Supreme Court New South Wales

• Medium Neutral Citation: Johnson Controls v Webb [2013] NSWSC 1511
• Hearing dates: 26/08/2013, 27/08/2013, 29/08/2013, 03/09/2013, 04/09/2013 and 05/09/2013
• Decision date: 17 October 2013
• Jurisdiction: Equity Division - Technology and Construction List
• Before: McDougall J

Decision

Plaintiff fails against first defendant but succeeds against second and third defendants. As between second and third defendants, the whole of the loss is apportioned to the latter. Plaintiff to bring in draft orders.

• Catchwords: CONTRACTS - formation - acceptance - acceptance by conductCONTRACTS - breach of contract - where consultant engaged to obtain and review tenders to supply an electric generator to work in synchronisation with two existing generators - where generator supplied incompatible with existing generators - where consultant required tenderers to comply with performance specifications - whether consultant required to verify or audit compliance with performance specificationsCONTRACTS - breach of contract - where tenderer supplied an electric generator to work in synchronisation with two existing generators - where generator supplied incompatible with existing generators - whether compliance with tender performance specifications a term of the contractCONTRACTS - interpretation - meaning of phrase "performance specification"MISLEADING OR DECEPTIVE CONDUCT - misrepresentations - where successful tenderer retained to supply an electric generator to work in synchronisation with two existing generators - where successful tenderer asked manufacturer to identify the winding pitch of the existing generators - where manufacturer supplied incorrect winding pitch - where generator subsequently supplied incompatible with existing generators due to inconsistent winding pitches DAMAGES - action for damages - misleading or deceptive conduct - reliance - requirement of causation - requirement to consider the policy or rationale of the relevant legal normDAMAGES - assessment - apportionment
• Legislation Cited: Civil Liability Act 2002 (NSW); Sale of Goods Act 1923 (NSW); Trade Practices Act 1974 (Cth)
• Cases Cited: Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568; Azzi v Volvo Cars Australia Pty Ltd [2007] NSWSC 319; Chappell v Hart (1998) 195 CLR 232; Digi-Tech (Australia) Limited v Brand (2004) 62 IPR; Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410; Gates v City Mutual Life Assurance Limited (1986) 160 CLR 1; Hampic v Adams [1999] NSWCA 455; Henville v Walker (2001) 206 CLR 459; Ingot Capital Investment Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526; Marks v GIO Australia Holdings Limited (1998) 196 CLR 494; Mitchell Morgan Nominees Pty Ltd v Vella (2011) 16 BPR 30,189; Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492; Travel Compensation Fund v Tambree (2005) 224 CLR 627
• Category: Principal judgment
• Parties: Johnson Controls Australia Pty Limited (Plaintiff); Webb Australia Group (NSW) Pty Limited (First Defendant); Energy Power Systems Australia Pty Ltd (Second Defendant); Cummins Generator Technologies Germany GmbH (Third Defendant)
• Representation: Counsel: I D Faulkner SC / A J McInerney SC (Plaintiff); M R Elliott (First Defendant); JAN Hogan-Doran / B J Lloyd (Second Defendant); M Christie SC / H Pintos-Lopez (Third Defendant); Solicitors: Carneys Lawyers (Plaintiff); McCabes Lawyers (First Defendant); Winter Hilditch & Fotheringham Lawyers (Second Defendant); Cummins (Third Defendant)
• File Number(s): 2009/298865

Judgment

1 HIS HONOUR: IBM Australia (IBM) operates a Data Processing Centre (DPC) at Baulkham Hills. Continuity of electrical power supply is essential to IBM's data processing operations. Thus, the DPC is served by emergency, or backup, electricity generators.

2 In about August 2005, IBM gave consideration to augmenting the emergency power supply. Ultimately, it decided to install a third "generator set". The parties to these proceedings were involved, in different capacities and to different degrees, in the execution of that project.

3 The new generator set that was installed was completely unsuitable for its task, because the alternator (which is what actually generates electrical current) was not capable of working safely in parallel with the existing generators (as it was required to do). Rectification work was carried out, at a cost, net of GST, of a little under $988,000.00.

4 The essential question for decision in these proceedings is: who, among the parties, should bear that cost; and if more than one, in what proportions?

The parties and their respective roles

5 The plaintiff (Johnson; frequently referred to in documents as "JCI") acted as project manager and head contractor. Its responsibility was to deliver the completed project to IBM. Johnson entered into contracts relating to the project, paid the contractors, and was reimbursed by IBM with a 7.5% fee on the cost of the works.

6 Johnson engaged the first defendant (Webb) as a consultant. In broad outline, Webb's responsibilities were to prepare a specification for the works and, once the works had been put out to tender and responses had been received, to advise Johnson on the tenders. There is a dispute between Johnson and Webb as to the extent of Webb's obligations in respect of each of those activities.

7 The second defendant (EPSA) carries on a business that includes, among other things, the supply of generator sets for commercial purposes. It was one of the companies that responded to the tender. Ultimately, Johnson accepted a revised proposal submitted by EPSA, and engaged EPSA to supply and install the generator set.

8 The third defendant (Cummins Germany) is a German corporation. Under German law, Cummins Germany is the successor to, and responsible for the acts, omissions and liabilities of, a company referred to in these proceedings (and in these reasons) as AVK. AVK had supplied the alternators that formed part of the existing emergency power supply system. It was asked to provide a quotation to supply another alternator, to be used in the additional generator set. In doing so, AVK provided information as to the technical characteristics or features of the alternator that it proposed to supply. One of those characteristics was the "winding pitch ratio", often called "winding pitch" or "pitch".

9 It is common ground between the parties, and apparently was notorious among electrical engineers and suppliers of electrical generating equipment, that if alternators are to work in parallel with their neutral terminals interconnected (to jump ahead for a moment, that is what the specification required), then, among other things, they must have the same winding pitch.

The real issues in dispute

10 The parties produced a statement of the real issues in dispute. That statement is lengthy and repetitive. For that reason, and because the parties' submissions did not address directly the issues thus defined, I will not set it out. Instead, I will deal with the issues arising between each party in respect of the claims made by or against it. Before turning to the particular claims, I will set out what I hope is a sufficient explanation of some of the technical terms that must be understood, and then turn to the facts.

Some technical points

11 A generator set is a package of machinery that produces electrical current. In essence, it comprises four principal elements:

(1) a motor (usually, and in this case, a diesel engine);

(2) an alternator, which when driven by the motor will produce alternating current;

(3) a cooling system; and

(4) a control system.

12 In very simple outline, an alternator is a machine that enables coils of copper wire to be rotated through a magnetic field. That requires two fundamental components: a rotor and a stator. As their names suggest, the rotor turns (driven by the diesel engine) whereas the stator is fixed.

13 One way of constructing an alternator is to have the rotor, comprising magnets, set inside the stator, which is wound with copper wire. The rotor may then be rotated within the stator. The result will be the production of electrical current.

14 The stator has a number of "winding slots" to enable the copper wire to be wound onto it. For example, looking at a stator in cross-section, there may be 48 such slots in all. Where the alternator is a four pole alternator (because the rotor magnets have two north poles and two south poles), there will be (on my example) 12 winding slots per pole.

15 The winding pitch ratio is the ratio between the number of winding slots enclosed by each coil in the stator to the number of winding slots per pole. Sticking with the example I have given, if each coil spans ten slots, the ratio is 10/12, or 5/6. By contrast, if the coil spans 8 slots, the ratio will be 8/12, or 2/3.

16 It appears to be an inherent characteristic of alternators that they produce some voltage distortions because, as well as the fundamental voltage output, they produce harmonic voltages. These can have detrimental effects, depending on the use to which the alternator is put.

17 Third order harmonics are apparently a particular problem where alternators are to be operated in parallel with their neutral terminals interconnected. One advantage of an alternator having a 2/3 winding pitch is that the design eliminates third order harmonics.

18 Returning to the case at hand: the DPC had two banks of emergency power generators. One bank served the data processing operations. The other served the building's mechanical services. It was the former that IBM wished to augment. It comprised two generator sets, each of which included an alternator with a 13/15 winding pitch.

19 The additional generator set that was supplied and installed included an alternator with a 2/3 winding pitch. When the system was tested, dangerously high temperatures were experienced, in particular in the control panel. This was found to be the result of large circulating currents passing between the two existing generator sets (which produced third harmonic voltages) and the new generator set (which did not).

20 A decision was taken to remove the alternators from the existing generator sets and replace them with new alternators having a 2/3 winding pitch. Thus, the problems of third harmonic voltages and circulating currents were resolved.

Johnson retains Webb

21 Johnson had had a pre-existing relationship with IBM. In late 2005, representatives of IBM and Johnson started to discuss options for upgrading the emergency power supply for IBM's data processing operations. Webb, in the person of Mr Ken Heard, became involved at an early stage of these discussions. In early November 2005, Webb was asked to submit a fee proposal for its consultancy services.

22 On 9 November 2005, Mr Heard sent an email to Mr Paul Buttifant of Johnson, seeking clarification of the extent of the works for which Webb was to quote. Mr Buttifant provided that email to Mr Greg D'Arcy of IBM. Mr D'Arcy replied, adding his comments to Mr Heard's request for information. Mr Buttifant in turn passed that material on to Mr Heard, on 10 November 2005.

23 I set out the content of the email, including Mr D'Arcy's comments. Those comments were printed in red on the original. They are shown in italic script in what follows:

Further to our discussions yesterday, I've spoken with my Standby Generation Engineer, who was the original designer for the Cathay Pacific project and he has time available between now and the (5/12/05), in which we could assemble a document for the calling of tenders.

So that I can submit a fee on the works, can you firstly clarify if the extent of works is to include:-

1) Design and documentation for the addition of the 3rd machine (1875kVA) in Group (1)

Check that the D&D includes

1 - a performance specification of the Gen Set

2 - all the electrical and mechanical aux plant and controls

eg: pumps, controls, cooling water, Cooling towers, CT Chemical dosing pumps, BMS (note this has changed since the original install might need a site visit)

Fuel day tanks, installation methods, starting equipment, any upgrades to existing gen sets for paralleling, existing system hencements ie; removal of single points of failure items.

2) Review of tenders

3) Supervision if the works, with JCI as Project Managers

4) Testing and Commissioning - Witnessing

For single unit and System

Defects

5) Review of Workshop drawings

6) Review of as-built drawings and O & M Manuals

24 Webb submitted its fee proposal in a letter dated 11 November 2005. It comprised a letter of that date and a "Manhour Allocation".

25 Omitting formal parts, the letter commenced:

Further to your e-mail request of 10 November, 2005 [i.e., the email that Mr Buttifant sent to Mr Heard that forwarded Mr Heard's email of 9 November 2005 annotated by Mr D'Arcy's comments], Webb have reviewed the requirements for the above project and believe the Scope and Services you require to be as follows:-

26 There then followed some six sections, A to F. I set out the heading of each of those sections, and so much of each section as the parties referred to:

A. SCOPE

▪ Addition of 3rd Standby Generator in Group (1) at BHDC

...

▪ Integration into existing arrangement of (2) machines

...

B. SERVICE

...

▪ Obtaining existing as-built material

...

▪ Preparation of Documents suitable for the calling of Tenders

...

▪ Assistance with review of Tenders

...

C. PERSONNEL

Design and Documentation would be produced under the supervision of Mr Ken Heard (Senior Engineer) and original Electrical Designer for the site, with specific input from the original Standby Generator designer, Mr Rod Hoddinett

D. PROGRAMME

...

E. FEE

...

F. CONDITIONS

a) Only the Technical component of the Tender will be provided, with all contractual conditions supplied by JCI (Johnson Controls)

b) Webb assume the JCI Supply Partners Agreement will apply to our consultancy arrangement

...

d) Webb assume JCI will be the appointed Project Managers for the project

...

27 The manhour assessment set out an estimate of the number of hours of work required for the tasks of Site Review, Document Preparation, Meetings, Construction Activities and Other (activities or expenses). The allocation included two hours for obtaining as-built records, sixteen hours for preparing the specification and eight hours for reviewing tender submissions.

28 It is uncontentious that, at the time Webb submitted its quotation, Johnson had a standard form of "Supply Partner's Agreement". Johnson placed emphasis on clauses 6.1 and 7.1, the former being a warranty and the latter being an indemnity. I set them out:

6.1 The Services shall be performed by appropriately qualified and trained personnel with all due care, skill and diligence and to the highest standard of quality as it is reasonable for Johnson Controls to expect and with due consideration of all international quality standards.

...

7.1 The Supply Partner shall indemnify Johnson Controls in full against all or any loss damage costs and expenses of whatsoever nature incurred or suffered by Johnson Controls or by any third party whether direct or consequential (including but without limitation to economic loss or other loss of turnover profits business or goodwill) awarded against incurred or paid by Johnson Controls as a result of the negligent act or omission of the Supply Partner or the breach by the Supply Partner of this Agreement.

29 The expression "Services" was defined to mean "the services details of which are set out in Schedule 1". Schedule 1 in turn referred to "the Specification and/or Assignment Instructions issued by Johnson Controls from time to time and other such documentation that may be issued... and/or developed... defining our requirement".

30 It is clear that the draft, or pro forma, supply partner's agreement required significant information to be provided to make it complete: for example, the specification, the schedule of prices, information as to measurement of performance, and (if applicable) a "Risk and Reward Mechanism".

31 Johnson issued its purchase order to Webb on 20 December 2005. That purchase order comprised a number of headed columns. Under the heading "part no/description" the following appeared:

As per quote dated 11/11/05

Design and documentation of additional standby generator (3rd) in Group 1.

32 Group 1 was the bank of generators that provided emergency, or standby, power for the data processing operations.

33 The purchase order was for the amount quoted by Webb.

34 Although the face of the purchase order gave no indication of it, there were "terms and conditions of purchase" endorsed on the reverse. There was no reference made in the purchase order, or so far as the evidence shows elsewhere, to the assumption expressed by Webb in its quote that the terms of the supply partner's agreement would apply.

The specification

35 Mr Heard left Webb at the end of February 2006, and Mr Fred Bowers took over the project. By the time Mr Bowers became involved, Mr Heard and a Mr Rod Hoddinett had prepared a draft specification. Mr Bowers reviewed it and was satisfied with it. He then (presumably in consultation with Johnson and perhaps IBM) put it out to tender.

36 The specification is a lengthy document. It is divided into a number of sections. I set out the principal provisions on which, in the course of submissions, the parties placed reliance:

1. SCOPE

1.1 PREAMBLE

Throughout this specification reference is made to existing EPP equipment. Tenderers should offer equipment matching the existing equipment in performance and characteristics and in particular the engine, generator, control panel components and cooling tower.

1.1.1 General

...

Note 4: The following terms shall have the meanings assign to them hereunder:

Approved: Means approved or selected by Project Manager. Approval by the Project Manager of drawings, samples, prototypes, workmanship methods, or other matters in respect of the works in no way relieves the Contractor of responsibility in respect of the works or contract. All equipment offered in the Contract shall comply with the requirements of the Specification. If equipment is offered as complying with the Specification and at a later date this is found not to be so then the particular item of equipment will be rejected and shall be replaced with complying equipment at no additional cost.

...

Shall: Means to be understood as mandatory

Equipment capacities/functions shall be as scheduled and to specification requirements. The Emergency Power Plant Contractor shall clearly indicate where the equipment offered differs to that specified and/or clearly indicate basis for rating and model/type number (see also Schedule 12 Departure from the Specification).

Tenderers are encouraged to offer other manufactures equipment providing it complies with specification and performance of the existing equipment.

All equipment offered in the tender shall comply with the requirements of the Specification. If equipment is offered as complying with the Specification and at a later date this is found not to be so then the particular item of equipment will be rejected and shall be replaced with complying equipment at no additional cost.

1.2 BACKGROUND

The specification provides the supply and installation of an additional 1875 kVA (minimum) diesel engine driven generating set (No 3) to Plant Room 1 and to be able to synchronise and load share with the existing two (2) sets.

The development of the Emergency Power Plant (EPP) for BHDC Plantroom 1 Project to the ultimate design configuration, will comprise three (3) diesel generating set, in parallel operation, supplying a Emergency Power Plant (EPP) diesel generation switchboard to support major loads.

It shall be noted that it is obligatory that a failure of a component, including auxiliaries, for the new set shall not affect the operation of the other existing set/s. To achieve this obligatory requirement each set shall be treated completely as separate items, including control systems, except for synchronising, parallel operation and load sharing. In the event of any set failing when in synchronised mode the remaining configuration control system shall shed load should the total load reach 80% of that configuration.

1.3 EXTENT OF WORK

Note:

a) The operation of the Data Centre and the availability of the existing and new Emergency Power Plant to provide emergency supply to the UPS systems and associated plant is of paramount importance. During the installation of the 3rd Set and connection of fuel lines, compressed air, cooling water and electrical components etc to the existing equipment/facilities for the sets 1 & 2, the "down time" when sets 1 & 2 would be unavailable must be kept to a minimum.

...

b) The scope of new work covered by this specification shall comprise the work associated with the building and shall include all works and materials:

i) Specified and as shown on the drawings,

ii) Necessary for the satisfactory completion and operation of the Works,

iii) Generally provided in accordance with accepted trade practice.

The design, manufacture, testing at works, delivery, installation, site testing commissioning, warranty and maintenance of one (1) 1500rpm, 1875kVA (minimum) at 0.8Pf (Continuous Rated at site conditions) diesel generating set to be located in existing Plant Room No.1 with the two (2) existing identically rated sets.

...

In accepting this contract, the Emergency Power Plant (EPP) Contractor shall accept responsibility for the detailed design of the complete system. The complete design shall be to the satisfaction of Project Manager.

...

2. SYSTEM PARAMETERS

...

2.2 SYSTEM DESCRIPTION

Note: Throughout this specification reference is made to existing EPP equipment. Tenderers should offer equipment matching the existing equipment in performance and characteristics and in particular the engine, generator, control panel components and cooling tower.

The additional 3rd set shall be part of the Emergency Power Plant (EPP) diesel generation installation intended to provide emergency power supply to selected equipment within the building, including:

...

2.3 SUMMARY OF PERFORMANCE

This set shall be capable of automatic "ramp-up" starting upon mains failure and of accepting a minimum 50% full load in one stage within twenty (20) seconds of firing. However, it is envisaged the remaining load shall be progressive over 60 second period.

...

The set shall be capable of single operation with isochronous speed and voltage control and be capable of being parallelled with existing sets with power and VAR sharing.

...

Provide the design of the dynamic system comprising engine and generator and verify by calculation or measurement, that the vibration stresses in the crank and rotor shafts resulting from torsional critical speeds are not excessive under the varying load conditions which may arise and in particular, the impositions of 50% load in one step.

...

Tenderers should offer equipment matching the existing equipment in performance and characteristics.

...

The generator performance shall match the existing generator (AVK) in performance and characteristics.:

[there followed a list of performance and other characteristics that the new generator was to match.]

...

Parallelling To be suitable for parallelling with other similar machines with neutrals interconnecting and earthed.

...

The electrical performance criteria for these two modes of operation, is as detailed hereunder. It should be noted that in these modes, the load normally connected to the UPS output is the only load proposed to be connected to the EPP Generating System.

[There were further requirements to be listed]

...

The additional electrical performance criteria in the above is detailed hereunder.

...

Generator Output (Steady State)

[a list of performance criteria followed]

...

Generator Output (Transient Response)

[a further list of performance criteria followed]

...

3. DIESEL GENERATION EQUIPMENT

...

3.2 GENERATOR (SEE ALSO CLAUSE/S 1.1 & 2.3)

(Tenderers should offer equipment matching the existing equipment in performance and characteristics ie AVK)

...

37 The requirement, expressed in various ways, that equipment should match the existing equipment and performance and characteristics was repeated, according to one witness, 22 times throughout the specification.

38 The specification included schedules that the tenderer was required to complete. Schedule 1 was headed "specified equipment". It included, in bold, the wellworn sentence:

Tenderers should offer equipment identical in performance and characteristics to the existing equipment.

39 Schedule 10 required the tenderer to insert "technical information", providing technical details of the new engine and new "generator". One of the matters required to be specified, in relation to the new generator, was the winding pitch ratio.

EPSA's inquires of AVK

40 EPSA was one of the parties to whom the tender documents were issued. However, it had become involved before those documents were issued, and began the process of preparing to submit a proposal.

41 On 23 January 2006, Mr Derek Morley of EPSA sent an email to Mr Eberhard Vogler of AVK in Germany. The email was copied to AVK's representative in Australia, Mr Theo Dragonas.

42 Leaving aside irrelevant matters, the email stated (and I adopt, without further comment, Mr Morley's idiosyncratic mode of punctuation and expression):

I need an updated cost on a unit to run in parallel with existing units, existing serial number 6817182A004 ETAL REFERS, THESE WERE 1875KVA UNITS I THINK.

Looking for unit to be here in August this year..... any problem.

43 It appeared at the end to be common ground, and in any event I conclude, that "ETAL" was intended to be the abbreviation "et al", or "et alia". Clearly enough, reading the email in context (which included a reference to the building as it was known when AVK had supplied the existing alternators), Mr Morley intended to convey that there were several alternators; that the serial number of one of them was the number that he stated; and that they had, he thought, the power rating that he indicated.

44 Mr Vogler forwarded Mr Morley's email to Ms Maja Spies of AVK in Germany on 23 January 2006. Ms Spies was described as a Sales Engineer, and her name is prefixed with the words "Dipl.-Ing", which I take to signify some formal engineering qualification.

45 Ms Spies referred to Mr Morley's email on 24 January 2006. After thanking him for his inquiry, she said:

Should the new unit be the same as existing alternator with D.M. series number?

46 Mr Morley said that he understood the phrase "D.M. series number" to mean "[t]he declared manufacturing serial number"; that is to say, for example, 6817182A004 (T116.11-15).

47 Mr Morley replied to Ms Spies' email on 25 January 2006. He said:

There [sic] want to stay with AVK

What are the options

The important point is the new unit will run in parallel with two of the existing units (the other two existing units stand alone in parallel)

do we need to match pitch

here is a scan or [sic; obviously "of"] the draft spec for the job webb brief spec.pdf

What, if anything is wrong with it for a new unit to match in with the old.

Could there be any upgrades to AVR's [automatic voltage regulators] on the old sets that would be beneficial.

48 Mr Morley was well aware, as was everyone else involved with this project (including, I infer, Ms Spies and Mr Vogler), that if the new alternator was to form part of a generator set that could operate in parallel with the existing generator sets, it was essential, among other things, "to match pitch". He gave this evidence on that question (T115.24-116.2):

CHRISTIE

Q. And then you pose what appears to be a question, "Do we need to match pitch"?

A. Yes.

Q. Now was that a question that you knew the answer to before you posed it?

A. It certainly was.

Q. "It certainly was"?

A. Yes.

Q. Then why did you ask it?

A. I did not know Maja. I didn't know her background. This is the first time I'd ever dealt with her and I was making certain, tongueincheek, that she went off and made certain that she understood that pitch was important.

Q. And so this is a serious enquiry and you tell his Honour that you are adding questions tongueincheek for the reason you just gave?

A. Well, I clearly said before that we needed an updated cost, "They're going to run in parallel with the existing units". We need an updated cost for a unit to run in parallel to the existing units to Eberhard Vogler. He passes the enquiry to a lady I have never met before. I am asking her over a two or three days' period, I think, or maybe no, a two or three days' period just making certain that she understands what's going on.

Q. And you weren't sure if she understood what was going on, did you?

A. I don't know. I mean I've read Maja's one beforehand. "Many thanks for your enquiry. Should the new unit be the same as the existing alternator?"

49 I have a little difficulty in accepting that a person in Mr Morley's position, with his knowledge and experience (including his understanding of the importance of matching pitch) would ask such a question "tongue in cheek". However, I think, what Mr Morley was trying to say was that he was a little perturbed by Ms Spies' question to which he referred, and was, in effect, making sure, as he said, "that she understood that pitch was important".

50 Mr Morley received no reply for some time. He followed up his inquiry with an email to Ms Spies sent on 31 January 2006.

51 Mr Dragonas became involved. On 22 February 2006 he sent an email to Ms Spies and Mr Vogler, trying to hurry things up. That email was copied to Mr Zaki Slgini of AVK. He was apparently senior to Mr Vogler and Ms Spies in AVK.

52 On 27 February 2006, Mr Morley sent his own email to Mr Slgini. It said:

Could you please let me know what the problem is in obtaining the offer fro Eberhard and Maja

The consultant is about to issue the spec and we need to know what the options are and what you suggest is the best approach.

53 That chain of emails appears to have provoked some action. On 28 February 2006, Ms Spies sent an email attaching an offer. Significantly, her email was headed, as was the offer:

Repeat of our previous order - no. 68 17 182 A004

54 It is clear from this that Ms Spies intended to offer, or thought that she was offering, to supply the same kind of alternator, or an equivalent, as had been supplied in fulfilment of the earlier order.

55 I note, at this stage, that it was common ground among the experts that, if one wished to ascertain the winding pitch ratio of an alternator, one way to do so was to contact the manufacturer and give the serial number of the alternator. The experts agreed that it was customary for manufacturers to keep detailed records, and to provide the winding pitch ratio if asked to do so. In fact, that happened in this case once it became clear that the new generator set was not capable of working satisfactorily and safely in parallel with the existing generator sets.

56 The offer quoted for the supply of:

1 each "AvK"-synchronous three phase alternators [sic], acc. to detailed technical specification attached".

57 The quoted price was €44,500.00. The delivery date was said to be "week 13, 2007 ex our works if receipt of your techn. and commercially clear order latest till 13.03.06".

58 The letter of offer was signed by Mr Vogler as "Key Account Manager" and by Ms Spies as "Sales Engineer".

59 A technical specification was attached. It set out a number of technical features of the proposed alternator. One section of that specification had a sub-heading:

Electrical data and characteristics

60 Under that heading the following was stated:

Parallel operation: Alternator suitable for parallel operation with other alternators.

61 Mr Christie of Senior Counsel, who appeared with Mr Pintos-Lopez of Counsel for AVK, submitted that this statement was correct, because the alternator was indeed capable of parallel operation with other alternators; and the correctness of the statement was not undermined by the unfortunate fact that the alternator was not capable of parallel operation with the existing alternators supplied by AVK some years earlier.

62 That submission borders on the surreal. AVK had been given the serial number of one of the existing alternators that it had supplied. It had been told in clear terms, and at least twice, that the new alternator was required to run in parallel with those existing alternators. Its attention had been directed to the need to match pitch. It had also been given a copy of the draft specification, in which it would have seen repeated many times the requirement for the new alternator to operate in parallel with the existing alternators.

63 Against that background, and bearing in mind the heading of the letter of offer and the email submitting it, the statement as to parallel operation could only be read, in my view, as a statement that the alternator that AVK offered to supply was capable of operating in parallel with the existing alternators that it had supplied some years earlier.

64 One thing that the technical specification did not state was the winding pitch ratio of the alternator proposed to be supplied. However, that situation was rectified, a little later, when AVK submitted a "Technical Data Sheet" dated 13 March 2003. That technical data sheet had a project reference which was identical to the project reference on AVK's quotation (P-06.20259/AUS). It stated, among other things, of the alternator proposed to be supplied:

Winding pitch: 2/3

Johnson invites EPSA to quote

65 On 3 March 2006, Mr Buttifant, who was Johnson's project manager for the project being undertaken by Johnson for IBM, gave a formal request to EPSA to submit a lump sum tender. That request stated, among other things:

Johnson Controls have been appointed by IBM Australia Pty Ltd as Project Managers for the supply and installation of an additional 1875kca diesel engine driven generating set (No3) to plant room No1. The new generator shall be able to synchronize and load share with the existing 2 generating sets currently existing on site for the IBM 3 Brookhollow Ave Baulkham Hills Data Centre (BHDC) facility in New South Wales.

You have been selected to submit a lump sum tender price to perform the works as explained in the statement of requirements which is detailed below.

Within the statement of requirements for this project, you are required to install, and commission, provide documentation and any necessary training. Your tender shall be based on specifications provide by and is as per attached (CD).

...

Details of the statement of requirements are listed below:

...

g. Provide design and installation in accordance with Australian Standards, Statutory and Regulatory requirements.

...

l. Full compliance with the specification as documented by Webb Australia Group, Specification A224ARSPEC001 Issue A dated 24/2/06.

...

Tender evaluation

Tenders will be evaluated on the following criteria not in order of preference:

▪ Price

▪ Technical Compliance

▪ Environmental Health & Safety Process-OH&S Compliance

▪ Unit Rates if applicable

...

Contract:

The successful tenderer will enter into the following contracts with Johnson Controls Australia Pty Ltd:

▪ AS4000 - 1997 General Conditions of Contract

▪ Johnson Controls Supply Partners Agreement

The above contracts shall take precedence over any documentation supplied by the tenderer and shall form the basis of the Agreement.

...

Tender Clarifications

All tender clarifications will be directed to Webb Australia care of Fred Bowers with the Project Manager, Johnson Controls Aust Pty Ltd copied in on all correspondence.

All clarifications will be answered within 3 working days with no extension of the tender period.

...

Site Inspection

A site inspection can take place on site. If your company requires a site visit this can be arranged by contacting the project manager.

...

66 The letter required tenders to be submitted by 9:00am on 27 March 2006.

67 On 9 March 2006, Mr Morley sent an email to Ms Spies which stated:

Can you please send the tech data sheet with pitch / reactance etc and times etc for the schedules we need to complete

68 The reference to "schedules we need to complete" was a reference to the schedules in the tender documents to which I have referred already.

69 Mr Morley followed up that email the next day.

70 Ms Spies replied on 13 March 2006. Her email referred both to the repeat of the previous order (giving the number that has been set out many times already) and to the offer number on the quotation. It said:

pls. find attached the requested technical data sheet

71 Her email attached an electronic copy of the document referred to at [64] above.

EPSA submits quotations

72 EPSA submitted two quotations. One was described as a non-conforming quotation. The other was described as a conforming quotation. At least one of them appears to have been sent a few days late, on 30 March 2006. Another company also submitted quotations.

73 I do not think that it is necessary to go into the detail of either of the quotations. However, some points need to be made.

74 The non-conforming quotation was for a Caterpillar 2000 KVA rated diesel generator and associated equipment. It contained repeated statements that the offer "includes comparable and compatible, plant, equipment and components matching as near as possible to the existing units" and that "the components of this offer are fully compatible with the existing system". It stated also that "the scope of works has been reviewed and shall meet the tender requirements".

75 The quotation stated also that "the performance summary of the alternator is as described in the accompanying technical data sheets".

76 In the item of the schedule which required the winding pitch ratio of the alternator to be inserted, there appeared the words "See TMI": as I understand it, a reference to an accompanying data sheet which, among other things, specified:

Generator Pitch: 0.6667

77 The conforming quotation was somewhat similar, but included the AVK alternator rather than the Caterpillar alternator that was the subject of the non-conforming quotation. It contained the same statements as to compatibility, review of the scope, and ability to meet the tender requirements. However, the schedule, insofar as it related to the winding pitch ratio, was left blank.

78 As I understand it, AVK's quotation and technical data sheet were attached to the conforming tender.

79 The reason for the two tenders, and the problems that EPSA had in preparing them, were indicated in an email of 6 April 2006 from Mr John Murphy of EPSA to Mr Buttifant. So far as it is relevant, that email stated:

We have been continuing to work on this project even though we appreciate the closing date has passed for this tender.

EPSA made a statement in our submission indicating possibly an improvement in delivery was available if the nominated delivery date was unsuitable.

This statement is due to the fluid nature of world wide order intake and production levels at present for both Caterpillar and AVK.

If the delivery for the Cat - AVK product does not suit your program we can check with both parties to see if an improvement can be achieved.

Note At times these deliveries can only be verified on placement of orders onto the factory and we appreciate this gives our clients a dilemma

if you wish to retain the avk alternator for a 3rd machine please advise today so we can check with avk if any alternative frame size or model of avk alternator is available on a shorter lead time

However

The Cat engine and Cat alternator offer though is a different matter / situation

Here we have available for a direct order through you to EPSA a generator set, that is still at this point of time available for the Oct out of the works delivery

We have identified and provided details on a standard Caterpillar Alternator that closely matches the necessary characteristics of the EXISTING AVK units so much so that EPSA are able to say this with the controls we are offering will run in parallel with the existing sets and satisfactorily share KW and KVARS if the order were awarded to EPSA

...

Webb's evaluation of and reports on the tenders

80 Webb summarised the two offers made by EPSA, and two offers made by EPSA's competitor TSF, by reference to cost and delivery time:

3. SUMMARY

a) Offers in order of cost

EPSA offer 2 Cat/Cat A$1,600,445.00

EPSA 1 Cat/AVK A$1,643,642.00

TSF A Cat/AVK A$1,855,713.20

TSF B Deutz/AVK A$2,086,920.00

TSF C Deutz/AVK (ALT) A$2,136,967.80

b) Offers in order of Delivery (& completion time)

TSF C 38 weeks (Deutz & larger AVK)

EPSA 2 42-44 weeks (Cat/Cat)

TSF B 50 weeks (Deutz & AVK)

EPSA 1 52-56 weeks (Cat/AVK)

TSF A 65 weeks (Cat/AVK)

81 Nothing was said in this summary as to compliance or otherwise with the specification; as to the ability of the tendered equipment to meet the requirements of the specification; or, specifically, as to winding pitch ratios.

82 Thereafter, apparently because Johnson (or IBM) was concerned at the time required to complete the project, EPSA made inquiries of AVK to see if another AVK alternator could be delivered more quickly. Mr Morley sent an email to Ms Spies and Mr Vogler on 6 March 2006. That was apparently sent to Mr Dragonas. He replied, referring to an AVK alternator which was apparently available "ex-stock Singapore".

83 Mr Morley replied to that seeking assurances that the suggested machine could operate in parallel with the existing units.

84 Mr Dragonas replied on 13 April 2006, attaching a technical data sheet (which I do not think is in evidence) and stating among other things:

I don't know the exact specs for this job, using the quote as a guide there is a high harmonic content so careful analysis must be conducted to see if this unit is capable...

85 After further toing and froing, Webb submitted what appeared to be its final report on the tenders to Johnson on 16 May 2006. For reasons that need not be reported, Webb reported only on EPSA's two tenders. It said, among other things:

5. COMPLIANCE

5.1 General

The second lowest tender by EPSA of $1,494,220.00 offers the following:

▪ second engine manufacturer, same series engines (as existing) but higher power rating - this is acceptable

▪ same alternator manufacturer, same alternator characteristics (as existing) - this is as specified

▪ has a completion time of 60-62 weeks - this is not acceptable. Although a temporary installation would be in place, the cost of (set rental) and reliance on a temporary installation should be minimised.

The lowest tender by EPSA of $1,454,950.00 offers the following:

▪ same engine manufacturer, same series engine (as existing) but higher power rating - this is acceptable.

▪ different alternator manufacturer, different alternator characteristics (to existing) - this is acceptable

The characteristics of the alternator in this offer are comparable to the existing alternators; having 2/3 winding pitch and very similar reactance values.

▪ has a completion time of 40 weeks - this is acceptable. The completion time is based on the use of packaged generator set with the alternator being changed t one with 2/3 winding pitch to match the existing AVK alternators.

...

7. RECOMMENDATION

We recommend that the tender of Energy Power Systems Australia Pty Ltd for the Caterpillar engine/Caterpillar alternator offer be accepted at the sum of $1,454,950.00, adjusted for any of the optional items deleted by the client, noting the following:

a) Contract period to be confirmed

b) Downtime periods to be established during the works

c) Factory testing in Australia to be deleted if the completion time can be reduced

d) Alternator to have 2/3 winding pitch

...

Johnson reports to IBM

86 After receiving and considering Webb's reports, Johnson reported to IBM. It said, among other things:

TECHNICAL EVALUATION

A technical evaluation was carried out by the Webb Australia representative Mr Fred Bowers. Both suppliers met the requirements as set by Webb Australia after all technical clarifications had been closed out by both suppliers upon request of Webb Australia.

Webb Australia's technical evaluation and technical clarifications will be attached to this report with any other technical correspondence as raised by the IBM evaluation team.

...

RECOMMENDATION:

Based on the results of the tender assessment sheet, Energy Power Systems Australia are recommend to be selected as the successful applicant.

Energy Power Systems Australia tender submission (Offer 2) offers the most cost effective solution and also offers the best possible completion time for an acceptable solution as agreed by the consulting engineer.

Johnson contracts with EPSA

87 IBM accepted Johnson's recommendation. On 3 June 2006, Johnson issued a purchase order to EPSA. Under the heading "PART no. / DESCRIPTION" it stated:

AS PER QUOTATON No E256233

FOR SUPPLY & INSTALLATION OF 1 X 2000 KVA

STANDBY GENERATOR AS PER WEBB SPECIFICATION

A224ARSPE001 & ASSOCIATED DRAWINGS

88 The purchase order specified also the price, exclusive and inclusive of GST.

89 Mr Buttifant sent an email to Mr Morley on 14 June 2006 advising that EPSA had been successful and that "JCI will engage EPSA on its non complying offer...".

90 There was reference to finalisation of commercial terms. The email stated:

All technical requirements for the engine & alternator need to be sent to Webb & JCI for final workshop drawings / technical approval to ensure the engine & alternator from the US arrives as per the specification.

91 There was apparently a problem with timely supply of the engine that EPSA had offered in its tender. Accordingly, EPSA proposed an alternative. Mr Bowers sent an email to Mr Buttifant on 21 June 2006. He referred to the problem and the solution offered, and concluded:

We consider [the alternative] engine is satisfactory for the duty required and matches the capacity of the existing engines.

We recommend that the engine and alternator, as set out in the attached specification sheets from EPSA, be ordered by EPSA as soon as possible to enable the delivery programme to be maintained.

92 The first specification sheets (which came from Caterpillar) were incorrect. I return to this at [174] to [179] below. Further specification sheets were procured. They stated, in relation to the alternator, that its winding pitch was 0.6667.

93 A little later on 21 June 2006, Mr Buttifant sent an email to Mr Dean Mifsud and Mr Morley of EPSA, forwarding Mr Bowers' email, and stating:

Please find correspondence below from Webb confirming the prime rated genset & Webb specified alternator is acceptable & still complies with tender requirements.

Please proceed with placement of order as detailed below & confirm delivery dates are still in line with previous emails...

The evidence

94 Although most of the evidence was documentary, the parties did call witnesses of fact. Some of those witnesses were cross-examined. None of them was challenged as to credibility. It follows that I accept the testimonial evidence, so far as it goes and so far as it is relevant.

95 The parties also called expert evidence. In the result, that evidence was limited to a narrow issue: whether (as AVK initially put it) Johnson had mitigated its loss? This turned on a consideration of alternatives that, according to some experts, could have been put in place to address the problem of non-compliance, at substantially less cost (including because they could have been effected more quickly, and thus reduced the bill for temporary generator hire).

The "formal instrument of agreement" between Johnson and EPSA

96 On 8 October 2006, Johnson and EPSA recorded the full terms of their bargain in a "formal instrument of agreement". In that agreement, Johnson was described as "Superintendent" and EPSA as "Contractor".

97 Clauses 1 and 3 of that agreement provided as follows:

1. The Contractor must construct and complete the Works in accordance with the Contract.

...

3. The Superintendent and the Contractor agree that the following documents will together comprise the Contract between them:

(a) this formal instrument of agreement;

(b) AS 4910 - 2002 General conditions of contract for the supply of equipment with installation contract conditions as amended including Annexure Part A to E inclusive;

(c) The Contract scope documents as described in Annexure Part A Item 16 (subclause 8.2):, all of which have been agreed for and on behalf of the parties for the purpose of identification. Identified document Appendix A

(d) The Council Development Conditions, are not applicable for this contract.

98 The general conditions of contract referred to in cl 3(b) provided, by clause 2.1, that EPSA as contractor was required to "carry out and complete WUC in accordance with the Contract and directions authorised by the Contract."

99 "WUC" is an acronym for "work under the Contract". It was defined to mean work which EPSA is or may be required to carry out and complete under the contract. It included, as one might expect, supply and installation of the specified equipment, and carrying out any necessary remedial work.

100 The scope documents referred to in cl 3(c) included the specification prepared by Webb, together with its associated drawings.

The problem is discovered and a solution found

101 The new generator set was supplied and installed by December 2006. It was then tested by operating it in conjunction with the existing generator sets. Dangerously high temperatures were generated inside the control panel. Mr Buttifant said that the exterior surfaces of the control panel became too hot to touch.

102 Independent electrical engineers were engaged to inspect the alternators. They could not determine the winding pitch of the two existing alternators. However, as an email from Mr Gordon Ibels of IBM to Mr Buttifant dated 18 December 2006 stated, it was "apparent that the pitch of the new machine is different from [that of] the existing machines".

103 In the meantime, EPSA made further inquiries of AVK, to ascertain the winding pitch ratios of the existing machines. The answer came through on 19 December 2006. Each was 13/15. An alternator with that winding pitch will generate high third phase harmonic voltages. Thus, if it is operated in parallel with an alternator having a 2/3 winding pitch with their neutral terminals interconnected, there will be high circulating currents between the two machines. That would explain the high temperatures that were observed on testing.

104 The various parties began to look at alternatives. One matter that had to be addressed, in considering how the problem could be resolved, was IBM's insistent need for completely secure, or fail-safe, emergency power supplies to its data processing operations.

105 When the new (and incompatible) generator set had been connected to the existing generator sets and tested, emergency generators were hired to provide backup power. That was necessary because the existing generators had to be taken offline.

106 Because IBM required its emergency power supply to be fail-safe, Johnson decided that it was appropriate to retain the temporary generators as backups until the problem with the new permanent third generator could be resolved. The hire charges were substantial: of the order of $80,000.00 a month. Thus, an important consideration in evaluating the various options was the time that would be taken before they could be put in place.

107 The parties considered a number of what might be called bandaid solutions. However, these were not pursued.

108 As a permanent solution, it would have been simple, in conceptual terms, to replace the new alternator (having a 2/3 winding pitch) with another alternator having a 13/15 winding pitch. But apparently, such alternators were no longer common. AVK would have to make one, and that would take in excess of a year.

109 Ultimately, after a detailed evaluation of the options, Johnson decided to replace the two older (13/15 winding pitch) alternators with new alternators having a 2/3 winding pitch. It was determined that the existing diesel engines would be satisfactory to drive those new alternators. Since the new alternators would be effectively the same as the new one that had been supplied already, there would be no problem of compatibility.

110 The two new alternators were ordered. The existing generator sets were put back into service. The hired temporary generator sets were kept as the backup to the backup. They were not capable of operating in parallel with the two existing generator sets. However, if one of the generator sets failed, the other would be closed down and the temporary generators would swing into operation.

111 The new alternators were installed and commissioned. That work was completed on 28 May 2007. At that time, the hire of the temporary generators was terminated.

112 The two 13/15 winding pitch alternators that were replaced were retained. One of them has been used in some way in connection with an upgrade of the side 2 emergency power backup system (the system which supplies power to the building's mechanical services).

Johnson's claim against Webb

Brief outline of the claim

113 Johnson's claim against Webb asserts breach of contract and misleading or deceptive conduct. An alternative claim, for breach of an alleged common law duty of care, was dropped, on the sensible basis that it could add nothing to the claim in contract.

114 The claim in contract raises the following issues:

(1) what were the relevant terms of the contract?

(2) did Webb breach any of those terms?

(3) if Webb did breach those terms, what if any damage did Johnson suffer?

115 The claim based on alleged misleading or deceptive conduct asserts in substance that Webb's conduct in recommending EPSA's non-conforming tender to Johnson, and representing that it either complied or would enable compliance with the requirements of the tender, was misleading or deceptive. It is difficult to see how this claim could succeed if the claim in contract fails. Nonetheless, it was pursued and must be dealt with.

First issue: what were the terms of the contract?

116 Underlying this issue is a question as to what documents comprised the contract between Johnson and Webb. Johnson "pleaded" that the contract was constituted by:

(1) its request to Webb dated 10 November 2005, to submit a fee proposal for the works therein described;

(2) Webb's quotation dated 11 November 2005; and

(3) Johnson's purchase order dated 20 December 2005, accepting Webb's quotation.

117 That analysis of the contract appears from paras 7 to 10 of the Third Further Amended Technology and Construction List Statement (3FATCLS) and from para 10A, which asserts that the "Webb Contract" is pleaded in those earlier paragraphs.

118 Webb's list response does not engage directly with the proposition that the contract between it and Johnson is to be found in the documents on which Johnson relied (although see at [133] below). However, as appears from Webb's written closing submissions at para 18, its case is that the contract was made by "the quote and the immediately preceding emails" and the acceptance thereof by the purchase order, on the terms and conditions set out on the reverse of the purchase order.

119 The specific questions that arise, in relation to the identification of the contract documents, are:

(1) do they, as Webb contended, include the emails of 9 and 10 November 2005 that immediately preceded the provision of the quotation? Specifically, Webb asserted, and Johnson (notwithstanding its pleaded case) in submissions disputed, that the contract documents included the email sent by Mr D'Arcy of IBM to Mr Buttifant, forwarded on to Mr Heard of Webb, in which Mr D'Arcy responded to some of Webb's requests for clarification of "the extent of works" for which it was required to quote.

(2) do the contract documents include, as Johnson contended and Webb disputed, the terms of Johnson's standard form of supply partner's agreement?

120 Webb contended, further, that if the contract documents did not include Mr D'Arcy's email, then the terms of the contract - specifically the requirement for "design and documentation for the addition of the 3rd generator set" -were relevantly ambiguous, so that it was in any event open to the court to have recourse to Mr D'Arcy's email to resolve the ambiguity.

121 I find some difficulty in understanding Johnson's position on this point. The question is: what were the contract documents? Its written closing submissions state at para 99 that:

The contract... was constituted by Webb's offer of 10 November 2010 [sic; obviously, "2005"]... and Johnson Controls' acceptance of Webb's offer by Purchase Order... [of] 20 December 2005.

122 Johnson submitted that the contract did not include the terms of the emails that immediately proceeded the provision of Webb's quotation. That position is inconsistent with its pleaded case; and that is why I have said I find it difficult to understand Johnson's case on this question.

123 If one looks at the matter chronologically, it is apparent that:

(1) there were discussions between Johnson and Webb on 9 November 2005 (and, no doubt, in the days or weeks leading up to that date) concerning the role that Webb might play;

(2) on 9 November 2005, Webb sent an email to Johnson asking for clarification of "the extent of works". Specifically, Webb asked whether the works were to include "[d]esign and documentation for the addition of the 3rd machine...";

(3) Johnson passed that request for clarification on to IBM, and Mr D'Arcy replied on 10 November 2005, stating what it was that IBM required "the D&D" (obviously, design and documentation) to include. It was to include, among other things, "a performance specification of the Gen Set";

(4) Johnson forwarded that email to Webb the same day, asking Webb to "action these items and issue a fee proposal for these works"; and

(5) the next day, 11 October 2005, Webb submitted its quote, which was expressed to be "[f]urther to your e-mail request of 10 November, 2005".

124 Mr Elliott of Counsel, who appeared for Webb, submitted that Johnson should not be permitted to depart from its pleaded case on this issue. It is not necessary to resolve that point, because I consider that the way that Johnson has pleaded this aspect of its case is correct. The quotation called up the preceding email chain: specifically, Mr Buttifant's email to Mr Heard of 10 November 2005 which, among other things, forwarded Mr D'Arcy's comments on Webb's request for clarification of the scope of services. In circumstances where that email is referred to in the quotation, I conclude that it is to be read in effect as part of the quotation, and as giving content to, or defining, the scope of services for which Webb was quoting a price.

125 Thus, I conclude that, as Webb contends, the contract documents do include the email chain sent to Webb on 10 November 2005, and referred to in Webb's quotation of 11 November 2005.

126 I turn to the debate as to incorporation of the terms of the supply partner's agreement. Webb's quotation stated, under the heading "Conditions" that "Webb assume the JCI Supply Partner's Agreement will apply to our consultancy arrangement".

127 Mr Faulkner of Senior Counsel, who appeared with Mr McInerney of Senior Counsel for Johnson, submitted that this was a term of the quotation, and that it was accepted by Johnson's purchase order. Thus, he submitted, the terms of the supply partner's agreement were incorporated into the contract made between Johnson and Webb.

128 Mr Elliott submitted that there was no incorporation. He noted that there had been no express reference to the supply partner's agreement in any correspondence; nor had Johnson prepared a project-specific version of that agreement, complete with all the requisite details suggested by the proforma copy, and forwarded it to Webb for consideration and acceptance. Instead, Mr Elliott submitted, what Johnson had done was submit a purchase order which made no reference to the supply partner's agreement or its terms, and which contained its own specific "terms and conditions of purchase".

129 Further, Mr Elliott submitted, the purchase order referred to the quotation for the purpose only of identifying the scope of services that Johnson required Webb to perform.

130 I do not think that the terms of the supply partner's agreement were incorporated into the contract made between Johnson and Webb. Webb did not stipulate, as a condition of its offer, that the terms of the supply partner's agreement should apply. It stated an assumption that those terms would apply. Johnson did not respond to that assumption. Nor did it provide a completed form of the agreement for consideration and execution. Instead, as Mr Elliott submitted, Johnson accepted (or purported to accept) Webb's offer, by the issue of a purchase order which contained its own terms and conditions of purchase. Those terms state, in cl 2(a), that they "constitute a complete and exclusive statement of the agreements and understandings between [Webb and Johnson]."

131 It may be, as a matter of classical contract analysis, that Webb's quotation constituted an offer to contract, and that Johnson's purchase order constituted a counter-offer. If that be the correct analysis, it is clear, as Mr Elliott submitted, that the counter-offer was accepted by conduct, when Webb undertook to perform for Johnson, at the price specified in the quotation and purchase order, the works specified in the quotation (or Webb's understanding of those works).

132 Mr Faulkner protested that this was not the way that Webb had pleaded its case. In passing, it might be said that if Johnson is free to depart from its pleaded case in framing its contract claim the way it did in final submissions, some similar latitude should be allowed to Webb. Regardless of that anserine process of reasoning, the real answer to Mr Faulkner's submission is that the court is bound to decide the question on the basis of the evidence properly admitted.

133 I accept, as Mr Faulkner pointed out, that para 10 of 3 FATCLS asserted that Johnson accepted Webb's quotation by issue of its purchase order on 20 December 2005, and that Webb admitted para 10. That would support the conclusion of a contract formed by that process of offer and acceptance. But the evidence goes further.

134 Leaving aside the pleading niceties, it is clear that there was a live dispute between Johnson and Webb as to how, in terms of legal consequences, the relevant facts should be characterised. Mr Faulkner did not suggest that Johnson had in some way charted its litigious course by reference to Webb's admission of para 10 of 3FATCLS, such that Johnson would suffer prejudice if Webb were permitted to argue (as it now does) for some different mechanism of contract formation. Nor can I see how there could be any such prejudice, particularly in circumstance where Johnson, just as much as Webb, sought in submissions to characterise the contract between it and Webb in a way different to its pleaded case.

135 At a further level of generality, it is clear that the substantive effect of Webb's pleading is that it asserts that the contract documents comprise the quotation (including the email exchange referred to in it) and the purchase order. Whether that concluded contract arises simply by the purchase order's acceptance (or purported acceptance) of the quotation, or by reason of Webb's acceptance by conduct of a counter-offer constituted by the purchase order, Webb's substantive case, in submissions, on the content of the contract between it and Johnson is entirely consistent with the substance of its pleaded case.

Second issue: did Webb breach its obligations?

136 There are three elements to Johnson's case of breach. The first relates to Webb's preparation of the specification. The second relates to Webb's involvement in the tender review process. The third is based on an alleged "integration" term.

Preparation of the specification

137 The first point to be considered is what, precisely, were the obligations that Webb assumed under the contract made between it and Johnson.

138 Mr Faulkner submitted that Webb was required to design and document the works that were to be put out to tender. He submitted that this design obligation required, among other things, that Webb ascertain and specify, in the tender documents, the winding pitch of the existing alternators.

139 Mr Elliott submitted that what Webb was required to produce was a performance specification, and that its design (and documentation) obligations should be understood in that context.

140 Before I turn to the submissions and the evidence, it may be worth recounting a couple of obvious, but perhaps overlooked, points. The first is that everyone appears to have proceeded on the assumption that the third emergency generator set would comprise in substantial part proprietary items - items, such as the diesel motor and the alternator, purchased from external suppliers.

141 The second point, following from the first, is that Johnson did not suggest that Webb was required to design every element of the third generator set from the ground up. Nor was it required to design the way in which that generator set should be connected in parallel to, or integrated with, the existing generator sets. As to the first matter: much of the equipment was to be purchased from external suppliers. As to the second matter: it was obvious that the successful tenderer would be responsible for the detailed design whereby the new generator set would be connected to, and integrated with, the existing sets.

142 It is in relation to the scope of services that Mr D'Arcy's email is critical. He said that IBM wanted Webb to provide a quotation for, among other things, the provision of a performance specification of the new generator set. That was the ultimate client's requirement, as conveyed by Johnson to Webb in response to Webb's request for clarification of the extent of services to be covered by its quotation.

143 There was a substantial body of expert evidence devoted to the understanding that, in 2005 and 2006, reputable and competent electrical engineers had of the term "performance specification". Neither Mr Faulkner nor Mr Elliott submitted that this understanding was so widespread, or notorious, that the words should be given that understanding, rather than (if it be different) their ordinary English meaning. In any event, since in my view the engineers' understanding of those words coincides with their English meaning, it is unnecessary to say anything more on this aspect of the evidence.

144 A "specification" may be understood, in the abstract, as "a detailed description setting forth the dimensions, materials, etc., for a proposed building, engineering work, or the like" (see Macquarie Dictionary online); or "a detailed description of the particulars of some projected work in building, engineering, or the like, giving the dimensions, materials, quantities, etc., of the work, together with directions to be followed by the builder or constructor" (see Oxford English Dictionary online).

145 However, what was required was a "performance specification". That compound expression denotes a specification (understood in the sense just indicated) of performance, or a specification in which the works are described by function and duty rather than by detailed design. Either way, it is a statement of the standard of performance that the works are to meet or to achieve. In essence, such a specification would tell potential tenderers what it is that the works to be done and equipment to be supplied are required to do, whilst leaving it up to the tenderers as to the precise means by which they would achieve the specified result.

146 I do not think that the obligation to produce a performance specification, for the addition of a third generator set to run in parallel with two existing generator sets, requires the preparer of the specification to specify the winding pitch of the existing generators. The essential feature is that the new generator set must be capable of working in parallel with the existing generator sets (in this case, with their neutral terminals interconnected). That was what the tenderers were required to achieve. It was up to them to work out how to achieve it.

147 The specification that Webb prepared stated in very great detail what were the elements of the work, and what were the performance standards or criteria that it was required to achieve. One requirement, repeated over and over again, was that the new equipment must match the existing equipment in performance and characteristics. There were also the stipulated requirements that the new machine should be capable of operating both alone and in parallel with the existing sets, and should be "suitable for parallelling with other similar machines...".

148 To my mind, there is significant hindsight in Johnson's fastening on what it characterised as the failure of Webb to specify the winding pitch of the existing alternators. The expert evidence was unanimous that, for alternators to work in parallel, far more was required then that they have the same winding pitch. If Webb had specified the winding pitch and nothing more, it would have given only a small fraction of the total amount of information the tenderers required to ensure that the new machine could operate in parallel with the existing machines. It is legitimate to inquire why it was (as Johnson submitted) negligent for Webb not to specify the winding pitch ratios of the existing alternators, but not negligent not to specify all the other matters that bore on the question of compatibility.

149 Johnson did not submit that the specification prepared by Webb was deficient in any way other than its failure to state the winding pitch of the existing alternators. Nor is there any basis in the evidence to conclude that tenderers were unable to understand the specification, or that they were not able to submit a conforming tender in reliance upon the detailed requirements set out in the specification. On the contrary, two companies tendered; and between them, they produced a number of different offers. Clearly, those two companies thought that the specification was sufficient to enable them to respond.

150 I accept, as Mr Bowers accepted and as Mr Faulkner submitted, that it would have been relatively simple for Webb to make a formal inquiry of AVK as to the winding pitch of the existing alternators, and, having been given that information, to put it into the specification. I accept, further (as again, Mr Bowers accepted, and Mr Faulkner submitted) that it might have been convenient for tenderers if Webb had done this. But the question is not what could have been done, or what would have been convenient? It is, rather, what was the content of Webb's obligation, and what was necessary to be done by Webb to fulfil that obligation?

151 If, as Mr Faulkner submitted, Webb was required to specify what was required to be known by tenderers to enable them to ensure that what they were proposing would meet the requirements of the specification, then, as I have indicated, Webb would be required to do far more than simply ascertain and specify the winding pitch of the existing alternators. It would have been required, in effect, to do the very thing that it was inviting tenderers to do: design the new works and the method of their connection to and integration with the existing system.

152 Webb's drafting of the specification put the onus on tenderers to satisfy themselves that what they were offering would meet the performance requirements that were stipulated, including those as to matching the existing equipment and parallel operation. If the tenderers delivered equipment that could meet those requirements, then Johnson would get what it wanted. If they did not, Johnson would have (as, it will be seen, in my view it does have) rights against them. And that, as Mr Bowers said, is the essential practical reason for issuing a performance specification of the kind that, in this case, Webb prepared.

153 I conclude that:

(1) Webb's scope of services required it to produce a performance specification for the work;

(2) the extent of Webb's design and documentation obligations was limited to design and documentation that would specify, clearly and sufficiently, the items of new machinery required and the performance standards that it must meet, or the duty that it must perform;

(3) those obligations did not include that Webb should specify the winding pitch ratio of the existing alternators (nor any of the numerous other matters that would have to be addressed for the new alternator to work in parallel with the existing ones); and

(4) Webb did not breach its obligations, thus (and properly) understood.

Supply partner's agreement

154 Although I have found that the terms of the supply partner's agreement were not incorporated into, or did not form part of, the contract between Johnson and Webb, I should note that in my view there would be no different outcome, on the issue of breach, if it were. Clause 6.1 would have required Webb to perform its services using appropriately qualified and trained personnel and with all due care skill and diligence, to the highest standard of quality that it was reasonable for Johnson to expect.

155 It was not suggested that Webb did not provide the services of appropriately qualified and trained personnel.

156 The requirement to perform services with all due care skill and diligence does no more than return to the question, what were the services to be performed? I have found that the required services were, in substance, the provision of a performance specification, including the undertaking of such design and documentation as was necessary for that purpose. I have concluded, further, that it was not necessary for the performance specification to state the winding pitch ratio of the existing alternators. It was sufficient, in the exercise of due care, skill and diligence, for the tenderers to be told precisely and in detail the level of performance or duty that was to be achieved. And it is not suggested (nor could it be) that the specification prepared by Webb did not do this.

157 I do not think that anything is added by the words "to the highest standard of quality as it is reasonable for Johnson Controls to expect". What Johnson was entitled to expect was performance of the terms of the contract that it negotiated. That was a contract for the provision of a performance specification, and for the performance of such design and documentation work as was necessary to achieve that purpose. That is precisely what Webb did.

158 Nor does the obligation to indemnify (cl 7.1) add anything. See at [192] to [194] below.

The tender review process

159 Webb's quotation stated that the services to be provided by Webb would include "Assistance with review of Tenders". The manhour assessment attached to the quotation indicated that Webb had allocated 8 hours of an engineer's time to this activity.

160 Mr Faulkner submitted that, for Webb to fulfil this obligation, it was required to ascertain for itself the winding pitch of the existing alternators, and to satisfy itself that the winding pitch of the new alternators proposed by each of the tenderers was the same.

161 Mr Elliott stressed that the relevant service to be provided by Webb was "Assistance with review of Tenders". That indicated, he submitted, that the party responsible for reviewing the tenders was Johnson, and that Webb's role was limited to assisting Johnson in that review.

162 Next, Mr Elliott submitted, Mr Bowers' unchallenged evidence as to industry practice should be accepted as showing the extent of the obligation and the extent of performance necessary to satisfy it. Mr Elliott submitted that if one looked at all the circumstances known to the parties at the time the contract between Johnson and Webb was made, they could not have intended, objectively speaking, that Webb would undertake what was in effect an audit of each of the tenders submitted. That was so a fortiori, Mr Elliott submitted, where, at the time the contract was made, the parties reasonably expected that (as indeed happened) there would be more than one tender submitted.

163 As ever, the starting point is the language of the contract. Mr Elliott's submission, that the relevant service was assistance with review of tenders, is correct. That is the plain language of the offer that was accepted. Thus, objectively, what the parties intended was that Johnson would review the tenders, and that Webb would assist it in this process.

164 It was I think common ground (and in any even it is Mr Bowers' evidence, which I accept) that if Webb were required to undertake the detailed analysis that Johnson suggested was required, it would require many more than the 8 hours of engineer's time allocated to it. Of course, if Webb underquoted for what it was, on the proper construction of the contract, required to perform this obligation, then that is its problem. But, in ascertaining what was the extent of the obligation, it is relevant to look at material in the accepted offer to see whether it casts any light on what, objectively, the parties intended.

165 For the reasons I have given, I do not think that Webb's obligations in respect of preparation of the specification required it to ascertain and state the winding pitch ratio of the existing alternators. That is a relevant consideration in the context of the review obligation also. It would be somewhat anomalous if Webb were required to do that for the purposes of review, not having been required to do so for the purposes of preparation of the specification.

166 In this context also, I think that Mr Faulkner's focus on the winding pitch ratio represents significant hindsight analysis, and ignores the fact that to ensure compatibility, or that the new machine could operate in parallel with the existing machines, it was necessary to do far more than check the winding pitch ratios of the alternators. The parties, as experienced actors in their respective fields of industry, must be taken to have known this. An inquiry similar to that at [148] above is relevant in this context as well.

167 Mr Buttifant's evidence is instructive. He agreed that if a tender were non-compliant, industry expectation was that the tenderer would say so; if there were no indication of non-compliance, then one would assume that the tender was compliant. Further, Mr Buttifant said, that was a reasonable approach to take in the review of the tenders. I set out this passage of Mr Buttifant's evidence (T74.37-75.9):

Q. And it was material that you were expecting would take some hours to go through and understand and consider?

A. Yes.

Q. You will see from the two emails from EPSA, one stated to be a conforming tender and one stated to be a nonconforming tender, now it was your expectation wasn't it that if a tenderer was going to put forward a tender that was not conforming with the specifications they would say so in the way EPSA did?

A. Correct.

Q. If there was no indication that the tender was nonconforming your own expectation and conclusion would be that the tender that was submitted was conforming with the specifications?

A. Correct.

Q. And that the tenderers had done what was required to ensure that that occurred?

A. Correct.

Q. In your experience that's a reasonable position for someone reviewing specifications and tenders to take?

A. Correct.

168 If that was the expectation, or approach, of the party with principal responsibility for reviewing the tenders, it could not be reasonable to expect a higher degree of diligence from the party whose role in that process was one of assistance only.

169 Mr Elliott relied on Mr Bowers' evidence as to the role that an expert consultant would play in assisting a principal to review tenders. That evidence is set out at paras 55 to 58 of Mr Bowers' affidavit sworn 21 April 2011:

55. In my experience, the usual practice followed when a company such as Webb assists a principal review tenders is for the company's representatives to read each of the tenders and prepare a summary of their content, noting important commercial matters such as price, timing of delivery, reputation of manufacturers of the goods proposed to be supplied, and some of the high level performance criteria that the product is able to achieve according to the information provided by the tenderers. We use our experience as engineers to assess the offers and identify any items that appear outside the expected. In this way the company can present the "bottom line" information of the tenderers in order to make the principal's evaluation of the tenders easier and less time consuming.

56. In my experience, the usual practice requires an in-depth technical review of the goods proposed and the system performance. In doing this a consultant relies solely on the information provided by the tenderer, which is said to conform with the specification, and does not take any steps to verify such information other than through the tenderer. This is consistent with the fact that usual practice for specification preparation does not detail all of the internal workings of what it is that is to be supplied. The tender specifications are prepared so that what they propose will conform with the specification, knowing that if they are successful, they will have a contractual obligation to comply with that specification.

57. If what the company was required to do was to undertake a thorough audit of each of the products internal workings to satisfy itself that what was supplied would match to existing, that would be an extremely expensive and time consuming task covering a large range of instruments and working parts in each of the products that were the subject of the tender. Such a detailed and out of the ordinary job would need to be priced accordingly - that is, much higher to cover the additional time and responsibility involved.

58. In my experience, the usual scope of works (by which I mean the preparation of a tender performance specification and the review of tenders received in the usual way I have described in this affidavit) is priced at about 8% of the works. The price in this case was no even at that level, let alone in excess of it.

170 The key points from that evidence seem to me to be the following:

(1) the consultant reads the tenders and summarises their content;

(2) the summary should note important matters such as price, timing and the like;

(3) anything unusual should be identified;

(4) the consultant presents the "bottom line" to the principal to assist the principal's evaluation;

(5) where the tenderer states that the tender conforms to the specification, the consultant will rely on the information provided by the tenderer and will not independently verify it; and

(6) the consultant will rely on the information provided by the tenderer to review, in a technical sense, what the tenderer proposes to supply and how the tenderer says it will perform.

171 I note that Mr Faulkner submitted, of the fifth of the points that I have summarised, that it "can't be right". Mr Faulkner did not challenge this aspect of Mr Bowers' evidence (nor did counsel for any of the other parties). I do not think that it can be said in some a priori way, that the point is so manifestly wrong that it did not require challenge.

172 Although the question of breach (more accurately, the question whether Webb complied with its contractual obligations in relation to assisting with review of the tenders) cannot be determined by reference to industry practice, nonetheless, it seems to me, industry practice is of particular importance. That is so particularly where, in relation to the crucial point of reliance on information supplied by the tenderer in what is called a conforming tender, Mr Bowers' fifth point was supported by the evidence of Mr Buttifant to which I have referred at [167] above.

173 Mr Faulkner did not submit that Webb's summary of the tenders was inaccurate as a summary of what the tenderers had submitted. That is to say, Mr Faulkner did not submit that if (contrary to his principal submission) it were appropriate for Webb to rely on information supplied by tenderers in what were said to be conforming tenders, Webb's performance of its obligations was, nonetheless, deficient. Mr Faulkner's complaint was that Webb should have verified for itself the winding pitch of the existing alternators, and checked to see that what was proposed had the same winding pitch.

174 In any event, there is evidence that when something out of the ordinary appeared, Mr Bowers questioned it. At one stage (before Webb prepared its tender summaries), EPSA made inquiries to see if its delivery time could be improved by using a Caterpillar / Kato generator set. On 10 May 2006, Mr Morley forwarded to Mr Bowers (and to Mr Hoddinett of Webb) a data sheet for this equipment. The data sheet showed that the proposed alternator had a winding pitch of 0.7777.

175 Mr Bowers said that he read this material, noted that the winding pitch was different to that on the alternators the subject of the tender, and told Mr Morley to "sort it out".

176 The next day, 11 May 2006, Mr Morley sent an email to Messrs Bowers and Hoddinett in which he said:

Fred

you were correct yesterday the AvK units are 2/3 pitch

I will send the new Cat alt data sheet based on 2/3 pitch

Derek

177 A little later on the same day, Mr Morley sent another email to Messrs Bowers and Hoddinett which attached a data sheet for "correct alternator [cat]". The attached data sheet showed a "Generator Pitch" of 0.6667.

178 The inference from this is that Mr Morley, in effect, reassured Webb that the correct winding pitch was 2/3 (or 0.6667), as provided in EPSA's tender documents; and that the proposed alternative (Caterpillar / Kato) generator set, including an alternator with a 2/3 winding pitch, would be capable of working in parallel in the existing generator sets.

179 This material shows that Mr Bowers did, as he said, read the material given to him, and deal with inconsistencies within it.

180 In my view, Webb did what it was required to do in the performance of its tender review (more accurately, assistance with tender review) obligations. It was required to review the material submitted by the tenderers, on the assumption that what were described as conforming tenders were indeed conforming, to summarise that material and to present the information in a form which would assist Johnson with its own review. Webb was not required to verify or audit the information submitted by the tenderers in what were described as conforming tenders.

181 I do not regard Mr Bowers' evidence as conclusive of the question. However, particularly taken in conjunction with the evidence of Mr Buttifant to which I have referred on this point, it is consistent with the conclusion that I would reach (and have reached) in any event.

182 This approach to the content of the review obligation is concordant with what is, in my view, the content of the obligation to prepare a performance specification. If, as I have concluded, Webb was required to provide a specification that set out no more than the performance criteria, or standards, that the tendered equipment was required to achieve, and was not required to provide a detailed design of that equipment, it would be incongruous in the extreme for Webb to be expected, in the performance of what is essentially the ancillary function of assistance in review of the tenders, to undertake a much more detailed technical analysis. To put it another way: the work required to perform what Johnson submitted was involved in the review obligation would effectively amount to the preparation of a detailed technical design specification, against which the equipment offered by tenderers could be checked.

The integration term

183 Johnson relied also on what it characterised as "the integration term". That was a term, said to be derived on or from the proper construction of the quotation and the purchase order, "that the Services provided by Webb would achieve the integration of the third stand-by generator into the existing arrangement of the two machines". Webb denied that this was a term of the contract between it and Johnson.

184 The integration term was said to follow from Part A, "Scope", of Webb's quotation. I have set that out at [26] above. It stated, in effect, that the scope of the works for which services were to be provided included the addition of the third standby generator and the integration of that generator with the two existing generators.

185 Mr Elliott submitted that Part A of the quotation was directed to the scope of works that were to be the subject of the tender, and that it was Part B which set out the services which Webb said it would provide (and for which it was quoting a fee).

186 In my view, Mr Elliott's submission is correct. Part A describes the scope of the works for which tenderers are required to provide quotations. That is made clear, apart from anything else, by the list of exclusions: what is excluded from the "scope" are the following:

Ventilation System (By other Trades)

Any works associated with the replacement of the existing Bulk Fuel Tanks

187 By contrast, Part B describes the scope of the work that Webb is offering to perform: to prepare a performance specification that will enable tenderers to submit quotations for the performance of works within the scope that is broadly described.

188 I do not think that the quotation should be construed as including an offer by Webb to undertake such design and documentation as would be necessary to ensure that the new generator set could be integrated with the existing ones. Again, that was part of the performance requirements that were to be the subject of the performance tender that it was offering to produce.

189 If, as Johnson submits, Webb were required to ensure that the new machine could be integrated with the existing, or in substance to guarantee this outcome, it would be duplicating the very detailed work that the successful tenderer would be required to perform. And as I have tried to indicate, that is not what is required by the obligation to produce a performance specification, as that phrase should be understood.

190 Thus, I do not find that the contract between Johnson and Webb included the integration term for which Johnson contended.

191 If the contract did contain that term - that is to say, if Webb had undertaken to ensure that the new machine would integrate with the existing - then, clearly, the term was breached.

The obligation to indemnify

192 As I have mentioned, Johnson also relied on the obligation to indemnify that, Johnson said, Webb had undertaken because the terms of the supply partner's agreement were incorporated into the contract between it and Webb. Clause 7.1, set out at [28] above, is the term upon which Johnson relied.

193 There are two answers to this. The first is that, on the view to which I have come, the terms of the supply partner's agreement did not form part of the contract between Johnson and Webb.

194 The second answer is that, since in my view Webb did not breach any contractual obligation (or other obligation) that it owed to Johnson, there is nothing on which the obligation to indemnify could fasten.

Third issue: damages

195 On the view to which I have come, it is not necessary to deal with the question of damages, as between Johnson and Webb. In any event, it is convenient to deal with all questions of damage at once: when I have dealt with the questions of liability between Johnson and the other defendants, and as between those defendants themselves.

196 I should however note that Mr Elliott submitted that, in the events that have happened, Johnson suffered no loss by reason of any breach by Webb of the terms pleaded against it. That was so, Mr Elliott submitted, because the specification drafted by Webb, which was intended to be, and was, incorporated into the contract made between Johnson and the ultimate supplier, gave Johnson detailed and valuable rights against the supplier in the event that the equipment provided or the works performed by it were defective; in particular, if the equipment supplied was not capable of operating together with, or in parallel with, the existing generator sets.

197 In my view, that submission is correct. For the reasons that I give next, in dealing with Johnson's claim against EPSA, EPSA is liable under its contract with Johnson. It is liable because the alternator supplied by it did not meet the performance requirements of the specification drafted by Webb. It has not been suggested that the measure of damages is any different as between Johnson and Webb on the one hand, and as between Johnson and EPSA on the other. Nor has it been suggested that EPSA will not be capable of meeting Johnson's claim. It must follow, in my view, that any quantification of damage as between Johnson and Webb must bring to account, for the benefit of Webb, such damages as Johnson recovers from EPSA.

198 There is a complication, in that EPSA has asserted that, if it is in breach of its contract, it is a concurrent wrongdoer with Webb and AVK, and that responsibility for such damages as Johnson proves must be apportioned accordingly. That is not right, so far as Webb is concerned. The conclusions that I have reached (and reach in the next section of these reasons, on the claim for misleading or deceptive conduct) mean, apart from anything else, that Webb is not a wrongdoer at all, vis a vis Johnson.

199 The submissions on this aspect of Webb's defence as to damages did not deal in any detail with the consequences of findings of concurrent wrongdoing. In circumstances where those consequences are entirely moot, I do not think that it is profitable to explore this question further.

The claim based on misleading or deceptive conduct

200 Johnson submits that, in summarising the tenders as it did and in making the recommendations that it did, Webb effectively represented that the tenders were compliant with the specification. Since (as events proved) that was not correct (because no tender proposing an alternator with a 2/3rd winding pitch could comply with the specification), there was a misrepresentation. Johnson submitted that this amounted to misleading or deceptive conduct; that it had relied on the misrepresentation; and that it had suffered loss.

201 The difficulty with this aspect of the case is that Webb's contractual obligation, as I have construed it, was to review, summarise and make recommendations upon what were said to be conforming tenders, without going behind or auditing the information supplied by the tenderers. If that was what it was required to do under the contract, then, objectively, it must be the case that this is what Johnson understood and intended that Webb would do. Unless what Webb did in the performance of that obligation, so understood, was relevantly deficient, there could be no misleading or deceptive conduct.

202 To put it another way: if Webb complied with the obligations that it had assumed, and performed those obligations faithfully (and in my view it did), then it could not be correct to characterise that proper performance of its contractual obligations as necessarily involving misleading or deceptive conduct.

203 As Mr Buttifant understood, Webb was relying (and entitled to rely) on the information provided by tenderers in tenders that were said to conform to the specification. Its obligation was to review those tenders and to comment on them. In those circumstances, as Johnson through Mr Buttifant understood, what Webb represented, as the effect of the tenders, assumed, and did not go behind, the correctness of the information provided. Mr Buttifant knew that what Webb said was only as good as the information on which it based its comments (T78.7-.20):

ELLIOTT

Q. And as you understood it his opinions and recommendations were based on his review of the information that he got from EPSA?

A. What had been supplied, yes.

HIS HONOUR

Q. I'm sorry, what did you say?

A. What had been supplied, yes.

ELLIOTT

Q. And you understood that what he was saying then was only as good as the information that he got from EPSA?

A. Yes.

204 Clearly, Mr Buttifant understood the limited task that Webb was undertaking, in relation to tender review. Equally clearly, Mr Buttifant accepted that this is what Webb was required to do.

205 Since it could not be said that Webb's summary and recommendation were misleading or deceptive if Webb were entitled to assume the correctness of, and was not required to verify or audit the truth of, the statements made in the purportedly conforming tenders, the case based on misleading or deceptive conduct must fail.

206 There are, perhaps, two other ways in which the facts can be viewed. Firstly, it is clear that Webb was expressing opinions based on its review of the tender materials. If Webb were not required to check or audit what was stated in the tender said to be conforming, then there was a reasonable basis for the opinions that it expressed (and again, I think, this is consistent with Mr Buttifant's evidence).

207 Secondly, if Webb were not required to check or audit the material supplied in tenders said to be conforming, then it could be said to be a conduit only for the relevant technical information. The parties' submissions addressed this question at some length, but since in my view the misleading or deceptive conduct case can be resolved on the grounds that I have stated, I do not propose to go into the detail of those submissions.

Conclusion on Johnson's case against Webb

208 Johnson fails against Webb, both on its contract case (in all the various ways that it was put) and on its case based on alleged misleading or deceptive conduct. It follows that there must be judgment for Webb against Johnson with costs.

209 It follows, further, that Webb cannot be a concurrent wrongdoer (as is alleged by the other defendants), nor can cross-claims against it (brought on the assumption that it is not a concurrent wrongdoer) succeed.

Johnson's case against EPSA

210 Johnson's claim against EPSA alleges both breach of contract and misleading or deceptive conduct.

211 The contract case was put in various ways:

(1) breach of cl 2.1 of the general conditions of contract;

(2) breach of an alleged implied term of fitness for purpose; and

(3) breach of an alleged implied term requiring EPSA to exercise reasonable care and skill.

212 It was common ground between Johnson and EPSA that the contract between them was to be found in the formal instrument of agreement made on 6 October 2006 and the documents identified therein. As I have noted, those documents included Webb's specification and the drawings issued with it.

213 The specification stated, repeatedly, that tenderers were required to offer equipment matching the existing equipment in performance and characteristics. Mr Hogan-Doran of Counsel, who appeared with Mr Lloyd of Counsel for EPSA, submitted that this was a reference to the "performance and characteristics" specified in Part 2.3 of the specification, dealing with "summary of performance". He submitted that the only relevant reference within the specified "performance and characteristics" was the requirement for "parallelling" which, for convenience, I repeat:

Parallelling To be suitable for parallelling with other similar machines with neutrals interconnecting and earthed.

214 Mr Hogan-Doran submitted that the equipment tendered by EPSA was capable of operating in parallel with other similar machines. As a matter of language, that is correct. The generator sets specified by EPSA in its various tenders could operate in parallel with other compatible (or "similar") generator sets. But that is not the point.

215 The specification made it clear that what was tendered had to be capable of operating in parallel with the existing generator sets. That appears, among many other places, in Part 2.3, shortly before the "performance and characteristics" on which Mr Hogan-Doran relied are specified.

216 Again, for convenience, I repeat the relevant part:

The set shall be capable of single operation with isochronous speed and voltage control and be capable of being parallelled with existing sets with power and VAR sharing.

217 When the requirement for "paralleling with other similar machines" in the "performance and characteristics" section of the specification is read in context (which includes not only the passage that I have just quoted, but the numerous other references to matching the existing equipment in performance and characteristics), it is clear that the "other similar machines" are the existing generator sets, to which the new set was to be connected and with which it was to be capable of operating in parallel.

218 Mr Hogan-Doran's submission ignores the obvious intention of the parties, objectively viewed. It also ignores his own client's repeated assertions in the tender documents that what was offered was "compatable" or "compatible" with what was there already.

219 Mr Hogan-Doran accepted that, if the relevant provisions of the specification (and, thus, the contract between his client and Johnson) were to be construed in the manner that I have just indicated, then his client had no defence to the claim in contract.

220 On that view, it is not necessary to turn to the alternative ways in which the contract claim was pressed. Were it necessary to do so, I would conclude that Johnson did make known the purpose for which the new generator set was required, and thus, by operation of s 19(1) of the Sale of Goods Act 1923 (NSW), there was an implied term of fitness for purpose. Plainly, that term was breached.

221 Again, it is not necessary to go to Johnson's claim based on misleading or deceptive conduct. But there can be no doubt that the representations as to compatibility were incorrect, and thus misleading. Equally, there can be no doubt that Johnson (both directly and through Webb) relied on them.

222 Thus, I conclude, Johnson succeeds in its claim against EPSA.

Johnson's claim against AVK

223 Johnson's case against AVK is based on alleged misleading or deceptive conduct. It put that case in two ways:

(1) what it called "direct reliance"; and

(2) what it called "third party reliance".

224 The starting point of each of the ways in which the case was put was that AVK had engaged in misleading or deceptive conduct, because:

(1) it had represented to EPSA that the winding pitch of the existing alternators that it had supplied to EPSA was 2/3;

(2) it had represented to EPSA that the alternator that it proposed to supply was suitable for parallel operation with those existing alternators; and

(3) those representations were incorrect, and thus misleading or deceptive or likely to mislead or deceive.

225 Johnson contended that AVK knew, or must have understood, that EPSA required information as to the existing alternators to enable it to prepare and submit a proposal to supply a new generator set, in circumstances where the new generator set was required to work in parallel with the existing generator sets. That was reinforced, Johnson contended, when EPSA sent AVK the draft specification for the works.

226 Johnson contended that: AVK's representations were (as AVK should have known would happen) passed on to it by EPSA, and that it relied, in part, on the Technical Data Sheet supplied by EPSA, in deciding to accept EPSA's tender. It was the Technical Data Sheet (which came from AVK) that had the effect of passing on the relevant representations.

227 Johnson's alternative formulation of its case was that if, for whatever reason, the direct reliance case failed, it was entitled to succeed nonetheless because AVK's misleading or deceptive conduct, directed to EPSA, caused EPSA to tender to supply an alternator which purportedly could, but in fact could not, operate in parallel with the existing alternators. In those circumstances, Johnson contended, it suffered loss as a direct result of EPSA's reliance on the representations made by the AVK.

228 AVK contended that the direct reliance case must fail because it made no representation to Johnson. Further, AVK contended:

(1) it did not make the representations alleged at all;

(2) Johnson did not rely on whatever representations were made; and

(3) the representations that AVK did make were not misleading or deceptive.

The direct reliance case

What representations were made?

229 Johnson's pleaded case (3FATCLS, para 86) is that AVK made the following representations to it:

(1) the winding pitch required to match the existing alternators was 2/3;

(2) the winding pitch of the existing alternators was 2/3; and

(3) the alternator that AVK offered to supply to EPSA was "suitable for parallel operation with" the existing alternators.

230 Those representations are said to arise because (see the particulars to 3FATCLS, para 86):

AVK was the manufacturer of the two existing stand-by generators..., and submitted the AVK Technical Specification to EPSA on or about 28 February 2006, and the AVK Technical Data Sheet to EPSA on or about 13 March 2006, which in turn EPSA supplied to Johnson... as part of EPSA's tender submitted to Johnson... on or about 31 March 2006.

231 The representations are said to have been made to Johnson because they were made to EPSA in circumstances where AVK knew, or ought to have known, that they would be repeated to, or would come to the notice of, Johnson or a class of persons including Johnson. (This again comes from the particulars to 3FATCLS, para 86.)

232 AVK's primary case is that it made no representations at all to Johnson. Thus, AVK's submissions did not address directly the content of the representations alleged (as between itself and Johnson). That was however addressed in the context of EPSA's claim (or cross-claim) against AVK. What AVK says there can be translated directly to the claim against it by Johnson, because Johnson's pleading effectively picks up EPSA's pleading against AVK.

233 AVK's position is that the representations do not arise, and that EPSA (and, it follows, Johnson) have "mischaracterised the relevant correspondence". AVK says that the representations pleaded are not found in the correspondence, nor can they be implied. It says that this arises, in part, because EPSA (and, again, Johnson) focused on some of the correspondence in isolation, and did not examine it in the context of the evidence as a whole.

234 AVK's submissions on this point were verbose. Apart from anything else, and notwithstanding that AVK criticised EPSA and Johnson for taking some of the correspondence out of context, the general approach taken by AVK was to focus on specific items of correspondence, and to analyse them, without reference to the whole context in which, prior to submission of the tender, EPSA had dealt with AVK.

235 I have set at [40] to [64] above the inquiries that EPSA made of AVK, and AVK's responses to those inquiries. Those inquiries and responses were followed by the matters to which I referred at [67] to [71]. I will not repeat what I said in those paragraphs, save to note that, for the reasons that I gave at [61] and [62], I think that AVK's statement as to suitability for parallel operation is to be read as a representation that the alternator which it proposed to supply was suitable for operation in parallel with the existing alternators that it had supplied.

236 It follows that the third of the representations alleged by Johnson was made by EPSA.

237 I set out at [242] to [259] below, the matters that AVK either knew or must be taken to have known, including as to the purposes for which Mr Morley was making inquiries.

238 When one views the pre-contractual dealings between EPSA and AVK, against the background of the material in the following section of these reasons, the proper analysis is that AVK did in fact make, by implication if not expressly, the first and the second of the representations alleged. I say that because:

(1) everyone in the industry (including, I infer, AVK) knew that for one alternator to work in parallel with another or others, a number of requirements had to be satisfied, including that each of the alternators had the same winding pitch ratio;

(2) as to the first representation: AVK knew that the new alternator was required to operate in parallel with the existing alternators supplied by it some years ago. It offered to supply a new alternator with a 2/3 winding pitch ratio. Inherent in that offer is the proposition that the winding pitch ratio of the new alternator was that which was required to match the existing alternators.

(3) as to the second representation: following on from the circumstances to which I have just referred, it is also inherent in the offer that the winding pitch ratio of the existing alternators was 2/3. Otherwise, there was no point in offering to supply a new alternator, having that winding pitch ratio, to operate in parallel with the existing alternators.

To whom were those representations made?

239 Johnson and AVK agreed that, for the direct reliance case to succeed, it would be necessary for Johnson to show that the relevant representations were made in circumstances calculated to lead to their being transmitted through EPSA to others, including Johnson. That agreement was based on what Brereton J said in Azzi v Volvo Cars Australia Pty Ltd [2007] NSWSC 319 at [82]:

[82] Although the representations were made to TAA, and Mr Azzi on behalf of TAA, and not (at least directly) to Harissa, compensation may be recovered under Trade Practices Act, s 82, in respect of a contravention of s 52, by a person who relies on a misrepresentation if the representation was made in circumstances that were calculated to result in its being transmitted to persons including the victim, even though the representor never dealt directly with the victim [Milner v Delita Pty Ltd (1985) 61 ALR 557 , 573-4 (Lockhart J); Accredited Aged Care Facilities Pty Ltd v Banyan Tree (Australia) Pty Ltd [2002] VSC 261, [95] (McDonald J); Emanuele v Chamber of Commerce & Industry SA Incorporated [1994] ANZ ConvR]. The originator of a misrepresentation, who does not itself convey the representation to the relevant audience, may be liable under s 52 if the intermediary was merely the convenient medium by which the misrepresentation was conveyed to the public (so that the wholesaler of goods who marks them with deceptive claims may be liable for damage suffered by members of the public who buy the goods from a retailer without ever dealing with wholesaler) [Barton v Croner Trading Pty Ltd (1984) 3 FCR 95; 54 ALR 541, 553], although that will not be so where the originator does not engage in conduct calculated to put the representation into circulation. In Milner v Delita, Lockhart J explained the basis of liability in such circumstances in terms of an implied intention of the originator that the representation be passed on to others (at ALR 573-4):

Some wives of investors who themselves invested in the project with their husbands did not see or read any of the documents but relied on discussions with their husbands. They too should succeed in this case. It is a commonplace today for investments to be made by or in the names of various members of a family or of family companies or trusts. Indeed, the brochures not only recognized but suggested this course in the present case. I am satisfied that Delita, Glasson, Lewin, Morrison and Bennett were well aware of the likelihood that the documents or their contents, and any oral representations that may be made by or on behalf of Robert Morrison & Associates, would be passed on to or come to the attention of such members of the family of clients of Robert Morrison & Associates or members of the family of those who otherwise got in touch with the firm. Indeed, they supported and adopted this course of conduct. The forms of application to join the trusts and partnership and the moneys in support of them were all received and the moneys used and applied to the knowledge of Glasson, Lewin, Delita, Morrison and Bennett.

I adopt as a correct statement of the law the following passage from Spencer Bower and Turner on Actionable Misrepresentation 3rd ed, para 165: "But, further, even where B is not known or believed to be, and is not in fact, the principal or partner of, or otherwise associated with A, the representor may yet either accompany his representation to A with a direct instruction or authority to repeat it to B, or make it with an implied intent that it shall come to the notice of B, and be acted on by him - such implication being made from the representor's express declarations or admissions, or from his making the representation with knowledge that A intends to pass it on to B, for him to act upon, or with knowledge subsequently acquired, but before B has acted upon it, that A has so passed it on to B for that purpose. In any such case B is deemed to be the representee, if and as soon as the representation has been so passed on to him, and he has altered his position on the faith of it, whether A is or is not also to be accounted a representee, which depends upon the question whether he was intended solely as the living medium of communication, or as a person himself to be influenced by the statement, as well as the transmitter of the influence to B, which again depends upon all the circumstances of the individual case. Whenever such intention is neither established directly by evidence, nor as an implication from the proved or admitted facts, B is not in law the representee; A, of course, is; but, in most of the cases which raise the question, he fails on the ground that he was not the person injured.

240 Mr Faulkner submitted (written closing submissions, para 197) that the question was whether AVK could reasonably have foreseen, understood or expected that its representation would be communicated to Johnson, or to someone in Johnson's position. I agree.

241 Put compendiously, it seems to me, Johnson must show that AVK made its representations knowing, intending, or expecting that they would be passed onto a third party principal; or in circumstances where, objectively, a reasonable person in its position and with its knowledge must have understood that this was likely.

242 In this case, the information available to AVK over time included the following elements:

(1) it knew that a consultant, Webb, was preparing a specification on behalf of an unnamed principal for the supply and installation of an additional generator set to be operated as part of an end user's emergency power supply system for a data processing centre (all that comes from the draft specification which was provided to AVK, but assumes - I think reasonably - that the draft specification was substantially in the form of the final version);

(2) EPSA wanted to submit a tender, or tenders, for supply of the new generator set;

(3) the new generator set would be required to work in parallel with the existing generator sets;

(4) AVK had supplied the existing alternators (and, it is clear, had kept records of that supply); and

(5) EPSA needed to ensure that what it offered would operate in parallel with the existing generator sets; thus, EPSA needed to know, among other things, that the winding pitch ratios of the existing and new alternators would be the same.

243 AVK did not call any evidence which showed the state of mind or understanding of its relevant employees, in particular Mr Vogler and Ms Spies. Its only witness of fact was Mr Dragonas, and he did not touch on this question.

244 I draw the inference, in the absence of evidence to the contrary, that Ms Spies (and perhaps Mr Vogler) read the draft specification. I do so because, obviously, the draft specification was sent to AVK to enable it to understand the duty that the new generator set was to perform.

245 Further, AVK must have understood that EPSA required information that would enable EPSA to submit a conforming tender. For the tender to be conforming (and in any event, as a matter of common knowledge among electrical engineers and suppliers of electrical equipment), one requirement was that the winding pitch of the new alternator should match the winding pitch of the existing alternators.

246 Further, I infer, AVK must have understood that one of the reasons why Mr Morley expressly referred to the serial number of one of the existing generator sets was to enable AVK to identify it. AVK would have to identify the existing generator sets so that it could ensure that the new alternator that it was asked to supply would be capable of operating in parallel with them.

247 All of that suggests very strongly that AVK knew that it was likely that EPSA would rely on the information supplied by it to prepare a proposal, or tender, that would conform to the requirements stated in the draft specification. But it does not follow from this that AVK knew, or intended, or understood, that the information it supplied to EPSA would be passed onto the principal; nor that it should reasonably or objectively have expected that this would be done.

248 At this point, I repeat that in fact, EPSA did not order an alternator from AVK. It ordered an alternator from one of AVK's competitors, Caterpillar. Mr Christie submitted that this was a relevant limiting factor to the use that, AVK would expect or ought reasonably to expect, would be made of information supplied by it to EPSA. I do not agree.

249 In my view, having regard to the evidence of practice in the electrical industry, AVK must have understood that one of the purposes of EPSA's inquiry was to ascertain the winding pitch of the existing alternators. I say that because the experts were unanimous in their view that a common, and appropriate, way for a contractor to ascertain the winding pitch of an existing alternator was to ask the supplier.

250 I do not think that AVK could have been so naïve as to think that EPSA might not seek competitive quotations for the supply of the new alternator, although I acknowledge (as Mr Christie stressed) that Mr Morley, in one of his emails, had indicated in his email of 25 January 2006 to Ms Spies that "they want to stay with AVK". AVK might be entitled to think that it had the inside running if it were able to supply a machine on terms competitive as to price and delivery time; but it must have understood that, if another supplier could beat it on either or both of those criteria, that other supplier might win the job.

251 Thus, I infer, contrary to Mr Christie's submissions, AVK should reasonably have understood (if it did not in fact understand) that EPSA required information as to the winding pitch of the existing alternators not just for the purpose of deciding whether to purchase whatever AVK might offer but, more generally, for the purpose of deciding how to structure its tender.

252 That is something of a diversion, but it does not seem to me to be entirely beside the point. The question is, in effect, how far should AVK have understood the information provided by it to EPSA was likely to go?

253 To my mind, the answer to that question is that, if AVK did not expressly know or understand it, nonetheless it ought reasonably to have expected that the information would be relied upon by EPSA for the purpose of preparing a tender, and that this reliance might extend to preparing a tender that did not specify equipment supplied by AVK.

254 What were the circumstances known to AVK when it provided information to EPSA? As they appear from the emails passing between EPSA and AVK, those circumstances include at least the following:

(1) some years ago, AVK had supplied two generator sets for what was then known as the "Cathay" building or project;

(2) a consultant, Webb, was preparing a specification for upgrading the emergency power supply in that building;

(3) that specification was being prepared on behalf of a principal who was either the owner or occupant of the building, or a contractor who would execute the project on behalf of the owner/occupant;

(4) the new alternator was required to work in parallel with, and generally to be compatible with, the existing alternators that AVK had supplied some years ago;

(5) EPSA proposed to tender to carry out the supply and installation of the new generator set.

255 It must have been apparent to AVK that EPSA's tender would be based on, among other things, information supplied by AVK. To the extent that (for example) EPSA's tender offered to supply an alternator manufactured and sold by AVK, AVK must have understood that it was likely that the technical data for that alternator would be included in EPSA's tender.

256 Further, an as a matter of both plain language and basic electrical engineering practice, AVK must have understood that any tender to supply a new generator set to operate in parallel with the existing generator sets would represent either expressly or by implication, that, among many other matters relating to compatibility, the new alternator would have the same winding pitch ratio as the existing alternators.

257 Finally, I think, AVK must have understood that any tender submitted by EPSA would be considered by the consultant and, perhaps, by the principal for whom the consultant had been retained. If the principal were an engineering contractor, then the likelihood is that it would conduct an independent review of the tenders. If the principal were the owner/occupant of the building, it is perhaps less likely that it would carry out its own review; but in this case, the consultant's review would be carried out for the purpose of informing the principal of the elements and merits of the competing tenders.

258 In those circumstances, I conclude, it is more probable than not that AVK in fact understood that information supplied by it, and representations made by it, would be passed on through EPSA to the consultant and, through the consultant, to the principal. In reaching this conclusion, I take into consideration the fact that no relevant witness from AVK was called. I accept, as was uncontroversial, that Ms Spies had left the employ of AVK and her whereabouts were not known. But she was working under the supervision of Mr Vogler, who in turn was working under the supervision of Mr Slgini. Neither of those gentlemen was called. There was no suggestion that they were unavailable (there was no evidence either way which, contrasted with the positive evidence as to Ms Spies, could lead one to think that they were available if required.)

259 Even if there were no actual understanding (that is, even if what I have just said is incorrect), nonetheless, it seems to me, the circumstances that I have described lead to the inference that AVK, had it turned its mind to the question, must have understood, or appreciated, that the information it provided and the representations that it made, relevant to EPSA's tender, would be passed on through EPSA to Webb and the principal in the manner that I have outlined.

Reliance

260 In fact, that is precisely what did happen. Both Webb and Johnson reviewed the tender material. Both Mr Bowers and Mr Buttifant (and others, I think, from each organisation) understood that AVK proposed to supply an alternator having a winding pitch of 2/3. Each of them understood that this meant, among other things, that AVK, which had supplied the original machines, was of the view that a new alternator with a winding pitch ratio of 2/3 was capable of operating in parallel with the existing machines. The inevitable inference from this, to anyone in the field (including Mr Bowers and Mr Buttifant), is that the existing machines included alternators with that winding pitch ratio.

261 Mr Buttifant does not appear to have had this understanding from the very beginning of his involvement in the project. But he became aware, well before he considered the tender material and Webb's recommendations on it, that it was critical that the winding pitch ratios of the proposed new alternator and the existing alternators should be the same.

262 The information supplied and representations made by AVK:

(1) were relied upon by EPSA, through Mr Morley, for the preparation of what it said was a conforming tender;

(2) were relied upon by Webb, through Mr Bowers, when he assessed the tender as conforming, on the basis (among other things) that it included a proposal to supply an alternator with a winding pitch ratio of 2/3; and

(3) were relied upon by Mr Buttifant in the same way when he read and assessed the tenders and Webb's summary of them.

263 Mr Morley, Mr Bowers and Mr Buttifant each gave evidence to this effect, as to his part in the process. I accept that evidence. It is inherently plausible. To the extent that it was challenged, it was not shaken. And it derived strong support (in Mr Buttifant's case, in particular) from contemporaneous documents.

264 To my mind, as I have said already, the inescapable inference from what AVK said and did is that the existing alternators had a winding pitch ratio of 2/3. Otherwise, it could not have offered to supply a new alternator having that winding pitch ratio: the new alternator would not have been capable of operating in parallel with the existing ones.

265 In the end result, EPSA did not supply, and Johnson did not install, the alternator that was the subject of AVK's offer. AVK was unable to deliver the new alternator for a considerable period of time. IBM did not want to wait so long. Accordingly, EPSA sourced and agreed to supply, in the manner that I have outlined, a different alternator, but one having the same characteristics.

266 I have no doubt that EPSA, prepared, and Webb and Johnson assessed, the proposal to supply the alternative alternator based on their understanding, justifiably gained from the information supplied and representations made by AVK, that the new alternator must have a winding pitch ratio of 2/3.

267 Thus, I conclude, that information and those representations remained effective even though the equipment ultimately purchased came from a different manufacturer.

The representations were misleading or deceptive

268 If (as I have concluded is the case) AVK did make the representations alleged, there can be no doubt that they were incorrect. The winding pitch ratio required to match the existing alternators was 13/15, not 2/3. The winding pitch ratio of the existing alternators was 13/15, not 2/3. And the alternator that AVK offered to supply was not suitable for operation in parallel with the existing alternators.

269 In those circumstances, I conclude, the representations were indeed misleading or deceptive. Although AVK put this in issue, I really do not understand how it can be said that they were not.

Other answers to the direct reliance case

270 AVK raised other answers to Johnson's direct reliance claim. First, it submitted, in considering the question of damage, it was necessary for Johnson to show what its position would have been but for the contravening conduct (Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 at [42] (McHugh, Hayne and Callinan JJ); Gates v City Mutual Life Assurance Limited (1986) 160 CLR 1 at 13 (Mason, Wilson and Dawson JJ)). But in this case, Mr Christie submitted, Johnson had not shown what it would have done had it not been for the alleged misleading or deceptive conduct; it had not advanced a "no transaction" or "different transaction" case.

271 Next, Mr Christie submitted, any consideration of the question of causation must take into account the purpose for which the question is being considered. Where the purpose is to see if causation is demonstrated for the purpose of vindicating the consequences of breach of some legal norm, the policy or rationale underlying that norm must be taken into account. (See, for example, Henville v Walker (2001) 206 CLR 459 at [98]-[103] (McHugh J); Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 at [96], [99], [100] (Gummow, Hayne and Heydon JJ).

272 These two issues are related, because it is clear that, for the purposes of attributing liability for misleading or deceptive conduct and assessing damages under legislation such as the Trade Practices Act 1974 (Cth), questions of causation and damages are closely linked. See the joint judgment in Marks at [43]; and see Gummow J in Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 at 419: in particular, his Honour's well known and oft-cited reference to the "apparent telescoping of what to the common law would be issues of causation, remoteness and measure of damages".

Causation

273 I start with the second submission. In support of that submission, Mr Christie referred to what McHugh J said in Henville at [103]: "if the conduct merely provides the reason why the person acted, it will not be sufficient to establish a causal connection unless the purpose of the legal norm that the defendant has breached is to prevent persons suffering detriment in circumstances of the kind that occurred".

274 McHugh J gave the example of a broker who negligently advised a client to retain shares, because they were a good investment. His Honour said that the broker would be liable for any loss incurred by retaining those shares in reliance on the advice. However, his Honour said, if the client, again relying on that advice, decided to buy more shares, the broker would not be liable for further losses unless the retainer imposed a duty to advise in respect of purchases.

275 To my mind, the example given by McHugh J highlights the need to analyse in detail the conduct said to be misleading or deceptive, the context in which it occurred, and the acts said to have been done (or omitted to be done) in reliance upon it.

276 Mr Christie submitted that to the extent that AVK had supplied information and made representations, it had done so for the purpose of inducing EPSA to purchase the alternator that AVK offered to supply. He accepted that if EPSA had relied on the information and representations to do so, and had suffered loss as a result, vindication of the statutory purpose found in ss 52 and 82 of the Trade Practices Act would require that AVK be responsible for that loss.

277 However, Mr Christie submitted, AVK was in fact in the position of the broker whose client relied on the advice to purchase more shares. In this case, he submitted, EPSA relied on the advice (to the extent that it did) in deciding to purchase an alternator supplied by a competitor to AVK. That is undoubtedly correct, as a matter of fact. But AVK either knew in fact, or must have understood had it turned its mind to the question, that:

(1) as the manufacturer of the original alternators, it was the ultimate and reliable source of information as to the technical characteristics of those alternators, including their winding pitch ratio;

(2) anyone who wanted access to that information was likely to contact AVK for that purpose;

(3) EPSA wanted a quotation for a new alternator to work in parallel with the existing ones;

(4) it was important that the new alternator have the same winding pitch ratio as the existing ones, and that it be compatible (for want of a better word) in all other material respects;

(5) by offering to supply a new alternator with a winding pitch ratio of 2/3, AVK was effectively representing (because it was required to work in parallel with the existing ones) that the existing alternators had the same winding pitch ratio;

(6) EPSA would be likely to rely on this and other information supplied, and other representations made, by AVK, for the purpose of formulating its tender;

(7) in the event that, for whatever reason, AVK's offer was unacceptable, it was likely that EPSA would look to a competitor;

(8) in doing so, it was likely (indeed, I would have thought, inevitable) that EPSA would continue to rely on the information supplied, and representations made, by AVK.

278 Those circumstances go far beyond the simple case of limited advice postulated by McHugh J in Henville. The superficial analogy between the facts his Honour postulated and the facts of this case does not justify the weight that Mr Christie sought to put on his Honour's observations. That is because, in my view, it is inherent in the factors I have summarised and the conclusions that I have expressed that the purpose for which the information was given, and the representations made, was wider than the limited one that Mr Christie put.

279 As Gleeson CJ pointed out in Travel Compensation Fund v Tambree (2005) 224 CLR 627 at [30], when one asks whether a person suffered loss or damage by misleading or deceptive conduct, and one assesses the loss so characterised, it is the purpose of the statute, considered against the facts of the particular case, that gives the answer to the question of causation. And as Gummow J said (although in a different context), the reason for answering a question of causation is to attribute responsibility under some rule of law; and one cannot do that without knowing the purpose and scope of the rule (Chappell v Hart (1998) 195 CLR 232 at [63]).

280 Accordingly, I conclude, this is a case where vindication of the policy underlying ss 52 and 82 of the Trade Practices Act requires, in the circumstances of this case, that AVK be held liable for the consequences of its misleading or deceptive conduct.

Damages

281 Returning to the first submission, as to the related question of damages, I do not think that there is some inflexible principle that in each case of misleading or deceptive conduct, proof of damages requires proof of either a "no transaction" or "different transaction" outcome. As McHugh J said in Henville at [131], in particular cases, "general principles for assessing damages may have to give way... to solutions best adapted to give the injured claimant an amount which will most fairly compensate for the wrong suffered".

282 McHugh J amplified that at [133] to [135] by analogy to the law of deceit. In such a case, his Honour said, damages consider how much worse off the plaintiff is as a result of the fraud.

283 At [135], his Honour said that vindication of the statutory purposes would be achieved "by ensuring that consumers recover the actual losses they have suffered as a result of contraventions of the Act". Where conduct in contravention of the Act induces a person to act in a way that results in loss, "an award of damages that compensates for the actual losses incurred in embarking in that course of conduct best serves the purposes of the Act and should ordinarily be awarded".

284 In Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341, the Court of Appeal of this State was concerned with misleading or deceptive conduct that induced a contractor to enter into a contract on certain terms. The principal represented that there were no plans available of a certain outlet pipe. The contractor calculated the amount to be allowed for excavation on the basis that the ground level could be inferred from surveys and other information that the principal did supply. There was in fact a plan of the outlet pipe, and that plan, if disclosed to the contractor, would have told it that far more excavation was required.

285 The Court of Appeal held that the contractor's loss was the actual cost to it of carrying out the additional excavation (see Beazley JA, with whom Ipp and Tobias JJA agreed, at [114]). Beazley JA said at [114] that the "additional cost is a loss recoverable by way of damages under s 82 because it is the "prejudice or disadvantage" that the appellant suffered by entering into the contract on the basis that it did".

286 In this case, the loss suffered by Johnson (and, on my findings, by EPSA) is the cost of providing three alternators that could operate in parallel. For reasons that require a little further elaboration, that involved replacing, not the new alternator, but, rather, the two existing ones. But in principle, what Johnson did was ensure that the works were completed in the way that they should have been completed had AVK supplied correct information about the existing alternators.

287 Adapting the language of McHugh J in Henville at [135], the actual loss suffered by Johnson as a result of AVK's misleading or deceptive conduct was the cost of making good the consequences of that conduct, by ensuring that the new and the old alternators were compatible.

288 It follows, in my view, that Johnson has made good its primary case, of direct reliance, against AVK.

Third party reliance

289 The issue dividing Johnson and AVK was whether this was a true case of "third party reliance", or whether it was a case of "indirect causation". An example of the former may be found in the decision of Lockhart J in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526. In that case, the applicant and the respondent were competitors in the market for veterinary products. The applicant claimed that misleading or deceptive conduct by the respondent, as to its products that competed with the applicant's products, caused consumers to buy the respondent's products in preference to the applicant's, thus causing loss to the applicant. It was consumers who relied on the misrepresentations made by the respondent, not the applicant. As the Court of Appeal said of that case, in Digi-Tech (Australia) Limited v Brand (2004) 62 IPR 184 at [155]:

... the chain of causation was as follows: first, misleading conduct by the defendant; second, an innocent party is induced by the misleading conduct to act in some way; third, the innocent party's act, by its very nature, causes the plaintiff loss. On this basis, no act of the plaintiff contributes to the loss. The chain of causation is complete without there needing to be any act or omission on the part of the plaintiff.

290 Hampic v Adams [1999] NSWCA 455 provides another example. In that case, the plaintiff's supervisor was induced, by a label that was misleading or deceptive, to direct the plaintiff to use the defendant's product (which carried the label) in an unsafe way. The plaintiff was injured. The Court of Appeal held that the plaintiff should recover damage from the defendant under s 82 of the Trade Practices Act. See Mason P and Davies AJA (with whom, on this point, Giles JA agreed) at, in particular, [35] - [36]:

[35] S82 of the Trade Practices Act gives a cause of action for damages to "a person who suffers loss or damage by the conduct of another person" that was done in contravention of s52 and certain other provisions of the Act. The section does not stipulate any particular manner in which the loss or damage must be suffered. The requirement of causation is not a stringent one (see generally Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25). In Jansen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 Lockhart J held that there is no requirement that damages can be recovered only where the applicant relies directly upon the conduct of the party constituting contravention of the relevant provision. This decision has been followed in several later cases and the reasoning was expressly approved by Gummow J in Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12 at 30-31.

[36] There is a point of distinction between this case and Glendale. The present respondent never saw the label. Nevertheless, we would not regard this as precluding reliance upon s82 on the basis of the claim for damages. Mr Ling read the misleading label and his response was to distribute the product in an undiluted state and without adding warnings of his own that might have offset, at least in part, the absence of repeating such warnings as there were on the label.

291 The "indirect causation" class of cases is exemplified in decisions such as Digi-Tech (Australia) Limited v Brand and Ingot Capital Investment Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653.

292 In Ingot, Ipp JA described the "indirect causation" approach at [615], by reference to Digi-Tech:

... persons who claim damage on the ground of misleading or deceptive conduct in contravention of s 52, and who allege that they incurred those damages by acquiring something in consequence of such conduct, must prove that they were misled by that conduct. If that is not proved, the plaintiffs failed to establish that the damages claimed were suffered "by" that conduct.

293 At [617] of Ipp JA's reasons, his Honour explained the distinction between the two classes of case:

.... In the [Janssen-Cilag] category of case the plaintiff is a passive victim of misleading conduct. No action or omission by the plaintiff affects the loss it suffers. By contrast, in the [Digi-Tech] category of case, the plaintiff acts or refrains from acting to his or her prejudice by reason of conduct of a third-party brought about by the defendant's misleading conduct; the plaintiff's conduct is a necessary link of the chain of causation.

294 Because the question is entirely moot, it does not seem to me to be necessary, let alone desirable, to lengthen these reasons by speculating on what the outcome might be if Johnson were forced back onto its third party reliance case. To the extent that the relevant facts are in dispute, I have found them; and the question of characterisation of those facts, in terms of third party reliance, can be dealt with if it arises without the need to make any further findings of fact.

Quantification of damages

295 Johnson took the course of replacing the existing alternators with new alternators having a 2/3 winding pitch ratio. Thus, other technical considerations apparently being satisfied, the new generator set was able to operate, as specified, in parallel with the modified existing generator sets. Johnson claims the cost of supply and installation of the new alternators, together with all associated costs.

296 In addition, as I have noted, IBM required that the temporary generators be kept on hire, to fulfil the role that the third generator set was intended to fulfil, until the rectification works could be completed. Johnson claims the cost of hire over that time.

297 There are other, relatively incidental, costs claimed, together with Johnson's contractual markup. Those incidental costs were not challenged. Nor was the markup.

298 As I have noted at [196], Webb submitted that, in the event it were found liable, Johnson should not recover from it the cost of supplying the new alternators. That was so, Webb submitted, because, under the terms of the contract between Johnson and EPSA, Johnson could require EPSA to replace the non-complying alternator with a complying alternator, and EPSA was obliged to do so. That proposition is correct, as a matter of construction of the contract.

299 However, the evidence on this point was clear. If Johnson were to take that course, it would have to wait many months for AVK to supply a new alternator having a 13/15 winding pitch ratio. Apparently such alternators are now uncommon, and are made only to special order. The cost of hiring temporary generators for those additional months would have eaten up the saving that might have been achieved by calling on EPSA to perform its contract.

300 On my findings, Webb's submission is not relevant. But I mention it because Mr Christie embraced the submission. The answer is the same. Following the contractually available course would have diminished the claim by the cost of the new alternators, but would have increased it by a balancing amount: the cost of hire of temporary generators.

301 Mr Christie relied on some expert evidence which suggested that there were alternative approaches to solving the problem, using various devices to attempt to isolate the relevant parts of the new generator set from the existing generator sets. It is not necessary to go to the detail of those solutions. They were demolished comprehensively by Johnson's expert witness, Dr Colin Grantham. He said, of the alternative approaches advanced by AVK, that they would not achieve the purpose of enabling the machines to work in parallel and safely. It is not necessary to go to the detail. It is enough to say that, although neither expert was cross-examined, Dr Grantham's reasoning was not challenged in any report in reply, and I find it persuasive.

302 There is, however, one argument that requires closer examination. Mr Christie submitted that there was another alternative rectification option, known as option 7. That involved taking one of the existing 13/15 AVK alternators on the side 2 emergency power supply (the side which provided standby power generations for the building's mechanical services) and putting it on the new diesel motor that EPSA supplied. The new AVK alternator could then have been used on the side 2 engine, because apparently it was not critical that the side 2 generators should operate in parallel.

303 Mr Christie submitted that this was in fact IBM's preferred approach. I do not agree. That was the view of Mr Ibels. But it was not the view of Mr D'Arcy. And Mr Buttifant made it clear that it was Mr D'Arcy who gave instructions.

304 More importantly, however, I do not see why Johnson (or IBM) should be required to accept some second-rate solution. IBM had two sets of emergency generators. Each set comprised two machines that could operate in parallel. It wanted a third machine to operate in parallel with the side 1 generators. If option 7 were to be followed, then the side 2 generators would no longer be capable of operating in parallel. IBM was entitled to have what it had bargained for; and Johnson was required to provide that. IBM should not be required to accept some lesser solution, and Johnson should not be held entitled to damages only on the basis that this lesser solution could be foisted on IBM.

305 The result of what has been done is that there are now two spare alternators. One of those has been put into service in some way at the DPC. The other is lying around, unused and awaiting its fate. Those machines have a salvage value, which on the unchallenged expert evidence of Mr Nirev Shah, is $90,000.00. That amount should be deducted from the damages claimed by Johnson.

306 Johnson is entitled in principle to the damages as it quantified them, but making an allowance for salvage value. However, it had quantified damages inclusive of GST. When I raised this point, Mr Faulkner accepted that damages should be awarded exclusive of GST.

307 Johnson also claimed interest. There is no reason why it should not have interest on the (GST exclusive) amount of its damages.

Apportionment

308 The primary position taken by the defendants was that if each were liable to Johnson then (unless Webb's liability flowed only from its indemnity liability under cl 7.1 of the supply partner's agreement), each was a concurrent wrongdoer. They argued for various apportionments between themselves.

309 On the conclusions to which I have come, each of EPSA and AVK is liable directly to Johnson. It is uncontroversial that, assuming the correctness of that conclusion, they are concurrent wrongdoers. It is therefore necessary to make an assessment of the responsibility of each for the overall loss.

310 I should note that EPSA cross-claimed against AVK to cover the possibility that AVK might not be found to be directly liable to Johnson, and thus might not be found to be a concurrent wrongdoer. In those circumstances, EPSA would carry the whole of the primary liability to Johnson, but would be entitled to contribution or indemnity from AVK if its claim against AVK succeeded. On my findings, even if AVK were not directly liable to Johnson, it nonetheless would be liable to EPSA for the consequences of its misleading or deceptive conduct.

311 The exercise of allocation or apportionment of responsibility would be the same in each case.

312 In Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALJR 492, the High Court was concerned with the basis on which contributory negligence should be assessed. Their Honours said at 495 (omitting citations):

The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, i.e. of the degree of departure from the standard of care of the reasonable man... and of the relative importance of the acts of the parties in causing the damage... It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case... .

313 That approach has been applied in the context of apportionment of liability between concurrent wrongdoers under s 35(1)(a) of the Civil Liability Act 2002 (NSW). See Mitchell Morgan Nominees Pty Ltd v Vella (2011) 16 BPR 30,189.

314 When one considers the circumstances of this case, ultimate responsibility for the situation that arose must be attributed to AVK. It was asked to supply an alternator that would operate in parallel with other alternators that it had supplied. It was given the serial number of one of those alternators. It has not been suggested that the information given to it was insufficient to enable it to identify the earlier alternator, nor to recover from its archives the technical characteristics of that machine.

315 The common view of the experts was that it was the practice of manufacturers of alternators, such as AVK, to retain records that would enable the technical characteristics to be identified, and that it was common and good practice to refer to manufacturers if technical details were required.

316 Further, when asked specifically to identify the winding pitch ratio of the existing alternators, AVK did so quickly (see at [103] above).

317 Thus, I conclude that AVK had in its records information as to, among other things, the winding pitch ratio of the existing alternators that it had supplied. There is no suggestion that EPSA had this information. It was not suggested to Mr Morley that his inquiries of AVK were a sham.

318 In those circumstances, EPSA was entirely dependent on AVK for information as to the winding pitch ratio of the existing alternators. It had no ability itself to ascertain that information from other sources. Although, in some cases, those records might be retained also by the owner of the premises where the alternators were stored, it was clear in this case that IBM did not have any such records.

319 Nor was it feasible for EPSA to carry out any check of the information supplied by AVK. In theory, it might have been possible for EPSA to dismantle one of the existing alternators, count the number of slots per pole, and count the number of slots covered by each core (see at [14], [15] above). But no one suggested that this was a practicable course for EPSA to take. Indeed, as I understand the evidence, the experts were of the view that this might not be an appropriate way to ascertain the winding pitch ratio of those alternators.

320 In those circumstances, if EPSA was to tender for the works, it had no practical choice but to do so on the basis of the information supplied to it by AVK. AVK should have known this.

321 Mr Christie criticised EPSA's failure to supply the serial numbers of all the generator sets that AVK had supplied earlier. I do not understand this criticism. Once it was known that the existing sets were formed up into two banks, or sides, with two machines operating in parallel on each side, it must have been obvious to anyone that at least each set of two machines had the same winding pitch ratio. Mr Christie's submissions did not explain why it would have been advantageous, or helpful, to give AVK more machines to research.

322 Mr Christie criticised also the informal language of Mr Morley's emails, and their deficiencies of orthography, syntax and punctuation. He pointed out, correctly, that they were inquiries addressed to people whose first language was not English. But when one looks at the replies, it is obvious that Ms Spies and Mr Vogler each had an excellent command of the English language. And one would have expected that, if they had had some difficulty in understanding Mr Morley's emails, they would have asked for clarification. Further, one might have expected that Mr Vogler at least would have been called to give evidence of any problems caused by the nature of Mr Morley's communications.

323 I refer back to what I said at [242] to [259] above. To my mind, those circumstances make it plain that ultimate responsibility must be attributed to AVK.

324 Mr Christie criticised EPSA (and others) for not making a formal written inquiry of AVK, and not asking for a certified response. That criticism seems to me to smack very heavily of hindsight. Informal as EPSA's inquiries might have been, the point of them was clear. The underlying engineering issue was equally clear. And I repeat that AVK has not called any evidence from which it could be inferred that its approach might have been different had a more formal approach been made. Indeed, I would find it very strange that what I understand to be a large, respected and competent manufacturer of industrial electrical equipment would suggest that its approach to serious inquiries was more or less thorough, and more or less serious, depending upon the formality of the inquiry.

325 The importance of formal inquiry and certified response might well be relevant if EPSA's quality certification process were in issue. But they are not, because the inquiries and responses have been proved through the less formal records that EPSA has produced.

326 Mr Christie submitted that AVK had no duty to provide information about the specifications or performance of the existing alternators. That is undoubtedly correct. But AVK chose to do so, effectively by necessary inference, when it supplied a quotation to supply a new alternator with a winding pitch ratio of 2/3, to operate in parallel with the existing ones. And its attention had been directed expressly to the need to match pitch (see at [47] above).

327 In similar vein, Mr Christie noted that AVK did not say expressly that it had checked the winding pitch ratio of the existing alternators, nor expressly certified what they were. But again, that seems to me to be beside the point. The quotation that it supplied necessarily conveyed both the inference that it had checked and the inference that it was satisfied that their winding pitch ratio was 2/3.

328 To my mind, the various criticisms made by Mr Christie of EPSA's conduct do not deflect the conclusion that, ultimately, it was his client's misleading or deceptive conduct that caused the problems experienced by the parties.

329 The question is not whether EPSA could have made more formal, and better written, inquiries. The question is whether it made plain to AVK the purpose for seeking the quotation and the duty or performance requirements that the new alternator must meet. EPSA did that, both in Mr Morley's emails and by sending the draft specification. AVK chose to respond in the way that it did. It is too late now to complain that more could have been done to enable it to respond more accurately.

330 I conclude that, as between EPSA and AVK, AVK should be responsible for the whole of the loss sustained by Johnson.

Conclusion and orders

331 Johnson should prepare and circulate draft orders to give effect to these reasons, including a quantification of interest up until the date that I will mention in a moment.

332 I stand the proceedings over for directions and orders to 9:30am on 7 November 2013. If there is to be any dispute as to costs, I will deal with it on that occasion.

**********

Decision last updated: 18 October 2013