Ansell Ltd v Coco [2003] QDC 451

DISTRICT COURT OF QUEENSLAND CITATION: Ansell Ltd v Coco [2003] QDC 451 PARTIES: ANSELL LTD ACN 004 085 330 Plaintiff v SANTO ANTONIO COCO Defendant FILE NO/S: D 94 of 2003 DIVISION: Civil jurisdiction PROCEEDING: Action on Guarantee ORIGINATING COURT: Brisbane DELIVERED ON: 16 December 2003 DELIVERED AT: Brisbane HEARING DATE: 12 – 14 November 2003 JUDGE: Boulton DCJ ORDER: Judgment for Plaintiff with indemnity costs CATCHWORDS: Guarantee by Company Director – Credit Account – failure of roll cover in paper mill – no implied warranties or representations COUNSEL: Mr PA Looney for the plaintiff Mr A Skoien for the defendant SOLICITORS: Forbes Dowling Lawyers for the plaintiff Gilshenan and Luton for the defendant [1] The plaintiff formerly traded under the Business Name Dunlop Duratray. The defendant was the sole director of a company Softex Industries Pty Ltd (Softex) which manufactured paper products. The defendant was the Managing Director of that company. [2] As part of the paper manufacturing process the paper mixture was carried from a vat firstly by wires and then by felt through pressure contact between a pressure roll and -- 1 of 11 -- 2 a larger steel roll or drum called “The Yankee”. The pressure roll could be either a suction roll which contained holes drilled through the full thickness of the rubber coating and the underlying steel cylinder or a “blind” roll which had perforations in the rubber coating which did not, however, extend through the full thickness. In the case of the suction pressure roll, water was carried away under vacuum pressure via the interior of the roll. [3] The present case concerns a suction pressure roll. It is not then necessary to consider the functioning of a “blind” roll. [4] The metal cylinder providing the core to the pressure roll was machined to provide a slight convex camber in the centre of the roll. This is detailed in documents 7 and 8 which are part of Exhibit 4. As the pressure on the roll towards “The Yankee” was exerted at the extremities, this was designed to bring the surface of the roll which impacted on “The Yankee” (called “the nip”) into exact alignment producing then an even thickness of paper. The rubber roll cover was approximately 20 millimetres thick. The actual dimensions and specifications are set out in the quotation for a Dunlop/Stowe Woodward cover in document 2 which is part of Exhibit 4. [5] A product called Stofoil was produced by the plaintiff. This was designed to be used in testing the “nip”. If the “nip” was out of adjustment, not only was the paper quality likely to suffer but the roll itself would be exposed to possible damage. [6] After passing through the “nip” the paper adhered to the “Yankee”. The “Yankee” contained steam under pressure and the heat then assisted in drying the paper which was scraped off the “Yankee” and rolled. -- 2 of 11 -- 3 [7] Mr Faoro for the plaintiff was a mechanical engineer who had some 30 years of experience. Twenty of these had been spent with Dunlop in roll coverings, firstly as a sales engineer, then as a production manager and more recently as General Manager of Duratray. Duratray would cover 25 to 30 rolls per month and Mr Faoro gave evidence that he was involved in overseeing the manufacturing and sale and was also involved in looking at any quality concerns and product failures. [8] Mr Faoro was not a qualified chemist and was not involved in the fine detail of paper manufacture as it may have been carried out in different mills but he gave cogent evidence of the factors which might cause or contribute to roll failure – deformity in the contact between the roll and the Yankee, chemical attack from hydrocarbons, overloading, excessive heat whether directly applied or as a consequence of some of the above, impact damage etc. Protection against damage would be achieved by careful monitoring, cleaning and maintenance. [9] Mr Faoro was the only witness to give worthwhile evidence of the condition of the roll in question following its failure. Defence witness Howard Anthony Meadows who was General Manager of Technical Development for Carter Holt Harvey saw the roll only briefly and on his own evidence did not examine it in any detail. Furthermore his examination occurred in the context of a due diligence inspection on the Softex plant conducted some time after 5 October 2001 when the company had been placed into administration. This was then at least four months after the failure when the condition of the surface of the roll particularly as to “gumminess” could have altered. Mr Meadows had no worthwhile recollection. He merely offered the view that there had been a bonding failure. -- 3 of 11 -- 4 [10] Mr Faoro took some notes of his inspection which are Exhibit 8. He was subjected to some attack because of the fact that his notes made no mention of gumminess and he had said when producing the notes at p 28 of the transcript: “Okay. When did you make those notes?-- At the time, on the floor. Do you have an independent recollection of what you saw of the roll on that day? do you recall, independently of those notes, what it was that you observed?-- Only what I wrote down. What I’m asking is do you have a separate memory today of what you saw when you were looking at the roll cover or do you need to refer to your notes in order to recall what you actually saw?-- I’d like to refer to the notes, in case I miss something.” [11] Actually I thought that Mr Faoro was somewhat unfamiliar with the term “independent recollection”. Mr Faoro obviously did have an independent recollection of his visit. He says for instance at p 35 of the transcript: “…The clear recollection that I have of asking Mr Morris was – was there any vibration of this roll in the machine and if so, why wasn’t the roll removed before it got into this condition. And what, if anything, did Mr Morris tell you?-- And Mr Morris advised me that he was instructed to leave the roll in the machine.” [12] Mr Faoro noted a failure of the roll 12 inches in from the front side. Some rubber had come away from the roll but it was localised and did not extend through the roll. He noted that there was no debonding. He ascribed the damage to mechanical failure. He also noted charring over the centre line of the roll which was indicative of excess heat. There was an area of 500 millimetres where there was a wave pattern of unusual wear. There was a groove to the full circumference of the roll 20 millimetres wide and 5 millimetres deep at the junction of the suction hole area. The roll was out of shape with areas of abnormal wear. There was gumminess or tackiness in areas indicating the possibility of chemical attack. He claims to have mentioned these observations to Mr Morris during his inspection. Mr Morris seems -- 4 of 11 -- 5 to have had a very vague recollection of the inspection and of what had been pointed out by Mr Faoro. He also does not appear to have made a worthwhile examination of the roll himself. When vibration commenced shortly prior to the failure he made no attempt to remove the roll from the machine. The suggestion that he made that by tapping the roll while it was still in the machine with a hammer he could detect delamination or debonding of the roll with the cylinder was not put to Mr Faoro. In actual fact the reverse proposition was put to Mr Faoro by defence counsel and at p 99 l 56: “And in so far as you do a test of the hardness of the roll after it’s come out of the autoclave that won’t tell you anything about the achievement of bonding between the layers at the – between the top stock and the interplay or the interplay in the base or the base and the shell?-- That’s correct. All right. similarly, in so far as you referred to there being some porous observation or consistency to the rubber, I suggest to you that since vulcanisation is designed not to change the rubber itself – that is, the top stock, the interplay and the base – but to ensure that each of those layers – as you’ve already agreed with me ----?-- Yes. ---- is attached to one another?-- Yes. There would be nothing observable from the outside once the roll comes out of the autoclave to indicate that you’ve had a failed vulcanisation?-- That’s correct.” [13] The observations of Mr Faoro, which I accept, are powerful indications that prior to the roll failing there had been serious overloading of the machine, excessive heat generation either secondary to or in association with chemical attack and some level of impact damage. The evidence of Mr Morris was that the machine was performing well and producing good quality paper up to the time of failure. I have difficulty in placing reliance on this evidence because it seems to be at odds with the serious damage that Mr Faoro noted. -- 5 of 11 -- 6 [14] Exhibit 13 seemed to suggest that the settings on the machine were relatively unchanged apart from a slowing of the Yankee in the day or two before ultimate failure. [15] The principal argument advanced on behalf of the defendant really amounts to nothing more than the general proposition that a roll cover should not fail after a mere 23 days of operation. A range of 1-5 years was spoken of as more usual though Mr Morris seemed to suggest that he knew of rolls failing at 6 months or 12 months. [16] It simply cannot be concluded in these circumstances that the roll cover failed because of a defect in its manufacture. Mr Faoro’s examination suggested that the roll had not debonded from the underlying metal. His inspection of the roll also suggested several signs of mistreatment of the roll cover which were of the type calculated to cause failure. Furthermore the roll had been used 24 hours a day for some 23 days suggesting that when it was put into service it was not defective and that the problems developed subsequently. The vibration on the roll some 24 to 48 hours prior to its ultimate breakdown would seem to indicate either that the problem occurred then or that the vibration was indicative of serious maladjustment of the roll. The latter might have been susceptible to correction if the machine had been stopped and the cover examined. It was simply kept in operation. [17] In the circumstances the allegation of there being a total failure of consideration fails. -- 6 of 11 -- 7 [18] On or about 28 August 2000 Softex Industries Pty Ltd made an application for a commercial credit account to Dunlop Duratray. The document is No. 1 in the booklet of documents Exhibit 4. Amongst other things it states: “2. The supply of products by Dunlop Duratray is governed by Dunlop Duratray’s Standard Terms of Conditions as in force from time to time. The Standard Terms and Conditions override any terms and conditions of purchase used by the applicant. 3. The applicant must strictly comply with any credit limit specified by Dunlop Duratray from time to time. Dunlop Duratray at its discretion may: (a) … (b) … (c) vary the terms of any credit facilities granted to the applicant … … 5. (a) The applicant must pay for all products supplied by Dunlop Duratray in full by the 30th day from the end of the month of invoice. Time is of the essence for payment. (b) Interest is payable on any overdue amount at 2% above the Westpac Banking “Corporation reference lending rate, calculated and payable daily compounded from the due date and the invoice is paid in full. The applicant must pay all costs and expenses (including legal costs and mercantile agents fees) incurred by Dunlop Duratray in the attempted recovery of the over due amounts. 6. Dunlop Duratray may require the applicant to provide security to secure any credit facilities provided to the applicant. Dunlop Duratray in its sole discretion may require that the applicant charge real or personal property (or both) owned by the applicant for an amount equal to any amount that the applicant owes Dunlop Duratray from time to time under the credit facilities or otherwise. The applicant shall execute any documents necessary for this purpose. … The applicant warrants that the terms of and information provided in -- 7 of 11 -- 8 this application have been read and understood by each of the signatories below.” [19] The application is purportedly signed by the defendant who is designated as Managing Director. The final page of the document under the heading “Guarantee and Indemnity” provides in part as follows: “Each of the Guarantors acknowledges having read the terms of this Guarantee and Indemnity and having been advised to, and been given the opportunity to, seek independent legal advice prior to execution of this Guarantee and Indemnity. Where the Customer is a company, the person (or persons) signing this application on behalf of the Customer (“the Guarantors’) jointly and severally (in the case of one or more than one person) guarantee the payment of all debts and monetary liabilities of the Customer which may from time to time be owing by the Customer to Dunlop Duratray (“the Debt”) and undertake to repay on demand by Dunlop Duratray any part of the Debt if the Customer does not pay it when due.” … Further the Guarantors, for the purpose of securing any credit facilities provided to the Customer charge all real and personal property owned by them, for an amount equal to any amount that the Customer owes to Dunlop Duratray from time to time under the credit facility or otherwise and will execute any necessary documents for this purpose. …”. [20] The guarantee is also purportedly signed by the defendant. The defendant did not give evidence on the trial of the action. [21] On 16 January 2001 Dunlop Duratray quoted for four types of suction pressure rolls in accordance with a specification from Softex. The quotation is Document 2 in Exhibit 4. The specification is not in evidence in written form. However Mr Faoro in his evidence referred extensively to the things that were specified by the customer. Importantly the quotation provided: -- 8 of 11 -- 9 “Warranty Because of so many conditions existing beyond the control of Dunlop Duratray in the use of roll coverings, no warranty as to life or length of service is made. All roll coverings are warranted to be free of defects in material and workmanship. No claim will be honoured or adjustment made on any roll covering after one year from date of invoice or shipment. Our liability for breach of warranty is limited to the replacement of the roll covering. Consequential damages are not allowed.” The covered roll was delivered on or about 23 February 2001 according to the invoice which is Document 4 in Exhibit 4. The roller test certificate which is Document 6 in Exhibit 1 is dated 16 March 2001. [22] On 20 March Softex ordered eight stofoil from Dunlop. The invoice which is Document 5 in Exhibit 4 suggests that the stofoil was delivered on 30 March 2001. It should be noted that the roll did not fail until 8 June 2001. [23] Neither the roll cover nor the stofoil has been paid for. [24] The Amended Defence of the defence filed by leave on 12 November 2003 raises an issue concerning the stofoil at paragraph 6(b) which was abandoned before me. The timeframe to which I have referred plainly indicates that the ordering of the stofoil had no relationship to the later roll failure. [25] The defence concerning the alleged invalidity and unenforceability of the guarantee and of the charge fails as does the allegation that the purchases of the roll cover and the stofoil were not made on the credit account and that the charge is inapplicable. The terms of the guarantee and charge are clearly applicable to both transactions. Actually they are wide enough to cover these transactions whether they were made -- 9 of 11 -- 10 on the credit account or not. I find though that the purchases were made on the credit account. [26] Paragraphs 17 and 18 of the Amended Defence are as follows:- “17. Further, in the premises pleaded in paragraphs 13, 14 and 15 herein, the Plaintiff impliedly represented (the “Representations”) to Softex Industries Pty Ltd that: (a) the roll cover would be suitable for use in the paper mill operated by Softex Industries Pty Ltd; (b) the roll cover would be suitable for use with chemicals of various sorts, including solvents, oils and release agents, used in paper mills in the course of manufacturing paper; (c) the roll cover would be suitable for use with chemicals that may contain, amongst other things, hydro-carbons; and (d) the roll cover would be expected to last between 1 to 5 years before having to be replaced. 18. Further, in the premises pleaded in paragraphs 13, 14 and 15 and/or by virtue of the Sale of Goods Act, it was an implied term of the Offer that: (a) the roll cover would be suitable for use in the paper mill operated by Softex Industries Pty Ltd; (b) the roll cover would be suitable for use with chemicals of various sorts, including solvents, oils and release agents, used in paper mills in the course of manufacturing paper; (c) the roll cover would be suitable for use with chemicals that may contain, amongst other things, hydro-carbons; and (d) the roll cover would be expected to last between 1 to 5 years before having to be replaced.” [27] The plaintiff had only generalised knowledge of the paper mill process and does not seem to have been provided with knowledge of particular chemicals, their concentrations, the maintenance and monitoring procedures operating at the Softex premises. This was confirmed not only in the evidence of Mr Faoro but in the evidence of Mr Storey at p 180 of the transcript and Mr Meadows at pp 194-195 which concerned the practice in the industry as a whole. -- 10 of 11 -- 11 [28] Furthermore, as I have already pointed out, the specifications for the particular cover were provided by Softex. The plaintiff’s warranty applied only to defective materials or workmanship. It expressly declined responsibility for damage arising from other sources. [29] There is absolutely no evidence in this case to support the view that Softex expressly or by implication made known to the seller any special features for which the goods were required and that as a consequence Softex was relying on the plaintiff’s skill or judgment. The specifications for the role came from Softex. No implied terms as to quality or fitness for any particular purpose pursuant to the Sale of Goods Act are made out. Furthermore, the attempt made by the defendant to imply various representations or conditions in the contract offends virtually all of the pre-conditions for the implication of terms. It would not be reasonable or equitable in the circumstances nor would it be necessary to give business efficacy to the contract. The representations and terms alleged are not capable of clear expression and are at odds with the express disclaimer contained in the warranty clause. [30] I have been provided in this case with certain details of interest rates and property which is proposed to be charged. There is evidence from certain experienced accountants who are willing to act. It seems though appropriate that, having made the abovementioned findings that I merely indicate an intention to give judgment for the plaintiff. I will give judgment according to minutes of order to be prepared by the parties and initialled by counsel and supplied to my associate. It is clear that in the circumstances the plaintiff is entitled to its full costs and that the costs then should be awarded on an indemnity basis. -- 11 of 11 --