Canvas Graphics Pty Ltd v Heidelberg Graphic Equipment Ltd & Ors [1995] FCA 469

CATCHWORDS

Agency - claim for negligent misstatement - whether distributor had authority of manufacturer to make statement.

Private International Law - negligent misstatement made to Australian outside Australia but damage caused and loss suffered in Australia - statement intended to be acted on in Australia - cause of action accrued in Australia.

Contract - sale of goods - defective equipment - failure by seller to provide training - total failure of consideration - purchaser not liable for price or otherwise.

Damages - commercial dealings - difficulties in establishing measure of damages having regard to business and other contingencies - wasted expenditure - loss of opportunities to make profit.

Legislation:

Trade Practices Act (1974) (Cth), s 52

Cases considered:

Agency, Authority & Negligence:

International Harvester Co. of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company (1958) 100 CLR 644

Dawson v World Travel Headquarters Pty Ltd (1980) 53 FLR 455

San Sebastian v Minister (1986) 162 CLR 340

Bryan v Maloney (1995) 69 ALJR 375

Private International Law:

Diamond v Bank of London & Montreal Ltd (1979) 1 QB 333

Original Blouse Company Ltd v Bruck Mills Ltd (1963) 42 DLR (2d) 174

Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538

Damages:

The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64

Matter No. SG44 of 1994

CANVAS GRAPHICS PTY. LTD. v HEIDELBERG GRAPHIC EQUIPMENT LTD & ANOR and HEIDELBERG GRAPHICS EQUIPMENT LTD. v ANDREW KNOX & ASSOCIATES PTY. LTD. & ORS.

BEAUMONT, LEE AND VON DOUSSA JJ.

ADELAIDE

30 JUNE 1995

IN THE FEDERAL COURT )

OF AUSTRALIA )

SOUTH AUSTRALIA )

DISTRICT REGISTRY )

GENERAL DIVISION ) NO. SG44 of 1994

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: CANVAS GRAPHICS PTY. LTD.

Appellant

and

HEIDELBERG GRAPHIC EQUIPMENT LTD.

First respondent

MILES INC.

Second respondent

AND BETWEEN: HEIDELBERG GRAPHICS EQUIPMENT LTD.

Cross-appellant

and

ANDREW KNOX & ASSOCIATES PTY. LTD.

First cross-respondent

CANVAS GRAPHICS PTY. LTD.

Second cross-respondent

ANDREW McKENZIE KNOX

Third cross-respondent

MINUTES OF ORDER

THE COURT : BEAUMONT, LEE & VON DOUSSA JJ

DATE OF ORDER : 30 JUNE 1995

WHERE MADE : ADELAIDE

THE COURT ORDERS THAT:

1. The appeal be allowed in part.

2. Paragraph 2 of the order made at first instance on 13 May 1994 be set aside; in lieu thereof, order that judgment

be entered on the cross-claim for the cross-claimant, Canvas Graphics Pty Ltd, against the second cross-respondent, Miles Inc., in the sum of $184,630.

3. The costs at first instance of the second cross-respondent be taxed and that the cross-claimant pay one-quarter thereof to the second cross-respondent.

4. Paragraph 3 of the order made on 13 May 1994 be varied by increasing the amount of the judgment for the cross-claimant against the first cross-respondent, Heidelberg Graphics Equipment Ltd, from $113,500 to $184,630.

5. The appellant recover nine-tenths of its costs of the appeal from the respondents.

6. The cross-appeal by the respondent, Heidelberg Graphics Equipment Pty Ltd, be dismissed with costs.

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

IN THE FEDERAL COURT)

OF AUSTRALIA )

SOUTH AUSTRALIA )

DISTRICT REGISTRY )

GENERAL DIVISION ) NO. SG44 of 1994

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: CANVAS GRAPHICS PTY. LTD.

Appellant

and

HEIDELBERG GRAPHIC EQUIPMENT LTD.

First respondent

MILES INC.

Second respondent

AND BETWEEN: HEIDELBERG GRAPHICS EQUIPMENT LTD.

Cross-appellant

and

ANDREW KNOX & ASSOCIATES PTY. LTD.

First cross-respondent

CANVAS GRAPHICS PTY. LTD.

Second cross-respondent

ANDREW McKENZIE KNOX

Third cross-respondent

CORAM: BEAUMONT, LEE AND VON DOUSSA JJ.

PLACE: ADELAIDE

DATE : 30 JUNE 1995

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

This appeal concerns a dispute that arose out of the acquisition of equipment by Canvas Graphics Pty. Ltd. ("Canvas") from Heidelberg Graphic Equipment Ltd. (formerly Aldus Ltd.) ("Heidelberg") under a sale of goods transaction. As described by the trial Judge (O'Loughlin J.), the goods acquired "included recently developed items of equipment for computerised desk-top publishing...allegedly capable of imaging colour separations...seen as a likely replacement for conventional typesetting and colour separations." Canvas claimed that the goods were not capable of performing to the standard represented prior to the contract and were deficient in several respects. At first instance, the trial Judge found for Canvas on several grounds and ordered Heidelberg to pay damages but in a sum substantially less than the amount claimed by Canvas.

Before dealing with the issues raised in the appeal, it is necessary to consider the facts and issues raised by the pleadings and as found and determined by his Honour.

Heidelberg, which carried on business under the name "Seligson and Clare", instituted proceedings in August 1991 against Andrew Knox & Associates Pty. Ltd. ("Knox Associates"), claiming the sum of $207,400 as the purchase price of goods sold and delivered, or, alternatively, damages for breach of the contract for the sale of those goods, or for detinue. The goods, described in the statement of claim as "graphic and type-setting equipment", were said to have been delivered on or about 9 January 1991. By solicitor's letter dated 24 September 1991, Knox Associates purported to rescind the contract and stated that the goods were available for collection by Heidelberg. By solicitor's letter dated 10 October 1991, Heidelberg denied that Knox Associates had any right to rescind. It claimed that the purported rescission amounted to repudiation of the contract and stated that it had elected to accept the repudiation and terminate the contract. Shortly thereafter, Heidelberg amended its statement of claim by abandoning the claim for the price of goods sold, and by joining as respondents Canvas and Mr Knox, the latter being the controller of Knox Associates and Canvas. The effect of the amendments was to plead in the alternative against Canvas the claims for damages pleaded against Knox Associates and to plead that Mr Knox was a person involved in conduct by Knox Associates, or Canvas, being conduct that contravened s.52 of the Trade Practices Act 1974 ("the Act").

The defence to the amended statement of claim stated that negotiations between the parties commenced in about May 1990 and that the "object of the negotiations was for an entity associated with [Mr] Knox to purchase from [Heidelberg] a ColorScape System including equipment, installation, operator training, operation back-up, ongoing support and provision of consumables". It denied that Knox Associates was a party to the contract alleged, and stated that Knox Associates and Mr Knox acted as agents for Canvas "in and about the purchase by Canvas...of the goods".

In October 1991, Canvas commenced a cross-claim against Heidelberg and Agfa Corporation ("Agfa") in which it was pleaded that Agfa was an American corporation which manufactured "Agfa" graphic and typesetting equipment distributed in Australia. Soon after the cross-claim was filed, Agfa merged with Miles Inc. ("Miles") and under the terms of the merger Miles assumed the liabilities of Agfa. Accordingly, the cross-claim was amended to substitute Miles for Agfa. For ease of reference, the trial judge continued to refer to Agfa in his reasons when, strictly speaking, a reference to Miles was intended and we propose to do the same. The cross-claim was also amended in other respects. It will be necessary to refer to it in more detail later but, in essence, Canvas alleged that it had been induced to enter into a contract to purchase the goods by virtue of misleading statements made by employees of Heidelberg, acting as agents of Agfa. Claims of breach of contract, including a claim that the goods were not fit for the required purpose and of negligent misstatement were also made against Heidelberg. It was said that, "as a result of the system not operating and consumables not being available", Canvas was unable to trade in its "new business" between November 1990 and March 1991, and between March 1991 and October 1991, was only able to trade in a "substantially limited way" as a result of, inter alia, the "inability of the system to produce high quality colour" and "continuous breakdowns of the system". Canvas claimed against both Heidelberg and Agfa substantial damages for, inter alia, loss of profits, including future profits.

Non-payment of the price was not in issue at trial and it was common ground that the goods were recovered by Heidelberg on 4 December 1991. Heidelberg's claims against Knox Associates were not pursued at trial.

After a lengthy hearing, the trial judge ordered that Heidelberg's claims against Knox Associates, Canvas and Mr Knox be dismissed, but made no order as to costs. On the cross-claims by Canvas, his Honour ordered that there be judgment for Canvas against Heidelberg in the sum of $113,050, but ordered that Canvas pay one-quarter of Heidelberg's costs. His Honour ordered that the cross-claim against Agfa be dismissed, with costs.

Canvas now appeals from the order dismissing its cross-claim against Agfa. With respect to the orders made on the cross-claim against Heidelberg, Canvas appeals on the question of the damages assessed and, consequentially, on the question of costs. Heidelberg cross-appeals from the order dismissing its claim. Agfa, by notice of contention, seeks to support the judgment dismissing Canvas' cross-claim by contending that it was not open to his Honour to find that the equipment, properly operated, could not output colour satisfactorily.

We set out below the material allegations in the principal pleadings.

THE CASE PLEADED IN HEIDELBERG'S AMENDED STATEMENT OF CLAIM

A summary of the material allegations in the statement of claim are as follows.

In August 1990, Mr Knox and representatives of Heidelberg entered into negotiations with the object that an entity associated with Mr Knox purchase from Heidelberg certain graphic and type-setting equipment. In the course of the negotiations, Mr Knox stated that if a contract was concluded for the purchase of the goods, the purchaser would pay for them upon delivery. Relying on this, Heidelberg entered into a contract for the sale of the goods to Canvas in August 1990. The terms of the contract were, inter alia, that the price of $207,400 was to be paid upon delivery but that title would not pass until payment. The goods were delivered but not paid for. The representation that Canvas would pay for the goods was false and made without reasonable grounds.

Heidelberg claimed damages for breach of contract; wrongful detention of the goods; and, inter alia, compensation under the Act for loss suffered by misleading or deceptive conduct by Canvas.

THE CASE PLEADED IN CANVAS' CROSS-CLAIM

A summary of the material allegations in the cross-claim is as follows:

Canvas traded as "a typesetting and printing business". Heidelberg carried on business as a supplier of graphic and typesetting equipment. Agfa manufactured graphic and typesetting equipment which it distributed in Australia.

Heidelberg was the agent of Agfa, so that those employees of Heidelberg were also the agents of Agfa. Mr Knox and Ms Slattery were employed by, and agents of, Canvas. Mr Foley, and Mr and Ms Clarke were, as employees, agents of Heidelberg.

Representations made by Mr Foley at the Agfa stand at the Drupa Fair in April and May 1990

On 28 April 1990, at the Drupa Fair held in Dusseldorf, Germany, Mr Knox told Mr Foley that he was "investigating the financial and technical viability of purchasing state of the art equipment for upgrading and expanding his existing operations"; that he was "only interested in equipment having the ability to produce high quality colour separations"; and that he was "seeking advice and assistance as to the ability of Agfa products to meet their requirements".

Mr Foley told Mr Knox and Ms Slattery that "he thought the Agfa ColorScape System would be suitable for their needs"; that Agfa's "Selectset 5000" was "the best image setter in the world" because, inter alia, "it was driven by the Emerald RIP (Raster Image Processor) which was five times faster than any other RIP available at that time" and because the Emerald RIP "eliminated the previously common and unacceptable problem of moiré, or undesired patterns".

On 30 April 1990, again at the Agfa stand, Mr Foley told Mr Knox and Ms Slattery that the scanner with the ColorScape system "had optical character recognition [OCR] capabilities". Mr Foley then handed Mr Knox a catalogue of Agfa equipment (Doc.8) which stated, inter alia, that the Focus Colour Scanner "ran [OCR] software eliminating the need to have text keyed in"; that the CD ROM included "all of the Adobe type font library and the Compugraphic fonts"; that the Selectset 5000 image setter was a colour image recorder which would image at 1200 dots per inch in one minute and 2400 dots per inch in two minutes; and that the Colorscape system was "designed for anyone interested in affordable high quality colour".

On 2 May 1990 Mr Foley repeated to Mr Knox and Ms Slattery that Selectset 5000 was the best image setter for their needs irrespective of the software chosen.

Representations made by Mr Foley in June and July 1990

In June 1990 in Australia, Mr Knox gave Ms Clarke a document describing his proposal to set up a "state of the art type setting bureau for IBM and Apple Macintosh users", to operate from a purpose-built addition to be erected on top of his existing photographic studio.

On 12 June 1990 at the Canvas premises, Mr Foley repeated to Mr Knox that the Selectset 5000 eliminated moiré; was "a real competitor of high [end] colour separation systems"; and was the best colour image setter available. At that meeting Mr Knox informed Mr Foley that "he was anxious for marketing reasons to be the first colour bureau operating in Adelaide".

By fax to Mr Knox on 21 June 1990, Mr Foley stated that the Emerald RIP component of the Selectset 5000 "would ship with a postscript (sic) operator called 'setaccuratescreen' (sic), allowing the user to specify any screen angle and frequency to improve overall colour quality to industry standards". ("PostScript" is an advanced form of computer programme language.)

On 5 July 1990 at Heidelberg's premises, Mr Foley informed Mr Knox that the Selectset 5000 was "capable of outputting high quality colour separation direct from 'Paintbox'". ("Paintbox" is a form of computer software.)

The representations made by Ms Clarke and Mr Clarke in July 1990

On 16 July 1990 Ms Clarke and Mr Clarke informed Mr Knox that the entire Adobe and CG font libraries could be made available for use in both IBM DOS and MAC "environments" for use with the equipment to be purchased. Ms Clarke handed Mr Knox an Agfa brochure stating that the entire libraries were available on CD ROM.

Formation of a contract in August 1990 and its variation in October 1990

Relying upon these representations, on 17 August 1990 Canvas entered into a contract, partly written and partly oral, with Heidelberg to purchase the ColorScape system at a price of $206,000. The terms of the contract included, inter alia, a term that the components of the system would comply with certain of the matters stated in the Agfa catalogue handed to Mr Knox at the Drupa Fair. It was also a term of the contract that Heidelberg would install the system and provide adequate operator training and ensure that consumables would be available for purchase by Canvas no later than the date of delivery of the system.

By oral agreement made on the same day, Mr Clarke on behalf of ACP Polychrome Limited ("ACP") (a subsidiary of Heidelberg), agreed to supply consumables to Canvas immediately upon delivery of the system. In October the parties agreed that consequent upon the sale of ACP by Heidelberg, Heidelberg would take the place of ACP in the agreement.

By an oral agreement made on 31 October 1990, the parties agreed to vary the contract by the provision of further fonts to complete the library and to increase the price to $207,400.

Falsity of representations

The alleged representations described above were false, and in so far as any of the representations related to future matters, there had been no reasonable grounds for believing those representations to be true. In particular, it was said that:

- the ColorScape system was not suitable for Canvas' needs;

- the Selectset 5000 was not a real competitor of high end colour separation systems;

- Emerald RIP did not eliminate moiré, or undesired patterns;

- the scanner did not have OCR capabilities;

- the CD ROM did not include all the font library;

- the Emerald RIP component of the Selectset 5000 would not ship with a PostScript operator called "SetaccurateScreen" allowing the user to specify any screen angle and frequency to improve overall colour quality to industry standards.

Breach of contract

Heidelberg breached the contract with Canvas in the following respects:

- adequate operator training was not provided;

- consumables were not available until March 1991;

- the system did not work effectively and was continuously subject to substantial down time;

- the entire font library was not supplied;

- the equipment was not fit for the purpose of producing high quality colour separations;

- OCR was not available.

Negligence and misleading conduct

Both Heidelberg and Agfa were liable in negligence by their acts or omissions in misstating the capacities of the system and in failing to advise Canvas of deficiencies in that system and such conduct by Heidelberg constituted misleading conduct in contravention of s.52 of the Act.

Loss

As a result of the alleged negligence, breach of contract, and contravention of the Act, Canvas claimed to have suffered the following loss:

(a) Loss of profits to 30.6.1992 $1,015,644

(b) Loss of future profits 2,030,550

$3,046,194

THE KODAK PROCEEDINGS

In May 1991, being dissatisfied with the Agfa equipment and with the conduct of Heidelberg, Mr Knox dealt with Kodak Australasia Pty. Ltd. ("Kodak") with a view to replacing the Agfa equipment. On 2 September 1991, Canvas entered into an agreement with Kodak to lease a Kodak "Prophecy" system for colour separation and printing. Subsequently, Mr Knox became dissatisfied with that system and instituted a proceeding in this Court against Kodak ("the Kodak proceeding"). His Honour also heard that matter and ordered that judgment be entered in favour of Canvas for $185,000 and in favour of Kodak in the sum of $13,947 on a cross-claim for the price of consumables supplied to Canvas. His Honour said that although the issues of liability in the two proceedings were different, there was "a difficult interweaving of the two claims with respect to damages". Canvas appealed against the quantum of the judgment in its favour and Kodak cross-appealed against the dismissal of part of its cross-claim. This Full Court heard the appeal and cross-appeal in the Kodak proceeding immediately after the hearing of the appeal and cross-appeal in this matter.

THE FINDINGS AND REASONING AT FIRST INSTANCE

The learned primary Judge dealt first with Canvas' cross-claims against Heidelberg and Agfa, and then dealt with Heidelberg's claim against Canvas.

The cross-claim by Canvas against Agfa

His Honour stated, in our view correctly, that as Agfa was not a contracting party and the alleged misstatements or misrepresentations were made by Heidelberg's employees, Canvas could succeed against Agfa only if those employees were authorised to speak on behalf of Agfa. His Honour found that Mr Knox knew that Mr Foley, Ms Clarke and Mr Clarke were employees of Heidelberg and that Mr Knox also knew that none of them was an employee of Agfa.

His Honour then said:

"The evidence that suggests that [Heidelberg] or one or other of its employees may have been an agent of Agfa can be summarised as follows: first, there was the presence of Mr Foley at the Agfa stand at the Drupa fair; secondly, there was the fact that some of the equipment that was ultimately sold to the Knox group was Agfa equipment; thirdly, there was the willingness of the various companies in the Agfa group, including Agfa, to concern themselves with the complaints that Mr Knox had made with respect to the equipment. Finally, various witnesses, such as Mrs Clarke, had allegedly described [Heidelberg] as 'the agent' of Agfa; elsewhere there were references to Agfa's `representatives': (Doc 20, an Agfa publication). Mr Cottenie (of Agfa Australia) in a letter to Mr Knox, dated 5 February 1991, referred to 'our partners Seligson and Clare' (Doc 128) and in a letter to Mr Knox dated 5 March 1991, Mr Foley described Agfa as `our principal' (Doc 181). In addition to these matters, there was also the distribution agreement of 11 May 1988 (Doc 1). By this document, a company named Compugraphic Corporation (which was subsequently taken over by Agfa) appointed [Heidelberg] as its Australian distributor. This document, so it was claimed, contained the relevant contractual arrangement between Agfa and [Heidelberg] up to 30 August 1990 - that being the date upon which the offer of the Knox group to purchase the Agfa Colour-Scape system was accepted on behalf of [Heidelberg]. Whilst clause 2 of Doc 1 asserts that [Heidelberg] is an independent contractor and not the agent or legal representative of Compugraphic, clause 8 did authorise [Heidelberg] to extend Compugraphic's express warranties to its customers." [emphasis added]

His Honour held that the facts were not sufficient to constitute a relationship of principal and agent and that the case before him could not be distinguished from the facts of International Harvester Co. of Australia Pty. Ltd. v. Carrigan's Hazeldene Pastoral Company (1958) 100 C.L.R. 644, a case regarded by his Honour as "applicable and conclusive". His Honour referred to the following passage in International Harvester at 652:

"The organised distribution of proprietary articles particularly of machines is commonly done by a course of dealing with which modern business has long been familiar. All that Mr Chapman wrote falls into place with the system. For almost a century cases have appeared from time to time in the law reports illustrating the fact that the word `agent' is often used in business as meaning one who has no principal but who on his own account offers for sale some particular article having a special name."

His Honour found that in dealing with Heidelberg, Canvas was not dealing with an agent of Agfa and, therefore, Canvas did not have "any cause of action against Agfa as a result of any alleged misrepresentations."

The cross-claim by Canvas against Heidelberg

(a) Liability

His Honour found that Heidelberg was liable to Canvas on the following causes of action:

Misleading conduct in contravention of s.52 of the Act

His Honour found that Mr Foley and the Agfa catalogue (Doc 8) presented the Selectset 5000 as an imagesetter that was capable of outputting four colour separations and that "it was falsely held out that the SelectSet (sic) was capable of colour output" (p.3520). His Honour also found that, contrary to the facts, Mr Foley told Mr Knox that the Selectset 5000 would eliminate "moiré". His Honour found that Mr Foley had made representations that the Focus Colour Scanner had optical character recognition (OCR) capabilities and that it came with a transparency reading device, and that both these representations were inaccurate. His Honour found that whilst it was falsely represented to Canvas that the entire font library consisted of 180 volumes when there were another 45 volumes or so, this was not a misrepresentation that sounded in damages as no evidence was led which would suggest that any loss had been suffered. His Honour also found that Canvas had made good its claim that Mr Foley informed Mr Knox that the Emerald RIP
component of the Selectset 5000 "would ship with a postscript (sic) operator called 'Setaccuratescreen' allowing the user to specify any screen angle and frequency..." (p.3458) His Honour held that if Mr Foley's statement was, in the language of s.51A of the Act, "a representation with respect to a future matter", by the time the equipment was shipped, Heidelberg knew, or ought to have known, that no grounds existed to maintain the statement and that by continuing to deal with Canvas on the basis of the continuation of that representation, Heidelberg engaged in misleading conduct in contravetion of s.52 of the Act.

Breach of contract

His Honour found that the terms of the contract were to be found in the written quotation prepared by Heidelberg on 17 August 1990 and signed by Mr Knox and Heidelberg and that Heidelberg had breached that contract by failing to provide operator training as promised.

(b) Damages

His Honour held (p.3530) :

"...that Canvas Graphics has sustained loss or damage and ...that both the misleading conduct in holding out that the SelectSet would produce moire free colour and the breach of contract in failing to supply adequate operator training were causative of that loss".

His Honour went on to hold (pp.3535-3536):

"...that the faulty SelectSet and the inadequate training were two contributing causes to the applicant's wasted expenditure. On the other hand, they can be regarded as the direct causes for the loss of profits that might have been derived from the output of CMYK colour.

... Canvas Graphics is entitled to recoupment of so much of its wasted expenditure as is attributable to these causes as well as damages for deprivation of a commercial opportunity which would reflect the failure to output colour ... that deprivation is now available whether it occurred by reason of breach of contract, tort or contravention of s52(1) of the Trade Practices Act (Sellars v. Adelaide Petroleum N.L. (1994) 179 C.L.R. 332)."

His Honour concluded that for wasted expenditure a sum of $75,000 should be allowed; and assessed $10,000 as the sum which represented appropriate compensation for the loss of the opportunity to earn profits. Interest was added to these amounts in the sum of $28,050, making the judgment sum of $113,050.

Heidelberg's claim against Canvas

At the trial, Heidelberg quantified its claim for damages for breach of contract as follows:

"Contract Price $207,400

Add interest on unpaid purchase

price to date of return of goods $ 31,100

$238,500

Less value of equipment at date

of return

$129,000

Value of claim as at 1 December 1991 $109,500"

His Honour found that Heidelberg was not entitled to damages in any amount.

THE APPEAL BY CANVAS

The claim against Agfa

Canvas appeals against the dismissal of its claim in negligence against Agfa on the ground that his Honour found, incorrectly, that because Heidelberg was not the agent of Agfa Canvas did not have a cause of action against Agfa as a result of any misrepresentations made by Heidelberg. Canvas seeks judgment against Agfa in the sum of $540,641.

The claim against Heidelberg

Canvas appeals on the issue of quantum only, and seeks an order that the judgment against Heidelberg be increased by allowing $540,641 as the sum required to compensate Canvas for the loss suffered by reason of Heidelberg's negligence, misleading conduct or breach of contract, and by allowing "an additional sum for the loss of opportunity to make profits."

THE AMENDED CROSS-APPEAL BY HEIDELBERG

(a) As to the dismissal of its claim

Heidelberg contends that his Honour should have
held that Heidelberg was entitled to recover damages for breach of contract by Canvas and that judgment should have been entered in the sum now calculated by it at $46,500, together with interest.

(b) As to the cross-claim by Canvas

Heidelberg contends that the sum allowed for wasted expenditure, $75,000, was against the evidence or manifestly excessive.

NOTICE OF CONTENTION BY AGFA

Agfa contends that his Honour found that, properly operated, the equipment could output colour satisfactorily and, therefore, the dismissal of Canvas' claim that Agfa had negligently misstated the capacity of the ColorScape system involved no error.

CONCLUSIONS ON THE APPEAL AND THE CROSS-APPEAL

In our view the issues to be resolved in this appeal are whether his Honour erred:

(i) in failing to find that Canvas had established its case in negligence against Agfa;

(ii) in failing to find that Canvas was liable to Heidelberg in damages for breach of contract;

(iii) in the measure he adopted to assess the compensation to which Canvas was entitled by reason of Heidelberg's misleading or deceptive conduct in contravention of the Act, or by reason of Heidelberg's breach of contract.

Canvas' case against Agfa

Canvas contended that by negligent misstatements Agfa incorrectly described the capabilities of the Colorscape system and failed to advise Canvas of the limitations of the system.

To make out that case, Canvas relied upon, inter alia, oral statements made by Mr Foley at the Agfa stand at the Drupa Fair, and statements contained in the catalogue, published by the Agfa group of companies, handed to Mr Knox by Mr Foley at the time these statements were made. It was common cause that Agfa was the manufacturer of the SelectSet 5000 and it is obvious from his Honour's reasons that there was no issue at trial that the description "Agfa stand" described the display of equipment by Agfa at the Drupa Fair. His Honour accepted that statements were made by Mr Foley as alleged by Mr Knox, and that the catalogue was handed to Mr Knox at the time the statements were made. His Honour then found that the oral statements of Mr Foley and the statements contained in the catalogue formed the essential elements of conduct by Heidelberg that was misleading or deceptive in contravention of s.52 of the Act.

Canvas submitted that Agfa authorized Mr Foley to make the representations that were made by him and were conveyed by him by delivery of the catalogue, and to make those representations to Canvas as a prospective purchaser of equipment manufactured by Agfa. As we have said, his Honour found that he could not accept that proposition and that the facts in the case were "insufficient to substantiate a relationship of principal and agent between Agfa and [Heidelberg]" (p.3468).

With respect to his Honour, the question to be determined on the case as presented at trial, and as identified by his Honour when he commenced the consideration in his reasons of Canvas' claim against Agfa, was whether the acts of Mr Foley at the Drupa Fair were acts authorized by Agfa. Restricting consideration of that evidence to the use that may be made of it to resolve the question of whether a standing relationship of principal and agent existed between Agfa and Heidelberg deflected his Honour from determining the issue of authority. We note that his Honour considered himself to be bound by the judgment in International Harvester but with respect to his Honour, the issue in International Harvester was a matter of contract and the capacity of the contracting party, alleged by the plaintiff to be the agent of the respondent. In the present case it is alleged that the respondent Agfa is liable in negligence for acts done on Agfa's behalf with Agfa's authority.

His Honour appeared to consider that liability on the part of Agfa could not be established unless Canvas could show that Heidelberg, at all times, was the agent of Agfa. It was part of Canvas' case that in a general sense Heidelberg was the agent of Agfa and in that respect its case failed. But it was also part of Canvas' case, as noted by his Honour (p.3468), "that Agfa participated in the Drupa Fair in 1990 by providing its equipment for display, by providing promotional material regarding its equipment, by informing (Heidelberg) about its products, and by permitting (Heidelberg) personnel to be present on the stand at Drupa to make representations regarding its product" and that "this conduct was sufficient...to justify a finding that Agfa had authorized (Heidelberg) to make representations to prospective purchasers on behalf of Agfa". That submission defined that aspect of Canvas' case as a claim against Agfa in negligence by reason of the authority Agfa had given Mr Foley to make statements or representations on Agfa's behalf at the Agfa stand at the Drupa Fair. It may be that such authority made Mr Foley, or Heidelberg, the agent of Agfa for a limited purpose. However, demonstrating an all embracing relationship of principal and agent between Agfa and Mr Foley, and/or Heidelberg, was not necessary to establish that part of Canvas' case and to that extent his Honour did not deal with Canvas' claim against Agfa. As Fisher J. said in Dawson v. World Travel Headquarters Pty. Ltd. (1980) 53 F.L.R. 455 at 472-474:

"...I must decide whether receipt by Jetset Tours amounted in the circumstances to receipt by the defendant. Such will in my opinion be the case if Jetset Tours received the payment in question with the authority, express or implied, of the defendant and because, as Lord Herschell said, 'no word is more commonly and constantly abused than the word "agent"' (see International Harvester Co. of Australia Pty. Ltd. v. Carrigan's Hazeldene Pastoral Co. (1958) 100 C.L.R. 644 at p.652), I prefer to consider this as a matter of authority rather than agency.

...in my opinion, Jetset Tours was authorized by the defendant to accept money on its behalf, and for this limited purpose at least was the agent of the defendant."

His Honour recited Mr Knox' description of the Drupa Fair without disapproval. According to that description it was a major international exhibition in the printing industry at which manufacturers of equipment released new technology. It was a major event for manufacturers designed to stimulate a large amount of new sales, with competition between manufacturers being intense. Agfa released the ColorScape system at the Drupa Fair. His Honour found that Mr Foley had been provided with briefing notes and literature by Agfa and that he was introduced to the Selectset for the first time at the Drupa Fair, and was reliant upon what he had learnt in respect of that equipment at an Agfa training seminar held in Belgium several days before that event. It may be assumed that that seminar was conducted by Agfa or a company in an interlocking group of companies of which Agfa was part.

His Honour appeared to place considerable reliance upon the fact that Mr Knox was aware that Mr Foley was an
employee of Heidelberg. With respect to his Honour, that fact was a peripheral consideration when deciding what authority Mr Foley had to speak and act for Agfa at the Drupa Fair. His Honour accepted that Mr Knox and Ms Slattery attended the Agfa stand and asked "at the reception area" of that stand "to see someone responsible for Australia". Mr Foley appeared in response to that request and Mr Knox outlined his requirements for equipment. As found by his Honour, Mr Foley made representations based on the briefings and instructions provided by Afga and delivered representational material provided for that purpose by Agfa.

The evidence establishes clearly enough that Mr Knox attended the Agfa stand as a place of business operated by Agfa, and that he asked Agfa if it had someone present at the stand who was qualified to speak on the Agfa equipment available in Australia. Agfa produced Mr Foley in response to that request.

In our opinion, the evidence is overwhelming that on the occasions Mr Knox attended the Agfa stand at the Drupa Fair, namely, 28 and 30 April, and 2 May, Agfa utilized Mr Foley's services to promote the interests of Agfa and that the acts of Mr Foley on those occasions were acts authorized by Agfa and formed part of Agfa's conduct in the furtherance of its business. The fact that Mr Foley was the employee of a corporation which carried on business in Australia and that whilst at the Drupa Fair he wore the badge of his employer, did not determine the issue of what authority Mr Foley had to speak for Agfa at the Agfa stand at the Drupa Fair.

As we have said, his Honour found that the statements made by Mr Foley at the Agfa stand and in the catalogue delivered to Mr Knox by Mr Foley at that time, namely, that the ColorScape system, in particular the SelectSet 5000, was capable of delivering high quality colour separation and eliminated moiré, were principal misrepresentations as to the capacities of the Agfa equipment (pp.3505, 3511, 3516, 3520, 3522-3523). It follows that if his Honour had been satisfied, as we find he should have been, that the acts of Mr Foley were authorized by Agfa and if he had been satisfied that a duty of care existed between Agfa and Canvas, his Honour would have found that Agfa was liable to Canvas in negligence.

As to the existence of a duty of care, Mr Knox attended the Agfa stand at the Drupa Fair as a potential purchaser of equipment manufactured by Agfa. The directness of that contact and obvious reliance by Mr Knox on the accuracy of the information provided, entailed a proximity in relationship between Agfa and Mr Knox, on behalf of Canvas, that brought forth a duty on the part of Agfa not to mislead Canvas by misstating the qualities of the Agfa equipment, if such misstatements could induce Canvas to purchase the equipment and expose it to the risk of suffering foreseeable loss by reason of that purchase or commitments undertaken ancillary to that purchase. (See: San Sebastian & Anor v. Minister Administering the Environmental Planning and Assessment Act 1979 & Anor (1986) 162 CLR 340 at 354-355 per Gibbs CJ, Mason, Wilson & Dawson JJ; Bryan v. Maloney (1995) 69 A.L.J.R. 375 per Mason C.J., Deane and Gaudron JJ. at 377.)

It is implicit in his Honour's reasons that he was satisfied that Canvas would not have entered the contract with Heidelberg to purchase the Agfa equipment included in the Colorscape system, had Canvas not been mislead by the statements made on behalf of Agfa at the Drupa Fair.

We consider that the evidence also establishes that when Mr Foley informed Mr Knox, by fax dated 21 June 1990, that the Emerald RIP component of the SelectSet 5000 would ship with a PostScript operator called SetaccurateScreen, he did so with the authority of Agfa. That advice was given in the following circumstances. On 12 June 1990 and 18 June 1990, Mr Knox by fax to Mr Foley (Docs 12 & 14) raised questions about screen angle information relating to the SelectSet 5000. Mr Foley in turn by fax to Agfa, sought assistance in answering the enquiry, concluding by saying:

"We wish to ensure we are 100% correct and complete with our next response [to Knox] and request your assistance via a detailed explanation of this issue ASAP. The client is a very hot prospect." (Doc.15)

Mr B Rooney of Agfa replied to Mr Foley by fax dated 18 June 1990 (Doc.16) saying in part:

"In the newest version of S/W which will ship with the EMERALD, there is a new PostScript operator called 'setaccuratescreen'. The difference between this and the previous/simpler 'setscreen' operator is that the new one removes a lot of the limitations of the previous, smaller subset of valid screen angle and frequency pairs and now allows the user to specify any screen angle and frequency that they so desire.

In theory, this should improve the overall colour quality of the PostScript output as you will be more likely to replicate the proven, traditional colour angles that printers have come to know and love..."(Emphasis in original)

These passages of Mr Rooney's response were relayed to Mr Knox in the fax of 21 June 1990 (Doc.18). They had the effect of reinforcing representations made by Mr Foley at the Drupa Fair as to the capabilities of the SelectSet 5000 to output colour and to eliminate moiré. It cannot be doubted that Agfa authorised Mr Foley to pass on that information, and intended that it be acted upon by the client. Again, the circumstances in which the information was provided entailed a proximity in relationship between Agfa and Mr Knox so as to give rise to a duty of care by Agfa, the discharge of which required Agfa to correct the information given, when it later became known that the EMERALD RIP component of the SelectSet 5000 would be shipped without SetaccurateScreen.

The negligent misstatements made at the Drupa Fair on the authority of Agfa, and the negligent omission to correct the erroneous information in the fax of 21 June 1990, involved acts and an omission that occurred outside Australia. They are nevertheless actionable in Australia as the cause of action was not complete until Canvas suffered loss and damage, and the loss and damage occurred in Australia. (See: Diamond v Bank of London & Montreal Ltd [1979] 1 QB 333 especially at 348-350; Original Blouse Company Ltd v Bruck Mills Ltd [1963] 42 DLR (2d) 174 at 180-182.) There is a distinction in this area between statements directed, as here, at persons within the forum and intended to be acted upon there, on the one hand, and, on the other, a representation made abroad to a local recipient (see: Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 568-569; and Nygh, Conflicts of Laws in Australia, 6th Ed. at 56).

By cross-contention Agfa submitted that his Honour found as a fact that the ColorScape system was capable of producing commercial quality colour and, therefore, that the failure to produce such a product was not caused by an inherent fault in the equipment but by Heidelberg's breach of contract in failing to provide Canvas with sufficient training and expertise to operate the equipment.

The foundation for that submission is in the following passages of his Honour's reasons.

"I accept the evidence of Mr Barstow that when the equipment was returned to Heidelberg he reassembled it and was able to obtain satisfactory output...But I do not see that as
being of any help to Heidelberg. If anything, it exacerbates the complaint that Heidelberg had earlier failed to train Canvas Graphic's operators adequately. If, as Heidelberg maintains, the equipment could produce colour in late 1991, why was it not producing colour in early 1991? Either there was some unspecified but fundamental deficiency which was later corrected, or, as is more likely, and as I find, Mr Knox and his staff did not know how to operate the equipment properly." (pp.3525-3526)

"...it is more probable than not that if Heidelberg had complied with its contractual obligations, Canvas Graphics might well have learnt how to output commercial quality colour." (p.3552)

Agfa submits that these passages show that other statements made by his Honour, that the Colorscape system was unable to deliver a high quality colour product and was unable to eliminate the disadvantage of moiré as represented, were not intended to be findings of fact and may be disregarded. We do not agree. In the passages relied upon, his Honour has done no more than indicate that Canvas' position would not have been as dire had Canvas received the training and instruction Heidelberg had contracted to provide. Had it performed its contract Canvas would have been able to produce a colour product but not a product which accorded with the standard represented. We base this finding on the following passages of his Honour's reasons:

"...their (Knox's employees) evidence was, I find, sufficient to establish that there were deficiencies in the Agfa Colour-Scape system." (p.3492)

"I am satisfied that Mr Knox and Miss Slattery attended Drupa and spoke to Mr Foley about colour output; I am satisfied that Mr Foley and the Agfa brochure (Doc.8) presented the SelectSet 5000 as an imagesetter that was capable of outputting four colour separations." (p.3515)

"But, at the end of the day, I remain satisfied that it was falsely held out that the SelectSet was capable of colour output. The machine was not able to do that satisfactorily." (p.3520)

"I accept that moiré was present in the end product that was obtained by Mr Knox from the SelectSet. On balance, I find that Mr Foley told Mr Knox that the Selectset 5000 would eliminate moiré. I find that Mr Foley did say, at Drupa, words to the effect that moiré would be eliminated." (pp.3522,3523)

"...the realisation, in May 1991, that the machine was incapable of colour output meant that Canvas Graphics should not have thereafter spent any further time attempting colour production. I reject, as unreasonable, any suggestion that Canvas Graphics would be entitled to a measure of compensation for the wasted time and effort of its staff attempting colour output after May 1991." (p.3530)

"The failure of the SelectSet to output colour is compensable. But there is no warrant to assume that, because the purchaser of the goods sustained losses in the conduct of its business, all those losses were caused by the limitation in the ability of the faulty equipment. There remains an onus on Canvas Graphics to prove causation on the balance of probabilities. In my opinion, Canvas Graphics has only succeeded in proving that the faulty SelectSet and the inadequate training were two contributing causes to the applicant's wasted expenditure." (p.3535)

Alternatively, it was submitted by Agfa that the findings to which we have referred above were erroneous. That submission may be dealt with quite shortly. For the submission to succeed it was incumbent upon Agfa to show that the findings were made in the absence of evidence, or in the face of evidence of such weight that to find otherwise would
constitute an error of law. In our view, there was ample material to permit his Honour to make the findings he did about the inability of the Agfa equipment to perform as represented, findings not contested by Heidelberg.

Having regard to his Honour's finding that the measure of the loss sustained by reason of Heidelberg's conduct at the Drupa Fair in contravention of s.52 of the Act was coextensive with the loss sustained by reason of Heidelberg's breach of contract, it should be assumed that his Honour was satisfied that the assessment of the worth of the opportunity that was lost by Canvas as a result of Heidelberg's conduct was indistinguishable from the expectation of profit that Canvas may have had, had Heidelberg not been in breach of its contract. It would be reasonable to conclude from this that the damages recoverable by reason of negligent misstatements made at the Drupa Fair would mirror the assessment of loss recoverable under s.82 of the Act for misleading conduct.

HEIDELBERG CROSS-APPEAL AGAINST DISMISSAL OF ITS CLAIM

In presenting Heidelberg's argument on its cross-appeal, counsel for Heidelberg submitted that his Honour erred in failing to find that consequent upon Canvas' breach of contract Heidelberg was entitled to judgment in the amount of the difference between the value of the goods delivered to Canvas by Heidelberg and the value of the goods returned to Heidelberg by Canvas. Counsel submitted that making allowance for his Honour's finding that the goods delivered were unable to output colour and were worth less than $207,400, there was evidence before his Honour on which he could have found that the value of the goods delivered was in the order of $175,500 and that the difference between that value and the value of the goods recovered, $129,000, was $46,500. Heidelberg also claimed interest on that sum.

His Honour's finding that Heidelberg was not entitled to any damages was expressed in the following terms:

"I am of the opinion that its failure to supply adequate operator training entitled Canvas Graphics to repudiate the contract in the sense that it could claim that it was not binding because of the failure of a condition that invalidated the contract." (p.3558)

Earlier his Honour had found that rescission was not available to Canvas at the time it purported to rescind the contract. He found that by its conduct Canvas had affirmed the contract some months earlier (p.3512). However, in September 1991, Canvas had indicated, as part of its purported rescission, that the goods were available for collection. In October 1991, Heidelberg, whilst not accepting that Canvas was entitled to rescind, purported to treat the conduct of Canvas as a "wrongful repudiation of the...contract". Heidelberg then purported to accept that repudiation and to terminate the contract, indicating that it was prepared to collect the goods whilst reserving its right to claim damages. In December 1991 Heidelberg collected the goods. (It will be recalled that, under the terms of the contract, title to the goods did not to pass until payment of the price.)

In all the circumstances, including the failure of Heidelberg to supply training as a fundamental obligation, there was at all material times, in effect, a total failure of consideration on the part of Heidelberg, so that Canvas was never liable for the price or the goods or liable for damages for breach of its undertaking to pay that price.

In any event, we consider it to be apparent from his Honour's reasons that, had his Honour determined that damages were to be calculated in the manner sought by Heidelberg for failure to pay the purchase price of the goods whilst the contract was on foot, the amount of those damages as calculated would constitute a cost for the use of the goods to be taken into account in calculating Canvas' claim for damages against Heidelberg for breach of its contractual obligation to properly train and instruct Canvas in the use of the goods. That is, the claim for damages submitted by counsel for Heidelberg for the diminution in value of the goods for the period of the contract would be equivalent to a provision for depreciation to be made by Canvas in the management of the business in which that equipment was used.

His Honour had reached a firm conclusion that Heidelberg, by its non-performance of the contract in a significant respect, was the author of any detriment it suffered under the contract, and if he had determined that Heidelberg was entitled to damages, there would have been a corresponding adjustment of the amount assessed by his Honour for consequential loss in the form of wasted expenditure suffered by Canvas.

We are not persuaded that his Honour's conclusions, first, that Heidelberg's claim should be dismissed, and, secondly, that there be no order as to costs in respect thereof, should be disturbed. His Honour determined that no order for costs was appropriate in view of the small amount of time spent on Heidelberg's claim in the conduct of the trial and Canvas did not seek to vary that order.

ASSESSMENT OF DAMAGES

As we have said, his Honour determined that the same measure was appropriate whether damages were calculated in contract, tort, or under s.82 of the Act and it was not submitted by any party to the appeal that his Honour erred in that respect.

Canvas contended that his Honour made an inadequate assessment of the damages it was entitled to recover by failing to accept certain of the claims Canvas made for wasted expenditure and sought an order that the amount allowed be increased from $75,000 to $540,641. The latter figure was an estimate of the actual losses suffered by Canvas to 30 June 1993 made by Mr Martin, a chartered accountant who was called as an expert witness for Canvas. Canvas also contended that his Honour allowed an insufficient sum for the loss of the opportunity to gain profits, or loss of expected profits, and asked this Court to reassess that sum.

Heidelberg contended that the evidence did not support his Honour's finding that the amount of wasted expenditure incurred by Canvas was $75,000 and by way of cross-appeal sought to have his Honour's assessment of damages reduced.

Before turning to his Honour's treatment of the assessment of damages, it is necessary to set out some of the history of the business conducted by Canvas.

In 1978 Mr Knox established a successful business as a marketing consultant. In 1979, Knox Associates was formed and it expanded the business conducted by Mr Knox and carried on business as an advertising agent. In 1982, Andrew Knox Productions Pty. Ltd. ("Knox Productions") was formed to carry on the business of production work involved in the creation of graphic design, photographic layouts and colour separations. Knox Productions carried out work for Knox Associates that it otherwise would have put out to independent contractors. Knox Associates and Knox Productions operated out of the same premises where a purpose-built photographic studio had been constructed. By 1984 both companies were using computers for typesetting and page layouts. In 1986 Mr Knox decided the volume of his business was sufficient to justify the purchase and installation of a "Varityper" imagesetter for the production of final artwork. The Varityper imagesetter did not provide a colour product and as Mr Knox understood it, a colour imagesetter was not on the market at that time.

His Honour described the development of this area of commerce as follows:

"An imagesetter is a device that is used in the pre-press electronic industry to output a computer image or composition onto photographic paper (bromide) or film. In recent times it has been developed to the stage where it has the ability to produce the separations for the four-colour process, that is, the use of cyan, magenta, yellow and black (CMYK) in printing to produce a wide variety of colours. An imagesetter operates by using a very fine laser which turns on and off as required. The laser is controlled by the imagesetter's Raster Image Processor ('RIP') and it is the RIP that converts the information in each computer file into a set of instructions for the laser.

'Pre-press' is the term that is applied to the process of preparing material for printing; it is part of the graphic arts industry, being the process that commences after the creation of a design or concept (which is the commencing step in graphic arts) and after the preparation of type or copy; it ceases immediately before the making of printing plates (Ex CRM 109 and (transcript) p7898). At the beginning of the pre-press process, photographic materials, being either colour prints, transparencies or art work, are converted from their physical form
into an electronic form. This act of conversion is achieved by a piece of equipment called a 'Scanner'. Thus the pre-press process commences with the scanning of physical images into electronic form and creating an electronic document into which electronic images are placed. The material (or the image) that is to be the subject of the scanning and the ensuing process, including the scanning, was often referred to throughout the course of the trial as 'input' or the 'front end'.

From the scanner, the image passes to the work station which can comprise items such as a keyboard, an electronic control called a 'mouse' and one or more monitors. It is at this stage that the scanned image is reproduced on the screen of a monitor and the operator of the work station can commence the work that is necessary to process the image. That could involve a variety of tasks. The addition of text is an obvious example but colour retouching, the addition or removal of objects from the primary image and the rotation of selected images and text are other examples.

Depending upon the size of a business, it may have one or more scanners, one or more imagesetters and one or more work stations. In the case of the Knox group, it had both IBM and Apple Macintosh workstations. When a workstation is operational and it sends work via the RIP to the imagesetter, it means (because the imagesetter can only receive one set of instructions at a time) that all other workstations are temporarily inoperable. That can be overcome however by the installation of a file server which is connected between the various workstations and the RIP and imagesetter. The file server will receive a file from a workstation and store it until the imagesetter has completed its current task and is ready to receive the stored file. The existence of a file server thereby increases the utilization of the various workstations. In the present case Canvas Graphics acquired a 3-Com file server in about September 1990...

In the four colour process, the electronic document is split into the CMYK components as four electronic files so that each file may be conveyed to the imagesetter via the RIP. This exposes the film in accordance with the electronic instructions. The file is then proofed on a printer so that it may be examined and, if appropriate, checked and verified by the customer. The use of an in-house printer at the proofing stage is only intended to be an interim measure. Rarely, if ever, would such a print have commercial value. It is designed to allow for a final examination and approval before the costly exercise of plate making and final print. When the proof is acceptable, the film is then sent out to specialty business-houses for plate making and printing." (pp.3447-3450)

By mid-1990 Mr Knox had become interested in acquiring new technology to expand the business conducted by Knox Productions into scanning and colour separation. In particular, he was interested in establishing a business described as a "bureau" which would provide services to advertising agents and graphic designers by offering computerized colour production from computer files prepared by the client. At trial both Agfa and Heidelberg contended that the only interest Mr Knox had in the SelectSet 5000 was its technology to produce monochrome output and "positionals". His Honour rejected that contention and found that Mr Knox caused Canvas to acquire the SelectSet 5000 and the ColorScape system in the belief that it would output colour and with the intention that the bureau business using that equipment would be first in a new field.

It was with this background, and with these intentions that Mr Knox attended the Drupa Fair in April/May 1990 leading to the contract with Heidelberg in August 1990 to supply Canvas with the Agfa equipment. The equipment was delivered in January 1991 at which time Canvas had begun carrying on business as a bureau.

In assessing the loss caused to the business conducted by Canvas by the failure of the equipment to perform as represented, his Honour was not satisfied that it had been proved that the business would have traded profitably if Heidelberg had performed its contractual obligations to provide training for Canvas staff or if Canvas had not entered into the contract to acquire the Afga equipment.

His Honour found (p.3535) that:

"...Canvas Graphics has only succeeded in proving that the faulty SelectSset and the inadequate training were two contributing causes to the applicant's wasted expenditure. On the other hand, they can be regarded as the direct causes for the loss of profits that might have been derived from the output of CMYK colour.

His Honour went on to find (pp.3550-3551) that, in assessing damages:

"...an amount should be set aside to cover wasted expenditure, principally in the form of wages whilst attempts were being made to get the system operational....an amount for loss of profit should also be brought to account because of the inability of the system to image commercial quality colour".

His Honour did not make a finding that the pre-press or bureau business conducted by Canvas would have made a profit had the ColorScape system been capable of colour output. This is made clear from his Honour's assessment of the likelihood of Canvas making profits of the magnitude predicted
by Mr Martin (pp.3538-3543) and from the finding that there is evidence which points to many reasons for Canvas' losses in 1991 and 1992 in addition to the inadequacies of the system (pp.3542-3543 and 3550). His Honour was of the opinion that the evidence in the trial supported the conclusion expressed by Mr Messenger, a highly qualified chartered accountant, that as at 30 June 1990, the Knox group lacked both accumulated assets and profitability. His Honour agreed with Mr Messenger's opinion that,

"...this indicates that the group was not in a sufficiently sound position to undertake a high capital cost project in a highly advanced field of technology" (p.3547).

His Honour found (at 3531), that a matter of importance in quantifying the loss suffered by Canvas as a result of the misleading conduct and breach of contract, was the "likely earnings that might have been derived if CMYK colour had been obtainable from the Selectset". Although later in his Honour's reasons (p.3556) this component as assessed is described as the sum "sufficient to compensate for the loss of profits sustained in the 1991 calendar year and for the inability to hold out the bureau as a PostScript Colour bureau", it is likely that the use of the term "loss of profits" by his Honour is in truth, a reference to loss of net earnings that Canvas may have expected to have received otherwise and which would have been applied to reduce the trading loss incurred in that year.

If there had been a finding that by Heidelberg's conduct, Canvas was denied a likely profit from the conduct of its business, the damages or compensation assessed for the loss suffered could include the trading losses for the relevant period. However no such finding was made, and his Honour was of the opinion, that the applicant was only entitled to the wasted expenditure attributable to the faulty SelectSet and to Heidelberg's failure to provide adequate training.

His Honour rejected the evidence of Mr Martin both as to his estimate of wasted expenses and as to the lost opportunity to gain additional earnings upon which the applicant's overall claim for more than $3m was based. His Honour rejected that evidence because he considered (1) that Mr Martin made his calculations in relation to the claim against Agfa from 1 November 1990 whereas the calculation should have commenced from 9 January 1991; (2) that he failed to have sufficient regard to the tenuous financial background of the Knox group; (3) that he assumed or accepted that the Agfa ColorScape system was responsible for all the losses that were suffered by Canvas to 30 June 1992 whereas the evidence pointed to many other reasons as well, and (4) that he failed to have regard to competition from other bureaus. (pp.3542-3543)

Further, a substantial part of the calculations of damages for the lost opportunity to gain additional earnings made by Mr Martin were based on a "survey" he conducted by questioning a number of people in the digital pre-press industry "regarding the growth and business size of other bureau and the colour imaging market". His Honour rejected the results of that survey and later in the trial refused to allow counsel for Canvas to cross-examine Mr Lewis, the proprietor of another bureau in Adelaide, about the profits or turnover of that company's business. Canvas' notice of appeal raised as challenges to the quantum of the judgment the grounds that the trial judge wrongly refused to admit the survey evidence and to permit cross-examination of Mr Lewis about profits and turnover of his business. In oral submissions counsel for Canvas conceded that these grounds raised points which, if successful, would lead to a new trial - an outcome which Canvas did not desire. Accordingly the grounds were not pressed, and the argument presented by counsel for Canvas acknowledged that the rejected evidence of Mr Martin could not be revived on appeal.

His Honour found that the relevant period for the calculation of "wasted expenditure" was from January, the time of installation of the SelectSet, to mid-October 1991, when the contract to supply the equipment came to an end.

His Honour stated that the sum he awarded for damages for wasted expenditure consisted of compensation for labour costs wasted as a result of the faulty equipment, including an allowance for consultancy fees, as well as compensation for the cost of wasted consumables and for minor issues such as stationery, telephone, facsimile costs and the like. However in coming to the figure that he did for wasted expenditure, his Honour did not draw directly from Canvas' profit and loss statements, but taking a broad approach, fixed a global sum.

His Honour said (p. 3554):

"But these wasted expenses are not as great as may be first thought. Miss Johnson acknowledged in evidence that many of the actual expenses incurred by Canvas Graphics in its business as a bureau would have been incurred even if colour output had been available...It is not a case of saying that all expenses were wasted nor is it a case of saying that expenses would not have been incurred if colour had been available..."

His Honour accepted that in the financial year ending 30 June 1991, Canvas suffered a trading loss of at least $90,000 and that a further loss was incurred in the 1992 financial year. The loss sustained in the second half of 1991 was $127,961 according to a profit and loss statement prepared for that period. This statement (Document 396AA) was prepared by Mr Ferguson, a chartered accountant, in February 1992, and the figures contained therein were accepted by the parties as being largely accurate. The statement however made no reference to the debt owing to Knox Productions for
consultancy fees.

Applying a pro-rata calculation to that statement to arrive at an estimate of loss for the period July to mid-October 1991, the date his Honour found to be the end of the relevant period for calculation of losses, the amount of trading loss incurred in that period was approximately $75,000. It may be estimated, therefore, that the loss suffered by Canvas to mid October 1991 was in the order of $165,000.

It was accepted that the amount owed by Canvas to Knox Productions for consultancy fees was overlooked in the preparation of Canvas' accounts and, as we have said, his Honour found that an allowance for these fees should be made in the amount awarded for wasted expenditure. The evidence before His Honour was that consultancy fees were charged at around $145,000 per annum. Again on a pro-rata basis this can be reduced to a figure of approximately $115,000 for the relevant period.

His Honour did not accept that the amount claimed for consultancy fees should include a mark-up or profit to Knox Productions, however he did find that there was a cross-charging agreement between Canvas and Knox Productions. It is, therefore, difficult to see the basis on which such a discount or reduction can be applied to what was on the evidence an incurred debt. However, it was a matter in which his Honour had a discretion and deducting the 25% mark-up from the consultancy fees as calculated results in a figure of $92,000 for the relevant period.

The total loss of Canvas over the relevant period therefore can be calculated to be approximately $250,000. This is substantially less than the estimate of $540,641 made by Mr Martin, but that evidence was rejected by his Honour for a variety of reasons, and on appeal, we think that the appropriateness of the award should be considered against the financial statements and the other evidence which his Honour took into account. To assess what part of that amount can be classified as wasted expenditure attributable to the faulty SelectSet and the inadequate training is a matter of judgment.

Given that the faulty SelectSet and the inadequate training would have impacted upon the business as a whole, and bearing in mind that it had been anticipated that the conduct of the business would include the use of the Agfa equipment performing as represented, an appropriate course would be to make a percentage reduction from the trading loss as calculated above. It is difficult to attempt to compartmentalise that expenditure which has a sufficient causal connection to the breach and default and that which does not. Although his Honour did not state it in these terms, applying that approach, the amount allowed by his Honour, namely $75,000, represented only 30% of the trading loss sustained by the business in the relevant period. We find that the sum allowed is so low that interference by an appellate court is warranted and that it is appropriate to treat one half of that trading loss as loss sustained by Canvas by reason of Heidelberg's conduct and breach.

In respect of the lost opportunity to gain additional earnings, his Honour awarded the amount of $10,000 in that regard. This amount was said to reflect the earnings which Canvas could have made had it been able to output colour.

His Honour found that the likely earnings from utilization of the capacity to produce colour with equipment that could do so was in the order of $66,000 in the relevant period which his Honour extended to December 1991, being the point at which Canvas obtained a Linotronic imagesetter capable of doing the work required. Deductions were made from that sum for costs and profits made from contracting out colour, and for unrelated outgoings and contingencies, and his Honour considered that $10,000 was a sufficient amount to allow under this head.

Having regard to the evidence that in the initial stages colour production would play only a minor part in the business, the thin capital base upon which Canvas operated, and the degree of competition that had arisen by December 1991 in desk-top colour production, there was ample material upon which his Honour could conclude that a claim for a substantial and ongoing loss of net earnings over several years was wildly optimistic and entirely inappropriate and that a net sum of $10,000 was an adequate assessment of the worth of the lost opportunity to begin trading as a bureau with a colour product during the 1991 calendar year, having regard to the obligation of Canvas to mitigate that loss and the liability of Kodak to compensate for loss of profit after December 1991.

The total amount of loss assessed therefore should be $135,000 to which is to be added, as found by his Honour, interest at the rate of 11% for a period of three years to the date of judgment. We calculate the amount of interest to be $49,630. The total sum for which judgment should be entered, therefore, is $184,630.

COSTS

As has been noted, in ordering that Heidelberg's claims against Canvas be dismissed, his Honour made no order as to costs. On the cross-claims by Canvas, his Honour ordered that Canvas pay one-quarter of Heidelberg's costs. The claim against Agfa was dismissed with costs.

There were special reasons for ordering that Canvas pay one-quarter of Heidelberg's costs which his Honour explained in a separate judgment.

By letter dated 2 June 1993, the solicitors for Agfa, writing on instructions from both Agfa and Heidelberg, made a "Calderbank" offer of settlement in the sum of $200,000 plus taxed costs. Having reviewed that offer, his Honour said:

" I believe that Heidelberg should have its costs as of and from 17 June 1993. By that date there had been only 10 sitting days, but they had been preceded by numerous directions hearings and interlocutory disputes. Normally I would order taxation consistent with these reasons, but because of Canvas Graphics' insolvency I propose to wield a broad and hopefully intuitive axe and order that as between Canvas Graphics and Heidelberg, Canvas Graphics is to pay Heidelberg 25 per cent of Heidelberg's costs which are to be taxed in default of agreement".

Upon the appeal, Canvas has succeeded against Heidelberg to the extent of having the judgment increased to $184,630. This sum is still below the amount offered on 2 June 1993, and this would not have occassioned his Honour to have made any other order. We see no reason to interfere with this order.

However, the position of Agfa must be different as Canvas has succeeded against Agfa on the ground of liability, and therefore a similar order should be made that Canvas pay one-quarter of Agfa's costs of the trial.

In our view, the appeal having succeeded in significant respects, costs of the appeal and cross-appeal should follow the events subject to a reduction which we consider should be made to compensate the respondents for costs unnecessarily incurred in the preparation of issues raised by the notice of appeal and dealt with in the appellant's written submissions on the appeal which were later abandoned, namely the admissibility of survey evidence, and the allowance of "discretionary expenses". We consider that an appropriate reduction would be achieved by allowing the appellant nine-tenths of its costs of the appeal.

ORDERS

The orders made by his Honour should be varied, therefore, by setting aside the order dismissing Canvas' cross-claim against Agfa and the order that Canvas pay Agfa's costs of that cross-claim and replacing that order with an order that judgment be entered against Agfa in the sum of $184,630, and that Canvas pay one quarter of Agfa's costs of the cross-claim; and by varying the amount for which judgment has been entered against Heidelberg on the cross-claim from $113,050 to $184,630.

To that extent, the appeal will be allowed with costs as indicated above and the cross-appeal will be dismissed, with costs.

I certify that this and the preceding pages are a true copy of the Reasons for Judgment of the Court.

Associate:

Date:

APPEARANCES

Counsel for the Appellant : Mr N W Morcombe QC and

and Cross-Respondents Mr D Berman

Solicitors for the Appellant : Messrs White Berman

and Cross-Respondents

Counsel for the First : Mr E W Gillard QC

Respondent and Cross-Appellant and Mr M E Hoile

Solicitors for the First : Messrs Johnson, Winter

Respondent and Cross-Appellant & Slattery

Counsel for the Second : Mr T F Bathurst QC and

Respondent Mr M F Blue

Solicitors for the Second : Messrs Fisher

Respondent Jeffries

Dates of Hearing : 14, 15, & 16 November,

1994

Date of Judgment : 30 June 1995

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