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Alpine Beef Pty Ltd v Trycill Pty Ltd [2010] FCA 136 (1 March 2010)

Last Updated: 9 March 2010

FEDERAL COURT OF AUSTRALIA


Alpine Beef Pty Ltd v Trycill Pty Ltd [2010] FCA 136


Citation:
Alpine Beef Pty Ltd v Trycill Pty Ltd [2010] FCA 136


Parties:
ALPINE BEEF PTY LTD (FORMERLY KNOWN AS CEETEX PTY LTD) (ACN 088 887 209) v
TRYCILL PTY LTD (ACN 003 304 845) AND ORS


File number:
NSD 232 of 2009


Judge:
FLICK J


Date of judgment:
1 March 2010


Catchwords:
TRADE PRACTICES – misleading and deceptive conduct – representation as to a future matter – reasonable ground for the belief

CONTRACT – parties – novation – merchantable quality – fitness for purpose

Held: Application dismissed


Legislation:


Cases cited:
Australian Knitting Mills Ltd v Grant [1933] HCA 35; (1933) 50 CLR 387, applied
Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 7) [2008] FCA 1364, referred to
Commonwealth of Australia v Verwayen (1990) 170 CLR 394, applied
David Jones Ltd v Willis [1934] HCA 47; (1934) 52 CLR 110, cited
Fifteenth Eestin Nominees Pty Ltd v Rosenberg [2009] VSCA 112, referred to
Giumelli v Giumelli [1999] HCA 10, 196 CLR 101, referred to
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 180; (1984) 2 FCR 82, applied
Goodridge v Macquarie Bank Limited [2010] FCA 67, cited
Hanave Pty Ltd v LFOT Pty Ltd [2004] FCAFC 180, 136 FCR 566, cited
HK Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795, cited
McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2, 165 FCR 230, applied
McMahon v National Foods Milk Ltd [2009] VSCA 153, 259 ALR 20, cited
Mr Whippy Pty Ltd v Oceanwalk Pty Ltd [2008] NSWCA 8, cited
Readymix Holdings International Pte Ltd v Wieland
Process Equipment Pty Ltd (No 2) [2008] FCA 1480, referred to
South Australian Farmers Fuels Pty Ltd v Whittingham [2008] SASC 211, cited
Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 QB 545, cited
Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641, cited
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270, referred to

Carter J W, Peden E, Tolhurst G J, Contract Law in Australia (5th ed, LexisNexis Butterworths, 2007)
Franzi N C A, “Merchantable Quality and Particular Purpose: Questions of Overlap” (1977) 51 ALJ 298


Date of Hearing:
14, 15, 16, 17, 18, 24 December 2009


Place:
Sydney


Division:
GENERAL DIVISION


Category:
Catchwords


Number of paragraphs:
123


Counsel for the Applicant:
Mr J Duncan


Solicitor for the Applicant:
Aleco Vrisakis, Lawyer


Counsel for the Respondents:
Mr C Branson QC


Solicitor for the Respondents:
Tucker & Cowen

IN THE FEDERAL COURT OF AUSTRALIA
NSW DISTRICT REGISTRY
GENERAL DIVISION
NSD 232 of 2009

BETWEEN:
ALPINE BEEF PTY LTD (FORMERLY KNOWN AS CEETEX PTY LTD) (ACN 088 887 209)
Applicant

AND:
TRYCILL PTY LTD (ACN 003 304 845)
First Respondent

PETER WILLIAM ULLRICH
Second Respondent

SARI ROSALIND ULLRICH
Third Respondent

JUDGE:
FLICK J
DATE OF ORDER:
1 MARCH 2010
WHERE MADE:
SYDNEY

THE COURT ORDERS THAT:


  1. The proceeding be dismissed.
  2. The Applicant is to pay the costs of the Respondents.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NSW DISTRICT REGISTRY
GENERAL DIVISION
NSD 232 of 2009

BETWEEN:
ALPINE BEEF PTY LTD (FORMERLY KNOWN AS CEETEX PTY LTD) (ACN 088 887 209)
Applicant

AND:
TRYCILL PTY LTD (ACN 003 304 845)
First Respondent

PETER WILLIAM ULLRICH
Second Respondent

SARI ROSALIND ULLRICH
Third Respondent

JUDGE:
FLICK J
DATE:
1 MARCH 2010
PLACE:
SYDNEY

REASONS FOR JUDGMENT

  1. On 20 March 2009 the Applicant, Alpine Beef Pty Ltd (“Alpine Beef”), filed an Application and Statement of Claim in this Court seeking relief in respect of costs incurred in carrying out repairs to an 86 foot luxury cruising sloop. The name of the vessel is “China Grove II”. The principal of the Applicant is Mr Sean Howard. The captain of the vessel and the project manager in respect to its construction was Mr Eric Dewey (also known as Cedric Dewey).
  2. At the relevant time, the First Respondent conducted the business of building boats and operated under the registered business name of “Boatspeed”. The Second and Third Respondents are husband and wife and are directors of the First Respondent.
  3. In summary form, the Applicants contend that the vessel was defective by reason of significant blistering on its hull. The purchase price of the vessel was “in the order of $8,600,000” and the vessel was “handed over” in approximately April 2001. Within weeks the blistering emerged. Work to rectify this defect was carried out “between the end of 2007 and early 2008 at a cost in the order of $336,000”.
  4. An Amended Statement of Claim was filed on 27 April 2009. A Further Amended Statement of Claim was ultimately filed in Court on 17 December 2009. The causes of action relied upon are:
    1. breach of contract, being a contract made “in or about June 1998”; and
    2. contravention of s 52 of the Trade Practices Act 1974 (Cth) (“1974 Act”).

An Amended Defence was filed on the first day of the hearing on 14 December 2009. A Further Amended Defence was filed on 18 December 2009 that:

(a) denies any contract as between the Applicant and the Second and Third Respondents, but admits that “[o]n or about 23 May 1998” Mr and Mrs Howard “personally commissioned the construction of the vessel, and paid a deposit of $100,000.00 on 25 June 1998”;

(b) denies any breach of contract;

(c) denies any contravention of s 52; and

(d) contends that the causes of action are statute-barred by reason of the expiration of time between the causes of action arising and the commencement of the proceeding.

  1. No submission was advanced that this Court lacks jurisdiction to resolve the entirety of the claims sought to be advanced.

THE CASE AS PLEADED

  1. The Further Amended Statement of Claim pleads that the agreement was made “[i]n or about June 1998” for the purchase of the vessel and that the agreement was made “... between Howard on behalf of Arton and Boatspeed ...”.
  2. “Howard” is identified as Mr Sean Howard, a director of Arton No 001 Pty Ltd (“Arton”) and a director of Alpine Beef.
  3. This agreement relied upon by the Applicant was preceded by communications made “[i]n or about mid-1998” between Mr Howard and the Second and Third Respondents concerning the potential to construct a “luxury cruising sloop”. During those communications, the Further Amended Statement of Claim contends that various “contractual representations” were made, including representations that “Boatspeed was one of the most technically advanced boatbuilders in the world” and that “Boatspeed built boats of great durability and of high quality”. Further representations are said to include a representation that “Boatspeed built boats that were free of defects”.
  4. Thereafter, “in or about July 2001” it is alleged that “[w]ith the knowledge and consent of the first respondent, the applicant took over the benefit and liability of the commission ... from Arton ...”.
  5. Work on the vessel commenced on 9 July 1998 and proceeded through until approximately April 2001.
  6. Within approximately four weeks of the vessel being handed over, “bubbles or blisters” were observed in several discrete areas. Upon the “bubbles or blisters” appearing, the Applicants allege — and the Respondents deny — that a series of representations were made, including a representation that “the bubbles or blisters were a result of inadequate adhesion between the fairing compound and the substratum ...”.
  7. Use of the vessel continued.
  8. In about March 2002 the vessel was removed from the water and, in the Applicants’ words, “ad hoc repairs were carried out ...”. The cost of those repairs was borne by Boatspeed. Thereafter the Applicants allege that further representations were made, including representations that the 2002 repairs “were successful” and that “the ad hoc nature of the March 2002 repairs was sufficient to, and had in fact, rectified the failure in the fairing”.
  9. Further “bubbles or blisters” were observed later in 2002. In 2003 yet further “bubbles or blisters” were observed both above and below the waterline. Further representations are then said to have been made by the Second Respondent, including a representation that “it would be desirable for the yacht to be sailed for a further period of time ...” and that when the yacht was again removed from the water “for repainting or other purposes, Boatspeed would then undertake work to rectify the failure in the fairing”. Again the representations are denied.
  10. Representations are said to have been made from 2003 “until late 2007”.
  11. In October 2007, the vessel was again removed from the water. The Applicant contends that “inspection of the yacht disclosed that the failure of the fairing affected the entirety of the fairing”. The Respondents deny that the “blistering” affected “the whole of the fairing” but admit that “there was some blistering present on the vessel”.
  12. An entity identified as Ocean Spray Marine then carried out repairs to the vessel in late 2007 and early 2008.
  13. For the reasons expressed below, it is concluded that:

(a) the case in contract fails; and

(b) the case alleging a contravention of s 52 of the 1974 Act also fails.

No necessity thus arises to resolve the other issues that were the subject of evidence, including the cause of the blistering and the quantum of any loss occasioned or damage suffered had liability been established. But these issues have nevertheless been addressed, albeit not in as much detail as would have been warranted had a different conclusion been reached in respect to liability.

THE CONTRACTING PARTIES

  1. The case advanced by the Applicants significantly changed over time.
  2. The case ultimately advanced by the Applicants in the Further Amended Statement of Claim was expressed in a variety of ways, being that:

(i) the agreement as made in June 1998 was an “agreement made between Howard on behalf of Arton and Boatspeed ...”; and

(ii) whoever may have been the parties to the agreement as made in June 1998, events in July 2001 constituted a novation of the earlier agreement such that the parties to the contract as from July 2001 were said to be Ceetex Pty Ltd and Boatspeed. Ceetex changed its name to Alpine Beef in about September 2008.

A mooted application to further amend the Amended Statement of Claim to include as Applicants in the existing proceeding Arton and/or Mr Howard (and possibly Mrs Howard) was not pressed. The claims for contract proceeded upon the basis of the above two variants.

  1. Notwithstanding the submissions on behalf of the Applicant, it is concluded that an agreement was reached either on 23 May 1998 or shortly thereafter (and prior to June 1998) and that the parties to that original agreement were Mr Howard and Boatspeed. The agreement relied upon was exclusively oral — there being, perhaps surprisingly, no written agreement.
  2. The origins of that agreement may be traced to March 1998 when the boat designer, Mr Paul Stanyon, called for expressions of interest. A meeting between Mr and Mrs Howard and Mr and Mrs Ullrich took place at the premises of Boatspeed at West Gosford on Saturday 23 May 1998. Mr Howard gave an account of the conversation that occurred on that day. He could not recall whether it was Mr or Mrs Ullrich, but his account of the conversation was that one or other of them said words to the effect:
We are interested in building your new boat. We are both qualified shipwrights and have had great success in building large racing yachts. We are confident that we have the skills and capabilities to build your boat and that it will be of high quality and cruising performance. The techniques and materials that we are experienced in and have successfully used in our racing yachts are applicable to the build of your boat.

Mr Ullrich also gave an account of the matters discussed at that meeting. His account was that Mr and Mrs Howard expressed interest in building a 78 foot light weight cruising yacht for their personal use. Mr and Mrs Howard also wanted the vessel to be one which they would be capable of sailing themselves and a vessel with “low environmental impact, no generators, low voltage lighting with inverter and solar panels for charging”. It was to be a vessel capable of “long, silent running”. Costs of production were discussed, together with such matters as the interior design of the vessel.

  1. A personal cheque for $100,000 was handed to Mr Ullrich by Mr Howard at this initial meeting.
  2. Mr Ullrich’s Affidavit further states that “[a]t no time during discussions with the Howards did they say anything to me which caused me to believe that the yacht was being constructed other than for them personally”. He further stated that had he understood the contract to be with a company he “... would have insisted upon a written contract ...” because in his experience “... obtaining payment from a company was more problematic as there were usually limits on individuals’ authority and there were often time consuming procedural requirements companies had to follow for the approval and payment of accounts”.
  3. The present proceeding, it is considered, is not one in which it can be said that Mr Howard in his dealings with Boatspeed was contracting on behalf of an undisclosed principal, being Arton (and not Ceetex Pty Ltd, or Alpine Beef as it later became). As at 1998 Alpine Beef (or its predecessor) had not yet been incorporated. The Further Amended Statement of Claim pleads that that corporate entity was “acquired ... in or about August 1999 ...”.
  4. Cases may of course arise where a contract has been made by an agent acting for an undisclosed principal: Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 QB 545. Lord Denning MR there observed at 552 as follows:
It is a well-established rule of English law that an undisclosed principal can sue and be sued upon a contract, even though his name and even his existence is undisclosed, save in those cases when the terms of the contract expressly or impliedly confine it to the parties to it. The rule is an anomaly, but is justified by business convenience. It has been held so for many years.

In a separate judgment, Diplock LJ stated at 555:

I will deal first with the agency issue. In determining who is entitled to sue or liable to be sued on a contract, a useful starting point, where the contract is in writing, is to look at the contract. In doing so a number of elementary principles should be borne in mind. The first is that a person may enter into a contract through an agent whom he has actually authorised to enter into the contract on his behalf or whom he has led the other party to believe he has so authorised. But we are concerned here only with actual authority. Where an agent has such actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.

The principal is further discussed in Carter JW, Peden E, Tolhurst GJ, Contract Law in Australia (5th ed, LexisNexis Butterworths, 2007) at [16-06]. See also: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270 at 276 to 277 per McHugh JA.

  1. In the present proceeding it is concluded that at no time did Mr or Mrs Howard disclose to Mr or Mrs Ullrich that they were acting on behalf of Arton or on behalf of anyone other than themselves.
  2. Irrespective of the undisclosed reluctance on the part of Mr Ullrich to deal with a corporation, it is concluded that the agreement is one either expressly, or at the very least impliedly, confined to an agreement between Boatspeed and Mr Howard in his individual capacity. It was an agreement made during or shortly after the 23 May 1998 meeting at the premises of Boatspeed at West Gosford. It was an agreement with Mr Howard to build a vessel for himself and his wife to their specifications and for their personal use. Certainly neither Mr nor Mrs Ullrich did anything which could be relied upon to found any conclusion that they were willing to enter any agreement with anyone other than Mr Howard or Mr Howard and his wife.
  3. Rejected is a submission that the agreement was not finally made until June or July 1998. That conclusion is supported by the events and matters discussed at the meeting on 23 May 1998 and the fact that a personal cheque for $100,000 “from the Howards” was handed over at the initial meeting. It matters not, it is considered, that Mr Ullrich was told to hold the cheque and that it was later torn up when a subsequent cheque was provided in June 1998 drawn on the account of Arton. Nor does it matter that Mr Howard later contacted Mr Ullrich in approximately July 1998, after the construction of the vessel had commenced, to change the account for payment from the name of himself and his wife to that of Arton. The “project time sheets” maintained during the construction of the vessel continued to name the “customers” as “Sean & Dani”, that is, Mr and Mrs Howard.
  4. That conclusion as to the identification of the parties to the agreement made in May 1998 is founded upon the objective facts as to what was said and done. That conclusion, however, is also consistent with the evidence of Mrs Howard in her Affidavit. She asserted that she did not understand that she was assuming any liability in respect to the vessel and stated that, in her recollection, it was “[n]ot long after our first meeting” that she and Mr Howard agreed to engage Boatspeed to construct the vessel. Her evidence is accepted and supports the conclusion that the agreement was one between her then-husband and Boatspeed and one entered into “[n]ot long after” 23 May 1998. Such limited evidence as she did give provides no support for any conclusion other than that the agreement was one entered into with Mr Howard. Mr Stanyon also maintained that it was “[r]easonably soon after Sean had met with” the boatbuilders to whom Mr Stanyon had sent an “Expressions of Interest” document in about March 1998 that he was advised by Mr Howard “that he had decided to proceed with Boatspeed”.
  5. Even if there be some uncertainty as to the precise point of time at which the agreement was made, the text of an email sent on 15 June 1998 from Mrs Ullrich to Mr and Mrs Howard concerning the deposit provides no basis for any conclusion other than one that the agreement was entered into with Mr Howard (and possibly Mrs Howard) and not the Applicant corporation. That email, omitting material not presently relevant, was as follows:
Subject: Deposit
Date: Mon, 15 Jun 1998 ...
From: “Sari Ullrich” <...>
To: “Sean & Dani Howard <...>

Dear Sean & Dani

We now have the foam requirements from Paul and the core thickness looks fine. We have sourced the supply locally, to have it sliced and degassed will take approx 21 days. This should not affect our schedule as we can commence the jig structure almost immediately.

The deposit we require to proceed will be AU$100,000 and our bank details are as follows: ...

It was (inter alia) this email which was relied upon by the Applicant, together with the subsequent cheque for $100,000 drawn on the account of Arton, to fix the date of the agreement as being June rather than May 1998 and the contracting party as Arton and not Mr Howard. The Arton cheque may provide some limited support for the Applicant’s contention as to the identification of the contracting party — but the text of the email does not.

  1. Nor is the identification of the parties to the original agreement assisted by the events that took place when the time came for final payment. The invoice for the final payment was initially made out to Arton. But Mr Howard requested that the account be made out to Ceetex Pty Ltd. Mr Ullrich claimed he had never heard of this corporate entity before but he did as he was requested. There was some dispute as to whether Mr Howard dictated to Mr Ullrich “... the substance of several documents that he wanted me to send to him”. It matters not how that dispute is resolved — but, if it need be resolved, the evidence of Mr Ullrich is preferred.
  2. It is not clear whether the Further Amended Statement of Claim seeks to rely upon any alleged breach of the agreement as made in May 1998. But to the extent that any such relief is claimed, it is rejected. The present Applicant was simply not a party to that agreement.
  3. Difficulty with the identification of the parties to the original agreement may, presumably, explain the reliance placed by the Applicant upon the alleged novation of the agreement that is said to have occurred in July 2001. But this alleged novation, it is further concluded, does not answer the absence of Mr Howard as a party to the proceeding.
  4. The contractual relief that is claimed in the Further Amended Statement of Claim and founded upon this novation of the original agreement was finally pleaded as follows:
10A. Howard acquired the applicant in or about August 1999 for the purpose of the applicant taking over the commission, whether made by Howard on behalf of Arton or alternatively on behalf of Howard or Howard and Dani Howard, and ultimately becoming the owner of the yacht.

10B. With the knowledge and consent of the first respondent, the applicant took over the benefit and liability of the commission, whether made by Howard on behalf of Arton or alternatively on behalf of Howard or Howard and Dani Howard, in or about July 2001.

In answer to these allegations the Further Amended Defence states as follows:

10A. The Respondents do not know and cannot admit the allegation in paragraph 10A of the Amended Statement of Claim.

10B. The Respondents deny the allegations in paragraph 10B of the Amended Statement of Claim, and say that no novation of the contract took place or was intended to take place.

Notwithstanding the manner in which the Further Amended Statement of Claim seeks to plead the novation, the Applicant correctly contends that there was no lack of certainty on the part of the Respondents as to this aspect of the case mounted against them. No Particulars were sought and the allegation was denied and addressed in the written submissions of the Respondents.

  1. The principles relevant to whether or not a novation of a prior agreement has occurred are not in dispute. “Novation” in this context simply means a new contract standing in the place of a pre-existing contract.
  2. A novation, it was accepted, occurs where all parties to a contract agree that a new contract is substituted for one that has already been made: Fightvision Pty Ltd v Onisforou [1999] NSWCA 323, 47 NSWLR 473. A 1992 contract between Classic Promotions and the professional fighter, Mr Tszyu, was there held to have been novated and replaced by a subsequent contract in 1993 between Fightvision and Mr Tszyu. The evidence in support of the novation may on one view be regarded as slender. The person who controlled Fightvision (Mr Mordey) had said to Mr Tszyu in January 1993:
Promotions is winding up and Fightvision will be exclusively promoting your fights in the future.

Mr Tszyu denied the conversation but conceded that he would not have dissented if he had been told. There was also a similar conversation with Mr Lewis, who was described as “the trainer”. Reference was also made to events occurring after this conversation. In concluding that a novation had taken place, Sheller, Stein and Giles JJA observed:

[78] Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made: Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365 at 388, per Windeyer J, which Bainton J referred to. Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation: see, eg, Vickery v Woods [1952] HCA 7; (1952) 85 CLR 336 at 345, per Dixon J as his Honour then was. A novation may be express or implied from the circumstances.

[79] Fightvision submitted that on 30 January 1993 Mr Mordey, as the chief executive officer of both Promotions and Fightvision, put to Mr Tszyu that Promotions was winding up and Fightvision would be exclusively promoting Mr Tszyu’s fights in the future; that Mr Tszyu did not dissent from Mr Mordey’s statement; and that upon returning to Australia, Mr Mordey said much the same to Mr Lewis, who accepted the situation. Thus Fightvision’s claim was that the original contract was expressly novated to it with the consent of all parties.

[80] The subsequent events were relied on as confirming that the novation to Fightvision had taken place. As is only commonsense, “... if the parties have conducted themselves on the basis that a contract exists between them, a court will readily infer that such a contract has been brought into being”: D W Greig and J L R Davis, The Law of Contract (1987) Law Book Co, Sydney at 249. The learned authors refer to Brogden v The Metropolitan Railway Company [1877] 2 App Cas 666. Lord Cairns LC spoke (at 679) of the correspondence between the parties being pervaded with “the expression of a feeling on the one side and on the other that those who were ordering the coals were ordering them, and those who were supplying the coals were supplying them, under some course of dealing which created on the one side a right to give the order, and on the other side an obligation to comply with the order.”

[81] In the present case the course of dealing was not relied on only to prove novation, but also to confirm Mr Mordey’s evidence of the conversations with Mr Tszyu and Mr Lewis. The subsequent events were consistent with Fightvision being substituted for Promotions in the original contract and carrying out the remainder of the agreement.

[82] In examining the evidence of Mr Mordey and Mr Tszyu, as well as others, it must be remembered that in reality Mr Mordey was the promoter. Plainly he used corporate vehicles to carry out his promotion activities. Mr White SC, who appeared for Mr Onisforou and Mr Fenech and undertook the burden of the argument on this point, accepted this as the reality of the situation. Up to 30 January 1993, the corporate vehicle Mr Mordey used for Mr Tszyu’s fights was Promotions. After that, he used Fightvision as the corporate vehicle to promote Mr Tszyu.

[83] In our opinion, the submission that Mr Mordey’s words to Mr Tszyu and Mr Lewis were insufficient to establish novation seeks to read too much into the way in which these parties carried out much of their contractual relationships and activities. Stated simply, Mr Mordey was the promoter and Mr Tszyu was the boxer. The corporations involved were merely vehicles for the promoter to promote Mr Tszyu’s fights. It is unsurprising that Mr Mordey did not know of the legal term “novation”. What non-lawyers would? Mr Mordey did know, however, that it was desired to wind Promotions down (or up, it does not matter) and have Fightvision become the exclusive promoter of Mr Tszyu’s bouts. He told Mr Tszyu and Mr Lewis of this, and they were agreeable. It was informal, but it had the result that all parties to the 17 January 1992 contract agreed that there should be a new contract with Fightvision in place of Promotions.

This exposition of principles relevant to novation has since been applied: e.g. South Australian Farmers Fuels Pty Ltd v Whittingham [2008] SASC 211 at [20]; Mr Whippy Pty Ltd v Oceanwalk Pty Ltd [2008] NSWCA 8 at [22] to [23].

  1. In those circumstances where the parties to the novated contract are different from the parties to the original contract, it is necessary to secure the consent of all parties concerned: Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641. Samuels JA there observed at 645:
A novation is a transaction by which, with the consent of all the parties concerned, a new contract is substituted for one that has already been made: Cheshire & Fifoot, The Law of Contract, 8th ed (1972) at 504. The essence of a novation and the element which distinguishes it from an assignment is that the consent of the debtor is required — the ordinary situation is one which arises where one debtor or creditor is substituted for another — whereas for an assignment the co-operation of the debtor is unnecessary although he must be given notice by statute or to preserve priorities in equity. In Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365 at 388, Windeyer J pointed out that novation requires that all three persons involved (that is the original debtor and creditor and the substitute for one of them) be parties to the transaction; because it “is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract”: ...

McHugh and Clarke JJA agreed with Samuels JA. A party cannot “... consent in advance to an unspecified means of novation that will subsequently be binding at [the] election of another party”: Goodridge v Macquarie Bank Limited [2010] FCA 67 at [102] per Rares J.

  1. A contract of novation, it may further be accepted, need not itself be in writing — it may be inferred from conduct: McMahon v National Foods Milk Ltd [2009] VSCA 153 at [77], 259 ALR 20 at 50. Nettle JA there also reaffirmed the proposition that when searching for any intention to novate, no narrow or pedantic approach is warranted.
  2. In the present proceeding, and for the purpose of resolving any alleged novation, the question as to whether the initial agreement entered into in about May 1998 was a contract between Mr Howard and Boatspeed or a contract between Arton and Boatspeed may be left to one side. The case ultimately advanced by the Applicant was that whoever the parties to the original contract were, that contract had been replaced in July 2001 by a contract between Alpine Beef (or Ceetex as it was then known) and Boatspeed. To the extent that it was necessary to consider the intention of Arton or Mr Howard, and whether one or other consented to the new agreement, the Applicant contended that there was no relevant distinction, Mr Howard being the controlling mind of Arton (and, for that matter, Alpine Beef).
  3. The facts relevant to the alleged novation are within a narrow compass.
  4. The Applicants place particular reliance upon an invoice dated 6 July 2001. That invoice was issued by Boatspeed to Ceetex Pty Ltd and was as follows:

2010_13600.png

The illegible text assumes no present significance.

  1. That invoice was attached to an email from Mr and Mrs Ullrich to Mr Howard which stated (emphasis in original):
Attached is the final cost reconciliation for “China Grove II”. We must discuss the transfer of ownership prior to export, as an immediate GST drawback upon export seems appropriate.

The reference to export was a reference to promoting the vessel overseas.

  1. Also on 6 July 2001, Mr Ullrich forwarded to Ceetex Pty Ltd a letter marked to the attention of Mr Howard in the following terms:
Just a note to bring you up to date with ‘China Grove 2’ and the paperwork necessary in regards her registration as an Australian Ship. We completed the required measurement documentation early this week and the builders certificate of ownership. We have been sent and subsequently completed the Certificate of Handover. This certificate names Arton 001 Pty Ltd as the owner, we assumed this is correct as we understand that Arton 001 is acting for Ceetex Pty Ltd as the beneficial owner.

Please contact us if any problem arises with the registration process.

  1. Although the content of these documents was not put in issue, a dispute did emerge in respect to the invoice setting forth the “final cost reconciliation”. According to Mr Ullrich, the invoice was originally sent to Arton “... as Mr Howard had early on requested that accounts be in that company’s name”. Mr Ullrich maintained that it was “almost immediately after the account had been sent” that Mr Howard telephoned “and asked me to resend the account made out to Ceetex”. Mr Ullrich said that this was the first time he had ever heard of this company. When questioned as to this evidence of Mr Ullrich, Mr Howard stated that he had no recollection of the telephone conversation. Mr Howard also accepted that he had no recollection of the first occasion when he discussed Ceetex with Mr Ullrich other than to say that it would have been before title in the China Grove II passed from Boatspeed. The evidence of Mr Ullrich as to the forwarding of the account initially to Arton and thereafter to Ceetex at the request of Mr Howard is accepted.
  2. Reliance is also placed by the Applicant upon the fact that the China Grove II was not registered in the name of Arton or Mr Howard but in the name of Ceetex.
  3. Even in a factual context such as the present where there was a surprising lack of formality in respect to the initial agreement for the purchase of the vessel, the submission that the facts are sufficient to establish a novation of that initial agreement is rejected.
  4. Given the importance of establishing a novated contract in or about July 2001, it is surprising that there was so little evidence directed to what Mr Howard was trying to achieve at about that time. Perhaps evidence directed expressly to his intention to replace the prior agreement with a new agreement was not expected or required. Such an intention could potentially be implied or inferred from his conduct. But such evidence as was directed to his conduct at this particular point of time or shortly beforehand was more directed to plans to display the vessel overseas at the Genoa International Boat Show and the potential to build and sell vessels based on the China Grove II design jointly with Boatspeed.
  5. That proposal to jointly exploit the design, it may be noted, came to nought. Perhaps not surprisingly, the cross-examination of Mr Howard did not expose any more detail than was otherwise scantily set forth in his Affidavit. Initially it would appear that Mr Howard kept his intentions to exploit the boat’s design to himself. The following exchange thus occurred between Mr Howard and Senior Counsel for the Respondents:
MR BRANSON: Mr Howard, do I correctly understand that the principal purpose of commissioning the vessel, China Grove II, was to have built for you a luxury cruising vessel? Does that accurately summarise the position?---No, it was to – that does not – it was to purchase – to build a prototype of which we would – which we would hopefully sell and building subsequent yachts, according to the same hull design.

Well, are you asserting that when you first had any discussion with the Ullrich’s [sic], that you made plain to them that your primary intention was for them to construct a boat that would become a prototype?---I don’t recall discussing my intentions with them. I – on my first meeting with them it was a meet and greet to discuss whether they would be – for me to assess whether they would be the sort of boat builders I would want to deal with on an ongoing basis, and to build the first of this hull design.

But if that was in fact your intention, why would you not have communicated that to Mr and Mrs Ullrich, either at the initial meeting or shortly thereafter?---It didn’t seem to me to be their business.

There remains, however, some uncertainty as to when this hitherto undisclosed intention to build the China Grove II as a prototype was first raised with Mr or Mrs Ullrich. A little later in the cross-examination of Mr Howard, questions were directed to the 23 May 1998 meeting and there was the following exchange:

Thank you. Now, is this the position that it was quite some time before you revealed to the Ullrichs that this vessel, China Grove II, was, in your mind, to be a prototype?---No.
Sorry?---I don’t believe it was some time after that initial meeting that I revealed that. I believe it was revealed shortly after that meeting.

Mr Howard’s Affidavit maintained that it was when the construction of the vessel “proceeded” that he “... envisaged the possibility of some future joint business venture with them ...”. But the proposed joint venture did later emerge and was discussed with Boatspeed. An email from Mrs Ullrich to Mr Howard sent on 21 December 2000 seeks an opportunity to discuss with Mr Howard “the proposed partnership”. The sum of $300,000 was also lent “through Ceetex” to Mrs and Mrs Ullrich to acquire property and to build a new factory. Mr Howard retained PriceWaterhouseCoopers to examine the accounts of Boatspeed. The Howards’ and the Ullrichs’ discussion of the proposed joint venture to exploit the design, however, says nothing as to either the parties to the alleged novated agreement or the intention of the parties to novate an earlier agreement.

  1. The financial reports internal to Ceetex, however, did disclose the vessel as an asset. Reports titled Special Purpose Financial Reports for Ceetex for the financial years ended 30 June 2002, 2003, 2004 and 2005 thus disclosed as an asset “Boat held for resale”. Contracts of insurance for the vessel showed Mr Howard as the owner.
  2. The facts do not establish any novation because:

Moreover:

All that was happening on 6 July 2001 was that final arrangements were being made for the final payment and the name of the entity to whom the vessel was to be registered.

  1. The events on and surrounding 6 July 2001 and the events that preceded that date, it is concluded, do not constitute any novation of the earlier agreement. There was no intention expressed to enter into any new agreement. Nor have any facts or conduct been made out which would provide any real support for an inference to be drawn that the parties intended in July 2001 to replace the earlier agreement with a new agreement.

A VESSEL FIT FOR PURPOSE AND MERCHANTABILITY

  1. In light of the conclusion that the Applicant was not a party to the contract of sale, it is unnecessary to make any finding in respect to the Applicant’s contentions as to a breach of either express or implied terms of the contract that:
  2. These terms are alleged by the Applicant to arise either from such other facts as have been pleaded or by reason of s 19 of the Sale of Goods Act 1923 (NSW) (“New South Wales Act”). Although the New South Wales Act is expressly referred to in the Further Amended Statement of Claim, there is curiously no reliance by the Applicant in either its pleadings or its submissions upon s 71 of the Trade Practices Act 1974 (Cth). By reason of s 68, the terms implied by s 71 may not be excluded or modified. However, the absence of reference to s 71 matters not. Of the terms said to be either express or implied terms, submissions focussed upon the terms as to merchantable quality and fitness for purpose. Section 19 of the New South Wales Act provides as follows:
Implied condition as to quality or fitness

Subject to the provisions of this Act, and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

(1) Where the buyer expressly or by implication makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose:

Provided that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.

(2) Where goods are bought by description from a seller who deals in goods of that description (whether the seller be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality:

Provided that if the buyer has examined the goods there shall be no implied condition as regards defects which such examination ought to have revealed.

(3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.

(4) An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.

  1. Had it been necessary to resolve any question as to breach of contract, terms as to fitness for purpose and merchantability would have been implied both by reference to the conduct of the parties and by reason of s 19. The issue of “overlapping standards” imposed by these two terms, it may be noted, has received considerable attention and has been summarised in Franzi N C A, “Merchantable Quality and Particular Purpose: Questions of Overlap” (1977) 51 ALJ 298 at 308 to 311.
  2. For present purposes, it may briefly be noted that it is considered that the China Grove II was fit for purpose. Mr and Mrs Howard commissioned Boatspeed to build a luxury sailing vessel and that is what they got. Mr Dewey gave the following evidence as to the voyages undertaken:
I have had considerable experience sailing the yacht in a wide range of conditions, from gale force winds to light breezes, and over substantial distances, having sailed her to Fiji on five separate occasions. The yacht has proven to be extremely seaworthy, capable of being sailed anywhere in the world, and is particularly fine at sailing in lighter air. When under sail in rougher conditions, water does wash in to (and out of) the transom, but this does not happen in light conditions. No water sits in the transom when the yacht is lying at anchor or berth.

The blistering on the hull of the China Grove II did not affect its fitness for the purpose of being sailed as a luxury vessel. It was sailed extensively whilst the blisters were on its hull and (presumably) while further blistering was emerging. An email sent by Mrs Ullrich to Mr Howard in October 2001 referred to the blistering but also maintained that “the integrity of the vessels [sic] structure is not affected by this nor is this issue likely to affect that integrity in the long term”. The Respondents further correctly referred to the fact that a valuation report prepared for the purpose of attempting to sell the vessel in 2005 did not make any reference to the blistering on the hull. That valuation also recorded that the vessel at that date had travelled approximately 47,000 nautical miles.

  1. It is not, however, considered that the China Grove II was of merchantable quality. Attempts on the part of the Respondents to reduce the extent of the blistering to a mere “aesthetic” or “cosmetic” condition that did not affect the structural integrity of the vessel — and hence a condition not impugning its merchantable quality — are rejected. Although there was some dispute, particularly between Mr Ullrich and Mr Colson, a marine surveyor, as to the extent of the blistering, approximately 10% of the hull area was affected. There was on one occasion about 84 blisters on each side of the vessel. Mr Colson’s evidence, which is accepted, was that “[b]listering in boats appearing immediately after manufacture is not normal, and is not to be expected. This is even the more so in relation to large luxury yachts, such as China Grove II”. Mr Colson went on to state that “[n]o boat, and particularly no luxury yacht, that has been properly manufactured should ever exhibit such level of blistering”. A director and principal of Ocean Spray Marine Pty Ltd, Mr Allen, also gave evidence. He said that “[i]n my then 27 years of experience, I had never seen anything like it”.
  2. The Respondents correctly contend that a purchaser generally has no right to expect a “perfect article”: David Jones Ltd v Willis [1934] HCA 47; (1934) 52 CLR 110. Damages were there claimed in relation to the purchase of a pair of shoes from a retailer who was not the manufacturer of the shoes. It was in that context that Starke J observed at 123 (references omitted):
But the question in this case was whether the sale was of a specific pair of shoes selected by the buyer on her judgment without any description being relied upon, or whether the sale was by description. In my opinion, that question was one of fact for the jury, and there is evidence fit to be submitted to the jury that the sale was by description. A jury might conclude that the buyer asked for and contracted to buy walking shoes, and merely selected a pair out of several shown to her of that description. And so too the question is one of fact for a jury whether the shoes, if they were bought by description, were of merchantable quality. The buyer has “a right to expect, not a perfect article, but an article which would be saleable in the market” under that description. Goods are not of “merchantable quality” if, in the form in which they are tendered, they are of no use for any purpose for which such goods are normally used, and hence are not saleable under that description ...

Perfection may not be the standard to be applied. But in the present proceeding the subject of the agreement was not a pair of shoes but a luxury sailing vessel. It was commissioned from boatbuilders who held Boatspeed out as “... one of the most technically advanced boatbuilders in the world” and maintained that “[q]uality is the key word in any project that Boatspeed undertake ...”. The content of the terms implied into an agreement with such a boatbuilder is to be judged against the standard Boatspeed set for itself and upon which purchasers relied.

  1. In that context a simple fact remains — an expensive vessel was commissioned and, very soon after launch and for a number of years thereafter, extensive blistering on the hull emerged.
  2. In Australian Knitting Mills Ltd v Grant [1933] HCA 35; (1933) 50 CLR 387 at 418, Dixon J expressed as follows the approach to be pursued when considering whether goods purchased are of merchantable quality:
The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms.

  1. In the present proceeding, had the extent of the blistering that was later to emerge been known prior to delivery of the vessel, there could be no doubt that Mr and Mrs Howard would either have not accepted delivery or demanded that the defect be remedied. Although they may have had no right to expect the vessel to have been in “perfect” condition, the extent of the problem caused by the blistering was both extensive and expensive to remedy. It is not considered that a vessel of such a description could properly be described as of “merchantable quality”. Whatever may have been the cause of the blistering and whatever standards may have been applied in the construction process, the China Grove II was not the “quality” vessel that Boatspeed held itself out as able to produce and which Mr and Mrs Howard expected to receive.

SECTION 52

  1. The Further Amended Statement of Claim sets forth a series of representations said to contravene s 52 of the 1974 Act.
  2. Section 52 provides as follows:
Misleading or deceptive conduct

(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).

  1. The principles relevant to the construction and application of this provision were not put in question in the present proceeding. Conduct, it may thus be noted, is “likely to mislead or deceive” if there is a “real or not remote chance or possibility regardless of whether it is less or more than fifty per cent”: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 180; (1984) 2 FCR 82 at 87 per Bowen CJ, Lockhart and Fitzgerald JJ (applying Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union [1979] FCA 84; (1979) 42 FLR 331 at 346 per Deane J and Sheen v Fields Pty Ltd (1984) 58 ALJR 93). See also Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 7) [2008] FCA 1364 at [97].
  2. In the present proceeding, the representations relied upon by the Applicant need to be identified with some care. They were characterised in its Further Amended Statement of Claim as follows:

(i) “the contractual representations” — being representations made by Mr and Mrs Ullrich in about mid-1998 as to the boatbuilding capability of Boatspeed;

(ii) “the first admissions and acknowledgment” — being representations made by Mr Ullrich to Mr Dewey as from about August 2001 “through and until late 2007” as to the causes of the blistering and that Boatspeed would undertake repairs that would rectify the defects;

(iii) “the March 2002 repairs representations” — being representations made by Mr Ullrich to Mr Dewey in about March 2002 after the China Grove II was taken out of the water and “ad hoc repairs” were carried out to the blistered areas of the vessel, that those repairs were successful and had rectified the defects;

(iv) “the further 2002 representations” — being representations made by Mr Ullrich to Mr Dewey “at a time subsequent to the March 2002 repairs” and “through and until late 2007” that the blistering was susceptible to rectification, that the China Grove II should be sailed through the summer and that “Boatspeed would then undertake work to rectify the failure in the fairing”;

(v) “the 2003 representations” — being representations made by Mr Ullrich to Mr Dewey “[i]n and about 2003” and “through and until late 2007” that it would be desirable for the vessel “to be sailed for a further period of time” and that when the vessel was taken out of the water “Boatspeed would then undertake work to rectify the failure in the fairing”;

(vi) “the post 2003 representations” — being representations made by Mr Ullrich to Mr Dewey on two occasions between 2004 and 2006 and said to continue “through and until late 2007” that it was desirable for the China Grove II to be “sailed pending an appropriate opportunity arising for repairs to be carried out to the fairing” and then “hauled out for repainting and other purposes” and that “Boatspeed would undertake work in order to rectify the failure in the fairing”;

(vii) “the 2007 representations” — being representations made by Mr Ullrich to both Mr Howard and Mr Dewey “[i]n or about mid 2007” that “Boatspeed would attend the premises of Ocean Spray Marine” from about 12 June 2007 and that “Boatspeed would arrange for and undertake work to rectify the failure of the fairing”.

Each of these representations is later pleaded to be “misleading or deceptive or likely to mislead or deceive in contravention of s. 52 of the Trade Practices Act”.

A REPRESENTATION AS TO A QUALITY BOAT

  1. The principal complaint advanced on behalf of the Applicant is that $8.6m (or thereabouts) was paid for a boat which had significant and noticeable defects. The China Grove II, according to the Applicant, was not the perfect vessel Mr Howard envisaged.
  2. Separate from its claim in contract, the clearest manner in which the Applicant sought to rely upon s 52 was its claim founded upon what the Further Amended Statement of Claim characterises as “the contractual representations”. Paragraph 6 of the Further Amended Statement of Claim refers to communications between Mr Howard and Mr and Mrs Ullrich and paragraph 7 alleges the following:
During the course of the communications referred to in the preceding paragraph, Peter Ullrich and Sari Ullrich made the following representations (the contractual representations):
  1. Peter Ullrich and Sari Ullrich were the principals of Boatspeed;
  2. Each of Peter Ullrich and Sari Ullrich was a shipwright who had had substantial experience in the boatbuilding business;
  1. Boatspeed was one of the most technically advanced boatbuilders in the world;
  1. Boatspeed built boats of great durability and of high quality;
  2. Boatspeed built boats that were perfect;
  3. Boatspeed built boats that were free of defects;
  4. Boatspeed had the capability to build an 86 foot luxury cruising sloop, based upon the hull design, of great durability, high quality and free of defects; and
  5. Boatspeed had the capability to build an 86 foot luxury cruising sloop, based upon the hull design, with materials of established capabilities in such applications, and in respect of the use of which materials Boatspeed had existing knowledge and skills.
  6. If Boatspeed was commissioned and built the 86 foot luxury cruising sloop based on the hull design it would be of great durability, high quality and free of defects.

Paragraphs (a) to (h) may be left to one side, although it should be noted that there was no evidence to support any conclusion that the “representations” in those paragraphs were “misleading or deceptive”.

  1. It is subparagraph (i) that assumes primary relevance — and in particular the “representation” that if Boatspeed were commissioned to build the vessel it would be of “high quality and free of defects”. This is an allegation as to a “future matter” for the purposes of s 51A of the 1974 Act. That section provides as follows:
Interpretation

(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

  1. There can be no doubt that Boatspeed held itself out as making and having the capability to make first-class vessels.
  2. A brochure produced by Boatspeed, handed to Mr and Mrs Howard, thus contained statements such as the following:
When you start talking about Australia’s successful, high profile yachts, you will undoubtedly end up talking about boats built by the Gosford boatbuilders, Boatspeed Performance Sailcraft.

Names that have hit the news over the past few years like “Ragamuffin”, “Brindabella”, “Ninety Seven” and “Atara”. These are all boats that have made the headlines, and while they have been sailed by exceptional sailors, they could not have done it if the tools they were given had been anything but perfect.

The brochure further stated:

High quality and extreme accuracy is achievable because Boatspeed Performance Sailcraft is one of the most technically advanced boatbuilders in the world.

The emphasis upon quality was further referred to subsequently in the brochure as follows (emphasis in original):

As well as the obvious technological edge that comes with a yacht from Boatspeed Performance Sailcraft, there are a number of other significant advantages that come with the decision to have your next craft built by this proudly Australian organization:-
...
  1. Mr Howard in his Affidavit stated that he “... took the time to read the brochure” and “... was impressed by what the Ullrichs had told me and by what I read in their brochure”. He further stated that he “... was impressed by their emphasis on high quality and durability” and he noted “... that in the brochure they were saying that their boats were ‘perfect’”.
  2. There can thus be no doubt that a representation was made that if Boatspeed were commissioned to build a boat, that boat would be “perfect” or a boat of “quality”. Although it may be difficult to give content to what is embraced within a representation that a boat would be “perfect”, it is a representation which imposes upon Boatspeed a responsibility to ensure that the boat would be a superior quality vessel. Although the Applicant relied upon an allegation that it was a “term of the commission” that the vessel “would be reasonably fit for the purpose and of merchantable quality”, no case was sought to be advanced that there was any representation to the like effect for the purposes of s 52.
  3. It is not proof as to the making of the representation that is the difficulty confronting the Applicant. And it may be assumed for present purposes that the China Grove II was less than “perfect”. Even though it may be accepted that the blistering did not affect the performance of the China Grove II, and even though no reference was made to defects when the boat was advertised for sale, it has presently been assumed that the blistering was such as to make good a contention that the vessel was less than “perfect” or less than the superior quality vessel envisaged by Mr and Mrs Howard.
  4. Nor does the Applicant confront any difficulty simply by reason of the fact that the brochure was handed to Mr Howard. Rejected is the contention of the Respondents that the representations made, particularly those in the brochure, were representations made to Mr and Mrs Howard alone and could not be representations actionable by the corporate Applicant.
  5. The difficulty confronting the Applicant emerges from two other sources, namely:
  6. Insofar as the former difficulty is concerned, s 51A of the 1974 Act assumes prominence. Notwithstanding some divergence as to the manner of operation of s 51A(2) (cf Readymix Holdings International Pte Ltd v Wieland Process Equipment Pty Ltd (No 2) [2008] FCA 1480 at [91] to [99]), it is considered that that provision is to be interpreted and applied in the manner explained by Emmett and Allsop JJ in McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2, 165 FCR 230. Emmett J there observed:
[44] Under s 51A(1) of the Trade Practices Act, a representation is to be taken to be misleading if it is a representation with respect to any future matter and the maker of the representation does not have reasonable grounds for making the representation. Under s 51A(2), the maker of the representation with respect to any future matter is to be deemed not to have had reasonable grounds for making the representation unless it adduces evidence to the contrary. However, if evidence is adduced by a representor to the effect that the representor had reasonable grounds for making the representation, the deeming provision will not operate. Where the representor adduces such evidence, it is then a matter for the Court to determine, on the balance of probabilities in the ordinary way, whether or not the representor had reasonable grounds for making the representation.

Allsop J (as His Honour then was) said:

Section 51A(2) does not, in my view, mean that in those circumstances the representor has not met an onus. The section does not cast the legal or persuasive onus, in such a case, on the representor. Its terms do not say so. The enactment history makes clear that the terms were deliberately chosen not to say so. Keane JA, despite his reference to the “trend of established [first instance] authority”, does not say so. In my respectful view, to the extent that decisions such as IMB Group (1999) ATPR 41-704; Blacker [2000] FCA 681; Kaye [2004] FCA 1363; Lewarne [2007] FCA 1136 and Emerald Ocean [2006] ATPR 42-096 say, or may be taken as saying, that the legal or persuasive onus of proof is shifted to the representor by s 51A(2), they are wrong. None examined the enactment history of s 51A. If it be thought, contrary to my reading of Keane JA’s reasons, that his Honour’s reference to Kaye [2004] FCA 1363 as “established authority” was a conclusion that s 51A(2) effected a reversal of the legal and persuasive onus of proof, I would be driven to the respectful view that his Honour was plainly wrong for the reasons that I have given.

Emmett J also agreed with Allsop J as to the operation of s 51A: [2008] FCAFC 2 at [6], [2008] FCAFC 2; 165 FCR 230 at 234.

  1. Both the Applicant and the Respondents adduced expert evidence as to the cause of the blistering. For the purposes of s 51A, such evidence as was adduced by the Respondents was “evidence to the contrary” such that the “deeming” effect of s 51A(2) ceased to operate. And, even though it is not necessary for the resolution of the present dispute to reach any concluded view as to the cause of the blistering, it is sufficient for the purposes of s 51A(2) to conclude that there were “reasonable grounds” for making the representation that any boat built by Boatspeed would be “perfect” or a “quality” vessel. Reasonable grounds, it is concluded, have been made out by reason of:
  2. It is the latter difficulty that defeats this part of the case of the Applicant. Even if a contravention of s 52 can be established, as it most probably can in respect to the representation made at the outset, it is further concluded that:

The same conclusions, it should be noted, apply equally to the limitation imposed by s 14 of the Limitation Act 1969 (NSW) in respect to any claim founded in contract.

  1. Insofar as this latter difficulty is concerned, s 82(2) of the Trade Practices Act provides as follows:
An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.

The present proceeding was commenced with the filing of an Application on 20 March 2009 — i.e. more than six years after the conduct relied upon and more than six years after the cause of action “accrued”. The fact of blistering was known shortly after the China Grove 11 was launched. The extent of the blistering, and the fact that it was not a problem confined to any one particular part of the boat, became known when it was removed from the water for the first time in March 2002.

  1. It was presumably in recognition of the difficulty posed by s 82(2) that the Applicant further pleaded what it characterised as representations being “the first admissions and acknowledgment”. It is unclear whether the Applicant by its Further Amended Statement of Claim sought to contend that:

as well as contending that:

It would appear, however, that “the first admissions and acknowledgment” — together with the other representations pleaded — are relied upon to support further alleged contraventions of s 52 and also to support a contention that the Respondents are estopped from relying upon s 82(2). Curiously, the allegation as to estoppel does not appear in any Reply filed in answer to the Amended Defence — but, rather, in the Further Amended Statement of Claim. But nothing turns on where in the pleadings reliance upon estoppel is set forth. The Applicant also relied upon the alleged “admissions and acknowledgment” for the purposes of s 54 of the Limitation Act 1969 (NSW).

  1. It is not considered that any conduct on the part of the Respondents constitutes a formal admission as to liability (if that is the case sought to be advanced) or gives rise to an estoppel. Nor does it constitute confirmation for the purposes of s 54 of the Limitation Act 1969 (NSW).
  2. The conduct that may found at least an argument that a party is estopped from relying upon a limitation defence, and the difficulties in making out such an argument, were addressed in Commonwealth of Australia v Verwayen (1990) 170 CLR 394 (“Verwayen”). A member of the Royal Australian Navy had been injured when HMAS Voyager and HMAS Melbourne collided in February 1964. The Commonwealth had repeatedly stated that its policy was not to plead any limitation defence in actions arising from the collision. A majority of the High Court concluded that the Commonwealth was not free to rely on the limitation period to deny its liability. The basis upon which such a conclusion was reached, however, was expressed differently in the judgments of Deane and Dawson JJ and the joint judgment of Toohey and Gaudron JJ. Deane and Dawson JJ resolved the appeal on the basis of estoppel, their Honours concluding that the equity being raised by the Commonwealth’s conduct could only be accounted for by holding it to the assumed state of affairs. Toohey and Gaudron JJ concluded that the Commonwealth had waived its right to rely on the limitation defence. Deane J stated at 443:
To acknowledge the fact that the relief appropriate to a case of estoppel by conduct may vary according to the circumstances is not to suggest that relief is to be framed on an unprincipled basis. Prima facie, the operation of an estoppel by conduct is to preclude departure from the assumed state of affairs. It is only where relief framed on the basis of that assumed state of affairs would be inequitably harsh, that some lesser form of relief should be awarded.

His Honour later concluded at 445:

Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted.

Albeit in dissent as to the conclusion, the following observations of Mason CJ at 412 also remain instructive as to the sort of conduct that may found an estoppel:

... [A]s a matter of principle and authority, equitable estoppel will permit a court to do what is required in order to avoid detriment to the party who has relied on the assumption induced by the party estopped, but no more. In appropriate cases, that will require that the party estopped be held to the assumption created, even if that means the effective enforcement of a voluntary promise.

His Honour continued at 413 to 414:

Turning to the facts of the present case, at least in so far as the statutory defence is concerned, the difficulty facing the respondent at the outset is to establish that the required assumption was induced by the Commonwealth. What must be established is either that the Commonwealth represented that it had decided not to plead the Statute or the Groves defence and that it did not regard itself as free to change its decision (cf Waltons Stores [(1988) 164 CLR, at pp 422-423]) or that the Commonwealth represented that it would not plead those defences.

  1. An estoppel may thus arise where a party has encouraged another to act upon an assumption or created an expectation that a particular state of affairs exists. The relief which may then be granted is the minimum to prevent injustice arising and to prevent the party from departing from the assumption or expectation that has been induced: Verwayen at 429 per Brennan J; at 501 per McHugh J. In circumstances where a party by his conduct has created an assumption as to a future state of affairs, estoppel may preclude departure from that assumed state of affairs unless reasonable notice has been given: Verwayen at 442. Deane J there went on to further observe:
Even in a case where an estoppel by conduct is established and would prima facie operate to preclude departure from the assumed state of affairs, the circumstances may be such that to grant unqualified relief on that basis would exceed any requirements of good conscience and be unduly oppressive of the other party.

See also: Giumelli v Giumelli [1999] HCA 10, 196 CLR 101; Fifteenth Eestin Nominees Pty Ltd v Rosenberg [2009] VSCA 112 at [263] to [272]. Where an equitable estoppel has been made out, the relief granted is no more than is necessary to avoid detriment or prejudice.

  1. In the present proceeding it is not considered that Mr Ullrich had any conversation with Mr Howard (or engaged in any other conduct) that would provide any foundation for a belief or an assumption on the part of Mr Howard that he should abstain from pursuing any legal remedy he may have had. In the early stages, shortly after the vessel was launched, Mr Ullrich’s position was that he would undertake repairs and he believed that Mr Howard would therefore be unlikely to pursue whatever legal rights he may have had. So much is apparent from the following exchange between Mr Ullrich and his cross-examiner:
MR DUNCAN: And you said to Mr Dewey that you would undertake repairs to blisters that appeared in that time after that period of sailing?---That’s correct.
...
MR DUNCAN: You said that you would undertake the repairs after a period of sailing?---We said that we would repair the blisters and after we see if any more developed over a period of sail.

And you expected Mr Dewey and Mr Howard to rely upon what you said that you would do to repair the blisters?---Yes.

And you understood that at that point in time that they, in accepting your statement, that you would attend to and repair the blisters, that they would be unlikely to pursue any legal remedies that they might otherwise have thought they could have against you?---When we had that discussion in June of 2001, yes.

But thereafter the course plotted by Mr Ullrich — and conveyed to Mr Dewey — was that Mr Ullrich did not believe that Boatspeed was responsible for the blistering. Shortly after the above exchange, the following exchange took place in a telephone conversation in March 2004:

THE WITNESS: Cedric advised me that there were several blisters had [sic] reappeared and we said, “Well, these are definitely not blisters of mixing origin or manufacturing origin and that we were not going to pay to slip the boat and do these repairs because we didn’t consider them to be our responsibility.” He agreed with that and we agreed to leave it until the boat was due for its repaint in 18 months to two years time. And we volunteered - I volunteered to send some staff to grind those blisters out and fill them at no cost to them.

This exchange provides no basis for a factual conclusion that Mr Ullrich induced any assumption on the part of Mr Howard as to what the legal position would be in the event of litigation. Attempts were being made to repair the blistering in a constructive fashion, but the denial of responsibility on the part of Boatspeed was also being made readily apparent.

  1. Although Mr Howard may have relied upon Mr Ullrich’s attempts to repair the blistering that was occurring, a unilateral belief on Mr Howard’s part to which Mr Ullrich did not contribute is not sufficient to found an estoppel or to preclude the Respondents from now relying upon any limitation defence that is available to them.
  2. It should be noted that where there is a conflict in the evidence as between Mr Howard and Mr Ullrich, the evidence of Mr Ullrich is preferred. He gave his evidence, it is considered, in a more balanced and even manner than did Mr Howard and Mr Ullrich had a better recollection of events and conversations.
  3. Given the passage of time, however, no criticism can be made of any witness for their lack of detailed recollection. The passage of time may also account for the form of the Affidavits relied upon by both the Applicants and Respondents. In many instances, little attempt was made to express the evidence in any way resembling direct speech. An assessment of the competing evidence was thus largely reduced to an assessment of the manner in which the limited oral evidence was given as measured against the documentary evidence.
  4. There was also some discrepancy, it may be noted, between the evidence given by Mr Dewey and Mr Ullrich. Mr Dewey maintained, for example, that the China Grove II was towed after its launch in March 2001 from Gosford to Sydney; Mr Ullrich maintained that the vessel was sailed under its own power. Another discrepancy centred upon who first noticed the blistering to the vessel — Mr Dewey maintained that he brought the blistering to the attention of Mr Ullrich, whereas Mr Ullrich maintained that it was his “staff” who first noticed the blistering. Again, the evidence of Mr Ullrich is preferred to that of Mr Dewey where there is a conflict.

THE REMAINING REPRESENTATIONS

  1. Section 82(2) of the 1974 Act is also an answer to so many of the remaining representations relied upon as took place prior to 20 March 2003, namely six years prior to the filing of the Application in the present proceeding.
  2. There remain for consideration, however, the remaining representations and those that are said to be “continuing representations”.
  3. There are a number of answers in response to each of these representations.
  4. First, and separate from any consideration of s 82(2), the state of the evidence relied upon by the Applicant is such that no conclusion can satisfactorily be reached that any of the representations were in fact made. Moreover, the form in which the parties sought to make out their respective cases was such that little reliance could be placed upon the Affidavit evidence alone. Some of that Affidavit evidence, not surprisingly, was the subject of objections taken during the course of the hearing. But of immediate relevance is the evidence of the Applicant.
  5. Principally amongst the evidence of conversations relied upon by the Applicant to establish its claim for relief pursuant to s 52 was the evidence of Mr Dewey. In respect to the representations said to have been made shortly after the China Grove II was launched, Mr Dewey in his Affidavit gave the following account of a conversation with Mr Ullrich:
Immediately, Peter came and inspected these blisters. After his inspection of the blisters, in conversation, Peter said to me in words to the effect: that he considered that the blisters were probably (he may have said ‘possibly’) due to an adhesion problem with the fairing in those areas; that the blisters may be due to a problem either with the fairing compound, or the mixing or application of the compound; that he was able to, and would fix the blisters; that it would be better to sail the yacht for a while to see if any more areas of blistering appeared, after which he would attend to the repair.

Mr Dewey thereafter in his Affidavit recounted the fact that the “... China Grove II was sailed until March 2002” when the vessel was again removed from the water and further repair work was undertaken. He then gave the following account of a conversation with Mr Ullrich at that time:

At the conclusion of the work, in a conversation that I had with Peter, Peter said to me in words to the effect: that he had repaired all the blisters; that he had cut back and around the blistered areas; that he had found sound adhesion in the fairing compound around the blistered areas; and, that he did not expect further problems.

Further blistering appeared and Mr Dewey then gave this account of subsequent conversations with Mr Ullrich:

It is my recollection that I contacted Peter and advised him of the emergence of further blisters on a couple of occasions after I first noticed the re-emergence of blisters, and during the following period of months. While I do not have a precise recollection of the detail of these contacts, it is my recollection that the substance of the exchange in these contacts with Peter was the same – to the effect that the yacht should continue to be sailed to allow the emergence of all blisters that might appear, and that Peter would then carry out the repairs all in one go.

A conversation with Mr Ullrich in late May or early June 2007 deposed to in Mr Dewey’s Affidavit was rejected. Counsel for the Applicant availed himself of the leave granted to call further oral evidence, but the oral evidence did not expose any further representation said to have been made. The evidence of Mr Howard recounting what Mr Dewey had in turn told him was properly the subject of objection. Mr Howard’s evidence, in any event, took the matter no further.

  1. Such evidence, it is considered, amounts to no more than a statement on the part of Mr Ullrich that he would undertake repairs. And, however the representation may be expressed in the Further Amended Statement of Claim, there is no basis for concluding that what Mr Ullrich did say to either Mr Howard or Mr Dewey was misleading or deceptive.
  2. The second difficulty confronting the Applicant in respect to these outstanding representations is the fact that the evidence of the Applicant did not go unanswered.
  3. Thus, for example, and with reference to what the Applicant characterised as “the 2007 representations”, Mr Ullrich gave an account of his conversation with Mr Dewey and the following account of the conversation he had shortly thereafter with Mr Howard:
No more than some 20 minutes later, Sean Howard telephoned me. I told Mr Howard what I had told Mr Dewey, and he claimed to have not spoken to Mr Dewey and to not have known of my comments. He asked me about the last years of business, and about the trimaran that I had just launched. I offered to organise labour to grind out and refill the blisters and he replied to the effect “Don’t worry about it, you’re going away, we can take care of it”. During the course of this telephone conversation, he also said words to the effect “The blisters don’t worry me as I don’t notice them, but I tell guests to make comments on the blisters to Cedric just to annoy him”. I understood from this phone conversation with Mr Howard that that was the end of the matter and nothing further was required of me respecting the China Grove. I deny that Mr Howard said words to me to the effect that he had acted on my suggestion to continue sailing the yacht, and that he had not pursued the matter concerning the blisters earlier because I said that I would carry out repairs when the boat was hauled out for its repainting. A conversation to that effect did not take place.

  1. Such cross-examination as did take place in respect to the representations did not advance the case for the Applicant. Thus, for example, the following exchange between Mr Dewey and his cross-examiner seemed to accept the position that all that had been said by Mr Ullrich was that he was trying to fix the blistering problem:
... What he said was, “Look, we’ve got a problem and I’m going to try and fix it”, didn’t he?
---That was all along, yes.

Correct. It was no more or no less than that, was it, that, “We’ve got this blistering problem and I’m going to try and fix it”?---Yes.

  1. The repairs being undertaken by Mr Ullrich, it is concluded, were undertaken — as he put it — as a “gesture of goodwill”.
  2. None of these conversations relied upon by the Applicant can properly be characterised as conduct that is “misleading or deceptive or ... likely to mislead or deceive”. None of these representations which are pleaded to have contravened s 52 have been made out.

THE CAUSE OF THE BLISTERING

  1. Given the conclusions reached in respect to contractual liability and liability arising by reason of s 52 of the 1974 Act, it is unnecessary to resolve the competing claims as to the cause of the blistering. It is, nevertheless, prudent that this issue be briefly addressed. The issue was the subject of considerable evidence and written submissions.
  2. It was not contended that the blistering could be attributed to fair wear and tear or the manner of operation of the vessel. Such was the evidence of Mr Colson, a marine surveyor called on behalf of the Applicant and a person with over 30 years’ experience in the boatbuilding industry.
  3. The blistering was most probably caused by what the experts described as “excess styrene monomer”. The three basic resins used in boatbuilding are polyester, vinylester and epoxy. Both polyester resin and vinylester resin use a catalyst to cause the resin to cure and harden. It is in the curing reaction in these resins that styrene monomer is produced and it passes off in gaseous form as the laminate cures.
  4. There seemed to be little dispute that the blistering was caused by some chemical reaction that occurred beneath the primer and the painted surface of the hull. Mr Ullrich, for example, concluded:
The fact that the location of the blisters, other than on the sheer-line, were random; and the fact that they had taken in excess of three years from the application of the fairing to become apparent, suggested to me that the problem was a chemical issue in some way linked to the substrate.

The reference to the sheer-line assumes no real importance. Shortly after the China Grove II was launched and delivered from Gosford to Mr Howard at Neutral Bay, Mr Dewey had independently had a blue sheer-line applied. Mr Ullrich was of the view that such a dark colour would have occasioned excessive temperatures, leading to blistering. Indeed, it would appear that blistering did occur along this line of the vessel. But that sheer-line obviously did not account for the balance of the blistering.

  1. So much may be understood by a lawyer, at least one not familiar with boats. A lawyer could also readily grasp the extent of the problem and the dislocation of the outer layers of the hull from that which was underneath. One exhibit, Exhibit A11, comprised physical examples of the outer layers that had become dislodged.
  2. The more specific reason for the blistering, however, was the subject of competing expert evidence. At least three possible sources of the blistering emerged, namely:

(i) the four layers of “e glass” on the outermost side of the hull comprising the “outside skin laminate”, those layers at the hull bottom being described as “1145 triaxial e glass @ 90,45,45”, with there placed over the top of that layer in sequence “800 undirectional e glass @ 0”; “1145 triaxial e glass @ 0,45,45” and “330 CSM”.

(ii) the use of “Q cell thickened waxed polyester resin” as the interface between the fairing compound, being “microlight thickened epoxy resin”, and the outside skin laminate, being the “4 plys of e-glass in unwaxed vinyl ester resin”; and

(iii) the outside surface of the fairing compound, being the surface of the fairing compound facing the epoxy sealer, being “unthickened epoxy resin”.

  1. It was to assist in the comprehension of this evidence that the experts helpfully collaborated during the course of the hearing and jointly prepared the following diagram depicting the layers of material used in the building of the China Grove II from the outside of the hull (helpfully described as the “water side”) to the inside of the hull:

2010_13601.png

  1. With reference to this diagram, Mr Stanyon’s evidence became easier to understand. Mr Stanyon is a naval architect and the person who designed the China Grove II. His experience in boatbuilding goes back over many years to when he was employed between 1982 and 1985 as a Trainee Design Draftsman/ Technical Officer with the Department of Defence. The problem, according to Mr Stanyon, was attributable to the application by Mr Ullrich of “a polyester resin, over the cured vinyl ester laminate substrate, as the ‘interface’ between the substrate and the fairing compound that he had chosen to use”.
  2. This use of the polyester resin, according to Mr Stanyon, created “a weak link”. In reaching this conclusion, Mr Stanyon advanced what he characterised as “basic rules” about the inter-use of resins, namely:
    1. Generally, epoxy may be placed over cured vinylester or polyester, with expectations of an excellent bond for bonding and laminating, with correct surface preparation.
    2. Generally, vinylester may be placed over cured polyester, with expectations of a good bond for further laminating (but not for structural bonding), with correct surface preparation.
    1. Generally, polyester should not be placed over cured epoxy or vinylester, due to polyester’s known poor bonding characteristics in both laminating and bonding applications. (Polyester is recognised as a laminating resin, but not as a glue).
  3. It is this explanation which is accepted. It was the use of the polyester resin over the vinylester laminate that caused the blistering. Rejected is the submission on behalf of the Respondents that Mr Stanyon’s evidence “was infected by his perceived willingness to do all that he could to assist the case of the Applicant ...”. It is considered that he gave his evidence in a balanced manner and in a manner which he thought responsive to the questions being advanced.
  4. But, although this is most probably the source of the blistering, there is insufficient evidence upon which any conclusion can be reached that Mr and Mrs Ullrich did anything other than bring to the construction of the China Grove II a considerable wealth of experience. No finding can be made that they did anything other than build the China Grove II in accordance with the then-best practice of boatbuilding. Although there was obviously a problem which manifested itself in the blistering, Mr and Mrs Ullrich built the boat in the manner specified by Mr Stanyon. It was his specification that there were to be the four layers or plys of unwaxed vinylester resin. It was Mr Ullrich’s decision to place on top of those four layers the waxed polyester resin. Notwithstanding this, Mr and Mrs Ullrich built the vessel specified by Mr Stanyon in a proper and workmanlike manner. Mr Colson gave evidence as to the choice of materials made by Mr Ullrich during the course of construction and the testing undertaken by Mr Ullrich and maintained that it was open to Mr Ullrich to pursue “other options”. But he did agree with the proposition that what Mr Ullrich did was “entirely appropriate”. The following exchange thus occurred with his cross-examiner at the conclusion of his evidence:
... From your knowledge there is nothing that you can point to, as to the selection of materials by the boat builder or the character of his workmanship that was in any way deficient. That’s the position, isn’t it?---There were other options.

Yes, but in terms of what he did, Mr Colson, it was entirely appropriate, wasn’t it ?---Yes.

This conclusion is also supported by the evidence of Mr Dovell, who holds a Bachelor of Science, Mechanics and Material Science and a Master of Engineering, Naval Architecture and Offshore Engineering. He was of the view that the epoxy resins should have been used throughout and that to build the vessel using vinylester resins involved “several risks”. But, given what Mr Dovell understood to be “the owners [sic] decision to use vinyl ester resin, and given the light hull shell skins as specified in the hull laminate schedule”, Mr Dovell was further of the view that Mr Ullrich’s decision to use “the wet-edge technique using un-waxed resin was the correct choice ...”.

  1. Not surprisingly, Mr and Mrs Ullrich also maintained that they applied to their tasks the techniques prevailing at the time of construction. Mr Ullrich thus referred to the “adhesion tests” he carried out at the time and maintained that “they all appeared to be satisfactory”. In an email to Mr Howard from Mrs Ullrich in October 2007 she also maintained that “[t]he interface technique used during application of the fill mediums in 1998 was the subject of much discussion and test panel work and was definitely the most effective of the technology available at the time”.

LOSS AND DAMAGE

  1. Given the conclusions reached as to liability, it is also unnecessary to resolve any question as to loss or damage. It may be prudent, however, to also briefly record reasons for concluding that the cost of repairing the blistering would have been assessed in the amount claimed, namely $328,589.15. The evidence as to quantum was within a confined compass and was relatively unchallenged.
  2. Invoices for costs incurred in the re-fairing of the China Grove II disclosed the total costs incurred to be $328,589.15.
  3. These moneys were paid to the following entities in respect to the work identified as follows:
Ocean Spray Marine
The principal contractor responsible for the re-fairing
$280,918.00
Oz Peel
Carrying out the main peel of the existing fairing compound
$25,084.40
Blackline Shipping
Removal of the port lights, the removal of which was necessary to facilitate aspects of the re-fairing
$2,625.25
River City Access and Scaffold
Supplying the scaffold erected around the vessel
$17,836.50
Marine Matters
A marine surveyor for reports/quotations
$528.00
KPS Maritime
A marine surveyor for reports/quotations
$1,200.00
East Coast Yacht Finishing
Quotation
$396.00

Total
$328,589.15

The invoices for such work were annexed to an Affidavit of Mr Dewey. The written list of objections prepared by Senior Counsel for the Respondents in respect to all of the Affidavit evidence of the Applicants, and in particular to Mr Dewey’s Affidavit, took no objection to the evidence of costs incurred advanced by Mr Dewey. Unlike the remaining Affidavit evidence of the Applicant, the course plotted on behalf of the Respondents was to seek to have the objections in respect to parts of Mr Dewey’s Affidavits resolved prior to the commencement of his cross-examination. No objection was then taken to the invoice evidence. Nor was there any cross-examination of Mr Dewey in respect to any of the work undertaken to effect the repairs or the costs incurred.

  1. Mr Allen also gave evidence as to the repairs undertaken. In August 2006 Mr Allen was retained to provide a quote for costs to be incurred in the then-scheduled priming and repainting of the vessel. Blistering on the China Grove II was then apparent to Mr Allen, but his quote did not include any amount to remedy that blistering. The quote expressly stated: “[o]riginal boat builders to remedy hull blistering”. The work subsequently undertaken to remedy the defects and to repaint the vessel was carried out pursuant to an agreement executed on 6 December 2007. The costs incurred in respect to the provision of scaffolding were greater than those quoted in August 2006, presumably because the vessel was out of the water for a longer period of time than contemplated the previous year and because the scaffolding was also required for that longer period. But there was no real suggestion in the cross-examination of Mr Allen that any of the costs now claimed by the Applicant were not directly attributable to the need to repair the blistering and thereafter repaint the China Grove II. Nor was there any challenge to his opinion that “... the only proper and sufficient way to rectify the problem was for the whole of the fairing to be removed and redone”.
  2. The written submissions filed on behalf of the Respondents also direct attention to so much of the repair work as related to the transom and bulwarks which blistered. Those areas of the vessel were said to have been constructed of epoxy materials manufactured by Awlgrip. That product is further said to contain “... a warning from the manufacturer that constant contact with moisture will cause this phenomenon”. Had the Respondents wished to pursue this as a reason for reducing the amount claimed by the Applicant by any significant amount, it may have been expected that some cross-examination (even limited cross-examination) would have been appropriate. No reduction in the amount claimed by the Applicant would have been allowed had damages been awarded.
  3. Had the Applicant been entitled to recover loss or damage, that loss or damage would have been assessed at $328,589.15.
  4. The Applicant also brought a claim for interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the event that liability was established. Section 51A(1) of that Act provides as follows:
In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

(a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or

(b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.

As the terms of that provision make clear, an order for interest is to be made “... unless good cause is shown to the contrary ...”. The purpose of provisions such as s 51A is to compensate an applicant for the loss suffered in being kept out of its money or damages: HK Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795 (“HK Frost”) at [6] per Finn J. Ordinarily it is for a respondent to establish “good cause ... to the contrary”: HK Frost at [7]. Finn J there also expressed the view that, in certain circumstances, “... the period for which the interest award is made can properly be adjusted if to allow interest for the whole period for which it could otherwise be ordered would work an injustice to the respondent in the circumstances...”: HK Frost at [11]. An order may be made pursuant to s 51A even though the claim for interest is only made after judgment: Hanave Pty Ltd v LFOT Pty Ltd [2004] FCAFC 180 at [36], [2004] FCAFC 180; 136 FCR 566 at 575 per Kiefel J (Wilcox and Allsop JJ agreeing at [6]).

  1. Had an award of damages been made in favour of the Applicant, an order would have been made for the payment of interest pursuant to s 51A as from the date when the monies were paid for the repairs to the China Grove II.

CONCLUSIONS

  1. It is thus considered that the Applicant’s claim to relief founded upon either the contract as made in 1998 or the subject of novation in 2001 fails. It is further considered that the Applicant’s claim to relief founded upon s 52 of the 1974 Act fails.
  2. The Application is to be dismissed.
  3. There is no reason why the Applicant should not pay the costs of the Respondents.

ORDERS

  1. The Orders of the Court are:
    1. The proceeding be dismissed.
    2. The Applicant is to pay the costs of the Respondents.
I certify that the preceding one hundred and twenty-three (123) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.

Associate:


Dated: 1 March 2010

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