Re Svagelj Nominees Pty Ltd v Ivan'S Mechanical Repairs Pty Ltd and Ivan Klem Spanjich [1989] FCA 3 (26 January 1989)

FEDERAL COURT OF AUSTRALIA

Re: SVAGELJ NOMINEES PTY. LTD.
And: IVAN'S MECHANICAL REPAIRS PTY. LTD. and IVAN KLEM SPANJICH
No. WAG 84 of 1985
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - fraud -
negligence - breach of contract and collateral contract - detinue - conversion - lien - set off - equitable set off - interest -
repair of bulldozers and hire of plant items - pre-contractual representations - refusal to release bulldozer after repair pending payment - no questions of principle.

Trade Practices Act 1974 s.52

Federal Court of Australia Act 1976 s.51A

Hire Purchase Act 1959 s.26(2)

Supreme Court Act (WA) (1935)

Judiciary Act 1903 s.79

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

Fryer v Plucis (1967) WAR 161

W. Pope & Co. Pty Ltd v Edward Souery & Co. Pty Ltd (1983) WAR 117

Pavich v Bobra Nominees Pty Ltd (unrep. French J., 31/10/88)

HEARING

PERTH
26:1:1989

Counsel for the Applicant: Mr R Bower

Solicitors for the Applicant: Corser & Corser

Counsel for the Respondents: Mr C Pullin QC with Mr C Clark

Solicitors for the Respondents: Clark & Co.

ORDER

The application is dismissed.

There be judgment for the first respondent on the cross-claim in the sum of $36,098.08.

The parties be at liberty within 14 days to file and deliver written submissions on the question of the period over which pre-judgment interest should be allowed and on the question of costs.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

The principal issues in this multi faceted dispute arise out of representations said to have been made in connection with the cost and nature of work carried out by Ivan's Mechanical Repairs Pty Ltd ("IMR") on two bulldozers owned by Svagelj Nominees Pty Ltd ("SN"). The representations are said to have been misleading or deceptive in contravention of the Trade Practices Act 1974 and to have been made either fraudulently or negligently. Breaches of contract and collateral contract arising out of the same transactions are alleged. There is a claim for damages for conversion or detinue of the bulldozers, one of which is still held by IMR, which claims a lien over it for unpaid work. That company also cross-claims for unpaid accounts of $33,583.08 and hire charges for a rake amounting to $32,600. Against this cross-claim, which it rejects in any event, the applicant seeks to set off its claim for damages and costs associated with the hire of a caravan and fuel tanker exceeding $9,000.

2. It is unfortunate that this matter has come to Court as the two persons principally in dispute, Svagelj and Spanjich, appear to be decent men and competent contractors. It is a case which might well have been resolved by sensible mediation. That, however, was either not available or not availed of.
Factual History

3. Rudolph and Sadie Louise Svagelj incorporated Svagelj Nominees Pty Ltd ("SN") on 14 April 1977. Through that company they carried on the business of Happy Digging Earthmoving Contractors until October 1979 when they formed a partnership under the same name with Bruno Sorgiovanni and his wife. The partnership, which owned various items of plant and equipment for earthmoving and drilling, including two bulldozers, used Ivan's Mechanical Repairs Pty Ltd ("IMR"), a company run by Ivan Spanjich for mechanical repairs as required.

4. According to Mr Svagelj it was their practice to pay IMR for work done as the partnership was paid for its work. While neither contradicting nor deposing to such arrangement, Spanjich said the accounts were paid promptly during the time that he dealt with the partnership. And during that period which ran from 1979 to February 1981 the personal and working relationship between the parties was good.

5. In February 1981 the partnership was dissolved and the Svageljs continued the earthmoving business through SN trading as trustee of the Svagelj Family Trust. The company acquired from the partnership, a D8 Bulldozer, a Diamond Rio Prime Mover and a Bosich 3-axle trailer. The bulldozer was manufactured in 1967/68 and bore the engine serial number D8H46A16747. Svagelj told Spanjich that he would like to continue using IMR on the same basis as the partnership had. Spanjich, he said, assented to this. However, although the evidence disclosed that IMR was generous with credit, the arrangement alleged was not pleaded. Spanjich did not deny that there had been a practice of granting extended credit to SN but as he said in cross-examination:

"Everything in this life got a turning point and I
have no obligation to give credit to anybody unless
I wish to..."

The evidence did not disclose a form of arrangement of the kind propounded by Svagelj and certainly would not support an inference that there was a credit agreement in place which regulated the legal relationship between IMR and SM.

6. Up until December 1981 the trading relationship was satisfactory. Over that period IMR did repair work amounting to some $19,000.00 of which $18,000.00 had been paid by the end of the year. The second half of 1981 was a busy time for the company. There was a lot of work to be done for farmers and for local government. Another bulldozer was needed, so in November 1981 Mr Svagelj looked at a secondhand D8 Caterpillar being offered for sale at the premises of Wigmores Tractors Pty Ltd at Guildford. He asked Spanjich to inspect it for him. Spanjich was, it turned out, already familiar with the machine which had previously belonged to a firm called Geraldton Contractors. After carrying out an inspection, Spanjich told Svagelj that mechanically it was "not too bad" but that the asking price of $45,000.00 was too high and should be brought down to $35,000.00. He spoke with the salesman a Mr Bob Lemmon and the price was reduced to $35,000.00. According to Svagelj, Spanjich said that there was some repair work needed which he would be able to carry out for about $4,500.00. It was put to Svagelj in cross examination that Spanjich had advised him not to buy the machine at all, but that he had wanted to acquire it and pay for repairs out of pre-tax earnings rather than seek the lesser benefits of depreciation on a new machine. These contentions were denied, there was no evidence from Spanjich to back them up, and I am not satisfied that the alleged advice was given. Whether it was or was not, however, is in the end a side issue that does not affect the outcome of the case.

7. The purchase was financed by a Hire Purchase Agreement with Esanda Ltd providing for monthly instalments of $1,232.69 over a four year term. The bulldozer which was manufactured in 1970 bore the engine serial number D8H46A17132. It was transported directly from Wigmores to the IMR workshop at Kewdale. There it was fitted with spare tracks from the older bulldozer D8H46A16747. On Spanjich's advice a steel cab was fitted by one Joe Balicich who carried on business next door to IMR. Svagelj picked up the bulldozer in January 1982 and put it to work on a job at Nungarin where it was operated for five weeks. At the end of that time the spare tracks and the rollers were worn down and he returned it to IMR where new tracks and rollers purchased from Moore and Sons were fitted. The amount due to IMR for this work was apparently added to the running account. The bulldozer was also serviced in the field on one or two occasions by Alfred Pezzali, a mechanic employed by IMR, who recalled replacing a pilot motor, a transmission and a converter.

8. While being operated at Hines Hill before Easter 1982 and after the replacement of the tracks, the bulldozer began overheating and developed an oil leak in the crank shaft. On 8 April 1982, acting on Spanjich's advice, Svagelj checked the oil filter and discovered in it metallic fragments from the bearings. He was told to cease operating the machine and to bring it down to Perth for further inspection. He did so on the following day, which was Good Friday, and left it outside the IMR workshop. On the Saturday he met Spanjich and asked him to check the motor out, but not to work on it without further discussion. At the time SN owed IMR $29,891.21. Svagelj returned to complete the work at Hines Hill using the older bulldozer. Pezzali, on instructions from Spanjich, removed the engine from the bulldozer and dismantled it, at least to the extent of removing the cylinder head, the sump and the oil pump. This, according to Spanjich, was sufficient to enable inspection of the major components of the engine, the liners, pistons, bearings and oil pumps. There was some conflict between his evidence and that of Pezzali who said he had been instructed to strip the motor right down. I am inclined to the view that the motor was not completely stripped at this time. Pezzali said he had found a broken piston in the sump but that derived from a previous breakdown. This may have accounted for the metallic fragments in the oil filter. It was not suggested that the presence of the broken piston had anything to do with any work done by IMR. Pezzali said there was no evidence of a general failure of the engine. He did not suggest that it did not require an overhaul. Asked what he was required to do to the engine, he said:

"...as I said earlier, it was not that bad but
obviously when you strip an engine there are
obvious things that you have to do to it. You put
crank shaft bearings in it, new rings and service
the cylinder heads plus you obviously change all
the gaskets and the like."

9. In the following week Svagelj came back to the workshop where Spanjich told him that the motor should be overhauled. Counsel for SN challenged Spanjich on the need for an overhaul, suggesting that unless the motor had been stripped as Pezzali claimed, he could not have known whether an overhaul was required. Spanjich's response was emphatic and persuasive:

"...by taking the cylinder head off it can be
determined what damage is done on the top end of
the motor. By taking the sump off and oil pump off
you can determine, because because it is two most
wearing parts of the engine. You can inspect your
liners, pistons, bearings, oil pump and that is the
major components, at the same time you can see what
anything - because the block itself is the major
thing and in the block - the block itself is not a
moving part."

There was, in my opinion, no convincing evidence that the engine was not in need of work. Nor is there any basis for suggesting that Spanjich lied about the need for or nature of the overhaul required. SN's work was at that time a financial burden, generating much in the way of book debts, but little in the way of cash flow. IMR had in Spanjich's words "a heavy load" of other work. I do not accept that he misrepresented the requirement for an overhaul of the engine.

10. It is common ground that Svajelj said he could not pay for an overhaul then and there, but that he had lots of work on and that he would be able to pay promptly if the machine were made operable. Spanjich, however, was conscious of SN's substantial indebtedness to IMR at the time and told Svagelj that he would not be doing the repairs on credit. He would need, he said, "$10,000 to start with for this job". Svagelj claimed that Spanjich suggested he take out a loan, but nothing turns on that for it must have been apparent that he would have to borrow the money. According to Svagelj, Spanjich told him it would cost $10,500 to overhaul the motor and put in new pistons, rings, barrels, bearings and grind the shaft. If the figure of $10,500 were mentioned at this time it did not, in my opinion, amount to more than an estimate as is evidenced by a written "approximate quote" later given to Mrs Svagelj. Svagelj also gave evidence on the proposed application of the $10,000:

"Q. Was anything said about the way that $10,000
would be used?
A. He said the $10,000 was going to be used to
overhaul that engine. Another thing he said,
if the motor would be no cost $10,000, he will
deduct off my bill. If cost more, he is going
to carry me on."

11. Spanjich denied offering to extend credit in relation to any excess over $10,000, and I consider having regard to the amount then outstanding that it is unlikely that any such offer was made. He said at the time that it would take three working weeks to do the engine. Svagelj told his wife of the requirements for payment in advance and left her to organise it while he carried on working. She then approached Esanda Ltd who required an invoice from the repairer. What she obtained was an "approximate quote" dated 15th April 1982 addressed to SN in the following terms:

"Approximate quote to overhaul D8 Diesel Motor
Ser. No. 46A17132 at moment situated at our yard at
19 Kewdale Road Kewdale for price of $10,500.00.
Yours faithfully
IVAN SPANJICH"

She delivered the "quote" to Esanda and on 25 May 1982 that company approved the advance and entered into a "Revision Agreement" with Svagelj Nominees. The agreement consolidated the $10,000.00 advance with the amount then due under the hire purchase agreement and provided that the company was to repay the total amount owing and interest by 48 monthly instalments of $1,563.49 each. Mrs Svagelj took Esanda's cheque for $10,000.00 to Spanjich and handed it over to him. She asked how long it would take to get the motor going as it was needed badly. He just said "Leave it to me". After three weeks had passed she began phoning to enquire about progress on the job. Spanjich claimed to be waiting on special tools from Wigmores. However, according to Mr Svagelj, when he visited IMR in June he was told that the $10,000.00 had been deducted from the total then owing. Spanjich, he said, told him that all future repairs were to be on a cash basis and that he would require a further $20,000.00 before the machine would be released.

12. Spanjich's evidence differs materially. He said that IMR began work on the overhaul within a week or so of receiving the $10,000.00. He agreed that he had told Svagelj that the work would take 3 weeks, because that was the normal time for such a job. It took longer than anticipated because there were found to be cracks in the engine block under the liners. It was necessary to send the engine to Davis Welding for welding of the block, to Moores for tunnel boring and Wigmores for line boring to rectify the effects of buckling due to the welding. Although the breakup of times taken for each of these aspects of the job was not given, there was evidence that the engine block in question is of considerable size and the work carried out on it of a substantial nature. The outside work was completed by early August 1982. The balance of the overhaul was carried out at IMR and included replacement of pistons and liners. The overhauled engine was ready on the floor at IMR by the end of August. Spanjich so informed Svagelj, but also told him that he needed more money as the cost had gone over $14,000.00. The precise amount was not specified, although an invoice prepared in December claimed $13,691.87. That amount was made up of $2,648.00 for 165.5 hours labour, $2,539.57 to weld the block and carry out machining, $6,654.30 for parts and $1,850.00 for secondhand hydraulic pump, universal joint and oil pump. He denied making any demand for $20,000. The excess of $3,691.87 has never been paid. Spanjich neglected to render an account to Svagelj at the time because he did not think he would be paid although he did tell Svagelj that the total cost was in the vicinity of $14,000. There is no basis for any suggestion that the amount ultimately calculated at $13,691.87 did not represent a reasonable charge for parts and labour and I accept it as such. It does not appear from the evidence that Svagelj made any attempt to inquire as to the precise amount of the excess or to attempt to pay or offer to pay it.

13. On the question, which was raised on the pleadings, whether new or used parts were placed in the engine as part of the overhaul, Pezzali was definite in his opinion that liners already in the engine were removed, cleaned, honed and replaced in it. He was not sure whether some second hand pistons were used, although he thought that might have been the case. Spanjich was clear that new liners had been used and that 4 pistons were replaced with new ones. Although not absolutely clear from the evidence, it appears that two of the existing pistons were retained. SN was not charged for more than the 4 new pistons actually inserted. As to the wisdom of mixing new and used parts it was, on Spanjich's evidence, merely a matter of whether or not the used parts fell within the requisite tolerances or "standards" as he called them.

14. Between April and September 1982 Svagelj had been using bulldozer D8H46A16747. In September, while he was working at Beacon, it started playing up. He contacted Spanjich and asked if he would install the overhauled engine from bulldozer D8H46A17132 in bulldozer D8H46A16747. Spanjich agreed to do so on condition that SN pay cash for the transfer. According to a rather difficult paragraph in the statement of claim, Svagelj asked Spanjich "to exchange the engine from bulldozer no. 46A17132 and place it in bulldozer no. 46A16747". Spanjich is alleged to have stated that "he would exchange the engines as requested provided that the Applicant paid cash for the necessary labour costs associated therewith". He was, it was said, also prepared to "re-assemble bulldozer no. 46A17132 such re-assembly to be included in the overall cash price". Upon payment of the labour costs associated with the exchange of engines and reassembly he would immediately release bulldozer number 46A16747. The rather ungrammatical pleadings suggest that it was agreed that Spanjich would reinstall the defective engine from bulldozer DH846A16747 into DH846A17132. There would, of course, be no point in doing so without repairing the defective engine. And why Spanjich should agree to repair the defective engine for a fraction of the price for which he had overhauled the other does not appear. Svagelj's evidence did little to illuminate the matter. According to him, Spanjich said he would be charged "20 hours of labour to put the tracks from the floor into that machine and lift the motor in". For 20 hours work "he would end up with the number 1 machine with a new motor and new tracks". Asked what was supposed to happen with the other machine, Svagelj said "he was supposed to put back to machine number 2 - put the tracks back...in the motor". In cross-examination, however, in relation to the defective motor to be removed from bulldozer D8H46A16747, Svagelj said: "I did not ask him to do anything about the motor". And when asked:

"Q. Now, I thought it was part of your case against
Ivan that he should have reassembled the first
bulldozer by putting in the engine that came out of
the September bulldozer back into it. Is that so
or not so?"

He replied:

"A. No, No."

I am not satisfied on the evidence that Spanjich ever agreed to reassemble bulldozer D8HA17132 or place the engine from D8HA16747 in it. The invoice ultimately rendered to and paid by Svagelj contained no reference to any such work and no such work was ever done.

15. When the transfer work which took some 5 days was completed, Spanjich gave Svagelj an invoice for $3,333.15 which was paid by a cheque postdated 20 October 1982. That cheque was duly presented and met. Additionally Spanjich required him to sign an agreement to reduce the outstanding debt by $2,500 per month commencing on 15 October. Svagelj signed the agreement but it is clear that SN could not at that time generate the cash flow to meet even those instalments. Nor were any payments ever made pursuant to that agreement.

16. On 24 September 1982, Svagelj took the bulldozer D8H46A16747 to Beacon where it worked well for 4 days before overheating and developing oil leaks. He had an unsatisfactory telephone discussion with Spanjich who hung up on him and then asked his wife to get Spanjich to send up a mechanic. Nobody came, so Svagelj contacted a diesel fitter, Mick Ravlich, who examined the machine at Beacon. He gave evidence that the engine was overheating after about half an hour of hard work. He also observed an oil leak between the cylinder head and the block. He could not detect by visual inspection the source of the overheating problem. He carried out various tests and checked the radiator and fan. He did not dismantle the engine. At his suggestion Svaglej removed the transmission oil and motor oil coolers and cleaned them out with an air compressor. He noted that they were blocked up with rust.

17. After they had been cleaned, the engine ran well, save for the continuing oil leak, until May 1984 when, after reaching a total of 2,700 hours, it broke down. Svagelj agreed in cross-examination that he did not blame Spanjich for the final breakdown. He claimed, however, that Spanjich had said that, fully overhauled, the motor "could last 12,000 hours". Spanjich was not cross-examined as to the alleged representation and I am not satisfied that it was made. He did not see the overhauled engine again after it left his workshop in September 1982.

18. The company purchased another engine from one Iacus for $15,000. Payment was made by instalments between 15 May 1984 and 28 June 1985.

19. Spanjich agreed in cross-examination that despite demands made orally for the return of the bulldozer and engine still in his yard, he had refused to comply until his accounts were paid. At the date of trial the bulldozer and engine were still in the possession of IMR.

20. On 8 September 1982 Svagelj told Spanjich that he had some work to do which involved the use of a rake attachment on the bulldozer. He asked if he could hire a rake from IMR. Spanjich agreed to the hire at $200 per week on condition that Svagelj would be responsible for any necessary repairs during the hire period. The agreement was evidenced in writing in a memorandum dated 8 September 1982, the text and set out of which was as follows:

" 8-9-82
IVAN'S MECHANICAL REPAIRS P/L. Wednesday
19 Kewdale Road, Kewdale 6105
Phone [phone] A/H. 361 1983
Contract to hire D8 Rake to Rudy Svagelj &
Nominies
discription
1. only D8 Rake New with C frame 14 feet rake with
2.6 feet Wings and arms complite
Conditions
hired in Kewdale and on Return to Kewdale on
Complition of use and payment in full on Return
date pay in advance $1000 One thousand Dollars
Rate per week $200-00
Broking or damige to rake to be Paid by Rudy
Svagelj if any.
I Rudy Svagelj of 42 Anktell St South Perth
anderstud the terms and agre to them
Sign Sign on behaf
Rudy Svagelj of Ivans mech
Repairs
R. Svagelj Spanjich"

According to Svagelj, he told Spanjich that he would pay the $200 per week for such time as he was actually using the rake. Spanjich denied any such limitation. The purpose of the written memorandum, he said, was to set out the terms of the agreement. He claimed to have read it out loud to Svagelj before he signed. Given the absence of any reference in the memorandum to the very significant limitation alleged by Svagelj, it is unlikely that any such limitation was agreed.

21. Although there was some doubt about the precise date on which the rake was returned, it was accepted for the purposes of the pleadings as being no later than 2 December 1985. Spanjich said he did not become aware that it had been returned until 2 January 1986. By that time IMR had shifted premises and the rake was left at its former yard.

22. At about the same time as the rake hire agreement was made Spanjich asked Svagelj to see if he could find some work for IMR's D6 bulldozer which was then not in use. Svagelj had a commitment to work on 700 acres of a property at Beacon owned by Louie Norrish. He agreed to split the work with Spanjich. He also agreed to transport the D6 bulldozer to the job site and to hire out to IMR a caravan and a 400 gallon fuel tanker. There was no evidence as to the agreed hire rate for the caravan but this was admitted on the pleadings at $35 per week. Nor was there evidence of any agreed rate for the fuel tanker. Because Svagelj had the bigger machine he completed his portion first. When IMR's half of the work was completed the tanker was brought back by an IMR employee to its premises at Perth. Spanjich told Svagelj that he would keep the tanker "because I owing him lots of money".

23. It was eventually returned on 2 January 1986 following the redelivery of the rake. Spanjich conceded that reasonable hire charges for the use of the caravan and tanker would be the sum of $735 and $150 respectively claimed by Svagelj Nominees.

24. On 8 October 1982 P. Forbes & Associates, accountants for IMR, wrote to Mr Svagelj enclosing a statement of account as at 30 August. The balance then said to be owing was $20,464.46. To these was to be added "approximately $14,000" for the engine overhaul. It was pointed out that Svagelj had agreed that the total amount of approximately $35,000 would be reduced by $2,500 per month. By a reply dated 6 December 1982 solicitors for the Svageljs denied the existence of the instalment reduction agreement and sought a detailed invoice for the overhaul work. They also referred in passing to the return of the D8 rake in exchange for the fuel tanker. IMR's solicitors wrote again on 16 December enclosing copies of all invoices and a statement indicating a debit balance of $33,583.08. They also noted that the balance of hire charges due on the rake would be added to the amount claimed. Recovery proceedings were threatened unless the amounts claimed were paid in full within 7 days.

25. On 2 January 1983 Mrs Svagelj wrote to IMR in the following terms:

"Dear Sir,
This is to inform you that we are not Hiring
your Rake but holding it until the time you return
our Fuel Tanker back to where you took it from at
Beacon.
We will then happily return your rake to
Kewdale. You have had our fuel tanker for several
months now.
Yours faithfully,
S. Svagelj"

26. Spanjich wrote back to Svagelj on 24 February asserting that hire charges would continue until the rake was returned to Kewdale. On 9 March 1983 IMR commenced proceedings in the District Court claiming $33,583.08 for repair and other work done since 1981 and $2,880 for the hire of the D8 rake. The defence filed by Mr Svagelj and SN was little more than a bare denial of all allegations in the statement of claim. Those proceedings seem to have limped along without any resolution until superseded by the present action.

27. The present application was commenced on 20 September 1985. On 11 November 1985, the solicitors for IMR made formal demand for the return of the D8 rake by 20 November. By a letter dated 18 November the Svageljs' solicitors advised that their clients could return the rake within 21 days, but could not meet the IMR deadline because of their current work commitments in the country. They also indicated that Svagelj Nominees had always been willing to return the rake and had not used it since January 1983, a fact of which IMR had been advised at that time. The writer claims to have for several months endeavoured to arrange the return of the rake through the offices of the solicitors for IMR. The return of the fuel tanker was also demanded and a threat made to institute proceedings for conversion and/or detinue if it were not. On 4 December the solicitor for IMR wrote acknowledging the return of the rake and advising that the fuel tanker could be collected from the IMR premises at Poole Street, Welshpool.

28. SN called some technical evidence from William Ernest Lowe, a loss assessor, with a substantial background in automotive engineering. On 11 July 1986 he inspected the bulldozer D8H46A16747 at the IMR premises at Welshpool. He also inspected an engine, ripper blade and some hydraulic components stored at the IMR workshop. The engine was that which had been taken out of the newer bulldozer, D8H46A17132. It was clearly in need of reconditioning and at the time of his inspection Lowe estimated the cost of doing so at $15,000. Although the bulldozer, its engine and other components had been stored in the open, there was no significant deterioration in their condition by reason of that fact. He noted that while some components appeared to have been stripped, the main parts of the bulldozer were in and around the IMR premises. There was no blade on the machine. He estimated its salvage value at $7,000 to $10,000.

29. Lowe also gave evidence of various levels or categories of overhaul that could be undertaken. His first category, not an overhaul at all, is the replacement of the defective engine with a new one from the factory. A new engine, he said, has an operational life expectancy of 12,000 hours. The second is the remanufactured engine which has been completely stripped down and rebuilt according to the manufacturer's specifications. This has a life expectancy of about 10,000 hours. The third category, the reconditioned engine, is expected to work for about 8,000 hours. The final category, the reworked engine, should last for about 6,000 hours. Mr Lowe admitted the existence of "Band aid treatments" at levels less than these four categories. Generally, however, one could expect between 6,000 and 12,000 hours depending on the class of overhaul. In cross-examination he accepted that Wigmores, the caterpillar agents, would only give a warranty in relation to overhauled engines for a period of 6 months. However the precise nature of the warranties given by that company was not explored and the relevance of that evidence remains uncertain. As to the premature failure of an overhauled engine, Lowe said this could occur through a variety of factors. He gave various examples, but as he accepted, he had not inspected the overhauled engine in this case and did not know why it had failed. In his evidence in chief, Spanjich said that, if properly maintained, he would have expected the engine to last 6,000 to 7,000 hours. That, however, was an average figure and the engine could fail after fewer hours for a variety of reasons.

30. Evidence was also adduced to negative any hypothesis that the premature failure of the engine was due to rough handling of the machine. Mr R.E. Guest, a farmer, gave uncontradicted evidence that he had permitted Mr Svagelj to drive his own bulldozer and had every confidence in doing so as he was a good driver. Mr John Cheeseman, the Works Supervisor for the Merredin Shire Council, also characterised him as a good machine operator and one who maintained his equipment to a "fairly high standard". They, together with Mr R.L. Norrish, a farmer of Kununoppin, and Mr Alan Yandle, a farmer of Bruce Rock, all testified, without contradiction, to the high quality of the work done for them by Mr Svagelj. It is clear that he was and is a well regarded contractor. In the end the evidence does not permit me to conclude on the balance of probabilities that the engine failed when it did because of any poor workmanship or other act or omission committed by IMR. It is perhaps unnecessary to say that that view does not involve any finding that it failed because of the way in which it was operated or maintained.
The Pleadings

31. The applicant relies upon representations said to have been made by Spanjich on behalf of IMR prior to the overhaul and engine transfer arrangements, to support causes of action in fraud and negligence against both and contravention of s.52 by IMR. IMR is alleged to have breached the contracts made in relation to the overhaul and transfer by poor performance and non-performance respectively. And the representations attributed to Spanjich are said to have formed the basis of collateral contracts under which SM agreed to engage IMR to undertake the overhaul and transfer work. In relation to the original engine overhaul, SN alleges that Spanjich made the following representations:

1. That in order to rectify the oil leak the
bulldozer's engine would require a complete
overhaul which would cost in the vicinity of
$10,000 (para 5).
2. That if SN were to borrow $10,000 and pay such
sum to Spanjich, Spanjich would thereafter
carry out the engine overhaul expeditiously so
as to permit SN to carry out its contracting
work (para 7(i)).
3. That in carrying out the overhaul Spanjich
would replace the existing rings, pistons and
barrels with new parts and would grind the
shaft and utilise new bearings and new big
ends (para 7(ii)).
4. Spanjich would complete the overhaul of the
engine within a period of 3 weeks following
which the bulldozer would be available for
collection by SN (para. 7(iii)).

These representations are said to be false in the following respects:

1. At all material times the condition of the
bulldozer engine was such as not to warrant a
total overhaul of the engine as Spanjich well
knew (para 14(i)).
2. At the time of making the representations
Spanjich did not intend to apply the sum of
$10,000 for the purpose of carrying out
repairs to SN's bulldozer engine as
represented or at all. After receiving the
sum of $10,000 from SN, Spanjich wrongly
refused to carry out the repairs within the
stipulated period and instead unlawfully
applied the sum of $10,000 in reduction of
SN's indebtedness pursuant to a running
account with IMR.
3. IMR failed to complete the overhaul of the
engine until about September 1982
(para.14(iii)).

It is further alleged that in or about early September 1982 Spanjich on behalf of IMR stated to SN that he was prepared to deliver up the bulldozer to SN on condition that SN paid him an additional sum of $20,000 (para 17). This representation is said to have contained the implied representation of fact that IMR was entitled to retain the bulldozer unless and until the sum of $20,000 was paid to it, which representation was false in that IMR was not so entitled.

32. In relation to the exchange transaction, the representations attributed to Spanjich are as follows:

1. That he would exchange the engines as
requested provided that SN paid cash for the
necessary labour costs associated therewith
(para 22(i)).
2. He would reassemble bulldozer number 46A17132,
such reassembly to be included in the overall
cash price (para 22(ii)).
3. That upon payment of the labour costs
associated with exchange of engines and
reassembly he would immediately release to SN
bulldozer number 46A16747 (para 22(iii)).

These representations are said to have been false for the following reasons:

1. At the time of making them Spanjich did not
intend to reassemble bulldozer number
46A17132 (para 30(i)).
2. At the time of making them Spanjich did not
intend to release bulldozer number 46A16747 to
SN upon its payment of labour costs associated
with the exchange and reassembly of engines
(para 30(ii)).

33. Separate causes of action are raised against IMR for detinue in relation to the first and second bulldozers and negligence in carrying out the engine overhaul. Damages, interest thereon and an order for delivery up of the bulldozer still held at the IMR yard are claimed by way of relief. The allegation is also made that IMR wrongfully converted parts of the bulldozer to its own use, being the universal joint and the rollers and associated parts.

34. The respondents filed a defence and cross-claim. The representations as alleged are substantially denied in the defence. By the cross-claim IMR pleads the work done for the applicant between February 1981 and October 1982 and claims $33,583.08, being the balance owing thereon. In addition it claims $32,600 for the hire of the rake from 8 September 1982 to 2 December 1985. Interest is claimed on these amounts pursuant to s.51A of the Federal Court of Australia Act 1976.

35. At trial IMR also sought leave to amend the defence in relation to the claim in detinue and conversion by asserting that it has a lien over the bulldozer retained by it to secure payment of moneys due for work that it had done on that machine. Objection was taken to the amendment on the basis that it would unfairly prejudice SN and would raise fresh factual issues not already exposed on the pleading.

36. In its defence to the cross-claim the applicant asserts that by reason of the matters set out in the statement of claim, it is "not liable to pay the said accounts". It goes on to allege that it was an express term of the rake hire contract that the weekly rental of $200 would be paid only for those weeks in which the rake was in use. On 2 January 1983, it is said, the applicant advised the respondent that it no longer wished to hire the rake and offered to return it, which offer was rejected on 11 January. The respondent therefore, it is alleged, consented to the applicant's continuing possession of the rake without any further liability. The demand for the return of the rake by letter of 11 November 1985 is pleaded, as is its return on 5 December. The respondent is said in any event to be estopped from claiming the sum of $32,400 because of its failure to accept the return of the rake or to collect it and by reason of the matters pleaded in the statement of claim. A set off is claimed for transport costs of the respondent's D6 bulldozer to Beacon and for the hiring of the applicant's caravan and fuel tanker, amounts which are said to total $9,415.84. The entitlement to damages sought in the statement of claim is pleaded as an element of the set-off.

37. IMR and Spanjich filed a reply to the defence to cross-claim denying the rake hire agreement as pleaded by SN and asserting that the rake supplied was new and in perfect working condition. They deny that the letter of 2 January 1983 was effective to terminate the hiring, but admit that it was returned in December 1985. The transport of the D6 bulldozer to Beacon is admitted along with the hiring of the caravan. The hiring of the fuel tanker at $200 per week is denied. The claimed transport costs of $535 for the D6 is said not to be a reasonable charge. The amount claimed for the caravan hire is not admitted, although conceded at trial. The claim for the cost of transporting the caravan back to Perth is denied as is the hire charge for the fuel tanker.

38. The issues raised in the pleadings being thus broadly identified, it is appropriate to set out in the light of the factual history already described, the principal findings of fact on the various causes of action.
The Causes of Action - Findings

39. It is clear that on 10 April 1982 Svagelj, on behalf of SN, asked Spanjich for IMR to examine the engine from bulldozer D8H46A17132 with a view to deciding what work should be done on it. It is also clear that Spanjich told Svagelj that the engine would require an overhaul, the nature of which was described and the cost of which was estimated at $10,500. The applicant has not satisfied me on the evidence that the condition of the engine was such as not to warrant the overhaul proposed, or that Spanjich believed otherwise.

40. The evidence does not support a finding of any express representation that the work would be done "expeditiously". It is clear, however, that Spanjich did give an estimate of 3 weeks for completion of the job. That was given on or about 9 April 1982. The cheque for $10,000 which he required in advance for the job, was not paid over until on or about 25 May 1982, some 6 weeks later. The job took nearly 3 months to complete, largely, it seems, because the engine had to be sent out for welding and machining. The estimate of time and other predictive and promissory statements attributed to Spanjich were said to be misleading or deceptive in that, at the time of making them, he did not intend to fulfil them or lacked the means, and any belief that he had the means, to give effect to them. Accepting that the estimate was given and not fulfilled, I am not satisfied on the evidence that it has been shown that Spanjich did not intend or believe that it would be met. It follows that I am not satisfied that he made the statement fraudulently. Nor, in my opinion, can it be said that he made it negligently. The uncontradicted evidence was that such jobs usually took about 3 weeks and he made his estimate based on that fact. In this case, however, the presence of cracking in the engine block required that certain welding and machining work be carried out by Davis Welding, Moores and Wigmores. There was no evidence to indicate what, if any, steps Svagelj would or could have taken had he been told that the job would have occupied 3 months instead of 3 weeks.

41. Nowhere was it pleaded that Spanjich represented to SN or Svagelj that he would apply the $10,000 advance to the cost of the overhaul job. Underlying his demand for that payment was the view that SN's indebtedness had reached a point of no return. He was under no obligation to hold the money in some special or trust account. As appears from the letter sent to Svagelj by P.R. Forbes & Associates on 8 October 1982, the money was credited to SN's running account with IMR. The claim that Spanjich "did not intend to apply the sum of $10,000 for the purpose of carrying out repairs to the applicant's bulldozer engine as represented", does not falsify any pleaded representation. While there is evidence from Svagelj that Spanjich said the $10,000 was going to be used to overhaul the engine, I am not satisfied that he did any more than require payment in advance of an amount sufficient to cover the estimated costs of the work. In my opinion there was nothing to prevent IMR from applying the money immediately to reduce the considerable debt then outstanding. There is no basis for the pleaded allegation that such application was unlawful. The alternative would seem to be that Spanjich was obliged to hold the money in trust and apply it to the disbursements associated with the overhaul. There is nothing in what passed between himself and Svagelj to support the view that he agreed to any such course.

42. In relation to the alleged implied representation that IMR was entitled to retain the bulldozer until the sum of $20,000 was paid, I am not satisfied that any demand in that form was made. It was denied by Spanjich and would have been inconsistent with his preparedness to embark upon the overhaul provided he were paid $10,000 in advance. He was, of course, entitled to be paid not only that figure which represented an estimate of the cost but also any excess. I accept his denial of Svagelj's contention that he was prepared to extend credit for the balance over $10,000. He was, accordingly, entitled to be paid the balance before releasing the machine. And while, in telling Svagelj that the total bill would amount to $14,000, he did not then hand him an invoice it must have been apparent that SN could not pay. For despite the time which had passed since April 1982 there had been no reduction of the long outstanding debt for earlier work done. Nor did Svagelj indicate that SN could or would pay the excess. And until that was paid IMR was, in my opinion, entitled to retain the bulldozer and the engine after an artificers lien. As to that and the pleading of it, I will have more to say later in these reasons.

43. As to the agreement made in September 1982 whereby Spanjich installed the overhauled engine in bulldozer D846A16747, I am satisfied that he promised to do that work on condition that IMR was paid cash for the labour costs involved. The evidence does not support the inference that he promised to place the defective engine from bulldozer D846A16747 in D846A17132. There would seem to have been little point in so doing and at one stage in his evidence Svagelj denied that this was part of the case against IMR. The allegation appears in the statement of claim that at the time of making the arrangement for the installation of the overhauled engine, Spanjich did not intend to release bulldozer D846A16747 into which that engine was to be installed. This seems to be based upon his subsequent demand that SN agree to repay its outstanding debt at the rate of $2,500 per month. Accepting that he made this demand as a condition of releasing the bulldozer with the overhauled engine in it, there was no evidence that any such constraint had been on his mind at the time that the installation arrangement was made.

44. It is perhaps ironic that the allegation was made at all given that IMR was entitled to demand and sue for repayment of all its outstanding accounts at that time. The further allegation which appears in SN's reply to the IMR defence that the undertaking to pay $2,500 per month in reduction of its account was obtained under economic duress, is, in the circumstances, more than faintly ridiculous.

45. No case of misleading or deceptive conduct, fraud or negligence is made out on the pleaded representations. Nor can I accept that such representations as were made formed the basis of contracts between SN and Spanjich collateral to the respective agreements to overhaul the engine and to place the overhauled engine in bulldozer D846A16747. The estimates as to time and cost were no more than estimates. I am not satisfied that Spanjich intended to guarantee their accuracy - J.J. Savage & Sons Pty Ltd v Blakney [1970] HCA 6; (1970) 119 CLR 435.

46. As to the claims for breach of contract, it is said that IMR failed to carry out the overhaul expeditiously, failed to replace existing rings, pistons, barrels, bearings and big ends with new parts, failed to carry out the overhaul within 3 weeks as agreed and failed to carry out the overhaul in a proper and workmanlike or diligent manner. SN submitted that the overhaul of the engine was inexcusably slow. Given what had to be done to it and the necessity to send it out to Davis Welding, Moores and Wigmores, I am not satisfied that that is the case. The reuse of existing pistons did not involve a breach of any contractual term. The reference to putting in new pistons was made in the context of formulating an estimate of cost. The undertaking was to overhaul the engine, not to put in new parts where they were not needed.

47. There was in the end no convincing evidence of any aspect of the overhaul that could explain the engine failure at 2,700 hours in terms of faulty workmanship. The causes of the breakdown are speculative and I am not satisfied that they reflect a failure to carry out the overhaul, completed some 18 months earlier, in a proper and workmanlike or diligent manner. It follows also that the applicant's claim that the repairs to the engine were carried out negligently fails.

48. Nor am I satisfied that the alleged breaches of the installation contract are made out. There was no agreement that IMR would reassemble D846A17132. As to the demand that Svagelj sign the undertaking that SN repay its debts to IMR at $2,500 per month, if that were a breach, because it imposed a new condition on the release of the bulldozer, no damage flowed from it for the undertaking was never honoured and the bulldozer was released.

49. In relation to the claim for unlawful detention of the bulldozer D846A17132, IMR pleaded by way of defence, an agreement that it would only be released upon the satisfaction of certain conditions including that SN would supply all necessary spare parts and pay cash for all labour costs associated with its reassembly. Other conditions pleaded were that the balance of the overhaul account would be paid together with the general balance of the account owing to IMR. I am not satisfied that such an all embracing agreement governing the release of the bulldozer was concluded. It may well be the case that the execution of the undertaking to pay the outstanding debt at $2,500 per month was made a condition of the release of the bulldozer D846A16747, but if so it was of no significance to any of SN's causes of action.

50. At trial, however, IMR sought leave to amend its defence by setting up an artificer's lien over the bulldozer still in its possession, the lien securing the payment of the balance of moneys due for the overhaul work carried out on the engine from that machine. The amendment was resisted on the basis that SN would be seriously prejudiced by it. The allegedly dilatory conduct of the respondents in the District Court proceedings and their response to interlocutory orders in these proceedings were invoked against them in opposition to the amendment, but in my opinion are irrelevant. Counsel for SN pointed out that the hire purchase agreement for the bulldozer between SN and Esanda contained a provision prohibiting the creation of liens by the hirer. Clause 3(a) of the agreement provides for the following covenant by the hirer:

"3. I agree:-
(a) to keep the goods in good order and repair
provided that I shall be prohibited from
creating any lien or pledging your credit and
I shall notify any potential repairer of this
prohibition..."

And reference was also made to s.26(2) of the Hire Purchase Act 1959 which provides:

"(2) The lien is not enforceable against the owner
if the hire-purchase agreement contains a provision
prohibiting the creation of a lien by the hirer and
the worker had notice of that provision before
doing the work upon the goods."

With more notice of the proposed amendment it was argued SN would have exercised the full range of interlocutory processes to examine the question of notice.

51. The respondents in answer, contend that there is no new factual issue of notice because a contractual lien was pleaded in any event in para.11(c) of the defence. In my opinion, that submission is correct and in the circumstances it can hardly be said that the plea is a surprising one. And on the evidence it is highly unlikely that the question of a covenant against creation of a lien was ever adverted to or discussed between Svagelj and Spanjich or that Spanjich had any notice of it. Counsel for SN submitted that there were other factual issues to be explored as a result of the amendment were it to be allowed. These included whether the work carried out was by way of improvement or mere maintenance and whether the amount due arose in relation to work on the machine detained or otherwise on the running account. There can be no doubt that the work carried out on the engine went beyond mere maintenance to improvement and the nature of that work was explored in the evidence. The lien is claimed and could only be claimed in respect of the balance of the account owing for the overhaul work. In my opinion the amendment should be allowed.

52. Accepting that an owner of goods may be excused from tendering the money owing if he has no knowledge of the amount or the means of ascertaining it, it is clear that Svagelj had no intention or means of paying the balance and, although he could have ascertained the precise amount due, took no steps to do so. Nor was payment tendered after the precise amount was specified in December 1982. While the engine itself was released by agreement, the lien was not thereby extinguished in relation to the bulldozer from which it came. In my opinion this defence succeeds.

53. Counsel for SN made no submissions on the alleged conversion of certain parts of the bulldozer by IMR. Svagelj gave evidence that Spanjich told him he would take the best parts from the machine to off set against the outstanding account. But when cross-examined, Spanjich denied that any parts were missing from the bulldozer. In my opinion the evidence is simply not sufficient to support the claim for conversion.

54. As to the IMR cross-claim, SN admits that the work for which the IMR accounts were rendered was done and that it has failed to pay the accounts except to the extent indicated in the particulars of cross-claim. It is admitted that the balance of accounts particularised comes to $33,583.08 and I am satisfied that subject to the plea of set off and abatement, that amount is due and owing to IMR.

55. IMR further cross-claims the sum of $32,600 for the hire of its rake to SN between 8 September 1982 and 2 December 1985. The agreement, as I have found, contemplated that the hire rate would be payable for every week that the agreement subsisted and not only for those weeks in which the rake was actually in use. The agreement contained no specification of the term of hire nor any provision for termination. It was therefore terminable on reasonable notice and in my opinion the letter written by Mrs Svagelj to IMR on 2 January 1983 did constitute notice of its termination. The evidence does not support a finding that it was used after that date. In my opinion, SN was liable for hire charges on the rake at the rate of $200 per week from 8 September 1982 to 2 January 1983, a total of 16.5 weeks which should be regarded for the purposes of the agreement as 17 weeks. That represents a hire figure of $3,400. Damages for unlawful detention of the rake are also claimed for the period between 11 November 1985 when its return was demanded and 2 December 1985 when it was returned. The demand for the rake contained in the letter of 11 November 1985 from IMR's solicitors specified 20 November as the return date. It was returned on 2 December. In the circumstances I am not satisfied that it is shown that any significant damage ensued by reason of the delay of just under 2 weeks.

56. By way of defence to the IMR cross-claim, SN pleads the agreement to transport IMR's D6 bulldozer to Beacon "at a reasonable rate" and the hire of the caravan and fuel tanker at $35 and $200 per week respectively. IMR, it is alleged, failed to pay the accounts for the agreed transport and hire and unlawfully detained the fuel tanker until January 1986. SN seeks to set off against the IMR claim the sum of $9,415.84, being the D6 transport costs of $535, caravan hire of $735, caravan transport costs of $195.84 and hire of fuel tanker from October 1982 at $7,950. IMR by its reply to the cross-claim admits the agreement to transport the D6 to Beacon. The caravan hire at $35 per week is also admitted and a charge of $735 conceded on the evidence. The tanker hire is denied. However in evidence it was conceded by Spanjich that IMR hired the tanker from SN. There was no evidence as to the agreed rate, although Spanjich conceded a sum of $150 as a reasonable charge. The nature of the set off claimed in respect of the tanker is not clear. It is alleged that IMR, despite repeated demands, refused to deliver it up. It is then pleaded that SN has suffered loss and damage which, in relation to the tanker, is particularised as follows:

"(d) Hire of fuel tanker from 14 October 1982 and
continuing - $7,950"

57. I am not satisfied that there was any evidence upon which I could assess damages for detinue in relation to the fuel tanker even on the assumption that such damage could be set off against the claim for payment of moneys due to IMR. The latter assumption is, in any event, a doubtful one. There is no right at law to set off against a liquidated debt a claim for unliquidated damages - Fryer v Plucis (1967) WAR 161; W. Pope & Co. Pty Ltd v Edward Souery & Co. Pty Ltd (1983) WAR 117. Nor would it seem on the last mentioned authority that any equitable set off would be available in this case. I am prepared, however, to allow a set off in relation to the conceded charges of $735 for the caravan and $150 for the tanker hire. There is no evidence to support the D6 transport charge of $535 or the caravan transport charge of $195.84.
CONCLUSION

58. In the event the first respondent is entitled to judgment in the amount of its unpaid accounts, namely $33,583.08 together with $3,400 by way of hire charge for the rake less $885 being the conceded hire charges for the caravan and tanker.

59. As to the question of pre-judgment interest, s.32 of the Supreme Court Act (WA) (1935) is, by virtue of s.79 of the Judiciary Act 1903, made applicable to judgments of this Court in relation to common law or equitable claims - Pavich v Bobra Nominees Pty Ltd (unrep, French J., 31/10/88).

60. The award of interest is, however, a discretionary matter, both as to rate and as to the period over which it will be allowed. If interest is awarded at the claimed rate of 14% over a rounded off term of 6 years since the debts in question were incurred, it will amount to some $30,322.32. Prima facie there does not seem to be any reason why such interest should not be awarded. I will, however, give the parties 14 days within which to file any written submissions as to the period over which interest should be awarded and also on the question of costs.