Specialty Equipment Company Inc v Re Phillips Nominees P/L & Anor, Hanna Wash Systems P/L v Re Phillips Nominees P/L - [2007] SASC 433

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
SPECIALTY EQUIPMENT COMPANY INC v RE PHILLIPS NOMINEES P/L & ANOR, HANNA WASH SYSTEMS P/L v RE PHILLIPS NOMINEES P/L
[2007] SASC 433
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Anderson and The Honourable Justice White)
11 December 2007
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - EXCESSIVE OR INADEQUATE DAMAGES
TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - ENFORCEMENT AND REMEDIES - ACTIONS FOR DAMAGES - ASSESSMENT OR AVAILABILITY OF DAMAGES
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS
Appeal against assessment of damages by District Court Judge - plaintiff succeeded against defendants on actions in contract and misleading and deceptive conduct under Trade Practices Act 1974 (Cth) - on appeal defendants challenge liability and assessment of damages - plaintiff cross-appeals on basis that damages inadequate - whether Judge took appropriate approach to assessment of damages - whether conduct of plaintiff contributed to damages claimed.
Held: Judge erred in finding that a term was to be implied into contract - implied term would operate in partisan fashion - finding of breach of implied term set aside - both defendants liable for breach of s 52 of Trade Practices Act 1974 (Cth) - matter remitted to Judge for consideration of effect of plaintiff's conduct and to assess loss attributable to alleged defective components.
Trade Practices Act 1974 (Cth) s 51A, s 52, s 82; Supreme Court Civil Rules 2006 (SA) r 292, referred to.
Pappas v Soulac Pty Ltd (1983) 50 ALR 231; Henville v Walker (2001) 206 CLR 459; Marks v GIO Australia Holdings (1998) 196 CLR 494, distinguished.
RE Phillips Nominees P/L T/As Splash Touch Free Car Wash & Anor v Hanna Wash Systems P/L & Ors [2006] SADC 127; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Byrne v Australian Airlines Ltd (1995) 185 CLR 410; Hawkins v Clayton (1988) 164 CLR 539; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, discussed.
Yorke v Lucas (1985) 158 CLR 661; Gardam v George Wills & Co Ltd (1988) 82 ALR 415; Coping v ANZ McCaughan Ltd (1996) 67 SASR 525; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; Clark v Urquhart [1930] AC 28, considered.

SPECIALTY EQUIPMENT COMPANY INC v RE PHILLIPS NOMINEES P/L & ANOR, HANNA WASH SYSTEMS P/L v RE PHILLIPS NOMINEES P/L
[2007] SASC 433
Full Court: Doyle CJ, Anderson and White JJ

DOYLE CJ: In an action in the District Court R E Phillips Nominees Pty Ltd (“Phillips”) was awarded damages for breach of contract and breach of s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”). Damages were awarded against Specialty Equipment Company Incorporated (“SEC”) for breach of s 52 of the TPA and against Hanna Wash Systems Pty Ltd (“Hanna Wash”) for breach of contract. The subject of the dispute was a car washing system, called the Millennium Touchless Automatic Car Wash System (“the Millennium”). Phillips bought the Millennium from Hanna Wash in May 2000 for $174,000 (including installation costs). The Millennium was sold by Hanna Wash, a company incorporated in Australia, but was manufactured by SEC, a company incorporated and operating in the United States.
In separate appeals SEC and Hanna Wash appeal against the decision of the District Court Judge. They challenge the decision on liability and the assessment of damages. Phillips cross appeals complaining that the award of damages against Hanna Wash and SEC does not adequately compensate Phillips for the extra costs it had incurred in operating the car wash.
In a Notice of Contention filed by Phillips on 20 September 2007, Phillips raises an alternative ground on which the Court should uphold the award of damages against Hanna Wash. Phillips contends that, contrary to the finding of the Judge, the Court should uphold the award of damages against Hanna Wash on the basis that it acted in breach of s 52 of the TPA.
The appeals raise the issue of liability and the appropriate approach to the assessment of damages.
The dispute – an outline
Phillips purchased the Millennium from Hanna Wash. The car wash was manufactured by SEC, and supplied by SEC to Hanna Wash.
The car wash was automatic. The components of the car wash, working together, provided the car wash. No manual cleaning was involved.
Phillips said that it expected to acquire a system that would produce what Mr Phillips (a director and the controller of Phillips) described as a high quality wash without the need for any manual cleaning in addition to the cleaning performed by the car wash system.
At the heart of the case is the question of whether there was a term of the contract between Hanna Wash and Phillips, or whether there was an actionable representation made by Hanna Wash or SEC to Phillips, relating to the quality of the wash, or the standard of cleanliness, that would be achieved by the Millennium, unaided by manual labour.
Phillips complains that the car wash system did not and could not wash cars to the standard that Phillips wanted and had expected. Phillips complains in particular about the failure of the car wash system to clean adequately the wheels of motor vehicles, and the front and back of motor vehicles. Phillips claims that the defendants represented to it that the car wash system would, without any additional manual labour, wholly clean motor cars to a high standard, and to a standard equal to that which Mr Phillips observed when he inspected a similar car wash system in America, before he ordered the Millennium. Phillips claims that to achieve a car wash of the required standard, it had to employ staff to carry out preparatory cleaning work before a motor car was put through the car wash system, and had to employ manual labour to attend to final cleaning and drying after the car had been through the car wash system.
My impression is that at trial, and on appeal, the case has been confused and protracted because of a failure to focus on what seems to me to be the real issue. There is no doubt that the Millennium is a “touch free” car wash system. It does not involve brushes or other mechanical components that come in contact with the body of the car being washed. It relies entirely on water pressure and cleansing agents. Nor can it be disputed that the Millennium is an automatic system. It operates without human intervention, once the system is activated. Yet these matters seem to have been raised in a manner that complicated the trial.
The real issue is the standard or quality of the wash that the system achieves, under ordinary operating conditions, and whether Hanna Wash or SEC made actionable representations relating to the standard of the wash, and whether a contractual term as between Phillips and Hanna Wash, relating to the standard of the wash, is to be implied. A failure to focus adequately on that issue appears to me, with respect, to have led to a situation in which the meaning of expressions such as “high quality wash”, “satisfactory wash”, “work effectively”, “clean cars adequately” and the like was left unclear, although they are found throughout the trial Judge’s judgment and were the subject of submissions on appeal. At trial the focus appears to have been on a comparison between what Mr Phillips, on behalf of Phillips, expected and wanted in terms of standard of cleanliness, and what the Millennium provided. But even then there appears to be no attempt to identify by reference to objective criteria what was expected by Phillips, and what the Millennium provided.
The Judge’s reasons
The Judge began by summarising Phillips’ claims. He said that Phillips claimed that parts of the Millennium “did not function properly” and that the Millennium did not clean cars “without the assistance of manual labour”: R E Phillips Nominees P/L T/As Splash Touch Free Car Wash & Anor v Hanna Wash Systems P/L & Ors [2006] SADC 127 (hereafter referred to as “reasons”) at [4]. The Judge then outlined the events in question, and summarised in a little more detail Phillips’ claim and the counterclaim by Hanna Wash. The counterclaim, for payment of the balance owing to Hanna Wash, is no longer in issue. In his summary of the background he focussed on the events surrounding the purchase of the Millennium, and difficulties that Phillips had in getting it to clean to the required standard.
Referring to the claims made by Phillips, the Judge referred to a claim for misrepresentation, and also to an implied contractual term, to the effect that the system “did not require manual assistance” and that there would be no need for any manual labour: reasons at [25]-[26]. It is notable that the Judge expresses the issue in terms of whether manual cleaning was required, rather than referring to what seems to be the underlying issue, the standard of cleanliness that the Millennium achieved without the assistance of manual labour.
The Judge then summarised the evidence of main witnesses. In doing so the Judge made no express findings as to credit or reliability on any particular issue, and made no findings of fact.
The Judge then returned to Phillips’ claim against Hanna Wash.
The Judge said that Phillips’ claim against Hanna Wash for misrepresentation under the TPA and for negligent misstatement “cannot be sustained”. The reason was that in passing on information to Phillips, Hanna Wash was “merely a conduit for SEC”: reasons at [68]. He added that Hanna Wash “knew very little about the Millennium themselves”.
The Judge then said that the claim in contract succeeded. It was an implied condition of the contract that the components of the Millennium “would work properly”: reasons at [69]. That observation appears to relate to the complaint that certain components were defective. The Judge said there was a further implied condition “that the Millennium would not need manual assistance to function”: reasons at [70]. Once again, the Judge has expressed the issue in terms of the need for manual labour, rather than in terms of the standard of the wash that was achieved.
The Judge gave no explanation for his conclusion that terms to this effect were to be implied. Nor does the Judge deal with the fact that Phillips’ Statement of Claim does not include a claim that terms to this effect should be implied.
It should be noted that on other occasions in his reasons the Judge expressed the implied term in different terms. At [85] he refers to the cars “not being cleaned properly”. At [105] he refers to the Millennium giving “a good wash”. At [112] he refers to a warranty that the system “would work properly”. At [113] he makes a finding that the Millennium “could not function properly without there being manual assistance.
I return to the Judge’s reasons.
The Judge next dealt with claims by Phillips that particular components of the Millennium car wash were defective. Sometimes the defect identified was that a particular component did not perform the function it was designed to perform. Sometimes the complaint was that the component had to be repaired or replaced because, unless this was done, the Millennium would not wash cars properly, meaning that it would not wash the cars to the standard that Phillips claims it should. Illustration to the latter kind of complaint related to the “pre‑soak system” and to a problem of contamination.
In dealing with the complaint about the pre-soak system, the Judge made findings that the Millennium was not cleaning cars “properly”: reasons at [79]. He accepted evidence from Mr Tirrell to that effect. The Judge said that Mr Hill, on behalf of Hanna Wash, admitted 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”: reasons at [84]. The Judge then made the following findings:
[85]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.
[86]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.
In these passages the Judge appears to have concluded that Phillips wanted and expected the Millennium to clean to a high standard and that it did not clean to the standard that Phillips wanted and expected. He also appears to have found that Mr Hill, on behalf of Hanna Wash, accepted that the system could not and did not perform to the standard expected by Mr Phillips. The Judge appears to have resolved the issue by concluding that the Millennium was not “fully automatic”, without grappling directly with the question of how one identified the standard of finish that Mr Phillips expected, and whether that expectation was reflected in a term of the contract.
The Judge then turned to what he called the claim “for loss of profits”, both past and future. The Judge referred to his earlier finding that the Millennium “could not function properly without there being manual assistance”. He accepted evidence from Mr Phillips to the effect that he employed additional staff to work on the “pre-soak stage” (before a motor car entered the Millennium) and to complete the process after the automatic car wash stopped. The Judge said at [114] that there was a need “for extra manual labour to properly complete the washing of the cars, and the automatic aspect of the Millennium did not perform an adequate function”.
The Judge then referred to reports provided by two accountants, in which they expressed opinions on the amount of Phillips’ loss. There was a substantial dispute on this issue, and the Judge had before him a number of reports from the experts, some of them of considerable length. The Judge also heard evidence from them. The Judge noted that it was surprising that although the machine was “working profitably”, and (admittedly with additional labour) a satisfactory cleaning result was being obtained, Phillips was claiming in excess of $800,000 for loss of profits for a machine that had cost only about $170,000.
Quantification of any damages for “loss of profits” was difficult, because there was a major dispute as to the amount of additional labour that had been employed, as to the work being done by those employees, and on the question of whether their employment meant that cars could be washed more quickly by the Millennium than would otherwise be the case, thus generating additional revenue that should be offset.
The Judge summarised some aspects of the expert evidence before him. He said at [124]:
[124]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.
The Judge referred to the matters that were in contention, but then without making any particular finding as to any of them said that Phillips’ claim was excessive, and that the estimate of Mr McPharlin (the expert accountant called by SEC), was “reasonable”. The Judge said that he accepted “his methodology as set out in his report of 26 September 2005”. The Judge then noted that Mr McPharlin made no estimate of the claim for future loss. The Judge said that doing the best he could and using the past loss as a basis, he awarded a sum of $50,000 for future loss of profits over the life of the machine: reasons at [126]. The Judge gave no other explanation of the means by which he reached that result.
The Judge then turned to the claim against SEC.
The Judge note that SEC was not incorporated in Australia, and that s 52 of the TPA would therefore apply to misleading and deceptive conduct on the part of SEC only if it took place in Australia.
The Judge said that to the extent that Phillips complained of statements made by Mr DeMarre (on behalf of SEC), those statements were made while Mr Phillips was in America, and so were not actionable.
The Judge rejected a submission that Hanna Wash acted as agent for SEC when it made or repeated statements similar to those made by Mr DeMarre. The Judge referred to his earlier finding that Hanna Wash acted as a mere “conduit” in passing on information to Phillips: reasons at [137].
However, the Judge found that written and other material that SEC sent to Phillips in Australia was misleading and deceptive: reasons at [137]. He referred to a videotape that demonstrated the workings of a similar machine (the case was argued on the basis that the videotape could be taken as referring to the Millennium); he referred to a letter of 14 January 2000 from Hanna Wash that repeated material provided by SEC, and he referred to a brochure sent to Phillips. The Judge said that this material contained “misleading information when compared with the Millennium that was ultimately purchased …”: reasons at [137].
The Judge then made the following finding, which appears to have been the basis of his conclusion that SEC was liable to Phillips:
[137]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.
The Judge then said that what Mr DeMarre said to Mr Phillips in America confirmed the effect of the brochure and the videotape. He said at [138]:
[138]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.
Thus, the Judge appears to have found that SEC made a representation that “the highest quality wash” would be produced by the Millennium, and that that statement was actionable.
The Judge found that SEC was liable for the cost of repair or replacement of the components for which Hanna Wash was liable, and that SEC was liable for loss of profits to the same extent as was Hanna Wash.
The Issues on Appeal
Hanna Wash challenges the Judge’s finding that a condition was to be implied into the contract with Phillips to the effect that no manual effort or labour would be required to achieve a high quality wash or a wash of the “highest quality”. Although the Judge referred to the implied terms to the effect that the Millennium “would not need manual assistance to function” at [17], it is implicit in the Judge’s reasons as a whole that he meant that a term was to be implied that the Millennium would produce a good quality wash or a high quality wash, functioning automatically and without manual labour.

Phillips challenges the Judge’s rejection of its claim against Hanna Wash for damages for negligent misstatement and for misleading and deceptive conduct contrary to s 52 of the TPA.
SEC challenges the Judge’s finding that it made representations to Phillips that are actionable under s 52 of the TPA. SEC denies having made any misleading or deceptive representation as to the quality of the wash that would be achieved. SEC submits that the Judge failed to distinguish between Mr Phillips’ expectations and wishes and the question of representations made by SEC. SEC argues that, in any event, the statements on which the Judge founded his decision are subjective statements of opinion, and lack the degree of objectivity or objective measurement required to make them actionable.
SEC challenges the assessment of damages made by the Judge, claiming that it is excessive and in some respects simply erroneous.
Hanna Wash does not dispute the assessment for loss of profits, if the Judge’s finding that it was in breach of an implied term is sustained. However, Hanna Wash does challenge certain aspects of the award of damages for defective components.
Phillips challenges the award of damages for loss of profits on the grounds that it is inadequate.
Phillips’ challenge to the dismissal of the claim against Hanna Wash for damages for negligent misstatement or for misrepresentation is made by way of Notice of Contention, and not by way of cross appeal. Hanna Wash argues that the Notice of Contention cannot be used to support such an argument, and that Phillips should have filed a Notice of Cross appeal, which it has not done.
Factual Background – an outline
Mr Phillips is an experienced businessman with mechanical and electrical knowledge.
Mr Phillips gave evidence that he travelled to the United States frequently in the course of business. On these business trips he had noticed the proliferation of touchless car wash systems operating in the United States. He said that as early as 1995 he became interested in setting up a touchless car wash system in Adelaide as a business venture that would be run by his son.
In 1996 Mr Phillips telephoned the offices of Hanna Wash after seeing the company name on car washing systems operating in Adelaide. Hanna Wash representatives told Mr Phillips they did not sell a touchless car wash system. However, they maintained contact with Mr Phillips and met with him some time in 1997 to discuss the types of car washing systems available in Australia. Mr Phillips told Hanna Wash that he had decided if he were to get into the car wash business it would only be with a touchless wash system.
In 1998 or 1999 Hanna Wash invited Mr Phillips to attend a car wash convention being held in Las Vegas. Hanna Wash provided him with tickets to the convention. At the convention Mr Phillips was met by Mr Corser. Mr Corser owned Hanna Wash until it was sold to Mr Hill in 1999.
Mr Phillips viewed the brush and touchless car wash systems on display at the Las Vegas convention. Mr Phillips says that while Mr Corser tried to talk him into buying a brush or cloth car wash system, Mr Phillips maintained that he was interested only in a touchless system.
At trial, Mr Phillips gave evidence that he received a phone call from Mr Hill of Hanna Wash in late September 1999. He was told about a new touchless car washing system, employing new technologies. In early October 1999, following the telephone conversation, Hanna Wash sent Mr Phillips an SEC promotional brochure describing two new car washing systems, the Futura SSA and the Millennium. Both car washing systems were manufactured by SEC, the Millennium being an updated model of the Futura SSA. Mr Phillips said that the introduction of zero degree nozzles, a technology used in the Millennium to deliver high pressure products, caught his attention.
In January 2000 Hanna Wash sent Mr Phillips a promotional videotape. The videotape showed the Millennium in operation. The videotape was an exhibit before the Judge and was viewed by this Court on appeal. The Judge accepted that Mr Phillips was influenced by what he saw in the video. The Judge found the videotape in particular was misleading.
In February 2000 Mr Phillips travelled to the United States to meet with representatives from SEC and to see a Millennium in operation. Mr Phillips gave evidence at the trial that Mr DeMarre of SEC took him to a Millennium car wash and arranged for three cars to be washed as a demonstration. Mr Phillips said he tested the results of the car wash by wiping a white tissue along the side of the door of the newly washed cars. He said this test would reveal if any road grime remained on the cars. He said that his tests showed, ‘a perfect result.’
Mr Phillips was asked at the trial when it was that he decided to purchase the Millennium. He replied that he thought it was on the afternoon of the demonstration. He said that while in the United States he had indicated his intention to purchase the Millennium to Mr DeMarre but that he did not commit to anything.
On his way back to Australia from the United States, Mr Phillips telephoned Hanna Wash during a stopover in Singapore. He told Mr Hill of Hanna Wash that he was impressed with the Millennium and that he intended to place an order. Once back in Australia, Mr Phillips had a number of conversations with Mr Hill. They discussed purchase plans and the optional extras that were available for the Millennium.
In a letter of 6 April 2000 Hanna Wash provided Mr Phillips with a quote for a package including the equipment that made up the Millennium and related services. In an email to Hanna Wash dated 5 May 2000 Mr Phillips agreed to purchase the package at the price that Hanna Wash had quoted.
In September 2000 Phillips purchased land on Glen Osmond Road, with the intention of installing the Millennium there and operating a car wash business there.
The Millennium equipment arrived at the proposed car wash site on 18 October 2000. Mr Cook was employed by Phillips to supervise the design of the car wash site and any building work necessary to install the Millennium. In the period from October 2000 to February 2001 Mr Cook was corresponding with Mr Hill in order to convert the measurements of the Millennium equipment from Imperial to Metric and to consult on other site design issues. When conversion and site design were completed the installation of the Millennium commenced on 19 February 2001 and it was completed in May 2001.
Once installed the Millennium went through a commissioning process. Commissioning began in late May 2001. Mr Payette an employee of SEC flew to Adelaide from the United States for the commissioning process. As the commissioning process concluded, Phillips wrote to Hanna Wash on 1 June 2001 identifying some concerns with the operation of the Millennium. At the trial, Mr Phillips said that Hanna Wash did not deal with the issues complained of nor did they respond formally to the letter.
In the first week of June 2001, trading under the name Splash Touch Free Car Wash, Phillips began selling car washes. On 24 June 2001 Phillips wrote to Hanna Wash again. In the letter of 24 June 2001, Phillips says that the Millennium is “up and running and has exceeded all expectations, we have had a few bugs but that have been quickly overcome by [Mr] Hill and our specialists. …the Millennium is simply the best Touch Free wash system available” (see exhibit P9).
At trial, Specialty Equipment and Hanna Wash relied on the letter to show that Phillips’ later complaints about the Millennium were unfounded. The Judge characterised the letter of 24 June 2001 as euphoric and dismissed the arguments based on it on the basis that it was written before Phillips carried out further testing in August 2001: reasons at [114].
In the letter Mr Phillips says that he is looking for ways to increase the speed of the car wash. He describes his idea to add another pump to the system and outlines the changes he would need to make to the Millennium equipment to accommodate the pump. He confirms that he is considering buying a second Millennium but says that the he could only justify the purchase if the speed of the car wash was improved and consequently more cars could be washed in a day. Mr Phillips asks Hanna Wash to sanction the modifications he proposes to make to the Millennium (see exhibit P9).
On 3 July 2001 Mr Hill of Hanna Wash wrote back to Mr Phillips. The reply states that Hanna Wash has consulted with personnel at SEC about the modifications Mr Phillips was proposing to make. Hanna Wash and SEC refused to sanction the modifications. The modifications are described as “an area of untried ground”, and the letter refers to “a great many variables that could adversely impact the system or the vehicles being washed”. The letter cautions that “[t]he eventuality of any problem will probably not be evident before it is caused” (see exhibit P9).
In the case for Hanna Wash, Mr Hill gave evidence about the modifications that were made to the Millennium after commissioning. He said that he expressed his concern to Phillips about some of the modifications, in particular the addition of a second pump.
At trial and on appeal Hanna Wash submitted that the modifications to the Millennium undertaken by Phillips, without the sanction of Hanna Wash or SEC, contributed to the problems which Phillips later complained about, and which affected the quality of the wash.
Hanna Wash argued that Phillips was determined to decrease the wash times in order to increase the productivity and profitability of the Millennium.
In support of its case, Mr Hill gave evidence for Hanna Wash that by 31 July 2001 Phillips had modified the Millennium by:
·The addition of a circulating heat exchange for the presoak in the automatic passes.
·The addition of a second pump, being a large CAT pump used in the delivery of high pressure water to the arch.
·Adjustments to the number of water jets on the manifold.
·Internal adjustments to the manifold, contained within the arch to allow water to come out of the two top manifolds simultaneously.
·The provision of separate lines from the plant room to the arch situated in the wash bay to allow for different high pressure cycles.
·The inclusion in the air inlet pump of air operated valves.
Hanna Wash argued that Phillips complained about the performance of the Millennium after the modifications it had carried out failed to achieve the anticipated results.
Phillips wrote to Hanna Wash again on 31 July 2001. The 31 July 2001 letter complains, for the first time, that the Millennium is ‘…not washing cars properly.’ The letter details complaints about:
·The Vacuum-Carpet shampoo unit.
·Contamination in the reclaim system.
·Leaks and loose hoses.
·A leak in the water softener.
·The supply of incorrect circuit breakers.
·Manuals and parts books not supplied and no indication of expected date of arrival.
·A loss of pressure in the pre-soak pump (see exhibit P9).
On 3 August 2001 Hanna Wash responded to Phillips’ letter. Hanna Wash reminded Phillips that the modifications that had been made to the Millennium were unsanctioned. Hanna Wash accepted that the vacuum unit was originally supplied with the incorrect voltage and asked for access to the car wash site to collect the vacuum unit in order to have it repaired. The letter suggests that the contamination problems may be remedied by slowing the Millennium down (see exhibit P9).
Phillips and Hanna Wash continued to correspond throughout August and September 2001.
A letter from Phillips to Hanna Wash dated 9 August 2001 rejected the statements in Hanna Wash’s letter of 3 August 2001 that the Millennium was washing cars to the highest standard when it was commissioned in early June 2001. Phillips continued to protest that some of the equipment supplied by Hanna Wash and Specialty Equipment was incorrect (see exhibit P9).
On 24 August 2001 Phillips wrote to advise Hanna Wash that it intended to install a new manifold. The new manifold would use three separate lines to deliver the wash products. Phillips believed this would eliminate contamination (see exhibit P14). The Judge found that Phillips’ introduction of the new manifold resolved the contamination problem: reasons at [91].
Hanna Wash faxed a response on 24 August 2001. Hanna Wash again requested that the Phillips allow the vacuum unit to be collected for repair. Hanna Wash repeated that in its opinion the contamination problems could be addressed by slowing down the speed of the wash cycles (see exhibit P26).
Mr Phillips gave evidence that it became necessary early in the piece to hire additional employees to improve the quality of car wash that the Millennium was achieving.
He said that it had been his intention to operate the car wash business with two employees. He said that in June 2001 there were three or four employees working at the car wash. At that time the washing process was being done by the Millennium but employees were wiping the cars down at the end of the wash.
The Judge accepted Mr Phillips claim that when he purchased the Millennium he had no intention to set up a pre-soak or “prep” station: reasons at [113]. Mr Phillips said that once the “prep” station was installed two more employees were needed to operate it. Mr Phillips told the Judge that by September 2001 he was employing six workers in total. At the time of the trial in October 2005 Mr Phillips told the Judge that in order to achieve a satisfactory result he had “up to 11 lads treating the car”: reasons at [113].
Phillips filed a Statement of Claim commencing proceedings against Hanna Wash in the District Court on 19 September 2001. A further three Amended Statements of Claim were filed. The fourth Amended Statement of Claim was filed on 8 November 2005.
The Implied Term
The contract between Phillips as purchaser of the Millennium and Hanna Wash as vendor arises from a written offer by Hanna Wash of 6 April 2000, setting out a list of components with prices and an amount for the cost of installation. The offer was accepted by an email from Mr Phillips to Hanna Wash dated 5 May 2000. The offer describes the equipment in functional terms, and makes no reference to the quality of the car wash that the system was intended to provide.
This contract was the result of discussions between Mr Phillips, Hanna Wash and SEC, over a period of time that began in August 1999: (see above). The discussions related to the Millennium, and to similar touch-free system made by SEC. The background to the contract, summarised by the Judge in his reasons at [8] does not appear to be controversial.
In October 1999 Mr Phillips received the brochure from Mr Hill, relating to the car wash system: (see above). The brochure contains a good deal of information about the touch-free aspects of the system, its components and the working of the car wash. The brochure contains a number of qualitative statements about the car wash system such as “will outclean any comparative unit”; “does an unbelievable job of cleaning”, and “can accept nearly any imaginable vehicle and wash it well”.
Mr Phillips received a letter from Hanna Wash dated 14 January 2000. The letter sets out extracts from a letter apparently from SEC to Hanna Wash. The extracts include the statement “the product performance has been fabulous, as has the customer acceptance”.
At about this time Mr Phillips received from Mr Hill a letter enclosing the video demonstrating a touch-free car wash system, similar to that provided by the Millennium. As I understand it, it was common ground that the information in the video was intended by SEC (and presumably Hanna Wash) to be taken as relating to the Millennium. I have watched the video, and have listened to and read the accompanying text. As with the brochure, the bulk of the material relates to the manner in which the touch-free system operates, and to how the system is operated and operates. But the video contains a number of statements about the quality or standard of the car was provided, including statements such as “superior washing capability”; “the ultimate in cleaning”; “offers uncompromised cleaning” and “… ensuring a bright clean and spotless finish”.
In February 2000 Mr Phillips went to America. Mr DeMarre took him to a site at which a touchless car wash system was operating. Again, as I understand it, this was shown to Mr Phillips on the basis that he could treat what he saw as representing the Millennium car wash.
My impression from the passages of Mr Phillips’ evidence to which we were taken is that his main concern was that the system would be “touch free” and fully automatic. However, he did say in his evidence that he wanted a “high quality wash” and that his proposed business was aimed at high quality cars.
On appeal the court was not referred to any evidence from Mr Phillips claiming that Mr Hill made any statements about the quality of the car wash before April 2000. Nor, as best I can tell, did Mr Hill or anyone else from Hanna Wash claim any particular expertise in relation to touch-free car washes. This is consistent with the Judge’s finding at [68] that Hanna Wash was “merely a conduit for SEC. They knew very little detail about the Millennium themselves”. Mr Phillips was at all times aware of the role of SEC as the maker of the Millennium, and understood that information being provided to him by Hanna Wash came from SEC.
The trial Judge made few findings of fact. The absence of clear findings makes the task of this Court on appeal a difficult one. The Judge did find that Mr Phillips wanted and intended to have a system that was fully automatic: see, for example, the Judge’s reasons at [85]. It is, I consider, implicit in this finding that Mr Phillips expected and wanted a system that would provide a good quality or high quality car wash. I am not persuaded that this finding, implicit in the Judge’s reasons, should be rejected.
The issue that arises, in that setting, is whether a term is to be implied into the contract for the sale, purchase and installation of a touch-free car wash, intended to operate automatically, the implied term relating to the quality of the wash that the system would achieve under normal operating conditions.
The contract is not a detailed formal contract. It arises from an exchange of correspondence.
In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 the Privy Council identified five criteria for the implication of a contractual term. They were said to be [at 283]:
(1)     [the implication] must be reasonable and equitable;
(2)it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3)     it must be so obvious that ‘it goes without saying’;
(4)     it must be capable of clear expression;
(5)     it must not contradict any express term of the contract.”
Those observations by the Privy Council have been approved by the High Court: see Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422 and at 441. As the High Court has noted, the cases in which those criteria have been employed are cases involving detailed formal contracts. A more flexible approach is called for when there is no formal contract. In Hawkins v Clayton (1988) 164 CLR 539 at 573 Deane J said:
The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties.

In Byrne v Australian Airlines Ltd Brennan CJ, Dawson and Toohey JJ agreed with these observations by Deane J, and said that his was the “appropriate test” to apply in the case of an informal contract: at 422. Similarly, McHugh and Gummow JJ said that the five criteria identified by the Privy Council were not to be given “an automatic or rigid application” in the case of an informal contract: at 422. They said that the question was “… whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case”.
The present case is not one in which a term can be implied on the basis of custom or usage, or on the basis of a past course of dealing. Consistent with the observations made by the High Court in Byrne v Australian Airlines Ltd, the question is whether the term that the Judge implied was, in the circumstances, “necessary for the reasonable or effective operation” of the contract.
The context in which the contract arose is significant. The context was that Phillips wanted, as Hanna Wash knew, a touchless automatic system. Even if the quotation had not referred to a “Millennium Automatic Touchless wash system”, a term to the effect that the system was touchless and automatic would be implied. In the circumstances, such a term would have “gone without saying”, and would have been necessary for the reasonable operation of the contract.
Another part of the context is Mr Phillips’ expectation (in his capacity as the representative of the plaintiff Phillips), that the system would produce a high quality or good quality car wash. Yet another part of the context is that SEC, to the knowledge of Hanna Wash, made statements (before the contract was made) to the effect that the system would produce a high quality or good quality wash. I agree with the trial Judge that that is the effect of a number of the qualitative statements made by SEC in material provided to Phillips.
It “goes without saying”, in my opinion, that both Phillips and Hanna Wash intended and expected that the Millennium would clean cars that passed through it. That was the whole purpose of the system. There must be a point at which it could be said that the system was not washing cars to a standard acceptable in the industry or business of car washing, although in the present case no attempt was made to identify a base line or objective standard by reference to industry or business practice. So in my opinion a term could readily be implied, requiring that the Millennium would wash a car to a certain standard, acceptable in the trade or business, if evidence had been led to established that some such standard or benchmark was recognised. But no such evidence was led. And any such implied term would, of necessity, be referable to ordinary operating circumstances.
In the present case the critical issue, in my opinion, was whether there was any shared expectation about the standard that would be achieved by the Millennium under normal operating circumstances, such that one could conclude that it went without saying that a term was to be implied that the Millennium would achieve that standard, or such that one could say that a term to that effect was necessary for the reasonable or effective operation of the contract. It is one thing to acknowledge that Mr Phillips wanted and expected a car wash system that would provide a high quality wash or a good quality wash. It is another thing to say that, having regard to the circumstances in which the contract came into being, that was a shared or common expectation, or was acknowledged by Hanna Wash as a criterion to be met, making it appropriate to imply a term to that effect.
Two particular difficulties arise at this point. The first is whether it was an aspect of the context in which the contract arose that the Millennium would provide a wash of the standard that Mr Phillips wanted and expected. The second is how one would identify that standard or result in such a way that, in the event of a dispute, it was possible to say that it had or had not been achieved.
The trial Judge found at [84] that there were areas of motor cars (the underside, the wheels, the front and the back) that the Millennium did not clean well, or at least did not clean as well as Mr Phillips wanted. The Judge found that the Millennium did not give “a good wash”: [105]. He said that the Millennium “could not function properly without there being manual assistance”: [113]. Labour was needed “to properly complete the washing of cars”: [114]. A difficulty is the absence of any objective measure in these findings. The Judge has found that the Millennium did not wash cars as well as Mr Phillips wanted, but the lack of specificity in the Judge’s reasons makes it difficult to identify the standard that was required to comply with the condition that the Judge implied.
The lack of any objective aspect to the Judge’s findings may be the result of the fact that, at trial, no evidence was led of any objective standard or measure by reference to which the quality of the car wash was to be measured. Commonsense and everyday experience with car washes suggests that different systems will achieve different results. One can readily imagine circumstances in which a car wash would be unlikely to produce a clean vehicle, having regard to the condition of the motor car entering the car wash. To my mind, the difficulty inherent in expressing with any clarity or objectivity the content of the implied term is an obstacle to the implication of the term that the Judge implied. That is not to say that this difficulty, standing alone, is insurmountable. But this difficulty is to be coupled with the absence of any finding by the Judge to the effect that the dealings between Phillips and Hanna Wash proceeded on the basis that the Millennium would provide a car wash of the standard that Mr Phillips wanted, in the absence of any finding that was a basis upon which negotiations proceeded.
For those reasons I am persuaded that the Judge erred in finding that a term was to be implied into the contract, to the effect that the Millennium would wash a car to a good standard or to a high standard.
The difficulty is not avoided by suggesting that the term to be implied was that the system was fully automatic or that the system did not require manual labour. A term to that effect misses the point. The real point in this case was whether a term was to be implied that operating automatically, and without additional manual labour, the system must be one that provided a good quality wash or a high quality wash, whatever that might mean.
The point I am making can be put a little differently. The term that the Judge implied is a term that required the Millennium to achieve a standard of car wash or of cleanliness that was acceptable to Mr Phillips for the purposes of the business that he wished to operate. The implied term has a one-sided and subjective effect, because (at least as expounded by the Judge) the term would be satisfied only if Mr Phillips considered that the Millennium was performing to a standard that was acceptable to the clientele that he wished to attract. To imply such a term is, in my opinion, to give the contract a one-sided operation. It would be quite a different thing to imply a term referable to a reasonably objective standard or test, recognised and applied within the car wash industry. As I have already said, that is not the case that was made at trial.
In short, the term that the Judge implied imposed on Hanna Wash a risk of an uncertain extent. To use an expression used by McHugh and Gummow JJ in Byrne v Australian Airlines Ltd at 442, the term that the Judge implied would operate “in a partisan fashion”.
For those reasons I would set aside the finding by the Judge at [69]-[71] to the effect that it was an implied term of the contract that the Millennium “would not need manual assistance to function”, treating that as meaning would not need manual assistance to produce a good quality or high quality wash, because that is in effect what the Judge decided.
There is no basis in the evidence to substitute an implied term establishing an objective benchmark or standard, referable to industry practice. The case was not fought on that basis, and no evidence was led that would provide a basis for such an implied term.
It follows that the finding that Hanna Wash was in breach of the implied term should be set aside.
Misleading and Deceptive Conduct
As I have already noted, the Judge found that SEC made statements or representations about the performance of the Millennium that were misleading and deceptive: see, for example, reasons at [137]. The Judge said they were made in the videotape provided by SEC to Phillips, in the letter of 14 January 2000 and in the brochure provided by Hanna Wash on behalf of SEC to Phillips. The Judge does not identify the statements or representations that were misleading and deceptive, other than to say that the videotape contains a representation “… that the highest quality wash can be attained without the use of manual labour”: reasons at [137]. The representations in question were made before Phillips contracted to acquire the Millennium from Hanna Wash.
Mr McNamara QC, counsel for SEC on appeal, makes the point that the representations that the Judge found were made are not pleaded by Phillips as representations amounting to misleading and deceptive conduct. Indeed, the Statement of Claim contains no plea by Phillips that there was a representation relating to the quality of the wash that would be provided, other than representations to the effect that the Millennium was an “appropriate car wash system” for Phillips, and was “capable of meeting the Phillips Group’s needs”, and was “a product of high quality”. A similar complaint was made by Mr Hoile for Hanna Wash in relation to the implied term found by the Judge, but the complaint that the implied term was not pleaded was not pressed on appeal.
It is fair to say that despite the length and detail of the Statement of Claim filed by Phillips, the case presented at trial appears to have shifted from what was pleaded to a claim along the lines of the finding made by the Judge in favour of Phillips. While the finding that the Judge made is not far removed from the allegations in the Statement of Claim, it is notable that the Statement of Claim nowhere makes the rather obvious complaint (at least in retrospect) that was upheld by the Judge.
The Judge makes no comment in his reasons on the fact that the finding that he made, and the term that he implied into the contract between Phillips and Hanna Wash, are not based on the plea made in the Statement of Claim.
Doing the best I can to assess the conduct of the trial, and having regard to the submissions made on this point on appeal, I am not persuaded that SEC has been treated unfairly in this respect. My impression is that as the case unfolded it was fought on the question of whether SEC or Hanna Wash were liable on the basis that, operating automatically, the Millennium would not provide a car wash of the good quality or high quality expected by Phillips. While it is unfortunate that the Judge did not deal with this aspect of the case in his reasons, that may well have been because, in the end, that was how the case was fought. Be that as it may, I am not persuaded that departure from the pleadings requires the decision against SEC to be set aside as a matter of fairness.
The Judge’s decision rests on his assessment of the letter to which I have referred, of the brochure and of the videotape. This Court is as well placed as the Judge to determine whether by these means SEC made representations or statements about the quality of the wash provided by the Millennium, and whether those representations or statements were, in the circumstances, misleading and deceptive.
Although Mr McNamara suggested in passing that Phillips should or might have based its case on s 51A of the TPA, relating to representations with respect to “any future matter”, he did not develop this argument in any detail. Although a representation by SEC to Phillips about the performance of the Millennium was a representation about how it would perform, if and when installed, it was equally a representation about how the Millennium performed at the time of the representation. Any representations made by SEC about the Millennium were representations relating to an existing and operating system. SEC was promoting to Phillips an existing product which it said could be replicated for Phillips. Accordingly, in my opinion, it is appropriate to proceed on the basis that any relevant representation related to the present matter, and that it was not necessary for Phillips to base its case on s 51A.
The question of whether any conduct by SEC was misleading and deceptive, or was likely to mislead or deceive, is an objective question, which the Court must decide for itself.
It is appropriate to bear in mind that the Court is concerned with advertising or promotional material. Advertisements and promotional material are not beyond the reach of s 52. But some latitude must be allowed for such material, because a degree of exaggeration, and sometimes hyperbole, is commonly found in such material, and is understood by ordinary members of the public to be just that, and as not to be taken seriously.
The Judge quoted part of the letter of 14 January 2000 from Hanna Wash to Phillips, which letter in turn quoted part of a letter from SEC to Hanna Wash. No relevant representation is made in the portion quoted by the Judge. The portion quoted relates to the operating features of the system. In a part of the letter not quoted by the Judge, a statement is made “the product performance has been fabulous, as has the customer acceptance”. I assume that the Judge did not rely on this statement, bearing in mind that he did not refer to it. In any event, I consider this to be a typical example of a salesman’s exaggeration, that would have been understood as such.
The Judge makes no reference to any particular part of the brochure provided to Phillips, although he refers to it at [137] as containing “what turned out to be misleading information when compared with the Millennium that was ultimately purchased”. This, however, is a general observations that applies equally to the letter and to the videotape. The brochure contains some statements that I consider can be put to one side as being nothing more than hyperbole. I refer, for example, to statements such as “will outclean any competitive unit today …” and “does an unbelievable job of cleaning”.
The brochure contains other statements about the Millennium that are more factual in their nature, and that in my opinion are sufficiently definite to be capable of being misleading and deceptive. Referring to the “zero degree nozzles”, a significant feature of the Millennium’s method of operation, the brochure states that “superior cleaning” is achieved. This statement implies a high standard of cleaning will be achieved. To a like effect, referring to the Millennium’s ability to deal with vehicles of different shapes and sizes, the brochure says it can “accept nearly any imaginable vehicle and wash it well”. These statements, and other like statements, convey a representation that the Millennium will produce a high quality wash.
The Judge put particular emphasis on the video, saying at [137] that “…the videotape in particular was misleading”. He said that the videotape represented “that the highest quality wash can be attained without the use of manual labour”. I have watched the video, and read the text of the “voiceover”. The video contains information about the working of the car wash that is depicted (a touch-free system), the information being provided by describing the working of the system, or the feature of the system, that is being demonstrated on the video. The description is mixed with a number of statements commending the system to the viewer. It contains a number of statements about the quality of the wash that the system provides. Illustrations are “your customers will enjoy the superior washing capability”; “the ultimate in cleaning”; “offers uncompromised cleaning”; “… ensuring a bright, clean and spotless finish”; “… a low maintenance, high customer satisfaction vehicle wash system”; “customers will be back because of … exceptional wash quality”; “… offers … premium wash” and “… ensures a concentrated wash in those hard to clean areas”. Some of these statements, in isolation, might be put to one side as nothing more than advertising hyperbole. The second and second to last illustrations are examples. But in combination these statements, in my opinion, amount to a representation that the Millennium will provide a high quality wash or a good quality wash, and that it will do so without the need for manual cleaning.
As I explained when considering whether a term should be implied into the contract, the representation that is made by the statements is not a precise one, and no objective basis is identified in the evidence against which one can determine the quality of cleaning achieved by the Millennium. That was a factor in my conclusion that a term should not be implied. But I consider that the representation made by the statements is capable of being proved to be correct or incorrect, and is capable of substantiation: cf Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234. Here the Judge has found that the Millennium failed to provide a good quality wash, and his findings indicate that he was satisfied that it fell short of that by a substantial degree.
Although the statements to which I refer are of an advertising or promotional kind, and would be understood by ordinary viewers and listeners as such, and although some of the statements would be recognised as mere “sales talk”, the videotape emphasises repeatedly that the system will provide a high quality or good quality wash. In my opinion these statements do amount to a representation that the touch-free system will provide a high quality or good quality wash, and are made in a context and in a manner that is capable of being misleading and deceptive.
When dealing with this aspect of the case the Judge referred to a representation that the Millennium would provide “the highest quality wash”: reasons at [137] and [138]. I am not persuaded that such a representation was made, nor am I persuaded that such a representation can be given a sufficiently definite meaning for it to be misleading and deceptive, but it suffices in the present case to hold that the videotape made a representation that a high quality or good quality wash would be achieved.
It is necessary to remember that the issue is not whether the system provided, or was capable of providing, a wash of the quality that Mr Phillips expected and wanted. The question is whether the system provided a wash that, judged objectively, was of a good or high standard.
The Judge did not make any explicit finding to the effect that the system did not or would not perform as represented. But it is implicit in his reasons that it did not. The relevant findings are made, admittedly in general terms, in the course of dealing with the claim in contract against Hanna Wash, where the Judge found that manual labour was required “to achieve the required result” and “to properly complete the washing of cars”: reasons at [85]–[86], [113] and [114]. It appears, as I noted earlier, that the Judge accepted and found that a satisfactory result could not be achieved unless manual cleaning was carried out on the wheels and front and back areas before a car passed through the Millennium, and unless further manual cleaning and drying was carried out after a car had passed through the system.
The lack of clear and detailed findings by the Judge causes this Court some difficulty. It is a matter of some significance in this case. The parties are entitled to clear findings on significant issues. There is force in the argument by Mr McNamara that the statements complained of as misleading and deceptive are subjective statements of opinion. I have explained why I do not accept that submission in the end. Nor do I accept the submission that the Judge failed to distinguish between what Mr Phillips wanted and expected, and what SEC represented about its product. Mr McNamara submits that the Judge did not apply any objective measure in deciding that the standard of the wash was not good quality or high quality, and merely decided that it was not acceptable to Mr Phillips, whatever that might mean. Although the lack of findings by the Judge provide some basis for this submission, I am not persuaded that the Judge made that error. I consider that he intended to find, and did find, that tested objectively the Millennium did not operate as represented, even though the Judge did not make specific findings to support that conclusion. I acknowledge the difficulty of identifying and measuring a car wash as “high quality or good quality”. Phillips seems to have done little to assist the Judge in this respect at trial. But the tenor of the Judge’s reasons is that the wash provided was demonstrably and substantially short of the mark, and that it was recognisably (in the sense of objectively) not a good quality or high quality wash.

It follows that SEC made representations about the quality of the wash which were misleading and deceptive, and so it follows that if these representations were a material factor in Phillips deciding to acquire a Millennium, Phillips was entitled to recover “loss or damage” that it suffered “by” the conduct of SEC: s 82(1) of the TPA.
The Judge did not make clear findings as to the reliance by Phillips on the representations by SEC.
This was a matter of controversy at trial. The defendants argued that Phillips’ real interest was the “touch free” nature of the system, and its ability to function automatically. They argued that Mr Phillips was not particularly concerned about the quality of the wash, and was not influenced by statements about the quality. The defendants argued that Mr Phillips always intended to carry out manual cleaning before and after a car passed through the Millennium, and that he had never intended to operate the system as a wholly automatic system. On this basis they suggested that the supplementary manual cleaning had always been a feature of Phillips’ proposed operation, and could not be relied upon to support an inference that it was a response to inadequate performance by the Millennium.
The Judge clearly resolved the second issue in favour of Phillips. He accepted evidence, from Mr Tirrell in particular, that manual cleaning was carried out only because the system failed to provide a good quality or high quality wash: reasons at [83]. The Judge went on to say that he accepted “the plaintiff’s claim on this topic”: reasons at [85]. It is clear that the Judge found that the manual cleaning was a response to the failure of the Millennium to clean cars adequately.
That finding was attacked on appeal. The defendants argued, in particular, that Mr Phillips had intended all along to install a manual “pre-soak system” or “pre-soak station”, and that that demonstrated that Mr Phillips did not intend to operate the system as a wholly automatic system. The Judge’s acceptance of Mr Tirrell’s evidence came in the context of his rejection of that submission by the defendants. The evidence about how Phillips intended to operate the system was not clear. It seems to have been the case that, all along, some use would be made of manual labour, but it was not clear what use would be made of the manual labour. The effect of the evidence for Phillips seems to have been that Phillips contemplated some use of manual labour, mainly for cleaning the inside of a motor car (as an optional extra) or for a final wipe-down, and that in addition staff would be employed to operate a related coffee shop. There was some evidence suggesting that Phillips intended more extensive use of manual labour than that, particularly at the preparatory stage. However, as I have said, this issue was fought out before the trial Judge, and I am not persuaded that error in the Judge’s findings has been demonstrated. His findings in favour of Phillips on this topic at [85] are clear and firm, even though he does not there refer to the issues of fact that arose on this topic. At [113] the Judge specifically accepted evidence from Mr Phillips on this topic. I am not persuaded that the Judge’s finding is erroneous.
As to the first of the submissions made by Mr McNamara on this point, it is implicit in the Judge’s findings that Mr Phillips was influenced, in deciding to acquire the Millennium, by the representation that the system was automatic, and could and would provide a high quality wash. Although one would expect clear findings on this point, it is sufficiently clear that the Judge did so find: see, for example, reasons at [85]. All of the circumstances suggest that this was so. It is true that in cross-examination Mr Phillips did not fasten on the representations to the quality of the wash as critical to his decision, but I consider that his evidence that he wanted and expected a “touch-free” system that was automatic implied, and necessarily implied, a system that would produce a high quality or good quality wash. The attraction of the Millennium was its ability to achieve that result, using, “touch-free” technology.
It follows that in my opinion Phillips was entitled to recover from SEC any loss or damage that it suffered by SEC’s contravention of s 52, in making statements about the quality of the wash that were misleading and deceptive.
Notice of Contention
By its Notice of Contention, Phillips claims that its judgment against Hanna Wash should be upheld on the alternative grounds that the representations made in the letter, the brochure and the video were made by Hanna Wash was well as by SEC, and that Hanna Wash is liable for misleading and deceptive conduct contrary to s 52. Mr Ross-Smith, counsel for Phillips, did not rely on any other representations than those just referred to.
The Judge disposed of this aspect of the claim by finding at [68] that Hanna Wash was “merely a conduit for SEC” in passing on information from SEC about the Millennium. He added: “They knew very little detail about the Millennium themselves”. He made a similar finding at [137].
I agree with the submission by Mr Hoile that this submission requires a Notice of Cross appeal. It invites the Court to find for Phillips on a cause of action that the Judge dismissed or rejected. The Notice of Contention does not rely on an alternative argument to support the cause of action on which Phillips succeeded.
However, I would grant leave to Phillips to file a cross appeal raising this ground, even though the time for doing so has expired. The issue was canvassed at trial, is closely linked to issues argued on appeal, and Phillips gave notice of its intention to pursue this issue by filing its Notice of Contention about two weeks before the hearing of the appeal. Hanna Wash will suffer no prejudice if leave is granted to file a cross appeal, notwithstanding the expiry of the time for doing so.
Cases dealing with s 52 establish that a person who merely passes on information, making it clear that the person is merely passing it on for what it is worth, and who disclaims knowledge of the truth or falseness of the information, does not engage in misleading and deceptive conduct, even if the information is incorrect: Yorke v Lucas (1985) 158 CLR 661 at 666. Such a case will be a clear case. In each case it is necessary to consider the circumstances as a whole. As French J said in Gardam v George Wills & Co Ltd (1988) 82 ALR 415 at 427, a person who is seen as a “mere conduit” for information will not usually be seen as making a representation based on or arising from the information, but if the information is conveyed in circumstances in which the conveyer would be regarded by the relevant section of the public as adopting it, then the conveyer will be seen as making a representation arising from the information conveyed.
It is clear that Phillips knew that Hanna Wash was passing on information from SEC, when Hanna Wash provided the relevant documents to Phillips. It is equally clear that Hanna Wash professed no particular expertise in relation to “touch-free” systems, and in relation to the Millennium in particular, and that SEC was understood by all three parties to be the one with the expertise in touch-free systems. On the other hand, Hanna Wash was a vendor of car wash systems, and was the vendor in this case. It was not a mere agent for sale. No great attention was paid to this point in argument before this Court. Nor, I gather, was the point explored in any detail in the evidence before the Judge. We were not referred to any passages of evidence bearing on the point. In particular, we were not referred to any evidence suggesting that Hanna Wash disclaimed knowledge of the truth or falsity of what it passed on to Phillips.
Contrary to the Judge, I consider that a reasonable person in the position of Phillips would have understood Hanna Wash to be representing that the system was touch-free, was automatic and would provide a good quality or high quality wash. After all, the first two of these matters were fundamental features of the proposed transaction, and on my finding so was the third. I consider that a reasonable person in the position of Phillips would have understood Hanna Wash to be joining in the representation that the Millennium met Phillips’ requirements. It does not follow at all that a reasonable person in Phillips’ position would have understood Hanna Wash to be adopting (or not disclaiming) other representations found in the written material, particularly representations of a more technical nature. But I consider that Hanna Wash was reasonably to be understood as adopting the representations made by SEC on which Phillips relies.
The Judge refers to the fact that Hanna Wash “knew very little detail about the Millennium themselves”. The matters to which I refer are not matters of detail, nor were they matters depending upon technical expertise.
Subject to the filing of a cross appeal by Phillips, I would uphold Phillips’ complaint that the Judge erred in dismissing the claim against Hanna Wash based on s 52 of the TPA.
The reason why the Millennium did not wash to the required standard
I have already referred to the Judge’s finding, to some extent implicit in parts of his reasons, that the Millennium did not provide a good wash or a high quality wash: see above [123]-[126].
I have said that despite the lack of detail in those findings, I am not persuaded that they are wrong.
There remains, however, a significant issue of fact which the Judge has not resolved. The issue is not dealt with at all in his reasons.
The issue is whether the unsatisfactory quality of the wash (at least from July 2001) was attributable to modifications that Phillips made to the Millennium to shorten (or “speed up”) the wash cycle, enabling more cars to be washed, and more revenue to be earned, or whether the unsatisfactory quality of the wash was attributable to the inability of the Millennium to provide a wash of the standard represented unless changes of the kind made were in fact made (see above at [64]-[67]).
At trial and on appeal Hanna Wash and SEC argued that modifications made to the Millennium made by Phillips were the cause of the unsatisfactory quality of the wash, if the quality was unsatisfactory. That argument calls for consideration, despite the failure of their case that the Millennium provided a wash of a satisfactory quality. If their argument on this former point is correct, Phillips had no basis for a claim for loss of profits attributable to the unsatisfactory quality of the wash. Any loss of profits would be a result of problems attributable to modifications made by Phillips.
I consider that this aspect of the case should be remitted to the Judge for reconsideration, in exercise of the power conferred by r 292(3)(c) of the Supreme Court Civil Rules 2006 (SA).
The court is naturally reluctant to make such an order, because it gives rise to further costs and to delay.
But a decision on this topic requires careful scrutiny of the evidence of a number of the main witnesses in the case. It is likely to involve an assessment of the reliability of aspects of their evidence, and to call for some witnesses to be accepted in preference to others. As best I can tell it will involve consideration of expert evidence given before the Judge. The issue has not been dealt with at all by the Judge, and if this court were to grapple with it, it would do so without the benefit of any findings on what is potentially a complex topic. The trial Judge might be able to resolve the issue in a relatively straightforward way, depending upon the view he takes of witnesses. I say this because the trial Judge may have formed views as to the reliability of relevant witnesses and relevant evidence given before him. But for this Court to try to resolve the issue, absent any consideration of it by the Judge, raises a real risk of error. For all those reasons it is undesirable for this court to resolve the issue as things stand.
It is appropriate for me to outline how the issue arises, and to outline some aspects of the issue, with a view to identifying, as best I can, the matter that should be remitted to the trial Judge.
There is no doubt that Phillips made a number of modifications to the Millennium, as well as (on its case) employing additional staff to improve the quality of the wash by the use of manual labour. As the Judge said in his reasons at [20]: “Many modifications were made.”
The modifications appear to have begun about the end of June 2001, shortly after the commissioning process was complete. Modifications continued to be made during the balance of 2001, and more were made June 2002. My impression is that most of the modifications were made during the second half of 2001: reasons at [34] and [46].
The first modification, apparently made at the end of June 2001 or early July 2001, was the addition of a manual “pre-soak system”. This was installed because the automatic pre-soak system, which was part of the Millennium, was considered by Phillips to be a reason why the satisfactory quality wash was not being provided.
Phillips’ evidence was that this was the first in a series of modifications forced on it by the unsatisfactory performance of the Millennium.
SEC and Hanna Wash argued that Phillips planned to add a manual pre-soak system from the outset, to speed the system up. It relied on evidence that at an early stage pipes had been laid to the entrance to the Millennium, and certain equipment purchased, which they argued pointed to a plan to install a manual pre-soak system.
That point was resolved by the Judge in favour of Phillips. The Judge accepted evidence from Mr Tirrell, whose evidence “much impressed” the Judge, that the modification was a response to the unsatisfactory quality of the wash: at [83]. Then at [85], in a passage that I previously set out, the Judge said:
[85]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.
The Judge here makes no reference to the evidence relied on by SEC and Hanna Wash to show that Phillips must have planned all along to install a manual pre-soak system. It is unfortunate the Judge has not referred to this relevant evidence. But the Judge’s findings on the point are clear and firm, and it appears from what he said at [81] that he was aware of the argument that the manual system was added to speed up the process, and not because the quality of the wash was unsatisfactory. In those circumstances it must be the case that the Judge was aware of the evidence upon which SEC and Hanna Wash relied, but found against them nevertheless.
As I have earlier said, I consider that this finding should stand. While the finding may seem surprising, error has not been demonstrated.
But this was only the beginning of the series of alterations made by Phillips.
On 1 June 2001 Phillips had written to Hanna Wash making a number of complaints about the commissioning process. By 24 June 2001 the commissioning was complete, and the Millennium was in operation. Mr Phillips wrote to SEC that day. The tone and tenor of the letter is indicated by the second paragraph of the letter, which is as follows:
The car wash is up and running and has exceeded all expectations, we have had a few bugs that have been quickly overcome by Max Hill and our specialists. The customer reaction has also exceeded all of our expectations and we are receiving accolades from each and every one of them, the millennium is simply the best Touch Free wash system available.
The letter contains a number of references to the speed of the wash. Hanna Wash and SEC say that these references are significant, and indicate that Mr Phillips was doing all he could to shorten the wash cycle. Relevant paragraphs of the letter include the following:
…
The best wash we have at the moment is wash 3 and consists of the following, 2 pre soak, dwell time, 2 HP wash, 2 HP rinse, 1 HP wax and 1 spot free, the cars come out clean and our clients are happy, but it takes 5 min and 20 seconds for a mid size vehicle plus drying, Max and I increased the speed of the passes but this resulted in a poor quality wash so we returned to the original 5.20.
…
Later that day it dawned on me that if we put in another pump and linked both manifolds in the arch and maintained the same nozzle pressure of 800 psi we might be able to eliminate one HP wash and one HP rinse pass and therefore speeding up wash 3 considerably, I spoke with Max, and had our engineers from our Air compressor packaging company have a look at it and they could not see a reason why it would affect the system and would go a long way towards Duplicating 2 passes of HP wash and 2 of HP rinse at a considerable saving in time.
With 5.20 washes plus drying we can wash around 10 cars per hour if they are perfectly stacked and waiting, the reality is that they will never be perfectly stacked and waiting and therefore will wash somewhere around 5-6 cars per hour and around 50-60 cars in a 10 hour day.
…
We need to wash around 100 cars per day and hopefully a lot more, I believe the extra pump will help achieve this without putting extra loads on the Millennium, I also believe that will be possible for us to get up to 300 plus cars on some days of the week without too much trouble.
…
If your Company decides to sanction the use of the extra pump allowing us to run both manifolds together, this will go along way to reducing the time of number 3 wash, it will not only be Splash car that benefits but Max Hill and Specialty.
I am not looking to reinvent the wheel, and I am not looking to change the principles of Specialties great product but simply quicken the process time and maintain the quality of the present wash no 3 that works very well.
As can be seen, in this letter there are a number of references to the time taken to wash a car, and to shortening that time, and modifications are referred to in that context.
Hanna Wash replied by letter of 3 July 2001. The letter indicated that it had discussed the previous letter with SEC. In part the letter states:
Whilst Speciality Equipment Company and Hanna Wash Systems recognise your efforts ‘”in pursuit of the perfect wash system”, your intended modifications to the pumping system of the Millennium (doubling the flow with the addition of a second main high pressure pump) enter an area of untried ground. As such we are unable to provide qualified advice as to what the outcome of your modifications could be, and we need to warn that there are a great many variables that could adversely impact the system or the vehicles being washed. The eventuality of any problem will possibly not be evident before it is caused.
…
To assist you in your efforts, Speciality Equipment has agreed to continue to honour the warranty after your modifications to the pumping system. However, we are unable to warranty items that fail as a result of modifications. Unfortunately, because these modifications have not before been trailed, we cannot guarantee the outcome.
There is a clear warning in this letter that modifications to the system might have unexpected consequences, and that while the making of modifications will not be treated as making any warranty ineffective, failure attributable to modifications would not be covered.
The letter of 24 June received a lot of attention at trial, and on appeal. The Judge accepted, despite the letter, that the Millennium did not continue to provide a wash of a satisfactory quality as time went on. But if the quality of the wash was satisfactory on 24 June, and Mr Phillips’ evidence suggests that it was, the question arises of what caused the quality to become unsatisfactory during July, when further modifications were made. And, as I have indicated, the further issue is raised of whether the modifications in July were made to shorten the time taken for a car wash, and were themselves the cause of an unsatisfactory wash quality. As I understand the evidence, a number of the modifications foreshadowed in the letter of 24 June 2001 were made in due course, and a number were made during July 2001.

There is, however, an issue as to the identification of that loss and damage, and as to its quantification.
On the evidence before the Judge, and on the basis of the findings that he made, the Millennium was more expensive to operate than SEC and Hanna Wash had led the plaintiff to believe. It was more expensive to operate because to achieve a wash of the quality represented, Phillips had to employ more casual labour than it intended to employ. The representation that caused Phillips to acquire the Millennium and to install it, caused Phillips to incur additional expenditure.
It is no answer to that claim to say that the Millennium was worth what Phillips paid for it. The difference if any, between the price paid for the Millennium and its actual value (if one could value it) does not appear to me to be an appropriate measure of Phillips’ loss in a case like this. The Millennium was not an article, freely traded, that could be returned or simply abandoned and replaced. Once Phillips had installed the Millennium on the land that it acquired for its proposed business, and had set up its business, Phillips did not in a realistic sense have the option of returning the Millennium to Hanna Wash, or of disposing of the Millennium and acquiring the replacement (at least without increasing considerable expense). In any event, one of the ironies of the case is that Mr Phillips agreed that there was no car wash available that would do a better job.
Nor is the measure of Phillips’ loss to be found by comparing Phillips’ position after its car wash business was operating, with its position under some other arrangement, or operating a car wash business with a different car wash. But for the representations in question, Phillips would not have purchased the Millennium and would not have established the business: cf Marks v GIO Australia Holdings [1998] HCA 69; (1998) 196 CLR 494 at [20].
I consider that if the amount of the additional labour required to achieve a wash of a good quality or high quality can be identified and quantified, and valued in dollars, that would be an appropriate measure of Phillips’ loss in the present case. In the passage in Marks just referred to, McHugh, Hayne and Callinan JJ said:
[20]Moreover, there may be cases where an applicant establishes that, but for the contravention of s 52 of the Act, he or she would not have entered into the contract in question or into any other contract or arrangement of that kind. It is possible - although not inevitable - that, in that situation also, the loss will be the same in money terms as it would have been if the representation were contractual.
That passage would support the approach that I suggest. Similarly, in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 12, Mason, Wilson and Dawson JJ said:
… In deceit the measure of damages is the difference at the time of purchase between the real value of the goods, and the price paid: Potts v Miller(1940) 64 CLR 282, at pp 289, 297; Toteff v Antonas (1952) 87 CLR 647, at pp 650-651, 654; Gould v Vaggelas (1984) 157 CLR 215, at p 220. But this has been treated as a prima facie measure only, the true measure being reflected in the proposition stated by Dixon J in Toteff v Antonas at p 650 in these terms:
"In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant."
As his Honour then pointed out, it is a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from his reliance on the representation (Potts v Miller (1940) 64 CLR, at pp 297-298; Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158), at least if the loss is foreseeable: see Gould v Vaggelas at pp 223-224.
In that context I refer again to the observations of Gleeson CJ in Henville which are set out above, and those of McHugh J.
In this case identification of the additional labour required, its quantification and valuation are all problematic. There is also a question of whether there are offsetting benefits attributable to the expenditure on the additional labour. I will return to these matters in due course.
To award damages to Phillips in the manner suggested is not to award damages for loss of profits. The parties in their submissions at trial and on appeal, and the Judge on occasions, although not always (see, for example, reasons at [22], [26] and [113]) have described Phillips’ claim as a claim for loss of profits.
But an award of damages reflecting the cost of additional casual labour has no direct connection to the profitability of the business. It is an award of damages to compensate for an expense that is incurred as a result of a misrepresentation. The amount awarded on this basis will be unaffected by the question of whether the business is operating at a profit, at a loss or at break even point.
Categorising the claim is one for loss of profits led to submissions being put on the question of when damages can be awarded under s 82 of the TPA on account of loss of profits. That issue does not arise, and need not be addressed.
Phillips claimed damages based on the cost of additional labour to the time of trial and into the future. The claim seemed to extend into the indefinite future, although in his reasons the Judge seems to have treated the claim as limited to the lifetime of the Millennium, which he treated as about 15 years: reasons at [126]. I agree with the Judge that this must be the outer limit of any such claim.
There is an issue as to whether and when a point is reached at which the award of damages must cease. In Henville McHugh J said at [140]:
[140]Nothing in the common law, in s 52 or s 82 or in the policy of the Act supports the conclusion that a claimant's damages under s 82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant's part. There is no ground for reading into s 82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant, it will be appropriate in assessing damages under s 82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act. But that proposition is concerned with the items that go to the computation of the loss. As I have pointed out, nothing in the judgments of the courts below shows that there was any unreasonable conduct on the part of Mr Henville in incurring costs or raising revenue.
This is not a simple matter. Phillips installed the Millennium on land that it had acquired for that purpose, and set up a business based on the Millennium. Once the problem emerged, Phillips could not simply discard the Millennium and buy a suitable replacement. To some extent it was “locked in”. The sale of the land and business was possible. Phillips put the business on the market in October 2001, but then withdrew it from sale. Mr Phillips said that at the time the business was not profitable, and he did not want to sell it in that state. He did not shut the business down, because he hoped by trading on to get a return on his investment. If the business was sold, a question would arise of whether the extra cost of operating the Millennium had depressed the sale price, and would be compensable on that account.
On the other hand, as the Judge observed at [113]:
[113]… 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.
It seems odd if Phillips can claim additional costs for an indefinite time into the future, unlimited by the amount that it paid for the Millennium and unlimited by the installation costs. Indeed, in evidence Mr Irving, an accountant called by the plaintiff, agreed that the concept of Phillips’ claim for damages of the order of $1m was “bizarre”: [T1751].
The onus is on the defendants to show that the plaintiff has acted unreasonably or in a manner such that any loss should no longer be attributed to their contravention of s 52 of the TPA.
This aspect of the case was barely touched on in submissions before us, and appears to have been barely touched on in evidence.
In my opinion Phillips could not recover an amount, on account of additional labour costs, in excess of what it paid for the Millennium plus the costs of installation (about $170,000). Once it recovered that amount, the Millennium would have cost it nothing. Bearing in mind that the business was profitable by the time of trial, and was based on the Millennium, it is arguable that that monetary cap should be reduced by the amount of profits made meantime, otherwise one must contemplate the plaintiff (on this hypothesis) acquiring the Millennium for no cost, but using it to generate profits. Determining the amount of this cap would not be easy, but it seems to me that in principle there must be some such limit.
The issue was not explored before the Judge or before us. The amount awarded for labour costs ($65,234) probably does not raise that issue, even allowing for profits made along the way. To my mind, in the circumstances, it is not appropriate for the Court now to embark upon a legal and factual analysis of that issue.
It suffices to say that I agree with the Judge that Phillips’ claim for damages for the cost of labour was excessive: reasons at [155]. The Judge was right to reject Phillips’ claim to that extent.
The issue is whether the Judge erred in making the award that he did. Mr McNamara attacked the award as excessive. He said it was not based on any sound principle, and was not based on sustainable findings of fact. I have explained why, in my opinion, in principle the Judge’s approach was correct. I will return to the facts.
Mr Ross-Smith attacked the award as inadequate. I have explained why I reject his approach to the assessment of damages. By this I mean an approach that leads to a claim for an award of $800,000 or more for the cost of labour, without regard to any kind of cap of the kind contemplated by me. Mr Ross-Smith also attacked the Judge’s findings, or the lack of them.
Damages for cost of additional labour – decision
Hanna Wash did not challenge the amount awarded by the Judge, in the event that Hanna Wash was found liable. Accordingly, no oral submissions were made by Mr Hoile on this point. I have considered his brief written submissions on the point. In any event, the submissions by Mr McNamara for SEC appear to have covered all aspects from the point of view of the defendants.
Phillips led evidence from Mr Irving, an accountant. SEC led evidence from Mr McPharlin, another accountant. Each of them provided detailed reports with accompanying schedules. They explored a range of possible approaches to quantification of the loss, and commented on each other’s opinions. I cannot help thinking that excessive effort has gone into this whole topic, overcomplicating it.
I have explained why I consider that the Judge’s approach on this topic was sound in principle. There is no need to explore other possible approaches. In the end, counsel appeared to agree that the cost of additional labour was the appropriate measure of Phillips’ loss.
Indeed, in the end Mr Irving and Mr McPharlin also appear to agree that this is the case. That, at least, is my understanding of their evidence and of their reports.
Moreover, my impression is that the experts and counsel all agreed, in the end, that the best measure of Phillips’ loss was to compare the labour costs that would have been incurred to operate the Millennium if it operated in the manner represented, with the additional labour costs reasonably required to achieve a wash of a good quality or high quality. That would involve ensuring that the additional labour costs were limited to labour costs for the purpose just stated, and did not include labour costs incurred in providing additional services, or for other purposes. It follows, inevitably, that a simple comparison between expected labour costs and actual labour costs would not suffice.
The first difficulty that arises is that the evidence on these matters is unclear. There was some evidence from Mr Phillips that the Judge accepted: reasons at [113]. This suggested that the plaintiff would have employed one or two staff if the Millennium operated as expected, but had employed up to 11 casual staff. But the evidence does not appear to focus on the question of the additional labour required to produce a satisfactory wash, as distinct from additional labour used for other purposes, or because of changes in the way the business was conducted. In any event, the Judge clearly was not persuaded that this evidence satisfied him to the level of detail required. Some of the evidence appears contradictory. In his evidence Mr Irvine said (reasons at [121]) that the claim for the future cost of labour was based on two additional staff. That was based on an instruction emanating, I gather, from Mr Phillips. How that is to be reconciled with Mr Phillips’ evidence that up to 11 staff are being employed to clean cars is unclear.
Based on this particular instruction Mr Irving calculated the future cost of additional labour at $106,280 per annum, which Phillips claimed at least for the life of the Millennium.
The Judge said that he was not able to make a reliable finding on this evidence. He said at 124:
[124]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.
I am not persuaded that the Judge is wrong in this respect. Mr Ross-Smith pressed the argument that the situation was really quite clear. Namely that Phillips intended to operate the business with no more than two casual employees, and for the future was obliged to employ an additional two staff to clean cars. The difficulty is that the Judge was not prepared to accept that simple approach. Running through this reasons, and through such of the evidence as I considered, is the recurring question of the tasks being performed by the hired labour, and other matters relevant to the operation of the business. The Judge was satisfied that some additional labour had to be employed, but I cannot accept that he simply overlooked the evidence, and overlooked the submission by Mr Ross-Smith, that he should quantify that additional labour at two persons. He must have rejected that approach. I am not persuaded that the Judge erred.
Nor did the Judge accept Mr Irving’s method, a method which to me appears to be problematic.
I will deal with Mr Irving’s method as briefly as I can.
He began with the budget for the business for each year to trial. It appears that this was based on instructions from Mr Phillips: see Mr Irving’s report of 13 August 2003, exhibit P18, para 4.2.3 and his report of 28 June 2005, exhibit P19, para 5.2.6 and following, para 6 and following. This budget included estimates of labour costs, the number of cars washed and other matters. From the budget, which Mr Irving himself adjusted in light of a number of criticisms made by Mr McPharlin, Mr Irving derived a number of hours of labour budgeted for each car wash, and compared that with the actual number of hours for each car wash over the period in question. He multiplied the difference by an hourly labour rate, and arrived at a loss to the date of trial of $253,907: reasons at [121]. For future loss, as already mentioned, he arrived at a claim for future loss of $531,399, basing his claim on an instruction that two additional staff are employed to remedy the problem with the quality of the wash. That led to an award of the order of $800,000, an amount which seems extraordinary in the circumstances.
Mr McPharlin identified some basic problems with this approach. The Judge agreed with him. So do I.
The starting point was the budget, and this was untested. It was one thing to act on Mr Phillips’ estimate of the labour to be employed. That was always going to be an estimate, because as soon as the Millennium was operative, the premise underlying the estimate was falsified. But even then one had to consider whether the estimate was reasonably reliable. An underestimate would inflate the claim. More problematic was the reliance on the estimate of the number of cars to be washed. That figure was the other half of the equation from which Mr Irving derived the labour requirement for each car washed. So the starting point of Mr Irving’s calculation entailed two untested estimates, one of which (the number of cars washed) seems to me to have been more problematic than the other. There was no attempt by Mr Irving to determine how much of the additional labour cost was attributable to the need to clean cars, and how much was attributable to other matters. Moreover, as Mr McPharlin pointed out, the actual labour cost for each car washed was significantly affected by the volume of business. If less cars were being washed, the labour cost per car will necessarily increase. And there was no suggestion that the number of cars washed was affected by the problems with the Millennium that Phillips experienced, apart from periods when the Millennium was shut down. So for reasons given by Mr McPharlin, which the Judge accepted, there were a number of difficulties with Mr Irving’s approach: reasons at [123]. In my opinion the Judge cannot be criticised for not accepting Mr Irving’s method of assessing the loss. I make the obvious point that his method is, in any event, an indirect approach to a question which one would have thought could be dealt with more directly.
Nor is it simply a matter of substituting, as Mr Ross-Smith suggested, a figure based on Phillips having to employ one or two or some other number of staff, to achieve a satisfactory result. The Judge was not prepared to find, as a matter of fact, that that was the case.
In contrast, in his report and in his evidence Mr McPharlin focused on what appears to me to be the correct approach. As he said in a document tendered at trial (notes for counsel, exhibit D20C, at para 11):
In any event, it is my opinion that the plaintiffs’ losses, if any, should be measured by the additional labour costs incurred over and above the labour costs that might otherwise have been incurred had the car wash operated as represented. Consequently, the plaintiffs’ losses should be measured by the additional labour costs incurred, rather than by reference to the average labour hours per car wash.
Although he questioned the reliability of the budget used by Mr Irving, Mr McPharlin examined that budget and calculated the budgeted casual labour costs. He did this to exclude wages paid to Mr Phillips which, rightly as far as I can tell, should have been excluded. He compared the budgeted labour costs with the actual labour costs for the same period: report of 28 September 2005, exhibit D19A, para 4.197-4.204. Adjusting this amount to the date of trial, he arrived at an additional labour cost of $15,234: see exhibit D20C, para 3.

That is the figure that the Judge accepted: reasons at [126]. The Judge expressly accepted Mr McPharlin’s methodology.
It was open to the Judge to act as he did. In principle the method is correct in my opinion. True, it relies upon Phillips’ budget (and therefore Mr Phillips’ estimate) of labour hours required to operate the Millennium, had it operated as represented. But Phillips can hardly complain about that, when that is the very material upon which Phillips argued that its loss should be assessed. And, I consider, it was open to the Judge to act on Mr Phillips’ estimate. As I understand the evidence, and the submissions before us, it was not demonstrated that Mr Irving’s recalculation of casual labour costs was erroneous. That meant that the only estimate on which Mr McPharlin relied related to a matter which would always have to remain an estimate.
I acknowledge that there is a risk of this evidence acting to the disadvantage of Phillips. Phillips might say that in a period of low sales, the labour costs would have been less than it budgeted. It might say that the budget has overstated the anticipated labour costs. However, as I have already said, this is the very material which Phillips itself relied upon before the Court.
The Judge was in a difficult position. There was a lot of confusing evidence, and as far as I am aware there was no estimate that was acceptable to the Judge of the extra labour costs. The Judge was obliged to do his best. He might have declined to make any assessment of damages on this head. In my opinion it was open to him to act as he did.
As for the future, Mr McPharlin commented that if the additional labour cost was about $8,500 per year, as he had decided, and if this was discounted at the rate of 20% (as suggested by Mr Irving), one would arrive at a figure of $40,000 for future loss: report of 26 September 2005, exhibit D19A, para 4.247.
On this topic the Judge said at [126]:
[126]… 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. …
The Judge does not explain how he arrived at this figure. I suspect that he was influenced by the calculation by Mr McPharlin, just referred to. However, the Judge was not obliged to adopt the method of either expert. It is clear that he rejected Mr Irving’s approach to future loss. It is equally clear that he accepted that there were some additional labour costs that would continue into the future.
On the evidence before the Judge, this was a generous award. It represents an allowance of about five or six years additional labour costs into the future, if those costs are about $8,500 per annum. When one bears in mind that this was awarded as a lump sum, the period of loss covered would be greater than that.
There was the need as always to allow for contingencies, and for the possibility that Phillips might yet sell the business and put an end to the incurring of the additional costs.
Taking the whole amount awarded for additional labour costs, namely $65,234, I reject the submission by Mr Ross-Smith that the amount is inadequate. I regard it as generous, in the light of the material before the Judge.
Is the award excessive? I am not able to say that it is. It is lacking in precision, but this is an award that was always going to be the subject of an estimate. An award based on additional labour costs to trial, and for several years thereafter, is not wrong in principle. As I mentioned earlier in these reasons, the defendants have not laid a basis for me to conclude that this award passes the point at which a limit should be set upon any damages recoverable by Phillips. While I regard the award as generous, I am not prepared to say that it is excessive.
For those reasons I would dismiss the appeal by SEC, and the appeal by Phillips, against the assessment of damages for the cost of additional labour.
Contribution as between defendants
The parties did not put any submissions on this point. During the course of the hearing of the appeal they told us that they hoped they might reach an agreement on this point. That did not eventuate.
It will be necessary to hear submissions on the question of contribution as between defendants. For what it is worth, there is nothing self-evidently wrong about the approach that the Judge took.
Trial costs
The Judge ordered that Hanna Wash and SEC pay Phillips’ costs of the trial. He gave no reasons.
I would set aside the Judge’s order as to costs, and remit the question of costs to him for further consideration.
The first reason for doing so is that if the defendants succeed on the issue already remitted to the trial Judge, the question of costs will in any event require reconsideration.
A further reason for remitting the question of costs for further consideration is that the parties are entitled to reasons, even if brief, on the question of costs. It was a long trial. The costs will be substantial. There are a number of factors here which might call for a different approach to costs. In saying this I express no final view on them. My point is merely that there are matters that called for consideration, and which the parties are entitled to know the Judge has considered. The amount awarded for damages is far less than Phillips claimed. On a number of issues Phillips failed. There are reasons to think that Phillips’ approach to the case, and to the quantification of damages, protracted the hearing. These are just some of the relevant factors. The trial Judge is best placed to deal with them. Indeed, it is difficult for the Full Court to deal with them adequately. It is for that reason that all parties, and the Court, will be assisted by reasons from the Judge explaining his ultimate decision on the question of costs. As I have already said, there is no need for those reasons to be lengthy, but they should canvass the main issues.
Summary and proposed orders
Hanna Wash and SEC are liable to Phillips for contravening s 52 of the TPA. The conclusion that Hanna Wash is liable to Phillips is subject to Phillips being granted leave to file, and filing, a cross appeal claiming a judgment against Hanna Wash for a contravention of s 52 of the TPA, as indicated in my reasons at [141].
I turn now to the effect and implementation of my conclusions.
I deal first with SEC.
The award of $52,816.86 as against SEC for defective components, or “capital damages” as the Judge called it, should be set aside.
However, the award of $20,823.44 (relating to the pre-soak system, and part of the above amount) should stand as against SEC, in light of the Judge’s finding at [85]. In due course a judgment for that amount should be entered in favour of Phillips against SEC.
The Judge should reconsider the issue of whether the unsatisfactory quality of the car wash that the Millennium provided was attributable to modifications that Phillips made to shorten the wash cycle: see above at [142]–[177].
If Phillips succeeds on that issue, and on the related issue referred to as the complaint of contamination, judgment should also be entered for Phillips against SEC for $4,679.56 on that account.
The Judge’s assessment and award of damages for the cost of additional labour, the sum of $65,234, should stand, but judgment should be entered for that amount against SEC only if Phillips establishes that the need for additional labour was not attributable to modifications intended to shorten the wash cycle. That is to be decided by the trial Judge.
The Court should hear further submissions on the question of contribution (once the matters just mentioned are resolved) if SEC or Hanna Wash wish to pursue that issue.
The Judge’s order as to costs should be set aside. The question of the costs of the trial should be reconsidered in the light of the Judge’s decision on the above matters. When the Judge does so, the Judge should provide adequate reasons for his decision as to costs.
The question of the appropriate orders is not straightforward. Subject to submissions by counsel, I propose the following orders on the appeal by SEC:
That the appeal be allowed; that the orders made by the District Court on 28 February 2007 against SEC be set aside pending further consideration of the appeal by the Full Court; that the matter be remitted to the trial Judge for reconsideration in light of the reasons of the Full Court; that the Court adjourn to a date to be fixed the making of further orders disposing of the appeal by SEC.
When the Judge has decided the matters remitted to him, and the question of costs, the Judge should be in a position to enter a judgment for the appropriate amount as against SEC, including interest. The Full Court can then make any other orders necessary to dispose of the appeal.
I turn to the appeal by Hanna Wash.
The award of $52,816.86 should likewise be set aside, pending reconsideration by the Judge of the award for the cost of converting the system to a bore water system (assessed by the Judge at $5,115) and associated electrical fees (assessed by the Judge at $922.96). When the Judge has reconsidered that issue, the Judge can then enter judgment for the appropriate amount in respect of defective components or “capital damages” as the Judge called them.
The Judge’s reconsideration of the question of whether the unsatisfactory quality of the wash is attributable to modifications made by Phillips to shorten the wash cycle will determine whether or not Phillips is entitled to judgment against Hanna Wash for the cost of remedying contamination ($4,679.56) and whether Phillips is entitled to judgment against Hanna Wash for the additional cost of labour as assessed by the Judge.
On the appeal by Hanna Wash, I propose the following orders:
That the appeal be allowed; that the orders made on 28 February 2007 against Hanna Wash be set aside, pending further consideration of the appeal by the Full Court; that the matter be remitted to the trial Judge for reconsideration in the light of the Court’s reasons; that the Court adjourn to a date to be fixed the making of further orders disposing of the appeal.
As with SEC, when the Judge has decided the matters remitted to him, the Judge should be in a position to enter judgment for the appropriate amount as against Hanna Wash, including an allowance for interest. The Judge can also deal with the question of costs as against Hanna Wash.
The cross appeals by Phillips, seeking an increase in the award of damages for additional labour costs, should be dismissed. The appropriate order for costs on the cross appeals should be considered at the same time as the question of costs on the appeals.
The parties should prepare proposed minutes of order within seven days. If the parties are not able to agree on proposed orders, each party should submit its proposal to the Court within seven days.
The parties should now do everything that they can to bring this matter to a conclusion as quickly as possible. It is over six years since the proceedings were instituted.
ANDERSON J: I agree with the orders proposed by the Chief Justice. I also agree with his reasons.
WHITE J: I agree with the proposed orders of the Chief Justice and also with his reasons. There is nothing which I wish to add.