Peerless Holdings Pty Ltd v Environmental Systems Pty Ltd (No 2)
[2006] VSC 245
•6 July 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8153 of 2001
| PEERLESS HOLDINGS PTY LTD | Plaintiff |
| v | |
| ENVIRONMENTAL SYSTEMS PTY LTD | Defendant |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 June 2006 | |
DATE OF JUDGMENT: | 6 July 2006 | |
CASE MAY BE CITED AS: | Peerless Holdings Pty Ltd v Environmental Systems Pty Ltd (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 245 | |
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Contract – Damages - Loss of additional gas costs – Proportion of installation costs including wages to be brought to account to calculate net additional gas costs.
Trade practices – Damages – Whether plaintiff permitted to revisit claim for gas savings lost because of denial of alternative commercial opportunity to purchase two stage recuperative afterburner – Whether plaintiff adduced sufficient evidence to justify claim – Inferences to be drawn from the evidence – Assessment - Trade Practices Act 1974 (Cth), s 52, s 82.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P D Santamaria SC and Mr S R Horgan | Clayton Utz |
| For the Defendant | Mr A G Uren QC | Monahan + Rowell |
HIS HONOUR:
I gave judgment in this proceeding on 2 June 2006[1]. I held that the plaintiff had established its case of breach of the sale agreement and contravention of s 52 of the Trade Practices Act. I summarised my conclusions at [950]-[953].
[1]Peerless Holdings Pty Ltd v Environmental Systems Pty Ltd [2006] VSC 194.
This judgment deals with issues concerning damages. In the judgment that follows I proceed on the basis of, and repeat only to the extent necessary, the discussion and conclusions in the earlier judgment.
Breach of the sale agreement
The point now raised is a simple one but to explain it I have to set out the steps in the conclusions on damages. These conclusions appear in summary at [951]-[952] following the discussion at [809]-[883].
The steps were as follows:
(a)The plaintiff suffered the following loss and damage:
(i)$1,275,520 as the cost of purchasing, installing and commissioning the RTO, attempting to make it functional and repairing the existing afterburner.
(ii)$223,560 as the cost of its employees involved in attempting to make the RTO functional.
(iii)The net amount of the additional gas costs.
(b)The amounts to be brought to account to calculate the net amount of the additional gas costs appeared to be more than the purchase price of the RTO of $675,000 and the cost of the cyclone of $8,149 and to include a component of the wages cost. The evidence did not enable me to conclude on the amount of that allowance. I said that I would have heard counsel on that issue.
(c)However, cl 8.9 of the proposal precluded recovery of the loss and damage other than the additional gas costs. That being so, none of the amounts in [4(a)] above should be allowed against the additional gas costs. That meant that the plaintiff was entitled to $1,127,536; see at [872].
The submission that I have now heard from the plaintiff concerns the amount that should be allowed in calculating the net amount of the additional gas saving. This does not affect my ultimate conclusion of the amount recoverable. The submission is concerned only to address the point raised in my judgment as to the amounts to be brought to account as referred to in [4(b)] above.
Counsel for the plaintiff submitted that the further costs to be allowed in addition to the costs of the RTO and the cyclone, in accordance with my conclusion, were as follows:
| (a) wages cost | $46,203.00 |
| (b) initial installation and equipment | $245,792.94 |
| $291,995.94 |
The amount in item (a) was taken from the material in Tab F to Hutton’s statement of expert evidence, Exhibit KK, and the amount that constitutes item (b) is the aggregate of the first seven items (but excluding the cost of the RTO and the cyclone) in the spreadsheet in Tab I to Hutton’s said statement.
It is to be noted that in my judgment at [820] I found that the items in Hutton’s report were incurred as stated.
Against this, counsel for the defendant submitted that the installation costs should include the next two items in Tab I, namely “Addition of Condensing< Scrubbing and Cooling”[2] and “Repairs” the amounts for which total $163,929.29. These costs were incurred between 29 October 1998 and 8 October 1999 prior to the removal of Wood’s cyclone. It was submitted that they should be included as they were part of the costs of removing the bulk of the condensables.
[2]This category included the three sub-categories of “equipment”, “installation” and “commissioning”.
In my view the amounts identified by the plaintiff should be included for the purpose of producing that which should be allowed against the additional gas costs. As I observed during argument, it was not altogether clear that every part of these items was properly to be brought to account for this purpose. However, the plaintiff submitted that the item should be brought to account in full and the defendant did not argue otherwise. Of course it was not in the defendant’s interest to do so, and advisedly it did not. I accept that the items identified by the plaintiff should properly be brought to account.
I do not accept that the additional items referred to by the defendant should be brought to account. That is because, as I found, Wood’s cyclone did remove the bulk of the condensables and the items were incurred subsequent to its installation.
On this basis, the amounts to be brought to account to calculate the net additional gas costs were:
| (a) the purchase price of the RTO | $675,000.00 |
| (b) the cost of the cyclone | $8,149.00 |
| (c) installation costs including wages | $291,995.94 |
This resolves the single issue on damages which I could not answer in my judgment. It does not however alter the conclusion that by reason of cl 8.9 of the proposal the damages to which the plaintiff is entitled are the additional gas costs of $1,127,536.
Trade Practices Act, s 52
On this claim I held that the plaintiff was entitled to damages as follows:
(a)$1,536,480 being:
(i) the sums of $1,275,520 and $223,560 referred to at [4(a)] above,
(ii)$34,000 as the cost of dismantling and removing the RTO plus GST of $3,400, and
(b)the amount representing the lost benefit the plaintiff could have derived if it had purchased a two stage recuperative afterburner rather than the RTO.
The evidence did not enable me to find the amount of the benefit the plaintiff had lost in not purchasing a two stage recuperative afterburner rather than the RTO. I said that I would hear counsel on whether the plaintiff should be permitted to seek to establish a claim for such damages and, if so, as to the amount thereof. Counsel addressed submissions on both matters.
As to the first matter, the plaintiff pursued the claim, counsel submitting that at trial the plaintiff had raised the issue of the two stage afterburner and had adduced all of the evidence required to make relevant findings, and had relied on admissions made by the defendant as to the purchase price and operating costs of the two stage afterburner in circumstances where the plaintiff had sought the defendant’s expert advice on those matters in the context of comparing an RTO with a two stage afterburner. The plaintiff’s “only sin” was its failure to provide at trial a figure as to the amount of the relevant loss. Calculation of the loss was relatively straightforward, on the basis of the findings of fact made at trial and the Court’s observations at [920] as to the correct basis of calculating such loss[3]. In these circumstances, the plaintiff should not be prevented from seeking to establish the claim.
[3]The plaintiff submitted at trial that it should recover the difference between the value of the gas savings which would have been obtained had it purchased the two stage afterburner, and the value of the gas saved had the RTO functioned as represented. But as I found at [920], the RTO gas costs were irrelevant to this claim as the underlying premise of the two stage afterburner claim was that the plaintiff was to be put in the position it would have been in but for the misleading and deceptive conduct, namely that it would have bought the two stage afterburner but not the RTO. Hence, the correct basis of the claim would be the difference between the gas costs of the existing afterburner and those of the two stage afterburner.
As to the second matter, that is the amount of the loss, counsel for the plaintiff relied on his written submission which, in summary, stated the following. The annual gas cost of the plaintiff’s existing afterburner was $250,000[4] compared to $161,265 for a two stage afterburner, the difference being $88,735. The plaintiff would have entered into a contract of purchase for a two stage recuperative afterburner if it had not entered into the RTO sale agreement in reliance on the defendant’s misleading and deceptive conduct. The benefit of such a contract would have been that the plaintiff saved $88,735 per year in gas costs, over the period between March 1998[5] and June 2009[6]. The plaintiff referred to this as a period of 10 ¼ years[7]. At $88,735 per year, the gas savings over 10 ¼ years would have been $909,533.75. In order to obtain those savings, the plaintiff would necessarily have incurred the cost of purchasing the two stage afterburner, hence the purchase price of $548,250[8] needed to be deducted, thus giving a final figure $361,283.75[9]. I interpolate that this figure made no allowance for the installation/infrastructure costs of a two stage afterburner, although it became clear during discussion that counsel accepted that those costs would need to be deducted from the final figure.
[4]I found in the judgment (at [73]) that the annual gas cost of the existing afterburner (in 1997 figures) was about $250,000, although it would seem that that figure was an approximate one, rounded up and in the context of setting out the background facts. The actual figure estimated by the defendant in its quote to the plaintiff was $246,851; see Court Book 331.
[5]This assumed that the plaintiff would have purchased a two stage afterburner on 24 October 1997 (the same date as the RTO was purchased) with a lead time of 18 to 20 weeks.
[6]The plaintiff submitted that by analogy with the findings in my judgment as to the potential for the plaintiff to cease using the existing afterburner by June 2009 (in light of future contingencies such as alternative technologies, increasing biofilter usage etc), a two stage afterburner would have been kept in service until June 2009.
[7]Although it was in fact 11 ¼ years.
[8]This was the price given by the defendant in its quote to the plaintiff for the supply of a two stage afterburner. The plaintiff assumed (in the defendant’s favour) that the plaintiff would have paid the full quoted price.
[9]Taking the period of 11 ¼ years, the final figure would actually be $450,018.75.
Counsel for the defendant submitted that the plaintiff should not be allowed to revisit the claim for damages at all, having put its case on an erroneous basis at trial and having advanced nothing in support of the basis for which it now contended. The matter was not simply one of re-calculation. The defendant’s written submission on residual quantum issues made numerous points - directed as much to the threshold question of whether the plaintiff should be permitted to bring its claim as to the substantive question of the claim itself – as follows:
a)The plaintiff has given no evidence as to what the cost of any infrastructure for the two stage afterburner would have been and what costs would have been incurred by the plaintiff for or associated with its installation;
b)The plaintiff has given no evidence as to how a two stage afterburner would have operated on the plaintiff’s process stream as it turned out to be, and in particular its odour destruction;
c)The plaintiff has not shown that it was deprived of the opportunity of purchasing a two stage afterburner after it had become apparent that the RTO was not operating as represented. Nor has it shown that it could not have purchased a two stage afterburner in the 10 ¼ year period referred to in its paragraph 17[10]. The plaintiff has therefore not shown that its loss of gas savings for that period has been caused by the defendant. It seems likely that the plaintiff could have done so[11] by late 2001, in which case the lost gas benefit would be for a period of some 2.75 years only, not 10 ¼ years.
d)The plaintiff’s calculation of loss wrongly assumes that the plaintiff’s annual gas cost (using the old afterburner) would be $250,000. The cost has actually been less, reflecting the fact that the old afterburner is no longer used at full capacity.
e)The cost to the plaintiff of purchasing the two stage afterburner should be taken into account, even if gas savings have not been proved by the plaintiff, because it is part of the cost of what the plaintiff would have done as an alternative to purchasing the RTO.
[10]As I have said, the period in question was actually 11 ¼ years.
[11]Purchased a two stage afterburner.
In my view, having heard full argument from both parties on the substantive question and in light of the fact that the plaintiff sought only to rely on evidence given at trial, findings made at trial, and inferences that may be drawn from such evidence and findings, the plaintiff should be permitted to seek to establish its claim for damages representing the benefit lost by not purchasing a two stage recuperative afterburner rather than the RTO. That is not to say that the plaintiff can reopen its case on this point, rather that I will permit it to argue that inferences should be drawn in its favour from the existing evidence.
Counsel for the plaintiff addressed oral submissions to each of the defendant’s numbered points set out above. In summary, counsel for the plaintiff said the following.
As to point (a) he accepted that the plaintiff had not led evidence specific to the installation/infrastructure costs of a two stage afterburner, but submitted that even if the plaintiff had led such evidence, it would have been speculative in that an expert “would have presumably had a look at the brochure of a two stage recuperative and given the best estimate available”. In contrast, the plaintiff led evidence at trial as to the costs of installing the RTO, based on actual expenditure incurred. Counsel submitted that the RTO installation/infrastructure costs provided a safe guide as to what the two stage afterburner installation/infrastructure costs would have been. It was unlikely that the plaintiff would have spent more on infrastructure/installation costs for a $548,250 two stage afterburner than what they actually spent on infrastructure/installation for the $675,000 RTO. Further, the two stage afterburner was not the latest technology. In short, there was sufficient evidence to draw an inference that the plaintiff would not have spent more on infrastructure/installation for the two stage afterburner than what it actually spent on the installation of the RTO. Hence, that amount could be allowed as the installation/infrastructure costs of the two stage afterburner.
As to point (b) counsel submitted that the defendant did not suggest at trial that a two stage afterburner would not have worked on the plaintiff’s process stream. Rather, the premise of the plaintiff’s case was that the existing afterburner destroyed (and a two stage afterburner would have destroyed) the fats in the plaintiff’s process stream (and hence the odour) because the technology involved immediate incineration of the process stream at 760ºC, in contrast to RTO technology which involved the process stream hitting the lower temperature cold face.
As to point (c) counsel submitted that it was unrealistic to suggest that the plaintiff should have bought a two stage afterburner at the very time the plaintiff was insisting that the defendant rectify the RTO.
As to point (d) counsel submitted that as this is a loss of benefit claim, the Court does not look at what actually has happened in terms of the plaintiff’s gas usage. Rather, the Court must look at what would have happened if the plaintiff had purchased a two stage afterburner instead of the RTO.
As to point (e) counsel said that the plaintiff did take account of the purchase price of the two stage afterburner. That is, the purchase price of $548,250 must be set off against the gas savings which would have been achieved by the two stage afterburner.
Counsel for the defendant then made some brief oral submissions in reply.
He reiterated his submission that the plaintiff should not be permitted to revisit the two stage afterburner claim, as it raised matters not the subject of evidence at trial. For instance, the infrastructure/installation costs of the two stage afterburner were simply not addressed at trial. Those costs could not just be transposed from the RTO which was a different machine altogether. The issue could have been dealt with easily by calling an expert to say what the likely set up costs would have been. Whether the expert’s estimate was accurate or not was not to the point because experts would presumably be within some range and certainly would not merely have said to the Court that you can transpose the RTO set up costs.
As to the plaintiff’s submission on point (b) above, counsel submitted that the plaintiff’s argument rested on an assumption that the two stage afterburner would have achieved the odour destruction levels required by the EPA “on the process stream as it turned out to be which appeared as time got on to be a more complicated situation than either the plaintiff or the defendant had first thought”[12]. There was no evidence that the two stage afterburner would have performed as required.
[12]Transcript 23-24.
Counsel then said that he raised point (c) not as a matter of mitigation but rather as one of causation, that is the defendant’s misleading and deceptive conduct did not cause the plaintiff not to buy a two stage afterburner. The plaintiff could have, within the period following shut down of the RTO in July 2001[13], bought a two stage afterburner and thus obtained the benefit of gas savings. In effect, counsel submitted that the defendant had only caused the plaintiff’s loss of additional gas costs for a period of 2.75 years (up to late 2001, being the earliest date at which the plaintiff should have bought a two stage afterburner) rather than the 10 ¼ years alleged by the plaintiff[14].
[13]The defendant’s written submission suggested that time was “by late 2001”.
[14]Counsel did not specify the date from which the plaintiff’s loss started to run. The plaintiff’s written submission put the date at March 1998 when the two stage afterburner would have been delivered. If this were the correct date (and the defendant did not say otherwise), the period of loss up to late 2001 would actually be 3.75 years rather than 2.75 years. In any event, counsel for the defendant conceded that allowances must be made for lead in time and that the period of loss was ultimately a matter for the Court to assess.
As to the plaintiff’s submission on point (d) counsel submitted that the Court must take into account the actual gas usage figures of the existing afterburner during the 2.75 year period in which the plaintiff suffered loss caused by the defendant. This was because the plaintiff had already taken mitigatory steps, including the increased use of biofilters, to reduce the gas consumption of the existing afterburner. Counsel referred to the actual gas usage figures in the table in the judgment at [872]. If the plaintiff were entitled to additional gas costs over the whole 10 ¼ year period, the Court should look at the gas usage in the table, which was considerably less than the plaintiff’s figure of $250,000 per year.
Counsel reiterated point (e) in the same terms as it appeared in his written submission, as summarised at [16] above.
Decision
A fundamental difficulty for the plaintiff was its failure to lead evidence at trial as to the installation costs of the two stage afterburner. Following judgment, the plaintiff could have (but did not) sought leave to call further evidence as to the likely installation costs of a two stage afterburner. It is perhaps understandable why counsel chose not to call further evidence; to do so would have been tantamount to conceding that the evidence already before the Court was insufficient to establish the claim. And that would have been contrary to what counsel submitted before me, namely that the existing evidence was sufficient, in the sense that inferences could be drawn that the installation costs of a two stage afterburner would not have exceeded the installation costs actually incurred in respect of the RTO.
The submission has the attraction of common sense. In light of all the evidence, one might suppose that it would not have cost the plaintiff more to install the cheaper and less sophisticated two stage afterburner than it did in fact cost to install the more expensive and technically sophisticated RTO. On that basis the plaintiff’s approach is in effect a concession favourable to the defendant. However, as I said to counsel in argument, and as counsel for the defendant was at pains to point out, there was simply no evidence as to what installation of the two stage afterburner proposed by the defendant would have required. This was not a consideration in vacuo, it required attention to the work required at the plaintiff’s plant to install and commission that afterburner. Modifications to the existing ductwork might have been required. New support structures and operating procedures might have been required. The two stage afterburner may not have fitted properly into the available space, thus requiring building works. Counsel for the plaintiff of course accepted that some modifications would be required and indeed accepted that expense would inevitably be incurred, but he maintained that the total cost of any such infrastructure/installation works would not exceed those actually incurred for the RTO. Although that may well have been the case, the argument is based on speculation rather than evidence. For this reason, I am of the view that the inference, and finding, sought by the plaintiff is not open or reasonably to be made. Having failed to prove the amount it would have spent on the installation/infrastructure costs of the two stage afterburner, it is not possible to calculate the plaintiff’s loss under this head of damage.
The result is that the plaintiff has not established its claim on this point.
Let it be assumed, however that the evidence does permit the inference and finding that the installation/infrastructure costs to the plaintiff of a two stage afterburner would not have exceeded the installation/infrastructure costs in fact incurred on the RTO. Making that assumption, and for the purpose of considering all issues, I now consider how the plaintiff’s claim would work out.
I have assessed the RTO installation/infrastructure costs at $291,995.94. It may be considered that the installation costs of the two stage afterburner would have been less than those of the RTO, given that the plaintiff was already familiar with afterburner technology (albeit much older technology), while the RTO was a new application in the Australian rendering industry. Be that as it may, specifying a particular sum would be the product of speculation rather than evidence. I would therefore assume, in the defendant’s favour, that the installation/infrastructure costs were equal as between the RTO and the two stage afterburner. That is, I would assume that the two stage afterburner would have cost the plaintiff $291,995.94 to install.
As to point (b), being the defendant’s point that the plaintiff has not proved that the two stage afterburner would work on its process stream, I make the following observations. The trial was run on the basis that the existing afterburner destroyed the fats and odours in the process stream by simple and immediate combustion at high temperature. The evidence led by the plaintiff as to what it would have done if it had not bought the RTO raised implicitly the argument that the two stage afterburner would have worked because it used the incineration method already shown to be working on the process stream. In this sense, the plaintiff raised the issue and asserted that a two stage afterburner would have been appropriate for the plant. Further, the plaintiff’s final written submission put the defendant on notice that the plaintiff contended that the two stage afterburner would have worked. Yet the defendant did not suggest at trial that a two stage afterburner would not have worked on the plaintiff’s process stream[15]. In my view, it can be inferred from the evidence that a two stage afterburner would have been suitable for the plaintiff’s plant. There is no substance in point (b).
[15]See [917] of the judgment.
As to point (c) the defendant’s submission is fundamentally misconceived. The plaintiff’s claim is based on what it would have done if it had not been led into purchasing the RTO by the defendant’s misleading and deceptive conduct. I found in the judgment[16] that if the plaintiff had not been misled, it would have purchased a two stage recuperative afterburner. I accept the plaintiff’s submission that a two stage recuperative afterburner would have been purchased on the same date as the RTO, that is 24 October 1997. According to the defendant’s quote[17] there was an 18 to 20 week lead time for the supply of a two stage afterburner. Allowing in the defendant’s favour an additional 6 weeks for installation and commissioning, I am satisfied that the plaintiff would have had a two stage afterburner in operation at its plant from about 1 May 1998. Contrary to what counsel for the defendant said, it is not the case that the plaintiff failed to take the opportunity to purchase a two stage afterburner at some point after July 2001. Rather, the fact as I find it to be is that the plaintiff would have obtained the benefits of a two stage afterburner as from 1 May 1998. I also accept the plaintiff’s submission that, by analogy with my findings as to the likely period of RTO use, the plaintiff could reasonably have kept the two stage afterburner in service until 30 June 2009. This date takes into account the increasing viability of the biofilter options and the possibility of other technologies becoming available. Thus, the plaintiff has lost the benefit of gas savings which would have been achieved by a two stage recuperative afterburner operating over the period from 1 May 1998 to 30 June 2009, being a period of 11 years and 2 months.
[16]See [919].
[17]See Court Book 326-331.
As to the calculation of the gas savings in dollar terms, I note that I said in my judgment[18] that the lost benefit is represented by the difference between the gas costs of the existing afterburner and the gas costs of the two stage afterburner. The only evidence as to the gas costs of a two stage afterburner is found in the comparison contained in the defendant’s quote to the plaintiff, which gave an estimated figure of $161,265 in gas per year. On the same operating parameters, the existing afterburner was estimated to cost $246,851 in gas per year[19]. I accept the defendant’s submission (point (d)) that, in determining the benefit lost by the plaintiff, the Court should take into account the actual (rather than estimated) cost of the gas usage of the existing afterburner from 1 May 1998 onwards. That is, the actual gas usage for the existing afterburner has been (and will continue to be) less than $246,851 per year, due to the fact that the plaintiff has diverted some of the waste streams to the northern biofilter and hence no longer runs the existing afterburner at full capacity. In short, the plaintiff is to be compensated only to the extent of the difference between the position it would have been in had it bought a two stage afterburner, and its actual position, the reality of which is that it has returned to using the existing afterburner although at a reduced cost in gas because of the northern biofilter. It is therefore appropriate to work on the basis of the actual gas cost figures for the existing afterburner, as they reflect the plaintiff’s actual position. Then, as to the plaintiff’s position had it purchased the two stage afterburner, it might be thought that even though a two stage afterburner would have dealt with all the relevant waste streams, the plaintiff would nevertheless have diverted to the northern biofilter some of the waste streams that would otherwise have been treated in a two stage afterburner. And, on that basis, the cost of running the two stage afterburner would have been reduced to a lower figure, which in turn should be used in the present calculations, with the effect of offsetting (at least partially) the lower gas usage of the existing afterburner. In my view, however, while it is possible that the plaintiff would have diverted waste streams from a two stage afterburner to the northern biofilter, such a conclusion is little more than speculation, and there was no evidence as to this matter at all. Even if it be assumed that the plaintiff would have diverted waste streams from the two stage afterburner to the northern biofilter, it cannot be assumed that this would have occurred at the same time as it did occur in the case of the existing afterburner. One might consider that the plaintiff was motivated to act sooner in the case of the existing afterburner due to its higher gas usage. As I have said, these are matters of speculation. Perhaps in light of these matters, counsel for the plaintiff did not seek to argue that the gas costs of a two stage afterburner should be reduced to reflect the role of the northern biofilter; rather, he relied on the figure of $161,265 per year provided by the defendant, but said that it should be compared to the figure of $250,000 which should not be reduced either.
[18]See [920].
[19]I found in the judgment (at [73]) that the cost in 1997 figures was about $250,000, although I would assume for present purposes, in the defendant’s favour, that that figure was rounded up and the actual figure should be $246,851 as estimated by the defendant.
In my view, the actual loss caused to the plaintiff is the difference between the gas costs of the existing afterburner (in the period 1 May 1998 to 30 June 2009) and the projected gas costs of a two stage afterburner over the same period. Assuming[20] that the existing afterburner operated at the capacities specified in the left-hand column of the table below[21], that the two stage afterburner operated at full capacity[22], that there were 6512 operating hours per year, that the price of gas in 1998 was $3.25 per GJ[23], and that thereafter the price of gas was as stated in Hutton’s second witness statement, the relevant differences in gas costs are as shown in the table below:
[20]As per Hutton’s second witness statement.
[21]Full capacity was quoted by the defendant as using 295 m3 of gas per hour, with the calorific value of gas being 37.25 MJ per m3. That is equivalent to using 11 GJ of gas per hour, which was the plaintiff’s figure. I take this to be full capacity.
[22]The defendant’s quote stated that the two stage afterburner would use 192.72 m3 of gas per hour, with the calorific value of gas being 37.25 MJ per m3. That is equivalent to using 7.2 GJ of gas per hour.
[23]Defendant’s quote at Court Book 331.
Difference in gas costs as between existing afterburner and two stage afterburner
| Historical period | Additional cost per hour ($) | Operating hours in period | Sub-totals ($) |
| 1 May 1998 to 31 December 1998 (Existing afterburner at 100% capacity) | 12.38[24] | 4,341[25] | 53,742 |
| 1 January 1999 to 31 July 2001 (Existing afterburner at 100% capacity) [26] | 12.38 | 17,640 | 218,383 |
| 1 August 2001 to 30 September 2003 (Existing afterburner at 50% capacity) | (5.69)[27] | 14,112 | (80,297) |
| 1 October 2003 to 30 September 2004 (Existing afterburner at 47% capacity) | (6.99) | 6,530 | (45,638) |
| 1 October 2004 to 30 June 2009 (Existing afterburner at 47% capacity) | (6.99)[28] | 30,950[29] | (216,308) |
| Total | ($70,118) |
[24]Based on the gas consumption of the existing afterburner being 295 m3 per hour and of the two stage afterburner being 192.72 m3 per hour. The difference is thus 102.28 m3 per hour. Taking the defendant’s statement that the calorific value of gas is 37.25 MJ per m3, the difference is 3809.93 MJ, which is 3.81 GJ. Taking a gas price of $3.25 per hour, the difference is $12.38 per hour.
[25]6512 hours multiplied by 2/3.
[26]Although Hutton said that the existing afterburner only operated at 90% of its full capacity during this period, it is reasonable to suppose that the plaintiff was at this time spending money on gas to run the RTO. If the RTO had not been used, the existing afterburner would likely have been used at full capacity. Thus, the relevant price difference is $12.38 per hour as for the period from 1 May to 31 December 1998 when the existing afterburner was said to be running at full capacity.
[27]The figures for the last three periods are negative because, from 1 August 2001 onwards, the gas costs of the two stage afterburner would have been greater than the gas costs of the existing afterburner, given that the latter was running at 50% and then 47% capacity.
[28]I have assumed that there is no increase in gas price.
[29]I have taken Hutton’s assumption of 6,512 operating hours per year and multiplied by 4.75 years, adding a further 18 hours for the extra day in the leap year of 2008.
The result is that the plaintiff, if it had purchased a two stage recuperative afterburner, would have spent an additional $70,118 on gas to run that machine as compared to what it has spent and would up to 30 June 2009 spend on gas to run the existing afterburner. The plaintiff would also have spent $548,250 to purchase the two stage afterburner and $291,995.94 to install it. The net result would be a loss to the plaintiff of $910,364. Accordingly, the plaintiff’s claim must fail.
I note that the above conclusion assumes that while the calculation of additional gas costs should take into account the lower gas costs of the existing afterburner (made possible by the northern biofilter), the gas cost of the two stage afterburner should be taken as fixed at $161,265 per year, because there was no evidence that the plaintiff would have reduced those gas costs by diverting waste streams from a two stage afterburner to the northern biofilter. Let it be assumed however, that the gas costs of the two stage afterburner should be reduced proportionately with the reduction in gas costs of the existing afterburner as a result of the diversion of certain waste streams to the northern biofilter. I interpolate that such an assumption would be reasonable as a matter of common sense, as the plaintiff would have been likely to divert waste streams to the northern biofilter, even if it had a two stage afterburner able to treat all waste streams. As to this, the evidence of Peter Johnson and Buchanan was to the effect that in the rendering industry, there has been a move away from incinerator technology towards biofilter technology to control rendering odours. Buchanan said that this shift had occurred particularly after the German rendering expert Dr Oberthur visited the plaintiff’s plant in July 2000, and it became apparent that high strength odours could be treated using biofilters[30].
[30]See [866]-[867] of the judgment.
Assuming then that the gas costs of the two stage afterburner would have been reduced in line with the actual reductions in the gas costs of the existing afterburner, an estimate of the plaintiff’s lost gas savings is as follows.
When working at full capacity (from 1 May 1998 to 31 July 2001, “the first period”), the gas price differential between the two stage afterburner and the existing afterburner was $80,618[31] per year. When working at half capacity (from 1 August 2001 to 30 September 2003, “the second period”), the gas price differential would be $40,309[32] per year. And, when working at 47% of capacity (from 1 October 2003 to 30 June 2009, “the third period”), the gas price differential would be $37,890[33] per year. Over the first period, the difference in gas costs would be $262,009[34]. Over the second period the difference in gas costs would be $87,336[35]. Over the third period the difference in gas costs would be $179,978[36]. The total difference in gas costs between 1 May 1998 and 30 June 2009 would be $529,323. As I said at [39] above this amount must be reduced by the sum of $548,250 the plaintiff necessarily would have spent to purchase the two stage afterburner and also the $291,995.94 it would have paid to install it. The net result would be a loss to the plaintiff of $310,923. Accordingly, on this basis the plaintiff’s claim would also fail.
[31]Assuming a price difference of $12.38 per hour, at 6512 operating hours per year.
[32]This being half of $80,618.
[33]This being 47% of $80,618.
[34]Multiplying $80,618 by 3.25 years.
[35]Multiplying $40,309 by 2.17 years.
[36]Multiplying $37,890 by 4.75 years.
There is no substance in the defendant’s point (e). The purpose of setting off the purchase price of the two stage recuperative afterburner against the value of the lost gas savings is to ensure that if the plaintiff is to be compensated for its loss of a commercial benefit, it must bring to account its costs of acquiring that benefit. However, if it is impossible to determine what the value of the benefit would have been, in the sense that here the plaintiff has not provided proper evidence as to the infrastructure/installation costs of the two stage afterburner, it would be unfair to deduct from the plaintiff’s damages the amount that the two stage afterburner would have cost. It must be remembered that the plaintiff did not purchase the two stage afterburner.
In summary then on the matter of the lost gas savings:
(a)The plaintiff is not entitled to such damages, having failed to establish the installation/infrastructure costs of the two stage recuperative afterburner;
(b)Assuming however that those costs would have approximated to the like costs for the RTO of $291,995.94, the lost benefit of the gas savings is calculated as follows:
(i)assuming that the gas costs of the two stage afterburner remain constant at $161,265 per year over the relevant period:
Difference in gas costs ($70,118)
Less
Purchase price of two stage afterburner $548,250
Installation/infrastructure costs $291,996 $840,246
($910,364)
(ii)alternatively, assuming that the gas costs of the two stage afterburner vary proportionately with the gas costs of the existing afterburner:
Difference in gas costs $529,323
Less
Purchase price of two stage afterburner $548,250
Installation/infrastructure costs $291,996 $840,246
($310,923)
On either basis the plaintiff’s claim of lost gas savings must fail. Accordingly, the damages to which the plaintiff is entitled is the amount of $1,536,480 made up as set out in [12(a)] above.
Conclusion
The above reasons deal with the matters raised for consideration on 23 June last. I will now hear from counsel as to the orders to be made in the proceeding and as to any other matter that arises.
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