Swick Nominees Pty Ltd v Leroi International Inc (No 2)

[2015] WASCA 35

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   SWICK NOMINEES PTY LTD -v- LEROI INTERNATIONAL INC [No 2] [2015] WASCA 35

CORAM:   BUSS JA

MURPHY JA
EDELMAN J

HEARD:   16 JUNE 2014

DELIVERED          :   27 FEBRUARY 2015

FILE NO/S:   CACV 61 of 2013

BETWEEN:   SWICK NOMINEES PTY LTD

Appellant

AND

LEROI INTERNATIONAL INC
Respondent

FILE NO/S              :CACV 128 of 2013

BETWEEN             :SWICK NOMINEES PTY LTD

Appellant

AND

NORNCOTT PTY LTD
Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :ALLANSON J

Citation  :SWICK NOMINEES PTY LTD T/As SWICK DRILLING AUSTRALIA -v- NORNCOTT PTY LTD [No 3] [2013] WASC 173

File No  :CIV 1252 of 2000

Catchwords:

Tort - Product liability - Manufacturers liability - Pure economic loss - Duty of care - Standard of care - Proof of negligence - Res ipsa loquitur

Contract - Sale of goods - Goods not reasonably fit for purpose - Goods not of merchantable quality - Measure of damages - Proof of loss

Legislation:

Sales of Goods Act 1895 (WA), s 14(1), s 14(2), s 52

Result:

CACV 61 of 2013
Appeal dismissed

CACV 128 of 2013
Appeal dismissed

Category:    A

Representation:

CACV 61 of 2013

Counsel:

Appellant:     Mr T M Clavey

Respondent:     Mr N D C Dillon

Solicitors:

Appellant:     Eastwood Sweeney Law

Respondent:     Minter Ellison

CACV 128 of 2013

Counsel:

Appellant:     Mr T M Clavey

Respondent:     No appearance

Solicitors:

Appellant:     Eastwood Sweeney Law

Respondent:     No appearance

Case(s) referred to in judgment(s):

Anchor Products Ltd v Hedges [1966] HCA 70; (1966) 115 CLR 493

Apache Energy Ltd v Alcoa of Australia Ltd [No 2] [2013] WASCA 213; (2013) 45 WAR 379

Barclay v Penberthy [2012] HCA 40; (2012) 246 CLR 258

Beaton v Moore Acceptance Corporation Pty Ltd [1959] HCA 59; (1959) 104 CLR 107

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36; (2014) 88 ALJR 911

Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609

Bull v Rover Mowers (Aust) Pty Ltd [1984] 2 Qd R 489

Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13; (1994) 179 CLR 520

Burrowes v Lock (1805) 10 Ves 470; (1805) 32 ER 927

Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529

Canadian National Railway Co v Norsk Pacific Steamship Co [1992] 1 SCR 1021

Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] AC 1

Cashfield House Ltd v David & Heather Sinclair Ltd [1995] 1 NZLR 452

Clark v Macourt [2013] HCA 56; (2013) 304 ALR 220

Colonial Mutual Life Assurance Society Ltd v Producers & Citizens Co‑Operative Assurance Co of Australia Ltd [1931] HCA 53; (1931) 46 CLR 41

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Council of the Shire of Sutherland v Heyman [1985] HCA 41; (1985) 157 CLR 424

Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1

D & F Estates Ltd v Church Commissioners for England [1989] AC 177

Derry v Peek (1889) 14 App Cas 337

Donoghue v Stevenson [1932] AC 562

Doval v Anka Builders Pty Ltd (1992) 28 NSWLR 1

Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317

Dutton v Bognor Regis Urban District Council [1972] 1 QB 373

Elsee v Gatward (1793) 5 TR 143; (1793) 101 ER 82

Evans v Bicknell (1801) 6 Ves Jun 174; (1801) 31 ER 998

Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1998] QCA 404; [1999] 2 Qd R 236

Fitzpatrick v Job t/as Jobs Engineering [2007] WASCA 63; (2007) Aust Torts Reports 81-891

Fontaine v British Columbia (Official Administrator) [1998] 1 SCR 424

Fortuna Seafoods P/L as trustee for The Rowley Family Trust v The Ship 'Eternal Wind' [2005] QCA 405

Franklin v Victorian Railways Commissioners [1959] HCA 48; (1959) 101 CLR 197

Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1

Government Insurance Office of NSW v Fredrichberg [1968] HCA 54; (1968) 118 CLR 403

Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540

Grant v Australian Knitting Mills Ltd [1936] AC 85

Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd [2010] SASC 37; (2010) 106 SASR 167

Hadley v Baxendale (1854) 9 Exch 341

Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 311 ALR 494

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465

Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159

Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549

JJ Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27

Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520

King v Sexton & Green [2000] NSWCA 340

Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361

LED Technologies Pty Ltd v Roadvision and Another [2012] FCAFC 3; (2012) 199 FCR 204

Leighton Contractors Pty Ltd v Fox [2009] HCA 35; (2009) 240 CLR 1

Louisville and Nashville Railroad Co v M/V Bayou Lacombe (1979) 597 F 2d 469

Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472

Metropolitan Gas Co v City of Melbourne [1924] HCA 46; (1924) 35 CLR 186

Michael v Chief Constable of South Wales Police [2015] UKSC 2

Minchillo v Ford Motor Company of Australia Ltd [1995] 2 VR 594

Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] HCA 61; (2000) 205 CLR 254

Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) [1947] AC 265

Muirhead v Industrial Tank Specialities Ltd [1986] QB 507

Mummery v Irvings Pty Ltd [1956] HCA 45; (1956) 96 CLR 99

Murphy v Brentwood District Council [1991] 1 AC 398

Network Ten Pty Ltd v Seven Network (Operations) Ltd [2014] NSWSC 692

Nocton v Lord Ashburton [1914] AC 932

Northern Sandblasting Pty Ltd v Harris [1997] HCA 39; (1997) 188 CLR 313

OBG Ltd v Allan [2007] UKHL 21; [2008] 1 AC 1

Opat v National Mutual Life Association of Australasia Ltd [1992] 1 VR 283

Peake v Steriline Manufacturing Pty Ltd (1988) Aust Torts Reports 80-154

Peek v Gurney (1871) LR 13 Eq 79

Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180

Phillips v Ogle Aluminium Furniture (1951) 235 P 2d 857

Piening v Wanless [1968] HCA 7; (1968) 117 CLR 498

Powtuary v Walton (1598) Ro Abr 1.10

Ramshire v Bolton (1869) LR 8 Eq 294

Robinson v P E Jones (Contractors) Ltd [2011] EWCA Civ 9; [2012] QB 44

Romeo v Conservation Commission (NT) [1998] HCA 5; (1998) 192 CLR 431

Sanders v Snell [1998] HCA 64; (1998) 196 CLR 329

Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121

Scott v Davis [2000] HCA 52; (2000) 204 CLR 333

Shaddock & Associates Pty Ltd v The Council of the City of Parramatta [No 1] [1981] HCA 59; (1981) 150 CLR 225

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Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 QB 758

Slater v Hoyle & Smith Ltd [1920] 2 KB 11

Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562

Suosaari v Steinhardt [1989] 2 Qd R 477

Sweeney v Boylan Nominees Pty Ltd [2006] HCA 19; (2006) 226 CLR 161

Sweeney v Erving (1913) 228 US 233

Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173

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Tarangau Game Fishing Charters Pty Ltd v Eagle Yachts Pty Ltd [2013] QSC 16

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The Owners - Strata Plan No 51077 v Meriton Apartments Pty Ltd [2014] NSWSC 1761

The Ship 'Eternal Wind' v Fortuna Seafoods Pty Ltd [2006] HCATrans 136

Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165; (2012) 268 FLR 433

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Wilson HTM Investment Group Ltd v Pagliaro [2012] NSWSC 1068; (2012) 226 IR 75

Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515

Woollahra Municipal Council v Sved (1996) 40 NSWLR 101

Zumpano v Montagnese [1997] 2 VR 525

Table of Contents

Buss JA's reasons..................................................................................................................... 9
The parties to the litigation
Swick's purchase of the air compressor unit
Swick's pleaded case against Norncott
Norncott's pleaded defence
Swick's pleaded case against LeRoi
LeRoi's pleaded defence
The applicable law in Swick's claim against LeRoi
The witnesses at trial
The assembled compressor unit
The purchase price of the assembled compressor unit
The failures in the TS24
The paucity of evidence as to the design and manufacture of the TS24
The trial judge's findings of fact
The trial judge's findings and conclusions:  Swick's case against LeRoi
The trial judge's findings and conclusions:  Swick's case against Norncott
The trial judge's assessment of damages
Swick's grounds of appeal in the appeal against LeRoi
Swick's grounds of appeal in the appeal against Norncott
The appeal against LeRoi:  the duty of care alleged by Swick:  LeRoi's concession
The appeal against LeRoi:  negligence and standard of care:  relevant legal principles
The appeal against LeRoi:  admissions against interest in relation to negligence:  relevant legal principles
The appeal against LeRoi:  the principle of res ipsa loquitur:  relevant legal principles
The appeal against LeRoi:  the essence of ground 1:  the trial judge's alleged error
The appeal against LeRoi:  ground 1:  Swick's submissions
The appeal against LeRoi:  the essence of ground 2:  the trial judge's alleged error
The appeal against LeRoi:  ground 2:  Swick's submissions
The appeal against LeRoi:  the essence of grounds 3 and 4:  the trial judge's alleged errors
The appeal against LeRoi:  grounds 3 and 4:  Swick's submissions
The appeal against LeRoi:  grounds 1, 2, 3 and 4:  their merits
The appeal against LeRoi:  conclusion
The appeals against Norncott and LeRoi in relation to damages
The appeal against Norncott:  damages in contract
The appeal against Norncott:  damages:  the amounts allowed by the trial judge
The appeal against Norncott:  damages:  the amount the trial judge refused to allow
The appeal against Norncott:  damages:  the amount the trial judge refused to allow:  how the case was run at the trial
The appeal against Norncott:  ground 1:  the trial judge's alleged error
The appeal against Norncott:  ground 1:  the relevant evidence
The appeal against Norncott:  ground 1:  Swick's submissions
The appeal against Norncott:  ground 1:  its merits
The appeal against Norncott:  ground 2:  the trial judge's alleged error
The appeal against Norncott:  ground 2:  the trial judge's reasons
The appeal against Norncott:  ground 2:  the relevant evidence
The appeal against Norncott:  ground 2:  Swick's submissions
The appeal against Norncott:  ground 2:  its merits
The appeal against Norncott:  ground 3:  the trial judge's alleged error
The appeal against Norncott:  ground 3:  the trial judge's reasons
The appeal against Norncott:  ground 3:  Swick's submissions
The appeal against Norncott:  ground 3:  its merits
The appeal against Norncott:  the merits of grounds 1, 2 and 3:  a more fundamental difficulty
The appeal against Norncott:  Conclusion
The outcome of the appeals
Murphy JA & Edelman J's reasons....................................................................................... 89

Introduction
The duty of care in this case and the scope of any concession

The importance of defining a duty of care
Duties of care in cases of 'pure' economic loss
A claim by an ultimate purchaser against the manufacturer for pure economic loss
The existence and scope of any concession of a duty of care by LeRoi
The basic difficulty with the four grounds of LeRoi's liability appeal

The first four grounds of appeal against LeRoi: breach of duty

Grounds 1 and 2 against LeRoi: Direct evidence or inference of breach of duty
Grounds 3 and 4 against Le Roi: the doctrine of res ipsa loquitur

The doctrine of res ipsa loquitur
Grounds of appeal 3 and 4

The appeals concerning damages

The appeal in relation to LeRoi
The appeal in relation to Norncott

Conclusion

1. BUSS JA:  The appellant in each of these appeals, Swick Nominees Pty Ltd (Swick), appeals against a judgment of Allanson J entered after a trial in the Supreme Court of Swick's action for damages against the respondent in CACV 61 of 2013, LeRoi International Inc (LeRoi), and the respondent in CACV 128 of 2013, Norncott Pty Ltd (Norncott), in connection with the purchase by Swick of an air compressor unit.

2. The trial judge dismissed Swick's claim against LeRoi but entered judgment for Swick against Norncott in the sum of $284,407.39.  That amount comprised damages and interest on damages.

3. Swick asserts that his Honour erred in dismissing its claim against LeRoi.  Swick also asserts that his Honour erred in assessing the quantum of damages.

The parties to the litigation

1. At all material times:

   (a)Swick, trading under the name Swick Drilling, carried on business in Western Australia as a drilling contractor.

   (b)Swick, in carrying on its business, was engaged principally in mineral exploration drilling in this State.

   (c)LeRoi, a company incorporated in the United States of America, carried on business as a designer, manufacturer and supplier of air compressors.

   (d)Norncott, trading under the name Air Drill, carried on business as a supplier, distributor and repairer of drilling equipment, including as a distributor of air compressors manufactured by LeRoi.

Swick's purchase of the air compressor unit

1. In about June 1994, Swick and Norncott agreed that Swick would purchase from Norncott an item of equipment described as a LeRoi model TS24 1200 cfm/500 psi compressor (the TS24).  The TS24 would then be fitted to a diesel engine, an air receiver vessel and other components.  The components, including the TS24, would, when fitted together, comprise an air compressor unit.  The function of the unit was to provide a supply of compressed air for a drilling rig.  I will use the term 'compressor unit' to describe the assembled item which included the TS24.

2. In about January 1995, Norncott delivered the compressor unit to Swick.

3. In July 1995, the compressor unit failed while Swick was operating it.  Swick alleged that further failures occurred on 10 October 1995, 7 December 1995, 27 March 1996, 29 June 1996 and 24 October 1996.  On each occasion, Swick could not use the compressor unit until it was repaired.

4. Swick claimed damages against Norncott and LeRoi for the losses it allegedly suffered as a result of alleged defects in the TS24.

Swick's pleaded case against Norncott

1. Swick claimed against Norncott for breach of contract (including breach of the conditions implied by s 14(1) and s 14(2) of the Sale of Goods Act 1895 (WA)) and for negligent misstatement. Swick pleaded its claim as follows.

2. In or about March 1994, Ian Speer on behalf of Norncott expressly represented to Randal Swick on behalf of Swick that:

   7.1the best and most suitable compressor for [Swick] to purchase would be a LeRoi 500 psi compressor;

   7.2such a compressor had a bearing life of 30,000 hours whereas the bearing life of a Sullair compressor was only 10,000 hours;

   7.3the LeRoi compressor operated at pressures of 500 psi and that the high pressure which it developed in operation would significantly improve [Swick's] performance in carrying out drilling; and

   7.4such compressors had been in operation over a period of some years prior to 1994.

   See par 7 of the statement of claim.

3. By letter dated 24 June 1994, Norncott made further express representations to Swick, including that:

   (a)'the compressor had extra‑large bearings and operated at a low RPM, thereby producing a long life'; and

   (b)'the compressor would be the perfect compressor to supply the new range of super boosters which would emerge in the following 3 to 5 years to operate emerging very high pressure hammers so that the compressor would enable [Swick] to be drilling faster and longer well into the future'.

   See par 10 of the statement of claim.

4. Between 24 June 1994 and 30 June 1994, Swick and Norncott agreed that Swick would purchase a TS24 from Norncott (the contract).  Pursuant to the contract:

   (a)Swick provided a Detroit diesel engine to Norncott;

   (b)Norncott procured a TS24, serial number 5228X35, from LeRoi; and

   (c)Norncott fitted the engine to, and supplied Swick with, the TS24 'together with an air receiver vessel … and numerous component parts (the compressor)'.

   See pars 11 and 12 of the statement of claim.

5. The contract incorporated the following express oral terms, being the representations pleaded in pars 7.2 and 7.3 of the statement of claim:

   13.1the set of bearings used in the compressor would enable the compressor to be used in normal operation, that being at operating pressures of 500 psi, for 30,000 hours without bearing failure occurring; and

   13.2the compressor was designed to operate, and was capable of operating, at air pressures of 500 psi and would perform well in operating at such pressures.

   See par 13 of the statement of claim.

6. By reason of the express representations in the letter dated 24 June 1994, the contract incorporated express written terms that:

   14.1in operation, the compressor was capable of producing and would produce, air pressures such as to produce a state‑of‑the‑art air supply;

   14.2the bearings used in the compressor were very large and the compressor would operate at a low number of revolutions per minute and the compressor would thereby last for a long time in operation;

   14.3the performance of the compressor in operation would be such as to enable [Swick] to carry out drilling at greater operating pressures and for longer periods of time than it had been capable of doing in the past utilising its existing equipment, particularly the existing compressor; and

   14.4the performance of the compressor in operation would be such as to enable [Swick] to do the things referred to in paragraph 14.3 above over a period well into the future.

   See par 14 of the statement of claim.

7. Norncott breached each of the terms pleaded in pars 13 and 14 of the statement of claim.  In particular:

   (a)the 'set of bearings used in the compressor was not such as to enable the compressor to be used in normal operation for 30,000 hours without bearing failure occurring';

   (b)on 20 July 1995, the compressor failed 'because of failure of the bearing pack of the second stage screw of the compressor';

   (c)the failure occurred after the compressor had been operating for a total period of about 950 hours;

   (d)'[f]urther bearing failures' occurred on five later occasions, namely on 10 October 1995, 7 December 1995, 27 March 1996, 29 June 1996 and 24 October 1996; and

   (e)the compressor was not capable of operating reliably at air pressures of 500 psi and did not perform well when being operated at such pressures.

   See pars 15 and 16 of the statement of claim.  See also pars 17, 18, 19 and 20 of the statement of claim.

8. Swick alleged, in the alternative, that the representations pleaded in par 7 of the statement of claim, and the circumstances in which those representations were made, 'incorporated' implied representations that the TS24 'would be the most appropriate compressor for [Swick] to purchase'; the TS24 'would be capable of performing in the manner, and achieving the effect, referred to in [par 7.3 of the statement of claim] in a consistently reliable manner'; and the TS24 'had been in operation carrying out mineral drilling work for some years prior to 1994 in a consistently reliable manner'.  See par 22 of the statement of claim.

9. Swick also alleged that the representations pleaded in par 10 of the statement of claim, and the circumstances in which those representations were made, 'incorporated' an implied representation that 'in operation [the TS24] would produce air pressures so as to produce a state‑of‑the‑art air supply in a consistently reliable manner'.  See par 23 of the statement of claim.

10. Swick, in reliance on the representations pleaded in pars 7, 10, 22 and 23, and induced by them, entered into the contract with Norncott.  See par 24 of the statement of claim.

1. Most of the representations 'constituted statements of advice, information or opinion'; and the representation that the compressor would enable Swick to drill 'faster and longer well into the future', 'was promissory'.  Further, in the circumstances in which they were made, the representations 'incorporated...implied representations of existing or past facts' as follows:

   (a)Norncott believed, or alternatively had reason to believe, that each of the statements was in fact accurate;

   (b)Norncott had made enquiries to establish that the statements were reliable and well‑informed;

   (c)Norncott knew of facts which justified the statements being made; and

   (d)Norncott was making the statements in circumstances in which it was exercising all due care, skill and diligence.

   See par 25 of the statement of claim.

2. The representations referred to in par 25 were false in that:

   (a)the compressor performed poorly and unreliably in operation 'as a result of repeated bearing failure';

   (b)compressors such as that purchased by Swick had not been operating reliably in performing mineral drilling for some years prior to 1994;

   (c)the compressor did not operate so as to provide any form of reliable air supply and, in particular, did not operate so as to provide a reliable state‑of‑the‑art air supply;

   (d)the purchase of the compressor was not beneficial to Swick as it failed to operate as reliably as its existing compressor; and

   (e)Norncott never believed, or alternatively never had reason to believe, that the statements were in fact accurate; failed to make any adequate enquiries to establish that the statements were reliable and well‑informed; knew of no sufficient facts to justify the statements being made; and made the statements in circumstances in which it had failed to exercise all reasonable care, skill and diligence.

   See par 26 of the statement of claim.

3. The representations were negligent misstatements made in circumstances in which Norncott 'possessed special skill or knowledge concerning the representations or was otherwise in a special relationship with [Swick] and with the intention of inducing [Swick] to enter into the contract [with Norncott] and in so doing it failed to use reasonable care to ensure the accuracy of the representations'.  See par 28 of the statement of claim.

4. Swick, in reliance on the negligent misstatements, entered into the contract with Norncott.  See par 29 of the statement of claim.

5. The contract contained conditions implied under s 14(1) and s 14(2) of the Sale of Goods Act.  In breach of the implied conditions, the compressor was not reasonably fit for the purpose for which it was required and was not of merchantable quality.  See pars 32 ‑ 40 of the statement of claim.

6. Swick claimed, relevantly, damages, and interest on damages, from Norncott.

Norncott's pleaded defence

1. Norncott had ceased trading some years before the trial.  It filed a defence denying liability.  After filing an amended defence in 2005, Norncott was deregistered.  In 2012 Swick procured the re‑registration of Norncott.  Norncott did not participate in the trial or in the appeal.

Swick's pleaded case against LeRoi

1. Swick's claim against LeRoi was that:

   (a)LeRoi designed, manufactured and supplied air compressors, including the TS24 serial number 5228X35 that Swick agreed to purchase from Norncott;

   (b)LeRoi, in the course of its business, designed and manufactured, and supplied to Norncott, the 'manufactured compressor' (being the TS24), to which Norncott fitted the diesel engine, the air receiver vessel and other components before delivering the assembled compressor unit to Swick;

   (c)Norncott was the distributor within Western Australia of LeRoi's products including the TS24;

   (d)LeRoi manufactured air compressors, including the TS24, with the intention of promoting their sale to mineral exploration drilling contractors such as Swick 'on the basis that such mineral exploration drilling contractors would use [the TS24] in carrying out mineral exploration drilling';

   (e)prior to entering into the contract with Swick, Norncott 'promoted to mineral exploration drilling contractors, including [Swick], the sale of [the TS24] on the basis that the compressor would be useful to them in carrying out mineral exploration drilling';

   (f)LeRoi knew, or ought to have known, that the TS24 would be sold by Norncott to 'an individual or company such as [Swick]';

   (g)further or alternatively, before Norncott supplied the TS24 to Swick, LeRoi knew that Norncott had sold the TS24 to Swick;

   (h)it was reasonably foreseeable that, if LeRoi failed to take reasonable care in the design and manufacture of the TS24, Swick would suffer economic loss;

   (i)'[b]y reason of the acquisition cost of [the TS24], the contract [with Norncott] represented a very significant investment for [Swick]';

   (j)Swick was not a designer or manufacturer of compressors such as the TS24;

   (k)LeRoi manufactured the TS24 in question in the United States of America and delivered it to Norncott in Western Australia, and Swick therefore had no opportunity, before entering into the contract with Norncott, 'to ascertain the defects in the design and manufacture of [the TS24]';

   (l)Swick was unable, by reason of the acquisition cost of compressors such as or similar to the TS24, to purchase another compressor as a contingency against the risk that the TS24 would suffer from defects or that those defects would cause Swick to suffer economic loss;

   (m)in the circumstances, Swick was 'vulnerable and unable to protect itself from the consequences of [LeRoi] failing to take reasonable care in the design and manufacture of [the TS24]';

   (n)LeRoi knew or ought to have known of the matters referred to at [26] (i) ‑ (m) above;

   (o)in the circumstances, the relationship between Swick and LeRoi was 'close';

   (p)the class of individuals or companies who would suffer economic loss in the event of LeRoi failing to take reasonable care in the design and manufacture of the TS24 was 'at all material times clear and inherently limited';

   (q)LeRoi 'was in a position sufficiently to control, and did in fact control, the conduct giving rise to [Swick's] economic loss'; and

   (r)LeRoi therefore owed Swick 'a duty to take reasonable care in the design and manufacture of [the TS24]'.

   See pars 41‑ 61 of the statement of claim.

2. Swick alleged that LeRoi failed to take reasonable care in the design and manufacture of the TS24.  The particulars of negligence were these:

   62.1failing to design the manufactured compressor in such a way as to ensure that the manufactured compressor's air end second stage was adequate to enable the manufactured compressor to function reliably;

   62.2failing to manufacture the manufactured compressor in such a way as to ensure that the manufactured compressor's air end second stage was adequate to enable the manufactured compressor to function reliably;

   62.3the set of bearings used in the manufactured compressor was not such as to enable it to be used in normal operation without bearing failure occurring because of failure of the bearing pack of the second stage screw of the manufactured compressor [the expression normal operation is used also in paragraph 13 as meaning 'operating at pressures of 500 psi'];

   62.4the manufactured compressor was not capable of operating reliably at air pressures of 500 psi and did not perform well when being operated at such pressures in that the failures occurred at operating pressures of, or less than, 500 psi;

   62.5the manufactured compressor failed to produce good operating air pressures in operation with any reliability; and         

   62.6[LeRoi] failed to take prompt steps to remedy the defects referred to above in circumstances where it knew, or ought to have been aware, of those defects by the date upon which the compressor was provided to [Swick] by [Norncott].

   See par 62 of the statement of claim.

3. Although Swick pleaded the existence of a 'close relationship' between LeRoi and Norncott, in pleading the circumstances which gave rise to the alleged duty of care, Swick did not advance a claim that LeRoi was liable, either vicariously or otherwise, for Norncott's conduct. 

4. At the trial, counsel for Swick confirmed, in his opening address, that the sole basis for Swick's claim against LeRoi was that LeRoi had failed to take reasonable care in the design and manufacture of the TS24 (ts 281). 

5. Swick relied on claims for breach of contract, breach of the conditions implied under s 14(1) and s 14(2) of the Sale of Goods Act, misrepresentations and negligent misstatements solely in its case against Norncott.

LeRoi's pleaded defence

1. LeRoi:

   (a)admitted that it was incorporated in the United States of America; and

   (b)said that 'at times' it had been a manufacturer of 'high pressure air compressors'.

   See par 3 of the defence.

2. LeRoi admitted that it designed and manufactured, and supplied to Norncott, the TS24 in question.  See par 4 of the defence.

3. LeRoi pleaded:

   (a)the TS24 had 'a maximum airflow rating of 1200 cfm and a maximum pressure delivery rating of 500 psi';

   (b)the TS24 'was not designed to operate constantly at its maximum possible output pressure'; and

   (c)the bearings used in the TS24 were designed, manufactured and supplied to LeRoi by 'independent bearing manufacturers being corporations trading under the name or style of NTN Bearings and Timken Bearings'.

   See par 5 of the defence.

4. LeRoi alleged that Swick failed to take steps adequately to protect itself from the risk of business interruption and other losses in that it failed to obtain insurance, negotiate adequate warranty terms with Norncott or purchase secure back‑up equipment.  See pars 17 and 18 of the defence.

5. LeRoi said that, before it supplied the TS24 to Norncott, and before the TS24 was supplied by Norncott to Swick, LeRoi had 'no communication whatsoever with [Swick] and had no relationship with [Swick] whatsoever'.  See par 22 of the defence.

6. LeRoi pleaded that air compressors can be used in different environments, in different industries and for numerous applications other than mineral drilling.  LeRoi alleged that it had 'no direct knowledge' of the persons or entities within the class of persons or entities who would purchase compressors from Norncott.  See par 23 of the defence.

7. LeRoi did not admit in its defence that it owed a duty to Swick 'to take reasonable care in the design and manufacture of [the TS24]'.  See par 25 of the defence.  However, counsel for LeRoi, in his written outline of closing address, accepted that LeRoi did owe Swick a 'duty of care', but maintained that, as pleaded in its defence, LeRoi in fact exercised reasonable care.  I will examine the terms of the concession and its significance later in these reasons. 

8. LeRoi said:

   (a)In any event it did take all reasonable and prudent steps in relation to the design and manufacture of [the TS24].

   (b)That in so far as the bearings used in that compressor were concerned, it did not design or manufacture those bearings and relied on independent expert bearing manufacturers to supply bearings suitable for the specific application and which were then incorporated into the manufacture of the compressor.

   (c)By reason of the design of the bearings supplied by the independent expert bearing manufacturers for the specific application, that it was not reasonably possible for [LeRoi] to know or otherwise learn of any fault or deficiency that may be present in those bearings prior to their installation into the compressor during the manufacturing process.

   See par 25 of the defence.

9. LeRoi pleaded that the TS24 was designed and manufactured by it for use in the following manner:

   (a)for 'normal use' at 350 psi, with 'occasional use' at 500 psi;

   (b)with specified brands of oil; and

   (c)with use of, and regular replacement of, air filters.

   See par 28 of the defence.

10. LeRoi alleged that, if Swick suffered any loss as a result of any of the matters pleaded in the statement of claim (all of which LeRoi denied), Swick had failed to take any, alternatively any reasonable, steps to mitigate the alleged loss.  The particulars of the alleged failure to mitigate were:

    (a)Swick's failure to take steps adequately to protect itself from the risk of business interruption and other losses in the manner recounted at [34] above; and

    (b)Swick's 'wholly unreasonable' decision to sell the TS24 'for scrap'.

    See par 29 of the defence.

The applicable law in Swick's claim against LeRoi

1. At the trial, Swick and LeRoi proceeded on the assumption that the law of Western Australia was to be applied in determining Swick's claim against LeRoi even though Swick relied on acts or omissions in the design and manufacture of the TS24 which occurred in the United States of America.  Like the parties, the trial judge proceeded on that basis.  The point was not raised in the appeal.

The witnesses at trial

1. At the trial Swick called two primary witnesses of fact, namely Mr Swick and Mr Speer. 

2. The only witness called by LeRoi was Ralph King, who was the former managing director of Norncott.

3. Swick called expert evidence from:

   (a)Robert Martin, as to the cause of the failures in the TS24;

   (b)Ronald Wyndow, as to the market value of the TS24 at particular dates; and

   (c)Michael Fry, as to the financial impact on Swick of the failures in the TS24.

4. Mr Speer, Mr King and Mr Martin directly observed the TS24.  They were experienced in working with and maintaining mining equipment, including air compressors.  None of them had any formal qualifications.

5. Although the litigation was concerned with the design and manufacture of the TS24, neither party called any evidence on that issue from an engineer.

6. There was no evidence of any comparison having been made between the design of the TS24 and the design of other comparable compressors.

The assembled compressor unit

1. The compressor unit, as assembled by Norncott and supplied to Swick, comprised:

   (a)the Detroit diesel engine;

   (b)a frame on which the engine and the TS24 were mounted; and

   (c)other necessary items, namely an engine and compressor radiator, a cooling fan, a filtration system, a control system, an exhaust system and a control box with monitoring equipment [64].

2. The trial judge found that '[n]one of the components was compatible only with the LeRoi TS24, and the LeRoi could have been replaced with another brand' [65].

The purchase price of the assembled compressor unit

1. The purchase price payable by Swick to Norncott for the assembled compressor unit was itemised in an invoice dated 23 June 1995 (exhibit 4).  In particular:

   (a)The price of the TS24 and the Detroit diesel engine was in total $88,050. Of this total, $34,000 was attributable to the engine and the balance to the TS24 [66].

   (b)The total price of the component parts used to assemble the compressor unit was $30,441.77.

   (c)The price of the labour required to build and test the compressor unit was $27,100.

   (d)The overall price, as set out in the invoice, was $145,591.77.

2. In February 1997, the Detroit diesel engine was replaced with a Cummins diesel engine. The cost of the new engine was $55,000 [197].

3. It appears that Swick incurred other costs in order to complete the construction of the compressor unit. His Honour said that '[o]n [Swick's] figures, the cost was approximately $223,000 including the Cummins diesel engine ($55,000) which was not fitted until February 1997' [197]. See also Mr Swick's witness statement dated 27 March 2009 (exhibit 1A) pars 102 ‑ 114. Subject to some corrections, this witness statement was tendered as part of Mr Swick's evidence‑in‑chief (ts 326).

The failures in the TS24

1. The compressor unit, including the TS24, was assembled between October 1994 and January 1995 [63].

2. In January 1995, the compressor unit was commissioned [63].

3. Mr Swick gave evidence that in the 15‑month period commencing in July 1995 the TS24 failed in operation on six occasions.

4. After the compressor unit was commissioned it underwent several changes. The original TS24, serial number 5228X35, was replaced with another, at no cost to Swick, after the first failure of the machine. Later, in 1997, the original Detroit engine was replaced by a more powerful engine. Some time after the second failure, probably after the fifth failure, the gear set in the TS24 was changed. The object of the change was to increase the discharged volume of air to 1400 cfm and to reduce the pressure to 350 psi. The change also enabled Swick to operate the engine at a lower speed and to reduce fuel consumption. Mr Swick gave evidence that the change 'was to a different operating configuration of the compressor, but was within its design specifications' [70].

5. The trial judge was satisfied on the basis of:

   (a)Mr Swick's evidence;

   (b)the job cards maintained by Norncott in carrying out repairs;

   (c)the drilling record maintained by Swick; and

   (d)Mr Speer's evidence,

   that the compressor unit failed on eight occasions between January 1995 (when it was commissioned) and July 1997, although one of those failures was caused by an engine failure [72].

The paucity of evidence as to the design and manufacture of the TS24

1. The trial judge said that, although Swick alleged LeRoi had been negligent in the design and manufacture of the TS24, the evidence adduced by Swick in relation to design was 'minimal' [126].

2. Swick relied on the evidence of Mr Martin.  His Honour summarised Mr Martin's qualifications, experience and evidence as follows:

   [Mr Martin] was a witness with no formal expert qualifications, but extensive experience as a mechanical fitter in the drilling industry on the maintenance side.  He currently operates a business specialising in the repair and servicing of high pressure compressors used in the drilling industry.  Mr Martin's experience with the TS24 was limited to installing three of them for Drillcorp, in around 1996.  He said that while he tested the TS24 while investigating operational issues, he did not dismantle any TS24 and he had never worked on the internals.

   Mr Martin saw, and reported to [Norncott], a problem with oil flow on the high pressure end of the TS24 when he 'ran the first one up'.  He described how the compressors use large quantities of oil for cooling, lubrication and sealing.  If the flow of oil is reduced it will lead to severe vibration and failure of the bearings.  As I understood his evidence, Mr Martin was not suggesting that the bearings were the cause of the problem, but that reduction in oil flow led the bearings to fail. 

   Mr Martin was asked his opinion as to the source of the problem in oil supply to the bearings.  He said there were numerous things that could cause the problem, including dirty filters (a problem he saw regularly) and design of the machine.  Mr Martin had not examined the filters on any of the LeRoi machines that he had worked on.  He had not dismantled a TS24 and could say nothing more about design.

   Mr Martin also said, from his experience, that a high pressure compressor does not normally require a major overhaul for the first 10,000 hours, and 10,000 hours was 'accepted' in the industry [127] ‑ [130].

3. The trial judge accepted Mr Martin's evidence that there was 'a lubrication problem and failing of the bearings in the second stage of the compressor' [131]. His Honour could not, however, on the basis of Mr Martin's evidence, determine whether the bearings were inadequate or whether a lubrication problem caused otherwise suitable bearings to fail [131].

4. Mr Speer had 'long experience with mining equipment' [132]. Before Norncott, he had worked for Atlas Copco (a manufacturer and distributor of compressors and mining equipment) and Sullair (a manufacturer of compressors), but he did not give any evidence as to the capacity in which he worked for those companies. Mr Speer had no formal qualifications. His Honour found that Mr Speer may have been qualified by experience to give evidence on 'some aspects of compressors and mining equipment', but he was not qualified to give expert evidence about design [132].

1. The trial judge said:

   (a)no witness explained how a compressor works or the role of the bearings in the operation of a compressor;

   (b)no witness identified any aspect of the design of the TS24 that could 'in any way' explain the failures of the TS24 in question; and

   (c)neither party called any evidence comparing the design of the TS24 with other compressors designed to perform the same function [133].

2. LeRoi did not call any evidence regarding the design or manufacture of the TS24.

3. The evidence did not reveal what happened to the original TS24 owned by Swick after Norncott had replaced it in the compressor unit after the first failure of the original TS24 [135].

4. There was no evidence from an independent expert who had examined the TS24 [135].

The trial judge's findings of fact

1. The trial judge made the following findings of fact.

2. First, the compressor unit failed on multiple occasions. The first failure occurred while the original TS24, serial number 5228X35, was incorporated in the compressor unit. The TS24 was damaged. The compressor unit was repaired and the damaged TS24 was replaced with another. At about the time of the fifth failure, the TS24 was reconfigured 'to a 1400/350 ‑ that is higher volume but lower pressure' [136]. The reconfiguration enabled the compressor unit to be operated at lower engine speeds and with a reduced fuel consumption. The six failures occurred in less than two years [136].

3. Secondly, the TS24 compressors in the units of other drilling contractors had failed, including units operated by Grimwood Davies, Drillcorp and Drill Torque. At least some of those failures were similar to the failures experienced by Swick. Mr King estimated in his evidence that two‑thirds of the TS24 compressors in the Western Australian mining industry had failed, but the number of failures was not the subject of any specific evidence. Swick did not call any evidence from any other drilling contractors about the failures they had experienced with the TS24 [137].

4. Thirdly, the multiple failures of Swick's TS24 were characterised by a loss of oil pressure and a failure of the bearings in the second stage of the compressor. The trial judge was unable to make a finding as to the 'ultimate cause' of the failures [138]. There was no evidence that anyone had identified the cause. Mr Martin's evidence, which his Honour found 'helpful', suggested it was more likely that the bearings failed because of reduced oil flow in the compressor [138]. However, his Honour was unable to make any finding as to why there was a reduction in oil flow [138].

5. Fourthly, the failures of the TS24 were 'probably universal in units with Timken bearings fitted, but not necessarily universal in units with the NTN bearings' [139]. The trial judge said the evidence on this issue was 'quite impressionistic' [139]. His Honour preferred the evidence of Mr Speer to that of Mr King on the point because Mr Speer had 'a more direct knowledge of what was happening' [139]. His Honour found that it was likely there were failures in compressor units with NTN bearings, but the period between failures was greater [139].

6. His Honour then made the following observations:

   There was also evidence given about two other TS24 compressors which did not present with problems, or at least the same level of problems.  The first compressor purchased by [Norncott] was the one Mr Speer saw in the yard at Schramm.  It was sold to Western Deep Hole Drilling.  Mr Speer said this one did not fail prematurely.  Mr Speer also referred to the unit owned by Mr Wolski which suffered no failures after the operating procedure was modified.  The little evidence there is suggests that operating practices may have made a difference to his being able to use his machine without problems.

   Were I satisfied that the failures occurred only in units with the Timken bearings, then the problem would be more readily attributable to the bearing rather than other aspects of the TS24.  Even then, the evidence of Mr Martin leaves open a finding that the Timken bearings failed earlier than the NTN bearings, but the cause of the failure lay in whatever reduced the oil flow to the bearings [140] ‑ [141]. 

7. Fifthly, there was no evidence as to the performance of the TS24 in any other markets. The trial judge found that a majority of the TS24 machines used in the Western Australian mining industry, 'up to two thirds', had failed [142].

8. Sixthly, there was no evidence concerning the design, manufacture or reputation of the Timken bearings. Also, there was no evidence as to whether it should have been reasonably foreseeable that compressor units incorporating those bearings would fail because 'they were either substandard or incompatible with application in the particular machine' [143].

9. After making those findings of fact, the trial judge said:

   The evidence is quite unsatisfactory. Something resulted in the majority of the TS24 compressors sold in Western Australia failing. I infer, from the fact that different operators experienced problems, that the cause of the failure was not in every case poor practice by the operator (for example, by failing to clean oil filters). It is possible that the failure of the bearings was the cause, but it also may have been the result of the problem [144].

The trial judge's findings and conclusions:  Swick's case against LeRoi

1. The trial judge decided that although there was evidence that the TS24 was damaged, at least on the first occasion, 'when metal shards were produced and contaminated the machine', Swick's case against LeRoi was 'properly considered overall as a claim for pure economic loss' [145]. His Honour elaborated [145]:

   The loss claimed by Swick … is not for damage to property but for loss of value, lost productivity and, ultimately, the need to write-off the compressor unit as a piece of working equipment because it was seen as unreliable.  The fact that some damage to the compressor itself was caused in the first failure does not alter that characterisation of the claim:  see Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 [20].

2. LeRoi accepted, in its closing submissions, that 'a manufacturer owes to a consumer of the manufacturer's product the duty to exercise reasonable care to prevent the product causing foreseeable risk of injury or loss' [146]. There was 'no doubt this is so where there is a risk of injury' [146]. His Honour added that he 'believe[d] that is also the case where the loss caused is confined to economic loss' [146].

3. The trial judge noted that the 'relevant occurrence' in the proceedings being tried was 'the failure of the TS24 in operation, typically by a drop in the oil pressure' [148]. Swick bore the onus of persuading the court that it was more likely than not that 'the relevant occurrence was brought about by the negligence of LeRoi in designing and manufacturing the TS24' [148].

4. His Honour observed that Swick could have established the cause of the failure and facts justifying an inference that LeRoi's negligence in designing or manufacturing the TS24 caused the failure. However, his Honour said Swick 'has not proved negligence in this way, as it has not established the cause of the failure' [149]. His Honour added:

   I accept that Swick … has proved that at least some of the failures were due either to a defect or the inadequacy of the TS24 for the particular task it was being used for, rather than due to operator error. The number of occurrences, and the failures of machines operated by others in mineral drilling applications, point to something to do with the machine rather than the circumstances of its use on each occasion. But Swick … has not established what caused the TS24 to fail, either on any occasion when it failed, or on all occasions. If anything, the evidence shows that a man of Mr Speer's experience did not identify the cause of the failures over a period of many months [149].

5. The trial judge noted that, alternatively, Swick could have proved that the failure occurred in circumstances justifying an inference that LeRoi's negligence in designing or manufacturing the TS24 caused the failure, even though it may not be possible to establish the precise cause.  His Honour then said:

   An inference of negligence may be drawn where, in the ordinary course of human affairs, such an occurrence is unlikely without want of care on the part of a person in the situation of the defendant. The fact that Swick … sought to establish the cause of the various failures does not preclude it from relying upon facts giving rise to an inference of negligence. [Swick's] pleadings are sufficiently wide to permit this [150].

6. However, his Honour was of the opinion that it was not sufficient for Swick merely to establish that the TS24 failed repeatedly and was unreliable.  His Honour explained:

   The evidence disclosed nothing about the operation of air compressors. There was evidence that people who were experienced in the drilling industry in Western Australia would not expect bearings to need replacement before 10,000 hours of operation. More generally, it is reasonable to expect that equipment with a purchase price of over $100,000 should normally last more than six months at a time without breakdown. But I cannot say that, in the ordinary affairs of mankind, the TS24 would not have suffered loss of oil pressure or premature bearing failure, in the conditions in which it was being used, without negligence in its design and manufacture. I am not sure that I could draw that inference [151].

7. The trial judge went on to decide that, in any event, he was not satisfied that an inference of negligence should be drawn.  His reasoning was as follows.

8. First:

   (a)whether LeRoi was negligent had to be determined by reference to the facts and circumstances existing when the alleged breach of duty occurred;

   (b)the TS24 was designed and first manufactured before 1993;

   (c)there was no evidence as to 'the uses for the TS24 that were then in contemplation';

   (d)at a later time, but not before 1994, LeRoi either knew, or ought to have known, that the TS24 would be used by customers of Norncott for mineral drilling [152].

9. Secondly:

   (a)the proof of Swick's case required expert evidence to establish that the multiple failures or unreliability of the TS24, when it was used in mineral drilling, were caused by a fault in design or manufacture that was attributable to LeRoi's failure to take reasonable care;

   (b)although it was 'tempting to assume negligence because there is no explanation of why the TS24 repeatedly failed', that would involve 'substituting an assumption for evidence';

   (c)for about four years after it commenced the Supreme Court action, Swick was in possession of the TS24; and

   (d)Swick's failure to adduce any expert evidence in relation to the design or manufacture of the TS24, and what caused it to fail, was 'fatal to [Swick's] claim' [153].

10. At the trial, counsel for Swick endeavoured to rely on inferences that the TS24 had not been tested adequately and submitted that the alleged failure to test adequately was an element of design and manufacture.  His Honour rejected this aspect of Swick's claim for several reasons.

11. First:

    (a)there was no evidence concerning the testing of the TS24, apart from the testing carried out by Norncott to commission the TS24 purchased by Swick;

    (b)in particular, there was no evidence as to whether the TS24 was or was not tested in the United States of America; and

    (c)similarly, there was no evidence about the testing or reputation of the bearings used in the TS24 [155].

12. Secondly:

    (a)there was no evidence as to what testing was required in relation to the TS24;

    (b)there was evidence that LeRoi had manufactured other types of compressors, but no evidence as to their history or performance; and

    (c)there was no evidence as to whether the TS24 differed from the other compressors in respects that might lead to the conclusion that some (and, if so, what) testing regime was necessary [156].

13. Thirdly:

    (a)the alleged failure to test adequately was not pleaded;

    (b)any issue at the trial in relation to testing could not reasonably have been anticipated from the witness statements exchanged before the trial or the agreed bundle of documents;

    (c)counsel for LeRoi submitted, in his closing address at the trial, that Swick's case was based entirely on the adequacy of the bearings, in particular the Timken bearings;

    (d)his Honour did not accept that Swick's case was limited to that extent, but did accept that 'there was nothing to give notice of an issue based on adequacy of testing';

    (e)counsel for Swick did not apply to amend the statement of claim but relied, instead, on the alleged width of the particulars of negligence; and

    (f)his Honour did not accept that the particulars of negligence were sufficiently wide to encompass a case based on inadequacy of testing [157].

The trial judge's findings and conclusions:  Swick's case against Norncott

1. The trial judge made these findings:

   (a)the representation regarding a bearing life of 30,000 hours was not promissory [167];

   (b)his Honour was not satisfied that the parties intended 'what was said in the conversation of March 1994 to be contractual' [168];

   (c)the terms of the letter dated 24 June 1994 were not promissory [170]; and

   (d)Norncott had breached each of the conditions implied under s 14(2) and s 14(3) of the Sale of Goods Act:

   The compressor unit was commissioned in January 1995 and the first failure was in July 1995. The failure on that occasion required return of the compressor unit for replacement of the TS24. Subsequent failures over the next 18 months required return of the compressor unit for either repair or replacement of the TS24 five more times. The compressor unit was not functional as a compressor to operate machinery used in mineral drilling. On the findings I have made regarding the repeated failures of the compressor unit over the 18 month period after its purchase, I am satisfied that Swick … has shown breach of both conditions [172].

The trial judge's assessment of damages

1. The trial judge said the 'crucial question', in assessing the damages payable by Norncott to Swick for breach of the conditions implied by the Sale of Goods Act, was 'whether, at the time the contract was made, [Norncott] should have had the loss of profits from drilling, including the time required to convey the compressor from a remote location for repair, in its contemplation, or whether those losses would have been in the contemplation of a reasonable person in [Norncott's] position' [174].

2. His Honour found that:

   (a)Norncott was aware of the nature of Swick's business, including that Swick operated at remote locations; and

   (b)Norncott was, or should have been, aware that the compressor unit was a substantial investment for Swick and that it was replacing Swick's existing air compressor [175].

3. The trial judge said the proper measure of Swick's damages included the profits it had lost during the period when it could not operate because the TS24 was unserviceable. The cost of hire equipment, and transport and crane costs, if proved by Swick, 'would also flow naturally from the breach and should have been in [Norncott's] contemplation' [175].

4. His Honour was satisfied that Swick had not failed to mitigate its damage. It was true that Swick persisted in using the TS24 for some months after the first failure. However, the TS24 had been represented to Swick as a 'reliable long‑lasting unit' and Swick had 'continuous work from existing contracts' [176]. His Honour was satisfied that nothing had been identified that should reasonably have led Swick to conclude that 'the TS24 was inherently unsuitable or unreliable and had to be replaced' [176]. His Honour was unable to see what else Swick could or should have done.

5. The trial judge noted the general rule that damages are to be assessed at the date of breach and also noted that the rule is not universal [177]. His Honour was of the view that, in the present case, 'the only way to properly assess the amount that can fairly compensate [Swick] is to take into account the loss of productive use, and consequent loss of profit, in the period from when the compressor unit was commissioned to the last of the pleaded failures' [177]. An evaluation had to be made as to whether the compressor unit 'would have remained in productive use throughout the relevant period, taking into account the continuity of [Swick's] contracts and the time required for mobilisation and demobilisation' [178].

6. Swick relied on the evidence of Mr Fry, an accountant, in relation to the assessment of damages.  His Honour summarised Mr Fry's methodology as follows:

   The method proposed by Mr Fry was to estimate the average daily income generated by the compressor unit over the period during which the failures occurred.  He chose a period bounded by the contracts on which Swick … was working when the failures occurred.  There were 25 days on which the compressor was not working because of the six failures:  for each failure the periods were 7.5 days, 5 days, 3.5 days, 1 day, 7 days, and 1 day.

   Mr Fry calculated a daily figure of $6,015.06 by dividing the total of the invoices attributed to the drilling rig which used the compressor unit by the total number of operational days.  He then subtracted the amount that was not spent on consumables, again by calculating an average spending on consumables for each day in which the rig operated [181] ‑ [182].

7. The trial judge observed that Mr Fry's method was not 'perfect' and that counsel for LeRoi had challenged it [183].

8. First, LeRoi challenged the assumption that the drilling rig would have worked continuously. Its counsel asserted that this assumption was based on nothing more than Mr Swick's evidence that the relevant period was 'very busy, with inquiries for work that he just could not act on because he did not have equipment available' [184]. His Honour accepted that this evidence was 'imprecise, and gives an overall conclusion about events that happened over 15 years ago' [184]. Nevertheless, his Honour found that Mr Swick was an honest witness. He rejected counsel for LeRoi's submission that Mr Swick's evidence should not be accepted where it was not corroborated by documentary evidence. Although the evidence suggested that 'the drilling business declined significantly in 1997', his Honour accepted, on the basis of Mr Swick's evidence and the income generated, that Swick 'was continuously employed, or nearly so, during the relevant period from July 1995 to October 1996' [184].

9. Secondly, LeRoi argued that Mr Fry's calculation was flawed because it included mobilisation days.  His Honour dismissed that argument on this basis:

   (a)any 'averaging exercise' will have 'some discrepancies and exercises in rounding';

   (b)if mobilisation days were excluded, and the calculation took into account only days when the rig was drilling, the number of days would be reduced but the daily rate of earning would be higher; and

   (c)it is 'an assessment that will lack the last degree of precision', but it was 'fundamentally sound' [185].

10. Thirdly, LeRoi submitted that there was 'a degree of inaccuracy in the calculation of daily expenses because they include an apportionment of costs to a rig used by Swick … on a subcontract basis' [186]. According to counsel for LeRoi, this feature rendered Mr Fry's report 'defective and of no probative value'. His Honour said the submission involved an overstatement. He explained:

    In allowing for the expenses that would have been incurred in operating the rigs, I must recognise that they have been underestimated. The lawyers for Swick … attempted a recalculation to enable a more accurate assessment. Although LeRoi argues this cannot be done, and the whole exercise must be thrown out, I cannot agree. There is no doubt that loss was incurred and I must do the best I can to calculate it on the available evidence. The calculation done by [Swick] to correct the under-estimation of costs is not evidence, but it is based on the evidence and does help with the mathematics [186].

1. The trial judge concluded that 'a proper estimate of the amount of profit that Swick … was likely to have earned on the days when its rig was unproductive due to the compressor unit being unserviceable [was] as follows: there were 25 days of lost production, during a period when the average amount earned on each day was about $6,000. The average spent on consumables for each day was about $1,500. Accordingly, the loss of income was $112,500' [187].

2. His Honour also concluded that Swick was entitled to amounts reasonably expended in order to mitigate the effect of the breach. His Honour accepted Mr Swick's evidence to the effect that, as a result of the delay caused by the fifth failure, he negotiated a discount of $5,010 with the principal, Goldfields Exploration NL, which was deducted from the invoice. His Honour said a loss of that kind resulted 'naturally, and in the ordinary course of events, from the breach', and should be allowed [188].

3. Swick also claimed for the hire of equipment to replace the compressor unit while the TS24 was being repaired. The trial judge allowed an amount of $4,512.80 for the period between 26 October 1996 and 2 November 1996 [189]. His Honour also allowed an amount of $24,488.36 which Swick expended on the hire of a compressor and booster during July, August and September 1996 while the TS24 was reconfigured to reduce the pressure to 350 psi in order to 'ease the load on the bearings and increase their life' [190].

4. His Honour dismissed Swick's claim for the cost of cranes used to lift the TS24, and transport it from the various sites where breakdowns occurred, on each occasion of failure. Swick's damages in respect of this item were not proved [191].

5. The trial judge also dismissed Swick's claim for the total cost of acquisition of the compressor unit, including the TS24 and all other components and labour, less the $55,000 recovered on the sale of the TS24 and other items in 2004 [192]. There was a dispute at the trial as to whether there should also be a deduction for depreciation and, if so, at what rate.

6. Swick's claim for this item of damages was based on the premise that, if it had been fit for purpose, the compressor unit would have had a useful life of about 50,000 hours (or 15 years), subject to the compressor unit being maintained with regular overhauls at 10,000 hourly intervals. His Honour held that the underlying premise had not been proved. His Honour also held that he could not assume that, to be fit for purpose or of merchantable quality, a compressor unit has, or is expected to have, an operating life of 50,000 hours (or 15 years) [193]. His Honour expanded on these conclusions in detail:

   More fundamentally, the claim for the total cost of acquisition, in my opinion, goes beyond the amount required to put [Swick] in the same situation as if the contract had been performed.  [Swick] is, in effect, asking for compensation as if the contract had been rescinded, with refund of the full purchase price.  Yet it had the use of the compressor for over two years, and has been compensated for the loss of profit during this period caused by the breach of contract.  Mr Swick reported 'production up by 30%' in using the compressor unit.

   There was no evidence about the actual loss of value over time of equipment used in the mining industry.  Depreciation scales used for accounting or tax deduction purposes do not necessarily help in calculating the actual value of a piece of machinery used in this environment.

   The only evidence called as to value and loss of value was through Ron Wyndow, of Industrial Marketing Pty Ltd.  Mr Wyndow gave, in effect, appraisals of value based on his experience in selling capital equipment to drilling contractors.  Mr Wyndow gave evidence that, during the period June 1995 to June 1997, there was a strong demand for compressors.  Since 2002, the market had contracted to the extent that in the earlier period, his company had sold 44 compressors.  In the period 2002 to 2004 (the date of his report) it had sold four, two of them second hand.

   The result of this approach was to value the compressor unit at the time it was commissioned at $230,000.  On [Swick's] figures, the cost was approximately $223,000 including the Cummins diesel engine ($55,000) which was not fitted until February 1997.  Mr Wyndow also estimated a difference in value of $130,000 in January 1997 between a reliable unit with a good reputation and a compressor unit with a TS24.

   Mr Wyndow's evidence was affected by several assumptions that were shown to be incorrect.  Most noticeably, he had been told the compressor unit was 'parked up' in January 1997, when it was still in operation until the second half of 1997.  Mr Wyndow was not able to estimate what it would have sold for then and there is no evidence of its value or the relevant difference in value at that time.  Mr Wyndow could only work with what he had.  But his evidence was not a proper basis for establishing value [194] ‑ [198].

7. Finally, the trial judge said he would have allowed 'the difference in value between the compressor unit, had it been fit for purpose, and the actual value at the time Swick … stopped using it', but he was not satisfied that Swick had proved those values and, accordingly, it had not proved this item of its claim [199].

8. In summary, his Honour awarded Swick damages against Norncott as follows:

Reasons [187] Loss of income	$112,500.00
Reasons [188] discount given to client	$5,010.00
Reasons [189] hire of equipment	$4,512.80
Reasons [190] hire of equipment	$24,488.36
$146,511.16

1. The trial judge ordered the payment of interest on the damages pursuant to s 32 of the Supreme Court Act 1935 (WA).

Swick's grounds of appeal in the appeal against LeRoi

1. Swick relies on seven grounds in its appeal against LeRoi.  The grounds read:

   1.The learned trial judge erred in fact in failing to find that [LeRoi] was negligent in the design and manufacture of the LeRoi model TS24 1200cfm/500psi compressor ('TS24') when the weight of the evidence proved directly or inferentially that that was so.

   2.The learned trial judge erred in law in holding (at [152]):

   (1)that the time at which the alleged tortious conduct (for the purpose of this ground, negligent manufacturing) must be determined was when the LeRoi model TS24 1200 cfm/500 psi compressor (the TS24) was designed and first manufactured by [LeRoi].  The relevant time was when [LeRoi] manufactured the TS24 supplied to [Swick], which was not earlier than the date of the contract for its purchase (24 June 1994 to 30 June 1994), at which time [LeRoi] was aware that the TS24 would be used for mineral drilling; and

   (2)that for [LeRoi] to be liable to [Swick] [LeRoi] had to know that the TS24 would be used by [Swick] in mineral drilling.  [LeRoi] did not, by reference to any particular use of the TS24 or the conditions in which it would be used, qualify its claim that [the] TS24 would operate at 500 psi.

   3.The learned trial judge erred in law in misapplying the principle of res ipsa loquitur, in that the learned trial judge (at [151]) wrongly identified the occurrence as loss of oil pressure or premature bearing failure when the occurrence was the catastrophic failure of the TS24.

   4.The learned trial judge erred in law in misapplying the principle of res ipsa loquitur in that the learned trial judge held (at [153]) that he could not draw an inference of negligence, because [Swick's] case required expert evidence to show that the multiple failures or unreliability of the TS24 when used in mineral drilling were caused by a fault in design or manufacture attributable to [LeRoi's] failure to take reasonable care.  Res ipsa loquitur may apply when the cause of the loss has not been established.

   5.The learned trial judge erred in law and fact in holding that [Swick]  had failed to prove what would have been the value of the TS24 in the second half of 1997 had it been reasonably fit for the purpose for which it was required.  [Swick] adduced sufficient evidence to allow the learned trial judge to make a finding that the TS24 was decommissioned (parked up) as at July ‑ August 1997, and as to that value at that time.

   6.The learned trial judge erred in fact in finding (at [193]) that [Swick] did not prove that the TS24, had it been fit for its purpose, would have had a useful life of approximately 50,000 hours (or 15 years) if maintained with regular overhauls at 10,000 hour intervals.  Randal Swick of [Swick] gave unchallenged evidence of those matters.

   7.The learned trial judge erred in law in rejecting [Swick's] claim for the acquisition cost less depreciation on the ground that the claim failed to take into account that [Swick] had the use of the TS24 for over two years and was compensated separately for loss of profit during that period.  The depreciation credited by [Swick] against the acquisition cost averted any double recovery.

Swick's grounds of appeal in the appeal against Norncott

1. Swick relies on three grounds in its appeal against Norncott.  Those grounds are identical to grounds 5, 6 and 7 in Swick's appeal against LeRoi.

The appeal against LeRoi:  the duty of care alleged by Swick:  LeRoi's concession

1. The term 'pure economic loss', in the context of the law of tort, describes loss suffered by a plaintiff that is not a consequence of injury or damage caused by the defendant to the plaintiff's person or property. 

2. It is well-established that, in general, a person does not owe a duty in tort to another to take care not to cause reasonably foreseeable economic loss.  See Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529, 555 (Gibbs J), 558 ‑ 559 (Stephen J), 592 (Mason J), 598 (Jacobs J).

3. In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, the Privy Council restated the law on negligent misstatement and permitted the recovery of pure economic loss in that area of the law of tort. Since Hedley Byrne, the High Court has recognised that, in some circumstances, a duty in tort will arise that will enable a plaintiff to recover pure economic loss.  See my review of the High Court cases in Apache Energy Ltd v Alcoa of Australia Ltd [No 2] [2013] WASCA 213; (2013) 45 WAR 379 [108] ‑ [174], [183] ‑ [184], [198] ‑ [199], [232] ‑ [239], [250] ‑ [262]. See also Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36; (2014) 313 ALR 408.

4. In the present case, the fact that there was physical damage to the TS24 itself, as a result of LeRoi's alleged breach of duty, did not require or permit Swick's alleged loss to be characterised as a consequence of damage caused by LeRoi to Swick's property.  Swick's claim against LeRoi was for pure economic loss.  See Council of the Shire of Sutherland v Heyman [1985] HCA 41; (1985) 157 CLR 424, 503 ‑ 504 (Deane J); Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609, 617 (Mason CJ, Deane & Gaudron JJ), 657 (Toohey J); Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 [19] ‑ [20] (Gleeson CJ, Gummow, Hayne & Heydon JJ). See also Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 QB 758, 781 ‑ 782 (Bingham LJ, Lord Donaldson of Lymington MR agreeing).

5. Swick alleged in par 61 of its statement of claim that, by reason of various matters pleaded in par 42 ‑ par 60, LeRoi owed Swick 'a duty to take reasonable care in the design and manufacture of [the TS24]'.

6. The pleading of the duty of care in par 61 was defective.  The content of the asserted duty was not identified.  That is, the plea did not allege that LeRoi was under a duty to take reasonable care in the design and manufacture of the TS24 to achieve or avoid a particular result or outcome.  Also, the duty was not pleaded in reference to the kind of damage which Swick allegedly suffered.

7. As Kirby J observed in Romeo v Conservation Commission (NT) [1998] HCA 5; (1998) 192 CLR 431:

   It is one thing to hold that a person owes a duty of care of some kind to another. But the critical question is commonly the measure or scope of that duty. The failure to distinguish these concepts can only lead to confusion [122].

   See also Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540 [8] (Gleeson CJ); Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 [59] ‑ [60] (Gummow J).

8. Swick's defective pleading of the duty of care was not clarified by its counsel at the trial.  This is illustrated by the following exchange between counsel for Swick and the trial judge, about breach of the duty, in counsel's closing address:

   MORISON, MR:  [LeRoi] failed to take reasonable care in the design and manufacture of the manufactured compressor.

   MORISON, MR:  So that is our claim.  That is a claim that allows us to rely upon not any single incident or possible cause or explanation, but rely upon negligence in the design and manufacture and to draw upon an inference from the facts.

   ALLANSON J:  Are you saying that that enables you to rely on particulars that aren't in your particulars of negligence?

   MORISON, MR:  Yes ...

   ALLANSON J:  So what's the function of giving particulars?

   ...

   MORISON, MR:  To identify the particular matters that are dealt with in relation to the allegation (ts 981).  (emphasis added)

9. LeRoi stated in par 25 of its defence that it did not admit the allegations in par 61 of the statement of claim.  LeRoi then pleaded:

   (a)In any event it did take all reasonable and prudent steps in relation to the design and manufacture of the [TS24].

   (b)That in so far as the bearings used in [the TS24] were concerned, it did not design or manufacture those bearings and relied on independent expert bearing manufacturers to supply bearings suitable for the specific application and which were then incorporated into the manufacture of the [TS24].

   (c)By reason of the design of the bearings supplied by the independent expert bearing manufacturers for the specific application, that it was not reasonably possible for [LeRoi] to know or otherwise learn of any fault or deficiency that may be present in those bearings prior to their installation into the [TS24] during the manufacturing process.

10. However, in his closing address at the trial, counsel for LeRoi (who also appeared for LeRoi in the appeal) departed from LeRoi's pleaded non‑admission of the alleged duty of care, and conceded that LeRoi owed a duty of care to Swick under the law of negligence.

11. Counsel for LeRoi's written outline of closing address reads, relevantly:

    5.As manufacturer and designer of the [TS24], [LeRoi] owed a duty of care to take reasonable care to avoid a reasonably foreseeable and real risk of loss (Suosaari v Steinhardt [1988] 2 Qd R 477).

    6.However, in so far as the law of negligence is concerned, there is no absolute duty on a manufacturer to design or manufacture a defect free or accident‑proof product.  Liability in this regard is not strict (Bull v Rover Mowers (Aust) Pty Ltd [1984] 2 Qd R 489 at 499; Suosaari v Steinhardt (supra) at 487).

12. Counsel for LeRoi said, in his closing address, consistent with the concession in his written outline:

    The crucial issue is what was the manufacturer's duty in terms of its reliability or not.

    There is plenty of authority for the proposition that a manufacturer is not under an absolute or strict duty to provide a piece of equipment that is free of all possible defects and accident proof.  The manufacturer's duty is to undertake his role as manufacturer or designer within the compass of what would be reasonably expected of a manufacturer of that particular type of equipment.

    There is no evidence before you in relation to what standard the manufacturer or designer was supposed to achieve in circumstances of a developed piece of equipment, which was meeting production standards which had been higher than the other competitors in the market had been providing, and there is no evidence before [you] in relation to the level of what is loosely pleaded in the statement of claim as what would be the reliability that that manufacturer would be required to meet (ts 913).

13. At the hearing of the appeal, counsel for LeRoi made the following submissions about his concession at the trial:

    DILLON, MR:  ... The only concession was that we accepted we had a duty of care which would be owed by a general manufacturer to end user clients.  We certainly were not conceding, by recollection, that we accepted that there was a specification in relation to the type of equipment that was being provided and we had to meet that specification, 10,000 hours or whatever the specification was said to be, nor that we conceded that it was to be used in mineral drilling purposes.

    EDELMAN J:  So the duty of care that was owed for the manufacturer to the end user to avoid economic loss generally.

    DILLON, MR:  Yes, the general duty of care of someone manufacturing and selling something in a market.  That was the extent of the concession (appeal ts 66).

14. It is apparent from:

    (a)the matters pleaded in par 42 ‑ par 61;

    (b)the particulars of negligence in par 62;

    (c)the kind of loss and damage allegedly suffered by Swick; and

    (d)the characterisation of Swick's cause of action against LeRoi as a claim for pure economic loss,

    in the context of the ordinary use to which a TS24 is put, that the essence of the plea was that LeRoi owed a duty to commercial users of the TS24 (including Swick) under the law of negligence to exercise reasonable care in the design and manufacture of the TS24 to avoid commercial users of the machine (including Swick) suffering economic loss as a result of the machine being unable reliably to perform its ordinary functions.

15. The terms of the concession at the trial and its significance must be determined on an objective basis and not by reference to the subjective understanding of counsel for LeRoi.

16. I am satisfied, on an objective appraisal of the trial record, that counsel for LeRoi's concession corresponded in substance to the essence of the pleaded duty, as I have explained it. 

17. Counsel for LeRoi did not attempt in the appeal to resile from the concession.  LeRoi was, of course, bound by it.  See Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165; (2012) 268 FLR 433 [99] ‑ [101] (Buss JA, Pullin & Murphy JJA agreeing) and the cases there cited.

18. LeRoi did not file a notice of contention in the appeal.

19. It is unnecessary to consider the correctness of counsel for LeRoi's concession.

The appeal against LeRoi:  negligence and standard of care:  relevant legal principles

1. The particulars of negligence that were relied on by Swick at the trial are set out at [27] above.

2. The principles concerning the standard of care to be exercised in the design and manufacture of a good or chattel have been developed in the course of litigation by plaintiffs who have suffered personal injury or damage to property as distinct from pure economic loss.  In my opinion, those principles apply, by analogy, in the present case.

3. A person who:

   (a)designs and manufactures a machine intended for commercial use; and

   (b)owes a duty to a commercial user of the machine under the law of negligence to exercise reasonable care in the design and manufacture of the machine to avoid the commercial user suffering economic loss as a result of the machine being unable reliably to perform its ordinary functions,

   must exercise reasonable care (including reasonable skill and diligence) in the design and manufacturing process to produce a machine that is able reliably to perform its ordinary functions.  See, by analogy, Donoghue v Stevenson [1932] AC 562, 580, 599 (Lord Atkin); Grant v Australian Knitting Mills Ltd [1936] AC 85, 104 ‑ 105 (Lord Wright delivering the advice of the Privy Council); Jaensch v Coffey [1984] HCA 52; (1984) 155 CLR 549, 579 (Deane J); Bull v Rover Mowers (Aust) Pty Ltd [1984] 2 Qd R 489, 498 ‑ 499 (Kelly J, Connolly J agreeing); Suosaari v Steinhardt [1989] 2 Qd R 477, 486 ‑ 487 (Cooper J, Connolly & Ryan JJ agreeing); Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317 [29] (McHugh J); Fitzpatrick v Job t/as Jobs Engineering [2007] WASCA 63; (2007) Aust Torts Reports 81-891 [196] (Buss JA, Steytler P agreeing).

1. Fifthly, as the trial judge observed,[112] Swick spent some time in submissions concerning whether LeRoi was under a duty of care to avoid causing purely economic loss.  Counsel for LeRoi made no mention of those submissions in the alleged concession. 

   [112] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [45].

2. Sixthly, in oral closing submissions, counsel for LeRoi made remarks that might be construed as suggesting that LeRoi had not proved any duty of care to avoid pure economic loss:[113]

   [t]he crucial issue is what was the manufacturer's duty in terms of reliability or not.         

   There is plenty of authority for the proposition that a manufacturer is not under an absolute or strict duty to provide a piece of equipment that is free of all possible defects and accident proof.  The manufacturer's duty is to undertake his role as manufacturer or designer within the compass of what would be reasonably expected of a manufacturer of that particular type of equipment. 

   There is no evidence before you in relation to what standard the manufacturer or designer was supposed to achieve in circumstances of a developed piece of equipment, which was meeting production standards which had been higher than the other competitors in the market had been providing, and there is no evidence before in relation to the level of what is loosely pleaded in the statement of claim as what would be the reliability that that manufacturer would be required to meet.

   [113] ts 913 (6 December 2012).

3. In other words, counsel might have been understood to be accepting that a manufacturer owes a duty of care to undertake its role within the compass of what was reasonably expected (including, one assumes, to take care not to produce goods which cause damage to person or other property).  But counsel submitted that there was no evidence of what was reasonably expected of LeRoi as manufacturer in developing the TS24.       

4. Shortly after this, counsel for LeRoi suggested that the relevant duty of care might have been a duty to take care to select the supplier of bearings for the TS24 rather than a duty of care in the manufacture of the TS24:[114]

   it's accepted that [LeRoi] didn't manufacture the bearings.  This is an element of the [TS24] which is in fact manufactured by a third party, NTN being the third party or Timken being the other third party.  So what is the duty of care of a manufacturer who has supplied a piece of equipment which has within it another piece of equipment supplied by a specialist supplier?

   Now, the duty of care I identify is that you may be under a duty to have carefully selected the supplier and to ensure that the supplier is somebody who has sufficient skills to ensure that they can supply this type of item.  It would perhaps, and I only say "perhaps" for the purpose of this submission, be negligent of a party to go and get a supplier who he knows creates defective materials and gets a cheap price, et cetera, et cetera, knowing that it's going to break down. 

   That might be negligent, but if the manufacturer uses a reputable supplier for the purposes of providing the particular specialist's piece of equipment, then the only negligence for that party could be if, as I say, there was some other case developed, that it had acted negligently in fulfilling its duties in that regard.

   [114] ts 917 (6 December 2012).

5. Counsel then explained, however, that such a duty of care to take care in selecting the supplier of bearings was not the duty of care that was pleaded against LeRoi.[115]

   [115] ts 918 (6 December 2012).

6. Seventhly, if a duty of care had been conceded at trial, there is real difficulty in construing the terms of the concession.  Was it a concession of law based upon construction of the facts such as a concession that an assumption of responsibility existed between the parties?  Or was it a concession of law concerning some or all of the pleaded salient factual features sufficient to establish a duty of care?  If so, then what were the salient features that were conceded?  Or was it simply a concession of law, without any apparent basis, that a duty of care generally existed upon a manufacturer of a chattel to take care to avoid pure economic loss to an ultimate purchaser of the chattel?  If so, then what were the precise terms of the legal duty that was conceded? 

7. If the conceded duty was to take care to avoid pure economic loss to an ultimate purchaser then, although it was never expressed in this way, the legal concession might have been to take care not to cause economic loss by designing or manufacturing a TS24 which was free from defects.  This would be a very large concession.  It is directly contrary to the decision in Minchillo. 

8. Another difficulty in determining the nature of any concession that had been made at trial is that despite the ambiguities described above there was very little argument on this point on this appeal and there was no agreement on this appeal concerning the scope of any concession.  Although the construction of any concession is an objective question for the court, the lack of agreement between the parties to this appeal illustrates the difficulty in identifying the scope of any concession.

9. Counsel for Swick on this appeal initially expressed the terms of the duty as one which was owed to both the supplier (Norncott) and the ultimate user (LeRoi) to manufacture or design a TS24 which was of 'merchantable quality'.[116]  The case did not clearly appear to have been pleaded or run in this way.  In any event, even if such a duty could exist, it would have been necessary to particularise what was meant by 'merchantable quality' for a TS24.  On this appeal, counsel was pressed to explain the terms of such a duty.  Counsel said that the essence of the case in negligence was that a reasonable manufacturer would have designed and manufactured a compressor to achieve at least 10,000 operating hours operating at 500 pounds per square inch (psi) for mineral drilling in Western Australia so that the failure to do so was negligent.[117]  So formulated, the asserted duty would have a remarkable degree of specificity and would wear the appearance of what the law would conventionally regard as a promissory or representational statement.[118]

   [116] Appeal ts 6 (16 June 2014).

   [117] Appeal ts 24 - 25, 27 (16 June 2014).

   [118] cf JJ Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435, 442 (Barwick CJ, Kitto, Menzies, Owen & Walsh JJ).

10. Counsel for LeRoi on this appeal denied that any concession of such a duty had been made at trial.[119]  He accepted that LeRoi had conceded that it owed a 'duty of care which would be owed by a general manufacturer to end user clients'.[120]  He was asked whether this was a duty of care to avoid economic loss generally, but he responded in terms which were not clearly expressed as a duty of care to avoid pure economic loss.  Counsel repeated his submission that what had been conceded was 'the general duty of care of someone manufacturing and selling something in a market'.[121]

The basic difficulty with the four grounds of LeRoi's liability appeal

[119] Appeal ts 66 (16 June 2014).

[120] Appeal ts 66 (16 June 2014).

[121] Appeal ts 66 (16 June 2014).

1. The seven reasons above, in combination, create a serious obstacle to determining the nature and extent of any duty of care that was owed by Swick to LeRoi.  However, neither counsel on this appeal focused closely upon the terms of any concession that were made.  Nor was any legal argument directed to the appropriate legal test for any duty of care owed by a manufacturer to an ultimate purchaser of goods.  In the absence of any substantial argument on this point, we do not express any concluded view as to whether any relevant concession was made and, if so, the extent of such a concession.

2. It is not necessary to hear any submissions on this point because it suffices to approach the grounds of appeal on the premise upon which they were argued by counsel for Swick.  That premise, which we do not necessarily accept, was that LeRoi had conceded that it owed a duty of care to end users to manufacture or design a TS24 that was of merchantable quality, and that it is 'hard to conceive that a manufacturer of a good could produce a good that [was] not fit for any of its intended purposes without some carelessness'.[122]  It suffices to approach LeRoi's four appeal grounds concerning liability on this basis because we conclude that the appeal must nevertheless fail because the trial judge was correct in determining that there was no breach of duty.

   [122] Appeal ts 8 (16 June 2014).

The first four grounds of appeal against LeRoi: breach of duty

Grounds 1 and 2 against LeRoi: Direct evidence or inference of breach of duty

1. Ground 1 of Swick's appeal alleged that the trial judge should have concluded that the evidence directly or inferentially established negligence by LeRoi.  In support of this ground, counsel relied upon the evidence of multiple failures in the TS24, which were said to be without a cogent explanation other than fault in design or manufacture.  Counsel also alleged that LeRoi had made direct or implicit admissions of a fault in the design or manufacture of the TS24.

2. As we have explained, counsel for Swick on this appeal said that the duty of care that LeRoi breached was in failing to act carefully to ensure that the compressor that was designed and manufactured achieved at least 10,000 operating hours operating at 500 psi for mineral drilling in Western Australia.

3. There was insufficient evidence from which the trial judge could have reached a conclusion that any such failure was a consequence of carelessness amounting to a breach of duty by LeRoi.  The relevant evidence, and its limitations, is discussed by Buss JA at [227] - [238].  As his Honour concludes, and as the trial judge found, that evidence was 'minimal'.  Nor, as Buss JA has explained at [239] - [245], did LeRoi make any admissions of a failure to comply with a legal standard in manufacture or design of the TS24. 

4. Appeal ground 1 must fail.

5. Ground 2 of Swick's appeal alleged that the trial judge erred by holding that the time for assessing whether LeRoi had breached its duty was when the TS24 was designed and first manufactured.  Swick asserted that the trial judge failed to conclude that the relevant time was later when the particular TS24 was manufactured by LeRoi.  Ground 2 also alleged that the trial judge erred in concluding that LeRoi had to know that the TS24 would be used by Swick for mineral drilling when LeRoi did not qualify its claim that the TS24 would operate at 500 psi. 

6. The paragraph of the trial judge's reasons, par [152], upon which Swick fastened for ground 2 was as follows:[123]

   whether LeRoi was negligent has to be determined by reference to the facts at the time of the alleged tortious conduct.  The TS24 was designed and first manufactured some time before 1993.  There is simply no evidence of the uses for the TS24 that were then in contemplation.  At a later time, LeRoi either knew, or ought to have known, that the compressor would be used in mineral drilling by the customers of Air Drill.  But not before 1994.

   [123] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [152].

7. There are four flaws in this ground of appeal. 

8. First, par [152] is concerned with the rejection by the trial judge of Swick's argument based on res ipsa loquitur.  That argument was the subject of separate grounds of appeal and is addressed separately below.  In par [152] the trial judge was not addressing some independent point about proof or inference of negligence separately from the res ipsa loquitur submission.   

9. Secondly, Swick is incorrect in its submission that the relevant time for the alleged tortious conduct is fixed at the time of manufacture of the particular TS24.  The allegation of tortious conduct was an allegation of negligence in design and manufacture.  Unless there were some relevant later change in design before manufacture of the particular TS24, then the relevant time to assess negligence in design was when LeRoi first settled on the design for the manufacture of the TS24.  As to manufacture, unless there were some relevant alteration prior to the supply of the TS24 by LeRoi, any negligence in manufacture due to a failure to follow design specifications would fall to be assessed when LeRoi manufactured the particular TS24.  In relation to both design and manufacture, the trial judge was correct at par [152] to say that the relevant time when negligence had to be determined was the time of the alleged tortious conduct.  There was no evidence from which the trial judge could have differentiated whether any defect was to be attributed to a defect in design or a defect due to failure to follow design specifications.

10. Thirdly, and in any event, there was no evidence from which his Honour could have determined the time when the particular TS24 was manufactured by LeRoi.  Hence the trial judge did not determine the time at which the particular TS24 was manufactured.  Any failure to conclude that the relevant time for assessing negligence was at the time of manufacture of the particular TS24 would have been inconsequential because no factual determination about that time could have been made.

11. Fourthly, the purpose of this allegation of error by Swick was based on counsel's incorrect assumption that the trial judge had denied that LeRoi was negligent on the ground that LeRoi was unaware that the TS24 would be used for mineral drilling.  Hence, counsel for Swick asserted that if the trial judge had concluded that the relevant date was the (later) date of manufacture when this information was known, then he assumed that the trial judge would have concluded that LeRoi was negligent. 

12. This assumption is incorrect.  As we have explained, even if LeRoi had known of the intended use of the TS24 for mining at the date when breach fell to be determined, there was insufficient evidence from which the trial judge could have reached a conclusion that any failure of the TS24 was a consequence of carelessness amounting to a breach of duty by LeRoi. 

13. Ground 2 of the appeal fails.

Grounds 3 and 4 against Le Roi: the doctrine of res ipsa loquitur

The doctrine of res ipsa loquitur

1. The doctrine of res ipsa loquitur ('the thing speaks for itself') is not one of the greatest sources of pride for the common law.  When an established doctrine continues to be described in Latin or in French, there is sometimes cause to suspect that the reason for this is because of a lack of clarity in the doctrine itself.  What is the 'thing' that is speaking?  Why does the 'thing speak for itself'?  What is the effect that this has on the burden of proof? 

2. The origin of res ipsa loquitur was probably a casual remark by Baron Pollock during the course of argument in Byrne v Boadle[124] where he spoke of the mere fact of an accident being evidence of negligence in some cases.  Over the next century the doctrine flourished, particularly in the United States,[125] but the course of authority diverged in different jurisdictions including between English and Australian law.[126]  In Canada, the doctrine was abolished.[127]

   [124] Byrne v Boadle (1863) 2 H & C 722, 725; (1863) 159 ER 299, 300.

   [125] See American Law Institute, Restatement (Second) of Torts (1965) §328D.

   [126] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 132 - 133 [22] (Gleeson CJ & McHugh J). A more recent statement consistent with English law is George v Eagle Air Services Ltd (Saint Lucia) [2009] UKPC 21; [2009] 1 WLR 2133.

   [127] Fontaine v British Columbia (Official Administrator) [1998] 1 SCR 424, 435.

3. In Schellenberg v Tunnel Holdings Pty Ltd,[128] Gleeson CJ and McHugh J observed that a series of decisions in Australia had settled the scope and effect of the doctrine.[129]  After quoting from some of these decisions, their Honours said that,[130]

   What flows from these statements of principle is that, while res ipsa loquitur may ameliorate the difficulties that arise from a lack of evidence as to the specific cause of an accident, the inference to which it gives rise is merely a conclusion that is derived by the trier of fact from all the circumstances of the occurrence.  When it applies, the trier of fact may conclude that the defendant has been negligent although the plaintiff has not particularised a specific claim in negligence or adduced evidence of the cause of the accident.  But it does nothing more.  For example, it does not reverse the onus of proof or displace the principle in Jones v Dunkel.

   [128] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121.

   [129] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 132 ‑ 133 [22] citing Anchor Products Ltd v Hedges [1966] HCA 70; (1966) 115 CLR 493, 499 ‑ 500 (Windeyer J); Piening v Wanless [1968] HCA 7; (1968) 117 CLR 498, 506 - 508 (Barwick CJ); Government Insurance Office of NSW v Fredrichberg [1968] HCA 54; (1968) 118 CLR 403, 413 ‑ 414 (Barwick CJ).

   [130] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 134 [24] (Gleeson CJ & McHugh J).

4. Their Honours explained, relying upon earlier decisions of the High Court,[131] that a plaintiff may rely on res ipsa loquitur even though he or she has also pleaded particular acts or omissions of negligence on the part of the defendant provided that the tribunal of fact concludes that:[132]

   1.there is an "absence of explanation" of the occurrence that caused the injury;

   2.the occurrence was of such a kind that it does not ordinarily occur without negligence; and

   3.the instrument or agency that caused the injury was under the control of the defendant.

   [131] Piening v Wanless [1968] HCA 7; (1968) 117 CLR 498; Anchor Products Ltd v Hedges[1966] HCA 70; (1966) 115 CLR 493.

   [132] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 134 [25] (Gleeson CJ & McHugh J).

5. The difficulty in establishing (2) can be illustrated by the reasoning in the various judgments in Schellenberg.  In that case the question was whether the plaintiff could rely on res ipsa loquitur to establish negligence by his employer.  The plaintiff had been using a hose, carrying compressed air, in the course of his employment.  The hose became loose and swung upwards striking him on the face.  The Full Court of the Supreme Court of Western Australia held that there had been no negligence.  A majority of the High Court (Gaudron J dissenting) dismissed the appeal.  Different reasons were given in the different judgments in the majority for rejecting the application of res ipsa loquitur. 

6. Gleeson CJ and McHugh J held that the doctrine did not apply because, amongst other reasons, the trial judge had made 'no finding that this was a case where the accident would not ordinarily have occurred without negligence on the part of the defendant'.[133]

   [133] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 131 [18].

7. Kirby J held that the doctrine did not apply because the air pressure hose is not one of those 'simple implements with which the ordinary decision-maker (judge or jury) is familiar in daily life or which are so rudimentary that they may be readily understood'.[134]  There was ample scope for speculation and conjecture including the possibility that the defect was latent, the incident unpredictable, and that any reasonable system of inspection and maintenance instituted by the employer would not have detected and predicted it.

   [134] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 167 [118].

8. Hayne J said that despite the heavy obligations owed by the employer to the employee, including the duty to provide safe equipment for the employee to use, where the equipment is complex, and there are many possible reasons for its failure, then the failure does not 'probably [point] to the employer being the negligent party.  There are too many different intermediate steps that must be taken before that conclusion can be drawn, even on the relatively undemanding standard of the balance of probabilities'.[135]

Grounds of appeal 3 and 4

[135] Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121, 176 [152].

1. Ground of appeal 3 alleged that the trial judge misapplied the principle of res ipsa loquitur because his Honour identified the relevant occurrence as the loss of oil pressure or premature bearing failure when he should have identified the occurrence as the catastrophic failure of the TS24.

2. Ground of appeal 4 alleged that the trial judge erred in failing to apply the doctrine of res ipsa loquitur by erroneously considering that expert evidence was required to establish that the unreliability of the TS24 was due to a fault in design or manufacture.  Swick submitted that the doctrine of res ipsa loquitur did not require expert evidence to be adduced.

3. We deal with each of these grounds in turn.

4. As to ground 3, the premise of this ground is incorrect.  The trial judge did not identify the relevant occurrence that required explanation as the loss of oil pressure or premature bearing failure.  His Honour was concerned with the cause of the failure of the TS24.  His reasoning focused upon the loss of oil pressure and the premature bearing failure as an intermediate consequence of the relevant cause of the failure of the TS24.

5. For instance, his Honour said that 'the failures in the Swick Drilling machines were manifested in loss of oil pressure and failure of the bearings in the high pressure second stage of the compressor.  I cannot find what the ultimate cause was'.[136]  Later, his Honour said 'the relevant occurrence here is the failure of the TS24 in operation, typically by a drop in the oil pressure.  Swick Drilling bears the onus of persuading the court that it is more likely that the relevant occurrence was brought about by the negligence of LeRoi in designing and manufacturing the TS24'.[137]

   [136] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [138] (emphasis added).

   [137] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [148].

6. This is sufficient to dismiss ground 3.

7. Ground 4 is also based on an incorrect premise.  Properly construed, the trial judge's reasons were not based upon an assumption that expert evidence was required before the doctrine of res ipsa loquitur could apply. 

8. Swick's submissions on ground 4 relied upon par [153] of the trial judges' reasons.  In that paragraph, placed in its context, his Honour said the following:[138]

   151 But in my opinion, it is not sufficient for Swick Drilling to establish that there were repeated failures of the TS24 and it was unreliable.  The evidence disclosed nothing about the operation of air compressors.  There was evidence that people who were experienced in the drilling industry in Western Australia would not expect bearings to need replacement before 10,000 hours of operation.  More generally, it is reasonable to expect that equipment with a purchase price of over $100,000 should normally last more than six months at a time without breakdown.  But I cannot say that, in the ordinary affairs of mankind, the TS24 would not have suffered loss of oil pressure or premature bearing failure, in the conditions in which it was being used, without negligence in its design and manufacture.  I am not sure that I could draw that inference.  But in any event I am not satisfied that I should draw it.

   152 First, whether LeRoi was negligent has to be determined by reference to the facts at the time of the alleged tortious conduct.  The TS24 was designed and first manufactured some time before 1993.  There is simply no evidence of the uses for the TS24 that were then in contemplation.  At a later time, LeRoi either knew, or ought to have known, that the compressor would be used in mineral drilling by the customers of Air Drill.  But not before 1994.

   153 Second, Swick Drilling's case required expert evidence to show that the multiple failures or unreliability of the TS24 when it was used in mineral drilling were caused by a fault in design or manufacture that is attributable to LeRoi's failure to take reasonable care.  It is tempting to assume negligence because there is no explanation of why the TS24 repeatedly failed, but that would be substituting an assumption for evidence.  Swick Drilling was, for about four years after it began these proceedings, in possession of the compressor unit. Its failure to adduce any expert evidence on the design of the machine and what caused it to fail is, in my opinion, fatal to the claim.

   [138] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [151] ‑ [153].

9. The point being made by the trial judge in these paragraphs was that in the ordinary affairs of mankind it was not possible to say that the failures of the TS24 were due to negligence in its design and manufacture.  In the absence of such a conclusion, expert evidence was necessary.      

10. The trial judge was correct to conclude that the doctrine of res ipsa loquitur did not apply because the failure of the TS24 was not of such a kind that it does not ordinarily occur without negligence.  Many of the points made in Schellenberg which we have discussed above, apply equally to this case. 

11. First, as Gleeson CJ and McHugh J observed in Schellenberg, the trial judge in this case also made no finding that this was a case where the accident would not ordinarily have occurred without negligence on the part of the defendant.

12. Secondly, consistently with the remarks of Kirby J in Schellenberg, the TS24 is not an implement with which the ordinary decision-maker is familiar in daily life or which is so rudimentary that it may be readily understood.  There was ample scope for speculation and conjecture, including the trial judge's unchallenged conclusion that operating practices may have made a difference to being able to use the TS24 without problems.[139]

    [139] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [140] ‑ [141].

13. Thirdly, consistently with the remarks of Hayne J in Schellenberg, there were too many different intermediate steps that must be taken before the conclusion could be drawn of negligence by the manufacturer.  Even putting aside operating practices, although the multiple failures in the TS24 were characterised by a loss of oil pressure and failure of the bearings at the second stage of the air compressor, and although evidence had been given that it was likely that the bearings failed because of reduced oil flow in the compressor, the trial judge was unable to make any finding about why this reduced oil flow occurred.[140]  Another of the trial judge's unchallenged findings was that failures in the TS24 were 'probably universal in units with Timken bearings fitted, but not necessarily universal in units with the NTN bearings'.[141]  None of the bearings was manufactured by LeRoi.

    [140] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [138].

    [141] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [139].

14. Ground 4 must also be dismissed. 

The appeals concerning damages

The appeal in relation to LeRoi

1. Identical submissions were made in relation to an award of damages against the manufacturer, LeRoi, as well as the quantum of the award made in relation to Norncott.  Swick's assumption was that damages in this case for breach of contract and for the tort of negligence would be the same. 

2. It is unnecessary to address any damages issues concerning LeRoi, or to confront Swick's assumption that the same principles apply in this case to the measurement of damages for breach of contract and torts.  The reason these points can be put to one side for LeRoi is because, as we have explained, the trial judge, with respect, correctly concluded that LeRoi was not negligent.   

The appeal in relation to Norncott

1. In relation to Norncott's breach of contract, the trial judge awarded damages for breach of contract comprised of the following amounts:

   (i)loss of profit caused by the compressor unit being unserviceable: $112,500;[142]

   (ii)a deduction given to a customer arising from a delay caused by a TS24 failure: $5,010;[143]

   (iii)the cost of equipment hire to replace the compressor unit being repaired: $4512.80;[144] and

   (iv)the cost of hire of a compressor and booster during the period when the TS24 was being reconfigured: $24,488.36.[145]

   [142] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [187].

   [143] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [188].

   [144] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [189].

   [145] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [190].

2. The trial judge did not allow a claim for $130,000 which had been estimated by Mr Wyndow, the expert valuer, to be the difference in value in January 1997 between a reliable unit with a good reputation and a compressor unit with a TS24.[146]  The trial judge refused this claim saying:[147]

   Mr Wyndow's evidence was affected by several assumptions that were shown to be incorrect.  Most noticeably, he had been told the compressor unit was 'parked up' in January 1997, when it was still in operation until the second half of 1997.  Mr Wyndow was not able to estimate what it would have sold for then and there is no evidence of its value or the relevant difference in value at that time.  Mr Wyndow could only work with what he had.  But his evidence was not a proper basis for establishing value.

   I would have allowed the difference in value between the compressor unit, had it been fit for purpose, and the actual value at the time Swick Drilling stopped using it.  On the evidence presented, I am not satisfied that Swick Drilling has proved those values and it has not proved this component of its claim.

   [146] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [197].

   [147] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [198] ‑ [199].

3. Each of the three grounds of appeal concerns the trial judge's refusal to allow this component of damages for the capital loss of value.  The factual basis for each of Swick's three grounds of appeal is not sufficiently supported by evidence for the reasons given by Buss JA at [299] - [311] (ground 1), [322] - [323] (ground 2), [331] - [334] (ground 3), with which we agree.

4. There is also a fundamental problem with the manner in which the appeal was argued in relation to ground 1 of Swick's claim for the capital loss.  The problem is that the date at which Swick assumed the loss was required to be proved was incorrect.   Swick assumed in ground 1, and it ran its case at trial, on the basis that it could recover the capital loss if it could prove the value of the compressor unit at the date that it ceased to use it (said to be in July/August 1997). 

5. Difficult and controversial issues may arise concerning the assessment of damages under s 52 of the Sale of Goods Act for a breach of contract, including, as in this case, a breach of the implied conditions in s 14(2) and s 14(3) of the Sale of Goods Act.  The Western Australian provision,[148] based on the English provision,[149] which in turn codified the common law, provides as follows:

   52 (2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.

   (3) In the case of breach of warranty of quality such loss is, prima facie, the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty.

   [148] Sale of Goods Act 1895 (WA) s 52(2) and s 52(3).

   [149] Sale of Goods Act 1893 56 & 57 Vict s 53(2) and s 53(3).

6. On one view, the law in relation to delivery of defective goods is the same as that in relation to non-delivery.  In other words the buyer is entitled to damages measured at the time of delivery representing the difference between the market value of the goods and the contract price, and that the rule cannot be displaced by showing that the buyer ultimately suffered no loss consequent upon the seller’s breach.[150]   

   [150] Slater v Hoyle & Smith Ltd [1920] 2 KB 11. See also Stevens R 'Damages and the Right to Performance: a Golden Victory or not?' in J Neyers et al (eds) Exploring Contract Law (2009) 176 - 182.  

7. Some support for this approach appears in the judgment of Keane J (with whom Hayne, Crennan, and Bell JJ agreed) in Clark v Macourt.[151]  Keane J quoted with approval the remarks of Warrington LJ in Slater v Hoyle & Smith Ltd where his Lordship said:[152]

   The purchaser here has received inferior goods of smaller value than those he ought to have received. He has lost the difference in the two values, and it seems to me immaterial that by some good fortune, with which the [sellers] have nothing to do, he has been able to recoup himself what he paid for the goods.

   [151] Clark v Macourt [2013] HCA 56; (2013) 304 ALR 220 [133].

   [152] Slater v Hoyle & Smith Ltd [1920] 2 KB 11, 18.

8. On this approach, upon which some doubt has been cast recently in England, although subsequent amelioration of the loss might sometimes be disregarded, damages for consequential loss might be recoverable in addition to this prima facie amount, provided there is no double recovery.[153] 

   [153] A number of decisions were discussed in Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 [120] - [126].

9. These questions need not be decided in this case. Whether, and when, the prima facie rule of difference in value can be disapplied, and the relationship between s 52(2) and s 52(3), are not matters that require resolution. Swick ran its case at trial on the basis that the capital loss was to be measured at the date on which Swick ceased to use the compressor unit.

10. Putting aside compensation for the loss measured at the date of delivery, the dates assumed by Swick in ground 1 are not the relevant dates for assessment of loss.  If the question was what was the actual capital loss incurred by Swick as a result of a defective TS24 then the relevant time to assess damages should have been the date when the TS24 was sold.  Prior to that date any capital loss had not crystallised.  At the date of sale, the loss could then be measured as the value of a reliable TS24 compared with the sale price obtained from the sale of the TS24.

11. The TS24 was sold in 2004 with the compressor unit for $55,000.[154]  But there was no evidence in 2004 of the difference between the sale price of the compressor unit with a defective TS24 ($55,000) compared with the value of a compressor unit with a functioning TS24.  And even if there were such evidence, in circumstances in which the TS24 is a replaceable component, there may have been difficulty for Swick to establish that the difference between the compressor unit with a functioning TS24 and the $55,000 received is entirely attributable to the loss from the defective TS24.   

    [154] Swick Nominees Pty Ltd t/as Swick Drilling Australia v Norncott Ltd [No 3] [2013] WASC 173 [192].

Conclusion

1. Both appeals must be dismissed.