eee "3s tema pe ws wets 27IG | CATCHNORDS TPADE PRACTICES - Misleading conduct - Negligent misrepresentation ~- Representations as to suitability of machine ~ Nature of representations made - Truth of representations - Computation of damages - Cross-claim under (3) ase agreement by company associated with representor - corporation ~- Recoverability of balance payable on lease agreement - Whether Court may order first respondent to indemnify applicants against liab2zlity to cross~claimant - Whether any part of cross-claim includes penalty. Trade Practices Act 1974 ss.52, 87 Gates v City Mutual Life Assurance Society Limited (19986) 62 1 ALR 600, Esso Petroleum Co Ltd vy Mardon [1976] 1 QB 801i, Sent ' vy Jet Cornoration of Australia Pty Limited (High Court, 26 ' June 1986), O'Dea v Allstates Leasing System (WA) Pty Ltd { (1983) 152 CLR 359 ; [ NSW G.311 of 1984 COVCAT PTY LIMITED & ORS v CLARK EQUIPMENT AUSTRALIA LIMITED & ' ARS a VAS Wilcox J Svdney 2 July 1986 coe ed Oe OER a Beret ? IN THE FEDERAL COUP? A F AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY SBENERAL DIVISTON Nee ee BETWEEN : AND: AND BETWEEN: AND: COYCAT PTY LIMITED First Applicant CARL ROSS COVINGTON Second Applicant LORRAINE FAY COVINGTON Third Applicant CLARK EQUIPMENT AUSTRALTA LIMITED First Respondent CLARK EQUIPMENT CREDIT OF AUSTRALIA CIMITED Second Respondent CLARK EQUIPMENT CREDIT OF AUSTRALIA LIMITED Cross-Claimant COVCAT PTY LIMITED First Cross-Respondent CARL ROSS COVINGTON Second Cross-Respondent LORRAINE FAY COVINGTON Third Cross-Respondent on a) ae THE eC AND BETWEEN: COVCAT PTY LIMITED Second Cross-Claimant AND; CLARK EQUIPMENT CREDIT OF AUSTRALIA LIMITED Fourth Cross-Respondent WILCOX J SYDNEY 9 JULY 1986 MINUTES OF ORDER OURT ORDERS THAT: Ww Judgment be entered in favour of the first applicant, Coveat Pty Limited, against the first respondent, Clark Equipment Australia Limited, in the sum of eighty-one thousand one hundred and forty-six dollars and seventy-four cénts ($81,146.74). Tudgment be entered in favour of each of the second and third applicants, Carl Ross Covington and Lorraine Fay Covington, against the first respondent, Clark Equipment Australia Limited, in the sum of fifty-five thousand nine hundred and forty-seven dollars and forty-six cents ($55,947.46). en ae Hee eu Fae a rere « ort Nat . n tas Tudgment be entered in favour of the first eross-claimant, Clark Equipment Credit of Australia Limited, against each of the cross-resrpondents, Coveat Pty Limited, Carl Ross Covington and Lorraine Fay Covington, in the sum of fifty-rtive thousand nine hundred and forty-seven dollars and forty-six cents ($55,947.46). Payment by the first respondent, Clark Equioment Kustralia Limited of any moneys in reduction or discharge of the amount of the judament entered pursuant to order (1) or order (2) hereof shall operate as a discharge pro tanto of the liability of the said first respondent pursuant te the judgment entered pursuant to the other of order (1) or order (2) hereof. Payment by the first respondent, Clark Equipment Australia Limited, of any moneys to Clark Equipment Credit of Australia Limited expressly in reduction or discharge of the judgment entered pursuant to order (3) hereof shall operate as a discharge pro tanto of the liability of the said first respondent pursuant to the judgments referred to in orders (1). and (2) hereof. see TR wk me on Me 2ePE Pe Aa wore [oy] NOTE: The cross-respondents, Covcat Pty Limited, Carl Ross Covington and Lorraine Fay Covington, pay to the first cross-claimant, Clark Equipment Credat of Australia Limited, its costs of the cross-claim. The first respondent, Clark Equipment Australia - Limited, pay to the applicants their costs of the proceedings including the costs incurred by the applicants pursuant to order (6) hereof. The second cross~claim be dismissed with no order as to the costs thereof. Settlement and entry of orders is deait with in Order 36 of the Federal Court Rules. -4-- IN THE FEDEPAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISTON ww eee BETWEEN : AND BETWEEN: AND: No. G.311 of 1984 COVCAT PTY LIMITED First Applicant CARL ROSS COVINGTON Second Applicant LORRAINE FAY COVINGTON ~ Third Applicant CLARK EQUIPMENT AUSTRALIA LIMITED First Respendent CLARK EQUIPMENT CREDIT OF AUSTRALIA LIMITED Second Respondent CLARK EQUIPMENT CREDIT OF AUSTRALIA LIMITED Cross-~Claimant COVCAT PTY LIMITED First Cross-Respondent CARL ROSS COVINGTON Second Cross-Respondent te OTN " Mar SF BLES EO weer td ae See neg ences eee LORRAINE FAY COVINGTON Thirc Cross-Respondaenc AND BETWEEN: COVCAT' PTY LIMITED Second Cross-Claimant AND: CLARK EQUIPMENT CREDIT ; OF AUSTRALIA LIMITED j Fourth Cross-Respe~Zent i ! CORAM: WILCOX J PLACE SYDNEY a DATE: 9 JULY 1986 __ REASONS FOR JUDGMENT ' This case provides an illustration of the sometimes chimeric attraction of new technology; leading in this instance to an application of a machine toa purpose for which it was ill-suited. That misapplication, of a machine known as a "feller buncher", has proved to be expensive for the applicants. The question 1s whether or not it stemmed from misleading representations made to them on behalf of the first responcent, so as to enable the applicants to recover damages for their losses pursuant to s.52 of the Trade Practices Act 1974 or, in the alternative formulation of the claim, under ! the law relating to negligent misrepresentation. eo Coal eee acer Re SS ote Oe ww . Coveat Pry Limited, the first applicant, is the Tamily company of the second and third applicants, Carl Ross Covington and Lorraine Fay Covington. Until mid-1981 Mr and Mrs Covington resided in the Wollongong district where Covcat carried on the business of site clearing and landscaping. Mr Covington worked as an employee of the company, earning about $240.00 per week net after tax. Covcat used various items of machinery distributed in Australia by Clark Equipment Australia Limited, the first respondent. Mr Covington -had occasional contact with officers of Clark Equipment and with its local dealer, Clarklift (South Coast). From tame to time, _— at the premises of -Clarklift (South Coast), he saw brochures relating €0 new Clark machines. One of the brochures concerned a machine for cutting timber, known as the 1075 Teller buncher. A feller buncher is a wheeled machine with a large assembly at the front designed for cutting and handling trees. The assembly has three main elements: at the bottom a pair of shear blades designed to close and sever the trunk of the tree close to the ground, two crescent shaped arms above the shears, designed to hold fast the tree during the cutting process, and, at the top of the assembly, an accumulator arm designed to hold a severed trunk whilst a second tree is seized and cut. After two -- or, in the case of very slim nt ee a eS 5 aN a ee ek stems, perhaps three -- trees are cut the machine is able tc transport them in a vertical position tc a point where ther are dumped ina "bunch" for removal. Mr Covinaton studied the brochure relating to the 1075 feller buncher because he, at the time, had in mind the possibility of undertaking clearing work along powerline corridors. But he did not take the matter any further. Instead, Mr and Mrs Covington decided to move with their family to Dubbo. They had a contact in the Dubbo building industry and expected ta be able to carry out site clearing for a home building project. But the project did not proceed and Mr and Mrs Covington had to consider other alternatives. Mr Covingten had lived in Dubbo between 1969 and 1972. During that period he had visited the Goonoo State Forest to cut firewood. The forest, comprising 63,252 hectares, is situate about 30 kms from Dubbo. If contains a mix of timber species, including two varieties of ironbark. Mr and Mrs Covington had friends in the mining industry. They were aware that ironbark was used for mining pit props. Mr Covington made inquiries about the demand for pit props and satisfied himself that he could arrange contracts for the purchase of pit props to be supplied by him from the forest. He then contacted the Forestry Commission of New South Wales and obtained two licences whach entitled him to cut timber in particular compartments of the forest. wee eo iPQens ha ee an In June 1981 Mr Covington telephoned Mr Peter Beddows or Clarklift (South Coast). Mr Covington was already aware that a new model feller buncher -- the 1080 -- was available. He asked Mr Beddows about the possibility of having a demonstration of the 1080 in ironbark. Mr Beddows told him that a program of demonstrations had been arranged, which could not be interrupted. However, shortly afterwards, he aunvited Mr Covington to attend, without expense to him, a demonstration of the 1080 working in pinus radiata which'was to take place at Mt Gambier in South Australia. Mr Covington went to Mt Gambier in early July 1981. Ypon arrival, he was met at the airport by David McMurray, Product Group Manager of Clark Equipment, whom Mr Covington already knew, and Tom Luddy, an American who had been sent te Australia by the American parent cf Clark Equipment to operate the machine during the demonstrations. During the drive from the airport to the motel there was the first of a number of conversations about the machine. These conversations give rise to the allegations of misleading conduct. — There 1S a substantial area of common ground in the versions of this first conversation given in evidence respectively by Mr Covington and Mr McMurray. Mr Luddy was not called. Mr McMurray asked Mr Covington whether he was interested in the machine. Mr Covington replied that he was. ea ng wee or or a a Pe od NPR SIPS: Lae Mr McMurray then asked Mr Covington what type of timber he proposed to cut. According to Mr Covington, he replied: "Tronbark in the Goonco State Forest. I am cutting pit props", whereupon Mr McMurray said: "I know the Goonoo State Forest and also the pine forests in the Lithgow and Oberon areas". According to Mr McMurray. Mr Covington answered: "Hardwood in the Dubbo area. I am cutting pit props", whereupon Mr McMurray responded: "I am familiar with the forest at Lithgow and Oberon. Is the area you are going to operate in like' those?" and Mr Covington said: "Yes". It is common ground that Mr McMurray then asked what size Mr Covington was allowed to cut, that he received the reply "12 inches" -- or "30 cms" -- and that Mr McMurray then said that- this presented no problem since the capacity of the machine was up te 16 inches. Mr Covington asserts, though Mr McMurray denies, that Mr McMurray then went on to say that the machine would cut 800 to 1200 trees a day. Upon arrival at-the motel Mr McMurray gave to Mr Covington a pamphlet about the 1080 machine. Later that evening Mr Covington read the pamphlet. In evidence he said that he accepted the pamphlet as being accurate. The pamphlet is a four page document, published in America. The front page contains a picture of the 1080 feller buncher against the background of a large log. The caption on awe ee wana ee S oe that ee this page reads: "Planetary drive action for faster production in any system". The planetary drive features are explained on a subsequent page. On a further page of the pamphlet is an inscription, "At last ... more woods action than ever with the new bobcat 1080 feller buncher", underneath which are four photoaraphs of the machine working in a pine plantation. Emphasis is placed by the applicants upon two of the photograph captions. They read: "ELIMINATES EXTRA SKIDDERS AND SAWYERS ... One Bobcat 1080 can put as much wood at the landing as two skidders and several sawyers. Cut 800 to 1200 trees a day. Shear flush with the ground. Grapple arms bunch up to three trees a minute. Works in areas where other machines can t move." "A SOLID, COMPACT HEAVYWEIGHT... More than 16,000 lbs. of agile durability and a low center of gravity will give you the quickness, power and stability you need for grinding out hour after hour felling/bunching cycles anywhere grapple skidders can move out the trees." Mr McMurray says, though Mr Covington denies, that he also handed to Mr Covington a document published by CSIRO, evaluating the 1075 feller buncher. That document includes reports of some field trials, mainly in pine plantations but @lso in the clear-.felling of Eucalyptus reqnans (mountain ash} and of E. sieberi (silvertop ash) re-growth on relatively flat country in Gippsland. It was said that the "inexperienced operator felled 73 trees in one hour". 3 foresee) Me McMurray also says, although once again Mr Covington denies, that during their time at Mt Gambier he showed to Mr Covington a photograph album containing photographs of the 1080 feller buncher working in various locations. These included some shots of the machine clear Telling dense hardwood trees at Karuah, on the coast north of Port Stephens. The timber felled was said to have included some ironbark. These photographs bear an inscription referring to a production rate of 2.5 trees per minute. Whether or not ironbark was mentioned during the drive from the airport, it is common ground that, at the motel, Mr Covington talked about ironbark and expressed concern that he would see the machine demonstrated only in pine and that Mr McMurray assured him that the hydraulics were "capable and designed to do the job". He said to Mr Covington that he had "no worries about the type of trees you are going to cut with it". ot Mr Covington attended the demonstration over portion of each of the next three days: During that time he was with My McMurray for substantial periods. The two men had conversations about various 'technical features of the machine and its manner of operation. Mr Covington took the opportunity to operate the machine on a couple of occasions. During the course of the demonstration various exercises were carried out; on occasions clear felling, on others selective eee eo eee Amal use eS tlh A wo thinning. However, all operations were in radiata pine; Mr McMurray searched in vain for some hardwood which he could cut for Mr Covington's edification. And the pine was all in plantation; that 1s, the trees were growing in planted rows on previously cleared ground. It is agreed between Mr Covington and Mr McMurray that, during the evening after the first day's demonstration, they had a conversation about the possibility of Mr Covington demonstrating the machine to others, if he purchased it, and that Mr McMurray said he knew people in the New South Wales timber industry. Mr Covington says, but Mr McMurray denies, that Mr McMurray expressed the hope that the machine would be - purchased for use in New South Wales and that he went on to say: "I know the area of Goonoo Forest and the forests ar Lithgow and Oberon. I have made contacts in those areas and I'll give you introductions to people in the timber industry. They could use the machine on a contract basis". Tt is agreed that, during the Mt Gambier visit, there was a conversation about the best way of using the machine. . Mr McMurray says that he recommended the use of a skidder -- a four wheel drive vehicle used to drag logs from the bunch site to a dump site where they could be loaded onto trucks -- but that Mr Covington said that he could not afford a skidder. There was then discussion about the best method of laying the felled logs, close to the cutting site, for easy loading at Oe eye me ee ee -a——. ww ob wer —_____.. ™" - Ae mete ee 10. pthat point onto the truck which would remove them from the forest. Mr Covington does not recall Mr McMurray recommending a skidder but nothing turns on this; it is common ground that the parties discussed the proposed method of operation upon the basis that a skidder would not be used. Upon the last day of the demonstration Mr Covington operated the machine in a different area of the forest. When he came out of the cabin, he complained that the machine was slow. Mr McMurray says that he replied: "It is not designed to travel long distances and you have to watch it going over a logy. It travels at the right speed for a feller buncher". Mr Covington's version ts that Mr McMurray replied: "You have to watch the speed going over a log. It's just as well it does not go too quickly. But it travels at ample speed", and that he then asked: "At that speed would it still cut 800 to 1200 trees in a working day?" and Mr McMurray said: "Yes, 1t will". At some stage during the visit to Mt Gambier there was a discussion about the shear blades. Mr Covington says that Mr McMurray claimed that "They last virtually forever" and that he said that the blades were made out of mild steel and so could be replaced at low cost at any engineering shop. Mr McMurray's version is that he said that, "if cared for and adjusted properly", the blades "have an indeterminent life". Fd ran wee, St ee ee ee Pe i li. Mr Covington did not make a firm decision to acquire a feller buncher during his time in Mt Gambier but he did express sufficient interest for Mr McMurray to contact Clark Equipment Credit of Australia Limited, a finance company owned by the American parent of Clark Equipment and the second respondent to this Application. Mr McMurray obtained from that company an indication that finance would be made available if Mr Covington decided to proceed. Upon his return to Dubbo Mr Covington reported to his wife what he had seen and heard. Upon the basis of that report, she agreed with him that Covcat should acquire a 1030 feller buncher and, in due course, the company entered into a lease from Clark Credit of the machine which had been demonstrated at Mt Gambier. Mr and Mrs Covington each entered into personal guarantees of the company's cbligations under the lease. The machine was delivered to Covcat late in August 1981. Mr Covington immediately took it to Goonoo State Forest and commenced to cut timber. Initially Mr Covington operated the machine, others employed by. him attending to the trimming, cutting and transportation of the legs. Later an employee, Mr Colin O'Ne1ll, took over as operator. Under both operators the performance of the machine was unsatisfactory. a ens _ Ironbark is extremely hard. The expert evidence in the case includes information about the density and hardness of some of the timbers referred to, as follows: "Basic density Hardness (kg/m3) Janka scale- green timber) Radiata pine 400 2.1 Mountain ash 520 3.4 Silvertop ash 670 7.2 Red narrow- leaved ironbark 910 12.0" Mr Covington and Mr 0'Neill did not find that ironbark was impossible to cut. The machine was able to sever ironbark saplings of the required size. But the toughness of the timber exacerbated a problem which would have existed in any event: that the machine was suitable only for trees which did not depart ina sideways direction from the perpendicular by more than about 5-10 degrees. The design assumption of the machine is that the trees required to be cut will be substantially perpendicular. The shear blades were designed to cut in a horizontal plane, meeting at the end of the cut. Anything more than a minimal lean in the tree forced the blades out of alignment, resulting in an unclean cut. Mr Covington described the situation in his affidavit: "Tf the tree was not at 90 degrees to the ground one of the arms of the machine would begin to grapple the trunk sooner than the other depending on which side the tree lent (sic) towards. At the same moment the arm began to press against the tree the two shears would make contact with the base of the tree and begin to be forced into the trunk. As the arm moving in synchronisation with the shears pressed against -the trunk the effect would be aye ne er regen owe wee oc te ee eee we 13. that a tree, for example, leaning to the left was being pushed by the left arm towards an upright position. Naturally, in doing so this meant that the shear on the right hand side was having the tree forced down upon 21t. At the same time the left hand shear was being lifted as the trunk in which it was embedded moved slightly upwards by reason of the force of the arm pushing toward the right. The result of all thas was twofold. First, the shears tended to simply get jammed because the pressure on one of them (in the example above it would be the right shear) would become too great given the hardness of the timber and second, the shears ended up tending to move past one another rather like scissor blades than towards one another as pincers would. In the finish you would either have to abandon the attempted cut or if the machine made it through you would find the cut far from being clean would be jagged and very rough." The harder the timber, the more likely it was that the process described by Mr Covington would result in damage to the blades. Both Mr Covington and Mr O'Neill gave evidence of the extreme difficulty, in the dusty conditions of the forest, in detecting in advance the extent of any lean. I am satisfied that both men were careful operators. Both were aware of the problems presented by leaning trees and sought to avoid them. If they feund that they had commenced to cut a tree with ; excessive lean, both preferred to disengage; where this could safely be done. But notwithstanding that practice, trees with excessive lean were cut from time to time; and, because the timber was so hard, there was considerable damage to the blades. 42 Shee a 14. When the first blade damage occurred in November 1981, Mr Covington attempted to have substitute blades made in Dubbo. Sut he found that the blades were not made of mild steel -- as he says that Mr McMurray had informed him -- but of a very hard variety of steel not locally available. At the same time Mr Covington discovered that two of the bolts holding the shear blades to the frame had become distorted and snapped. Mr Covington telephoned Clarklift (South Coast) but he was not able to obtain the correct substitute parts. Clarklift (South Coast) could supply only blades designed for the 1075 machine and grade 5 bolts. Mr Covington accepted, and fitted, these parts but the bolts again broke in April 1982, and the cutting blades cracked. By that time, the frame of the assembly had become slightly out of alignment so that even new blades would not enable him to re-commence. Mr Covington loosely fitted the blades back into the cutting assembly, simply to hold them, and abandoned the use of the assembly. He detached the assembly from the machine and left it in the forest. For a time he continued to use the machine itself to move timber but, in July 1982, the whole machine, including the cutting assembly, was voluntarily returned to Clarklift (South Coast). Coveat failed to make the rental payment due on 1 May 1982 and made no further payments to Clark Credit. By a cross-claim in these proceedings Clark Credit seeks to recover the sum of $55,947.46 said to be payable to it under the lease agreement. oe ehe i Ea an ' asae Fae elt ated Tr? srry oo Rene a Beatie The problem of damage to the machine was not the only difficulty experienced by Covcat. The cutting figures were most disappointing; well below the range of 800-1200 trees per day. At no time did the machine achieve anything like , that rate. Although the machine was operated for six and a half to seven hours per day, the average cut was only about 80 trees per day. The highest number of trees cut in a single day was only 129. The parties are in dispute as to the reason for this low yield. The respondents submit that the machine was improperly maintained. The suggestions are made that the machine was not regularly or sufficiently lubricated, that the boits used to hold the shear blades to the assembly were insufficiently tightened and that inferior bolts (grade 5) were used as replacements for the bolts (grade 8) specified for this purpose. These suggestions arise out of evidence given by the engineering manager of Clark Equipment, Mr B Cummins, who inspected the machine after its return to Clarklift (South Coast) in July 1982 and the opinions expressed, in' relation to Mr Cummins' report, by Mr E J Kielb, an engineer employed by an American unit of the Clark organization. Paeeome ie Oe FED eat cr i ta, Sed en ee See 16, I accept Mr Cummins' evidence that, when he inspected the cutting assembly, it was insufficiently lubricated. But this 1s readily understandable. It was then about three months since the unit had been used, or lubricated. It had, in the meantime, been lying abandoned in the forest, exposed to the elements. Both Mr Covington and Mr O'Neill said in evidence that it was their practice to lubricate the assembly every morning, and sometimes again during the course of the working day. Lubrication once a day is consistent with the manufacturer's specifications. A similar comment may be made about the lack of tension in the bolts. Mr -0'Neill brought his own tension wrench to the forest and regularly checked the tension of the belts. Both he and Mr Covington appear to have been knowledgeable, and experienced, in the care of machinery. Mr Covington had previously operated heavy machinery distributed by Clark Equipment. He was sufficiently well regarded by. -the company for it to be prepared to lease to him the first 1080 feller buncher to go into service in Australia. I see no. reason to doubt that, whilst the assembly was in use, the bolts were correctly tensioned. But Mr Covington says, and I accept, that he re-assembled the cutting assembly, when he decided to abandon its use, only loosely, to keep the parts together. He did not properly tension the bolts. This would explain the conditicn found by Mr Cummins. 17. The criticism that Mr Covington used inferior bolts comes strangely from the respondents. This course was forced upon Mr Covington because of the inability of the first respondent's dealer to provide the correct bolts. There is an issue as to whether Mr Covington was told that he should substitute grade 8 bolts when they became available but it is obvious, from the later distortion and snapping of grade 8 bolts, that the use of the correct boits would not have been enough to avert a problem. The fact is that this machine could not satisfactorily handle timber as tough as the ironbark, cut in a natural forest with the conditions of tree lean and dust which Mr Covington and Mr 0'Ne111 encountered. A further reason for the poor yield was the sparseness of suitable trees. This machine was not built for speed. According to the manufacturer's operating manual the travel speed of the machine, with tracks, is 7.7 km/h. Ina plantation, within which the machine was being used to feli all, or a major proportion, of the standing trees this would not matter very much. The bunches would be numerous and close to the cut trees, so that the ratio of cutting to travel time would be high. The same may be said about clear felling ina dense natural forest. But the more selective the cut, or the sparser the forest, the more burdensome becomes the slow travel time. The trees to be cut on behalf of Covcat in the Goonoo State Forest were scattered. According to Mr DG Parsonson, a forestry consultant called by the respondents, \ —— . : "Po Sl osteitis Sele ath gee ie On Seen eee 18. there were clumps of smaller trees as close together as 1-2 metres but, outside of the clumps, the density dropped to the point where gaps of 10-20 metres or greater became common. And, of course, the forest consisted of mixed species whereas only ironbark trees were to be taken; and only ironbark trees whose diameter was gqreat enough for pit props but less than the permitted 12 inches. The necessity to avoid leaning trees imposed a further limitation. This is a significant matter because, unlike the position in relation to radiata pine, stem lean in ironbark is apparently quite common. [Ironbark trees have a large umbrageous crown which "is often irregularly _ distributed. -— oo _— The fact tnat the felling operation was so highly selective had two consequences. The first was that the operator had to spend much time searching for suitable trees. The second was that the machine had to make comparatively long journeys to bunch the timber. The two consequences combined to reduce drastically the cutting rate. It is not necessary to set out all of the problems with the machine recounted in their evidence by Mr Covington and Mr O'Neill. However useful this machine might be ina clear felling operation, especially under plantation conditions, it was quite unsuitable for the operations being undertaken on behalf of Covcat in the Goonoo State Forest. ' wee eg eee ee ee ' x' ' Leaving aside the detailed complaints, that assessment is supported by two significant items of evidence. The first 1s the evidence comparing the yield during the period of use of the cutting assembly with that which was achieved after Mr Covington abandoned the cutting assembly and resorted to the more traditional method of cutting stems by a chain saw. Mr Covington, without elaboration, said that the output increased. Mrs Covington, who kept the books of the business, gave details which show that in two months by chain saw Covcat produced more than half as many pit props as in seven months using the feller buncher. This evidence was not challenged. Secondly, the respondents' own expert evidence shews that the feller buncher added nothing to Covcat's productivity. The conclusion expressed in Mr Parsonson's report was in these terms: "In my opinion the purchase of the bobcat feller buncher model no. 1080 represented an overcapitalisation of Mr Covington's operation. The machine type is capable. of harvesting large numbers of stems in denser stands of more uniform quality trees such as plantations. In those circumstances the machine's capability to harvest, bunch and accurately place stems for subsequent transport by a skidder results in improved productivity in both the harvesting and transport functions. By contrast Mr Covington's application of the machine in the Goonoo State Forest did not provide any advantage for his operation. The full productive potential of the machine was not, and could not be realised in that forest type because of the inherently low or a a tA ke Ne pen productivity of the forest reflected in a wide spacing between merchantable stems. Mr Covington's use of the machine to transport accumulate trees on a central log dump would have further reduced its productive potential." The real question in the case, as I have already indicated, is whether the applicants' decision to lease this machine for use in Goonoo State Forest was a consequence of any misleading conduct by the first respondent. The answer to that-question depends upon an analysis of what happened at Mt Gambier. If anything turned upon a choice between the credibility of Mr Covington and of Mr McMurray, I should have found some difficulty. Both men appeared to me to he essentially honest people and, generally, reliable witnesses. No doubt Mr Covington is anxious to help his case as best he properly can. No doubt Mr McMurray is anxious both to assist the case of his employer and to defend his own earlier © conduct, once again as best he properly can. But I gained no imeression that either man was willing deliberately to mislead the Court. At the same time, each of the versions of the conversations in the car, on the way to the motel, is puzzling. The Oberon district is, of course, well known for its extensive plantations of radiata pine. It is, therefore, understandable that, in an appropriate context, Mr McMurray Morar "rm oat ee ide Der Der the oe might have referred to "the pine fcrests in the Lithgow and Oberon areas"; but it is not easy ta see why he should have made such a reference in response to a statement that Mr Covington intended to cut lronbark in Goonoo State Forest. At the same time it seems odd that, as he himself suggests, Mr McMurray should have mentioned Oberon in seeking a comparison with the area in which Mr Covington proposed to cut hardwood. Even the reference to Lithgow is surprising. In his oral evidence, Mr McMurray said that he was not thereby intending to refer to a worked forest, natural or planted, but simply to the bushland typical of the western slopes of the Blue Mountains. Although Mr McMurray said that he had not, at the time, been so far west as Dubbo, it might have been expected that he would be aware that the terrain in the Lithgow/Oberon area is much steeper than in the plain country around Dubbo. According to Mr Covington there was a subsequent reference to Lithgow/Oberon in the discussion between the two men relating to the use of the machine on a contract basis. This is sasier to understand. It may be that Mr Covington has simply confused the two references and that Mr McMurray, having reac Mr Covington's affidavit, has followed him in transposing the occurrence of the reference. There are other differences between the two versions of the Mt Gambier conversations: whether -- as Mr Covinaton claims -- Mr McMurray expressly mentioned 800-1200 trees per ne ot oe ny Redes Laid " "me day, and whether -- as Mr McMurray maintains -- he showed Mr Covington the CSIRO pamphlet on the 1075 feller buncher an the photographs of the 1080 working in various locations, and particularly in hardwood at Karuah. But I do not think that it 1s necessary to resolve these differences. Although there may be a dispute as to the manner of their making, the essential representations upon which the applicants rely are common ground. The first important representation was that the machine was suitable for the selective cutting of ironbark in a natural forest. During the car trip Mr McMurray was, according to him, told only "hardwood", but it is conceded that "ironbark" was mentioned on numerous occasions during the Mt Gambier visit; indeed to the extent that, to Mr Luddy, it came to take on almost mystical qualities. When ironbark was mentioned, if this came later, there was no withdrawal or modification of the prior representations. The representations previously made, whatever they were, have to be treated as representations relating not merely to hardwood generally but to ironbark in particular. Mr Covington says that he expressly mentioned Goonoo State Forest; Mr McMurray denies this. Given that Mr Covington had by then formed an intention to cut ironbark in that particular forest, it is not easy to see why he should have failed to name the forest. Counsel for the respondents ay, . pe eee we yee eee . , a aU trey ate Te ade ta te et en suggests that he wished to guard himself against competitors stealing his plan but a reference to pit props and "the Dubbo area" would probably have been enough to inform any potential competitor. However, it is not necessary to determine that matter. Whatever may be the precise detail of the conversations, there 1s no doubt that Mr Covington sought, and received, repeated assurances as to the suitability of the machine to carry out the selective cutting of ironbark in natural forests. Mr McMurray's version of this assurance referred to the cutting of hardwood in a natural forest similar to that in the Lithgow/Oberon area. He made clear in his oral evidence that his reference to the forests of that area was a reference to natural forests, and he spelled out its significance: "So your understanding of Mr Covangton's proposal was that he was going to be using the machine in natural as distinct from planted areas and native timber as distinct from pines?---I did, yes. And with the sort of topography that can be found in the Lithgow and Oberon area?--~Yes. And you were telling him it would be suitable for that sort of application?---Yes, I said it would work there." The natural bushland in the Lithgow/ Oberon area consists of scattered timber of diverse' species growing upon undulating to steep land. No doubt there are significant differences in species' distribution, but in density, tree shape and tree size it is not unlike the portions of the Goonoo State Forest depicted in the photographs which are in -t—" 6 et Re aE ee evidence; with the exception that it is generally steeper. Having regard to the evidence in this case, I have no hesitation in finding that the 1080 feller buncher would he quite unsuitable for the selective felling of timber in such country. The second important representation relates to the spe-d of cutting. Mr Covington asserts, although Mr McMurray denies, that.a range of 800-1200 trees per day was orally mentioned. Mr Covington's affidavit evidence was that the first reference to 800-1200 trees took place during the conversation in the car. Under cross-examination he said that the first reference might have been after arrival at the motel but the timing does not matter. Nor does it really matter whether an oral statement was made, although I think it likely that one was. The brochure relating to the 1080 feller buncher which Mr McMurray handed to Mr Covington clearly claimed -- without qualification as to manner of operation or species -- a cut of 800-1200 trees per day. The handing of . this brochure -- without qualification or reservation -- to Mr "Covington, for his consideration in relation to the particular type of operation he had outlined to Mr McMurray, amounted to a representation that the 1080 feller buncher would cut 800-1200 trees per day in that operation. And, according to Mr McMurray, he showed Mr Covington the Karuah photographs of clear felling in hardwood and told him that he had cut at the rate of two and a half trees per minute. This is a rate of ~e my «= tome Ww Ut uy 150 trees per hour or, over a six and a half to seven hour cutting day, 975-1050 trees per day. Such a statement would onlv have fortified the claim of the brochure of 800-1209 In finding that Mr McMurray made untrue representations to Mr Covington I do not impute to him any deliberate dishonesty. Mr McMurray was not a design engineer, his background is apparently in sales. The machine had been designed in'America, no doubt with American conditions in mind. Whilst it had been tested in Australia in pine plantations. and to some extent in the clear falling of native timbers, it had never been tested in regard to the type of. work intended for it by Mr Covington. Mr McMurray simply applied to that work the results achieved in dafferent tynes ef operation. He was, oerhaps, himself a victim of the failure of Clark Equipment carefully to identify the appropriate use of the machine and to limit its representations accordingly. Counsel for the respondents submits that, whatever the representations made by Mr McMurray, they did not cause Covcat to enter into the lease agreement. He refers to evidence given by Mr Covingten that, after his return from Mr Gambier, he again visited Goonoo State Forest in order to check the number of trees availabie. * Ow oteast on ee ete nT ha oad a ge tee me ee "You formed the view that you did not need to use the machine to the capacity of 800 to 1200 trees per day; is that right?---I was looking at - I was looking at the number of trees per day that was - he told me that I couid cut, and in relation tc the speed of the machine. I knew that I only needed around about 400 trees to make it a viable proposition to be able to carry out contracts, or possible contracts that we were pursuing at that time. Did you turn your mind to what steps you would have to take to actually find 400 trees to cut in that particular day?---I - after coming back, I went to the forest and sighted what trees, and rou~sly the size trees that I needed, and counted them, and thought well - looked at the areas and said, well, you know, if I went in here I could, you know, I counted the stems of trees, and I thought, well, if I can cut - the machine is capable of cutting 8 (sic) to 1200 trees, there is enough timber through this area here, and consequently, just sort of worked it out like that." This passage makes clear that Mr Covington relied upon nis own judgment as to the sufficiency of the ironbark trees but, equally, it is apparent that his thinking was dominated by the figure of 800-1200 trees per day given to him by Mr McMurray. In re-inspecting the forest he did not, apparently, consider the distribution or shape of the trees or calculate the travel times required to fell and bunch any given number of trees per day. It is perfectly true that, as counsel submits, Mr Covington was at that stage in possession of most of the information which, if analysed, would have led him to the conclusion that the machine was not suitable for the work which he had in mind. The notable exception is that he was not then aware of the limitations imposed by tree lean. men ee a Ch dal ee ee ee oa ti we If My McMurray had aiven ta Mr Covington the relevant data ana left him to make his own analysis, there could no be rresent complaint. But he did not do so. By giving the assurances he did, Mr McMurray diverted Mr Covington from proper analysis; leaving him wrongly to think that he need concern himself only with the number of available trees. Evidence was given by both Mr and Mrs Covington of the discussion between them after Mr Covington's return to Dubbo from Mt Gambier. I have no doubt that Mr and Mrs Covington were induced by Mr McMurray's representations to cause Covcat to enter into the lease of the 1080 feller buncher. I find that the representations made by Mr McMurray, which were in fact untrue, induced the applicants to enter into the lease transaction. Mr Covington says in his evidence -- and it is not disputed ~- that, before signing the lease, he informed the second applicant, Clark Credit, of the purpose for which he required the machine. But he does not claim that any representation was made to him on behalf of Clark Credit. There is no basis for a finding that this company has infringed s.52 of the Trades Practices Act or has acted negligently in relation to the applicants. The claims for reliet against the second respondent must be dismissed. The assessment of the damages to be awarded against 6) the first respondent presents some difficulties. Covcat made eight monthly rental payments to Clark Credit of $1,612.41 vu each; amounting in all to $12,399.28. It paid $3,000.00 for a trailer to transport the machine, which it later sold for $2,200.00; a loss of $800.00. Upon Mr Covingten's estimat= it spent about $1,500.00 upon the repair of the machine. These three items, totalling $15,199.28, are all recoverable. It is true that the company had the use of the machine for about ten months, and actively used the cutting assembly for about seven months but, on the evidence, this conferred no material advantage upon the company. Caveat also claims to recover from Clark Equipment whatever amount it may be liable to pay to Clark Credit in respect of its liability under the lease. By its cross-action Clark Credit claims to recover a sum of $55,947.46, being the balance said to be outstanding after deducting, from the total of the remainder of the rental payments, the agreed residual value and varicus expenses, the proceeds of sale of the : machine and a rebate of charges. There is an issue between the parties as to the recoverability of the whole of the monevs claimed, it being said on behalf of the applicants that the claim includes ingredients which constitute a penalty. However, both counsel submit that it is not really necessary to decide this matter. They say that the appropriate course, er au wee te Aa ee ter Le ee ee ee tw WD 1f the applicants are adjudged entitled to succeed, is to make ar order under s.87 of the Trade Practices Act requiring the first respondent to indemn2zfy the applicants against the claim or the second respondent. There 1s before the Court a claim for other relief against the first respondent. Consequently, no difficulty arises in using s.87, if it authorises an appropriate order: see Sent v Jet Corporation of Australia Pty Limited (High Court, 26 June 1986). But, despite the combined submission to the contrary, I am of the view that the section does not authorize the making of an order for indemnity. Aithough both subss.(1) and (1A) seem to confer a general power upon the Court to "make such order or orders as 1t thinks appropriate", subs.(2) sers out an exhaustive list of "the orders referred to" in those sub-sections. The specified orders do not include an indemnity order. Under these circumstances it is necessary to deal with the question as to the amount payable ta Clark Credit, to add that figure to the amount of the applicants' damages against Clark Equipment and to enter judgment for the figure in favour of Clark Credit and against the aprlicants_upon the cress-claim. Counsel for the applicants does not dispute that, leaving aside any question of penalty, upon the proper construction of the lease agreement and the personal Guarantees given by Mr and Mrs Covington, the amount claimed er Se WIN tor ase Re fee ne by Clark Crecit 1s payable. But he says that the application of the law relating to venalties confines the claim of Clark Credit to the rental payments which fell due, but were unpaid, before the machine was re-delivered to Clark Credit in July 1982. On this basis only the three monthly payments which fell due at the beginning of May, June and July 1982 would be recoverable. The argument is that cl.5 of the lease sets out a variety of defaults, some of them quite trivial in relation to the overall performance of the lease agreement, which entitle the lessor to re-possess the goods yet without the lessee thereby being absolved from its liability to make rental payments. In the result, it 1s said, the lessee may be left in the position of being required to make payments notwithstanding that it has been deprived of the possession of the machine. The principles relating to the question whether a sum agreed to be paid by one party to a contract to another is a penalty, and therefore is irrecoverable, were discussed by the High Court of Australia in Q'Dea v Allstates Leasing System (WA) Pty Limited (1983) 152 CLR 359. The essence of a penalty is that it 15 an amount of money the recoverability of which is unconscionable having regard to the greatest loss which might be incurred by the other party to the contract. The notion of penalty extends only to final liability of a party, not to any obligation to make periodic payments pending the final resolution of liability. An obligation such as that oa one meee — ~ He ee ita a4 test) "aie § , ee ee ee cee —— Se. 2 Oe. 31. conferred by cl.5 of the lease is not capable of constituting a penalty. And 16 18 not contended that the amount finally pavable under this lease by the lessee, upon any repudiation, would amount to a penalty. In my opinion the full amount claimed by Clark Credit $55,947.46 is recoverable. Covcat also seeks general damages, claiming revenue lost as a result of its low productivity whilst using the machine during the period September 1981 to April 1982. Having regard to the assurances given to it and its financial committment to the machine, the company was justified in perservering that long. In principle any such loss is recoverable: see Gates v City Mutual Life Assurance Societv Limited (19861 63 ALR 690 at pp.603, 607-608, Esso Petroleum Co Ltd vy Mardon £19763 1 OB 801 at pp.820-821, 229. Given the evidence of Mrs Covington regarding the company's output of logs whilst using the 1080 feller buncher and whilst using a chain saw, it is clear that the decision to lease the feller buncher resulted in a loss of some of the production which could otherwise have been achieved. There is, however, a paucity of mater1zal with which to relate the production loss" to income loss. No unit cost or profit calculations have been made. The only evidence which is available comes from the company's profit and loss account. This account shows a loss for the vear ended 30 June 1982 of $22,627.48. However, the listed items of expenditure have not been the subject of evidence and, given the nature of the company, I would not be ro mtr thee? halk A 'sa. wW nw prepared to conclude that this is a true trading loss. Even if that figure were accepted, there 1s no material by which it may ne calculated how much less the loss would have been 1f Covcat had never leased the 1080 feller buncher. I think that the only way to approach the matter is by reference to the dissection of income made by Mrs Covington. After abandonment of the shear assembly, the forestry operations yielded about $9,500.00 per month. If that rate had been obtained during the preceding seven months, the revenue earned during that period would have been about $66,509.00, as against actual revenue of $37,143.15 -~ a difference of about $29,357.00. The ratio of costs of goods sold te gross receipts is about one-third, so that it is likely that this increased revenue would have meant an increase of about $20,000.00 in gross receipts. The increased activity must have increased operating expenses to some extent, but it is extremely difficult to say to what extent. Some operating expenses are fixed, some are variable. It would not be correct to take a proportion. Salaries and wages ($15,858.00) and lease rentals ($20,720.14 less the payments on the feller buncher $12,899.28, that is $7,820.80), a total of $23,678.86, must have increased to cope with such an increase in production, amounting as it would to an increase of about 50% in the year's production. Making the best estimate I can, it seems reasonable to assume an increase in operating expenses of $10,000.00. This sum has to be deducted pene eo - seme ata 'oe ee ee 4 ee ee tu ww from the $20,000.00 allowed for increased gross profit, giving a final figure, representing increased losses of the operation of 310,009.00. I add this figure to the three items totalling £15,199.28 which I have previously allowed and the $55,947.46 debt to Clark Credit. The total amount allowed against Clark Equipment, in the proceedings by Covcat then amounts to $ 81,146.74. Both Mr and Mrs Covington also seek damages. fn both cases they seek judgments against Clark Equipment in respect of the amount they are liable to pay Clark Credit in their capacity as guarantors of Covcat's obligation. There will be judgment accordingly. However, Mr Covington adds a further claim, based upon the fact that, whilst the feller buncher was being used, production was insufficient to allow Coveat to pay to him a normal wage. He claimed to recover the difference between what he had previously drawn as wages ($240.00 rer week net) and what he did in fact draw ($196.00 per week) between 1 September 1981 and 31 March 1982. The reason for the reduced wage was Covcat's difficult financial condition whilst using the feller buncher. However, I do not think that this loss is recoverable against Clark Equipment. it isa loss caused by the penury of Covcat. Once proper compensation is made to Covcat, it will be open to that company -- if Mr and Mrs Covington so wish -- to make up that shortfall in wages which Mr Covington has sustained. To allow direct recovery would be a duplication. In the result, therefore, ae " ar i el we te cet WAT Porte, uThe amcunt to be allowed in the actis wWril he only tne amount cr the liabil SEo, 347.46, A cross action was filed by Credit, ralating to various lease action has not been purs Coveat agains conditions. wt QQ ra Ey* This cross ued and will be formally dismiseac, T certify that this and the thirtr-three '33} preceding pages are a true copy of the Reasons for Judgment of his Honcur Mr Justice Wilcox. Assacl1at » Yrmrne. fx. Hetfooyv Dats: 2 Tuly 1536 ane and Third ondents and se~Claimant: zounsel for the Applicants, yp mw row iD am 3 Solicitors for the Applicants, First, Second and Third Cross-Respondents and Second Cross~Claimant: nsel for the First and ond Respondents, First s aamant and Fourth s licitors for the First and econd Respondents, First oss-Claimant and Fourth ass-Respondent: f hearing: tr re at iD th a] Mc J B Whittle Messrs Daly Bussoletti & Co Mr J C Kelly - Messrs Freehill Hollingdale & Page 10, 11, 12 and 12 June o-7- falleielneme toda a ee oa