Gough & Gilmour Holdings Pty Ltd v Peter Campbell Earthmoving Pty Ltd [2009] NSWCA 37 (11 March 2009)

Last Updated: 12 March 2009

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Gough & Gilmour Holdings Pty Ltd v Peter Campbell Earthmoving Pty Ltd [2009] NSWCA 37


FILE NUMBER(S):
40223/07

HEARING DATE(S):
16 February 2009

JUDGMENT DATE:
11 March 2009

PARTIES:
Gough & Gilmour Holdings Pty Ltd (appellant/cross respondent)
Peter Campbell Earthmoving Pty Ltd (respondent/cross appellant)

JUDGMENT OF:
McColl JA Macfarlan JA Sackville AJA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 20491/00

LOWER COURT JUDICIAL OFFICER:
James J

LOWER COURT DATE OF DECISION:
9 March 2007

LOWER COURT MEDIUM NEUTRAL CITATION:
[2007] NSWSC 172

COUNSEL:
F C Corsaro SC/D F Villa (appellant/cross respondent)
N A Cotman SC/I L Griscti (respondent/cross appellant)

SOLICITORS:
Kennedys (appellant/cross respondent)
Coleman & Greig Solicitors (respondent/cross appellant)

CATCHWORDS:
CONTRACTS – general principles – construction and interpretation of contracts – contract for maintenance and servicing of earthmoving machines – whether appellant warranted that machines would be available for quantifiable minimum number of hours
APPEAL AND NEW TRIAL – appeal – whether trial judge omitted to address pleaded defences – whether proceedings should be remitted to trial judge

LEGISLATION CITED:
Trade Practices Act 1974 (Cth)

CATEGORY:
Principal judgment

CASES CITED:
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Oscar Chess Ltd v Wiliams [1956] EWCA Civ 5; [1957] 1 WLR 370
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

TEXTS CITED:


DECISION:
1. If the parties reach agreement on all or any of the outstanding issues in the proceedings, the parties to file agreed short minutes of order giving effect to the agreement within fourteen days.
2. If the parties do not reach agreement on costs or the form of the orders prepared in the judgment, the respondent (PCE) to file written submissions on each of these issues within fourteen days.
3. The appellant (G&G) to file written submissions in reply within a further seven days.
4. Each of the written submissions referred to in orders 2 and 3 not to exceed five double-spaced pages in length.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40223 of 2007

McCOLL JA

MACFARLAN JA

SACKVILLE AJA

11 March 2009

GOUGH & GILMOUR HOLDINGS PTY LTD v PETER CAMPBELL EARTHMOVING PTY LTD

Judgment

1 McCOLL JA: I agree with Sackville AJA.

2 MACFARLAN JA: I agree with Sackville AJA.

3 SACKVILLE AJA: This appeal arises out of a dispute between the appellant (“G&G”), which carries on business selling and servicing Caterpillar earthmoving equipment, and the respondent (“PCE”), an earthmoving contractor. G&G and PCE entered into so-called FOCUS Contracts in August and November 1997 relating to the maintenance and repair of various items of equipment acquired by PCE through a corporation associated with G&G (the “August FOCUS Contracts” and “November FOCUS Contracts”, respectively).

4 “FOCUS” is an acronym for “Fixed Cost Underwriting System”. This expression refers to an arrangement whereby maintenance and servicing work is carried out on an earthmoving machine according to a pre-determined schedule, ideally before any part fails or breaks down. Under the FOCUS Contracts a customer agrees to make payments fixed by reference to a number of operating hours specified in the contract as the term of the agreement. The FOCUS Contracts at issue in the present proceedings all specified the term of the contract to be 12,000 engine hours.

ISSUES

5 G&G purported to terminate the FOCUS Contracts on 22 October 1998 by reason of PCE’s non-payment of a sum of $436,322, said to be due by it to G&G under the contracts. The August FOCUS Contracts made no specific provision for termination in consequence of breach. The November FOCUS Contracts expressly provided that each party should have a right of termination in specified circumstances. The litigation appears to have been conducted on the basis that all FOCUS Contracts were effectively terminated on 22 October 1998, but that (as the November FOCUS Contracts expressly provided) the termination did not affect the legal rights or remedies either party had against the other in respect of any subsisting breaches of contract. In any event, no issue has been raised in the proceedings concerning the effect of G&G’s termination of the FOCUS Contracts.

6 The principal issues presented by the appeal are whether:

· the primary Judge correctly construed the terms of the FOCUS Contracts as requiring G&G to ensure that each machine subject to the contracts would achieve a “high degree of availability” for PCE’s earthmoving activities;
· the primary Judge should have found that the FOCUS Contracts, properly construed, required G&G to ensure that each machine achieved minimum available hours for earthmoving operations and, if so, how the minimum number of hours is to be calculated; and
· his Honour’s assessment of damages of $1,001,483.50 plus interest in favour of PCE, awarded by reason of G&G’s breach of the provision requiring a high degree of machine availability, should be set aside.

PROCEDURAL HISTORY

7 G&G commenced proceedings against PCE on 13 September 2000, well over eight years ago. G&G sued PCE to recover moneys said to be due and unpaid under the FOCUS Contracts.

8 PCE filed a cross-claim against G&G in or about March 2001. The cross-claim pleaded, among others, causes of action based on:

(i) G&G’s alleged misleading and deceptive conduct in making false or unfounded pre-contractual representations, in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“TP Act”);

(ii) G&G’s alleged breaches of terms of the FOCUS Contracts requiring it to ensure that PCE’s machines would achieve a high rate of availability; and

(iii) apparently in the alternative to (ii), G&G’s breaches of terms of the FOCUS Contracts requiring it to ensure that each machine achieved a quantifiable number of minimum available hours for earthmoving operations.

9 The trial took place over 24 hearing days between March and May 2005. At the conclusion of the trial, the parties invited the primary Judge to record his findings on 12 separate “Issues for Preliminary Determination”. His Honour then delivered what he described as a “preliminary judgment” addressing each of the 12 issues.

10 In the preliminary judgment, his Honour recorded that G&G had settled its claims against PCE, except for one outstanding matter which his Honour addressed in the judgment. No issue arises on the appeal concerning that matter.

11 Most of the time at the trial was taken up by PCE’s cross-claim. In substance, his Honour found that:

· contrary to PCE’s submissions, G&G did not warrant in the FOCUS Contracts that PCE’s machines would achieve a minimum “availability rate”, calculated by reference to percentages set out in certain spreadsheets attached to the FOCUS Contracts;
· each of the FOCUS Contracts did, however, contain an express or implied term by which G&G warranted that PCE’s machines would achieve a “high degree of availability” (“High Availability Warranty”);
· G&G did not make certain of the representations alleged by PCE in the cross-claim and PCE had not relied on other representations that G&G had made;
· nonetheless, G&G made certain representations as to future matters that could have induced PCE to enter into the FOCUS Contracts;
· G&G had not established that it had reasonable grounds for making some of the representations as to future matters (cf TP Act, s 51A); and
· on the available evidence, his Honour could not determine whether G&G had breached the High Availability Warranty.

12 It was necessary to hold a second hearing to deal with outstanding issues. The second hearing took place over eight days, four in May 2006 and four in November 2006. His Honour delivered judgment on 9 March 2007 (“second judgment”) and made orders on 3 April 2007.

13 In the second judgment, the primary Judge noted that PCE had originally submitted that it was entitled to damages assessed by reference to the differences between percentages set out in the spreadsheets attached to the FOCUS Contracts and the “actual machine availability rates” achieved by PCE. In the light of the preliminary judgment, PCE had abandoned this claim. It now claimed damages for breach of the High Availability Warranty.

14 The primary Judge held, contrary to G&G’s submissions, that the High Availability Warranty was not too vague to be enforced. In his view, “availability” was a concept that, although not mathematically precise, was capable of being understood and applied, both for the purpose of determining whether the warranty had been breached and for the purpose of assessing damages. His Honour found that G&G had breached the High Availability Warranty in each FOCUS Contract because the rates of availability actually achieved for the machines were lower than:

“the lower limit of the range of rates of availability which could be regarded as satisfying the condition that they be ‘high’ rates of availability” (at [24]).

15 The primary Judge held that PCE should recover damages assessed by reference to the difference between:

(i) the hours PCE wished to put the machines to productive use (after allowing for down time due to bad weather or other enforced idleness); and

(ii) the actual hours worked by each machine.

This formula was an acceptable method of assessing damages because, in his Honour’s opinion, PCE wanted to utilise each machine for a number of hours that was less than the lower limit of a “high degree of availability”. The primary Judge proceeded to detailed calculation of damages for breach of warranty in a manner that it is not necessary to recount.

16 His Honour also held that PCE had failed to establish that it was entitled to any damages under s 82 of the TP Act by reason of G&G’s misleading and deceptive conduct. As no challenge is made to this finding, no further reference need be made to the causes of action under the TP Act.

17 The primary Judge made orders on 3 April 2007. He assessed damages in respect of G&G’s breaches of the High Availability Warranty in the amount of $1,001,483.50, plus interest to be determined. His Honour provided for one outstanding unresolved claim by PCE to be referred to a referee for inquiry and report. Otherwise he dismissed the cross-claim.

18 Further orders were made by consent on 3 September 2008, apparently after the referee had reported. Judgment was entered for PCE on the cross-claim for $2,129,881.65 inclusive of interest. The judgment was stayed pending the outcome of the appeal.

THE APPEAL AND CROSS-APPEAL

19 G&G appealed to this Court by leave. It was necessary for G&G to obtain leave to appeal because the orders made by the primary Judge on 3 April 2007 were technically interlocutory.

20 In its amended notice of appeal, G&G seeks to set aside the orders made by the primary Judge on 3 April 2007 in relation to the cross-claim, although it would seem that the orders G&G intends to challenge are actually the final orders made by his Honour on 3 September 2008. In any event, G&G asks this Court to substitute for the orders made by the primary Judge, judgment for PCE in the amount of $184,534.25 (presumably an amount as to which there is no dispute). Alternatively, G&G asks that the matter be remitted to the primary Judge to determine certain defences to the cross-claim which, according to G&G, his Honour failed to address in either the preliminary judgment or the second judgment.

21 PCE filed a notice of cross-appeal challenging the primary Judge’s finding that the percentage levels of availability specified in the spreadsheets attached to the FOCUS Contracts did not create contractual warranties. PCE also challenges his Honour’s failure to find that G&G had breached these warranties and that G&G was therefore liable in damages to PCE. The orders sought by PCE in its notice of cross-appeal appear to be no different from the orders made in its favour by the primary Judge.

22 Allsop P gave directions for the parties to prepare a joint statement of issues to assist the Court in dealing with the appeal and cross-appeal. The parties prepared a joint statement, but instead of refining the issues (as Allsop P intended) the parties identified a substantial set of issues and sub-issues which they invite this Court to determine on the appeal. As the lengthy history of the case testifies, identifying many separate issues and sub-issues for determination, far from shortening or simplifying the proceedings, may create unnecessary complexity and deflect attention from the critical questions requiring resolution.

23 Notwithstanding the substantial set of issues formulated by the parties, the critical issue on this appeal is the proper construction of the FOCUS Contracts and, in particular, the nature of the warranties, if any, given by G&G as to the availability of earthmoving machines. Once the question of construction is resolved, a number of the issues addressed by the primary Judge and debated by the parties on the appeal fall away.

FOCUS CONTRACTS

24 In August 1997, G&G and PCE entered into four separate FOCUS Contracts. The August FOCUS Contracts related to four machines acquired by PCE, namely two used Caterpillar 657E scrapers, a bulldozer and an excavator. The two scrapers were fitted with bowls that had the dimensions and capacity to carry coal, although modifications had been made to the bowls before PCE used them for earthmoving purposes.

25 Each of the machines was allocated a separate number. For example, the two scrapers were allocated the numbers P48 and P49, respectively. All four August FOCUS Contracts were in similar form. Both at trial and on the appeal, the FOCUS Contract for scraper P49 (“P49 Contract”) was taken to be representative of the three contracts in issue (there was no dispute as to the contract concerning the excavator). Whatever conclusions are reached in relation to the construction of the P49 Contract, subject to one possible qualification referred to in par 27 below, will apply to the other August FOCUS Contracts.

26 In November 1997, PCE entered into four further FOCUS Contracts with G&G. Two of the November FOCUS Contracts related to used 657E scrapers (P50 and P51, respectively) and two to tractors. The four November FOCUS Contracts were in similar form, but were markedly different from the August FOCUS Contracts. The contract for scraper P50 (“P50 Contract”) was taken at trial and on the appeal to be representative of all the November FOCUS Contracts. Again, only three of these contracts were relevant to the proceedings, as there was no dispute concerning the fourth.

27 The qualification referred to in par 25 above, is that the Court was informed, for the first time, in PCE’s reply to G&G’s supplementary written submissions, made by leave after the hearing, that the figure specified for “Annual available hours” in the FOCUS Contracts relating to the bulldozers was different from the figure for “Annual available hours” in the FOCUS Contracts relating to the scrapers. However, the FOCUS Contracts relating to the bulldozers were not included in the appeal books and were not referred to in argument in the appeal. This judgment proceeds on the basis expressly accepted by the parties at trial and on appeal, namely that the P49 Contract is representative of the August FOCUS Contracts and the P50 Contract is representative of the November FOCUS Contracts.

P49 Contract

28 The P49 Contract was apparently drafted without the intervention of a lawyer. It consists of nine unnumbered pages, but as a matter of convenience was numbered at the trial. The heading to the P49 Contract simply refers to the scraper and its serial number. Elsewhere the P49 Contract describes itself as a “Fixed Operating Cost Agreement”.

29 The first two pages of the P49 Contract contain three headings as follows:

“1. BACKGROUND

2. CHAIN OF COMMAND

3. ADMINISTRATION PROCEDURES.”

30 Under “1. BACKGROUND” the following appears:

“Contract Term : 12,000 Engine hours

Location : GUNNEDAH

Customer Contact : Peter Campbell

Service Dept Sign Off : George Shearman”

31 It is not necessary to set out the material under the second or third headings, except to note that Mr Shearman was to invoice PCE on a monthly basis after “obtaining the Engine Hours in the machine from the customer at the end of each month”. The amount to be invoiced to PCE was to be equal to:

“HOURLY MAINTENANCE FEE x ENGINE HOURS FOR THE MONTH.”

32 The third and fourth pages of the P49 contract are as follows:

“[Page 3]

Gough & Gilmour Holdings Pty Ltd, in recognition of Peter Campbell Earthmoving Gunnedah to provide [sic] a Fixed Operating Cost for a Caterpillar 657E Scraper. The agreement would be current for a period of 12,000 engine hours from the date of commencement. This agreement represents a comprehensive product support programme which will:-

1. Provide a High Rate of Machine Availability.

by utilising advanced diagnostic techniques and tooling, unscheduled down time will be minimised. Our highly efficient service facilities and trained staff, through use of resources such as Scheduled Oil Sampling, technical Analysis Inspections and the Service Information System, will ensure that scheduling planned maintenance activities is effective in keeping production maximised.

2. Reduced Operating Costs.

Regular maintenance and Inspections ensure that planned repairs are undertaken at the optimum point. ie. BEFORE FAILURE, eliminating costly after failure repairs.

3. Enable Peter Campbell Earthmoving to accurately predict operating costs.

All maintenance and repairs resulting from reasonable wear are included in this contract price. Exceptions are detailed in “Peter Campbell Earthmoving Responsibilities”.

FIXED OPERATING COST

GOUGH & GIMORE HOLDINGS PTY LTD AND

PETER CAMPBELL

FIXED COST OF $47.69 PER OPERATING HOUR

FOR A PERIOD OF 12,000 ENGINE HOURS

[Page 4]

This Fixed Cost Agreement has been calculated on the basis:

· The machine is permanently located at Peter Campbell E/M’s Gunnedah base and will be used as specified on original installation.
· All services will be carried out on site or at Gough & Gilmours nearest Facility.
· Planned maintenance will be carried out between 7.30 am & 4.00 pm on weekdays.
· Where necessary service will be provided for repairs & breakdowns on a twenty four (24) hour basis to ensure maximum machine availability.
· Agreement period is for 12,000 engine hours.

We will require to review this Fixed Operating Cost Agreement on an annual basis. Should there be [any] increases in:-

(i) Gough & Gilmour’s Holdings Pty Ltd published hourly labour rate.

(ii) The Caterpillar recommended parts price list.

Payment for service would be on a monthly basis and would be a multiple of the cost rate & the actual monthly service meter units of work.” (Emphasis added.)

33 Page 5 of the P49 Contract is headed “PETER CAMPBELL RESPONSIBILITIES” and sets out the work for which PCE is responsible. The items include maintenance and replacement of tyres; replacement or repairs as a result of accident or operator abuse; and work required as a result of the general nature of the job environment or unexpected atmospheric conditions. Page 5 was signed by Mr Campbell for PCE.

34 Page 6 of the P49 Contract sets out “GOUGH & GILMOUR HOLDINGS RESPONSIBILITIES”, as follows:

“• To carry out service intervals of 250 hour, 500 hour, 1000 hour and 2000 hour S.M.U.’s as per the Manufacturers Recommendations.

• Supply all filters, seals etc for the 250 hour, 500 hour, 1000 hour and 2000 hour Preventative Maintenance Kits.

• To supply all lubricants and fluids necessary for compartment changes and top ups except for in the case of blown hydraulic hoses.

• To carry out Scheduled Oil Sampling and Infra-Red Analysis at intervals as specified.

• Supply and maintenance of ejector apron systems.

• To be responsible for the correction of all mechanical malfunctions, other than those specified in ‘Peter Campbell Responsibilities’.”

This page was signed by Mr Winkel for G&G.

35 Page 7 is important. It was described in argument as one of three pages of “spreadsheets” attached to the P49 Contract. Page 7 is reproduced below:

[<img src="/scjudgments/2009nswca.nsf/files/2009NSWCA371.gif/$file/2009NSWCA371.gif" alt="Table showing summary of proposed contract, cost analysis and service work schedule">]

36 Page 8 is the second of the three so-called spreadsheets. It has a number of columns which provide information relating to various kinds of work to be performed by G&G. The work is classified into four categories: “MINORS”; “MAJORS”; “PM SERVICES”; AND “MISCELLANEOUS”. The columns record quantity (of the particular parts or servicing work required); frequency (specifying when, by reference to operating hours elapsed, the work is to be done); times scheduled (how often the particular procedure is to be undertaken during the 12,000 hours of the contract); the on-site hours required for each procedure (during which the machine cannot be used); the off-site hours required (during which time the machine is to be capable of operating because G&G is to provide, if necessary, replacement parts); parts unit cost; total cost per frequency; and total cost for the various categories of work.

37 Page 9 contains three charts showing, respectively, cumulative engine hours, cumulative engine hours and cumulative contract hours. The charts are derived from figures to be found on page 7 of the P49 Contract.

P50 Contract

38 The P50 Contract takes the form of a printed template that provides for the details of the particular transaction to be inserted at designated points. The template appears to have been drafted with legal input. Like the P49 Contract, the P50 Contract consists of unnumbered pages. However, the 13 pages were consecutively numbered at the trial.

39 The first page is signed in the appropriate boxes on behalf of both parties. The body of the first page states that G&G has offered:

“to maintain machine(s) on a Managed Maintenance basis on the terms set out in this Agreement and the Schedules attached to this Agreement”.

Page 1 also states that the Schedules set out six specified matters including the “work which will be carried out by [G&G]” and “the responsibilities of the Customer”. Clause 6 states that “the customer agrees to the terms set out in this Agreement, including the Schedules”.

40 Pages 2 to 5 of the P50 Contract set out a further 15 numbered clauses, including the following:

“1. Term

The term of this Agreement is for the operating hours as set out in Schedule 1.

...

4. Site and Conditions of Operation

The machine will be operated only at the site shown in Schedule 1, strictly according to the Application and Operation Conditions set out in Schedule 6.

5. Maintenance

Gough & Gilmour’s maintenance obligations are set out in Schedule 2. The Customer’s maintenance obligations are set out in Schedule 3.

In order for the costs to be guaranteed by Gough & Gilmour under the maintenance Agreement, the Customer must adhere strictly to the terms of this Agreement ... The Customer must also provide access to the machine for Gough & Gilmour to undertake all work strictly according to the maintenance timetable set out in Schedule 2 ...

...

10. Events of Default

... On the occurrence of any of the events referred to in paragraph A below, Gough & Gilmour will be entitled to terminate the Agreement. On termination, all moneys then owing under the terminated agreement will be immediately due and payable. On the occurrence of any of the events referred to in paragraph B below, Customer will be entitled, at its option, to terminate the Agreement.

...

Exercise of the right of termination by either party will not prejudice the legal rights or remedies either party may have against the other in respect of any breach of the terms of the Agreement.

(a) Protection for Gough & Gilmour

(1) Customer fails to pay any amount payable under the Agreement when due;

(2) Customer fails to observe or perform any other of its material obligations under the Agreement ...

...

(b) Protection for Customer

(1) Gough & Gilmour fails to pay any amount payable under the Agreement (if any) when due;

(2) Gough & Gilmour fails to observe or perform any other of its material obligations under the Agreement and, if such failure is capable of remedy, it is not remedied to the reasonable satisfaction of Customer within 7 days of Customer notifying Gough & Gilmour in writing of such failure ...

15. Entire Agreement

The terms set out in this Agreement and its attachments constitute the entire agreement of the parties and supersede all prior agreements understandings and negotiations.”

41 Schedule 1 (page 6) sets out machine and customer details, although some spaces are left blank. The machine hours at the start of the contract are recorded as 16,500 and at the finish as 28,500. The hourly rate is specified as $54.28.

42 Schedule 2 (page 7) sets out G&G’s responsibilities in tabular form, while Schedule 3 (page 8) sets out the customer’s responsibilities, also in tabular form. Schedule 4 (page 9) (wrongly referred to in cl 4 on page 6 as Schedule 6) deals with “Application and Operation Standards”. Page 10 appears to continue the catalogue of customer responsibilities, perhaps paginated out of order.

43 Page 11 of the P50 Contract is in substantially the same form as page 7 of the P49 Contract. As in the P50 Contract, the number of “Contract Engine Hours” is recorded as 12,000, while the number of the “Annual available hours” is said to be 3120. “The Annual cost analysis” on page 11 sets out the following information in columnar form:

[<img src="/scjudgments/2009nswca.nsf/files/2009NSWCA37.gif/$file/2009NSWCA37.gif" alt="Table showing contract hours">]

44 Pages 12 and 13 of the P50 Contract are the counterparts to pages 8 and 9 of the P49 Contract.

CONTRACTUAL STATUS OF THE SPREADSHEETS

45 The primary Judge made a number of findings relevant to the contractual status of the so-called spreadsheets attached to the FOCUS Contracts:

· in each case, the spreadsheets were physically incorporated into a single document presented by G&G to PCE;
· Mr Campbell of PCE read the spreadsheets prior to PCE entering into the August FOCUS Contracts;
· the body of the FOCUS Contracts did not fully state G&G’s responsibilities under the agreement and it was necessary to refer to the spreadsheets to ascertain the full extent of those responsibilities;
· the cost per operating hour payable by PCE was derived from the calculations in the spreadsheets; and
· cl 4 on page 4 of the P49 Contract and cl 13 of the P50 Contract made it necessary to refer to the spreadsheets to determine the number of labour hours to which any increase in the hourly rate of labour would have to be applied and to ascertain the parts to which any increase in price would need to be applied.

46 The primary Judge explicitly found that the spreadsheets attached to the November FOCUS Contracts formed part of the contractual arrangements between the parties. His Honour made no such explicit finding in relation to the August FOCUS Contracts. However, it is clearly implicit in his reasoning that he regarded the spreadsheets as part of the contractual arrangements embodied in the P49 Contract (although he did not accept that the percentage availability figures recorded on page 7 were intended to create warranties by G&G). On the appeal, G&G accepted this reading of the judgment, since its notice of appeal challenges the finding that “the spreadsheets attached to the August FOCUS Contracts formed part of the agreement between the parties”.

P49 Contract

47 G&G did not develop the ground of appeal challenging the primary Judge’s finding that the spreadsheets formed part of the contract constituted by the P49 Contract. Neither G&G’s written nor its oral submissions put forward any cogent reasons for setting aside the primary Judge’s findings. Nonetheless it is appropriate to address the ground of appeal, if only briefly.

48 It is true that the parties each signed only one page of the P49 Contract (pages 5 and 6, respectively). But Mr Corsaro SC, who appeared with Mr Villa for G&G, did not dispute that it was appropriate to infer that the spreadsheets physically formed part of the document when the parties signed pages 5 and 6. Moreover, in addition to the matters relied on by the primary Judge, page 7 of the P49 Contract includes a heading “Summary of proposed contract”. Once page 7 was physically attached to the document signed by the parties, the strong inference is that the material set out under that heading was no longer “proposed”, but was intended to form part of the parties’ contractual arrangements.

49 Further support for this conclusion is derived from the contents of page 7. The page does not merely repeat or (despite the title) summarise material recorded elsewhere in the document. Such matters as the estimated ages of the machines, the calculation of down hours, available percentages and, most importantly, the specification of “[a]nnual available hours” are not addressed anywhere else in the document. While some of the material recorded on page 7 is in the nature of information (such as the calculations leading to the fixed cost of $47.69 per operating hour), other material is capable of creating contractual rights and obligations, particularly when read with other provisions in the P49 Contract. Accordingly, there is no basis for setting aside his Honour’s implicit finding that the spreadsheets were part of the contractual arrangements embodied in the P49 Contract.

P50 Contract

50 G&G also challenges the primary Judge’s finding that the spreadsheets attached to the November FOCUS Contracts formed part of the agreement between the parties. Its argument rests on clauses in the P50 Contract that have no counterpart in the P49 Contract.

51 Mr Corsaro pointed out that the introductory words of the P50 Contract record an offer by G&G to maintain the machine:

“on a Managed Maintenance basis on the terms set out in this Agreement and the Schedules attached to this Agreement”. (Emphasis added.)

Similarly, cl 6 on page 1 of the P50 Contract states that the customer agrees to the terms set out in “this Agreement, including the Schedules”. Mr Corsaro submitted that this language was apt to include the four numbered schedules attached to the P50 Contract, but not the spreadsheets. He also relied on cl 15 of the P50 Contract as supporting the submission. Clause 15 provides that the:

“terms set out in this Agreement and its attachments constitute the entire agreement of the parties and supersede all prior agreements understandings and negotiations”. (Emphasis added.)

52 Had cl 15 of the P50 Contract said “Schedules” in place of “attachments”, G&G’s textual argument would have considerable force. But the language of cl 15 stands in contrast to the language earlier in the P50 Contract, which refers to “the Schedules”. As his Honour found, the spreadsheets were attached to the P50 Contract and are therefore accurately described as “attachments”. The ordinary meaning of cl 15 is that the spreadsheets, being attachments, constitute part of the agreement between the parties. It follows that, insofar as the attachments set out “terms”, they are capable of creating enforceable obligations between the parties.

53 This conclusion gains support from the fact that the spreadsheets attached to the P50 Contract are in substantially the same form as the spreadsheets attached to the P49 Contract (although most of the numbers differ). For the reasons already given, the spreadsheets attached to the P49 Contract formed part of the parties’ contractual arrangements. The parties must be taken to have understood this at the time they entered into the P50 Contract, some three months later. The attachment of spreadsheets in the same form to the P50 Contract, suggests that the parties intended the spreadsheets to have contractual effect, just as they had by virtue of being attached to the P49 Contract. In my view, there was no error in his Honour’s conclusion that, in the circumstances, the spreadsheets attached to the P50 Contract constituted part of the agreement between the parties.

MINIMUM AVAILABLE HOURS WARRANTY

54 As I have noted, the primary Judge found that the FOCUS Contracts incorporated the High Availability Warranty, but not any warranty by G&G that machines would be available for a quantifiable minimum number of hours (“Minimum Available Hours Warranty”). He reached the latter conclusion despite finding that the spreadsheets attached to the FOCUS Contracts formed part of the parties’ contractual arrangements.

55 In order to determine whether the FOCUS Contracts included a Minimum Available Hours Warranty, his Honour considered it appropriate to apply the test used to determine whether a representation made in pre-contractual negotiations form part of the main contract or constituted a collateral warranty. On this basis, the relevant test was whether the representation was reasonably considered by the person to whom it was made as intended to constitute a contractual promise: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 61, per Gibbs CJ. The intention of the parties was to be deduced from the conduct of the parties, their words and behaviour, as assessed by an intelligent bystander: Oscar Chess Ltd v Williams [1956] EWCA Civ 5; [1957] 1 WLR 370 at 375, per Lord Denning MR.

56 The primary Judge considered that the percentage items specified in the spreadsheets could not reasonably have been considered by PCE as intended to be a contractual promise and that:

“[a]n intelligent bystander would not have reasonably inferred that contractual promises were intended”.

His Honour took into account that:

· the percentages were “merely” in spreadsheets attached to the principal documents;
· the percentages were accompanied only by the single word “avail[ability]”;
· the contract did not include any definition of the word “availability”;
· a reasonable person would not conclude that G&G intended to warrant that PCE would achieve a rate of machine availability calculated to two decimal places (or even one);
· a reasonable person would not consider that G&G would give an unconditional promise of availability applicable in a variety of conditions;
· the percentage figures in the box on page 7 of the P49 Contract resulted simply from calculations based on other figures in the box;
· the calculations were based on assumptions which were highly unlikely to reflect the actual operation of the machine; and
· other items in the contractual documents, such as procedures internal to G&G, were plainly not intended to create contractual obligations.

Construction of the August FOCUS Contracts

57 It is convenient to consider first the proper construction of the August FOCUS Contracts, using the P49 Contract as the representative agreement. As I have explained, the primary Judge characterised the question before him as whether the availability figures recorded on page 7 of the P49 Contract could reasonably have been intended to constitute contractual promises. His Honour may have been influenced in taking this approach by the parties’ submissions, which canvassed at some length whether G&G’s pre-contractual representations relating to machine availability rates were intended to be binding promises.

58 Strictly speaking, the critical question did not concern the contractual status of the pre-contractual representations, but whether, on the proper construction of the P49 Contract, G&G warranted that the P49 scraper would be available for a minimum number of hours and, if so, in what circumstances the warranty applied and the manner in which the minimum number was to be calculated. However, nothing appears to turn on the correct characterisation of the issue facing his Honour, as the test is very similar, if not identical.

59 In construing a contract, the intention of the parties is:

“to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of the contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179 [40] per curiam, citing Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at 461 – 462 [22], per curiam; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at 655 [262], per Campbell JA (with whom Mason P and Tobias JA agreed).

60 Page 3 of the P49 Contract states that:

“This agreement represents a comprehensive product support programme which will:

1. Provide a High Rate of Machine Availability.

by utilising advanced diagnostic techniques and tooling, unscheduled down time will be minimised ...”

61 If this provision is read alone, there may be difficulty in determining what the parties intended by the use of such non-specific language. No doubt it was for this reason, that a good deal of the argument before the primary Judge and in this Court focussed on whether the expression “High Rate of Machine Availability” was too vague and uncertain to constitute a contractual promise enforceable by PCE against G&G. It is necessary, however, to read page 3 of the P49 contract with page 7. When the two are read together, it can readily be seen that the figures specified on page 7 give more precise content to G&G’s promise to provide a high rate of machine availability.

62 The “Summary of Proposed Contract” includes an item “Annual available hours - 3120”. It is clear enough that this figure represents and was intended to represent 60 hours per week over the 52 weeks of the year. There was evidence, for example, from Mr Hutson (G&G’s Product Support Manager), that the industry norm was a working day of 10 hours, six days per week and that the figure of 3120 on page 7 of the P49 Contract reflected the norm.

63 The percentage figures in the “Cumulative” box under the heading “Annual cost analysis” are calculated by reference to the figure of 3120 annual available hours. Thus the figure of 95.4% for year 1 is derived by deducting the specified number of “down h[ou]rs” (144) from the annual available hours (3120) and expressing the resulting figure (2976) as a percentage of 3120. The calculation is as follows:

2976 x 100 = 95.4.

3120 1

The year 2 figure assumes 77 down hours during the year (221-144), producing a cumulative figure for down hours (221) for the two year period. The figure of 96.5% for year 2 is the product of the following calculation:

(3120 x 2) - 221 x 100 = 96.5.

3120 x 2 1

The final figure of 95.8% recorded in the box reflects the cumulative down hours over six years (785), according to the following calculation:

(3120 x 6) – 785 x 100 = 95.8

3120 x 6 1

64 The right hand columns under “Annual cost analysis” on page 7 give the annual availability calculation (as distinct from the cumulative percentage availability calculation in the neighbouring column). Thus the figure of 97.5% for year 2, for example, is produced by the following calculation:

3120 – 77 x 100 = 97.5

3120 1

65 The figures set out on page 7 of the P49 Contract suggest to a careful reader, aware of the commercial objectives of the parties, that G&G is promising to provide a high rate of machine availability (as expressly provided on page 3), quantified in accordance with a formula derived from the words and figures recorded on page 7. The formula for quantifying the promised rate of availability appears clearly enough from the specified “Annual available hours” and the material set out in the columns under the heading “Annual cost analysis”, in particular the figures in the “cumulative” column. In year 1 of the P49 Contract, G&G warrants that the scraper will be available for the specified annual available hours (3120), less the down hours recorded in the “cumulative” column (144). Thus it warrants that the machine will be available for a minimum of 2976 hours in year 1. The same formula produces a minimum available hours figure for the second year the contract runs of 3043 (3120 specified available hours less 77 down hours). The formula can readily be applied to succeeding years.

66 An apparent difficulty arises because the duration of the P49 Contract is clearly not a fixed period of years, but a specified number of engine hours (12,000). The figures set out on page 7, under the heading “Annual cost analysis” are, however, presented on the assumption that the P49 Contract will run for six years, with the machine operating for an unvarying 2000 “engine hours” per annum. As his Honour found, it was not realistic to expect the P49 Contract to continue for a period of six years, since PCE would clearly wish to achieve substantially more than 2000 operating hours from a machine over any given twelve months period. How, then, was the warranty to work, given that the duration of the contract, measured in years and months, was uncertain?

67 It is significant that page 7 of the P49 Contract specifies 3120 as the number of annual available hours. The parties must be taken to have appreciated that the term of the contract was to be measured in operating hours and that the actual number of hours PCE wished to operate the machine would vary, perhaps considerably, from year to year. The obvious conclusion is that the parties chose an annual measure of available hours that reflected an industry norm as their starting point for the calculation of the minimum available machine hours warranted by G&G. The calculation contemplated by the parties required the down hours specified on page 7 of the P49 Contract to be taken into account.

68 When the contractual promise to provide a high rate of availability (page 3 of the P49 Contract) is read with the detailed figures and other material on page 7, it is not difficult to conclude that G&G warranted that, perhaps subject to PCE’s compliance with its responsibilities, scraper P49 would be available for each year the contract remained in force for a minimum of 3120 hours, less the down time allowed for that year in the “Cumulative” box. Thus in year 1 of the contract the minimum would be 2976 hours; in year 2, 3043; and so on. If the contract expired or was terminated in, say, year 4, the minimum hours for years 5 and 6 would become irrelevant.

69 This result produces the apparent oddity that the P49 Contract calculates the down hours for each year the contract remains in force on the basis of assumptions as to use of the machine that, from a chronological point of view, may be unrealistic. But it was open to the parties to make their calculations on any basis they saw fit. What was important was that the agreed starting point reflected an industry norm. The down hours allowed for each calendar year constituted only a small percentage of the agreed starting point and thus made only a minor difference to the warranted minimum annual available hours.

70 This construction of the contract is consistent with the apparent commercial objects of the agreement. PCE was to be able to count on a fixed maintenance and servicing cost per operating hour over the 12,000 hour life of the contract. In addition, it was to be assured of a high rate of machine availability. That did not necessarily mean an open-ended commitment by G&G that the machine would be available for 24 hours a day, seven days a week, 365 days a year (less the small amount of permissible down time). It makes commercial sense for G&G to have given a warranty of minimum machine availability by reference to an industry norm. No doubt both parties realised that PCE might wish to use the machine more frequently than the norm. But it is hardly surprising that the contract proceeds on the basis that the fixed hourly cost to be borne by PCE entitles it to something less than an open-ended guarantee of availability. It is, after all, not unusual for a provider of services to impose a monetary or other limit on its guarantee of performance, not least so that it (or its insurer) can make accurate estimates of any potential liabilities.

71 On this analysis, none of the matters identified by the primary Judge (at par 56 above) presents an obstacle to construing the contract to impose a Minimum Available Hours Warranty on G&G. For example, the precise percentage availability figures on page 7 are merely products of calculations based on the specified annual available hours and annual down hours. The precision of the percentages does not provide any basis for declining to construe the contract in the manner suggested earlier.

72 The argument put to the primary Judge appears to have concentrated on the percentage figures in the “Cumulative” column on page 7 of the P49 Contract, rather than on the manner in which they were calculated. The submissions do not seem to have explored in depth the significance of the figure for “Annual available hours” being based on an industry standard. As both parties recognised in argument before this Court, it is difficult to find a reason for including this figure on page 7 unless it was to serve as a reference point for the quantification of G&G’s obligation to ensure a high rate of machine availability.

73 I therefore conclude that the P49 Contract, on its proper construction, included a Minimum Available Hours Warranty. The parties intended that the minimum number of available hours for the purposes of the Warranty was to be calculated according to the formula derived from the material set out on page 7. They also intended that the Minimum Available Hours Warranty would apply for the duration of the P49 Contract: that is, until the 12,000 “Contract Engine Hours” had expired.

Construction of the November FOCUS Contracts

74 The construction of the August FOCUS Contracts does not determine the correct interpretation of the November FOCUS Contracts. Unlike the P49 Contract, the P50 Contract does not expressly provide that G&G will achieve a high degree of machine availability. Consequently, insofar as the construction of the P49 Contract rests on that provision, the reasoning cannot be applied to the interpretation of the P50 Contract.

75 Nonetheless, the better view is that the P50 Contract contains a Minimum Available Hours Warranty. Page 11 of the P50 Contract corresponds closely to page 7 of the P49 Contract. In particular, page 11 includes the figure of 3120 as the “Annual available hours” (a figure derived from an industry norm), the down hours calculated for each of four years and percentage availability figures calculated in the same way as the percentages set out on page 7 of the P49 Contract. The major differences between the two spreadsheets are that the assumed duration of the P50 Contract is four years rather than six and the down hours and the costings are different (presumably reflecting the higher costs of servicing an older machine). These differences are, however, unimportant in assessing the significance of page 11 for the construction of the P50 Contract.

76 The parties agreed to include the spreadsheets in the P50 Contract. In construing the November Focus Contracts an important surrounding circumstance is that the parties incorporated spreadsheets in substantially the same form as those that had been attached to the August Focus Contracts. The parties must be taken to have appreciated that (as I have held) the material on page 7 of the P49 Contract was critical to the existence and terms of the Minimum Available Hours Warranty imposed on G&G by that contract. In these circumstances, the inclusion of page 11 in the P50 Contract should be taken as reflecting the parties’ intention that G&G was to warrant 3120 “Available annual hours” for the machine, subject to an annual allowance for down hours. The annual allowance is specified, or can readily be calculated, from the figures in the “Cumulative” column in exactly the same way as the calculation derived from the comparable figures in the P49 Contract. There is no reason why the words and figures appearing on page 11 cannot constitute “terms set out in this Agreement” for the purposes of cl 15 of the P50 Contract. In these circumstances, when the P50 Contract is read in the context of the contractual arrangements and dealings between the parties, it includes a Minimum Available Hours Warranty to the same effect as that incorporated in the P49 Contract.

HIGH AVAILABILITY WARRANTY

77 As has been seen, the primary Judge found that the August and November FOCUS Contracts incorporated a High Availability Warranty. It follows from what has been said that the P49 Contract did not include a warranty by G&G ensuring a high rate of machine availability, devoid of any mechanism for quantifying G&G’s minimum obligations. The Minimum Available Hours Warranty that formed part of the P49 Contract (as I have found) leaves no room for the operation of the High Availability Warranty found by the primary Judge. For much the same reasons, there is no room for implying a High Availability Warranty in the P50 Contract. Accordingly it is not necessary to address the various arguments relating to the enforceability of the High Availability Warranty. Nor is it necessary to determine whether the methodology adopted by his Honour to assess damages for breach of the High Availability Warranty led to any error.

CONSEQUENTIAL ISSUES

78 The conclusions I have reached give rise to some consequential issues, principally how the questions of breach of the Minimum Available Hours Warranty and the assessment of damages are to be approached. Unfortunately, the parties provided little assistance on these issues, largely because their submissions concentrated on other matters. Having regard to the prolonged history of the proceedings, however, it is desirable that the remaining issues, so far as possible, should be resolved without further delay and expense to the parties.

79 The better view is that both breach and assessment of damages should be determined by reference to each period of one year for which the FOCUS Contracts have run. Thus in the first year of the P49 Contract (commencing in August 1997), G&G warranted that the scraper would be available for 2976 hours. Whether this minimum was attained would be assessed by reference to machine availability per 10 hour day (assuming 312 working days for the year). Therefore the maximum number of hours that the machine could be unavailable in any given day by reason of down time is 10.

80 For the purposes of determining whether G&G breached its Minimum Available Hours Warranty, the number of unavailable hours is to be calculated by ascertaining whether the machine was unavailable for operations on a particular working day by reason of down time. This calculation does not depend on proof that PCE actually intended to operate the machine on the particular day.

81 Assuming breach is established, damages should be assessed by calculating the difference between:

· the minimum number of available hours specified in the contract (2976 in the first year of the P49 Contract); and
· the hours (to a maximum of 10 per working day) that the machine was actually available for work (that is, was not unavailable by reason of down time).

PCE’s damages must, however, be limited to those hours that PCE would have operated the machine but for its unavailability due to down time.

82 A further consequential issue concerns the application of the Minimum Available Hours Warranty to an incomplete year of a FOCUS Contract, bearing in mind that G&G terminated the FOCUS Contracts in October 1998. In the case of the P49 Contract, only two months or so of the second year had elapsed at the time the contract was terminated. The P50 Contract was terminated before the expiration of the first year.

83 The parties seem to have proceeded on the basis that the question of breach and assessment of damages should be approached by reference to the relevant portion of a year. This would mean that the methodology already outlined would be applied, but on a pro-rata basis, to the two months or so of the second year of the P49 Contract. In the absence of any contrary argument on the appeal, this pro-rata approach should be followed. It is consistent with the annual available hours being calculated as a product of 312 days at 10 hours per day.

TWO FURTHER QUESTIONS

84 Two further questions remain. The first is whether the case mounted by PCE at trial and on the appeal encompassed a claim for damages by reason of G&G’s breach of the Minimum Available Hours Warranty. The second is whether the proceedings need to be remitted to the primary Judge to consider certain defences to PCE’s cross-claim relied on by G&G but (according to G&G) not addressed by his Honour in either the preliminary judgment or the second judgment.

Scope of PCE’s Case

85 The contractual case pleaded by PCE in its cross-claim rested primarily on G&G’s alleged breach of one of two (apparently) alternative terms of the FOCUS Contracts:

· the High Availability Warranty; and
· a term requiring G&G to provide each machine with a specified percentage availability rate (95.8% in the case of scraper P49).

For the reasons already given, PCE has not established that either the August or November FOCUS Contracts contained the High Availability Warranty.

86 One difficulty with the pleading of the second term is that it does not make clear how the specified percentage is to be calculated or, for that matter, applied. A second difficulty is that the percentage selected is what might be described as the cumulative weighted percentage in the last notional year of the FOCUS Contracts. A third difficulty is that the allegations of breach of warranty relevantly claim only that “the FOCUS Contracts did not in practice provide for high levels of availability”. The cross-claim does not specifically plead breach of a warranty requiring G&G to ensure a minimum, quantifiable level of machine availability.

87 Despite the apparent deficiencies in the pleadings, PCE appears to have conducted its cross-claim on the basis that G&G, among other breaches of contract, breached a warranty to ensure that the machines achieved the minimum percentage availability specified in the spreadsheets. In support of this case, reliance was placed on the “Annual available hours” figure of 3120 hours contained in the “Summary of proposed contract”. PCE’s written submissions at the trial correctly explained the calculation of the percentage figure (95.8%) appearing on page 7 of the P49 Contract. The submissions also pointed out that the specified annual availability rate of 3120 hours represented a calculation based on the standard 10 ten hour day, six day week, 52 weeks a year operation.

88 It cannot be said that PCE’s case at trial focussed with any precision or clarity on the Minimum Available Hours Warranty that I have concluded formed part of the FOCUS Contracts. Nonetheless, I think that PCE’s pleadings and submissions encompassed, even if only in very general terms, a contention that G&G was contractually obliged to ensure that the machines achieved a minimum level of availability determined by reference to the “minimum available hours” specified in the spreadsheets.

89 PCE’s notice of cross-appeal, to which I referred earlier (at par 21 above), does not provide any details of the contractual terms for which PCE contends. Nonetheless, the cross-appeal challenges the findings that the percentage levels of availability specified in the spreadsheets attached to the FOCUS Contracts did not create contractual warranties. PCE’s submissions on the appeal, like those at trial, did not focus on the Minimum Available Hours Warranty that, as a matter of construction, I have concluded formed part of the FOCUS Contracts. However, reference was made in the course of argument to such a warranty as an available construction of the FOCUS Contracts.

90 In the circumstances I think that PCE’s notice of cross-appeal is sufficient to keep alive on the appeal the contention that G&G breached the Minimum Available Hours Warranty of the FOCUS Contracts. It follows that I do not accept a submission put by G&G, although not developed in any detail, that PCE cannot now rely on the minimum available hours term. In my view, PCE can rely on that term in the FOCUS Contracts to support its claim for damages against G&G.

Defences Not Addressed

91 By leave of the Court, G&G filed supplementary written submissions after the hearing had concluded, contending that the primary Judge had failed to address certain of G&G’s pleaded defences to PCE’s contractual claims. In substance, G&G submits that it pleaded in par 14 of its further amended defence to cross-claim (“Defence”) that, if it had failed to comply with a Minimum Available Hours Warranty, its apparent failure was due to PCE’s breaches of its obligations under the FOCUS Contracts. In particular, G&G had pleaded that PCE had:

· operated machines beyond their capacity and failed to modify the bowls of scrapers as it was contractually required to do;
· did not ensure that the machines would be accessible to G&G for the provision of maintenance and repair services;
· did not conduct regular fluid checks on the machines; and
· allocated inexperienced or incompetent operators to the machines.

92 G&G acknowledges that it relied on the evidence relating to these matters principally for other purposes at the trial, such as supporting a claim made by G&G itself that was ultimately abandoned. Nonetheless, G&G submits that PCE well appreciated that the matters pleaded in par 14 of the Defence were put forward as:

“an explanation by [G&G] for why the FOCUS Contracts did not provide the rate of availability [PCE] claimed to have expected ... [T]he parties were alive to the fact that [G&G] put these matters forward as being relevant not only to the representation claim but also to the contractual claim, and were being put forward as matters of positive defence.”

93 G&G argues that the primary Judge did not address the defences pleaded in par 14 of the Defence, either in the preliminary judgment or the second judgment. Since there was substantial evidence relating to a number of the pleaded matters, G&G contends that the proceedings should be remitted to the primary Judge for further findings to be made in relation to the defences pleaded by it.

94 PCE, in a lengthy reply to G&G’s supplementary submissions, concedes that the defences relied on by G&G were appropriately pleaded and were the subject of costs evidence and submissions at the preliminary hearing. PCE also acknowledges that his Honour, in the preliminary judgment, made findings that G&G had established a factual basis for certain of the matters pleaded. However, according to Mr Cotman SC who appeared with Mr Gristci for PCE, the findings were made in the context of addressing G&G’s contention that any pre-contractual representations made by it to PCE were, to PCE’s knowledge, founded on certain assumptions made by G&G as to PCE’s responsibilities.

95 Mr Cotman points out that it was at the second hearing that the parties debated whether there had been a breach of the High Availability Warranty. (The primary Judge did not need to consider at that hearing whether G&G had breached a Minimum Available Hours Warranty, since he had found that the FOCUS Contracts contained no such warranty.) PCE says that it was incumbent on G&G to bring to his Honour’s attention what PCE describes as the “causation” point in a “coherent manner”. Mr Cotman argues that the only time that G&G raised the so-called causation point at the second hearing was in a brief passage in G&G’s written submissions, as follows:

“These assumptions predominantly required PCE to do certain things (such as carry out daily checks and maintenance, clean the vehicles prior to repair, modify the coal bowls to the design specification) or not do certain things (such as operate the machines outside their operational limits). To that extent, and to the extent that the representations were found to be terms of the contracts, the assumptions therefore operated as dependant [sic] obligations on the part of PCE. Alternatively, to the extent that PCE has not done or refrained from doing the things that G&G to PCE’s knowledge assumed would be done/not done, then PCE has failed to co-operate with the performance of the FOCUS contracts, or has prevented G&G from performing the contracts. Because the co-operation is essential to the performance by G&G of an obligation to provide high availability, G&G is excused from performance, and therefore there is no breach established.’

96 The primary Judge can readily be excused for not addressing the so-called causation issue. The ways in which the parties presented their cases were confusing and the formulation of a multitude of preliminary issues did not help to simplify the matters in dispute. G&G’s submissions at the second hearing, like PCE’s submissions relating to the terms of the warranties, did not develop the “causation” argument in a clear or coherent fashion.

97 Nevertheless, the fact is that G&G pleaded that its apparent breach of any warranty that might be found in the FOCUS Contracts was due to PCE’s failure to comply with its dependent contractual obligations. G&G’s pleaded defences were supported by evidence given at the preliminary hearing. His Honour made certain findings on the basis of that evidence, albeit in the context of other questions requiring resolution. G&G’s submissions at the second hearing relied, albeit briefly, on the pleaded matters as defences to PCE’s contractual claims.

98 G&G can be criticised for not developing the arguments before the primary Judge and its failure to do so may be relevant to the question of costs, both on the appeal and at trial. But it cannot be said that G&G abandoned or ignored altogether its pleaded defences. G&G is entitled to have those defences determined and, to that end, to have the necessary factual findings made by the primary Judge.

99 It follows, most regrettably, that in the absence of agreement between the parties, the proceedings will have to be remitted to the primary Judge to resolve G&G’s defences pleaded in par 14 of the defence, insofar as they have not been disposed of by findings already made by his Honour.

DAMAGES

100 The primary Judge assessed damages for breach of the High Availability Warranty. I have concluded that the FOCUS Contracts did not include any such warranty. The approach used by his Honour to assess damages for breach of the High Availability Warranty cannot be applied to the assessment of damages for any breach by G&G of the Minimum Available Hours Warranty (assuming breach to be established). I have explained the methodology that should apply in the latter (at par 80 above). That methodology is quite different from the approach taken by his Honour. Accordingly, his award of damages for breach of the High Availability Warranty must be set aside.

CONCLUSION

101 The parties should have an opportunity to consider this judgment. It is to be hoped that they can reach agreement on:

(a) whether the evidence establishes a breach of the Minimum Available Hours Warranty; and

(b) if so, the quantum of damages attributable to the breaches (subject to the resolution of G&G’s pleaded defences).

The parties should also endeavour to reach agreement on consequential issues, such as costs.

102 To avoid any uncertainty, it is appropriate to record that, in my view, the evidence is sufficient to enable the matters referred to in the previous paragraph to be determined. G&G suggested in argument, again without elaboration, that PCE had failed to prove any breach of the Minimum Available Hours Warranty. The evidence adduced before the primary Judge addresses the relatively straightforward calculations that need to be made.

103 In summary, I have reached the following conclusions:

(i) on the proper construction of the August FOCUS Contracts and the November FOCUS Contracts, each included a Minimum Available Hours Warranty by G&G to PCE;

(ii) the FOCUS Contracts did not include the High Availability Warranty found by the primary Judge to be a term of those Contracts;

(iii) it is open to PCE on the appeal and in any future proceedings to rely on the Minimum Available Hours Warranty;

(iv) the award of damages by the primary Judge cannot stand, since the assessment depends upon an analysis that cannot apply to a breach by G&G of the Minimum Available Hours Warranty;

(v) G&G is entitled to a determination of its pleaded defences to PCE’s claims based on the Minimum Available Hours Warranty, insofar as the defences have not already been resolved by his Honour’s findings;

(vi) the parties should have an opportunity to consider this judgment and to reach agreement on:

(a) whether the evidence establishes a breach or breaches by G&G of the Minimum Available Hours Warranty; and

(b) if so, the quantum of damages attributable to the breach or breaches (subject to the resolution of G&G’s pleaded defences);

(vii) the parties should also have the opportunity to reach agreement on other consequential issues, such as costs; and

(viii) in the absence of agreement, the proceedings should be remitted to the primary Judge to determine the outstanding issues, consistently with the judgment of this Court.

104 The outstanding issues include:

· whether the evidence establishes a breach or breaches by G&G of the Minimum Available Hours Warranty;

· whether G&G has established any of the defences pleaded in par 14 of its Defence to Cross-Claim, insofar as the defences have not already been resolved by his Honour’s findings; and

· the quantum of damages attributable to any breach or breaches by G&G of the Minimum Available Hours Warranty.

105 It is appropriate to make two further comments. First, my present view is that each party should bear its own costs of the appeal. Each has enjoyed some measure of success (and some measure of failure). Each bears responsibility for the critical issues in the case not being exposed with clarity.

106 Secondly, it is to hoped that the parties are able to agree not only on relatively mechanical matters, such as the quantification of damages flowing from any breach of the Minimum Available Hours Warranty, but on orders that will finally resolve these extremely protracted and expensive proceedings. It is plainly in the interests of both parties to avoid yet further delay and expense that would necessarily be involved in a further hearing.

107 The orders that would seem to be appropriate (leaving aside the question of costs) are as follows:

1. Appeal allowed in part.

2. The judgment entered on 3 September 2008 in favour of the cross-claimants (the cross-appellants) by James J in the sum of $2,129.881.65, inclusive of interest, be set aside.

3. The proceedings be remitted to James J to determine the outstanding issues consistently with the judgment of this Court.

108 Before the Court makes orders in this form, the parties should be given the opportunity to consider the judgment and determine whether they can reach agreement on some or all of the outstanding issues. If they reach agreement, they should file agreed short minutes of order. If not, the parties should file brief written submissions, limited to any disagreement as to:

(i) the orders that should be made in relation to the costs of the appeal and of the proceedings before the primary Judge; and

(ii) the form of the proposed orders.

The written submissions should not exceed five double spaced pages in length and should not canvass any of the substantive issues that, in the absence of agreement, will be the subject of the remitter to the primary Judge.

109 The only orders that should be made at this stage are as follows:

1. If the parties reach agreement on all or any of the outstanding issues in the proceedings, they file agreed short minutes of order giving effect to the agreement within fourteen days.

2. If the parties do not reach agreement on costs or the form of the orders prepared in the judgment, the respondent (PCE) file written submissions on each of these issues within fourteen days.

3. The appellant (G&G) file written submissions in reply within a further seven days.

4. Each of the written submissions referred to in orders 2 and 3 not exceed five double-spaced pages in length.

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LAST UPDATED:
11 March 2009