Federal Court of Australia

Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited (No 2) [2024] FCA 1367

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to confer and provide a minute of proposed orders by no later than 4.00 pm AWST on 5 December 2024 that reflects these reasons and those in Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited [2024] FCA 441.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BANKS-SMITH J:

Background

1    On 3 May 2024, I published reasons determining the issues of liability in these proceedings: Ezy-Fit Engineering Group Pty Limited v Microm Nominees Pty Limited [2024] FCA 441 (Ezy-Fit No 1). I then invited the parties to provide further submissions as to a number of outstanding issues with respect to the assessment of damages and apportionment, some of which were anticipated in the reasons. A hearing to address such issues was conducted on 8 November 2024 (quantum hearing). These reasons address those outstanding issues.

2    These reasons are to be read assuming familiarity with Ezy-Fit No 1, and I have adopted relevant defined terms from those reasons.

3    In summary, Ezy-Fit conducts a manufacturing business using a variety of sophisticated machine tools. In 2015 Ezy-Fit agreed to buy a specialised automated turn-mill known as the FTM1000. The FTM1000 was designed by FAT HACO, a Polish industrial equipment manufacturer. The sale of the FTM1000 was conducted through Ron Mack (the trading name of the first respondent), an Australian supplier of specialist machine tools which relevantly acted as a dealer in Australia for machine tools produced by FAT HACO.

4    The FTM1000 was delivered to Ezy-Fit's premises in 2017 but had a number of significant defects. Efforts by FAT HACO to repair the machine were unsuccessful, and Ezy-Fit commenced proceedings against Ron Mack and FAT HACO in 2019 seeking damages for, among other things, breach of contract and misleading or deceptive conduct under s 18 of the Australian Consumer Law (ACL).

5    I found that there was no contract between Ezy-Fit and FAT HACO, but there was a contract between Ezy-Fit and Ron Mack. Ron Mack breached an implied term of the contract as to fitness for purpose for the FTM1000. I also found both Ron Mack and FAT HACO were liable to Ezy-Fit for a number of representations relating to the FTM1000 that were misleading or deceptive in contravention of s 18 of the ACL.

6    I found that Ezy-Fit is entitled to damages that accord with the estimated cost of rectifying the defective FTM1000 and compensation for loss of profits from the hypothetical use of an alternative machine for a specified period. I estimated the rectification costs at $193,200. The Sellars assessment was to the effect that the probability of success of Ezy-Fit securing the opportunity for high-end work utilising the alternative machine for two shifts a day at a charge out rate of $220 an hour was 30%.

Remaining issues

7    In Ezy-Fit No 1 I identified particular issues that required attention from the parties in order for damages to be assessed. I also asked the parties to agree a list of outstanding issues they considered required findings for that purpose. A list of ten issues was provided. In addition, as foreshadowed in Ezy-Fit No 1, the parties were invited to make submissions as to apportionment. Ron Mack chose to not take part in the liability trial but made submissions relating to apportionment.

Preliminary matter - basis of assessment of damages in contract and under the ACL accepted as being the same

8    I observed in Ezy-Fit No 1 at [1082] that Ezy-Fit had proceeded on the basis that the outcome of an assessment of damages for any cause of action would be the same. Ezy-Fit and Ron Mack subsequently agreed at the quantum hearing damages in contract and under the ACL are the same. Accordingly, I will proceed on that basis.

Issue 1 - appropriate end date for loss of profits claim

9    In Ezy-Fit No 1 at [1058] I decided that the start date for the period of assessing damages for lost opportunity was the date that aligned with the commissioning date of the FTM1000 (25 July 2017). I also found at [1071] that the appropriate end date for Ezy-Fit's loss of profit claim was six months after the date of judgment being delivered (being 3 November 2024 - Ezy-Fit No 1 was delivered 3 May 2024). That is the date at which it would no longer be reasonable for Ezy-Fit to continue to claim that any lost profits were caused by the respondents' contravening conduct. I came to this view because by publication of the reasons, Ezy-Fit was on notice that although it had long disputed that the FTM1000 could be repaired, I had found that it could be. That finding having been made, it was then a matter for Ezy-Fit to attend to the repair of the machine. Any failure to do so (or decision not to repair), and any ongoing loss of profits, was its responsibility and not that of the respondents: see generally Ezy-Fit No 1 at [956], [1062]-[1071].

10    At one point, it appeared FAT HACO might contend that, despite my findings, damages should be assessed on the basis that Ezy-Fit should have known at an earlier time that the FTM1000 could be repaired, having regard to the expert evidence. In the end, this was not pursued in oral submissions. It stands that this issue has been decided, and the end date for the assessment is 3 November 2024.

Issue 2 - how many shifts per day should be incorporated into the actual FTM1000 scenario

11    This issue concerns the actual utilisation of the defective FTM1000 prior to and post-trial and is relevant to the exercise of assessing loss of profits. To avoid over-recovery, the quantum of lost profits must be reduced by accounting for the actual profits received by use of the FTM1000. The parties (and the respective quantum experts) did not dispute this approach in principle but disputed a number of relevant inputs for the necessary calculations.

12    There was evidence, and I found accordingly, that at the time of the trial the FTM1000 had been utilised for one shift a day, except a period between September 2018 to June 2020 where it was utilised for two shifts a day. For the period post-trial, it is appropriate to proceed on the basis of a projection consistent with the limited evidence as to the actual use of the FTM1000 prior to trial.

13    I note that judgment was reserved on 7 February 2022 when the last submissions were made, although the evidence about shifts had been given in October 2021. It was not suggested prior to judgment being reserved that the position as to shifts had changed in between.

14    The parties disagreed as to the date from which a projection should be made. There was evidence, and the parties agreed, that from July 2020 to the time of trial the FTM1000 could only be used for one shift a day because it only had one trained operator. Mr Klappers confirmed that fact under cross-examination. On this basis Ezy-Fit contends that damages should be assessed by assuming the machine operated for only one shift until the start of January 2022. It says this is consistent with Mr Klappers' evidence and allows for the likelihood that it would take some months for a second operator to be trained up, so that the earliest time when more than one shift could have been conducted was the start of January 2022. Therefore, Ezy-Fit contends, any projection as to the number of ongoing shifts for the purpose of the assessment exercise should commence from January 2022.

15    FAT HACO agreed that the evidence as to use tended to show the machine was used for one shift a day up to the date of trial, but it submitted that a projection should be made from 25 October 2021, being the first business day after the conclusion of cross-examination, following which there is no evidence as to actual use.

16    There is sufficient evidence for me to accept Ezy-Fit's submission and infer that the FTM1000 was used for one shift a day until the start of January 2022. I accept that Ezy-Fit only had one operator when Mr Klappers gave his evidence in October 2021, and it would have taken time for it to train a new operator to utilise the FTM1000 for more than one shift a day. To find otherwise would be inconsistent with the limited direct evidence available.

17    The question then is how many shifts per day should be assumed for the period from 1 January 2022 onwards?

18    Ezy-Fit's position is that the projection should assume one shift a day for the entire post-trial period. It argued that although at one point there was enough work to occupy the FTM1000 for two shifts a day, work opportunities were drying up or on the 'down-shift'. It says this is evidenced by Ezy-Fit's commercial decision to not train multiple operators for the machine, and the fact that in the 16 months in the leadup to the trial the FTM1000 could only secure enough work for one shift a day.

19    FAT HACO's primary position is that the projection should assume two shifts a day for the entire post-trial period. It submitted there is no evidence that work opportunities for the FTM1000 were on a downwards trend, and absent evidence it should be assumed Ezy-Fit would and could continue to win work in alignment with its commercial interests. It drew attention to the fact that for approximately half the time the FTM1000 had been used pre-trial it was occupied for two shifts. It also highlighted Ezy-Fit's efforts over a number of years to grow its work opportunities in the defence industry (and there is some evidence about this in Ezy-Fit No 1 at [1020]-[1026]).

20    Alternatively, FAT HACO submitted, I should find the FTM1000 operated for an average of 1.5 shifts a day over the post-trial period. I am persuaded by that alternative position. Contrary to Ezy-Fit's submission, there is no evidence that shows work for the FTM1000 was dwindling. In my view, the available evidence shows that Ezy-Fit was and is able to win work to occupy the FTM1000 for one shift a day at times, and for two shifts a day at other times. I consider that Ezy-Fit would have made every effort to win as much work as possible. Such conduct would be consistent with its business interests and accords with common sense. There is no reason to doubt that it would have trained or secured additional operators if and when required. Having regard to all of those matters, I consider it appropriate to proceed in the assessment on the basis that the FTM1000 operated an average of 1.5 shifts a day in the period commencing 1 January 2022.

Issue 3 - hourly rate of actual FTM1000 during period of assessment

21    This issue concerns the average hourly charge out rate to be inputted for the calculation of the profits of the actual FTM1000. The parties agree that one hourly rate should be used for the whole relevant period (that is, from 25 July 2017 until 3 November 2024). That rate, together with the shift utilisations of the FTM1000 outlined in issue 2 above, will determine the estimated actual profits made by the FTM1000 for the purpose of this assessment.

22    Ezy-Fit submitted the rate should be $148. It says that is based on the mid-point between the base charge out rate of the defective FTM1000 ($140) and the actual rate charged out for the Bombardier work (said to be $156), the latter being (it says) the best sample of actual work done by the FTM1000.

23    FAT HACO submitted that the rate should be at least $180 an hour, if not $200 an hour, based on evidence from Mr Klappers and Mr Hollamby generally as to charge out rates and from the average rate of the four successful jobs contained in the 36 estimate sheets provided by Mr Hollamby of Ezy-Fit as representative examples of Ezy-Fit's work (discussed in Ezy-Fit No 1 at [1027]). It disputed Ezy-Fit's contention that the Bombardier work is the best sample to assess the overall rate, and in any event it disputed Ezy-Fit's alleged rate of $156 for the Bombardier work.

24    As a preliminary matter, I reject the submission made by Ezy-Fit that because I found there was a 30% probability that Ezy-Fit would have won high-end work on a fully functioning FTM1000 at a charge out rate of $220 an hour, I should generally find that an achievable actual charge out rate of the FTM1000 is low. I accept FAT HACO's submission that the 30% probability was based on Ezy-Fit's ability to win high-end work, which I found was priced at $220 an hour. The Sellars discount is not relevant to this assessment of the hourly charge out rate.

25    I consider there are relevantly three considerations that arise in fixing an hourly charge out rate for the purpose of this assessment.

26    First, I accept the premise that the rate should be determined having regard to the best evidence of actual rates Ezy-Fit charged out for the FTM1000. To that extent, the rate Ezy-Fit charged for the Bombardier work, which according to Ezy-Fit is $156 an hour, is relevant. However, it does not follow that evidence that shows Ezy-Fit at times charged out the FTM1000 at higher rates is to be ignored. As FAT HACO indicated, the four jobs from those in the 36 estimate sheets that Ezy-Fit actually won indicated the FTM1000 was charged out at least once at $165 an hour, once at $200 an hour and twice at $250 an hour. I accept that those jobs combined comprised only 164 hours of work, while the Bombardier work comprised potentially 1,270 hours. However, the fact those works were relatively smaller does not warrant excluding that evidence from consideration. There may be a number of reasons an hourly rate is lower for a larger job. I do not need to speculate further about that. And, as indicated by counsel for FAT HACO, the Bombardier work itself still only accounts for less than 15% of the total work the FTM1000 supposedly completed prior to judgment being reserved.

27    Further, the 36 estimate sheets show that Ezy-Fit was willing to provide quotes to potential clients charging out the FTM1000 at rates including $165, $200 and $220 an hour (for example, quote M0690 ($200), M0714-1 ($165), M0738 ($200), M0765-1 ($165) and M0782-1 ($220)). Even though Ezy-Fit did not win that work, those quotes still provide some indication as to the rates Ezy-Fit, which was best placed to price the FTM1000, considered it could achieve.

28    Second, I am not satisfied that Ezy-Fit has established that an accurate charge out rate for the Bombardier work is $156 an hour. Ezy-Fit determined that figure by using data from 'Shop Mate', production management software Ezy-Fit uses to record and measure productivity. According to Ezy-Fit, Shop Mate recorded a total of 1,270 labour hours against the relevant Bombardier job number, and Ezy-Fit's accounting expert Mr Morris was provided with relevant records from Ezy-Fit's debtors ledger that showed an income of $198,100 for the corresponding job. The rate has apparently been derived by dividing the income by the hours, yielding a rate of $156 an hour.

29    However, I accept FAT HACO's submission that the Shop Mate data only evidences the hours spent by particular employees on jobs on any particular day and has no meaningful connection to the actual charge out rate for the FTM1000. I also have reservations about relying on Shop Mate data in circumstances where it has not been fully explained by Ezy-Fit, and the accounting experts of both parties expressed caution in relying on it (Court Book at 3968-69; second report of Brian Morris at [6.59]). In my view, Ezy-Fit has not established any reliable connection between the hours recorded in Shop Mate against the Bombardier job and the figure of $198,100.

30    Nor am I satisfied that there is evidence showing the basis upon which Bombardier was actually charged, such as a contract or invoice, which might otherwise reveal an hourly charge out rate. Bombardier could have been charged a flat fee, either in total or per wheel set. Ezy-Fit may not have billed all the hours reflected in Shop Mate to Bombardier. There is simply too much guessing and speculation involved to accept that the charge out rate for the FTM1000 when utilised for the Bombardier work was $156 an hour.

31    Even if I accepted the use of the Shop Mate data, it appears that the proposed figure of $156 an hour effectively represents income earned per hour spent on the FTM1000. That is not necessarily the same as a 'charge out rate', at least as that term has been understood otherwise in the context of these proceedings. For example, according to Ezy-Fit's instructions to Mr Morris and reflected in the 36 estimate sheets, 'charge out rate' refers to the rate associated with a particular machine, billed alongside other hourly rates associated with a job, such as design work and project management (first report of Brian Morris at [5.36]). Importantly, that is the understanding of charge out rate that Mr Hollamby applied to his suggested rate of $220 an hour rate for the alternative machine (explained in his affidavit at [21]-[27]), which I adopted: Ezy-Fit No 1 at [1059]-[1061]. Therefore, for the purpose of fair comparison, that same understanding of charge out rate should be applied to the actual FTM1000 scenario.

32    I also observe that for the purposes of Ezy-Fit's wasted expenditure proposal (ultimately not pursued by Ezy-Fit - see [1102] of Ezy-Fit No 1), Ezy-Fit instructed Mr Morris to estimate the average income received per hour spent on the particular Bombardier job addressed above, and he estimated the figure to be $198 an hour. Mr Morris was given different instructions on the labour hours spent on the job, which he noted were inconsistent with the Shop Mate data he was also provided. Mr Morris elected to rely on his instructions rather than the Shop Mate data, noting that Mr Nguyen also identified 'issues' with the data generally (second report of Brian Morris at [6.56]-[6.59]). All of this simply points to doubts about the veracity of the figure of $156 for the Bombardier job as propounded by Ezy-Fit.

33    Third, I reject Ezy-Fit's submission that $140 is the base charge out rate for the FTM1000. The evidence of Mr Hollamby was at times difficult to follow. However, he deposed that he would not as a general rule price the FTM1000 below $165 an hour. That is consistent with the estimate sheets, which record the FTM1000 being priced once at $135 an hour, an exception to the general approach, and 16 times at or above $165 an hour. I am cognisant that the estimate sheets represent quoted work rather than work that was actually undertaken on the FTM1000, but in the absence of other evidence I am left to take that evidence into account and weigh it accordingly. I also note that under cross-examination Mr Hollamby agreed the rates the FTM1000 was achieving were 'more in the range' of $140 to $180 an hour, or 'perhaps' $200 an hour.

34    It follows that I am left with some actual evidence as to charge out rates for a small number of jobs, and evidence as to charge out rates generally. This evidence is limited, and I note that although the role of the Court in the assessment of damages is to do the best it can, it was Ezy-Fit that bore the responsibility and was in a position to adduce better evidence during the trial as to charge out rates. Overall, having carefully considered the evidence and submissions on this point, I conclude that $180 an hour is an appropriate charge out rate to be applied to calculate the profits accrued by use of the FTM1000.

Issue 4 - does the ramp-up period apply to actual FTM1000 scenario

35    At [1058] of Ezy-Fit No 1, I decided that a 'ramp-up' period of 50% utilisation should apply to the first year of the alternative machine scenario, based on evidence that it would generally take some time for any machine to be fully utilised (recalling that in the hypothetical scenario the ramp-up is to two shifts per day). In response to this finding, Ezy-Fit submitted that a 60% discount should be applied to the actual FTM1000 profit scenario for the first year to reflect inefficiencies in utilisation of the FTM1000 in its first year due to its defects. Ezy-Fit referred to evidence of Mr Loughlin to the effect that after the first rectification visit, he would have to identify work-arounds to get work done on the machine, during which he thinks he was operating at about 60% efficiency.

36    There are two difficulties with Ezy-Fit's submission. First, the actual utilisation of the FTM1000 during the 12-month period post-commissioning was the subject of evidence, including evidence that it was only operating for one shift per day. To the extent the evidence does not otherwise reflect a trend of inefficiency in the FTM1000's utilisation in its first year, that is a consequence of Ezy-Fit's own record keeping and the way it has chosen to put on evidence in that regard. Ezy-Fit had the opportunity to address actual utilisation for that period and to the extent there was such evidence, it has been taken into account. In short, the potential lower usage of the FTM1000 that the ramp-up period is intended to accommodate for in the hypothetical scenario has already been accommodated in relation to use of the FTM1000 during that period.

37    Second, Mr Loughlin said that he was operating at 60% efficiency during the time when he was identifying work-arounds. That is not a proper basis to apply a 60% discount to use of the FTM1000 for its whole first year.

38    There is no sound basis to adopt the ramp-up discount in the actual FTM1000 scenario.

Issue 5 - should the third collision be incorporated into the hypothetical alternative machine scenario

39    As observed above, the assessment of lost profits involves the subtraction of profits from use of the actual FTM1000 from assumed profits in the hypothetical alternative machine scenario. So, it follows, any reduction in the quantification of profits from use of the actual machine would be to the benefit of Ezy-Fit.

40    Between February 2021 and September 2021, the FTM1000 was damaged by a collision that was caused by Ezy-Fit's own conduct: Ezy-Fit No 1 at [476]. As I indicated in my reasons, I considered the appropriate approach for the purposes of the loss of profits assessment was to assume the FTM1000 was actually operational during that period. That assumption reflects the principles that loss due to the third collision was not relevantly caused by the respondents, and Ezy-Fit should not benefit from its own loss-causing conduct: Ezy-Fit No 1 at [1075].

41    FAT HACO submitted that rather than the approach I had favoured in my reasons, it should be assumed in the hypothetical alternative machine scenario that between February and September 2021 the alternative machine earned no income, or alternatively that period should be removed from the damages assessment altogether. To do otherwise, according to FAT HACO, would result in a windfall gain to Ezy-Fit. It contended that given in the hypothetical alternative machine scenario 'all things remains the same', except the defect-free alternative machine exists in place of the FTM1000, the third collision would have also happened on the alternative machine.

42    At [1086] of Ezy-Fit No 1, I expressed the view that FAT HACO had not made it clear why the third collision would impact the use of an alternative machine. In the preceding paragraph, in the context of addressing FAT HACO's submissions as to mitigation generally, I referred to Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 at [218].

43    Although I accept that there may be different ways of assessing damages in such a scenario, I prefer and maintain the view that the third collision should not affect the hypothetical alternative machine scenario.

44    First, I consider Doppstadt provides persuasive guidance in this regard. In Doppstadt, the appellant supplied a timber shredder to a pair of respondent companies in circumstances the primary judge found amounted to misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). The respondents succeeded in a claim for lost profits by proving but for the contravention, they would have acquired and made greater profits from an alternative shredder. However, they failed to prove they had suffered capital loss in exchanging the original shredder for a newer shredder. The appellant also succeeded in proving that the respondents had failed to take reasonable steps to service, maintain and repair the original shredder, and so failed to mitigate their loss. In those circumstances, the primary judge reduced the respondents' loss of profits award by one third to reflect the failure to mitigate their loss. The Court of Appeal found that was an error. The respondents' failure to mitigate their loss with respect to the original shredder had no impact on the hypothetical loss of profits scenario involving an alternative shredder: at [218]. The failure to mitigate was relevant only to the capital loss limb of the respondents' damages claim, which for other reasons they failed to establish.

45    Although not expressly described as such, Ezy-Fit's concession that the third collision was its own responsibility may be considered a concession as to its failure to take reasonable steps to mitigate its loss. Whether that may alternatively be described as loss that is not relevantly caused by the respondents' contraventions makes no real difference: Ezy-Fit No 1 at [978]-[980]. Accordingly, the respondents are not liable for loss in the form of the cost to repair the machine as a result of the collision, nor the loss resulting from its downtime after the collision. However, Doppstadt is authority that failure to mitigate loss with respect to the actual FTM1000 has no inherent bearing on the hypothetical profit generated by an alternative machine.

46    Second, under s 236 of the ACL, Ezy-Fit is entitled to recover loss because of the respondents' contravening conduct. That gives rise to a prima facie entitlement to recover loss caused by the contravening conduct. It was the respondents' conduct that caused Ezy-Fit to forgo a hypothetical opportunity to earn profits on an alternative machine. There is no reason to assume that in the hypothetical world of that lost opportunity the third collision would have also occurred. There is no basis upon which it might properly be assumed to have been a probable outcome. To suggest that the same human error that resulted in the third collision would have occurred despite a myriad of different circumstances that would have played out in the hypothetical scenario rests on no more than speculation.

Issue 6 - should four days in 2019, two days in 2020 and four days in 2021 be recorded as no income for the actual FTM1000

47    Ezy-Fit submitted that a total of 10 days across various times should be recorded as no income for the actual FTM1000, since those were days on which documents in evidence prove the FTM1000 was not utilised due to defects and repairs. FAT HACO contended that Ezy-Fit have not proved this downtime was because of defects inherent in the FTM1000, so those dates should be recognised as ordinary maintenance or routine repairs days.

48    The submissions of both Ezy-Fit and FAT HACO focused on whether the apparent downtime was caused by the FTM1000's defects or not. Counsel for FAT HACO took me to the document on which Ezy-Fit rely, entitled 'HACO FAT - FTM 1000 Service History', which details problems recorded with the machine on particular dates and the corresponding lost working time on the machine (attachment MK 22 to Mr Klappers' second affidavit). FAT HACO submitted that the document itself, without evidence given by the experts, does not indicate the relevant downtime was caused by any defects.

49    In the end, whether or not the alleged periods of downtime were caused by defects is somewhat beside the point. What matters for the lost profits claim is whether downtime in the actual use of the FTM1000 constituted a failure by Ezy-Fit to take reasonable steps to mitigate its loss and so falls outside the respondents' liability for loss. I am satisfied that on the basis of the above document, in context with the overall evidence as to Ezy-Fit's difficulty operating the FTM1000, that those days reflect time in which the FTM1000 was not operating, whether because of defects or because of the need to carry out genuine maintenance.

50    The parties have apparently allowed for two days per year of general maintenance in the actual FTM1000 scenario. However, on the basis of the service history document referred to above, I am satisfied that the relevant days (four days in 2019, two days in 2020 and four days in 2021) indicate additional maintenance above and beyond general maintenance, such that they should be reflected in addition to the general maintenance already accounted for.

Further issue - 45 days to account for repairs to the FTM1000

51    Ezy-Fit raised this issue late. It was raised for the first time on 1 November 2024, despite a number of orders that were made to ensure that all matters were properly disclosed in advance. Nevertheless, FAT HACO was in a position to address it at the quantum hearing and I do not consider it was prejudiced by the late notice.

52    Ezy-Fit submitted that a total of 45 days, representing the cumulative time estimated to repair each individual defect of the FTM1000, should be assumed as no income days for the actual FTM1000 profit calculation, consistent with the reality that the FTM1000 would be unavailable while it is being repaired.

53    Counsel for FAT HACO submitted that an allowance for the time to repair the FTM1000 is already reflected in the six-month continuation of Ezy-Fit's loss of profits claim post-judgment, referred to at [1071] of Ezy-Fit No 1.

54    At [1071] I determined (in effect) that from 3 May 2024 Ezy-Fit was on notice that the FTM1000 could be repaired. Accordingly, the time period of its lost profits claim could not continue indefinitely but was to be curtailed on a specific date. I determined that the date was (in effect) 3 November 2024. This provided Ezy-Fit with a six-month window in which to have the machine notionally repaired. I said that the period represents the time after which a reasonable person in Ezy-Fit's position would have repaired the machine, such that after that period Ezy-Fit's lost opportunity claim ends.

55    I accept that the FTM1000 could not be utilised during days on which it was repaired, and so it would be artificial to assume that Ezy-Fit continued to earn profits from the actual machine during all of that period. Therefore, for the lost profits assessment up to and including 3 November 2024, it should be assumed that there were days when the actual FTM1000 was not operating.

56    The 45 days referred to by Ezy-Fit, however, is somewhat generous. It is calculated in effect by adding up the time estimates to repair each defect (see generally [564], [578], [610], [612], [637], [641], [668] and [681] of Ezy-Fit No 1). I agree with FAT HACO's submission that it is likely that some of the repairs represented in that 45 days could be done concurrently, and it does not follow that the machine would be out of action for 45 full operating days. Nor does it follow all repair work would be undertaken on days that were otherwise operating days. I think it is appropriate to reduce the number of assumed days to allow for such contingencies. I consider that the more appropriate allowance for downtime for repairs is 40 days.

Issue 7 - taking tax into account for lost profits

57    Ezy-Fit originally raised this issue and the quantum experts were therefore asked to address it. Prior to the quantum hearing Ezy-Fit in effect abandoned this aspect of their claim. FAT HACO seek an order that Ezy-Fit pay its cost of addressing all issues of taxation on damages. I accept this is an issue that can properly be considered in the context of costs, but all costs orders will be dealt with together once orders are otherwise made. Accordingly, this question of costs is reserved.

Issue 8 - discounting lost profits to 25 July 2017

58    A question addressed by the experts as to the further discounting of lost profits was resolved by the parties. The parties agree that no further discounting is required.

Issue 9 - pre-judgment interest on Ezy-Fit's loss of profits

59    This issue was resolved by the parties. The parties agree that Ezy-Fit is entitled to an award of pre-judgment interest on the loss of profits component of its damages pursuant to s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth).

Issue 10 - whether cost of rectification adjusted for inflation

60    At [985] of Ezy-Fit No 1 I estimated the rectification costs of the established defects at $193,200. In doing so, I said:

Rectification costs in the main can be estimated. I will adopt the highest estimate of costs provided for in Schedule B to FAT HACO's closing submissions because those estimates take into account input from Mr Hegmann, are referred to in the reasons above and best provide for contingencies inherent in the process of estimation.

61    Ezy-Fit submitted that because some of the evidence as to hourly rates was given in 2021, the $193,200 cost of rectification limb of its damages should be adjusted for inflation. It asserted that the consumer price index (CPI) has increased substantially since then and that the figure of $193,200 should be increased in line with the CPI to the date of judgment.

62    As I understand it, the core of Ezy-Fit's submission is that the figure of $193,200 is lower than the current costs of rectification. I am not persuaded that there is a reasonable basis upon which I should infer that to be so, and there was no application to adduce evidence that Ezy-Fit might have sought to rely on in this regard. However, and importantly, the figures that I determined (reflected at [985]) were estimates. I deliberately took a liberal approach to account for the possibility that rectification may be more complicated or time consuming than anticipated. I also generally allowed for higher rates than those proposed by FAT HACO: see, for example, Ezy-Fit No 1 at [564] in relation to the squareness issue; at [576]-[578] in relation to the B-Axis alignment issue; and at [609]-[610] in relation to the C-Axis home position. In my view, even taking into account inflation, there is a prospect that rectification as of November 2024 may cost less than $193,200. It may cost more. I am not dealing with invoices or quoted costs. I am satisfied in the circumstances of this case, and having regard to the assessment undertaken, that the appropriate relief is the sum as estimated.

63    Further, I have no evidential basis to increase the cost of rectification in line with the CPI. Ezy-Fit submitted that I could take CPI figures into account by way of judicial notice, referring to Woods v Multi-Sport Holdings Pty Ltd [2002] HCA 9; (2002) 208 CLR 460 at [69] (McHugh J), [168] (Callinan J). I accept that in some circumstances that may be appropriate. However, I have no evidence to suggest that the actual costs of undertaking the type of tasks involved in rectifying the FTM1000 have increased in line with the CPI, and nor am I convinced I can take judicial notice of such alleged fact.

64    Counsel for Ezy-Fit submitted that the fallback position may be an award of pre-judgment interest. Pre-judgment interest is intended to compensate an applicant for being kept out of money which they had a right to at a certain date: Haines v Bendall (1991) 172 CLR 60 at 66 (Mason CJ, Dawson, Toohey and Gaudron JJ). Ezy-Fit has not been kept out of money since the time of the evidence as to rectification costs. To suggest it should have received such funds for repairs in 2021 is inconsistent with its lost profits case and my finding in Ezy-Fit No 1 at [1071]. Accordingly, I do not consider an award of pre-judgment interest would be appropriate.

Apportionment

Apportionable claims

65    The parties agree Ezy-Fit's claim for breach of contract against Ron Mack is not apportionable, but Ezy-Fit's claim under s 18 of the ACL is an apportionable claim under Part VIA of the Competition and Consumer Act 2010 (Cth). The respondents agree that as concurrent wrongdoers under that Part, their individual liability is limited to an amount reflecting their relative responsibility for Ezy-Fit's loss, as expressed by s 87CD(1) of the Competition and Consumer Act:

(1)    in any proceedings involving an apportionable claim:

(a)    the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss; and

(b)    the court may give judgment against the defendant for not more than that amount.

66    Ezy-Fit and Ron Mack's position is that Ron Mack should be apportioned a 'nominal' proportion or 1% of the liability. FAT HACO's position is that Ron Mack should be apportioned at least 50% of the liability. Unsurprisingly, Ron Mack and FAT HACO were the parties that provided the substantive submissions on apportionment.

A preliminary matter

67    For convenience, I note that the issues relating to whether both or either Ron Mack and FAT HACO made the various misleading representations are addressed at [758]-[771] and [860]-[872] of Ezy-Fit No 1.

Findings

68    I found at [860] of Ezy-Fit No 1 that FAT HACO relevantly represented that the FTM1000:

(a)    could operate with high precision on all axes;

(b)    could undertake complicated milling, drilling and tapping operations; and

(c)    could undertake complicated contour milling during slow rotation of the spindle.

69    I found at [861]-[863] that the representations were misleading and that FAT HACO engaged in misleading or deceptive conduct.

70    I found at [872] that Ron Mack also made those representations and so engaged in misleading or deceptive conduct.

Principles

71    The parties were largely agreed as to the relevant principles, the dispute being in their application.

72    In Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492 at 493-494 the High Court stated the following (quoting from British Fame (Owners) v Macgregor (Owners) [1943] AC 197 at 201):

A finding on a question of apportionment is a finding upon a 'question, not of principle or of positive findings of fact or law, but of proportion, of balance and relative emphasis, and of weighing different considerations. It involves an individual choice or discretion, as to which there may well be difference of opinion by different minds'.

73    In Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 the High Court, dealing with apportionment under the Civil Liability Act 2002 (NSW), said at [57]:

If a finding of causation is made with respect to other wrongdoers, so that a defendant is a concurrent wrongdoer within the meaning of s 34(2), s 35(1) then requires the court to determine the extent of the defendant's responsibility. The value judgements involved in that exercise differ from, and are more extensive than, those which inform the question of causation.

74    It is also accepted that general principles of apportionment may inform the exercise required under provisions such as s 87CD: Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187; (2008) 82 NSWLR 762 at [51] (Barrett J); and see also the apportionment undertaken in McBride v Christie's Australia Pty Ltd [2014] NSWSC 1729 at [462]-[468] (Bergin CJ in Eq).

75    As summarised by Ward CJ in Eq in Stav Investments Pty Ltd v Taylor; LK Group Investments Pty Ltd v Taylor [2022] NSWSC 208 at [548] (and not disturbed on appeal):

Where an apportionable claim exists, and concurrent wrongdoers have been identified, the task of the court in apportioning liability will be guided by consideration of blameworthiness, causative potency, any benefits or profits obtained by one concurrent wrongdoer, the task the wrongdoer is required to perform, and the degree of departure from the requisite standard of care (Reinhold v New South Wales Lotteries Corp (No 2) (2008) 82 NSWLR 762; [2008] NSWSC 187 at [50] and [61]; Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390 at [3] (which was overturned by the High Court, although not on this point)).

Ron Mack's position

76    Having regard to those principles, Ron Mack advanced the following submissions:

(a)    Ron Mack was not the author, did not meaningfully alter or embellish, and did not present in a different context, the representations found to be misleading or deceptive;

(b)    as the FTM1000 was a bespoke machine manufactured by FAT HACO, only FAT HACO had the capacity to make good the representations that were conveyed to Ezy-Fit in respect of the machine;

(c)    Ron Mack had no reason to believe that FAT HACO would not follow through with the representations, or that it should qualify those representations in any way. FAT HACO provided information to Ron Mack knowing and intending that Ron Mack would pass on the information to Ezy-Fit without qualification, and had FAT HACO known any specific purpose to which Ezy-Fit intended to put the machine, FAT HACO would not have modified or changed that information. There was no evidence that FAT HACO had ever, during its relationship with Ron Mack dating back to at least 2007, given Ron Mack any reason to doubt the accuracy of representations passed on by FAT HACO; and

(d)    only FAT HACO has the technical capacity to carry out rectifications on the machine.

FAT HACO's position

77    FATO HACO advanced its position as follows:

(a)    because FAT HACO and Ron Mack have liability to Ezy-Fit for the same conduct, the starting point for apportionment should be 50-50 between them;

(b)    Ron Mack played an integral role in negotiating the contract and making the contravening representations, and did not merely pass on information. It played an active role and did so for its own commercial benefit. Ron Mack, not FAT HACO, was aware of Ezy-Fit's intended use of the machine, and the Court should not infer that it would have made no difference if FAT HACO had been aware of Ezy-Fit's intended use;

(c)    Ron Mack had sufficient knowledge and experience to advise Ezy-Fit about the capabilities of the FTM1000. The contract between Ezy-Fit and Ron Mack contemplated Ron Mack having expertise with the machine, because Ron Mack was responsible for the machine during the commissioning and warranty period. Further, Ron Mack did not need special familiarity with the FTM1000 to advise Ezy-Fit on the content of the relevant representations because the representations were general and non-technical;

(d)    Ron Mack had responsibility for rectification of the FTM1000 and could have done so. Commissioning and repair during the warranty period were Ron Mack's responsibility under the contract, and Ron Mack did in fact attend rectification visits and made small repairs to the FTM1000; and

(e)    Ron Mack has retained proportionally more benefits from its contravention than FAT HACO because Ron Mack as a dealer received a significant mark-up for the sale of the machine without the need to design and manufacture it, and because Ron Mack chose to not contest the substance of these proceedings.

Consideration

78    It is just in the circumstances of this case that FAT HACO bear a substantially greater responsibility than Ron Mack for Ezy-Fit's loss. Critically, FAT HACO designed and manufactured the FTM1000. FAT HACO was the party with the capacity to ensure the machine was delivered to Ezy-Fit consistent with the representations made about it, and so best positioned to prevent Ezy-Fit's loss from occurring: Yates v Mobile Marine Repairs Pty Ltd [2007] NSWSC 1463 at [97] (Palmer J).

79    It is also significant that the content of the contravening representations emanated from FAT HACO. Although, as I found at [168] and [870] of Ezy-Fit No 1, Ron Mack revised documents provided by FAT HACO before providing them to Ezy-Fit, Ron Mack did not change or embellish the content of the representations (at [776]). I accept that Ron Mack adopted those representations for its own commercial benefit. But I also accept, in the absence of any evidence from Ron Mack, that objectively Ron Mack had no reason to believe that FAT HACO would deliver to Ezy-Fit a machine that functioned inconsistently with those representations, given the apparent lengthy business relationship between them (I referred at [239] to the evidence of Mr Ostrowski about the business relationship between FAT HACO and Ron Mack).

80    I reject FAT HACO's submission that I should start with the position that each party bears 50% of the responsibility for Ezy-Fit's loss. That is not consistent with s 87CD(1), which, as explained in the excerpt from Hunt & Hunt above, requires the Court to assess responsibility by way of value judgements. It does not call for any such assumption about a starting point.

81    I do not consider that I am in a position to evaluate the relative financial or other benefits accrued by Ron Mack and FAT HACO respectively as a result of the contravening conduct. Whilst there is no doubt that under the sale contract between Ron Mack and Ezy-Fit, Ron Mack charged Ezy-Fit more than the price Ron Mack paid to FAT HACO and so received a significant payment without incurring the cost of providing the FTM1000, it is not possible to ascertain the extent to which FAT HACO benefited from the transaction. I do not know the cost to design and manufacture the machine, the cost of the commissioning and rectification visits to Australia, or other costs incurred by FAT HACO associated with its supply of the FTM1000. I accept, however, for the purpose of this exercise, that Ron Mack benefited from entering into the contract with Ezy-Fit.

82    I also take into account that unlike FAT HACO, Ron Mack knew of the immediate particular purpose for which Ezy-Fit required the FTM1000 at the time of the contract (see findings in Ezy-Fit No 1, including those at [301], [303], [325] and [327]). This indicates the level of involvement and engagement between Ron Mack and Ezy-Fit in relation to the acquisition of the FTM1000. However, whilst it is surprising that Ron Mack (through Mr Walker) did not pass this information on to FAT HACO at the relevant time, I am not able to conclude that had there been such disclosure FAT HACO would have acted any differently or that there would have been any different result in terms of the misleading conduct.

83    However, there are other circumstances that indicate Ron Mack should properly assume responsibility for Ezy-Fit's loss beyond the notional or nominal proportion that it suggests.

84    I reject the contention that Ron Mack merely passed on information to Ezy-Fit. As I found at [263] and [870], Ron Mack did not simply pass on information from FAT HACO to Ezy-Fit. Mr Walker of Ron Mack assessed the information, addressed it with Ezy-Fit, occasionally asked questions of FAT HACO on behalf of Ezy-Fit, and sought to adopt that information for Ron Mack's own commercial benefit. I note specific examples in the evidence to such effect at [263]. Ron Mack had proximity to Ezy-Fit and knowledge of its business and expectations. That arrangement warrants the attribution of some responsibility to Ron Mack.

85    Nor do I accept that FAT HACO was the only party with the ability to rectify the FTM1000 once it had already been delivered to Ezy-Fit. As counsel for FAT HACO submitted, it was Ron Mack's responsibility under the contract to both commission the FTM1000 and uphold its warranty. It was contemplated that Ron Mack had the technical expertise to maintain the machine. While in practice FAT HACO did the majority of the commissioning and rectification work, as FAT HACO submitted it was well within the authority and interests of Ron Mack to at any time organise comprehensive third-party repairs to the machine.

86    I am required to in effect make a value judgement, weighing the different considerations. Taking into account all of the circumstances, I consider the just result is that FAT HACO bear 85% of the liability for Ezy-Fit's loss, and Ron Mack bear 15%.

Pleading issue and cross-claim

87    Two further matters will need to be addressed in the final orders.

88    First, Ezy-Fit's further amended statement of claim pleads that relevant representations which were found to be misleading or deceptive were made by FAT HACO or in the alternative Ron Mack. This aspect of the pleading was referred to in Ezy-Fit No 1 at [873] and Ezy-Fit has been on notice of the issue since (at least) reasons were delivered. At the quantum hearing senior counsel for Ezy-Fit appeared to accept on the basis of the pleading that an election will be required.

89    Second, as a final point, I note that FAT HACO filed a cross-claim against Ron Mack, although no submissions were made on it at trial or at the quantum hearing. I assume the cross-claim is not pursued in light of the finding as to apportionment, and so the cross-claim is to be dismissed.

Draft orders

90    At the quantum hearing I indicated that I would publish these reasons and fix a date for orders to be made, so that the parties can confer as to quantification issues based on that fixed date.

91    I propose to make final orders (save for costs, unless agreed) on 9 December 2024. The parties should provide a minute of proposed orders prior to that date that give effect to these reasons together with those in Ezy-Fit No 1.

Associate:

Dated:    27 November 2024