R E Phillips Nominees P/L T/A Splash Touch Free Car Wash v Hanna Wash Systems P/L

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
R E PHILLIPS NOMINEES P/L T/A SPLASH TOUCH FREE CAR WASH & ANOR v HANNA WASH SYSTEMS P/L & ORS
[2006] SADC 127
Judgment of His Honour Judge David
1 November 2006
CONTRACTS
Plaintiffs purchased car wash from first and second defendants - third defendant supplier of car wash, resident of United States of America - alleged breach of implied terms of contract against first and second defendants - alleged breach of implied term that component parts worked properly - alleged breach of implied term that no manual labour was needed - held, first and second defendants breached implied terms - damages for faulty component parts and past and future economic loss for breach of implied term that labour not needed for car wash to function.
First and second defendants counterclaim for the value of installation work allegedly performed in addition to the initial contract price - counterclaim pursuant to an agreement between the parties or by way of quantum meruit - held, defendants are entitled to be paid for the work - plaintiffs' damages are to be offset by the value of this work.

TRADE PRACTICES
Misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) alleged against defendants - alleged misrepresentation that component parts worked properly and that car wash capable of cleaning cars without manual labour - held, third defendant misrepresented the car wash as stated - no case of misrepresentation against first and second defendants.
Trade Practices Act 1974 (Cth) s 4, s 5, s 52, s 82, referred to.
Henville v Walker (2001) 206 CLR 459, applied.

R E PHILLIPS NOMINEES P/L T/A SPLASH TOUCH FREE CAR WASH & ANOR v HANNA WASH SYSTEMS P/L & ORS
[2006] SADC 127
Civil

DAVID J. Both plaintiffs in this matter, R E Phillips Nominees trading as Splash Touch Free Car Wash and Gulfwell Pty Ltd, are companies owned and operated by Mr Robert Edward Phillips. There is no argument that Mr Phillips is the operating mind and will of both companies. The first plaintiff is the corporate trustee of a trust established by Mr Phillips on 1 May 2000 to operate the business known as “Splash Touch Free Car Wash”. It is conceded that the second plaintiff, Gulfwell Pty Ltd, has no cause of action. For the purposes of my judgment I will refer to both plaintiffs and to Mr Phillips as “the plaintiff”.
The first defendant, Hanna Wash Systems Pty Ltd, is a company incorporated in Victoria. Its director and shareholder is the second defendant, Mr Maxwell Henry Hill.
The third defendant, Specialty Equipment Company Incorporated (“SEC”), is a company incorporated in the United States of America which manufactures and sells car washing equipment. SEC manufactures and supplies a car washing system called the Millennium Touchless Automatic Car Wash System (“the Millennium”). The first and second defendants were (at the very least) distributors for SEC.
The plaintiff purchased the Millennium from the first and second defendants pursuant to a written contract in May 2000. The contract was for the supply and installation of the Millennium. The plaintiff claims that parts of the Millennium did not function properly and that adjustments had to be made for it to work. The plaintiff also claims that the Millennium was misrepresented to him as being totally automatic and able to clean cars without the assistance of manual labour. The plaintiff claims damages for past and future loss of profits because the cost of running the Millennium is greater than that which was represented to him. That claim is based on the fact that although the Millennium is running at a profit, he now has to employ people to manually assist the cleaning of cars and it is not as profitable as it was represented to be.
In short, by virtue of a number of causes of action, namely contract misrepresentation and negligent misstatements, the plaintiff claims against all defendants for the capital cost of replacing parts of the machine that were not functioning correctly, and also for past and future loss of profits due to the misrepresentations as to the Millennium being fully automatic, and the cost for additional manual labour.
Background of Events
The plaintiff first developed an interest in purchasing a car wash in about 1995. He was essentially looking for a touch free car wash which he had observed operating in the United States when he visited there in the 1990s. In about 1997 the plaintiff contacted John Corser, a representative of the first defendant, to investigate the purchase of a touch free car wash. The first defendant was the only potential supplier the plaintiff contacted.
In about 1998 or 1999 the plaintiff attended a car wash convention in Las Vegas to further investigate the purchase of a touch free machine, but he could not find a touch free machine on display and nothing came of that.
In early 1999 the plaintiff received a call from the second defendant, Mr Hill. Mr Hill advised the plaintiff of the existence of a touch free car wash system which was different from other touch free car washes. He told the plaintiff that it was manufactured by SEC. He said that there were two machines manufactured by SEC, the Futura SSA and the Futura Millennium. As a result of that conversation the plaintiff received written material about the Millennium from Mr Hill, including an SEC brochure (exhibit P9, tab 4) and a letter from Mr Hill dated 8 December 1999. This letter was important in the plaintiff’s decision to ultimately purchase the Millennium. Although the letter does not talk about the Millennium but about the SSA, the plaintiff was told that the Millennium was very similar. The plaintiff particularly wanted a car wash system with touchless washing technology, of stainless steel construction and zero degree nozzles. Mr Phillips sent a further letter to the plaintiff on 14 January 2000 (exhibit P9, tab 3, p 291). This letter quoted the features of the Millennium as they were set out in a letter that SEC had sent to the first and second defendants. The information he received represented that the Millennium met his stated requirements. The plaintiff also received and watched a copy of an SEC videotape (exhibit P28) which was provided by the first and second defendants. The videotape showed cars being washed without the assistance of manual labour. The plaintiff said that the videotape greatly influenced his decision to purchase the Millennium.
On 17 or 18 February 2000 the plaintiff went to the United States to look at the Millennium or an equivalent system at work. The plaintiff was met by Jack DeMarre, a representative of SEC, and spent a full day with him. The plaintiff was taken to SEC’s plant where he was introduced to the owner. The plaintiff was shown components of the SEC Millennium Car Wash and he told Mr DeMarre what he wanted in a car wash. The plaintiff emphasised that he wanted a complete car wash, with an auto entry so that the car wash could be left unattended, and also a touchless system as it would be having a minimum of one attendant there. Whilst he was there Mr DeMarre also advised the plaintiff about the benefits of a reclaim system, in other words, the reclamation of waste water.
Whilst in the United States the plaintiff was also taken to a car wash site where cars were test washed. The plaintiff was of the opinion that the car wash gave a perfect result. It was a touchless machine and there appeared to be no manual labour involved. The plaintiff was unsure whether the car wash that he observed in the United States was the SSA or the Millennium. However, they are very similar. The Millennium is in fact a slightly updated model of the SSA.
The plaintiff was so impressed that after his return to Australia he placed an order with the first and second defendants for the purchase and installation of the Millennium when he returned. The Millennium was to be supplied by SEC. As part of the order the plaintiff also ordered a reclaim system.
On 18 September 2000 the plaintiff purchased a property on Glen Osmond Road, Glen Osmond with the intention of operating the Millennium from this site. The plaintiff employed a licensed builder, Mr Jeffrey Cook, to supervise the works involved with the set-up of the car wash at the site.
The Millennium, which was purchased from the first and second defendants but supplied by the third defendant, arrived at the car wash site on 18 October 2000. Installation commenced on 19 February 2001. The job of installing the equipment and connecting it to the plant room was that of Mr Maxwell Hill and his sub‑contractor, Mr Reginald Hall. There was to be a commissioning process, which involved the installation of the car wash, the starting up of the equipment, and checking to see that it was doing its job and functioning properly. It was agreed that this would be carried out by a technical person from the manufacturers and suppliers, SEC. This person was Mr Keith Payette. Mr Payette arrived in mid-May and the commissioning process took about six days, although he stayed on a little longer.
It is the plaintiff’s case that during the commissioning process component parts were failing and the car wash was not producing satisfactory results. After testing the washing of cars, the plaintiff gave the second defendant, Mr Hill, a letter of complaint whilst he was on the site (exhibit P9, vol 2, tab 6). According to the plaintiff that letter sets out a litany of complaints and was given to Mr Hill on 1 June 2001. That letter is to be contrasted with the letter dated 24 June 2001 which was given to Mr Jack DeMarre (exhibit P9, vol 2, tab 6, p 631). In that letter (which has become the focus of contention in this case) the plaintiff praises the Millennium.
According to the plaintiff, in order to overcome deficiencies in the system (which will be enumerated later), a pre‑soak station was introduced. In other words, the automatic pre‑soak system of the Millennium machine was replaced by a pre‑soak system which required manual labour and, therefore, an increase in staff.
The plaintiff also says that the auto pay system could not be used because it did not work.
According to the plaintiff, because of the poor quality of the wash, cars had to be manually towelled by staff. He said also that as a result of the poor quality of the wash further modifications were made and the main water supply changed to a bore water spring. The plaintiff told the court that cars which were test‑washed from the pump failed. Water which had been supplied from the reclaim system was such that customers brought cars back with streaks on them. Photos were taken (exhibit P33). The plaintiff says that from June until 9 August 2001 about 100 to 150 customers came back with similar streaks on their cars similar to those shown on exhibit P33. That problem was solved by installing a manifold and using three separate lines for material to go from the pump room through to the car wash, rather than one.
There were also complaints made about the wash chemicals which may have caused contamination and indeed corrosion to some of the parts.
There was also computer failure and display lights known as “Millennium lights” failed.
Many modifications were made. The first and second defendants claim these modifications were over and above the contract price and are the basis of their counterclaim.
In general the gist of the plaintiff’s claim is that parts of the Millennium did not work, and he seeks compensation for the loss involved in the adjustments required to make them work effectively. In the course of my judgment I will deal with each of the claims separately and the defendants’ response accordingly.
The other part of the plaintiff’s claim is that he never at any stage thought that the Millennium would need additional manual labour before it could work effectively. The plaintiff claims that the car wash was not satisfactory and it has been necessary to employ extra “lads” who are needed to effectively complete the job. As a result, although the Millennium is now working and working profitably, the profits are less because the outgoings are higher.
The Causes of Action and the Issues
The plaintiff’s claim against SEC is for damages for misleading and deceptive conduct in breach of s 52 of the Trade Practices Act 1974 and for damages for negligence and breach of duty of care. There appears to be no claim pleaded in contract against SEC.
The plaintiff’s claim against the first and second defendants is also a claim for damages for misleading and deceptive conduct in breach of s 52 of the Trade Practices Act and also for damages for negligence and a breach of duty of care.
Thirdly, the plaintiff claims against the first and second defendants for breach of the implied terms of the contract. As I understand it, those implied terms were firstly, the supply of a machine that worked, and secondly, that the machine did not require manual assistance.
The damages for all of these causes of action include the capital expenses for those parts of the machine that did not function properly and the cost of replacing them. Damages are also sought for the loss of profits because of either the breach of the implied condition that no “lads” would be needed, or the misrepresentation that “lads” would not be needed in the use of the car wash. On the plaintiff’s case, damages for loss of profits have been quantified at $253,907 for past loss and $387,840 for future loss. The damages claim for the replacement of faulty equipment is alleged to be $165,523.06, and there is an extra claim for loss of “Rob Phillips’ Time” of $41,000.
The first and second defendants counterclaim an amount of $73,955.23 for work they performed which was not paid for, and for extra work during the installation process over and above that agreed in the contract, and which was additional to that contemplated by the agreement.
The case for all defendants seems to be that there was never any promise or statement by any of the defendants to the effect that the car wash would not need extra “lads” to make it effective, and that if there were any pieces of equipment which failed, they were easily fixed, and if one looks individually at the capital claims made, the problems amount to very little.
SEC also argues that any representation made in the United States concerning the capabilities of the Millennium is outside of the jurisdiction of this Court, and that there were no false representations made during the commissioning process in Australia.
The Plaintiff’s Case – Overview
The plaintiff gave evidence, some of which has been set out in the background facts. The plaintiff also called seven witnesses.
Jeffrey Cook
Jeffrey Cook is a builder who dealt with the building aspects of the car wash but was not involved with the installation of the equipment. He had finished his involvement when the car wash was ready to operate. His work lasted about six months. His evidence was that there was no controversy about the location of the plant room, and his responsibility was merely the construction of the building.
David Murray
David Murray is an electrician who has known the plaintiff for 15 years. He connected power to the site in January 2001. He said that all of the work was done through the plaintiff, but when working on the site he also had dealings with Maxwell Hill. He said that he was present during the commissioning process and also had dealings with Keith Payette. He said that one of the problems with the commissioning process was that the water from the plant room to the car wash was losing temperature. He said that his car was one that had been experimented on during the commissioning process and it had not been cleaned properly. He gave evidence that neither Maxwell Hill nor Keith Payette had ever suggested to him that the location of the plant room was inappropriate.
Ricky Heidenreich
Ricky Heidenreich was an electrician who assisted David Murray in the car wash electrical work during 2001. After the car wash was operating he went back there to do some maintenance. He said that during the setting up process he did not have circuit diagrams or schematics to help him, and said that the neon lights were not waterproof.
Peter Tirrell
Peter Tirrell was involved in the car wash business with the plaintiff in a managerial role from early 2001. He said he did not have dealings with Keith Payette during the commissioning process, but he had dealings with Maxwell Hill. Mr Tirrell was present when the commissioning process was going on, and in July 2001 he noticed that when cars were tested the Millennium did not clean them properly. He said that sometimes the cars were dirtier when they came out of the car wash than when they went in. He said that after a car had been through the car wash it had to be manually towelled, and that this was done by three or four “lads”. He said that over a period of time progressive changes were made to the car wash and he gave the following evidence on that topic:
Q.In the time that you were there, was the process of the washing of the car being done exclusively within the Millennium arch changed.
A.Yes.
Q.Was there one change or more when you were involved.
A.Well, it was progressive. So the first change we started to spray the wheels.
Q.With what.
A.A wheel cleaner prior to it going into the wash, so the wheels would be soaked in an effort to get them clean.
Q.How was that done, what was used to spray.
A.There were separate sprays installed prior to going into the Millennium and it was done by hand, so you had to have an operator there who would go around and spray each of the wheels manually.
Q.Using what.
A.A pressure gun connected to a hose back through to the workroom.
Q.Who did that work.
A.One of the young lads that were employed – one of the university students or whoever was there.
Q.Were you involved in the decision to make that change.
A.I was there when it was made. Really, Bob was more technically involved with the improvements along the way.
Q.Did that change improve the quality.
A.Yes.
Q.In what way.
A.Well, it meant that it would remove the brake dust on the wheels of the car or soften it prior to it going into the car wash and then it meant it had a chance of moving all of the black brake dust off the wheels. So it improved that.
Q.Before that change, was the brake dust a problem with the wheels of the car.
A.Yes, it would get some of it off but it wouldn’t do a particularly good job.
Q.Was that one of the areas that had to be cleaned off with the clean cloths.
A.Yes, we would then wipe off any residue afterwards.
Q.That was the first change, what else changed.
A.It then progressed where – and I’m not sure exactly the timing of these, but where we would then presoak the car before presoaking – you know, it’s like a preparation detergent to loosen the dirt on the car, so that would be manually sprayed on the car before it goes through the car wash. Then it would go through the normal Millennium cycle, then further down the track it would be high pressure cleaned. So presoaked, high pressure cleaned and then go into the car wash, so now it’s got to the stage where really the car is washed before it goes into the car wash and the car wash simply rinses.
Q.Before the change was made, to have the wheels sprayed with a form of detergent, did Bob Phillips ever suggest to you that he planned to make that change.
A.Initially no. There was – no.
Q.Before the change by adding the presoak, was it ever suggested to you by Bob Phillips that’s what he planned to do anyway.
A.No.
Q.Before the high pressure presoak was introduced, did Bob Phillips ever suggest it was his plan to do that anyway.
A.No, the –
Q.Go on.
A.The plan was initially that a client should be able to drive into the car wash, have the car washed and drive off down the road without doing anything. As an option – the options would have been that you could have the car vacuumed, cleaned or, in fact, wiped in the door seals and areas that, you know, are not exposed while it’s being washed. But that was the idea: it was minimal staff, no touching of the vehicle at all, drive in, drive off.
Q.That wasn’t how it operated almost from the beginning.
A.No.
Q.Lads were employed from the beginning to clean the car properly.
A.Yes.
Q.Because the car wash wasn’t able to do it.
A.That’s right.
Q.Then lads were employed to clean the wheels.
A.Yes.
Q.Then lads were employed to do the prewash spray.
A.Yes.
Q.Then lads were employed to do the high pressure spray.
A.Yes.
Q.What was the quality of the wash after those changes.
A.Well, it’s now a good wash. The finished product is good.
He also said that there were changes made in relation to the pipe work from the plant room to the car wash. He gave evidence that instead of different chemicals running through the same pipe to the Millennium, the piping was changed so that each chemical had its own run through the car wash. He said that between July and October 2001 the Millennium was breaking down once a week for various reasons, and sometimes it would stop working altogether.

The plaintiff also called two technical witnesses, Mr Edward Browell (report, exhibit P66) and Mr John Aukland (report, exhibit P17). I will deal with their evidence in more detail when talking about separate topics of alleged failure.
Finally, the plaintiff called Mr John Irving to give expert accountancy evidence on the question of past and future profits.
The Case for the First and Second Defendants – Overview
The first and second defendants called two witnesses, namely Maxwell Hill and Reginald Hall.
Maxwell Hill
Mr Maxwell Hill gave evidence that he has been a director of the first defendant since 1999. The previous owner of the company was Mr John Corser, already referred to. On 4 August 1999 Mr Hill contacted the plaintiff in relation to the purchase of a car wash for the plaintiff. He received brochures and videotapes from SEC in relation to the Futura SSA Series and he sent them off to the plaintiff on 10 January 2000. That was before the plaintiff went to the United States.
Mr Hill contacted Mr DeMarre prior to the plaintiff going to the United States, and gave Mr DeMarre details of the plaintiff’s plans. He did not hear from the plaintiff while he was in the United States.
There were negotiations between the plaintiff and he about the purchase and installation of the Millennium. There was also discussion as to where the plant room for the Millennium should be located. It was originally meant to be in a cellar location, but that was changed to a room in the shell of an existing building which was further away from the original site. He gave evidence in relation to discussions with Mr Cook, the builder who was working on the site on behalf of the plaintiff. He gave evidence that he advised that the change in location might affect the cost. He also gave evidence that he discussed these matters with the plaintiff.
Mr Hill said that he discussed with Mr Cook how pipes which were going to go from the plant room to the car wash should be laid and insulated. He said that he also discussed these matters with the plaintiff. He suggested that rather than one pipe, there should be three pipes to carry the three different products through to the Millennium. He also suggested to the plaintiff that pipes should be laid via a service duct, but the plaintiff was not happy with that suggestion.
Mr Hill said that Mr Payette was in charge of the commissioning of the machine and he was relying heavily on his expertise to check out the installation of the equipment and fine‑tune it. Reginald Hall, who was working for him, was also present. He gave evidence that there was one item which he and Mr Hall got wrong, namely some plumbing, which was fixed at Mr Payette’s suggestion. Other than that, Mr Payette had no problems with their work.
Mr Hill gave evidence that there was a problem with the Medtron Auto Entry Unit. He said that problem went on for about three days. After experiencing difficulties and investigating the problem, it was found to be an electrical fault. It was fixed and it then worked properly. Mr Hill said that whilst Mr Payette was there the Millennium was working washing cars, and everything functioned well. He said that there were some minor adjustments which were to be part of the commissioning process. He gave evidence that the “prepping” of the cars was done manually as it is not an automatic process. It was done by spraying with small bottles. Mr Hill said that there was a team of two people at the entrance and a team of two people at the exit. The team at the entrance would be “prepping” the cars, such as applying wheel cleaner to the wheels or putting pre‑soak detergent on the car. He said that eventually Mr Reginald Hall built a chemical delivery station or unit that was placed in the plant room for the purpose of delivering both pre‑soak cleaner and wheel cleaner. I will discuss this under the specific heads of damage.
Mr Hill said that when Mr Payette was there and the commissioning process was taking place, he never saw contamination by hot soapy water rinsing. However, he gave evidence that if there was contamination during phase changes, it could be fixed by what is called a “stutter” pass. The gist of Mr Hill’s evidence seems to be that there was nothing wrong with the Millennium when he saw it other than a few modifications which had to be made, and the extra work which his company carried out and which is the basis of the counterclaim was due to the placement of the plant room in a different position than that originally envisaged.
In cross‑examination Mr Hill gave clear evidence that he purchased the Millennium from SEC and sold it to the plaintiff, however, he agreed that for the plaintiff’s own purposes payment was to be directed to SEC instead of to the first and second defendants.
Also in cross-examination Mr Hill agreed that a number of changes were made to the Millennium from July 2001. He said that the change that concerned him most was the implementation of a second large pump. He gave evidence that the introduction of this second pump meant a potential for an engineering nightmare.
In cross‑examination this question was put:
Q.And I suggest to you that when you and others commissioned the plant it was commissioned to run on the basis that the Millennium plant would do the washing and that staff were not required as well.
A.No
There are other matters in Mr Hill’s evidence that I will come back to when discussing particular heads of damage.
Reginald Hall
Mr Reginald Hall gave evidence that he works in the pumps industry and has been supplying pumps to Hanna, the first defendant, and to the previous two owners before Mr Hill. Mr Hall gave evidence that Mr Hill had asked him to help install the Millennium for the plaintiff. Mr Hall’s first task was to come to Adelaide from Victoria and oversee the installation of stainless steel pipe work between the plant room and the wash base. In doing this he was dealing with Mr Jeffrey Cook, who was doing the building work on behalf of the plaintiff. Mr Hall came over to do that work in February 2001. He said that he had some discussions with the plaintiff and Mr Cook as to whether the pipes would go overhead, in a conduit, in a trench with a steel cover, or totally underground. It was finally decided that they would go under concrete rather than overhead. That decision was made before he came. Mr Hall gave evidence that he told Mr Jeffrey Cook that the pipe must be encased in sand to allow for movement in the pipe work and expansion, and also that it should be wrapped in plastic.
Mr Hall came back to the site in April 2001 and worked there during the commissioning process when Mr Payette was present. He observed many cars being washed. He said he saw the Medtron machine being used and that it worked.
Mr Hall returned to Victoria after the commissioning but came back in June and saw the business when it was up and running. He gave evidence that when Mr Payette was commissioning the machine, spray bottles were used to apply chemicals to cars, and this was done by two people. His evidence was that when the business was up and running he saw two people in the “prepping” area and another person towelling the car afterwards. He thinks that overall the manual labour involved in cleaning the car was two to three people.
Mr Hall then gave evidence that he designed, manufactured and installed what was referred to as a “pump station”. He said that he was engaged directly to do this job and that the pump station was to deliver to the pipes (which were to be put in) connected to some hoses at the entrance of the wash bay, a pre‑preparation of two products to be applied to the wheels of the cars to get rid of insects. This was evidently meant to be a special feature. He noticed that the plaintiff was installing a second pump. He gave evidence that the plaintiff said that he was going to run that in conjunction with the original pump in order to get more water and make the car wash faster and better. Evidently that pump was built locally by the plaintiff and Mr Hall had no involvement in the design of the second pump. He said that the effect of the second pump on the wash bay was that it applied a lot more water to the vehicle in the wash bay, but did not appear to have any other affect upon the system.
Mr Hall gave evidence that he did some work in relation to the reclaim system. He also gave evidence that he did some work in relation to the installation of a heat exchanger at the request of the plaintiff.
In cross-examination he said that the Millennium worked very well. He said that the only reason the “prep” station was designed and used was because it would suit local conditions. He was asked this question:
Q.Why then did you design and supply and install a prep station if the Millennium could do the job.
A.Because to suit the local conditions, the extras required for local companies and also the wheel cleaner was – the Millennium was never installed with a wheel cleaning function, and the wheel cleaning was an on sell that you could offer the client, whether it was – you wanted the wheels done as well it was an extra X amount of dollars.
Case for the Third Defendant – Overview
The third defendant called four witnesses, John DeMarre, Keith Payette, an expert chemical engineer, Mr Nicholas Swain, and an expert accountant, Mr Hugh McPharlin
John DeMarre
John DeMarre gave evidence that he used to work for the third defendant, SEC. He was Western Region Sales Manager and then moved on to being Vice‑President in charge of Business Development. One of the products that was being marketed by SEC during the time that he worked there was automatic car washing equipment. He gave evidence that the plaintiff visited him in the United States when he was working for SEC. He thinks it was in February 1999 or 2000. He gave evidence that he met the plaintiff at the airport and the plaintiff was anxious to see a car wash, even before going to his hotel. To oblige him he put his car through a car wash which was a Futura SSA. The next morning they met again and he gave the plaintiff a tour of the SEC company plant and introduced him to key people. He then took him to visit two car wash sites. At those sites the plaintiff saw a number of cars go through the car wash and Mr DeMarre also took his own car through. As cars were going through the car wash Mr DeMarre was explaining to the plaintiff the various cycles and how the machine worked. He also spoke about the volume of cars that could go through and indicated that it was about 10 to 12 per hour. Mr DeMarre recalled that the plaintiff was very enthusiastic about the project and impressed with the product.
Mr DeMarre also gave evidence that Hanna, the first defendant, was granted the right to distribute SEC’s products in Australia and New Zealand. He said that a letter was addressed to the first defendant giving them a distributorship for SEC’s products. After further correspondence between SEC and the first defendant, a distributorship for the Millennium was established with the first defendant by October 1999 (exhibit D41).
Mr DeMarre gave evidence that during the period of the distributorship he would assist Maxwell Hill and his customers. He gave evidence that SEC would either invite someone from their distributors to go to the United States for training in the installation of the Millennium, or SEC would send someone to Australia. Mr Hill preferred the latter. After negotiations, SEC invoiced the first defendant for the Millennium for a total of $80,901 in July 2000. However, not all of that money was paid by the first defendant because the plaintiff expressed a desire to pay SEC direct. According to Mr DeMarre, this was due to some arrangement that the plaintiff had and for reasons known only to the plaintiff.
Mr DeMarre was aware that Keith Payette from SEC came out to Australia in May or early June 2001 for the purpose of commissioning the Millennium. He also became aware that the plaintiff wanted to install a second pump. He was made aware of that by a phone call from Maxwell Hill and the plaintiff. It was a three‑way conversation. During that telephone conversation the plaintiff made no complaints about the system. Mr DeMarre made it clear that SEC would not be able to extend its normal equipment warranty if a second pump was introduced. He gave evidence that SEC has never received a letter of complaint from the plaintiff, nor have they received a letter of demand asking for compensation.
In cross-examination by Mr Ross-Smith it was established that there was no formal document between SEC and the first defendant for distribution rights. The document that was available was not executed. Mr DeMarre agreed that during the time the plaintiff placed an order for the Millennium both the first defendant and SEC may still have been disagreeing about the terms of distribution arrangements. However, he was of the view that that was not so when the Millennium arrived in Australia.
Mr DeMarre further insisted that Maxwell Hill was his customer and the plaintiff was Maxwell Hill’s customer. Mr Ross-Smith asked him this question on that topic:
Q.Let me test that: payment for what SEC supplied was made by Mr Phillips to SEC direct.
A.That is taken out of context. Produce the document and I’ll read the whole document. The payment done that way was done at Mr Phillips’ insistence. Mr Hill was, I recall, going on his honeymoon. We were facing getting equipment to a boat and there was only one way to get the money into the accounts in time to make the boat. That’s what it was about, nothing more.
Also in cross-examination Mr DeMarre insisted that SEC was involved in reviewing the site design for the location of the equipment, because they provide technical support as a matter of course to all of their distributors. He said that it was also standard for an employee of SEC to do the commissioning, even though the final buyer was not their client.
When pressed, he was of the view that even though he was not in Australia, that many of the problems may have been caused by the introduction of a second pump. He said that he strongly suspects that was the case. He denied the suggestion in cross-examination that an operations manual was not shipped to Australia, and his evidence was that he does not know exactly how the equipment was set up when it got to Adelaide. He agreed in cross-examination that the Millennium supplied to the plaintiff was a machine which could be operated with virtually no staff.
Keith Payette
Mr Keith Payette was employed by the SEC at the time of the sale of the Millennium to the plaintiff, and came to Adelaide on behalf of SEC for the commissioning process. He gave evidence that he spent 11 days or so on the site. He gave evidence that to explain what had happened he is totally dependent upon his diary (exhibit D49), as he has very little independent memory. He said that Maxwell Hill set up the machine, and that he really cannot recall any of the detail of events because he has installed so many machines since the events in 2001. Despite his lack of memory, Mr Payette gave evidence of what he would normally do in certain circumstances. Although interesting, I found this not very helpful, because of course even with the aid of his diary, Mr Payette clearly said that he had very little independent memory, if any, of the events. All of his evidence was concerned about what he would normally do. He could remember the plaintiff mentioning that he wanted to have people there to “prep” the cars and dry the cars, because the customers to whom he was providing a service were at the higher end of the market and he wanted to pamper them. He could remember very little more about that conversation. He gave evidence that he can remember that after conducting a checking process when he was on the site, all of the equipment and its components were set up appropriately, and when he left on about 3 June the plaintiff seemed quite happy. He cannot recall the plaintiff expressing any dissatisfaction. He was not involved in the process of the plaintiff wanting to make any modification. He was of the view that adding a second pump was something that nobody would consider because the amount of water pumped out would be doubled and that might affect the system.
Mr Payette can remember attending the site in about May 2004, about three years after the commissioning. He said that there were many changes.
When cross-examined by Mr Hoile for the first and second defendants, Mr Payette was of the opinion that the corrosive damage to some of the equipment would be due either to time or a corrosive product being used. He disagreed with the proposition that when he left at the end of the commissioning the Millennium would not wash cars properly. He was of the view that when he left the car site everything was alright.
When cross-examined by Mr Ross-Smith for the plaintiff, many of the propositions that were put to Mr Payette did not go anywhere because as the witness candidly said from the beginning of his evidence, he had no independent memory of events. When shown the impeller (exhibit P50), which was from the main pump as originally installed, he agreed that it was not in the condition that it should be in. He said that the corrosion of the impeller could have been caused by water conditions as well as any products going through it. As I have indicated, the evidence given by Mr Payette was basically theoretical, as his memory of events was almost non-existent.
The last two witnesses for SEC were their experts, Nicholas Swain and Hugh McPharlin. I will refer to their evidence when dealing with specific heads of damage and damages.
Causes of Action Against First and Second Defendants
As I have already indicated, the plaintiff sues the first and second defendants for misrepresentation under the Trade Practices Act, for damages for negligent misstatements, for breach of duty of care and also for breach of contract. In my view, the causes of action under the Trade Practices Act and for negligence cannot be sustained. I find that the first and second defendants in passing on information from SEC to the plaintiff about the Millennium before the contract was entered into were merely a conduit for SEC. They knew very little detail about the Millennium themselves. Any action against them is more appropriately laid in contract.
The plaintiff pleads that the first and second defendants breached certain implied conditions of the contract between them, and as a result, it has suffered damage.
18.     The contract (inter alia) was subject to the following implied terms:
18.1   the prices for the products and the installation of the Millennium would not derogate from the prices detailed in the quotation;
18.2   Hanna would:
(a)provide the products and services to the Phillips Group (including any advice tendered to R E Phillips) with due care and skill; and
(b)provide training to the Phillips Group personnel sufficient to ensure the effective use of the Millennium;
(c)install the Millennium within a reasonable timeframe;
(d)ensure that the Millennium was in a form which could be easily operated by the Phillips Group’s personnel;
(e)correct reported malfunctions of the Millennium within a reasonable period of being notified of them by the Phillips Group;
(f)ensure that all repairs or alterations to the Millennium were rendered with due care and skill; and
(g)give the Phillips Group on-going support, advice and maintenance services to ensure the consistent function of the Millennium as a part of the Phillips Group’s business.
The plaintiff claims that the first and second defendants were in breach of the overall implied condition that the component parts of the Millennium would work properly. The damages claimed resulted from that breach, with the resultant cost of rectifying various parts which malfunctioned, and the cost of alterations necessary to allow the Millennium to function properly.

A further implied condition of the contract was that the Millennium would not need manual assistance to function. The claim in damages for that breach was the cost of extra labour, reflected in both past and future loss.
I find that these two implied conditions existed. In my view, it was axiomatic that the component parts would work properly and it was always implied that the Millennium would not need manual assistance.
I turn to the various capital claims against the first and second defendants in breach of contract, and whether the plaintiff has proved that those items were defective, and if so, what was the damage flowing.
Cost of Reclaim System
The Plaintiff’s Case
Pursuant to the written contract, the cost of the reclaim system was $42,740 (exhibit P37, p 3). The plaintiff gave evidence that the reclaim system was disconnected because it did not work properly. He said that it was making the water dirtier rather than cleaning it for reuse. He said in evidence that the very first failure of the system was when the system blocked up with black sludge. He said that Mr Hill said this was due to the blocking of the “impeller”. Pursuant to Mr Hill’s instructions, he cleaned that item approximately twice a week over a 30 week period. He would also pull out another part called the “turbine counter” and clean it. None of Mr Hill’s recommendations fixed the problem, and the reclaim system was eventually taken out of operation and replaced by water from a bore water spring.
The plaintiff claims that the breakdown of the system was the reason the bore water spring was used, and the defendants say that the reclaim system was closed down because it was discovered that the bore water system would be better. As part of that claim for damage, specific amounts are claimed to convert the system to a bore water system after the reclaim system had failed ($5,115) and for the cost of an attempt to rectify the reclaim system by “plumbing it up” ($3,685). It is claimed by the plaintiff that he would hardly pay $42,740 for a reclaim system as part of the Millennium and then incur further cost just to change to a bore water spring.
John Aukland
The plaintiff’s expert, Mr Aukland, in his report of 9 July 2003 (exhibit P17, p 7 - 8) said:
2.4The reclaim system failed to operate properly.
The reclaim system consists of a filtration system, an ozone generator and three underground tanks plus an extra tank to act as part of the grease and oil arrestor system. The three underground tanks are fed from the underground collection pits in the wash bay. The first of these tanks should be properly baffled to allow sediment in the washing water to settle out to the bottom of each compartment. This tank should be connected at the top to the second tank which acts in a similar fashion to the first tank and should also be baffled. The third tank should again be connected to the top of the second tank. Water is taken from tank 2 and delivered through a filter to tank 3 and through an ozone generator to tank 2. Reverse Osmosis (RO) reject wash water is also discharged to tank 3. Water from tank 3 is then reused in the high pressure soap and rinse cycle of the car wash. For the following reasons the system could not operate as properly required.
2.4.1I have observed that pits 1 and 2 are connected at the bottom and hence their use as a sequential sediment trap is no longer possible.
2.4.2I have observed that there are no internal baffles which are needed to act as sequential traps in either pit 1 or pit 2.
2.4.3I have observed and have seen photographs which show that the pump suctions from pit 2 and 3 were at low level and not at above mid depth. This means that sediment and sludge will be pumped through the ozone generator and filter system making these ineffective especially since the water was pumped from pit 2 and not pit 3. I believe that no water should have been pumped from pit 2.
I understand that the reclaim system has never functioned properly. I believe it could not do so as designed and installed.
In evidence he corrected that opinion by retracting the statement “I believe that no water should have been pumped from pit 2”. In other words, his opinion now is that water could have been pumped from either pit 2 or pit 3. Other than that, he still maintains the above opinion.
Mr Aukland in cross-examination by Mr Britten-Jones gave the following evidence:
Q.Is it your opinion that the main problem with the pit system as it operated really was this connection between pit 1 and pit 2.
A.One of the main problems, yes.
Q.You have talked about the baffles being an issue but you fixed the connecting pipe between pit 1 and pit 2 and the majority of the problems resolved.
A.Yes.
Q.Was it you who actually identified this as the problem in the reclaim system when you first saw it in early 2002.
A.I don’t know, but I did identify that as a problem.
Q.Yes, but what I mean is did someone say to you ‘The problem with these pits is because –
HIS HONOUR
Q.Was it your idea. Did you discover it.
A.I believe so.
XXN
Q.You discovered the problem.
A.Yes.
Q.And you told Mr Phillips about it.
A.I just put it in my report. Actually, from that first inspection I drew a sketch of what was there, of what I saw. The pits had been emptied out.
Q.And you discovered that there was this pipe between pit 1 and pit 2 which was too low and not an inverted U shape.
A.I’m pretty sure – yes, sorry, I’m pretty sure that’s how it happened.
HIS HONOUR
Q.Is that your opinion as to why the reclaim system didn’t work.
A.Yes.
Q.Pretty well it.
A.Pretty well it.
Q.Is that easily fixed.
A.Yes. Well, yes, it might be easily fixed by coring a hole through –
Q.I don’t want to hear the details, but it is not difficult to fix.
A.It is not difficult to fix. It might be a bit expensive.
XXN
Q.But we are talking about $40,000 worth of a reclaim system here.
A.Yes.
Q.I presume it is nothing like another $40,000.
A.It I had to guess, two and half to three $1,000 for coring and pitting [sic] in a pipe.
The Defendants’ Case
Nicholas Swain
In contrast the expert for SEC, Nicholas Swain, who is a chemical engineer employed by Arup Water, was of the opinion in his report (exhibit D22) that the reclaim system indeed failed, but that the failure was “due to inadequate design and construction management that led to the intended design not being installed” (exhibit D22, p 13). However, he said it could be rectified and gave the following evidence:
Q.Going to p 13 of your report where you were asked about the rectification necessary to resolve alleged problems with respect to the reclaim system. You talk there about modifying pits 1 and 2 to meet the original design. Is the original design you are referring to the installation of a U-pipe between pits 1 and pits 2 and the raising of the suction pipe in pits 2 and pits 3.
A.My recollection is that I based that on this drawing.
Q.Yes.
A.So, yes, I mean the installation of the U-pipe. I can’t recall what design information there was on the location of the pump suctions.
Q.Could the rectifications that you refer to on that page, be easily carried out.
A.I think installing the U-bend wouldn’t be difficult. It would involve some cutting of the concrete but I don’t think, from my experience – it’s not – it might be a tricky job but not a difficult one. Installing a flocculant dosing system would cost some money but it’s achievable with the third point, regarding the reclaim water directly to the high pressure pump. That was based on an understanding that I gained from Keith Payette’s outline of what he called the original design, saying that there was a high pressure pump that would transfer the reclaim water into the high pressure system but I – from reviewing the material, that high pressure pump doesn’t exist so that would need to be reput in place. Again, that’s possible but could be relatively expensive. Likewise, the installation of a backwash pump, and air scouring, all those things are possible but just costs money.
His evidence was that the reclaim system did not have to be used because another source of water was discovered.
It appears that there was a problem with the reclaim system, however, it appears that it could be fixed relatively inexpensively when compared with the initial cost of the reclaim system. Nevertheless, the use of the bore water spring for water supply meant that there was no necessity to fix the reclaim system. I am therefore of the view that despite the imperfections in the reclaim system, there is no substantial loss. However, the plaintiff did incur cost in converting the system to the bore water spring system, and he should be allowed an amount of $5,115 damages for that cost.
Cost of the Pre-soak System Failure
The plaintiff claims various amounts for installation of a pre-soak system to replace the Millennium’s automatic pre‑soak system, which they argue did not function properly. It is argued by the plaintiff that because of the failure of the Millennium’s automatic pre‑soak system the cars were not cleaned properly, and to fix this problem the whole system for preparing the cars before washing had to be replaced. The plaintiff claims compensation for the cost of setting up the replacement system as an implied breach of the term that the Millennium as purchased would do that job.
The plaintiff argues that when Mr Payette was in Australia commissioning the Millennium on behalf of the third defendant, there was no pre‑soak station because the Millennium was expected to be fully automatic.
The defendant argues that the manual pre‑soak system was added in order to speed up the process of washing cars, and not because the cars were washed poorly.
The plaintiff further argues that as a result of the failure of the automatic pre‑soak system additional costs were incurred to fix that problem.
I was much impressed by the evidence of Mr Tirrell, who said that changes were gradually made to the automatic system because it was not doing the job. He gave evidence that the first of those changes was to use hand sprays before a car went into the Millennium. He then gave evidence as to why changes were made as canvassed in this judgment at [34]. He then gave this further evidence:
Q.When you were there what was happening about the number of lads which were being employed to produce the clean car at the end.
A.Well, it was increasing as the process changed and became more a manual wash, there was more need for additional staff. So it grew as the additional processes were required to achieve a better finish.
Q.Before the change was made to spray the wheels, did you regard the quality of the wash as satisfactory if you were a customer.
A.No.
Q.Before the manual presoak was added, did you consider the quality of the car wash to be satisfactory for customers.
A.No.
Q.Before the change made to the high pressure presoak, did you regard the quality of the wash produced by this car wash satisfactory.
A.No. We – if I could just say there: the customer impression was always reasonably good, though, because we made sure that when the car came out the other end we compensated for it not washing. So when it didn’t wash properly we wiped it and cleaned it dry at the other end, so from a customer’s point of view they may not have known the problems that we were having.
HIS HONOUR
Q.That it was you doing it, not the car wash.
A.That’s right, but our aim was we were running a prestige car wash which was now being recommended by all the prestige car outlets so we couldn’t let the cars go out dirty.
In cross‑examination these questions were asked by counsel for the first and second defendants:
Q.It was always part of Mr Phillips’ plan, wasn’t it, to have lads out the front prepping those wheels and those hard to clean areas.
A.No.
Q.Do you agree or disagree.
A.No, I disagree with that.
Q.Lads were there on the day of the opening, weren’t they, doing just that.
A.I don’t know that we were prepping the wheels on opening. We were certainly offering a service to dry the cars and, of course, there was vacuuming and so on, which would be an option as well.
Q.Similarly, I suggest that even on the day of the opening, lads were there at the other end towelling [sic] down those hard to dry areas.
A.Yes, they were there.
Q.And similarly, I suggest, that was always part of Mr Phillips’ plan.
A.No, it wasn’t a plan for the standard wash. There would be optional extras that you could have with the car wash. So you could have a standard wash. The idea is to have a standard wash, drive through the car wash, continue through the dryers and leave straight off down the road, but there would always be options like if you wanted your internal windows cleaned or the door jams or, you know, options which, of course, you charge more for and if people had more time to take advantage of that.
Mr Hill gave evidence that he had had conversations with the plaintiff whereby it was agreed that when the Millennium was up and going, in order to achieve a higher service he would be planning to engage extra employees over and above the automatic car wash. The evidence from Mr Hill is that there was always the expectation by the plaintiff to add parts to the system because the automatic system as purchased would not do the job that he expected. Mr Hill admitted in cross‑examination that there were areas of the car washing that the Millennium was not able to achieve, and that a manual pre‑soak was needed to provide the required result. However, his evidence is that the plaintiff well knew that to be so, and that the changes to the automatic pre‑soak system were always envisaged, and there was no breach of any implied term of the contract.
I accept the plaintiff’s claim on this topic. I have no doubt that the plaintiff intended that the Millennium as purchased would do the whole job, and did not intend to add a manual pre‑soak system to the initial purchase of the Millennium. When the commissioning process took place there had been no new system added, and it was only after the cars were not being cleaned properly that the modifications were made. In my view, the evidence is clear that there was never any anticipation that there would be a manual pre‑soak system, and it was always a term of the contract that the Millennium was fully automatic.
I also find, as indeed the first defendant does not really dispute, that the automatic system could not achieve the job as warranted and the installation of a manual pre‑soak system was necessary.
The amount that the plaintiff should be compensated as a result of the breach of that implied condition is as follows:
·cost of new pumps and equipment  $ 7,644.41
·cost of gantry and associated parts  $ 4,626.40
·cost of stainless steel fittings and pipe for gantry  $ 2,098.93
·cost of design, manufacture and supply pre-soak pump station       $ 6,453.70
^____________
$20,823.44
^____________
I find no other costs proved that relate to the failure of the automatic pre‑soak system, other than the general costs for extra labour, which I will refer to later.
Heat Exchanger
The plaintiff claims a specific amount for the installation of a heat exchanger. The plaintiff claims that this was necessary as a result of the Millennium as purchased not working properly. As I understand the evidence, water which went from the plant room to the Millennium via underground pipes was not hot enough when it arrived. The plaintiff arranged for the installation of a heat exchanger until that period of time in 2002 when he did not use the Millennium’s pre‑soak function.
Mr Edward Browell
The defendants argue that the lack of heat from the plant room to the Millennium could have been avoided had the pipes been insulated. The first and second defendants rely upon the opinion of the plaintiff’s expert, Mr Edward Browell (exhibit P66) when he says:
Having examined and been appraised of the sequence of events that led to the present arrangement I would make the following comments.
1.The prewash temperature at the outlet in the wash bay was to have been 49^oC. I understand that the unit was originally piped from the heater with uninsulated stainless tube set in concrete. The thermostat on the heater as set at 60^oC and the outlet temperature was 14^oC at the bay.
It is not the slightest bit surprising that the temperature drop along this pipe was sufficient to negate the value of the heater completely.
The pipe from the heater to the wash bay outlet should have been very well insulated right from the start.
2.Having established that the temperature drop was excessive it appears that a complicated and expensive method was devised to heat the pipe and the surrounding concrete. This involved the purchase and installation of an electric motor and pump, three valves, an electrical control circuit and additional pipework and electrical installations. Presumably this system is started well before the wash can be ran as the time required to heat the concrete must be allowed for.
3.In my view this whole system should now be removed. The ongoing cost of heating the concrete should be eliminated and this can be done by simply installing an above ground insulated hot wash feed line to the bay.
The installation of the pipes from the plant room to the Millennium was the work of the plaintiff’s builder. The fact that the heat exchanger was used for a limited period of time to solve the problem caused by the plaintiff’s method of laying the pipes is not the fault of any of the defendants. In my view, that part of the claim is not made out.
Contamination
It is the plaintiff’s case that the machine as presented caused contamination problems due to all products being carried in the same line from the pump station to the Millennium. The plaintiff’s case is that there were two causes of contamination, firstly, incorrect valves were fitted to the main pump, and secondly, only one pipe was used instead of three. By this method three different products were pumped from the plant room to the Millennium and there was contamination affecting the quality of the wash. The defendants argued that that contamination was not necessarily solved by three pipes being used, but could be fixed by slowing down the wash. It is argued by the defendants that the plaintiff did not wish to do that because he wanted a quicker service, and that they are therefore not liable for solving the problem of contamination by using three pipes.
There is clear evidence that the plaintiff rectified both of the sources of contamination. In late August 2001 a manifold was installed using three separate lines. From about 9 August until that rectification was completed cars had been washed and tested and there were many complaints. After the installation of the manifold the problem was rectified.
I accept the plaintiff’s case that the problem could only be fixed in the manner adopted by the plaintiff. I also accept what Mr Phillips said in his evidence that Mr Hill’s suggestion to slow down the Millennium was impracticable and would not have solved the problem. I find that as part of the breach of the implied term that the car wash would clean cars adequately the plaintiff is entitled to compensation in the following amounts to rectify that aspect:
·Hytech hi-pressure hoses  $ 1,213.20
·cost of new manifold  $ 2,766.36
·three check valves and fittings  $    700.00
^___________
$ 4,679.56
^___________
As part of this aspect of the claim the plaintiff also claims $3,640 for advice and assistance from Mr Browell. On the material presented to me, namely a tax invoice from Mr Browell (exhibit P67), I cannot relate that amount to the breach of any implied condition, and that aspect of the claim has not been proved.
Incompatible Vacuum Unit

The plaintiff claims $7,298.56, which was the amount to purchase a replacement vacuum unit. This was necessary because the unit which was supplied did not work and was never used. It was the defendant’s case that it was designed to run with US voltage and could easily have been modified. However, the evidence of Mr Heidenreich makes it clear that that could not be done. Mr Nicholas Swain also said in his report (exhibit D22) that the vacuum unit could be converted, but it would be expensive and would best be avoided.
I find that the plaintiff is entitled to be compensated in the amount of $7,298.56 for the vacuum unit being unable to be used.
Millennium Lights Failure
The lights were part of the Millennium and were used mainly for cosmetic purposes. It is the plaintiff’s case that after the installation of the Millennium the lights started to fail almost immediately. They have never worked and were decommissioned.
The plaintiff contends that the lights failed at commissioning. He said that they were removed from the sides of the Millennium arch and there was no contribution made from Mr Hill with regard to their failure. In my view, there is no satisfactory evidence before me as to why the Millennium lights failed. I have no evidence that it was because of faulty equipment or for some other reason. I therefore find that that part of the claim has not been proved.
Defective Hot Water Heater
The plaintiff gave evidence that the hot water heater which was purchased as part of the Millennium to heat the pre‑soak system was defective and failed within five months of being put into operation. It cost $3,126 to replace it and that is the amount claimed. The heater was replaced very quickly and I find that it was obviously defective. I find that the plaintiff is entitled to be compensated in the following amounts in relation to the defective heater:
·replacement of hot water heater $3,126.00
·installation of new heater and removal of defective heater $ 280.00
^___________
$3,406.00
^___________
Problems Caused by Wash Chemicals
The plaintiff claims that certain items had to be replaced because of damage due to the corrosive nature of chemicals which had been used after consultation with the second defendant. The plaintiff gave evidence that during testing the wash chemical used was the product Hobo FMK. SEC supplied this product. The product only lasted for about one week during the commissioning and then ran out. The plaintiff gave evidence that he then used many products, and during the period that these products were used parts had to be replaced because of corrosion. In particular, the corrosion seemed to have occurred during the time that a product called Zep was being used. When Zep was no longer used the corrosion appeared to stop. It appears therefore that the problem with this aspect of the claim is that the supply of Hobo ran out. I find that it has not been proved that the chemicals themselves caused the corrosion. In my view this part of the claim has not been made out.
Stainless Steel Pipe Failure
The first and second defendants, through Mr Hall, oversaw the installation of the stainless steel pipes from the plant room to the Millennium. The pipes now leak and the plaintiff claims $15,620 for their replacement (exhibit P37 – invoice from Jeffrey Cook). There is very little other evidence on the topic. I cannot find it proved that the problem with the stainless steel pipes was the fault of the first and second defendant, and indeed, there is no adequate evidence before me as to what the problem actually is and why it occurred. That part of the claim therefore fails.
Failure of RO Units
This is a small claim for $350 for the failure of an electric motor due to corrosion. Other than there being an invoice for the above amount, I can find no evidence on the topic and that part of the claim fails.
Medtron Auto Entry Unit
The Medtron Auto Entry Unit (“the Medtron”), which was a piece of equipment to be used for automatic car washing after hours, cost $18,737, and the plaintiff claims that amount because (on his case) the unit did not work.
The defendant argues that the Medtron was disconnected not because it did not work, but because the Council told the plaintiff that the car wash could not be operated unattended at night, which was the purpose of the Medtron.
The plaintiff gave evidence that that was not the only reason that the Medtron was purchased as part of the Millennium; it was also because the whole point of the system was for it to be automatic and to operate without manual assistance. In cross‑examination by counsel for the first and second defendants, the plaintiff said:
Q.The council did not give you permission to operate the car wash at nights or on Sundays.
A.Right, that wasn’t the only reason we bought that Medtron unit. The car wash was bought as a stand alone unit that needed no attendants and that meant that during the week, during normal business hours, that there need not be any attendant there. Someone could drive up put their money or their notes in, drive in the car wash and have their car washed. It wasn’t just for Sundays or Saturday night.
In cross-examination the plaintiff also gave evidence that he negotiated with a Mr Mark Harrison to sell the Medtron (which he said did not work) for $10,000. Whether that sale was made or not is unclear on the evidence. There was also evidence from Mr Peter Tirrell that the Medtron worked from the start but was not coin operated. They simply pressed the start button to make the unit work.
Mr Hill gave evidence that the Medtron broke down during the commissioning process, but was easily fixed:
Q.Was there a problem that you can remember about the Medtron.
A.Yes, there was.
Q.What do you recall.
A.The problem went on for about three days. We had the Millennium operating on or about the second, or at the latest, the third day of Mr Payette arriving and we were operating from the control panel in the plant room and it was rather inconvenient to be running into the plant room, push a vent and then back out to the wash bay to see what was happening [in] order to make the changes. So it was necessary that the auto entry unit connected up to the hoses. In order to do that it required some control wiring coming in, or field wiring as we call it, coming in from the plant room for the auto entry unit to talk back to the control panel on the Millennium and that was initiated then by things that were chosen by, ultimately, the companies – staff that were using the site or the staff that were attending to those companies.
Q.Who was in the first instance trying to connect up the Medtron.
A.Mr David Murray, I think it is, the electrician.
Q.And how did he go, what happened.
A.Well, he said that he did it and we then tried to get the thing operating and it wouldn’t go. So we tried some more and it still would not go. So we looked at the paperwork that we had and tried to figure it out and still couldn’t get it going. So then I had discussions with, initially, Mr Nick Karabetsis.
Q.That is K-A-R-A-B-E-T-S-I-S.
A.Yes, that’s right.
Q.Who is he, why were you talking with him.
A.He’s the proprietor of Medtron Technologies, I think they are and my supplier for the Medtron unit.
Q.As a result of talking with him, did you do something.
A.Yes – well, it went on for quite some time; there was about three days of this, backwards and forwards, backwards and forwards, various phone calls between myself and Nick that became a bit tense, if you like. There were phone calls between myself and his technicians and I think at the time the technician was over in New Zealand. Those conversations would be going for half an hour, I think the longest one was close on an hour and a half and after three days of this – I don’t mean full-time every day but certainly for quite some hours on each of the three days, on the third day I was on the phone with Nick, he was frustrated by it, I was frustrated by it and he said to me ‘Can you do me a favour and just check it over yourself?’ After that – incidentally, on a number of occasions I asked Mr Dave Murray whether he had checked the field wiring that was coming into the thing and he explained, yes, he had and that was it. When I ultimately checked it, I knelt down into the bottom of the stand via an access panel to where the terminal block for the field wiring came in and met the wiring at the terminal for the machine, there was – I found that there was one wire that was loose. I connected that wire, put it into its slot properly and did up the little connection to it and presto, the machine worked.
Q.And from that time worked fully, properly.
A.More or less, yes.
Q.Did you use it.
A.Yes, absolutely.
I find that the Medtron did break down, but whether it was able to be fixed in the way that Mr Hill said is unclear because the plaintiff had no reason to use it due to a number of factors, the most important being the attitude of the Council. Also involved in that decision is the fact the Millennium itself needed the assistance of manual labour and could not be totally automatic and give a good wash. This aspect of the claim is reflected in damages for extra labour. However, I find that there is insufficient proof that the plaintiff should be otherwise compensated for the non‑use of the Medtron.
Electrical Fees
There is a claim for specific fees for electricians for various aspects of the failure of the Millennium. The plaintiff claims a total of $4,367.96. This claim is evidenced by invoices in exhibit P37. For the reasons already given, I exclude the claim for $540 for electrical work in setting up the reclaim system. However, consistent with my earlier finding, the amount of $922.96 is allowed for the purposes of changing to the bore water system after the reclaim system was discontinued. Consistent with my earlier findings on that topic, I allow the amount of $675 for electrical work in relation to the pre‑soak system failure. I also allow the amount of $360 for electrical work on the auto‑entry unit because, at the very least, it had broken down for a short period of time. Consistent with my previous finding, I allow the amount of $650 for electrical work on the incompatible vacuum. Consistent with my previous finding, I also disallow the amount of $220 for electrical work relating to the Millennium lights failure.
I therefore find that the plaintiff is entitled to be compensated in the following amounts in relation to the electrical fees:
·to change to bore water system after reclaim discontinued            $    922.96
·the pre‑soak system failure  $    675.00
·auto entry unit  $    360.00
·incompatible vacuum  $    650.00
^___________
$ 2,607.96
^___________
Pump Valve Failure
The plaintiff claims $1,010 for replacement of two valves, and $541 for replacement of an incorrectly supplied rinse valve. I accept the plaintiff’s evidence on this topic, and find that the valves as purchased needed replacing and the cost is allowed. I therefore find that the plaintiff is entitled to be compensated in the following amounts:
·replacement of two valves $1,010.00
·replacement of incorrectly supplied rinse valve $ 541.00
^___________
$1,551.00
^___________
Builder’s Plans and Conversions for Hanna
The plaintiff claims that there was extra work undertaken by the plaintiff’s builder, Mr Jeffrey Cook, in the sum of $7,040 (invoice 11 March 2002) for work done by him due to all defendants failing to provide adequate plans to install the machine. The invoice itself reads as follows:
RE: To provide consultation and communication for improvising carwash equipment to integrate into building design work
Cost includes phone, faxing, sketching and planning. As advised.
Note that with equipment, limited layout and no detailed instructions were provided. Layouts were sketchy, reversed and in imperial measurements.
Many changes were made from original equipment scheme.
128 hours @ $50.00 hour  $6,400.00
GST  $640.00
Total including GST  $7040.00
There is virtually no other evidence on this topic, and I cannot see how this invoice relates to any part of the claim.
Parts Failed, Incorrect Supply of Component
The plaintiff gave evidence of the following components which failed and claims accordingly:
·Plasflo fittings over 12 months  $ 2,017.40
·Burgman seal  $    171.60
·Promet seals diaphragms and valves  $ 2,140.71
·Hosemasters hose and fittings  $ 1,394.00
·new valve in arch  $    211.63
·three hydraulic motors which failed in the wash arch  $ 1,400.00
^___________
$ 7,335.34
^___________
I accept the plaintiff’s evidence on these topics and he should be compensated for the total amount of $7,335.34.
Cost of Plaintiff’s Time
The plaintiff claims $41,000 as part of his damages for time he spent working six to seven days a week in the first six months in an attempt to correct the failures of the Millennium. He gave evidence that over the period of time from the end of the commissioning in early June 2001 to the end of 2001 he spent every single day at the car wash. He gave details of what he did. This claim is a very vague one, and in my view, is not sustained. I do not know how the amount of $41,000 is quantified, and indeed, whether the time the plaintiff spent working at the business was wasted or was entirely related to rectifying problems that occurred. I can find no basis for that claim.
Conclusion on Capital Claims
I therefore find that the plaintiff has suffered the following damages for the breach of the implied term of the contract that the car wash machine as warranted would work properly:

Reclaim System

·    cost of converting the system to the bore water spring system

$ 5,115.00

Pre-soak System

·    new pumps and equipment

$7,644.41

·    gantry and associated parts

$4,626.40

·    stainless steel fittings and pipe for gantry

$2,098.93

·    design, manufacture and supply pre-soak pump station

$6,453.70

^___________

$20,823.44

Contamination

·    Hytech hi-pressure hoses

$1,213.20

·    new manifold

$2,766.36

·    three check valves and fittings

$   700.00

^___________

$ 4,679.56

Incompatible Vacuum Unit

$ 7,298.56

Defective Hot Water Heater

·    replacement hot water heater

$3,126.00

·    installation and removal of defective heater

$   280.00

^___________

$ 3,406.00

Electrical Fees

·    to change to bore water system after reclaim system was discontinued

$   922.96

·    in relation to the pre-soak failure

$   675.00

·    on auto-entry unit

$   360.00

·    incompatible vacuum

$   650.00

^_________

$ 2,607.96

Cost of Pump Valve Failure

·    replacement of two valves

$1,010.00

·    replacement of incorrectly supplied rinse valve

$   541.00

^___________

$ 1,551.00

Parts Failed, Incorrect Supply of Component

·    Plasflo fittings over 12 months

$2,017.40

·    Burgman seals

$   171.60

·    Promet seals, diaphragms and valves

$2,140.71

·    Hosemasters hose and fittings

$1,394.00

·    new valve and arch

$   211.63

·    three hydraulic motors which failed in the wash arch
$1,400.00

^___________

$ 7,335.34

^____________

TOTAL

$52,816.86

^____________

Damages for Loss of Profits (Past and Future)

The plaintiff claims damages for loss of profits (both past and future) for breach of implied terms that the Millennium as warranted would be totally automatic and would not require the use of extra labour. I have already rejected the submission by the defendants that the plaintiff always intended to have extra labour. In my view, the evidence is clear that the attraction of the car wash was the automatic aspect, and that is clearly indicated by the brochures and the videotape that were sent by SEC, and the fact that there was a Medtron Automatic Unit as part of the purchase. I also find that the Millennium could not function properly without there being manual assistance, both at the pre‑soak stage and after the wash. I refer to the following passages of the plaintiff’s evidence on that topic, which I accept:
Q.The topic I want to address with you now is the question of labour, and I’ll break it down for you. What I’m interested to have his Honour know is what your plan was for the amount of labour you would have on the site and the amount of labour you’ve actually had to have on the site. The first part of that is: did you have a plan for the number of people you would have on the site from the commencement of the operation of the car wash after commissioning, on the basis that the Millennium operated in the way that you were told and had seen in America and from the video.
A.One or two people.
Q.What were those people going to do.
A.One person would be there in the café. One person would be there to perhaps drive the cars down if customers elected to have a cup of coffee in the café and he would drive the car out of the car wash, take off the last few drops that the dryers didn’t take off and then take the next car in.
HIS HONOUR
Q.You wouldn’t even need them really, would you.
A.No.
Q.They’re just a bit of luxury.
A.Yes.
XN
Q.Is the one or two including your son James or in addition to your son James.
A.No, that includes my son James.
Q.Would the one or two involve your involvement or in addition to your involvement.
A.If the car wash had operated as we believed it would, it would not involve me.
HIS HONOUR
Q.It doesn’t matter who it involves. I don’t quite understand the question. The fact is you need two, whether you choose to do it yourself or not.
A.Yes.
XN
Q.You’re telling his Honour how many people had to have been employed at the car wash. Explain to his Honour whether that’s changed over time and if it hasn’t, then tell his Honour that.
A.As of today?
Q.Why don’t we start back for the period before the prewash.
HIS HONOUR
Q.Just remind me again – I know it’s in the transcript – when you first started testing the car wash.
A.In late 2001.
XN
Q.You were doing some tests precommissioning.
A.Yes.
Q.How many people did you have employed at the site.
A.Two.
Q.One of which was your son.
A.And the other was myself.
Q.During commissioning in late May/early June, how many.
A.Two to start with.
Q.When you introduced the presoak station, did the numbers change.
A.Yes.
Q.Did they change before then.
A.No.
Q.What was the change because of the introduction of the prewash station.
A.Extra people to operate the presoak, or prep station.
HIS HONOUR
Q.How many.
A.Two.
Q.So it was four all up.
A.Yes.
XN
Q.Any changes in the numbers since then.
A.Yes.
Q.When.
A.When we first put in the high pressure pumps, the little high pressure pumps to virtually prewash the cars before they went into the Millennium or assist the Millennium in taking all of the difficult areas off the car with these little high pressure pumps, after the presoak and the wheel clean from the prep station was being used, we used more people for that, and sorry, I lost the question.
HIS HONOUR
Q.How many more people did you use after you had four.
A.Another two.
Q.When did that start, when did you have those extra two, making six, what month or what year.
A.I’d say it was probably somewhere round August or September.
Q.2001.
A.Yes.
XN
Q.So how many is that plus two.
A.Six.
Q.You always were going to have somebody wipe down just those few drops. Were people doing a wipe down at the end of the Millennium wash and the dry just taking off a few extra drops or were they doing something more.
A.No, it turned out that they were taking off a lot of the road grime and brake dust that the wash didn’t take off, and nor did the prep station.
HIS HONOUR
Q.How many more did you use to take the stuff off.
A.Another two.
Q.That’s eight altogether.
A.Yes.
Q.That’s the situation now.
A.No, it’s higher, it depends on the day.
HIS HONOUR You’ve got eight in August; keep going.
XN
Q.Changes since then.
A.By way of number of people employed?
Q.Yes.
A.Up to 11 people.
Q.Is that number a consistent number.
A.No, it depends on the weather and the judgment of my son, James, on how many cars we’ll do that day.
HIS HONOUR
Q.You’ve got eight up until September. What are the extra three – you say it’s now 11 – what are they for.
A.Just to cope with the volume of cars that are coming through.
Q.Doing what jobs, all jobs or what.
A.Yes, all jobs.
XN
Q.And the number depends on how busy the site is.
A.Yes.
HIS HONOUR
Q.If the thing was working perfectly well as you thought it would, did you envisage having those people wipe it down. Not necessarily wiping off grime but just drying it off at the end.
A.It was an option that I’d considered because – should I explain?
Q.What, just to polish it up a bit.
A.It depended. The car wash kit that I ordered came with what’s called a spot free rinse. That’s reverse osmosis water that takes 99% of the impurities out of it, and once that goes on, those spots will dry in the sun without leaving marks. You will have noticed it –
Q.So you envisaged, even if it was working perfectly well, having two people to dry it.
A.Yes – no, two people on site.
Q.On site.
A.Yes.
Q.If it was working perfectly well. What I am getting at is this, you have got two people on site if it was working perfectly well.
A.Yes.
Q.One to work the coffee machine and one to drive the car up.
A.Yes.
Q.That’s two.
A.Yes.
Q.Did you envisage if it was working perfectly well, anyone with a towel doing any work if a car had gone through.
A.No, because that second person would drive the car in then when it was finished, drive it out and he would also –
Q.Do a bit of a rub over.
A.Rub over it.
Q.So you have gone from two to 11.
A.Yes.
Further on he gave the following evidence:
HIS HONOUR
Q.Right now is the end product you get, even though it takes a lot longer to get it and there has been all sorts of problems, but is the end product you get satisfactory to you as far as this new machine is concerned.
A.Definitely, yes.
Q.It is as good as if the machine was working. I mean, there are different ways of getting there, but the end product after the towelling and all the rest.
A.The end product now we get –
Q.Yes.
A.- is as good as the end product that I saw in America.
HIS HONOUR: Sorry, I misunderstood the evidence.
XN
Q.And that end product is achieved with up to 11 lads treating the car.
A.Yes.
Q.And the car going through for its final phase into the Millennium.
A.Yes.
Q.The effect of what the Millennium does when you pare it down is it does the final wax pass.
A.Yes.
Q.Which causes the water to bead.
A.Yes.
Q.Which beaded water is then blown off by the blowers.
A.Yes.
Q.And then there is a bit of touching up done by the lads at the end.
A.Touching up refers only to taking the last drops of water off.
Q.And that produces a quality which is satisfactory to you.
A.Yes.
Q.Is there a machine that you know about which is able to do that without having the 11 lads involved in the process.
A.No.
The plaintiff’s case is therefore that the Millennium is now working well and producing a good wash, and indeed making a profit, but it is not as warranted because in order to achieve the required result more manual labour is required. The plaintiff claims compensation for that extra labour.

As I have already indicated, the extra labour for the pre‑soak was required due to the automatic pre‑soak not working, and was never contemplated by the plaintiff. I also find that after the testing was carried out, there was clearly a need for extra manual labour to properly complete the washing of cars, and the automatic aspect of the Millennium did not perform an adequate function. The letter of 24 June 2001 (exhibit P9, vol 2, tab 6, p 631), although euphoric about the results, was written before the cars were tested in August and does not affect my assessment.
Damages for Extra Labour
As I indicated throughout the trial, I am surprised by the plaintiff’s claim for past and future losses. The Millennium itself, which is the subject of this case, cost in the vicinity of AUD$170,000. There is no dispute that it is now working profitably, and the claim for future and past losses is not for loss in the sense that the plaintiff was losing money, but for the attaining of less profit than he would have attained if he did not have to use extra labour. It seems excessive that the plaintiff is claiming in the vicinity of $800,000 for a machine that is working profitably and only cost in the vicinity of $170,000.
During the trial I raised with counsel on all sides on a number of occasions the question whether the matter could not be resolved by the plaintiff merely obtaining another machine which could do the job, and therefore making his claim on the basis of that new purchase. However, there has been no evidence led as to whether that would be feasible, and the only evidence before me seems to be from the plaintiff himself, who said that no machine existed which could do the job without the help of extra manual labour.
I have before me a direct conflict between two expert accountants assessing both the past and future loss caused by extra labour being employed.
In trying to resolve the wide dispute between the accountants, I have before me three reports from Mr John Irving (13 August 2003, 28 June 2005 and a one page calculation of 11 November 2005), three reports from Mr Hugh McPharlin (10 November 2004, 26 September 2005 and 2 December 2005), and also their evidence.
John Irving
Mr Irving, who gave evidence for the plaintiff, assessed damages for total past loss as a result of there being extra employees. He also assessed damages for future loss. The period for past loss was from the commencement of trading after the Millennium was installed until June 2005.
Put briefly, Mr Irving’s methodology involved a budget that was given to him by the plaintiff and the actual cost. This was done on a per car basis, namely the difference between the cost if the Millennium had functioned properly and the actual cost. For future losses the number of additional people needed to wash was known for the past and assumed for the future. Mr Irving then uses an accounting formula for future losses of the business, providing exigencies for a period of about 15 years.
In his evidence Mr Irving assessed the total past loss at $253,907 and the future loss to be $531,399. He explains the methodology in the following terms in evidence:
Q.Using that chart or whatever else is convenient, can you explain to his Honour what you did.
A.Well, the methodology used, as can be seen from the appendix, was to schedule each month from the beginning of the operation of the car wash through to June 2005 to ascertain the number of working days in each of those months, to ascertain the number of hours worked on each of those days, the number of staff that were budgeted to work, and you can either put that as hours of budget – in the case of if you look along July 2001, we have budgeted hours of 494. The budget assumed there would be 1300 car washes during that period of time and so we divide the 494 hours by the 1300 car washes and we come up with an average number of hours per wash of .38. So, they are the budgeted numbers and we then compare them with the actual numbers. Now, there are no actual numbers for July and I explain that in one of the reports. The July numbers I picked up in August but if we went, for example, to December 2001 and run across the page, we will see that the budgeted hours per wash is .32. The actual hours worked that we have been able to ascertain from the company’s records was 304, the number of washes 661, and therefore, the average cost per wash, .46 of an hour. We then have the variance, the difference between the actual cost and the budgeted cost, which is .14 of an hour multiplied by the hourly cost of $13.247. That comes to $1,224. So, what I say there is for the month of December 2001 there was a loss incurred of $1,224 based upon the actual number of car washes that took place and attributable to the extra cost required to do those car washes and that process is followed through for every month and totals $253,907.
He makes it clear in his evidence that the amount of the claim for past loss is the extra expense incurred in performing the same number of sales that would have been performed anyway. In relation to the assessment of the claim for future loss he gave the following evidence:
Q.Let’s confront the third claim; total future loss. Without referring to your report, if it’s convenient, I would like you to explain to his Honour the methodology and the philosophy of that claim; how it arises, why it is that in your report you opine that that is a loss which is properly compensatable [sic] to the plaintiffs.
A.The basis of the claim is exactly the same as the basis of the past loss, in that it relates totally to employment costs. So, we have not sought to consider any impact upon the business, on the use of the business, on a demand for the services of the business. We have simply, again, looked at the extra labour cost which is required to run the business, as opposed to the labour cost which ought to have been required to run the business under the original specified format of the machine.
HIS HONOUR
Q.So you identify the difference.
A.Yes. So, we simply say that, based on our understanding of the data and of the instructions that we have, we estimate that the machine, in its current format, will require the equivalent of two full-time people over and above what it would have required if it had operated in the way that it is alleged it should have operated. So, it is simply a matter of saying ‘How much do those people cost over the full year?’, and that is detailed again in my letter of 22 November, which comes to a figure of $106,280, based upon the rate of pay that was in place at June 2005, of $14.71 per hour. We have included superannuation and included WorkCover on top of that, multiplied it all out and we come to $106,280. We assume that that loss will continue on an annual basis, for as long as the facility continues to operate.
Hugh McPharlin
Mr Hugh McPharlin, who was called as an expert accountant by SEC, strenuously disagreed with both the methodology and the results of Mr Irving’s calculation, and came to the conclusion that the past losses in connection with the additional employment cost until the end of June 2005 were approximately $15,234. As far as future losses were concerned, Mr McPharlin said the following (exhibit D20C, p 3):
22. Future losses
23.In calculating the plaintiffs’ estimated future losses of $531,399, as set out in Mr Irving’s letter to Minter Ellison dated 22 November 2005, Mr Irving has consistently assumed that two additional staff have been employed as a result of the matters claimed.
24.In my opinion, it is significant that the Irving report has not identified the functions which have been carried out by the additional staff that have been allegedly been [sic] employed as a result of the matters claimed.
25.In my opinion, it is a matter for the Court to find whether that number of staff has been employed by the plaintiffs as a result of the matters claimed.
26.Mr Irving’s letter of 22 November 2005 calculates the capital value of the future losses by dividing the sum of $106,280 by 0.2, resulting in total future losses of $531,399. This of course implies that the annual losses of $106,280 will continue in perpetuity and that the relevant discount rate is 20%.
27.In my opinion, it is for the Court to find what is the relevant discount rate, having regard to the likelihood that those costs will continue to be incurred on an ongoing basis.
28.In my opinion, the calculations of future losses should have regard to the capital cost of rectification of the alleged defects and that, if it is the case that the alleged defects can be rectified for a sum of money that is less than $531,399, the plaintiffs’ losses should be reduced to that lower amount.
In evidence and in his reports Mr McPharlin said that the methodology used by Mr Irving was flawed because it fundamentally relied upon the budget given to him by the plaintiff. Put briefly, what he is saying is that the budget itself is inconsistent with what actually happened. An example of that is that the budget postulated seven day trading, whereas the business was closed on Sundays and most public holidays. Mr McPharlin also had issues with the budget where the hours allowed to be worked were far greater than the hours actually worked. He gave the following evidence on the topic of the budget generally:
Q.Just to summarise, you have identified, in effect, four major reasons why, in your opinion, the budget was unreliable. First, that PKF did no independent analysis on it, they just accepted the instructions they were given by the client.
A.Yes.
Q.Second, that what the budget had postulated as to daily sales, and in particular that sales would be the same every day of the week, seems to have been wrong compared to actual performance.
A.Yes, combined with the volume of sales being substantially different from the actual volume of sales being substantially less than budget. So two points about sales. I think the daily volatility, together with the estimated volume of sales.
Q.You identified also the difference between days that the business would be open for business as budgeted compared to the facts.
A.Yes; a simple inconsistency.
Q.And also this notable difference between the budgeted work and wages paid for that work as compared to the actual figures for that first trading year, particularly up till March of 2002.
A.Yes.
He also said:
Q.Can I take you back to 4.45. Is it right that the primary assumption on which Mr Irving was proceeding was the reliability of the budget as one means of calculating losses.
A.Yes. He was measuring loss by the difference between the budget and the actual financial performance.
Q.You summarise your view on that at 4.47, that that approach is fundamentally flawed because it was never demonstrated that the budget reasonably predicted financial performance of the car wash.
A.Yes.
Q.Does that remain your view.
A.Yes.
I find that there is no clear quantification of the loss incurred due to the extra labour. The evidence is vague as to how much labour would be needed to clean each car to the required standard. I have already found that labour was needed, and that the Millennium as warranted and represented required no labour. However, compensating the plaintiff for this head of damage is complicated by the fact that the car wash is running at a profit. It is also complicated by the fact that there is an unknown factor as to whether the use of extra labour may affect the income of the car wash, namely that more cars might be pushed through for greater income, which may offset the extra expense of the “lads”. There is also the unknown factor of what other duties they might be performing as well as attending to the cars.
Clearly the plaintiff’s claim for a total of $840,338 for this aspect of the case is quite excessive, but there is great difficulty in quantifying an appropriate amount.
Mr McPharlin’s estimate that the cost of extra labour at the time of trial be assessed at approximately $15,234 is reasonable. I accept his methodology as set out in his report of 26 September 2005 and confirmed in his report of 2 December 2005. Mr McPharlin sets no figure for future loss. Doing the best I can, using the past loss as a basis and assessing that amount for the life of the Millennium for 15 years, I set a sum of $50,000 for future loss of profits due to extra labour. As imprecise as this is, in my view the plaintiff is entitled to compensation for that amount because he was warranted to buy a car wash that was automatic. However, the claim for an amount of $840,338, in my view, is clearly inappropriate. I therefore set an amount for past and future loss for breach of the implied term that the Millennium was automatic:
·past loss of profits due to extra labour $15,234.00
·future loss of profits due to extra labour $50,000.00
^____________
$65,234.00
^____________
The First and Second Defendants’ Counterclaim
The first and the second defendants plead the following:
AMENDED COUNTERCLAIM
1.The plaintiff by counterclaim repeat the matters pleaded in paragraphs 10, 12 and 13 of the Amended Defence herein.
2.On or about 17 July 2001 the plaintiff by counterclaim submitted to the first defendant by counterclaim Tax Invoice No. 00001285 in respect of part of the costs of labour and materials for the installation of the Millennium at the second defendant by counterclaim’s premises in the sum of $39,788.78 inclusive of goods and services tax.
3.On or about 27 August 2001 the plaintiff by counterclaim submitted to the first defendant by counterclaim Tax Invoice No. 00001291 in respect of the balance of the costs of labour and materials for the installation of the Millennium at the second defendant by counterclaim’s premises in the sum of $38,391.90 inclusive of goods and services tax.
4.On or about 4 December 2000 the plaintiff by counterclaim submitted to the first defendant by counterclaim Tax Invoice No. 00001256 in respect of the supply of an auto entry unit, optional spare note stacker, 2000 tokens and freight and customs charges in the sum of $18,737.40 inclusive of goods and services tax.
5.In breach of contract the first defendant by counterclaim has failed or refused to pay:
5.1     Any of the sum the subject of Tax Invoice No. 00001285;
5.2     The sum of $30,429.05 remaining owing in respect of the matters the subject of Tax Invoice No. 00001291;
5.3     The sum of $3,737.40 remaining due and owing in respect of the matters the subject of Tax Invoice No 00001256.
6.In the alternative to the matters pleaded in paragraphs 1 to 5 herein, the plaintiff by counterclaim says that at the request of the first defendant by counterclaim the plaintiff by counterclaim has rendered services and supplied goods and materials to the defendants by counterclaim being the goods and services the subject of Tax Invoices Nos. 00001285, 00001291, 00001256 in consideration for an implied promise by or obligation on the part of the defendants by counterclaim to pay a reasonable price for the supply of such goods and services.
7.The plaintiff by counterclaim says that the defendants by counterclaim have received the benefit of the goods and services referred to in paragraph 6 herein but have failed to pay to the plaintiffs by counterclaim the sum of $73,955.23 (inclusive of goods and services tax) being the outstanding reasonable cost of the provision of such goods and services.
8.The plaintiffs by counterclaim say that it would be unjust, unfair, unconscionable or inequitable for the defendants by counterclaim to retain the benefit in the absence of payment.
AND the plaintiffs by counterclaim claim from the defendants by counterclaim:
A.Damages in the sum of $73,955.23.
B.In the alternative, restitution in the nature of a declaration that the defendants by counterclaim are liable to pay the plaintiff by counterclaim the sum of $73,955.23 or such other sum as the Court considers represents the reasonable value of the goods and services supplied by the plaintiffs by counterclaim to the defendants by counterclaim.
C.Such further sum as the defendants by counterclaim may be liable to pay pursuant to the A New Tax System (Goods and Services Tax) Act 1999 (Cth).
D.Interest.
E.Costs.
In its amended defence to the counterclaim the plaintiff pleads the following:
AMENDED DEFENCE TO COUNTERCLAIM
7.As to paragraph 2 of the Amended Counterclaim, the Phillips Group admits that Hanna submitted Tax Invoice No 00001285 in the sum of $39,788.78 (inclusive of goods and services tax) to it on or around 17 July 2001.
8.As to paragraph 3 of the Amended Counterclaim, the Phillips Group admits that Hanna submitted Tax Invoice No 00001291 in the sum of $38,391.90 (inclusive of goods and services tax) to it on or around 27 August 201.
9.As to paragraph 4 of the Amended Counterclaim, the Phillips Group admits that Hanna submitted Tax Invoice No 00001256 in the sum of $18,737.40 (inclusive of goods and services tax) to it on or around 4 December 2000.
10.As to paragraph 5 of the Amended Counterclaim, the Phillips Group says that:
10.1 in or around May 2001, before any invoices had been rendered by Hanna to the Phillips Group in relation to the Millennium, the Phillips Group paid Hanna approximately $8,000 towards the installation of the Millennium;
10.2 it is not obliged to pay Hanna the amounts alleged to be owing to it or any amount at all.
11.The Phillips Group denies that Hanna is entitled to the relief claimed or to any other relief.
SET OFF
12.If the Phillips Group is liable to Hanna (which the Phillips Group denies), then the Phillips Group claims a set off to the extent of so much of the Hanna’s claim for which it may be liable against the said indebtedness of Hanna to it.
The first and second defendants claim that after the quoted installation price of $17,500 was agreed and the contract was entered into, the plaintiff required the first and second defendants to undertake additional work because the plaintiff wanted to locate the plant room in a position remote from the wash bay, and also to make significant modifications to the system over and above the recommended installation.
The first and second defendants counterclaim on the basis that there was an agreement that extra expense as a result of the decision to locate the plant room distant from the wash bay would be incurred by the plaintiff, but in the alternative, if no such agreement is found to exist then the first and second defendants are entitled to compensation by way of quantum meruit. As a starting point, there would be no dispute that part of the agreement between the plaintiff and the first and second defendants was that the installation of the Millennium would cost $17,500. However that amount was subject to the following (exhibit P37, letter 6 April 2000 from first and second defendants to the plaintiff):
This assumes the wash bays are in close proximity to the plant room and that services are provided to the plant room (cellar installation is fine).
It is also undisputed that the original plan to have the plant room at the site of the Millennium (in a cellar) was changed after the contract was entered into and the plant room was placed in a position some 30 metres away. There is also no dispute that extra work was required by the first and second defendants to bring this about, and the sum of $73,955.23 is outstanding for that work. There is no dispute that this work was carried out and what is claimed is an appropriate amount for that work, but the first and second defendants say that there was no agreement to do that work as part of the original quote. In cross-examination Mr Hill gave the following evidence:
Q.And my suggestion to you is that you did not, prior to doing any of the work which is the subject of your counterclaim, tell Mr Phillips that he would have to pay for it.
A.I wasn’t going to do it for nothing and he was certainly told, and we discussed it on site leading up to it, that it was going to be more expensive to go into a remote plant room. We discussed on site that it was going to be a do and charge because of – I couldn’t quote him, how much extra it would be, because the concrete wasn’t laid.
HIS HONOUR
Q.So you did talk to him about it.
A.Absolutely.
XXN
Q.Do you say that that was the do and charge conversation.
A.Yes.
Q.Any others.
A.There was a discussion on site towards the end of the second week or the third week where he asked me to tell him how much it was at that point, and I told him that I couldn’t really tell him without getting back to the office and tallying things up. He insisted upon my giving him an estimation because his bank manager was breathing down his neck and coming there that morning shortly. I said ‘Look, I can’t do it’. He said ‘Come on, I’m not going to hold you to it, just run through it in your head’ and we went back again and we came to a figure of $35,000.
Q.A figure of 35 grand was a figure which included all of your charges for your invoices pursuant to the contract, didn’t it. It wasn’t an extra amount, was it.
A.No, we had departed from the contract as far as the cost of the installation was concerned. He was well aware of that, and we were proceeding by way of, essentially, an hourly rate, but we didn’t charge an hourly rate because I wanted to look after him to make it as successful as possible for him so that he might buy these further five or more machines and recommend my product and demonstrate my product to many other customers who were eager to see this machine operating in Australia.
Q.Is your position that all of the items in your counterclaim fall within the do and charge arrangement that you would have his Honour accept.
A.No.
Q.Do you say, for those items which are not within the do and charge description, that you gave any notification to Mr Phillips that he would have to pay for more than the contract sum.
A.Well, he hasn’t paid for chemicals that I supplied after we installed it. I didn’t contract to give him chemicals free for life. It was chemicals and parts that I supplied back in 2000 that he owed a balance on that I carried through until and after the installation which still hasn’t been paid for. The fact that they weren’t paid created enormous stress on my ability to be able to continue assisting him on a daily basis.
Q.What really occurred was that you were doing work at the site in order to try to make the Millennium work: that’s not properly the basis of any further charge. That’s the position, isn’t it.
A.No.
Q.And the position is you didn’t tell Mr Phillips there would be additional charges for work done for which you now claim some $74,000. That’s the real position, isn’t it.
A.That’s not correct.
Q.Having told Mr Phillips there would be a charge on a do and charge basis, did you ever write to him at any time telling him what extra work it was that you were doing pursuant to a do and charge basis.
A.No, he understood it. We were there doing it.

The plaintiff said the following:
Q.1833, Max Hill to you ‘Following is 10 pages of our invoices as discussed forwarded by fax to assist finalisation. Original is forwarded this date by mail’. In the case of the charges that the invoices describe, had you been told by the defendant up to this communication of 28 August 2001 and the invoices, that there would be extra charges for things being done on your site.
A.Over and above the installation charge?
Q.Yes.
A.Yes, the cost of the stainless steel pipe to be run between the plant room and the wash base.
Q.Anything else.
A.No.
The plaintiff denied that there was any conversation about extra charges because of the change of site after the contract was entered into.
I accept the evidence of Mr Hill on that topic. It is supported by the objective fact that the work was done (exhibit D60, Schedule of Extra Work) and that the site was changed, requiring such work to be done. In my view, it would be inconceivable that there was no such conversation about extra costs for that work, bearing in mind that the defendants themselves would be incurring extra costs to carry out the work, and also the fact that the original letter setting out the terms of the contract makes the costs of installation dependant upon the wash bays being in close proximity to the plant room.
I find for the defendant in the sum of $73,955.23 on the counterclaim. The plaintiff’s damages against the first and second defendants will be offset to that amount.
Conclusion
I find for the plaintiff against the first and second defendants in the sum of $118,050.86, offset by the sum of $73,955.23, making a total for the plaintiff of $44,095.63.
Case Against SEC (the Misrepresentation Case)
The plaintiff claims damages against SEC for misrepresentation pursuant to s 52 of the Trade Practices Act 1974. Section 52 of that Act reads as follows:
52Misleading or deceptive conduct
(1)     A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2)     Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).
There is no dispute that SEC is a foreign corporation which does not carry on business in Australia. The definition of “corporation” in s 4 of the Trade Practices Act includes a foreign corporation, and therefore can apply to SEC. Section 5 reads:
5Extended application of Parts IV, IVA, V, VB and VC
(1)     Part IV, Part IVA, Part V (other than Division 1AA), Part VB and Part VC extend to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia.
(1A) In addition to the extended operation that section 46A has by virtue of subsection (1), that section extends to the engaging in conduct outside Australia by:
(a)New Zealand and New Zealand Crown corporations; or
(b)bodies corporate carrying on business within New Zealand; or
(c)persons ordinarily resident within New Zealand.
(2)     In addition to the extended operation that sections 47 and 48 have by virtue of subsection (1), those sections extend to the engaging in conduct outside Australia by any persons in relation to the supply by those persons of goods or services to persons within Australia.
(3) Where a claim under section 82 is made in a proceeding, a person is not entitled to rely at a hearing in respect of that proceeding on conduct to which a provision of this Act extends by virtue of subsection (1) or (2) of this section except with the consent in writing of the Minister.
(4)     A person other than the Minister or the Commission is not entitled to make an application to the Court for an order under subsection 87(1) or (1A) in a proceeding in respect of conduct to which a provision of this Act extends by virtue of subsection (1) or (2) of this section except with the consent in writing of the Minister.
(5)     The Minister shall give a consent under subsection (3) or (4) in respect of a proceeding unless, in the opinion of the Minister:
(a)the law of the country in which the conduct concerned was engaged in required or specifically authorised the engaging in of the conduct; and
(b)it is not in the national interest that the consent be given.
SEC is obviously not incorporated in Australia, and therefore, for s 52 to apply, the misleading and deceptive conduct of SEC must have taken place in Australia.
In this case the misleading statements alleged against SEC were those of Mr Demarre whilst in the United States, and according to the plaintiff similar statements were made in Australia before that, by the first and second defendants acting as agents for SEC. In that way the plaintiff argues that the representations made in Australia by the first and second defendants can be attributed to SEC.
In my view, no such agency exists. The first and second defendants never held themselves out as agents for SEC, and indeed, they were merely distributors for them. Although the distributors’ agreement was not executed, there was a letter to that effect, and their job was merely to sell the articles manufactured by SEC for them. However, as I indicated earlier, the first and second defendants were a type of conduit in handing on information to the plaintiff which it is argued was misleading. This information was provided in Australia before the plaintiff went to the United States. In my view, the videotape in particular was misleading. The plaintiff also received a letter on 14 January 2000 (exhibit P9, tab 3, p 291) and a brochure (exhibit P9, tab 4). In my view, this material which was received in Australia, contained what turned out to be misleading information when compared with the Millennium that was ultimately purchased from the first and second defendant, but manufactured by SEC. The letter of 14 January 2000 sent by the first and second defendants to the plaintiff was in the following terms:
The following is an excerpt from a letter received today from S.E.C. in regard to the new Millennium 9100:
The Millennium represents the ultimate in touchless washing technology. Featuring all stainless steel construction. Zero Degree nozzles provide maximum impingement of all vehicle surfaces. The on-board computer system gives infinite adjustment options and refinements to all facets of the wash program. Direct drive, on‑board hydraulics are powered by the exclusive dual speed, soft start drive system. Dual top sprays allow flow and pressure to be diverted at optimum angles for critical, difficult to clean front and back vehicle surfaces.
The Millennium features attention grabbing, backlit pictographs that inform and entertain the customer during every wash cycle. The top lighted panel is standard as are the colored accent panels on the verticals. A brilliant Neon Lighting Option is available to further enhance the customer impression. Inside service panels are lightweight, blue Plexiglas. Optional service panel colors are red or white.
More impact can be added with the NEON lighting Option. Mounted on the verticals, the package is housed in a hinged stainless steel enclosure. Five colours add a bold look to the arch. Yellow, orange, red, fuchsia and blue are standard, custom packages are available for national account imaging.
The videotape shows the Futura SSA and the Futura Millennium. I have watched the videotape carefully, and it indicates an automatic touch free car wash. It is clear from the video that no manual labour is needed to either pre-soak and prepare the car or dry it afterwards. It emphasises the high quality of the wash and talks about a “low maintenance high customer satisfaction vehicle wash system”. In my view, the videotape coupled with the transcript of the videotape which I have read carefully, is clearly a representation that the highest quality wash can be attained without the use of manual labour.
Although what was said by Mr Demarre to the plaintiff does not constitute representations for the purposes of s 52 because they happened outside of Australia, and although what the plaintiff saw in the United States is not a representation, nevertheless, the misrepresentations that were made in Australia via the brochure and the videotape were confirmed during his trip to the United States. It was clearly indicated to the plaintiff that the highest quality wash would be attained without the use of manual labour, both at the preparatory stage and the drying stage.
In assessing damages for breach of s 52 of the Trade Practices Act, I refer to s 82 of the Act which reads:
82.     Actions for damages
(1)Subject to subsection (1AAA), a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV, IVA, IVB or V or section 51AC may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
(1AAA)A person who suffers loss or damage by conduct of another person may not recover the amount of the loss or damage by an action under subsection (1) to the extent to which:
(a)the action would be based on the conduct contravening a provision of Division 1 of Part V; and
(b)the loss or damage is, or results from, death or personal injury; and
(c)the death or personal injury does not result from smoking or other use of tobacco products.
(1AAB)Divisions 2 and 7 of Part VIB apply to an action under subsection (1) for loss or damage a person suffers by conduct of another person to the extent to which:
(a)the action is based on the conduct contravening a provision of Division 1 of Part V; and
(b)the loss or damage is, or results from, death or personal injury; and
(c)the death or personal injury results from smoking or other use of tobacco products;
as if the action were a proceeding to which Part VIB applies.
Note 1:Division 2 of Part VIB deals with the limitation periods that apply for claims for damages or compensation for death or personal injury and, to the extent to which that Division is applied to the action by this subsection, it overrides subsection (2) of this section.
Note 2:Division 7 of Part VIB deals with structured settlements for claims for damages or compensation for death or personal injury.
(1AA)Subsection (1) has effect subject to section 87AB.
Note:Section 87AB may limit the amount that the person may recover for a contravention of section 52 (Misleading or deceptive conduct) from the other person or from another person involved in the contravention.
(1B)Despite subsection (1), if:
(a) a person (the claimant) makes a claim under subsection (1) in relation to:
(i)    economic loss; or
(ii)    damage to property;
caused by conduct of another person (the defendant) that was done in contravention of section 52; and
(b)the claimant suffered the loss or damage:
(i)    as a result partly of the claimant’s failure to take reasonable care; and
(ii)    as a result partly of the conduct referred to in paragraph (a); and
(c)the defendant:
(i)    did not intend to cause the loss or damage; and
(ii)    did not fraudulently cause the loss or damage;
the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damage.
Note:Part VIA also applies proportionate liability to a claim for damages under this section for a contravention of section 52.
(2)An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.
Note:Part VIB restricts awards of compensation for death or personal injury, and sets out time limits for commencing actions for damages for death or personal injury.
(3)     [not applicable]
The plaintiff’s claim against SEC, as it is against the first and second defendants, is for damages for both capital loss and loss of profits. In other words, losses equivalent to those that the plaintiff incurred against the first and second defendants by way of breach of contract should be attributed to SEC for inducing the plaintiff to enter into that contract and thereby suffer that loss by the false misrepresentations. Although the damages to be recovered pursuant to s 82 of the Trade Practices Act are not necessarily assessed in the same way as damages for breach of contract, in Henville v Walker (2001) 206 CLR 459 at 501 - 502, McHugh J said:
This Court has addressed the question of assessment of damages under s 82 on several occasions. The Court has concluded that in most cases the measure of damages in tort is the appropriate guide in determining an award of damages under s 82. However, in assessing damages under s 82, courts are not bound to choose between the measure of damages in deceit or other torts or contract. In Marks v GIO Australia Holdings Ltd, the Court said that the central issue under s 82 is to establish a causal connection between the loss claimed and the contravening conduct. Once such a connection is found to exist, nothing in s 82 suggests that the recoverable amount should be limited by drawing an analogy with contract, tort or equitable remedies although they will usually be of great assistance. As Gummow J said in Marks, “[a]nalogy, like the rules of procedure, is a servant not a master”.
Indeed, general principles for assessing damages may have to give way altogether in particular cases to solutions best adapted to give the injured claimant an amount which will most fairly compensate for the wrong suffered. (Citations omitted)
I find that there is a clear connection between the misrepresentation, both as to the quality of the Millennium and as to the aspects of it being automatic, which has caused loss to the plaintiff in the way that has already been assessed. I find that that is the most appropriate measure of damage under s 82 of the Trade Practices Act.
Conclusion
I therefore find that SEC is liable for the capital loss as already assessed. In my view, the other capital losses were as a result of the plaintiff entering into the contract and having to rectify problems that were misleadingly represented as being workable.
SEC, like the first defendant, is also liable for the sum of $65,234 for past and future loss for the reasons already given.
I therefore calculate the amounts to be awarded as follows

First and second defendant

SEC

Capital damages

52,816.86

52,816.86

Past and future loss of profits

65,234.00

^{_____________}

65,234.00

$118,050.86

Less set off

73,955.23

^{_____________}

^{______________}

TOTAL

$ 44,095.63

^{_____________}

$118,050.86

^{______________}

There will be judgment against the first and second defendants in the sum of $44,095.63. There will be judgment against SEC in the sum of $118,050.86. I will hear the parties as to what orders should be made to give effect to the contribution notices. I will also hear the parties as to interest and costs.

[2006] SADC 127

1 November 2006

Key Legal Topics

Areas of Law

Contract Law

Legal Concepts

Contract Formation

Breach of Contract

Misrepresentation

Compensatory Damages

Reclaim System
· cost of converting the system to the bore water spring system	$ 5,115.00
Pre-soak System
· new pumps and equipment	$7,644.41
· gantry and associated parts	$4,626.40
· stainless steel fittings and pipe for gantry	$2,098.93
· design, manufacture and supply pre-soak pump station	$6,453.70 ^___________	$20,823.44
Contamination
· Hytech hi-pressure hoses	$1,213.20
· new manifold	$2,766.36
· three check valves and fittings	$ 700.00 ^___________	$ 4,679.56
Incompatible Vacuum Unit	$ 7,298.56
Defective Hot Water Heater
· replacement hot water heater	$3,126.00
· installation and removal of defective heater	$ 280.00 ^___________	$ 3,406.00
Electrical Fees
· to change to bore water system after reclaim system was discontinued	$ 922.96
· in relation to the pre-soak failure	$ 675.00
· on auto-entry unit	$ 360.00
· incompatible vacuum	$ 650.00 ^_________	$ 2,607.96
Cost of Pump Valve Failure
· replacement of two valves	$1,010.00
· replacement of incorrectly supplied rinse valve	$ 541.00 ^___________	$ 1,551.00
Parts Failed, Incorrect Supply of Component
· Plasflo fittings over 12 months	$2,017.40
· Burgman seals	$ 171.60
· Promet seals, diaphragms and valves	$2,140.71
· Hosemasters hose and fittings	$1,394.00
· new valve and arch	$ 211.63
· three hydraulic motors which failed in the wash arch	$1,400.00 ^___________	$ 7,335.34 ^____________
TOTAL	$52,816.86 ^____________

First and second defendant	SEC
Capital damages	52,816.86	52,816.86
Past and future loss of profits	65,234.00 ^{_____________}	65,234.00
$118,050.86
Less set off	73,955.23 ^{_____________}	^{______________}
TOTAL	$ 44,095.63 ^{_____________}	$118,050.86 ^{______________}