«JUDGMENT No.733 787, *. Limiren DistRigution - IN THE FEDERAL COURT OF AUSTRALIA ) ) WESTERN AUSTRALIA DISTRICT REGISTRY ) No. WA G106 of 1986 ) ) GENERAL DIVISION BETWEEN: GERALD CAREW MOSS Applicant AND: BERGOOD PTY LIMITED Respondent MORLING J. 11 November, 1987 ORAL REASONS FOR DECISION The applicant sues the respondent for damages for alleged breaches of ss.52 and 53(c) of the Trade Practices Act 1914 and of s.14 of the Sale of Goods Act 1895 (W.A.). The case arises out of the sale by the respondent to the applicant of a machine known as the "Bergood Brickmaker". The machine is a portable machine which manufactures bricks from cement stabilized material, including various types of soil. A unique feature of the machine is that the bricks produced do not need to be dried or baked in a kiln but may be used after a short period of curing. In May 1985 Mr Moss went to the premises of the respondent at Dee Why in the State of New South Wales. According to him, he had a discussion with Mr Gary Foster, a director of the respondent. Foster gave him a brochure. It appears from the evidence that the brochure does not 2. specifically relate to the machine which was actually purchased. In fact, the brochure which relates to the subject machine was not produced until some time after May 1985. Nevertheless, the statements made in the brochure are of some relevance, as I shall later point out. The brochure included the following statements: "The Brickmaker, really a mini-factory, is completely self-contained with its own power unit. The Brickmaker produces bricks or pavers literally anywhere at a rate of 500 per hour" In another section of the brochure, the following statement is made: "Produces 500 quality face bricks per hour - 4000 bricks per 8-hour day." When Moss discussed the possible purchase of a machine with Foster they had some conversation as to the number of men who would be required to operate the machine. Although the brochure states or infers that one man only can use the machine to produce 500 bricks per hour, it is clear from the evidence that the machine was not bought on that basis. Moss made it clear in his evidence that in his discussions with Foster prior to purchase it was made clear that two men would be required to operate the machine effectively. One man is required to feed cement and soil into the top half of the machine, which can be described as the mixer, and another man is required to otherwise operate the machine and take the manufactured bricks from it and stack them. 3. According to Moss, his conversation with Foster included the following: "Did you have any conversation about how many bricks could be made?---Yes, we did. I asked him how many bricks the machine could make; he told me that it could make 500 bricks per hour, 4000 per day. I suggested that loading it by hand - it may be hard to achieve that but with the hopper would this figure be able to be achieved. His reply - he replied virtually, yes, and his reply left me in no doubt whatsoever the machine used in this manner could make 4000 bricks per day, per eight hour day. 'You say, in this manner. You mean with the hopper?---With the hopper and the front-end loader. "Was there any discussion about his capability without the hopper and the front-end loader?---Yes. He said that it was obviously - the more people you had to operate the machine the easier it would be physically. I quickly pointed out that I was only interested in making - only interested in a machine for a brickmaking venture, and any more than two people employed to run it would not make the machine be economic, to which he agreed." According to Moss he also raised with Foster the question whether the machine would be suitable for operation in the State of Western Australia. He said: "I asked Foster about the suitability of the machine for Western Australian conditions. I asked Foster particularly about the soil types in the Perth metro area, and he assured me that the suitability of the soils in WA, and in particular Perth, were of no problem whatsoever and would be commercially available. I questioned him further on that and said, 'Have you been there? Do you know about them?' - about them being the soils - and he replied, yes, the sandy type of soils over there would be particularly suited, or would suit the machine." 4. I shall return later to give Foster's account of the conversations to which I have just referred. About 17 May 1985 the applicant agreed to buy a brickmaker machine from the respondent, the purchase price being $31,600. The machine was delivered on or about 31 July 1985. The applicant's claim, in substance, is that the representations made by Foster to Moss in May 1985 were made in breach of ss. 52 and 53(c) of the Trade Practices Act. As I have already stated, a claim under s.14 of the Sale of Goods Act (W.A.) is also pleaded but, having regard to the way in which the case has been conducted it is unnecessary to separately deal with that claim. It is common ground between the parties that if the claim succeeds under the Trade Practices Act it is unnecessary to pursue the Sale of Goods Act claim, and also that if the claim should fail under the Trade Practices Act it would not otherwise succeed. The applicant's claim is that the respondent through its director Mr Foster represented that the machine could produce 500 bricks per hour and that it was not capable of doing so under ordinary working conditions. Although there is conflict in the evidence of some of the witnesses, particularly Messrs Moss and Gary Foster, I do not think that either of them is doing otherwise than endeavouring to give a truthful account of the conversation 5. which they had. They both appeared to me to be honest witnesses and reputable commercial men. I should now refer to Mr Gary Foster's account of his conversation with Mr Moss. According to Mr Foster no specific representation was made about the capacity of the machine. His evidence includes the following: "Did you have any conversation with Mr Moss about the capacity, production capacity, of the machine?---As I recall, I said to Mr Moss, 'The machine will do what you can do. It wholly depends on your effort, and how you set yourself up'. Do you recall what he said in reply to that?---No; I do not think he replied. Do you recall if you made any mention of any figures, or any amounts, or any production rates?---No; I do not make production rates or figures. I think it purely depends on the person operating the machine and the system that he would probably set himself up to manufacture bricks. There are so many different ways you could do it. We all have our own systems." Later in his evidence Mr Gary Foster re-affirmed that he did not discuss production rates with Mr Moss. There is a clear conflict therefore in the recollections of Mr Moss and Mr Gary Foster as to that critical conversation. There are some considerations which incline me to accept that Mr Moss's recollection of the conversation is more likely to be accurate. Mr Foster had many conversations with prospective purchasers in or about May 1985 and it is understandable that he would not have as clear a recollection 6. of the conversation as Mr Moss, who had only one relevant conversation. Secondly, the fact that Moss was handed a brochure either by Mr Gary Foster or by somebody else, while not directly relevant, does seem to me to make it likely that the question of the hourly production rate of the machine was discussed. As I have already observed, the brochure which he obtained did not relate specifically to the machine but there does not appear to be any doubt that he was given it. There are notations on it which he says he made at the time about price, and I accept him on that question. Another matter which inclines me to accept Mr Moss's recollection of the conversation is that in a letter of 20 June 1986 written by his solicitors to the respondent the claim was made that Mr Moss was handed the brochure which was said to state unequivocally that the machine was able to produce 500 quality face bricks per hour. The letter included the following statement: "Relying completely on the representations as to performance made by both Mr Foster and Mr Lacey, our client purchased the machine for $31,600." That passage follows a reference to the claimed production rate of 500 bricks per hour. I think it would be a fair inference to anybody reading the letter that Mr Moss was claiming that at the time he agreed to purchase the machine either Mr Foster or Mr Lacey said that it would produce bricks at the rate of 500 per hour. The reply which was sent to the letter does not deny that claim. Mr Foster gave evidence that he was overseas when the letter was received. I think that is a satisfactory explanation for a failure to respond immediately to the 7. allegations made in the letter. However, I do not think that that satisfactorily explains the continued failure to put in issue the matters raised in the letter after Mr Foster returned to Australia. I have referred already to Mr Foster's account of the conversation. I think Mr Foster's recollection of the conversation is not as good as Mr Moss's. Having regard to all the evidence, I have come to the view that the machine was represented as being capable of producing 500 bricks per hour. Under the circumstances this can only be taken as a representation that a reasonably competent person working with reasonable diligence could produce 500 bricks an hour from the machine. After the machine was delivered Mr Moss took it to the Royal Show in September of 1985 and demonstrated its output and capacity. He obtained an order for 17,000 bricks from one purchaser. He thereafter set about operating the machine. Shortly after the machine arrived in Perth, Mr David Foster went to Perth for the purpose of assisting Mr Moss in becoming familiar with the working of the machine. According to Mr David Foster, when he got to Perth Mr Moss had set up the machine in what could only be described as a very casual way. It was not apparently in any substantial premises. No soil had been obtained for the purpose of manufacturing bricks. There was no cement on the site and he had to go out with Mr Moss to a number of sites to find soil which would be satisfactory for making bricks. From time to time thereafter Mr Moss attempted to operate the machine. Without going to his evidence in detail, he says he found that he could not produce 500 bricks per hour from it. He used a hopper and a front-end loader as part of the operation. This was a procedure which he had discussed with Mc Gary Foster in May. The purpose of using the hopper and the front-end loader was to do away with the necessity to hand feed the mixer bowl on the machine. Clearly, the use of the hopper and front-end loader was a more efficient means of loading brickmaking material into the mixing bowl. The main problem that Mr Moss had with the machine appears to have been that the batching operation - that is to say, the operation which takes place in the lower part of the drum on the machine - took longer than the mixing operation. The result was that from time to time the batching operation could not take place as it would be awaiting another load of mix from the upper half of the machine. The consequence was that the production rate fell. According to Mr Moss, although there was a regulator on the mixer which permitted the mixing rate to be speeded up, if it were speeded up the result was that the materials were not properly mixed, with the result that bricks had blemishes in the form of concentrated sand or soil. In other words, the cement had not been sufficiently mixed with the other material. Mr Moss also gave evidence that from time to time the machine otherwise malfunctioned, but I am not persuaded that there was anything inherently wrong with it. The hydraulic hoses failed from time to time but that seems to me to be wear and tear which might occur on any industrial machine. According to Mr Moss, the best production rate he could get out of the machine was of the order of about 300 bricks per hour. After some time he called in consulting experts to advise him. In the latter half of November 1985 the machine was inspected by Mr Timings, of Messrs Merz and McLellan and Partners, consulting engineers. Mc Timings's evidence, which does not conflict very much with the expert called by the respondent, was to the effect that a test that he made on the machine showed that it could produce bricks at the rate only of about 392 per hour. The reason for the production rate not being higher was that the mixing process took longer than the batching or pressing process. He said, however, that: "With alternative feed procedures such as pre-mixing of the feed or automatic batching -»- 500 bricks per hour could probably be achieved by one operator". In cross-examination he conceded that with two operators a production rate of 500 per hour could have been achieved and, as I have stated, the machine was really purchased on the basis that it would be operated by two persons. The respondent called an experienced engineer, Mr Willscher. He saw the machine operating over a period of 15 minutes some time after it had been returned to the Sydney 10. premises of the respondent. He said that in his presence the machine was operated for 15 minutes, and that at no time did the machine show any sign of faltering. The rate of production was well in excess of 500 per hour. Mr Willscher concluded that the brickmaker was a "rugged machine built for rigorous conditions" and that a production of 500 bricks an hour was well within its capacity. However, it appeared from his evidence that the material which was fed into the machine whilst he saw it operating had been pre-mixed. It was material which had been specially prepared for the test and was recirculated, so to speak, throughout the test. In substance then, what the evidence comes down to is this: the machine was represented as being capable of producing 500 bricks per hour under ordinary conditions but, in fact, it could only produce that number of bricks per hour if the material fed into it was pre-mixed. Since the representation made to Mr Moss did not include any reference to pre-mixing, I think that a breach of s.52 has been established. I think that to represent that the machine was capable of an hourly production rate of 500 bricks (when that rate could only be achieved using pre-mixed material) without referring to the necessity for pre-mixing was misleading. Indeed, Mr Birch, who argued the matter with his customary skill and put every matter in favour of his client's case, was hard pressed to argue that there had not been a breach of s.52. 11. That brings me to the question of what damages should be awarded. As originally pleaded, the claim was for approximately $45,000 but subsequent events have led to a great reduction in the claim. In his final argument, counsel for the applicant claimed damages as follows: $10,329.40, being the amount paid under the hire purchase agreement for the brickmaker; a further amount of $7736 for expenses claimed to have been incurred by the applicant; and a further claim of approximately $1200 for damages in the nature of income which Mr Moss otherwise could have made had he not become involved in the purchase of the machine. On the other hand, counsel for the respondent argued that all but a very small fraction of the amount claimed should be disallowed. He submitted that no causal relationship had been established between the breach and the alleged losses. In particular, he argued that even if the machine had only been capable of producing, say, 400 bricks per hour, or even less, the applicant still would have sustained nearly all the losses which they claim. I think that on any basis an amount of at least $1000 would be recoverable, being the amount which would have been required to be spent to make the machine capable of producing bricks at the rate of 500 per hour. I see the force of these submissions and I think I should give partial effect to them. I will not refer to all the matters relied upon by counsel but they include the fact that there were many features about Mr Moss's operation which 12. causes me to have serious doubts whether it would have turned out to be a profitable exercise in any event. Mr Birch argued that if he had gone ahead producing bricks at the rate of 400 bricks per hour his position would have been no different from what it would have been if he had produced them at the rate of 500 per hour. There is considerable force in this submission. The evidence suggests that the market in Perth for bricks produced by this type of machine might well not have been profitable. However, I do not think this completely answers the clain. It appears from Mr Moss's evidence that his idea in purchasing the machine was to take it to some remote parts of Western Australia, including the south-west and the far north, in the hope that it would be able to satisfy a need for bricks in areas where other brick manufacturers did not operate. It was important to Mr Moss that the machine produce at the rate of 500 per hour. I am satisfied that this was so because he made some quite careful calculations of what his income and expenditure position might be if he bought the machine. Those calculations were based on an output of 500 bricks per hour. It is true that he did not assume in those calculations that he would be able to produce and sell bricks on a 5-day, 8-hour a day basis at the rate of 500 per hour. Nevertheless his calculations show that at a rate of 500 per hour and on a 3-1/2 day a week basis of production he could reach break-even point, after making allowance for a reasonable wage for himself. 13. I do not think it is right to assume that the faltering performance of the business between September and November 1985 would have continued indefinitely. I think that Mr Moss might well have been able (had the machine been able to produce 500 bricks per hour) to have operated it profitably. I come back to that part of Mr Birch's submission which I think does answer part of the applicant's claim. On any view of the evidence, the machine could have produced bricks at the rate of at least up to 300 per hour. The fact is that he did not sell any bricks. I am not persuaded that that was due to the failure of the machine to produce any bricks at all. If he had chosen to operate the machine at its diminished capacity, that is to say, at about 300 per hour, he could have derived a good deal of value from the expenditure which the applicant claims to recover from the respondent. It is a puzzling feature of this case that the applicant did not derive any income from the machine notwithstanding its potential to operate at the diminished rate. I am led to wonder whether the relative lack of interest shown by the Perth market in the products of the machine might have occasioned the failure for it to be used to its full extent. Indeed, I have some difficulty in seeing how Mr Moss could not have supplied the one order that he did receive using the machine at its reduced production rate. What I have said so far leads me to the view that the applicant is entitled to recover the amount of $10,329 which was paid to the hire purchase company. I think that amount is 14. recoverable because the applicant was entitled to reject the machine with its diminished capacity and to decline to go on with the contract. However, I must now turn to the additional claim for $7736, which is the amount to which I think Mr Birch's submissions are particularly relevant. Coming to that list of expenses, I think some items on it are not, in any event, recoverable. I do not think that the amount of $303.44 for motor vehicle expenses incurred on the Commodore car is recoverable. That account was rendered on 11 July 1985 and the great bulk of it relates to work of a fairly substantial kind dealing with things such as water pumps and thermometer housing, which has no causal relationship with anything for which the respondent is liable. The amount of $50 payable to Ian Diffen is for shock absorbers. That amount was incurred only three weeks after the brickmaker was delivered and I do not think it is reasonable to saddle the respondent with the whole of that expense. Being generous to the applicant, I think that 50 per cent of it would be a fair allowance. As to the item of $88.50 payable to Tom's Tyres this amount seems to be substantially for new tyres fixed to the vehicle on 15 August, and I cannot see that it would be reasonable to saddle the applicant with the whole of that cost. Again being generous, I think that about half of that sum - say, $44 - should be deducted. 15. The applicant claims a total of about $1013 for licence fees paid on the trailer which is part of the machine. The bulk of this sum is an amount of $910.80, which was a tegistration fee for a licence up to 30 July 1986. Mr Moss does not appear to have made a claim for a refund of that licence fee. It seems reasonable to me to assume that had he done so it would have been substantially refunded. I think this item should be reduced by about $500 on that account. Two amounts are claimed for telephone accounts paid to Telecom. They total about $430. The applicant suggests that about 25 per cent of those accounts should be deducted to allow for private use, but I think that a figure of 50 per cent is likely to be fairer. Accordingly, I think that about $215 should be reduced for that. The final item is an amount for insurance. An amount of $577.50 was payable as an insurance premium. Mr Moss said he obtained a refund for part of this sum. Counsel for the applicant pointed out that his client would have carried the risk on the trailer until such time as it was taken into the custody of the hire purchase company. I think if I allow the applicant roughly two-thirds of the insurance premium (some part of which he says was refunded) I would be doing rough justice. Therefore an amount of about $200 should be deducted from the total amount claimed. The total of the deductions is about $1275 which, deducted from $7736, gives a figure of approximately $6500. 16. However, I do not think it would be right to saddle the respondent with the payment of the whole of that sum or with any part of the $1200 claimed for loss of income. I think that Mr Moss could have got at least 50 per cent of the value of that sum of $6500 if he had operated the machine at its even limited capacity. Had he done so, I am confident that he would have earned income in excess of $1200. It therefore seems to me that those losses cannot fairly be said to result from the failure of the machine to produce at the rate of 500 bricks per hour. Those losses could have been avoided and should have been avoided. If one takes one-half of $6500 - that is to say, $3250 ~ and adds to it the $10,329 payable to the hire purchase company, the total is $13,579. I should say that on any basis the applicant would have been entitled to a verdict for some small amount to allow for the provision of a pre-mixing operation and also a small amount to allow for the losses and expenditures incurred in investigating ways and means of making the machine capable of producing at the rate of 500 per hour. There remains the question of mitigation of damages. In the view I take of the evidence, had Mr Moss spent a relatively small sum of money on the machine he would have been able to operate it in such a way as to produce bricks at the rate of 500 per hour. However, on the question of mitigation of damages, the onus is on the respondent - see Garnac Grain Company Incorporated v H.M.F. Faure & Fairclough Limited & Ors (1968) A.C. 1130 at 1140; The World Beauty (1970) P. 144; and McGregor on Damages, 14th Edition, para.246. As was pointed 17. out by Lord MacMillan in Banco de Portugal v Waterlow and Sons, Limited (1932) A.c. 452 at 506, caution needs to be exercised in using hindsight to criticize steps taken by a party to protect himself against the conduct of another. Although Waterlow's Case was a case in breach of contract, what is said by Lord MacMillan at p.506 seems to me to be equally applicable to a case such as the present. He there said: "It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures ..." When Mr Moss was having trouble with the machine he rang Mr Gary Foster and, according to Mr Moss, Mr Foster told him what steps he could take to overcome the problem being experienced. Mr Moss did not take those steps. He said, in effect, that he doubted whether they would prove effective. The cost of doing the necessary remedial work was said to be in the order of $720. I have come to the conclusion that the respondent has not discharged the onus which it carries on this issue. I think one has to have regard not only to the costs involved (which I do not think was prohibitive), but also to the circumstance that Mr Moss was being asked to significantly modify the machine in such a way as to make the mixing bowl quite redundant. It was sold as a self-contained machine or factory unit. The steps which Mr Gary Foster suggested to 18. him as being ones which he might take seem to me to be steps which, under all the circumstances, he was not obliged to take. In these circumstances, I do not think that the amount of $13,579 should be reduced. There are only two other matters to which I should refer. It is fortunate for the respondent that the hire purchase company, which repossessed the machine and disposed of it at a loss of some $9000, has abandoned its claim against the applicant for that loss. This judgment is given on the basis of that abandonment. Had that evidence not been given, the damages would have been escalated by $9000. The second matter is the cost of about $800 for obtaining the report from Messrs Merz and McLellan. In my view, the circumstances giving rise to the preparation of that report make it more appropriate that the cost of it should form the subject of an item in the claim for costs. I do not allow in this judgment any amount for those fees. In the result, there will be a verdict for the applicant in the amount of $13,579. I add to that sum an amount of $1500 for interest, and the judgment will therefore be in the sum of $15,079. The respondent must pay the applicant's costs. 19. I certify that this and the eighteen (18) preceding pages are a true copy of the Reasons for Judgment of his Honour Mr Justice Morling. Associate: C Monuen Date: Neverber 1987 Counsel and Solicitors for Mr J. Mcphee instructed by Applicant: McPhee and Meyer Counsel and Solicitors for Mr C. Birch instructed by Respondent: Northmore, Hale, Davy and Leake Dates of Hearing: 9, 10 and 11 November 1987 Date of Judgment: 11 November 1987