Quadrascan Graphics Pty Ltd & Anor v Crosfield Electronics ANZ Pty Ltd & Anor [1995] FCA 319

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CATCHWORDS

TRADE PRACTICES - misleading or deceptive conduct - sale of sophisticated electronic equipment - whether first respondent's statements concerning the capabilities of the equipment constituted misleading or deceptive conduct - applicants' claims dismissed - equipment leased from second respondent financier - second respondent cross-claiming against applicants - possession of equipment surrendered to second respondent - whether liquidated damages clause in lease enforceable - whether penalty provision - recourse agreement between first respondent and second respondent - whether amount obtained pursuant to recourse agreement to be deducted from second respondent's cross-claim against applicants.

Trade Practices Act

Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd [1915] AC 79

O'Dea v. Allstates Leasing System (W.A.) Pty Ltd (1982) 152 CLR 359

AMEV-UDC Finance Ltd v. Austin (1986) 162 CLR 170

Esanda Finance Corporation Ltd v. Plessnig (1989) 166 CLR 131

Philips (Hong Kong) Ltd v. The Attorney-General of Hong Kong (1993) 9 Construction Law Journal 202

Munroe Schneider Associates (Inc) v. No. 1 Raberem Pty Ltd (1991) 33 FCR 1

National Insurance Co of New Zealand Ltd v. Espagne (1961) 105 CLR 569

Redding v. Lee (1983) 151 CLR 117

QUADRASCAN GRAPHICS PTY LTD AS TRUSTEE OF THE QUAD UNIT TRUST (ACN 008 994 821) & ANOR v. CROSFIELD ELECTRONICS ANZ PTY LTD (ACN 051 317 705) & ANOR

CARR J.

PERTH

18 MAY 1995

IN THE FEDERAL COURT )

OF AUSTRALIA )

WESTERN AUSTRALIA )

DISTRICT REGISTRY ) No. WAG 124 of 1993

GENERAL DIVISION )

B E T W E E N: QUADRASCAN GRAPHICS PTY LTD AS TRUSTEE OF THE QUAD UNIT TRUST (ACN 008 994 821)

First Applicant

and

MICHAEL WILLIAM CAMFIELD and JAMES JOHN KENNEDY

Second Applicants

and

CROSFIELD ELECTRONICS ANZ PTY LTD (ACN 051 317 705)

First Respondent

and

BURNHILL EQUIPMENT FINANCE ANZ PTY LTD (ACN 051 629 237)

Second Respondent

CORAM: CARR J.

PLACE: PERTH

DATE: 18 MAY 1995

MINUTE OF ORDER

THE COURT ORDERS THAT:

The Application

1. The application is dismissed.

2. The applicants are to pay the respondents' costs of the application.

The first respondent's cross-claim against the first applicant

3. Judgment be entered for the first respondent against the first applicant in the sum of $22,013.03 inclusive of interest.

4. The first applicant is to pay the first respondent's costs of its cross-claim against the first applicant .

The second respondent's cross-claim against the first applicant

5. Judgment be entered for the second respondent against the first applicant for $459,819.44 inclusive of interest. The second respondent has leave to seek judgment upon its cross-claim against the first applicant for such further sum as may be found in its favour upon the taking of the account herein provided for.

6. There be taken before the District Registrar an account of all items of costs and expenses of the second respondent in its cross-claim against the first applicant up to the date of these orders, such account to be taken on a full indemnity basis which is to be understood as not including items unreasonably incurred or for costs and expenses of an unreasonable amount.

7. The first respondent's cross-claim against the first applicant is to be relisted for further directions after the District Registrar has certified the results of the account.

8. The taking of the account stand over to the District Registrar for directions at a time and place to be fixed by him and communicated to the parties.

9. There be liberty to apply on 7 days written notice.

The second respondent's cross-claim against the second applicants

10. Judgment be entered for the second respondent against the second applicants in the sum of $213,330.00 plus interest in the amount of $31,415.53 but in respect of such interest the second respondent shall give credit to the second applicants for any interest which has been included in its judgment against the first applicant and which it may have recovered.

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

INDEX

Page

Introduction 1

Factual background 3

The Pleadings 10

Were the Representations made? 14

The meeting with Crosfield representatives in Sydney 15

Findings upon the question whether the Representations

were made 23

Installation of the Equipment 30

The events of October/November 1992 35

Did the making of the Four Key Representations constitute

misleading or deceptive conduct or conduct that was likely

to mislead or deceive? 41

Particular complaints about the Studiolink 52

Particular complaints about the Studio 9500 71

An overall consideration of the issue 96

Quadrascan's financial performance 97

The core alleged defects 101

The Studiolink's inability to transmit deep-etched

pictures to the Studio 9500 105

The Studiolink's inability to transmit complicated

vignettes to the Studio 9500 113

The dearth of written complaints from Quadrascan 115

The extent to which the Equipment was used 117

Mr Fox's visit to Quadrascan and the importance of

good management of the use of the Equipment 118

The Retravision catalogue 124

Marketforce Advertising 129

Dalton Begley Advertising 134

Greg Russell Advertising 135

Bowtell Clark 135

The expert technical evidence 138

The representations that Crosfield would provide

an engineer in Perth for ongoing support 142

Conclusions concerning the principal application 145

The second respondent's cross-claims 148

Whether Quadrascan defaulted in relation to payment of

monthly instalments under the Equipment Lease 150

The relevant provisions of the Equipment Lease 152

Is clause 18 of the Equipment Lease a penalty provision? 155

The submission that Burnhill sustained no loss 163

The quantum of the cross-claim 180

Burnhill's claim against Messrs Camfield and Kennedy

as guarantors 183

The first respondent's cross-claim 186

IN THE FEDERAL COURT )

OF AUSTRALIA )

WESTERN AUSTRALIA )

DISTRICT REGISTRY ) No. WAG 124 of 1993

GENERAL DIVISION )

B E T W E E N: QUADRASCAN GRAPHICS PTY LTD AS TRUSTEE OF THE QUAD UNIT TRUST (ACN 008 994 821)

First Applicant

and

MICHAEL WILLIAM CAMFIELD and JAMES JOHN KENNEDY

Second Applicants

and

CROSFIELD ELECTRONICS ANZ PTY LTD (ACN 051 317 705)

First Respondent

and

BURNHILL EQUIPMENT FINANCE ANZ PTY LTD (ACN 051 629 237)

Second Respondent

CORAM: CARR J.

PLACE: PERTH

DATE: 18 MAY 1995

REASONS FOR JUDGMENT

Introduction

This case concerns representations made by a vendor to a purchaser of certain high technology equipment for use in a section of the printing industry, about the capabilities of 1that equipment. The representations were made at a time when that industry had just started to make some radical changes in its methods and the
suppliers of equipment to the industry were endeavouring to meet the demands of its customers for equipment which would accommodate those changes. The basic cause of the changes was the rapidly increasing use, by those who design advertising and other comparable material, of computers to create and produce such material in the form of text and images on computer disk.

This application is brought by the first applicant, Quadrascan Graphics Pty Ltd ("Quadrascan"), in its capacity as trustee of the Quad Unit Trust trading as "Quadrascan Graphics" and the second applicants, Michael William Camfield and James John Kennedy who are directors of the first applicant. The applicants claim damages and other relief under ss.82 and 87 of the Trade Practices Act ("the Act") on the basis that the respondents have contravened s.52 of the Act. Until a very late stage in the proceedings Quadrascan also sought damages for breach of contract. The contract related to the supply by the first respondent ("Crosfield") to Quadrascan of some electronic equipment ("the Equipment") for the composition of pages and the production of films used to make printing plates for printing pages of advertising and the like material. The second applicants seek relief in respect of a deed of guarantee and indemnity ("the Guarantee") which they executed to secure payment of some of the moneys due under a lease pursuant to which the second respondent ("Burnhill") leased the Equipment to Quadrascan ("the Equipment Lease"). Burnhill and Crosfield share a common ultimate holding company. The applicants claim that Burnhill was directly or indirectly knowingly concerned in the alleged contravention of s.52 of the Act. Burnhill cross-claims against Quadrascan for moneys owing under the Equipment Lease and against Mr Camfield and Mr Kennedy as guarantors for the
payment of $213,330.00 of those moneys. Each respondent also makes other, relatively minor, cross-claims against Quadrascan.

Factual Background

Quadrascan's business is to provide graphic reproduction and pre-press services. This means arranging the layout of pages of advertisements and other promotional material and, as part of that service, arranging, retouching and recolouring text (type), pictures and other graphic images. In summary, Quadrascan's business is to put advertising and the like material into its final form as film before it is printed or otherwise reproduced. Quadrascan's customers include advertising agencies, graphic designers, sheet fed printers, and a daily newspaper.

Prior to and at the time of the events which gave rise to this litigation the traditional manner in which customers presented their advertising and the like material (which I shall usually refer to as an advertisement) was in what was known as "conventional" or "hard artwork" form. This usually comprised a draft of the desired advertisement contained in a series of documents in what I shall call a portfolio. The base document in that portfolio might be a large sheet of cardboard on which was set out the draft of the advertisement. This is known as the base artwork. Superimposed, layer by layer, by way of tissue or film were the other components of the advertising material such as drawings and instructions for positioning the drawings, photographs and text. The conventional artwork would often be accompanied by transparencies being photographs of the products which the customer wanted to be placed in the advertisement. Those transparencies were scanned and reproduced on four sheets of
film, known as "separations". If the pre-press company owned a scanner then this would be done in-house but commonly, in the case of many of the smaller pre-press companies, the scanning was done externally. Four separations or films were (and still are) required because the subject matter of the transparencies is separated into each of the four prime colours used for all colour printing, namely cyan, magenta, yellow and black. The base artwork, which included text, was then photographed on a reprographic camera and a film of that material was produced. The five films were then handed to a person known as a film combiner or film planner. The film combiner, using tools such as scalpels, scissors and brushes, placed the individual films in precise position (known as "in register") with each other. This work included cutting out the scanned photographs and placing them exactly in the positions required by the customer. Where panels of colour were required, the film combiner laid tints (percentages of colour) to produce each particular colour required. The final product was four films from which the printing plates were made which in turn produced the advertisement. The film combiner's work was done on a bench and was referred to as such i.e. "work done on the bench".

The next level of pre-press technology was the introduction of the digital page lay-out station. This involved the text portions of the advertisement being laid out at that work station and, with the use of a cursor or mouse, the text was placed into position on an electronic page. Alternatively, the text portions might be photographed by a camera and the resultant negative (known as a "line negative") would be scanned into the electronic page at the work station. Then the pictures were scanned into the system and positioned onto the electronic page. After that
combination of pictures and text, the page was output to (reproduced on) film.

In the late 1980's and early 1990's it became possible for customers to produce part of their advertising material on their own computers and to deliver it to the reproduction house on a computer disk instead of in hard artwork form. Customers started to do this. The most common computer language used for that purpose was the language used in Macintosh computers ("Postscript"). Customers with Macintosh computers gradually started preparing part of their advertising material on those computers, and putting it on to a disk. Initially the part of the advertising material which was put onto disk comprised text as distinct from pictures. The customers delivered the disk and the transparencies of the photographic portions of the promotional material to the graphic reproduction house for retouching, recolouring, or re-arrangement if required (known as "manipulation") and the production of the final film for plate making. The photographic images were scanned in to the system using the transparencies. The text and other material and electronic instructions for the composition of the advertisement were taken from the disk. The end product from both the conventional and the computer-based process was the same, namely, film for plate making.

For quite some time customers tended to adhere to this system of putting only the text and instructions for the lay-out or geometry of their advertising material onto computer disk and delivering with the disk the original pictures or transparencies of pictures which were to be combined with that text for the production of films. Those pictures or transparencies would be scanned at the graphic reproduction house and
then so combined. However, some customers acquired their own scanners and scanned their pictorial material onto their disks with the result that all of their advertisements, together with instructions for their preparation, were contained on disk. The evolution of these changes, although fast, was not overnight. As the rate of this evolution was a matter of some contention, I will, later in these reasons, make some findings on that aspect. Eventually, there were various different demands for processing advertising material into film, namely:

. Conventional work. This would now be processed, so far as possible on the new equipment, rather than on the bench as previously. The hard artwork, comprising text and pictures, would be introduced or scanned into the equipment in digitised form on a scanner, manipulated on a screen, (if necessary) and then automatically transmitted to an output scanner for the production of film;

. A combination of work some of which was text received from the customer in digitised form on a computer disk and the balance as pictures or transparencies. The pictures or transparencies would be scanned into the system in digitised form and then combined with the text (already in digitised form) manipulated on the work station if required and then automatically transmitted to an output scanner for the production of film; and

. Work wholly on a computer disk. This material would not require any input scanning but would otherwise be processed in the manner described above, if it required manipulation. If the material did not require manipulation it would be transmitted to an output scanner or other imagesetter. Even in this latter circumstance, the system's work station equipment might be used to some extent though not necessarily requiring the services of the operator of that equipment.

One problem with processing the computerised advertising material was that various types of software were available to the customers for generating their material on the Macintosh computer hardware. Accordingly not all the disks were in the same Postscript format. Another problem was that where the computerised graphic reproduction equipment of the reproduction house operated in a computer language other than Postscript (as was the case with the systems part, i.e. what was known as
the Studio 9500 part, of the Equipment) then it was necessary to have a means of translating the client's computerised material and instructions from Postscript into that other language.

By November 1990 Quadrascan had started to apply computer technology to its business. In that month Quadrascan employed a Mr Tony Cowan whose role was to assist Quadrascan in the move into processing advertising material into film by computer.

At this time Quadrascan owned two Crosfield scanners which had been purchased from Crosfield's former Australian distributor, Delairco. Those scanners had been used to scan transparencies or prints and to separate them into cyan, magenta, yellow and black output films for manual assembly on the bench as described above. Subject to being upgraded, they could also be used to scan and send digital information into a work station such as a Macintosh, Studio 9500 or Jupiter work station for the composition of advertisements. The resulting images could be combined with the other electronic information, such as text, at the work station and then transferred to the output scanner or imagesetter.

In the case of the Crosfield system a process known as "ripping" takes place between the Macintosh and the Studio 9500 using software included in that part of the Equipment which was known as the Studiolink. The expression "ripping" is derived from the initial letters of Raster Image Processor. Ripping is the process which translates material in Postscript to the computer language NGS in which the Studio 9500 worked. The scanners (in Quadrascan's case its upgraded scanners) had dual functions. They functioned as input scanners of the transparencies, prints or text and they also operated, later in the process, as film output units or imagesetters by exposing the completed page of advertisement onto film.

It seems to be common ground between the parties that at the time when Quadrascan acquired the Equipment some customers were starting to put their text (as distinct from pictorial) material on computer disk rather than in conventional hard artwork form when presenting their instructions to companies such as Quadrascan for the production of film.

The Crosfield 9500 system comprises the "Studio 9500", the "Studiolink" and other associated equipment. It is helpful, in understanding this matter, to keep in mind the separate functions of these two main pieces of equipment although they work together in tandem. The Studiolink is a Sun Sparc & Macintosh computer work station incorporating software designed to provide an interface between devices operating in the Postscript computer language and the Studio 9500 which, as mentioned above, operates in the NGS computer language. The Studio 9500 is a computer work station designed to complete electronic page composition and other graphic reproduction functions. In other words, the Studio 9500 is able to process work presented by customers in either electronic form (for example on a computer disk) or in the former conventional form. The Studio 9500 does this with material which either comes to it from an input scanner in the case of conventional artwork and transparencies or is sent to it from the Studiolink in the case of material on disk. When the composition is completed on the Studio 9500 the advertising material is output (reproduced) on film by an output scanner which is attached to the Studio 9500.

The processing work carried out by the Studio 9500 falls into two categories. The first category is where manipulation of advertising material is required. In that event the Studio 9500 operator carries out such manipulation on that equipment using a screen or monitor which forms part of it. If no manipulation is required then the operator of the Studiolink can send the material straight through to the Studio 9500 to be output to film in a mode which is called "Separation Mode". Although this involves using some of the functions of the Studio 9500 it does not need to involve the operator of that equipment.

The Pleadings

The major part of the applicants' statement of claim is devoted to an alleged contravention by the respondents of s.52 of the Act. The conduct relied upon comprises representations which fall into four categories. The first category comprises oral representations said to have been made principally in the course of a meeting in Sydney between Mr Camfield and Mr Cowan representing Quadrascan and a Mr Tibbitts and a Mr Milner representing Crosfield. The representations are particularised as having been made over a period between 18 April 1991 and 21 November 1991 in both Sydney and Perth. However, the applicants' evidence was confined to a short discussion between a Mr Harper of Crosfield in Perth before the Sydney meeting, the discussions at the Sydney meeting and a meeting between Mr Camfield, Mr Kennedy and Mr Harper in Perth late in 1992.

The second and third categories of representations relied upon are pleaded as having been made in a Studiolink brochure and a Studio 9500 brochure respectively. The fourth and last category of representations relied upon by the applicants is a series of representations made in Crosfield's written quotation, dated 8 August 1991 whereby it offered to sell the Equipment to Quadrascan ("the Quotation").

By these representations (described collectively in the statement of claim as "the Statements") the applicants allege that the respondents represented and led the applicants to the false beliefs that:

(a) the Studio 9500 and Studiolink were suitable for Quadrascan's business purposes, namely the provision of electronic page composition and related graphic reproduction services to clientele in Perth and Sydney including clientele who provided work to Quadrascan in the computer language Postscript;

(b) the Studio 9500 and the Studiolink would increase the efficiency and quality of service offered by Quadrascan;

(d) Crosfield would provide an engineer resident in Perth to provide on-going support for the system.

These representations and false beliefs are described in the statement of claim as "the Representations". In his opening address, Mr M. McPhee, leading counsel for the applicants said that the applicants contended that the Representations were misleading and deceptive. In his final address Mr McPhee explained that there was no difference between the Statements and the Representations and that the Representations could be treated as a summary of the Statements. The applicants then plead that, induced by the Representations and/or the Statements, Quadrascan entered into an agreement to purchase the Equipment from Crosfield on 5 September 1991 ("the Agreement to Purchase") and the Equipment Lease with Burnhill on 15 November 1991. It is further pleaded that, induced by the Representations, Mr Camfield and Mr Kennedy entered into the Guarantee on 15 November 1991.

The applicants also plead what is said to be an express term of the Agreement to Purchase, namely, that Crosfield would provide to Quadrascan "an offer of continual support and maintenance for the equipment".

The applicants allege that the making of the Statements and/or Representations was conduct in breach of s.52 of the Act because taken together or separately the Representations and Statements were misleading and deceptive or likely to mislead or deceive. Extensive particulars of this allegation were given and many of the more technical complaints were set out in a Scott Schedule.

In the alternative, the applicants plead that Crosfield breached the express term of the agreement referred to above. In his final address, Mr McPhee confirmed that no contractual claim was being pressed by Quadrascan and that the matter of ongoing or continual support was relevant only in the context of its claims under s.52 of the Act.

The applicants claim that Burnhill was directly or indirectly knowingly concerned in the breach by Crosfield of s.52 of the Act by virtue of the following:

. both companies having a common ultimate holding company;

. a Mr Tony Halker being at all material times a director and shareholder of both respondents;

. Mr Halker having taken over management and being in charge of both respondents' dealings with the applicants after Mr Tibbitts left Crosfield's employment;

. Mr Halker being at all material times aware that the Statements and Representations had been or were being made on behalf of both respondents; and

. Mr Halker being aware that entry into the Equipment Lease and the Guarantee could be induced by the making of the Statements and/or the Representations.

The applicants claim damages in respect of the alleged contravention of s.52 of the Act. In the event that the applicants fail in their claim against Burnhill, they claim indemnity from Crosfield in respect of any further liability which they may have to Burnhill under the Equipment Lease and the Guarantee.

In essence, Crosfield denies that it engaged in misleading or deceptive conduct or conduct that was likely to be misleading or deceptive. Both respondents deny the representations as pleaded by the applicants, deny reliance and in particular deny that the applicants were induced to enter the Equipment Lease and the Guarantee respectively by any conduct in contravention of s.52 of the Act. The respondents further deny that the Equipment was defective and rely upon certain warranties by the applicants in the terms and conditions of the Agreement to Purchase (and in particular the conditions of business), the Equipment Lease and the Guarantee and other clauses contained in those documents as excluding or limiting any liability on the respondents' part to the applicants. In further answer, the respondents plead those agreements and representations again and say that in reliance upon them Crosfield supplied the Equipment and Burnhill entered into the Equipment Lease whereby the applicants are estopped from asserting that the representations relied upon them and set out in the statement of claim, were made.

Were the Representations Made?

Mr Camfield gave evidence that initially he was interested in obtaining for Quadrascan an electronic system known as the "Optronics" system. The Optronics system comprised a scanner called a colorgetter scanner and an imagesetter. At that stage, this equipment had not been installed anywhere in Australia. Mr Camfield said that in January 1991 he spent one week in England and one week in the United States of America inspecting the Optronics equipment and observing it in action at various locations in both countries. On his return to Australia he said that he investigated other equipment and in particular a product called the Purup imagesetter which was distributed in conjunction with an Apple Macintosh computer work station known as a "Jupiter". The Jupiter work station was developed and marketed by a company known as Wright Technology. Mr Camfield arranged to travel to Sydney to investigate that combination of equipment further.

In the meantime, a Mr Robert Harper (the Western Australian representative for Delairco) suggested to Mr Camfield that while in Sydney Mr Camfield should also inspect Crosfield's 9500 system. Mr Harper had previously serviced the Crosfield scanners which Quadrascan used to separate the colour films as part of its conventional process of manual assembly of the advertising materials and preparation of the films. It seems that Mr Harper had provided good service to Quadrascan in servicing the Crosfield scanners.

Nevertheless, so Mr Camfield deposed, Quadrascan was very keen to acquire the Purup and Jupiter combination because it operated fully in Postscript language and provided the output size required. Also the Purup supplier was owned by Dupont, a large company capable of technical support.

The Meeting with Crosfield Representatives in Sydney

Mr Camfield took Mr Cowan with him to Sydney. Mr Camfield gave evidence, which was not contested, that they spent two days inspecting the Purup-Wright combination of equipment and saw it in action. On the following day Mr Camfield and Mr Cowan visited Crosfield's studio at Roseville for a meeting with some Crosfield employees. In examination-in-chief Mr Camfield said that this meeting took place in early March 1991. In cross-examination he acknowledged that it could have been on the 2 May 1991 and it is common ground that the latter is the correct date. Mr Camfield said that at the meeting were himself and Mr Cowan on the one hand representing Quadrascan and a Mr Tibbitts and a Mr Milner representing Crosfield on the other. Mr Tibbitts was the Sales Director of Crosfield for Australia and New
Zealand. Mr Milner was a Crosfield executive who subsequently became its southern regional general manager, based in Melbourne but with responsibility for Crosfield sales in Western Australia. Mr Tibbitts told Mr Camfield that the Studiolink would not be available for demonstration as it had been installed at the premises of one of Crosfield's clients but that there would be a demonstration of the Studio 9500. Mr Camfield said that he and Mr Cowan had taken over to Sydney a disk with some artwork prepared on it together with some transparencies which they had intended to use for the demonstration. Mr Camfield said that because the Studiolink was not there, they were unable to use the disk. In my view, this piece of evidence amply demonstrates that Mr Camfield, at that time, well knew how the Crosfield system worked with pictures, text and other artwork. He knew that pictures would be scanned in by way of transparencies (because he brought some to Sydney separately from the disk) and that the text and other artwork would be received in digital form on disk and processed through the Studiolink to the Studio 9500. Two Studio 9500 operators were present (one of whom Mr Camfield identified as being Mr Tony Fox) and they showed Messrs Camfield and Cowan some of that equipment's retouching functions before proposing to carry out a standard demonstration. When Mr Fox gave evidence it became apparent that he had a more senior managerial role than that of a Studio 9500 operator but his skills included operating that equipment. Mr Camfield said (in examination-in-chief) that he asked those representing Crosfield at this meeting to assemble some material which he (Mr Camfield) drew on the spot and which was similar to the material on Mr Camfield's disk. This was to be instead of the standard demonstration which he had been offered. Mr Camfield said that he agreed to a suggestion from Mr Tibbitts that instead of using Mr Camfield's transparencies, the Crosfield operators might use some other transparencies which had already been scanned into their system and then Mr Tibbitts suggested that as there was nothing to see while the system was processing the work, they should all go out to lunch.

Mr Camfield gave evidence that, before they left for lunch, Mr Tibbitts told him that the Studiolink and Studio 9500 system was very straightforward, that type could be produced on a Macintosh computer, the disk was put into the Studiolink and the files would be transferred into the Studio 9500 by way of a Galan Ring. A Galan Ring is a fibre optic device. Mr Camfield said that Mr Tibbitts also told him that the Studio 9500 was

. the most powerful system on the market;

. very fast and could carry out "the most amount of functions"; and

. worked on a lot of background functions, that is, while one part of the work was progressing, other functions were being carried on in the background.

Mr Camfield said that on return from lunch he was shown his draft artwork which had been processed and put together on the computer screen. That work was then output to film. He was quite happy with the demonstration. Mr Camfield said that there then followed some discussions between him and Mr Tibbitts concerning cost and the total package. Mr Camfield said that on that occasion Mr Tibbitts told him that if Quadrascan bought the Equipment:

. it would be serviced by Mr Harper in Perth;

. Mr Harper would be sent to the United Kingdom to do a training course on the Studiolink/9500 system so that he could handle any maintenance;

. spare parts would be carried in Perth; and

. there would be a telephone line link-up via modem from Quadrascan in Perth to Crosfield in Sydney to identify any problems in the system if Mr Harper had a problem.

Mr Camfield's evidence was that Mr Tibbitts also told him that:

. the Studiolink was basically very easy to operate;

. it required a Macintosh operator whom Quadrascan would have to employ;

. the Studio 9500 equipment was also very easy to operate;

. Quadrascan's existing film combiners and planners could be taught how to operate the system which was very straightforward and easy to use; and

. even Mr Camfield could be taught how to use the Equipment.

During the course of discussions with Mr Tibbitts and Mr Milner at Crosfield's demonstration studio in Sydney, Mr Camfield said that he was given two brochures, one in respect of the Studio 9500 and one in respect of the Studiolink which he said he looked at while at Crosfield's premises. Initially there was some dispute about this, but it is now common ground that Mr Camfield was given these brochures. In fact Crosfield relies upon various passages in the brochures to rebut the allegations that it engaged in misleading or deceptive conduct.

Mr Camfield said that during the meeting in Sydney he told Messrs Tibbitts and Milner that it was important that Quadrascan have a Postscript system and he was looking at the Purup imagesetter and the Wright Technology equipment. According to Mr Camfield, Mr Tibbitts' response was that with Quadrascan's two existing scanners upgraded (which Mr Tibbitts said would be required for them to work with the Studio 9500 Studiolink system), Quadrascan would be able to output all its
Postscript files through both of the expose units on those pieces of equipment. Accordingly to Mr Camfield, Mr Tibbitts said that the upgrade would turn them into imagesetters to process all the Postscript files and the larger of the two scanners would be the largest imagesetter in Australia. Mr Camfield said that he then spoke to Mr Tibbitts concerning scanning in transparencies and pictures and retouching and manipulating them into different sizes. He said that Mr Tibbitts told him that this was very straightforward and that images could be stored on tape for use at a later stage and output at a larger or smaller size. If images were increased in size by over 200% there would be some quality loss but on reduction there would be no problems. I regard this piece of evidence as being of some importance because it shows once again that Mr Camfield well understood that transparencies and pictures would still have to be scanned in to the Studio 9500 system. Nothing in his evidence suggested that his enquiry was confined to situations where material was being received in conventional form.

The brochure in respect of the Studiolink which Mr Camfield was given by Messrs Tibbitts and Milner at their Sydney meeting included the following statements:

"Industry Standards - Open Interfacing

Studiolink is an open interface to the desktop publishing world, and is based upon established industry standards. Compatibility is assured with Adobe's Postscript language, as defined in the Postscript Red Book. This allows processing of Postscript and Encapsulated Postscript files from virtually any source."

"A direct link to today's fastest growing user base - the personal computer user.

Studiolink opens up numerous business opportunities for Crosfield Studio users by providing an on-line connection to popular packages such as Letraset Design Studio,^TM Aldus Pagemaker,^TM Quark Xpress^TM and many other Postscript^TM compatible programmes. Needless to say, it also accepts
designs created with our own Lightspeed^TM Colour Layout System.

And because Studiolink streamlines the production of film separations, the entire operation becomes more efficient and responsive to your customers' needs."

The Studio 9500 brochure which was also given to Mr Camfield on that occasion included the following statements:

"Studio 9500 has every function needed for fast, accurate Page Make-up. Many different shapes can be made, edited, grouped, overlaid, copied or moved."

Easy to Learn, Easy to Use

"Studio 9500 with Studiolink is the bridge between the creative Designer's desktop, and the professional colour skills and heavy computer power of the Repro House."

Mr Cowan gave evidence that at the meeting in Sydney he asked the Crosfield representatives a number of questions from a list which he had prepared. Those included the speed at which the Equipment operated and the extent to which the Studiolink was compatible with the four or five main programmes available at that time. Mr Cowan said that the Crosfield response was that there was no problem with any of them. He said that he enquired about the training and was told that there would be an initial two-week training programme followed by on-going back-up and support. It is clear from Mr Cowan's evidence-in-chief (at page 491) that he was told by Crosfield's representatives at the meeting in Sydney that typed material would be transmitted to the Studio 9500 on disk.

Crosfield submitted the Quotation dated 8 August 1991 to Quadrascan for the supply of a Crosfield Studio 9500 electronic page composition ("EPC") system at a price of $847,450. The Quotation had annexed to it many pages setting out what Studiolink and Studio 9500 were and what they could do. Quadrascan relies upon the following statements made in that quotation:

"(a) The Studiolink supports any Postscript font including Adobe type 1 font as supplied by Linotype, Adobe and other licensees;

(b) the Studiolink directly interprets virtually all Postscript and encapsulated Postscript files from whatever source;

(d) the Studio 9500 is primarily aimed at those customers who require a fast productive EPC system focussed on page makeup and this would include:

(i) repro/trade houses handling a variety of brochure and magazine pages because of lower prices in this area of the market will be wanting the quickest possible turn around and the maximum possible quantity of work; and

(ii) conventional repro/trade houses which have not yet entered the EPC market because of restrictions associated with the introduction of EPCs such as a need for very skilled operators;

(e) the Studio 9500's power, speed and ease of use make it attractive to this market; and

(f) the Studio 9500 is easy to learn and easy to use."

Quadrascan entered into the Agreement to Purchase on 5 September 1991 and the Equipment Lease on 15 November 1991. A few days after the Equipment Lease was executed Mr Harper told Mr Camfield that he was leaving Crosfield. Mr Tibbitts had left Crosfield at the end of August 1991. In approximately November 1991 Mr Halker (until then Crosfield's managing director) also left Crosfield and a new managing director was appointed, Mr Barry Westlake. Mr Harper ceased working for Crosfield in early December 1991 before installation of the Equipment started. Mr Camfield's evidence was that he asked Mr Westlake what Crosfield was going to do to support the new system and to service the existing scanners. Mr Camfield said that
Mr Westlake told him that until a full-time replacement could be made, a company called Nexus owned by Mr Steve Frankiewicz would be retained for those purposes. Mr Frankiewicz had previously been employed by Delairco before forming Nexus as his own servicing company. (The evidence does not disclose whether Nexus was incorporated). Mr Camfield's evidence was that Mr Frankiewicz was the only employee of that company at that time. Mr Camfield said that Mr Westlake also told him that when he found a permanent replacement for Mr Harper, that person would be sent to the United Kingdom to do the training on the Studio 9500.

Findings Upon the Question Whether the Representations Were Made

With one exception, I accept Mr Camfield's evidence about what the Crosfield representatives told him concerning the Equipment at the meeting in Sydney on 2 May 1991. The exception concerns what Mr Camfield was told about the upgraded scanners functioning as imagesetters through which Quadrascan would be able to output all its Postscript files. To the extent that Mr Camfield may have intended to convey by that piece of evidence that he was told that all Postscript files could be output from the Studiolink to the scanners (in their output capacity) operating like imagesetters in a bureau (an expression explained later) I do not accept that evidence. My reasons for rejecting that piece of evidence are, first, that Mr Cowan gave no evidence to that effect. Secondly, Mr Camfield admitted that he was not very well versed with the technology in this area and declined to answer several questions in cross-examination for that reason. In my view Mr Camfield was either mistaken or was exaggerating at this point. Mr Camfield made no contemporaneous notes of this conversation. Finally, in my opinion there was every likelihood that in response to the mention of the Purup/Wright combination of equipment, the Crosfield representative would have explained that the upgraded scanners working in conjunction with the Studiolink and the Studio 9500 would be able to output Postscript files. The distinction between the need to involve the Studio 9500 and the by-passing of that piece of equipment was not something which, from my impression of Mr Camfield's evidence, he would have understood in May 1991. Whether Mr Tibbitts used the word "all" in that context (when referring to Postscript files), is something about which I had some doubts, but as Mr Tibbitts was not called to rebut this, I accept that he did use the word "all" when making this oral statement. I do not think that this affects the end result. Even the applicants' own distallation or summary of what was represented to them overall [see paragraph 19(c) of the Statement of Claim] was expressed in terms of the Studio 9500 and "virtually all" material provided in a Postscript format.

It is common ground that the two brochures and the Quotation contained the statements which I have set out above. The next matter to consider is precisely which of the four Representations (set out in paragraph 19 of the Statement of Claim and which the applicants say summarise what was represented to them) were made to the persons who caused Quadrascan to decide to purchase the Equipment. As part of that process I propose to assess whether what they were told and what appeared in the brochures and the Quotation amounted to some or all of the four Representations upon which the applicants rely. For convenience I shall again set out below what I shall describe as those four key representations and my findings in relation to each of them:-

(a) the Studio 9500 and Studiolink were suitable for the first applicant's business purposes, namely the provision of electronic page composition and related graphic reproduction services to clientele in Perth and Sydney including clientele who provided work to the first applicant in the computer language Postscript; ("the First Key Representation")

The statements made during the course of the meeting with the Crosfield representatives in Sydney on 2 May 1991, in my opinion, constituted a representation to the effect of the First Key Representation. The statements as to the power speed, ease of operation and capacity to carry out background functions set the context for Mr Camfield's statement that it was important that Quadrascan have a Postscript system and that he was looking at the Purup imagesetter and the Wright Technology equipment. Mr Tibbitts' response when set in the context of what had been said previously and the demonstration itself amounted, in my opinion, to a representation to the effect of that set out in the First Key Representation.

Those portions of the Studiolink brochure, the Studio 9500 brochure and the Quotation, which I have set out above, would in my opinion amount to an emphasis and further confirmation to the effect of the First Key Representation.

Although Mr Camfield swore that he looked at the Studiolink and Studio 9500 brochures there is no other evidence that he read the particular passages in those documents upon which the applicants rely in these proceedings. However, Mr McPhee invited me to find that "looking at" these documents meant that they were read carefully. Furthermore the respondents, in closing addresses, conceded that Mr Camfield had read those particular passages in the brochures before Quadrascan decided to acquire the Equipment. Accordingly, it is appropriate that I approach the matter on the basis that Mr Camfield did in fact read the brochures, which seems to me to be a reasonable assumption in all the circumstances, particularly as the Studiolink work station was not available for the demonstration in Sydney.

As to the statements set out above, which were contained in the documents attached to and forming part of the Quotation, Mr Camfield's evidence was to the effect that he read only the first eleven pages of the Quotation. The statements upon which the applicants rely are contained on subsequent pages. There is no evidence that anyone else on behalf of Quadrascan read those passages contained in the Quotation documentation which are set out above. The respondents submitted that Mr Camfield had read the Quotation in its entirety. This was to support the respondents' submission that certain other passages in the Quotation documentation set the context for the other representations relied upon by the applicants and caused those representations not to be misleading or deceptive. In the end, the applicants' use of the representations set out above was not as part of any submission that they relied upon them when deciding to acquire the Equipment and enter into the Guarantee, but rather to negate any effect which the other representations (upon which the respondents rely) might otherwise be thought to have.

At first Mr Camfield said, during cross-examination, that he could not recall reading the passages upon which the respondents rely, being passages which are said to explain the functions of the Studiolink and the Studio 9500 and to recommend where certain processes should be carried out. Later in cross-examination Mr Camfield stated definitely that he had not read certain of those passages. Mr Camfield impressed me generally as a witness of truth. Although he had trade qualifications, he said during cross-examination that he did not have technical knowledge in this area. I believe him in that regard. Mr Camfield's duties and role as managing director of Quadrascan and effectively half owner of the business were of an overall administrative and sales nature. Those duties included responsibility for production and technology but in a supervisory, managerial capacity. I think that this is confirmed to some extent by the fact that Mr Camfield took Mr Cowan with him to Sydney in May 1991. Mr Cowan was the more technical person, although even he disclaimed expertise in this area. Similarly, Mr Camfield took only a limited interest in the training of Quadrascan staff. I accept Mr Camfield's evidence that when he received the Quotation (Exhibit "J") he read the covering letter and the part described in the immediately following index as the "Business Proposal", but not the rest of the documentation there described as "Technical Descriptions". The Business Proposal comprised a seven page letter which identified the Equipment, set out particulars of the price and the more important conditions which would govern the proposed sale. However, the third page of the more formal letter accompanying the Quotation (which Mr Camfield read) succinctly describes the Studiolink in a heading which reads: "9. One (1) Crosfield Studiolink Text Input System". In my view, this clearly identifies the Studiolink as a text input system to operate with the scanners (described earlier in the Quotation).

(b) the Studio 9500 and the Studiolink would increase the efficiency and quality of service offered by the first applicant; ("the Second Key Representation")

I have assumed that this is a reference to these two pieces of equipment operating in conjunction. There are two representations here - first that the Equipment would increase Quadrascan's efficiency and secondly that it would "increase" the quality of service offered by Quadrascan. If efficiency connotes maximum output for minimum outlay in minimum time (which I think it does) then it must to some extent, in my view, overlap with quality of service. Quality of service would also extend to the quality of the end product, namely the films. In my opinion:

. the statements made by Mr Tibbitts to Mr Camfield that the Studio 9500 was the most powerful system on the market, was very fast, could carry out the most amount of functions, allowed work to be done simultaneously with background functions, that both the Studiolink and the Studio 9500 were very easy to operate and that basically one simply put a disk into the Studiolink and the information went through to the Studio 9500;

. the last statement, set out above, in the Studiolink brochure; and

. the first statement, set out above, in the Studio 9500 brochure,

amounted together to a representation to the effect of the Second Key Representation.

(c) the Studio 9500 could be used with virtually all material provided in a Postscript format; ("the Third Key Representation")

In my opinion, Mr Tibbitt's response (which I have summarised above) to Mr Camfield's statement that it was important that Quadrascan have a Postscript system constituted a representation to the effect of the Third Key Representation. This is augmented by Mr Cowan's evidence about the answers he was given by Crosfield's representatives to the list of questions which he put to them during the Sydney meeting. It is in my view a fair distillation to say that the response and the answers amount to a representation that the Studio 9500 could be used with virtually all material provided in a Postscript format. A similar representation is contained, in my view, in the statements set out above, in the Studiolink brochure. Taken cumulatively, those representations, in my opinion, quite clearly convey the Third Key Representation.

(d) the first respondent would provide an engineer resident in Perth to provide on-going support for the system. ("the Fourth Key Representation")

I accept that Mr Tibbitts in fact told Mr Camfield that the Equipment would be serviced by Mr Harper in Perth, that Mr Harper would be sent to the United Kingdom to do a training course on the Studiolink/Studio 9500 system so that he could handle any maintenance, that spare parts would be carried in Perth and that Mr Harper would have the assistance of a modem link-up from Quadrascan in Perth to Crosfield in Sydney. I think that implicit in such statements is the representation that if Mr Harper were to resign from Crosfield's employment then he would be replaced by someone with similar skills. In my opinion, by saying this Mr Tibbitts was representing that Crosfield would provide an engineer resident in Perth to provide on-going support for the system.

Installation of the Equipment

Quadrascan carried out alterations to its building in anticipation of the installation of the Equipment. These alterations were quite extensive and involved plumbing, air-conditioning, electrical work, new floor coverings and partitioning walls.

The original arrangements were for the installation of the Equipment to be
carried out in early December in two stages. The first stage was to upgrade the two scanners prior to any installation. Originally that had been estimated to take two days. The second stage was to install the Studiolink and the Studio 9500. It was estimated that this would take ten days to two weeks.

Mr Camfield said that there were numerous problems with the upgrading of the scanners. This led to one or both of them either malfunctioning or being out of operation. He said that there were several weeks during which the scanners caused serious intermittent problems.

Then the installation of the Studiolink and the Studio 9500 began. Mr Camfield gave evidence that there were "huge problems" with the installation of the system. There was no technician resident in Western Australia with any knowledge of the Equipment. Crosfield relied on technicians flown in from Melbourne or Sydney. These would arrive at lunch time on Mondays and leave at lunch time on Fridays. Mr Camfield said that several technicians came and went on this basis over the next several weeks. He complained to Crosfield both by telephone and by letter. During this time, Quadrascan's production staff were having "all sorts of problems" producing conventional work due to the problems Quadrascan had with the scanners being upgraded.

The correspondence in relation to these complaints started with a letter dated 11 December 1991 from Quadrascan to Crosfield expressing concerns. That letter concluded in the following terms:

"As I stated to both you and Tony Halker when we met in Perth, we purchased the 9500 etc from Crosfield because we believed that Crosfield would supply not only a good product but give good service and backup baring (sic) in mind our investment over the next 3 years I must emphasise my extreme concern."

Crosfield replied by letter dated 13 December 1991 which stated that Mr Frankiewicz was to be offered a short term contract to provide full service coverage on the scanners and the possibility of weekend breakdown pending Crosfield making a permanent appointment. The letter stated that that permanent appointee was to be sent to the United Kingdom from mid January 1992 to attend Studio 9500 training. The evidence is that no such permanent appointment was made and no technician was sent from Western Australia to the United Kingdom for training on the Studio 9500 system. However, Mr Frankiewicz's uncontested evidence was that in about mid-January 1992 at Crosfield's request he agreed to provide full-time service support to Quadrascan on call for 24 hours per day, 7 days per week.

On 22 January 1992 Mr Camfield wrote to Mr Westlake at Crosfield in the following terms:

"It is with regret that yet again I must express my dissatisfaction at the way Quadrascan is been (sic) treated by Crosfield ANZ.

The inability of your Company to upgrade and install the above equipment has resulted in large financial losses to my Company and serious loss of credibility with our clients.

We cannot even carry out the same functions on the M-Unit that we were able to prior to its upgrade and I am therefore sub-contracting all our poster work.

On Friday 17 January I was informed by your Service Department that the reason no engineer would be in Perth this week was due to the fact that no seats were available on any flights into Perth until Thursday 23 January, this was of course a lie. Upon contacting the Airline we were informed that there were in fact seats available on all flights into Perth from both Melbourne and Sydney from
Saturday, Sunday and Monday.

Following this last communication I am afraid that the credibility of your Company is somewhat suspect to say the least. If you are unable to resolve this farcical situation quickly and efficiently I will have no choice other than to take legal advice."

Mr Westlake responded by letter dated 24 January 1992 acknowledging that Crosfield's performance in installing the system was not up to the expectation of either Crosfield or Quadrascan. The letter foreshadowed sending one of Crosfield's Service Managers to Perth to resolve all problems.

Installation of the equipment was completed at the end of February 1992.

Mr Camfield said that he saw Mr Westlake in Queensland at a newspaper conference "around" March 1992. He told Mr Westlake that Quadrascan was having a lot of difficulties with the Equipment. He told Mr Westlake that the main problem seemed to be with the Studiolink and that Quadrascan was unable to work efficiently in Postscript. Mr Westlake had suggested that Quadrascan may have been doing things wrongly. Mr Camfield said that he asked Mr Westlake to send someone from Crosfield to check how Quadrascan was operating the Equipment and pointed out that Mr Frankiewicz was unable to help because he did not have the requisite knowledge. According to Mr Camfield, Mr Westlake said that when he returned to Sydney he would discuss the matter with his employees. Mr Camfield said that he heard nothing further from Mr Westlake or anyone else at Crosfield. Subsequently he learned that Mr Milner was responsible for Crosfield's products and customers in Western Australia. He rang Mr Milner at Crosfield's Melbourne office. Mr Camfield
said that he told Mr Milner by telephone on several occasions that Quadrascan was having "big difficulty" with the Studiolink handling any Postscript files and also problems with some of the functions on the Studio 9500 system. Mr Camfield's evidence was that he told Mr Milner that the situation was serious in that Quadrascan was re-doing work, was losing ground with clients because Quadrascan was becoming unreliable and was having to work a lot of extra hours carrying out the work in the former, conventional manner to make up for the problems or the faults which they were finding with the system. At the same time, so Mr Camfield deposed, Quadrascan was constantly calling out Mr Frankiewicz on service calls. The pattern was one whereby Mr Frankiewicz would have to call Sydney or Melbourne and sometimes the United Kingdom to discuss and try to obtain answers to the problems which Quadrascan was encountering.

At one stage, according to Mr Camfield's evidence, Mr Milner had suggested that Quadrascan should purchase a new product called the "Pixelink" which, in conjunction with the Studiolink, would solve a number of Quadrascan's problems. The price of a Pixelink was about $25,000. This was "around" March 1992. In approximately April 1992 Crosfield supplied a Pixelink to Quadrascan free of charge. Even following installation of the Pixelink, so Mr Camfield said, the situation did not improve. He said that the Pixelink made very little difference. In this regard Mr Camfield's evidence differs from that of Mr Andrew Curran who was Quadrascan's Studiolink operator. Mr Curran's evidence was that Pixelink made "a huge difference", enabled Quadrascan to process the work "much better" and solved many problems. Mr Camfield said that his operators continued to complain to him. He observed a number of jobs which would normally be done by computer being carried out by conventional means. He often saw film and proofs which were not acceptable and he saw work that had to be re-done. On occasion he personally took work away from the Studiolink/Studio 9500 area and up to the next floor above to be done conventionally on the bench. Mr Camfield said that quite often he saw film or proofs which were not acceptable whereupon the film would be discarded, the transparencies re-scanned and the work done conventionally on the bench. He contacted Mr Frankiewicz and Mr Milner on many occasions to complain about the problems.

The events of October/November 1992

On 23 October 1992 Mr Camfield instructed Quadrascan's bankers to cancel any further payments to Burnhill under the Equipment Lease and on that date wrote to Mr Milner at Crosfield in Melbourne advising him that he was taking this course. That letter was in the following terms:

"I must inform you today of our decision to instruct Quadrascan's Bankers to cancel further payments to Burnhill Finance for the Crosfield 9500 and Studiolink systems.

The constant breakdowns, systems malfunctions together with the inability and restrictions of Studiolink to perform in a postscript environment has created massive financial burdens with serious implications to Quadrascan's future.

Our credibility in the marketplace has been all but destroyed leaving our remaining clients, although sympathetic, apprehensive to use us for Electronic pre-press. Therefore restricting their orders to work of a conventional nature only.

I cannot emphasise enough the difficulties that the Crosfield installation has created for Quadrascan. Despite constant assurances from both yourself and Barry Westlake that things will improve, I am left with no option other than to take legal action and our Solicitors will be contacting you in due course."

Shortly thereafter Mr Camfield went to Sydney and attended a meeting with Mr Westlake. Mr Fox (who it will be recalled had demonstrated some of the Studio 9500 functions to Mr Camfield at the meeting in Sydney on 2 May 1991) was present at that meeting for some of the time. Mr Camfield tabled two documents listing the problems which Quadrascan was encountering with the Equipment. Following this meeting, Quadrascan resumed making the lease payments for the Equipment. However, so Mr Camfield said, the problems continued and he contacted Mr Milner on several occasions. On one such occasion Mr Camfield said that he told Mr Milner that if Crosfield felt that the problem lay with Quadrascan then Quadrascan would be prepared to pay for someone from the Eastern States or the United Kingdom to travel to Perth in order to check how they were operating the Equipment. The result was that Mr Fox travelled to Perth in early November 1992 and spent almost a week overseeing Quadrascan's operations. Apparently Mr Fox's expertise was on the Studio 9500 but not the Studiolink. According to Mr Camfield, Mr Fox told him that Quadrascan's operators were very good, knowledgeable and were doing a good job. Mr Fox made some suggestions about "pre-planning" on each shift and Mr Camfield's evidence was that steps were taken to implement those suggestions.

Mr Fox prepared a detailed report dated 12 November 1992 and also gave evidence of what he saw and what took place during his visit to Quadrascan. As will be seen later, I consider that report to be an important piece of evidence in relation to the conclusions which I draw in this matter.

It was put to Mr Camfield in cross-examination that, on many occasions during Mr Fox's visit, Mr Camfield had told Mr Fox that Quadrascan had no problems with the Studio 9500 and that he had also told Mr Fox that the Studio 9500 was one of the best things that Quadrascan had ever purchased. Mr Camfield denied this, but agreed that he had told Mr Fox that the Studiolink was causing Quadrascan the most problems. Mr Camfield denied having agreed with Mr Fox that the problem was that there was no-one who was able to co-ordinate things properly.

Mr Camfield said that he told Mr Frankiewicz that he was having a lot of problems with the Equipment but that at no stage told Mr Frankiewicz that Quadrascan "would be unable to carry on with the Equipment". Mr Camfield conceded that as late as early 1993 Quadrascan was investigating the re-financing of the Equipment to take advantage of lower interest rates. Again in cross-examination, Mr Camfield denied that the only matters of complaint which he made to Mr Frankiewicz concerning the equipment were:

. that the Studiolink would not transfer deep-etched, high resolution images to the Studio 9500; and

. that there were files transferred to the Studio 9500 via Studiolink where it was impossible further to manipulate or edit those files without putting them back to the desktop computer.

Mr Camfield responded by saying that when he complained to Mr Frankiewicz he never got into the technical details.

At about this time, Mr Milner left Crosfield and his position was taken by Mr Colin McKenzie.

In about July 1993 Mr McKenzie visited Quadrascan's premises where Mr Camfield introduced him to Mr Derek Williamson and Mr Chad East of Quadrascan. Mr Williamson is now Quadrascan's production supervisor and was Quadrascan's Studiolink operator between September 1992 and November 1993. Mr East was employed by Quadrascan as an operator of the Studio 9500 system. Mr Frankiewicz was also present at that meeting. After the introductions, Mr Camfield left the meeting. At the conclusion of the meeting Mr McKenzie told Mr Camfield that he would "come back to" him upon his return to Melbourne. According to Mr Camfield, Mr McKenzie said that he would do what he could about the problems but could not promise to solve them.

Mr Camfield said that the next day there was a breakdown of the Studio 9500 which resulted in a call to Mr Frankiewicz. Mr McKenzie was still in Perth and came to Quadrascan on the service call with Mr Frankiewicz.

Mr Camfield said that he spoke to Mr McKenzie after Mr McKenzie had looked at the Equipment. He asked Mr McKenzie what the problem was. Mr McKenzie said that the Equipment would have to be turned off for a day for it to be fixed. Mr Frankiewicz's evidence was that he had no recollection of the Studio 9500 at Quadrascan's premises being turned off for a day during Mr McKenzie's visit in July or August 1993. According to Mr Frankiewicz's service records the only servicing of that Studio 9500 during those two months was a 3 hour visit by him on Saturday 14 August 1993 in response to complaints made by Quadrascan about the Studio 9500. Mr Frankiewicz said that on that occasion he spent 3 hours running tests but could
find no problems.

Mr Camfield said that the following week Mr McKenzie telephoned him and said that he still did not have any specific answers to the problems, but that he was looking into the matter and was discussing it with other people at Crosfield and would get back to him. Mr Camfield said that there was no further contact for a week or so following which he phoned Mr McKenzie who was not in Melbourne but was in Sydney. He left a message but there was no response to that message. At that stage Quadrascan decided to take legal advice.

Mr Camfield's evidence was that he had previously discussed Quadrascan's problems in relation to the Equipment with a Mr Smith, the national sales manager for Crosfield based in Sydney. Mr Smith suggested that Quadrascan needed some more equipment to produce the type of work which they required and to install another configuration to handle the Postscript files. This included a Magna Rip. However, by that time Quadrascan were looking at equipment manufactured by others. The result was that Quadrascan bought an imagesetter and Linotype Hel 630 from a company named EAC Graphics which operated totally in Postscript. Mr Camfield said that the output was smaller (in terms of the size of the finished product) than Quadrascan required, but Quadrascan had to have capacity to work in Postscript with Macintosh and associated software. Total cost of the new system was approximately $340,000.

The Equipment was eventually removed by Crosfield on behalf of Burnhill
from Quadrascan's premises in December 1993.

Did the Making by Crosfield of the Four Key Representations Constitute Misleading or Deceptive Conduct or Conduct that was likely to Mislead or Deceive?

In their statement of claim (when read with the explanation made by Mr McPhee in his closing address that the Statements and the Representations were the same) the applicants plead that the making of the Representations was conduct in breach of s.52 of the Act. This is put on the basis that the Representations taken together or separately were misleading and deceptive or likely to mislead or deceive because:

(a) the Studiolink could not enable an effective, efficient and reliable transfer of Postscript image text and/or page composition information from virtually all Postscript sources into the Studio 9500;

(b) the Studio 9500 was so unreliable and limited in its function that it was unsuitable for use in the First Applicant's business and it adversely affected the efficiency and quality of service of the First Applicant;

(c) there has never been an engineer in Perth provided by the First Respondent trained to provide support nor has a modem link to Sydney been installed; and

(d) the equipment, the Studiolink and Studio 9500 did not have all the features and characteristics ascribed to it by the Statements.

It can be seen that apart from the complaint concerning the failure to provide a trained engineer and to install a modem link to Sydney, the above complaints comprise a separate complaint in relation to the Studiolink and the Studio 9500 respectively followed by a complaint in respect of all of the Equipment (listed in paragraph 21) acquired by Quadrascan from Crosfield. That general complaint - that the Equipment did not have all the features and characteristics ascribed to it by the Statements - is followed by nearly five pages of particulars under the following headings:

. Particulars of Limitations Inefficiency and Unreliability of Studiolink [16 particulars are set out under this heading];

. Particulars of Limitations Unreliability and Limitations of function of Studio 9500 or Studio 9500/Scanner Interface in relation to subparagraph (xix) below [19 particulars are set out under this heading; but the matter complained of in subparagraph (xi) was abandoned at an advanced stage of the hearing];

. Particulars of Unsuitability [described in three numbered subparagraphs]; and

. Particulars of Lack of Support [five numbered paragraphs are set out under this heading].

A very large part of the hearing was occupied by the taking of evidence relating to the subject matters described in the first two headings set out above, that is the 16 separate complaints concerning the Studiolink and the 18 separate complaints concerning the Studio 9500. Numerous witnesses, from both sides, gave evidence of their experiences and many were taken (in evidence-in-chief and cross-examination) through a substantial number of those particulars for their comments.

The witnesses included the initial Studiolink operator at Quadrascan, Mr Andrew Curran and his successor in that role, Mr Derek Williamson. Mr Simon Walker, Quadrascan's general manager (hereinafter referred to as "Mr Walker" to distinguish him from Mr Roy Walker, another Quadrascan employee who gave evidence) and three of Quadrascan's Studio 9500 operators also gave evidence. The
applicants called other users of Crosfield equipment which was either identical to or, for the purposes of this case comparable in function and capacity to the Equipment. The applicants also called two expert witnesses, Mr Alan Marsh and Mr Roger Costello. Mr Costello in particular had extensive experience with computerised prepress equipment.

The respondents also called several users of Crosfield equipment which was either identical to or comparable to the Equipment. The respondents also called two of their former employees, Ms Kim Witham and Mr Anthony Fox, together with Mr Frankiewicz and an expert in the field, Mr Phillip Lawrence.

I have scrutinised all of the evidence, much of it of a fairly technical nature, in relation to Quadrascan's experiences with the Equipment, the tests which each of the experts made in respect of the Equipment, the experiences of other users of the Equipment or comparable equipment, and the opinions of the experts.

When assessing whether the Representations, taken together or separately, were misleading or deceptive or likely to mislead or deceive, consideration must be given to the class of consumers likely to be affected by the conduct: Parkdale Custombuilt Furniture Pty Ltd v. Puxu Pty Ltd (1982) 149 CLR 191 at p.199. In my view, in the present matter the class of consumers comprises the operators of businesses engaged in providing graphic reproduction and prepress services. They were Crosfield's customers. Parkdale and the other cases cited at p.198 of the above report are authorities for the proposition that the test is an objective one. Parkdale is also authority that s.52 of the Act:

"... must be regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests."

I set out this passage because I consider that it has particular application in this matter. Quadrascan is relying upon the Representations some of which are said to be contained in the Quotation. In other parts of that document there are contained passages which, in my view, quite clearly explain the relative functions of the Studiolink and the Studio 9500. Mr Camfield says that he did not read any of either of those sets of passages and I will need to consider later whether that has any bearing upon the question whether Crosfield has engaged in misleading or deceptive conduct.

Again there is seminal guidance to be had from Parkdale on the application of s.52 to a matter such as this. In the present matter, it was no doubt convenient to segregate the complaints in relation to the Studiolink and those concerning the Studio 9500. However, when making the overall assessment of whether Crosfield contravened s.52 of the Act, in my view, the proper course is to weigh up the impact of the Representations as a whole and to balance against that evidence the evidence of the capabilities of the Equipment taken as a whole. In other words, to what extent did the capacity of the Studiolink and Studio 9500 when operating in tandem diverge from the capacity of the Equipment as set out in the Representations? As Gibbs CJ observed in Parkdale (also at p.199):

"The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words."

The respondents submitted that the Representations should be assessed as either being or not being misleading or deceptive at the respective times upon which they were made. The applicants submitted that the test should be applied over at least the three year period of the lease for the Equipment. In my view neither proposition is on its own persuasive. Certainly if the Representations were misleading or deceptive at the time they were made then that would be an end to that part of the assessment.

However, the situation was one in which the parties contemplated the sale and acquisition of equipment for a consideration of some $900,000 at a time when both sides were well aware that the relevant technology in the industry was changing fairly rapidly. In those circumstances, for the purposes of assessing whether a statement is misleading or deceptive, in my opinion, the statement must be substantially true as at the time when it is made and for a reasonable period thereafter. What is a reasonable period in a particular matter would depend on various factors including the rate of change in technology, other supervening events and whether those events ought reasonably to have been in the contemplation of the parties when the statements were made. In fact, in his final address, Mr J. Cripps Q.C. (senior counsel for the respondents following Mr Sperling's appointment to the bench of the Supreme Court of New South Wales during the course of the hearing) conceded that the
Representations had to be assessed in the context of a reasonable period or a reasonable time in the future but not three or four years. In my view, a reasonable period in this particular industry at the relevant time would have been about 18 months from the beginning of August 1991 when the Quotation was made.

The evidence of Messrs Curran, Lincoln, Walker, (which was consistent with that of Messrs Lawrence, Weekley and Cavenagh) was that at the time when the Representations were made, between 80%-95% of the work which Quadrascan was asked to do was presented in hard artwork form. That work had to be processed either conventionally or (after the acquisition of the Equipment) with the use of the Studio 9500 (but not the Studiolink) in the manner which I have earlier described in these reasons. The Equipment was installed during the period between mid December 1991 and the end of February 1992. There was evidence, which I accept, that by the beginning of 1993 there had been a radical change to the extent that by then only about 10% of Quadrascan's work was coming to it in conventional hard artwork form and the balance of the work comprised work on disk. The disks were still accompanied by transparencies where pictures were required as was usually the case. In essence, as the respondents submitted, Quadrascan was seeking a high quality electronic page composition system to enable it to undertake more productively page composition work from instructions received both in hard artwork form and on disk. I accept the evidence that it was not generally foreseen in the latter part of 1991 that within a period of about two years the Macintosh technology would advance to such a stage that complete pages could be composed on the Macintosh computer including text, line work and high resolution deep-etched pictures
and that such completed pages could then be transmitted straight to an imagesetter and output successfully to film of acceptable quality. This, in essence, is how the equipment which Quadrascan purchased in substitution for the Equipment in late 1993 works. Mr Costello gave certain evidence in confidence concerning the means he employed to get the Macintosh Purup Jupiter system working. The fact that he had to give this evidence in confidence supports, to some extent, the inference that even now the information concerning developments on the Macintosh side is not generally available.

In paragraph 24 of the Statement of Claim the applicants have listed particulars of the alleged defects in the Studiolink and Studio 9500 under separate headings dealing with each piece of equipment. Mr McPhee, in his opening address, said that the most important difficulty was the unreliability of the translation of the Postscript language coupled with the Equipment's inability to do cut-outs and chokes, vignettes of various sorts and effectively to translate the product delivered by the client. Mr McPhee also stated that the defects varied from very serious to "not too serious" and were part of the matrix of events which the applicants said when accumulated, singularly in relation to the core matters and generally in any event, made the Representations clearly false and the Equipment unsuitable for its purpose at the time it was purchased. I now proceed to examine each of the alleged defects particularised in paragraph 24 of the Statement of Claim other than certain of the core items which will be dealt with separately. Before doing so I shall say something about Mr Skurka's evidence.

Mr Skurka

The applicants called Mr Gary John Skurka to give evidence of the many problems which he said that he encountered with the Studiolink and Studio 9500 acquired in 1991 by a company called Image Scan Pty Ltd of which he was the managing director. Mr Skurka said that during the period leading up to January 1992 he had spoken to Crosfield on a number of occasions concerning the productivity of the Crosfield equipment. Mr Skurka's evidence was that when the Crosfield equipment was first installed it failed and did not operate for some two months. Then it suddenly came to life, a matter in respect of which no technical explanation had ever been discovered. He had a number of meetings with Crosfield representatives at which he complained about the equipment. In January 1992 a software upgrade was installed on Image Scan's Studio 9500. Then in March 1992 Mr Milner of Crosfield attended at Image Scan's premises and carried out an audit of production over a period of two days. Mr Milner made some recommendations which Mr Skurka did not implement. He gave evidence of a discussion with Mr Milner in about March 1992 in which he (Mr Skurka) questioned a number of observations and comments made in Mr Milner's report. There was a further review of Image Scan's operation, this time by Mr Young of Crosfield in July 1993 following which more recommendations were made. I mention Mr Skurka's recollection of what he told the Crosfield representatives in early 1992 by way of a contrast with his recollection of two conversations with a Mr Martignoni in April and May 1994 respectively. Mr Martignoni is a solicitor with Messrs Allen Allen & Hemsley in Sydney, solicitors for the respondents in this matter. Mr Martignoni telephoned Mr Skurka in April 1994 and discussed various aspects of the Crosfield equipment. He then travelled to Melbourne where he interviewed Mr Skurka in May 1994. Mr Skurka vehemently denied having told Mr Martignoni during the telephone conversation that he would buy the Crosfield system again and that basically it was a good system. He then said that he could not recall, during the course of that telephone conversation telling Mr Martignoni that he chose the Crosfield system because it was "the best around at the time and he still believed that". There then followed a series of questions concerning various statements, mostly favourable to Crosfield's equipment, which it was suggested Mr Skurka had made to Mr Martignoni during the course of the telephone conversation and the interview in May 1994. Mr Skurka's responses in relation to the questions relating to the telephone conversation were mainly to the effect that he did not recall the conversation at all (by which I understood him to mean the content as opposed to the fact of the telephone conversation) and he did not recollect having a conversation of the nature described. Mr Martignoni was subsequently called to give evidence and tendered his notes of the telephone conversation and of the interview. He was cross-examined by Mr McPhee. In my opinion Mr Martignoni was a truthful witness. This does not mean that I find Mr Skurka to be an untruthful witness. However, I formed the impression that consciously or unconsciously Mr Skurka exaggerated the problems which he said that he encountered with the Crosfield equipment. Furthermore, on examining Exhibits 32 and 33 (reports from Mr Milner dated 16 March 1992 and Mr Young dated 7 July 1993 respectively) I formed the impression that the problems encountered by Mr Skurka's company were due to the absence of sufficiently competent managerial supervision. By that I mean managers with a sufficient degree of technical knowledge and strong organising abilities to supervise preplanning and production. There were strong parallels with the situation described at Mr Skurka's company by these Crosfield representatives and the description of Quadrascan's business as at November 1992 which was provided by Mr Fox.

Furthermore in November 1994, between the time when Mr Skurka had the telephone conversation and interview with Mr Martignoni and the time when he gave evidence in February 1995, Mr Skurka was served with a notice of demand on behalf of the second respondent for payment of $287,000 as a guarantor of a lease of some Crosfield equipment. In my view this development on its own would tend to put a witness into the camp of the opposition.

Time and again, but not always, the pattern was that Mr Skurka's evidence on the various individual complaints was far more extreme and vigorous than other witnesses. Mr Skurka's responses became almost predictable.

I did not characterise Mr Skurka as a witness who knowingly or deliberately misled the Court. However, I formed the conclusion that his evidence was exaggerated to the extent that I could not safely rely upon it in my efforts to assess where the truth lay.

STUDIOLINK

(a) The Studiolink could not deal with deep-etched pictures.

This core issue is dealt with below at pp.90-94.

The Studiolink could not deal with graduated tones.

This further core issue is dealt with below at pp.90-94 and 100-102.

(b) The Studiolink was unable to support special effect zoomed text from Postscript programmes such as "Typestyler" and "Fontstyler".

Mr Andrew Curran, Quadrascan's initial Studiolink operator, estimated that this problem occurred "at least" half a dozen times in the first 12 months. His solution was to offer Quadrascan's customers an alternative to the effect required or send the text feature to a bureau which would produce a bromide which Quadrascan would then scan into the Studio 9500. In cross-examination it was put to Mr Curran that the text image could be put into a separate page and sent by Graphics mode from the Studiolink to output as film and be made into a bromide at Quadrascan's premises and then scanned into the Studio 9500. Although Mr Curran was a Studiolink operator he said he was not familiar with Graphics mode. Based on the technical evidence adduced during the course of the hearing as to the capability of Graphics mode, I would infer that the steps outlined by Mr Sperling in cross-examination would in fact achieve the same result as if the work were sent out to a bureau. Admittedly some extra steps would have been required compared to a simple transmission from the Studiolink to the Studio 9500. Mr Derek Williamson, the second Studiolink operator acknowledged that this method could be used but said that there would be a significant loss in quality when using the text as a graphic rather than as text. Mr Burrows, a Sydney prepress consultant called by Quadrascan, said that receiving special effect zoomed text in Typestyler and Fontstyler programmes was not all that regular and the work would be changed into another application or modified. Mr Costello estimated that between perhaps 5% and 8% of the work which he saw in the Postscript environment at Scott Four Colour in 1992 and 1993 had these special effects and that the alternative of sending the work out to a bureau and combining it on the bench would increase the cost by a little over half. Mr Costello said that he did not believe that the alternative modes on the Studiolink could be used in the manner suggested by Mr Sperling. Mr Costello did not test this alleged defect on the Equipment at Quadrascan and I prefer to accept the evidence of Mr Williamson who actually operated the Studiolink and the evidence of other witnesses concerning what could be done in Graphics mode.

Ms Witham's evidence was that she received only one or possibly two complaints about this matter from Quadrascan. Mr Cavenagh tested the Equipment at Quadrascan for this defect and the material went through in Separation mode and was output to film successfully. Apart from the evidence of Mr Costello there is little inconsistency between the above pieces of evidence. Given the relative infrequency of the problem and the availability of at least one remedy I have concluded that this was not a significant defect.

(c) The Studiolink could not do high resolution masking as hair line gaps appear around the edge of the mask.

Mr Curran was not familiar with this problem and believed it to be a Studio 9500 function. His evidence is confirmed by the evidence of Ms Witham and Messrs Williamson, Weekley, Gardiner, Hudson and Cavenagh. I accept their evidence that this is simply not a Studiolink function.

(d) The Studiolink could not reliably transmit text unless sourced from a Quark programme. The colour of the text otherwise changes at random.

I accept that this problem occurred but there was scant evidence as to the frequency of its occurrence. Mr Curran thought that the problem occurred quite regularly for a period of about two months. Furthermore, the evidence of Mr Derek Williamson, Quadrascan's second Studiolink operator, was that in 1992 and 1993 90% of the materials received by Quadrascan were in the Quark Desktop Publishing programme. Mr Walker, Quadrascan's former general manager, gave evidence that Quark was the most common programme. Mr Burrows said Quark was by far the most common programme. Mr Costello gave similar evidence. Mr Marsh, a systems manager at a company called Image Colour in South Australia visited Quadrascan at the request of Mr Camfield in the middle of 1993. He was asked to assume that the above statement was true and on that assumption to give his opinion as to the likely impact on production. Mr Marsh said that this was one of the matters that he witnessed during the carrying out of his tests at Quadrascan. He acknowledged that there were different methods to overcome the problem but his estimate that a one hour job would take four hours to rectify was based on the whole of the work being done on the bench. Mr Skurka's estimate of the impact of this problem was a doubling or a trebling of the length of time the job should take to process. Mr Cavenagh explained that about 80% of Network Graphic's work was received in Quark Express and that his firm would have not done more than half a dozen Pagemaker jobs in all the time it had Studiolink. Mr Simon Walker's evidence was that almost all other application programmes had some problem such as colour drop outs and the like. Mr Weekley gave evidence that in respect of the programme known as Pagemaker, if the customer had chosen an incorrect palette and this was
not corrected by the prepress house then a different percentage breakdown of the four key colours would appear when the file was ripped. Mr Gardiner's evidence was that problems only arose when the client left some information out of the file. Having regard to the fairly short period referred to by Mr Curran, Mr Williamson's estimate that 90% of the materials received by Quadrascan were in Quark (evidence which was consistent with the experience described by Mr Cavenagh) and after taking into account the technical aspects referred to by Mr Weekley and Mr Gardiner this defect was not, in my view, a significant one.

(e) The Studiolink could not reliably transfer colour graphics.

Mr Curran did not give evidence in relation to this alleged defect and to the extent that he answered a question in respect of the problem it appeared that he was unaware of it. Mr Williamson said that this happened on one occasion at a time after the installation of the EAC equipment at Quadrascan i.e. after July 1993. While nobody else from Quadrascan gave evidence about this problem, Mr Burrows said that it was a very common one. Mr Jeffrey Holland managing director of Four Colour Graphics, a reprographic film house in Sydney was called by the applicants to give evidence. Mr Holland had served his apprenticeship in the printing industry in which he has worked for some 25 years. Nevertheless his evidence was that he was not "technical enough" to comment on this alleged defect. He certainly did not say that he had been made aware of it in the course of the carrying on of his firm's business. My impression from the rest of Mr Holland's evidence was that if this were a substantial problem then he would have been aware of it. Mr Skurka said that the problem happened all the time, but, as I have said, I have certain reservations with regard to Mr Skurka's evidence to which I have referred elsewhere in these reasons. The evidence of Messrs Weekley, Gardiner, Hudson, Witham and Cavenagh was to the opposite effect. Mr Cavenagh said that Studiolink would notify the operator if the proposed graphics transmission exceeded 256 graduated tones of colour. I accept the evidence of these five witnesses and, having regard to the limited evidence given by the operators from Quadrascan, I find that this was either not a problem at all or to the extent that it occurred was a very minor one.

(f) Studiolink could not transfer pages from encapsulated Postscript files with spreads and chokes to be printed through the Studio 9500.

An encapsulated Postscript file is a Postscript file which is complete in itself in that it contains both scanned images, Postscript lineart or any combination of them. Its fundamental feature is that it can be sent to an imagesetter or Postscript device without any other information and contains within itself all the information to output it or produce it on the screen. It is the total sum of the information to describe that page. Spreads and chokes are techniques employed to avoid gaps unintentionally appearing between two areas of different colour or between text and a background. It involves the slight overlapping of type or graphic elements. The complaint here particularised is that when an encapsulated Postscript file is transmitted from the Studiolink to the Studio 9500 the spreads and chokes drop out. The fifteen witnesses who gave evidence about this particular were virtually unanimous that this problem existed. The operation of applying spreads and chokes is also known as trapping. The witnesses varied as to the frequency with which material to be processed required trapping. Mr Williamson gave no evidence about the relevant frequency but Mr Curran's evidence was that generally any colour work required trapping including catalogues which were a major source of work for Quadrascan. Mr Holland said that he saw this problem quite often at his firm, Four Colour Graphics. His evidence was to the effect that his firm circumvented the problem by regripping the work at the Studio 9500. My impression from Mr Holland's evidence was that regripping was not a major problem. By contrast Mr Walker said that there was really no solution to the problem other than to take the text out altogether and take it to the bench for stripping out by hand. Mr Lincoln's evidence was to similar effect. I saw some significance in the fact that these two operators apparently did not know that spreads and chokes could be applied at the Studio 9500 or sent through in Separation mode if no manipulation were required. There were two other, more extreme, views. On the one hand, Mr Burrows estimated that trapping was required on more than 90% of every job sent through Studiolink and Mr Skurka's evidence was that 98% of the work handled by his firm contains spreads and chokes. On the other hand Mr Gardiner said that only about 50% of work required spreads and chokes and of that about 40% or 50% in early 1993 did not have spreads and chokes applied to them by the client. Mr Cavenagh said that it was reasonably rare to get trapping applied by the customer on EPS files.

I accept that a substantial amount of Quadrascan's work lost spreads and chokes when encapsulated Postscript files were passed from the Studiolink to the Studio 9500. However, Mr Costello's evidence was that the best place to apply spreads and chokes is at the point of assembly of the page. The evidence was that the page could be assembled at two points. If no manipulation were required on the Studio 9500 then assembly could be organised by the Studiolink operator using Separation mode. Mr Curran's evidence was that spreads and chokes could be sent through Studiolink in Separation mode. The evidence of Ms Eyres, Mr Weekley, Mr Gardiner, Mr Hudson, Ms Witham and Mr Cavenagh was to the same effect. If manipulation were required on the Studio 9500 then, in my view, this would be the point at which assembly of the page is organised and I refer to Mr Costello's observations above. In those circumstances trapping would be applied at the Studio 9500. I accept that in some substantial number of cases at Quadrascan this requirement of re-applying trapping at the Studio 9500 involved re-executing work which had already been done by the client and to that extent constituted a defect in the Studiolink, the significance of which I must weigh up in the context of the Representations concerning the capabilities of the Equipment as a whole.

(g) Tintfil or colorfil would drop out at random when put through to Studio 9500.

Tintfil and Colorfil, as their names suggest, were, in this context the results of the application of functions carrying those names whereby textual or graphic portions of material were coloured and indicated as such when a computer file was opened at the Studiolink. The problem alleged was that from time to time the tinting or colouring would drop out. Quadrascan's two Studiolink operators, Mr Curran and Mr Williamson understood this to be the same problem as described at paragraph (d) above. Although put forward as a Studiolink defect, it seems to me that one would have expected the Quadrascan Studio 9500 operators to have been aware of it. However, Mr Lincoln saw the problem in terms of drop out. Windows created on the Macintosh computer for a picture to be placed in by the Studio 9500 would disappear and the window would have to be recreated on the Studio 9500. His evidence was that this did not take long to recreate and the problem did not happen very often. Mr Walker's evidence was that he saw this problem fairly regularly. He could recall half a dozen occasions but was "pretty sure that it occurred more often than that". Mr Walker said that a simple Colorfil could take a matter of minutes to carry out on the Studio 9500 but on occasion it could take 10 or 15 minutes. Other witnesses such as Mr Gardiner and Mr Cavenagh said that they had never experienced this problem. My impression of Mr Burrows' evidence was that he had some difficulty understanding the nature of the complaint. When he did understand what was being put to him, his response was that the problem would not have been one of the most regular occurrences but it was another thing that made for unreliability. Mr Skurka said that he encountered the problem quite often, about 60% of the time, and Ms Witham's evidence was that Tintfil or Colorfil were functions of the Studio 9500. Mr Hudson's evidence was that he experienced this on either one or two occasions and that the effect on productivity was minimal. Based principally on Mr Walker's evidence, but not discounting the evidence of any other witness apart from Mr Skurka, I find that this was a problem which occurred at Quadrascan on relatively few occasions. When it did occur it was easily rectified on the Studio 9500. In my view, it was not a significant problem.

(h) The Studiolink could not supply low resolution deep-etched pics for positionals.

This is a complaint to the effect that it was not possible to pass a low resolution deep-etched picture from the Studio 9500 back to the client either through the Studiolink or otherwise in disk form for positioning on the page by the client. The respondents' position in relation to this alleged defect is that it is not within
Studiolink's specifications to supply low resolution deep-etched pictures for positionals.

Mr Curran saw this as a problem of not being able to send low resolution pictures through to the Studio 9500. He also mentioned an inability to bring back high resolution deep-etched pictures from the Studio 9500 whereas Mr Williamson saw it in terms of the above description. Mr Williamson said that this was a day to day problem and Mr Curran's evidence was to like effect. There was evidence that, technically, polygon cut-outs could be provided to the clients for placing positionals within the page. When the file was returned to the prepress house there was a facility known as the Open Press Interface ("OPI") which when the file was sent via Studiolink to the Studio 9500 had the result that the polygon cut-out would automatically drop out and be replaced by the high resolution picture previously scanned in into the Studio 9500 from a transparency. There was other evidence that this, although technically possible, would not be acceptable to most clients. Mr Hudson said that the Studiolink could supply low resolution deep-etched images on a white background but could not do so on a transparent background. Mr Gardiner agreed with the complaint but said that in 1993 his clients were not seeking this capability so far as deep-etched positionals were concerned. It was not something that there was a call for. Mr Cavenagh did not test this matter. He said that it was not part of the Studiolink to supply low resolution deep-etched pictures for positionals and at Network Graphics between February 1992 and November 1993 no customer ever requested this. I accept Quadrascan's evidence that this facility did not exist with the Studiolink and constituted a problem from time to time. However, both Mr Curran and Mr Walker gave evidence of the remedial measure adopted, namely replacing the high resolution deep-etched picture on the Studio 9500. I accept that this took extra time and, as Mr Walker said, there was always the possibility that the picture was not replaced in exactly the same position. However, the core of the problem was that Studiolink could not deal with deep-etched pictures as referred to in paragraph (a) above. I deal separately later in these reasons with the matter of deep-etched pictures and for similar reasons which I give at that point I do not regard this particular manifestation of the problem as being a basis for characterising the representations made by Crosfield as misleading or deceptive conduct.

(i) The Studiolink could not support input from CAD programmes.

CAD stands for computer assisted design. The evidence was that, typically, cartographers would use programmes of this nature. Mr Williamson gave one example of having been approached by a representative from the firm "The Mapping Resources" which was creating maps on disk and wanted Quadrascan to download those files onto the Studio 9500 for outputting into CMYK film. Mr Williamson said that because the Studiolink software was limited to 256 colours that business had to be turned away. Mr Curran said that he was "not fluent" with CAD programmes and gave no other evidence on this issue. Messrs Burrows, Holland, Marsh, Weekley, Gardiner, Hudson and Cavenagh's evidence was to similar effect. Ms Witham said that the only source of this complaint had been from Quadrascan and even Mr Walker who said that there was some demand, acknowledged that the demand was not a huge demand. I accept Mr Williamson's evidence about the occasion which he described. However, my assessment is that this was not a significant problem at
Quadrascan and furthermore was not something which had been represented by Crosfield as being within the capability of the Studiolink.

(j) The Studiolink could not deal with 5 colour pages.

Messrs Curran and Williamson were agreed that pages with more than four colours could be sent through to assembly from the Studiolink in Separation mode. However, the problem arose in cases where work had to be done on material at the Studio 9500. Mr Curran's evidence was the same as the majority of the other witnesses who gave evidence on this issue, namely that the remedy was to create and send a separate file through for fifth, sixth or more colours. Mr Curran's evidence was that this would take less than five minutes per page and Mr Lincoln's evidence was that it would take about five minutes. Once again Quadrascan's evidence of the frequency of this problem was somewhat scant. I accept Mr Curran's evidence that it was a regular but not an everyday occurrence for there to be a requirement for more than four colours. It was required with catalogues which came in every couple of months and with stationery or promotional pamphlets containing corporate colours.

Mr Cavenagh's evidence was that where more than five colours were concerned, the client understood that there would be more work involved and the prepress house could accordingly charge more for the service. My assessment, based principally on the estimates of the time required to work around the problem and the fact that it was not an everyday occurrence, is that this was not a significant problem at Quadrascan.

(k) The Studiolink could not do auto trims from Aldus Pagemaker.

This complaint relates to situations in which a customer has used the particular computer programme Aldus Pagemaker to compose the page and has, as part of that programme caused trims to be applied automatically. Those trims, as mentioned earlier, served to keep the four final films in register. Virtually all of the witnesses who gave evidence on this point agreed that where pages had been composed using Pagemaker, auto trims would drop out when the material was sent through Studiolink to the Studio 9500. It is not clear from the evidence how frequently and with what volume this type of work was received by Quadrascan. Mr Curran gave no evidence on that aspect. Mr Walker said that he could specifically recall one occasion (but remembered Mr Curran saying that it occurred more often). Mr Williamson said that Pagemaker was a programme used by a couple of Quadrascan's clients every couple of weeks and that the problem occurred whenever work was received sourced from a Pagemaker programme. The solution mentioned by the majority of witnesses in their evidence was to recreate the trims on the Studio 9500. Mr Curran said that this would take no more than five minutes on the base page. Mr Williamson said this would take approximately half a minute per page. Messrs Hudson and Cavenagh thought that it would take 4-5 minutes to add the trims on the Macintosh computer and Mr Cavenagh thought that it would take 2-3 minutes on the Studio 9500 for the master page and between 30 seconds to a minute for each subsequent page. I paid particular attention to the evidence of Mr Hudson who said that 50% of the work received by his firm was in Pagemaker. Mr Hudson said that Pagemaker was upgraded early in 1993 and this matter of the auto trims was thereafter no longer a problem. I do not regard the difference between the various estimates of time to rectify the problem as being significant. Accepting the longer estimates and taking into account Mr Williamson's evidence, my impression is that an insignificant amount of work had to be rectified and no substantial time was occupied in doing this. Accordingly I find that this was not a significant problem for Quadrascan.

(l) The Studiolink could not send high resolution pictures through Quark or similar page layout programmes.

It was common ground among the witnesses who gave evidence on this issue that high resolution pictures could not be sent through Studiolink at all prior to the installation of the Pixelink. Even after the installation of Pixelink, it was not possible to send high resolution pictures straight through from the Studiolink to the output of film. It was necessary to send the high resolution pictures to the Studio 9500 for assembly because the disk did not carry any information about exactly where the picture was located in the page.

The respondents' position is that this capability was not within the specifications of the Studiolink. Mr Williamson's estimate was that if the Studiolink had had this capacity, production would have been increased by at least one-third. Mr Curran's evidence was that the problem was one of double handling in that each picture would require approximately five minutes further work on the Studio 9500 assuming it was a small picture and the Studio 9500 was not busy. Mr Weekley's evidence was that by combining the Pixelink facility and the OPI function, low resolution pictures on the Macintosh computer could be replaced with high resolution pictures on the Studio 9500 much more quickly than using the high resolution picture in the file. His evidence was supported by the evidence of Messrs Gardiner and Hudson and of Ms Witham and Messrs Cavenagh and Walker. Mr Weekley's evidence was that it was "pretty rare" that a file would come in with a high resolution picture on it. Although there was evidence of two and perhaps three examples of Quadrascan clients presenting high resolution pictures for processing to film (including Mr Walker's evidence on this point), there was simply not sufficient evidence, in my opinion, for me to be satisfied that this was a significant production problem for Quadrascan. The essence of the complaint was that, in this regard, the Studiolink did not enable the Equipment to provide the same services as a bureau. In my view, the Equipment was never represented by Crosfield as enabling bureau-type services to be provided.

(m) The Studiolink could not deal with page sizes in excess of A4 when using Freehand.

Mr Curran's evidence was that Quadrascan did not get a lot of work sent to it in Freehand so that this problem was not very common at all. In fact, so Mr Curran said, it was some months before Quadrascan even came across the problem. He described two methods which were developed to solve the difficulty when it occurred. Mr Williamson was not able to give an exact estimate of the frequency of this problem and Ms Witham confirmed that a solution was to put the Freehand page into a Quark document, a solution which Mr Williamson and Mr Weekley also mentioned. Mr Gardiner was unable to recall ever experiencing this problem and Mr Hudson said that he had never experienced the difficulty. I do not see any conflict between the evidence which I have summarised above and on the basis of that evidence I find that this was not a significant problem for Quadrascan.

(n) The Studiolink could not change the orientation of pages.

The respondents' position in relation to this issue is that this is not a function within the specifications of the Studiolink. The majority of the witnesses who gave evidence on this matter agreed that Studiolink could not change the orientation of pages. I accept the evidence that where page rotation was required this had to be carried out on the Studio 9500. Mr Curran's evidence was that the problem did not occur very often as once it was discovered Quadrascan stopped trying to do this work on the Studiolink. Mr Williamson's evidence was that the requirement for rotating pages was a day to day thing. Mr Gardiner agreed that it was a daily occurrence. Mr Walker's complaint was that although it was possible to rotate pages on the Studio 9500 it was extremely slow and highly impractical. He described it as just another inefficiency in a long line of inefficiencies. Mr Walker was unable to estimate how much extra time was involved in rotating pages. Mr Williamson's estimate was based on an example of a head to head job with two sets of A3 film which would require manual registration on the bench. The estimates of additional time varied from one witness to another. In essence the complaint is that the Studio 9500 should have rotated pages faster. What I consider to be the best estimate is that of Mr Burrows who said that by way of example a document which it might be assumed would take 15-20 minutes to assemble would have an hour added to it for rotation of an image. Once again, I do not see any inconsistencies between the evidence of the various witnesses which I have endeavoured to summarise above. In my view, after assessing the evidence of the respective witnesses, this was a significant problem at Quadrascan. It is one which I have to weigh up in conjunction with the other significant problems and indeed the problems which I have found not to be significant on their own.

(o) The Studiolink could not support Postscript programmes "Typestyler", "Letraset Font Studio" and "Effects in Freehand".

Mr Curran, when asked about this issue, referred to his evidence concerning the problem with special effect zoomed text in Freehand referred to at paragraph (b) above. Mr Curran said that he had never used Letraset Font Studio. He did not use Typestyler very often but could not remember what happened when he sent what he had created in Typestyler through to the Studio 9500. Mr Williamson thought that this issue was already subsumed in the earlier matters referred to above.

Mr Walker said that Studiolink did not process Typestyler at all so far as he could remember. Mr Walker referred to the problems in Freehand with spreads and chokes. He said that he did not recall a specific case involving Letraset Font Studio but remembered Mr Curran saying that he could not process those programmes. Mr Walker referred to one instance concerning production of a set of labels on CD boxes for a marketing firm in North Sydney. This appeared to be a recurrence of the choke or spread problem referred to above. Mr Burrows' evidence was that he did encounter this problem, but he was unable to give an estimate of its impact on production time. By contrast Mr Cavenagh said that his tests at Quadrascan showed that the Equipment was able to support the Postscript programmes Typestyler and Freehand. He said that at Network Graphics they received a reasonable amount of Freehand but had not had any problems with it. To say the least, the evidence from Quadrascan on this issue was sparse. In my assessment it was not a significant problem at Quadrascan.

(p) The Studiolink could not send a text only file without creating a graphics file.

Mr Curran saw this as a Studio 9500 issue in respect of which he did not have the technical knowledge to comment. Mr Lincoln could not remember whether a graphics file was automatically created when a text file was being assembled. Mr Williamson's evidence was that it was not possible to send a text only file through Studiolink without also creating a graphics file. Mr Gardiner's evidence was to the same effect. Mr Cavenagh's evidence was that the Studiolink only sends a text file and a plan and when assembly takes place on the Studio 9500 a graphics file is created. In my view the preponderance of the evidence confirms what Mr Cavenagh said was the problem i.e. upon assembly at the Studio 9500 a graphics file would be created in respect of a particular job even if it was a text only file. However, Mr Marsh's evidence was that this would have little impact. Mr Gardiner's evidence was that he never found this to be a problem other than the taking up of a little bit of disk space. Mr Hudson's evidence was that this problem had no effect on productivity and both his and Mr Cavenagh's evidence was that once the job was output the dummy graphics file could be deleted. Mr Cavenagh's evidence on this latter point was to the same effect and furthermore I accept his evidence that only one graphics file was needed for any job. I accept the evidence of Messrs Hudson and Cavenagh that the problem was readily and speedily solved simply by deleting the dummy graphics file once the job had been output. For that reason I find that this matter was not a significant problem at Quadrascan.

STUDIO 9500

(i) The archiving system was unreliable with archived pages often not being able to be recovered.

Two of Quadrascan's Studio 9500 operators, Mr Chad East and Mr Rod Kivell gave evidence of the problems which they encountered in retrieving archived material from the archive tapes. Mr East described the archiving as being very unreliable before replacement of the tape drive and Mr Kivell said that he experienced a lot of trouble recovering archived material. Mr Walker said that he saw his operators having these difficulties. Mr Burrows said that his experience was that he would get corrupted tapes on occasion; it was a fairly regular problem. Mr Holland's evidence was to similar effect as was that of Mr Skurka (who said it was very common). Although Mr Costello did not test for this problem, he gave evidence of how it would affect production. Mr Weekley's evidence was that he did not encounter this problem. Mr Gardiner said that his firm encountered no problems of retrieving archived pages so far as images were concerned but that if text had been scanned in under a certain size there was a retrieval problem. He said that there were no problems with page plans and scans being retrieved from tape other than a corruption of a tape. Mr Hudson said that his experience of the archiving system of the Studio 9500 was that it was between 95% and 97% reliable. On the odd occasion something might go wrong with the tape. Mr Cavenagh tested the archiving system at Quadrascan by continually running files (approximately 10 or 12 files) on and off the archiving tape unit and the retrieval function did not fail at all.

While I accept the evidence of the abovementioned Quadrascan employees that they had this problem, the evidence in my view establishes that it and the related problem in respect of colour selective masks referred to in paragraph (iii) below were caused by using the wrong type of tapes. In cross-examination, Mr Walker stated that he recalled Mr Young or possibly even Mr Frankiewicz stipulating that Quadrascan had to use digital data tape. It was also Mr Walker's evidence that two or three different qualities or types of tapes were used while he was at Quadrascan. One of the jobs in respect of which Quadrascan particularly complained was known as the Mitsubishi job. In fact the evidence suggests that it was this job which provoked Quadrascan into suspending a lease payment in late October 1992. Exhibit 28 comprises nine cassettes of archived tapes used by Quadrascan for the Mitsubishi job. Eight of those tapes were 8mm video tapes of the video P5 variety. Only one was a data cartridge tape specially marked by its manufacturer as being "For Digital Data Storage".

An operator's manual for the Studio 9500 was put into evidence. There was some evidence from Mr Fox that there had been only one edition of this publication and it was standard practice to leave a copy with a customer following installation of a Studio 9500. I was asked to infer that such a manual was left at Quadrascan and that it contained paragraphs specifying the approved types of cartridges and a sentence which read "P5 and P6 video tape cartridges are not recommended by Crosfield". Although the matter is not free from doubt, I am satisfied and I infer that such a manual was left with Quadrascan at the time of installation of the Studio 9500 and that it did contain this warning. I accept Mr Fox's evidence that there was only one version of the Studio 9500 operator's manual. It is consistent with the Crosfield Studio models changing fairly rapidly. Furthermore Mr Fox said that he had never seen a machine that had not come out (from Crosfield's factory in England) without the correct documentation. Mr Frankiewicz's evidence (which I accept) was that during installation of the Studio 9500 he saw that Quadrascan had been provided with a box containing a kit of operator manuals relating to the Studio 9500 and Studiolink. Furthermore, he said that shortly after the Studio 9500 was operational he noticed that Quadrascan was using video grade tapes to store archived files from the Studio 9500. He then said to Mr Roy Walker words to the effect: "These tapes are video grade tapes. They are not certified for storing digital data. You will risk losing data unless you use certified digital data tapes". Finally, it would be odd for operators of this sort of sophisticated equipment to use it for some 21 months without objecting to not having an operator's manual. There was no evidence of any such objection. My conclusion on this issue, based on the evidence of Mr Walker, Mr Young and Mr Frankiewicz is that Quadrascan were made aware fairly early in the piece that digital data tape should be used for archiving. Mr Burrows' evidence in cross-examination was that when his company used video tape for archiving it encountered "more corruptions".

Accordingly, I find that the problems which are the subject of this particular complaint were caused by Quadrascan using video tape rather than the recommended digital data tape. This was not a fault of the Studio 9500, in my opinion.

(ii) Recovery of archived pages was too slow.

Mr East, Quadrascan's first Studio 9500 operator, did not give any evidence in relation to this issue. Mr Kivell, another Quadrascan Studio 9500 operator said that it was very difficult for him to say whether recovery of archived pages was too slow because he had never worked on a system (by which I took him to mean a system of this type) before. His evidence was that if the information required were at the other end of a tape it could take 5-10 minutes to retrieve the information. Mr Burrows said that it took too long to retrieve documents from a tape.

Mr Skurka said that it was not possible to go to a certain spot on the tape and select, for downloading, a particular job known to be at that location. The whole tape would have to be downloaded before selection could take place. This was contrary to the evidence of, say, Mr Burrows who in cross-examination explained how files relating to a particular job could be selected for retrieval from archive. Mr Costello explained that there were now much faster tape archiving and retrieval technologies available in the market and that he thought "too slow" was an appropriate description of the Crosfield archiving and retrieval system. Mr Weekley agreed that recovery of archived materials on the Studio 9500 was slow but he pointed out that it was a background function and that other work could be carried on in the meantime. He said that it was a matter of pre-planning. Mr Weekley also said that the speed of recovery was related to the amount of material put on the tape. Mr Hudson's evidence was that he found recovery of archived pages was too slow but that with proper planning production need not be held up. Furthermore, his company used to store one job only on a tape simply to speed up archiving to tape and recalling. Mr Fox said that if this course was adopted then the recovering of archived pages was not slow.

The only real inconsistency in the above evidence has its source in Mr Skurka. I do not accept Mr Skurka's evidence. I find that the slow recovery of archived pages was a problem with the Studio 9500 but not a major problem. It could be alleviated by proper management practices such as pre-planning, together with the practice adopted by Mr Hudson's company, of not storing too much information on each single tape. In relation to the former aspect Mr Hudson observed "... it's like any housekeeping." In those circumstances I assess this as not being a significant problem with the Studio 9500.

(iii) Colour selective masks when archived could not be retrieved 60%-70% of the time.

Colour selective masking is a method of selecting an element in a picture by reference to the colour of that element. The cursor can be put on the particular colour and the Studio 9500 will operate to identify the outline or the limits of the space occupied by that colour. By using other functions on the Equipment the colour within that outline can be changed. If that information might be required again for another job, the colour selective mask can be archived onto tape for subsequent retrieval. A colour selective mask is also useful for deep-etching pictures. Three Quadrascan Studio 9500 operators, Messrs East, Kivell and Lincoln gave evidence of the problems which they encountered when seeking to retrieve colour selective masks. Although Mr Kivell's recollection was shown in cross-examination to have at least two faults, I accept their evidence that they encountered these difficulties frequently. Mr Walker confirmed this. Mr Walker said that when he raised this problem with Mr Young and Mr Fox of Crosfield he was asked whether Quadrascan were using the right tapes and following the right procedure. Mr Burrows and Mr Skurka also gave evidence of their experience of having difficulties retrieving colour selective masks. Mr Costello gave evidence that if there were problems retrieving colour selective masks then the impact on production would be at least the extent of time that it took to create the original mask. Mr Weekley's evidence was that this problem only occurred at Merging Images (where he worked) with inexperienced operators. Mr Gardiner's evidence was that although there was an initial problem in the first month or so following installation of the Studio 9500, with retrieving selective masks it was then rectified and since that time his firm had not encountered any further problems with colour selective masks. Mr Hudson had not encountered this problem. Mr Cavenagh had not encountered problems with retrieval of colour selective masks at Network Graphics and he tested for that function in excess of ten times when he visited Quadrascan's premises. Mr Fox's evidence was that Mr Kivell had raised this matter with him on two or three occasions in late 1992 and that he had referred it to Crosfield's technical people in London where the problem had not been heard of previously. Mr Fox was unable to recall this complaint having been raised by any other user of the Studio 9500. The operators agreed with Mr Sperling in cross-examination that if the proper procedures had not been followed when archiving a mask then that would result in difficulties in retrieval. Coupled with this is the matter of the use of video tapes to which I have referred above. While I accept the evidence of the operators that they encountered this problem I have concluded that those two factors (operator error and the use of video tapes) were significant contributing factors to the problem. On the evidence adduced, I am not prepared to find that this was a significant fault of the Studio 9500.

(iv) When masking was completed cross hairs appeared at random in the picture being masked.

The respondents' contention is that this occurs very rarely and that the cross hairs can be removed with negligible impact on productivity. Messrs East, Lincoln and Walker gave evidence about this problem. Mr East said that he had seen this on half a dozen occasions at least. Mr Lincoln said that he had seen it about 2 or 3 times towards the beginning of the period following installation of the Studio 9500. Mr East acknowledged that he would have done hundreds of masks in the course of his employment. Mr Fox conceded that this was an intermittent problem caused by what he described as a software bug and that Quadrascan was the only customer from whom this complaint was received. There was substantially identical evidence from Mr Lincoln and Mr Fox to the effect that if the problem were noticed before output then it could be rectified by retouching the mask. Mr Weekley said that he noticed this problem at the most six times and it took a matter of minutes to fix. Mr Gardiner thought that it was an operator problem caused through failure to overlap. Mr Hudson had noticed the problem only once or twice. When Mr Cavenagh was carrying out his testing he looked for this problem but did not see it and had never personally encountered it but thought that it had been mentioned to him once. In view of the evidence concerning the infrequent occurrence of this problem at Quadrascan in particular, I find that it was not a significant defect of the Studio 9500.

(v) Lines could not be coloured; the change appeared on the work station monitor but did not appear on the final film.

Mr East explained this problem. He said that it was part of the Colorfil function to have the ability to change the colour of type. He found that when the page was assembled and output to film the colour would remain as it was originally or in some cases even change to a different colour. He could not say how often it occurred but said that it happened a lot more often with work coming from the Studiolink but occasionally he would encounter the problem with text that was scanned in from the scanner. Mr Gardiner's evidence was that he had experienced this problem only three or four times. Mr Hudson had not encountered the problem. By contrast, Mr Burrows said that the problem occurred reasonably regularly at his firm but he was unable to be more specific.

I see no inconsistency in the evidence adduced about this matter but I am not prepared to find that it was a significant problem with the Studio 9500.

(vi) Pictures appear on monitor to be properly placed but were not so when outputted on film.

Mr Lincoln was the only witness among Quadrascan's employees to give evidence of this occurring. His evidence was that it occurred only once. It was rectified by replacing the picture and re-assembling the page. He could not recall when this incident occurred and agreed that he found that in the use of the Studio 9500 if he miskeyed he sometimes did not get the result he wanted. The applicants referred me to the evidence of Mr Holland who said that he had encountered this problem a lot and to Mr Skurka who put its occurrence at 30% of all jobs and processes. Mr Skurka's evidence was contradicted by Mr Weekley, his former employee. When this alleged defect was put to Mr Gardiner he said that his company had never had any positioning problems and Mr Hudson said that he had not experienced the problem. Mr Cavenagh said that one of the tests which he carried out at Quadrascan's premises was for two defects of which this was one. The test was successful (from Crosfield's point of view). Mr Fox's evidence was that this was not a problem which he recalled as having been raised by Quadrascan nor was it a problem raised by any of Crosfield's other customers. I rely particularly on the fact that Mr Lincoln was only able to give one example of when this problem occurred. I also rely on the evidence from the witnesses referred to above who did not encounter this problem and furthermore on the test carried out by Mr Cavenagh. I infer that the occasion mentioned by Mr Lincoln arose because of an inadvertent operator error. Even if that were not the case I am not prepared on this evidence to find that this was a fault of the Studio 9500.

(vii) Text randomly converted to graphics.

The sum total of the evidence adduced by Quadrascan in relation to this complaint was Mr Lincoln's evidence. Mr Lincoln gave evidence that on one occasion during a storm, a huge power surge went through the Studio 9500 and all the text on some particular work turned into graphics. There was no evidence that this had occurred on any other occasion at Quadrascan. Mr Gardiner said that this occurrence had never happened at his firm and Mr Hudson's evidence was to the same effect. I reject the suggestion that this was a defect in the Studio 9500.

(viii) The cursor frequently jammed requiring the system to be "re-booted" which takes eight minutes. This failure still occurred at the time the Equipment was returned to the respondents but not as often as when the Studio 9500 was first installed.

Mr Fox acknowledged that early in the piece there was a "bug" which caused cursor lock up but which he said was cured in about early 1992. Both Mr East and Mr Lincoln gave evidence about this problem, as did Mr Walker and other users of the Studio 9500. Mr East said that initially the cursor jammed because of operator error. The preponderance of the evidence was that the Studio 9500 quite frequently locked up or jammed. I accept that this happened at Quadrascan. The question is whether it happened due to a fault of the Studio 9500 or through the two causes which Mr Fox identified. Those two causes were either that more than the limit of five functions was attempted on the Studio 9500 at the one time or the operator attempted to process the work too quickly by activating another Studio 9500 function before the previous one had completed its work. Mr Walker, general manager of Quadrascan, was not aware of the limit of five simultaneous functions on the Studio 9500. Nor were two representatives of other users of the Studio 9500, Messrs Holland and Burrows. Mr Weekley acknowledged that on the occasions when he had encountered such locking up of the Studio 9500, operator error had been involved either in attempting to activate more than five simultaneous functions or because there was a newly recruited operator. The evidence was that the sixth or subsequent function could be activated on the Studio 9500 without the intervention of the Studio 9500 operator. For example, at Quadrascan there was a separate Studiolink operator. The Studiolink operator was able to activate a process which involved a function of the Studio 9500. Scanning into or out of the Studio 9500 were other functions which might not necessarily involve the Studio 9500 operator. After reviewing all of this evidence I have come to the conclusion that there were probably several causes leading to the recurrence of this problem. I think it is likely that on occasion the limit of five simultaneous functions was exceeded and that on other occasions the Studio 9500 operators may have worked too fast. However, I accept that on some occasions the fault for the locking up of the Studio 9500 lay with that equipment. Even so, I do not assess this as being a significant fault, but nevertheless in common with all the other complaints which I have assessed as insignificant (and those which I consider to be significant), a fault which must be taken into account when making the overall assessment.

(ix) Retouching facility had an intermittent fault which could only be overcome by exiting that facility and re-booting.

The only Quadrascan employee who gave evidence of this alleged complaint was Mr East. He did not give any indication how often this problem occurred other than to say sometimes the image would not be loaded onto the screen. In cross-examination he thought that this would have happened on more than half a dozen occasions. Putting to one side for the time being Mr Skurka's evidence, the evidence from other users was, in summary that this did not happen very often and had very little effect on production. I refer to the evidence of Mr Hudson and Mr Gardiner. Mr Fox said that the problem had never been raised by Quadrascan or any other customer. I accept all of the above evidence other than that of Mr Skurka. I find that this was not a significant problem with the Studio 9500.

(x) When high resolution images are zoomed the display shows the image not to have been created.

No Quadrascan employee gave any evidence to this effect. I found Mr Burrows' evidence to be somewhat vague on this point. Mr Gardiner saw the matter as a problem caused by the operator failing to drop in a high resolution image before zooming. Mr Hudson's evidence was that this happened spasmodically but not very
often. Mr Weekley had never encountered the problem. Mr Fox said that the problem arose if an operating sequence of commands was incorrectly entered. On the basis of the above evidence, I am not prepared to find that this was a fault of the Studio 9500.

(xi) The box shape creation function produces boxes out of square.

This complaint was abandoned by the applicants during the course of the hearing.

(xii) Keylines on type appear complete on monitor but at random do not appear on output; workaround (alternative method) does not produce as good a result.

A keyline around type is a line, border or other feature placed around type. Its purposes include highlighting that type. One of the functions available on the Studio 9500 was known as Zip Grip. Messrs East, Kivell, Walker and Fox each gave evidence that this complaint arose out of the use of the Zip Grip function. Mr East described how the directory on the Studio 9500 monitor would show that Zip Grip had been applied around the type but when the page was output to film "quite often" the keyline would not be there. The remedy was to use one of two other functions known as Textfil or Colorfil respectively. The problem was that these created the keyline but with a chamfer at the edges of all the corners of the keyline. He recalled one customer who noticed this and complained.

Mr Kivell gave evidence of this problem which he said occurred about 20 times before Mr Fox visited Quadrascan and suggested the remedy. Mr Fox's visit was in early November 1992. Thereafter, at Mr Fox's suggestion, Mr Kivell used the Colorfil
function to apply keylines to type. This took 10 minutes, sometimes it took 20 minutes compared to 5 seconds with Zip Grip but Mr Kivell said "it worked fine" and he got the results which he wanted. Mr Kivell estimated that keylines would be required around type as often as two or three times per day.

Mr Walker said that he saw this problem once (in cross-examination this was expanded to twice) and on each occasion conventional artwork was involved. Mr Walker said that he could not remember if any attempt had been made to use Colorfil to introduce a keyline but acknowledged that Colorfil may have been more successful. Mr Burrows described the problem as occurring reasonably regularly at the Brite Group where he worked as a consultant. In cross-examination it emerged that Mr Burrows was describing a problem which did not arise out of the use of Zip Grip at the Studio 9500 but a problem of transmitting keylines through the Studiolink to the Studio 9500 (in his case it was a Studio 9400 but it was common ground that there was no relevant difference between the two models). Mr Costello gave evidence comparing the time which it would take to rectify the problem on the bench and on the Studio 9500. I prefer to accept the evidence of Mr Kivell on this point (as he had practical day to day experience on applying the alternative programme) on how long it took to rectify the problem. Mr Weekley said that he had never experienced this problem. If keylines were on the original hard artwork or in the original file then they would always come out on output. His opinion was that there was no keyline creation function for text on the Studio 9500. He believed that one could attempt to do this using Zip Grip function which is a gripping function not a keyline creation function. It could also be done in Colorfil which was another
gripping function not a keyline creation function. In his view the only way in which one could possibly apply keylines to text on the Studio 9500 effectively would be to cut out the text letter by letter and put a border on it. In cross-examination he explained that this was done on the Studio 9500 using auto cut which did the task automatically. He had read the manuals to find out about this.

Mr Gardiner's evidence was that he had not encountered this problem but he knew of the "workaround" using Colorfil which although not designed to introduce lines around text could do it.

Mr Cavenagh did not test for this defect while he was at Quadrascan because, so he said, it was not part of the specification of the Studio 9500 to produce keylines. Very occasionally, at Network Graphics, they had a client who asked for keyline to be put around type. This would have been three to four times during a three year period from February 1992 onwards. The production method used was either Colorfil or auto cut and the result was accepted by the client. He said if there were a lot of type it could take 15 or 20 minutes to do. Mr Fox encountered this problem during his visit to Quadrascan in November 1992 and in Exhibit 48 described how the use of the Colorfil option as an alternative for producing keylines was a great success.

I note Mr Kivell's evidence that at Quadrascan it was necessary to place keylines around type very frequently. However, he estimated the number of occasions upon which it occurred as being about twenty which in those circumstances does not seem to constitute this matter as a major problem. In any event the applicants' own evidence is that the "workaround" produced a satisfactory result. Furthermore, I accept Mr Weekley's evidence that there was another "workaround". There does not seem to me to be any inconsistency in the essence of the evidence of the various witnesses on this point (other than in the case of Mr Costello which I have referred to above). My conclusion is that this was not a significant problem at Quadrascan.

(xiii) Image disk has had to be reloaded twice.

Mr East explained that on two occasions during the period (between February 1992 and November 1993) while the Studio 9500 was at Quadrascan he noticed what he described as a corrupt section on the hard disk of that equipment which in turn corrupted work which was output to film. This occurred for a period of a month or six weeks on each occasion. The remedy was to contact Mr Frankiewicz who reloaded the image disk to eliminate the corrupt spot. Mr Lincoln had no personal recollection of the fact that the image disk had to be reloaded twice. Mr Skurka described this as a "massive problem" with total system reloads being required on average every two months. Mr Costello's evidence of the potential impact of unplanned reloads does not coincide with Mr East's description of what was actually encountered at Quadrascan. This was in contrast to Mr Weekley's evidence. Mr Weekley said that in 3½ years he saw approximately twelve image disk reloads on the Studio 9500 of which six were unplanned. In only two of those unplanned reloads had there been a crash of the system. His definition of "unplanned" included a spontaneous decision to have a reload when the system was not busy. Mr Gardiner said that he had not encountered this problem but that his firm reloaded software every three months as a matter of maintenance. Mr Hudson's evidence was virtually identical to that of Mr Gardiner. Mr Walker's evidence confirmed that reloading was done occasionally to clean up the hard disk so that it was more efficient. Mr Cavenagh's evidence was that his firm reloaded the image disk as a preventive maintenance about every three months. Between February 1992 and February 1993 his firm experienced four unplanned image disk reload requirements which involved about an hour or an hour and a half to complete. They did not have to turn away any work in consequence of this. Mr Fox said that he could not recall Quadrascan or any other customer raising an issue with him about this. It was recommended procedure to reload software which would include reloading the image disks. Mr Weekley's evidence was to like effect that reloads should be done three or four times a year as part of maintenance. In reaching my conclusion that this was not a significant problem to Quadrascan I have focussed on Mr East's evidence but I have also taken into account the other evidence (apart from that of Mr Skurka) which I have summarised above. In the light of the above evidence, a requirement to reload an image disk twice in 21 months seems to me to be insignificant.

(xiv) First respondent has recommended Textrot function be avoided.

Mr East's evidence was that on the Studio 9500 there were two functions which could be used to enlarge, reduce or rotate a picture. One function was known as Transform which was a very quick method but which Mr Young had, in training Mr East, told him not to use on anything which had straight edges. This was because, on rotation, a saw tooth edge would be produced and the quality would be inferior. However, Mr Young had said that Transform could be used for very small pictures. The other function was known as "Textrot" which was very slow and could take up to half an hour or forty minutes for an A4 size picture. His complaint with Textrot was, in essence, that it was slower than Transform.

Mr Kivell's evidence (after he sorted out his confusion between Textrot and Zip Grip) was to very much the same effect as Mr East's evidence. In cross-examination, Mr Kivell acknowledged that where it was necessary to change the angle of a large picture, an alternative option was to have the scanner operator re-scan the picture in at the desired angle. Furthermore, with proper planning, the Textrot function could proceed as a background function while the operator continued with other work. Mr Lincoln said that he used Textrot and had no problem with it.

Mr Walker's evidence-in-chief was to similar effect as that given by Mr East. Although Mr Walker said that he could not actually remember whether other work could proceed while the Textrot function was operating, he said that Textrot was used on a shift by shift basis, was common practice and had a disastrous impact by slowing the whole schedule of jobs. An hour or more might be lost. It was this problem, he said, which held up production of the Marketforce Advertising material. Mr Walker acknowledged that an alternative was to re-scan the pictures but the Marketforce Advertising case was an example where, (because of retouching) it was not possible. In cross-examination Mr Walker would not acknowledge that in the ordinary case where rotation through a small angle was required (which usually excluded using Transform) one could scan in the angle required from the start. He was prepared to acknowledge that this was a solution in some cases.

Mr Weekley's evidence was consistent with all of the above. He acknowledged that Textrot was slow but said that with the proper pre-planning pictures could be scanned in at the right angle to start with. This was not always possible and in those circumstances the client should be made aware of the fact that it took time. Mr Gardiner's evidence was that he would always re-scan an image to change an angle rather than use Textrot. Mr Hudson said that he had no problems with the Textrot function. It was an improvement on the Studio 880 system previously used by him which could not rotate images and I infer from his evidence in cross-examination that the Textrot function compared favourably with the Jupiter's performance in relation to rotating text and images. Mr Cavenagh said that Textrot was a function for enlarging or rotating images or text or both and it worked. He was not aware of any recommendation from Crosfield that Textrot function should be avoided. However, Mr Fox confirmed that he had advised Quadrascan not to use Textrot to transform graphics.

My conclusion is that in situations where it was not possible to re-scan an image, this was a problem. It might not be possible to re-scan an image if, for example, the original transparency had been returned to a customer some distance away or if the customer had re-touched the image. My impression is that there was a trade-off between using Transform to change the angle of an image which was quicker but with lower quality, or to use Textrot which was slower but provided higher quality. In my opinion, there was insufficient evidence adduced by Quadrascan of specific occasions when this held up production significantly for me to assess thisas more than just a minor problem. My impression on hearing the evidence was that many operators of this type of electronic equipment would like it to function faster. There was no evidence to which I was referred which suggested that this function on the Studio 9500 was slower than any other comparable system. I also bear in mind the fact that Mr Lincoln, one of the Studio 9500 operators had no problems with it.

(xv) Problem(s) appeared on some masks created in CSM (colour selective masking).

Although this was pleaded as a separate particular of a Studio 9500 defect, no Quadrascan employee gave evidence specific to this issue and I think it is fair to treat it as being part of the complaint particularised at paragraph (iv) above. Mr Gardiner's evidence was that he had not encountered any problems with masks created in CSM. Mr Hudson's evidence was to the same effect. Mr Cavenagh gave evidence that he carried out a test at Quadrascan of the colour selective masking which seemed to be working satisfactorily. His company only encountered problems with masks created in colour selective masking if the correct procedure had not been followed. Mr Fox could not recall Quadrascan or any other customer complaining of problems appearing on masks created in colour selective masking.

On the basis of the above evidence I conclude that this was not a significant problem at Quadrascan. If this were a significant problem at Quadrascan, I would have expected the Quadrascan operators to have given evidence about it. In those circumstances they could have been cross-examined by Crosfield's counsel as to the frequency of the occurrence of the problem and the possibility that they had not properly carried out the requisite procedures. In the absence of their evidence, I am not prepared to conclude that this problem was a significant one at Quadrascan.

(xvi) White lines appeared on transformed pages.

The whole of Mr East's evidence in relation to this issue was as follows:-

"Do you have any recollection of that?---Yeah, that was fairly early on, I can vaguely remember a couple of those, yeah, but I can't really go into detail on that."

Mr Kivell's evidence on this point was similarly deficient. Mr Burrows, in his evidence, included this problem in the category of keylines being corrupted and the corruption not being detected until after output [paragraphs (iv) and (v) above]. Mr Skurka similarly described the problem as a corruption which he said occurred about 30% of the time when transforming. He avoided transforming because it was a very slow process anyway, so the problem did not occur very often. In cross-examination it emerged that Mr Skurka did not know that the Studio 9500 when transforming pages produces a text file that is slightly smaller than the graphics file and the operator has to take certain steps to prevent white lines appearing in the finished product. Mr Gardiner said that he could not recollect encountering this problem. There was no relevant evidence on this point from Mr Hudson. Mr Cavenagh tested for this problem at Quadrascan and no white lines appeared. He did recall that at Network Graphics the problem occurred on four or five occasions in 1992. He described two ways of rectifying the problem and said that he was able to complete the jobs for his customers. Mr Fox said that he could not recall this problem being raised with him by anybody at Quadrascan or by any other customer.

Mr Weekley's evidence was that he had seen white lines on transformed pages but this was as a result of operator error of the type which Mr Sperling put to Mr Skurka in cross-examination.

I accept Mr Weekley's and Mr Cavenagh's evidence, but in particular I rely on the fact that so little evidence was given by Quadrascan's operators on this issue for my conclusion that this was not a significant problem at Quadrascan.

(xvii) Screen display does not always correspond with assembled version.

Mr East's evidence was that this would occur a couple of times a month. Thick keylines which the screen reported as having been included as a feature on the page would not appear on the film when output. Similarly, a logo or a piece of text would disappear. The job would have to be re-assembled. Mr Holland gave evidence that this was a constant problem which had a massive time impact upon Four Colour Graphics Pty Ltd of which he was managing director. In cross-examination it emerged that some of the problems at his company were caused by a faulty output scanner although Mr Holland did not concede that all of the problems were so sourced. Mr Skurka said that this problem occurred about 20% of the time and had a great impact on production. Mr Gardiner said that he encountered the problem on a couple of occasions. Mr Cavenagh said that all of the tests which he performed at Quadrascan included comparing what was on the screen to what came out on film and what he saw on the screen looked the same on film. Mr Cavenagh said that he had not encountered this problem at Network Graphics. Once again Mr Fox said that he could not recall anybody from Quadrascan or any other customer raising this problem with him. The relevant portion of Mr Weekley's evidence was:

"What you see on the screen is inevitably what you'll get on the assembly unless you've made an error of some kind."

He then went on to identify the type of error which could lead to this problem. I reject Mr Skurka's evidence. I accept Mr Weekley's evidence, it seems inherently probable. I regard Mr Holland's experiences as being contributed to substantially by the faulty output scanner. I accept Mr East's evidence that he encountered the problem a couple of times per month. In my view the major cause of this problem was operator error. If some part of the problem was due to the Studio 9500, it was in my opinion to a minor degree.

(xviii) The applicants repeat the particulars referred to in sub-paragraph (a) above in respect of the Studiolink.

I take this complaint as being a submission that the particulars of complaint in relation to the Studio 9500 should not be regarded in isolation but should be assessed in conjunction with the complaints made about the Studiolink. I accept that submission.

An Overall Consideration of the Issue

Putting to one side for the moment the question of a resident engineer, the real issue is whether the capabilities of the Equipment as summarised by the applicants in the four key Representations were misrepresented so as to constitute misleading or deceptive conduct on the part of Crosfield? Put another way, if the Equipment was suitable for Quadrascan's business of providing electronic page composition and related graphic reproduction services to its customers, including customers which provided work to it in Postscript and if the Equipment did or was capable of increasing the efficiency and quality of service offered by Quadrascan and if the Studio 9500 could be used with virtually all material provided in a Postscript
format then there was no misleading or deceptive conduct and thus no contravention of s.52 of the Act.

I propose to consider several further matters which bear on this question.

Quadrascan's financial performance

There was some evidence of Quadrascan's financial performance before and after it acquired the Equipment from Crosfield. In most cases where a contravention of s.52 of the Act is alleged there is evidence of a significant deterioration in the financial position of the applicant consequent upon the misleading or deceptive conduct. Quadrascan's financial performance improved after it acquired the Equipment. I reproduce below Exhibit 6 in its entirety. Exhibit 6 summarises Quadrascan's trading results for the financial years ended 30 June 1991, 1992, 1993 and 1994.

Net Sales Cost of Gross Expenses Net Profit

Sales Profit

30 June 91 2,623,289 1,253,264 1,375,016 1,319,269 70,560

30 June 92 2,530,229 1,151,714 1,365,953 1,268,082 109,963

30 June 93 3,472,591 1,711,562 1,768,508 1,522,710 245,798

30 June 94 3,222,996 1,563,798 1,667,336 1,352,352 314,983

The Equipment was commissioned at the end of February 1992 and was thus operating at Quadrascan for approximately the last 4 months of the financial year ended 30 June 1992. Net profits for that year when compared to the previous year show an increase of $39,403 or nearly 56%. The financial year ended 30 June 1993 was the first (and only) year in which Quadrascan operated the Equipment for a full year. In that year sales increased by $942,362 or 37% in comparison with the previous year and net profit increased by $135,835 or nearly 124%. The Equipment was still in place at Quadrascan during the period from 1 July 1993 to some time in late November or early December 1993. In that financial year (i.e. the financial year ended 30 June 1994) there was a fall in net sales of $249,595 or about 7%, gross profit declined by $101,172 or about 6% but net profit increased by $69,185 or about 28%.

I appreciate that Quadrascan's case is put on the basis that if it had bought the Jupiter/Purup system its net profits would have been very much higher than the results which it achieved using the Equipment. I certainly do not regard what I consider to be a very substantial improvement in Quadrascan's trading figures during the periods when it used the Equipment as being determinative of the matter of whether the Equipment performed as Crosfield represented it would perform. Nevertheless it is, in my view, a piece of evidence which is of some assistance in the process of assessing where the truth of the matter lies. It points in favour of the Equipment to some extent.

Part of Quadrascan's case is that in fact it lost money through using the Equipment. This forms part of its damages claim. Initially an amount of $376,000 was claimed under this heading. This amount was, according to Mr Camfield's evidence-in-chief, calculated by extracting all Quadrascan's job bags for work which had been done wholly or partly by using the Equipment. On those job bags, so it was claimed, was recorded the information whether the Equipment had been used in carrying out the work and the number of hours for which the Studiolink and the Studio 9500 were used. The gross revenue generated was calculated by multiplying the number of hours by the respective hourly rates charged for those two pieces of the Equipment. From that figure were deducted the expenses of operating the Equipment. Mr Camfield said that he had either extracted or supervised the extraction of the job bags and the initial compilation of this information which resulted in the figure of $376,000 which appeared in Mr Herbert's first report. Mr Herbert is a chartered accountant who was called by the applicants as an expert witness. After some fairly penetrating cross-examination of Mr Camfield on the method which Quadrascan had used to extract and compile this information, Mr Herbert produced a second report in which the claim for losses attributable to use of the Equipment dropped from $376,000 to $83,643. I accept the respondents' submission that this method of calculating the gross revenue attributable to the Equipment is fundamentally flawed. The fundamental flaw is that it depends for its validity on the proposition that the Equipment operated independently of the rest of Quadrascan's business. It is true that the conventional or bench work section of Quadrascan's business was physically located upstairs in the building which it occupied while the Equipment was situated on the ground floor. However, the evidence was that, in practical terms, the use of the Equipment overlapped with the conventional or bench work part of Quadrascan's business. Mr Curran, in cross-examination, agreed that the upgraded scanners attached to the Studio 9500 were also used to scan in pictures which were used for manual composition work upstairs. Instructions received in hard artwork form could be completed either on the Equipment or on the bench.
It was Quadrascan's choice whether to do the work on the bench or by using the Equipment. For example, the Studio 9500 may have been at any particular time fully occupied or a small additional piece of work might be required for a job which might be more efficiently done on the bench as opposed to putting it through the Studio 9500 system. I refer to Mr East's evidence to that effect. Similarly there was an option whether that portion of work received partially on disk would in fact be executed on the Equipment or completed to some extent conventionally. The respondent submitted that a vast amount of work received by Quadrascan during the relevant period came to it because it had this electronic system. Neither side attempted to present any evidence calculating the amount of that work. In view of this overlap, I do not think it is appropriate to segregate the operations of the Equipment in the manner suggested by Quadrascan. The radical recalculation and reduction in this estimated loss between the initial stage of the hearing in Perth in November/December 1994 and its resumption in Sydney in early February 1995 caused me considerable misgivings. Quadrascan had put forward a figure (and Mr Camfield had sworn to the accuracy of the method of its compilation) which was supposed to demonstrate a very substantial loss which it had suffered by using the Equipment. On its own subsequent admission, this figure had been over-stated by a factor of nearly four and a half times. Even the lower figure is dependent on information provided by Quadrascan. That factor coupled with the overlap of functions to which I have referred above led me to the conclusion that I could place some reliance on the very much improved trading results which Quadrascan achieved during the periods when it used the Equipment. That reliance resulted to a small but appreciable extent in assisting me to draw the conclusion that the Equipment did not
perform as badly as Quadrascan alleged.

The core alleged defects

I now turn to the principal or core complaints which Quadrascan makes about the Equipment. They were that:

. the Studiolink could not transmit deep-etched pictures to the Studio 9500;

. the Studiolink could not transmit complicated vignettes, that is vignettes with more than 256 graduated tones, to the Studio 9500; and

. the Equipment could not reliably or effectively translate Postscript instructions into film.

The applicants submitted that the first two of these deficiencies, taken on their own, "made the machine uncommercial", a submission which relied to some extent upon the evidence of Mr Costello to that effect.

I consider Mr Costello's evidence, as a whole, later in these reasons.

The first two of these complaints are very specific. It must be remembered that none of the four key Representations relied upon by Quadrascan specifically stated that the Studiolink could transmit deep-etched pictures or complicated vignettes to the Studio 9500. That was not how the allegedly misleading or deceptive conduct was pleaded, although I was taken by Mr McPhee to diagrams and text in the brochures and the Quotation which were said to suggest that the Studiolink was capable of these two functions or which mis-stated, for example, the reason why deep-etching was best done on the Studio 9500. In my view, the question is whether the
fact that the Studiolink had these limitations (as the respondents acknowledge) when taken into account with all the other evidence about what the Equipment could or could not do, and what Crosfield had represented it could or could not do, justifies the characterisation of Crosfield's representations as misleading or deceptive conduct.

The third of the above complaints, which Mr McPhee described as core complaints, is more general and thus more closely comparable to the general nature of the first three of the four key Representations. To some extent the third complaint mirrors the third key Representation, viz "the Studio 9500 could be used with virtually all material provided in a postscript format". However, the third complaint above is not directed only to the Studiolink as is the first complaint, or the Studio 9500 as is the third key Representation but to the Equipment i.e. all the equipment which Crosfield sold to Quadrascan.

In my view, the safest and fairest course is to treat the third complaint as a general description of one of the major alleged incapabilities of the Equipment which it is submitted bear on the first three of the key Representations and which, if sustained, would (on the applicants' case) require Crosfield's conduct in making those representations to be characterised as misleading or deceptive.

I digress briefly to define the two technical expressions used above. A deep-etched picture is a picture where the subject or one of the subjects of the picture has been cut out from its original background. A vignette is an area in which colours or graduations of one colour change.

Crosfield, as part of its case, admitted that the Studiolink could not carry out these two functions of transmitting deep-etched pictures or complicated vignettes to the Studio 9500. It makes the point that the applicants do not allege, and there was no evidence, that any representation had been made by or on behalf of Crosfield that the Studiolink had these capabilities. It then points to the Studiolink and Studio 9500 brochures as making it clear that those two pieces of equipment work in tandem, that pictures are to be scanned into the Studio 9500 and if deep-etching of pictures is required or vignettes are to be created then this work is to be done on the Studio 9500. Crosfield also relies on certain passages in the specifications which were attached to the Quotation (Exhibit J) headed "how it all works" and "getting the best out of both worlds" as clear statements that deep-etching had to be done on the Studio 9500. It is self evident that in that document the reference to the "Studio System" is a reference to the Studio 9500 as distinct from the Studiolink. I refer to only two brief portions of the document, namely:

"3 Any cut-outs required in the page are done on the Studio System ..."

. . .

" . Cut-outs: since only low resolution images are used on the DTP system, it is impossible to do accurate cut-outs on the Mac. These should be performed on the high resolution data on the EPC system."

"Vignettes: all EPC systems have a limit to the amount of colours one can describe in lineart files (i.e. 256). Since Postscript has no "vignette" operator, DTP applications create vignettes by generating small brands of different colours. Chances are that you will hit the 256 colour limit very quickly. It is therefore better to generate proper (non-branded [sic]) vignettes on the Studio System."

In my opinion a reasonable operator of a business engaged in providing graphic
reproduction and prepress services who had been told all that I have found Mr Camfield was told at the meeting in Sydney with the Crosfield representatives and who read the two brochures referred to above and the specifications accompanying the Quotation would have well understood how the combination of the Studiolink and the Studio 9500 worked. A reading of the verbal descriptions and the diagrams in each of the brochures alone would, in my view, have conveyed the respective roles of the two pieces of equipment. When characterising Crosfield's conduct for the purposes of the potential application of s.52 of the Act I consider that the oral representations made at the Sydney meeting should not be regarded in isolation from the two brochures which Mr Camfield was then given or the Quotation sent to him some three months later. It was well after receiving the Quotation that Quadrascan decided to acquire the Equipment. In my view, what was stated orally and what was put in writing concerning the capabilities and functions of the respective principal components of the Equipment should be assessed or weighed up together as being the composite conduct engaged in by Crosfield. The fact that Mr Camfield did not read the Quotation does not, in my view, mean that what is set out in that document cannot be taken into account when characterising Crosfield's conduct.

As part of that process it is necessary to assess the evidence concerning the demand for the Studiolink to transmit deep-etched pictures or complicated vignettes in 1991/1992 and for a reasonable period after the making of the Representations. An opinion can thus be formed about the likely impact of Quadrascan's business and the efficiency and quality of service offered by Quadrascan (I refer to the first two of the key Representations).

The Studiolink's inability to transmit deep-etched pictures to the Studio 9500

Mr Curran started working for Quadrascan operating the Studiolink in February 1992. His evidence was that during the early months when he was at Quadrascan, it was rare if at all that material received from a customer included electronically recorded high resolution pictures (i.e. on disk). There was other evidence, which I accept, that a picture was unlikely to have been deep-etched unless it was in high resolution at the time when the deep-etching was carried out. I infer from this that it was likely that any such work would thus be received by the prepress house from the customer in high resolution. This makes the extent to which customers supplied high resolution pictures to Quadrascan a matter of some preliminary relevance. Mr Curran said that even after Pixelink had been installed Quadrascan did not very often receive high resolution pictures on disk. I have drawn the inference from part of Mr Curran's answers to questions put to him in cross-examination that it was not until the Retravision job (some six months after installation of the Equipment) that a customer presented work to Quadrascan on which there were deep-etched pictures on disk. Mr Curran's evidence was that prior to the Retravision job most deep-etching was done on the Studio 9500.

Mr Curran said that as time progressed ("... it seemed to be increasing as we went along ...") more and more clients were sending in what he described as finished work. However, he was not specific as to how often Quadrascan were called upon by customers to process high resolution deep-etched pictures through the Studiolink to the Studio 9500. In my view, the frequency of such demand is an important matter in the assessment of the significance of this particular complaint. Mr Curran said that by mid 1993 a very substantially greater proportion of work received by Quadrascan was ready to go straight to film than had been the case in early 1992. However, he did not think the proportion would have been as high as 50% of the work. This was, he said, because customers still liked the quality which was being obtained by scanning the pictures into the system. Mr Curran agreed that the development of receiving a very substantially greater proportion of work at Quadrascan which was ready to go straight to film made the EAC equipment which it bought in mid 1993 particularly appropriate.

Mr Walker, when asked how often the problem of Studiolink being unable to handle deep-etched pictures occurred, said that deep-etched pictures were very common and that it was an almost daily event that Quadrascan would like to be able to provide a client with deep-etched low resolution pictures for placement purposes but could not do so. Mr Walker's evidence in this regard was more concerned with that aspect (passing a deep-etched picture back to the customer) than the transmission of deep-etched pictures, which had been created by the customer, to the Studio 9500 for output to film. Yet again there was no evidence from this source (Mr Walker) of any frequent demand for this facility.

Mr Kivell said that deep-etching of pictures was one of the really important parts of his trade. In essence, Mr Kivell's evidence was that he spent a lot of his time deep-etching pictures. In my view, this was to be expected as Mr Kivell was a full-time Studio 9500 operator. His evidence was not directed at the question of how often Quadrascan's customers required the facility of transmitting deep-etched pictures from the Studiolink to the Studio 9500.

Mr Williamson's evidence (like that of Mr Walker) focussed on the problem of not being able to send high resolution pictures back to the customer. Mr Williamson said that if a client presented a job where the client had done part of the deep-etching on a series of high resolution pictures, those pictures would have to be stripped out. A problem with this portion of Mr Williamson's cross-examination was that he was asked to deal simultaneously with two matters namely deep-etching and graduated tones. When he was asked "how often did it occur?" and he responded "... about a weekly basis - week to two-weekly basis" I was not able to ascertain whether Mr Williamson was describing the frequency with which customers presented Quadrascan with pictures already deep-etched by them for processing into film. Rather my impression was that he was describing a situation in which customers were presenting disks of their work which contained complicated vignettes onto which Quadrascan was expected to create deep-etched pictures.

Mr Costello's evidence-in-chief was that even in the middle of 1992 and certainly by the end of 1992, customers in Perth expected a prepress house to be able to scan in transparencies, deep-etch the resultant pictures, supply them back to the customers who would carry out manipulation and then return the pages to the prepress house for outputting straight to film. There is also the evidence of Mr Costello that in 1991 in Perth not many people were using their Macintosh computers to put high resolution pictures onto disk.

Mr Weekley's evidence of his experience at Image Scan was that towards the end of 1991 and the beginning of 1992 work started to come in from customers on disk. It was basically line work on disk with (rarely) graphic elements. The pictures would be in the form of transparencies to be scanned in on the Studio 9500. By mid 1992 the proportion of work coming in on disk had increased quite substantially but the graphic elements would still be scanned in through the Studio 9500.

Mr Gardiner's evidence was that in 1992 it was very rare that a client provided a disk containing deep-etched pics. During the period towards the end of 1992 and through to the end of 1993 Mr Gardiner said that at Colour Art Graphics they might have received a job every six weeks in which a customer may have supplied an already deep-etched high resolution image on disk.

Mr Hudson gave evidence of his experience as a Studiolink supervisor at a company called M.H. Imaging in Auckland. M.H. Imaging acquired a Studiolink and Studio 9500 in 1992. The first time high resolution pictures arrived from customers was in late 1993. I have guarded against placing too much weight on Mr Hudson's experiences in assessing what was likely to be happening at Quadrascan during the same period. There was simply no evidence to equate market conditions in Auckland with those in Perth. However, I have taken Mr Hudson's evidence on this point into account as it is consistent with a picture of a non-existent demand at the time when the Equipment was installed at Quadrascan becoming something which grew into a substantial requirement by the latter half of 1993.

Mr Cavenagh's evidence concerning his company, Network Graphics Pty Ltd, was that between February 1992 and November 1993 quite a few jobs had deep-etched pictures in them, but they would have been low resolution deep-etched pictures that were meant as positionals. Mr Cavenagh was asked what was the frequency, during that period, with which Network Graphics Pty Ltd received deep-etched high resolution pics from clients on disk, and responded "extremely low". From his next answer I understood that to be about four or five times.

I accept that there was an early constant need to provide high resolution pictures on the pages which Quadrascan created for their customers during the period in which the Equipment was installed at its premises. I find on the evidence concerning Pixelink's capabilities, particularly that of Mr Curran that Quadrascan were able to serve this need from about April 1992.

However, the evidence as to the frequency with which Quadrascan was supplied by its customer with deep-etched pictures on computer disks was sparse.

On the basis of the evidence from Quadrascan's own employees, my assessment is that this probably happened no more than three or four times. This evidence is consistent with the evidence from the other users of this equipment.

I accept that from about the middle of 1993 onwards technical improvements in the Macintosh equipment and software were such that it became more and more feasible for customers to place high resolution deep-etched pictures on their computer disks. This meant that they could use their computers not only to deep-etch pictures but to carry out all of the manipulation which might otherwise have been done on an electronic page composition system at a prepress house. They would then turn to the prepress house or a bureau for outputting the disk to film.

On the evidence, this constituted a radical change in the content of the relationship between the customer and the prepress house. To the extent that customers took this course, they no longer required the manipulation and other services of electronic page composition.

Mr Costello was asked in cross-examination if it was not uncommon in relation to equipment of this kind that it becomes outdated in about two years. His response was that usually within a two year period equipment of considerably better performance becomes available. He said "it doesn't always mean that you have to sell or rid yourself of what you have and replace it."

In my view, the change in the nature of the customers' demand, which I have endeavoured to outline above, coincided with the emergence of what Mr Costello described as equipment of considerably better performance. On the one hand there emerged the high powered Macintosh computers which could manipulate high resolution material in the same manner as the Studio 9500 and send the finished product to an imagesetter for output to film. On the other hand Crosfield had updates to its equipment including the Studio 9500R, the Studio 9700 and the Magna Rip which, on the evidence adduced in this case, would, in my view, have given the

ability to adapt to the changed demand had Quadrascan chosen to take the course of acquiring those updates.

The brochures and the Quotation made it clear that deep-etching was to be done on the Studio 9500. I accept the evidence that the Studio 9500 could be, and was, used most efficiently for that purpose. In fact that was not really in issue. I find that in tandem with the Studiolink, the Studio 9500 was suitable for Quadrascan's business, was capable of increasing Quadrascan's efficiency, improving the quality of its service and could be used with virtually all material provided in a Postscript format.

The Studiolink's inability to transmit complicated vignettes to the Studio 9500

The situation with graduated tones was very similar to that in respect of deep-etched pictures. The respondents did not dispute that complicated vignettes (those exceeding 256 graduated tones of colour) could not be transmitted from the Studiolink to the Studio 9500.

Mr Curran said that work was coming in "all the time containing more than 256 colours and that most work had a vignette in it of some description".

Mr Kivell said that the average time for replacing a vignette was 15 minutes.

However, the evidence was that it was not always necessary to remove complicated vignettes even if a customer had placed them on the disk before presentation to Quadrascan. Such material could be transmitted using Separation
mode if no further manipulation were required. If manipulation were required on the Studio 9500 the vignettes could be sent in Graphics mode. That was the evidence of Ms Eyres, Ms Witham and Mr Cavenagh and I accept their evidence in that regard. Ms Witham's evidence was that vignettes of less than 256 colours could be transmitted from the Studiolink in Line Art mode. If the vignette exceeded 256 colours and was sent in Graphics mode then this would add a little bit of time to the production depending upon how big the file was. She chose five minutes as a indication of how much more time was involved. Ms Witham said that removing the complicated vignette and putting it back again on the Studio 9500 was faster and would result in a better quality vignette on the system than one would obtain from the Macintosh. I inferred from her evidence that doing this was not complicated. Ms Witham said that it involved reading the colours with which the vignette started and finished, taking that information to the Studio 9500 system and sending the file over. The vignette could then be created at the Studio 9500.

Similar evidence was given by Mr Cavenagh. He said that the best way to process a linear vignette, which he described as the most common type of vignette, was to take note of its co-ordinates (via an interrogation box) and process the file through to the Studio 9500 where the operator would replace it. Circular vignettes were rare but would usually be in a third party package such as Illustrator or Freehand. It would thus be an Encapsulated Postscript file which could be converted into Graphics mode and in that mode sent through to the Studio 9500. Alternatively it could be saved as a TIFF file, sent through the Pixelink and similarly treated as an image at the Studio 9500. The evidence of Ms Eyres, Mr Weekley, Ms Witham, Mr
Hudson and Mr Cavenagh was all substantially to the same effect i.e. that there was a reasonable method of processing complicated vignettes whether linear or circular. Mr Williamson's evidence that it was not possible to recreate a circular vignette on the Studio 9500 is, in my view, a matter which should be discounted for two reasons. First it is not clear whether Mr Williamson was considering a situation in which there was a circular vignette and a deep-etched picture on the one page. Secondly Mr Cavenagh's evidence was that circular vignettes could be sent in Graphics mode or as a TIFF file through Pixelink. Finally, in cross-examination, Mr Williamson acknowledged that a circular vignette could be transmitted to the Studio 9500 in Graphics mode.

After reviewing this evidence I have come to two conclusions. The first is that there was (as Mr Curran said) a fairly constant demand for material having more than 256 gradations of colour. The second conclusion is that the Equipment, taken as a whole, could handle this requirement. If no manipulation were required it could be sent straight through to film in Separation mode. If manipulation were required then there were the alternatives of Graphics mode or recreating the vignette on the Studio 9500, the latter having been recommended in the Quotation.

The dearth of written complaints from Quadrascan

I attach some significance to the fact that Mr Camfield was quick to put his complaints to Crosfield in writing when he was dissatisfied with the service provided by Crosfield during the period when the Equipment was being installed. I have set out earlier in these reasons two letters which Mr Camfield wrote to Mr Westlake
during that period, in one of which Mr Camfield referred to large financial losses and serious loss of credibility with clients and concluded by referring to the possibility of taking legal advice.

In view of Mr Camfield's earlier practice of promptly putting his complaints about the Crosfield system in writing I found it surprising that there were no similar letters in evidence in respect of the six month period between April and October 1992 when Quadrascan first ceased making payments under the Equipment Lease. I raised that matter with Mr McPhee during his final address and was assured that there were no such letters or other written communications. I accept Mr Camfield's evidence that he made oral complaints from time to time but I formed the view that if there were serious production problems, Mr Camfield was the sort of person who would have put his complaints in writing and followed up the matter of obtaining legal advice foreshadowed in his letter dated 22 January 1992. It was not until his letter dated 23 October 1992 that Mr Camfield again referred to taking legal action. I have considered Mr Camfield's evidence concerning what he saw at Quadrascan in the way of work having to be re-done on the bench and unsatisfactory films being produced. However, given Mr Camfield's self-acknowledged lack of technical expertise in this area, I have discounted his evidence when assessing whether there were problems which were fairly attributable to the Equipment. There was evidence from others who were more technically qualified or who personally operated the Equipment or comparable equipment. I have had regard to their evidence. To some extent I rely on the fact that Mr Camfield's letters of detailed complaint did not continue either through this period between April and October 1992 or during the subsequent period
of nearly eleven months between November 1992 and 27 September 1993 as assisting me to draw the conclusion (which I have drawn) that any problems encountered by Quadrascan were not so serious as to require the representations which had been made about the capabilities of the Equipment to be characterised as misleading or deceptive conduct.

The extent to which the Equipment was used

I take into account also the fact that the Equipment was used fairly intensively. The evidence was that when installed it was used for one shift per day but soon after installation it was put into use for two shifts per day i.e. between 7.00am and 10.30pm. Then for a period of three to four months the Equipment was used for three shifts per day before reverting to two shifts per day for the balance of the time during which it was installed at Quadrascan's premises. I regard this as significant for two purposes. First, such extensive use is more consistent with a situation in which the Equipment was performing rather than not performing. Secondly, as a matter of statistical probability, if minor problems in the operation of any equipment exist then they are likely to manifest themselves more frequently per day if the equipment is operated for two or three shifts per day rather than one shift.

Mr Fox's visit to Quadrascan and the importance of good management

I was concerned to get as clear a picture as possible of how things were operationally at Quadrascan when it first suspended its payments under the Equipment Lease in late October 1992. This suspension of payments resulted in a meeting in Sydney between Mr Barry Westlake and Mr Tony Fox of Crosfield and Mr
Camfield. At that meeting Mr Camfield tabled two documents listing complaints which had been prepared by the operators of the Equipment at Quadrascan. Those documents were admitted into evidence on the basis that they were documents which Mr Camfield handed to Mr Westlake and possibly Mr Fox but not on the basis that their contents were true.

The evidence was that immediately after that meeting Mr Fox spent four days at Quadrascan assessing the situation. Mr Fox gave evidence. He impressed me as a truthful witness and a person who had a very good technical grasp of how the Equipment operated, particularly the Studio 9500. Furthermore, Mr Fox prepared a contemporaneous report dated 12 November 1992 (Exhibit 48).

At the time of Mr Fox's visit to Quadrascan the scanners and Studio 9500 were being operated for three shifts per day and the Studiolink was working on two shifts. Mr Fox said that he sat down and worked with the Studio 9500 operators on an individual basis over the period of four days which he spent at Quadrascan. This included both day shifts and evening shifts.

Mr Fox gave evidence of what transpired during that period and also tendered the memorandum which he prepared shortly after that visit. Apparently Quadrascan was not particularly busy during Mr Fox's visit. However, Mr Fox's evidence and his memorandum provide a useful insight into what was happening with the Equipment in November 1992. On the first day, a logo was found to be missing when film was output. The operator blamed the system but on further investigation it transpired
that the logo had not been called up from the archives and put onto the screen. The operator had erred by not checking the display monitor prior to sending the page to assembly. Then Mr Fox described a problem which was encountered with placing a keyline around some type. Mr Fox described how this was a failure on the part of one of the functions on the Studio 9500 known as "Text Zip Grip" which Crosfield's technical people in the United Kingdom (whom Mr Fox consulted at the time) told him should not have happened. However, they suggested using another function known as "Colorfil" which applied the keyline successfully.

I accept Mr Fox's conclusions that, although the operators were a competent team, there was insufficient preparation of material prior to it being put into the system and poor organisation of production at Quadrascan. I refer in particular to Mr Fox's observations in that regard on the fourth and fifth pages of his memorandum dated 12 November 1992. Mr Fox's evidence has to be weighed in conjunction with other evidence about the importance of proper planning, production supervision and systems management where this type of equipment is used.

I was particularly struck by the importance of these factors when Mr Costello and Mr Lawrence gave their evidence. From their evidence and also, to perhaps a lesser extent, from the evidence of Mr Cavenagh I formed the distinct impression that the successful use of high technology equipment of this type required a particular type of good management. This was exemplified by Mr Costello himself. Mr Costello was and still is retained by Scott Four Colour (one of Quadrascan's competitors) as a consultant working three days per week. Mr Costello had over a period of years, through self-education, extensive enquiry and considerable investment in equipment acquired such a depth of knowledge in respect of this type of equipment that he was, in my view, undoubtedly a technical expert in the field. Furthermore, he is obviously an excellent and very practical manager who concerns himself with production supervision and financial results. All this emerged, in my view, quite clearly as he gave his extensive evidence in this case. A lot of that evidence was in confidence but the essence of it was that Mr Costello through the use of his technical and managerial production expertise was able to coax very impressive results from high technology equipment which although different to the Crosfield Equipment was broadly comparable to it.

Mr Lawrence was another consultant who had a wider range of clients than Mr Costello. The impression I gained from Mr Lawrence's evidence was that while, from time to time, he might spend some time at his client's premises, his role was less of an on-going one than that undertaken by Mr Costello at Scott Four Colour. Nevertheless, part of Mr Lawrence's service was to help companies identify how to improve and maintain the quality of their work, to review their prepress business generally including the giving of advice about personnel.

Mr Cavenagh also exemplifies the type of combined technical and managerial skills which are required for a successful operation of the Studiolink/Studio 9500 system. Mr Cavenagh was one of three executive directors of Network Graphics Pty Ltd ("Network Graphics"). Network Graphics acquired a Studiolink and Studio 9500 from Crosfield which was installed in about November 1990. Mr Cavenagh explained that his role at Network Graphics was to be responsible for "the technical side of things". He had to understand and know every piece of equipment in the company and how the work coming into the business should be done on that equipment. Mr Cavenagh gave evidence that he received a formal course of training on the Studio 9500 which took two or three weeks. Although he had not received any formal training on the Studiolink he had in fact put many jobs through that piece of equipment. I formed the impression that Mr Cavenagh combined considerable technical knowledge with hands-on management expertise. In summary, while Mr Cavenagh acknowledged that there were some problems, his evidence was to the effect that his company was well satisfied with the Studiolink and the Studio 9500 system and the upgrades which had taken place since the original acquisition of that equipment.

The evidence was that there was no comparable production manager at Quadrascan. Mr Walker appears to have been Quadrascan's general manager until he left Quadrascan. The evidence was not clear when he departed but by piecing together various bits of evidence I have inferred that this was in about late November 1992. Until then Mr Walker had overall responsibility for production in the (downstairs) electronic equipment section of Quadrascan. Mr Roy Walker's evidence was to the effect that Mr Simon Walker tended to be "away in his office". When Mr Simon Walker departed, Mr Roy Walker was appointed as production manager on the scanning and Studio 9500 side reporting to Mr Peter O'Keefe. Mr Roy Walker said that he had not received any training on the Studio 9500. I set out below an extract from Mr Fox's report of 12 November 1992. It is not entirely consistent with
all the other pieces of evidence concerning the division of the supervisory functions at Quadrascan but this may have been due to the fact that Mr Simon Walker was about to depart. Nevertheless, in my view, it is substantially accurate. It conveys a picture of what seems to me to be a far from ideal managerial situation and I accept Mr Fox's conclusions in that regard:-

"Quadrascan operate a three shift system on the scanners and Studio 9500 with the DTP area currently working on two shifts. The type of work they handle varies enormously, to include high quality agency work often requiring extensive image manipulation. Large volume magazine and catalogue production, typically 6 pics a page with deep etching required, through to simple single colour pages with mono pics.

The Production Managers have different responsibilities with Simon controlling the StudioLink and PixelLink production and Roy handling both the trade scanning and Studio 9500 production. They both in turn report through to a more senior Production Manager.

It should be noted that Simon has received limited training on StudioLink and 9500 and Roy, although having a wealth of scanner knowledge, has never undergone any training on either the StudioLink or 9500, and it would be fair to say that his understanding of systems' production is limited.

In regard to PixelLink, nobody at Quadrascan has ever been formally trained. The senior Production Manager who takes overall responsibility has no electronic pre press experience, but a wealth of knowledge in conventional repro."

As I listened to and reviewed the above evidence I formed the distinct impression that most of Quadrascan's problems were attributable to this absence of hands-on management by a person with a strong combination of technical and practical production management skills.

Mr Camfield's evidence was that at the conclusion of Mr Fox's visit he had a conversation with him during which Mr Fox made some recommendations concerning the proper planning of production at Quadrascan. Mr Camfield said that these
recommendations were put into effect but the impression which I gained from Mr Camfield's evidence was that he felt that these changes did not make much difference.

Nevertheless Quadrascan continued using the Equipment for a further period of approximately eleven months and during that period investigated the possibility of refinancing the Equipment with a view to taking advantage of a lowering of interest rates. On 15 February 1993 Quadrascan sent a fax to Burnhill confirming that it wished to "finalise" the Equipment Lease and requesting a "payout figure". In April and May 1993 Mr Kennedy again took up with Burnhill the matter of paying out the Equipment Lease. The only source of contention at that stage seemed to be the calculation of the figure (see Exhibit 53).

Once again, although there is evidence of some oral complaints during this period there is no evidence of any written complaint having been made by Quadrascan to Crosfield concerning the alleged inadequacies of the Equipment.

Part of the applicants' complaints is that due to such inadequacies, Quadrascan lost valuable business which would otherwise have come to it through three specified advertising agencies. This evidence was led primarily in support of the claims for damages. However, it was obvious during the course of the hearing that the applicants considered these to have been major incidents and hence major examples of the inability of the Equipment to carry out work in a Postscript environment. Accordingly, I think it is fair and appropriate that I should deal with the four main occurrences.

The Retravision Catalogue

This was an eight page (A3 size) colour catalogue produced for a group of electrical retailers. The catalogue advertised a large number of electrical items. Most of those items were displayed in the form of deep-etched pictures many of which had vignettes in the background.

The advertising agency responsible for the production of the Retravision catalogue was Messrs Martin, Johnson, Bowley and Billings ("MJB&B"). MJB&B wanted to do a great deal of the design work themselves. They asked Quadrascan to scan in pictures of the electrical goods, deep-etch the pictures and then supply MJB&B with those deep-etched pictures in low resolution on a computer disk. MJB&B then wished to complete the page composition themselves and return the disk to Quadrascan for outputting as film without further manipulation. The advantage to MJB&B in this procedure would be that the cost of outputting to final film would be much lower since all the page composition would have been done in-house at MJB&B. In effect, MJB&B were asking Quadrascan to operate as a bureau in respect of the Retravision catalogue. The evidence was that a bureau is known in this industry as a business which takes the customer's artwork whether in hard form or in disk form and simply outputs it to film, usually (except in the case of the better bureaux) without checking its quality or doing any manipulation or page design whatsoever.

As the Studiolink could not handle deep-etched pictures, this was not possible. Quadrascan scanned in the pictures, deep-etched them and supplied them on disk to MJB&B who carried out the composition of the pages and returned the disk to Quadrascan. When MJB&B had completed their work and returned the disk to Quadrascan, Quadrascan stripped out the deep-etched pictures and the vignettes, re-executed that work and produced a Cromalin proof. When Mr Emmerson of MJB&B inspected the Cromalin proof he found that some of the pictures were in the wrong position and some had been rotated incorrectly. Apparently Mr Emmerson then decided to re-execute all of the work himself at MJB&B including scanning in the original pictures and deep-etching them again. This was not entirely clear because, in cross-examination, Mr Emmerson said that at that stage he stripped out all the colour, put key lines on the pages in the form of boxes to show where pictures were required, imported monotone positionals and "gave that back to Quadrascan" on disk. There was evidence from Quadrascan employees (including Mr Camfield, Mr Lincoln, Mr Kivell) that a substantial part of the work on the Retravision catalogue was then done by Quadrascan conventionally on the bench. There were further errors in the work and considerable delays which led to MJB&B withdrawing their custom from Quadrascan. It would seem that the deep-etched pics which were supplied by Quadrascan to MJB&B were created using a tool known as "Cutting Paths" on the Quadrascan Macintosh work station because they could not be transferred across the Studiolink. Mr Emmerson's evidence was that at the Pakprint Exhibition in Melbourne in May 1992 he had visited the Crosfield stand with Mr Camfield and had asked a Crosfield representative whether the Studio 9500 could read clipping paths via the Studiolink. The (male) Crosfield representative made his response to Mr Camfield which was to the effect that it could, that he believed it was being done in the United Kingdom and that Crosfield would get back to Mr Camfield to tell him how to get the system to process files with clipping paths. Mr Emmerson had no recollection of Mr Camfield getting back to him personally on the matter of what information had been obtained from the United Kingdom.

After reviewing the relevant evidence from Mr Curran and Mr Emmerson and, to a lesser extent, from Mr Camfield (because he did not appear to have much knowledge of the technology) I accept the submission made by the respondents that there are only two explanations for what occurred in relation to the Retravision incident. The first was that either Quadrascan was not fully aware of the limitations of the Studiolink so far as deep-etched pictures were concerned or was aware of that limit but was prepared to accept the work on the basis that the deep-etching and vignettes would simply be redone. Mr Curran's evidence was that he suspected that the Studiolink could not handle deep-etched pictures but that the Retravision incident confirmed that suspicion.

The essence of the problem which arose in relation to the Retravision incident was, in my opinion, that MJB&B were seeking the services of a bureau which would use an imagesetter while the Equipment at Quadrascan was basically an electronic page composition system. That did not mean that the Equipment could not handle deep-etched pictures. It did so through a facility known as Open Press Interface ("OPI"). So long as Quadrascan's client was prepared to work on the basis that the deep-etching would be done at Quadrascan then it was quite feasible for the rest of the page composition to be done electronically by the client and the disk returned to Quadrascan. It would then be placed through the Studiolink picking up the deep-etched pictures from the Studio 9500 through the OPI facility and proceed straight to assembly of film through what was known as the Separation mode.

In any event, it does not seem to me that the blame for this incident can be fairly placed on the Equipment. The truth of the matter is that the work could have been handled by Quadrascan scanning in the transparencies to the Studio 9500, taking the text and linework from MJB&B's disk and combining that on the screen, carrying out the deep-etching and creation of vignettes on the Studio 9500 and then outputting the catalogue to film. It is true that this is not what MJB&B were seeking but the evidence is that at this stage such a request as the one made by MJB&B was extremely unusual. Mr Costello conceded that in 1991 in Perth not many people were using their Macintosh computers to put high resolution pictures onto disk. There was other evidence, to which I have referred above, that it was even less common to receive high resolution deep-etched pictures combined with complex vignettes.

In my view, the likelihood is (and I so find) that those operating the Studio 9500 at Quadrascan and the management of Quadrascan well knew by the end of June 1992 that the Studiolink could not handle deep-etched pictures. I refer to the evidence of Mr Frankiewicz concerning the complaints which he had received to that effect from Mr Camfield in the first half of 1992 and the evidence of Mr Walker in cross-examination that he was well aware of this within a month of the installation of the system and had discussed the matter with Mr Camfield.

In any event, the impression which was sought to be created that as a result of the Retravision incident Quadrascan lost MJB&B's business was not, in my opinion a correct one. The evidence is that Quadrascan continued to receive work from MJB&B through to June 1994 at the rate of approximately $100,000 per annum and the evidence of Mr Bowley (a director of MJB&B) was that Quadrascan throughout that period continued to received approximately 20% of MJB&B's work.

MARKETFORCE ADVERTISING

Another example of work which Quadrascan alleged it lost because the Equipment was not capable of carrying out what a client required was that which it hoped to obtain from Marketforce Advertising, a major advertising agency in Perth. Mr Walker gave evidence that at a time, which he did not specify in his evidence, Quadrascan was given the opportunity to carry out some work for this advertising agency. Previously Marketforce Advertising had employed a firm called Gibney Graphics which had gone into liquidation. The work included a lot of retouching on advertisements for chocolate milk and coffee milk drinks ("the Brownes/Peters Work"). Mr Walker's evidence was that Marketforce Advertising was the biggest advertising agency in Perth and this was a perfect opportunity for Quadrascan. The Brownes/Peters Work came in as conventional artwork involving some very simple images to be used on a wide variety of promotional material. The client wanted to have the images variously orientated in the different types of promotional material. Mr Walker's evidence of what happened was in these terms:

"Now, because of the limitation, I think, of the 9500 doing that with any ease and efficiency it just took an enormous amount of time to produce the job, a lot longer than we needed to. We had a lot of problems with the client. It virtually tied up production for over a week where - I mean almost nothing else was being done. It certainly took us two or three
times longer than we intended to do the job which apart from the effect it had on the client's attitude, costs, I think, a lot of money because we had quoted the job originally."

Mr Walker said that in relation to the larger items of material the images had to be scanned in at the larger size because it was not possible to enlarge over a certain percentage. Sometimes assembling the material to film took almost six or seven hours and then assembly aborted when it was about 99% completed. Mr Walker said that where assembly had been successful there was corruption in the image, problems with cross hairs on the film and problems with the masks.

Mr Walker's evidence about the problems encountered was not, in my view, sufficiently specific. For example, not even an approximate date of this incident was given. Furthermore, the films on which cross hairs and defective masks were alleged to have occurred were not produced.

However, Mr Walker was specific in swearing that this was the first and last job Quadrascan ever received from Marketforce Advertising in his time. Mr Walker's time at Quadrascan extended until about the end of November 1992.

In cross-examination Mr Walker agreed that the opportunity to do this work for Marketforce Advertising would have been in the early part of 1992. He said that there may have been some subsequent work given by Marketforce Advertising to Quadrascan in which the same images had to be used later but even then Mr Walker was not sure that Quadrascan had obtained such limited further work.

In cross-examination of Mr Walker it emerged [see Exhibit AJ2] that the first work which Quadrascan carried out for Marketforce Advertising was in March 1992. Quadrascan subsequently carried out work for Marketforce Advertising during the months May to September 1992 (inclusive) and in June and July 1993. The work in August 1992 was not in respect of the initial Marketforce Advertising client but was for Kresta Curtains.

It seems to me (and I so find) that despite whatever problems Quadrascan may have had with the initial job presented to them by Marketforce Advertising it was not true to say that Marketforce Advertising were so disappointed that they did not send any further work to Quadrascan. The truth of the matter is that Marketforce Advertising continued to send further work to Quadrascan after March 1992 involving gross income in excess of $18,000.

It also emerged in Mr Walker's cross-examination that Marketforce Advertising did not inform Quadrascan when delivering the initial job that a good deal of rotation of the images would be required. Quadrascan had expected that because the promotional material was made up of three very simple images, the angles for scanning in would be "pretty much consistent". This rotation requirement only became known after the images had been scanned in and retouched by Quadrascan. By that time a deadline had been agreed with Marketforce Advertising. From a technical point of view the situation was that because the pictures had been retouched, Quadrascan understood that rescanning was foreclosed as an option [although it was never made clear to me why it was not possible to scan in the images at the varied angle and carry out the retouching again]. This meant that a function known as "Transform" could not be used because the rotation was only through a small number of degrees and there would be a risk of an uneven stepping effect. Accordingly the function which had to be used on the Studio 9500 was Textrot which took longer than Transform. When Mr Walker was asked why he did not explain to the client that in view of these late instructions, midway through the job, to rotate the pictures after they had been touched up, it would be necessary to use a function on the Equipment which took more time than the deadline originally stipulated, he responded, "No and I wouldn't dream of doing it". He then shifted his ground slightly and suggested that the deadline had been agreed with Marketforce Advertising at the time when the slight variation in angle was known to Quadrascan. He said that the job would have been on time had it not been for the system crashing on assembly. It was put to him that the crash occurred because the Equipment had been overloaded beyond its capacity to manage five simultaneous functions. Mr Walker said that he would seriously doubt that as being the cause. It later emerged that the assembly crashed only on one occasion. This was on a night shift when the Marketforce Advertising job had got to in excess of 90% of completion and then assembly had aborted or stopped. Although this was a very important job to the extent that Mr Walker saw fit to come back to work during what was described as the "graveyard shift" to decide what should be done, he was not able to say whether the cursor on the Studio 9500 had jammed. Neither did he give any evidence to support his doubt that the number of functions being carried out at the time on the Studio 9500 exceeded the specified five functions. He agreed that Textrot can be conducted as a background function (i.e. whilst other tasks are being carried out on the Studio 9500).
There was other credible evidence that it was quite possible for a Studiolink operator to call upon the Studio 9500 for work to be carried out without the Studio 9500 operator being aware of that demand. Accordingly, there were two operators capable of activating the Studio 9500 at the one time. If between them they called upon the Studio 9500 to carry out more than five functions (the functions included scanning input, manipulation, assembly, archiving, retrieval from archive and output to film) then the Studio 9500 system would come to a halt.

In those circumstances I am left in some doubt whether the stopping of assembly in relation to the Brownes/Peters Work was due to any inherent fault on the part of the Studio 9500 or through inadvertent operator error during the midnight to dawn shift in question.

This attempt to sheet home the alleged loss of a customer due to deficiencies in the Equipment, in my opinion, must fail.

DALTON BEGLEY ADVERTISING

Mr Walker gave evidence that Quadrascan had what he described as a very loyal client in Sydney, a firm called Dalton Begley Advertising. Dalton Begley Advertising produced a series of advertisements regularly for Australian Record Club and Compact Disc and Cassette Club. Dalton Begley Advertising acquired Macintosh computers and decided to do their own high resolution scanning of the covers of records, compact discs or cassette boxes into a page. As a trial, they provided to Quadrascan an advertisement with some forty such images on a single A4 page.
Quadrascan tried to process this work by passing the boxes (into which the pictures had to be put) individually through Studiolink to the Studio 9500 and replacing all forty pictures back into the boxes provided on the page. Also on the page were eight pictures of the front cover of certain compact discs in pairs. Those pictures had to be transmitted separately and placed very carefully into the boxes provided in the page. Mr Walker said that this client was quite fussy about such positioning. Mr Walker told the client about the problems and that was the last job (Exhibit AW) which Quadrascan did for Dalton Begley Advertising, a firm which until then had, according to Mr Walker sent some 90% of its work to Quadrascan.

GREG RUSSELL ADVERTISING

In respect of Greg Russell Advertising, Mr Walker gave evidence that Quadrascan was getting regular work from that firm together with a couple of fairly large jobs. While Quadrascan was able to retain the larger jobs which had fairly long lead times, it lost the other work because it could not turn it around quickly enough in the 24 hours or thereabouts which was required for that work. Mr Walker said that the reason Quadrascan could not achieve the turnaround time was:

"Because we were constantly falling down in our production in terms of our scheduling and the time that it should take to produce the jobs."

He explained that Greg Russell was geared for Postscript and wanted to give Quadrascan electronic files which indeed Quadrascan wanted to receive.

BOWTELL CLARK

There is evidence that Bowtell Clark Advertising was, in 1992, sending about 70% of its work of this type to Quadrascan for processing. Mr Frank Rosato of that firm gave evidence that because over a period of time thereafter his firm's work was delayed or was incorrectly executed, it reduced the work given to Quadrascan and sent it elsewhere. For example, the colouring in advertisements was done incorrectly and Quadrascan started missing deadlines. Mr Rosata said that he raised these deficiencies with Mr Camfield but was unable to remember what Mr Camfield said in response other than having referred to imaging problems. His firm reduced the work it sent to Quadrascan to a level of 6% at the end of 1993 compared to approximately 90% in 1992.

The respondents submitted that Quadrascan had decided to choose a system which enabled it to carry out page composition such as retouching and repositioning and the like i.e. the Studio 9500. Other firms had purchased equipment which functioned as a combination of input scanner and imagesetter thus operating as a bureau. As described earlier, a bureau simply takes artwork from a client and usually outputs it to film without any manipulation or attempting to rectify any defects. What the customer has produced is what the customer ends up with on the film delivered by it to a bureau. The evidence was that a bureau charged much lower prices than those made by a prepress house which carried out page composition. The respondents further submitted that a firm which purchased the electronic page composition system was not really going to be able to compete with a firm which purchased equipment designed merely to output to film as quickly as possible. So far as Greg Russell Advertising was concerned, the respondents pointed to the fact that Quadrascan continued to receive high end work from that customer but lost the bureau work. It was argued that it was not surprising that a Perth firm would lose bureau work from a Sydney firm, given the time frame for bureau work.

My assessment of the evidence is that there were two reasons why the Equipment could not be used to carry out bureau type work even with Pixelink and in Separation mode. The major reason was that Studiolink could not transmit deep-etched pictures. Furthermore, although Pixelink enabled transmission of high resolution files, it did not carry information about where the picture was located in the page. The picture had to be transmitted separately and then replaced into the page by the Studio 9500 operator.

In my view there is considerable merit in the respondents' submission that Quadrascan had elected to purchase a system which was designed for further work to be done by way of manipulation on the Studio 9500 rather than operate as a mere outputting bureau.

I accept the evidence that, with proper pre-planning management, it was possible to use the Equipment most productively for that purpose, including the processing of text and other non-picture images in Postscript files. The pictures would be scanned in to the Studio 9500 direct from transparencies.

It was not until some six months after the Equipment had been installed that the first request came in (from MJB&B with the Retravision catalogue) for Quadrascan to receive high resolution deep-etched pictures for production. The evidence was that the technical development of the Macintosh computers whereby they could process high resolution images very much faster occurred extremely quickly. Quadrascan was offered upgraded Crosfield equipment in the form of Magna Rip which it declined. At that stage it was contemplating the purchase of the alternative EAC input scanner and imagesetter equipment. After it surrendered possession of the Equipment to Crosfield, there became available the Studio Stream which enabled transmission of deep-etched pictures to the upgraded version of the Studio 9500.

In those circumstances, I do not regard the evidence of the lost opportunity to do certain work for Dalton Begley Advertising and Greg Russell Advertising as indicating that Crosfield had engaged in misleading or deceptive conduct when it described the capabilities of the Equipment in 1991.

The expert technical evidence

Considerable expert evidence was given in this matter. Mr Costello was called by the applicants. He gave evidence of five tests which he caused to be carried out on the Equipment in November 1993 and very early December shortly before possession of it was surrendered to Crosfield. Mr Costello's basic conclusion, as mentioned earlier, was that three of what were put forward by the applicants as limitations of the Equipment were sufficient on their own to render it uncommercial. In fact Mr Costello said that he would have expected the Equipment, whilst in operation at Quadrascan to have run initially at a loss amounting to between 5 and 20 per cent on turnover. By the end of 1992 he said Quadrascan would probably have achieved a reduction of "perhaps around 5 per cent of the loss factor on the 9500 system". He would have expected Quadrascan to have made a loss throughout 1993. If Quadrascan had upgraded to a Studio 9700R and had a Postscript imagesetter then in 1994 he would have expected it to achieve a "moderate" profitability in the order of probably 15 to 20 per cent of turnover. Mr Costello also gave evidence of the results of the tests which he carried out to check the alleged defects of the Studiolink and the Studio 9500 respectively which are particularised in the Statement of Claim. Mr Costello was recalled to make some observations in relation to a test carried out by Mr Cavenagh involving the alignment of pictures contained in a series of boxes. I shall deal briefly with that evidence. Mr Cavenagh's evidence was that the particular test which he carried out and which became the subject of Exhibits 42 and 44 was in respect of two defects alleged in respect of the Studio 9500, namely those particularised in sub-paragraphs 24(b)(vi) and (xi) of the Statement of Claim. The applicants, during the hearing, abandoned any further reliance on sub-paragraph 24(b)(xi). Mr Cavenagh said that, for the purposes of testing for the complaint described in particular 24(b)(vi) he placed the pictures deliberately in slightly different positions so that he could compare the positions in which they appeared on the screen of the Studio 9500 with their respective positions as they appeared on film. He was satisfied with the result, that is, that on film the images in the pictures appeared as he had planned them on the Studio 9500 screen. Mr Costello produced prints of enlargements of Exhibits 42 and 44 and demonstrated that the borders of the pictures were slightly out of alignment. Although slight, he said the result would be commercially unacceptable. From that and other evidence of the high standards required in this section of the printing industry I am prepared to accept (and do accept) that conclusion. However, the applicants had abandoned reliance on that complaint during the course of the hearing and it would be unfair to allow them to resile from that position. Then the applicants (who in fairness to them did not seek directly to resile from that position) put the submission that the boxes in which the pictures were contained were themselves images and that their misalignment thus fell also within particular 24(b)(vi). I reject that submission. The particulars were drawn in such a manner as to distinguish the one subject-matter of complaint from the other and the applicants should not, in my view, be permitted to re-introduce the complaint by another door. Furthermore, on the evidence, a clear distinction is drawn between images or pictures and the boxes in which they are contained.

On the other aspect (the differences between the pictures in the respective boxes) I accept Mr Cavenagh's evidence that this was done deliberately. Although it would not make commercial sense to do this deliberately in a production setting, it seems a most reasonable way of testing whether the material placed on the screen of the Studio 9500 appears in the same place on final film. That particular test or small series of tests would not, in my opinion, be conclusive because the fault (if it existed and were attributable to the machine rather than operator error) might not manifest itself during the relatively short period of that part of Mr Cavenagh's tests. However, there was no evidence of its manifestation in the course of the other tests carried out by Mr Cavenagh.

It was not an easy exercise to weigh on the one hand the evidence of Mr Costello and on the other hand that of Mr Cavenagh and Mr Lawrence concerning
the capabilities of the Equipment. Furthermore this particular exercise, in my opinion, could only be done as a part of the overall assessment in the course of which there had to be considered the evidence from the Quadrascan operators of the Equipment, the other operators and users of comparable equipment (including Mr Skurka). After carrying out that particular exercise and the wider balancing exercise I decided to discount to some extent Mr Costello's evidence concerning the disabilities of the Equipment and the likely impact of those disabilities, in favour of the body of evidence to the contrary adduced by the respondents through Messrs Cavenagh, Lawrence and the others whom I have described above.

There was little doubt in my mind about Mr Costello's technical expertise and his practical and financial abilities. However, he did not see Quadrascan's business in operation and he was very much in the Quadrascan camp giving virtually constant assistance during the hearing to those responsible for presenting the applicants' case. This was to some extent noticeably greater than was the case with the respondents' technical witnesses with the possible exception of Mr Weekley.

I have concluded that Mr Costello was unduly pessimistic in his assessment of the alleged disabilities of the Equipment and the impact of such disabilities on Quadrascan's business. My impression was that Mr Costello would have caused Quadrascan to put the Equipment to similarly productive and profitable use as he managed to achieve at Scott Four Colour with the Purup equipment and the Jupiter work station. That equipment too had its problems which at one stage led Mr Costello to travel to Denmark for discussions with the Purup manufacturer. In my opinion, Mr Costello would have selected and trained the Quadrascan operators (or caused them to be trained) and supervised and would have organised the flow of work so that it was processed profitably.

The representation that Crosfield would provide an engineer resident in Perth for ongoing support

I accept that Crosfield made such a representation and that its officers said in particular that Crosfield would send Mr Harper to the United Kingdom for training on the Equipment. What happened was that Mr Harper left Crosfield's employment shortly after this representation was made. There was evidence, which I accept, that Crosfield endeavoured to persuade Mr Harper to change his mind, but without success. Mr Camfield was present on one occasion at a dinner when an attempt was made to persuade Mr Harper to change his mind.

Crosfield chose the alternative of appointing Mr Frankiewicz as its service agent in Perth. Mr Frankiewicz's evidence was that he was given regular training by Crosfield. However, I accept that Mr Frankiewicz was not as technically qualified as the type of engineer who would have been available had Mr Harper (or someone else in his stead) been sent to England for special training on the Equipment.

The applicants' place no reliance on s.51A of the Act. In those circumstances the mere fact that a representation as to future conduct does not come to pass, does not make the representation misleading or deceptive: James v. ANZ Banking Group Ltd (1986) 64 ALR 347, Global Sportsman Pty Ltd v. Mirror Newspapers Pty Ltd (1984) 2 FCR 82. Even accepting, as I do, that the representation implied that Crosfield had the present intention to make good its promise and that it had the means to do so, I am not prepared to infer from what subsequently took place that Crosfield did not have that intention or the means to do so when it made that representation to Quadrascan. However, it is also necessary to consider whether Crosfield engaged in misleading or deceptive conduct by failing to qualify the statement or disclosing the possibility of its non-fulfilment: Wheeler Grace & Pierucci Pty Ltd v. Wright (1989) ATPR 40-940 at p.50251, Famel Pty Ltd v. Burswood Management Ltd (1989) ATPR 40-962. Mr McPhee did not put the case on this alternative basis, but I propose to consider the point in any event.

Crosfield called no evidence to explain why it took the course of relying upon Mr Frankiewicz to provide technical support to Quadrascan rather than have a resident engineer in Perth who had been trained in the United Kingdom.

The question is whether there is evidence of relevant circumstances which show the need for this representation concerning a resident engineer to have been qualified or for the possibility of its non-fulfilment to be disclosed. In my view, it would be self-evident to both parties that there was a possibility of its non-fulfilment if, for example, Mr Harper were to leave Crosfield's employment. There was no evidence that Crosfield should have been particularly aware that this might happen prior to Mr Harper tendering his resignation. The situation is different from the Wheeler Grace v. Pierucci circumstances which involved predictions as to the financial success of a proposed gold-mining venture. Although, for the purposes of this consideration, I am prepared to accept that Mr Frankiewicz could not be regarded as a fully-qualified Crosfield engineer resident in Perth, the fact that an arrangement was made for the provision of his services is, I think, relevant. The essence of the evidence was that Crosfield at all times intended to provide technical support to Quadrascan. The promised modem link was installed in June 1992 (see Mr Frankiewicz's evidence, which was not seriously challenged and which I accept) and there was no evidence that it was Crosfield's fault that it was not put to use. Mr Frankiewicz's services were provided on a contractual basis in Perth and he was regularly called to Sydney for further training.

In my opinion insufficient relevant circumstances exist in the present matter to require Crosfield to have qualified the representation concerning an engineer resident in Perth or to have referred to the possibility of the representation not being fully fulfilled. Unlike some predictions which cannot readily be made the subject of a contractual term and thus are stronger candidates for qualification, this representation could easily have been made a contractual term. As previously mentioned, Quadrascan abandoned any claim in contract under this heading.

I have weighed the representation pleaded in paragraph 19(d) of the Statement of Claim against the degree of support provided by Crosfield to Quadrascan and, in all the circumstances, my opinion is that Crosfield did not when making that representation engage in misleading or deceptive conduct.

Conclusions

I have considered each of the particular complaints made in relation to the Studiolink and the Studio 9500. I have, on the evidence adduced, tried to assess the impact of those complaints which I have concluded were problems of some significance. Those which I assessed as insignificant in respect of the separate individual complaints in respect of the Studiolink and the Studio 9500 overwhelmingly outnumbered the few which I regarded as of some significance. I have further tried to make an assessment of the cumulative effect of those particular problems and the ones which I have not regarded as significant. That exercise involved some assessment of the expert evidence called by each side but I have also tried to assess the expert evidence as a separate exercise. I have considered various other matters which I considered relevant all of which I have set out in the foregoing reasons. I have also had regard to the allegations of unsuitability particularised in sub-paragraph 24(d)(c) and the evidence directed to those particulars. Finally, I examined the service records and re-visited Mr Frankiewicz's evidence to the effect that the nature and frequency of the service calls was not unusual for equipment of this type. I accept that evidence.

In my view the evidence discloses that the Equipment could, if properly managed and operated, handle virtually all of its clients' work delivered in Postscript on disk. The work had to be shared between the Studiolink and the Studio 9500 but, in my opinion, that was made clear in the brochures and the Quotation. There were some programmes or formats where difficulties were encountered but I accept the evidence that these were not the common or frequently-used programmes. Another factor was the divergence of some programmes from what is known as the Postscript Red Book. In respect of the Studiolink, the brochure made it clear that compatibility was assured with Adobe's Postscript language, as defined in the Postscript Red Book (emphasis added) - see the extract set out earlier in these reasons.

On assessing the evidence overall, I have come to the conclusion that whether taken together or separately the making of the Statements by Crosfield as summarised by the applicants in the four key Representations was not conduct which was misleading or deceptive. It will be recalled that those Representations were as follows:

(b) the Studio 9500 and the Studiolink would increase the efficiency and quality of service offered by the first applicant;

(c) the Studio 9500 could be used with virtually all material provided in a Postscript format;

(d) the first respondent would provide an engineer resident in Perth to provide on-going support for the system.

In my view the first three of the above representations was true at the time when they were made and for a reasonable period following installation of the Equipment. I have given my reasons above for my conclusion that in the overall circumstances, the making of the fourth representation did not constitute misleading or deceptive conduct. The applicants' claims will be dismissed. I now turn to the second respondent's cross-claim.

BURNHILL'S CROSS-CLAIM

Burnhill's cross-claim against Quadrascan is for liquidated damages under clauses 16(ii) and 18 of the Equipment Lease. The amount claimed is $389,277.46 plus interest. In the alternative, if clause 18 is held to be a penalty provision then Crosfield (by an amendment made during the course of the hearing) claims unliquidated damages which it says should be assessed in the same amount as referred to above. Burnhill also claims against Messrs Camfield and Kennedy as guarantors of Quadrascan's obligations under the Equipment Lease to the extent of the limit provided in the Guarantee of $203,330 plus interest. Burnhill also claims against Quadrascan in respect of certain other relatively minor items.

The Factual Background

On 9 September 1993 Messrs Michell Sillar McPhee, as solicitors for Quadrascan and Messrs Camfield and Kennedy, wrote to Crosfield and to Burnhill. Enclosed in the letter to Burnhill was a copy of their letter to Crosfield. In the letter to Burnhill the applicants' solicitors asserted that Burnhill was "knowingly involved" in making statements as to the capacity of the Equipment and that therefore the applicants were entitled to be relieved of their obligations to Burnhill on the grounds that Burnhill was engaged in misleading and deceptive conduct in breach of s.52 and/or s.53 of the Act. The letter went on to seek a release (I have assumed that the release required was from any further obligation under the Equipment Lease and the Guarantee) of each of the applicants, and the return of all funds paid under the Equipment Lease. The letter further stated that the Equipment would be returned to Burnhill if the applicants' demands were met and that the applicants had set a deadline of ten days for a response. The letter concluded:

"Any lease payments made by our clients in the future will be made under the protest that all payments due under the Lease have been made.

Our instructions will be to take Court proceedings against you should this matter not be resolved within the time limit set out in this letter."

Burnhill pleads that by a letter dated 2 November 1993 from its solicitors to the applicants' solicitors it terminated the Equipment Lease. In its defence to cross-claim Quadrascan admits the sending of that letter but denies that the letter was effective to terminate the Equipment Lease because, so it alleges, the Equipment Lease had previously been terminated by its solicitors' letter dated 9 September 1993.

The only basis upon which Quadrascan and Messrs Camfield and Kennedy seek relief from any further liability under the Equipment Lease and the Guarantee respectively is that Crosfield engaged in misleading or deceptive conduct in contravention of s.52 of the Act and that Burnhill was directly or indirectly knowingly concerned in, and thus a person involved, in that contravention.

I have held that there was no such contravention. Accordingly, to the extent that the applicants' defence to the cross-claim is based on that contravention, it must fail.

However, there are some further legal issues in the cross-claim which first
require reference to the facts and, where those facts are not agreed, some findings of fact.

Whether Quadrascan defaulted in relation to payment of monthly instalments under the Equipment Lease

It is common ground on the pleadings in the cross-claim that the Commencement Date of the Equipment Lease was 1 March 1992. The first instalment of rent (and a further $4920 for stamp duty) was payable three months from the Commencement Date i.e. 1 June 1992. Thereafter payments of $25,000 each were due each month.

Mr Alistair Stewart, leasing manager for Burnhill, gave evidence (upon which he was not cross-examined) that as at 2 November 1993 Quadrascan was in arrears in respect of rentals payable under the Equipment Lease to the extent of $125,000. In its defence to cross-claim Quadrascan sets out a schedule of the rentals which it says it paid under the Equipment Lease. From a comparison of the terms of the Equipment Lease and Quadrascan's schedule itself, it is, in my opinion, evident that Quadrascan as at 1 November 1993 had failed to make payment in respect of five months. Those were November 1992, February 1993, May 1993, October 1993 and November 1993. It would appear that the last nine payments made by Quadrascan were in the sum of $25,450 each. My understanding of the evidence was that the extra $450 was on account of some liability of Quadrascan to Burnhill other than in respect of rent. Crosfield grounds its claim for outstanding rental payments on the basis that payments due on 1 July 1993, 1 August 1993, 1 September 1993, 1 October
1993 and 1 November 1993 were not in fact made. Quadrascan, in its defence to cross-claim lists payments of $25,450 made on 30 July 1993 and 1 September 1993. If one were to apply the rule in Clayton's case then those two payments would be applied in payment of the amounts which should have been but were not paid in November 1992 and February 1993 respectively. It seems to me that Burnhill has in fact so appropriated the payments made by Quadrascan. This would leave the five monthly instalments outstanding as being the months pleaded by Burnhill.

In the absence of any cross-examination of Mr Stewart and in the further absence of any rebuttal evidence from the applicants in relation to the arrears of monthly rental, I accept Mr Stewart's evidence. I find that Quadrascan failed to make payment of the rental instalments due on 1 July 1993, 1 August 1993, 1 September 1993, 1 October 1993 and 1 November 1993.

As at 2 November 1992 Quadrascan was in a situation where, in my opinion, it had wrongfully repudiated its obligations under the Equipment Lease. It was in arrears of rent and it had, in my view, quite clearly indicated its intention not to regard itself any longer as being bound by the Equipment Lease. The letter dated 2 November 1992 from Messrs Allen Allen & Hemsley on behalf of Burnhill to Quadrascan [Exhibit 64] referred to the failure to pay the lease instalments on 1 July 1993, 1 August 1993, 1 September 1993 and 1 October 1993 together with a statement made by Mr Camfield in an affidavit sworn on 28 October 1993 in these proceedings as constituting a repudiation by Quadrascan of the Equipment Lease. The letter stated that Burnhill "hereby terminates" that lease. There then followed a statement that Quadrascan, as a consequence of its breach was liable in damages to Burnhill in the sum of $510,767.46, followed by a demand pursuant to clause 2 of the Guarantee that Messrs Camfield and Kennedy immediately pay Burnhill the sum of $213,330.00.

The relevant provisions of the Equipment Lease

In the above circumstances the operation of clauses 1 and 2 [imposing the obligation to pay rent], 16(g) [failure to pay any instalment of rent on the due date or within seven days after the due date], and the subsequent provisions of clause 16 entitled Burnhill to serve notice in writing on Quadrascan terminating the lease and Quadrascan's rights to possession of the Equipment. Upon service of such notice, clause 16 imposed an obligation on Quadrascan, at its own expense, forthwith to return the Equipment in good order and repair to Burnhill. The evidence was that Quadrascan gave up possession of the Equipment to Crosfield in December 1992.

In its defence to cross-claim, Quadrascan admits that it was a term of the Equipment Lease that if Burnhill terminated that lease Quadrascan would pay Burnhill liquidated damages in an amount to be calculated pursuant to the terms of the Equipment Lease. However, Quadrascan pleads that the relevant term

"... did not set out a genuine pre-estimate of the damages Quadrascan would suffer if the Lease was terminated as a result of any breach on the part of Quadrascan or other event agreed to give rise to a right to terminate and therefore was void and unenforceable as a penalty".

I find that Burnhill by its solicitors' letter dated 2 November 1993 terminated the Equipment Lease. It was entitled to do this pursuant to the provisions of clause 16(ii). In my view it was also entitled to determine the Equipment Lease by reason of Quadrascan's repudiation of its obligations thereunder. The relevant clause of the lease concerning what happens in the case of termination under clause 16(ii) is clause 18 which provides as follows:-

"Payments Due by Lessee on Termination

18. (a) If the Lessor Terminates this lease pursuant to Clause 7, Clause 16(ii) or Clause 17(b), the Lessee shall, upon such Termination, pay to the Lessor, as and by way of liquidated and ascertained damages, an amount equal to the aggregate of:

(i)The unpaid balance of the Total Rent that would have been payable during the whole Term had this lease not been Terminated and which at the date of Termination were not payable rebated to reflect the present value at the date of Termination, such value to be ascertained by applying the discount rate of the then National Australia Bank rate for commercial loans of over $100,000 to each rental instalment in respect of the period by which the date of payment is, by virtue of this Clause, brought forward (together with an amount equal to any stamp duty and other applicable duty payable in respect of such rebated total); and

(ii) The amount of any rentals or other moneys then overdue; and

(iii) The costs and expenses, if any, incurred by the Lessor in repossessing the Goods and in entering upon and removing the Goods from the land or premises whereon they or any part of them are, and in making good any injury caused to the said land or premises or to the property of any person by such entry or removal and in storing, registering and insuring the Goods; and

(iv) The costs and expenses of repairs reasonably necessary to bring the Goods to a saleable condition; and

(v) Interest (if any) (calculated in accordance with Clause 26(g)) on all overdue amounts payable under this lease; and

(vi) The Residual Value as stated in the Schedule rebated to reflect the present value at the date of Termination, such value to be ascertained by applying the discount rate of the then National Australia Bank rate for commercial loans of over $100,000 to the amount of the Residual Value in respect of the period by which the date of payment is, by virtue of this Clause, brought forward.

AND ADJUSTED BY THE FOLLOWING AMOUNT (IF APPLICABLE)

(b) Where the Goods have come into possession of the Lessor and have been sold by the Lessor, the gross proceeds of sale actually received by the Lessor, less:

(i) all costs and expenses of and incidental to such sale; and

(ii) all moneys then due and payable to the Lessor or its Related Corporation by the Lessee or its Related Corporations,

which shall be credited to the Lessee's account if and when, and only when, received by the Lessor.

(i)if the Goods, having come into the possession of the Lessor, have not been sold within three (3) months despite having been submitted for sale by public auction without reserve; or

(ii) if the Goods have not come into the possession of the Lessor within twenty-eight (28) days after the Termination of this lease.

(d) The amounts specified in Clause 18(a) above are payable immediately they are ascertained and demanded by the Lessor and if not paid when due will bear interest at the rate specified in Clause 26(g)."

Is clause 18 of the Equipment Lease a penalty provision?

Mr McPhee submitted that clause 18 provides for a penalty. He described it as "an unconscionable provision" which in certain circumstances gives no credit whatever for the value of the Equipment. The circumstances in which Quadrascan might not have been entitled to credit in respect of the Equipment appear from clause 18(c). They are as follows:

. if the Equipment, having come into the possession of Burnhill, had not been sold within three months despite having been submitted for sale by public auction without reserve; or

. if the Equipment had not come into Burnhill's possession within 28 days after the termination of the Equipment Lease.

In opening, Mr McPhee also described the provisions of clause 18 as not being a genuine pre-estimate of the loss and being applicable in a variety of circumstances
with varying effects on likely losses.

Mr Cripps, senior counsel for Burnhill, did not dispute the proposition that for the purpose of determining whether a clause in a lease is a penalty, that is, other than a genuine pre-estimate of the damage, the clause has to be looked at in its worst possible operation. On the current state of the authorities I am inclined to think that the proposition might be somewhat overstated. Mr Cripps conceded (this time quite correctly, in my view) that it was no answer to say that in this particular case the clause worked satisfactorily. Rather, he submitted that even in the worst possible factual circumstances, clause 18 was still a genuine pre-estimate of damage. Mr Cripps pointed to evidence that the Equipment in the context of the industry generally would be seen "as being very vulnerable to loss or at least of no value in the event that the lessee decided not to pay rent or did something to cause a termination of the Lease". In response to a question from me, Mr Cripps explained that this was a reference to the evidence of the rapidly changing technology in this industry and the consequent obsolescence of the Equipment. In those circumstances, so it was put, clause 18 was not an unreasonable clause.

Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v. New Garage and Motor Co Ltd [1915] AC 79 at p.86 stated the essence of a penalty in the following terms:

"2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Shipbuilding Co v. Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6."

Where a hiring agreement is terminated by reason of a breach committed by the hirer, the sum payable by the hirer pursuant to a formula of the type contained in clause 18 will be a penalty unless it is a genuine pre-estimate of the loss likely to be suffered by the owner: O'Dea v. Allstates Leasing System (W.A.) Pty Ltd (1982) 152 CLR 359 at p.367. At p.373 Gibbs C.J. observed:

"The question whether a contractual provision amounts to a penalty depends on all the surrounding circumstances existing at the time of the making of the contract as well as on the terms of the contract itself, and it is therefore not always possible to apply a decision given upon one contract to another case even though that case concerns a contract in identical terms (authorities cited)."

In that case Gibbs C.J. held that the outstanding balance of the entire rental could not in the circumstances possibly represent a genuine pre-estimate of the loss which would be caused to the owner. Wilson J. (at p.383) came to a similar conclusion and took into account the fact that the possible defaults which might activate the lessor's power under the relevant clause encompassed both trivial and serious breaches without distinction in the remedy. Brennan J. referred to this aspect also (see p.391-392). Deane J. (at p.399) referred to the presumption which arises in that situation, in the following terms:

"There is a presumption (but nothing more) that it is a penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage". [Quoting Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v. New Garage & Motor Co Ltd [1915] AC 79 at pp.86-87 who was in turn quoting Lord Watson in Lord Elphinstone v. Monkland Iron and Coal Co (1886) 11 App.Cas. 332 at p.342].

Murphy J. (at p.375) held that the relevant provisions were unenforceable because by modern standards they were unconscionably harsh.

In AMEV-UDC Finance Ltd v. Austin (1986) 162 CLR 170 Mason and Wilson JJ observed (at p.193-194) that the test to be applied in drawing the distinction between a penal provision and a compensatory provision was:

"... one of degree and will depend on a number of circumstances, including (1) the degree of disproportion between the stipulated sum and the loss likely to be suffered by the plaintiff, a factor relevant to the oppressiveness of the term to the defendant, and (2) the nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the plaintiff's conduct in seeking to enforce the term. The courts should not, however, be too ready to find the requisite degree of disproportion lest they impinge on the parties' freedom to settle for themselves the rights and liabilities following a breach of contract."

In the process of assessing whether a provision is a genuine pre-estimate of loss or a penalty, the relevant loss is not restricted to the loss flowing immediately and merely from the actual breach of contract; it includes the loss of the benefit of the contract resulting from the election to terminate for breach - see the passage from Deane J's reasons for judgment in the AMEV-UDC case at p.197 specifically approved of by Wilson and Toohey JJ in Esanda Finance Corporation Ltd v. Plessnig (1989) 166 CLR 131 at p.140. At pp.141-142 in that report their Honours referred to the principle that the payment of an agreed sum is a penalty only if it is "out of all proportion" or "extravagant exorbitant or unconscionable" [quoting from AMEV-UDC and O'Dea] and to "... the latitude that necessarily attends the conception of a genuine pre-estimate of damage".

In this case Burnhill has exercised its right to terminate the Equipment Lease on the occasion of Quadrascan's breach of contract in failing to pay four of the monthly instalments of rent. In fact, by the time of termination that had risen to five
months of such failure. Although in my opinion Quadrascan, by that conduct and the conduct to which I have referred above, repudiated the Equipment Lease, Crosfield has not pleaded such repudiation as a basis for its cross-claim. Even in those circumstances the state of the authorities seems to be that Burnhill's loss consequent upon the termination of the hiring (assuming for the moment non-repudiatory breach) is to be taken into account in determining whether the amount recoverable under clause 18 is a penalty: see Brennan J's analysis in Esanda Finance Corporation Ltd v. Plessnig (1989) 166 CLR 131 at pp.145-147 of four of the judgments in Amev-UDC Finance Ltd v. Austin (1986) 162 CLR 170. The question is whether clause 18 is a genuine pre-estimate of the lessor's likely loss. One of the tests is whether the liability which clause 18 imposes:

"... is extravagant or unconscionable in comparison with the greatest losses that could conceivably be proved to have followed the breach and the termination". [per Brennan J. in Plessnig at p.148]

As part of the necessary assessment I think that it is appropriate to refer to some aspects of the Equipment Lease.

To start with, the Equipment Lease is not a hire-purchase agreement. It contains no option for Quadrascan to purchase the Equipment. The term stipulated in the lease was three years and three months. Quadrascan's obligation, in terms of payment of rent, was to pay a total rental of $900,000 in thirty-six instalments of $25,000 each. The parties expressly agreed that the Residual Value of the Equipment would be nil. Clause 1(b) contains an acknowledgment on Quadrascan's part that the Equipment is and would remain during the term of the lease Burnhill's sole property and that Quadrascan would be a bailee of the Equipment only on the terms of the Equipment Lease. There was a stipulation that in respect of the payment of the above instalments, time would be of the essence of the Equipment Lease. Clause 10(a)(ii)(D) confirms, if further confirmation were required, that nothing contained in the Equipment Lease or done or permitted pursuant to the Equipment Lease would confer on Quadrascan any right or property present or future in or in respect of the Equipment or any interest therein other than as lessee of the Equipment. Clause 20 provided that Quadrascan might continue in possession of the Equipment after the expiration of the term only with Burnhill's written consent. In that event Quadrascan would have been obliged to continue paying a monthly rent of $25,000. Otherwise the Equipment Lease provided (clause 13) for delivery up of the Equipment and that Burnhill might within 60 days of such delivery offer the Equipment for sale by public auction to or through the trade by private treaty. Because the Residual Value of the Equipment was stipulated as being nil, the obligation which would otherwise have arisen under clause 13(b) on Quadrascan's part to pay to Burnhill any shortfall upon such resale compared to the Residual Value, did not arise. Clause 15 stipulated that certain of Quadrascan's covenants and obligations, including the covenant to pay rent were essential and/or fundamental terms and that the breach of such terms should be deemed to be a breach of an essential and/or fundamental term by Quadrascan. Clause 16 provided for numerous circumstances upon the occurrence of any of which Burnhill could by notice in writing demand possession of the Equipment without terminating the lease or (alternatively) terminate the lease and Quadrascan's right to possession of the Equipment. Some of those circumstances did not involve any breach of contract on Quadrascan's part.

An examination of the terms of clause 18, which is set out above, reveals that in the calculation of what Quadrascan is required to pay, a balance has to be struck between debits and credits.

On the debit side there is the unpaid balance of the total rent. However, that is to be rebated to reflect its present value by applying the discount rate of the National Australia Bank for commercial loans over $100,000 to each rental instalment payment of which is thus brought forward. This can be an important factor - see the observations of Mason and Wilson JJ in AMEV-UDC at p.181. I regard this rebate provision as to a significant extent weighing against clause 18 being a penalty. The next four debits seem to me to be uncontroversial. They comprise rentals or other moneys then overdue, costs of repossession, costs of repairs to bring the Equipment to a saleable condition and interest on all overdue amounts payable under the Equipment Lease. The final debit is the Residual Value in respect of which there is a similar provision to the above for rebate. I have noted that the Equipment Lease records the parties' agreement that the Residual Value is nil. Again I see this as significant in two ways. First, it means that there is one less debit in the balance. Secondly, I infer that to some extent it reflects the parties' understanding that the Equipment is unlikely to be of substantial value at the end of the term of the Equipment Lease. On the credit side of the balance there are to be taken into account the net proceeds of sale of the Equipment, but subject to the proviso in sub-clause (c) which, the applicants contend requires clause 18 to be characterised as a penalty provision.

In my opinion, the evidence in this case discloses an industry with a fast- changing technology and one in which the Equipment might easily depreciate very rapidly or even become obsolete in a very short period of time.

In that context, including the fact that the parties from the outset had agreed that after 36 months the Equipment would have no residual value, I turn to assess clause 18(c)(i) and (ii). It seems to me to be quite reasonable when trying to make an estimate of Burnhill's likely loss to provide that if a public auction of the Equipment has been attempted without reserve and the Equipment has not been sold within three months of coming into Burnhill's possession or if Burnhill, without fault on its part has not been able to obtain possession of the Equipment, then Quadrascan should not be entitled to credit in respect of its value.

In those circumstances I would not regard there to be such a degree of disproportion between the stipulated sum and the loss likely to be suffered by Burnhill as to be oppressive to Quadrascan. It is also worth bearing in mind a recent observation of the Privy Council in Philips (Hong Kong) Ltd v. The Attorney-General of Hong Kong (1993) 9 Construction Law Journal 202, to the effect that the use of unlikely illustrations does not assist in answering the question whether the particular provision is a genuine pre-estimate of likely loss. The Board also observed that a provision as to liquidated damages is not a penalty only by virtue of the fact that in some circumstances the loss recovered pursuant to the operation of that provision may exceed the maximum actual loss sustained.

The question is always one of extravagance and exorbitance in all the circumstances. As the cases referred to above show, a relevant factor is the relationship between the contracting parties, in this case Quadrascan and Burnhill. There is no evidence (and the burden was on Quadrascan in this regard) of any inequality in their respective bargaining power. The evidence was of two commercially-oriented firms contracting at arms length. Mr Camfield said that the Equipment Lease was vetted by Quadrascan's solicitors.

In all the surrounding circumstances existing at the time of the execution of the Equipment Lease and after examining its terms, in my view the presumption referred to in the cases cited above does not apply to clauses 16 and 18. For the reasons which I have outlined above clause 18 is in my opinion not penal but a genuine pre-estimate of likely loss. It is not, in my view, an extravagant or exorbitant provision.

The submission that Burnhill sustained no loss

This submission was based upon evidence which, so the applicants argue, shows that Burnhill has been fully indemnified in respect of what would otherwise have been its loss consequent upon the termination of the Equipment Lease, by a payment made pursuant to an agreement dated 23 February 1989 made between Burnhill's ultimate parent company in the United Kingdom, Burnhill Equipment Finance Ltd ("Burnhill UK") and Crosfield's ultimate parent company in the United Kingdom, Crosfield Electronics Ltd ("Crosfield UK"). I shall refer to that agreementas "the UK Agreement". A reading of the UK Agreement shows that it was intended to make arrangements whereby Burnhill UK would provide leasing facilities for customers who
wished to acquire equipment from Burnhill. It also provided for recourse, up to a stipulated monetary limit per annum, for Burnhill UK to Crosfield UK in cases where lessees defaulted in making payment under those lease.

In the UK Agreement, Burnhill UK was defined as including it and its subsidiary branches and associates undertaking the business of lease, rental and similar financing. There was no equivalent definition to extend the reference to Crosfield UK. However, the applicants did not seek to argue that what took place between Burnhill and Crosfield was not pursuant to the UK Agreement. In fact the applicants squarely based their submissions on the fact that the payment by Crosfield to Burnhill of an amount of $535,323.57 was made pursuant to the UK Agreement, which Mr McPhee described as the recourse agreement and identified by its exhibit number.

The UK Agreement was a very short one. It provided for collaboration between Crosfield UK and Burnhill UK whereby Burnhill UK would respond to Crosfield UK's request from time to time to acquire equipment from Crosfield UK and lease that equipment to customers of Crosfield UK. The UK Agreement also provided that if a particular lease were terminated by Burnhill UK following default by a lessee in making a payment then Crosfield UK would remove the equipment from the lessee's premises, safely store it, and within seven days of such removal pay Burnhill UK an Advance Payment (a defined term) pending either the resale of the equipment by Crosfield UK on Burnhill's behalf or the re-purchase of the equipment for scrap by Crosfield UK. The term Advance Payment was defined as meaning the
sum of rentals remaining unpaid at the date of repossession plus the principal balance outstanding and any specific costs incurred by Burnhill UK in connection with the repossession. The agreement further provided that if Crosfield UK resold the equipment, the net proceeds should be set off against the Advance Payment and Crosfield UK would be entitled to the excess, if any. If Crosfield UK repurchased the equipment for scrap from Burnhill UK the net proceeds were to be deemed to equal the Advance Payment. Clause D(5) provided that on 31 March every year Burnhill UK should repay Crosfield UK the excess over £3 million of the aggregated Advance Payments retained by Burnhill UK in respect of equipment resold or repurchased by Crosfield. Clause D(6) provided that if Crosfield neither resold nor repurchased the Equipment within three years from the date of removal from the Lessee's premises Burnhill was obliged to repay Crosfield the Advance Payment.

Mr Stewart, leasing manager for Burnhill gave evidence that upon telephonic instructions from the finance manager of Burnhill UK he arranged for Crosfield, as Burnhill's agents, to repossess the Equipment and then caused Burnhill to make a claim on Crosfield for the sum of $535,323.57. This was done by rendering an invoice. The invoice so rendered was tendered and became Exhibit 51. Exhibit 51, as tendered, had on it some handwritten calculations of the sum of $535,323.57. Mr Stewart explained that that amount comprised:

. the arrears of $125,000;

. a calculation of the net cash invested ($403,034.53). [Mr Stewart said that this was the present day value of the future rental payable under the Equipment Lease]; and

. a sum of $7,289.04 being interest in respect of late payment of
rent.

Mr Stewart said that he calculated the sum of $535,323.57 on instructions from Burnhill UK's finance manager. He said that Burnhill received payment from Crosfield and recorded that payment in its accounts.

Mr McPhee submitted that the payment of $535,323.57 by Crosfield to Burnhill had to be taken into account when assessing Burnhill's damages for the purposes of the cross-claim. When so brought into account it extinguished Burnhill's claim.

Although the invoice refers to "Sale of equipment repossessed from Quadrascan", the terms of the UK Agreement do not contemplate repurchase by Crosfield other than for scrap subsequent to payment of the Advance Payment. There is no evidence that the repurchase was for scrap. Scrap is something which is discarded as useless [Shorter Oxford English Dictionary at p.2728] or worthless [The Macquarie Dictionary p.1576]. The Macquarie Dictionary refers to scrap metal in the context of use only for reworking as metal and that concept would fairly extend to the use of "scrap" in the UK Agreement i.e. of possible use for salvaging parts for incorporation into other equipment or as spare parts. This contrasts somewhat markedly with the Studio 9500 being sold as a working unit for $167,200. There may well be circumstances in which a trading company might outlay $535,323.57 for scrap but I am not prepared to make that inference in this matter. In fact there was no submission to that effect. To the contrary, all the evidence points to the intention of Burnhill and Crosfield that the Equipment would be resold if possible - see, for example Exhibit 63. The UK Agreement provides for resale of the Equipment by Crosfield on Burnhill's behalf and that the Advance Payment which Crosfield is obliged to pay to Burnhill is to be made pending such resale (or repurchase for scrap). The calculations in Exhibit 51 do not precisely mirror the components of an "Advance Payment" as defined in the UK Agreement. However, there is substantial similarity. The calculation starts with rentals remaining unpaid and (at Burnhill UK's direction) it can be seen as equating net cash invested with the principal balance outstanding. Mr Stewart described it as "the pure principal". The applicants conducted their case on the basis that the transaction was pursuant to the terms of the UK Agreement. The applicants also bear the burden of proving all elements upon which they rely for this claimed reduction in any damages to which Crosfield would otherwise be entitled: Munroe Schneider Associates (Inc) v. No 1 Raberem Pty Ltd (1991) 33 FCR 1 at p.17. The applicants sought to characterise the transaction as a sale by Burnhill to Crosfield. They did not lead any evidence to establish that the payment by Crosfield to Burnhill was otherwise than in accordance with the terms of the UK Agreement. However, in cross-examination of Mr Stewart there emerged evidence which, on first impression, suggests that there was a transaction of sale of the Equipment from Burnhill to Crosfield.

I set out below what is virtually the whole of the cross-examination of Mr Stewart:

"After these, leaving aside the rights and wrongs of the termination, after you took the machinery back, you sold it, did you not? When I say "you", I mean Burnhill?‑‑‑No, Crosfield sold it. Sorry, yes, we sold the equipment to Crosfield.

You sold the equipment to Crosfield?‑‑‑Yes.

By "you" I mean Burnhill Equipment ANZ?‑‑‑Yes.

What amount did you recover for that?‑‑‑$535,000, or thereabouts.

535,000. That was calculated according to agreement exhibit 52, do you recall?‑‑‑Yes, it was. What happened was I had not seen this document but I just knew that it existed and I spoke to my - the finance manager in the UK, because he dealt with the repossession before.

You received 535,000 and who determined the figure which was paid to Burnhill Equipment Finance by Crosfield; you or the fellow in England?‑‑‑The chap in England told me what to calculate and I just calculated it in accordance with what he said.

You personally did not look at this agreement and work it out whether it was right or wrong?‑‑‑No, not this agreement, no.

Did you receive the money?‑‑‑Yes.

It was credited to - Burnhill got it and applied it to its books?‑‑‑It was, yes.

Yes, thank you, that is all. And has dealt with it accordingly in its books of account?‑‑‑Yes.

And returns to the ASC and so forth when putting the books of account and annual returns into the ASC?‑‑‑I would assume so, yes.

Did you have any part directly in the sale to other parties of the equipment?‑‑‑Not directly, no. We financed some of their equipment.

Somebody else actually sold it on?‑‑‑That's right, they did.

Who was that?‑‑‑Crosfield Electronics. Or the staff from Crosfield.

Crosfield Electronics in London or Australia?‑‑‑No, here, locally.

Was there any paperwork in existence or brought into existence from you, you being Burnhill, transferring title to the equipment to Crosfield Electronics?‑‑‑Well, when they paid us in full they got title to the equipment."

Although Mr Stewart described the transaction as being a sale, I do not think that this was an accurate description of the transaction.

It might on first impression seem wrong to reject Mr Stewart's evidence that what took place between Burnhill and Crosfield was a sale, particularly when he spoke of Crosfield getting title to the Equipment. However, in this transaction Mr
Stewart was not the directing mind and will of the two corporations; he obtained his instructions from England. In Mr Stewart's evidence-in-chief he said that he

"... spoke to the finance manager of Burnhill in the UK to seek advice what, how we should get paid out from the lease agreement and what we should do as far as the equipment is concerned for repossession."

Mr Stewart said that he was aware of an internal arrangement between the companies as to what happened if there had been a default under the lease and it was pursuant to that arrangement that he spoke to the officer in the United Kingdom. He said that Crosfield, as Burnhill's agents, repossessed the Equipment. As appears from the above extract of Mr Stewart's cross-examination, Mr Stewart had not seen the UK Agreement, although he knew an arrangement between the two companies existed, and he made the calculations in accordance with the instructions from Burnhill UK's finance manager. The applicants conducted their case on the basis that the payment of $535,323.57 was pursuant to the terms of the UK Agreement and Mr Stewart's evidence was to that effect. In the absence of any evidence that the UK Agreement was varied or that a decision was made that its provisions should not apply to this particular transaction, it is to the terms of the UK Agreement that one should refer, in my opinion, in order to characterise that transaction.

I consider that the sum of $535,323.57 which Crosfield paid to Burnhill was an Advance Payment in accordance with clause D(2)(b) of the UK Agreement. When, again in accordance with the UK Agreement, Crosfield on-sold some of the Equipment, it did so on Burnhill's behalf and was entitled to retain the proceeds in reduction of the Advance Payment - see clause D(3) of the UK Agreement. In other words, Burnhill's money ($167,200 being the net proceeds of reselling the Equipment) was to be applied by Crosfield towards repayment of the Advance Payment which it had made to Burnhill. This was the only amount which can definitely be identified as money to which Burnhill became entitled. Even then, depending upon other events, the provisions of clause D(5) and D(6) might operate to require Burnhill to repay some or all of the Advance Payment.

Mr Cripps submitted that this issue only arises if clause 18 of the Equipment Lease were held to be a penalty provision and Burnhill had to rely on its claim for unliquidated damages.

The applicants' submission was that even if clause 18 were enforceable, they are entitled, in the calculation of Burnhill's liquidated damages "... to the credit for the sale price of the sale by the Second Respondent to the First Respondent of the [E]quipment."

I have held that clause 18 is not a penalty provision, that there was no sale of the Equipment by Burnhill to Crosfield and that the sum of $535,323.57 paid by Crosfield to Burnhill was an Advance Payment under the UK Agreement. In those circumstances, in my view, the applicants have received all the credit to which they were entitled, namely $167,200 being the proceeds of sale when Crosfield, on behalf of Burnhill and in accordance with the UK Agreement sold part of the Equipment. In those circumstances it would not be necessary to consider the submissions concerning the application of the principles discussed in Munroe Schneider.

However, in paragraph 4.1.1 of their outline of submissions the respondents submit that:

"... the fact Crosfield indemnified Burnhill for any loss it suffered as a result of Quadrascan's default under the lease by purchasing the repossessed equipment under the terms of the agreement between each of their UK parent companies does not affect the Respondent's [Burnhill's] entitlement to recover under the Cross-claim. Either Burnhill may recover the amount outstanding from Quadrascan under the lease by reason of the liquidated damages clause or as general damages and in either event will hold the proceeds of recovery on trust for Crosfield. The payment made by Crosfield can be characterised as either an extension of indemnity or res inter alios acta."

It is to be noted that this submission is based on the indemnity being made under the terms of the agreement. That is common ground between the parties. However, under the terms of the agreement the sequence provided for is payment by Crosfield to Burnhill by way of the Advance Payment followed by resale by Crosfield on Burnhill's behalf or the possibility (but with no obligation on Crosfield's part to do so) that Crosfield may repurchase the Equipment for scrap. Another possibility was that there might be no resale and no repurchase for scrap in which case Burnhill was, as noted above, obliged to repay Crosfield the Advance Payment. I have difficulty reconciling the reference in the above submission to "... purchasing the repossessed equipment ..." and the immediately following reference to this being "... under the terms of the agreement ..." unless one treats this as a reference to Crosfield repurchasing the Equipment for scrap. I have found that on the proper construction of the UK Agreement as applied to the facts there was no such repurchase. However, if I am wrong in that regard it is necessary to consider whether Quadrascan should in the calculation of the liquidated damages in the cross-claim be allowed credit not for the amount of $167,200 eventually realised for the Equipment, but for
the sum of $535,323.57. If so Burnhill's cross-claim must be dismissed.

Mr Cripps, for Burnhill submitted that the arrangement between the two United Kingdom companies had nothing to do with the calculation of the amount of the liquidated damages to which Burnhill is entitled. Mr Cripps submitted that such a receipt could only be taken into account where it arose out of and in consequence of the breach and in the ordinary course of business. For that submission he relied upon the authority of Munroe Schneider. In that case an Australian carpet supplier had sold considerable volumes of carpet to an American trade customer. The American customer later made fraudulent representations to the Australian company to the effect that a former executive of the Australian company had quoted prices which were much lower than in fact had been quoted. The American company further represented, again fraudulently, that on the faith of those quoted prices it in turn had entered into contracts on fine profit margins to supply and fit the carpet at various premises throughout the United States of America. The Australian company accepted the truth of the American company's fraudulent representations, possibly because it transpired that its former executive had engaged in criminal activities. The carpet in question was to be manufactured by a New Zealand company. The Australian company unsuccessfully endeavoured to persuade the New Zealand company to make a reduction in its prices for the particular carpet to be supplied to the American company. Instead, the New Zealand company offered to contribute a total of $400,000 to the Australian company subject to the Australian company conducting an advertising campaign jointly advertising the Australian company and the products of the New Zealand company. The Australian company sued the American
company in this Court for contravention of s.52 of the Act and recovered very substantial damages. At first instance the trial judge refused the American company's submission that the sum of $400,000 should be deducted from the damages awarded. The American company appealed and the Full Court, by a majority dismissed the appeal. Beaumont J, in dissent, said that the document which recorded the terms of the agreement reached between the Australian company and the New Zealand company had to be read as a whole and in the context of the discussion which preceded it. In his Honour's opinion the real consideration for the payment of the sum of $400,000 was the Australian company's unfortunate dealings with the American company and this was the real consideration for the payment of the sum of $400,000 rather than participation in any advertising campaign. In his Honour's opinion, application of the principles discussed in Haines v. Bendall (1991) 172 CLR 60, Ratych v. Bloomer (1990) 69 DLR (4th) 25, Hussey v. Eels [1990] 2 QB 227, Apeco of Canada Ltd v. Windmill Place (1978) 82 DLR (3d) 1, Nadreph v. Willmett & Co [1978] 1 WLR 1537 required the sum of $400,000 to be deducted from the damages awarded. Beaumont J. (at pp.11-12) said:

"The authorities thus distinguish between a continuous dealing, on the one hand, and an independent, collateral or disconnected transaction, on the other. Benefits from the former are to be brought to account in the assessment of damages, whereas an advantage accruing as a consequence of the latter are to be disregarded. In the present case, it is necessary, on the facts, to draw the dividing line. As Mason and Wilson JJ pointed out in Redding v. Lee, the issue turns on the character and purpose of the particular financial benefit which Solomons [the Australian company] received from Feltex NZ [the New Zealand company]."

His Honour then concluded that the character and purpose of the payment by the New Zealand company were not the promotion of its business interests and thus
the receipt of $400,000 did not arise out of a collateral dealing. His Honour concluded that the payment was made in the context of and as part of an overall settlement of the dealings involving the three parties. The fact that if the Australian company received any amount from the American company such amount would be divided equally between the Australian company and the New Zealand company showed, in his Honour's opinion, the interdependence of the dealings between the three parties and the requisite degree of connection between the loss claimed to have been suffered and the receipt of the sum of $400,000. Cases involving benevolence, insurance proceeds and the receipt of social services benefits were to be distinguished from a situation where there was a series of commercial dealings between the operators of three businesses in which two of the aggrieved parties commercially resolved their own differences.

Burchett J., with whom O'Loughlin J. agreed, took a different view. To start with, there was the problem of quantification of the benefit. The evidence was that advertising expenditure had been incurred by the Australian company and the appellant had the onus of proof of the real worth of the contribution of $400,000 in all the circumstances. Next, his Honour construed the relevant settlement agreement as having the result, that out of the damages awarded to the Australian company an amount of $200,000 would have to be repaid to the New Zealand company as its half share in the proceeds recovered from the American company. His Honour thought that implicit in the agreement was a limit of $400,000. If that assumption were incorrect then the advantage to the New Zealand company and the corresponding disadvantage to the Australian company would be even greater. His Honour referred to Vischer (Simonius) & Co v. Holt [1979] 2 NSWLR 322. In that case a company sued its auditors for negligence and also made a claim on its bankers. The bank, while denying liability made an ex gratia payment of £75,000 to the company. The question was whether that amount should reduce the damages awarded against the auditors. The New South Wales Court of Appeal held that it should not. The compelling inference was that at least a substantial proportion of that sum, if not all of it, was paid to retain the company's business. As it was impossible to identify on the evidence the amount which, on the defendant's contention, should be deducted, there would be no reduction in the damages awarded. The majority in Munroe Schneider held that precisely similar reasoning to that in Vischer should apply to that case. The New Zealand company was to a significant extent motivated by a desire to make an ex gratia gesture towards an extremely valued customer.

Burchett J. then explored the basis upon which an ex gratia payment of the type made in Vischer could not be appropriated by a wrongdoer in reduction of his own liability. His Honour identified two bases in the following terms (at pp.19-20):

"It may be said that such a payment is not part of the consequences, good and ill, of the defendants' conduct which should be taken into account in order to arrive at the net loss caused by that conduct. Alternatively, it may be said that the payment belongs to a category of payments, such as payments motivated by charity, which it is the policy of the law to disregard in a computation of damages."

His Honour noted that at the time the relevant agreement was entered into both parties were unaware of the American company's fraud. Insofar as the New Zealand company was giving more than what would otherwise be its contribution to
Solomons' Advertising, it was sharing in what it had been deceived into accepting as a loss produced by the American company's reliance on the original quotations. To reduce the damages in those circumstances would be to enable the American company to rely on a payment procured by its own fraud. Alternatively that fraud produced in the New Zealand company a mistaken view and the moneys were paid under a mistake of fact and were recoverable (from the Australian company) by the New Zealand company. Burchett J. then comprehensively reviewed the relevant authorities. His Honour identified National Insurance Co of New Zealand Ltd v. Espagne (1961) 105 CLR 569 as a "focal point" identified as such in Redding v. Lee (1983) 151 CLR 117 at p.135 and relied upon by the House of Lords in Parry v. Cleaver [1970] AC 1 and again in Smoker v. London Fire and Civil Defence Authority [1991] 2 WLR 1052. At p.21 of his judgment, Burchett J. set out the following passage from the judgment of Dixon C.J. in Espagne:

"There are certain special services, aids, benefits, subventions and the like which in most communities are available to injured people. Simple examples are hospital and pharmaceutical benefits which lighten the monetary burden of illness. If the injured plaintiff has availed himself of these, he cannot establish or calculate his damages on the footing that he did not do so. On the other hand there may be advantages which accrue to the injured plaintiff, whether as a result of legislation or of contract or of benevolence, which have an additional characteristic. It may be true that they are conferred because he is intended to enjoy them in the events which have happened. Yet they have this distinguishing characteristic, namely, they are conferred on him not only independently of the existence in him of a right of redress against others but so that they may by enjoyed by him although he may enforce that right: they are the product of a disposition in his favour intended for his enjoyment and not provided in relief of any liability in others fully to compensate him. This is readily seen in the case of benevolence. If a fund is raised by subscription for the benefit of a badly injured neighbour, obviously this cannot operate in relief of the liability of a man who negligently caused the injury. So in a contract of accident insurance; where, in the absence of special stipulation the insurer will not succeed by subrogation or otherwise to the insured's right of recourse against others in the case of injury by their negligence. But for the reason given it does not follow that the negligent parties can treat the
insurance as operating in relief of their liability. It was effected by the money of the plaintiff for his own benefit in the event of an accident, a benefit both independent of and cumulative upon what ever right of redress against others might arise out of the circumstances of the accident."

Burchett J. considered the question whether the principles expounded in Espagne applied merely to actions for damages for personal injuries and after comprehensively reviewing the authorities came to the conclusion that the principles were not so limited and that they applied generally. It was, his Honour considered, ludicrous to suggest that the New Zealand company supposed that it was paying out its own money to reduce the liability of the American company which had created the loss by fraud or that the Australian company received it in that character. This was especially the case when it was appreciated that the New Zealand company was itself a victim of the fraud. To the extent that the payment was made through more normal commercial considerations the consequence was once again that the payment should not be deducted from the damages. British Westinghouse Electric & Manufacturing Co Ltd v. Underground Electric Railways Co of London Ltd [1912] AC 673 was to be distinguished because in that case the benefit (the superiority of the substitutive turbines over those in the original contract) arose out of the act of mitigation itself, was directly related to the loss and in mitigation of it. If the New Zealand company had agreed to reduce its price to the Australian company then (subject to the Espagne point) the British Westinghouse principle would have been applicable. The majority of the Full Court concluded that the New Zealand company's refusal to amend the price denied any direct link between the transaction and the damages sustained. The arrangement was thus a collateral transaction involving separate obligations in respect
of advertising and promotion. Burchett J. concluded:

"As the Court of Appeal of New South Wales held in Vischer, the onus is on the appellants to disentangle, from a composite transaction, so much of it as can properly be utilised in diminution of the damages they must pay. If they cannot do so, it is not possible for the transaction to be set off against the damages otherwise due. In the present case, I think that whichever complexion is dominant, the transaction in question is of no avail to the appellants. But even if that be wrong, and in one aspect the transaction could raise a valid ground of reduction of damages, I do not think it would be possible, on the evidence, to fix upon any amount as the appropriate reduction. To do so on the basis of British Westinghouse would require, in the light of the reasoning of Viscount Haldane LC, an examination of the whole of the transaction to see whether there evolved from it a profit which should be taken into account. That would necessitate an examination of the advertising and of its consequences."

In my view the principles of law identified by Burchett J. in the cases which his Honour reviewed would apply in the present matter, on the assumption that this issue arises. The character and purpose of the payment made by Crosfield to Burnhill was, in my view, to provide on an interim basis, an indemnity to Burnhill. The payment was made (on the assumption, contrary to my view, that there was a sale) in the context of a sale of the Equipment to Crosfield for scrap. But there was no guarantee that Burnhill would retain the benefit of the purchase price in full or even in part. At the 31 March 1994 Crosfield was entitled to an account with the possibility of Burnhill having to repay moneys to it. There was simply no evidence on this aspect. The payment made by Crosfield to Burnhill was an advantage conferred on it not only independently of the existence in it of a right of redress against Quadrascan or Messrs Camfield and Kennedy but so that it would have the benefit of it and enforce that right. There was no evidence that the payment was made in relief of any liability on the part of the applicants fully to compensate Burnhill. In my opinion the liquidated damages payable to Burnhill should be calculated on the basis
that $167,200.00 should be credited to Quadrascan. On the proper construction of clause 18 of the Equipment Lease, the sum of $535,323.57 which passed from Crosfield to Burnhill had the character of an interim indemnity only and was subject to adjustment between those parties. The correct figure to be credited to Quadrascan is $167,200.00.

The quantum of the cross-claim

Mr Stewart gave particulars of the claim for $389,277.46 which Burnhill makes upon Quadrascan. The first item in that claim is the sum of $125,000 being the outstanding rental payments to which I have referred above. The next item was interest for late payment or non-payment of rentals and Mr Stewart explained how this was calculated at $5,520. It should be noted that this was some $400 less than the corresponding figure which found its way into the respondents' outline of submissions. Mr Stewart was not cross-examined in respect of that item or in fact in respect of any of these items. The third, and by far the largest item was $417,409.31 being the unpaid balance of total rent for the remainder of the term of the Equipment Lease (after rebating to arrive at net present value). Mr Stewart also gave evidence of his calculations of this sum and tendered those calculations (Exhibit 54). Then Mr Stewart gave evidence that Burnhill incurred certain costs and expenses of repossession which he said were between $7,000 or $8,000. The amount claimed under this heading is $8,148.15. Burnhill credited an amount of $167,200 against the total of the above sums being the proceeds of sale of part of the Equipment. Mr Stewart gave evidence that the interfaces or upgrades to the scanner had not been repossessed. Crosfield had managed to sell the Studio 9500 and certain software but had not been able to sell the Studiolink or the Pixelink. He was not cross-examined in that regard.

Burnhill next makes a claim for stamp duty in the sum of $9,937.06. In its defence to cross-claim, Quadrascan admits liability for stamp duty but only to the extent of one-third. There was some evidence (in Exhibit R) that Quadrascan and Crosfield had agreed that Quadrascan would pay only one-third of the stamp duty and Mr Camfield gave like evidence. It may be that $9937.06 represents one-third of the stamp duty paid on the Equipment Lease. In any event, the applicants in their outline of written submissions filed shortly prior to the hearing admitted liability for this item and the other items referred to below, including those in Crosfield's cross-claim with one exception. Mr McPhee, in opening, confirmed that this was the applicants' position i.e. that they would seek to set-off their claims in the principal application against these "ancillary claims". This was confirmed by Mr McPhee in his closing address. The exception was an item of $1249.00 in respect of a heat sink. Quadrascan's position was that it had paid for this. There was no proof that the goods remain unpaid for. Mr Cripps in his closing address, said that enquiries would be made and that if the price for the heat sink had been paid then the claim would be withdrawn. Nothing further was said about the matter. In those circumstances, I hold that Crosfield having been put to proof of its entitlement to this amount has not established its claim to the sum of $1249.00.

Accordingly, there will be judgment for Burnhill in its cross-claim against Quadrascan calculated as follows:

(a) outstanding rental payments $125,000.00

(b) interest for late payment or non-payment

of rentals $ 5,520.00

of term of lease (after rebating) $417,409.31

(d) Burnhill's costs and expenses in repossessing

the Equipment $ 8,148.15

$556,077.46

Less proceeds of sale $167,200.00

___________

$388,877.46

Stamp duty $ 9,937.06

___________

TOTAL $398,814.52

In my view Burnhill is entitled to interest on the sum of $388,877.46 from two days after the date of the demand made by its solicitors by their faxed letter of 2 November 1993 to the date of judgment. I consider that an appropriate rate of interest would be that from time to time applicable under the Federal Court Rules in respect of judgments. The relevant rates were 12% per annum until 31 December 1993 and 10% per annum thereafter. On my calculations, that interest is $61,004.92. Accordingly there will be judgment for Burnhill against Quadrascan for $459,819.44 inclusive of interest.

Burnhill's claim against Messrs Camfield and Kennedy as guarantors

Burnhill's claim against Messrs Camfield and Kennedy is for the sum of $213,330 being the limit provided in the Guarantee on the extent to which they guarantee the obligations of Quadrascan under the Equipment Lease.

Messrs Camfield and Kennedy admit entering into the Guarantee but do not admit that the effect of the guarantee is as pleaded in the cross-claim. They say that they guaranteed payments to Burnhill to a total sum of $426,660 with a limit on liability for each guarantor in an amount of $213,330. It is not necessary for me to deal with that joinder of issue as Burnhill has made it clear that it is seeking only $213,330 from Messrs Camfield and Kennedy.

By way of further defence to the cross-claim based on the Guarantee Messrs Camfield and Kennedy say that it was a further term of the Guarantee that their liability was a liability to pay on demand and that no demand has been made against them in accordance with the Guarantee or otherwise. The short answer to that plea is the demand contained in the letter dated 2 November 1993 from Messrs Allen Allen & Hemsley to Messrs Michell Sillar McPhee (Exhibit 64). This is probably why neither counsel addressed any submissions in respect of that issue. There will be judgment for Burnhill in its cross-claim against Messrs Camfield and Kennedy in the sum of $213,330. Burnhill claims interest on that amount. It calculates its entitlement at the rate of 9.25% per annum to 12 September 1994 and 10% per annum between 13 September 1994 and 30 September 1994. Thereafter Burnhill claims interest at a daily rate of $81.83. I propose to allow interest at 9.25% per annum for the initial period to 12 September 1994 and 10% per annum thereafter to today's date. Interest will be added at those rates from 4 November 1993. On my calculations the interest amounts to $31,415.53. However, Burnhill should give the guarantors credit, in respect of that interest liability, for any interest recovered from Quadrascan.

Finally, in its cross-claim Burnhill seeks a declaration that it is entitled to all its legal costs of and incidental to Quadrascan's breach of the Equipment Lease on a full indemnity basis. For this it relies upon clause 27 of the Equipment Lease which is in the following terms:

"27. The Lessee must pay:

(a) all stamp, transaction, registration, financial institutions, debit and other duties and taxes (including fines and penalties) which may be payable or determined to be payable in relation to the execution, delivery, performance or enforcement of this lease or any payment or receipt or other transaction contemplated by this lease (except to the extent that any such payment by the Lessee is specifically forbidden by the law of the place where such payment is to be made); and

(b) all costs, expenses, duties and outgoings of or incidental to:

(i) any breach or default by the Lessee under this lease; or

(ii) the exercise or attempted exercise of any right, power, privilege, authority or remedy of the Lessor under or by virtue of this lease,

including but not limited to the cost of registration, repairs, maintenance, servicing or storage of the Goods, the fees of all professional consultants reasonably incurred by the Lessor and legal costs on a full indemnity basis."

This issue was not the subject of any submissions from any party.

As Gummow J observed in Elders Trustee & Executor Co Ltd v. E.G. Reeves Pty Ltd (unreported, Judgment No. 32 of 1988 at p.7) the meaning of an express covenant of this type is a question for interpretation in the particular case. His Honour was considering a similar clause in a memorandum of mortgage of lands which were the subject of registration under the Real Property Act 1900 (NSW).

By reason of what was said by the Full Court of this Court when dismissing the appeal from that judgment: Elders Trustee & Executor Co Ltd v. E.G. Reeves Pty Ltd (1988) 84 ALR 734 particularly at pp.742-743, I do not consider that it makes any difference that this clause is contained in a deed of guarantee and indemnity and not a mortgage.

As a matter of construction, in my view, the legal costs incurred by Burnhill in defending the principal application do not fall within clause 27(b). In those circumstances it will be entitled only to party and party costs in that application.

However, I consider that Burnhill's costs in respect of its cross-claim do fall within clause 27(b) and that it is entitled to have those costs on a full indemnity basis. The next question is what "a full indemnity basis" means. I propose to follow the terms of the order made by the Full Court in Elders Trustee and to direct that an account be taken before the District Registrar of all items of costs and expenses of Burnhill in respect of its cross-claim, such account to be taken on a full indemnity basis which is to be understood as not including items unreasonably included or for costs and expenses of an unreasonable amount. Subject to any further directions by the District Registrar, the matter is to be conducted by the preparation by Burnhill of an itemised list of its claims for costs and expenses in respect of the cross-claim. The list should include the date upon which it is alleged each item was paid. It should be exhibited to and verified by affidavit. The affidavits and exhibits should then be filed and served on the respondents to the cross-claim. As Gummow J. said at first instance in the Elders Trustee case, an effort should be made between the solicitors for the parties to isolate any particular areas of disagreement between them. The District Registrar should then certify the sum found on the accounting. The account should only be in respect of costs and expenses up to today's date. Costs and expenses of the account itself may be agreed between the parties or in lieu thereof will require further consideration by the Court.

Crosfield's cross-claim against Quadrascan

Quadrascan admits liability for the sum of $12,666.64 maintenance fees. Quadrascan also admits liability for interest at the rate of 21% per annum in respect of the above maintenance fees. This has been calculated in respect of the instalments due on 26 September 1991, 26 October 1991, 26 November 1991 and 26 December 1991 from those respective dates to the date of judgment namely 18 May 1995. The amount resulting is $9346.39. There will be judgment for Crosfield in its cross-claim against Quadrascan for the sum of $22,013.03 with costs to be taxed.

I certify that this and the preceding

one hundred and eighty-six (187) pages

are a true copy of the Reasons for Judgment

of Justice Carr.

Associate:

Date: 18 May 1995

Counsel for the Applicant: Mr M.J.McPhee and Mr P.E.Harris (to 14 December 1994) and Mr C.J.Ryall (from 8 February 1995 onwards)

Solicitors for the Applicant: Messrs Michell Sillar McPhee

Counsel for the Respondent: Mr H.Sperling Q.C. (until 22 February 1995), Mr J.Cripps Q.C. (from 9 February 1995 onwards) and Mr J.Halley

Solicitors for the Respondent: Messrs Allen Allen and Hemsley

Date of Hearing: 28-30 November, 1-2, 5-9, 12-14 December,

1994, 8-10, 13-17, 20-24, 27-28 February

1995, 1,2, 15-17 March 1995

Date of Judgment: 18 May 1995

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