Corbett, Corbett, Nashtown Pty Ltd, Fandoan Pty Ltd & Anor v Wright & Francey Pty Ltd & Ors [1991] QSC 353

IN THE SUPREME COURT OF QUEENSLAND Before Mr. Acting Justice Robin BETWEEN: ANDREW NEVILLE CORBETT AND: JOHN LAWRENCE CORBETT NASHTOWN PTY. LTD. FANDOAN PTY. LTD. AND: CORBETT ENTERPRISES WRIGHT & FRANCEY PTY. LTD. GEOFFREY ALEC WRIGHT GREGORY WILLIAM EICHHORN No. 1169 of 1989 First Plaintiff Second Plaintiff Third Plaintiff Fourth Plaintiff Fifth Plaintiff First Defendant Second Defendant Third Defendant REASONS FOR JUDGMENT - ROBIN A.J. Delivered the 3rd day of December, 1991 CATCHWORDS Negligent misstatement inducing investment in marina system - Allegedly represented as "fully engineered" etc. - Whether representations made - Whether misleading - Reliance - How far cause of plaintiffs' loss - Whether windfall to plaintiffs from sale of a successor business goes to reduce damages - Relevant principles of law as to mitigation - Law Reform (Tortfeasors Contribution, Contributory Negligence etc.) Act s. 10 considered Counsel: Mr. Bowden for plaintiffs Mr. Carrigan for defendants Solicitors: Feez Ruthning for plaintiffs Short Punch & Greatorix for defendants Hearing dates: 15-18, 21-25, 28-31 October, 1, 4-7, 12-15 and 18 November, 1991 -- 1 of 115 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: No. 1169 of 1989 ANDREW NEVILLE CORBETT First Plaintiff JOHN LAWRENCE CORBETT Second Plaintiff NASHTOWN PTY. LTD. Third Plaintiff FANDOAN PTY. LTD. Fourth Plaintiff CORBETT ENTERPRISES Fifth Plaintiff WRIGHT & FRANCEY PTY. LTD. First Defendant GEOFFREY ALEC WRIGHT Second Defendant GREGORY WILLIAM EICHHORN Third Defendant REASONS FOR JUDGMENT - ROBIN A.J. Delivered the Third day of December, 1991. -- 2 of 115 -- 2 INTRODUCTION · This is an action arising out of an investment by way of a large number of contributions by the plaintiffs who claim their money was wasted. It went into a business called Offshore Marinas Australia ( "O.M.A. II), which the third defendant founded in 1976. The defendants' asserted liability to make good any loss is based on a series of continuing negligent misrepresentations as to the merits of a marina system devised by the third defendant and said (for example) to have been "fully engineered" by the second defendant; the negligence is said to be demonstrated because the plaintiffs can prove the engineering of the system was defective, as the defendants should have known. The plaintiffs found their claim on Lord Denning' s famous dictum in Esso Petroleum Co. Ltd. v. Marden (1976) 1 Q.B. 801, 820: "If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another - be it advice, information or opinion - with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that therepresentation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other side to enter into a contract with him, he is liable in damages." As examples of liability for pre-contract representations they cited: Halliday v. Johnson (1985) 2 N.Z.L.R. 563; Thompson v. Henderson Partners Pty Ltd (1989) 51 S.A.S.R. 431; New Zealand Motor Bodies Ltd v. Emslie (1985) 2 N.Z.L.R. 569; Norris v. Sibberas (1990) V.R. 161, 171; and Roots v. Oentory (1983) 2 Qd.R. 754. -- 3 of 115 -- 3 The defendants deny that representations were made in the glowing· and absolute terms alleged, and deny reliance ( for reasons associated with timing and alternatively on the basis that it was the first plaintiff's situation and activities and/or expectations of quick profit which explained the investments); they deny that there was any relevant duty of care upon them, and deny that the plaintiffs lost as much as they claim, or (if it comes to that) anything. They deny that the engineering of the marina system was defective; a good deal of the evidence was devoted to that issue. The history will begin to emerge by a discussion of the dramatis personae. THE PARTIES Andrew Neville Corbett The first plaintiff, when the action commenced on 10th April 1989, was Andrew Neville Corbett. Tragically, he died, aged 50, on 1 st June 1989 from multiple inoperable brain tumours, diagnosed in March, after he had been unwell for a month or so. Mr. Corbett's estate has been represented in the action by his brother, the second plaintiff. He qualified as a dentist, but during the 1980's became interested in various commercial ventures to do with mining, especially for gold, metallurgical-type processes and the like; he had earthmoving equipment. The O.M.A. adventure grew out of his earthmoving activities, specifically in a development at Repulse Bay, in Queensland, which it was thought might include a marina. The prospect of co-operation at Repulse Bay brought Mr. Corbett and Mr. Eichhorn together in late 1986. At that stage they I ' -- 4 of 115 -- 4 got on well together; they became partners in the O.M.A. business by early 1987 and remained so until late in the year when clashes between them which can probably be blamed on personality conflicts led to Mr. Eichhorn's exclusion. Mr. Corbett's involvement in the marina industry switched from O. M.A. to Invincible Marina Systems Pty. Ltd. ("I. M. S. ") in 1988 sometime. Speaking broadly, I .M. S. sold out to C. S .R. Humes Pty. Ltd. in March 1989, when any further involvement by Mr. Corbett was to be as a manager or consultant for that company. When he realised he was suffering from a terminal condition, Mr. Corbett opted to take treatment based on steroids which would not impede the progress of the tumours, but would give him the best available quality of life ( including intellectual function, specifically) for whatever time he had left. He did not remain in hospital, but returned to his home. Perhaps remarkably, he must have devoted a good deal of his energies to this action, recorded, in particular. This was lengthy affidavit, with voluminous to having his evidence done in the form of a exhibits. Much of the drafting was his own. Master Horton Q. C. made an order for his evidence to be taken on Commission under Part 2 of 0. 40. Cross-examination was confined to some extent by the Master's order. It took place on two days, on 13th April 1989 before Mr. King-Scott of counsel and on 18th April before Ms. O'Reilly of counsel, at Broadbeach Waters, presumably in Mr. Corbett's home. The affidavit is ex. 1 before me, and the transcripts of Mr. Corbett's evidence are ex. 2 and ex. 3. -- 5 of 115 -- 5 The procedure placed the defendants in some difficulty. There were no pleadings available when they had to conduct cross-examination, and they had very limited time within which to digest hundreds of pages of material, and to give instructions for cross-examination. I am alive to the disadvantage created. The defendants are, I think, entitled to some compensating indulgence, for example in being allowed to adduce evidence of matters, notwithstanding that they were not put.to Mr. Corbett in April 1989. Evidence was presented by both sides bearing upon the ability of Mr. Corbett to give competent or accurate evidence in March and April 1989. Unfortunately, none of the doctors specially called on this issue saw very much of Mr. Corbett at all. Even the general practitioner, Dr. Hoffman, saw him only once a week from the end of March or early April; he had not previously known Mr. Corbett. He says he has no doubt Mr. Corbett was capable of giving clear, accurate and intelligent evidence on the 13th and 18th April 1989. The specialists who saw him in March ( but not afterwards) were more doubtful. It seems to me that it is appropriate for me to read exs. 1, 2 and 3 with that medical evidence in mind, but, as a general rule, to accept Mr. Corbett's evidence as competent where it is coherent and responsive to the question being addressed. That does not necessarily make it reliable. The transcripts show that Mr. Corbett felt himself under a disability in respect of reading. He wished to have documents read out to him, upon which his comments were sought. I have a clear impression that his chronology is -- 6 of 115 -- 6 unreliable, and his ordering of events. As is also the case with Messrs. Eichhorn and Wright, I think he is unclear as to what transpired at any particular meeting. I think he is unreliable as to whether particular statements were made by Mr. Wright or by Mr. Eichhorn, and that there is confusion in his mind between things those gentlemen actually said, and Mr. Corbett's own impressions, or paraphrases of things said. Even in his affidavit, Mr. Corbett's failure to adhere to a sensible chronological order leads to significant confusion and doubt as to what precisely is his evidence. That assumes importance given that the plaintiffs' case depends upon their having a state of mind reliant upon the defendants' representations accompanying each commitment of expenditure of funds to O.M.A. over more than a year. Nashtown Pty. Ltd. The third plaintiff, Nashtown Pty. Ltd. is Mr. Andrew Corbett's company. No attempt has been made to distinguish between moneys put into O. M.A. by it and Mr. Corbett's own moneys. The parties were content with that approach. Dr. Corbett The second plaintiff, Dr. John Laurence Corbett had a distinguished academic career in medicine, whose high points included completing a Ph.D. at Oxford University on a Rhodes Scholarship. He specialised as a neurologist until 1985 and then launched a new career in business, which has been most successful. From his point of view his investment in O.M.A. was exceptional in the sense of being a failure. As will be seen, my assessment is that this investment may well have been -- 7 of 115 -- turned to profitable account, Dr. Corbett's business skills 7 and offers another instance of in acton. His evidence was credible and reliable in most respects, this arising from his use of very full notes of telephone conversations which he has kept over the years. Otherwise, his recollection was imperfect in cross-examination transcript. some respects, as Mr. revealed. See pp. 110 and Carrigan's 162 of the Dr. Corbett was rather aloof from the action itself. He was living in the South at all relevant times, and preoccupied with his business interests which involved many companies. He was not particularly interested in the O.M.A. venture which was too small from the standpoint of some at least of the entities with venture capital in which he had influence. It may be accepted that, at least before the crash of October 19th, 1987, if he wished to make money, he could do it much more simply and quickly on the stock exchange than through a venture like O.M.A. - so he informed the third defendant. What Dr. Corbett knew of O.M.A. came essentially from his brother Andrew, the first plaintiff. The aspect of the defendants' representations being repeated by Mr. Corbett aroused little controversy. For an analogy in deceit cases see Pollock on Torts (15th) 220. Dr. Corbett had been making contributions of a kind to O.M.A., according to Mr. Corbett, by putting him in funds which he lacked himself from time to time, to meet O.M.A. liabilities, from fairly early in 1987. His main contributions began at the beginning of June, 1987. r t -- 8 of 115 -- 8 Fandoan Pty. Ltd. The third plaintiff, Fandoan Pty. Ltd. is a company of the second plaintiff's. It played no active part in the action. Its name surfaced in November 1987 as the vehicle whereby Dr. Corbett would effectively take over sole control of O.M.A. in a scheme which Mr. Corbett and Mr. Eichhorn agreed to, but whose implementation has not really been established. The plaintiffs have generated documents which are consistent with a takeover at dates both before and after November 1987. Some at least, of O.M.A. 's property passed through Fandoan Pty. Ltd. to another Corbett Company, Invincible Marina Systems Pty. Ltd. ("I.M.S."). Fandoan Pty. Ltd. does not claim, in the action, to have been damnified by reliance upon any conduct of the defendants. They, however, contend that its participation makes it necessary that the plaintiffs bring to account a substantial sum of money obtained by I.M.S. when it sold a marina "invention" to C.S.R. Humes Limited in March 1989. Corbett Enterprises Pty. Ltd. Corbett Enterprises Pty. Ltd., the fifth plaintiff, was not a party as the action was originally constituted. It is the second plaintiff, Dr. Corbett's company. The evidence shows that he always had in mind that the fifth plaintiff would be the one, among many companies of his, which should invest in O.M.A. For the first couple of months, Dr. Corbett made contributions, consistently with a notion that "he" should put in up to $100,000.00 to acquire a certain equity. Then the fifth plaintiff took over in August 1987, at a time -- 9 of 115 -- 9 when the $100,000.00 figure had been reached. Dr. Corbett wished to attribute all of the contributions to the company, including some under obligations which he undertook in respect of chattel leases in October 1987. The defendants raised no objection. In the circumstances I am content to regard the first plaintiff as the investor, and to accord to it the benefit of any cause of action for negligent misstatement which Dr. Corbett may have. UNSATISFACTORY FEATURES OF THE EVIDENCE Some peculiar features of the evidence given at the trial have made identification of the facts unusually difficult. Many of the significant events happened four and a half or five years before the trial. The parties who gave evidence have imperfect recollection and appear to me to have coloured their .accounts in light of their personal views of the rights and wrongs of the situation. I do not find any of them deliberately dishonest. Mr. Wright and Mr. Eichhorn, who tended to say they presented the O.M.A. system to the Corbetts in terms of its being only an untested "concept" in an embryonic stage, claimed to be under a disability because of non-access to O.M.A. 's documents after November 1987, when Mr. Eichhorn was excluded. That led to Mr. Wright's excluding himself, in sympathy. On the plaintiff's side, Dr. Corbett was isolated from events, partly by circumstances, partly by his own choice; he essentially knew only what his brother told him; he refrained from making independent inquiries. I am unable to make much of the many claims made by the Corbetts that they were not ' < -- 10 of 115 -- 10 told or warned of various matters; to make a case they must rely on events which did happen, rather than events which did not happen. Andrew Corbett's evidence, necessarily given on affidavit and commission when the action was very new, creates particular problems. He has been denied the opportunity to have his say on the issues as finally litigated. ( I observe that the plaintiff's pleadings have largely taken up the parts of his affidavit). On the other hand, the defendants not only have not had a fair opportunity to cross-examine Mr. Corbett, they are at a disadvantage in making submissions as to his credit since I have not seen and heard him in the witness box. In principle, if there is to be a prejudice to either side from Mr. Corbett's unfortunate death, it seems to me it ought not to work against the defendants. I hasten to add that I do not consider a great deal has turned on any discounting of Mr. Corbett's evidence so far as the outcome of the action goes; if he had appreciated the need for it, he might have been able to give evidence useful to the plaintiffs as to the relations between the businesses of O.M.A. and Invincible Marina Systems Pty. Ltd. Mr. Corbett's evidence was, in my view, coloured by his personal standpoint just as much as that of the other parties. Dr. Corbett's notes of phone calls and other writings I take as reliable. I have found the documents tendered very useful, and take them as a reliable indicator of events and attitudes of participants, (except where doubt or reservation is expressed in these reasons). -- 11 of 115 -- 1 1 Two particular reservations I mention here. The evidence shows· that the dates of plans produced by the Computer Aided Drafting System employed in O.M.A. 's business are not reliable, in that details of drawings may have been altered after the date of an original drawing, without the appropriate later date being incorporated. Next, the plaintiffs set considerable store by recitals in "agreements" dated 20th May, 1987 which formed part of ex. 12, Mr. Corbett's bundle of written material sent to influence Dr. Corbett. One says "the parties (which, I interpolate, would include the third plaintiff) have jointly developed a unique marina system". The second refers to a bridging loan taken out "in order to facilitate the immediate commencement of construction on various items of production equipment". The second and third defendants have signed both documents; Mr. Bowden, appearing for the plaintiffs says this connects the defendants in some way to .the recitals as representations to the Corbetts. I disagree. I find that these documents (which describe transactions apparently never implemented) were drawn by or on the instructions of Mr. Corbett, and are more fairly regarded as representations by him. He has signed the first document as a director of his company, Pocket Valley Pty. Ltd. (envisaged as transferee from the third plaintiff and the second and third defendants of the marina system) and he has initialled the pages (prior to the execution page) of the second. My view of the defendants' signing is that they were simply obliging Mr. Corbett by completing documents he was interested in having signed, and that they had no intention or -- 12 of 115 -- 12 consciousness of making representations thereby. Dr. Corbett could not have been influenced too much by them; he'knew that the investors whose participation the documents were calculated to implement were no longer interested. A document of some interest is · a letter of Proctor, Doumany & Co. of 12th February, 1988 to Mr. Eichhorn's solicitors. It is part of ex. 31 and purports to be written on behalf of "Offshore Marinas", although Dr. Corbett in ex. 32 showed little interest in certain aspects of the letter, which he seems to have regarded as Mr. Corbett's affair. The letter of 12th February includes the following in a long list of complaints about Mr. Eichhorn: "3. Your client made certain representations to my client in relation to the design of Offshore Marinas, and upon examination of your client's design, our client is now of the opinion that the design simply does not work. During the period that your client was associated with Offshore Marinas, he received the sum of $600. 00 per week, and had the free use of a number of vehicles. In the three months prior to Christmas, your client ran another business and attended. at our client's premises for limited hours each day. Our client is presently considering its rights in relation to this matter." Dr. Corbett was informed of this allegation but did not take it up, perhaps because he was negotiating terms with Mr. Eichhorn. This is the first and only suggestion before action that any of the plaintiffs felt the victim of any misrepresentation. Neither of the Corbetts struck me as likely to be reticent if he harboured any such feeling. There is no evidence that either did, certainly none of a complaint to any of the defendants. Dr. Corbett did not confront Mr. Wright in accusatory mode after receipt of Mr. Gallagher's -- 13 of 115 -- 13 critical report. assistance with in late a view February 1988, rather to selling an O.M.A. sought his Marina to Mr. Lubrano. One of the factors which I take into account is the plaintiffs' failure to demonstrate the outrage commonly shown by experienced business people who have lost a lot of money through reliance on misrepresentations. Mr. Eichhorn and his Offshore Marina concept The third defendant, Mr. Eichhorn, has a long association with boating and marinas, but no formal engineering or other qualifications. He is a designer of marina layouts, and of facilities incorporated in marinas; he established a career as a consultant to developers interested in constructing marinas, and over the years he has devised and sought to promote marina projects, notably an ambitious one ( described in ex. 8) at Rose Bay in Sydney Harbour. From about 1976 Mr. Eichhorn had been concerned with proposals for marinas in various locations in North Queensland and on the Gold Coast. The name "Offshore Marinas" describes his idea of housing floating structures offshore, which situations where suitable land was marina facilities in was attractive in unavailable. Other projects Mr. Eichhorn was engaged in were for marinas to be constructed in specially excavated locations. Lacking drafting skills, Mr. Eichhorn engaged the services of a draftsman who drew up layouts and other plans for him. In 1977 or thereabouts, he met the second defendant, Mr. Wright, who was engaged "to do some calculations". Mr. Wright was then in partnership with Mr. Francey; this firm "actually prepared the cross sections" in respect of the -- 14 of 115 -- 14 components of the marina systems. To promote the system, Mr. Eichhorn needed a more professional presentation than merely his own sketches; he needed dimensioned plans and what came to be called isometric drawings. Mr. Eichhorn's idea was to have a modular system, sections (whose appeal based on prestressed concrete deck lay in their proposed strength) Initially, these floats were to be supported on floats. concrete boxes or "coffins", the lid being the deck section. The cost and risk of transporting concrete tanks to remote locations emerged as a problem when Mr. Eichhorn was tendering for development of a marina at Port Douglas. Recalling a project he knew in Sydney, Mr. Eichhorn decided to change his system by replacing concrete tanks with closed polyethylene tanks ("P.E. tanks"), on a number of which the concrete deck sections would rest. Although Mr. Eichhorn says he won the tender the marina was never built; he blames the difficulty of obtaining finance for such an isolated and unknown place as Port Douglas was a decade ago, and a deteriorating economic climate generally. Mr. Wright helped with the engineering aspects of the project. His firm, Wright & Francey is shown in the Port Douglas Marina tender of May 1982 (ex. 10) as consulting engineers; there is no reference to them in the accompanying plans, but Mr. Wright is named as co-designer of a catwalk for the marina in plans of 21 . 4. 83 forming part of ex. 9. By this date the realisation had sunk in that it was a matter of great uncertainty whether any marina project could be got up and running and that paying for engineering services in connection with proposals that might -- 15 of 115 -- 15 not get anywhere was beyond Mr. Eichhorn' s resources. A gentleman's agreement was made between two men whereby Mr. Wright would not charge for engineering services, but if any proposal went ahead, he would have an equity. This appears to have been fixed at 6 per cent, probably by reference to some scale of charging. Another project running at about the same time which got a considerable distance was for a marina in the Brisbane River at Kangaroo Point, in connection with a residential development. The building did not go ahead, after an unfavourable outcome of Local Government Court proceedings; that put paid to the marina project. However, official approval of the marina was obtained, after a good deal of effort by Mr. Eichhorn and Mr. Wright and various consultants they brought in. Exhibit 83 contains the approved plans, many of which have been signed by Mr. Wright as personally checked by him. On 17th February 1982, the Port of Brisbane Authority wrote to O.M.A.: "A further examination has been made of the basic design criteria. In summary, the basic design loads were:- 1 ) Wind load: - (a) concurrent with flood - 34 metres/second (b) wind only - 46.5 metres/second 2) Flood velocities of 3 metres/second Tidal velocities of 1 metre/secondDebris loading and log impact is includedas part of flood loading. 3) Maximum berthing loaddisplacement vessel metres/second. of a impacting 28 at tonne .75 -- 16 of 115 -- 16 4) Wave loads due to large passing craft. 5) Dead load and live load of 3 kPa. 6) Loading assumes a marina occupancy of 100% but shielding is provided in certain cases of wind and flood flow. Craft adopted is 50% sail and 50% power. Load case combinations examined have been:- i) Maximum wind plus tidal flow in the same direction. ii) Maximum wind perpendicular to the bank. iii) Floor flow plus wind in parallel direction. iv) Wave action on an arm v) Berthing load on a finger. vi) Mooring loads on piles (flood case). Examination of the design indicates that the general principles are acceptable al though some minor modifications may be required and these can be carried out during the detail stage. The above would satisfy the Port of Brisbane Authority but the design will need Section 86 approval which is administered by the Department of Harbours and Marine. The Port of Brisbane Authority is prepared to offer tenure subject to Section 86 approval being obtained from the Department of Harbours and Marine." Such an approval was obtained. It is in a letter of 11th November, 1982 which I refer to elsewhere. At this stage the marina system O.M.A. was promoting consisted of "arm" units 1800 millimetres wide and 8880 millimetres long. A covered duct or channel to accommodate services ran the length of each section. The 100 mm. thick d~cks were to be of pre-stressed reinforced concrete, with outside legs of 300 mm. resting on polyethylene tanks (seven per section) . The arm sections were to be rigidly joined together by post tensioning cables or rods in groups of three and two. Berths for boats were to be provided by pairs of opposed "fingers", either long (7520 mm) ·or short (5740 mm). -- 17 of 115 -- 17 These had a flare at the end to be fixed to the arm and the opposing finger and that fixing was to be a rigid cons·truction by means of post-tensioning rods passing through conduits in diaphragms provided underneath the decks. Each rod would traverse the length of two flares and the interposed arm. The fingers were a metre or so wide beyond the flares, and the decks were similar in thickness, and as to their legs, to the arm decks. The whole was to be supported in the water by standard closed polyethylene tanks, whose dimensions enabled them to fit end to end under the fingers, and side to side under the arms . That Mr. Wright and Mr. Eichhorn envisaged their modules being rigidly held together by post tensioning of three arm units and three pairs of opposed fingers likewise rigidly fixed at right angles to their arms by post-tensioning seems to me inescapable. This would produce rigid sections of arms ( or widthways) of 2 7 metres in length, or thereabouts, with fingers rigidly attached. The walkways could be lengthened, by addition of other sections up to 27 metres in length, joined by means of hinges. This would introduce an element of flexibility. The official publication on 14th May 1981 of Mr. Eichhorn's International Patent Application (which related to a floating marina consisting of a central limb and radiating arms) included the following: " Preferably one or more of the buoyant arm portions comprise a plurality of outwardly· extending buoyant finger portions to define mooring areas for marine vessels adjacent said arm portions. Preferably, the plurality of joined predetermined intervals. arm portions comprise members articulated a at -- 18 of 115 -- Preferably, theplurality of members joining means. 18 arm portions comprise a joined by post-tensioned Preferably, the post-tensioned joining means extends from the main portion to Join thearticulated members in end to end relationship and said main portion to said articulated members. Preferably the finger portions are retained in opposed relationship on each side of an arm portion by post-tensioned joining members. Preferably the main portion, arm portions and finger portions comprise essentially hollow membersformed from fibre reinforced concrete. Preferably the arm portions comprise ductspositioned in the region of the geometric centre thereof to locate the post-tensioned joining means. the post-tensioned joining means preferably comprises a post-tensioned cable. Preferably the means for anchoring thestructure to the seabed comprises a plurality of anchors connected by an extendable shock absorbinglinkage to suitable positions on said structure to permit even load distribution on the structure regardless of tidal conditions and/ or direction of waves and prevailing weather." The system I have described may be contrasted with Mr. Eichhorn's original idea of an all concrete system. Mr. Wright's drawings for this may be found in various places in the evidence - for example one drawn in April 1979 is at page 14 of ex. ANC-1 to Ex 1. The plaintiff Andrew Neville Corbett claimed it was shown to him with other documents on 24th November, 1986 by Messrs. Wright and Eichhorn; the plaintiff John Lawrence Corbett swore another one was shown to him by Mr. Eichhorn in April 1987 (ex. 4). Mr. A. Corbett says that one (ANC-2, page 102) was shown to him on 28th November, 1986. The fingers were designed in lengths of 7500, 11250 and 15000 millimetres, tapered for a length of 7500 mms. -- 19 of 115 -- 19 in each case; the arms were apparently envisaged in 15 metre lengths. The O.M.A. product continued to change, and in particular (after the plaintiffs' first involvement) an enlarged version of the polyethylene tank system was "drawn" (by a computer assisted drafting facility) and named "System 2"; the hope was that it would be effective in locations like Sydney Harbour where conditions required a heavier system. As for System 1, the fingers were redesigned, so that the flares ceased to have any further structural role - the post-tensioning fixing to the arm was thereafter to run the full length of the fingers; the notion of fingers being made longer by a finger unit extension of 5750 mm. (to be attached by post-tensioning) was adopted; the extension could be joined to finger units of 9500 mm. or 7500 mm. The polyethylene tanks were redesigned so as not to leave a void underneath the decks, but to allow room for a central services duct. In this respect, another revision of the arm design led to the "legs" being moulded at an angle to form channels, in which services could be run along below the edges of the walkway deck, rather than in a central duct. In my opinion it was plain to anyone considering O.M.A.'s documents that its "system" was one undergoing revision pretty well all the time. Mr. Wright an The second defendant, engineer in 1972 and Geoffrey Alex Wright graduated as has had a successful career in practice since. After four years in employment with a firm at its offices in Brisbane and the Gold Coast, he established a -- 20 of 115 -- 20 partnership with his "boss", George Francey as from 1st January, 1977. During that year he met Mr. Eichhorn, who "was formulating the concept of an offshore marina". The partnership Wright and Francey became O.M.A.'s consulting engineers and gave engineering advice on various projects, such as Trinity Bay (Cairns) , Port Douglas and a number of bays in Sydney Harbour. Some projects proceeded further than others. In 1984 the engineering practice came to be conducted by the first defendant, Wright & Francey Pty. Ltd. Mr. Wright described the engineering services he supplied up to 1984 in this way: "Well, in all cases one of the things we wanted to do was to engage specialist consultants to assist with the work becatise the general consulting engineer tends to be a jack of all trades type and he needs the assistance of specialists in particular areas." Mr. Wright, in giving evidence, sought to emphasise that there never were any final plans drawn by him: "Advanced but not completed working drawings were prepared for Port Douglas and also the Kangaroo Point marina in 1981 / 82, which was a job which did in fact get approval to proceed; had a fairly advanced set of drawings, certainly advanced enough for submissions to the authorities, though they may not have necessarily been the final edition to which it would have been built." (The plaintiff's experts said that drawings prepared with Mr. Wright's participation were working drawings, in that they contained sufficient detail, by way of dimensions and so forth to permit construction. He, on the other hand, described even the latest such drawings as "developmental drawings" somewhere between concept plans and working drawings, and not -- 21 of 115 -- 21 appropriate to use in construction, because details such as concrete strength and concrete cover were not depicted.) He explained the change of relationship with Mr. Eichhorn when the first defendant came into the picture as follows: "At that stage, I recognised that vast amounts of money could be used up in research and development and it is not fair or, indeed, probably possible to fund that on the fees of a conventional client/consultant job, so because I considered that the system had great potential and promise, I took it upon myself to divorce the practice of Wright & Francey Pty 1 td. from being consultant to OMA to taking a personal interest and putting in my personal time aside from the practice. I did use from time to time some of the resources of thepractice. Of course, the understanding was that, were a job to proceed, then Wright & Francey Pty Ltd would be given first option to be the engineeringconsultant to do those works over and above which I had done personally." Thereafter, he said "Wright & Francey" had not been remunerated on a professional fee basis. Wright & Francey Pty. Ltd. had no files with O.M.A. as client, although there were a number of such files from the days of the partnership. Mr. Wright said his interest in the O.M.A. project from that time was a personal one. Mr. Francey' s wishes. He attributed this at one stage to Mr. Francey ran one of Wright and Francey Pty. Ltd' s offices, Mr. Wright the other. He had spare space in his company's premises which he made available to O.M.A. for storage of its documents. From 1984, he participated further in O.M.A. projects proposed for the Southport Broadwater. In 1986, for a client of his, he was involved with Mr. Eichhorn in investigating a proposal for a marina in the Pioneer River, Mackay. Mr. Wright said Mr. Corbett was introduced to him by Mr. Eichhorn at the first defendant's premises in "late October, -- 22 of 115 -- 22 early November" 1986; they were given access to the O.M.A. documents, and use of the meeting room. Mr. Wright was introduced as an engineer, and even if nothing had been said, the documents made his participation in O.M.A. projects over the years quite obvious. One of the documents produced then or at a later meeting was a letter of the Department of Harbours and Marine of November 11th, 1982 which was, inter alia: "I am directed to inform you that in pursuance of the provisions of section 86 of the Harbours Act 1955-1982, approval has been given to the plans deposited with the Marine Board by you for the construction of a marina facility and associated dredging in the Brisbane River at Kangaroo Pointsubject to the following conditions:- 1. Maximum loading on pontoons of 3kPa. 2. Maintenance of the dredged river bed profiles under the marina as shown on the approved plans will be the responsibility of the owner of the marina and as directed by the Port of BrisbaneAuthority. 3. Navigation lighting must be provided on the marina by the applicant, and must be to the specifications of the harbour Master, Department of Harbours and Marine, Brisbane. 4. Wall thickness of hollow steel piling must be not less than 8 mm. 5. The applicant and his successors must comply with the requirements of the Port of BrisbaneAuthority and the Brisbane City Council. 6. This approval is subject to the granting by thePort of Brisbane Authority to the constructingauthority of a lease of the land concerned for the purpose proposed. Copies of the approved plans are returned herewith. I wish to point out that the approval or do not constitute a ruling on structural you must make your own arrangements adequacy of design and work. conditions safety and to ensure -- 23 of 115 -- 23 In the event of the transfer of the property at some future date, please furnish this Department with the name and address of the transferee." I find it difficult to accept Mr. Wright's assertion that no special emphasis was laid upon that letter. In my view, those associated with O.M.A. regarded this as an important official endorsement, notwithstanding the disclaimer which forms part of it. I accept Mr. Corbett's statement that he thought the letter was independent acceptance of the engineering adequacy of the system, likewise that the Port of Brisbane Authority's letter of 17th February, 1982 led him to think that as the loads referred to were acceptable to relevant officers of that authority and the Department, the O.M.A. system must be structurally sound. As to the first meeting between Mr. Corbett and Mr. Wright (put by Mr. Corbett in his affidavit as on 24th November, 1986) Mr. Wright said in Exhibit 148, a considered written response to the affidavit: "In relation to paragraph 7, I was introduced to Corbett in late 1986 and it was not until about March, 1987 did I have my first business meeting with him. This initial meeting was held at the offices of Wright and Francey Pty. Ltd. which premises were later occupied by OMA when Wright & Francey Pty. Ltd. moved their office. We discussed how the system differed from other systems available. I said that the concept was different in that it used more heavy and rigid units which gave better user benefits. It provided better comfort in that it moved less in the water, could be positioned in less sheltered waters, and it was not necessarily dependent on being located by piles. I explained in general terms what I saw to be the advantages. Corbett asked some sensible questions and in lay terms he appeared to know what he was talking about. Eichhorn was trying to interest Corbett in financing the project. Eichhorn had previously spoken to me so I knew that Corbett was meeting with us for that purpose. Documents were shown generally to him. I do not recall whether at the end of the meeting whether it was resolved to have a further meeting. At this meeting I did not represent myself as a -- 24 of 115 -- 24 specialist expert in concrete structures but as anengineer regularly working in this material. I do recall saying that it was me personally who was basically responsible for the engineering aspects of the development of the OMA System. I did not mention Wright & Francey Pty. Ltd. in this role. At the second meeting,there was again a general discussion. I produced some files for Corbett to see and invited him to look over them. I did this to show that I had done work in the area and had always engaged specialist consultants toassist. I said something like the intrinsic design of the OMA system should make it superior to other systems. I recall that I did not qualify this at the time." Mr. Wright, like all the participants, had no clear idea of which events occurred at particular meetings. In the end, at pp. 1135-36 of the transcript, he seemed to concede that there were a number of meetings before March 1987 ( still the first meeting he recalled "with a heavy technical content in it") and two in November 1 986 when some of the documents Mr. Corbett mentioned "would have been looked at, but certainly by no means all of them." Mr. Wright had great faith in the O.M.A. system and conceded he said nothing about possible shortcomings, and certain things about its advantages. He is probably right in his impression that Mr. Corbett's interest at first was in securing a · marina for Repulse Bay and that an interest in becoming a proprietor of the O.M.A. business came later. Again, it is obvious enough that Mr. Wright did not warn Mr. Corbett off. From his perspective, there was no reason to do that. The following exchange in cross-examination occurred in relation to the time when Mr. Wright had become aware of Mr. Corbett's investment of funds: "Did you ever go to him subsequently and advise him that you hadn't done all your engineering calculations in questions about the efficacy of the system?--! think I advised him of that on the very first day. -- 25 of 115 -- 25 You think you advised him of that on the very first day?- -I said that the system was under development and not complete." Mr. Corbett's version of this subject is in paragraph 14 of his affidavit: "14. Wright told me at the meeting that he and Eichhorn had selected the outside consultants and advisersreferred to in paragraph 9(k) above in order for him to be able to provide OMA with answers to all engineeringquestions which needed to be considered. He said that the only outstanding engineering matters needing attention were:- (a) Selection of type of sealant between butt joints from Reid's sealants. (b) Selection of the materials, dimensions and method of construction of the hinges between arm units. • (c) The precise specification of anchor harness." Mr. Wright's account (at pages 1153-54 of the transcript) has a different flavour; it suggests that items (a), (b) and (c) were mentioned in more general terms; it lacks Mr. Corbett's implication that there would be satisfactory solutions readily found; it suggests these were not presented as the only matters requiring engineering attention. On balance, I prefer Mr. Wright's account in this particular. The plaintiffs have not persuaded me Mr. Corbett is correct. On the other hand I cannot find Mr. Wright' s stance was as tentative as my last quotation of him would suggest. There are statements attributed to Mr. Wright by Mr. Corbett which I cannot find Mr. Wright made, such as the O.M.A. marina system was "ready to fly" or was "an engineering masterpiece" or "fully engineered as a heavyweight system". Indeed the plaintiffs are in difficulty in establishing that Mr. Wright made any particular representations, except on the -- 26 of 115 -- 26 basis of his own evidence, or of Mr. Eichhorn's. In my view it is not to the point that Mr. Corbett makes many statements such as "At no time during the many meetings which occurred with Wright and Eichhorn, was it suggested that any substantive engineering matters were outstanding". More to the point are statements of what did happen, such as that Eichhorn and Wright some time before the former and Mr. Corbett went to Hamilton Island on 26th September, 1987 "voiced satisfaction that drawings were coming together as planned." It is noted elsewhere that Mr. Wright retained his belief in the system throughout, and voiced it for example in March-April 1988, so far as the deck structures were concerned. He clings to that belief notwithstanding doubts expressed from time to time, for example, by Humes Limited in 1982 (Exhibit 135, 134) by Mr. Seymour and by Patterson arid Britton in 1987. The plaintiffs in their written submissions claim: ( f) Eichhorn had copies of Wright' s calculations which would be a most impressive weapon when attempting to convince a layman as to the engineering integrity of the system: ... The statements to which Andrew Corbett deposes: (a) must be read in the light of each other statement; ( b) must be considered having regard to all the documents before him; ( c) must be considered in the light of who was making the statements and where those statements were being made. The totality of the documents placed before Andrew Corbett on the occasions in 1986 in question by themselves ( and without more) carry with them a number of representations: -- 27 of 115 -- 27 (a) that the system was viable for conditions to be normally expected in Queensland, Northern Australia~ that is that it was fit for the purpose; (b) that it was properly engineered, that is that it was merchantable quality; ( c) that the system would be or could be a commercial success. They found themselves upon the following statement in Brennan J. 's judgment in San Sebastian Pty. Ltd. v. Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 C.L.R. 341; 373: "The plaintiffs in this case do not suggest that the representation which caused their loss was merely that the plan was feasible considered as a representation made in isolation. That representation was made, if at all, by implication from the statement that the Study documents had been expertly prepared by the Authority, from the fact that the Council had accepted the plan therein contained and from the publishing of the Study documents. It was the official origins and official acceptance of the plan which at once gave it an appearance of feasibility and engendered such an expectation that the plan would be implemented as to encourage developers to purchase land". The submission overstates what the plaintiffs have proved. However, I do find that in all the circumstances, so far as the deck system proposed was concerned, Mr. Wright was making representations to the effect of (b) in a situation where a duty of care existed, in light of the requirements identified in Shaddock & Associates Pty. Ltd. v. Parramatta City Council (No. 1) (1981) 150 C.L.R. 255 and San Sebastian. I consider that Mr. Corbett relied upon such a representation when he put his and the third plaintiff's money into O.M.A. (apart from an initial payment of $5,000.00). I consider that the effect of the representation was repeated by Mr. Corbett -- 28 of 115 -- 28 to Dr. Corbett (as Mr. Wright might have anticipated) and that Dr. Corbett had some regard to it (along with other matters) in investing. The meaning of the "representation" by Mr. Wright was not, in my view, simply that rigidly post-tensi_oned aggregations of the deck would "work" in practice, but that this had been established in conventional engineering terms by appropriate calculations based on correct information. Mr. Wright was suggesting, in effect, that the consensus of competent engineers would be that the deck's structural integrity could be demonstrated. As I determine in these reasons, this is not the case. The "representation" was untrue and misleading. Further, I consider that Mr. Wright made it negligently. What calculations did Mr. Wright do to establish the structural integrity of the deck and finger system? There is a large bundle of calculations in relation to Kangaroo Point" in 1981-82, done in batches in April 1981, December 1981 and February 1982. The first batch, of eight pages, not all of which show "calculations" by any means, are essentially designed to ensure that the piles proposed would restrain the marina in adverse environmental conditions; only half a page was devoted to concrete strength and to show that the proposed degree of prestressing should accommodate bending moments affecting the arms supported by wave crests. The December calculations (22 pages) were more extensive on this aspect and others; they were made to satisfy questioning raised by the Port of Brisbane authority on 24th September. See ex. 137. Similarly the 1982 calculations which supplemented the -- 29 of 115 -- December work appear Authority's letter of 29 to have been a 17th February, 1982. response to the The · arms under consideration did not have a flat surface as moulded, rather a depressed, central rectangular channel (to accommodate services) was incorporated. The arms considered were 60 metres long, hinged between post-tensioned aggregations of three twelve metre sections and two twelve-metre sections. Mr. Wright claimed to have considered reverse moments, that is hogging as well as sagging moments. The engineering evidence shows to my satisfaction he did not do it adequately, and that his calculations were deficient in other respects, such as in failing to combine forces. He is not charged with negligence in his calculations, of course, but in republishing them, as it were, to Mr. Corbett. I think it is legitimate to say he was not justified in relying on the soundness of his own calculations made five years or so before, when his experience as an engineer was more limited. He knew he could hardly qualify as an expert in floating concrete structures. likely he placed some faith on the official approvals. Very In my opinion it was incumbent on Mr. Wright to consider whether the changes made to the system after those approvals had any effect on the value of the 1981-82 calculations. It does not appear that he did so. As to the other representations which the plaintiffs allege against Mr. Wright, except where they are admitted by him or proved by Mr. Eichhorn, I am not persuaded they were made in the terms alleged, or any near approximation. I am not particularly concerned about remarks having the quality of -- 30 of 115 -- 30 puffery, or remarks comparing the O. M.A. System favourably with its competitors. These seem to me part of a "sales pitch" which was essentially Mr. Eichhorn' s, even if Mr. Wright endorsed them in some way or other. Wright & Francey Pty. Ltd. The writ endorsement indicated that the action was based on misleading and deceptive conduct under the Trade Practices Act (Commonwealth); this probably explains why the company, which took over the second defendant's and Mr. George Francey's engineering practice in 1984, was made first defendant - it is a corporation, whose actions are potentially capable of being brought within s. 52. It is trite that nothing Mr. Wright did before 1984 can be regarded as done as the first defendant's agent. He claims that everything done after the first defendant's appearance was done in his personal capacity. Such a claim is shown articulated for the first time in the company's letter of March 16, 1988, ex. 39. This does not mean it is necessarily untrue, but it does mean the defence contention that the first defendant cannot possibly be liable for anything which occurred in 1986-87 should be closely scrutinised. There is evidence of co-operative endeavours by the company and O.M.A. in late 1986. Exhibit 23 is a letter of 1st October from them jointly in respect of a proposed marina on the Pioneer River, Mackay, signed by Mr. Wright and Mr. Eichhorn. The two men are described, accurately enough, as the principals of O.M.A., and the company presents itself as the successor of the former engineering partnership. The letter is on Wright & Francey -- 31 of 115 -- 31 Pty. Ltd.' s letterhead, but many of the pages enclosed bear · the O.M.A. "logo". This document may signify no more than that the addressee was the company's client. On 20th October, 1986 there was created ex. 156, another letter jointly signed. Part of an attempt to promote a proposal for Sydney Harbour, it says that Mr. Eichhorn's partner in O.M.A. is "Civil Engineer Geoff Wright of Wright & Francey Pty. Ltd.". Again that is equivocal. Not at all equivocal is ex. 65, a submission of 27th March 1987 to the New South Wales Minister for Public Works and Ports. This showed Messrs Eichhorn and Corbett as "principal partners" and Mr. Wright as a partner. Wright & Francey Pty. Ltd. is listed as a consultant, and provided a six page report on its own letterhead, signed "G.A. Wright, Wright & Francey Pty. Ltd.". The report states that "Data on layout and design has been synthesised from many and various sources. From the point of view of engineering design, lack of precedent is not a great drawback". Overall design parameters were said to allow an anticipated economic life of 25 years, the intention being to design for a 50 year return period of natural phenomena affecting the structure. Various representatives as to the advantages of the system, which must be taken to emanate from the first defendant, follow. I have no doubt that this document was available to Mr. Corbett. He was well accustomed to visiting the first defendant's office and seeing O.M.A. 's product and prospects and problems ( to the extent any was acknowledged) discussed there, with Mr. Wright participating at least some of the time. -- 32 of 115 -- 32 I accept the plaintiffs' argument that in matters of an engineering nature, when Mr. Wright did or said things before Mr. Corbett, he may be regarded as acting for the first defendant. So far as the first defendant was to act, Mr. Wright would necessarily be the actor; the company's premises were used without any kind of disclaimer that it was involved being established; the company paid Ray Murray, who did a good deal of drafting for O.M.A. on the Computer Assisted Drafting System which Dr. Corbett obtained on lease ( this was part of an arrangement whereby Mr. Murray and the system were made available to do work for the company); the company was presented as successor to the engineering partnership; the expectation was that the company would profit from consultancies with the clients if O.M.A. should succeed in getting jobs. The expectation of benefit to the company is clear. Some matters pointed to by Mr. Bowden, such as.·, the first defendant's allowing its facsimile transmission machine to be used by O.M.A. seem neither here nor there to me (they may simply be a courtesy between neighbours); however, Mr. Bowden has persuaded me that whatever reservations Mr. Wright may have held, his actions were performed in the course of the company's business - he relied upon Deatons v. Flew (1949) 79 C.L.R. 371, 381; Lloyd v. Grace, Smith & Co. [1912] A.C. 716 and Pennington's Company Law (5th) 126. To the extent that Mr. Wright may be liable to the plaintiffs herein, the first defendant is liable. The plaintiffs have not suggested Mr. Wright played any role in -- 33 of 115 -- 33 negotiations to do with the parties' relative equities in O.M.A. THE EXPERTS Mr. Abraham Of the three consulting engineers claiming special expertise in marine structures who gave evidence, I prefer Mr. Abraham. The qualifications and experience of all three impressed me, and it is invidious indeed to be required to distinguish among them. The consul ting experience of Messrs. Abraham and Patterson outstrips that of Mr. Gallagher, and their views command the greatest respect insofar as their theory is combined with long practical experience. Of these three experts, only Mr. Abraham impressed me as being "above the battle"; the other two were very much advocates for the parties calling them. It will shorten these reasons appreciably to indicate, as I do, that I accept Mr. Abraham's reports (ex. 80 and ex. 81) and his evidence. Mr. Glynn Mr. Glynn, called as the plaintiffs' third expert, is another whose evidence I accept in its entirety. The defendants advanced no reason why I should not. He is an expert in concrete, albeit not in marine applications in particular. His standpoint is that adequacy of concrete structures should be considered in light of concrete codes adopted by the Australian Standards Association and general theoretical principles, regardless of special contexts. In many respects, a marine environment is more hostile to a concrete structure than a land environment. Mr. Glynn, like -- 34 of 115 -- 34 the plaintiffs' other experts, establishes that the concrete decks of the O.M.A. System 1 marina are theoretically liable to fail under conditions which should be designed against. The concession has to be made that calculations of various forces and bending movements in particular have their limitations; these may be illustrated by my observing that the shape of a wave is taken as being triangular - which a wave in practice is not; further, the calculations typically look at a wave as frozen in an instant, whereas it is in motion - the appropriateness of treating a wave as static may be questionable, but it is the best that can be done in the circumstances. The defendants were not able to present an engineering or physical theory to demonstrate that the O.M.A. System concrete decks would not fail in design conditions. Mr. Gallagher Mr. Gallagher, a consulting engineer with many years experience in marine engineering, first encountered the O.M.A. System in late November 1987 when Ray Murray, an O.M.A. employee ( and a former employee of his own) asked him to do some buoyancy calculations. He was given possession of drawings relevant to floats and arm units. His investigations showed satisfactory buoyancy but he decided he "could see some problems with in the system . . . it was just feeling in the water." As Mr. Gallagher told it, communication of this to Ray Murray with the suggestion that Mr. Corbett be advised led to Mr. Corbett on 22nd January, 1988 commissioning him to do a full check of the system. There was a good deal of contact after that, culminating in the report ex. 35 which -- 35 of 115 -- 35 Mr. Gallagher prepared, largely for the purpose of informing Dr. Corbett of his views. He made suggestions as to how the system could be made to work, he did "not see things as black light to medium grey certainty". Similarly, Mr. Abraham, who was engaged by Mr. Gallagher over a year later, in his report of 27th April 1989, made suggestions as to how the O.M.A. system could be improved. By this time attention was being focussed on the adequacy of the concrete and finger sections. I find Mr. Gallagher was correct in identifying "double tee" sections as an unfortunate choice for an environment in which there can be full reversal of loadings. It seems plain that for a marina, forces such as vessel impact, winds, waves, currents and the like will not operate in a consistent direction. A particularly troublesome species of load reversal is experienced as a wave of appreciable length moves under and along a finger or arm. When the member is suspended at or near both ends by wave crests, it will tend to sag; when supported at about its centre by the crest of a wave of sufficient length, it is said to "hog" - its back will tend to break, as Mr. Gallagher put it (p. 188). He said that the critical wave length, the one which may do the greatest danger, is one nine-tenths of the length of the floating structure. The bending moments were calculated by various witnesses using different assumed conditions. Mr. Abraham's, for a combination of two 15 metre fingers joined through a two metre walkway are conveniently set out in the table: -- 36 of 115 -- underprestress under prestress and wave bending moment 36 Finger without splay Top Bottom 3.0 12. 2 12.6 34.0 -6.6 -9.6 Finger with splay Top Bottom 0.4 13.5 5.9 32.8 -5.0 -5.9 Comparison of the middle and bottom columns shows the dramatic effect of load reversal. The stresses or bending movements shown as negative are tensile or "pulling" stresses, the others are compressive. Mr. Abraham says, and I accept, that given the strength of the concrete ( allowing for the pre- stressing and post tensioning) the compressive stresses of 34 and 32. 8 Megapascals are unacceptable, and that any tensile stresses are unacceptable. Mr. Abraham allowed that relocation of the post-tensioning conduits (not easily achieved precisely in manufacture, he said) would alleviate the situation, but I cannot find that it would do so acceptably, after considering the debate on the point between him and Mr. Patterson. Mr. Abraham thought 15 metre fingers would fail under horizontal wind or berthing loadings postulated by him. As for the arms, he calculated, for an arm section of 27 metre length in the conditions he considered, the following stresses: Top Bottom Under pre stress 1.05 12.02 under pre stress 10.79 38.32 and wave bending -8.69 -14.28 moment -- 37 of 115 -- 37 Again, the stresses were unacceptable, and again I am not satisfied by Mr. Patterson that correcting an· eccentricity between centres of gravity of the concrete and the post-tensioning strands would make the position acceptable. Mr. Patterson The defendants' engineering expert, Mr. Patterson had a different standpoint. At p. 742 of the transcript, he said of Mr. Glynn: "He is an engineer who believes that strict compliance with concrete codes is certainly a preliminary objective of any design structure and that we should be providing adequate factors of safety against failure which has the mentality of the majority of structural engineers which is quite a desirable attribute of structural engineers, my point being that in the design of marina systems we are operating a different part of the spectrum of material performance. We are not looking or seeking to provide structures with the high factors of safety inherent in the Australian codes." His cross-examination revealed more of his approach: "Can we go to Exhibit 23, please? Whilst we are dealing with this question, if you assume the rigid structure - just make this assumption, please - if you assume the rigid structure, the rigid raft structure, three arms and six fingers, that Mr. Gallagher has dealt with I put it to you that you can not justify the engineering integrity of such a system within design conditions for the State of Queensland?-- For the State of Queensland. Well, the sort of design conditions that Mr Abraham deals with in his letter, the exhibit we were looking at before, the 400 mm wave, the 1 kPa wind condition, the berthing speed that we discussed, those four components on the first page of his letter?-- Yes. What I would call maximum conditions, yes, I would probably have to agree that if all of those conditions pertained to a site then I probably wouldn't be trying to use 27 metre long rafts. Or even an 18 metre long raft?-- I probably would be able to make an 18 metre long raft work. -- 38 of 115 -- 38 Not with 15 metre figures (sic)?-- Depends on the actual wave conditions you are talking about at thesite. Dealing with the design waves we are postulating it wouldn't work?-- If you are talking about the maximum waves of .4 of a metre on paper it may not work. It wouldn't work, would it?-- No, you cannot draw that conclusion just because on paper the stresses, concrete stresses - the marina won't survive. Why do you say that?-- Because if I were to do that exercise for a marina that already has been built and is operating at Abel Point I could quite easily demonstrate that it won't work on paper. You have done those calculations, haven't you?-- Yes, and the stresses in it are very large. You have done those calculations for Abel Point,haven't you?-- Yes. May the witness see Exhibit 1 07? I am going to suggest to you these calculations are wrong. Do you understand that?-- Yes. What you have done here is this; this is a documentwhich you have prepared to demonstrate that the Coppers' Wharf at Abel Point does not comply withthe codes and the concrete codes, or whatever, and with fundamental engineering calculations is · still there and well able to withstand the elements for two years?-- Yes. It is therefore important for you doing these figures to demonstrate that the relevant forces are beyond the codes and yet there it is. It is a marina which is still therein existence. That is your thesis, isn't it?-- Something like that. The thesis is that if we blindly apply the Australian Standard Codes of Practice for reinforced concrete to marina systems that most marinas would fail, nevertheless, the fact is these marinasystems do, in fact, work. That is simply all. I am not trying to prove that the engineer who designed this marina system was incompetent or incorrect, by just by applying the same criteria or philosophy Mr Gallagher has applied to the OMA concept design calculations done for Abel Point. If you apply that to an actual installation that has been installed you come up with the same conclusion. That is it will fail. Nevertheless, there it is built. It is working and that is my experience, that is what happens." -- 39 of 115 -- 39 There was an issue as to the adequacy of Mr. Patterson's Abel Point calculations which I need not resolve. In my view the outcome of this case ought not to depend on such an issue. I am satisfied that Mr. Patterson's philosophy, in relation to marinas, was against the conventional approach of requiring theoretical demonstration of the soundness of concrete structures. I have great regard for his expertise; he is a principal author of the Australian Standard for Marinas which recently came into effect. ( It has no bearing on the issues before me.) Mr. Patterson, in turn, expressed unashamed regard for the practical people who may lack engineering or any paper qualifications, but who are able to create marinas which work in practice. Mr. Patterson is not able to point to any particular marina structure offending the Gallagher-Abraham standards which has survived for any great length of time in years, to suggest that it would last 20 or 30 years. This follows from the recency of the installation of the examples he mentioned. There is much to be said for Mr. Patterson's "can-do" approach. He could well be right that marinas designed to standards below those theoretically defensible will last for an acceptable period of time and may gain commercial success. His approach was presented by Mr. Carrigan as an "empirical" Court leads to the plaintiffs' one, whose acceptance by the failing to establish that the engineering of the O.M.A. system was defective. In my opinion, the empirical approach is not the correct one in the present case where the engineering adequacy of a design is brought into question in the context of the -- 40 of 115 -- plaintiffs being induced 40 to buy into a venture by representations along the lines that the engineering has been carried out or vouched for by a consul ting engineer, namely Mr. Wright. In such a context the ability of the defendants to produce a theoretical justification of the system in the face of the plaintiffs' experts' evidence is crucial. The defendants have failed the test. Even Mr. Patterson did not defend the O.M.A. system, so far as it depended on rigid elements of 27 metres of walkway including six 15 metre arms, or similar. I find that the system was conceived in that way, and that the proposition that it was all along regarded as a modular system with far more flexible connections must be regarded as a recent invention. That "recent invention" played a large part in Mr. Patterson's defence of the O.M.A. system. I repeat my regret that resolution of the engineering issues has led me to prefer Mr. Abraham. An irony of the case was that in August 1987, Mr. Patterson's firm, Patterson & Britton, rejected a proposal for an O.M.A. installation at Birkenhead, in Sydney. This was explained in terms of the client being conservative, and wishing to have a proven system. It all points to the defendants' inability to show that the system will work. Mr. Wright's expertise, nature and soundness of the system he defended. It may be accepted (as Mr. Eichhorn says it in ex. 125, which the defendants tendered) that at a meeting in late November, 1986 Mr. Wright told Mr. Corbett, as to his -- 41 of 115 -- 41 expertise, at least that he had many years experience in the building of concrete structures, and that he had been working with Mr. Eichhorn in the development of the marina system over a number of years, had participated with Mr. Eichhorn with respect to a number of marina proposals, and had been involved with other consultants brought into advise on the development of the marina systems. In my opinion this suff icies to establish that Mr. Wright was presented as an engineer with appropriate qualifications to pronounce on the adequacy of the system and to access when consultation with particular experts was necessary. On the point of the structural soundness of the concrete arm and finger decks, Mr. Wright has been stoutly defensive of the design at all relevant times. For example on 15th April, 1988 he told Mr. Corbett that engineering had been done for the floating parts of the system, but remained to be done in respect of tethering. Similarly he told Mr. Lubrano about this time that he had done sufficient work on the floating units and their connections to be confident of their ability to meet design standards and perform in actual operation (ex. 71). After Mr. Seymour expressed doubts as to the potential engineering problems with the O.M.A. system in September and October, 1987, Mr. Wright said the best way of countering those doubts was to do further calculations for a specific marina job. This led to what became known as the "Abel Point Calculations" of October, 1987. Five pages in length, they were regarded by Mr. Wright as vindicating the design. They are the focus of the plaintiffs' attack on the ,I -- 42 of 115 -- 42 engineering design of the O.M.A. system, which is claimed to be defective. See paragraph 36 of the statement of claim, and particulars (i) to (viii): II ( i ) (ii) (iii) (iv) (v) (vi) (vii) (viii) The design involved incorrect calculation of stresses on the structure caused by vertical wave moments and horizontal bending moments due to berthing of vessels. There was a failure by the designer to consider wave action on the assemblies of arm and finger units of the structure. There were mistakes in the calculation of forces caused by horizontal berthing loads; The design failed to investigate or take account of moment reversal due to wave action; Different stresses (for example due to wave action and berthing) were not combined in the designer's calculations of the relevant stresses on the structure; The stresses on both faces of finger and arm units of the structure were beyond the limits permitted by AS 1481 Table 4.8.4.(2); The stresses or tensions on the structure were to high, making the joints likely to open and close regularly exposing post tensioning strands to the marine environment; The minimum cover (prescribed by AS 1480 and AS 1 481 : Condition 4) for reinforcement and post tension ducts of arm and finger units, and for pretensioned strands for arm units, were not specified or included in the design. Contrary to AS 1481, no cement grouting of ducts containing prestressing strand was included in the design, and it was not possible consistently with the design to grout such ducts; The design incorrectly chose a double tee type of section for the arm and finger units instead of a section which was symmetrical about a horizontal axis such as a box or an I section." Those particulars are, I consider, made out on the evidence - Particulars (ix) to (xii) have not been. They are: -- 43 of 115 -- II ( iX) 43 The anchoring system was inadequate to cope with the vertical component of anchor cable forces; (x) The harness design was defect(ive) in that:- (xi) (xii) (a) it provided for a connection point some 900 mm below water line and a large rolling or heeling moment was induced in the arm unit; (b) it provided for bronze corner pieces instead for a simpler harness fabricated from SAF 2205 stainless; There were excessive direct stresses on the polyethylene tanks which would result in large long term deflections of the tank walls due to an inability to withstand stresses from the concrete decks, live load on the concrete decks and water pressure loads; Hinges were of insufficient thickness: a thickness of 20 mm was prescribed by the design when the thickness should have been at least 26.9." Particular ( i) alludes to rigid assemblies of arms and fingers post-tensioned together, "rafts" typically of three arms and six fingers . Mr. Gallagher made ex. 77 which is amodel of this arrangement. Rafts were to be hinged together at arm ends to provide longer walkways (arms) as required, and as many berths at fingers as might be required. The engineering evidence was pretty well unanimous that this arrangement was not justifiable in engineering terms. The issue was first raised about September-October Mr. Corbett giving evidence on commission said: 11 What about the other matters, what was his response to the other matters raised by Seymour?-- One of the other matters was that Seymour didn't like any hinges at all. Wright said that virtually every little pin on the offshore system - yeah, the off shore system - was essentially a hinge and he couldn't understand Seymour's reservation on that ground, so he dismissed that. Then he also - Seymour said that instead of seeing hinges at all, 1987. -- 44 of 115 -- 44 the system should be designed virtually without hinges at all and just a great long - or joined tendons. Eichhorn - sorry, Wright said that was a silly idea because it virtually made the whole thing just one and it would not be able to take the forces." He may have confused the positions of Mr. Wright and Mr. Seymour, although not necessarily so: Mr. Wright at all times envisaged the use of a certain minimum number of hinges. At the trial, Mr. Patterson supported the O.M.A. system, but on the basis of its being a modular system which could be employed by using smaller post-tensioned aggregations, in particular shorter arms - he said there might be not three, but only two arms sections post-tensioned together between hinges; there might be hinges at each 9 metre arm section, if the wind and wave climate and likely berthing and other forces in a particular marina location so indicated. It might even be that the fingers should be hinged (if made up of more than a single section) and hinged at the arms. Mr. Gallagher's model, ex. leave 78 illustrated such a possibility. It would very little room for post-tensioning which was universally accepted as a difficult procedure to carry out effectively in a salt water environment. It is obvious that the risk of salt getting to the post-tensioning strands to cause rusting or corrosion (and consequent expansion, with disastrous consequences for the concrete decks) is highly significant. Mr. Patterson was disposed to be sanguine about what might be achieved on any particular job. Mr. Abraham, an engineer of comparable experience called by the plaintiffs, was not. Drawings were in evidence which showed that Mr. Wright was alert to these -- 45 of 115 -- 45 problems, and had made some provision to protect post-tensioning strands. The efficiency with which his precautions would be implemented by workmen assembling a marina at a remote site is a matter for conjecture. This apart, the defendants' strenuous efforts at trial, notably through Mr. Wright and Mr. Patterson, to present the O.M.A. system as offering the "floppy" ex. 78 alternative just as routinely as the rigid one in ex. 77 (which, indeed no-one on the defence side appeared to wish to defend) were beside the point in my view. It is irrelevant that Mr. Patterson sees a possible commercial future for a flexible or floppy O.M.A. system marina in circumstances where I must find that the ex. 77 model (albeit perhaps with relatively shorter fingers) was always envisaged as applicable to the exclusion of alternatives with more frequent flexible connections. A large rigid assembly was prized for the stability it offered: it would be far less responsive to movement on the decks so far as bobbing about in the water is concerned. I asked the defendants' counsel to show me any instance in which the defendants before trial had advocated the floppy model, or any equivalent. The challenge was not met. On the contrary everything I have seen supports the view that the rigid ex. 77 model is what Messrs. Wright and Eichhorn proposed. The December 1981 Kangaroo Point calculations are based on a 36 metre "raft" hinged to a 24 metre raft; the October 1987 Abel Point calculations refer to "total arm length 130 m i.e. 4 'raft' sections". The following month, Mr. Wright wrote to the Water Research Laboratory in Sydney, which was being -- 46 of 115 -- 46 engaged to perform dynamic model tests on the hydraulic performance of floating marinas referring to the "typical 'three rafts' configuration, each with six fingers off three arm units hinged together and tethered by six cross anchors and four longitudinal anchors". He wrote that "the equivalent of nine deck units, each made up as a rigid three- arm 'raft' will be required. pairs of 9. 6 m finger units". Each will have three opposed O. M.A. ' s isometric drawings produced by the C.A.D. system are consistent with such rafts being seen as standard, and with longer fingers, if required. No attention whatever appears to have been paid to the logical possibility, always present, that in any situation (except a job of smaller size than a single "raft") smaller rigid components than such rafts would be used. One of the early suggestions came from Mr. Gallagher in his report ex. 34 in February 1988, when he suggested means whereby the O.M.A. system might be salvaged. Andrew Corbett decides to invest Mr. Corbett in his affidavit swore that: "16. As a result of the meetings with Wright andEichhorn and my perusal of the documentation I felt confident that the OMA system was sound and was a feasible business proposition and I therefore decided to invest money in the project and to thereby acquire equity in OMA. 17. Eichhorn and I agreed that I would have 47% equity in OMA by contributing the "seed capital" which would allow OMA to attempt to attract a larger investor. 18. A written agreement was entered into on 20th May, 1987 between Nashtown Pty. Ltd., (my family company and third plaintiff herein) the Eichhorn, Wright and another company called Pocket Valley Pty. Ltd. A true copy of this agreement is now produced and shown to me and marked "ANCS". Pursuant to the -- 47 of 115 -- 47 agreement all of the parties' rights in respect of the OMA system were transferred to Pocket Valley Pty. Ltd. and 100 shares in Pocket Valley Pty. Ltd. were divided between Nashtown, Eichhorn and Wright on a 47:47:6 basis. 19. I made or caused the third plaintiff to make payments periodically over the months that followed. A schedule of these payments is now produced and shown to me and marked "ANC6". The total amount contributed by me was $88,390.02." The first item is $5,000.00 "cash" said to have been paid on 19th November 1986. Next came $425.86 paid on 24th January 1987, said to be 25 per cent of a Telecom bill. Two similar payments were made on 9th February 1988, when $360.00 was paid to a service station for fuel. On the following day came the contribution of $2,500 to O.M.A. This would seem to mark the beginning of the contribution of "seed capital" and establish a decision to invest - yet the sequence of paragraphs I have set out could be thought to point to a date in May 1987. Mr. Corbett when he was giving evidence on commission favoured the view that he had not decided to invest in O.M.A. before April, 1987. Mr. Carrigan, the defendants' counsel, attached great importance to the timing. Mr. Wright said that he had no "business" meeting with Mr. Corbett before March 1987 and that that was the date of a meeting Mr. Corbett placed on 28th November 1986. Mr. Wright was aware, thanks to statements to him by Mr. Eichhorn, of something Mr. A. Corbett did not in terms say, namely that Mr. Eichhorn was trying to interest Mr. Corbett in financing the project; Mr. Wright regarded this as the purpose of their meetings with Mr. Corbett. -- 48 of 115 -- 48 On 20th January 1987 registration occurred in the office of the Commissioner for Corporate Affairs of the proprietorship of the business name Offshore Marinas Australia of Mr. Eichhorn, Mr. A. Corbett, and Dr. J. Corbett as from 1st January 1987. A possibility may exist of some backdating. No reason appears for doubting the genuineness of that date, and the plaintiff, by Mr. Corbett's affidavit, supports it, bolstered by the detail of the relevant application being forwarded by him on 16th January. In the end, this document persuades me that the decision by Mr. Corbett to invest and become a partner in O.M.A. was made in December 1986 or January 1987. A pointer to such a decision then is Mr. Corbett's generous decision to lend Mr. Eichhorn his Mercedes motor vehicle to drive himself and children to Sydney for Christmas 1986. The Christmas shut-down or other factors meant that O.M.A. had no need for funds for some weeks. I am not persuaded that the timing of the initial decision to invest is particularly critical, from the point of view of exonerating the defendants from liability if they can show representations by them came later. None of the plaintiffs ever became obliged to contribute moneys to O.M.A. for any particular time, or in any particular sum, or without limit; there was a series of separate decisions to put up more money each time a need arose. In that way, in theory, each outlay must be examined in the light of the circumstances in which the particular plaintiff made it. representations may have been made in the meantime. Further Equally importantly, Mr. Corbett's increasing participation in the -- 49 of 115 -- 49 business made him ever better placed to inform himself and guard his own and nis brother's interests, and those of their companies. The balance of the evidence favours the view that Mr. Wright made relevant representations commencing in November, 1986. J. Corbett decides to invest In paragraph 42 of his affidavit Mr. Corbett explains his calling on Dr. Corbett for funds in terms of the necessity of getting working capital to undertake a job at Yap, the money needed "to gear up to full production" being beyond his resources. Mr. Corbett was said to be entitled to 1 per cent of the business for each $7,000.00 invested, this later "improved" to 1 per cent for each $5,000.00 so that Dr. Corbett, by initially investing $150,000.00, acquired 30 per cent. Dr. Corbett's understanding was a little different; he thought it was to be $100,000.00 for 20 per cent and that loan funds of $50,000.00 were to be made available. His decision to invest, made before the terms were finalised (if they ever were finalised), was made at or very soon after the end of May 1987. The registration of the business name shows him as a partner from 1 st January 1987. I cannot conclude that this occurred without his knowledge and consent. The exhibits include (ex. 128) a form appropriate to have registered a change in particulars relating to a registered business name. It is not dated, nor is it shown to have been lodged, but it relates to O.M.A. and is signed by both of the Corbetts and -- 50 of 115 -- 50 Mr. Eichhorn. For some reason it shows the date of change as 1st February· 1985. The document is shown by facsimile imprints to have existed by 21st October 1987. The possibility of Dr. Corbett investing in O.M.A. existed and was known to him in January 1987. He did not commit himself in any way until some months later. Even then, he retained the right to decline particular requests of O.M.A. for funds. As events turned out, Dr. Corbett seems to have left the practical aspects of remitting funds and assessing the need for them to his accountant, Mr. Sweeney. Mr. Eichhorn's Evidence Mr. Eichhorn's faith in his marina design and his ability as a consultant in the field are obvious. He is an enthusiastic and plausible salesman; the documents produced by him show his predilection for exaggerated language or claims, which is no doubt a legitimate part of salesmanship - he was'. out to get clients; he had to display confidence in O.M.A.'s product and services. I am sure that those he approached were aware of the "puffery" involved. They may not have appreciated it extended to describing as if they were achieved developments which were, in truth, just around the corner. Thus, Humes Limited were described as fabricators of O.M.A. concrete components, with the implication that production was established, before O.M.A. even held their written quotation. This is less a sign of dishonesty or recklessness than of Mr. Eichhorn adopting a hopeful approach, in confidence that what he says will be achieved will surely happen. -- 51 of 115 -- 51 With hindsight and the knowledge that O.M.A. never built a single marina, it is astounding to read Mr. Eichhorn's lists of jobs about to be won or in prospect. Once again, that seems to me to be optimism in action, rather than misrepresentation. Mr. Eichhorn certainly believed that some jobs were very close to being secured. No complaint is made by the plaintiffs of misrepresentation on this score. Perhaps Mr. Eichhorn was naive. He does not present as a realistic hard-headed businessman, like Dr. Corbett. He seems to have had little interest in the details of adjustments in the O.M.A. partners' equity which greatly affected him. He has not pretended to engineering skills, but relied on the expertise of Mr. Wright and other consultants to establish that his ideas have been feasible. This was made clear to Mr. Corbett. I do not think Dr. Corbett accepted at face value everything Mr. Eichhorn said; he was plainly unconvinced by Mr. Eichhorn' s presentation to him in April 1987, and his doubts, even after May 1987, when Mr. Corbett had made his own presentation, are referred to in Exhibit 46. In my opinion Mr. Corbett would not have been acting reasonably in accepting everything Mr. Eichhorn said as the literal truth, as wholly reliable. It has to be recalled that the context of their early discussions was Mr. Eichhorn' s attempting to persuade Mr. Corbett to install an O.M.A. marina at Repulse Bay. Mr. Eichhorn's recollection of events in 1986 and 1987 is not entirely reliable, in my view, at least his account of them at the trial is not. On that account he presented the -- 52 of 115 -- 52 O.M.A. project to Mr. Corbett as so speculative that no one in his right mind would have wished to get involved. Thus, in Exhibit 125, Mr. Eichhorn says that at the first meeting: "I told Corbett that ... the exact physical capabilities of the system were still somewhat unknown although the mathematics were that the system was stronger and cheaper, I believed, than its competitors ... I believed that this system would last (20 years approximately). I again told Corbett that the system had not been constructed and that most of this was conjecture." I do not believe that Mr. Eichhorn qualified his statements as he claimed by indicating they were simply matters of his belief, nor that he indicated anything was mere conjecture, nor that he indicated the capabilities 9f the system were unknown. I do not believe he gave the slightest intimation that the system might not work. Throughout his evidence Mr. Eichhorn presented the O.M.A. system as a mere "concept". He did not present it to Mr. Corbett as such; he is reconstructing the situation wrongly when he says, for example, that Mr. Corbett said "that he liked the system which we were developing", if that is intended to convey that the system had not got much beyond the stage of being an idea. I do not believe Mr. Eichhorn that Mr. Wright said of Exhibit ANC 3 to Exhibit 1, the Harbours and Marine Department "Section 86 approval" that: "Harbours and Marine have not approved the marina system; all they have approved is the installation of that system at that particular site based on calculation~ provided so far". (In my opinion, however, the qualification in the document is patent and Mr. Corbett acting reasonably ought to have picked it up for himself.) -- 53 of 115 -- 53 I do not accept Mr. Eichhorn' s statement that - "At all times, Corbett was being told that the O.M.A. system was under development and going through continuing design changes and alterations," if that be intended to convey that O.M.A. was still without a product ready for the market. An allegation of Mr. Eichhorn's which is wrong is that in June/July, 1987 Andrew Corbett suggested putting a polyethylene tank on the System 2 marina, which was until then a coffin type, and against Mr. Eichhorn's objection and behind his back, had. O.M.A.'s staff draft up such a tank for System 2. Exhibit 65 shows that System 2 had this feature by March 1987 and Mr. Eichhorn was evincing his usual enthusiasm for it, in a submission to a Minister of the New South Wales government. In human terms, Mr. Eichhorn may have a justifiable grievance against the Corbetts arising out of his exclusion from o. M.A. in November, 1 9 8 7 . They went on to make money through I.M.S., rendering his option to take 20 per cent of O.M.A. for a nominal consideration when it achieved profitability valueless. It may be that a sense of resentment has coloured his attempts at reconstructing the events of 1986-87 and led to some carelessness. I do not think he was deliberately presenting false evidence, but his account is unreliable in a number of important respects. Unfortunately, great bitterness and hostility between Mr. Corbett and Mr. Eichhorn developed, as evidenced by the enclosure to Exhibit 31, a letter of 12th February, 1988 of solicitors nominally acting for O.M.A., but plainly taking instructions from -- 54 of 115 -- 54 Mr. Corbett. (I may say that I take this letter into account in assessing Mr. Corbett's evidence. His hostility to Mr. Eichhorn is of limited importance, since the thrust of his evidence was to implicate Mr. Wright and the first defendant, at a time when the action was obviously conceived as Trade Practices Act proceedings.) I do not reject Mr. Eichhorn's evidence in its entirety. For example, I accept his evidence that Mr. Corbett from quite early in 1987 was active in O.M.A.'s affairs rather than Mr. Corbett's indirect suggestion, (see paragraphs 35, 63 and 67 of his affidavit), that he had only limited involvement until after September 1987. I accept his evidence that handwritten costings for the "Yap project" in Exhibits ANC 13 are Mr. Corbett's not Mr. Eichhorn's. Correspondence in that exhibit shows Mr. Corbett was negotiating a joint venture for O.M.A. in April, 1987. Mr. Corbett is wrong in paragraph 48 "in suggesting indirectly that he received no wages from O.M.A. until after October, 1987, also in stating that O.M.A. 's business activities ceased in December, 1987. Unimpressive aspects of Mr. Eichhorn' s performance were his depiction of the O.M.A. system as a mere concept or idea; this sat most unhappily with documents emanating from him. Unimpressive, too, was a tendency to resile from documents signed or ostensibly prepared by him, and to blame Mr. Corbett for their contents. Generally, the only sense in which I think he presented the O.M.A. system to Mr. Corbett as in course of development was that it was being refined or improved. He presented -- 55 of 115 -- 55 O.M.A. as having, at all times, a saleable product. He believed that was the case and indeed it may have been so. Potential clients were interested in the product. If only a substantial contract for installation of a full O.M.A. marina had come about, it may well have been satisfactorily executed. The Corbetts accepted, and it is obviously the case, that a good deal of the design and engineering work is site specific, and cannot be done until the client's requirements of the marina and site conditions are known. In that sense the Corbetts cannot have thought the system "fully engineered". Mr. Corbett would have seen for himself a few months into 1987 that it was not. No one can say that Mr. Wright or some other engineer would not have provided a final design which would have worked in practice, even if, theory, it seemed structurally as a matter of engineering deficient for the design conditions. Had Mr. Eichhorn's salesmanship been more successful or had those clients who wanted O.M.A. marinas been financially willing or able to commit themselves, O.M.A. may well by now have been very successful. Liability of Mr. Eichhorn The liability of Mr. Eichhorn is not at all straight forward. following Corbett: The statement of claim alleges against him only the misrepresentations as having beeri made to Mr. (a) The O.M.A. System was better than other systems for the construction of a marina which were then available; (b) The O.M.A. System was a lot stronger than other systems; -- 56 of 115 -- 56 (c) The O.M.A. System was lighter and cheaper to build than other systems; (d) The O.M.A. System had a longer life than the system used by a competitor, Pacific Marinas. If statements in those terms were made, I consider they were in a context where "puffery" was legitimate, and to be expected, and that they were not presented or accepted as scientific or absolute truths; in my view, in context, they would be understood as expressions of opinion. The plaintiffs do not plead and have not established that those four statements are untrue; what they do plead (by an amendment during addresses) is that the statements should not have been made because there were defects in the engineering design of which Mr. Eichhorn should have been aware. I am not prepared to find Mr. Eichhorn liable on that ground. I do not regard him as ever having claimed engineering expertise. The plaintiffs plead, in addition, that everything Mr. Wright did was done as agent for Mr. Eichhorn, ( as well as agent for Wright & Francey Pty. ltd.). Such an agency is made out to my satisfaction, largely on the basis of Mr. Wright's evidence, which was, of course, presented on behalf of Mr. Eichhorn as well as on behalf of the other defendants. Generally, Mr. Eichhorn was there when Mr. Wright spoke to Mr. Corbett, when plans, drawings and calculations were discussed and the like. Mr. Corbett was very anxious, I think, to be convinced of the merits of the system and to participate in its hoped-for success, but part of Mr. Wright's function was to serve Mr. Eichhorn's interest as 94 per cent owner of O.M.A. by -- 57 of 115 -- 57 informing Mr. Corbett either as a prospective purchaser or (later) as a pro·specti ve partner, as to the features of the system, and its merits in particular. The consequence is that, if Mr. Wright is liable for negligent misrepresentation so is Mr. Eichhorn. It cannot help him that he may have had every reason to repose confidence in Mr. Wright, and in a moral sense may be blameless. So far as alleged liability to Dr. Corbett and the fifth defendant is concerned, the plaintiffs rely upon what Mr. Corbett passed on of Mr. Wright' s representations, and in addition Mr. Eichhorn's representations in his meetings in Sydney in April 1987 with Dr. Corbett. These are pleaded as follows in para. 29 of the Statement of Claim: (a) The first and second defendants had done detailed engineering analyses and calculations to ensure that the system would succeed; (b) The system was now the most advanced system for any general marina used in the world; (c) All which was needed for the commercially was working capital product; system to succeed to build the first (d) The "pay back time" would be short for an investor as the system was already fully developed, and could be implemented as soon as the necessary working capital was available; (e) The principal competition of the system was that produced by Pacific Marinas, which was a lightweight and weaker system and which was more expensive; -- 58 of 115 -- 58 (f) The O.M.A. System was much stronger than other systems, and it could withstand conditions of strong wind, waves and currents which could not be tolerated by the Pacific Marinas system or any other systems; (g) The O.M.A. System would last for 20-30 years; (h) The O.M.A. System was cheaper to produce than competitive systems. Again, the plaintiffs do not plead the falsity or misleading nature of those statements, founding their claim of negligence on the allegation that the engineering design was defective, and that the defendants should have known it. The lead-up to the meeting was a telephone call to Dr. Corbett by his brother. Dr. Corbett's evidence in chief was:- "You are aware of a marina system?-- In 1987 in about April. I may have heard a little about it, but the first time I heard in any detail was in April. From whom did you hear of the existence of this system?-- From my brother." "What did he tell you about that system?-- He told me that he had been involved as a partner in a business called Offshore Marinas since the latter part of the previous year which would have been 1986 and he outlined roughly what the system was about. He told me that it was a specialised design that consisted of a concrete platform or a series of concrete platforms joined together; that it floated by means of some plastic tanks which were made into a specialised shape and that this was a highly engineered structure which made it possible to manufacture a marina of much more modern design than had been in existence before. He said that he had become involved as an investor in this project after discussions with a number of people. He particularly mentioned a Greg Eichhorn who he said had previously brought it to him, and that the engineer who was involved in the project with whom he also had discussions was a Geoffrey Wright, of an engineering firm called Wright & Francey of Nerang. He told me that the project had developed to a stage -- 59 of 115 -- 59 where the engineering work was complete, but there was a lot of work available; that jobs were able to be obtained but that the partnership had insufficient money to be able to move to a production phase and that in order to be able to do that they needed money specifically for making moulds and there were two types of moulds. There was a type of mould for making plastic floats and that he said was a rotational mould, and there was another type of mould of which there would be a number of units but these moulds were for pouring concrete and particularly for pouring concrete in what I was told was stressing beds which I understand - I was told that cables would be put through and tensioned so he said that this project is one that he was involved in. He said that it had become too big for him to be able to finance to the necessary extent and he asked me whether I was interested myself in being an investor in it or whether I knew any groups that I could introduce the project to which might potentially be investors. How long did this conversation take - an hour, half an hour?-~ Of that order. It was a reasonably long conversation, probably less than an hour, maybe half an hour. How was it concluded?-- I told him that I was unlikely to be involved or introduced personally because I said at the time I was very committed with my time more than anything but I said I did know a number of companies and that I was - that were potentially interested. I told him of one particular company of which I was a director that might be prepared to consider it and I suggested that he send me more material about it. Was it agreed that he would send you more material or someone else would come and see you?-- He suggested that the best thing was to have Greg Eichhorn see me ... " I accept that evidence, except that Dr. Corbett, in my view, is shown to have had some connection with the business to the point of having himself registered as a partner in January 1987. In general, I accept Dr. Corbett's evidence as to what passed between him and Mr. Eichhorn at their meeting in evidence in chief and cross-examination. Part of his evidence -- 60 of 115 -- 60 in chief after a description of the system and its history (as per Mr. Eichhorn) was: "In relation to the Rose Bay plans or the Taylors Bay plans, did he suggest that any more engineering analysis had to be done to build these things or did he suggest-----?-- He made the point that there were always some site-specific elements, in any project there was some elements which would vary from one location to another, of - for instance, the number of floats would differ in one marina application to another marina application. Yes?-- The shape in which the pieces were fixed together would vary from one marina development to another marina development. One might be designed for a lot of boats; one might be for a small number. The Rose Bay one had a particular feature that it was designed to have a boat facility and perhaps restaurant, or a service facility in a central hub, and that wasn't specific to every development. Some marinas would not have a radial design with a central hub and the method of fixing would vary to an extent. One place might have deeper water than another. They can't all have the same anchor system. It would vary according to the size of the marina. A big one would have a bigger anchor and a smaller one a smaller anchor. He said there was differences which applied from one location to another, but the basic modules, the building blocks, were common and that - he talked about arm units and finger units, and these became modules which were linked together in various ways according to the requirements of a particular application. Yes?-- Those, and the engineering designs in general, he said, had been worked on for approximately ten years. They had been approved by various authorities and they were at a very developed stage where the only thing needed was to make the moulds and actually pour them, both in concrete and plastic. Did he mention to you who had done the engineering analysis in these plans over the ten year period?-- Yes, he told me that Geoff Wright, of Wright and Francey, had been the engineer who had taken his own- his is Greg Eichhorn' s - conceptual designs. He said it was his original concept and he said that the engineering work and the detail drawings and the calculations had - all of the detail engineering had been carried out by Geoff Wright of Wright and Francey. He said that there were other people who had also been used. He made reference to quite a -- 61 of 115 -- 61 lot of other outside experts who had been consulted II ....Mr. Eichhorn told Mr. Corbett that the 1981 and 1982 Kangaroo Point calculations on Wright & Francey letterhead were detailed engineering calculations that were part of the verification of the system; he referred to Mr. Wright's having engaged outside consultants as considered necessary. Dr. Corbett went on: "MR. BOWDEN: Did he say anything about the need for capital for this business?-- Yes, he did. What did he say about that?-- He said that theproject was ready to roll, that it had reached a stage where there was a lot of work which - a lot of orders; in other words, which were available orlikely to be available, and that the only thing necessary to be able to take advantage of those orders was to put the system into production and that that needed money. I recall a particular project he talked about was Yap but he talked about a number of projects, but he said that the money was needed particularly to make moulds and he talked about the same sorts of moulds, some plastic types, and the rotational moulds, and some concrete moulds for making the arms and fingers, and he said that other money was needed just for running the company but he said that the profit margins were high. He said that the cost of this product was of the orderof - I think the figure was $4,000. There appeared a figure of the order of six or $7,000 which the Pacific Marina system sold for. We are talking about the entire system or a part of a system?-- The cost of a berth. Of a berth for a boat?-- Yes, because that was really multiple. He said, therefore, there were high profits; that we could expect profits of the order of 40 per cent - 30, 40 per cent. I think he may have used different figures at different timesbut 40 per cent is a figure I have in my mind. So he said there was a lot of money to be made but this system had to be physically produced or - when I say system, the components had to be physically produced and until the money was there to actually set up production, they could not take advantage of the orders which were there. Conversely, as soon as money was there, there was a lot of orders, in his opinion, to be had. -- 62 of 115 -- 62 Did you talk about how much money might be needed?-- Yes, he did. He thought the figure was of the order of $100,000, perhaps a bit more, but that was the order of magnitude. Well, did you make a commitment - sorry, did you talk about the ownership of O.M.A., who owned what at that stage?-- Yes. He said that the current partnership consisted of himself and my brother, Andrew Corbett, and Geoff Wright. I believe he saidthat Geoff Wright's interest in it at that time was - it might have been 1 0 per cent or it might have been some slightly different per cent, but it was a percentage like that. Perhaps it was more. I'm not certain of that exact figure, but he saidthat how this operated was that Geoff Wright had become a partner because he believed that the system would have a lot of commercial success, so that instead of Wright & Francey charging fees, or Geoff Wright charging fees, they would receive instead consideration in the form of equity and debenture. So the proposal was for another party to come in and to have equity, in which case everybody else would dilute their equity. I think he probably said that Mr.Wright had a higher equity at that time and that they would all dilute down." Dr. Corbett and his partner(s) in the company which was considering an investment decided that Dr. Corbett should go to the Gold Coast and investigate further. He saw his brother, who had many more documents than Mr. Eichhorn had brought to Sydney: "What did he say to you about the quality of the system?-- He said that he had seen that same material; that he had talked to the same people; that he had satisfied himself that Wright & Francey was a well-known engineering firm; he had talked to Mr. Wright himself; that he was convinced from those events that it was what it was claimed to be, in other words, a very up-to-date modern system, well engineered and ready to produce. He said that the project had just become too big for him, that he wanted to remain in it but he didn't have thefinancial resources to carry it through because - well, simply that. Did you make a commitment at this stage to invest?-- ! went back and talked to David Lance again and we decided that it sounded a good system but it was not an appropriate investment for that company, so I -- 63 of 115 -- 63 rang and advised that we wouldn't be able to put - we wouldn't be able to put money into it. You advised who?-- I believe I advised my brother." The next approach to Dr. Corbett came a month or so later, from Mr. Corbett again, and by telephone. Attribution of the phrase "ready to roll" to him as well as to Mr. Eichhorn demonstrates that Dr. Corbett is not to be relied on entirely as to accounts of words used - he has engaged in a good deal of reconstruction just as have Mr. Wright and Mr. Eichhorn. Of his brother Mr. Corbett said: "Can you tell us what was discussed?-- Yes, he talked about Offshore Marinas again. He said the system was ready to roll and first orders would probably be received very soon. He talked specifically of a job at the Spit down on the Gold Coast. He said it needed about $210,000 to $220,000 of working capital. He asked me whether I would put that money in or could. He said there was a high profit margin so he said that for instance the Spit job, there was a 30 to 40 per cent profit margin available. He said that management was in place. He mentioned Greg Eichhorn as the person who was thesenior manager. He said that all engineering was final except for site specific details which he called fine print. He summarised the fact that the shareholders were himself, Greg Eichhorn, Geoffrey Wright of Wright & Francey. He said that his input had been supplying cash for the previous six months in return for equity; that Eichhorn was responsiblefor the calculations, engineering input details etc. He said that they were offering to an investor 20 per cent of the project for the input of the sum of $140,000. He said that cash flows and financial information were available; that the money that they were seeking would be used for moulds for boats which was particularly for a work boat, for a crane, for a winch platform, and for a plastic moulder; that these various items would be available for other jobs in addition to the immediate questions so they would be used on an on-going basis. He referred to a Qintex project at Southport Spit with 20 berths, a 350 job at Southport, a job at Jacob's Well for 108 followed by 360 berths, a 400 berth marina at Mackay, a 75 berth marina at Yap, a 350 berth marina at Hervey Bay. He specifically said when research and development was finished that he would. send me information and in addition he -- 64 of 115 -- 64 referred to a project at Rose Bay with 400 berths and at Woolloomooloo with 400 berths so he - andthen reiterated his previous investment request of whether I would reconsider. Did you reconsider immediately?-- He had promised to send information so I asked him to do that and hedid so and I then considered that information in addition." A doubling of the capital said to be needed set no alarm bells ringing. The material Mr. Corbett sent is ex. 12. Dr. Corbett's description of his reaction to it included the following: " Well, I took it to show that the technology which had been described to me and the designs and the system was in fact part of the company and that the originator, Mr. Eichhorn, and the engineer, Mr. Wright, had in fact transferred this into the entity that I was being invited to join. I took it to show it was a very advanced stage because they were specifically what the document headed "Construction and supply contracts current position" indicated in various parts. I took it to - from the fact that the financial summaries referred specifically to production matters that it was consistent with what I had been told; that theproject was ready to be put into production and I took it to indicate that there was also high potential because the profit margins being indicated were in fact high. There were a great many jobs, 10 I think listed with rather large numbers of marina berths from memory somewhere between 2,000 and 3,000 as a potential number and I had been told that the expected profit per unit was of the order of, well, that the competitor was selling it for something like 3,000 to 4,000 more. Therefore that was a high profit margin per berth. It was confirmatory of what I had been told previously and was consistent with the information given in the earlier meetings. What was your response to this particular communication?-- I decided that I would be prepared to put money into it and I told my brother that he could - that I would do so and he could pass that on to the group - to his partnership." Mr. Corbett's covering letter was, in part: "Essentially, in order to get 'the system' in the water to enable us to substantiate our claims as to feasibility and superiority over Wilkins and Davies -- 65 of 115 -- 65 and Pacific Marinas, we have reduced our normal margin on the Spit job to effectively $200,000 on a job of $700,000 cost to us ( 700K+200K-900K). Since we only plan to execute a Contract whereby our outgoings ($700,000) is incurred back to back with cash drawdowns and also since we have loaded the profits into stage one, we feel we are very safe indeed and our $200,000 profit on stage one is obviously about 50%.111 The cash commitments yet to be 'covered' are as follows:- 1 x Rotational Moulding Machine Manufacture 1 x Mould for floats Set concrete deck moulds 1 x Floating Winch Platform Construction (Made by A.C.N. at about half cost) 2 x Workboats (rubber) 30 tonne Site Crane (Pin Jib) Operations of Company for months of July, August and September 50,000 5,000 65,000 12,000 16,000 30,000 35,000 $213,000 I have obtained approval from the other directors of our shelf company (Pocket Valley Pty Ltd) to offer your 20% @ $7,000 per per cent interest. This is obviously $140,000. (See 2). However, I am happy to sell your share to Balmoral or a new investment company to be taken over by Richard Tinsby since he has also expressed interest. I would propose that such a 'sell on' if desired by you be a $10,000 per share ( 100 shares in Pocket Valley Pty Ltd). In any case, I am extremely thankful for your support in getting this off the ground and appreciate that you are really only doing it for me personally - we will all work very hard here not to let you down. In the meantime finance to a loan on my house so liquidity." I have an approval by Network for $60,000 against a 2nd Mortgage that we will not be short on The penultimate paragraph, in my opinion, accurately identifies fraternal support as one of the main considerations moving Dr. Corbett. Another, undoubtedly, was the prospect of quick profits from contracts which O.M.A. hoped to win. Those -- 66 of 115 -- 66 considerations were each quite as vital as any confidence Dr. Corbett may have felt in the product and its engineering. As to that, in my view, Mr. Corbett, in his statements to Dr. Corbett went somewhat beyond the representations as to the finality of the engineering which had been made to him. On this aspect, Dr. Corbett remained sceptical. I set out in full his letter of 4th June, ex. 46, which limits the reliance Dr. Corbett can claim to have placed on Mr. Eichhorn's representations as presented in the cross-examination at pp. 104. 5: II Dear Nev, Dr. John L. CorbettSuite 4.1, 320 St. Kilda Road,Melbourne, Vic., 3004 Telephone: 699 1433 Thanks for the info on the marina project in your fax on 30th. As I told you, I'm absolutely flat out here - Kemtron has loads of problems still and I'm just too busy to come up to look. It all seems o.k. but it's a lot of money. You'd need to triple check the cost calculations and projections and be sure they're met. Absolutely essential too to be certain you can rely on the engineer you already known how expensive R & D can be and I want to be dead sure this is a finished project needing production secondary only - not R & D. So check it with Wright to be sure. Even then, I'm wary without seeing it and beingable to understand it all personally - but there's no chance I could leave here yet - I' 11 try though to get up ASAP. Will you send me more info meanwhile - esp. more on the technical side and more re costs/markets/margins. I guess I'll back you, but the deal sounds toosteep even if the project is good - $140K for 20% = $700,000 for 100%: that's a lot when there have not been any put into the water yet - even with the engineering work done, there's bound to be a lot of fiddling yet before it settles down. Will you talk -- 67 of 115 -- 67 to your partners and try to improve the deal. I'll send you the 1st $SK you want tomorrow in the meantime. I' 11 need better notice before other payments though. But, be bloody certain these guys are O.K. This is rushed - will be in touch v soon. Love, John." There is nothing to suggest Mr. Corbett made any further inquiries of Mr. Wright or Eichhorn whose purpose might have been identified to them as the reassurance of Dr. Corbett. It does not appear Dr. Corbett was sent "more on the technical side". Just about the only effect of his letter was to improve what he was to get for his money. Instead of 20 per cent for $140,000.00 he was to get up to 30 per cent at $5,000.00 for each one per cent, according to para. 43 of Mr. Corbett's affidavit. (Dr. Corbett says at p. 119 of the transcript the ceiling was to be 20 per cent, but up to $50,000 was to be provided as a loan). By the time Dr. Corbett decided to invest, the representations of Mr. Eichhorn had receded well into the past, and had been overtaken by the more persistent and equally confident representations by Andrew Corbett. Nevertheless, it was open to Dr. Corbett to place reliance on what Mr. Eichhorn had said in April, and he did so, relying equally on what his brother told him. The plaintiffs have not made out the allegations of para. 29 in their entirety. The "warranties" or assurances of success in (a) and (c) or of a certain 20 to 30 years of life are not established ( in the sense that in my view Mr. Eichhorn was conveying opinions), nor the element in (d) expressed in the words "as the system -- 68 of 115 -- 68 was fully developed" . Further the allegation of the O.M.A. system being cheaper than Pacific Marinas (the only one with which comparisons are shown to have been expressed) to manufacture are not made out. There were suggestions that the O.M.A. system, being heavier, might be more expensive to manufacture, but that O.M.A. could produce to sell at a price competitive with Pacific Marinas. 29 and 107. See the transcript at pp. Mr. Bowden has persuaded me on the basis of authorities such as Banque Commerciale S.A. v. Ankhil Holdings Ltd. (1990) 92 A.L.R. 53, 58-9, Dare v. Pulham (1982) 148 C.L.R. 658 and Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. (1916) 22 C.L.R. 490, 517-8 that it is not necessary for the plaintiff in this case to "score a bullseye" and establish the representations pleaded to the letter. I am satisfied that Mr. Eichhorn ( and Mr. Corbett even more strongly) effectively represented to Dr. Corbett that the O.M.A. system was developed and verified by engineering investigations and calculations to the point of being able to be put into production immediately. Dr. Corbett was fully aware the system had never been tested, and that further engineering work was necessary on all site specific questions and other matters such as the design of concrete moulds. Such a representation was misleading not only because the engineering was such as would not command general acceptance by engineers (which is the foundation of Mr. Wright's liability for making representations in effect to the contrary) but because there had been no detailed engineering -- 69 of 115 -- 69 work since 1981-1982 and there had been significant changes in the system by the elimination from the arm unit deck of a central services channel and a radical redesign of the shape and placement of the "legs" of the double tee section which no longer were placed at right angles and at the extreme edges of the deck; they were recessed and placed at a slant to afford an alternative location for services. No work at all is shown to have been done by April 1987 to attempt to verify the structural integrity of the system so revised. Nor was any work done to establish the structural integrity of the "blown up" version of this revised system promoted in March 1987 by ex. 65. Mr. Eichhorn ought to have known all of this when he went to see Dr. Corbett, as indeed should Mr. Corbett in April and May 1987. Mr. Eichhorn owed Dr. Corbett a duty of care. He regarded Dr. Corbett as already a partner, and must have known that he had little personal familiarity with O.M.A. affairs; he volunteered in p. 125 that their "meeting was as a result of Andrew Corbett's request to me to go down to Sydney and discuss with John Corbett his investing further money in the O.M.A. System." He said: "I did tell John Corbett that the system needed working capital. This was to pay, apart from other matters, for further engineering advice to be given in respect of the detailed formulation of the marina." This last detail was not revealed to Mr. Corbett; Mr. Eichhorn does not say that it was; it should have been. The consequence is that the matters leaded in para. 29 lead to -- 70 of 115 -- 70 liability in Mr. Eichhorn to Dr. Corbett and the fifth plaintiff in principle. Progress of the O.M.A. Business Notwithstanding the terms of a tenancy agreement running from 1st April, 1987, O.M.A. moved into new premises some time earlier than that date, as early as January according to Mr. Torti. They had been vacated by the first defendant, which moved across the corridor to a larger office. O.M.A. acquired a number of staff, especially skilled draftsmen, one of whom was Mr. Torti, who was engaged to operate his own Computer Aided Drafting system. This enabled plans, once drawn and stored in the computer, to be amended readily and cheaply. It enabled the O.M.A. System 2 plans in ex. 93, and ex. 65 to be produced by the expedient of enlarging the System 1 plans and changing dimensions. Mr. Torti's evidence, which I accept, included the following: "Well, I was engaged to draw on the computer drafting system and my understanding was that all the things we were doing were leading towards a final product, so a design and development over that period, probably going as far through as to August when I finished. You said there 'design and develop'. In this period I was ref erring you to from January through till about April. What sort of things were you designing and developing?-- Well, in conjunction with other people in the office, anything from the concretefingers and arms through to the polyethylene tanks, stainless steel hinges, lengths and catenary of the anchoring system - basically the whole system. In this period you mentioned that you were doing some work on the arms and fingers. Exactly what was that work?-- Well, there was some preliminary sketches there with basic shapes but we had to fine-tune those shapes so that they would suit moulding so that we could design the reinforcing which had not been designed at that stage, showing covers to the concrete, concrete mix, the tension -- 71 of 115 -- 71 strands, so that all that stuff would actually fit in the shapes that were required. You said 'concrete strands' , what did you mean by that?-- Well, the stressing tables that hold - the system is post-tensioned together and the numbers of strands, the size of them, how they are anchored, all that sort of thing. And this hadn't been done previously?-- No. From what you saw?-- There had been some preliminary working but the detail and the actual stuff had not been detailed. And this is what you mean by design and develop these?-- Yes. You said you were also doing in this period something to do with the PE tanks. What was that?-- Well, again there was an overall envelope shown on the preliminary sketches but there was no detail, no ribbing shown, not to my recollection - there was no actual dimensional size, thickness of the walls of the tank, mounting points, all that sort of thing. And you said also that there was something with respect to the hinges. What----?-- Well, there was just a notation on the preliminary sketch, 'hinge', so there was no detailed design on the hinges to take the stresses imposed upon it. Also, we looked at the type of material that had to be made out of - so that it could cope with the extreme conditions being close to salt water, that sort of thing." "You are saying that you are doing this design anddevelopment on these drawings and you have indicated a number of matters. Were you doing them over in a corner, as it were, by yourself or were other people working in conjunction with you in this period from January through till April?-- No, I couldn't possibly do it by myself. Geoffrey was involved, Greg was involved, Andrew Corbett made comment, you know, the same as they did. It happened over all that period of time. Well, first of all, as you were doing these drawings to, as you said, the arms, the tanks, hinges, and other matters, who did see those drawings as they were done on the CAD system?-- Well, each individual would come and look at what they were doing. They were paying me for doing the work, so they checked on what I was doing. I would askquestions and ask them over so they would look at -- 72 of 115 -- 72 the screen but also we would print out an actual hard copy on paper and have a meeting about it and discuss it at least once a week. What was the involvement of Andrew Well, he was at the meetings,presented. Quite often he hadabout how the things should behinges, for example. Corbett in this?- he saw what was detailed comment made, especially And what about in respect to - you were doing arms and fingers?-- He had input there, too; not the onlyinput. It wasn't his say only, but he was there. He made comment about it. You said there that he had - that when you came there - basic information or preliminary plans. In terms of the detail on them, how much was there?-- Very small amount. It was a very conceptual thingrather than actual thing. You talked about the involvement of Andrew Corbettin seeing these documents and the CAD system during this period from January through till April. How often was he at the office of OMA in that period?-- Minimum of once a week, but quite often three or four times a week. He like to come in for morning tea, for example. He would bring a cake, for example, so he was there quite often. When he was there, did he do anything to involvehimself in what was going on?-- Certainly, yes." "How regularly did you talk to Geoff Wright about your drawings?-- Every day. Did he ever say to you, "I'd better run-off and do some more calculations.', or something like that?-- Yes. How regularly did he do that?-- The drawing process was one where I would take his information, draw it, he would take it back, check it, and then I would have amendments to make. What sort of information are we talking about?-- Covers to steel; laps to steel; the shapes of the concrete to make sure they fit in the moulds and when you tip it out it is not going to break; that sort of information. At what stage did you start getting this sort of input from Mr Wright?-- It was a gradual process. It was happening the whole time I was there. -- 73 of 115 -- July. 73 This is in January and February?-- Right through till August." The meetings Mr. Torti spoke of were mostly in June and Minutes of some are in evidence (ex. 1 3, ex. 13 2, ex. 133). The earliest appears to have been on 26th May, 1987. There was much activity throughout 1987 by way of seeking contracts, from mid-January, when a tender was submitted for supply of 150 flotation tanks for a marina at Yap with a non-conforming tender for a complete O.M.A. System 1 marina. The conforming tender was ultimately accepted and performed, and payment received. Otherwise the hopes of Mr. Eichhorn and Mr. Corbett were repeatedly dashed, often at a late stage. Dr. Corbett may have been instrumental in the loss of a contract for a marina at Hamilton Island by his insistence on a condition that no work would be done on a marina being supplied at cost (so that O.M.A. would have a prototype to show off) unless a letter of credit to secure payment was established first. The third principal activity of O.M.A. was in gearing up for production. Dr. Corbett's money indeed was used for the acquisition of a moulding machine and moulds for PE tanks and for moulds for deck sections. The first $100,000.00 was provided by him by 23rd July, 1987. Thereafter the fifth plaintiff became the O.M.A. paymaster; its initial payment of $50,000.00 on 19th August brought Mr. Corbett to the limit of his proposed contributions. It is not appropriate to draw any distinction between him and his company. His position, indeed, which the defendants apparently accepted, was that the fifth plaintiff, rather than he, should be regarded as the -- 74 of 115 -- 74 investor. From November 9th 1987, monthly payments from Dr. Corbett personally became due under new obligations assumed by him to a finance company, Hunter BNZ Finance. They related to a motor vehicle leased for Mr. Eichhorn (to "liberate" Mr. Corbett's Mercedes) and a new CAD System ( to replace Mr. Torti' s which doubtless departed with him). The date of the chattel lease in respect of the new Computer System is 12th October, 1987. The fifth plaintiff brought in another $25,000.00 and $20,000.00 on 27th October and 13th November, 1987 respectively, a further $15,000.00 in December. From the point of view of Mr. Eichhorn and Mr. Corbett, Dr. Corbett showed his toughness. On 12th November 1987 (ex. 147) he insisted on taking over 100 per cent of O.M.A., entitlement to use the tax losses and the like. Mr. Wright was forgotten, but Dr. Corbett's other partners were offered restoration to 20 per cent each in the venture once Dr. Corbett had been paid back everything he put in, (with interest at the AMBA rate plus 2.5 per cent according to a later document). Mr. Eichhorn's objections, expressed in ex. 131 , are understandable, but he and Mr. Corbett agreed in writing to Dr. Corbett's harsh terms on or about 20th November: ex. 70. Mr. Sweeney justified it all thus: "After having spent so much money, it is difficult for us to now stop, so we wish to ensure that we have adequate control on the direction of the company". The company referred to was Fandoan Pty. Ltd., which was to, and at some point did, take over O.M.A. -- 75 of 115 -- 75 Dr. Corbett's wish to retain Mr. Eichhorn' s services, which he obviously valued, failed. Mr. Eichhorn refused to· work with Mr. Corbett for reasons given to Dr. Corbett and hinted at in ex. 131. Forced to choose between the two, Dr. Corbett preferred his brother. Mr. Eichhorn kept the leased motor vehicle, with what justification it is difficult to see. It was repossessed in about May 1988. Discussions occurred between Dr. Corbett and Mr. Eichhorn with a view to making other arrangements to replace those in ex. 70. One proposal was that Mr. Eichhorn's family buy Dr. Corbett out at a price which would allow him an interest return on his investment. Nothing came of this, as the Eichhorn family could or would not take up that offer. In the end Mr. Eichhorn seemed willing to accept a resolution which would leave him with the vehicle. Before Dr. Corbett took over, there had been problems emerging over and above the lack of contracts. He said that about mid-September, he was given by Mr. Corbett or Mr. Eichhorn figures which startled him, that the project might need another $600,000.00 or thereabouts, which was a far cry from the original $100,000.00 or $150,000.00. If Mr. Eichhorn meant to suggest he had made mention of sums of $750,000.00 or $1 million for development at a significantly earlier time, I think he is wrong. Such sums were mentioned in the context of getting System 2 into production, alongside System 1. Dr. Corbett says he "became very concerned and required a re-arrangement of the commercial basis". -- 76 of 115 -- 76 In early August 1987 Dr. Corbett was told Mr. Eichhorn was going to be in Sydney from the 12th to the 14th putting O.M.A.'s case to be considered for a marina job at Birkenhead, Sydney to the engineers Patterson and Britton. In a letter of 18th August to Mr. Foster (ex. 21) which Dr. Corbett said he was aware of at the time, Mr. Eichhorn wrote" "In this regard I am puzzled at the attitude of Patterson and Britton who are overlooking Off shore Marinas Australia System 1 for the 60 berth 1 st stage replacement programme at Birkenhead Marina. They have indicated that they will probably use thePacific System, as we would not have time to develop our System 2 and prove it. Our 'System 1 ' is infinitely superior to Pacific in physicalproperties and is in production. It would seem that no one has the confidence in their own ability to assess the structural advantages of our system and are sticking with the 'devil they know'." The letter said "We are meeting severe resistance from consultants and developers alike, the general comment being - ' is it proven'". The letter was produced during a process of O.M.A. arranging for testing of models. On 31st August 1987 a meeting of various parties was held to explore the possibility of a public float of O.M.A. Both the Corbetts were present, also Mr. Sweeney and Mr. Eichhorn, and Mr. Sproates, a representative of Wardleys, who was charged with a large development at Raby Bay. It was hoped to interest Mr. Sproates in an O.M.A. Marina for Raby Bay. Mr. Sproates obtained an assessment of the proposed marina from Wardleys' consultant engineer, Mr. Seymour. His views are not in evidence, but it is known they were negative. Dr. Corbett met him on 20th October, 1987. Ten days before, Dr. Corbett and Mr. Eichhorn had discussed Mr. Seymour's critical attitude. Mr. Corbett said: -- 77 of 115 -- 77 "He told me he had met Gerald Seymour who seemeddead-pan critical initially of the engineeringdesign·but he said that Gerald Seymour did not hav~ a good reputation as an engineer; that he was very conservative. He said that there had been problems at Raby Bay and at Newport Waterways which were theresult of bad engineering and specifically theresult of bad engineering from Gerald Seymour so I shouldn't be too worried about the fact that he was critical." Mr. Eichhorn also said that Mr. Seymour was committed to the Pacific Marinas System. The evidence does not record what Mr. Seymour told Dr. Corbett, who said that as a result of their meetings he took steps to have the O.M.A. System independently examined by another expert. Dr. Corbett failed to get Mr. Barlow, a Naval Architect, to carry out this task, or an engineering group called Gatskar Holdings. Mr. Corbett suggested Mr. Gallagher, as a local engineer, less "cumbersome" to deal with than a firm based down South. Mr. Gallagher reported in writing (ex. 35) in late February 1988, although it appears he had a good deal of communication with Mr. Corbett earlier. It is rather astounding that Dr. Corbett did not get into contact with Mr. Wright. this, he was asked: As to "Can I ask you this, around about the same time that you had this discussion with Mr. Seymour do you know whether Mr. Wright was approached about the engineering integrity of these documents, of this marina?-- I was told, I believe by both Mr. Eichhorn and my brother - that all of these matters had been discussed in detail with Mr. Wright. In the event, were calculations prepared 1987?-- Yes. you shown a new set of by Mr. Wright in October Would you look at this document? Are those the October 1987 calculations produced to you at or about that time?-- Yes, I saw these. I believe I saw them the next month rather than in Octoberthough." -- 78 of 115 -- 78 These were the "Abel Point Calculations", ex. 17. 0.M.A.'s business continued in some fashion or other. Mr. Corbett was wrong in saying it closed down in December 1987. In particular, Mr. Lubrano, who gave evidence, was interested in 1988 in installing an O.M.A. Marina at Kangaroo Point, and the Corbetts were willing to contemplate supplying. See pp. 15-7 of the transcript. I expect Dr. Corbett was rather overstating his reservations when he said in evidence in reply: "You said earlier today that with some qualification you may have entered into the Lubrano transaction. You didn't say what those qualifications may or may not have been?-- The qualification that I had said to Pete Lubrano is that there is a dispute about the engineering and that I was not an engineer. I wasn't going to say that there was nothing for him to be concerned about, but that he had to deal - I said, 'It's open to you to talk to Mr. Wright, form you own assessment' and there was certainly - there was one engineering interview which was negative - very negative, but it didn't mean necessarily that you could never construct a marina in any place, but I said - because he was already somewhat down the" track with this - putting forward a marina based on that concept, so I said, "It's up to you.' What I didn't wish to do is to pretend that it was absolutely clear sailing." Mr. Corbett was quite active, at least until 15th April 1988, in attempting to obtain Mr. Wright' s co-operation so that, in Mr. Lubrano's interest, the achievement of a "Section 86" approval for a marina at Kangaroo Point (at a different location) could be replicated. The belief which seems to have been entertained at that time by Mr. Corbett and Mr. Gallagher among others, that the O.M.A. System could be salvaged, was, I think, a correct one. (I am not suggesting that it would necessarily satisfy, say, Mr. Glynn.) Instead the concrete coffin system (plans for one -- 79 of 115 -- 79 version of which were lying about the off ice and known to personnel such as Mr. Torti) commended itself to Mr. Gallagher and Mr. Corbett. Its further marina activities were in some way taken over by Invincible Marina Systems Pty. Ltd. Aspects of O.M.A. 's activities were closed down earlier than this to an extent forced by circumstances. "Production" activities, for example, manufacture of the PE tanks for Yap and test pouring of deck units, had occurred at premises at Molendinar. After some dispute Mr. Eichhorn ( or a company connected with his family) was established to have control of these premises, rather than O.M.A., which was required to leave. The concrete moulds had to be stored somewhere and they went back to the manufacturer's premises, where they still remain, subject to some parts having been "cannibalised" to make moulds for I.M.S. The sale to C.S.R. Humes. Exhibit 43 is a deed of agreement dated 6th March, 1989 whereby C.S.R. Humes Pty. Ltd. acquired from Invincible Marina Systems Pty. Ltd. an Australian Patent Application for an invention entitled "Floating Marina System" and all rights relating to the invention and its application in commerce in any form; it also acquired various "items set forth in the Third Schedule", the right to the name "Invincible Marina Systems", covenants restricting competition by the vendor and the Corbetts and certain warranties as to title and entitlements to deal with the subject matter of the deed, including the "Design Data", which is defined:- -- 80 of 115 -- 80 'Design Data' means the particulars contained in the Part A and Part B of the Third Schedule and without in any way limiting the particular·s thereof includes both the hardware and the software comprising the computer programme known as Computer Aided Drafting Systems together with all computer disks relating thereto and all instructions, information, and processing data relating thereto whether on computer disk or hard copy." The Third Schedule is: II THE THIRD SCHEDULE PART A Existing base and lid mould and drawings thereto; One Plotter Houston Instruments; One DMP-50 Plotter - (Model No. DMP-52MP, Serial No. C 548707-10033); One Power Conditioner (Sola) 240 Volt; One Digital Micro VMS (V4.5V); Plans designs and technical details relating to the invention held by R.J. Gallagher Engineers of 70 Kennigo Street, Spring Hill; One Sharp FO20 Facsimilie Machine; One Toshiba VD-3301 Photocopier. PART B One Palette Computer (Hardware) including:- Aided Drafting One Tektronix terminal (model No. 4209); One Tektronix mouse (model No. 4M); Additional Warranty (N2); System One D.E.C. Micro VAX 2000 (Model No. DH-625N1- A3, Serial Number WF724052 58); and Palette 2D, IPI, SOD, PSO, 3D and CSI Software" In respect of the "C.A.D." system, C.S.R. Humes was to take over the chattel lease under which Dr. Corbett held items from Hunter B.N.Z. Finance Limited. For all of this C.S.R. Humes was to pay (and it did pay) to the vendors $300,000.00 on signing of the deed, $150,000.00 on 30th June, 1989 and $150,000.00 on 5th April, 1990; it agreed to employ Mr. Corbett "in a managerial capacity for a -- 81 of 115 -- 81 period of three months from the date of the signing" at $5,000.00 ·per month and to a consultancy at $600.00 per day as required for the nine months following (minimum payment $2,000.00 per month). Mr. Corbett was also entitled to expenses and to have an office provided for him for six months. The defendants claim that the $600,000.00 should be set off against any losses the plaintiffs may establish. The plaintiffs claim that the transaction has nothing to do with the case. The defendants came to learn of it only shortly before trial and obtained leave to amend their pleading to assert the claim. No evidence was adduced by the plaintiffs to show what costs, if any, were incurred in earning the $600,000.00. Commonsense indicates there were expenses, for example in Mr. Gallagher's work. The only mention which the plaintiffs ever volunteered of Invincible Marina Systems was in Mr. Corbett's affidavit when information from Mr. Threlfall ("of Invincible Marina Systems") was said to show that O.M.A. had supplied at least 178 hours of a draftsman' s time using its C.A.D. system to prepare certain drawings pertaining to roadworks for the first defendant. No claim along these lines was pursued in the action. One of the exhibits to the affidavit refers to expenditure by Dr. Corbett or the fifth plaintiff on "I.M.S."; at that time such expenditure was apparently being claimed against the defendants. It is a matter of some surprise to me that Invincible Marina Systems' and C.S.R. Humes' roles in the story were not mentioned in Mr. Corbett's affidavit, nor in the two days when /' -- 82 of 115 -- 82 he gave evidence before Commissioners. Asked his occupation, he said he was a dentist, but had "done a variety of things in recent years". If the Deed of 6th March, 1989 had been implemented, he would have been acting as a manager for C.S.R. Humes. I cannot proceed on the basis that he was, because his ill-health may well have led to the employment aspect of the deed never being implemented. The evidence shows that Mr. Threlfall, employed by O.M.A. in late 1987 at Mr. Eichhorn's instigation , having become an I.M.S. employee about April 1988, joined C.S.R. Humes, with the C.A.D. System in March 1989. The details of negotiations leading to the Deed of 6th March, 1989 are surrounded in mystery. Presumably Mr. Corbett conducted them. Dr. Corbett would appear to be a principal beneficiary of the favourable outcome. He is a director and principal executive officer of the I.M.S. company:; its beneficial shareholder is recorded as Corbett Constructions Pty. Limited, but Dr. Corbett agreed that at all times since 1987 he or his brother in effect owned and controlled Invincible Marina Systems Pty. Ltd. ( formerly Woodhill Pty. Ltd.), likewise the fourth plaintiff, Fandoan Pty. Ltd. He agreed that from November 1987 until the sale to C.S.R. Humes, all the assets of O.M.A. (meaning its plant and equipment) were "under the umbrella" of companies controlled by him or his brother. He took the view that the title to the leased C.A.D. system and all it entailed .lay in the lessor; he accepted that a "marina management system" was no part of the lease, but to the extent it existed was intellectual property -- 83 of 115 -- 83 of O.M.A. Dr. Corbett may be right that such a management system was little more than a concept of Mr. Eichhorn's - the evidence does not reveal - but O.M.A. documents emanating from Mr. Eichhorn (such as ex. 16, p. 12) refer to it. It is inescapable that it is one and the same as the "Marina Management System" Dr. Corbett purported to assign to C.S.R. Humes on 67th March, 1989 by ex. 48, which relates essentially to the chattel lease. The plaintiffs' case is completely useless, and was O.M.A. 's which C.S.R. Humes that the discarded, might have O.M.A. that ended system anything up with was of was accidentally acquired. For example, the evidence shows that Mr. Emmerson "cannibalised" O.M.A. concrete deck moulds which had been returned to him for parts for I.M.S. moulds (allowing I.M.S. an appropriate credit); those I.M.S. moulds have gone to C.S.R. Humes. More to the point is that ex. 95 shows C.S.R. Humes received and that other evidence (of Mr. Threlfall) shows that I.M.S. undoubtedly used at least one O.M.A. drawing. This was an outline of the Marina Basin at Hamilton Island, including depiction of an existing marina. I.M.S. staff used the C.A.D. system to alter O.M.A.'s plan showing a proposed O.M.A. installation by showing instead an I.M.S. installation. I am of the view that the I .M. S. isometric drawings included in ex. 95 were produced by the C.A.D. system and Mr. Threlfall or Mr. Corbett or others from the O.M.A. isometric drawings previously produced. Little may turn on that. The evidence satisfies me that those involved in I.M.S. had available -- 84 of 115 -- 84 everything of O.M.A. 's, and not only what was stored in the computer or prepared by the C.A.D. system. It seems to me not to matter how much was discarded as useless, given that a discriminating judgment was obviously brought to bear and that items considered to be useful were turned to account. C.S.R. Humes received from I.M.S. most of the items listed in the third Schedule. It did not become entitled to any patent, but did get intellectual property which Mr. Lee described as the concept of a floating marina through use of hollow concrete tanks, and was obviously prepared to pay $600,000.00 for that. One Third Schedule i tern not received was plans, designs and technical details relating to the invention held by Mr. Gallagher. Asked about identification of the property sold to C.S.R. Humes, Dr. Corbett said he thought they were buying what O.M.A. had, then made a correction to: "what I.M.S. had, it was by then what Invincible had". In my view it is right to regard I.M.S. as the successor to O.M.A. and as having taken over all of O .M.A. 's property, including intellectual property. The parties in this action have been extraordinarily casual and imprecise in establishing their commercial relations with each other. To an extent things were left flexible, and they changed over time. Equities of the participants varied in ways which are hard to appreciate, both as to quantum and as to rationale. Company structures apparently agreed upon were never implemented. The parties must have had confidence that when the need arose they would -- 85 of 115 -- 85 reach a consensus as to what their respective rights were. Even when they signed documents, matters seem to have been left open for review. , I imply no criticism in this comment, but once Dr. Corbett was heavily involved financially, I think his accountant, Mr. Sweeney, was identified as the person who would regularise things if necessary, by imaginative accounting, including appropriate "back dating" of transactions. One document Mr. Sweeney produced is ex. 62, a depreciation Schedule of Fandoan Pty. Ltd., the fourth plaintiff. In the statement of claim it claims nothing. It was proposed at an early stage as the corporate entity through which the Corbetts and Messrs. Wright and Eichhorn would operate O.M.A. The depreciation schedule made up to 30th June, 1 988 shows Fandoan acquiring a number of O. M.A. assets on 1 st July, 1987 and others later in that calendar year, which were disposed of at depreciated values on 31st January, 1988. A month later than this last date Dr. Corbett was writing to Mr. Wright stating that Fandoan was still in business trading as Offshore Marines Australia. The Recitals in the Deed of 6th March, 1989 suggest Fandoan was prior owner of the invention before I. M. S. and assigned to I. M. S. on or about 19th April, 1988. There may be a good deal of fiction in all of this, and one would not set too much store by the dates. However, it seems to me proper, as against the plaintiffs, to regard it all as consistent with the C.S.R. Humes transaction being the ultimate realisation of the plaintiffs' investment in O.M.A. -- 86 of 115 -- 86 The plaintiffs conceded that various credits might be appropriately charged against them for values (such as those shown in or derived from the depreciation schedule) for particular items; they opposed allowing a credit for the whole $600,000.00 or anything like it. The sum is not apportioned anywhere, hence the need for the plaintiffs to proceed in this way to place values on tangibles which were realised upon ·to their benefit. They say that the intellectual property C.S.R. Humes was really paying $600,000.00 for was I.M.S. property, in no way derived from O.M.A. 's work, which was entirely abandoned. Mr. Gallagher, who was one of the plaintiffs' expert witnesses, claimed to have "reinvented the wheel", that is, started from scratch in devising the I.M.S. system which C.S.R. Humes ultimately purchased. As noted above, it was a "concrete coffin" system. It has obvious similarities with Mr. Eichhorn's original idea. One must accept that it was the O.M.A. system of prestressed, post-tensioned concrete decks on hollow polyethylene floats which was uppermost in all minds in 1986 and 1987, and which offered the prospect of a profitable market being tapped quickly, and also that System 2 as contemplated after the Corbetts' involvement in running O.M.A. began was a larger version of that System 1 . ( See the drawings in ex. 93, dated February to July 1987) . However, both the Corbetts from the outset had drawings of the original concrete coffin system, which, in my view, undoubtedly belonged to O.M.A. Dr. Corbett must have been referring to that system at p. 29 when he spoke of the Rose bay proposal. -- 87 of 115 -- 87 I accept that his recollection now is that concrete coffin flotation tanks were not mentioned ( see pp. 95, 104). Mr. Corbett was perfectly aware of the idea of concrete floats (see ex. 2, p. 17) and was shown a large number of documents incorporating them, including patent documents such as those in ex. 100. He and Mr. Gallagher "interrelated" (to use Dr. Corbett's term) in developing the I .M. s. system. I think there can be no doubt whatever that O.M.A. records which the Corbetts controlled included plans of concrete coffin floats and plans incorporating other features of the I.M.S. system, such as a central duct provided in the arm deck for services. This last was prominent in O.M.A.'s plans for Kangaroo Point. It may be the explanation for the incorporation of provision for such a duct when Mr. Corbett redesigned the O.M.A. flotation tank in late 1987. In my opinion it was ideas derived by Mr. Corbett through his association with O.M.A. that inspired those features of the I.M. S. system, which is not at all to say that such ideas originated with Mr. Eichhorn: he freely conceded their derivation from other sources. It is not necessary to find whether Mr. Gallagher saw O.M.A. drawings containing these features. denials. I accept his Even if I am wrong in concluding that the I.M.S. system was developed on the basis of a specific or general knowledge based on association with O.M.A. which both Mr. Corbett and Mr. Gallagher (through his preparation of his report of February 1988, ex. 35) had, I would nevertheless hold that the operations of I.M.S. and its disposal of various assets -- 88 of 115 -- 88. pursuant to the deed of 6th March, 1989 represent part of a continuing transaction whereby the Corbetts and ·their companies' investments in O. M.A. were realised. Dr. Corbett did not think it appropriate to distinguish between O.M.A. and I. M. S. when he prepared a list of his expenditures on 17th January, 1989. See ex. ANC 14 to Mr. Corbett's affidavit. Effect of $600,000.00 received from C.S.R. - Humes In British Westinghouse Electric and Manufacturing Company, Limited v. Underground Electric Railways Company of London, Limited [1912] A.C. 671, the House of Lords considered what damages were available to a purchaser of turbines which did not perform to the standards required by the relevant contract in circumstances where the turbines, after being used for a time, were replaced by the purchaser with others so superior that in the outcome the purchaser was ahead financially. A number of propositions were· stated at 689-90 in Viscount Haldane's reasons for judgment, which were agreed in by the other Law Lords: 1. he who has proved a breach of a bargain is to be placed, as far as money can do it, in as good a situation as if the contract had been performed. 2. A second (principle) imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. 3. Provided the course taken to protect himself by the plaintiff was one which a reasonable and prudent person -- 89 of 115 -- 89 might in the ordinary course of a business properly have taken, and did in fact take whether bound to or not, a jury ... may properly look at the whole of the facts and ascertain the result in estimating the quantum of damages. 4. When (the plaintiff) has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act. Reliance was placed on two recent Privy Council decisions, Erie County Natural Gas and Fuel Co v. Carroll [1911] A.C. 105 and Wertheim v. Chicoutimi Pulp Company [1911] A.C. 301 as two illustrations of these principles, in which "the facts have been allowed to speak for themselves". At 691, Viscount Haldane, having referred to cases in which certain "windfalls" .or benefits to plaintiffs ( such as insurance proceeds) were excluded from consideration by way of reducing what defendants had to pay concluded: "I think the principle which applies here is that which makes its. right for the jury or arbitrator to look at what actually happened, and to balance loss and gain. The transaction was not res inter alias acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach". The outcome would have been otherwise had the transaction producing a beneficial outcome been an independent or disconnected transaction from that in which the breach occurred. -- 90 of 115 -- 90 The approach in evidence is the laudable one of ensuring that · damages are compensatory only and do not excessively enrich a plaintiff at the defendants' expense. at 307. See Wertheim In Erie County at 119 appears a passage which in my view applies to the $600,000.00 paid by C.S.R. Humes - the facts were that when the defendant wrongfully cut off gas supplies to which it was entitled, the plaintiff established new works as a source of gas supply: "It may well be that if several reasonable butabortive attempts had been made to procure this gas thecost of these would have been properly treated as part of the cost of ultimately obtaining it, but that question does not arise in the case. The works having admittedly been sold, something must have been obtained for them. It is clear that if the defendants are to pay for thecost of making those works and of thereby supplying the plaintiffs with the gas the works produced they must getcredit for the sum for which these works, after having supplied the gas, were sold, otherwise the plaintiffs would make by the defendants' breach of contract a profit equal to the price obtained on sale. It was therefore the business of the plaintiffs to show how much that something was. The prima f acie inference to be drawn from a document printed in the record is that $75,000 was the amount of it. That inference, unless rebutted, should in justice to the defendants be acted upon. The burden of rebutting it lay upon the plaintiffs. They have, in their Lordships' opinion, failed to discharge that burden, and should not be permitted, by leaving the matters in obscurity, to recover more than they have lost. The plaintiffs have not sued for the loss of their contract. They have only sued for the damages caused to them by the temporary deprivation of the gas. They have got the substituted article, identical in description and quality, have used, and have failed to show that it has not in the result been obtained by them free of cost. They are therefore, according to the principles established by the authorities already cited, only entitled to nominal damages." The principles emerging from British Westinghouse are discussed in Halsbury' s Laws of England ( 4th) 12: 1196 and at much greater length in McGregor on Damages (15th) Chapter 7, -- 91 of 115 -- 91 especially, relevantly, paragraph 335 ff. It was a contract case, but the same principles have been applied in tort. In Bellingham v. Dhillon [1973] 1 Q.B 304, 309, Forbes J said: " Here however, we have no question of benevolence or of insurance. The action of the plaintiff was that of a reasonable and prudent man of business. It was his duty to mitigate his damage by buying this equipment just as much when that damage arose in tort as if it had arisen in contract. It seems to me that when the plaintiff's claim for damages is based on loss in his business so that a detailed examination has to be made of his accounts and methods of trading, there should be no difference on this point between actions in contract and tort. The damages in either case are arrived at by a calculation in essence of extreme simplicity. Take the profits which the business would haveearned on the hypothesis that the defendants' wronghad not reduced them, and subtract from that figure the profits which the business in fact earned after the wrong had been suffered. The first of these mathematical terms must be hypothetical. The secondshould be actual and real. It seems to me artificial in the extreme to say that in calculating the actual profits earned, one must shut one's eyes to a profitable transaction if the wrong was a tortious one but look at the realities and take them into account if the wrong amounted to breach ofcontract. The principles, and their application in tort were adopted by the majority of the Court of Appeal in New South Wales in Hoad v Scone Motors Pty. Ltd. (1977) 1 N.S.W.L.R. 88. They were also applied at first instance in a case of negligent misrepresentation, which Mr. Bowden's industry unearthed, but their application by the trial judge did not survive an appeal. In Hussey v Eels (1990) 2 W.L.R. 234, the pre-contractual representation was that the vendors' house property had not been subject to subsidence; it was made negligently and the plaintiffs, relying upon it, purchased for £53,250. The representation was made in late 1983. The plaintiffs then agreed to purchase and completed in February -- 92 of 115 -- 92 1984; subsequently they discovered a subsidence problem, rectification of which was to cost £17,000, which they did not have. They decided to build another residence in the garden, but failed to get planning permission in August 1984 and again six months later, on the ground of "overcrowding". They commenced action in January 1986 and in August 1986 obtained planning permission on a revised application which contemplated demolition of the house and erection of two dwellings on the site. They sold immediately for £76,094.00 net; while it may seem to be an open inference that all of their efforts with the planning authorities were directed to enhancing the property's value for resale, the Court of Appeal's reasons excluded it. The plaintiffs quantified their damages in accordance with various theories over the years, increasing their claim with each amendment. Eventually they claimed ( and recovered by the Court of Appeal ' s :czorder) £17,000, as the difference between what they paid in 1984, and "market value" of what they obtained, given the subsidence problem. The trial judge found for the plaintiffs on liability, but dismissed the claim on the basis of the "windfall" accruing to them wiping out the loss. This outcome was sought to be supported on the appeal on two bases mentioned by Mustill L.J. at 238: "1. The plaintiffs owed a duty towards the defendants to mitigate the loss resulting from their purchase of the house in reliance on the misrepresentation; the sale to the developers was a performance of this duty; the result of this mitigation was to be taken into account in computing the loss. -- 93 of 115 -- 93 2. Whether the re-sale was mitigation or not, thefact is that when the plaintiffs' dealings are regardedas a whole it can be seen that they have suffered no loss." The first basis was dealt with as follows at 238-9: "The breach compelled the plaintiffs to choose between: (a) continuing to live in the bungalow despite its serious faults; (b) repairing the bungalow; (c) selling the bungalow and land and going tolive elsewhere. If the plaintiffs had chosen to pursue either of the first two options, it is inconceivable that they would have been held to be in breach of any obligations towards the defendants; their recovery of the estimated or actualcost of repair (as reflecting the difference between the true market value and the price) would have followed as a matter of course. Given therefore that alternatives (a) and (b) were legitimate, the proposition that the plaintiffs were under a duty to spend more than two years in applications for planning permission, and that having obtained it were under a further duty to move out of the home in which they had hoped to live and to buy somewhere else, all for the benefit of the defendants who had by their actionable wrong put them into this dilemma, need only be stated to be rejected. British Westinghouse was summarised in this way at 241: "First, the conclusion that the benefits derived from the purchase of superior machinery should be set against the two elements of loss. In retrospect it is hard to see how the contrary could have been maintained. The purchase amounted to mitigation in the narrower sense, designed to put a stop to the continuing loss. To compensate the appellants for the cost of replacement whilst ignoring the additional benefits which this replacement had brought would have been palpable injustice. The second aspect of the decision concerned the element of over-mitigation introduced by the fact that the respondents had brought equipment with a greater output than before - presumably at greater cost than if exactly equivalent replacements had been obtained. Again, once it was found that the purchase had been reasonably made the conclusion in favour of theappellants now seems inevitable, given that the act which constituted the mitigation and the act which was said to -- 94 of 115 -- 94 constitute the over-mitigation were in the event the same. Thus, there was no question of the case being ·concerned with a chain of disconnected transactions, and so, I cannot follow the judge in treating the present case as directly governed by Westinghouse." This led into an interesting review of a number of authorities, which pointed, in Lord Justice Mustill's view, to a notion of continuity as providing a relevant test. His conclusion, agreed in by Farquharson L.J. and Sir Michael Kerr was, at 246: "Ultimately, as with so many disputes about damages, the issue is primarily one of fact. Did the negligence which caused the damage also cause the profit - if profit there was? I do not think so. It is true that in one sense there was a causal link between the inducement of the purchase by misrepresentation and the sale 2½ years later, for the sale represented a choice of one of the options with which the plaintiffs had been presented by the defendants' wrongful act. But only in that sense. To my mind the reality of the situation is that the plaintiffs bought the house to live in, and did live in it for a substantial period. It was only after two years that the possibility of selling the land and moving elsewhere was explored, and six months later still that this possibility came to fruition. It seems to me that when the plaintiffs unlocked the development va:lue of their land they did so for their own benefit, and not as part of a continuous transaction of which the purchase of land and bungalow was the inception. Accordingly, although I acknowledge that the plaintiffs had until the start of the trial persisted in a claim which was inconsistent with the one which they introduced by re-amendment, I consider that in fact and law their second thoughts were correct, and that the proper measure of damage here is the difference between the contract price and the market value of the property in its unsound condition." One feature worthy of mention ( see p. 239 C-E) is that the purchasers' "windfall" may have been more apparent than real. They were not property speculators, but a couple seeking a home to reside in. When they resold it, it was to acquire a new home. The general rise in the housing market was such that one expert fixed £80,000 as the cost of a -- 95 of 115 -- 95 comparable property at the time of the resale (which would have left the purchasers almost even), another £90,000, which· indicated a substantial loss for which they would have to be compensated. In the present case in my view there was a continuous transaction such as the Court of Appeal contemplated. there is no indication that the plaintiffs were necessarily investing for the long-term. When the first plaintiff, Mr. Corbett was pressing the second and/or fifth plaintiffs to invest, the prospect of a quick withdrawal at a handsome profit was one inducement presented. As it turned out, those two plaintiffs effectively bought out Mr. Corbett and the third defendant in November 1987; all three had co-operated to consider a public float in August. I regard the C.S.R. Humes payment as the outcome of the various investments made by the plaintiffs. This involves a deal of piercing of the corporate veil, but if that can be done to ensure that losses by private companies as well as their proprietors are effectively brought in against a defendant (Esso v. Mardon cf. Gould v. Vagellas (1984) 157 C.L.R. 215) it can surely be done to bring in credits that the defendant may justly assert. The plaintiffs' preference was to collect whatever they were entitled to in aggregate by a single judgment in favour of _the fifth plaintiff. Dr. Corbett was at pains, for example at pp. 88-89 .of the transcript, to present O.M.A. as without assets of significance and the I.M.S. company as a new enterprise with a new invention of its own. It seems plain he knew little of -- 96 of 115 -- 96 the details except what his brother (and perhaps Mr. Gallagher) told him. However, the allegedly "completely different sort of marina system" must have been presented to him before I.M.S. was involved. He said he was asked to put some money into "a possible way to design a completely different sort of marina . . . . I eventually agreed and that different technology became - I asked for it to be put into a separate company so that it was quite clearly kept apart, and · ... that company became Invincible Marinas Pty. Ltd." (p. 88). This was all occurring while or even before the fourth plaintiff, Fandoan Pty. Ltd. was presented as running O.M.A. Exhibit 61 has Fandoan in August 1988 purchasing tax stamps for O.M.A. employees from July 1987. The recitals in ex. 43, as noted elsewhere, describe Fandoan as owner of the new invention and as assigning it to I. M. S. on 19th April r 1988; it seems to follow that the new invention was O~M.A. 's intellectual property, or was something Mr. Gallagher, assuming him to be the inventor, was prepared to make available to O. M: A. , with which he had been consul ting ( for reward payable by O. M.A. ) on aspects of marina design for months. The plaintiffs submitted that the case was not pleaded as one about mitigation of damages, and should not be treated as such. They claim they could have adduced evidence of the cost of avoiding the loss by the I.M.S. enterprise. There may well have been such cost. I am disposed to think that from the eve of the trial the plaintiffs were fully aware that the defendants claimed their asserted loss was to be reduced by -- 97 of 115 -- 97 the $600,000.00; the defence was at pains throughout the trial to present·the I.M.S. venture as implementation of a business plan devised by Mr. Bruce for O. M.A. ( the defendants are required by the statement of claim to pay for everything spent on Mr. Bruce, as an O. M.A. expense) . I will hear the plaintiffs should they wish to submit in light of these reasons that an inquiry should be had as to the costs the plaintiffs were put to in earning the $600,000.00 in question. My present view is that it is immaterial to the outcome in this case whether it is regarded as one of mitigation (which happened to turn out favourably to the plaintiffs and hence the defendants, as opposed to unfavourably to both sides) or as one of balancing loss and gain to identify the plaintiffs' final financial position. As the evidence stands, in line with Erie County, plaintiffs have not proved any loss. Quantum apart from $600,000.00 from C.S.R. Humes the The defendants mounted little challenge plaintiffs' asserted figures for their expenditure to the on O.M.A. So far as the defendants relied upon a written list by Mr. Eichhorn declining to accept certain items in the claim because he was unsure, they have failed to impress me. I do refuse to find established as an expenditure made in reliance upon misrepresentations $5,000.00 paid by Mr. Corbett on 19th November, 1986, for the reason that it preceded the dates of the alleged representations. Rather, the defendants submitted that nothing by way of damages ought to be allowed after, say, December 1987. The plaintiffs having shut Mr. Eichhorn (and -- 98 of 115 -- 98 also Mr. Wright, who elected to stay loyal to him) out of O.M.A. in November 1987, the argument runs, it was not for the plaintiffs to go on spending money. Mr. Corbett indeed swore in his affidavit that the business activities of O.M.A. were terminated in December 1987. Substantial expenditure occurred after that time, including about half of the fifth plaintiff's outlays. Mr. Bruce was paid $3,673.75 in March and April 1988, Mr. Gallagher $10,384.00 on 30th March, 1988. Mr. Threlfall was paid wages of $1,828.00 two weeks later. $790.96 was paid for fuel on 12th April. Those sums are part of the fifth plaintiff's claim. Mr. Corbett and the third plaintiff claim for wages paid to Mr. Threlfall earlier in 1988 and wages to Mr. Horsburgh to the end of February 1988, and fuel bills in March. Some of the later payments may have been rendered necessary by reason of earlier commitments of O.M.A. They may well have been made because Dr. Corbett felt that morally, if not legally, he had made himself sole proprietor of the business of O.M.A. Certainly, the other two proprietors of the registered business name had dropped out of the picture, Mr. Eichhorn effectively under compulsion, and Mr. Corbett because Dr. Corbett was paying him out. However the wages payments show that O.M.A. (as one or more of the plaintiffs) was still active until the interposition of the I. M. S. company, apparently in April 1988. It is right to allow the plaintiffs to bring in such items only on the basis of the full history of I.M.S. being brought in, including the large payments it received in 1989. As for Mr. Gallagher, his invoice for the sum mentioned, in ex. 61 , includes a further -- 99 of 115 -- 99 $735. 00 for work of which some certainly, if not all, was I.M.S. work. In my opinion, it is artificial in the extreme for the plaintiffs by such accounting exercises as segregating this account so as to claim only O.M.A. work, to assert that I .M. S.' transactions are a res inter alios acta. The 1988 payments specifically referred to can be included against the defendants only as part of O.M.A. 's working to change its business and its products as required. On the assumption that the $600,000.00 (or whatever part of it represented profit to the I.M.S. or its proprietors) is brought in I find the plaintiffs have proved the expenditures claimed, with the exception of the initial $5,000.00. Adopting the figure in Mr. Bowden' s written submission, that leads me to find net expenditure "in reliance" on the representations (as well as in reliance on other considerations) of $279,967.93. It would be more accurate to say "in consequence of" rather than "in reliance upon", given that the 1988 payments were in large measure made at times when the plaintiffs were not accepting anything the defendants might have represented about the O.M.A. system. The approach I have taken is on the indulgent side, in accepting what the plaintiffs have claimed, for example, as to how Mr. Corbett allocated his telephone bills. I note they have shown discrimination in withdrawing a couple of items which Mr. Corbett's cross-examination on commission suggested were indefensible; more important to my attitude is the lack of specific challenge to particular items by the defendants. -- 100 of 115 -- 100 The plaintiffs claim interest, or preferably, further damages for the cost of moneys provided, described as a Hungerfords v. Walker claim. See ( 1989) 84 A. L. R. 119. The claim is particularised in Schedule 3 to the amended statement of claim, and is, in my view, made out in principle. It is based on interest which the second and fifth plaintiffs have foregone, at rates established by an affidavit admitted by consent. The total interest claimed, in the first section, about two-thirds of the "cash spent", is as follows: Interest from May 1989 to September 1991 is Dr. Corbett $75,369.32 $50,659.30 The balances, for interest before May 1989 are $24,710.02 Corbett Enterprises Pty. Ltd. $118,650.60 $ 82,195.28 $ 36,455.32 Having regard to the C.S.R. Humes payments, there is, in my opinion, no warrant for any interest or Hungerfords v. Walker damages after 6th March, 1989. Accepting and apportioning the Schedule figures, as I have done, Dr. Corbett and the company should not be given credits for the April 1989 interest of $1,736.25 and $3,161.43 respectively, nor for 80 per cent of the March interest, which may be estimated at $1,205.27 and $2,186.01, respectively. If my calculations are correct, what should be allowed comes down to: Dr. Corbett $21,767.40 Corbett Enterprises Pty. Ltd. $31,107.88 I have not embarked on the exercise of working out the effect on the Hunger fords v. Walker claim of my being wrong about the defendants' entitlement to a credit in respect of -- 101 of 115 -- 101 the C.S.R. Humes payment. Speaking generally, the figures in Schedule 3, regarding which the defendants said little in opposition, .would apply. However, in respect of the 1988 payments singled out for special mention by me above, the plaintiffs' "funds spent" should be reduced, and "interest" would fall accordingly. it seems to me a similar consequence would follow had the defendants succeeded in their submission that this was a case for Common Law Practice Act interest, rather than Hungerfords v. Walker damages. The first plaintiff formulated his claim in a slightly different way in Schedule 3, claiming interest in six-monthly instalments. cutting off the claim at 6th March, 1989, it would comprise: $ 152.51 to 31.7.88 $ 946.72 to 31.1.89 and $ 238.42 (estimated) to 6.3.89 for a total of $1,937.71 Things are worse for this claim, which is based on $14,334.65 as the balance of funds spent; I have already ruled against $5,000.00 of that sum. $14,334.65 is a balance remaining after reimbursements made by the fifth plaintiff among others (a consideration which may bear on the correctness of its claims, but the defendants addressed no argument to me on the point, and I have not pursued it). The first schedule shows that the underlying sum of $88,193.03 in fact includes payments of $8,650.00 or more made between 12th January, 1988 and 7th March, 1988. Their inclusion for any purpose is in my view limited to the extent to which they purchased what I.M.S. brought in from C.S.R. Humes. -- 102 of 115 -- 102 Evidence is lacking to show that Mr. Corbett or his company, the third plaintiff, was in a position to earn interest at particular rates. In all the circumstances, I would not assess either of them as entitled to anything under Hungerfords v. Walker. They have not been out of pocket in substantial sums for significant lengths of time and it has not been demonstrated to me that I ought to exercise any discretion in their favour under the Common Law Practice Act provisions as to interest. Contributory Negligence There is no plea of contributory negligence. It seemed to me the defendants had raised the issue by the conduct of the trial throughout, and in their written and oral submissions in address; these emphasise the close connection Mr. Corbett had with the activities of O.M.A. from early in 1987, through which he must have become aware that the' design of the marina system was undergoing constant development, and that it was not "fully engineered" or anything like it; he made no attempt to extricate himself, but continued to put in funds and encourage Dr. Corbett to do so by representations of his own which I am willing to find were in terms more confident and sanguine than any proved to have been made to him. I asked Mr. Bowden to address on the subject of contributory negligence, and referred him to Fleming on Torts (7th) 615. He raised the pleading point, citing Fleming at 242, but appeared to concede in his written submission received by me on 20th November that James v. McCarthy (1958) Q.W.N. 32 established that contributory negligence need not be pleaded. If pleading is necessary, I would allow the defendants to amend appropriately. -- 103 of 115 -- 103 The authorities cited by Fleming sufficiently establish that contributory negligence is available as a defence in ap. action for negligent misstatement, although, as the learned author said, its practical scope is obviously limited, since it will rarely, if ever, apply where reliance is foreseeable. This case is extraordinary, in that the plaintiffs do not assert that their losses flow from a single disastrous commitment made in reliance upon a representation or series of representations. Such is the usual case, where a property or business is acquired. The present plaintiffs put their money into O.M.A. as required, and retained the ability to say yes or no to each request for more. They present a picture of misrepresentations continuing to be made which gave them confidence to continue investing. Much was made, for example, of a document Mr. Eichhorn produced for the meeting of 31 st August, 1987. Its purpose was to benefit his and the Corbetts' interests by promoting the idea of a public float to bring in outsiders' money. Not surprisingly, there is a lot of glowing material, full of optimism and talk of vast marketing programmes. The notion that the Corbetts might rely on it to make further investments themselves rather than rely on their inside knowledge as proprietors of the business, actively running it in the case of Mr. Corbett, is ridiculous. Mr. Corbett, while not on the spot, was entitled to make whatever inquiries he wished, and it is clear that Mr. Sweeney was authorised to and did make inquiries as part of his financial control. I will say a little about the authorities cited by Fleming at 615. -- 104 of 115 -- 104 Yianni v. Edwin Evans & Sons [1982] 1 Q.B. 438 was, like Hussey v. Eels, an undisclosed subsidence case, brought by purchaser of the affected property against a firm of valuers and surveyors; they valued the property and assessed it as suitable for maximum lending. They admitted negligence in preparing their valuation report but claimed the plaintiffs were negligent in failing to follow their building society's advice in its mortgage application form and other literature and obtained an independent survey. ( The plaintiffs attributed their failure to cost considerations). said, at 457: Park J. "Finally Mr. Fernyhough says that the plaintiffs should be held guilty of contributory negligence, because they failed to have an independent survey; made no inquiries with the object of discovering what had been done to the house before they decided to buy it; also failed to read the literature provided by the building society, and generally took no steps to discover the true condition of the house. It is true that the plaintiffs failed in atr these respects, but that. failure .was due to the fact that they relied on the defendants to make a competent valuation of the house. I have been given no reason why they were unwise to do so. I have earlier read the paragraph under the heading 'Valuation' in the building society's handbook which Mr. Yianni did not read. No doubt if the paragraph had been in stronger terms, and had included a warning that it would be dangerous to rely on the valuer's report, then I think that the plaintiffs might well have been held to be negligent. But, in my judgment, on the evidence the allegation of contributory negligence fails." In J.E.B. Fasteners Ltd. v. Marks Bloom & Co (1983) 1 All E.R. 583 the issue of this kind was resolved on the basis of causation. The defendants were accountants who certified to the plaintiff the accounts of a company which, as they knew, the plaintiff was considering acquiring.. The defendants were held negligent in preparing the accounts. Inaccuracies in the accounts included an inflated value put on stock. By the time -- 105 of 115 -- 105 of the takeover which eventuated, the plaintiff, having inspected the stock, knew that the figure was inaccurate. The trial judge held that the picture presented in the accounts would encourage the plaintiff to take over the company, and in - that sense the plaintiff relied on the accounts, although they were not of critical importance. The plaintiff believed that certain commercial advantages would accrue from the takeover. The Court of Appeal disapproved of the trial judge's approach in separating the issues of causation and reliance, in "finding reliance where no true reliance was". The trial judge had been cognisant of an apparent inconsistency between his finding of "reliance" and his finding on causation which, in the circumstances, was adverse to the plaintiff. He said, "the distinction as I see it is that you can be influenced by something, even though if you had not been influenced you would have acted in the same way". said in the Court of Appeal at 587: Of this, Sir Sebag Shaw "What the judge is really stating as his underlying meaning is that, while the content of the accounts was observed and considered by Messrs John and Eric Bufton, it did not in any material degree affect their judgment in deciding whether or not to take over BG Fasteners Ltd." Stephenson L.J. at 588-9 explains neatly the approach of the Court of Appeal: "In such a case the cause of action is the same as in all claims for damages for misrepresentation. The representation must be false, and it must induce the plaintiff to act on it to his detriment. If it does, he relies on it; if it does not, he does not. He may, of course, rely on other things as well. What operates on his mind, or motivates him, or influences him to act as he does, may be a number of things, some operating more or less strongly, one perhaps predominating, as the judge found here was the fact .that the plaintiffs thought that Mr. Godridge and Mr. Wigg, in the form of BG Fasteners Ltd., would be the ideal vehicle to complement their existing business (see [1981] 3 All E.R. 389 at -- 106 of 115 -- 106 301); another, not 'of critical importance' as the judge found (at 301), was the false accounts in this case. But, as long as a misrepresentation plays a real and substantial part, though not by itself a decisive part, in inducing a plaintiff to act, it is a cause of his loss and he relies on it, no matter how strong or how many are the other matters which play their part in inducing him to act." This case does not, in my respectful opinion, bear on the matter of contributory negligence at all. Grand Restaurants of Canada Ltd. v. City of Toronto (1981) 123 D.L.R. (3d) 349, however, is a straightforward application of the Ontario equivalent of s. 10 of our Law Reform (Tortfeasors Contribution, Contributory Negligence and Division of Chattels) Act of 1952. disappointed purchaser of a restaurant. The plaintiff was a Trainor J. embarked upon an interesting review of pertinent judicial and academic sources at 366: "I turn now to the question of whether the plaintiff's conduct was such as to contribute to the damages that he claims he has suffered. In the words of Viscount Simon in Nance v. B.C. Electric R. Co. Ltd . [ 1 9 51 ] 3 D. L . R. 7 0 5 at p. 711 , [ 1 9 51 ] A. C. 601 at p . 611 , 2 W. w• R . ( N . s . ) 6 6 5 , "al 1 that is necessary to establish such a defence is to prove that the injured party did not in his own interest take reasonable care of himself and contributed, by this want of care, to his own injury' .Did the plaintiff Grand Restaurants Limited, once being aware of the existence of prior work orders stemming from a liquor licence application since withdrawn, fail to exercise such reasonablecare as would have led it to discover the nature of the defects set out in the 1977 work order and the economic risk of closing? It must be remembered that contributory negligence does not require any duty owed by the plaintiff to the party sued; all that is necessary is to show that the plaintiff did not, with respect to a duty owed to himself, take all reasonable care to avoid or mitigate a foreseeable risk or harm: Nance. (supra), at p. 711 D.L.R., p. 611 A.C.; Clerk & Lindsell on Torts, 13th ed. ( 1969), p. 587, para. 993. Quoting Denning L.J. in Janes v Livox Quarries Ltd., [1952] 2 Q.B. 608 at p. 615: -- 107 of 115 -- 107 'A person is guilty of contributory negligence if he ought reasonably to have foreseen that, if he did not act as a reasonable, prudent man, he might hurt himself; and in his reckonings he must take into account the possibility of others being careless.' At first blush, there is perhaps some difficulty in finding that a plaintiff ought to recover damages for negligent misrepresentation, which presupposes a reasonable reliance on the advice of the defendant, and then to have his damages reduced on account of his reliance - a causa sine qua non of his injury - being to some degree 'unreasonable' or excessive. But as the learned authors of Clerk & Lindsell on Torts point out, 'it needs to be emphasised that the plaintiff's negligence is contributory to the damage he sustains' (supra, at para. 991, citing Craze v. Meyer-Dumore Bottlers' Equipment Co. Ltd., [1936) 2 All E.R. 1150 at p. 1151), and this I interpret to mean that there is a distinction at law between reasonable reliance as a necessary prerequisite to ground liability, to constitute the cause of action under Hedley Byrne, supra, and reliance in the context of contributory negligence as simply a factor going to the extent of the damages suffered. Section 4 of the Negligence Act, R.S.O. 1970, c. 296, provides: '4. In any action for damages that is founded upon the fault or negligence of the defendant if fault or negligence is found on the part of the plaintiff that contributed to the damages, the court shall apportion the damages in proportion to the degree of fault or negligence found against the parties respectively.' In Charlesworth on Negligence, 5th ed. para. 1028, the author states: (1971), 'In considering "fault" what must be ascertained is the fault causing the damage; this may not necessarily be the same as the fault causing the accident which in turn caused the damage.' In the case of fault that contributes to the damage suffered, reliance that is 'unreasonable' simply goes to reducing damages otherwise recoverable by the plaintiff; it does not go to cancelling the prima facie liability of the defendant. I find some analogy in case law which holds that even where the defendant is solely responsible for the damage suffered by the plaintiff, the plaintiff's damages will nevertheless be reduced on the grounds of contributory negligence where the plaintiff could have taken steps to avert or mitigate the damages -- 108 of 115 -- 108 flowing from the defendant's tortious act: see O'Connell v. Jackson, [1972] 1 Q.B. 270." At p. 368 Trainor J. said: "In the case at bar, I have found that the city was negligent in failing to disclose the existence of an open file pertaining to the property which was the subject of the plaintiff's inquiries. However, the defendant's response shoul.d not go to absolving the plaintiff purchaser from the duty owed to himself - to take all reasonable precautions of a purchaser. The city's response specifically stated that any information was for the purchaser's 'convenience' only, and would not absolve him from any future inspections or demands for compliancewith the Building Code Act , 1 9 7 4 • The plaintiff relied on the apparent absence of an active file, but a prudent purchaser could and should have done more, especially if he was concerned, as was the plaintiff, with the premises' compliance with the Building Code Act, 1974 in the context of any future liquor licence applications. Moreover. had the plaintiff specifically asked about the prior liquor licence application - he knew there had been one- he would have found out above the work order and the active file. The defendant's counsel submitted that in effect the plaintiff failed to ask the pertinent question, and in particular a specific question related to the prior liquor licence work order. There is no question that the place to seekinformation regarding work orders, violations and active files attendant thereto, ·is the defendantbuilding department. In this case, however, the plaintiff had information about a prior work order and this, combined with special knowledge of the business to be purchased, should have alerted it to make further investigation or specific inquiries that would have led it to the information the non- availability of which provided the genesis of this lawsuit. Pursuant to the provisions of the Negligence Act, I find the parties equally at fault." Lastly comes Siman & Co. (Pty.) Ltd. v. Barclays National Bank Ltd. (1984) (2) S.Af.L.R. 888. In the final outcome, the plaintiffs failed because their loss was adjudged to have been caused by the defendant's refusal to arrange forward cover for a foreign currency commitment (in respect of which the plaintiffs had not sued) rather than the defendant's negligent misstatement that it was not possible in the circumstances to -- 109 of 115 -- 109 obtain such cover. Corbett J.A.'s judgment at 923 ff contains the following: "Contributory negligence At the conclusion of respondent's case in the Court below, respondent's counsel applied for an amendment to the plea. The application was not opposed and was granted. The amendment introduced an alternative defence of contributory negligence in the event of the Court finding that plaintiff ( now appellant) suffered damage, that defendant (now respondent), represented by Muir, acted negligently and that such negligence causally contributed to the damage suffered by plaintiff. In that event defendant averred that the damage was caused partly by the fault of defendant and partly by the fault of plaintiff, represented by Melnick and/or Simanowitz, and prayed that plaintiff's damages be reduced in accordance with the provisions of Act 34 of 1956. A prudent or cautious person in the position of Melnick and Simanowitz may well have been dissatisfied with Muir's advice and queried it on the basis that it was not yet 15h00, but the question is whether in failing to do so Melnick and Simanowitz were guilty of contributory negligence. As was said by CENTLIVRES CJ in Herschel v. Mrupe 1954 (3) SA 464 (A) at 474A: 'The mere fact that, if appellant had been more cautious, she would not have incurred the loss is not per se sufficient to prove that she was guilty of contributory negligence. See Fred Saber (Pty) Ltd v Franks 1949 (1) SA 388 at 406 (A). I The explanation of Melnick and Simanowitz for failing to query Muir's advice was, in each case, because the recipient of the advice thought that the processing of an application for forward cover took a substantial time and therefore that at 14h30 it was too late for this to be done by 15h00. In other words, that at 14h30 the market was for practical purposes closed. There is no reason to doubt thetruthfulness of this explanation. Obviously the processing of appellant's application would have taken some time. There were some 19 transactions to be covered and there were three different currencies involved. Moreover, in the course of the same conversation, Muir stated that the application had to be in writing and that he could not deal with the matter over the telephone. This meant that one of appellant's representatives would have to go to the bank with his records. If one further takes into -- 110 of 115 -- 110 account the facts that Muir was the acknowledgedexpert on the question of forward cover and that inthis respect Melnick and Simanowi tz were laymen, that Muir was appellant's trusted bank manager and had been helpful to appellant in the past and that, even though (on the evidence) there would have been sufficient time to arrange forward cover, there was not much time to spare and appellant's representatives would have had to hurry, I am not persuaded that Melnick and Simanowitz were guilty of contributory negligence in any of the respects alleged. This defence must therefore fail." I express my appreciation of Mr. Bowden' s provision of the following note in his submissions upon the authorities I have been discussing: "In 'Professional Negligence', Partlett 1st ed. (1985) at p. 227 the learned author takes the view that:- 'The application of the defence where economic interests are at stake does not raise the same considerations. The defence should not be available in these cases.' There the learned author is talking about contributory negligence. Of course it is mainly concerned with 'professional' negligence. Partlett at p. 225 refers to Meddick v. Cutten & Harvey 111 L . S . J. S . 21 2; 11 3 L . S . J. S . 3 7 5 ( on appeal ) . There at first instance White J. held that a client was not guilty of contributory negligence when a cheque was drawn for the purposes of an investment in such a way as to permit the proceeds to be converted by a third party. The judgment accepts that in principle contributory negligence may be found in such circumstances." This is not a professional negligence case, as the note recognises. In this case, my view is that any damage the plaintiffs may have suffered may fairly be said to result partly from their own fault, within the meaning of s. 10. In particular, they are saddled with the failure of Mr. Corbett to appreciate (or acknowledge, once he became active in the business) how far from fully developed the O.M.A. system was. In my view it is not right to sever the second and fifth plaintiffs' -- 111 of 115 -- 1 1 1 position from his and the third plaintiff's. They have all made common cause. On some basis not made clear, Mr. Corbett and the third plaintiff have been reimbursed for the bulk of their expenditure of $88,193.03. The details are: II Reimbursements from OMA 24.7.87 24.9.87 30.10.87 13.11.87 27.11.87 10,000.00 9,858.38 3,000.00 10,000.00 6,000.00 Reimbursement from Corbett Enterprises Pty Limited 19. 1 . 88 38,858.38 35,000.00" Dr. Corbett, too, may be regarded as having contributed to his and the fifth plaintiff's losses. His evidence at p. 90 (recorded in rather garbled fashion) is designed to cover the technical requirements of reliance or causation or until the expenditure of the last dollar. I cannot accept that Dr. Corbett's reliance extends anything like as long as p. 90 might suggest. Quite apart from his expectations regarding customer enthusiasm for O.M.A. products, there came regularly from August 1987 signals that engineers such as Mr. Patterson's firm, followed by Mr. Seymour, would not repose confidence in the system. It was not reasonable to ignore Mr. Seymour's views on the basis of Mr. Eichhorn' s criticism of his competence. I do not think that the five pages of "Abel Point Calculations" in October 1987 would serve to allay the doubts any reasonable investor would have felt. They did not, in any event, because the plaintiffs proceeded, at a leisurely pace, to obtain Mr. Gallagher's -- 112 of 115 -- 112 views. ( It may be noted that no claim is made in the pleadings regarding reliance by the plaintiffs ·on the Abel Point Calculations. They are not said to constitute a representation themselves, or to have been the subject of any relevant representation by Mr. Wright. However, the plaintiffs appear to rely on them in terms of a professional person's obligation to use continuing vigilance to check for and correct errors in old work. See per Sachs L. J. in Brickfield Properties Ltd. v. Newton (1971) 1 W.L.R. 859, 873, and Jackson and Powell. Professional Negligence (2nd ed.) 51, where it is said that an engineer's duty is a continuing one.) This issue of contributory negligence is not strictly necessary to consider, as I have found the plaintiffs do not demonstrate a loss, at the end of the day. Should I be wrong in that view, and should the $600,000.00 recovered from C.S.R. Humes in March 1989 and later not be properly brought into consideration, then it would be necessary to consider at what point in time the plaintiffs' loss from their adventure with O. M.A. can no longer be said to have been caused by their reliance on representations by the defendants, alternatively to consider the extent to which the plaintiffs' own fault resulted in their overall loss. Elsewhere, I have indicated my view that the cut-off point is the end of December, 1987: the defendants made a submission in those terms. If contributory negligence is applicable, the situation becomes worse for the plaintiffs, insofar as I would assess their fault, in all the circumstances, as equally productive of their damage, with the defendants' conduct. This would limit the plaintiffs' recovery to half of the sum of $279,967.93 and half of the Hungerfords v. Walker component assessed by me. -- 113 of 115 -- 113 Conclusion Damages is in most cases the gist of an action in tort. The plaintiffs have established negligent misstatements against the defendants, but not that they suffered damage. "Negligence is a cause of action only for a person who suffers actual harm by reason of it." ( Pollock, p. 139). An admission of negligence accompanied by a denial of damage is a denial of the cause of action: J.R. Munday Limited v. London County Council [1916] 2 K.B. 331, 334. The consequence is that the plaintiffs' action ought to be dismissed, unless they persuade me that the door ought to be kept open by an inquiry ( as already mentioned) under O. 37:5, O. 39:52 (which appears to apply only if some damage is shown to have been incurred, so that a judgment may be given) or on some other basis. Costs should not simply follow the event, in my view, given that the plaintiffs have succeeded on most of the issues litigated, and on the issues which took up virtually the whole trial. These reasons have been prepared· under unusual pressure. The trial of the action itself extended beyond the term of my commission, which has continued under s. 3 of the Acting Judges Act of 1873, and precluded my participation in gazetted Civil sittings in another court. I have been anxious to return to that work to satisfy the expectations of litigants whose cases have been set down. I mention this, being only too conscious of deficiencies in what I have written. There are some matters the parties might have expected to find treated at greater length, including some of the legal arguments presented, and the engineering evidence; there are others in -- 114 of 115 -- 114 which I appreciate that I have been repetitive. However, · having reached the point of being ready to give judgment, I think it better not to delay merely for the purpose of expanding, pruning or presenting more felicitously what has been prepared. -- 115 of 115 --