* FOR LIMITED DISTRIBUTION SUDOMENT No. TAS Sin IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) ) GENERAL DIVISION ) No. G180 of 1985 BETWEEN: GARTENMANN CEILING SYSTEMS AUSTRALIA PTY. LIMITED First Applicant DRAUGHT INDUSTRIES PTY. LIMITED Second Applicant AND: POLLUTION CONTROL ENGINEERING PTY. LIMITED First Respondent PETER KINGSLEY BONSER Second Respondent GRAEME JOHN NEALE Third Respondent POLLUTION CONTROL ENGINEERING PTY. LIMITED Cross-Claimant GARTENMANN CEILING SYSTEMS AUSTRALIA PTY. LIMITED Cross—-Respondent CORAM: GUMMOW J. - \A DATE: 23 DECEMBER 1987 so ON PLACE: SYDNEY oo coe E 1! ~. on ~ REASONS FOR JUDGMENT Tm a ~ o\ Fedhis . COURT OR * "t ~ A, TAWA a INTRODUCTION LPP ee IT von The dispute between the parties concerns the efficacy of a conveyorised powder coating plant for metal ceiling tiles, used primarily in office and like premises. The plant was manufactured, designed and supplied by the first respondent ("Pollution Control") for use upon the premises of the first applicant (""Gartenmann") at Tomago, Newcastle. The plant became "operational" in the last week of August 1983. The applicants seek damages. They base their claims in contract (including collateral contract), tort (negligence, "negligent misrepresentation", and deceit) and also claim for contraventions of ss.52 and 53 (c) of the Trade Practices Act 1974 ("the TP Act"). Despite the array of causes of action, the parties were, in the end, not seriously at issue as to matters of law. However, they were at serious issue upon a number of issues of fact. Once those issues are resolved, the questions of legal liability will fairly readily be answered. The principal heads of complaint concern alleged deficiencies or short-comings in production rate, production cost (though these are inter-related) and in quality of the paint-finish and gloss level of the tiles produced from the plant. In May 1984, two additional powder guns were added to the automatic powder booth and in May 1985, new reciprocators were installed in the same booth. The meaning of these terms will shortly appear. What is of immediate significance is the applicants' view, expressed in oral evidence, that, following these changes, the plant began to produce a finished product which has been, generally speaking, of acceptable quality, although complaint still is made of production rate and cost. The applicants assert that in respect of the complaints made by them, the respondents are liable first by reason of misstatements allegedy made as to the quality and characteristics of the plant to be supplied by Pollution Control. These misstatements are said to give rise to claims for contravention of the TP Act, collateral contract, contract, negligent misrepresentation and deceit. Further, it is alleged that the respondents are liable because there was failure to exercise in a number of respects reasonable care and skill in the design of the plant, in breach of contract and of a duty of care in tort. I deal first with the alleged misstatements and the evidence relating thereto. In the Statement of Claim, they are expressed variously, to reflect the differing legal bases on which they are put. However, they reflect the same factual disputes and may be summarized as being complaints that, contrary to what was represented or contracted for, the powder coating plant: (a) was not capable of regularly pre-treating and powder-coating more than 800-900 metal ceiling tiles of the type used by Gartenmann in its business during the course of any normal eight-hour shift operated by the said business, and, in particular, was not capable of pre- treating and powder-coating 3,000 such tiles per eight-hour shift; (b) could not pre-treat and powder-coat each such metal ceiling tile at a cost which, when added to the cost of manufacturing the uncoated tile, was equal to or less than the cost of manufacturing a metal ceiling tile from "Colorbond"" steel; (c) could not pre-treat and powder-coat each such metal ceiling tile, at a cost which was any less than approximately $1.10 per tile, and, in particular, could not do so at a cost of approximately $0.26 per tile; (d) could not produce a metal ceiling tile which was even in colour and degree of gloss and suitable for use in the construction of ceilings; (e) was not capable of pre-treating and powder-coating the metal extrusions used in the suspension of metal ceiling tiles; (£) did not comply in all respects with all relevant health and safety legislation and regulations and industrial standards. . No case in respect of ground (f) was made at the hearing. In respect of ground (b), Mr. Bonser (the second respondent) did not know of the cost of manufacturing from Colorbond at any material time and there is no other evidence that the cost was made known to the respondents. Ground (b) thus was not substantiated. For ground (a), the applicants rely upon oral statements and upon the terms of the written addenda to what I later describe as "the proposal". For the $0.26 cost in ground (c}), reliance is placed on the addenda. Colour variation and gloss (ground (d)) is addressed specifically in the oral evidence. The final complaint, ground (e), is directed to the longest aluminum extrusion used in the framework that supports ceiling tiles when in place. Reliance here is placed upon the proposal when read in surrounding circumstances. THE BUSINESS OF GARTENMANN Gartenmann has carried on, since about 1973, the business of the manufacture and distribution of painted metal ceiling tiles. The company is managed by Mr. Paul Crockett and is one of a group of three family companies operated by the Crockett family. Another of them, J.A. Crockett Pty. Ltd., is managed by Mr. Phillip A. Crockett (Mr. Paul Crockett's brother) and carries on the business of installing ceilings on contract. Draught Industries Pty. Ltd. ("Draught"), the second applicant, is a wholly owned subsidiary of Gartenmann and is the present operator of the powder coating plant in contention in these proceedings. This followed a transfer from Gartenmann with effect from September 1983. The shareholding in the companies is divided equally between Mr. Paul Crockett, Mr. Phillip Crockett and their mother, Mrs. Lorna Crockett. Mrs. Crockett inherited her shares following the death of her husband, Mr. Arthur Crockett, in 1982. Mrs. Crockett plays no active part in any of the businesses. Mr. Paul and Mr. Phillip Crockett have been the only directors of the family companies since the death of Mr. Arthur Crockett. The major role in the events with which this case is concerned was played by Mr. Paul Crockett and I shall refer to him simply as Mr. Crockett. In order to comprehend the nature of the complaints made by the applicants, it is necessary briefly to describe the operation of the powder coating plant. The unpainted ceiling tiles are manufactured in a separate operation. They are then brought across to the powder coating section of the factory. There is a range of ceiling tile sizes, but the most frequently used is the perforated 1200mm x 300mm tile ("the standard tile"). The unpainted tiles are loaded onto a conveyor and are suspended by "jigs". Jigs are metal hooks which attach the product to the conveyor; they also serve the important purpose of earthing the product and for this purpose must be kept sufficiently clean at the point of contact with the tile. After loading onto the conveyor, the metal tiles are "pre-treated". In this case, two possible methods of pre-treatment are involved. The proposal put to Gartenmann by Pollution Control posed as alternatives trichlorethylene and phosphate pre-treatment. Gartenmann chose the recommended (and more expensive) phosphate method. Pre-treatment involves first the spraying of the tile with heated chemicals and then the passage of the tile through a heated fresh water rinse cycle within the pre-treatment plant. Heat is provided by means of two gas burners. The pre-treatment process cleans the tile and readies it for powder-coating. It is vital to the powder coating process that the metal be clean and, in particular, free from oil or grease which may have been applied to the metal to inhibit rust. The wet, pre-treated tile then passes through a dry-off oven; powder cannot be applied to a wet product. Further, the tiles have turned up edges and water tends to accumulate in the corners of these edges after the tile has been rinsed in the pre-treatment plant. Hence, the particular importance of the dry-off oven. After the dry-off stage, the tile is ready for the application of powder. Powders are of two kinds, polyester and epoxy. Epoxy powder is required for a low gloss finish, as was needed for the ceiling tiles produced by Gartenmann. The powders are supplied in white and various colours. The plant as designed has two powder booths on line, one in which powder is applied by automatic use of "powder guns", the other in which an Operator applies the powder by manual use of the powder guns. In the automatic booth, the powder is applied by means of a "reciprocator" which moves the powder guns vertically over a measured distance and at an adjustable rate. Powder can also be applied by a human spraying the tiles as they pass by on the conveyor. Powder which has not adhered to the tiles is filtered from the air and retained for re-use, mixed with "virgin" powder. The powder is positively charged as it is emitted from the nozzle of the gun. In this way, the powder is electrostatically attracted to the metal tile earthed via the jig and conveyor. The tile next passes through the infra-red cure oven. The cure oven consists of reflective panels and infra-red lamps. The heat is radiated in this way, reflected rather than conveyed by the more conventional convection method used in gas and oil fired ovens. These rely upon the ascension of heated air. The cure time and temperature are quite critical; this is especially so with the epoxy powders used by Gartenmann. Cure time is controlled by the speed of the conveyor, and the application of heat. This is adjustable by varying the amount of current passing through the lamps. The oven is divided into three zones further to facilitate heat adjustment. Accordingly, it should be possible to achieve an acceptable cure by either or both altering the conveyor speed and the current passing through the lamps. There are limits to the amount of heat that can be applied to the powder without scorching it or "over-baking" it. Therefore, there is a point at which it becomes impossible to increase the heat output of the oven and the line speed and still achieve a satisfactory cure. From a production point of view, it is obvious that a faster conveyor speed means increased production and reduced running costs. After emerging from the cure-oven, the coated tile is manually removed from the jig at the point of loading. It may then be distributed without any further processing. THE FACTS Before August 1983, Gartenmann ceiling tiles had been manufactured by use of Lysaght's "Colorbond", a pre-painted sheet metal from which the ceiling tiles were worked into the desired shape by Gartenmann. As the Colorbond sheet metal had to be cut, it suffered corrosion problems. Mr. Crockett was also dissatisfied with the consistency of the paint finish applied to Colorbond and its continuity of supply. Colour variation is particularly critical as it may be barely perceptible until the ceiling tiles are installed. It 18 at that time that colour variation becomes particularly noticeable. It was in this state of dissatisfaction with existing procedures and materials that Mr. Crockett looked for something better. In September or October 1982 Mr. Crockett read some brochures issued by Wagner Spraytech Australia Pty. Ltd. ("Wagner") concerning the ""powder-coating"" process. Mr. Crockett contacted Wagner on about 9 November 1982 and was referred, by Mr. Geoff. Cuthbert, to Mr. Peter Clink, the New South Wales agent for Pollution Control. The two principals of Pollution Control were Mr. Bonser (the second respondent) and Mr. Neale (the third respondent). Mr. Bonser had considerable experience in "infra-red technology" and by 1983 had been involved in the design and installation of about one hundred ovens. He had worked for Fostoria-Fannon (Aust.) Pty. Ltd. for about ten years up to 1979, and in that time had been concerned with the installation and commissioning of the first "hot melt" conveyorised powder coating system in Australia. Mr. Neale's expertise was directed more to powder spraying and dust and fume control equipment. In 1971, he had taken part in the design and supply of the first successful installation in victoria of a powder recovery system. He and Mr. Bonser regarded their skills as complementary. A meeting was arranged between Mr. Crockett and Mr. Peter Clink at the offices of J.A. Crockett Pty. Ltd. in Newcastle. Mr. Crockett remembers nothing of this meeting though he does not dispute that it occurred. Mr. Crockett's brother, Mr. Phillip Crockett, recalls the meeting taking place. Mr. Clink also recalls the meeting. At this meeting, information was collated by Mr. Clink concerning Mr. Crockett's envisaged production requirements and the dimensions of the Gartenmann product. Mr. Clink used a standard form of Pollution Control entitled "Request for Proposal-Data Sheet". At that meeting, arrangements were made for a demonstration for Mr. Crockett at the premises of Robert Mandl Pty. Ltd., ("Mandi"), at Matraville, a Sydney suburb. A powder coating plant designed by Pollution Control was in operation there. The purpose of this meeting was also to introduce Mr. Crockett to Mr Bonser, to discuss the powder coating process and to decide if he wished to continue further with his enquiries. The meeting at the Mandl plant took place on 11 November 10. 1982. In attendance were Mr. Crockett, Mr. Peter Bonser, Mr. Peter Clink, Mr. Dermot Hatfield (a representative from Robert Bryce & Co. Ltd., a powder supplier) and Mr. Tom Boal of Wagner. Mr. Crockett had with him samples of his standard sized ceiling tiles and Mr. Bonser was given by Mr. Clink the "Request for Proposal-Data Sheet" setting out the information gleaned by Mr. Clink from the meeting with Mr. Crockett. Mr. Neale was not present on this occasion. At the Mandl plant, Mr. Crockett's sample tiles were suspended from a conveyor and were coated with powder which was applied by a person spraying the tiles in a manner intended to simulate the operation of an automatic spray gun. This was done several times and after each application of powder the tile was "blown off" and the powder re-applied until the parties were satisfied that powder had been uniformly applied to the tiles. The tiles were suspended back to back on the conveyor; an important objective of the tests was to establish the feasibility of coating the tiles in this manner. It was envisaged that the tiles would pass by two guns, each mounted on a reciprocator on either side of the conveyor. The concern was whether this configuration would allow sufficient powder to "wrap around" the tiles and "dust coat" the rear of the ceiling tile sufficient to inhibit corrosion, the face side of the tile being the critical area of finish. The conveyor speed at the tests was 1.5 metres per minute. The coated tiles were passed through the cure oven and the results were then examined. There is no evidence of complaint or concern as to evenness of colour. However, there is some considerable conflict in the evidence as to Mr. Crockett's li. reaction to the gloss level of the finished product. Mr. Crockett recalls asking Mr. Bonser whether a lower gloss level could be achieved as Gartenmann ceiling tiles had to be in a low gloss finish. Mr. Crockett recollects Mr. Bonser telling him that "this would not be a problem". On the other hand, Mr. Bonser recollects Mr. Crockett's reaction as being one of general satisfaction with the finished product. He does not specifically recall Mr. Crockett's alleged concern with respect to gloss. However, Mr. Clink does recall Mr. Crockett mentioning gloss levels. I accept that this matter was raised with Mr. Bonser and that Mr. Crockett stressed, and Mr. Bonser accepted, the importance to him of a low gloss finish. The level of gloss is dependent upon the particular powder used and Mr. Bonser was aware that a low gloss finish was required. Mr. Crockett indicated that he was "interested" in the plant. After the tests were completed, Mr. Bonser, Mr. Crockett, Mr. Clink and Mr. Boal of Wagner went to lunch for further discussions. It is at this lunch on 11 November 1982 that Mr. Crockett alleges various matters were discussed concerning the performance of the proposed plant. In particular, Mr. Crockett gave evidence that on this occasion he told Mr. Bonser that he required a minimum production capacity of 2,000 tiles per eight hour shift, on the basis that Gartenmann currently manufactured about 1,000 tiles per eight hour shift. However, as I have indicated, what the applicants pleaded was an oral representation as to 3,000 tiles (Amended Statement of Claim, paras. 11 (a) (and particulars (i) (A)), and paras. 18, 25, 29, 38 (and particulars (iii)). Mr. Crockett also gave evidence that he said to Mr. 12. Bonser that the cost of painting each tile must be near the cost of using Colorbond. However, as I have earlier stated, Mr. Bonser was not told the actual cost of Colorbond. Importantly, Mr. Crockett says he told Mr. Bonser that he had a project budget of $125,000 and Mr. Bonser replied that "we should be able to do it for that". Mr. Crockett also recalls Mr. Bonser saying that "you will be pleased with the finish". Mr. Bonser recalls discussion concerning the pre-treatment of extrusions, aspects of infra-red heating, a project budget of $100,000, and problems with Colorbond with respect to supply and colour variations. I have already found that at the Mandl plant, Mr. Crockett had stressed and Mr. Bonser had accepted the importance to Mr. Crockett of a low gloss finish. However, Mr. Bonser emphatically denies any mention of projected output, stating that at such an early stage it would have been impossible for him to give such a forecast; in any event, Mr. Bonser states that he is very careful not to discuss projected output in preliminary discussions of this type. In assessing the various versions of what was said at this lunch, on 11 November 1982, it must be recalled that Mr. Crockett had no independent recollection of a meeting with Mr. Clink two days earlier at the premises of J.A. Crockett Pty. Ltd.; this circumstance tends against acceptance that he had the strong recollection for which he contended of particular matters discussed at this lunch. Mr. Clink, in his evidence, denied any mention of 2,000 tiles per shift; he did recall the figure of 158 units per hour being raised (i.e. 1264 units per 8 hour shift) and a projected figure of 830,000 units per annum, These matters had been recorded by him on the Request for 13. Proposal-Data Sheet at the Newcastle meeting, two days earlier. Most of the matters that Mr. Bonser recalls as being discussed at the lunch were matters of peculiar interest to him, such as infra-red ovens, and are matters that he believes he would probably have discussed in those circumstances. Both Mr. Crockett and Mr. Bonser recall Mr. Crockett asking for firm figures in the form of a quotation. A detailed quotation was provided to Mr. Crockett and it is the only contemporary record that purports to embody matters agreed upon at this meeting. There is no mention in the body of the proposal of the figure 2,000 tiles per shift, although in the addenda there is a reference to 3,000 tiles. However, the significance of that figure of 3,000 tiles was a matter of much debate at the trial. In the circumstances I have described, I conclude that that figure of 2,000 tiles per shift was not put to Mr. Bonser on 11 November. I find that Mr. Bonser did not represent that the plant was to be capable of pre-treating and powder coating 3,000 ceiling tiles in a normal eight hour shift, as pleaded by the applicants. It will be recalled that Mr. Tom Boal of Wagner (the powder application equipment suppliers) was present on 11 November at the Mandl plant tests. On 22 November 1982, Mr. Boal sent to Mr. Bonser a quotation for the supply of three powder guns and two reciprocators. As I have indicated, the reciprocators are devices that move the spray guns in a vertical pattern in the automatic booth of the plant. Mr. Boal had assessed the needs of the plant on the basis of the Mandl test and in his letter to Mr. Bonser he recommended as follows: 14. "We are pleased to confirm herewith our recommendation for the application equipment to powder coat perforated ceiling tiles for Gartenmann Ceiling Systems Australia Pty. Ltd. at the conveyor speed used in the trials at the Robert Mandl plant on 11 November 1982. We consider that two automatic guns on reciprocators would be required with a single manual gun for touch up purposes..." This is an important matter, as the applicants allege this configuration proved to be inadequate. The guns and reciprocators are referred to in the proposal as being "prime cost" items. Mr. Crockett understood a "prime cost" item to be (and his understanding is not disputed) a separate item that is "bought outside" as a necessary extra, the price of which, though quoted, is subject to variation. Mr. Boal's recommendations were made on the basis of the Mandl plant line speed which was 1.5 metres per minute. Pollution Control was to receive from Wagner an unequivocal performance guarantee covering the powder application equipment which became prime cost items in the Gartenmann plant. On 22 November 1982, Mr. Bonser telephoned Mr. Crockett and advised him that the written submission was almost ready. On 26 November, Mr. Bonser telephoned Mr. Crockett and informed him that the "final figures" for the plant were $89,825 for a trichlorethylene pre-treatment plant or, alternatively, a phosphate pre-treatment system could be provided. In that event the cost of the plant would be $126,191. Mr. Crockett agrees that in these telephone calls, no mention was made of quality of the finished product, nor the quantity to be produced. Following these discussions, a few days later Mr. Crockett received in the mail a document entitled "Gartenmann Ceiling System Australia Pty. Ltd. Proposal for the Design, 15. Manufacture and Commissioning of Powder Coating Plant... ." ("the proposal"). The proposal is dated 29 November 1982. With specification and addenda, it is a document of some twenty five pages. It specifies that mechanical and electrical installation is work not included. Mr. Crockett relies upon various matters set out in the proposal as being instances of misleading or deceptive conduct and alternatively as warranties, concerning the performance of the plant with respect to production output and price, on a per tile basis of applying the coating. In particular, Mr Crockett points to the figures of 3,000 tiles per shift and 26 cents per tile referred to in the addenda to the proposal. Gartenmann also alleges that the document warrants that long extrusions could be pre-treated and processed through the plant, whereas the cheaper option of the trichlorethylene plant did not have this capability. I will return further to consider the text of the proposal. Following the receipt by Mr. Crockett of the proposal, telephone conversations took place between Mr. Crockett and Mr. Bonser on 14 and 15 December 1982. Arrangements were made for Mr. Crockett, his brother Mr. Phillip Crockett and Mr. Warren Bale, the proposed plant supervisor, to visit the offices of the respondents in Bayswater, Melbourne and to inspect other Pollution Control designed plants in operation at the factories of other clients. The meeting tock place on 17 December. Mr. Bonser met the parties at the airport and they then went to the Pollution Control office in Bayswater. A meeting took place between those parties and Mr. Neale, the third Respondent. On Mr. Crockett's evidence, nothing of significance was discussed. 16. Mr. Bonser then took Mr. Crockett, Mr. Phillip Crockett and Mr. Bale on an inspection of three other powder coating plants in operation at the plants of other clients of Pollution Control. Following this inspection, the parties met up again with Mr. Neale at a "hotel-restaurant" in the Bayswater area and had lunch. Both Mr. Phillip Crockett and Mr. Paul Crockett in their evidence state that over this lunch statements were made concerning the quality of the finish to be provided and the projected output of the plant. With respect to the quality of the finish, both Mr. Paul and Mr. Phillip Crockett recall statements being made to them concerning the ability of the plant to provide an even colour and gloss coating to the tiles. Mr. Paul Crockett recollects Mr. Bonser saying that Pollution Control were the leaders in infra-red technology in Australia and Gartenmann were not going to have any complaints about colour or gloss. Mr. Phillip Crockett recollects Mr. Bonser using words in an immaterially different form. Both the Crocketts recollect some annoyance on Mr. Bonser's part at this matter being raised. Mr. Bonser denies having spoken in this way, although he recollects that the problem of colour variation was discussed. Mr. Neale does not recall any discussion of colour variation and gloss problems. Mr. Bale did not give evidence. I accept that words to the effect stated above were used by Mr. Bonser. With respect to the capacity of the plant to coat tiles, Mr. Paul Crockett recollects referring to the proposal and saying to Messrs Bonser and Neale words to the effect: "Wwe asked for 2,000 tiles per shift and you are giving us 3,000." Mr. Neale is alleged by Mr. Paul Crockett to have replied to the 17. effect: "When it came to working out the speeds and doing the calculations it came to 3,000 tiles per shift." Mr. Paul Crockett recollects nothing further of significance being discussed over lunch. Mr. Phillip Crockett's recollection of the alleged discussion concerning production rate is to be contrasted with his brother's recollection. Mr. Phillip Crockett recollects Mr Bonser (not Mr. Neale) proffering the figure of 3,000 tiles per shift, with Mr. Neale cautioning Mr. Bonser not to be "too quick in coming forward with those kinds of figures". Mr Bonser in his evidence does not recollect any discussions concerning the' production rates or the estimate of 3,000 units per shift referred to in the addenda to the proposal. Mr. Neale denies that there was any mention of production rates during the lunch. He strongly denies that any minimum requirement of 2,000 tiles per shift was ever mentioned to him. In these circumstances, I find that there was no statement made (to the effect of that pleaded by the applicants) as to production at the rate of 3,000 tiles per shift. I also am not satisfied that a figure of 2,000 minimum production was propounded by either Mr. Bonser or Mr. Neale. There may have been some mention by one or both of the Crocketts of production rate in a general sense, but I am not satisfied that any such discussion had the specificity asserted by the Crocketts for their case on ground (a), as I earlier have described it. of course, the Crocketts differed in their recollection of events and, given the lapse of time and the social nature of the occasion in question, this is not surprising. 18. As I have said, I find that in conversation over lunch on 17 December 1982, the importance of evenness of colour was stressed to and accepted by Mr. Bonser. I have also found that on this occasion the importance of a low gloss was again stressed to and accepted by Mr. Bonser (as it had been on 11 November, was shortly to be stressed again by Mr. Rees and was further to be stressed by Mr. Crockett on 9 February 1983). The legal significance of what was said on these occasions, is, of course, another matter, bearing particularly in mind that the representation pleaded was that the plant would give each tile a finish which was even in colour and degree of gloss. I find that no representation in the terms pleaded was made. I deal further with this topic under the heading "Gloss and Colour". In reaching these conclusions, I have been assisted by the demeanour of the witnesses and the manner in which they recalled events. If on one issue one witness 1s preferred to another, and conversely on other issues, this is not the result of an adverse finding on credit. The point is that in all the circumstances, I prefer the strength of the recollection of different witnesses on different questions. I return to the narrative of events. Following the lunch on 17 December 1982, the parties returned to the Bayswater offices and were met there by Mr. Howard Rees and Mr. Ian Rose; both men were employees of Robert Bryce & Co., powder suppliers. Mr. Rees gave evidence at the hearing, which I accept. Mr. Rees had had a clear recollection and impressed me. He had dealt with Mr. Bonser since 1970 and the two men were well known to each other. Mr. Crockett also had had telephone conversations with Mr. Rees prior to meeting him in Melbourne. 19, Mr. Rees warned the Crocketts that powder coating ceiling tiles was a very difficult operation as the requirement of uniformity in colour was critical. Mr. Rees then told the Crocketts about a customer who powder coated ceiling tiles and had "a hell of a lot of trouble". Mr. Rees told the Crocketts that because they sought a low gloss finish, they must use epoxy powder which has a comparatively narrow "thermal latitude". This is the degree of temperature variation within which a satisfactory cure could be achieved. Mr. Rees recalls Mr. Paul Crockett mentioning that "one of the most important features of his plant was going to be colour consistency and gloss". Mr. Rees warned Mr. Crockett that epoxy powder was prone to overbake if the infra-red cure oven was not correctly monitored. Mr. Rees gave evidence that at this point Mr. Bonser became excited and told Rees to "mind his own business and that the design and performance of the oven was a matter of his own expertise". Mr. Rees indicated a preference for convection ovens in conjunction with epoxy powders though he did say in cross-examination that infra-red ovens were best suited to flat "two dimensional" products and that at the relevant time the majority of plants utilized infra-red ovens. Mr. Rees summed up the dilemma of oven choice as follows: "There is nothing perfect in these industrial systems. If you choose an epoxy powder and you choose it by reason of a requirement of low gloss, then the one thing that must be examined is the overbake resistance of the coating. This is the resistance of the coating to withstand changes in oven conditions and epoxy powders have a poor history of resistance to overbake conditions. They will change colour, particularly if we are talking of pastel colours. Now, polyesters are more overbake resistant but, of course, they cannot be produced with a consistently reproduceable low gloss. The chemical resistance of both coatings is about the same. The application conditions probably favour polyester." 20. Mr. Bonser, Mr. Neale and Mr. Clink visited Newcastle on 9 February 1983 to obtain from Mr. Crockett the written purchase order for the plant and a deposit. The purchase order identified the proposal but went on to specify three further design requirements. On that occasion, Mr. Crockett gave a practical demonstration of the problem of colour variation in ceiling tiles by placing two tiles in a ceiling and pointing out colour variations that only then, with installation, became apparent to the eye. I find that again on this occasion, Mr. Crockett stressed the importance of consistency of colour and low gloss. The price was $129,973 and a "deposit" of $20,584 was paid with the order. On 22 February 1983, Mr. Bonser wrote to Mr. Crockett enclosing an energy schedule for the powder coating plant and informing him that an "Order Confirmation" with revised specifications and all drawings including the final plant layout would be forwarded shortly. On or about 2 March 1983, after the proposal had been accepted by Mr. Crockett and a deposit paid, Mr. Crockett had a telephone conversation with Mr. Rees. Mr. Rees again expressed his concern at the use of infra-red heat in conjunction with epoxy powder. Mr. Crockett telephoned Mr. Bonser e1rther that day or the next day, expressed his concern at Mr. Rees' reservations and asked if a convection oven could be installed in place of the infra-red oven. Mr. Bonser reassured Mr. Crockett that this problem would not occur with the Pollution Control oven design. Mr. Crockett accepted this advice and decided to stay with the infra-red oven. There is, in my opinion, no case that this advice was given without reasonable care by Mr. Bonser. In any 21. event, if Mr. Crockett had opted for a gas fired oven, it would have meant a substantial increase in cost and a requirement of extra floor space. I have referred to the evidence as to Gartenmann's budget limits for the project. It was the practice of Pollution Control to issue "Order Confirmations" which incorporated any departures from the quotation in respect of which the order was placed. The "Order Confirmation" is dated 7 March 1983. There is a covering letter which refers to alterations to the conveyor "to further improve the handling and tracking of long products" and states that engineering, purchasing and manufacture is now well advanced. The covering letter conveys a request that, if in agreement, Gartenmann sign both copies of the order confirmation and send one copy back to Pollution Control. This was not done. Nevertheless, my conclusion is that the order confirmation was tacitly accepted and that the writings that constitute the contract between Pollution Control and Gartenmann comprise the proposal (with addenda), the purchase order and the order confirmation. There was an issue, with which I deal later, as to whether the contract was also partly oral. The order confirmation sets out the price of the component parts. This list is divided between components designed, manufactured, supplied, delivered and commissioned by Pollution Control and components which were listed as "P.C. items". Both the proposal and the order confirmation listed "product hanging racks" as "Specific Items for Client's Supply". The order confirmation repeats the system design speed of 1.37 metres per minute. On 6 April 1983, Mr. Bonser wrote to Mr. Crockett 22. giving a progress report and advising that training had been organised for Mr. Bale. On 10 May 1983, Mr. Bonser wrote a letter to Mr. Crockett enclosing a revised layout drawing providing for a repositioned conveyor drive. In this letter, Mr. Bonser expressed concern at the use by Gartenmann of "uncoated steel sheet", "in lieu of the zinc seal as originally envisaged". Mr. Bonser foreshadowed that "1t may not be feasible to process the tiles in the 'back to. back' configuration" and that the tiles be "off-set" to minimise or eliminate the problem. Pre-treatment of this sheet metal, also known as CRCQ, is critical as it is coated with oil to inhibit corrosion. Between 27 June and 1 July 1983, Mr. Neale attended at Newcastle to supervise the commencement of the installation of the plant. Mr. Bonser visited the Gartenmann premises on 28 August, 7 September, 3 October and 24 October 1983. On the last occasion, he was accompanied by Mr. Bradford, a powder coating consultant engaged by Gartenmann at Mr. Bonser's suggestion. Mc. Bonser's visits were to assist in the commissioning of the plant. On 16 August 1983, Mr. Crockett wrote to Mr. Bonser referring to a telephone conversation of 13 August 1983, regarding an outstanding progress payment for the powder coating line. It is in this letter that Mr. Crockett first records written dissatisfaction with the line. At the time of the letter, the line was partly installed and thus not yet in operation. Mr. Crockett there states that "it appears" that the phosphate plant as supplied cannot process CRCQ in "back to back" configuration which he says automatically reduces 23. production by 50%. (As mentioned above, Mr. Bonser had already cautioned Mr. Crockett on this topic in his letter of 10 May 1983.) In the letter of 16 August, Mr. Crockett then refers to the addenda to the proposal. Mr. Crockett states that the use of CRCQ was discussed with Mr. Bonser and a representative of Robert Bryce (the powder supplier) in the December meeting in Melbourne. Mr. Crockett also states in the letter that there was never any mention of a 50% reduction in output using CRCQ. The next correspondence in evidence is a letter of 15 February 1984 from Mr. Crockett to Mr. Bonser. This refers to a conversation of 10 February 1984 and states that "we would again bring to your attention the problem we have had and are still occurring with the plant as designed and manufactured by your company". Three complaints are made therein, the first concerning production. "Poor performance" is said apparently to be brought about by "two major design faults". Mr. Crockett alleges that despite the indicated figure of 3,000 tiles per shift in the proposal (which he said was relied upon), only 30% of that figure has been attained despite employment of a specialist, Mr. Bradford. In fact, at Mr. Bonser's suggestion, Mr. Bradford had spent some time at the plant in October 1983 towards the end of the commissioning period of the plant, and Mr. Bradford had achieved satisfactory production at a line speed of between 1.2 and 1.3 metres per minute with a tile sized 1800mm x 300mm, and using a redesigned jig. This tile was not the standard tile size (1200mm x 300mm) and was painted in "Inca Gold" colour. Mr. Crockett did not 24. ask Mr. Bradford to redesign the jig in use for standard tiles. The order confirmation had made it clear that jig design ("product hanging racks") was a matter for Gartenmann. The complaint as to production also concerns powder application. The second complaint made is with respect to the pre-treatment plant. There are three items within this complaint; the first concerns corrosion within the plant, the second is that the burners have not been installed properly, and the third is that no drain tanks have been supplied. Finally, Gartenmann complains "as yet no access ladder has been supplied". It is noteworthy that Mr. Crockett makes no complaint in this letter (as is made in these proceedings) concerning the incapacity of the pre-treatment machine to process long extrusions (ground (e)). It is not disputed that the pre-treatment machine cannot perform this work. The dispute is as to whether Pollution Control had represented or contracted that it would do so. Mr. Bonser wrote to Mr. Crockett a letter dated 17 February 1984, at a time when he had not yet received Mr. Crockett's letter of 15 February 1984. In that letter, Mr. Bonser deals proleptically with various of the matters raised by Mr. Crockett. The material parts of Mr. Bonser's letter are as follows: Pursuant to our discussions and inspection of the above plant we wish to advise of our concern on matters pertaining to plant operation and maintenance. We note that: Fibreglass products are still being processed within the precincts of the powder plant despite our repeated advice that this will inevitably result in product contamination and equipment deterioration. 25. Seepage into the spray pretreatment plant pits is continuing and appears to be increasing. We are concerned that unless urgent steps are taken to rectify this problem that apart from a general deterioration of the equipment a serious failure of the sophisticated electronic control systems of the gas burners must be anticipated. The silhouette panels of the phosphate plant have been modified thus destroying the protective powder coating. To prevent rapid rusting of these panels they should be thoroughly cleaned, each prime undercoated and treated with a rust resisting enamel. Insufficient attention is being given to general Factory cleanliness and specifically to jig maintenance. It is quite disappointing to be advised at this late stage that you are experiencing operational adifficulties with the plant and the adoption of what seems to us a completely negative attitude to resolving these matters to everyone's satisfaction. The main points of contention are as follows: Uniformity of automatic powder application. We have an unequivocal performance guarantee from the Wagner Company covering their equipment for the Gartenmann application. It was our understanding that the production results achieved during my last visit were acceptable and as we have received no advice to the contrary plus being under considerable pressure to finalize our account we have made our final payment to Wagner for your equipment. We are now in an invidious position of negotiating with a supplier on a _ commercially completed contract. However Wagner assure us of their fullest cooperation and advise that they are providing temporary equipment for your evaluation of "two-gun" operation, plus some modified deflectors to improve dispersion . Water Dry-off It was made perfectly clear in all our discussions and in our written submissions of the problems to be anticipated in economically drying products subsequent to cleaning especially pockets of water and we recall your acknowledgement of this fact. The operational methods [rack design, compressed air jets, air knives, product modification, surfactants etc.] to eliminate or mitigate the problem were all suggested to you by our company. The optimum method(s) is best determined by operational experience with the complete range of products to be processed. 26. Gas Burners We agree there has been an inordinate delay in resolving this matter. Our subcontractor has been absent for an extended period. We now have his recommendation and we will shortly forward the necessary components to effect a rigid mounting for both burners. Pressure Gauge The pressure gauge on the rinse tank was reported to yourselves as being faulty. It is currently under warranty and if returned will be replaced free of charge. Production Rate The data set out in the addendums [sic] 1 and 2 of our preliminary submission dated 29 November 1983 were specifically stated as being estimates only and cannot in any way be construed as a guarantee of performance. To the best of our knowledge no reputable manufacturer would contemplate providing such a guarantee because of all the known variables plus lack of direct control of actual coating plant operations. Our experience is that normally systems exceed the nominal design rate and this has been the case in all plants [Geelong Windows, Villante Industries, Organic Coatings, Clifton Mackie, etc.] installed and commissioned since the conclusion of your project. The two factors in particular are making a major contribution to limiting plant productivity: 1. The compromise use of flight bars to allow long length extrusions to be processed rather than high density loading of the ceiling tiles directly to the conveyor chain provided as originally envisaged. 2. The extremely poor thermal latitude of the low gloss powders you are required to process. This is a direct result of the "flattening" agent introduced into the formulation. We believe even a slight reduction in gloss level criteria would be beneficial. Finally, we wish to re-assure you of our continuing interest and cooperation as we believe it is to our mutual interests to resolve your immediate problems, and it is pleasing to hear, that you are having considerable success in penetrating the Newcastle and Sydney markets. Your attention is invited to our letter dated 4th January 1984. The amount outstanding should be amended to read $6,121.00. If we have not received payment of this amount by Friday, 2nd March 1984, we will immediately institute proceedings under Section 364 of the N.S.W. Companies Code. 27. In response to Mr. Crockett's letter of 15 February 1984, Mr. Bonser wrote a letter dated 24 February 1984. Init he referred to his letter of 17 February 1984, the contents of which I have just set out. Mr. Bonser stated that the jig design was a major determining factor in successful operation of the plant and was an "ongoing process". Mr. Bonser noted that it was "common practice" for companies lacking the necessary experience to appoint a specialist to assist in the day to day operation of the plant, especially in the early stages of operation. Mr. Bonser concluded with a demand for payment within seven days. The letter of 17 February 1984 was replied to on 7 March 1984. Mr. Crockett expressed "extreme concern" regarding what he said was "the poor performance of the plant in coating panels". Mr. Crockett states that this had been a point of contention and that "at no time have we indicated to the contrary". However, in cross-examination, Mr. Crockett accepted that Mr. Bradford had achieved satisfactory results at a satisfactory line speed in October 1983. Mr. Crockett also refers in his letter to recent discussions with Wagner to the effect that the original specification was for two spray guns per side. This is contrary to Mr. Boal's letter of 22 November which I have earlier set out. Mr. Crockett also alleges in his letter that the dry-off oven was inadequate when tiles were in a "back to back" configuration. Significantly, there is no reference to the alleged oral representations made to Mr. Crockett and Mr. Phillip Crockett in December 1982. Reliance is placed by Mr. Crockett 28. in his letter only on the addenda to the proposal. Gartenmann filed a Statement of Claim against Pollution Control in the District Court on 6 April 1984. These proceedings were discontinued after the commencement of the proceedings in this Court. However, in the District Court the claim was that in breach of contractual condition and warranty, the product cost per tile was 39 cents rather than 26 cents. In evidence in this Court, Mr. Crockett claimed as at 1983 a production cost of $1.10 per tile. Further, the other issues in the District Court proceedings were limited to rate of production; it was alleged that the defendant fraudulently misrepresented a production rate of 3,000 tiles per day, whilst the plant was not capable of "properly coating even 1,000 tiles per day". This was also alleged to be a breach of contract. Otherwise, there was no allegation as to quality of product, or, in particular, as to deficiencies in gloss and evenness of colour. THE PROPOSAL AND THE ADDENDA Mr. Crockett points to the proposal as containing representations concerning the performance of the plant which he relied upon to his detriment. The first representation that is alleged to appear is that the more expensive pre-treatment alternative, the phosphate plant, (that purchased by Garten- mann) would pre-treat five metre lengths of aluminium extrusions (i.e. ground (e) of the complaints earlier described). The evidence discloses that the pre-treatment machine is incapable of pre-treating these long extrusions and that arrangements have been made to pretreat them "off-line". 29. This slows production and is more labour intensive. The matter in dispute between the parties is whether Mr. Bonser and Mr. Neale or either of them represented orally or in writing in the proposal that the phosphate pre-treatment machine would process these extrusions "on-line". There is no dispute that such extrusions could be passed through the system on the conveyor; the debate is as to whether "pre-treatment" was to be "on-line" or "off-line". Mr. Bonser and Mr. Neale are adamant that the plant was designed to pre-treat ceiling tiles, not long extrusions. Mr. Paul Crockett is equally adamant that he required these long extrusions to be pre-treated on-line. The only immediate evidence on this point 1s what is set out in the proposal. There is no allegation of any direct oral representations. However, at the meeting with Mr. Clink on 9 November 1982, Mr. Crockett had stated that five metre aluminum extrusions would be processed one day a month, and this information was passed on to Mr. Bonser by Mr. Clink at the Mandl plant meeting two days later. Further, Mr. Bonser explained to Mr. Crockett at the meeting at the Mandl plant that the normal method of pre-treating long aluminium extrusions was in a batch type "chromate conversion" plant. Neither plant offered in the proposal was of this type. Indeed, Mr. Crockett was constructing the necessary tanks to enable pre-treatment of such long extrusions during the commissioning of the plant. Pollution Control submits that the opening paragraph of the proposal, properly construed, represents that, although the phosphate plant could not pre-treat long extrusions, its 30. design was such that after pre-treatment off-line, they could be passed through the system on the conveyor, thereby allowing for the loading and unloading of the line from the same point. If the trichlorethylene plant was chosen, not even this would be possible. This is because the pre-treatment method for that system involves the immersion of the product in tubs whereas in the phosphate system the conveyor operates on a single plane which is suitable for the uninterrupted passage of long objects. I accept this construction of the opening paragraph. The opening paragraph of the covering letter to the proposal provides as follows: "We are pleased to forward our firm Quotations, Specifications and General Apptoach Drawings covering the design, manufacture, supply, delivery and commissioning of a 'Turn Key' Plant for the above project. As requested, we have submitted alternative proposals covering either phosphate pretreatment and cleaning or an ''in-line' trichlorethylene degreasing plant. The phosphate plant would be suitable for both cleaning and conditioning of a wide range of metal substrates, zincseal, mildsteel, aluminium, etc. However the alternative plant would clean only and would not process long extrusions although plant layout would permit powder coating and curing. Subject to application, it would be necessary to pretreat the extrusions off-line which normally consists of de-smut, rinse, etch, rinse and chromate conversion. This latter process may require a relatively expensive effluent treatment system, the actual requirements being subject to local statutory authorities. At page 3 the following appears as the penultimate paragraph of the covering letter and qualifies the above introduction: "Pinally, to assist with plant selection, we have included as addendums [sic] our 31. estimates of the anticipated operating costs for both plants. The estimates in both cases are based on the Automatic Plant and assume a single shift only. If the cost of additional ''off-line' pretreatment and some Timitation of system capability for contract coating are given due consideration, the phosphate proposal would be the more attractive option." [italics supplied] Significantly, reference there is made to "additional off-line pretreatment". This indicates that at least a portion of pre-treatment was anticipated as being done off-line. This is another consideration supporting the interpretation I have preferred. The paragraphs set out above are important in another respect. The first recites Mr. Crockett's request that alternative proposals be forwarded setting out the relative costs of the trichlorethylene and phosphate pre-treatment plants. The second refers to "addendums [sic]" being "our estimates of the anticipated operating costs for both plants". The applicants submit that these estimates were relied upon as forecasts as to the production capacities of the plant and the actual cost of coating the tiles in the alternative plants (i.e. grounds (a) and (c) as previously described). The respondents submit that the addenda were included in the proposal only to highlight and contrast the differing running costs of each pre-treatment system "to assist with plant selection"; they were not forecasts of the capabilities of the phosphate plant and have no such operation, whether as representations or contractual terms. I accept the submissions of the respondents on this issue. The language I have referred to largely speaks for itself. In addition, I should refer to the index. The 32. second page of the proposal is an index. This lists as the last entry "Addendums [sic] Estimation of Operating Costs". Otherwise, the addenda are not referred to in the proposal save for the final paragraph in the covering letter, which I have set out. If the addenda contained estimates of the operating costs of the plant and its capacity to produce ceiling tiles per normal eight hour shift, one would expect reference to be made to them in the body of the proposal. However, each aspect of the plant is discussed separately, in the proposal, and its design parameters are listed without mention of the addenda. The addenda were prepared on the evident assumption that production was of standard tiles. However, Mr. Crockett intended to powder coat not only his entire range of ceiling tiles, being of seven sizes, but also to undertake contract work (if available) and to powder coat various extrusions associated with the Gartenmann ceiling system, including "inserts" and "top hats". In these circumstances, it would be an unwarranted assumption to treat any production estimate (even if the addenda could properly be so read) as valid for Mr. Crockett's purposes as described above. This, in my view, provides a setting for a true application of the doctrine of "unwarranted assumption" as explained in Lego Australia Pty. Ltd. v Paul's (Merchants) Pty. Ltd. (1982) 60 FLR 465 at 474. Nevertheless, as the applicants rely upon matter in the addenda as forecasts of the plant's capabilities and do so as the cornerstone of their case on grounds (a) and (c), I will proceed to deal with their submissions on the _ footing favourable to them as to the representational or contractual 33. Mature of the addenda. However, even on this footing, I find that the applicants do not succeed, both because they have not properly construed the addenda and because they have not shown the plant, properly maintained and operated, to have the shortcomings complained of by then. The addenda comprise two pages and are reproduced as Schedules 1 and 2 to these reasons. Addendum 1 deals with the trichlorethylene system plant. Addendum 2 deals with the phosphate system plant. As I have said, Gartenmann purchased the phosphate system plant. Some items in Addendum 1 (e.g. "powder") are incorporated by reference into Addendum 2. The matter that must be decided is whether the addenda provided Mr. Crockett with a detailed estimate of production quantity and cost per tile (24.6 cents in Addendum 1, and 26 cents in Addendum 2) or, as the respondents assert, whether the addenda represented an attempt on their part to provide a comparison between two alternative pre-treatment plants, those calculations being sufficiently detailed to be useful but proceeding from assumed figures, the assumptions being common to each equation. I turn now further to consider the terms of the addenda. It is to be noted that the figure of 3,000 tiles per day, which is the figure that Mr. Crockett relies upon as being the critical production estimate, is found in the section of the calculation in Addendum 1 dealing with "powder consumption". It is not set out beside a heading of its own nor is it the result of any visible calculation. It appears as 34, "Production Rate 3,000/day" and is repeated lower down as "3,000 x 5 x 46 weeks = 690,000 panels". The figure of 690,000 appears also in Addendum 2 in the calculation of cost per tile of 26 cents. Also under the "powder" heading in Addendum 1 are the words "Assume 50 micron thickness and 1.2 S.G." The 50 micron thickness refers to the depth of the powder coating on the tile and S.G. refers to specific gravity which is the relative weight of the powder; the lighter the specific gravity the further the powder will cover per kilogram. The evidence disclosed that the figure of 1.2 for the specific gravity of white powder was erroneous, the specific gravity in fact being approximately 1.66. However, the same figure appears in each addendum and the respondents' submission is therefore valid for the purposes of the exercise, for which they contend, a comparison between the two systems using constant hypotheticals. Mr. Crockett in his evidence agreed that some of the figures in the addenda were hypothetical. However, he did not agree that the figure of 3,000 tiles per shift or the "bottom line figure" of 26 cents in Addendum 2 were hypothetical figures. Mr. Crockett did shift his ground. In cross- examination, he conceded that many of the figures in the addenda could be described as "hypothetical estimates". In re-examination, Mr. Crockett said that his understanding of the words hypothetical estimates meant "estimates that are not based on fact". Mr. Crockett then denied that he regarded the figures present in the addenda as being hypothetical. But, in the end, his view as to the bottom line figure of 26 cents per 35. tile is expressed by his answer to the following question: Did you regard the ultimate quantification of the powder cost in both of those addenda as a hypothetical estimate in terms of your understanding? No, I deemed those to be actual costs. [italics supplied] In respect of production estimates, (ground (a)), the "Request for a Proposal-Data Sheet" completed by Mr. Clink after the initial meeting with Mr. Crockett on or about 9 November 1982, set out "158 units /HR" as being the "usage per day" set out to calculate powder consumption. This figure could only have come from Mr. Crockett. As I have said, Mr. Crockett does not recollect that meeting. In his evidence of conversations shortly after this first meeting (which I have already dealt with), Mr. Crockett alleges that he required at least 2,000 tiles to be processed per shift, but I have made adverse findings on this issue. Indeed, this figure does not appear in the proposal itself and no contemporaneous complaint was made of its absence. Finally, with respect to the alleged firm production quantities and costs, it is to be noted that with each component specification in the proposal, a "design parameter" was set out which is typically in the range of .5 to 1.5 metres per minute conveyor speed depending upon the product being processed. Although a "system design speed" is given, i.e. line speed, of 1.37 metres per minute, such a wide operational parameter exists and makes the conclusion that any "bottom line figure" was provided, as alleged, in the addenda all the more unwarranted. Although Mr. Neale and Mr. Bonser were, by the 36. December meeting in 1982, in a position to make a calculated Prophecy as to production, they did not do so by means of the addenda. This is apparent from the very wide production parameters set out in each individual specification provided in respect of each major piece of machinery forming part of the plant. No reference is made in these specifications to the addenda. Gartenmann were responsible for the operation and maintenance of the plant. Line speed depended upon the nature of the product to be processed. Mr. Bradford, who gave valuable evidence with respect to production techniques, stated that he made an average of 30-40 adjustments to the cure oven each day to adjust the curing process on the one product. In all the circumstances, it would be all the more improbable that a firm production estimate would be provided. In support of ground (a) (the allegation that in breach of the representation as to production of 3,000 tiles per eight hour shift, the plant was capable of powder coating only 800-900 tiles per eight hour shift), Mr. Crockett tendered two production record books and he distilled from these a document entitled "Summary of the Applicant's Production Output". This Summary purports to cover the period from December 1984 to December 1986. It is divided into two sections, being "750 or less" and "750 or more". The Summary only records production of ceiling tiles and was tendered on that basis. The production record books record not only production of ceiling tiles, but also of the various extrusions which form part of the Gartenmann ceiling suspension system and which have been passed through the plant. The recording of the processing 37. of the extrusions was phased out and no record at all was kept of the processing of contract work. The summary sets out the number of ceiling tiles processed on given dates. It was conceded by Mr. Crockett in cross-examination both that there was production on dates not set out in the Summary and that on some of the dates that were mentioned in the Summary products other than ceiling tiles were being processed. An example pointed to by counsel for the respondents is production on 8 January 1985. No mention is made of this date in the Summary, as no ceiling tiles were processed. However, the production book recites that 387 sprinkler inserts and 1,004 top hats were processed. Both items were part of the Gartenmann product range. On 9 January 1985, the Summary indicates that only 318 ceiling tiles were coated but the production records reveal that on that day 360 "top hats" were processed along with 381 inserts. The result is that on that day, 1,059 units were processed. The following day, 10 January 1985, the Summary discloses that 851 tiles were processed. No mention is made of the 611 inserts processed, nor the 360 censors. Total production for that day was 1,822 units. The evidence also reveals that it was commonplace for the powder coating plant to remain idle awaiting a sufficient amount of product to be brought across from the manufacturing portion of the Gartenmann operation to give a reasonable production run for the powder coating plant. In fairness to Mr. Crockett, the Summary was tendered on the basis that it referred only to ceiling tiles. However, I was not assisted in assessing the true production capacity of the plant by evidence of this type. The applicants' evidence 38. as to production capacity is on the whole unsatisfactory. I cannot be satisfied that on any given day the plant was processing ceiling tiles exclusively. I find that the addenda do not substantiate the applicants' case on grounds (a) and (c). CONCLUSIONS AS TO GROUNDS (a), (b), (c), (e), (f£) In my view, the applicants have failed to make out their case on ground (a) that the plant was incapable of producing more than 800-900 tiles per eight hour shift. Indeed, as it happened, it was not shown whether the plant, with careful attention to jigging, properly maintained and monitored by skilled operators, lacked the capacity over an eight hour shift to powder coat 3,000 standard tiles. I have already dealt with grounds (b), (e) and (f). For the reasons given in dealing with the proposal and the addenda, I reject ground (c). That leaves ground (d) i.e. gloss and colour. GLOSS AND COLOUR The applicants claim is that the respondents represented that they were able to design, manufacture, supply, instal and commission a powder coating plant which would give each tile treated in the plant a finish which was even in colour and degree of gloss, and suitable for use in the construction of ceilings. This representation is alleged in the Statement of Claim to have been made orally (a) on 11 November 1982, not at the Mandl plant, but over lunch in the restaurant, in Sydney, by Mr. Bonser to Mr. Crockett; (b) at the restaurant on 17 December 1982 at Bayswater, Victoria, by 39. Mr. Bonser and Mr. Neale to both the Messrs. Crockett; and (c) on 9 February 1983 at Newcastle by Mr. Bonser and Mr. Neale to Mr. Crockett. The representation is also alleged to have been made in writing in the proposal documents, but plainly that was not s0. I have stated my findings of fact as to what was said on these three days. I have found that on four occasions (on 11 November 1982, twice on 17 December 1982 and on 9 February 1983) which do not correspond precisely with the occasions particularised, the importance of a low gloss was stressed to and accepted by Mr. Bonser. I have also found that on 17 December, Mr. Bonser responded to Mr. Crockett with words to the effect that he was not going to have complaints about colour or gloss. All of this falls short of the terms of the representation pleaded. It is important to appreciate that the meetings in question, as to one of them, proceeded, and as to the others, followed upon provision of the proposal. This, as I have said, was a most detailed document. It was followed in March 1983 by the written confirmation. The parties were businessmen. At the meetings a range of topics was discussed. Two of the meetings were in a social setting, over lunch. The findings of fact fall short of holding that any unequivocal statement was made, in form or substance, by Mr. Bonser or Mr. Neale to Mr. Paul Crockett or Mr. Phillip Crockett that Pollution Control would provide a plant that would give to each tile treated in the plant a finish which was even in colour and degree of gloss and suitable for use in the construction of ceilings. Certainly, as I have held, the importance attached by Gartenmann to gloss and evenness of 40. colour was made clear to and accepted by Mr. Bonser. But it is a further step (and one the evidence does not warrant) to find that an assurance as to the gloss and evenness of finish of each tile was given to the Messrs. Crockett. Whether each tile had these qualities would depend not only upon the design of the plant, but upon a number of variables, including operation and maintenance of the plant, matters which were beyond the control or responsibility of Pollution Control and were accepted as the province of Gartenmann. Further, even if the case be approached on the footing that Gartenmann relied on statements to the limited effect I have found, that would not mean there flowed the legal consequences Gartenmann alleges. I deal with the various bases on which it puts its case. As to deceit, there was no case made out that what was said was knowingly false and uttered with reckless disregard for or indifference to the truth. As to collateral contract (and this is also true of the allegation of a contract partly written and partly oral), in my view the statements were not promissory in form within the meaning of the principles expounded in J.J. Savage & Sons Pty. Ltd. v Blakney (1970) 119 CLR 435 at 442; Ross v Allis-Chalmers Australia Pty. Ltd. (1980) 55 ALJR 8 at 10, 11; Hospital Products Ltd. v United States Surgical Corporation (1984) 156 CLR 41 at 61; Gates v City Mutual Life Assurance Society Ltd. (1986) 160 CLR 1 at 5, 10-11. As to negligent mis-represent- ation: (i) I assume, without deciding, that provided the conditions for the existence of a special relationship exist, in Australia a duty to take 41. care may arise between A and B in relation to statements made in negotiations preceding entry into a contract between A and B; in my view, contrary to the submissions of the applicants, the application in this country of the reasoning in Esso Petroleum Co. Ltd. v Mardon Ltd. [1976] QB 801, was not decided in State of South Australia v Johnson (1982) 42 ALR 161; rather, it was assumed because not disputed. (ii) I assume also that the respondents owed to Gartenmann a duty to exercise reasonable care, skill and diligence in making the statements that I have found were made: Greig and Davis, "The Law of Contract", pp. 848-849. (iii) However, in my view, there was no breach of any such duty and there was no lack of reasonable care on the part of the respondents; installat- ion, operation and maintenance were, as I have said, matters for Gartenmann and in his cross- examination Mr. Crockett indicated he understood them as such; nor does the history of the operation of the plant (with particular reference to gloss and evenness of colour) bear out a case for negligence made against the respondents. I deal elsewhere in this judgment with the facts which lead to these conclusions. Finally, I turn to Part Vv of the TP Act. The applicants relied on ss. 52 and 53 (c). The second applicant was not a party to the contract. The TP Act, if applicable, 42. would operate to outflank any barrier that the doctrine of privity might place in the path of recovery of damages by the second respondent for breach of contract. However, I have concluded that there was, by virtue of the conduct in which I have found the respondents to have engaged, no contravention of s. 52 or s. 53 (c). I have already referred to the setting in which the conduct occurred. I bear in mind what was said by Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd. v Puxu Pty Ltd. (1982) 149 CLR 191 at 199: The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. 'It is obvious that where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words. The same is true of acts. In particular, as the decision of Fisher J 1n Pappas v Soulac Pty. Ltd (1983) 50 ALR 231 shows, where statements are made either before or in the course of negotiations for a significant transaction for sale and purchase of property, those statements are to be assessed not in isolation but in the overall context of the negotiations. Mr. Bonser and Mr. Neale did not represent that the plant would produce tiles each of which was even in colour and degree of gloss. If the applicants had sought such a high degree of assurance, then the Messrs. Crockett may well, as businessmen, have sought to include such a written provision in the contract. It would then have been for Pollution Control to accept, modify or reject that provision. The statements that were made were made in a setting in which Pollution Control 43. appreciated the limits of Gartenmann's budget and_ the responsibilities of Gartenmann as to installation, operation and maintenance. Against that background, Pollution Control understood and accepted what Gartenmann wished to achieve as to colour and gloss of tiles by purchase of the plant from Pollution Control and proper installation, maintenance and operation of that plant. Further, and as an independent reason for decision, the representation contended for by the applicants (and this is true not only of the present ground, ground (d), but also grounds (a), (b), (c) and (e)), was not as to an existing or past fact. Rather, it was a forecast or prediction as to the future, and the applicants could only have succeeded by showing on the part of the respondents' knowledge of falsity or reckless indifference: Bill Acceptance Corp. Ltd. v G.W.A. Ltd. (1983) 50 ALR 242, Johnson v Eastern Micro Electronics Pty. Ltd (1986) 70 ALR 339, R.G. Steedman v Golden Fleece Petroleum Ltd. [1986] ATPR 40-660. Nothing in the present case indicates any statements were made by Mr. Neale or Mr. Bonser with knowledge of falsity or reckless indifference within the meaning of these authorities. I should add that the conduct complained of took place before the insertion of s. 51A in the TP Act, by the Trade Practices Revision Act 1986. I do not suggest that the application of s. 51A would have produced a result favourable to the applicants. Even if the statements I have found did amount to representations or promises susceptible of legal consequences if performance were deficient, I would still not hold the 44, respondents liable for breach. The evidence of what happened in the course of production does not show breach as claimed by the applicants. The applicants led evidence only of four jobs on which some tiles produced at the plant allegedly were of unsatisfactory quality. The first complaint made concerns some 990 ceiling tiles supplied by Gartenmann to Adco Constructions Pty. Ltd. for installation in the Murwillumbah Branch of the Commonwealth Bank. These tiles were the first batch of tiles ever distributed and it is clear that the commissioning process of the plant then was incomplete. Mr. Crockett claims that the tiles were affected by colour variation and insufficient coating. The tiles were manufactured in October 1983, prior to Mr. Bradford's engagement. Mr. Crockett gave evidence that "the colour variations complained of were very noticeable. . " Mr. Crockett replaced 990 tiles and claims damages of $17,703.40 which includes a component for freight and Mr. Crockett's inspection at the site. In respect of this complaint, it is clear that the plant had not yet properly been set up at the time of manufacture of these tiles. Changes had been made to various parts of the plant and it was premature for Gartenmann to send out a quantity of tiles not carefully checked at the factory. Mr. Bradford, during the evidence as to his visit to the plant in October 1983, said the following: "what did you notice about the general organisation of the men working on the line? They did appear to be working in a disorganized fashion. Could you elaborate what you mean by that please? 45. I believe the gentlemen were new to the facet of powder coating and were therefore not being able to understand actually what the process they had to carry out particularly in the area of the operator, who was actually looking after the spray guns, the oven temperature, had not had any experience in this type of system before and he was certainly working in a_ total disorganised fashion not knowing really what to do next. What was his responsibility that you observed? I believe he was responsible for the whole operation of the plant..." Mr. Bradford also expressed the view that the line was understaffed. Mr. Crockett in his evidence said that to him the experience of operators was irrelevant. However, in his cross—examination, he accepted that plant maintenance, quality control and skilled operation were vital to production of a merchantable product. The operator referred to by Mr. Bradford was Mr. Bale. Mr. Bonser had arranged training for him prior to the commissioning of the plant. It will be recalled that it was shortly before this that the tiles for the Murwillumbah project were manufactured. There have been a total of four operators of the plant since its commissioning in 1983. The second project where tiles were rejected was at a building in Loftus Street, Sydney. The tiles were installed in February through to March, 1984. Here, 2,500 tiles were replaced. A complaint was made to Mr. Crockett. Mr. Crockett inspected the tiles in situ and observed that "the coating on the ceiling tiles was noticeably uneven and a large number of them were affected by a 'W' pattern". The evidence disclosed that the 'W' pattern on the tiles was caused by a failure on 46. the part of the powder application equipment adequately to coat the tiles as they passed by it suspended from the conveyor. Accordingly, it was indicative of the powder coating equipment not being able to keep pace with the line speed adopted by Mr. Crockett. During this period Mr. Crockett had increased the line speed from 1.2 (in October 1983) to 1.35 metres per minute (in October 1984). The solution to the problem was to purchase an extra spray gun for each side of the conveyor thereby allowing the product to be sufficiently coated at the conveyor speed adopted by Mr. Crockett. Mr. Crockett was advised by Mr. Bradford in October 1983 that he required two extra guns. This advice was not acted upon until May 1984 (at a cost of $11,283) after the tiles produced for the Loftus Street job had been found to be defective. Mr. Crockett answers this criticism on the basis (which I find unacceptable) that owing to the failure of the plant to produce tiles at 3,000 per shift, he was placed in financial difficulty and could not afford the cost of the extra guns. Mr. Crockett in his statement said that "I attributed the ''W' pattern to the poor performance of the spray guns and reciprocators". The reciprocators were not replaced until May 1985. Yet Mr. Plunkett (a consultant engaged by Gartenmann) had advised in October 1984 that they be replaced. Mr. Crockett did not send the reciprocators back to the manufacturer for service. However, Mr. Clink and Mr. Bonser had arranged for a representative from Wagner to be present at the trials at the Mandl plant in 1982 and that gentleman, Mr Boal, made a written 47. recommendation to Mr. Bonser concerning the recommended number of guns and reciprocators. In the quotation, Mr. Bonser described the powder spraying equipment as a P.C. item. This stands, as I have said, for "prime cost" and it serves to identify parts of the plant that are not of the manufacture of Pollution Control. If an error was made in the selection of the powder coating equipment, it was an error made by Mr. Boal. If there was an error, that error may have been induced by a desire to keep the plant within budget. The next difficulty complained of occurred in October 1984 in tiles supplied for installation in the Londonderry T.A.F.E. Gartenmann complains that of the 3,600 tiles it supplied, 200 had to be 'replaced because they were "badly affected by colour and gloss variation". The final project where complaint is made falls in the same period. It concerns the Knox T.A.F.E. The order was received in December 1984. Of the 10,000 tiles delivered to the building site 9,106 tiles were repainted with satisfactory results and 900 tiles were scrapped. Mr. Crockett frankly conceded that variations in colour and gloss could be the result of an operator problem. these are the only instances of allegedly defective production over a period of some four years. The plant had produced by June 1986 in the vicinity of 241,215 ceiling tiles. The applicants have supplied 11,000 tiles produced by the plant at a standard sufficient for installation in the new Parliament House in Canberra. In his evidence, Mr. Crockett said no special production techniques had had to be used with these tiles. In my view, the applicants have not established that 48, any defects of colour or gloss in tiles produced by the plant were the result of any failure to supply a plant capable of producing ceiling tiles with a finish even in colour and degree of gloss and suitable for use in construction of ceilings. It follows that no breach of the kind complained of in ground (d) has been established. ALLEGED DESIGN DEFECTS The applicants, in addition to the complaints already dealt with in these reasons, as grounds (a), (b), (c), (dad), (e) and (f), also put their case in negligence and contract on the footing that (i) the respondents had a duty to exercise reasonable skill, care and diligence in manufacturing, supplying, installing and commissioning the plant, and that they failed to discharge that duty, thereby giving rise to a claim in tort for negligence, and (ii) that there was an implied term in the contract that the plant be reasonably fit for the particular purpose for which it was required, viz. for use to powder coat metal ceiling tiles and extrusions. As to the implied term, there was no ground, in my view, for implying any terms as to metal extrusions insofar as pre-treatment on-line. I refer to what I have already said on this part of the case. In support of both causes of action, the applicants made complaints concerning line speed, the burners and the cure oven. They also pointed to other alleged deficiencies. To an extent these overlapped with complaints as to line speed, the burners and the cure oven. These other deficiencies were 49. principally that (A) the cure oven was too short, (B) there was poor powder flow in the powder booth, with uneven application of powder to the tiles, (C) the reciprocators and powder guns had failed to work effectively (although these were P.C. items supplied by Wagner for whose design responsibility was not taken by Pollution Control), (D) the filtering devices were incapable of separating the powder from the atmosphere, causing powder to escape the exhaust stacks and to find its way back into the factory (although the proposal specifically had not provided for supply of exhaust stacks), (E) the conveyor lacked a take-up device, allegedly causing jerking when the conveyor is started up and (F) the proposal had stipulated infra-red heating rather than a convection oven (heated by gas), a matter with which I have already dealt. In dealing with alleged design faults, it is necessary to refer to the expert evidence. However, in doing so, it should be borne in mind that, while the plant was installed in 1983, the trial was in 1987, and that the experts had observed the plant at different times over this period and not all had seen it fully in operation in its original state. EXPERT EVIDENCE Expert evidence was called both by the applicants and respondents. For the applicants, Mr. Clinton Ashton-Martin and Mr. James Leonard Plunkett were called. Mr. Ashton-Martin has extensive experience in industrial heating and since leaving Wessburg & Martin Pty. Ltd. in 1977 has operated his own consultancy business. Mr. Ashton-Martin has a Bachelor of Engineering degree with Honours from Sydney University. Mr. 50. Plunkett is a director of Fostoria-Fannon (Aust.) Pty. Ltd., to which I have already referred when dealing with Mr. Bonser's experience. That company has, since 1970, supplied various components of powder coating equipment including reciprocators, ovens and powder booths. Mr. Plunkett is a licensed electrician (NSW) and a licensed "A" grade electrical mechanic. He visited the plant in October 1984, February 1985, January 1986, and during the hearing in August 1987. Mr. Ashton-Martin visited the plant in December 1984, January 1985, and in February and August 1987. Both gentlemen advocate alteration to the plant to improve its performance. The recommendations made range from very inexpensive, such as the fitting of vapour seals to the pre-treatment machine, to very expensive such as replacing both the dry-off and cure ovens with convection gas fired ovens. Mr. Crockett purchased a gas fired oven in July 1986. However, that oven, up to the time of the hearing in this matter, had not been installed. Mr. Ashton-Martin and Mr. Plunkett consider the plant in its present condition incapable of producing tiles at 1.37 Metres per minute. However, as I have already stated, Mr. Bradford had the line operating at between 1.2 and 1.3 metres per minute in October 1983 and producing a product that was acceptable to Mr. Crockett. Mr. Ashton-Martin agreed in cross-examination that although he expressed the view that the plant could not produce at 1.37 metres per minute, he did not test the plant by operating it at this speed. Neither Mr. Ashton-Martin nor Mr. Plunkett criticise the powder coating plant on the basis that it was not fair $1. value for $100,000 or $125,000 which was the project budget. This is a vital point, bearing in mind that the case concerns the exercise of reasonable skill in relation to the designated task. No doubt a better equipped plant could have been supplied at a higher cost. Mr. Ashton~Martin gave evidence that a convection oven would have involved a greater initial expense. It is clear that a convection oven could not have been installed within the budget and the floor space available in 1983. Dr. Jean Cross, a principal research scientist employed by the C.S.I.R.0., was called by the respondents. Dr. Cross has expertise in the area of deposition of electrostatic powder coatings. Dr. Cross disclaims expertise in pre-treatment plants, infra-red technology and chemical composition of powder. Dr. Cross in her evidence stated that theoretically one powder gun each side of the conveyor in the automatic booth was sufficient. Dr. Cross expressed the view that since the gun had been added to each side of the conveyor, the booth was "rather small" for the purpose. Dr. Cross observed the plant operating for the purpose of a demonstration in March 1987. Dr. Cross noticed that the powder flow from the guns was not uniform and powder flow had ceased altogether from one gun until an operator made a manual adjustment to it. A second gun was giving a low flow toward the end of the demonstration in the production§ run. Furthermore, the voltage on one of the guns had failed completely. Dr. Cross noted that there was some indication that "small fibres" had contaminated the powder. This may have been the result of use of fiberglass near to the powder coating 52. plant. As early as his letter of 17 February 1984 (which I have set out earlier in these reasons) Mr. Bonser had warned Mr. Crockett of the adverse consequences if fiberglass was not removed from the immediate vicinity. Dr. Cross agreed that in her view a decision had been taken to favour in most cases lower cost components in the line. She agreed that the improvements suggested by Mr. Ashton-Martin and Mr. Plunkett would have been included in a more expensive system. However, the lack of those improvements were not, in Dr Cross's view, necessarily contributing to any problems in coating uniformity. Dr. Cross stated that it was her experience that the best finishes are obtained from plants with the best maintenance and most dedicated operators, minor differences in plant design being of lesser importance. The respondents also called Mr. Miller. Mr. Miller had expertise ranging from the design of powder coating plants through to their installation. He inspected the plant on 4 March 1987. His first impression upon entering the plant was that "a very poor level of housekeeping was evident". He also observed that the tiles were jigged vertically, which did not assist drainage of excess water remaining after pre-treatment. He described the work hanging arrangements (i.e. the jigging) as being very poor with little attention having been paid to loading the conveyor in a manner to obtain maximum production from the line. Mr. Bradford, a very experienced plant manager, was called and gave valuable evidence as to the state of the plant in October 1983, and as to production techniques and maintenance that should be undertaken. Mr. Bradford had acted 53. as a consultant during the commissioning of the plant. As I have said, he achieved satisfactory production at between 1.2 and 1.3 metres per minute with the 1,800 x 300 tile using a redesigned jig. Mr. Bradford was not asked by Mr. Crockett to devise an alternative jig for the standard tile. It had been made clear to Mr. Crockett in the proposal and order confirmation that jig design was a matter for Gartenmann. Mr. Bradford gave evidence that, at the time he left the Gartenmann plant, all aspects of the plant were working well, the cure oven was giving uniform heat and the tiles were evenly coated with powder. Mr. Bradford also stated that maintenance of the cure oven is critical and that loss of reflectivity within the cure oven caused by powder contamination cannot be adequately compensated by increased energy input into the oven as this results in uneven heat distribution which in turn may cause colour and gloss variation. This is also an important consideration in dealing with the complaint as to line speed, to which I shortly will come. Mr. Bradford stated that the curing process is an "extremely delicate process". Mr. Crockett was using epoxy powders which were known by him to have a narrow thermal latitude and were prone to overbake. Mr. Bradford devoted four hours per week to maintaining oven reflectors in his plant. The applicants put forward no satisfactory evidence of their maintenance of the reflectors. CONCLUSIONS AS TO ALLEGED DESIGN DEFECTS As I have explained, the plant did produce a suitable 54. product in large numbers over a long period. This tends to suggest that any unsatisfactory product that was produced was not the result of some design fault or defect which had a universal effect. There was expert evidence to the effect that the "housekeeping" of the applicants at and around the plant was of low quality and that in particular insufficient attention was given to maintenance of the cure oven. Mr. Bradford and Mr. Miller gave expert evidence in this area, Mr. Bradford gave evidence concerning his plant, (which was comparable in this respect with that of Gartenmann) that he would on average make between thirty and forty adjustments per day to the cure oven alone, to compensate for ambient temperature variations. Mr. Bradford was able to process "off white" ceiling tiles at 1.65 metres per minute out of his plant. This careful attention to detail was not demonstrated by Mr. Crockett. Indeed, the opposite 1s the case. The evidence is that the maintenance of records as to plant settings is highly desirable if a product of consistent quality is to be manufactured. Mr. Crockett kept no such records. Mr. Crockett alleges that the dry-off oven is not performing satisfactorily and that he has been forced to employ a person to blow off the excess water remaining on the tiles after they emerge from the pre-treatment plant. This is done by means of compressed air. Since January 1985, the pre-treatment plant has been operating without the burners that were installed. The burners heat both the chemical spray section and the rinse section in the pre-treatment plant. Since January 1985, the 55. tiles have been processed in cold water rinse. Mr. Plunkett had never seen both burners in operation. He advised Mr. Crockett to have the burners repaired as the tiles could not be dried properly if rinsed in cold water. Mr. Miller also suggested that the cause of water adhesion to the tiles after pre-treatment was the cold rinse of the product. Mr. Plunkett also advised Mr. Crockett that the dry-off oven could he improved for $1,500. Mr. Neale gave evidence that the plant was designed on the basis of a hot wash and rinse and this facilitated the drying of the product in the dry-off oven. Mr. Bradford gave evidence that when he visited the plant in October 1983, the dry-off oven was working satisfactorily. Mr. Neale said that the faults in the burners were caused by a lack of maintenance. The burners were mounted beside the bottom of two tanks which were themselves placed in concrete pits. Photographs were tendered in evidence which depicted water seepage in the bottom of the concrete pits adjacent to the burners. Rather than have the burners repaired, as Mr. Plunkett recommended, and, if necessary, the dry-off oven improved, Mr. Crockett has employed a person to blow off the water with compressed air which, of all of the options open to him, seems to be the least satisfactory. Mr. Crockett gave evidence that whilst a suitable product was produced, this was only so if the line were operated at a speed of 0.7 metres per minute, whereas the plant was designed to run at a speed of 1.37 metres per minute, as is indicated in the terms of the proposal. The slow speed, in Mr. Crockett's view, led to greater cost of production, and this 56. indicated a failure to meet the specification in the proposal. However, when the plant was newly commissioned in October 1983, Mr. Bradford had it operating at between 1.2 and 1.3 metres per minute and producing tiles of a quality acceptable to Mr. Crockett. The applicants did not explain with any clarity why the speed had since declined to 0.7 metres per minute. The respondents invite me to infer, and I do infer, that the reduction in speed is the result not of design defect, but of general lack of maintenance and, in particular, a failure to keep the cure oven in a state approximating to that when it was commissioned. Once the reflectors in the cure oven are contaminated with powder, longer exposure is needed to cure the tiles and for that longer exposure slower passage through the oven is required. There was a considerable body of evidence, including photographs, of escaped powder throughout the plant in general and near the automatic powder booth in particular. This is adjacent to zone 1 of the cure oven. Mr. Bradford was operating the three zones of the oven at 40% of their heat capacity in 1983. In October 1984, Mr. Plunkett advised Mr. Crockett that it was necessary to operate zone 1 of the oven at 100% of heat capacity. At that time, zones 2 and 3 were operating at 25% of capacity. The sharp increase in power input in zone 1 is consistent with powder contamination of the reflectors in that zone. A test was conducted by Mr. Plunkett to measure temperature variation within the cure oven. Sensors were placed in various positions on a 1,200mm x 350mm perforated tile. The test was conducted in August 1987, after the trial 57. had commenced. The reflectors had never been changed. They had, however, been cleaned. The test disclosed a peak temperature variation of 50°C. The maximum temperature variation occurred between the middle of the tile and the bottom of the tile, the bottom of the tile receiving the least heat. The temperature at the top of the tile fell in mid-range. This is consistent with the reflectors toward the bottom of the oven being more heavily affected by powder contamination thereby reducing their capacity to transfer heat. On the day this test was conducted, Mr. Plunkett recommended the reflectors be replaced. Both Mr. Neale and Mr. Bonser are skilled and experienced in the design and manufacture of powder coating plants. I accept the thrust of their evidence that the plant was of adequate design within the project budget and that it requires service, maintenance and skilled operation to give optimum performance. Mr. Crockett agreed in cross-examination, that he had told Mr. Bonser he had a budget of somewhere between $100,000 and $125,000 and that he was provided with a plant to meet that budget. He agreed also that the plant was not standard equipment but "one-off" and that it had variable components such as line speed, oven temperatures and spray pressure which were for the operator to control day to day. Further, as Mr. Crockett also accepted, Gartenmann was responsible for installation of the plant, and for its day to day operation (including maintenance and quality control) and if there were deficiencies in any of these matters, there would be problems in production. I have indicated that there were deficiencies in these matters. 58. Despite the generality of the complaints by the applicants in these proceedings, the only alterations made to the plant by the applicants since it was commissioned have been (a) alterations to a panel in the automatic powder coating booth, (b) the addition of "flight bars" to the conveyor, (c) the purchase of two powder guns, (d) the purchase of two new reciprocators. As I have said, powder guns and reciprocators were prime cost items, for the account of the applicants. The number of guns to be used was a matter of trial and error after the commissioning of the plant. The evidence does not show the reciprocators were defective; they were replaced after some nineteen months, with no complaint having been made to Pollution Control or to Wagner. The alteration of the panel was a minor matter of little cost. The flight bars were added to the conveyor to facilitate the powder coating of the long extrusions. In my view, the applicants have not made out their case on defective design. CONCLUSION By its Cross-Claim, Pollution Control claims from Gartenmann the balance of the price for the plant, namely $5,900. This occupied very little time at the hearing, there being no dispute that if the Application failed, the Cross-Claim succeeded. In the result, the Application is dismissed with costs (including any reserved costs) and Pollution Control has 59. judgment in its favour on the Cross-Claim, with costs (including any reserved costs). I will hear the parties as to interest on the $5,900 recovered on the Cross-Claim;: see Corporate Ventures Pty. Ltd. v Ian Turner & Partners Pty. Ltd. (14 May 1987, unrep.). 60. Schedule 1 ADDENDUM 1 TRICHLORETHYLENE SYSTEM System Cost $89 ,000 Add Installation $11,000 TOTAL $100,000 Interest at 15% $15,000 Floor Space 2,400 sq.ft. at $4/sq.ft. $ 9,600 Trichlorethylene $1,000/month $ 1,200 Labor Two (2) operators at $20,000 p.a. $40 ,000 Power Cure Oven 80 kw Trico 15 kw Ancilliary 10 kw 105 kw at 8¢/kw hr x 1600 hrs p.a. $13,400 Powder Production Rate 3,000/day Product dimensions: 1.2 x 0.3 = 0.36M? each Say 0.46M2 each for some covering of back Assume 50 micron thickness and 1.2 S.G. Coverage 17M2/kg Allow 10% loss factor coverage 15.3M2/kg .. Powder Weight per panel = 0.45 x 1 15.3 = 0.29 kg Annual Production: = 3,000 x 5 x 46 weeks = 690,000 panels Powder usage = 690,000 x 0.29 = 20,000 kg p.a. at $4/kg $80 ,000 TOTAL COST $170,000 Cost/product = 170,000 _ 690,000 = 24.6¢ each Ps 61. @ as Schedule 2 ADDENDUM 2 PHOSPHATE SYSTEM System $113,000 Add Installation $ 12,000 TOTAL $125,000 Interest at 15% $18,750 Floor Space 2,400 sq.ft. at $4/sq.ft. $ 9,600 Chemicals at $250/month $ 3,000 Labor Two (2) operators at $20,000 p.a. $40,000 Power Cure Oven 80 kw Dry Off Oven 50 kw Ancilliary _15 kw 145 kw at 8¢/kw hr x 1600 hrs p.a. $18,600 Gas 13 Therm @ 47¢ per therm x 1,600 hrs $ 9,800 Powder $80 ,000 TOTAL COST $180 ,000 Cost/product = 180,000 - 690,000 = 26¢ each ® Note If TAK Chemical Solutions are utilised Gas cost would be reduced by half i.e. to $4,900.00 p.a. due to lower operating temperatures. Counsel for the Applicants: 62. Solicitors for the Applicants: Counsel for the Respondents: Solicitors for the Respondents: Dates of hearing: Date of Judgment: I certify that this and the preceding 61 pages are a true copy of the Reasons for Judgment of his Honour Mr. Justice Gummow. Associate Mash. pur Dated: 23 December 1987 Mr. L.G. Foster Messrs. Baker & McKenzie Mr. G.H. Golvan Messrs. Murray Stewart & Fogarty 2, 5, 6, 9, 10, 11 and 12 March 1987 10, 11, 12, 13, 14, 17, 18, 19, 20 and 21 August 1987 1, 2, 3 and 4 September 1987. 23 December 1987