HYUNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAI CORPORATION and ANOR v LIFTRONIC PTY LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, PRIESTLEY and HANDLEY JJA 15 and 16 February 1994, 9 December 1994 [1994] NSWCA 143 CONTRACT- breach — damages — causation — no question of principle. CONTRACT — collateral — representations during negotiations — long delay before contract concluded — no collateral contract. CONTRACT breach damages causation — no question of principle. CONTRACT — collateral — representations during negotiations — long delay before contract concluded — no collateral contract. A company in the business of installing and maintaining lifts purchased lifts from a group of Korean companies. During preliminary negotiations in July and September 1986 with the Australian company owned by the Korean group representations were made to the purchaser relating to the skill and experience of the group and the quality of its lift equipment. The first contracts for the purchase of such equipment from Korean companies were made in April 1988. The representations were not repeated after September 1986. The trial Judge (Cole J) held that the representation gave rise to oral contracts collateral with the contracts of purchase made in April 1988. Held: Reversing the trial Judge collateral contracts were not made between the purchaser and the Australian company in April 1988 in terms of the earlier representations. The plaintiff purchased lift equipment from the Korean companies after April 1988. The equipment proved unsatisfactory and the plaintiff ceased purchasing in April 1990. The plaintiff was then unable to obtain alternative equipment for 21 months. It was entitled to damages for loss of profits during this period which coincided with a severe downturn in the building industry and in the market for new lifts. The trial Judge (Giles J) made an allowance for the effects of the recession in assessing damages for loss of profits. Held: The trial Judge had not made sufficient allowance for the effects of the recession. Appeal allowed and damages reduced. ORDERS 1. Appeal by Hyundai Australia Pty Ltd allowed. 2. Set aside the judgment entered in favour of the plaintiff against Hyundai Australia Pty Ltd and in lieu thereof enter judgment for that defendant. 3. Appeals by Hyundai Elevator Co Ltd and Hyundai Corporation allowed in part. 4. Set aside that part of the judgments against Hyundai Elevator Co Ltd and Hyundai Corporation as awarded damages of $3,670,000 for loss of profits and interest thereon and substitute an award for $2,238,063 for loss of profits with effect from 1 September 1993 together with interest in an amount to be determined hereafter by the Court. 5. Direct the parties to file and serve short minutes of orders as to costs and interest giving effect to this Court's decision on or before 4pm on Wednesday, 14 December, 1994. 6. The appeals are listed for further argument on interest and costs at 2pm on Thursday, 15 December, 1994. Mahoney JA I agree with the judgment proposed by Priestley JA and generally with the reasons his Honour has given. Priestley Jahistory OF CASE BEFORE REACHING COURT OF APPEAL. In July 1986, Liftronic Pty Ltd ("Liftronic") a company whose business was the selling, installing and maintaining of lifts first discussed (to use neutral language) 2 UNREPORTED JUDGMENTS with representatives from within the Hyundai group of companies the possibility of buying Hyundai lift equipment. The discussions extended to 1988 when, in April, Liftronic first placed orders for such equipment. By early 1989 Liftronic was having costly problems with the equipment. Liftronic decided in about February 1990 to obtain new suppliers, which took some time to accomplish. In 1991, Liftronic took proceedings against three Hyundai companies to recover losses it claimed it had suffered as a result of the supply of what it alleged was defective equipment. These proceedings were dealt with in the Construction List of the Common Law Division of the Supreme Court. The first defendant was Hyundai Elevator Co Ltd ("HE"), the second Hyundai Corporation ("HC") and the third Hyundai Australia Pty Ltd ("HA"). HC was the holding company of which all Hyundai companies were subsidiaries: HE and HC were incorporated in Korea. HA was incorporated in New South Wales. Liftronic made contract claims along the following lines: it had bought lift components from HE and/or HC and/or HA; it had made known to the vendor/s the purpose for which the lift components were being purchased in a way which showed Liftronic relied on the skill and judgment of the vendor/s; there was an implied condition in relation to each transaction of sale that the goods were reasonably fit for the purpose for which they were purchased; and would be of merchantable quality; and there had been breaches of the implied conditions causing damage. Liftronic also made claims against the three defendants based on the provisions of the Trade Practices Act dealing with false or misleading representations. Liftronic made further claims against HA alone: (1) that HA, in consideration of Liftronic ordering lift components from HE and HC, promised Liftronic that the lift components would be manufactured to a high standard and quality, would be fit for their intended purpose and would be of merchantable quality; and that breach of these promises by HA caused damage to Liftronic: (2) that HA had made a number of representations to Liftronic, breaches of which had caused damage to Liftronic which the Trade Practices Act entitled Liftronic to recover. In December 1992 a judge in the Construction List made an Order pursuant to Pt72 of the Supreme Court Rules referring to a referee for inquiry and report the questions, 1. whether the equipment supplied by the defendants was defective as alleged by Liftronic in a Schedule to the Court's O.2. what work was required to rectify any defect found under 1 and 3 what were the costs of rectification. Detailed evidence was given before the referee and he made a report to the court. The matter then came before Cole J for consideration. At a hearing on 26 February 1993 counsel for the parties identified a number of outstanding issues. Cole J gave directions as to the manner in which the parties should present those issues for final determination by him. The issues were later argued, and reasons disposing of most of them were published on 31 March 1993. Cole J is recorded as having then ordered the matter to stand over until 2 April 1993 "to enable the parties to bring in agreed short minutes reflecting the referee's previous report, concessions made at the hearing before me, and these reasons. There remains outstanding the plaintiff's claim for loss of good will and the determination of whether judgment should be entered against one defendant or matter than ane defendant." After that there was argument before Cole J on a number of days. On 25 May 1993 he published further reasons and made orders. In his reasons he recounted some of the history of the matter, including some details of what had been WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAG CORPORATION and ANOR v LIFTRONIC PTY LTD (Priestley Jahistory) conceded by the representatives of the Hyundai companies from time to time. From what he said, it appears that HE did not resist the making of an order against it, consequent upon the adoption of the referee's report, subject to a submission which it raised claiming that the court had no jurisdiction to direct entry of an interim judgment against it. Cole J found against HE in that respect. He subsequently ordered judgment to be entered against HE. In regard to HC, Cole J held that it had been a seller of the equipment to Liftronic and that it was in breach of the alleged implied conditions. He subsequently ordered judgment to be entered against HC. In regard to the case against HA, Cole J held for Liftronic on the collateral warranty claim but against it on the claims made upon some of the representations, and made no explicit finding on the remainder of the representations. In regard to those claims on representations which Cole J rejected, he held the representations were made and were untrue, but held further that Liftronic had known the truth concerning them by February 1988 with the result that they had had no causative effect in the placing of orders by Liftronic in April 1988. However, he held that a number of statements made at the meetings in July and September 1986 were promissory in nature and had resulted in a collateral warranty to Liftronic by HA given in consideration of Liftronic subsequently entering into agreements to purchase equipment from HE and/or HC. On 25 May 1993 Cole J ordered payment by HC and HA of amounts arrived at pursuant to his consideration of the referee's report, together with interest and costs. He stood over a further claim by the plaintiff for damages for hearing on 3 August 1993. The damages claim was heard by Giles J on 3, 4 and 5 August 1993. He published his reasons for decision on 1 September 1993. The figure he arrived at was $3,670,000. Judgment was entered on 6 September 1993, bringing together in final form the orders made by Cole J and Giles J. The principal orders were contained in paral of the judgment as entered and were as follows: "1. That the defendants pay to the plaintiff the sum of $6,782,769 comprising: (a) damages and rectification costs as per referees report being $1,831,433; (b) interest on the sum in 1(a) above to 25 May 1993 being $430,749; (c) interest on the sum in 1(a) above from 25 May 1993 to 6 September 1993 being $58,656; (d) damages for loss of profits being $3,670,000; (e) interest on the sum in 1(a) above to 6 September 1993 being $791,931." PROCEEDINGS IN THE COURT OF APPEAL. Some of the questions decided against the defendants at first instance have been brought to this court. The initiating document is entitled "Consolidated Notice of Appeal'. It is lengthy and complicated, containing, by one count, thirty-three grounds in all. Also, during the hearing of the appeal, leave was sought to add a further ground of appeal numbered 12A. However, all grounds were in substance replaced after the appeal came on for hearing by a much shorter document called "Issues being pursued". This read as follows: "A. Cole J's first judgment [31 March 1993] (i) Time to be allowed for Kong. B. Cole J's second judgment [25 May 1993] (ii) Whether there should have been judgment against Hyundai Australia Pty Ltd. C. Giles J's judgment 4 UNREPORTED JUDGMENTS (iii) Use of 25 per cent as figure attributable to recession. Brinnard's evidence showed the size of the market. It required a more substantial reduction. (iv) Too long a period (21 months) was allowed. There should have been a reduction of a further two months to take account of the period February-July 1990 (9/2382G-P). (v) Giles J applied the 25 per cent to the 'fall in sales', not to the 'Sales 1988-1990" (at 2280). He thus did not apply the 25 per cent to the same figure as the 23.9% had been applied to." Under issue A all three appellants argued for reduction of amount (a) in the judgment, that is, $1,831,433, on one particular ground. Under issue B it was argued Cole J had erred in finding HA had given a collateral warranty to Liftronic. Under issue C all three appellants argued that Giles J erred in specified steps in his calculation of damages. Counsel for the appellants (the same counsel appeared for all three) made it clear that all grounds of appeal other than those in the "Issues being pursued" document were abandoned. The court was referred only to so much of the lengthy written submissions which had earlier been filed as related to those issues. It was agreed that in regard to HE and HC, not liability to judgment but the amount of the judgment was in question, so that there must be judgment against them in some amount in any event. It was only in regard to HA that it was argued, under issue B, that the judgment for Liftronic should be set aside and judgment entered instead for HA. I will deal with the points argued under the headings, Issue A, Issue B and Issue C: (a), (b) and (c). ISSUE A. THE REFEREE'S REPORT. The Referee's report ended with a section entitled "Quantum", which dealt with the third matter in the reference, the costs of rectification. In this section, the Referee said he had been provided with a Schedule of Rectification, Costs and Losses. The Referee dealt with one item in this Schedule under the (Referee's) heading "Costs Schedule 4 LIFT CONTROLLER'S COSTS". This referred to a claim for extra costs involved in repairing the lift Controller. Included in the claim was "Service calls estimated to be those above what the Plaintiff considers to be average service calls and therefore requiring the wages of Mr DeMiguel and Mr Kong". In dealing with the aspect of the "LIFT CONTROLLER'S COST" item which concerned the wages of Messrs DeMiguel and Kong, the Referee said he had some concerns regarding the amount claimed. He went on: " Like the Defendant I am not convinced that all of the hours 106 weeks for Mr Kong and 129 weeks for Mr Demiguel (sic) were totally spent on Hyundai Lift defects. If they did then this time must be a cost on the Defendant... However, the Plaintiff did have to manufacture items like new power supplies, various control boards. Mr Demiguel's time in particular was also spent on the analysis of many of the components and both of these men spent much of their time working on these lifts after installation in order to overcome defects. There is little doubt that a great deal of their time was used on the Hyundai lifts. For me to determine the amount due to the plaintiff for the wages of Mr Kong and Mr Demiguel I would like some direction from the Court on a basis for determining the hourly rates of these two people. I would need from the Plaintiff WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAG CORPORATION and ANOR v LIFTRONIC PTY LTD (Priestley Jahistory) some acceptable evidence of the actual time spent by them on the lift defect. If the Court so desires I will provide an extra report on this matter as a matter of urgency and again apologise for it not being considered in more depth during the Reference. The amount claimed by the plaintiff for the wages of Mr Kong and Mr De Miguel at this stage is $469,298, and considering the circumstances it does seem large. On the assumption that the court accepts this wages item then the total amount awarded for this item is $489,770.76." COLE J'S DIRECTIONS. At the directions hearing before Cole J on 26 February 1993, what he said concerning the presently relevant matter was as follows: "So far as costs schedule 4 is concerned which involves the costs of work done by Messrs Kong and Miguel the referee has apparently accepted that Kong and Miguel did a significant amount of work. The issue between the parties is twofold, namely, whether or not the $60 per hour rate is an appropriate rate and, secondly, the number of hours worked. As I understand it, so far as the $60 per hour charge is concerned the issue between the parties is similar to that in relation to the $68 charge, namely, whether there should be included an element for overheads and profits. That issue will be determined on the basis of the written submissions to which I have previously referred. The second issue concerning the engagement of Messrs Kong and Miguel relates to the time which they spent on work relating to the Hyundai lifts. The contention is that they were fully engaged for two years each. I direct that a summary of the evidence placed before the referee in that regard be prepared by the plaintiff and delivered to the defendant by 5 March 1993. The defendant is to respond to that by 10 March 1993 and the matter will stand over for oral argument on 12 March 1993." The directions hearing ended with Cole J saying: "On 12 March I shall consider whether there shall be some interim judgment in relation to the matters done by the referee. I direct that the plaintiff and the defendant meet to agree subject to the quantification of the $60 and $68 sums and the man hours in respect of Messrs Kong and Miguel and what any such interim judgment should be." ISSUE DEFINED. Subsequently a schedule listing outstanding issues for determination was prepared by the parties and presented to the judge. The presently relevant part of this read as follows: "5. Cost schedule 4. Is any amount recoverable for the cost of employing Messrs Kong and De Miguel? (Arbitrator's report, at 49). a. The arbitrator concluded (at 50.6) that Liftronic's claim of $469,298 (being the cost of employing Messrs Kong and De Miguel) seemed large in the circumstances. b. Liftronic contends that it is entitled to recover the full cost of employing both men, in addition to the hourly rates claimed for all employees who worked to rectify the defects. c. Hyundai contends that Liftronic is entitled to recover only the hourly rate of both employees for time actually spent on rectification work. Otherwise there is an element of double dipping." LIFTRONIC'S SUBMISSION. In a document dated 5 March 1993 Liftronic summarised the evidence placed before the Referee as to the time spent by Messrs De Miguel and Kong working on Hyundai lift defects. This document stated that of the 129 weeks worked by Mr De Miguel Liftronic was claiming only for 100 weeks because that employee had concentrated on the modification and repairs of the Hyundai equipment for only the last two years. In regard to Mr Kong, the document first gave references to the relevant parts of the transcript before the Referee relating to Mr Kong, and followed those references with the following submissions: "Mr Kong was 6 UNREPORTED JUDGMENTS employed by Liftronics to assist with the setting up and tuning of the lifts. Even with Mr Kong's assistance, Liftronics were having difficulty in adjusting and tuning the lifts to operate properly. The lifts were unstable. Mr Kong was employed because of the Hyundai lift defects. Mr Kong was employed initially as a tuner to get the lifts running, but subsequent to that with the high failures and defects with the Hyundai lifts, all Mr Kong's time was spent on the Hyundai lift problems. Liftronics has never in the past had to employ a technician from a supplier of equipment for any of the lifts Liftronics has installed. This is the first time this has happened. Liftronics employs its own tuners who can normally tune a lift. Mr Kong was needed to get the Hyundai lifts working properly. Mr Kong was employed especially for the problems with the Hyundai lifts. Mr Kong knew the Hyundai lift systems. Since Hyundai, Liftronics has never had to employ a tuner from a manufacturer. Liftronics has had overseas systems which are more technically advanced than the Hyundai lift systems, and Liftronics has adequate in-house experience for this. Liftronics has never had to have formal instructions from its manufacturers on how to tune lifts. Mr Kong was employed so he could speak to Hyundai direct about the problems. He understood the language; he could obtain information about the Hyundai lift system. Mr Kong did the re-tuning work if the lift was behaving in an unstable way. Mr Kong was employed predominantly to repair faults that came out of the Hyundai systems. Mr Kong was never employed by Liftronics as a normal maintenance man." HYUNDAIPS SUBMISSION. Hyundai, for its part, in a document apparently dated 2 March 1993 gave references to relevant evidence in the transcript, combined with submissions. Some transcript material was set out. Part of it shows that Mr M Debelak, the managing director of Liftronic and one of its principal witnesses, had said at one stage in his evidence that Mr Kong was employed originally as a tuner but subsequently all his time was being spent on the Hyundai lift problem as well. The document also referred to later evidence by the same witness that Mr Kong was employed specifically because of problems with the Hyundai lifts. The Referee had asked this witness a question whether Mr Kong was totally one way or totally the other or partially in both camps. Hyundai's submission contended that the witness avoided the answer to the question, but reference to the transcript shows that the answer given was inaudible. The document concluded with a submission that, "without the strongest possible evidence, the Court should be cautious in awarding such an unrealistic ambit claim". COLE J'S DECISION. In the reasons he published on 31 March 1993, Cole J said he was satisfied that the sums claimed by Liftronic should be allowed. In regard to Mr Kong he said that the evidence made clear that he spent all his time working on the Hyundai lifts defects and seeking to rectify them in corresponding with Hyundai in those endeavours." He mentioned that the plaintiff had made a further claim for $100,000 for future costs associated with the employment of the two men. That claim had not been made before the Referee. Cole J ruled that it was too late for an amendment to be permitted. THE POINT IN THIS COURT. Hyundai only argued against the cost claimed for employing Mr Kong. The claim concerning Mr De Miguel was not pursued. The point concerning Mr Kong narrowed itself to this. It was submitted that there was no basis on which the judge could arrive at the finding that Mr Kong was employed by Liftronic solely WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAI CORPORATION and ANOR v LIFTRONIC PTY LTD (Priestley Jahistory) because of the difficulties with the Hyundai lift defects and spent the totality of his time working on those defects. Because the Referee had said he was not satisfied that was the position it ought to follow that it was therefore not an appropriate course for the judge to make the finding from which the Referee held back. The judge, who had not seen the witnesses, was not in as good a position as the Referee, who had, to come to a positive conclusion on the point, and since the Referee had reservations, so should the judge. I do not think Hyundai's submission should succeed. Pt72 R13 of the Supreme Court Rules is as follows: "Proceedings on the report 13(1) Where a report is made, the Court may, of its own motion, after notice to the parties, or on application by any party, on a matter of fact or law or both (a) adopt, vary or reject the report in whole or in part; (b) require an explanation by way of report from the referee; (c) on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report; (d) decide any matter on the evidence taken before the referee, with or without additional evidence, and shall give such judgment or make such order as the Court thinks fit. (2) Evidence additional to the evidence taken before the referee may not be adduced before the Court except with the leave of the Court." What happened in the present case was that the court used the power conferred by R13(1)(d). No objection was taken to this course. Mr Jackson QC for the three Hyundai companies in the appeal in this court fairly conceded that in the transcript material to which Cole J was referred there was evidence going both ways on the question whether Mr Kong's employment should be attributed wholly or only partially to the Hyundai defects, but having conceded that, contended that because the Referee had not been prepared on the material before him to make the factual finding sought by Liftronic, it was not a proper use by Cole J of the power under R13 to make an affirmative finding in Liftronic's' favour. Having read the portions of the transcript to which Cole J was referred by the parties, I do not see the situation as one where the advantage the Referee may in theory have had over the judge in deciding what weight to give to the evidence was of any-significance, particularly in the situation where the Referee had made no reflection on the witness's credit and had held back from arriving at any conclusion himself. On the transcript material, the conclusion Cole J arrived at was clearly open to him and, in my opinion, nothing said by the Referee stood in the way of his reaching that conclusion. I see no error in either the method or the conclusion of Cole J on this point. ISSUE B. This part of the case concerned the finding that HA. also was liable to Liftronic. This claim by Liftronic against HA was one made in the alternative, against the possibility that HA was not found to be a vendor of the defective components to Liftronic. This possibility was found to be the case by Cole J. The claim was thus against HA, but not as the vendor of the defective components. The claim was based on two sets of representations and promises HA had allegedly made to Liftronic. The first alleged that HA had represented, and in consideration of Liftronic's ordering lift components from HE and HC had promised the plaintiff that the lift components were or would be manufactured to a high standard and 8 UNREPORTED JUDGMENTS quality, that they were or would be fit for their intended purpose and were or would be of merchantable quality; see para4 of the further amended summons. The second set alleged that HA further represented and in consideration of Liftronic's ordering lift components from HE and HC had promised to Liftronic that by July 1986 HE and/or HC had installed 4,000 elevators, were actively exporting elevators to markets other than Korea such as China and America and had exported elevators to Hong Kong, China and some Asian countries: see para6A of the further amended summons. Cole J's adoption of the Referee's report meant that he accepted as a matter of fact that the goods were not of high standard or quality, were not fit for their intended purpose and were not of merchantable quality. Thus, if the first set of representations and promises had been made, and relied or acted on, HA was in breach of them. Similarly Cole J held in regard to the second set of representations and promises that it had either been agreed or established by the evidence that by the end of July 1986, the factual basis of the representations and promises was false, so that again, if they were made and had been relied or acted on, HA was in breach of them. So, it was necessary to see, if any of the representations and promises had been made and Liftronic had relied or acted on them, whether HA was in breach of them. The first inquiry was thus whether any of the representations and promises had been made. Cole J first considered whether any of the second set of representations and promises (that alleged in para6A of the further amended summons) were supported by the evidence. The relevant evidence had been given by Mr Kgil, the senior executive of HA, by Mr Milan Debelak, by Mr Milan Debelak's father, Mr V Debelak and by Mr Barda. They all gave evidence of a discussion at which they were present in July 1986. There was also evidence of a discussion between Mr Milan Debelak and Mr Kgil in September 1986. Cole J's conclusion was that Mr Kgil had said things in the discussions substantially in terms of the second set of alleged representations and promises. However, in light of evidence of what Liftronic had done after the making of the representations, he held further that Liftronic could not establish that it had relied on those representations. Although Cole J did not explicitly say so, his reasons appear to proceed on the footing that the circumstances which in his view showed that Liftronic had not relied on the representations, also precluded a finding that in consideration or partial consideration of those statements being made to Liftronic by HA Liftronic had later entered into contracts of purchase with HE and/or HC. Cole J next considered whether the first set of alleged representations and promises had been made. His conclusion here was: "The only implication to be drawn from what Mr Kgil said was that Hyundai's products were, had been and would be of such a high standard and quality that they had been and were able to be accepted in many countries throughout the world. The warranty implicit in his statements was that if Liftronic entered into contractual arrangements with Hyundai, the lift components it would receive would be manufactured to a high standard and quality, would be of merchantable quality, and would be fit for their use in lift installations." In this passage Cole J both summarised his relevant factual findings into a conclusion as to the meaning of what was said and also concluded that what was said was promissory in nature. It was the last conclusion which was particularly attacked in the appeal. WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAI CORPORATION and ANOR v LIFTRONIC PTY LTD (Priestley Jahistory) The arguments were: Mr Kgil in his capacity as chief executive of HA was simply introducing Liftronic to the Korean companies HE and HC and was not intending to offer that HA should be bound by a collateral warranty; he was conveying information concerning HE and HC to Liftronic, and no more; what he was saying about the quality and capacity of the two Korean companies was simply information he was conveying to Liftronic about those companies; he was offering opinions, predictions or forecasts rather than promises in what he was saying; it was unlikely that he would be making a promise unlimited in duration, which was in effect, what was held by Cole J; the length of time between the July 1986 conversation and the making of the first contract in April 1988 was such that it was unlikely that Liftronic entered into the first and subsequent contracts in consideration or partial consideration of promises offered twenty-one months before. Cole J indicated what matters he thought were the principal ones to be taken into account in considering these arguments. One was that Liftronic was not a manufacturer of lifts, something Mr Milan Debelak made clear to Mr Kgil in their July 1986 conversation. Thus, although in the period between July 1986 and April 1988 Liftronic sought to satisfy itself as well as it could of a number of matters relevant to any purchases it would make from the Hyundai companies, it was by the nature of its own business never in a position equivalent to that of Hyundai to judge the quality of the manufactured product. The next matter was that it was essential from Liftronic's point of view that it only purchase lifts and lift equipment of high quality. In the absence of assurances such as those given by Mr Kgil it is hard to imagine that Liftronic would have proceeded further in the activities necessary for it to pursue prior to ordering lifts and lift equipment from the Hyundai companies. The inference Cole J finally drew from the material before him was that the statements he found to have been made "were a critical element forming the initial stratum of any contractual arrangements which might emerge with the members of the Hyundai Group." Thus, in his view, the statements were promissory and not merely representational. It is this conclusion which this court must consider for itself, using the facts found by Cole J. I do not see how in this case Cole J's conclusion that the statements were promissory can have been in any way influenced, however subtly, by vibrations in the trial court not perceptible in the appeal. In my opinion, this court is in as good a position as Cole J was to consider the consequences in law of the primary facts as he found them. The question then arises, how does a court decide whether words passing between A and B before the entry into a contract between A and C were promissory on the part of B and the consideration, or part of the consideration for A making the later contract with C. There is nothing novel in the idea that a contract may come into existence in this way. Lawyers became particularly familiar with the idea in situations involving the purchase of cars from car dealers. In many cases the purchaser was buying the car on some kind of rather sophisticated terms not from the car dealer but a finance company. The purchaser had no contact with the seller other than through the dealer and a number of forms with the finance company's name on them, which the purchaser had to sign. Usually these forms were in small print and may as well have been in ancient Greek so far as an ordinary English speaking purchaser was concerned. In a number of cases in which the fact was accepted that the dealer made statements to the purchaser which could be 10 UNREPORTED JUDGMENTS construed as promises, although the promises were excluded by the written contracts with the finance company, the courts allowed recovery from the dealer of damages for breach of contract on the theory that the promise by the dealer to the purchaser was part of the consideration for the purchaser entering into the written contract with the financier. Well known cases where this position was recognised are Brown v Sheen and Richmond Car Sales Ltd (1950) 1 AER 1102 and Hercules Motors Pty Ltd v Schubert (1953) 53 SR (NSW) 301, at 303, 307, 309, 316. In the argument in this appeal, the two cases which were said to be the leading authorities in regard to contracts of this type were both cases where A alleged a collateral promise made by B from whom A was directly buying personal property. However, these direct collateral warranty cases have been regarded as authoritative in regard to the three party situation also. The two cases, JJ Savage and Sons Pty Led v Blakney (1970) 119 CLR 435 and Ross v Allis-Chalmers Aust Pty Ltd (1981) 55 ALJR 8, appear to be the leading Australian authorities on the question whether particular statements by a defendant should be treated as promissory or not and whether the statements, if promissory, were the consideration or part of the consideration for the plaintiff entering into the principal contract. Unfortunately they only provide help of the most general kind for the concrete situations courts must deal with. Such help as they do give was summed up by Aickin J in Ross, as follows: "The judgment of this Court in JJ Savage and Sons Pty Ltd v Blakney (1970), 119 CLR 435 restates the requirements for establishing a 'collateral warranty' in the following passage (at 442): 'The Full Court seems to have thought it sufficient in order to establish a collateral warranty that without the statement as to the estimated speed the contract of purchase would never have been made. But that circumstance is, in our opinion, in itself insufficient to support the conclusion that a warranty was given. So much can be said of an innocent representation inducing a contract. The question is whether there was a promise by the appellant that the boat would in fact attain the stated speed if powered by the stipulated engine, the entry into the contract to purchase the boat providing the consideration to make the promise effective. The expression in De Lassalle v Guildford, [1901] 2 KB 215, at 222 that without the statement the contract in that case would not have been made does nots in our opinion, provide an alternative and independent ground on which a collateral warranty can be established. Such a fact is but a step in some circumstances towards the only conclusion which will support a collateral warranty, namely, that the statement so relied on was promissory and not merely representational." (at 11) Aickin J then discussed the words used in Ross and said that what had been said to the plaintiff was plainly enough a representation or inducement but not a fraudulent one, which then necessitated the question whether it was promissory or not. He acknowledged the difficulty of distinguishing between a representation and a promise: "The distinction between a representation and a promise is clear enough in law but it is one which laymen would probably find hard to understand, since it depends in many cases on niceties of language in conversations recounted, often years afterwards, by persons who would not have been conscious of the significance of the particular words used at the time. In these circumstances the search for 'promissory language' becomes a somewhat unreal one and the distinction between an inducement and a promise a very fine one." (at 12) In regard to what had happened in the instant case he said: WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAll CORPORATION and ANOR v LIFTRONIC PTY LTD (Priestley Jahistory) "Tt seems to me that the critical conversation as deposed to stopped short at the point of representation and contained no promissory element. For that representation to be converted into a promise there would have been required at least some further question such as 'Can you promise that?', and an affirmative answer." (at 12) I do not think that Aickin J was intending to say that an explicit question along the lines whether the defendant was actually promising that what he was saying was correct was needed in every case; rather, he was saying, I think, that upon a fair approach to the substance of the conversation it must be possible to see that the defendant was making a promise. Obviously, of course, the difficulty in deciding whether the substance of the conversation included such a promise would be much less if express words of promise were used by either party. Apart from what can be gleaned from JJ Savage and Sons and from Ross, two accepted features of ordinary contract law would appear to be useful when trying to see whether the words used in the present case were promissory or not. The first is that the question whether the words used were promissory over and above being representational is to be decided objectively. The subjective intentions of the parties, if they could be known, would not be conclusive. If both had in fact had it in mind that the statements were promissory, then it is very likely that this understanding would have been manifested so that a reasonably intelligent bystander would have recognised that a binding promise was being offered; but, if there were no outward manifestation of the internal understanding it would be for the court to decide from whatever communications had passed between the parties whether or not the statements were promissory: cf Taylor v Johnson (1983) 151 CLR 422 at 428-429. The second is that when A is promised something by B in consideration of A entering a contract with C, until such time as A contracts with C there is no contract between A and B; the position must be that there is an OFFER of a promise by B to A which A may accept by entering into the contract with C. Such an offer must be subject to the ordinary rules concerning offers; it may be open for acceptance within a stated time or a time implied from the circumstances, or if neither of those times applies, for a reasonable time. Application of these two rules to the facts found by Cole J leads to the realisation that there are two main areas to be considered concerning the allegedly promissory statements in the present case: were the words promissory, that is, did they amount to an offer of a promise by B which if accepted became contractually binding; and, next, if the words were promissory, and A later contracted with C, was the entry into the later contract an acceptance of B's offer? The first question could be answered yes and the second no in circumstances where the contract with C was made by A after the time limited for acceptance of A's offered promise had expired or a reasonable time for accepting it had elapsed. In the present case I find the questions raised concerning both areas difficult. The more difficult area seems to me to be the first. It is not as clear to me as it was to Cole J that in the circumstances of the introductory meetings between Liftronic and Mr Kgil, the latter's statements should be taken as promises offered on the part of HA. Without deciding that question however, I pass to the second area. Although, in view of Cole J's findings, this also presents some difficulty, the situation nevertheless seems to me relatively clearer than the other. The conversations relied on were in July and September 1986. The first order became contractual in April 1988. In the interval a number of things had happened. 12 UNREPORTED JUDGMENTS Mr M Debelak, in the statement in which he set out his recollection of the conversations of July and September 1986, said that he relied on what was said to him by Mr Kgil "and on what I saw in the brochures [about Hyundai, given to him by Mr Kgil] together with my experience, enquiries and observations about Hyundai and their equipment" (paral3). Mr Debelak's statement then outlined the continuing communications between HA and Liftronic following the initial conversations. These included a visit in December 1986 to the Hyundai Elevator plant in Korea and considerable correspondence. Stated generally, the correspondence shows that each of the two sides was inquiring about the other, and giving information, sometimes guardedly, about its own operations. The correspondence also gives the impression, on each side, of experienced people dealing with one another with appropriate wariness, at least as regards technical matters. The only area which strikes me as being one in which Liftronic would have been well advised to take greater care was that which concerned the non technical but potentially legally important question of the identity of the legal entity with which Liftronic would be dealing in any equipment purchases it made. In these circumstances, and with respect to the differing view arrived at by Cole J, I have reached the firm conclusion that even if what Mr Kgil said in July and September 1986 could be properly characterised as an offer (or offers) of a promise to Liftronic, any such offer had lapsed long before April 1988. Put in less formal terms, the events that took place after September of 1986 seem to me to have had the effect of making irrelevant what was said in the July and September 1986 conversations, in the sense that although no doubt the parties remembered what had then been said, the inquiries and investigations and inspections made by Liftronic, must in my opinion, be treated, in an objective sense, as having superseded whatever was said in those conversations; if Liftronic were in fact relying on the conversations as promissory, then there was no need for any of the later activity; the later activity seems to me, putting myself in the position of the objective observer, to indicate both that Liftronic was not treating the conversations as promissory, and even more clearly, was making its own investigations into what would be supplied by Hyundai before entering into contracts with whichever Hyundai companies were the actual vendors to it, and then relying on the ordinary incidents of such contracts for the sale of goods. I thus reach a different conclusion from that of Cole J in regard to this aspect of the case. In my opinion the contractual warranty alleged to have come into existence from HA to Liftronic was not established by the facts as accepted at the trial. In my opinion the judgment entered against HA should on that basis be set aside. Liftronic submitted in the appeal that if the court reached the conclusion I have reached about the contractual warranty, Liftronic should nevertheless succeed on the case it had sought to make against HA of false or misleading representations in connection with the supply of goods. Cole J had specifically decided against Liftronic's representation case in regard to the second set of representations and promises but had not done so in regard to the first set. Having found that the first set of statements were promissory he decided that part of the case on the contractual basis and did not need to say anything about the representation basis. It was argued for Liftronic that on the facts found by Cole J, even if the representations did not reach the level of being promissory, they nevertheless did fall into the descriptions of representations for which the Trade Practices Act WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDFG CORPORATION and ANOR v LIFTRONIC PTY LTD (Priestley Jahistory) provides remedies, they had been acted on and Liftronic was therefore entitled to what damages it could prove on that basis. I have already given my reasons for concluding that if the statements made were promissory, nevertheless the offer of promise had lapsed or been superseded by the time Liftronic came to make its film contracts for acquisition of the Hyundai materials. Those same considerations lead me to the opinion that the representations should not be regarded as still operative at the time of entry into the first and later contracts. I do not think the judgment against HA can be saved on this basis. In my opinion the judgment against HA should be set aside, and in its place judgment entered for HA. ISSUE C. The damages claim which was dealt with by Giles J was presented by Liftronic under four heads. These were (i) loss of profits from April 1990 to April 1992, (ii) loss of profits from maintenance contracts, April 1990 to April 1992, (iii) loss of profits from April 1992 to April 1996 and (iv) loss of maintenance income after April 1992. In a document called Exhibit U, Liftronic set out the method by which it arrived at the figure claimed under each of the four heads. These figures were (with the amounts allowed by Giles J in brackets), (i) $1,734,000, ($1,627,500); (ii) $716,330, or alternatively $615,684, ($577,870); (iti) $1,309,000, ($1,000,000); (iv) $718,000, ($466,000). The total claimed by Liftronic (counting the larger of the alternative amounts claimed under (ii)) was $4,477,330. The total arrived at by Giles J was $3,671,370 which he rounded off to $3,670,000. Giles J described in general terms the method upon which Liftronic's claim as particularised in Exhibit U was based. This was after he had considered various arguments by the appellants disputing the approach adopted by Liftronic. Having indicated that he did not think it was incumbent on Liftronic to prove its loss of profits in the way the appellants had contended for, he went on to say: "The means of proof adopted by Liftronic appears from the following consideration of the particular steps in its quantification. In general terms, it pointed to a marked fall in sales from early 1990, sought to identify, quantify and exclude reasons other than lack of equipment to replace the Hyundai equipment and the effect of damage to reputation (with evidence that the defective equipment and the problems with lifts using that equipment were widely known and caused Liftronic to be looked upon with less favour for the sale and installation and maintenance of lifts), and invited the conclusion that the remainder of the fall in sales was caused by the lack of equipment and the effect of damage to reputation. Maintenance contracts secured were treated as falling proportionately, with some adjustment, and an estimation was made of the ongoing effect of damage to reputation." Broadly speaking, Giles J adopted the method put forward by Liftronic, with some modifications and with some alterations in some of the key figures. He stressed that what he was doing was making "estimates guided by calculation rather than a calculation". In the appeal the appellants did not quarrel with the overall method adopted by Giles J but submitted that some of the basic factual assumptions which he made in the calculating part of his estimations were wrong and that the estimations should be adjusted in the appellants' favour accordingly. 14 UNREPORTED JUDGMENTS The points that were taken will, I hope, be easier to understand, if I first set out Liftronic's own calculation in Exhibit U of the figure of $1,734,000 it claimed for item (i) above, loss of profits from April 1990 to April 1992, set beside it Giles J's recalculation of the same claim, and then, at the risk of some repetition, 5 describe the steps involved. EXHIBIT U GILES J (1) Sales 1988-1990 13,067,000 1990-1992 4.453.000Fall in sales 8,614.000 (2) Less effect of recession (23.9 per cent of Less effect of $13,067,000)3.123,000 cent of $ 8,000.000) Net fall in sales (ie excluding recession-caused fall): Net fall in sales (ie excluding recession- $8,614.000 $8.000.000 20 minus $3,123.000 5,491,000 minus $2,000.000 (3) Gross profit loss (31.59 per cent of $5,491,000) Gross profit loss $6.000.000) Less 12 1/2 per cent for 21 months instea 25 months Liftronic had claimed that it began to suffer damage through loss of sales because of the defective Hyundai equipment in 1990. This followed its decision no longer to buy from Hyundai, and to look for alternative suppliers, which led to a period when it was short of necessary supplies. Step (1) in Liftronic's calculation was the production of figures showing that the difference in sales between the two year period 1988 to 1990 and the two year period from 1990 to 1992 (during which it was short of equipment) was $8,614,000. 40 _ Liftronic's step (2) was to concede that part of the fall in sales between the two two year periods was due to the effect of the recession. Liftronic contended that 23.9 per cent was the proportion of the fall attributable to this cause; the balance was to be attributed to the breaches of contract by the appellants. Liftronic's step (3) was to claim that its historical gross profit figure on sales 45 was 31.59%. The fourth step (which was really implicit in step (1), in that in step (1) Liftronic was taking the 1990-1992 period as the correct period for comparison), was Liftronic's claim that the two year period 1990 to 1992 was the period during which, having realised the Hyundai equipment could not be used for purposes of 50 Liftronic's business, Liftronic sought alternative suppliers and was unable to make sales. In the words of Mr M Debelak, Liftronic was "without a product to WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAG CORPORATION and ANOR v LIFTRONIC PTY LTD (Priestley Jahistory) replace the Hyundai product" until about February 1992, a statement which Giles J said he understood as meaning that Liftronic could not fully compete in the market until that time. The changes which Giles J made in reworking Liftronic's calculation can be seen by looking at his calculation as above set out. In step (1), he reduced the gross fall in sales to $8,000,000; in step (2) he increased the 23.9 per cent to 25 per cent and applied it, not to the sales figure for 1988-1990, but to his fall in sales figure of $8,000,000; in step (3) he used a gross profit figure of 31 per cent instead of 31.9%; and in a fourth step, he reduced the period of loss from two years to twenty-one months, that is, by 12 1/2%. Giles J adapted the findings he made in regard to head (a) to his estimations of the other three heads of loss of profits. ISSUE C: (a): The appellants submitted that the figure of 25% adopted by Giles J as representing the proportion of drop in sales attributable not to the appellants but to the independently operating effects of the recession was unrealistically low. The figure of 23.9 per cent for which Liftronic had contended was taken from figures published by the Australian Bureau of Statistics (ABA) showing the fall in the value of non residential building work in 1991-1992 in comparison with 1988-1990. The appellants on the other hand had said that a more appropriate guide was the drop in approvals for installation of lifts shown in figures kept by the WorkCover Authority. These figures showed an overall decline in the registration of lifts in the category in which Liftronic dealt, during the period 1990-1991, of 64%, and in the period 1991-1992 of 53%. Giles J succinctly stated the reason for (broadly) preferring the figure advanced by Liftronic: "Against the use of ABS percentage, non-residential building work would include many buildings which did not have lifts, and the recession may have had a greater impact on the construction of multi-storey buildings than upon non-residential buildings generally. On the other hand, the ABS percentage reflected values while the WorkCover figures reflected numbers of lift units of widely different values, and the approvals did not necessarily mean that the lifts were sold and installed or were sold in the relevant period. It is obvious that neither percentage could be more than a guide. It seems to me that the ABS percentage provides better guidance for adjusting sales figures expressed in dollars, because reflecting values. It must be borne in mind that lift sales are in part only of the non-residential building market, but it was far from clear what difference that would make. I propose to take a figure of 25 per cent, which I think is conservative in favour of Hyundai." The submission advanced by the appellants' counsel against Giles J's conclusion was equally succinct. It recognised the validity of the two reasons he gave in favour of the approach based on the ABS figures, namely that the WorkCover figures reflected the number of lift units of widely differing values and second that the approvals did not mean the lifts were sold or installed in the relevant period. But counsel then continued that Giles J had given no weight to a third consideration appearing from analysis of the WorkCover materials, namely that they "demonstrated a trend of the clearest kind, that the market had imploded". Having considered the WorkCover figures (s10 of the statement of Mr Brinnand), I agree with this observation of counsel for the appellants. Although the figures suffer from the defects identified by Giles J, it seems to me they 16 UNREPORTED JUDGMENTS nevertheless provide very strong evidence of a falling away in the demand for the installation of new lifts, attributable to the decline in building resulting from the economic circumstances of the time. Taking that factor into account, I find myself in disagreement with Giles J that the figure of 25% which he took was conservative in favour of Hyundai. It seems to me to be over liberal in favour of Liftronic. I fully recognise that in attempting to assess damages in cases such as the present judges must necessarily work with fairly rough estimations. I also recognise that with some of the other figures by reference to which Giles J calculated his estimates, he took figures less than those contended for by Liftronic and that there may have been an element of compensation for this in what seems to me to be the over modest deduction of 25 per cent which he made for what was called the effect of the recession. Nevertheless, it seems to me that a figure of 35 per cent is one which better reflects the evidence available on this question. I would be inclined to put it higher, were it not for the consideration just mentioned, that Giles J may well have been more favourable to Liftronic in other figures involved in his estimates had he taken a less favourable view to Liftronic in regard to the recessionary effect. ISSUE C: (ii) Giles J reduced the period of two years contended for by Liftronic as the period during which, because of the appellants' breaches, Liftronic in effect had no product to sell. He held that part of the period was not properly attributable to the appellants' breaches. For the appellants it was submitted he was wrong in not reducing it by more than the three months which he did. I do not think the appellants demonstrated any error on the part of Giles J as to the reduction he made. Having read the evidence, it seems to me clearly a situation in which reasonable minds could reasonably form different views on the facts and, in the absence of any apparent mistake or oversight by Giles J I would not wish to interfere with his conclusion. In any event, my own reaction to the facts does not differ in any significant way to that of Giles J. ISSUE C: (iii). The complaint made in regard to this matter was that when Giles J in doing his own calculations adopted a figure of 25% in preference to the 23.9 per cent advocated by Liftronic for the recession effect, he applied it to the fall in sales figure and not, as Liftronic had done in its calculation, to the sales figure for 1988-1990. This contention is factually correct. Liftronic further contended that this indicated a slip on Giles J's part. I think this must be so. Giles J did not explain why he chose the different figure and his whole approach seems to me to have been to adopt the Liftronic method, subject to modifications which he took care to explain. I have indicated that I agree with this as a permissible approach, but it is one which, if adopted, should be adopted consistently. ISSUE C: CONCLUSION. The alterations I would therefore make to the four heads of estimation by Giles J are those consequential upon my opinion that the recession effect should be taken as at least 35 per cent rather than 25% and that the estimations should be reworked by using the Liftronic method, subject to Giles J's other adjustments. Using his Honour's method, with these adjustments, in respect of head (i), I start (i) with $8,000,000 as the difference in sales in the two periods, (ii) deduct 35 per cent of $13,067,000 ($4,573,450) from that which gives $3,426,550, (iii) calculate 31 per cent of that (1,062,230) which represents gross profit loss for the WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAI CORPORATION and ANOR v LIFTRONIC PTY LTD (Handley JA) two years, $1,062,230, and (iv) deduct 121/2 per cent ($132,778) leaving $929,452 as the amount to be allowed under this head. Applying the same adjustments to head (ii) means reducing $615,684 to the figure which bears to $615,684 the proportion 929,452:1,627,500, which results in $351,612. Applying them to head (iii) means reducing $1,668,000 in the same way, which results in $952,581, then reducing that by 25 per cent ($238,145), resulting in $714,436, then finding the figure which bears to $714,436 the proportion 1,000,000:1,174,165 the result being $608,463. Applying them to head (iv) means reducing $718,000 to the figure which bears to $718,000 the proportion 929,452: 1,627,500, resulting in $410,043, and then taking 85 per cent of that, which is approximately $348,536. The sum of the figures for heads (i), (ii), (iii) and (iv) is $2,238,063. This means that I would replace Giles J's figure of $3,670,000 for damages for loss of profits with the figure of $2,238,063. It will be necessary for interest to be calculated on that sum to 6 September 1993 on the same basis as interest was previously calculated on the amount arrived at by Giles J. OVERALL. In my opinion the appeal by HE and HC against the orders made against them by Cole J should be dismissed. The appeal by HA against the orders made against it should be upheld, the claims against it dismissed, and judgment entered for it against Liftronic. The appeals of HE and HC against the orders made against them by Giles J should be upheld so that the amount ordered to be paid by them can be reduced to $2,238;063 for that purpose the order of Giles J should be set aside and an order for payment by HE and HC in the amount of $2,238,063 substituted. The Court was asked, in the event that any of the appeals was successful in a material respect, to publish its decision and then give the parties an opportunity to address the court on interest and costs before final orders are made. The parties should be directed to file short minutes of orders giving effect to the Court's decision, and the appeals should be listed for argument on interest or costs at 2pm on the 15th day of December, 1994. Handley JA In this appeal I have had the benefit of reading the reasons for judgment of Priestley JA in draft form. His Honour sets out the facts and the history of the litigation and I adopt his summary of these matters. Mr Jackson QC who appeared for the appellants narrowed the issues considerably so that there only remain for determination by this Court: (A) The claim for Mr Kong's wages (Cole J - 31/3/93). (B) The liability of Hyundai Australia Pty Ltd (Cole J - 25/5/93). (C) Issues of quantum (Giles J - 1/9/93). ISSUE (A) I agree with Priestley JA that the challenge to the judgment of Cole J of 31/3/93 in so far as he allowed the plaintiff's claim for $215,943.80 for wages paid to Mr Kong fails, but wish to add some short reasons of my own. The Referee did not decide this claim and said he was unable to do so on the evidence before him. Following the general adoption of the Referee's Report, Cole J decided to determine this claim on the evidence before the Referee. As Priestley JA has held, SCR Pt72 R13(1)(d) empowered the Judge to take this course. It would not have been appropriate for the Judge to exercise this power where questions of credibility were involved which had not been determined by the Referee. However no such objection was taken before Cole J or indeed before this Court. 18 UNREPORTED JUDGMENTS Cole J's reasons for upholding the claim were: "Mr Kong was formerly an employee of Hyundai. He was subsequently employed by the plaintiff because of the difficulties with the Hyundai lift defects. The evidence makes clear that not only was he employed because of the Hyundai lifts' defects but that he spent the totality of his time working on those defects and seeking to rectify them including corresponding with Hyundai in those endeavours. The totality of his time claimed should be allowed." This finding was said to be unsupported by the evidence, contrary to the findings of the Referee, and in any event wrong. In particular the appellant submitted that since the Referee who saw and heard the witnesses was not satisfied with this claim, it was not open to his Honour, who had no such advantage, to make the positive finding the Referee had declined to make. It was also said that this claim involved doubling up because the labour costs incurred in rectifying the faults in the Hyundai lifts h!ad been separately claimed and allowed in full. However the Referee rejected the defendants' argument that this claim involved doubling up by finding that Mr Kong had spent "a great deal" of his time on the Hyundai lifts and reporting that subject to the matters to which he referred, this claim should be allowed in full. On 26 February 1993 Cole J directed the plaintiff "to accumulate the evidence in some document... that was before the Referee" about the employment of Mr Kong and the time spent by him on rectifying defects in the Hyundai lifts. The plaintiff filed a submission which referred to the relevant passages in the transcript before the Referee. I have read the relevant evidence given by Mr Addison and Mr Debelak. It provides a sufficient foundation for the findings of Cole J. Mr Kong was employed by Hyundai until 14 June 1990. He had been sent to Australia to work for Liftronic on secondment in November 1989 for five weeks and again in May 1990 for some weeks. He was then recruited by Liftronic. Liftronic was experiencing major problems with its Hyundai lifts by early 1989 and in February 1990 it decided that it would not use Hyundai equipment in any further tenders. Its last contract involving the use of Hyundai equipment was entered into in April 1990. There is therefore no reason to doubt that Mr Kong was employed in June 1990 to deal with the abnormal problems Liftronic was then experiencing with its Hyundai lifts. The appellant relied upon what were said to be inconsistencies in the evidence. However it seems to me that these are to be explained by reference to the periods in November 1989 and May 1990 when he was "employed" by Liftronic on secondment before he became its permanent employee. The claim allowed by Cole J did not include any amounts paid for his services in November 1989 or May 1990. Mr Debelak said that Mr Kong was employed "originally as a tuner to get lifts running" but "subsequent to that with the high failures, defects we had with them all his time was being spent on the Hyundai lift problem." (32) Kevin Addison said he was employed to "retune the lift" (46) but he distinguished this type of work from normal tuning (46). Mr Kong was only used to deal with problems in a lift "a normal maintenance man could not solve" (Debelak, 47). If Liftronic got a call from a client saying that the lift was behaving in an unstable manner Mr Kong would go and do that retune (Addison, 47). He was "employed predominantly to repair faults that came out of the Hyundai system' (Debelak, 48). "He was never employed as a maintenance man" (Debelak, 49). WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDF CORPORATION and ANOR v LIFTRONIC PTY LTD (Handley JA) The appellants also made a Jones v Dunkel submission based on the respondent's failure to call Mr Kong before the Referee. The transcript of 17 December 1992 records that counsel for Hyundai submitted that Liftronic should call Mr Kong but the evidence closed the following day without him being called. In my opinion this is not a true Jones v Dunkel case. The plaintiff called two witnesses who gave evidence on this issue and the question for the Referee was whether their evidence should be accepted. Neither the Referee nor Cole J had to consider whether inferences open on the evidence called by one party should be drawn where the other party chose not to call an available witness who could answer and explain that evidence. For all these reasons, in my opinion, the appellant's challenge to the decision of Cole J to allow the plaintiffs claim for Mr Kong's wages fails. ISSUE (B) T also agree with Priestley JA that the appeal by Hyundai Australia should be allowed. The plaintiff sought to make this company liable either for representations contrary to s52 of the Trade Practices Act or for breach of oral collateral warranties. Some of the relevant promises and representations were alleged to have been made by Hyundai Australia to the plaintiff in July 1986 and the others in September 1986. Cole J held that the plaintiff had not relied upon the representations made in September 1986 and as Priestley JA has held, this precludes a finding that Liftronic intended to accept offers of promises by Hyundai Australia in the same terms when in April 1988 it first contracted to purchase equipment from one of the other Hyundai companies. However these findings make it impossible to find that similar statements made even earlier were relied upon by Liftronic in April 1988 and then gave rise to collateral contracts. In my opinion any offer of a promise for an act implicit in conversations of July 1986 had lapsed long before the first contract for sale was made in April 1988. Liftronic did not then seek confirmation from Hyundai Australia of its earlier representations or promises. There is therefore no basis for a finding that it was then relying on representations made twenty one months earlier and never repeated, or intending to accept any offers of promises for acts made at that time and enter into collateral contracts. In the language of Lord Atkinson in Heilbut Symonds and Co v Buckleton [1913] AC 30 at 44 in my opinion there is no evidence that Mr Debelak in April 1988 accepted the alleged offers and treated them as part of a bargain. I agree therefore that the appeal by Hyundai Australia should be allowed and the judgment against it set aside. ISSUE (C) On this part of the case I agree with Priestley JA but wish to add some further reasons which have led me to conclude that the allowance of 25 per cent made by Giles J for the effects of the recession was too low. The trial Judge's figure of 25 per cent was based on the fall in the value of non-residential building work during 1990-1992 compared with the previous two years. The ABS classifies multi-storey flats and unit buildings as residential buildings but treats multi-storey hotels, motels and hospitals as non-residential buildings. Non-residential buildings also include factories, shops, offices, educational religious health and recreational buildings and others (9/2192). Some of these would be single storey or low rise buildings not requiring lifts. On the other hand home unit buildings are classified as residential buildings but could require lifts. Liftronic supplied lifts for home units as well as for non-residential buildings. (2057-2058). 20 UNREPORTED JUDGMENTS The relevant expert witnesses called for the plaintiff were Mr John Friedland from its accountants and Mr Banks from KPMG. Mr Friedland in his report of 17 March 1993 (9/2120) adopted the ABS figures for the value of non-residential building work in New South Wales before and after March 1991 as the basis of his calculations. As to this he baldly said: "Of relevance to this assignment is the graph 'Value of building work done NSW at 1984-1985 prices seasonally adjusted' and the curve representing non-residential work done. (2120)" He gave no other reason in his report for adopting the ABS figures for non-residential work. In his statement he said: "I confirm my opinion that the estimate... is a reasonable estimate for the downturn in non-residential building activity in New South Wales from April 1990 to April 1992. I am of the opinion that such an estimate... gives a reasonable estimate of how the downturn in the building industry affected Liftronic in the period April 1990 to April 1992. (2129)" Mr Friedland had been the professional accountant for the plaintiff since 1986, but his expertise as an accountant without more would not qualify him to express the opinion that statistics showing the effects of the recession on non-residential building work were a reliable guide to its effects on the value of work done by lift contractors. Mr Banks, a professional accountant, with no prior association with the plaintiff, also had no qualifications to express an opinion as to the relevance of those ABS statistics as a reliable guide to the effects of the recession on lift contractors. Indeed he did not purport to express his own opinion on this matter. He said that he had regard to statements by a number of witnesses including Mr Friedland, Messrs Milan and Vladimir Debelak and Mr Kim Addison (2216). Mr Milan Debelak (8/1985) on this question merely stated that between April 1990 and April 1992 there had been a recession in the building industry and he referred to the ABS figures for the value of non-residential building work. Further opinion evidence by him was rejected (1986). Neither Mr Vladimir Debelak nor Mr Addison expressed any opinion on this question (8/2071 and 2089). Mr Banks in his report (9/2217) simply said: "We observe from the Friedland Statement that it used a graph published by the Australian Bureau of Statistics titled 'Value of Building Work Done NSW at 1984/1985 Prices (Seasonally Adjusted)'. The Friedland Statement determined, based on that graph, that: Bese ; * the value of work done in New South Wales in relation to non-residential building is indicative of the value of lift installation contracts secured by the plaintiff... " He agreed that he knew nothing specific about the lift industry (03/1939), and gave the following evidence in cross-examination: "Q. But you have looked at the trend here, have you not, based upon the building statistics in part? A. That is correct. Q. Which are non specific? A. Yes. Q. And not a particularly reliable base to assess an individual industry within an industry. Is that right? A. Partly that would be right, yes. (1940) WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUNDAI CORPORATION and ANOR v LIFTRONIC PTY LTD (Handley JA) Q. You would agree, would you not, that in relation to market share, accurate source figures from the WorkCover Authority would give a reasonable insight into the movements in market share between the various lift installers, assuming they are accurate? A. Assuming they are accurate, yes. Q. And they would be a reasonably satisfactory guideline on which to determine the changing relationship in market shares between the various installers? A. So long as they are measuring the same products and the same high rise lifts. If it was categorised that would be a reasonable basis yes. Q. Assume the same set of figures, those figures you would accept are a reasonable guide to market trends? A. If they are the same size and the same type of lifts, yes." (1941) In re-examination he said that he had never seen the relevant records of the WorkCover Authority and did not know what information they contained. He also gave this evidence: "Q. It was suggested to you that the building statistics were not particularly reliable as a guide to assessing an industry within an industry. You said you partly agreed with that. What part did you agree with and what part do you disagree with? A. It does show the overall trend of an industry and how an industry is moving but that again has a failing in that it does include a combination of small and large buildings in different areas, so one cannot be certain that you are referring to the specific market you are trying to target. I think it is a reasonable guide. Q. Do you know of any better? A. I don't know of any better guide, no." (1942) Hyundai's expert on these issues was Mr Brinnand, a consulting engineer specialising in lifts and escalators for buildings whose practical experience in this industry dated back to 1966. He stated that from 1990 to 1992 "there was a severe downturn in lift installations in New South Wales". He also relied upon figures obtained from the WorkCover Authority for lift registrations. The Lift Manufacturer's Association circulated these figures to its members on a quarterly basis (1952). Lifts are registered by the Authority following receipt of an application for a permit to install. He said that Hyundai's lifts were geared equal to or greater than one metre a second, this being a separate category in these figures. (1950) Lifts of this type are installed in mid-rise buildings of between 5 and 24 storeys. Applications for 187 lifts in that category were received in 1990, 76 in 1991 and 57 in 1992. These figures reveal a 59 per cent fall from 1990 to 1991, a further fall of 25 per cent from 1991 to 1992 and an overall fall from 1990 to 1992 of 70%. They also revealed that Liftronic's share of this market fell from 33 lifts out of 187 (17.6%) in 1990 to 5 out of 76 (6.6%) in 1991 and then rose to 8 out of 57 (14%) in 1992. Had Liftronic maintained its 1990 market share it would have made applications for 13 lifts during 1991 out of 76, and 10 out of 57 during 1992. However Mr Milan Debelak said that there could be long delays between contract, application and completion of the work (2045-2052) and Mr Brinnand agreed. The figures for applications during a year are therefore not a reliable guide to the level of sales in that year. 22 UNREPORTED JUDGMENTS The total fall of 28 in Liftronic's applications during 1991 was made up of 20 (71%) due to the smaller market and 8 (29%) due to a loss of market share. The total fall of 25 during 1991 compared with 1990 was made up of 23 (91%) due to the smaller market and 2 (9%) to a loss of market share. Mr Brinnand stated that towards the end of 1990, due to the fact that the majority of buildings then being erected were low rise, the major lift companies commenced manufacturing pre-engineered packages at reduced prices in an attempt to be competitive against the smaller companies such as Liftronic. As a result the smaller competitors were less dominant in the smaller projects (9/2289). Mr Milan Debelak disputed this, but not Mr Brinnand's evidence that prices dropped dramatically from 1990 (1953). Mr Brinnand agreed in cross-examination that these percentages being based on units not projects could be arbitrary because one project could produce a large variation. The raw figures did not reveal the size or speed of the lifts, their length of travel or their load and therefore gave no guidance as to the value or profitability of the work (1961-1963). Mr Banks said that the raw figures were not a reliable guide to levels of profit (1969-1970). This state of the evidence left the trial Judge in an awkward situation. In the passage quoted by Priestley JA the trial Judge recognised the problems with both the ABS statistics and the WorkCover figures. However he accepted a figure of 25 per cent for the fall in $he general market which was hardly more than the 23.9 per cent derived from the ABS statistics and largely ignored the WorkCover figures. With respect I cannot think that was appropriate and I cannot agree that the 25 per cent figure was "conservative in favour of Hyundai". Like Priestley JA I would accept the submission of Mr Jackson QC for Hyundai that the WorkCover figures "demonstrated a trend of the clearest kind, that the market had imploded." It was common ground that there had been a severe recession in this industry and Mr Milan Debelak said the market was "pretty static across the board" (1968). Mr Brinnand's evidence that prices dropped dramatically was inherently probable and not disputed. The WorkCover figures related specifically to the section of the industry in which Liftronic supplied Hyundai lifts. The figures are akin to those for motor vehicle registrations and dwelling house commencements which are used to demonstrate overall trends in those markets. The WorkCover figures demonstrated an overall decline of 70% between 1990 and 1992. However the defects in the Hyundai lifts were likely to have a drastic effect on Liftronic's business during those years. In these circumstances it would not be appropriate to attribute anything like 70 per cent of the fall in Liftronic s sales to the general recession. In the circumstances I am not prepared to differ from the figure of 35 per cent adopted by Priestley JA. Indeed I think, with respect, that it is correct. Accordingly I agree with the orders proposed by Priestley JA. 1. Appeal by Hyundai Australia Pty Ltd allowed. 2. Set aside the judgment entered in favour of the plaintiff against Hyundai Australia Pty Ltd and in lieu thereof enter judgment for that defendant. 3. Appeals by Hyundai Elevator Co Ltd and Hyundai Corporation allowed in part. 4. Set aside that part of the judgments against Hyundai Elevator Co Ltd and Hyundai Corporation as awarded damages of $3,670,000 for loss of profits and interest thereon and substitute an award for $2,238,063 for WRWNDAI ELEVATOR CO LTD v LIFTRONIC PTY LTD and ORS; HYUND2@ CORPORATION and ANOR v LIFTRONIC PTY LTD (Handley JA) loss of profits with effect from 1 September 1993 together with interest in an amount to be determined hereafter by the Court. 5. Direct the parties to file and serve short minutes of orders as to costs and interest giving effect to this Court's decision on or before 4pm on 5 Wednesday, 14 December, 1994. 6. The appeals are listed for further argument on interest and costs at 2pm on Thursday, 15 December, 1994. Counsel for the Appellant: DF JACKSON QC/S LEVER 10 Instructed by: GOLDSMITHS Counsel for the Respondent: RBS MACFARLAN QC/D CASPERSONN Instructed by: NEWMAN PSALTIS AND CO