Coleman v Prentice & Anor [2015] QSC 118

SUPREME COURT OF QUEENSLAND CITATION: Coleman v Prentice & Anor [2015] QSC 118 PARTIES: JOHN W COLEMAN AND DIANNE L COLEMAN (Plaintiffs) v PETER PRENTICE (First Defendant) and AGRIPOWER AUSTRALIA LIMITED (ACN 132 823 226) (Second Defendant) FILE NO/S: SC 189 of 2010 DIVISION: Trial PROCEEDING: Trial ORIGINATING COURT: Supreme Court at Cairns DELIVERED ON: 5 May 2015 DELIVERED AT: Cairns HEARING DATE: 17-18 November 2014 and 19-22 January 2015 JUDGE: Henry J ORDERS: 1. Judgment for the plaintiff against the second defendant in the amount of $265,531 and interest thereon to be determined. 2. The counterclaim and the claim as against the first defendant are dismissed. 3. I will hear the parties as to the quantification of interest and as to costs. CATCHWORDS: CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – REMUNERATION – RECOVERY – where the plaintiff seeks recovery of unpaid invoices – where the plaintiff claims agreement was for payment of hours worked with payment terms of 7 days from invoice – where the defendants claim payment was subject to reconciliation of mined product – where the plaintiff claims unclaimed rent on leased storage facility – where the defendants deny entering lease for storage – where the plaintiff exercised a lien over stored product for unpaid -- 1 of 55 -- 2 monies CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – DISCHARGE OF CONTRACT ON DEFAULT AND LIKE GROUNDS – where the plaintiff terminated the contract on account of unpaid invoices – where the defendant claims termination was unlawful – where the defendant counterclaims an amount for damages for loss of profit on mined product – whether the plaintiff was liable for any loss on account of unsaleable mined product – whether the plaintiff is liable for unaccounted for mined product CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – PERFORMANCE OF WORK – GENERAL – where the parties made an oral contract to perform road and mining works – where the plaintiff worked under the direction and supervision of a representative of the second defendant – where the defendant claims for damages for loss of profit caused by the plaintiff’s work CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – PARTIES – GENERALLY – where the first defendant was the director of the second defendant – whether the contract for works was made with the first defendant or second defendant Mining and Quarrying and Safety and Health Act 1999 (Qld) s 23 Australian Energy Ltd v Lennard Oil NL [1986], cited Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226, 238, cited Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor [2008] NSWCA 323, considered COUNSEL: Dr MA Jonsson, with S Williams for the Plaintiffs PJ Favell for the First and Second Defendants SOLICITORS: Williams Graham Carman Solicitors for the Plaintiffs TressCox Lawyers for the First and Second Defendants -- 2 of 55 -- 3 Index Heading Page A. Introduction 4 B. The dispute in summary 4 C. The issues 7 D. The facts 7 Mr Prentice and Agripower 7 The intended operation 8 Discussion/Contact pre first meeting 10 The first meeting 11 Was the agreement with Agripower or Mr Prentice as an individual? 13 Initial laying of the road 14 Costs of road works 14 Records of work performed 15 The test dig 16 The broadening of the task to mining work 17 The role of Ivar Storronning 18 Mr Storroning’s diaries and presence on site 19 Payment arrangements for mining work subject to an end reconciliation? 20 Top soil stripping and road re-sheeting 23 Progress of mining work 23 Arrangements for screening 24 Screening activity 26 Bagging arrangements 29 Mixing and bagging activity 29 Screening and bagging by Agripower personnel 31 Acknowledgment of managerial failure 32 Storage 34 Invoices 39 Reasonableness of rates 41 Slow down in payments 42 Non-payment of invoices 42 The end of the business relationship 43 -- 3 of 55 -- 4 The retention of product at Uramo 46 Condition of the product at Uramo 47 Presence of oversize granules in processed product 48 Survey 49 E. Did Coleman Contracting terminate unlawfully 50 F. Does the unaccounted for mined earth evidence a breach by Coleman Contracting? 51 G. Is Coleman Contracting responsible for loss occasioned by the unsaleable quality of the bagged product? 52 H. Is Agripower liable to pay the whole of invoices 9 and 10? 53 I. What if any amount should Agripower pay for storage at Uramo? 54 J. Conclusion 55 K. Orders 55 A. Introduction [1] Diatomaceous earth is a sedimentary rock consisting of the fossilised remains of diatoms, a type of phytoplankton. Its potential commercial uses make it a profitable product, but only if its mining and processing are managed properly. [2] A large deposit of diatomaceous earth was identified on Wyandotte Station north of Greenvale in North Queensland. Testing suggested it had potentially significant commercial value as a fertiliser and soil conditioner because of its high levels of plant available silica and the natural capacity of diatomaceous earth to absorb and retain moisture. [3] The second defendant, Agripower Australia Ltd (“Agripower”), secured a mining lease over the deposit. It now mines the deposit successfully. However the commencement of its mining operation in 2009 was an era of early learning, involving a degree of trial and error. [4] The genesis of the commercial dispute with which this case is concerned lies in how the early stages of the mining operation were managed by Agripower, its managing director the first defendant Mr Peter Prentice and its site supervisor Mr Ivar Storronning. At trial the defendants attempted to attribute blame for the consequences of that management upon the contracting business engaged to perform work for them and so avoid responsibility for paying the outstanding invoices of that business. B. The dispute in summary [5] To mine the deposit of diatomaceous earth at Wyandotte Station, Agripower needed to build an access road via neighbouring Gilldale Station. -- 4 of 55 -- 5 [6] The proprietor of Gilldale Station, Henry Daniels, now deceased,1 put Mr Prentice in touch with Coleman Contracting, a local machinery contracting business that had previously done road building work for Mr Daniels.2 The partnership proprietors of that business were the plaintiffs, John Coleman and his wife Dianne (“Coleman Contracting”). [7] It was agreed between Mr Coleman for Coleman Contracting and Mr Prentice for Agripower that Coleman Contracting would build the road. That work commenced on 1 August 2009. [8] Mr Prentice and Mr Coleman subsequently broadened the oral contract, agreeing to Coleman Contracting performing more works for Agripower, including stripping some of the deposit’s topsoil, extracting ore, screening ore, mixing and bagging ore and even storing some of the bagged product at a shed at the Coleman’s station at Uramo. The works were performed under the supervision of Agripower’s site supervisor Mr Storronning and, to a less frequent extent, Mr Prentice. [9] This initial extraction and processing of the product in the latter months of 2009 appears to have been a small operation. It was similar to the scale of a pilot project and much could be learnt from it before further operations were to be undertaken in the New Year after the wet. It also provided Agripower with some bagged product for testing in the agriculture marketplace. [10] Despite the embryonic scale of the project the work involved was costly. Coleman Contracting invoiced in accordance with hours worked, recorded in day dockets, verified by the signature of Mr Storronning. [11] It had been agreed that invoices would be paid within seven days. At first, during August and September of 2009, Coleman Contracting was promptly paid for the work it performed. However the speed with which Agripower paid Coleman Contracting’s invoices slowed in late September of 2009 and it took much longer to pay the Coleman’s invoices throughout October of 2009. [12] The last of Agripower’s payments to Coleman Contracting was made on 10 November 2009. That involved payment of the remainder of Coleman Contracting’s invoice 7 and the whole of Coleman Contracting’s invoice 8. Invoices issued by Coleman Contracting after that time went unpaid. [13] Invoice 9, issued on 10 November 2009, remained unpaid, allegedly in breach of the contract. Consequently, on 1 December 2009, Coleman Contracting withdrew its services. The defendants allege this constituted a wrongful termination of the contract. Coleman Contracting thereafter issued invoices 10 and 11. [14] Invoice 10, like invoice 9, was for the screening and bagging of product and its transportation to the Coleman’s Uramo shed. Invoices 9 and 10 involve a combined total of $238,031.00. They are said to be payable under the contract or as services provided at reasonable rates on request. [15] The defendants deny liability in respect of invoices 9 and 10, principally on the basis that having regard to the amount of earth which was actually extracted and 1 T3-50 L28. 2 T3-41 L22. -- 5 of 55 -- 6 processed they were overcharged and had overpaid for the total services provided. Mr Prentice alleges and Mr Coleman denies they agreed that on the completion of works there would be a reconciliation of the volume of product mined as against invoices rendered, in consequence of which, in the event of a shortfall in volume, Coleman Contracting would have to refund money it had been paid in respect of invoices rendered for work performed. The defendants allege such a shortfall. [16] Invoice 11 was for three months advance payment on storage at the Coleman’s Uramo shed from November 2015 in the amount of $27,500.00. It is said to be payable pursuant to an agreement to lease or as compensation for use and occupation of the shed. The defendants deny there was any such agreement and, even if there was, allege it was breached because the storage afforded inadequate protection of the bags. [17] Mr Prentice sought to remove the bags of diatomaceous earth stored at the Coleman’s Uramo shed but was prevented from doing so by Coleman Contracting, which purported to exercise a lien over the goods pending payment. [18] On 13 April 2010 Mr and Mrs Coleman filed the present claim, claiming $293,031.00 comprised of the unpaid invoices 9, 10 and 11 and an additional $27,500.00 storage charge for a second quarter commencing from 1 February 2010. [19] The defendants counterclaimed on 11 June 2010 seeking damages, the breadth and quantum of which increased in subsequent amendments to the counterclaim. The total counterclaimed is more than $3M and far exceeds the quantum of any set off against the plaintiff’s claim if successful. [20] A significant component of the defendants’ loss of profits claim is an allegation that the product screened by the plaintiffs was rendered unsalable because its granular sizes were not consistent within the saleable range for fertiliser of two to six millimetres. The defendants claim they consequently lost profits in the order of $1.5M. They attribute blame for that outcome on the plaintiffs, notwithstanding Agripower’s oversight of the process. [21] The defendants’ loss of profits claim also alleges stockpiled diatomaceous earth, which was not processed or bagged prior to the withdrawal of Coleman Contracting services, became adversely affected by the weather and thus unusable and unsaleable. [22] A further component of the defendants’ claimed loss relates to a quantity of diatomaceous earth that was allegedly mined by Coleman Contracting but remains unaccounted for. This is said to have given rise to a further significant loss of profits. [23] As to the amounts claimed by the plaintiff for storage at the Uramo shed the defendants deny there was any lease concluded. Moreover they purport to set off any liability for storage costs against their loss of profits in respect of the stored bags on the basis the bags were rendered unsaleable because the plaintiffs allegedly stored them in such a way as to expose them to weather and vermin. [24] The defendants counterclaim also pleaded deficiencies and the need for rectification in respect of the road works but that was not pursued at trial. -- 6 of 55 -- 7 C. The issues [25] The outcome of this case depends heavily upon fact finding. [26] The issues for determination are not readily compartmentalised. They are inter- related and turn to a large extent upon an analysis of the facts of what actually transpired before, during and after the performance of the works by Coleman Contracting. That analysis will culminate in five key questions for determination: (i) Did Coleman Contracting terminate unlawfully? (ii) Does the unaccounted for mined earth evidence a breach by Coleman Contracting? (iii) Is Coleman Contracting responsible for loss occasioned by the unsaleable quality of the bagged product? (iv) Is Agripower liable to pay the whole of invoices 9 and 10? (v) What, if any, amount should Agripower pay for storage at Uramo? [27] In turning to the factual analysis it is helpful to flag two factual features of some significance in considering what occurred between the parties. [28] Firstly, there is Mr Prentice’s assertion that Mr Coleman agreed to work and be paid subject to an end reconciliation of the volume of product mined as against invoices rendered, leaving Coleman Contracting potentially liable to repay Agripower money. It is a surprising and significant qualification to what otherwise appears to have been a straightforward system of progressively invoicing for hours of work performed and verified by Agripower’s site supervisor. [29] Secondly, there is Mr Prentice’s distancing of Agripower from the extent and consequences of it having directed and supervised the work of Coleman Contracting. This bears upon Coleman Contracting’s liability for some of the problems complained of in the counterclaim, particularly the problem with the granular size of the screened and bagged product. This second factual issue also informs the plausibility or otherwise of Mr Prentice’s evidence as to the first. [30] As will become apparent, I did not find the evidence of Agripower’s Mr Prentice on these matters to be reliable. [31] My abiding impression of the evidence generally is that Mr Prentice shaped his evidence to divert blame for the problems arising out of this embryonic mining operation away from their obvious cause – the way in which the operation was managed by Agripower. D. The Facts Mr Prentice and Agripower [32] Mr Prentice has qualifications in mathematics, mining engineering and mineral bio- availability.3 He has worked over many years in the mining industry as an operator and as a mining engineer as well as designing and building mining projects.4 When asked if he had ever mined diatomaceous earth commercially before the Wynadotte 3 T4-18 L40. 4 T4-18 L16. -- 7 of 55 -- 8 operation he responded that he had some experience in about 1984 in consulting for about 18 months in respect of an operation in Nevada which mined and processed diatomaceous earth for filtration purposes. That was obviously a different role than he assumed in the present matter, establishing a mining operation from scratch. [33] Mr Prentice was founding director of Agripower when it incorporated in 2008.5 Agripower was incorporated in consequence of a restructure of arrangements between investors looking to advance a diatomaceous earth project.6 They had been involved in exploring tenement holdings north of Greenvale since 2000.7 It appears some of them also had an involvement with an earlier diatomaceous earth mining venture at Barraba in New South Wales.8 The intended operation [34] Mr Prentice wanted to build a road to the deposit of diatomaceous earth on Wyandotte Station and initiate some mining of the deposit, about 15 to 20,000 tonnes,9 prior to the coming of the wet in the summer of 2009/2010. The product mined was intended for distribution10 to test the market place. [35] According to Mr Prentice the decision to commence operations in 2009 was on the strength of a supply arrangement it was entering into with an entity known as Hortus to sell Agripower’s product as fertilizer.11 Hortus is an agricultural group that offers technical services to farmers as well as distributing fertilizers. Because most fertilizer spreading equipment is configured to spread a product two to six millimetres in granular size, Mr Prentice explained Hortus wanted Agripower to produce diatomaceous earth sized within the two to six millimetre range and bag it into bulk bags of approximately one cubic metre for Hortus to sell to clients.12 [36] When challenged, Mr Prentice could produce no documentary evidence of any agreement having been formalised with Hortus as at 2009.13 In fact a distribution agreement does not appear to have been entered into until about a year later when, on 19 October 2010, Agripower entered into a distribution rights agreement with Nutrifert Pty Ltd, the marketing arm of Hortus.14 Mr Austin Smith, managing director of Nutrifert, testified that there had been earlier agreements with another entity in connection with the venture at Barraba15 but that an agreement with Agripower was not concluded until 2010.16 [37] When the 2009 operation was being planned it was actually intended that the product would be distributed to a Far North Queensland entity known as Miriwinni Lime. That fact was exposed in cross-examination when a plan of operations for the 5 T4-18 L8. 6 T4-18 L47. 7 T4-19 L5. 8 T6-29 L13. 9 T4-52 L1. 10 T4-52 L3. 11 T4-19 L12. 12 T4-19 L33, T4-51 L42. 13 T5-10 L44 – T5-11 L4. 14 T4-52 L12, Ex 30. 15 T6-29 L9. 16 T6-28 L42. -- 8 of 55 -- 9 intended operation was put to Mr Prentice. While that plan17 named a company other than Agripower as the relevant holder of the environmental authority for the operation, albeit a company of which Mr Prentice was also a director, Mr Prentice agreed it was the plan for the intended operation and that he would have given a copy of it to Mr Storronning. The plan, endorsed July 2009, said of the operation: “As this is for testing purposes a limited quantity of DE will be mined, in the order of 23,000 cubic metres. The mined DE will then be carted by truck to the Miriwinni Lime operations at Mt Garnet from where it will be transported and then spread by Miriwinni Lime to parties trialling the DE in and around the Far North Queensland area, this will be done in the same way that Miriwinni lime transport and spread their lime to customers. … Due to the simplicity of the equipment requirements and the mining methods used, the operation will be put out to contractors under the supervision of mine staff. Mining will be carried out on a single shift basis. … Stripping of topsoil will commence in the open pit area within the first few days. In total some 23,000 cubic metres of DE and 2,000 cubic metres of topsoil will be removed during the six weeks mining and rehabilitation period.”18 [38] The arrangement planned with Miriwinni Lime fell through and, as Mr Prentice put it, “that’s why we decided to then screen the product ourselves at site”.19 By the latter months of 2009 it appears Agripower was planning to supply its processed product to Hortus, albeit without a concluded agreement, obviously hopeful of testing and developing market demand. [39] The initial operation was to be on a small scale. As Mr Prentice explained: “[T]he mining operation we were talking about then was only to extract a small quantity—sub—twenty thousand cubic metres of diatomaceous earth—so … it was a very small operation that would be completed within weeks so it wasn’t a … huge operation that you would typically go and find a major contractor that’s worked on the coal fields, for example, and, you know, come up with lots of equipment. You only wanted a small—a smallish type but experienced operator.”20 [40] As the events that followed demonstrate, the intended operation was not one in which managerial responsibility for the efficacy of the mining and processing of the product was to be delegated to a specialist mining operator. Rather, as the plan of operations suggests, Agripower intended to manage the mining and processing of the product itself, with its own mine staff supervising the work of contractors. 17 Ex 3 p 378. 18 Ex 3 pp383, 385. 19 T5-10 L36. 20 T4- 23 L15. -- 9 of 55 -- 10 Discussion/Contact pre first meeting [41] Mr Prentice testified he asked Henry Daniels, the proprietor of Gilldale Station, whether he would recommend any local contractor for “putting in the access road and even possibly carrying out the mining operation”.21 Mr Daniels told him Mr Coleman’s machinery contracting business had done road works on Mr Daniels’ property after heavy rains had harmed his roads and explained he was “very comfortable with what Coleman had done”.22 Mr Prentice testified he asked Mr Daniels to convey Mr Prentice’s contact details to Mr Coleman.23 [42] John Coleman testified that Henry Daniels rang him one night asking if he would be keen to put in an access road for a fertilizer mine that was going to be opened up. Mr Coleman said he was interested.24 He thereafter placed a telephone call to Mr Prentice in which they agreed to an on-site meeting.25 [43] According to Mr Prentice, Mr Coleman said at the outset of that telephone conversation that he was aware from Henry Daniels they were “looking for a contractor to do some road works and some mining”.26 That likely overstates what Mr Coleman had been told, at least in the sense it suggests Agripower was necessarily seeking the same contractor to do both the road works and the mining work. At this stage it is obvious that, at the highest, Mr Prentice wanted a local contractor to perform the road work and merely had in mind the possibility, because of the small scale and simplicity of the looming mining operation, that such a contractor might be able to work on the subsequent mining operation. [44] In cross-examination Mr Coleman was pressed to acknowledge that he had told Mr Prentice in their initial telephone conversation he was “very conversant with mining operations”. Mr Coleman’s response, “I told him what we had been doing, yes”, was not in tone or substance an acknowledgement that he had told Mr Prentice he was very conversant with mining operations. Rather it was an acknowledgement he had informed Mr Prentice of the nature of the work his business had recently done for Kagara Zinc, a large mining operation.27 The reality is that Coleman Contracting had performed earth works for an array of variety of entities and was not a specialist mining operator. [45] In initially giving his account of what was said during the telephone conversation, and also what was later said at the first meeting on site, Mr Prentice did not allege that Mr Coleman had claimed to be very conversant with mining operations.28 However when he was specifically asked whether Mr Coleman had mentioned any experience in mining at the site meeting Mr Prentice responded: “He mentioned to me both in the phone call we had—he said to me he’d been working at Kagara Zinc for some time and had recently— that assignment or contract had come to an end. But he’d had many 21 T4-23 L13. 22 T4-23 L20. 23 T4-23 L24. 24 T3-4 LL32-38. 25 T3-42 L43, T3-42 L28. 26 T4-23 L26. 27 T3-41 L29, T3-42 L37. 28 T4-23 LL25-35. -- 10 of 55 -- 11 years of mining, extracting, quarrying, with his plant and equipment.”29 At an even later stage of his evidence Mr Prentice claimed that Mr Coleman “represented himself to be a very experienced mining contractor”.30 This was an exaggeration of what Mr Coleman had told him. [46] I accept Mr Coleman would have mentioned that his business had on occasion performed work for mines, for example Kagara Zinc. However even allowing for Mr Coleman being keen to secure work for his business, I do not accept that he claimed he or his business had particular expertise in conducting mining operations as distinct from occasionally providing earthmoving services to mining operations. [47] This distinction is important. It is fanciful to imply as the defence case effectively did that Mr Prentice had been led to believe by Mr Coleman that the experience of Coleman Contracting in mining was such that it could be left to conduct the mining operation rather than merely performing work under Agripower’s direction and supervision. [48] The probability is Mr Prentice did not think it essential to secure a contractor with significant mining expertise because the task of extracting, moving and processing the earth on a small scale could be done under the direction and supervision of persons from Agripower, vis Mr Prentice and Mr Storronning, who purportedly had mining expertise.31 The first meeting [49] There followed a meeting at Gilldale Station around the end of July 2009.32 [50] John Coleman testified the persons present at the meeting were him, his friend Mike Donald, Henry Daniels, Peter Prentice, Ivan Storronning and a geologist called Mike.33 [51] John Coleman described meeting at the front gate of Gilldale Station.34 On his account they all then drove past the Gilldale homestead to where the road was to cross into Wyandotte Station35 and then they went back to the Gilldale grid.36 On Mr Prentice’s account they travelled more extensively onto Wyandotte Station looking at deposits of diatomaceous earth in creek banks37 and to the area of the mining lease.38 [52] Mr Coleman recalled there was some ribbon and a couple of pegs near the Wyandotte boundary which he noticed during the drive.39 Mr Prentice testified that 29 T4-30 L13. 30 T5-5 L41. 31 T1-68 L43. 32 T3-5 L5. 33 T3-4 L43—T3-5 L2. 34 T3-4 L41. 35 T3-5 L40, T3-6 L15. 36 T3-6 L18. 37 T4-24 L38. 38 T4-28 L9. 39 T3-49 L35. -- 11 of 55 -- 12 earlier in the year he and the geologist, Michael Leu, had used strands of coloured tape and pegs on the ground or on trees to mark four or five different routes that might suit for the road to be laid within the constraints of the mining lease access road area.40 [53] On John Coleman’s account of what was said at the first meeting, Peter Prentice asked if Mr Coleman would be interested in putting an access track to the mine because there was no road to there. The area was part of a lava tube overflow.41 Peter Prentice said the mine was 12.5 kilometres south on Wyandotte Station. They went for a drive and Peter Prentice and Henry Daniels showed where the road should go, including where it would traverse fence lines.42 Mr Coleman told Mr Prentice what type of material was needed to do the job, telling him the road was very rocky and it would be difficult to foresee what problems that would give rise to once work was underway.43 [54] On Mr Prentice’s account the conversation included discussion to some extent of Mr Prentice’s intended mining methodology of removing top soil and then ripping out and excavating the diatomaceous earth.44 I accept Mr Coleman’s evidence that the potential performance of mining work by his business was not discussed at this meeting.45 Even on Mr Prentice’s account the only engagement of Mr Coleman discussed at that stage was for the installation of the access road: “I said to John, look, I want to keep this very simple. It’s—we’re talking here of a few weeks work to put the road in; let’s not over complicate it. If you can give me a quote for putting the road in, that’s great, but I do know, you know, the boulders are variables.”46 [55] In advance of the meeting Dianne Coleman had written prices for hourly work by different categories of machine work on a sheet of paper, which John Coleman took to the meeting.47 Copies of that document, with different additional notations, obviously added by the respective parties, became exhibits eight and 25 in the trial.48 [56] Mr Coleman testified that he spoke to Mr Prentice about the content of the prices sheet he had in his possession,49 telling him, “That’s what we charge” and that they would charge an hourly rate.50 In contrast Mr Prentice testified the contents of the price sheet were not discussed.51 I did not believe him. Mr Prentice acknowledged he was handed a copy of the prices sheet.52 The exhibit 8 version of that document was acknowledged by Mr Prentice to appear to have some handwriting of his on it, referring to a rate of 1.5 to 3 kilometres per day.53 Mr Prentice obviously gave consideration to the prices in the sheet. For instance Mr Storronning testified that he 40 T4-22 L42-T4-23 L5. 41 T3-5 L34. 42 T3-5 L45. 43 T3-6 L23. 44 T4-28 LL9-30. 45 T3-49 L26. 46 T4-28 L25. 47 T3-6 L30. 48 T3-6 L43, T3-46 L44, T3-48 L35. 49 Ex 8. 50 T3-7 LL5-8. 51 T4-28 L35. 52 T4-31 L44. 53 T4-32 L10. -- 12 of 55 -- 13 was handed Mr Coleman’s pricing sheet after the meeting by Mr Prentice who asked him whether the prices were reasonable and Mr Storronning told him they were.54 [57] On Mr Prentice’s account he told Mr Coleman that they preferred a fixed price and Mr Coleman indicated that he would get back to Mr Prentice.55 I accept Mr Prentice may have asked for an estimate of the overall price and that Mr Coleman may have agreed to provide it, but believe Mr Coleman’s evidence that Mr Prentice did agree to pay the hourly rates quoted by him. [58] Mr Coleman testified that he asked about timing of payment to put in the access track and Mr Prentice said it would be payment every seven days, which Mr Coleman said would be fine.56 Mr Prentice’s recollection was that the topic of payment within seven days was actually discussed and agreed to in a subsequent phone call with Mr Coleman but on any view he agreed to such a payment scheme: “John flagged with me at that point payment terms, and we discussed payment terms. And I said look, normally you do the work and at the end of the month you’d send us a bill and we’ll pay it promptly. John sort of—you know, it’s hard to sort of guess but in the phone calls seemed to err and ahh a bit and I remember this because he said, look, I’d like to get paid a lot quicker. We’ve just finished a contract at Kagara. I’ve got to gear up for this. I’ve got to get all— everything in for it to set it up and the men. Can’t we get paid a lot quicker than that? And I said, well, look—I think I said something along the lines of, well, we could pay a lot quicker—you know, every 14 days. And John was still umming and aahing on the phone and I think I then said, look, ok, we’ll pay every seven days. If you give us the detailed invoice we’ll pay every seven days.”57 (emphasis added) Was the agreement with Agripower or Mr Prentice as an individual? [59] It is clear that throughout his dealings with Coleman Contracting Mr Prentice acted in his capacity as a director of Agripower. Mr Prentice testified that he told Mr Coleman from the outset that he was a director of Agripower.58 [60] Further, throughout the ensuing period in which Mr Coleman’s business performed the work sought by Mr Prentice it issued invoices nominating the “customer” in each instance as “Agripower”. Each invoice was addressed to suite 2, level 10, 70 Castlereagh Street, Sydney, NSW, 2000, Agripower’s registered office.59 That address was ascertained when Mrs Coleman emailed Mr Prentice the first invoice, asking him to forward “the mailing address for your company”.60 Mr Coleman acknowledged in cross-examination that the invoices nominated Agripower as the customer because that is who Mr Coleman thought his business was dealing with.61 54 T1-34 L40 – T1-35 L5. 55 T4-30 L37. 56 T3-7 L11. 57 T4-30 L43-T4-31 L7. 58 T5-14 L43. 59 Ex 3 p369. 60 Ex 3 p3. 61 T3-59 L23. -- 13 of 55 -- 14 [61] Mr Prentice was clearly acting in his capacity as a director of and on behalf of the second defendant company. Coleman Contracting obviously understood it was contracting with the company, not with Mr Prentice as an individual. Mr Prentice assumed no personal liability in connection with the contract, for instance as a guarantor. There is no proper factual foundation for him to be held jointly liable with the company for its apparent indebtedness to the plaintiff. Initial laying of the road [62] Mr Coleman moved his business’s earth moving equipment to the worksite from where it was located at Etheridge Shire Council and at the Coleman’s Uramo property.62 [63] Work for the installation of the access road commenced on 1 August 2009.63 Mr Coleman and his employees lived on site in an accommodation truck and a number of camping trailers.64 They would work a 12 hour day from 6.00am to 6.00pm although on occasion on the direction of Agripower’s site supervisor Mr Storronning, the water truck would commence operations from 4.00am to “beat the heat”.65 [64] Mr Coleman testified that as they dozed the road Mr Storronning would walk in front of the bulldozer “with his GPS and his markings and he would either tape it or he would mark it with a peg”.66 [65] Mr Coleman explained that during the initial laying of the road the material they sourced for sheeting over the surface was red volcanic topsoil dug from pits near the roadside, so called borrow pits, and nearby dams. This was done under the direction of Mr Storronning.67 Cost of road works [66] Mr Coleman testified that from an early stage a lot of basalt boulders were encountered, some of which they were able to pull out. He obtained permission to re-sheet, that is, apply fill over the top, capping over the rock.68 This was mentioned in an email of 4 August 2009 in which Mr Coleman wrote to Mr Prentice, saying inter alia: “The road we are building for you out at Gilldale has a lot of unexpected rock and will need to be sheeted over the top, which is going to slow things down slightly. I have brought this to Ivar’s attention. I anticipate that we can get the works done in approximately 15 days to do the approximate 12kms of road. For all machinery, trucks and camp facilities $132,000. For establishment and disestablishment of all machines and trucks $8,800.”69 62 T3-7 L24. 63 T3-69 L10, Ex 3 p 197. 64 T3-26 LL29-42. 65 T3-27 L5. 66 T3-7 L30. 67 T1-36 L6, T1-37 L44, T3-9 LL10-20. 68 T3-8 L41. 69 Ex 3 p 2. -- 14 of 55 -- 15 [67] Mr Coleman testified the reference to the above amounts related to the access road work70 but denied the reference to $132,000 meant he had agreed to build the road for a fixed price.71 He explained he had earlier provided hourly rates72 and the amounts in the email were estimates.73 That is consistent with the “subject” title of his email being “Estimated costings”. [68] The effect of Mr Prentice’s evidence was that this email had been sent as a follow up to the telephone conversation between the two men that had occurred after the initial on site meeting. The implication of Mr Prentice’s testimony was that the email’s reference to $132,000 was a compliance with Mr Prentice’s seeking of a fixed price.74 [69] It is likely Mr Prentice did ask for an approximation of how much the road works were likely to cost and that the email of 4 August 2009 provided that approximation. However I accept Mr Coleman’s evidence that Mr Prentice agreed to an hourly rate. I do not accept that Mr Coleman intended or Mr Prentice interpreted the reference to $132,000 in the email as indicating that a fixed price would be charged. Mr Coleman foreshadowed from the outset that he would charge at an hourly rate and in due course that is what he did. Mr Prentice raised no complaint when that occurred, doubtless because that is what Mr Prentice had agreed to. Records of work performed [70] The Coleman’s business entered the hours of work performed by their business in proforma books of numbered day dockets, configured so there were duplicate copies of each docket and the top copy could be removed and given to the customer.75 It appears from the day dockets tendered at trial76 that there were apparently different day docket books maintained in relation to the operation of different items of plant and machinery. Most of the dockets recorded between three to five days work although in some instances they recorded only one day. Against each date the nature of the machine being operated, the job being performed and the number of hours taken was recorded for each date entry. There would be corresponding initials entered by the machine operator. [71] Mr Coleman explained the day dockets were filled out every day and, after a number of day’s work, would be given to Mr Storronning to sign.77 It appeared to Mr Coleman that Mr Storronning had “a day diary that he was filling out” and when given a docket book for signature would sit on site in his hire vehicle for a period of time and thereafter return the docket books signed by him, taking the top duplicate copy of each.78 Mr Coleman said it appeared Mr Storronning would look through the dockets thoroughly.79 70 T3-44 L13. 71 T3-74 L27. 72 T3-74 LL4-23. 73 T3-74 L22. 74 T5-13 L36. 75 T3-14 L5. 76 Ex 3 pp 197-316. 77 T3-13 L46. 78 T3-14 LL1-5. 79 T3-72 L31. -- 15 of 55 -- 16 [72] Mr Storronning confirmed once the day dockets were handed to him he would double-check them, referencing his own notes, and then sign off on the day dockets. He explained he did so in his capacity as supervisor on site and that he was responsible for checking hours worked.80 He found no problem with the hours claimed and noted in some instances Mr Coleman did not bother claiming minor times worked.81 [73] Importantly, Mr Storronning signed each docket against the proforma entry “Foreman signature”. This was obviously intended to represent a verification by Mr Storronning that the work recorded had been performed. I accept Mr Storronning actually did verify the work had been performed before signing the day dockets. [74] Mr Storronning would arrange for scanned copies of the dockets to be emailed to Mr Prentice and also forward or deliver the hard copies thereof to him.82 [75] Mr Prentice acknowledged in cross-examination that he was aware of the above procedure and that he received copies of the day dockets from Mr Storronning.83 The test dig [76] Mr Coleman explained that at a time before completion of the access road,84 Mr Prentice asked if he could use the Coleman’s excavator to dig test holes at the proposed mine site and Mr Coleman agreed.85 On his account Mr Prentice said they would hit “pure white” after digging down half a metre. He testified that initially he dug down with a grader blade to one and a half metres but hit nothing. Then one of his workers operated an excavator and dug deeper. After penetrating two and a half to three metres the earth changed to calcrete – hardened coral – then for the next two and a half to three metres it was coloured diatomaceous earth. Then at about a depth of six metres it became white diatomaceous earth. Mr Coleman testified that Mr Prentice and some geologists who were with him tested and measured the earth as they went. On Mr Coleman’s account Mr Prentice’s face showed the result was not as good as expected.86 [77] Mr Storronning recalled Mr Prentice was adamant white high grade diatomaceous earth would be just one metre below the surface but instead they encountered a grey clay like material beneath the calcrete layer and white material was not encountered until they had dug about six metres down.87 [78] On Mr Prentice’s account, the first digging by Coleman Contracting represented the commencement of mining work rather than a mere test dig.88 Mr Prentice arranged for a director of Agripower to be present for this first dig.89 Mr Prentice’s recollection was that the excavator dug through “a depth of about four, five metres 80 T1-38 LL13-26, T1-43 L24. 81 T1-38 L38. 82 T1-72 L13. 83 T5-14 L10. 84 T3-11 L34. 85 T3-9 L46. 86 T3-10 LL1-43. 87 T1-41 LL31-42. 88 T4-37 L25. 89 T4-54 L42. -- 16 of 55 -- 17 max” at the time the ground layers transitioned from over burden into diatomaceous earth.90 He testified the pure white product was struck about five metres down.91 [79] An industrial minerals consultant, David Chadwick, was present for this initial excavation and he testified that the white layer was reached at a depth of six or seven metres.92 [80] The fact that the diatomaceous earth was actually lower down than apparently expected for this area is relevant to the cogency of evidence relating to a survey of the pit discussed below. The broadening of the task to mining work [81] The abovementioned email from Mr Coleman to Mr Prentice of 4 August 2009 provided prices for other work which, according to the letter, Mr Prentice had “asked for”. That work was described in the letter as “top soil stripping” by a bulldozer, “digging and loading of ore” by an excavator and “carting of ore” from the mine site to a stockpile at the Gilldale grid. That such price requests had been made by Mr Prentice demonstrates that by 4 August 2009,93 apparently in the early stages of the building of the access road, Mr Prentice must have had in mind the possibility of engaging the Coleman’s business for purposes beyond that task. This is consistent with Agripower self managing the project. [82] Mr Coleman accepted in cross-examination that by 4 August 2009 Mr Prentice had asked him for prices to do mining work.94 Mr Coleman testified that he initially raised the idea of his business doing more than the access road with Ivar Storronning, saying: “[A]s we were putting the road down, I had spoke to Ivar just very informal, like after work sitting around camp having a beer, who’s going to be doing the mining? And he didn’t know at this stage, and I dropped the seed—the hint that, you know, we’ve just come from a mine before that and we’ve still got plenty of mining gear. You know, if you’re after anyone to do some mining, we’d be keen to throw our hat in the ring. So he was talking—he told me he was talking to Prentice and told him about that.”95 [83] Mr Prentice testified that as the road work was progressing Mr Prentice would give subtle hints that he was interested in his business staying on for mining work.96 [84] Mr Coleman explained that Mr Prentice subsequently spoke to him when visiting the site and engaged Mr Coleman’s business to strip the mine site down to the point where the diatomaceous earth product was.97 [85] On Mr Prentice’s account when the nature of the mining work was discussed Mr Coleman was comforted by Mr Prentice’s assurance he would be present on the 90 T4-41 L46-T4-42 L2. 91 T5-20 L22. 92 T5-61 L17. 93 Ex 3 p 2. 94 T3-44 L40. 95 T3-11 LL4-10. 96 T5-19 L13. 97 T3-11 LL10-17. -- 17 of 55 -- 18 occasion when mining started “to actually run through with him looking at the top soil, the overburden and the layering” of the diatomaceous earth.98 The role of Ivar Storronning [86] Mr Prentice testified Mr Storronning was initially employed part time in mid 2009 and then commenced full time work when Coleman Contracting was engaged.99 Mr Storronning confirmed Mr Prentice had at the outset given him the plan of operations and that his role was that of supervising mine staff referred to therein.100 [87] Mr Coleman testified that Mr Prentice had employed Ivar Storronning as a site senior supervisor, “to supervise the whole project”.101 That role is consistent with the plain meaning of the title by which Mr Prentice described Mr Storronning’s position, namely “senior site executive”.102 [88] Mr Prentice unconvincingly implied that Mr Storronning’s role was essentially confined to maintaining statutory records of all tonnes or cubic metres moved by transport to be screened or processed.103 On Mr Prentice’s account Mr Storronning knew that he had to take the information he received from Coleman Contracting’s truck drivers and “write up those records on site to ensure that the daily diaries and statutory records were all up to date”.104 Mr Prentice’s apparent premise for believing Mr Storronning knew he had to maintain such information is that he understood Mr Storronning had acted as a senior site executive in previous mining roles and also because Mr Prentice personally went through with Mr Storronning the sort of records he had to keep.105 Those records predominantly appear to have been diaries, discussed further below, in which Mr Storronning recorded work site activity as distinct from some more systemic or prescribed record keeping system.106 [89] The notion that Mr Storronning’s role was essentially confined to record keeping is clearly contrary to the evidence of his giving of directions and supervising of work from the very outset of the operation. Mr Storronning testified he started off as the site supervisor surveying where the road was to go by GPS107 and was engaged in supervising Coleman Contracting throughout its involvement.108 He explained he would receive directions about what was to be done on site from Mr Prentice with whom he spoke most evenings.109 [90] Mr Coleman explained that initially Mr Prentice gave directions and then Ivar Storronning directed Mr Coleman and his employees every day, after a morning tool box meeting.110 Mr Coleman testified that Mr Storronning was on the property 98 T4-37 L22. 99 T4-37 L3. 100 T1-33 L11. 101 T 3-8 L2. 102 A term which, for example, pursuant to s 23 of the Mining and Quarrying and Safety and Health Act 1999 (Qld), describes the most senior officer employed or otherwise engaged by the operator for the mine who is located at or near the mine and has responsibility for the mine. 103 T4-35 L6. 104 T4-44 L47. 105 T4.45 L5. 106 T4-45 L18-T4-46 L25; Ex 14, 15. 107 T 1-32 L26. 108 T1-33 L14. 109 T1-33 L30. 110 T3-8 LL1-7. -- 18 of 55 -- 19 every day that the road was being built, overseeing the whole job, and making sure of what was occurring, “the same as any overseer would”.111 [91] Mr Prentice was reluctant to make the reasonable concession in cross-examination that as site senior executive Mr Storronning was responsible for supervision of mine staff.112 He unconvincingly asserted that Mr Storronning was not qualified to supervise, obviously intending to bolster a similarly unconvincing implication by him that on his understanding Mr Coleman was so experienced in mining operations that Agripower did not need its own supervisor of the mining related work his business performed.113 [92] Such an implication by Mr Prentice was at odds with his earlier evidence that: “John wanted to know how we wanted to run the operation because it’s one thing doing the road, it’s another thing running a mine and hauling. And I had told John that we’d put Ivar on to be our SSE.”114 [93] That testimony gave away the true position. Mr Prentice would hardly have told Mr Coleman such a thing if Mr Storronning was merely engaged to maintain records. Mr Prentice well knew Coleman Contracting was not highly experienced in mining work and would need to be directed and supervised in carrying out mining work. Mr Storronning’s diaries and presence on site [94] A number of diaries or notebooks in Mr Storroning’s hand writing were tendered in evidence. Despite the attention given to them in the course of Mr Storronning’s evidence they are not helpful in resolving any major feature of this controversy. [95] The defendants argued it was apparent from the diaries that Mr Storronning could not always have been on site and that he therefore could not in fact have supervised all of Coleman Contracting’s work. The diaries were not particularly clear on the detail of this issue. [96] There was reference in the evidence to two occasions when Mr Daniels banned Mr Storronning from the site, one on 23 October 2009 and one about 21 December.115 At one point Mr Storronning suggested that he was only on site for about 30 per cent of the time after being banned116 however it appears that after the earlier ban Mr Storronning did not actually stay away from the site for a prolonged period and Mr Daniels was apparently persuaded to let Mr Storronning continue to see the operation through.117 Ultimately the evidence as to how long Mr Storronning was away from site after the October ban was uncertain. However I infer it was not a persistent or prolonged absence, for Mr Prentice did not replace him as senior site executive and Mr Storronning continued to verify the day dockets, as the day dockets show. 111 T3-69 L17. 112 Eg T5-12 L16 113 T5-12 L20. 114 T4-34 L45. 115 Ex 19, 16. 116 T2-12 L22. 117 T1-83 L4. -- 19 of 55 -- 20 [97] Mr Storronning’s absence from the site from time to time would have been unremarkable. Further, it is obvious in any event that Mr Storronning could not have witnessed the carrying out of all of Coleman Contracting’s work all of the time, even when he was present on site. He could not be omnipresent. However he would not have needed to be. Like any supervisor he would have been able to make informed judgments, draw inferences from what he saw had been done when he was not watching and develop a sense of which features of the operation warranted more intense supervision than others. [98] One diary written by Mr Storronning118 was said by him to have been fabricated after the event at Mr Prentice’s request and direction as to its content, under threat of not being paid money he was owed by Agripower.119 Mr Storronning eventually claimed privilege on that topic and it is unnecessary to reach a concluded view about his allegation. There certainly are features of the diary’s content, including some criticism of Mr Coleman, of a kind that smack of being written in the aftermath to please the author’s employer. However that does not of itself mean Mr Prentice put Mr Storronning up to writing the entries. For instance a number of emails Mr Storronning apparently wrote of his own volition, at a time when he knew there was a dispute between his employer and Mr Coleman and he had been asked to scrutinise records,120 bear a similar self-serving “siding with the employer” quality.121 [99] Mr Storronning either concocted a diary at the request of Mr Prentice or fabricated a conspiracy allegation against Mr Prentice. I accordingly approached his evidence with caution. In the upshot though his evidence on matters of significance seldom stood alone and it was Mr Prentice’s doubtful reliability on issues of importance which was more concerning. Payment arrangements for mining work subject to an end reconciliation? [100] On Mr Coleman’s account his discussions with Mr Prentice about the performance by his business of mining work and processing did not involve any material change to the existing payment arrangements by which Coleman Contracting would progressively invoice and be paid for work performed. Mr Prentice also acknowledged that when payment arrangements for the mining work were discussed he continued to agree to Mr Coleman’s request that invoices be paid within seven days.122 [101] I am satisfied that the oral contract between them for the performance of the ensuing mining and processing works was that the works would be performed by Coleman Contracting and paid for by Agripower on the same basis as agreed in respect of the roadwork, with Coleman Contracting’s known hourly rates to be charged for various plant and machinery work and payment to made within seven days of invoice. [102] I am also satisfied it was agreed either expressly, by implication or by conduct, that the system of submitting the day docket records of the hours worked for verification by Agripower’s site supervisor would continue. 118 Ex 15. 119 T1-73 L7, T2-26 L14. 120 T4-47 L9, T4-72 L10. 121 He was uncertain in respect of one such email in his name, of 13 December 2009, whether he was the author – T2-52 L14. 122 T4-36 LL20-25. -- 20 of 55 -- 21 [103] However, according to Mr Prentice, when mining work commenced he secured the agreement of Mr Coleman to a quite radical variation on previous arrangements. He claimed it was agreed that at the conclusion of the mining works a survey of the mine site would calculate how much product had been mined and there would be a reconciliation of that amount as against the amount of mined product for which Coleman Contracting had invoiced and been paid. In the event of that exercise evidencing overpayment, Coleman Contracting would repay money to Agripower. [104] The pleading of this alleged reconciliation agreement did not expressly refer to a comparison of amounts charged with volume extracted123 but Mr Prentice testified that is what was to be reconciled under the agreement: “I said this has got to be a very simple operation, It’s a short operation, its small volumes you’re going to be moving and we don’t want to be out there every day trying to work out what is going on. So we agree that, you know, the better way to do it was just keep everything on a cubic metre basis, what’s mine, what’s hauled on a cubic metre basis and at the end of the day, as would be normal, you’d just get a pit survey, reconcile the volume and reconcile it back to the invoices and you’d always expect an over or an under. That’s pretty normal. I mean, in bigger operations, they’d have weigh bridges on site that you’re talking about and every truck would have a weigh bridge docket and you’d tally it all up but there, you’re talking about moving hundreds and hundreds of thousands of tonnes and for this it’s just impracticable. So from my experience in mining, they’re the two ways you do it and the—just a simple cubic metre to keep it going and then reconcile it back to the pit and then there can be no arguments.”124 [105] A third “way”, not acknowledged in that passage of testimony, but particularly apt to a fledgling operation like this, is to simply pay contractors an hourly rate, supervising them to ensure they work during the hours claimed. [106] Mr Prentice’s account of when this alleged reconciliation agreement was struck seemed to be that agreement was reached in a discussion between he and Mr Coleman around 16-18 August 2009125 although the reconciliation concept had allegedly been discussed back on 4 August 2009.126 In a subsequent email to Coleman contracting of 9 September 2009 Mr Prentice did refer to conducting a “reconciliation” but that was only a reconciliation of the contents of an invoice as against day dockets.127 It is remarkable, if there was a reconciliation agreement of the kind testified to by Mr Prentice, that it was not referred to at all in any emails or other contemporaneous documents. [107] When it was put to Mr Coleman that it was agreed there was to be “a reconciliation at the end” Mr Coleman emphatically rejected the notion as totally false and observed not only “that did not happen” but also “and it would not happen”.128 123 Second further amended defence (“Def”) [4(b)]. 124 T4-35 LL14-27. 125 T4-38 L37. 126 T4-38 L43. 127 Ex 3 pp22, 34. 128 T3-75 L30, T3-58 L24. -- 21 of 55 -- 22 [108] The latter point is a powerful one. Mr Coleman’s business operation was premised upon the charging of hourly rates in respect of the operation of his machinery. His method of record keeping and invoicing throughout this mining project involved the recording and invoicing of hours worked, verified by Agripower’s Mr Storronning. Given that methodology and its progressive verification of work actually performed it is inherently unlikely Mr Coleman would have exposed his business to the financial risk inherent in an after the event reconciliation by reference to volumes never recorded by his business. [109] I believed Mr Coleman’s testimony that the first time he had ever heard mention of this supposed reconciliation agreement was at the end of the business relationship when Mr Prentice would not pay.129 [110] It was suggested in cross-examination to Mr Coleman that the email of 4 August 2009 pointed to the agreement made in relation to the mining being for mining to be priced at a cubic metre rate but Mr Coleman rejected that suggestion.130 On Mr Prentice’s account the email followed a request by him, in response to Mr Coleman’s interest in performing mining and hauling work, for Mr Coleman to give Mr Prentice some rates for doing the mining and hauling.131 However Mr Prentice did not testify whether he asked for those rates to be priced per cubic metre, per hour or otherwise.132 Further the relevant content of the email does little to support the suggestion that mining work was to be priced per cubic metre: “…Other prices you asked for: Carting of ore to stockpile at Gilldale grid from mine site $5.15 per cubic metre (11.0hr/day, one lad per hour, truck & dog and type 2 roadtrain, 75cbm per hour) Digging and Loading of Ore by Excavator $154.00 per hour (11.0hr/day, shift approx. 825 cubic metres a day, provided ore is pliable) If ore needs extra digging dozer may have to be employed as well Topsoil stripping by D7E bulldozer $154.00 per hour (unknown depth of topsoil). …”133 [111] Two of the three priced items expressly nominated prices per hour. Moreover the email’s subject heading was “Estimated costings”. When the email’s reference to $5.15 per cubic metre for carting ore is read in that context, the broader context of the parties’ discussions and the fact that work of that kind was performed and charged at an hourly rate, it is likely the price per cubic metre was included as an estimate of what Agripower would in effect pay per cubic metre based on the likely carriage and capacity rates of the machinery operation for which Agripower would be invoiced. [112] In short it is unremarkable that in discussing permanent arrangements for mining work Mr Prentice would have given consideration to whether Coleman 129 T3-58 L27. 130 T3-74 L26. 131 T4-33 L14. 132 T4-33 L13. 133 Ex 3 p 2. -- 22 of 55 -- 23 Contracting’s hourly rates were reasonable by reference to the volume of ore that was likely to be mined and processed. However, I simply did not believe Mr Prentice’s evidence that Mr Coleman agreed to a payment arrangement involving a post payment survey of the mine pit, a purported reconciliation of volume surveyed as against volume charged for and a prospective repayment of money by Coleman Contracting back to Agripower. To the extent any “reconciliation” was ever discussed between Mr Prentice and Mr Coleman it would only have been in the sense of Agripower double checking the invoices rendered by Coleman Contracting as against the day dockets verified by Mr Storronning before in turn paying the invoices. Top soil stripping and road re-sheeting [113] Mr Coleman testified that because the road was built as an access road, not an ore road for carting thousands of tonnes of ore, he suggested they push the first bit of top soil off the mine area, retaining it near the mine for rehabilitation, and use the rest of the soil overlaying the diatomaceous earth to re-sheet the road to build it up to a standard on which road trains could cart and Mr Prentice agreed.134 Mr Prentice acknowledged in evidence that in the course of what he described as the initial “blazing” of the road, it was necessary to do some dressing of the road and that for the fine dressing Mr Coleman was using overburden taken from the mine site.135 Mr Prentice thought the overburden would pack down quite well for that purpose and approved its use.136 [114] Mr Storronning testified that there was a complaint from a neighbour about dust and problems with dust suppression and Mr Prentice recommended they use some of the calcrete layer that came out of the pit as it would compact down very well. [115] Mr Coleman explained that in extracting the soil overlaying the diatomaceous earth there was a transition level in which seams of top soil and dirty diatomaceous earth were mixed so that some diatomaceous earth was amongst the top soil that was used to re-sheet the road.137 Mr Prentice testified that when he learnt diatomaceous earth was being used as road fill he directed that to cease because it was unsuitable for that purpose by reason of its absorptive nature.138 Progress of mining work [116] Once the top soil removal process arrived at the layer of calcrete Mr Coleman recalled Mr Prentice instructed that it be stacked to an area to the side of the pit to be worked at some future time with a crusher.139 [117] Mr Coleman described performing further tasks at the direction of Mr Prentice, Mr Storronning, or both.140 This included the building of a silt trap and bund walls for the safe guarding of an onsite fuel depot141 and the building of a hard stand near the front entrance to Gilldale Station to which the dirty diatomaceous earth could be 134 T3-11 L17-29. 135 T4-34 L20, L40. 136 T5-16 LL41-46. 137 T3-15 LL23-45; also see T1-37 LL5-15. 138 T5-21 L22. 139 T3-16 L5. 140 T3-16 L34. 141 T3-16 L36-T3-17 L6. -- 23 of 55 -- 24 carted.142 The building of the hard stand or run of mine (“ROM”) pad required clearing and removal of boulders and re-sheeting of the ground surface using a layer of dirty diatomaceous earth at Mr Storronning’s direction.143 Mr Coleman testified that Mr Prentice and Mr Storronning then directed that the dirty diatomaceous earth be carted up and put on the ROM stack, with the dirtiest content to be kept aside in big rows with enough room left for the cleaner layers when they arrived.144 [118] In addition to Mr Prentice attending the mine site from time to time there were also regular telephone conversations between he and Mr Coleman. On Mr Prentice’s own account Mr Coleman telephoned him daily during the first few weeks of the project and thereafter every second day until mid to late October.145 [119] Mr Coleman testified that as the excavation descended at Mr Storronning’s direction a decline was cut down into it to permit traffic access.146 He recalled this was done pursuant to plans he saw Mr Storronning draw.147 [120] Mr Prentice testified that Mr Storronning took samples from the pit wall and sent them away for analysis.148 Mr Coleman observed Mr Storronning sieving and taking samples away for testing and also saw that when present, Mr Prentice would also test the diatomaceous earth.149 [121] Mr Coleman testified that when they finally arrived at the white diatomaceous earth, about six metres down, they also commenced excavating and carting it to the ROM pad.150 The white diatomaceous earth was stacked in lines separately on the ROM pad from the dirty white diatomaceous earth.151 Arrangements for screening [122] Mr Coleman testified that as the mining process proceeded he enquired who was going to process the extracted diatomaceous earth, telling both Mr Prentice and Mr Storronning that his business had a screening plant which had been screening gravel for RoadTek from the Main Roads Department.152 [123] Mr Storronning testified that Mr Prentice had him search for a screening plant: “I was asked to do some research and try and locate a screening plant and I did that, but every avenue I took, Peter Prentice said it was too expensive, so… John was asked about his, because he mentioned he had one at his place that he used for doing gravel and Peter Prentice seemed okay with that one being on site and we just had to modify it and put different screens on it.”153 142 T3-17 L20. 143 T3-17 L32, T5-21 L1. 144 T3-17 L43. 145 T4-36 LL38-46. 146 T3-18 LL25-33. 147 T3-18 L33, T3-88 L13. 148 T5-12 L34. 149 T3-19 LL5-11. 150 T3-18 L42. 151 T3-19 LL25-30. 152 T3-19 L43-T3-20 L6. 153 T1-47 L25 -- 24 of 55 -- 25 [124] Mr Prentice acknowledged in evidence that Mr Coleman told him the screening plant had only been used to screen gravel.154 [125] In a letter to Mr Coleman of 22 September 2009155 Mr Prentice wrote: “[W]e would be interested in hiring your mobile screening unit in order to screen product we currently have in stock pile, for the next few months. In addition we would like to look at the hire of this screening unit next year for similar processing of product. We understand that the unit is available and could be delivered to site for immediate processing.” [126] Mr Coleman testified that both Mr Prentice and Mr Storronning inspected his business’s screening plant at the Coleman’s Uramo station.156 When Mr Prentice enquired about the cost Mr Coleman said he knew nothing about the diatomaceous product but he explained it would be necessary to change screens and that while his plant was putting through 600 metres a day of gravel he did not know at what rate it would put the diatomaceous earth through.157 I accept he gave no assurance as to the rate at which he could screen the diatomaceous earth. [127] Mr Coleman said they would charge $220.00 an hour.158 Mr Coleman recalled that some days later Mr Prentice indicated he wanted to engage Mr Coleman’s business to screen the product and wanted him to arrange it to be set up as soon as possible.159 [128] On Mr Prentice’s account of the discussions culminating in the arrangement for Coleman Contracting to screen product at $220 an hour, he agreed to trial Mr Coleman’s screening plant and only learnt once screening was underway and the next invoice was issued that Coleman Contracting was charging $220 an hour.160 On his account when he discussed that rate with Mr Coleman it was explained that was not merely the hire rate of the screening plant but was an all-up cost inclusive of other related activity.161 Mr Prentice testified he told Mr Coleman he could obtain another screening plant inclusive of associated expenses for less, to which on his account Mr Coleman responded: “[Y]es, but you—it may be a number of weeks, if not a month before you get that plant, you can have mine within a week and then think of what it’s going to save you if the wet comes early that you haven’t lost all this money on mining and carting of material to the gate and that was the clincher for me to say to John, yes, let’s go with it.”162 [129] That testimony tends to confirm, as Mr Coleman had testified and as I accept, that the screening price had been agreed to before the plant commenced operations. On any view it confirms even on Mr Prentice’s account that he did accept the rate of $220 an hour. That testimony also highlights Mr Prentice’s desire to screen the product quickly because of the looming wet season. 154 T5-22 L10. 155 Ex3 p25. 156 T3-20 L4. 157 T3-20 LL10-21. 158 T3-20 L18. 159 T3-20 LL25-30. 160 T4-59 L15. 161 T4-59 L21. 162 T4-59 L27, also see T5-23 L14. -- 25 of 55 -- 26 [130] Mr Prentice testified that his agreement to the hourly rate was premised on a discussion with Mr Coleman in which it was estimated there would be a likely throughput of 60 cubic metres per hour.163 Yet as he eventually acknowledged, after some evasive responses, at no point in the screening process did he require any recording of volumes of product processed.164 I do not accept that the agreement as to the hourly rate was conditioned on any particular rate of throughput. [131] Mr Coleman testified he had modifications done to the screening plant by an engineering firm and paid for the screens, which Mr Prentice wanted to be stainless steel to safeguard the quality of the product.165 Mr Storronning testified that Mr Prentice approved the screens.166 Mr Prentice reimbursed Mr Coleman for the screens.167 [132] Mr Coleman testified that he took the screening plant to the area of the ROM pad near the entrance of Gilldale Station in about October 2009.168 Screening activity [133] Mr Coleman testified that Mr Prentice decided to seek a 2-6 millimetre size screened product. This had the consequence that with the finer and oversized product not included there was a low recovery rate in proportion to the totality of the product.169 [134] On Mr Coleman’s account after the screening plant was delivered it was calibrated and its angles were tested by Mr Storronning so as to achieve the product size desired by Mr Storronning and Mr Prentice.170 [135] Mr Coleman explained it was impossible for any overflow on the screening machine to process into the screened product and rather it would be directed by the screening machine into the rubbish pile.171 Thus if there was a problem with intrusion of larger sized granules during screening it had to have been with the screen size settings. [136] Mr Storronning testified that he and Mr Prentice spent about four days sampling product when the plant was being commissioned.172 Mr Storronning acknowledged that after that, while he occasionally double-checked, there was no regular sampling of product size because, “we knew the size was the same every single time it was fed.”173 There is no evidence of any subsequent variation to the screen size settings, which suggests that if there was a problem with the size of the product generated by screening it was likely present and undetected from the outset when Mr Prentice and Mr Storronning oversaw the plant’s set up and undertook sampling. [137] On Mr Prentice’s account: 163 T5-23 L17. 164 T5-23 L11. 165 T3-21 LL17-44. 166 T1-48 L33. 167 T3-21 L29. 168 T3-21 L47. 169 T3-22 LL31-35. 170 T3-22 LL14-18. 171 T4-8 L30-T4-9 L6. 172 T1-87 L16. 173 T1-87 L26. -- 26 of 55 -- 27 “The screening plant had a number of problems initially and then it seemed to screen quite ok. Still continued to have hiccups with it in terms of operational ability. There’d be stoppages and then it would be fixed and work again. I think the—my observation was it was a very old plant and it may’ve been good for gravel but it was not ideal, particularly with how quickly they were feeding material through it all the diatomaceous earth.”174 [138] Mr Coleman was challenged in cross-examination about the alleged failure of the screening to yield a higher recovery rate and to process more quickly. His responses demonstrate where real responsibility for the process adopted lay: “And you were made aware that the screening should produce between two and six mil granules? - - - That’s what they wanted and it’s impossible for it to have no fines for a start. Well, it should have – if it was working properly … yielded 75 percent in that size and the 25 percent would be re-worked? - - - I can only be as good a man as the directions I’ve been given. I was given–told what to do. … I bought the screens. … They … did the testing on it and they–right, ready to go. If someone gives me a direction and they’re paying me, that’s what I do. I don’t go and do the opposite. You told Mr Prentice that your machine could process 60 cubic metres per hour, didn’t you? - - - I told him–we put through 600 cubic metres of type 2.2 grade gravel for the Main Roads Department. That’s what I told him it will do. How would I know what it would do? I’ve never laid eyes on the stuff. I can’t tell you what that screening plant will do until I–I’ve never dealt with this type of gear. See, I suggest to you that if, indeed, the plant could handle and put through 60 cubic metres per hour it could do 100 cubic metres of diatomaceous earth per hour? - - - Well, it was putting through 600 metres a day of 2.2 grade gravel. What I would have said to him and what I did say to him was before the machine left site, so how would I have known what it could do. … But you–do you agree that you told him it would process 60 cubic - - -? - - - No, I didn’t. I told him 600. 600 cubic metres? - - - Of 2.2 grade gravel a day. That’s what it will do. …175 Did you ever have any discussion with Mr Prentice about what was the expected percentage recovery of material that was in the range two to six mils? - - - No. 174 T4-60 LL15-20. 175 T4-7 L27-T4-8 L12. -- 27 of 55 -- 28 Can I suggest to you that the–what was required was a minimum of 75 percent of product being recovered within that specification? - - - He never talked to me about it, no. Did you ever do any testing … to see whether or not the machine–the screen machine was, in fact, producing 75 percent in that specification? - - - I never did any testing. They did it. Did you ever do any testing to check the rate of throughput with the screening plant? - - - No. They–they did it.”176 [139] Mr Coleman explained that in addition to Mr Storronning taking samples and sending them away Mr Prentice also attended at the mine and conducted tests, telling Mr Coleman what to do.177 Mr Storronning testified that Mr Prentice was present throughout the trialling of the screening.178 Some records relating to their screen testing process were tendered in evidence.179 Mr Coleman did not do any testing180, nor was it suggested it was his role to do so. [140] Mr Coleman testified that they screened the white and off-white product separately and put the screened form of each product in individual stock piles.181 [141] On 21 October Mr Prentice asked Mr Coleman to use a rotary hoe on the product before screening in order to reduce clumps in the product so as to process more of it within the 2-6 millimetre size range rather than big lumps being screened off as oversize.182 Mr Coleman procured a rotary hoe and it was used on the product for two days, on 24 and 25 October 2009.183 Mr Coleman testified that Mr Prentice then decided that process was more time consuming than it was worth and ceased it.184 [142] Mr Coleman testified that because the product absorbed water so readily, particularly overnight, it was progressively turned over in its lineal lines on the ROM pad so as to “solar dry it” before screening.185 If this was not done the product would clog the screens.186 [143] Mr Storronning explained the screening process was slow, with only between 50 to 120 cubic metres per day being screened, because the high moisture clayish content of the off white earth clogged both the small and large grade screens and needed to be wire brushed free after every hopper feed.187 He explained more tonnage would have been processed if they were not putting through so much off-white clayish material.188 176 T4-7 L27-T4-14 L11, T4-14 LL32-45. 177 T3-22 LL18-26, T3-69 L42. 178 T1-47 L35. 179 Ex16. 180 T3-80 L12. 181 T3-23 L15. 182 T1-47 L13, T3-26 L15, Ex3 p73. 183 Ex 3 p 302 day docket 470. 184 T3-26 L25. 185 T3-22 L42-T3-23 L2. 186 T3-23 L8. 187 T1-50 LL21-43. 188 T1-65 L18. -- 28 of 55 -- 29 [144] Mr Storronning testified that the system of him verifying hours recorded as worked in the day dockets continued through the screening process and the mixing and bagging process.189 So too did his role as supervisor, overseeing all aspects of the process and giving directions.190 Mr Storronning confirmed that if he had seen any departure from what was required he would have intervened.191 [145] Once screening was underway the Coleman’s loaders were used at an hourly rate.192 Bagging arrangements [146] Mr Coleman testified that he enquired of Mr Storronning what was going to be done with the separately stock piled screened product.193 On his account Mr Storronning apparently spoke to Mr Prentice and Mr Prentice offered the work of bagging the product to Mr Coleman as an alternative to having to get another contractor in to perform the work.194 [147] Mr Coleman testified he agreed to perform the work considering, given Mr Prentices’ representation about the 100 year life of the project, that it was worth his while to build a bagging plant and simply charge an hourly rate for two of his employees to do the bagging.195 Mixing and bagging activity [148] A mixing bay with a clean diatomaceous earth floor was built by Mr Coleman’s business on site as a platform upon which the screened white and off-white product could be blended in proportions requested by Mr Prentice.196 The mixing bay had to be spotless and a regularly cleaned loader was used solely to perform the mixing task.197 [149] Mr Coleman testified that Mr Storronning supervised the mixing process and also took samples of the mixed product.198 Sampled product was forwarded to Michael Leu for testing. [150] The bulk density of the product was a particular focus of Agripower’s attention during testing. Mr Prentice explained clay is inevitably present in diatomaceous earth because diatoms are tube shaped and in their sedimentary state clay embeds within the tube.199 Off-white diatomaceous earth has a higher clay content than white diatomaceous earth and thus a higher bulk density, that is, a higher weight per the same volume.200 The proportion of white and off white mixed together influences the bulk density of the product. 189 T1-50 L15, T1-52 L42. 190 T1-52 L42 – T1-53 L4. 191 T1-53 L7. 192 T3-22 L41. 193 T3-23 L42. 194 T3-23 L44. 195 T3-23 L45-T3-24 L9. 196 T3-24 LL17-23. 197 T3-24 L42. 198 T3-24 L43-T3-25 L2. 199 T5-36 L36. 200 T5-37 LL5-17. -- 29 of 55 -- 30 [151] In an email to Mr Prentice of 14 October Mr Leu noted of samples that the off-white was wetter and denser than the white and suggested they mix a blend of two white to one off-white.201 That did not occur. The volume of available screened off-white product significantly exceeded the volume of screened white product.202 Mr Prentice requested the product be blended in a proportion of two off-white to one white,203 which is the reverse of the mix suggested by Michael Leu.204 Mr Prentice testified that to achieve adequate plant available silicon for fertiliser use he needed a product with more off-white than white.205 [152] In an email of 16 October 2009 to Mr Leu and Mr Storronning, Mr Prentice outlined the need for quite significant testing of the bulk density of unmined and mined diatomaceous earth, explaining Hortus were “now very concerned” with what the product’s bulk density would be.206 The email said of the need to test and determine weights and volumes: “All of this is impacting on sales and production. There is no point in screening and bagging until we know the answers. …[T]his is extremely urgent and … until this is resolved there is no point to have John or his team at site.”207 [153] Further emails between Mr Prentice and Mr Leu on 16, 17, 18, 19 and 22 October confirm detailed attention was being given to the high bulk density of the product in this era.208 [154] Mr Prentice considered other proportionate mixes of white to off-white. For instance his summary of a meeting with Mr Storronning and Mr Coleman of 21 October contemplated blending a ratio of .8 of a cubic metre of white with 1 cubic metre of off-white.209 Further, his notes of a meeting with Mr Coleman of 25 November noted that while they had been blending one third white and two thirds off-white, they would “now blend 1 for 1”.210 [155] As these various records of communications illustrate, there was a degree of trial and error involved in Agripower’s evolution of a processing methodology appropriate to the site’s product and Mr Prentice was actively involved in directing the methodology to be used. Mr Prentice accepted in cross-examination that Mr Coleman and his team had nothing to do with the design or formulation of the processing methodology.211 [156] Mr Coleman explained that as time wore on it was apparent they would run out of the white product first but Mr Prentice did not want them to mine any more of it and, 201 Ex 3 p52. 202 T3-24 L23. 203 T3-24 LL23-30. 204 T5-37 L45. 205 T5-37 L38. 206 T5-39 L65. 207 Ex3 p66. 208 Ex 3 pp 67, 68, 71, 72, 74, 75,76; Ex 10A. Some attention was also given to Ex3 p106 and its reference to a pit having high clay diatomaceous earth but it doubtful whether that is actually a reference to the site in this case. 209 Ex 3 p79. 210 Ex 3 pp123, 124. 211 T5-39 L34. -- 30 of 55 -- 31 instead, altered the blend proportion to three off-white to one white.212 It will be recalled it was the off-white product which caused the most significant repetitive delays in screening. Mr Prentice did not dispute the blend was altered to three parts off-white to one part white but denied he had approved the change and could not explain why it occurred because in his view the amount of mined white diatomaceous earth should not have run low.213 [157] The mixed product was loaded into a hopper which fed the product into one cubic metre woven fertilizer bags which would be hooked up to the bagging plant.214 Mr Coleman testified that Mr Prentice supplied the fertilizer bags.215 [158] Mr Coleman testified that Mr Prentice conducted measuring exercises using the buckets of loaders and excavators and boxes, including a one cubic metre box Mr Coleman had used in the past for gravel screening.216 Mr Prentice explained this box was used to measure the product to be bagged because it was found the one cubic metre bags stretched so that when filled to capacity they exceeded a volume of one cubic metre.217 It was ascertained that a volume of one cubic metre was achieved by filling the bags with product weighed at 830 kilograms.218 On 15 October 2009 Mr Prentice directed Mr Storronning by email that “all existing bags must be redone to be .85 per bag.”219 [159] Mr Coleman testified that after the bags were filled they would be tied off and analyst tags were put on them by Mr Storronning who also noted the number of bags in his diary.220 [160] Mr Coleman testified that Mr Prentice arranged for the collection of pallets and the bags were loaded onto pallets and stacked ready for transportation.221 Screening and bagging by Agripower personnel [161] Mr Coleman testified that towards the end of operations Mr Prentice wanted to accelerate production, working longer hours at the screening plant “to beat the rain”.222 Mr Coleman did not agree to provide the staff for that purpose but did provide his machinery, charging for its after hours use but not charging for the labour to operate it after hours.223 Mr Prentice testified that Agripower employed staff who worked about three or four night shifts, screening and bagging product.224 212 T3-24 LL32-39. 213 T5-38 LL1-20. 214 T3-25 LL3-11. 215 T3-25 LL10-15. 216 T3-22 LL29-37. 217 T5-38 L28. 218 T3-25 LL17-24. 219 Ex 3 p66. 220 T3-25 LL25-33. 221 T3-25 L37-T3-26 L7. 222 T3-27 L13. 223 T3-27 L28, Ex 3 p 304 invoice 10. 224 T5-32 L23 – T5-33 L10. -- 31 of 55 -- 32 Acknowledgment of managerial failure [162] Communication after the event suggests the bulk density problem was not perceived to have been the sole cause of difficulty with the end product. [163] A candid account from Mr Prentice was given in an email by him to Mr Storronning of 18 March 2010, in which he wrote: “You remember the bagged granular product we sent down to Hortus at Toowoomba. This had a bulky density of around 860. A couple of weeks ago we decided to trial a few bags by fine grinding to produce a product we could use for foliar spray. Dave Chadwick, who you have met carried out the grinding trials and tests. A number of issues have arisen which I will set out below: 1. The product trialled had a bulk density of 960 and was running 19.6% moisture. … 3. What David noticed was that there was a lot of fist size lumps of clay in the product which they took out. Fist size is a concern in how it would have got there. 4. David’s major concern was that on his analysis 50% of the product is in fact clay. This will be a disaster if we get this out in the field. Clearly we have had an absolute disaster with what has happened, not so much with the mining but with the screening. For some reasons, assuming David is right, half of the product or close to it, is clay. As you know from the mining point of view there are clay bands which you take out separately and not mix with the raw DE. To have so much clay in the product can only mean that everything was mined and mixed together and we must have mined substantial clay bands for the finished product to be 50% clay, as there is just not that much clay. This probably means that all the bagged product is going to be useless. What concerns me clearly is that the whole operation is going to show up as being a total disaster. …”225 [164] The defendants emphasise this letter referred to the use of product for foliar spray but the problems it identified were obviously not confined to use in that context, vis the references to all of the bagged product being useless and the whole operation being a disaster. That there was such broad concern is also evident in an email sent later that day by Mr Prentice to Mr Chadwick, in which he wrote: “You mentioned to me the issue of clays in the DE product. This is a major concern for a few reasons. As you are aware the clay largely occurs in bands and thus it should be quite easy from a mining stand point to mine the clay bands and place it separately from the raw DE, and interspersed clay would be very minor however to be near 50% clay just does not sound realistic. Secondly it raises with me 225 Ex 3 p165. -- 32 of 55 -- 33 concern, as you have also mentioned the large clay particles in the product, as to whether our process i.e. Screening plant is even appropriate, or not set up correctly or it is not run correctly. …226 [165] Mr Chadwick gave a first hand account of his observations of the product trial saying: “We noticed when the product was feeding out into the mill, you know, there was significant lumps of clay coming out … And some of them were, sort of, fist sized.227 He went onto explain that it was not very clean diatomaceous earth and did not have a high percentage of diatomaceous earth in it.228 He expressed a view that the product did not appear to be the “lower layer white product” and appeared to have “a fair bit” of the upper two layers in it.229 Mr Chadwick made the observation that from what was now known in hindsight about the profiles at the Wynadotte Station site the top two layers gave rise to “quite elevated clay levels”.230 [166] The fact that clay bands had been mixed with layers of diatomaceous earth bespeaks an obvious failure by Agripower management to properly direct and supervise the mining and screening of the product. As to the screening Mr Prentice acknowledged in cross-examination that he had agreed to the use of Mr Coleman’s screening plant and that he and Mr Storronning had overseen its establishment and the commencement of the screening operation with it.231 When it was put to Mr Prentice that he, and at his direction Mr Storronning, had thereafter overseen the ongoing running of the screening operation, he responded: “Well, for probably about eight or nine days, yes.”232 [167] It is unsurprising that on 1 March 2010 Mr Coleman acknowledged in an email to Mr Storronning: “I am under a lot of pressure as regards the operations going forward because last year there were many problems and the management of the mining, hauling to the screening plant, screening were to be blunt, really bad… You and I need to develop a really good position to move forward on because at this stage we are working from a low credibility point as regards management. It is important that I am blunt to you on this, and open.”233 [168] Mr Prentice’s evidence displayed considerably less candour about the bad management when he gave evidence at trial. He asserted that the above email’s reference to bad management was to Coleman Contracting’s management, but that evidence was unconvincing. 226 Ex 10B p2. 227 T5-62 L36. 228 T5-62 LL40-48. 229 T5-63 LL27-33. 230 T5-68 L39. 231 T5-73 LL37-42. 232 T5-73 L44. 233 Ex 3 p163. -- 33 of 55 -- 34 Storage [169] The Coleman’s had a large shed at their station at Uramo. The prospect of Mr Coleman’s business storing some of the bagged product had been mentioned in Mr Prentice’s letter to Mr Coleman of 22 September 2009, referred to above. That letter concluded: “Finally, there will be a requirement to store finished product, which is being bagged into one cubic metre bulk bags for delivery to customers. We have inspected your shedding complex and have estimated that in the order of 800 bulk bags could be stored. We would like to look at storing bulk bags in the immediate future following screening and bagging to commence next week. Next year we would like to look at the opportunity to use this shedding complex as a holding facility during the year for product deliveries into the far north Queensland markets for fertiliser.”234 [170] On 30 September 2009 Mr Prentice emailed Mr Storronning and Mr Coleman asking them to give thought to warehousing possibilities some of which were mentioned by Mr Prentice in the email.235 One possibility included was the storage of around 800 bags at Mr Coleman’s shed although the email noted that would necessitate trucking the bags north to the shed and then bringing them south again later. [171] While Mr Coleman had no recollection of the email of 30 September 2009 he did recall that by this time Mr Prentice had been to the Coleman’s Uramo Station in order to inspect the screening plant and on that visit had seen the large new shed they had on their property.236 Mr Prentice’s recollection was that he had seen the shed at Uramo after screening in about mid October,237 although he also acknowledged having noticed the shed when he visited to inspect the screening plant.238 It is apparent from the terms of Mr Prentice’s letter to Mr Coleman of 22 September 2009 and its words – “we have inspected your shedding complex” – that the inspection must have occurred by the time of that letter. [172] Mr Storronning was present for the inspection of the shed and considered it was well positioned away from the prevailing direction of storms.239 Mr Coleman testified that during the inspection they measured up the shed and Mr Coleman told Mr Prentice the shed would be capable of storing approximately 1500 to 2000 bags of Agripower’s DE product.240 When photographs of the shed with bags in situ were put to Mr Coleman in cross-examination he pointed out the depicted layers of bags, particularly the top layer did not fill the outer edges of storage capacity and there were other areas undepicted where there were no bags.241 The reference in Mr Prentice’s letter of 22 September 2009 and his email of 30 September 2009 to 800 bulk bags being stored suggest Mr Prentice did not intend to store as many bags as Mr Coleman estimated his shed could take. This appears unlikely to have been for 234 Ex 3 p 25. 235 Ex 3 p 42. 236 T3-29 L19, T3-29 L35. 237 T4-66 L46-T4-67 L2. 238 T5-28 L15. 239 T1-54 L22. 240 T4-3 L10. 241 T4-3 L36-T4-4 L20. -- 34 of 55 -- 35 want of storage capacity and rather the undesirability of trucking bags north and then south again later. On Mr Prentice’s account the added transportation costs involved in using Mr Coleman’s shed at Uramo rather than potential storage further south at Charters Towers meant he only intended that Mr Coleman’s shed would be used as a temporary measure for the wet season in the event there was not enough storage at Charters Towers.242 [173] Mr Coleman testified that at a time after Mr Prentice had apparently been procuring quotes for transportation of the product Mr Coleman offered to lease his shed for $100,000 a year.243 It ought be appreciated that Mr Coleman was unlikely to have been interested in an informal occasional storage arrangement because of the inconvenience involved in freeing up shed space. Mr Coleman testified he told Mr Prentice: “I said, well, I’ve got that big shed at home. It’s got some stuff of ours in it but I would rent it out as long as it was going to be – I would lease it out to you if it was going to be worth it to us. I would take my stuff out and put it in other sheds.”244 [174] On Mr Coleman’s account Mr Prentice indicated the price of $100,000 per annum was at the lower end of the scale compared to some of the prices he had obtained and Mr Prentice indicated he was going to lease the shed.245 Mr Coleman testified that Mr Prentice said he wanted to begin carting to warehouse the product as soon as possible “to beat the weather” and agreed to Mr Coleman’s request that a contract be “signed up”.246 [175] On Mr Coleman’s account the conversation between he and Mr Prentice on the one hand involved Mr Prentice agreeing “that he was going to lease the shed” but on the other it involved Mr Coleman asking for a contract to be signed up.247 [176] Mr Prentice testified Mr Coleman took product to the Uramo shed without authority.248 He claimed the first time he was aware of a potential charge of $100,000 plus GST was when he received an offer on 6 November 2009. That evidence was plainly wrong. Earlier on 29 October 2009 Mr Prentice had written to Coleman Contracting saying, inter alia: “b. Warehousing 1. You have a shed which we looked at which you would like to lease out at $100,000 per annum, paid quarterly. Based on your estimates you think the shed would conservatively hold 1500 stacked 3 high and that you may be able to get this close to 2,000 bags. 2. If we assume $100,000 for a year and 2,000 bags constantly this works out around $4.16 per bag per month. This amount is at the lower end of what we have been quoted in Charters Towers, I guess my only thought process will (sic) we always hold bags in your shed and right throughout the year. 242 T4-66 L40. 243 T3-29 L40. 244 T3-29 L28. 245 T3-29 L48. 246 T3-29 L45. 247 T3-29 L45. 248 T5-29 L6. -- 35 of 55 -- 36 3. The above cost includes warehousing and fork lifting driver. … I will do a letter of agreement re the warehousing and get it to you.”249 That correspondence is at odds with Mr Prentice’s testimony that he had not agreed to a period for storage any longer than the wet.250 Mr Prentice’s reference to quarterly payments for the storage facility assumes significance given the eventual absence of a concluded annual lease agreement. [177] The transportation of product to Uramo had actually commenced by at least 3 November 2009.251 Moreover there was a site meeting of 21 October, after which, Mr Prentice wrote an email to Mr Storronning and Mr Coleman on 22 October saying, inter alia: “We must lock in Charters Towers storage. We have agreed storage with John.”252 [178] Further Mr Prentice’s written summary of the same site meeting, distributed on 29 October, said: “I would recommend that from today John Cart’s (sic) bags to his shed and that on Wednesday he will have pallets to start putting them on in the shed and stacking them 3 high. John has indicated his shed will hold in the order of 1,500 to 2,000 bags. My suggestion is that we fill John’s shed first and then we cart to Charters Towers storage…”253 [179] Mr Prentice conceded that was an instruction to commence storage of the bags.254 [180] In the light of this array of evidence Mr Prentice’s testimony that Mr Coleman had taken product to his shed without authority was not credible. [181] Mr Coleman explained he asked Ivar Storronning to inspect his shed at Uramo to ensure it was clean and ready after which Mr Storronning told him it was ready for carting to begin to it.255 When pressed in cross-examination Mr Coleman maintained that Mr Storronning had instructed him to start taking the product to his Uramo shed.256 Mr Coleman explained that Mr Prentice and Mr Storronning wanted to put the product into a shed before the rains.257 When pressed as to who actually gave the direction he explained it was Mr Storronning and that Mr Storronning had said “Peter wants to go ahead and cart that into there and get into there, start carting to beat the wet.”258 249 Ex 3 pp 82-83. 250 T5-85 L17. 251 Ex 3 p301. 252 Ex 3 p73. 253 Ex 3 p80. 254 T5-29 L21. 255 T3-30 L41. 256 T3-81 L27. 257 T3-81 L42. 258 T3-84 L8. -- 36 of 55 -- 37 [182] On Mr Coleman’s account he then embarked upon carting product to his shed on the strength of Mr Prentice having indicated he would enter into a contract.259 Mr Coleman testified: “…I told him I wanted this—the agreement drawn up—the lease— the contract. And he told me he was going to go back to Sydney, get his legal team to draw up a contract. So, unfortunately, I started carting it into there then just started putting it into there and I had asked where is this contract. I had asked Peter Prentice himself. I’ve rang him. I asked Ivar to get onto it. I need this contract.”260 [183] Mr Coleman candidly acknowledged his regret that he commenced this feature of the work before a written contract was entered into,261 however he maintained he only commenced it when instructed to by Mr Storronning.262 On Mr Coleman’s account Mr Storronning said he would follow up Mr Prentice and get the contract to Mr Coleman.263 [184] Mr Coleman acknowledged that at that time he was eager to get in as much money as he could.264 [185] On 6 November 2009, after carting to Uramo had already started, Mr Coleman wrote in an email to Mr Prentice: “Further to discussions regarding the lease of our shed at Uramo Station for storage purposes, here is what we can offer you:  Shed will hold approx. 2000 bags of product.  Value of lease will be $110 000 (including GST) per year paid in advance quarterly starting from the 10 November 2009.  Period of lease will be for three years.  You and representatives from your company will have access to the shed at any time with prior courtesy call to the homestead (07 4097 0222).  There will be a forklift or loader at your disposal for the unloading and loading of product from trucks. If John or one of our employees is available they will assist in the loading and unloading.  Should our property be sold in the future we will give you at least two months notice to vacate.  These are the anticipated due dates for lease payment:  10-11-09 $27 500.00  10-2-10 $27 500.00  10-5-10 $27 500.00  10-8-10 $27 500.00 259 T3-30 L24. 260 T3-30 L25. 261 T3-30 L30. 262 T3-84 L44. 263 T3-30 L42. 264 T3-77 L41. -- 37 of 55 -- 38 We will forward you an invoice in the weeks leading up to the due dates for lease payments and payment can be made by EFT as happens now with the mining.”265 [186] While that document was on its express terms an “offer” only it will be recalled that back on 29 October Mr Prentice had promised to provide Coleman Contracting with a letter of agreement about warehousing.266 [187] On 19 November 2009 Mr Storronning sent Mr Coleman an email saying inter alia: “Peter Prentice would like to start carting product to Charters Towers as early as tomorrow, he is getting more worried of losing product to rain. Peter will confirm that sheds are locked in late this afternoon. … We only need to do an additional four hours bagging per day to keep up and to load as much product as possible to Charters Towers before any rain. We will then concentrate on filling your sheds with product and Fines …”267 [188] When the priority given in this correspondence to implementing storage at Charters Towers is compared with the earlier priority given to implementing storage at Mr Coleman’s shed in Mr Prentice’s written summary distributed 29 October it demonstrates an obvious change in Agripower’s preferred location for storage as November progressed. The likely reality is that Mr Prentice was content to exploit the availability of the Coleman’s storage shed at Uramo pending the availability of the better located storage in Charters Towers. He was therefore content to delay in ever tending to a lease agreement for an unnecessarily long term of storage at Uramo. [189] On Mr Coleman’s account Mr Prentice visited their Uramo property after they had carted approximately half a dozen loads of the bagged up diatomaceous earth to his shed and started stacking them.268 On Mr Prentice’s account this must have occurred on 25 November 2009.269 Mr Coleman testified that Mr Prentice took photographs of the shed and indicated he was happy with what had been done.270 [190] By this time on Mr Coleman’s account Mr Prentice’s payment of Mr Coleman’s accounts was not up to date and Mr Coleman was also in the process of reconsolidating his business’s finances and was seeking to do so with the ANZ bank. On Mr Coleman’s account he told Mr Prentice he needed to have the accounts finalised and needed the contract.271 Mr Coleman testified that Mr Prentice told him “Woah, don’t go there”, claiming it would all be done when he returned to Sydney.272 Mr Coleman testified it was not done and he lost a lot of faith in Mr Prentice’s word.273 Mr Prentice denied having said at that meeting that he would sort out the contract and accounts on his return to Sydney.274 265 Ex 3 p 87. 266 Ex 3 p83. 267 Ex 3 p 96. 268 T3-31 L18. 269 T4-69 L40. 270 T3-31 L3. 271 T3-31 L25. 272 T3-31 L31. 273 T3-31 L38. 274 T4-74 L29. -- 38 of 55 -- 39 [191] Even on 30 November Mr Prentice was continuing to try and string Mr Coleman along, saying in an email to Mr Coleman: “I will work on the Warehouse Agreement tonight and will forward it to you tomorrow.”275 It will be recalled he had been promising to forward the written agreement since 29 October 2009. [192] It appears that even after 19 November there were further delays in the availability of storage at Charters Towers. For instance in a summary of the meeting with Mr Coleman of 25 November Mr Prentice referred to transporting all bags to Charters Towers “and nowhere else” as soon as the Charters Towers facility became available and said: “I understand that we should be able to start carting to Charters Towers effective Sunday 29th November”.276 [193] It is little wonder Mr Coleman decided the writing was on the wall as November drew to a close without payment of the long overdue invoice 9, without Mr Prentice honouring his indication that a written lease agreement would be entered into and with Mr Prentice now talking of transporting all bags for storage to Charters Towers. Invoices [194] Mr Coleman’s business issued a total of 11 invoices to Agripower. The invoices were not issued every seven days despite the agreement that payment would be made every seven days. Mr Coleman explained it was not possible to issue invoices every seven days because his wife Dianne generated the accounts from their home office and he was away for prolonged periods on the job so that he did not go home every seven days.277 [195] All bar the eleventh invoice listed the day dockets relied upon in support of the amounts charged. All such day dockets had been signed by Mr Storronning in that part of the docket endorsed “Foreman signature”. Their referencing in invoices one to 10 inclusive demonstrates those invoices were calculated by reference to actual hours worked as validated by Mr Storronning. [196] Mr Prentice testified that accompanying the invoices received from Coleman Contracting copies of the relevant day dockets would also be attached.278 [197] The eleven invoices are summarised in the below table. The nature of the work referenced in the table is ascertainable from the contents of the day dockets referenced in the invoices with the exception of invoice 11 for which there are no day dockets. Invoice sequence number Amount Period invoiced Work Invoice date Payment date(s) 1.279 $49,428.50 1-8/8/09280 Road work 8/8/09 11/8/09 275 Ex 3 p119. 276 Ex 3 p124. 277 T3-71 L35. 278 T4-39 L26. 279 Ex 3 p 196. -- 39 of 55 -- 40 2.281 $324,74.00 9-13/8/09 Road work and digging test holes at mine 13/8/09 21/8/09 3.282 $69,314.50 14-25/8/09 Road work and removal and carting of mine top soil to re- sheet road 25/8/09 27/8/09 ($29314.50) 28/8/09 ($40000.00) 4.283 $83,240.50 21/8/09-6/9/09 Road work, removal and carting of top soil and loading of ore 6/9/09284 10/9/09 ($40622.50) 21/9/09 ($40000.00)285 5.286 $34,128.00 25/8/09-5/9/09 Carting ore to hard stand 20/9/09 14/10/09 6.287 $62,706.00 14-20/9/09 Road work, dozing pit and carting and stacking ore on hard stand 24/9/09 1/10/09 7.288 $141,671.0 0 21/9/09- 11/10/09 Road and mine pit work, screening plant loading and drying ore for screening. 12/10/09 23/10/09 ($60000.00) 29/10/09 ($30000.00) 10/11/09 ($51671.00) 8.289 $29,502.00 12-20/10/09 Screening and bagging plant testing and loading 20/10/09 10/11/09 9.290 $82,348.00 24/10/09- 9/11/09 Screening and bagging plant loading, transporting product to Uramo shed 10/11/09 Unpaid 10.291 $155,683.0 0 4/11/09292- 29/12/09 Screening and bagging plant loading, transporting product to Uramo shed 3/12/09 293 Unpaid 280 Invoice 1. contains an entry “8/1/09” attributable to “establishment”. It is likely that date is erroneous and should instead be “1/8/09”. 281 Ex 3 p 209. 282 Ex 3 p 226. 283 Ex 3 p 239. 284 This date is actually recorded as 9/6/09 but that is an obvious error and it should instead be 6/9/09 which is the last date in the relevant day dockets. 285 This invoice is endorsed by hand to indicate the amount of $2618.00 was still owed. 286 Ex 3 p 254. 287 Ex 3 p 260. 288 Ex 3 p 273. 289 Ex 3 p 285. 290 Ex 3 p 295. 291 Ex 3 p 304. 292 This date is actually 11/4/09 in the invoice which again appears likely to be an error and should have read “4/11/09”, which is the earliest date identified by the day dockets mentioned in this invoice. 293 This date is actually 12/3/09 in the invoice which again appears to be an error and given the repeat nature of this error should read “3/12/09”. -- 40 of 55 -- 41 11.294 $27,500.00 1/11/09-31/1/10 Advance payment of storage costs for Uramo shed 1/11/09 295 Unpaid [198] As the above table demonstrates, the invoices issued by the Coleman’s business continued to be paid after the testing of the screening and bagging plant process and during the operation of the screening and bagging plant work. Reasonableness of rates [199] The plaintiff tendered two uncontested reports by experienced operators of plant and machinery businesses, John Harron and Gordon Meares. Each opined that the hourly rates charged by Coleman Contracting for the various plant and machinery operated were reasonable in comparison with rates ordinarily charged in the industry.296 In the case of Mr Meares’s report it referred not merely to plant and machinery but also to the shed storage charge, noting the comparative rate of charge out for similar sheds within the vicinity of about $15,000 per month. [200] The defendant’s expert, engineer Benjamin White was in general agreement with the opinions of Mr Harron and Mr Meares.297 Significantly while he concluded the plaintiff’s rate of $220 per hour was reasonable he qualified that opinion as being based on an operational period of approximately 50 hours rather than the plaintiff’s invoiced 434 hours.298 However he noted he was unaware of what constraints were placed on the plaintiff in carrying out the exercise.299 He explained in evidence that he regarded 50 hours screening plant operation as being appropriate for a “single campaign”.300 By that he acknowledged he assumed such a campaign would involve a stable and established processing regime in which the methodology to be applied is well known and well settled.301 His report acknowledged: “The optimum methodology can only be developed on site by trying different methodologies and trialling (by screening and analysing samples) each methodology to determine which provides the optimum result.”302 [201] It is noteworthy that even Mr Prentice’s own estimates of screening time required, as evidenced in his emails in this era, far exceed the modest 50 hours referred to by Mr White.303 [202] In any event it is not suggested the hourly rates in fact charged for screening as with the other works departed from the rates to which the defendants had agreed. Slow down in payments 294 Ex 3 p 317. 295 Given the invoice sequence and the date of the email offering storage (6/11/09) it must be that this date involves backdating. The invoice is unlikely to have been issued earlier than early December 2009. 296 Ex 5, 6. 297 Ex 1 pp 10, 12. 298 Ex 1 p 13. 299 Ibid. 300 T6-20 L47. 301 T6-21 LL1-6. 302 Ex 1 p 19. 303 Ex 3 pp83 (30 days), 84 (26 days). -- 41 of 55 -- 42 [203] The first three invoices were paid comfortably within seven days. Some delay in payment of the invoices then commenced. Only part of invoice 4 was paid within seven days. It took 24 days to pay invoice 5 although invoice 6 was issued and paid in the intervening period. None of invoice 7 was paid within time and the final payment of it occurred on 10 November 2009, almost a month after it had been issued. Invoice 8 was also paid on 10 November 2009, which was a fortnight after it was due for payment. It was the last of the invoices paid. [204] In explaining the delay in the payment of invoice 7 Mr Prentice explained Agripower was experiencing a cash flow problem. He said: “We were just balancing some cash flow because the GST office of the Tax Office had come in and just done an audit and it held up three months—three or four months of payments back to us which I think was about—in total, about $400,000 whilst they did the audit and then, when the audit was completed, they found nothing wrong and didn’t reimbursement us, as they would’ve normally done, all the money.”304 Non-payment of invoices [205] Invoices 9, 10 and 11 were not paid. It is beyond doubt that day dockets recording hours worked were generated and that they were signed by Ivar Storronning in respect of the work claimed in unpaid invoices 9 and 10. Invoice 11 falls into a different category in that it sought advanced payment for storage at the Uramo shed, which of its nature would not have generated supporting day dockets. [206] The total number of working hours invoiced for invoice 9 was 486 hours. The total number of hours invoiced in invoice number 10 was 883 hours. [207] Consideration of some examples of the long hours of work described in the day dockets giving rise to invoices nine and ten is instructive. [208] Examples of the type of work described in the day dockets relevant to exhibit nine are:  “load screen sought out over size”  “load screen off white and stack and test”  “load screen and stack ore”  “load screen and bagging blend”  “load bagging unit and screen”  “bag product”  “load and blend product”  “screening plant ore”  “screening plant/white ore”  “load screen and stack product”  “load screen off white”  “load screen white”  “screening plant and test mix”  “white and off white”  “take load of product to Uramo shed” 304 T4-41 L10. -- 42 of 55 -- 43  “load to Uramo”  “grade and dry ore”  “tractor/rotary hoe over size”  “grade out off white/over size” [209] Examples of the type of work described in the day dockets relevant to exhibit ten are:  “load Uramo w/house”  “grade/dry ore”  “bagging plant”  “screening and stacking ore”  “bagging and blending product”  “bagging plant blend and load truck”  “load and blend load truck”  “load screen shift over size and fines”  “blend/load bagging plant/load truck”  “bagging plant”  “load screening plant”  “load screen/bagging plant”  “screening plant ore”  “screening off white ore”  “grade out and dry ore”  “load of product w/house Uramo” [210] The duration and nature of the work being performed at the defendant’s work site, inclusive of the conveying of product away from that site for storage, strongly supports the conclusion that the defendants were, at the time the work was being performed, well aware of it being performed and satisfied with the nature of the work being performed. That conclusion is further supported by the fact that the defendants’ Mr Storronning, the supervisor of the work being performed, signed the work dockets which recorded the performance of the work. The end of the business relationship [211] Mr Coleman testified that he raised the apparently late payment of invoice number nine several times with Mr Prentice and Mr Storronning305 but kept working, on the strength of the promise of being paid.306 [212] According to Mr Prentice he became concerned that for the number of invoiced hours of screening insufficient product was being processed.307 Further he was concerned that invoice 9 included charges for items of plant that he thought were included within the screening fee.308 When asked if he took those matters up with Mr Coleman he responded: “I took it up with John in phone calls and then I said to John we’ve got to get together on this and I flew up to meet John … I sat down 305 T3-34 L7. 306 T3-34 L8. 307 T4-62 L35. 308 T4-63 L5. -- 43 of 55 -- 44 with John the whole day and we went through many, many issues to do with screening and bagging and his costs.”309 [213] He gave evidence that this get together occurred at Mr Coleman’s home on 25 November 2009 and that he took hand written notes that were later typed up and emailed by Mr Prentice to Mr Coleman and Mr Storronning on 1 December 2009.310 Mr Prentice cannot locate those hand written notes.311 In the course of recounting what was said at the meeting Mr Prentice testified: “I think just before I left he said to me that can we get these invoices—this invoice paid which is this one that was outstanding, and I—that’s when I turned to him and I said, well, look, let’s work it out and—with the numbers. I was expecting him to re-issue a new invoice to delete the grader and the loader hires and to adjust the screening plant, and he was to give me an explanation of what they were doing with the screening plant because, at the meeting, he couldn’t provide an explanation of why all the hours on the screening plant—which were now in excess of 200 hours—and the costs were just getting out of control to screen. And until we got that, I wasn’t prepared to pay the invoice.”312 [214] This evidence presented as hindsight reconstruction. The effect of Mr Prentice’s evidence was to represent there were such problems with the state of invoice number 9 that he arranged to meet with Mr Coleman about it. Yet Mr Prentice’s purported record of the meeting, which he swore was a true reflection of what happened at the meeting,313 makes no material reference to the supposed problems with the content of the invoice as rendered. [215] Mr Coleman explained that after the issue of invoice ten he had significant expenses which had built up in the course of providing his business’s services to the defendants.314 He told Mr Prentice and Mr Storronning that he needed to be paid because he did not have sufficient funds to continue.315 [216] Mr Coleman secured an on-site meeting with Mr Storronning on about 1 December 2009. He informed Mr Storronning that, on account of the non-payment, his business was withdrawing and he gave instructions for the removal of his business’s machinery from the work site.316 Mr Prentice recalls receiving a telephone call from Mr Storronning on 1 or 2 December 2009 and being informed that Mr Coleman was packing up his plant and leaving.317 [217] On 2 December 2009 at 9.05am Mrs Coleman emailed Mr Prentice saying: “So sorry to hear about the fallout with John, it’s a shame for everybody. 309 T4-63 LL8-15. 310 T4-63 LL26-47, Ex 3 pp 121-127. 311 T4-64 L41. 312 T4-63 LL18-26. 313 T4-64 L7. 314 T3-34 L10. 315 T3-34 L13. 316 T3-34 L35. 317 T4-64 L17. -- 44 of 55 -- 45 I do need to ask about the shed and invoice 9 though do you still want the product in the shed at Uramo, if so when will the agreement be ready, if not when will the product be removed? Can I please get invoice 9 paid today? I’ll have the final invoice ready for you later on today. I wish you luck with the whole project, you have a worthwhile product that will come through for you.”318 [218] In his responding email of 3 December 2009 Mr Prentice wrote, inter alia: “I think in view of the circumstances it is best we remove all the bags from your shed and store them elsewhere, so there is no possible issue arising in the future. My priority at the moment is to get all those bags at site into storage, then we will collect bags from your shed and thus we will need some time and weather on our side. As a guide there are between 850 and 900 bags at your shed and this is around 11 truck loads using triples. I hope to have it all out before Christmas. In view of the situation what I want to do is get a final account which includes, say leaving the bags in storage until the end of December, agree that final account and at payment we also execute a deed of release. We agree it all, pay it, sign it, it’s all done.”319 [219] On Mr Coleman’s account he was present when his lawyers subsequently telephoned Mr Prentice about the outstanding money and Mr Prentice responded “you tell the bastard he’ll have to fight for it if he wants money”.320 It appears from the content of an email to Mr Coleman by Mr Prentice referring to receiving a call from Mr Coleman’s lawyer that the call must have happened on Friday 4 December 2009.321 On Mr Prentice’s account of this conversation he told Mr Coleman’s solicitor that he was waiting for Mr Coleman to get back to him with a “reconciliation” of the high costs in invoice 9.322 [220] I do not accept that at the time Mr Coleman withdrew his services Mr Prentice was genuinely waiting for Mr Coleman to come back to him with a modification of invoice 9. The likely true position is that by this time it had become obvious that the operation was costing more than Agripower could immediately afford to pay for and Mr Prentice had become emboldened by his knowledge of Coleman’s financial pressures. [221] On Mr Prentice’s account Mr Coleman had revealed in the very first phone call between them that he was under financial pressure because he no longer had work with Kagara Zinc.323 Mr Prentice testified Mr Coleman wanted to be paid “early and quickly” so that “he would have a cash flow that could ensure that he continue with everything”.324 318 Ex 3 p 133. 319 Ex 3 p 134. 320 T3-78 L28. 321 Ex 3 p 141. 322 T4-65 LL25-45. 323 T4-39 L5. 324 T4-39 L8. -- 45 of 55 -- 46 [222] Mr Coleman’s business had been financed with Landmark bank, but its lending affairs were taken over by the ANZ bank. Mr Coleman wanted to use the ANZ bank for his finances but could not do so because he could not sufficiently clear his debts because he could not get paid.325 Mr Coleman’s business was eventually financed with Elders.326 [223] Mr Coleman accepted in cross-examination that he had asked Mr Prentice to provide him with a letter to show the bank about how long the mine business was going to last for and what the Colemans could expect.327 Mr Prentice explained his letter of 22 September 2009328 was the “fairly bullish letter” he had prepared in response to that request.329 [224] Mr Prentice explained that Dianne Coleman subsequently made arrangements for him to talk to a person called Garry at Bankwest with whom Coleman Contracting was apparently having discussions about finance.330 While Mr Coleman recalled there was a need for them to utilise a bank broker he had little other relevant recollection on this point.331 Mr Prentice recalled that he did indeed speak to a person called Garry at Bankwest confirming the effect of what he had written in his letter of 22 September 2009.332 He thereafter emailed Dianne Coleman on 16 October 2009, writing: “I spoke to Garry from Bankwest last night and he would like me to do a letter for you. I would like to go through with you over weekend so just give me a call.”333 [225] Mr Prentice received an email from Dianne Coleman on 18 October 2009 in which she thanked him “for talking to Garry from Bankwest”.334 [226] Against this background it seems likely Mr Prentice judged Mr Coleman was sufficiently desperate that Coleman Contracting would continue to provide their services despite the long delay in payment for services rendered. He misjudged Mr Coleman. The retention of product at Uramo [227] In an email of 3 December 2009 by Mr Prentice to Dianne Coleman, Mr Prentice indicated that in that “in view of the circumstances” his business proposed to remove all of the bags from the Coleman Uramo shed by Christmas. [228] Mr Coleman refused Agripower access to the property to remove the bags stored there, exercising a lien over them because he was owed money.335 325 T3-65 L15. 326 T3-65 L27. 327 T3-64 L22, T3-65 L10. 328 Ex 3 p 25. 329 T4-42 L21. 330 T4-42 L25, T4-43 L16. 331 T3-65 L35. 332 T4-42 L27. 333 Ex 28. 334 T4-44 L28, Ex 29. 335 T3-61 L19, T4-70 L13, T4-71 L1. -- 46 of 55 -- 47 Condition of the product at Uramo [229] Mr Prentice testified that there were approximately 692 bags of product at Uramo.336 [230] Mr Coleman acknowledged that some bags delivered to Uramo had not been moved into the storage shed and were left sitting outside when Coleman Contracting ceased working because the business had not been paid.337 Mr Coleman acknowledged an awareness of the adverse effect of weather exposure upon diatomaceous earth but explained he was unconcerned by that when he was not being paid.338 [231] Mr Prentice explained it took a couple of years before Agripower could get access to the bags stored at Mr Coleman’s property when arrangements were made for expert David Chadwick to assess the product stored there.339 In the meantime the CHEP pallets on which the product had been stored were bought by Agripower because it had become too expensive to continue to lease them over that period of time.340 [232] Mr Prentice testified that when the product at Uramo was examined it had a lot more lumps in it than the Charters Towers product did,341 although the examination of the Uramo product occurred long after the examination of the Charters Towers product. [233] An examination of the bags stored at Uramo Station was conducted by David Chadwick, a consultant in industrial minerals, on 4 November 2011. He noted a total of 660 bulk bags each stored on pallets within the shed in addition to 32 full bags and two half full bags of product stored on pallets on the ground outside the shed.342 He purported to conduct a representative sampling of the bags. [234] He noted there was water damage to the row of bags stored towards the edge of the shed with probable water damage to the top of bags extending back three or four rows from there.343 It also appeared bags within the weather affected area had probable UV degradation.344 About 5% of the bags had suffered rodent chew holes.345 He noted the entire product stored unprotected outside the shed was unusable because of water and UV damage.346 [235] Mr Chadwick noted where there had been water ingress into bags that had resulted in the top 20 millimetres being cemented together.347 Mr Chadwick explained that after digging through that layer of clumping there was very little clumping beyond about 150-200 millimetres into the profile of the bag thus suggesting it was the product of ingress of water.348 He accepted it would have been preferable to have taken samples from the full depth of bags but that was not practicable.349 336 T5-3 L20. 337 T4-4 L37-T4-5 L3, L42. 338 T4-6 L5. 339 T4-71 LL1-10. 340 T4-71 L38-T4-72 L2. 341 T6-10 L10. 342 Ex 39 p 4. 343 Ex 39 p 14. 344 Ibid. 345 Ibid. 346 Ibid. 347 Ex 39 p 11. 348 T5-65 L32. 349 T5-58 L4. -- 47 of 55 -- 48 Presence of oversize granules in processed product [236] Mr Prentice testified that a number of bags supplied to Hortus were found to be deficient, apparently rejected by their customers because there was too much oversize earth in the bags causing their fertilizer spreading equipment to jam.350 [237] That hearsay evidence was apparently based on the hearsay evidence of Mr Smith of Nutrifert who gave evidence of what he had been told by customers who had used Agripower’s product. Mr Smith deposed in an affidavit: “I recall that at least two customers of Nutrifert (which to the best of my recollection is likely to have been Elders Bundaberg and Hoy Boys Gordonvale) advised that Agripower’s product contained larger particles of 10mm-20mm and other foreign rock material, and that on at least one occasion, as a result of these particles being out of specification, the drive shaft of their spreading equipment had broken and the customer would not use the product again. I therefore contacted Peter Prentice of Agripower, advising him of the issues faced by Nutrifert’s customers.”351 [238] According to Mr Smith’s affidavit’s tabular record of when the product was supplied, the entry for Elders recorded only generally a supply of 22 bags during “2009-2011” and the entry was qualified by the possibility that a proportion of those sales included product from the Barraba New South Wales mine site. The same table recorded in respect of Hoy Boys that 12 bags had been supplied on 17 June 2011.352 Mr Smith deposed that Nutrifert did not itself inspect the product supplied to Nutrifert’s clients.353 [239] The above vagaries in evidence were rendered less troubling when, in advance of the trial, Mr Smith extracted and photographed some larger granules from some old bags of product he had received from Agripower.354 His photograph shows a number of granules within the 10-20mm range. [240] In a similar vein a sample of bagged product produced in the process with which this trial is concerned was taken by current Agripower site senior executive Lee-Anne Gossage and tendered in evidence. It is apparent from that sample that some granules exceed 6 millmetres in size.355 [241] Mr Chadwick also examined a representative sample of the bags in the Uramo shed for product clumping and consistency. He found only small volumes of oversized materials, in the order of 20 noted lumps larger than 20 millimetre clay clods across all bags inspected.356 He also found of the representative sample examined that it had excessive fine content less than 2 millimetres.357 Mr Chadwick acknowledged that in the testing process some of his personnel had stood upon some of the bags but did not consider that would have tended to crush the underlying product.358 350 T4-19 L37, T4-73 L39. 351 Ex 41 [8, 9]. 352 Ex 41 [6]. 353 Ex 41 [5]. 354 Ex 42. 355 Ex 44. 356 Ex 39 p 11. 357 Ex 39 p 14. 358 T5-57 L31. -- 48 of 55 -- 49 [242] Agricultural consultant John Kilpatrick examined samples of diatomaceous earth taken from the bags stored at Uramo station on 9 September 2011. His examination of the samples revealed that 73.2% of product was within the required size with 13.2% being oversized and 13.6% being fines. He expressed the unchallenged opinion that fines are inevitable with the movement of any product of this kind. As to the oversize samples detected by him he opined they were not aggregates of two or more smaller pieces and had not formed since the bags were put in the shed at Uramo. Rather he opined they were in the product when it left the grading and bagging plant near the mine.359 [243] Benjamin White, an expert witness engineer, noted Mr Kilpatrick’s view that the coarser oversized particles could not have formed past the screening operation. He observed of Mr Kilpatrick’s photographs that the oversize material appeared to be of a constant size rather than a range of sizes. This led Mr White to doubt that the oversize product was a result of general contamination and observed, without being able to make a definite conclusion, that the oversize product may have been the result of the coarse screen on the screening plant letting through product greater than 6 millimetres and potentially in the order of 10-12 millimetres in size.360 [244] The evidence of Mr Smith affirmed the importance of granular size not being more than 6 millimetres and explained why bagged product containing such oversize grains was not fit for purpose and unsaleable. While it is to be doubted whether such product is thus rendered valueless it is clear that it is not fit for sale for its intended purpose. Survey [245] On Mr Prentice’s account of the reconciliation arrangement with Coleman Contracting there was supposed to be a survey at the conclusion of the works by Coleman Contracting. Mr Prentice explained the commissioning of the survey was delayed because Agripower was caught up with the screening operation and then Mr Coleman’s departure.361 [246] It appears the actual survey was not conducted until 6 and 7 October 2011. Curiously there is little foundational evidence about that process before the Court. [247] Mining engineer Daniel Chippendale examined data including a survey of the mining pit and stock pile which had apparently been conducted by Lester Franks on 6 and 7 October 2011. The surveyor was not called. Mr Chippendale concluded that the volume of earth mined from the pit below the indicated diatomaceous earth horizon was 12,632 banked cubic metres.362 It is unfortunate that there is no evidence as to where that horizon was identified as commencing. It will be recalled the diatomaceous earth in the vicinity commenced considerably deeper than the two metre depth referred to in the plan of operations. [248] The report of the defence expert mining engineer Benjamin White made some calculations based on the survey information and quantified mined diatomaceous earth at 12,560 banked cubic metres. However Mr White appeared to rely upon a 359 Ex 7 p 6. 360 Ex 1 p 20. 361 T4-38 L4. 362 Ex 2. -- 49 of 55 -- 50 30% inflation of that figure to arrive at a calculation of mined diatomaceous earth in loose cubic metres of 16,328. The premise for that inflation of the figure appears to be data contained in a report by an entity called DHB which is also not in evidence. Mr White also had regard to an assumed quantity of diatomaceous earth screened, again based on an assumption in DHB’s report which is not in evidence. [249] Assuming for the moment that those matters had been properly proved, Mr White concludes that of a total mined quantity of diatomaceous earth of 16,328 loose cubic metres some 7,006 loose cubic metres is unaccounted for once allowance is made for what was processed and what remained stock piled. [250] There is every real possibility that this alleged shortfall remains in various forms at or near the mine. As Mr White acknowledged there is an ever present prospect of product being wasted throughout the handling process. Further it will be recalled the diatomaceous earth was used to top dress the lengthy road built by Coleman Contracting. A final variable is that it is unknown whether what the survey assessed to be the commencement of the layer of diatomaceous earth is the same point at which those excavating the pit considered that they were removing diatomaceous earth as distinct from overburden. [251] I accept Mr Coleman had no knowledge of the fact or cause of any discrepancy in the quantity of mined product compared to what has been accounted for.363 [252] The defendants have not proved on the balance of probabilities that there exists a material quantity of unaccounted for product. E. Did Coleman Contracting terminate unlawfully? [253] I have found Mr Prentice and Mr Coleman agreed that Coleman Contracting’s performance of the mining and processing works would be performed by Coleman Contracting and paid for by Agripower on the same basis as agreed in respect of the roadwork, namely with Coleman Contracting’s known hourly rates to be charged for various plant and machinery used and payment to be made within seven days of invoice. As to the controversy in this case as to the rate of screening throughput I have accepted the hourly rate agreed to for screening was not conditioned upon any particular rate of throughput. [254] The system of submitting the day docket records of the hours worked for verification by Agripower’s site supervisor also continued. That subsequent conduct supports the inference that the conditions of the previous contractual arrangement persisted under the agreement relating to mining and processing.364 [255] Coleman Contracting terminated the contract by withdrawing its services on or about 1 December 2009. At that time invoice 9, issued on 10 November 2009 and due for payment 17 November, remained unpaid. It was long overdue despite repeated requests for its payment. [256] Invoice 9 was calculated in accordance with the hours of work recorded in the day dockets which had been verified by Agripower’s site supervisor. 363 T4-14 L22. 364 Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216, 237; Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226, 238. -- 50 of 55 -- 51 [257] There existed no legitimate basis for Agripower to avoid its prima facie liability to pay the invoice pursuant to its contract with Coleman Contracting. Agripower’s failure to pay invoice 9 constituted a clear breach of a fundamental term of the contract between it and Coleman Contracting. [258] In consequence of that breach, Coleman Contracting was entitled to terminate. That it did by withdrawing its services. I find Coleman Contracting’s termination of the contract by withdrawal of its services was lawful and Coleman Contracting was not in breach of the contract. [259] It will be recalled the wrongful termination and breach alleged against Coleman Contracting was the foundation for the loss of profits counterclaim in respect of the subsequently weather ruined stockpiled quantity of diatomaceous earth at the site. It follows that feature of the counterclaim must fail. F. Does the unaccounted for mined earth evidence a breach by Coleman Contracting? [260] It will also be recalled the defendants claim a large amount of mined diatomaceous earth has in effect gone missing. They allege the plaintiffs mined and removed that earth, not stockpiling or processing it and it remains unaccounted for. This is said to be a breach of contract. [261] This component of the counterclaim fails in several ways. [262] Firstly it has not been proved it was a condition of the contract that Coleman Contracting had an obligation to account for the whereabouts of the entire product it mined. Coleman Contracting was not in control of the site. Its work was performed under the supervision of Agripower’s site supervisor. Under that supervision it moved mined product to a variety of locations, depositing it in some instances, namely road layering, in such a way that the volume deposited could not practicably be determined after the event. It performed its work at an hourly, not volumetric rate. Against that background it cannot reasonably be implied it had any obligation to account for the volume of mined product. [263] Secondly I am not satisfied on the balance of probabilities that mined product is in fact unaccounted for. There are several reasons for this, beyond the improbability of clandestine removal of product. As already discussed, the amount of product allegedly surveyed as mined has not been properly proved. That is because of the absence of foundational evidence as to the amount alleged, including of the survey, of the starting depth at which diatomaceous earth was extracted and of the bulking factor. However, even if these problems of proper proof are ignored, the alleged amount is not so large that it cannot be plausibly accounted for by reason of spillage and deposition in unsurveyed locations, particularly the lengthy road. G. Is Coleman Contracting responsible for loss occasioned by the unsaleable quality of the bagged product? [264] A feature of the defendants’ case which I have accepted is that the bagged product had oversized granules, with the consequence that all of the bagged product which was distributed to market as well as the bagged product which remained stored at Charters Towers and Uramo by Agripower was not fit for sale. Agripower alleges it -- 51 of 55 -- 52 was deprived of the profits it would have made if the bagged product did not have oversized granules. [265] In this context it can be seen the damage occasioned to some of the bagged product stored at Uramo through exposure to the elements is irrelevant. The product was not fit for sale in the first place because of the presence of over-sized granules. If that is not the fault of the plaintiffs they can hardly be held liable to pay damages in respect of that which on the defendants’ own case is valueless. [266] It will be recalled that in the final rushed days when Mr Prentice wanted longer hours worked some product was screened and bagged by staff employed by Agripower. This introduces an obvious difficulty for the plaintiff in attributing sole blame and thus full responsibility for loss associated with the presence of oversized granules upon Coleman Contracting. However a more fundamental difficulty confronts the defendants. [267] If it is assumed for the sake of argument that Coleman Contracting’s staff had been the sole workers carrying out screening and bagging the critical issue is whether the presence of oversized granules was a result of the plaintiff’s failure to exercise due care and skill in its processing, particularly its screening and bagging, of the diatomaceous earth. I do not accept that it was. [268] The oversized granules either entered the bagged mix because of contamination from the way product was moved about at site or because the screening plant was unintentionally configured to permit a larger granule range than 6 millimetres. The latter is most likely, and is the cause I infer, given the apparent consistency of the oversized granules found in samples of processed product. That is, the screening plant was configured so as to allow a bigger size granule than desired. [269] As my earlier fact finding demonstrates, the screening and bagging process was settled upon at the direction of Mr Prentice and was supervised by him and Mr Storronning. More importantly it was Mr Prentice and Mr Storronning who were actively involved in supervising and testing in the early days of the screening operation. It must be that they did not test granular size adequately or at all. It may be they did not appreciate the low degree of tolerance in the market place for granules exceeding 6 millimetres. Also much of the documentary evidence of communication in this era suggests the probability that Mr Prentice was likely more concerned to test in respect of bulk density. Had they tested grain size properly they would have detected the difficulty and, assuming they knew the market would tolerate no margin for error, it would have been addressed. [270] On the evidence it was not Coleman Contracting but Agripower which assumed responsibility for testing the screened product when the screening process was being established. This bespeaks the true allocation of responsibility in the environment in which Coleman Contracting was working. [271] Coleman Contracting was working under the direction and supervision of a principal that assumed for itself the responsibility of controlling and testing the adequacy of the screening process that it wanted Coleman Contracting to carry out. Coleman Contracting’s obligation was to exercise no more than the care and skill an ordinary, competent contractor would be expected to apply or exercise in carrying out that -- 52 of 55 -- 53 process,365 set by its principal. There is no evidence that Coleman Contracting did not carry out the process as settled by Agripower. The problem with grain size was a product of the process settled by Agripower and not a failure of care and skill on the part of Coleman Contracting. [272] It follows this feature of the counterclaim must also fail. H. Is Agripower liable to pay the whole of invoices 9 and 10? [273] Invoices 9 and 10 were both rendered in accordance with the agreement with Agripower. I have rejected Mr Prentice’s allegation the agreement was qualified by a reconciliation agreement. [274] The invoices charged the known rates for hours of work verified in the day dockets as performed by Agripower’s site supervisor. There is no credible evidence that the hours claimed were not actually worked. [275] The defendant’s point of particular complaint related to the large number of hours charged in respect of screening. The complaint in essence is that the hours charged are excessive and unreasonable in proportion to the amount of product screened. However I have found that the agreement was not conditioned upon any particular rate of screening throughput being delivered. [276] Coleman Contracting had screened gravel before but never diatomaceous earth, as Mr Prentice well knew. As the evidence shows, diatomaceous earth has quite different properties from gravel. As much was demonstrated when the moist clayish off white product, which Mr Prentice wanted to screen and mix in dominant proportion to the white product, caused particularly significant interruptions to the screening process. Coleman Contracting was new to this endeavour. It would have been surprising if Coleman Contracting did commit to a volumetric throughput. [277] The agreement was process not outcome oriented. That is, it was premised on the performance of screening work at an hourly rate with the process being supervised by and subject to the direction of Agripower. [278] That in the end result there was a large number of hours worked for screening is a product of the trial and error nature of Mr Prentice’s management of this infant operation. It is not to the point that less screening hours, perhaps significantly less hours, may have been required had Agripower chosen from the outset to expend more money on expert services and plant and be in less of a rush to trial a substantive production run before the wet. [279] The amounts claimed in invoices 9 and 10, a total of $238,031, were debts properly claimed and should be paid, plus interest, by Agripower. I. What if any amount should Agripower pay for storage at Uramo? [280] The plaintiffs claim for payment for payment in respect of the Uramo shed confronts the obstacle that a lease agreement was not entered into. As Mr Coleman candidly 365 In contrast to an obligation to produce a result, a contrast discussed in Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor [2008] NSWCA 323 [77]. -- 53 of 55 -- 54 acknowledged he agreed to move bagged product into his shed without ever securing the agreement Mr Prentice repeatedly promised but did not deliver. [281] Nonetheless I have found the defendants did request that Coleman Contracting move bagged product into its Uramo shed and bagged product was undoubtedly moved and stored there. Even Mr Prentice accepted it was not intended the bags be stored there without charge. [282] In the circumstances it is unnecessary to determine whether Agripower took possession of the shed under a tenancy at will or stored its product there under a licence. Under either it is the rate and period of remuneration for either benefit which is the important determination to make. [283] As to rate, the defendants well knew in electing to store product at the Coleman’s shed that a rate of $110,000 including GST per annum had been quoted. They were aware of the size of the facility and implicitly its worth to them. They had not at any stage suggested a different rate. However there had been no agreement reached as to the duration of the lease or licence. [284] It will be recalled the plaintiffs prevented the defendants from recovering their product, exercising a lien because of the non-payment of invoices. [285] The plaintiffs accept that their remuneration should be limited to one quarter of a year, $27,500, the amount of invoice 11. That is they do not press their claim for a second quarter’s worth of remuneration. That is because they accept they are not entitled to charge for remuneration for storage while the lien was being asserted.366 [286] There was no concluded agreement as to the duration of the storage period but, as I have found, the defendants embarked upon the storage acknowledging payment would be made quarterly. [287] While the defendants sought to recover their stored bags prior to the conclusion of the quarter, I find there was agreement between the parties that the payment for storage when it commenced was at a minimum to be payment calculated at one quarter of $110,000, that is $27,500. [288] The second defendant is liable for that amount, plus interest. [289] As to the due date of the payment for assessment of interest purposes, I am not able to infer there was any agreement that the quarterly payment ought, as the plaintiffs sought, be paid in advance. At the latest though the amount was due by 1 February 2010. J. Conclusion 366 Plaintiff’s outline [219]. -- 54 of 55 -- 55 [290] There should be judgment for the plaintiff against the second defendant in the amount of $265,531 plus interest. It is desirable that the parties be heard as to the quantification of interest on that amount. [291] In light of my findings the plaintiffs’ claim as against the first defendant and the counter claim should be dismissed. [292] The parties should be heard as to costs. K. Orders: [293] My Orders are: 1. Judgment for the plaintiff against the second defendant in the amount of $265,531 and interest thereon to be determined. 2. The counterclaim and the claim as against the first defendant are dismissed. 3. I will hear the parties as to the quantification of interest and as to costs. -- 55 of 55 --