the purchase of the Doppstadt AK430K.
The November Proposal
Doppstadt Australia sent a "proposal for equipment supply" to Engineering, for Mr Lovick's attention on 21 November 2003. This November proposal contained information about the product range and about three machines that Doppstadt Australia had for sale; the AK230, the AK430K and the SM518. Only the AK430K was a tracked vehicle and it was the one that Mr Lovick selected. The November proposal was divided into sections covering each of these machines for sale. Mr Gillen had written on the section of the November proposal dealing with the AK430K.
The November proposal contained a brochure which was relevantly identical to the Tab 4 brochure Mr Davis said he gave to Mr Lovick. This is another reason for inferring that Mr Davis was correct that the Tab 4 brochure not the Exhibit C brochure was given to Mr Lovick. The November proposal contained the pricing offer to sell the AK430K for $625,139 which was valid for 28 days.
(iv) The Lovick - Raymond Davis Meeting - 9 to 16 December 2003
In the first half of December 2003 Mr Lovick and Mr Davis spoke on the telephone then met. The conversations in both these contacts are disputed.
The 9 December Telephone Conversation. Mr Lovick says he recalls having a telephone conversation with Mr Gillen on 9 December 2003. Mr Lovick says he asked Mr Gillen, if Mr Gillen could provide him with a parts list and an operating expenditure list for the machine. Mr Gillen is said to have replied, according to Mr Lovick, "I don't actually have an operating expenditure list for the machine but I can send you a parts list we use in our machines, that we had to have used in our own machines". And according to Mr Lovick, Mr Gillen also said that he would add to the parts list the frequency with which part replacement was required.
Something like this was undoubtedly said. Shortly afterwards Doppstadt Australia sent such a document to Mr Lovick. But what arrived was no more than history of the parts consumed by Davis Earthmoving machines, to illustrate how frequently it was necessary to replace their consumable items.
The mid-December Terry Hills Meeting. Mr Ray Davis met Mr Lovick between 9 and 16 December 2003 at the Doppstadt office at Terry Hills. Mr Davis and Mr Lovick are to be accepted on different parts of this conversation.
Mr Lovick said that "I explained to him that I was new to the grinding industry". This was odd because Mr Lovick had already met Mr Davis, although briefly, the last time he was at the office. I do not think this was repeated.
According to Mr Lovick, Mr Davis spoke extensively on this occasion, about the history of Doppstadt Australia and Davis Earthmoving. I accept this occurred. Mr Davis explained that after seeing Doppstadt grinders at a trade show in Germany he, Mr Davis, did further research in relation to green waste processing and ordered his first Doppstadt grinder, after which he was awarded the Doppstadt dealership in Australia.
The machine, which had previously been at Port Macquarie, was by then in the Davis Earthmoving yard. According to Mr Lovick, to allay Mr Lovick's fears about the chassis strength and some observed chassis cracking of these machines, Mr Davis explained that they had been modified: "you don't need to worry about all that stuff, because you know Doppstadt have modified the new machines and those new machines have all those modifications...they've been strengthened". Mr Davis went on to explain, "all those areas that cracked on this old machine have been modified and made stronger on this new machine". Mr Lovick said he thought that in saying this Mr Davis was talking about the AK430K, which had been in Port Macquarie. Mr Davis also said, according to Mr Lovick, "look you don't have to worry about the machine because you get a full 12 months warranty with it and, you know, it's a perfect machine for the job you want to do". I accept that this conversation took place and that the effect of what Mr Davis was saying was that the machine would operate reliably despite the previously observed chassis cracking. Mr Lovick gave a good account of this conversation in his oral evidence in chief with little prompting. His account was not displaced in cross-examination.
The subject of possible electrical problems with the AK430K was also discussed on this occasion. I accept Mr Lovick's evidence that Mr Davis said to him, "we did have a small electrical problem with it but our electrician had repaired that fault in it, and it was just a faulty earth". I accept that Mr Davis pointed out some electrical components on the machine, which was in front of them (not the machine that the plaintiffs actually purchased), and said "that's the component that our electrician had to fit to fix the electrical problem in the machine" and Mr Davis then reassured Mr Lovick about the quality of the machine. I do not accept that Mr Davis said it was "a perfect machine". But in my view Mr Davis did say something to the effect that the machine was a very good one, now that any mechanical or electrical issues had been fixed.
I accept Mr Lovick's evidence that there was general discussion about what Mr Lovick wanted to do in the industry. I accept Mr Lovick explained to Mr Davis "there's three main contracts that I'm looking at to hopefully win, which are coming up in the near future". Mr Lovick says that he identified these contracts as the NetWaste contract, the NIRW Contract and the REROC Contract. These are all contracts actually let by groups of regional councils.
Regional groups of councils do combine for greater efficiency to jointly contract out their waste disposal requirements. In response to this description about the council groups Mr Davis was said to have replied "yes I know, all of those council groups and I have done work for the lot of them, and this machine will be perfect for that operation, and to be able to service those councils". Mr Lovick says he in turn said to Mr Davis "I don't want to be in a situation where I am tendering for these contracts and you are also tendering for these contracts". I accept that Mr Davis promised that he would not tender for the contracts, if Mr Lovick purchased the machine. I accept this industry discussion took place as Mr Lovick claimed.
The follow-up phone call. Shortly after the meeting at Terry Hills Mr Lovick says Mr Davis rang Mr Lovick when Mr Lovick was on the road. I accept that such a phone call took place. Mr Lovick was getting to the point of decision and was finding it difficult. He was in my view looking for reassurance. Mr Lovick is convinced he asked Mr Davis on this occasion "what sort of warranty am I going to get". In response Mr Davis reiterated "you will get a 12 month warranty with the machine".
According to Mr Lovick the subject of service to the AK430K was discussed on the telephone. Mr Lovick enquired about servicing the machine in the event he needed to call upon the warranty repairs when the machine was outside Sydney. Mr Davis then said, according to Mr Lovick, "that won't be an issue" and he went on "if ever you have an issue with the machine I will put a serviceman in the vehicle and send that serviceman out to assist you with any warranty repairs that come up". But Mr Lovick said Mr Davis further explained, "look you will not have any warranty repairs. This is just a great machine. It is one of the best machines around. And when people realise it they will start to buy a lot of these machines...because these are the best machines on the market". Mr Davis denies using such superlative language. But I find that he did. Repairs and servicing was the outstanding issues for Mr Lovick. Mr Davis felt he needed to persuade him on this. And he did so by inferring that the AK430K was a more reliable maintenance proposition than other machines on the market.
Mr Lovick also said that Mr Davis also made statements in this conversation about the profitability of the machine. The statements were to the effect, "you will turn over $5,000 a day with the machine and, you know, you will make a lot of money out of the machine". I am not persuaded that Mr Davis made such random estimates of profit without having any detailed knowledge of the plaintiffs' operating plans. These statements were the product of reconstruction on Mr Lovick's part.
The Late January 2004 Buy Back Offer
At this point in the narrative, after the fourth and before the fifth conversation, in late January 2004, a strongly disputed conversation occurred about the repurchase of the machine is said to have occurred. Mr Lovick explained that the idea of a guarantee of re-purchase of the AK430K came up in conversation; if "there is some way he can provide me with some level of assurance that should it not work out for me that he would buy the machine back off me, you know, again if I was unable to make a success of it in the business."
This was a strange approach for Mr Lovick. It shows Mr Lovick having a very negative view about his prospects in the business. I am not convinced that was his then outlook. In my view, before purchase, Mr Lovick was optimistic about his future use of the machine, although cautious. According to Mr Lovick, Mr Davis is said to have replied, "yes I suppose that won't be a problem. What are you actually talking about? What is that you want?"
Mr Lovick says he then put to Mr Davis, "Well if I had a guarantee from you that if within 12 months I wasn't able to make a success of the business, would you buy the machine back? Would you be able to give that to me in writing?" According to Mr Lovick, Mr Davis offered the opinion that it would "not be a problem", and Mr Davis said that he would get it back to Mr Lovick.
Some such conversation must have taken place shortly prior to 27 January 2004. Mr Davis sent a letter through to Mr Lovick about this time and about this general subject matter. But the letter said something quite different from Mr Lovick's recollection of the conversation. It was as follows:-
"Doppstadt Australia Pty Ltd is prepared to offer a buy-back on the AK430 Doppstadt Shreader from you as a guarantee to your bank as requested, after one year, for a full price of $450,000.00 plus GST. The conditions are that the machine is in good working order, must have no more than 2,000 hours."
The relevant difference between Mr Lovick's version and the document sent is that the facsimile offers a buy back "as a guarantee to your bank as requested, after one year" [emphasis added]. The reference to the bank is coincident with Mr Davis' version of the conversation. He says that Mr Lovick asked for the facsimile, so he (Mr Lovick) could give it to Mr Lovick's bank.
Mr Davis' version of this conversation is more likely to be correct. Mr Davis' recollection of the bank being the motivation for the creation of the document is consistent with the internal evidence of the facsimile. And I do not believe that Mr Lovick was so negative about his prospects of making a success of this business that he asked to have the machine bought back from him, if he failed. He did not then expect failure.
But there is another difference between the parties about this conversation. Mr Davis produced an original of the Doppstadt Australia letter which was identical to the facsimile copy said to have been received, except in one respect. After the last words "2000 hours" in the original the following further words also appear, "and only if John Lovick goes into liquidation".
Just how a faxed version of that document came into Mr Lovick's possession without those last words remained a mystery on the evidence. Mr Lovick says that is how he received it. It is reasonably clear, as Mr Davis submits, that in the faxed copy after the words "2000 hours" there is a comma not a full stop. I infer that someone has rubbed out, or whited out, the last words, after the comma "and only if John Lovick goes into liquidation", without changing the comma to a full stop. That could perhaps have been done by Mr Davis before it was sent, or by Mr Lovick before it was photocopied, or by somebody else without the knowledge of either of them. I eliminate the last hypothesis from my consideration because neither Mr Davis nor Mr Lovick expressed the slightest interest in finding out what third party might have done it. Neither of them ever thought a third party was responsible. It must have been done by Mr Lovick or Mr Davis. But why? The words would restrict the operation of the buy back to Mr Lovick falling into financial difficulty. So rubbing these words out would broaden the scope of the offer and assist Mr Lovick.
It is difficult to see how the defendants could have been advantaged by deleting these words. In the end the plaintiffs abandoned their contract case and did not press any contractual obligations on the part of Doppstadt Australia to repurchase the machine. Thus the provenance of the facsimile copy of this email was not fully tested. All that can be said, in those circumstances, is that the removal of the words were suspicious and advantaged Mr Lovick.
Representations about the Perfect Machine. Mr Davis laughed at the idea that he would describe the Doppstadt "as a perfect machine" or even that he described it as perfect for Mr Lovick's work. Early in his evidence he did not appear to the Court to be prone to exaggeration. Although his reliability deteriorated as his evidence went on. I do not think he made such an exaggerated representation to Mr Lovick. He was proud of being the Australian representative of Doppstadt Germany. He did describe the machines as "very good", but not in my view as "perfect".
(v) The Lovick- Raymond Davis 29 January 2004 Telephone Call
The last Lovick - Davis conversation is alleged to have taken place on 29 January 2004, just before delivery of the machine. Uniquely among the pre-purchase conversations, it was a conversation about the operation of the particular AK430K that was actually purchased, rather than about the model. But ultimately it was not a conversation which added very much to what had gone before.
Mr Lovick says that in this conversation he asked Mr Davis "why he had this machine in stock, although it had 90 hours on it". Mr Davis explained that it had been purchased by Australian Native Landscapes, which had then changed its mind about the purchase. This was indeed, according to Mr Davis the reason the machine was available. I find that Mr Davis did say this. But this seems to have been the actual history of the machine and nothing misleading arose from this statement.
Mr Lovick says he then said to Mr Davis on 29 January 2004, "what can I expect in terms of output of the machine?" Mr Davis is then said to have said "you can expect up to 200 cubic metres [per hour]. You will get between 120 and 200 cubic metres [per hour] output of the machine, depending on what material you feed into the machine". This was an increase on the estimate I have already found that Mr Gillen had given on 6 November 2003. I do not think it was said in these terms. But I do accept that Mr Davis said something similar to what Mr Gillen did on 6 November. 200 cubic metres per hour may have been mentioned as a peak valve only, not on average.
According to Mr Lovick, Mr Davis then went on to say, "look you are not going to find a better machine. The machine is fully covered by 12 months warranty, and you know we use the machine, so you know".
Mr Lovick says he discussed the AK430K's handling of contamination: with Mr Davis saying "you are not going to find a better machine on the market to handle contamination". In my view it is probable that this was said: Mr Davis had made similar statements earlier. Mr Lovick was seeking further assurance on this issue and gained it.
Signing the Sale Documents
Mr Lovick signed the contract documents on behalf of Developments on February 2004. Developments immediately made the AK430K available to Engineering, as it had for all other heavy equipment for Engineering's contracting business.
The plaintiffs needed to apply for finance to acquire the AK430K. Mr Lovick constructed a budget to assist him to decide whether the acquisition of the shredder was financially viable and to assist in applying for finance. Mr Lovick constructed this document himself. It makes assumptions about the number of hours of annual production (1500 to 2000) but budgets for a conservative 1000 hours. The cost per cubic metre is based on a declared "120 cubic metres per hour", although the budget also says "this machine is capable of producing over 200 cubic metres per hour". In my view, the contents of the February 2004 budget confirm that Mr Davis and Mr Gillen said to Mr Lovick what the Court has found. They did convey to him that the machine was capable of 200 cubic metres per hour, but only in certain conditions.
Developments obtained finance from CBFC Limited to acquire the AK430K. The CBFC Limited Equipment Loan Schedule indicated a total loan amount of $662,561, together with interest of $121,836.85, comprising a total amount of repayments of $784,397.85. The amount borrowed was repayable monthly in instalments of $12,274.15. CBFC Limited took a first mortgage over the AK430K. Developments' loan obligations to CBFC Limited were guaranteed by Mr Lovick, his wife and by Engineering.
Once finance approval had been obtained Mr Lovick resolved to purchase the AK430K. He telephoned Mr Davis in mid February. As a result, Doppstadt Australia issued an invoice to Developments dated 19 February 2004 for a selling price of $595,000 plus extras (a screening basket) for $7,328, making a total price of $602,328, plus 10 per cent GST, making the total payable $662,561. Payment was stated to be due before delivery by a bank cheque or electronic funds transfer. It is not in contest that funds were supplied shortly thereafter and the machine was delivered on 24 February 2004.
Before delivery there was one more contact between Mr Lovick and Mr Davis.
(vi) The Lovick - Raymond Davis Meeting of 23 February 2004
Another meeting took place on 23 February 2004, just before delivery of the machine. But this was too late for any representations made to be effective. Mr Lovick had committed Engineering and Developments to the acquisition and use of the Doppstadt AK430K in the first week of February 2004. Representations made on the 23 February 2004 did not induce Mr Lovick to do anything in relation to this shredder to which he had not already committed. The content of this conversation was not relied on as assisting the plaintiff's case.
Other Conduct about the Time of Sale
Mr Lovick took steps about the time of sale that assist the Court in drawing inferences about what Mr Davis and Mr Gillen said to Mr Lovick and the extent to which Mr Lovick took note of certain warnings about pre-shearing of the material to be processed.
The parties were at issue about whether Mr Davis told Mr Lovick to limit the size of the material fed into the machine. Mr Lovick denied that Mr Davis said this. In contrast, Mr Davis said he had given a clear warning about the dangers of feeding oversized material into the machine. The Court prefers Mr Davis on this issue.
Mr Lovick did not propose to operate the machine personally. He had a business to run. So shortly after his purchase, he created his own Operator's Manual for the AK430K for the guidance of his operators, so they would understand how he wanted the machine run. This manual that Mr Lovick created is to be distinguished from the official Doppstadt Operators Manual that Developments received on purchase. Mr Lovick's Manual was his summary of what he wanted to emphasise to his operators. The Manual contained the following instruction:-
"9. Oversize Logs and Stumps to the side for shearing. Material over 200 mm (8") in diameter and 500 mm (24") in length should be put aside. Shearing will downsize the material and allow it to be ground and processed much faster."
Mr Lovick agreed that the only place that he could have obtained this information about how to operate the machine was from Mr Davis. It was not something Mr Lovick was likely to come up with himself. At about the time the machine was purchased Mr Davis must have told Mr Lovick about limiting the size of material going into the machine. This supports Mr Davis' evidence and supports the Court's preference for his version over Mr Lovick's version.
The Operator's Manual outlines the detail of what I infer Mr Davis said to Mr Lovick on this subject of pre-shearing material. Mr Davis said that he warned Mr Lovick to shear material "over 200 millimetres in diameter". Such a specific warning about material beyond a certain size is quite consistent with what Mr Lovick wrote down in his manual. I accept that Mr Davis warned Mr Lovick to pre-shear material for shredding in excess of 200 millimetres.
Mr Lovick took other steps at the time of sale that help the Court to decide what Mr Davis said to him.
Findings as to the Pleaded representations
The plaintiffs' final pleading, the Further Amended Statement of Claim ("FASC"), alleged the defendants made 26 separate representations to Mr Lovick on behalf of Developments and Engineering. Not all, but most of those 26 representations have been made out. Indeed the defendants submitted that some of the representations that the plaintiffs relied upon in closing submissions had not been pleaded. An example of this was the representations said to arise from discussions on 14 November 2003 between Mr Lovick and Mr Davis about the photographs Mr Lovick claimed had been sent to him. In the result this particular pleading issue was not material, as the Court did not find that this conversation took place in the terms that Mr Lovick asserted. The plaintiffs' case must be confined to the scope of its pleaded representations. So the structure of the Court's conclusions about representations in this section is based on what the plaintiff's allege in FASC paragraph 14.
The Landfill and Council Suitability Representations. In my view both these representations were misleading and deceptive. The lack of performance of the machine immediately upon delivery is a basis to infer its unsuitability. The unsuitability existed in my view at the time of delivery.
The Davis Use Representation. In my view this representation was not misleading and deceptive. Mr Davis did use these machines.
The Fixed Cracking Representation. In my view the engineer Mr Brander's evidence does support findings of cracking in June 2005. But that evidence is too late in my view. It was an inspection organised after the machine had been used for 12 months by Engineering. I am not prepared to find this representation was misleading and deceptive.
The Problems Representation. In my view this representation was misleading and deceptive at the time of purchase for the same reasons as the suitability representation was.
The Fixed Electrical Representation. There is ample evidence to support this being misleading and deceptive. There is no basis to infer that Mr Lovick interfered with the electrics of the machine. Multiple electrical problems were recorded at the beginning, leading to downtime. The electrical problems are supported by Mr Agland, a licensed electrician who gave evidence for the plaintiffs. This was a misleading and deceptive representation.
The Maintenance Reliability Representation. In my view there is insufficient evidence in the case to infer the maintenance reliability of the AK430K in relation to the Petersen shredder, because the Petersen was of a different size and capacity. Although the Petersen and the Doppstadt performed differently they are not a direct comparison.
The Technical Capacity Representations. To the extent that the technical capacity representations assert smooth and powerful operation, in my view, for the reasons already stated they were misleading and deceptive.
The Staff Training Representation. The staff training representation was not misleading and deceptive. The employees had been so trained.
Finally, there were two other representations that appear to relate only to future matters, the maintenance reliability representation and the country repair representation. In my view there were delays in getting parts and service personnel to the country. The defendants have not called evidence to establish reasonable grounds for making these representations. They should be taken to be misleading and deceptive in my view.
In light of the Court's findings there are a number of issues to be determined to allocate what losses the plaintiff's have suffered, the issues of contributory negligence or failure to mitigate, the issue of concurrent wrongdoers and the assessment of the quantum of damages. It is to these issues the Court now turns.
C. The Plaintiffs' Reliance
The third question is whether the plaintiffs relied upon the representations to their detriment. I infer that Mr Lovick, acting on behalf of the plaintiffs relied upon each one of the representations that Mr Davis and Mr Gillen made to him. That inference can be drawn with confidence in this case because of a number of special factors.
First, I accept Mr Lovick, who says that he relied upon the representations, which have been established in the evidence. At one point in his oral evidence Mr Lovick explained why he was asking Mr Davis personally questions about the machines: "I was specifically asking him at this point in time about the operations of the Doppstadt machines and, in particular, his business and his operation because he owned machines -- not only did he own the dealership but he owned the two machines that he was using in his own business that I wanted to get into myself." To Mr Lovick, Mr Davis's experience as a owner operator of Doppstadt machines was an important assurance of their reliability. I accept this explanation as Mr Lovick's genuine reasons for wishing to question Mr Davis, as he did.
Secondly, it is inherently probable that Mr Lovick did rely upon representations made by Mr Davis and Mr Gillen. Despite the fact that Mr Lovick was reasonably satisfied with his knowledge of heavy machinery, shredding machines were quite new to him. Through the plaintiffs Mr Lovick was committing what for him was a not inconsiderable sum of money, approximately $600,000. He was anxious to get reassurance about those many things that he did not yet know about that these shredding machines. He did set up a number of meetings and spontaneously ring Mr Davies and Mr Gillen on a number of occasions to assist him in his decision-making. What they said to him on these occasions was important to him and I find that he relied upon it.
Thirdly, the Doppstadt high-speed shredders were specialised pieces of heavy equipment. It is natural that Mr Lovick would look to Mr Davis and Mr Gillen who were far more familiar with the equipment and who came with the imprimatur of being the Australian representative of Doppstadt Germany. Doppstadt Australia's newsletters promoted its connection with Doppstadt Germany for Australian personnel training in Germany and promoted the idea of German technical expertise being made available to its Australian distributor.
Fourthly, there is little evidence of Mr Lovick double-checking many of the representations made to him. The proper explanation for this is that he relied upon the representations and did not feel it necessary to check them. He could have run tests about the output of the machine. He could have had engineers look at the chassis or the electricals before purchase. He could have sought more detailed logs about the prior operation of the machine before the plaintiffs purchased. He did not do this in my view because he relied upon the representations made to him. In any event his failure to inquire about these things is not an obstacle to drawing an inference that he relied upon the representations: Henjo Investments Pty Limited v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546.
D. Is Mr Davis liable as a Principal or an Accessory?
The fourth question is whether Mr Davis is a principal in or an accessory to any misleading or deceptive conduct found against Doppstadt Australia. The plaintiff puts its case against Mr Davis in three ways: (1) under Trade Practices Act, s75B; (2) under Fair Trading Act, ss 41 and 42; and (3) in tort for negligent misstatement. The alleged Trade Practices Act, s75B liability is purely accessorial. The Fair Trading Act and tortious liability is as a principal. The Court finds that Mr Davis is liable as a principal both under the Fair Trading Act and in tort. Despite that, it is useful first to examine the scope of his potential liability under Trade Practices Act, s75B.
Although the Trade Practices Act and the Fair Trading Act speak of misleading and deceptive "conduct", the case was pleaded and conducted as one of representations and mindful that the statute looks more broadly it is nevertheless convenient to analyse the case in terms of representations.
Mr Davis was an actor in most of the representations pleaded and found to be established. He had no involvement in, nor can it be inferred any knowledge of, Mr Gillen's representations. It is unclear whether he was even told about what Mr Gillen had said to Mr Lovick. Those representations can be put to one side.
The other representations in which Mr Davis was an actor are of two kinds. He was the representing party in respect of those oral statements attributed to him identified earlier in these reasons. He was also an actor in the various publications Doppstadt Australia gave to Mr Lovick also identified earlier in these reasons. To the extent that a representation is publication-based, it is to be inferred that Mr Davis was knowingly concerned in it.
This inference arises from the way Mr Davis himself said that he ran the business of Doppstadt Australia. Mr Davis had a system for keeping copies of documents that he gave to customers such as Mr Lovick. Mr Davis created that system and I find that it was both efficient and effective. As a consequence, in my view, Mr Davis was well aware of what was being given to Doppstadt Australia's customers, even if he did not himself draft the various brochures given to Mr Lovick. Moreover, Mr Davis struck the court as someone who was keen to know what was happening in his businesses and was likely to be aware of the contents of such brochures and that they were being given to customers.
In my view Mr Davis is a person liable under Trade Practices Act, s 75B for all Doppstadt Australia's contraventions of Trade Practices Act, s 52 with two exceptions. The first exception are contraventions arising out of Mr Gillen's representations, which the plaintiffs have not established Mr Davis "aided, abetted, counselled or procured". Nor has it been established that he was "directly or indirectly knowingly concerned in or party to" such contraventions. In my view Mr Davis was knowingly concerned in the other representations that have been established.
Mr Davis is not liable under Trade Practices Act, s 75B for those contraventions about future matters which arise from the operation of Trade Practices Act, s 51A: Quinlivan v ACCC [2004] FCAFC 175. As these reasons have already identified there are a number of such contraventions.
But the plaintiffs' relief against Mr Davis does not need to distinguish between those representations that involve future matters in those that do not. The plaintiffs' pleaded case under Fair Trading Act, ss 41 and 42 fills the gap. Mr Davis is liable for all his representations as to future matters that are found to be contraventions of Fair Trading Act, ss 41 and 42. Thus the only representations which amount to contraventions of the Fair Trading Act, ss 41 and 42 for which Mr Davis is not liable, are those in which, Mr Gillen was involved.
The plaintiffs' case in tort adds little to that available against Mr Davis under Fair Trading Act, ss 41 and 42. Mr Davis was centrally involved in negotiating this transaction. He was the decision maker within Doppstadt Australia committing it to the transaction. He was the controlling shareholder in and a director of Doppstadt Australia. He was an actor in making each of the representations; he was either the speaker of statements made or was aware of the contents of brochures being given to the plaintiffs. He was making these statements to Mr Lovick to gain the indirect financial advantage of the plaintiffs completing a transaction with the company in which he, Mr Davies had an economic interest. I do not accept Mr Davis claims of lack of knowledge of Mr Gillen's correspondence with Doppstadt Germany. It was clear from the way Mr Davis presented to the Court that he was well aware of the day-to-day operations of Doppstadt Australia. Because of this close involvement, in my view he was well aware of what facts lay behind representations he was making.
In my view, when tort is considered, this was clear situation of known reliance by Mr Lovick on what Mr Davis was saying to him. Mr Davis had a greater expertise. The sale was in the offing. The law will impose on Mr Davis and duty to take reasonable care not to make false or misleading statements. He satisfies the tests for personal liability due to his close involvement: King & Rylands v Milpurrurru, Marika, Payunka & Public Trustee for the Northern Territory (1996) 66 FCR 474 and Rexstraw v Johnson [2003] NSWCA 287. But Mr Davis' liability is sufficiently accounted for in these reasons and in the following analysis, by the operation of Fair Trading Act, ss 41 and 42.
E. Contributory Negligence and Failure to Mitigate
The defendants allege the plaintiffs are guilty of contributory negligence and have failed to mitigate their loss, such that the plaintiffs' case should be significantly reduced in quantum from that claimed. The Court's findings about contributory negligence and failure to mitigate mostly emerge from the findings already made about the plaintiffs' operation of the Doppstadt AK430K. But there are some additional perspectives on these subjects.
Contributory Negligence
The defendants allege that the plaintiffs are guilty of contributory negligence in a number of respects. The defendants bear the onus of proof of establishing contributory negligence. Contributory negligence is an available defence in relation to the Trade Practices Act and Fair Trading Act claims: Trade Practices Act, s 82(1B) and Fair Trading Act, s 75. Upon a finding of contributory negligence a claimant may still recover such amount as the court thinks "just and equitable" having regard to the claimants share in responsibility for the damage.
On the matters of alleged contributory negligence raised, in my view, the defendants have established failures by the plaintiffs to service, maintain and repair the machine at all times. But I do not think that these are matters of contributory negligence, which generally occurs at or in association with the negligence or contravention the subject of the claim. Here the defendants' allegations of poor maintenance, of failure to repair, and of reckless operations, come later in time. The better approach in my view is to look at these matters, as indeed the defendants do in the alternative, as matters of causation of damage, or failure to mitigate loss. Only one of the matters the defendant raises is truly contemporaneous with the purchase and is one of contributory negligence. That is considered here. The others are considered below under the heading mitigation of loss.
The defendants allege that the plaintiffs failed to make reasonable enquiries to ensure that the AK430K was suitable for the Lovick business model and Engineering's operations.
This contention has a simple answer. Mr Lovick did make enquiries and many of them, to both Mr Davis and Mr Gillen. He can hardly be blamed for not making other enquiries when he was looking for and obtaining assurance about the suitability of the Doppstadt AK430K for his purposes from both Mr Davis and Mr Gillen and supported by the publications that Doppstadt Australia gave to him. There is no contributory negligence on this account.
Failure to Mitigate Loss
The defendants also argued that the plaintiffs have not acted reasonably to mitigate their loss.
The defendants allege that the plaintiffs failed properly to take reasonable steps to service, maintain and repair the AK430K contributing to its poor condition and loss of value. The defendants point to a number of worrying indications in the evidence that the plaintiffs did not maintain this machine as well as might be expected of a reasonable operator. Although, as indicated, the defendants language in putting this case is the language of contributory negligence, in reality this is an issue of causation and mitigation.
I accept the evidence of Mr Davis and Mr D'Appollonio that they each inspected the shredder when it was at Ritchie Bros auctions in February 2007 awaiting sale. Their observations of the machine are consistent with a failure to maintain the machine's belts, with oversized logs being processed through the shredder, with failing to avoid steel contamination being fed into the machine, with failing to grease the shredder's moving parts, and with bypassing safety switches. Whilst I somewhat discount Mr Davis's evidence because of his self-interest, I found Mr D'Appollonio's evidence persuasive on this subject. In my view the objective evidence of the machine itself showed a failure to take reasonable care.
How is to be reconciled with the evidence of Mr Wilton and Mr Triantafyllou, who gave evidence of reasonable use of the machine which the Court mostly accepts? In my view their evidence was excellent as far as it went. But as has been explained above it did not account for all the plaintiffs' operations. The plaintiffs did not call Mr Missingham or Mr Goldie, the other operators of the machine between February 2004 and February 2005. Moreover, there were systemic problems in Engineering's fledgling contracting business. The defendants rightly point to a lack of consistent and coherent maintenance records for the subject machine during its year of operations. Mr Lovick did not have a proper record keeping system to verify in a consistent way the maintenance he says was undertaken on the machine. In the absence of proof of such a system the Court is not prepared to infer that proper maintenance was always conducted as it should have been as he says.
The defendants also allege that the plaintiffs failed to take reasonable steps to operate the AK430K contributing to its poor condition and loss of value. The absence of the two early operators, Mr Massingham and Mr Goldie, means that their operations of the shredder are unaccounted for. Whilst the Court formed a very positive impression of Mr Wilton and Mr Triantafyllou, the Court is not prepared to infer that the machine was always operated well during the balance of the early operating period, February 2004 to February 2005. Indeed, I find that even an employee as genuinely good as Mr Triantafyllou, did himself on occasions put oversized trees (with a diameter of 400 mm) into the hopper of the shredder from time to time. There is also some evidence for example, evidence that I accept, that later on Mr Agland bypassed safety switches, because it was convenient to do so when he was doing his investigations of the shredder. Mr Lovick was generally well served by Mr Wilton and Mr Triantafyllou but he was not always able to control or account for his other operators.
Finally, the defendants allege that once Engineering ceased to use the shredder in February 2005 that Developments did not sell it quickly, and allowed it to fall into disrepair. The defendants assert that it had a substantial value in September 2004 of $590,000, when a sale to M & R Mulchers was being contemplated.
But there are two difficulties with this argument about the alleged late sale of the machine. I am not persuaded that the machine was worth $590,000 in September 2004. A sale did not go through at that price. Moreover, the plaintiffs' conduct in trying to sell the machine is not to be judged by too exacting standard, when the new machine, the Petersen, had just been acquired, and Engineering was attempting to make a go of its business with the new machine. Selling the Doppstadt was understandably then a lesser priority.
In my view there should be some reduction in the plaintiffs' damages on account of the plaintiffs' failure to mitigate their loss after they acquired the AK430K as a result of the defendants' misleading and deceptive conduct. All their losses did not result from that conduct. In my view taking into account all the factors that the defendants raise, the plaintiffs should be assessed as being responsible for causing themselves and in failing to mitigate their losses, a proportion of one third of the loss and damage they claim in respect of the machine.
F. Concurrent Wrongdoers
The defendants also contend: that Mr Lovick and Engineering are concurrent wrongdoers in Developments' claim; and that Developments and Mr Lovick are concurrent wrongdoers in Engineering's claim. The defendants allege that each of the claims of Developpments and Engineering should be reduced on account of the responsibility of the concurrent wrongdoers. Evaluation of that submission requires discussion of the applicable law and an assessment of Mr Lovick's role within the two companies.
Applicable Legal Principles
The defendants raise the concurrent liability provisions of the Civil Liability Act and the Trade Practices Act. The defendants relied upon Trade Practices Act, Part VIA and Civil Liability Act, Part 4. The purpose of these provisions is to visit on each concurrent wrongdoer only that amount of liability which the Court considers "just" having regard to the comparative responsibilities of all wrongdoers for the plaintiff's loss: Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463 at [93]-[94] and Vella v Permanent Mortgages Pty Ltd (2008) 13 BPR 25,343.
The Trade Practices Act, Part VIA and Civil Liability Act, Part 4 were enacted in relevantly identical terms. Both are deployed by the defendants to meet the plaintiffs' Trade Practices Act and the Fair Trading Act claims. Trade Practices Act, s 87CD(1), (3) and (4) provide as follows:
"(1) In any proceedings involving an apportionable claim:
(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss; and
(b) the court may give judgment against the defendant for not more than that amount.
...
(3) In apportioning responsibility between defendants in the proceedings:
(a) the court is to exclude that proportion of the damage or loss in relation to which the plaintiff is contributorily negligent under any relevant law; and
(b) the court may have regard to the comparative responsibility of any concurrent wrongdoer who is not a party to the proceedings.
(4) This section applies in proceedings involving an apportionable claim whether or not all concurrent wrongdoers are parties to the proceedings."
The plaintiffs' claim in these proceedings is undoubtedly an "apportionable claim", being a claim for damages under Trade Practices Act, s 82 and Fair Trading Act, s 42. Civil Liability Act, s 34(1)(b) applies Part 4 to contraventions of Fair Trading Act, s 42. It also arises from a "failure to take reasonable care" on the part of the defendants: Civil Liability Act, s 34(1)(a). I do not accept that the defendants' conduct involved an intentional deception of Mr Lovick. The representations made were a failure to take reasonable care.
Trade Practices Act, s 87CD and Civil Liability Act, s 35 are applied analogously with Law Reform (Miscellaneous Provisions) Act 1946, s 5; Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463 per Palmer J at [94]. The principle is applied analogously to the assessment of contribution between tortfeasors which requires the Court to have regard to comparative culpability, of the acts of the parties causing the damage, the relative blameworthiness and relevant causal potency of the negligence of each party and the whole of the conduct of each party in relation to the circumstances of the loss by way of a comparative examination: Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 at [60] per Barrett J, Chandra v Perpetual Trustees Victoria Limited [2007] NSWSC 694 [110] and [111] and in Vinidex Tubemakers Pty Ltd v Thiess Contractors Pty Ltd [2000] NSWCA 67 at [29]. My approach to this apportionment exercise is similar to taken by Barrett J in Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 at [60] where his Honour described his principal task as making findings about (1) the degree of departure from the standard of care of the reasonable man as regards the causative conduct of the putative concurrent wrongdoer and the defendants, and (2) relative importance of the acts of the putative wrongdoer and the defendants in causing the economic loss suffered.
The plaintiffs did not contend that Trade Practices Act, Part VIA and Civil Liability Act, Part 4 did not apply to their claim. There is unlikely to be any difference between an apportionment under Trade Practices Act, Part VIA and under Civil Liability Act, Part 4.
In my view, because Mr Lovick was the controlling mind of each of Engineering and Developments, the conduct and relative blameworthiness of Mr Lovick is to be exactly identified with each of these two corporate entities with which he is associated, Engineering and Developments. In my view, the plaintiffs' claims should not be apportioned in the way that the defendants invite. But rather Engineering and Developments should be seen as entities identified with Mr Lovick and not independent actors who somehow took responsibility for decision-making separately from him. That would be a wrong and overly artificial approach and I decline to take it in this case. There will be a reduction of the plaintiffs' damages in an amount of one third on account of the plaintiffs' failure to mitigate their losses but no additional apportionment among the plaintiffs inter se, because they are all in reality creatures of the one decision maker, Mr Lovick.
Complexity can sometimes arise in the apportionment process when the position of a corporate actor is being assessed for apportionment purposes as well as the position of its individual directors or executives. In considering for example whether a corporate actor has failed to take reasonable care for its own protection a court does not concern itself, except incidentally with the knowledge of its individual directors. The complexity usually arises where the board of directors, which represents the corporate mind of a corporate actor, is comprised of a number of individuals with differing involvement in the underlying transactions and different personal culpability. Prominent examples of this in the cases are Daniels v Anderson (1995) 37 NSWLR 438 per Clark JA and Sheller JA 570G - 578E and Duke Group (in Liq) v Pilmer (No 2) [2000] SASC 418. The present case does not have this complexity. I identify Mr Lovick as the directing mind responsible for the actions of both plaintiffs in this transaction. Their relevant corporate conduct was relevantly indistinguishable from Mr Lovick's conduct. Both corporate entities are identified with their principal actors. There is no occasion for the corporate actors to have a different responsibility as wrongdoers from the responsibility of the natural persons who were their representatives in the transaction.
Once pleaded the assessment of proportionate liability is a necessary element of the Court's reasoning to final judgment, because the Court may only give judgment against the defendants for not more than the amount which is assessed to be just for the defendant concurrent wrongdoer: Trade Practices Act, s 87CD (1)(b) and Civil Liability Act, s 35(1)(b). The questions for decision are (1) whether Mr Lovick/Engineering are concurrent wrongdoers with the defendants in respect of Developments' claim and whether Mr Lovick/Developments are concurrent wrongdoers with the defendants in respect of Engineering's claim and (2) what is the amount that reflects the proportion of the damage that the Court considers "just" having regard to the extent of the defendants' responsibility for the plaintiffs' damage or loss. In my view the persons alleged are concurrent wrongdoers with the defendants but no separate proportion of each plaintiff's damage should justly be attributed to these concurrent wrongdoers.
G. Damages
The final question is to what damages are the plaintiffs entitled? The plaintiffs claimed compensation upon the basis that Mr Davis had represented to the plaintiffs that the AK430K could shred 200 cubic metres of material per hour, a representation that was misleading and deceptive and acted upon. In the result the Court has not found that representation was made. But the Court has found that other representations as to the quality of the machine were made.
But the Court's findings are different from the position contended for by either party. It may be unfair to one or other party to proceed immediately to assessment. Before doing that the Court will give a short opportunity (14 days) for the parties to advance any written submissions. Then the Court will assess damages based on these findings.
Conclusions and Orders
In the result, the plaintiff has made out at least some of the representations they pleaded about the quality and performance characteristics of the Doppstadt AK430K machine Doppstadt Australia sold them in February 2004. The Court has also found that statement was misleading and deceptive, was relied upon, that Mr Davis was knowingly involved in making the representation and that there was a failure on the plaintiffs' part to mitigate their losses, and that the plaintiffs should bear a responsibility of 33.33% for their failure in this respect. The Court has dismissed the defendants' allegations of contributory negligence and that Mr Lovick was a concurrent tortfeasor. But for the procedural reasons explained under the heading "Damages" above the Court will allow the parties 14 days to lodge any supplementary damages submissions in light of these reasons.
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Decision last updated: 21 May 2012
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