CSR Ltd v Tanco Kimpex Export Pty Ltd & Anor [2003] QDC 145

DISTRICT COURT OF QUEENSLAND CITATION: CSR Limited v Tanco Kimpex Export Pty Ltd & Anor [2003] QDC 145 PARTIES: CSR LIMITED (Plaintiff) v TANCO KIMPEX EXPORT CORPORATION PTY LTD (First Defendant) & KERRY FRANCIS MOORE (Second Defendant) FILE NO/S: DC 3412 of 2001 DIVISION: Civil Jurisdiction PROCEEDING: Trial ORIGINATING COURT: Brisbane DELIVERED ON: 30 May 2003 DELIVERED AT: Brisbane HEARING DATE: 6 May 2003 – 13 May 2003 JUDGE: Forde DCJ ORDER: Judgment for the Plaintiff against both the First and Second Defendants in the sum of $181,590.98 together with interest and costs. CATCHWORDS: Formation of contract – sale of goods – alleged defects in timber – breach of warranty – delivery by instalments – damages – loss of profits – exclusion clause – warranty and conditions of sale – Sale of Goods Act ss. 33(2), 37 and 54. Andrews v Nominal Defendant (1967) 70 SR (NSW) 419; Auspac Trade v Victorian Dairy (unreported) Supreme Court of Victoria CA 22 February 1994; Commonwealth v Amann Aviation (1991) 174 CLR 64; Crump v Wala (1994) 2 NZLR 331; Cusack v Heath (1950) QWN 16; Darlington Futures Ltd. v Delco Australia Pty. Ltd. (1986) 161 CLR 500; Farrow’s Falcon Press Pty Ltd v Quarrill (1915) VLR 651; Hadley v Baxendale (1854) 9 Exch 341; 156 E.R. 145; Hall v Pim [1928] All ER 763; Hammer and Barrow v Coca-Cola [1962] NZLR 723; In re Adelphi Hotel (Brighton) Ltd. [1953] 1 W.L.R. 955; In re Shanahan (1941) 58 W.N. (NSW) 132; -- 1 of 53 -- 2 Jamieson v Gosigil Pty. Ltd (1983) 2 QD. R. 117; Joseph & Co v Harvest Grain Co (1996) 39 NSWLR 722; Keighley, Maxted & Co. v Durant (1901) AC 240; McWilliams Wines v Liaweena [1988] ASC 55-695; Metal Roof Cladding Pty. Ltd. v Amcor Trading Pty. Ltd. [1999] QCA 472; Nissho Iwai Australia Ltd v Malaysian International Shipping Corporation (1989) 167 CLR 219; Outlook Credit v Popovic (unreported) Supreme Court of Queensland 4 September 1987; Riley v Melrose Advertisers (1915) 17 WALR 127; Siu Yin Kwan v Eastern Insurance Co. Ltd. (1942) 2 AC 199; Slater v Hoyle & Smith Ltd [1920] 2 KB 11; TC Industrial Plant Pty.Ltd. v Roberts Qld Pty Ltd (1963) 180 CLR 130; Whiting v Diver Plumbing and Heating Ltd. [1992] 1 NZLR 560. COUNSEL: Mr J. Sweeney for Plaintiff. Mr P. Freeburn for Defendants. SOLICITORS: Carter Newell Lawyers for Plaintiff. Tucker & Cowan Solicitors for Defendants. -- 2 of 53 -- 3 Contents Introduction 4 The Pleadings 4 Issues 6 Background Facts Richard John Marlborough The Involvement of Messrs. Bergner, Manson and Seymour at the Inspection 7 7 10 The Nature of the Contract and its Formation 13 The Parties to the Contract 16 Credibility of Mr. Marlborough 17 The Inspections in Malaysia The Second Defendant Mr. Lim Mr. Marlborough 19 19 21 22 The Liability of the Plaintiff for Blue Stain 24 Expert Evidence Mr. Hayward Mr. Groves 26 26 28 Delivery by Instalments 31 Replacement Agreement 34 Exclusion of Liability 36 Guarantee 38 Damages 39 Loss of Profits 46 Storage Costs 49 Duty to Mitigate 50 Costs 51 -- 3 of 53 -- 4 Introduction [1] The Plaintiff in this action, CSR Limited, claims the sum of $179,114.75 being monies due and owing for goods and services supplied to the First Defendant, Tanco Kimpex Export Corporation Pty Ltd. There is also a claim for $2,476.23 being collection costs to date. There is also a claim for interest. The Second Defendant, Kerry Francis Moore, is sued as a guarantor under a guarantee which formed part of an Application for Commercial Credit. [2] The goods which were supplied were timber, cut to the requirements of the First Defendant and delivered FOB Sydney and intended to be sent to Malaysia. The First Defendant claims that the timber delivered was defective and in particular that it had blue stain and black knots. The First Defendant also asserts that this was contrary to the written requirements of the Purchase Orders. The timber was, according to the defence, unable to be used to build furniture and so the timber delivered was rejected. Pleadings [3] The third and fourth Purchase Orders, being the orders relevant to this action, referred to in the Further Amended Defence and Counter Claim contained the following conditions: “We hereby confirmed to purchase from you the following merchandise to be shipped/delivered in good condition subject to the terms and conditions as stated below:- Remark: Premium Grade Australian Pine (kiln dried) -- 4 of 53 -- 5 Solid pine wood – (furniture grade) Moisture content 10-12% NOT ALLOWED 1. Black knots 2. Cone holes 3. Loose knots 4. Pith 5. The resin pockets maximum 2x30m/m long Per board on best face”. [4] The third and fourth Purchase Orders refer to the substantial claim. The replacement container relates to Invoice of 21 July 1999 being Exhibit “RJM4”. It amounted to some $15,120.00. This is referred to in paragraph 14 of the defence. The relevant Purchase Orders are to be found in Exhibit 1, pages 98 to 100. Apart from the express defects not allowed, the Defendants say that the presence of blue stain was a breach of the condition that the timber be delivered in good condition. There is no doubt that if there is found to be excessive blue stain that timber with that defect is not in good condition for the purpose of use for furniture as required in the present case. [5] The subject timber was delivered to the First Defendant between June 1999 and October 1999. The Defendants say that the timber was of no value but there was a sale of some timber. This amounted to some $31,496.00. The Defendants have counter claimed. The loss claimed is set out in Exhibit 4. It relates to a loss of profit on the on sale together with a claim for freight and storage costs. It is mentioned in passing at this stage that the terms of sale between the parties as pleaded in the Further Amended Reply and Answer includes: -- 5 of 53 -- 6 “Warranties and representations. We make no warranties or representations about goods offered for sale other than warranties contained in these terms of sale. We warrant only that goods offered for sale will be generally similar to other goods of the same description. You accept that any particular delivery of goods may vary from goods of the same description displayed, advertised, or delivered on a different occasion.… … you make a claim as provided below and we agree that the goods were damaged or defective at the time of delivery our liability is limited (at our option) replacing the goods or crediting you with the purchase price of the goods.”1 [6] The present case has proceeded on the premise that neither the Trade Practices Act 1974 (Cth) nor the Sale of Goods Act 1896 (Qld) applies so as to imply terms or to negative any exclusion clause. The Plaintiff seeks to rely on an inspection alleged to have taken place in June, as being part of the contractual relationship.2 The Defendants have limited the terms and conditions to the Purchase Orders. The Defendants have abandoned any losses which may have arisen from the delay in delivery of the timber. Issues [7] In his written submissions, Counsel for the Plaintiff conveniently summarises the main issues in the case: “1. The parties agree that between June and September of 1999, 417 packs of timber were delivered by CSR and PSA to Tanco Kimpex FOB Sydney at Tampo Kimpex’ request and that no payment has been made for the timber. The plaintiff sues to recover a debt arising from the sale and delivery of 417 packs of timber… 2. By defence 5, Tanco Limpex admits that it has not paid the invoices and says that it is not liable to do so. The primary ground of defence is that, because of the existence of black knots, cone holes, loose knots and pith in the timber delivered, none of the timber was shipped/delivered in good condition not met the descriptions “premium grade Australian pine (kiln dried)” or “solid pine wood – (furniture grade)”. 1 Exhibit 7; the last clause was not seen as relevant by the parties in the present case. 2 Further Amended Reply and Answer, paragraphs 20-22. -- 6 of 53 -- 7 3. The second ground of defence is that the amount of blue stain in the goods at the time of delivery rendered them unmerchantable. The plaintiff denies there was any blue stain in the goods at the time of delivery, but says if there was, a small amount would not render them unmerchantable. 4. The third ground of defence is that the defendant was entitled to one container load free of charge by (sic) a compromise reached by David Richards, Richards agreeing to a free container because of defects in an earlier delivery. 5. The final ground is that some of the invoices are from Pine Solutions Australia and presumably Pine Solutions Australia should be suing for the price of that timber (Defence 4(d)). CSR replies that PSA was relevantly its undisclosed agent, and hence the invoices were in law those of CSR. 6. CSR sues Moore on a guarantee in writing (SC 6-8). Moore admits execution of the writing, but denies that the guarantee obliges Moore to indemnify CSR by reason of Tanco Kimpex having no liability to CSR as a matter of interpretation in respect of the PSA claims.”3 Background Facts [8] It is convenient to set out the evidence of the various witnesses as background evidence to the transaction. There were objections by the Plaintiff to evidence to be led by the Defendants.4 I have generally accepted those objections as is reflected in these reasons. Richard John Marlborough [9] Mr. Marlborough had the task of arranging exports of timber whilst working for the First Defendant. He commenced employment with the First Defendant in 1998. The principal of the First Defendant was Kerry Moore. The First Defendant was in the business of exporting timber, in particular, to Malaysia. A Malaysian company 3 Written submissions, Ex D paras. 1-6. 4 Ex. 6 -- 7 of 53 -- 8 called Victory Industries (“Victory”), whose employee was Ms. Lim, had sought the assistance of Mr. Marlborough and the First Defendant to source pine timber. The First Defendant’s agent in Malaysia, LM Tanco International (“LM Tanco”), was represented by its principal, Mr. Lim Kee Ping. [10] As a result of these approaches, Mr. Marlborough approached the Plaintiff. He also approached other suppliers who could not provide the volume which was anticipated to be needed. In conversations with Mr. David Richards, Mr. Marlborough contends that he made it clear that blue stain, black knots and pith were not allowed. There were some initial problems with earlier deliveries. Mr. Marlborough complained of moisture content, blue stain and crack in the timber. A letter from Victory confirms these complaints.5 According to Mr. Marlborough, Mr. Richards of the Plaintiff company agreed to replace a container of the defective timber.6 Also, Mr. Richards suggested that if the First Defendant ordered “select merch” then it would be a better quality and would not contain the defects referred to. The price of $240m³ was agreed to. The previous price was $190m³ for the standard merch quality timber. [11] There were other transactions between the parties. In about April 1999, Mr. Marlborough contacted Mr. Bergner of the Plaintiff company by telephone and referred to the fact that the First Defendant was expecting a large order from Victory. There were other conversations between the parties and Mr. Marlborough indicated that something “better than the standard scantling merch product that has been supplied” was necessary. 7 There was an invitation to attend at the Plaintiff’s mill at Tumut. Initially, Mr. Marlborough said this was in May, but at trial said it 5 Ex. 9 RJM 5. -- 8 of 53 -- 9 was in June. This is of some significance as the Purchase Orders had been sent by the First Defendant to the Plaintiff and they were dated 28 May 1999.8 They contained the terms referred to previously. They also reflected the essential requirements of LM Tanco.9 [12] According to Mr. Marlborough, Mr. Bergner assured him that the qualities “Not Allowed” would not be in the timber. Mr. Bergner confirmed that the quality that Mr. Marlborough saw would be that supplied pursuant to the orders. Exhibit 1, photos 1 to 3, reflect some of the timber inspected on that occasion. The photos in Exhibit 9 RJM 19 are clearer and show knots and pith and some evidence according to one witness of blue stain albeit slight. Mr. Marlborough was adamant that there was no wane, blue stain and that any knots were fresh. Mr. Marlborough was “generally happy with the quality of the wood”. 10 He also inspected the Boral mill with Mr. Bergner and Mr. Manson. The timber that he was shown there, he contended, was of a similar quality to the Plaintiff’s mill at Tumut. He said also that Mr. Bergner confirmed that a replacement container would be provided in lieu of the previous defective delivery – that container referred to as the third item in the Purchase Order11 being the amount of $8,200.00. Mr. Marlborough contends that the Plaintiff charged for this replacement container when it had agreed not to. The balance of the order12 is 360m³ from the Plaintiff’s mill and 120m³ from Boral’s mill. 6 Ex. 9 RJM 5 para. 24. 7 Ex. 9 para. 43. 8 Ex. 1 pp.98-100. 9 Ex. 9 RJM 17. 10 Ex. 9 RJM 17 para.50 11 Ex. 2 RJM 20 pp.98-99. -- 9 of 53 -- 10 The Involvement of Messrs. Bergner, Manson and Seymour at the Inspection [13] It was in or about April 1999 that Mr. Marlborough approached Mr. Bergner about a large order for 100mm x 30mm and 100mm x 25mm RSKD (rough sawn kiln dried) pine. The Purchase Orders dated 28 May 1999 were the client’s specifications according to Mr. Bergner.13 Mr. Bergner denied that Mr. Marlborough asked for 14 to 15 containers per month and that the quality was to be better than the standard scantling merch product supplied previously. He also denied the words “premium grade” were used. Mr. Bergner’s industrial section was not capable of supplying that grade.14 A sample was provided by Mr. Seymour. The latter was told that no pith and as little as possible of wane, black knots, cone holes was required. A fax was sent to Mr. Marlborough suggesting that a trial shipment be sent. Mr. Marlborough then agreed to come and inspect the timber at Oberon (Boral) and Tumut (Plaintiff). According to Mr. Bergner’s diary these inspections occurred on 8 June 1999 and 9 June 1999 respectively. [14] Mr. Manson was also present at Oberon. He was aware that the 100mm x 30mm was to come from Tumut and the 100mm x 25mm from Oberon. The inspection at the latter place was after the kiln drying of the timber and not as suggested by Mr. Marlborough of the random green product. Mr. Manson denies that Mr. Marlborough stated that “we cannot have blue stain, we cannot have wane, we cannot have pith and that is very important to us”. Mr. Marlborough did not express any concerns about the quality of the timber. The timber which was inspected, according to Mr. Manson included run of stack, ungraded product, which has a 12 Ex. 2 RJM 20 p.100. 13 Ex. 43 para.14. 14 Ibid. at para. 18. -- 10 of 53 -- 11 variable amount of black knot, cone holes and loose knots.15 According to Mr. Manson, Mr. Marlborough inspected the timber and stated that it was “fine”. Mr. Manson was familiar with the Oberon mill. The process used to produce the sample was totally standard and stated that that process would not have varied. He also expressed the view that the Boral kiln dried timber would have been dried properly. Blue stain problems were unusual. Mr. Manson denied the allegations in paragraph 68 of Mr. Marlborough’s statement 16, that the latter had complained of major quality concerns in July 1999. [15] It is also necessary to look at the evidence of Jim Seymour, the production planner at Tumut when the inspection took place in June 1999. He was asked by Mr. Bergner to produce a sample of 100mm x 30mm RSKD pine. He was told that the sample was to have as little as possible of pith, old knots, black knots and cone holes. He proceeded on the basis that it was a run of stack sample. This means that the buyer would be doing their own docking, that is cutting out faults.17 Mr. Seymour set up two cutting patterns to supply the sample required. He could not produce run to stack to give zero knots or other imperfections from 20 cm or 21.5 cm logs. The patterns were configured to minimize the number of faults. On that basis he would expect some 10% of timber to display some of these faults. Mr. Seymour provided detailed evidence of how the timber was cut at Tumut. He also explained the usual process in getting trees from the forest to despatch. This will become relevant when looking at the expert testimony relating to blue stain. Mr. Seymour appears in the photo Ex. 2 photo 1. It was run of stack fillets. The photo comprises three fillets of the 40m³ sample. According to Mr. Seymour the timber 15 Ex. 39 para. 12. 16 Ex. 9. 17 Ex. 44 paras. 4-6. -- 11 of 53 -- 12 did not contain significant amounts of knots or cone holes and contained only a minimal amount of pith. Mr. Marlborough accepted the grade of wood shown. He denies the suggestion that Mr. Marlborough stated “there is not going to be any black knot, cone holes, loose knots, pith or blue stain in them”. Mr. Seymour states that the order for the First Defendant’s timber proceed through the mill quickly throughout June, July and August. He said blue stain would not have been present because of the low temperature and the low humidity. He stated that the quality systems at Boral were similar particularly in relation to the kiln drying practices. [16] What is important as far as the product was concerned was the statement by Mr. Seymour at paragraph 3618: “All product should have been the same as that produced for the sample as both were sawn out of the same diameter log with the same cutting pattern as the sample. Both sample and main order were cut at 100mm. Both were sawn out of the same diameter log (20 to 21.5 cm logs) with the same cutting pattern as the sample. I gave the machine operator exactly the same instructions in both instances. CSR predominantly sources logs from 2 different forests near the mill so there should not have been any difference in the quality of the timber source.” Mr. Seymour confirmed that the specification of which he was aware as to the customer’s requirements was that there was to be “as little as possible bark encased knot or black knot”. 19 [17] Both Mr. Bergner, Mr. Seymour and Mr. Manson20 said that the samples of timber21 were similar to those shown to Mr. Marlborough in June 1999. Those samples were taken from the timber delivered to Malaysia. The witnesses confirmed that black knot, cone holes, pith, and wane would have been in the sample that Mr. 18 Ex. 44. 19 T408.8. 20 T400.40; T406.55; T373.1. -- 12 of 53 -- 13 Marlborough inspected. Mr. Seymour stated that in run of stack production, black knot or other imperfections will be found.22 Neither Mr. Seymour, Mr. Bergner, nor Mr. Manson saw the end result of what was shipped out to the First Defendant. They merely confirmed the process as outlined by Mr. Seymour.23 In cross examination, Mr. Manson conceded that there are differences in the logs which go through the mill but “it would average out over a package of timber”. 24 The Nature of the Contract and its Formation. [18] The following findings are made: a. There were negotiations between the parties about various aspects of the contract prior to the receipt of the Purchase Orders. Mr Farmer confirmed that Mr. Marlborough had requested rough sawn kiln dried timber. 25 b. The Purchase Orders are but one part of the proposed terms of the contract. The Application for Credit and Sales Terms26 are others: Metal Roof Cladding Pty. Ltd. v Amcor Trading Pty. Ltd. [1999] QCA 472. c. The Purchase Orders could only be categorised as offers as no formal or clear offer had been made by the Plaintiff.27 21 Ex. 26 Nos.1-7. 22 T409.48. 23 Bergner 400.5; Manson Ex.39 para.15. 24 T375.50. 25 Ex. 1.p.98 and 100; Ex. 42 para.5; Ex. 1 p.91, 98 & 100. 26 Ex. 7 dated 17 March 1999. 27 Ex. 1 pp.96-97. -- 13 of 53 -- 14 d. Mr. Bergner and Mr. Farmer had suggested a trial shipment28 “to ensure and confirm that the quality/grade of product is acceptable”. This trial was not accepted but as an alternative an inspection took place of the Oberon mill (8 June 1999) and Tumut (9 June 1999). The significance of this as a prerequisite to the First Defendant being bound can be found in the following passage: “The trial shipment was – we didn’t – we weren’t going to waste (sic) our money and time and energy on a trial shipment of 40 cubic metres, which I’m sure Mr. Seymour refers to in his statement, on the 8th or the 9th June, and those photographs are from that time - Mr. Seymour’s in those photographs – and that’s the pine that I inspected in its form, not in any other size, in its hundred by 30 mil form that they’d specifically cut for our order. That’s the pine I inspected and, as far as we were concerned, that was the trial shipment. We weren’t going to waste any money on shipping and taxes over in Malaysia if the shipment, the first stuff that we saw, wasn’t any good. We wouldn’t let it leave the country.”29 e. The details of the order between the First Defendant and LM Tanco in Malaysia were only confirmed on 4 June 1999. f. It was probable that the parties were not bound by any contract in terms of the Purchase Orders or otherwise until the 9 June 1999. The words “Premium Grade” had no meaning in Australia. Assuming that the Purchase Orders were offers, they became subject to the condition that an inspection would take place to determine whether the quality of the timber was satisfactory to the First Defendant. g. The parties finalised the contract on 9 June 1999, upon the final inspection at Tumut. 28 Ex. 1 p.96; Ex. 42 para.6: Mr. Farmer informed Mr. Marlborough that the Plaintiff could only supply run of stack industrial timber (T392.40). 29 Mr. Marlborough T131.27. -- 14 of 53 -- 15 h. The terms of the Purchase Orders were subject to the likely presence of imperfections in timber which was run of stack production. Run of stack production inevitably involved black knots and other imperfections.30 i. The evidence of Mr. Marlborough about his expectations is rejected. The weight of the evidence is that of Mr. Seymour, Mr. Manson and Mr. Bergner who were not shaken in cross examination. What they observed on the inspections accords with what they observed in the samples produced by Mr. Marlborough and Mr. Lim from Malaysia. j. In effect, what Mr. Marlborough told Mr. Bergner was that what he saw on the inspections in June was adequate for the Purchase Orders viz. 100mm x 25mm produced by Boral at its Oberon mill, and the ungraded 100mm x 30mm produced by the Plaintiff at its Tumut mill. k. The terms of the Purchase Orders were modified by Mr. Marlborough on the inspections in June at the respective mills to reflect what he observed as being adequate to fulfil the Purchase Orders.31 Also, the Court is entitled to look at the factual matrix to determine the common understanding of the parties.32 l. The Defendants’ pleadings 33 allege offers were constituted by the Purchase Orders and the acceptance date not pleaded. One might infer that the delivery date is also evidence of the acceptance. 30 T407.60. 31 Metal Roofing op. cit. per Thomas JA and Cullinane J. at paras. 66 to 70. 32 “Contract Law in Australia” by Lindgren et al 1986 ed. para 706-709. -- 15 of 53 -- 16 m. The Purchase Orders contained the term “FOB Sydney”. Therefore, the relevant time and place when the goods are the buyer’s risk is once the goods pass over the ship’s rail. The Parties to the Contract [19] The First Defendant denies that it received all the timber from the Plaintiff. It says that it received invoices from Pine Solutions Australia Pty Ltd. (PSA) in respect of the sum of $124,929.56. If the First Defendant is correct, it may have implications in relation to its counter claim. However, that may not be necessary to deal with in light of the findings which are open to be made on this issue. [20] The Plaintiff relies upon an agreement dated 31 May 1999 between itself as trustee of the World Timber Fund Australia Trust and PSA. The latter was a subsidiary of the Plaintiff company. 34 Pursuant to that agreement the Plaintiff is the principal and PSA is the agent for marketing and sale in Australia and New Zealand of different timber products. The appointment commenced on the date of the agreement.35 Clause 6.9 provided that PSA “acts as undisclosed agent and must not indicate on correspondence and other dealings about Timber Products that it acts as agent”. Other clauses stated that PSA could bind the Plaintiff to third parties only on the standard terms and conditions referred to in clause 3.4. of the Plaintiff’s terms and conditions.36 33 Ex. 20 paras. 15 & 16. 34 The agreement is exhibit LS 1 to Ex. 41 being the affidavit of Mrs. Swanson. 35 Clause .2.4 (a) 36 Ex. 7. -- 16 of 53 -- 17 [21] It is submitted by Counsel for the Plaintiff that as the undisclosed principal, the Plaintiff can enforce the resulting contract against the First Defendant.37 It is accepted that the principle of law which applies is that an undisclosed principal may sue and be sued on a contract made by an agent acting on its behalf and within the scope of its actual authority. The agent must intend to act on behalf of the principal. Any defence which the third party (the present First Defendant) may have against PSA as agent is also available against the Plaintiff as principal. The Defendants contend that the agreement between the parties occurred before the date of the agency agreement and that therefore PSA should be a plaintiff in the proceedings to enable it to sue for the monies owing. PSA was incorporated on 4 May 1999.38 The findings in this case support the agreement being made not before 9 June 1999 at the final inspection. The fact that PSA may have been described as the “new supplier” does not detract from the legal principles referred to previously. The fact that the Plaintiff was also supplying timber does not detract from those principles. It would be expected that there would be some overlapping of the names of the suppliers during a transition period and whilst the Plaintiff had existing contracts. The agency agreement took effect on 31 May 1999 just prior to the subject agreement being finalised. The document speaks for itself. Oral evidence was not required. Credibility of Mr. Marlborough [22] The evidence of Mr. Marlborough is not reliable for the following reasons: 37 See Keighley, Maxted & Co. v Durant (1901) AC 240 at 244; Andrews v Nominal Defendant (1967) 70 SR (NSW) 419 (CA ) at 431-432; Siu Yin Kwan v. Eastern Insurance Co. Ltd. (1942) 2 AC 199 at 207. 38 Ex. 52. Nighteal Pty. Ltd. which was named in the agency agreement was later re-named PSA. -- 17 of 53 -- 18 a. He changed the evidence which he had sworn to in his affidavit. He had originally sworn that he had inspected the timber in May but changed that to June at the trial. b. He was evasive in his responses.39 Overall, I assessed him to be somewhat unreliable in giving evidence. c. He swore to having conversations with Mr. Richards yet the pleadings suggest that the particular conversation was with Mr. Bergner.40 d. There was a failure to complain of black knots in September 1999, yet Mr. Marlborough was adamant that they existed when he inspected the timber in Malaysia.41 e. The lack of proper inspection in Malaysia makes his evidence less reliable in relation to the alleged defects.42 f. Overall, his evidence in many respects is challenged by the evidence of other witnesses called by the Plaintiff and whom I find were honest and reliable. Issues such as the quality of the timber on the June inspections; the alleged promise by Mr. Richards to provide a replacement container; the quantity of timber which was to be supplied; alleged discussions about moisture content; alleged discussions about “select merch” and “cheaper merch” with Mr. Richards; the alleged assurances by Mr. Bergner that there would be no black knot or other imperfections; and alleged admissions of liability by Mrs. Swanson, are all issues which tend to show that Mr. Marlborough’s memory is suspect. 39 T64.40-60; T67.50 – T68.40. 40 T82.35 – T83.10. 41 T182.20-55. 42 T170.50 – T171.15. -- 18 of 53 -- 19 The Inspections in Malaysia [23] The persons who were involved on behalf of the First Defendant included the Second Defendant (Mr. Moore), Mr. Lim and Mr. Marlborough. The Second Defendant had agreed on behalf of the First Defendant with Mr. Lim on an exclusive distributorship agreement between the First Defendant and LM Tanco Distributors.43 In effect, LM Tanco would act on behalf of the First Defendant as its distributor in Malaysia. LM Tanco was dealing with the complaints by Victory about the timber. The Second Defendant [24] The Second Defendant in his affidavit said that he visited Malaysia in May 2000 to inspect the timber at Port Klang initially. There were no photographs taken in May. In oral evidence, he said that he visited in March, June, August and September.44 In May, he was in the presence of Mr. Lim and they spent some four hours inspecting the timber. Some timber, according to the Second Defendant, was marked as having come from the Plaintiff company and some from Boral. Mr. Lim complained that the timber was not of furniture grade. The Second Defendant observed a substantial number of black knots and blue stain.45 He pulled out some planks from the middle of some of the packs and observed the same poor quality. Mr. Lim collected some samples. These, according to Mr. Lim, are Ex. 26 in these proceedings. It would be fair to say that the samples sent were representative of the defects found, not representative of the timber as a whole. In any event the sample was not a significant quantity given that there were 417 packs of timber. 43 Ex. 32 KFM 1. 44 T345.29. 45 Ex. 32 para.25-26. -- 19 of 53 -- 20 [25] In evidence at the trial46, the Second Defendant stated that he looked at 60 to 65 % of the timber. According to the Second Defendant many of the packs had been opened by that stage. The witness must have meant 60 to 65 % of the packs not the timber as the latter task would have taken more than four or five hours. The Second Defendant had no idea what KDRS run of log was. And yet, this is what Mr. Marlborough had in effect agreed to on the inspections in Australia. RSKD (rough sawn kiln dried) appeared in the invoices. It had been expressed differently by Mr. Lim in his email to the First Defendant 47 as KDRS. [26] In cross-examination48, the Second Defendant identified some black knot in Ex. 2 photograph 45. He also identified some fresh knot. The Second Defendant accepted that he was not an expert after he had some difficulty identifying features pointed out in cross-examination. 49 The Second Defendant stated50, that he inspected eight (8) bundles. This seemed to differ from what he said in his statement. He said that in his statement he was referring to those which he had physically taken out. I am satisfied that the Second Defendant has only a limited view of the whole of the delivery of the timber at the two warehouses and that such a limited view would have prevented him from forming an accurate assessment of the totality of the quality of the timber. The Second Defendant’s lack of knowledge of the variance of the timber which one could expect from a run of stack process limited the weight of his evidence. 46 T314.45. 47 Ex. 1 p.92. 48 T345.45. 49 T346.35. 50 T347.10. -- 20 of 53 -- 21 Mr. Lim [27] Mr. Lim stated51, that by appointing LM Tanco as its distributor, the First Defendant was able to “tap into the existing clients of LM Tanco” in Malaysia. He signed the purchase order to the First Defendant52 dated 21 May 1999. Victory, to whom LM Tanco had negotiated the sale, had complained of the quality of the timber in July 1999 relating to the start of the 14 container loads which were to be purchased by the First Defendant from the Plaintiff. Mr. Lim describes it as “the purchase of 30mm x 100mm and 25mm x 100mm premium grade Australian pine wood”. When Mr. Lim first inspected the timber at the factor of Victory Industries, he observed excessive amounts of blue stain. He sent a letter dated 22 July 1999 to the First Defendant.53 The letter complained of 27% wane relative to the 30mm x 100mm and other complaints re cutting and width which do not seem relevant to the case as it has developed. In relation to the 25mm x 100 mm. there was a complaint of 8% blue stain. In other words there was no complaint about black knots referable to the overall delivery and the 8% blue stain related to the 100mm x 25mm only. The letter was an obvious attempt to obtain a discount because of the “defects”. Mr. Lim observed evidence of wet rot which seemed to have had water on it.54 [28] On 16 August 1999, Mr. Lim complained of blue stain in two containers involving 100mm x 25mm. He had also taken photographs by this time.55 Mr. Lim said it allowed three sides to be seen. That would have been a very limited number given the method of packing as shown in the photographs. I was not convinced that it was of such a nature to allow an accurate assessment of a significant sample of all of the 51 Ex. 23 para.5. 52 Ex. 23 LKP2. 53 Ex. 23 LKP3; Ex.1 p.252. 54 T284.20. 55 T211.30; Ex. 2 photographs 4-17; Ex. 24. -- 21 of 53 -- 22 timber delivered. In fact, Ms. Lim told Mr. Marlborough not to deliver subsequent loads to their factory. It is not clear, therefore, just how much timber was present when Mr. Lim initially inspected.56 Certainly, all of the timber had arrived in 1999.57 Mr. Marlborough had inspected the earlier containers in July 1999. There was no complaint of blue stain in the replacement container.58 In fact, Mr. Marlborough agreed that there was no complaint about the replacement container. Mr. Lim was aware of the term run of log, “the mill does not select which is good and which is not good”. He accepted that it could mean ungraded. He accepted that in that situation one would get a variable quality. The complaint by Victory Industries was that there would be too much docking in the production of the furniture from the timber supplied.59 Mr. Marlborough. [29] Comment has been made in relation to the credibility of Mr. Marlborough earlier in these reasons. However, to the extent that his evidence is supported by other evidence it may be of some weight. Mr. Marlborough contends that if the timber which he inspected in Malaysia was of a similar grade to that inspected at Oberon and Tumut, then he would have been content with that. He observed that the photographs support his view that at that June inspection, there were fresh knots, no black knots etc. When one looks at the photographs 60 there are certainly knots and other imperfections. The extent to which those knots and imperfections differed from what was observed in Malaysia is the issue. 56 T218.30. 57 T220.1. 58 Ex. 1 p.252; T235.20. 59 T237.30. 60 Ex. 9 KJM 19. -- 22 of 53 -- 23 [30] The first inspection by Mr. Marlborough was in July 1999 at the Victory factory. He observed blue stain and wane. Negotiations then commenced to determine on what terms that the timber would be accepted. Mr. Marlborough said that at that stage he was not prepared to admit that the timber was as bad as it was as he was still trying to get them to accept the timber. Mr. Marlborough referred to the fax received from LM Tanco.61 There is no mention of black knots in that correspondence, nor did Mr. Marlborough say in his affidavit that there were black knots. The fax which is dated 22 July 1999 refers only to wane and blue stain (8%). In fact, none of the correspondence exhibited to Mr. Marlborough’s affidavit mentions black knot. This correspondence extends to 18 October 1999. There is mention of “shake and crack” but this was not explored at trial and so its significance cannot be determined. Blue stain, pith and wane are mentioned but at the trial, the latter did not assume any great significance. There was a complaint of 50% blue stain in 5 containers examined on 13 September 1999 and wet rot and discolouration. The complaints were followed by requests for discount. In the fax of 4 October 1999 from LM Tanco, there is mention of “a new player in town … and they are taking all orders at US$235 per m³ for NZ No. 2 Cuttings”. This may also have provided some impetus for LM Tanco to seek some discounting apart from what it perceived to be defects in the timber. [31] Mr. Marlborough confirmed that no photographs were taken of the timber when he inspected it with Mr. Lim. The first inspection was in July 1999. There were two inspections, one at Port Klang and the other at Muar. The timber was in a dry storage area. In view of what Mr. Marlborough says in his affidavit what he observed and the nature of the complaints in the correspondence, I cannot be 61 RJM 24. -- 23 of 53 -- 24 satisfied that there was any significant problem with black knot in relation to the subject timber. The weight of the evidence of the Plaintiff’s witnesses was that in ungraded run of stack/log timber, it is inevitable that there would be some black knot. The fact that it was not mentioned by LM Tanco in correspondence over four (4) months and not observed by Mr. Marlborough in his initial inspection according to his affidavit, supports the above finding. Proof of either aspect of that evidence would have been sufficient to make that finding. [32] Mr. Marlborough stated that the timber that he inspected at Oberon and Tumut would have been suitable for furniture. In the LM Tanco buyers guide62 a process is described whereby imperfections or large knots can be reprocessed to produce shorter clear lengths for making furniture. The manufacturer can use a docking process to remove the blemishes. Mr. Bergner stated that rough sawn timber is used for furniture production. The extent of the processing depends on what look the manufacturer requires. The run of stack/log was, I find, what was agreed to be supplied and what in fact was provided.63 The Liability of the Plaintiff for Blue Stain [33] The extent of the existence of blue stain is a fundamental issue in the case. It is the Plaintiff’s primary submission that the First Defendant has failed to prove that any instalment of the Purchase Orders, as it went over the ship’s rail in Sydney, was more probably than not contaminated by blue stain to any extent. The Plaintiff objects to any correspondence from Victory asserting blue stain as being admissible. 62 Ex. 1 p.298. 63 Ex. 1 pp. 152-161 and 164-173. -- 24 of 53 -- 25 I accept that submission. Therefore, it is necessary to rely on the evidence of Mr. Lim and Mr. Marlborough. [34] Both Mr. Lim and Mr. Marlborough say that from what they observed of the timber it was affected by blue stain. 64 It was submitted by the Plaintiff that in the first container, there is no mention of blue stain in the timber 30 mm x 100 mm. 65 Mention was made of 8% blue stain in the 25mm x 100mm timber. Mr. Lim limited it to 2%. If the Plaintiff is to be held liable for that defect, then it has to be established that the timber was not properly kiln dried by Boral and the Plaintiff. Counsel for the Plaintiff commented that the “extraordinary feature of this hypothesis is that it necessarily speaks of gross negligence by a number of elements of the staff of two separate mills, operated by two distinct public companies, over a period of about 10 weeks”. 66 [35] It is accepted by the Plaintiff that the photographs in Ex. 2 “had not insignificant amounts of blue stain present at the dates that the photographs were taken” presumably in Malaysia.67 The submission pointed out that in relation to the timber delivered by the Plaintiff, that there was no blue stain. 68 It is difficult to accept the evidence of Mr. Lim and Mr. Marlborough that all of the timber they saw was affected by blue stain. It is submitted that the photographs taken in Malaysia are not probative of the condition of the timber when it went over the ship’s rail. The timber was wrapped in plastic at the respective mills before being transported to the ship. The bills of lading69 state that each shipment was “taken in charge in apparent good 64 Ex. 31 para.9; Ex. 9 para.64. 65 Ex. 1 p.252. 66 Written submissions Ex. D para.14. 67 Ex. D p.15. 68 Ex. 2 photos.25, 40-42, 46-52. 69 Ex. 1 pp.219-229. -- 25 of 53 -- 26 order and condition”. Mr. Marlborough who went to the ship on at least one occasion did not carry out any inspection. [36] I am satisfied that the First Defendant has failed to prove that any particular shipment of timber was affected by blue stain as it passed over the ship’s rail in Sydney. If the Plaintiff’s argument on this point be correct, then that is the end of the matter. However, in the event that this matter goes elsewhere it is desirable to make findings based upon all of the evidence in the case including the expert testimony. Expert evidence in relation to blue stain and other imperfections Mr. Hayward [37] The defence called Mr. David Bartlett Hayward to support their case on blue stain and other defects.70 Mr. Hayward stated that blue stain does not machine out as it penetrates deeply into the timber. He confirmed that blue stain can occur in the log before it is felled in sawn timber if left for too long prior to drying or if the timber becomes wet after drying. Mr. Hayward was given access to the samples (referred to in Ex.3B) and which are now Exhibit 26. He pointed out certain imperfections. That could be expected in run of stack/log production. It was unlikely that samples of perfectly good timber were chosen at random. Mr. Lim was unconvincing in this regard. The quality of the sample does not assist in the determination of the issues in the case. Two comments can be made of the samples. Firstly, according to Messrs. Manson, Bergner and Seymour those imperfections were consistent with what was inspected at Oberon and Tumut. Secondly, a manufacturer could expect to dock out -- 26 of 53 -- 27 imperfections in ungraded rough sawn timber which was run of stack/log in any event. Mr. Hayward explained that run of mill/stack/log means that the buyer will take everything that is produced from that size log. That is, no particular grading is done by the mill but it may be done by the buyer. He said that it would require a clear grade to avoid knots, resin veins or similar characteristics.71 [38] In his report dated 22 April72, Mr. Hayward was asked to be more specific about the characteristics of the timber having regard to the terms of the Purchase Orders. He was also asked to look at the photographs.73 In relation to the latter, Mr. Hayward candidly admitted that it was difficult to make an accurate assessment of the characteristics in the photographs. The reasons for this was that they did not show clearly any surface aberrations and other characteristics were not clear due to the angle of the photographs. Given that the samples were chosen to reflect certain characteristics or imperfections, it is not surprising that Mr. Hayward found the characteristics of blue stain, black knots etc. As it was run of stack/log inspected by Mr. Marlborough, one would expect that the manufacturer would accept that some docking was required. If timber without imperfections was sought, then perhaps Mr. Marlborough ought to have insisted on a higher grade when he inspected in June 1999. [39] One point which was raised with Mr. Hayward in cross-examination74 is that under the Australian standards, one looks to the clearer face in order to determine the grade. It depends on what the appearance of the final product is going to be. Even blue stain is allowed to a slight degree on select grade. Mr. Hayward was being 70 His reports are Exhibits 3A,3B and 3C. 71 T355.1-50. 72 Ex. 3C. 73 Ex. 2. -- 27 of 53 -- 28 referred to the Australian Standard. Mr. Hayward said that descriptions such as “scantling” and “merch” have little meaning under the Australian grading rules. The latter is regarded as an industrial standard with a lot of characteristics.75 His evidence confirms the finding that what was accepted during the inspections in June 1999 should have left the parties to expect a delivery of a variable timber product with a lot of characteristics or imperfections. In fact, Mr. Hayward was shown photographs of timber from Ex. 11 and Ex. 51 and observed that certain timber has knots as a feature. Some of those knots could be, he said, described as dark knots.76 Mr. Hayward commented that one cannot get a good idea of the grade of the timber by merely looking at the edge of the boards. A lot of the knots could be face knots.77 Conversely, a photograph or viewing which shows a bark or black knot on one side is not necessarily representative of all the boards that one sees on the side only. 78 It was difficult for Mr. Hayward to give an assessment of the degree of docking which might be required from the photographs. Although the edges were exposed, the faces were not.79 He was also shown Ex.2 photograph 5. He agreed that if the timber was damp then it could be due to the storage practice. If it was damp at that stage, then it is more likely that the timber developed blue stain whilst in transit or storage. Mr. Lim observed such dampness in some timber inspected in Malaysia.80 Mr.Groves [40] The Plaintiff called Mr. Kenneth William Groves. Mr. Groves had had over 50 years experience in the timber industry and he provided detailed evidence on the 74 T360.30. 75 T363.20. 76 T366.52. 77 T368.46-60. 78 T369.2. 79 T371.5-33. -- 28 of 53 -- 29 causes of blue stain. In summary, his opinion was that it was more than likely that any blue stain in the timber as depicted in the photographs occurred after shipment from Australia. His opinion was based upon the following: a. Mr. Seymour confirmed that the logs had not been subject to fire insect or other damage.81 In that event there would be no blue stain. b. The time lapse between when the trees were felled to when they were cross-cut and sawn was a maximum of 7 to 12 days.82 This was not enough time to allow blue stain to develop particularly given the conditions in June, July and August. c. The moisture target was below 15 per cent. The green timber was left in that state for no longer than eight (8) hours before being kiln dried.83 Mr. Groves stated that the blue stain spores could not develop into mature hyphae in that period.84 d. Mr. Groves was familiar with the kiln drying procedures at the Plaintiff’s mill and stated that the radiata pine dries easily and rapidly within 24 hours. The technology used kills any fungal spores. In fact it is dried to a moisture content of 10-12%. e. Mr. Seymour confirmed that the timber is stacked in a covered yard. The packs were wrapped in plastic after two to seven days. The plastic is wrapped around the side, the top and ends and strapped together. They packs then go to an uncovered goods yard and are placed on a concrete floor. Mr. Groves accepted this as good practice and that blue stain was unlikely to develop in those conditions. 80 T284. 81 T410.30-32. 82 Seymour T.410.33-35. 83 T410.38-40. -- 29 of 53 -- 30 [41] There was no evidence that the plastic was displaced or removed prior to the timber going over the ship’s rail. Mr. Groves stated that certain facts would suggest that the timber may have been wetted in Malaysia. This could have occurred if the plastic covers were damaged or by stacking the wood on water soaked ground long enough for it to penetrate the timber.85 He said that if the kiln drying had been inadequate, then the blue stain would have been more widespread than it was.86 In fact, in the original correspondence from LM Tanco the timber was affected by only 8%.87 This comment was confined to the 25mm x 100mm only. Mr. Groves commented upon the defence suggestion that no employee of the Plaintiff company saw all of the timber which was dispatched pursuant to the subject Purchase Orders. His reply to that line of questioning was: “Let me say, that with a very high production of softwood sawmill, there is a vast amount of timber that is coming out, and whilst there are very strict quality control procedures practised by the big softwood mills in Australia, an individual as such - there would be no single individual who’d be able to see every single piece of timber.”88 [42] Mr. Groves gave a telling answer in cross examination which really cut to the problem faced by the defence and that is the lack of samples observed or produced and upon which the timber was rejected: “Satisfactory evaluation means to properly evaluate the proportion of timber affected by any particular problem; is that right? -- No, that’s not correct. Satisfactory evaluation of a pack of timber will depend upon – will depend upon the sampling of the timber. The sampling must be of sufficient size, of sufficient number of pieces and the sampling must be random. It cannot be selected. It must be random to ensure that whatever sampling you do is representative of the total pack of timber. This is a standard statistical procedure whereby if you want to find out the truth of a particular population, 84 Ex. 45 para5. 85 Ex. 45 p.30. 86 T410.35. 87 Ex. 1 p.252. 88 T416.24. -- 30 of 53 -- 31 in this case the population of the packs of timber, then you have to do a rigorous sampling which is a random sampling of sufficient numbers of samples to represent the population”. 89 [43] I accept the evidence of Mr. Groves. He was probably the most experienced witness in the timber industry who gave evidence. I find that the sampling in the present case in Malaysia was inadequate and so that the opinions expresses in relation to blue stain or black or loose knots was of little weight. In any event, there is no evidence to establish that any conduct on the part of the Plaintiff’s employees contributed in any way to the onset of blue stain. There is no evidence that blue stain existed when the timber was loaded over the side of the ship. As this was a “FOB” contract, the Plaintiff’s contractual obligations in that respect ceased at that stage. Another relevant feature of the case is that there was no evidence of the storage practices employed once the timber arrived in Malaysia on the wharves or the conditions at all relevant times at the Muar or Port Klang warehouses. Delivery by Instalments. [44] An alternative argument put forward by the Plaintiff is that the arrangement between the parties was that the timber was to be delivered by instalments FOB Sydney. The first instalment was to be some four weeks after the first order with the balance by instalments at the rate of about one container per week.90 The Further Amended Defence accepts that the containers were to be over a 14 week period.91 Therefore, it does not seem to be in dispute that the timber was to be delivered in instalments.92 89 T420.2-18. 90 Ex. 1 p.96. 91 Para. 19. 92 See also Exhibit 1 p.249. -- 31 of 53 -- 32 [45] The Plaintiff submits that theoretically, one instalment of timber might be defective but another not defective. Looking at the photographs 93, that inference is open. The Sale of Goods Act 1896 (Qld) provides as follows: “Instalment deliveries 33(2) Where there is a contract for the sale of goods, to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of 1 or more instalments, or the buyer neglects or refuses to take delivery of or pay for 1 or more instalments, it is a question in each case depending upon the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated”. [46] The Plaintiff in its written submissions94, suggests that the inference in the present case is that the deliveries were to be treated as severable contracts and one defective shipment was not to give rise to a right to cancel the entire order or to refuse to accept any further deliveries. Theoretically, one delivery may have been defective and another not defective. That inference is open when one has regard to Ex. 1 pp.252-3. In that fax transmission, the First Defendant’s agent LM Tanco indicated that it will accept some containers subject to discount as long as the balance of 8 containers do not have the problems. Therefore, it could not be said that it was a case where one could reasonable infer that similar breaches would be committed in relation to subsequent deliveries and which would justify the First Defendant in rejecting the whole of the delivery. 95 The majority of the containers were yet to be delivered. [47] The inspections which took place on the packs of timber were limited as discussed. The timber was to be delivered by instalments. If one looks at the circumstances of 93 Ex. 2 including photographs 1to 3. 94 Paras. 47-50. 95 Sutton “Sales and Consumer Law” 4th Ed. para 20.38. -- 32 of 53 -- 33 this case, the limited amount of timber inspected and the nature of defects as accepted in the findings above, then it is open to find that any breach of contract may have entitled the First Defendant to seek compensation for particular deliveries but not necessarily to treat the whole contract as repudiated. [48] An alternative finding open on the present facts, it is submitted, is that the First Defendant on sold the timber to LM Tanco on 4 June or soon after.96 In relation to the former there is an acceptance subject to certain terms and conditions dated 4 June 1999 and signed by Mr. Marlborough for and on behalf of the First Defendant. The Purchase Order was issued by LM Tanco, and relates to the subject timber. In fact, LM Tanco made a payment for part of the timber to the First Defendant in the sum of $31,486.06.97 [49] It is submitted that once the timber was on sold as described, the First Defendant acted inconsistently with the Plaintiff having ownership of the timber and so is deemed as having accepted the goods.98 The only qualification which Hammond J seems to put upon the principle submitted99 was that Mr. Wala continued to sell the jeans after he had become aware of their condition. However, his Honour affirmed the principle that the buyer is confined to the remedy in damages where there has been acceptance and that this was so whether or not the defect has been discovered.100 In the present case, the timber was on sold even before the subject agreement was finalised. As Hammond J mentioned, the Sale of Goods Act removed the mental element requirement that the buyer must know of the defective condition 96 Ex. 21 or Ex. 1 pp.230-242. 97 Ex. 28. 98 Farrow’s Falcon Press Pty Ltd v Quarrill (1915) VLR 651; Crump v Wala (1994) 2 NZLR 331 at 339 per Hammond J. 99 Ibid p.339.10. 100 Ibid p.338.10. -- 33 of 53 -- 34 before any on sale can be deemed to be acceptance of the goods. The submission continues101, by citing the provisions of s.37 of the Sale of Goods Act: “Unless otherwise agreed, when goods are delivered to the buyer and the buyer refuses to accept them, having the right so to do, the buyer is not bound to return them to the seller, but it is sufficient if the buyer intimates to the seller that the buyer refuses to accept them”. [50] I accept that once the First Defendant had on sold the subject timber that it had dealt with it inconsistently with the ownership rights of the Plaintiff and so was deemed to have accepted the timber. In that event, the First Defendant was required to pay the Plaintiff for the said timber. The complaints made to the First Defendant about the defects in the timber may be relevant to any action as between LM Tanco and the First Defendant. It might also be a basis for damages for breach of warranty102 by the First Defendant against the Plaintiff. In any event, I am not satisfied that the First Defendant has proved that there was any such breach which could justify rejection of all of the timber supplied. The Replacement Agreement [51] The Further Amended Defence and Counter Claim pleads as follows: “14. In or about August 1998 the Plaintiff agreed with the First Defendant as follows:- (a) That the goods the subject of exhibit “RJM4” to Mr. Marlborough’s statement filed herein was defective; (b) That the Plaintiff would provide to the First Defendant a further container of goods, namely 40 cubic metres of 90mm x 35mm “merch quality” pine without any further cost or expense to the First Defendant to replace the goods which had at that time been supplied by the Plaintiff to the First Defendant; and (c) That the Plaintiff would not be required to supply the goods until 101 Para. 51. 102 Section 54 Sale of Goods Act. -- 34 of 53 -- 35 Victory had advised the First Defendant that it would order further goods from the First Defendant (“the replacement agreement”).” [52] The Plaintiff says that there is evidence that in April 1999, LM Tanco were offering a replacement container to Victory to replace its “last shipment of merch grade pine”. 103 It was seen by Mr. Lim on behalf of LM Tanco as important in keeping future orders.104 The Plaintiff’s basic submission is that there is no reliable evidence that the timber referred to in Ex 18 is that which appears in invoice 604.105 Exhibit 18 is the Smith Bros. Standard – Export Receival Advice form which describes some 24 packages. The attached Bill of Lading describes the kind of packages as: “1 x 40 STC; AUSTRALIAN PINE (KILN DRY ) 90mm (w) X 35mm THICKNESS VARIABLE LENGTH” [53] It is contended by the Plaintiff that Victory was unhappy with the shipment because of the long veins and deep penetrating bugs.106 It is further contended that the “allegedly defective product may be that referred to (Ex.21) as having been ‘packed from stock already bundled’”. 107 The Second Defendant suggested that the supplier of the timber “required a full report and photos of claim container”. 108 The Plaintiff contends that it could not refer to it. When one couples this uncertain state of affairs with the direct evidence from the Plaintiff’s employees that there was no promise of a replacement container, I cannot be satisfied that there was any such agreement referable to the subject dealings between the Plaintiff and the First Defendant. There have been no submissions put before me either orally or in writing by Counsel for the Defendants on this issue. 103 Ex. 1 p.85. 104 Ex. 1 pp.92 and 93. 105 Ex. 1 p.78. 106 Ex. 1 p.82. 107 Ex. C para.15. -- 35 of 53 -- 36 [54] The First Defendant relied upon the evidence of Mr. Marlborough to establish the agreement of the free container. Findings have already been made in relation to Mr. Marlborough’s credibility. He said that Mr. Richards indicated that a free container would be made available. The evidence in this regard was unconvincing.109 At that stage, it was not clear what the problems were. There were also moisture problems and it was uncertain who was to blame. There was no confirmation in writing from the Plaintiff. Mr. Richard’s rejected the version given by Mr. Marlborough. In fact, the Defendants’ pleadings allege that the conversation was between Mr. Marlborough and Mr. Bergner. Even Mr. Marlborough rejected this. I cannot be satisfied for the reasons put forward by the Plaintiff or in relation to the reliability of Mr. Marlborough’s evidence that there was any binding agreement between the Plaintiff and the First Defendant relating to a replacement container. Exclusion of Liability [55] The terms of the exclusion clause have been referred to previously under the heading “Pleadings”. In order to interpret such a clause, one must construe the clause according to its natural and ordinary meaning, read in the light of the contract as a whole. On must look at the nature and object of the contract. If the clause is ambiguous, then the contra proferentem rule applies.110 It is submitted by counsel for the Plaintiff111, that it was possible to exclude liability for a breach of contract, even where the breach itself defeated the central object of the contract.112 In that 108 Ex. 1 p.86 109 T80.10 - T83.10. 110 Darlington Futures Ltd. v Delco Australia Pty. Ltd. (1986) 161 CLR 500 at 510. 111 Ex. C para.79. 112 Nissho Iwai Australia Ltd v Malaysian International Shipping Corporation (1989) 167 CLR 219 at 227. -- 36 of 53 -- 37 case the goods were stolen before they were delivered. It was held that the exclusion clause applied to the non-delivery of the whole of the consignment. [56] The Defendants in their written submission113 attempted to limit the relevance of the exclusion clause. It submitted that any terms of sale applied only to the Plaintiff not PSA. This argument has been dealt with elsewhere. It was further submitted that the expression “other than warranties contained in these terms of sale” was curious as there are no warranties or representations about goods in the terms of sale. It is suggested by the Plaintiff’s counsel that that submission ignores the express warranties in the document. It was further suggested that the Credit Application and Terms of Sale114 was a forward looking document. In other words, the First Defendant agreed that in relation to any dealings on the credit account then it would be conducted in accordance with its terms (of sale). It was not an offer by the First Defendant. The Terms of Sale talks of “these terms of sale” not the terms of sale of some other contractual document. The Terms of Sale in Ex. 7 governed future transactions between the parties. The Terms of Sale in Ex. 7 became operative upon the First Defendant ordering goods from the Plaintiff. The Plaintiff only warranted that the “goods offered for sale will be generally similar to other goods of the same description”. The First Defendant on the other hand accepted “that any particular delivery of goods may vary from goods of the same description displayed, advertised, or delivered on a different occasion”. [57] In the present case, the quality of the timber in each log could be expected to vary. The quality of the timber from log to log may vary. This was particularly so where 113 Ex. E paras.103-119. 114 Ex. 7. -- 37 of 53 -- 38 it was a run of stack/log/mill situation which I have found to prevail in the present case. Therefore, as far as wane, black knot, loose knot, pith and cone holes were concerned, the buyer could expect to see timber containing such imperfections as those imperfections were observed on the inspection and accepted as part and parcel of such an order. Clear timber was not requested. The relevant warranty clause in Exhibit 7 was therefore relevant to the present agreement to allow the Plaintiff to avoid liability where the quality of the timber may vary in some instances in an adverse manner from the timber inspected in June 1999 viz. ungraded timber or run of stack/log/mill. Such a clause can excuse the Plaintiff from liability for delivery of goods that do not comply completely with the description in the contract.115 Even if one accepts the truth of the contents of the letter dated 4 October 1999116, the exclusion clause would exonerate the Plaintiff. This is not one of those cases where the imperfections were proven to be of such a large percentage to nullify the exclusion clause. No ambiguity of the clause arises in the present case. The Plaintiff does not seek to rely on the clause referred to in paragraph 114 of the Defendants’ submissions and so it is not intended to deal with same. Guarantee [58] The Second Defendant no longer relies upon the absence of the First Defendant’s name in the Deed of guarantee and indemnity part of the Credit Application. It is obvious for whom the guarantee is to be given. The document is read as a whole.117 115 Metal Roofing and Cladding Pty. Ltd. v Amcor Trading Pty Ltd [1999[ QCA 472 at para. 34 per McPherson AJ. 116 Ex. 1 pp258-262, discussed as part of Damages, para. 67 of this judgment. 117 Riley v Melrose Advertisers (1915) 17 WALR 127. -- 38 of 53 -- 39 The Plaintiff is entitled to have the Deed rectified to add the First Defendant’s name as the customer.118 [59] The defence argue that the purported guarantee expressly extends to goods supplied by the Plaintiff. It is submitted that as most of the goods were supplied by PSA then the guarantee does not extend to those goods.119 The secured monies include both amounts invoiced by PSA ($124,854.56) and the Plaintiff ($57,991.61). As has already been discussed, each of the transactions which involve PSA and which are set out in the Plaintiff’s submissions120 involve the Plaintiff as the principal. It follows, according to the Plaintiff, that in law that liability of $124,854.56 represents money payable by the First Defendant to the Plaintiff for goods supplied from time to time by the Plaintiff to the First Defendant. The terms of the said Deed of guarantee and indemnity provide that in that situation, the Second Defendant has undertaken to pay those amounts upon receipt of a written demand. It matters not that the demand may have been made by both PSA and the Plaintiff. The issue of the proceedings which name only the Plaintiff is sufficient demand. [60] The Second Defendant is liable to pay to the Plaintiff the sum payable to the Plaintiff by the First Defendant less any sum assessed and able to be set off by way of counter claim. Damages [61] The damages for breach of warranty are only relevant if contrary to what has been found, the defects in the timber exceeded the imperfections as inspected in June 1999 by Mr. Marlborough and the exclusion clause is not operative. The assessment 118 Whiting v Diver Plumbing and Heating Ltd. [1992] 1 NZLR 560 at 568-9. 119 Ex. D paras. 24-25 -- 39 of 53 -- 40 of damages in the present case proceeds on two bases. Firstly, under the provisions of s.54(3) of the Sale of Goods Act and which can be described as the ordinary measure of damages. That is, the difference between the value of the timber at the time of delivery to the buyer and the value it would have had if it had answered the warranty. 121 Secondly, the losses directly and naturally result in the ordinary course of events from any breach of warranty. This includes any loss of profits claim or losses which a reasonable person in the position of the Plaintiff would have realised or should have been in its contemplation. As part of the latter claim, First Defendant has claimed the following in its counterclaim for damages122: A. Proposed Sale Price (to LM Tanco/Victory) (i) Pro Forma Invoice 6453 for: - 30mm x 100mm –360m3 (US) $ 83,600 - 25mm x 100mm –120m3 (US) $ 31,200 (US)$124,800 x exchange rate as at 21/05/99 of 65.95 $189,234.27 (ii) Pro-Forma Invoice 6453 for: -30mm x 100mm –40m3 (US) $10,400 -25mm x 100mm –40m3 (US) $10,400 (US) $20,800 x exchange rate as at 15/09/99 of 66.04 $ 31,496.06 (iii) Invoice TKEC/001/98 (AB47) -35mm x 90mm –42m3 $ 15,120.00 -------------- Expected Proceeds $234,050.33 B. Less Costs of Purchase from CSR/Pine Solutions (i) Purchase Order (AB100) $123,000 (ii) Purchase Order (AB98) $ 21,000 (iii) Purchase Order (AB98) $ 8,200 120 Ex. C para. 101. 121 Sutton “Sales and Consumer Law” (4th ed.) at 670. 122 Ex. 4. -- 40 of 53 -- 41 $152,200.00 $152,200.00 C. Less Freight pre-paid to Air-Sea by Tanco $ 27,250.00 $179,450.00 D. Plus Storage Costs Paid October 2002 $ 24,363.83 $155,086.17 Loss of Profits $ 78,964.16 [62] In the present case, the timber delivered is alleged to be defective. This assessment proceeds on that assumption. Once goods have been delivered and are inferior or defective, then the First Defendant as buyer may reject them. Given that they were on sold, then it is too late to reject them as has been discussed. The counter claim is really based upon the breach of warranty and it relies on the provisions of s.54(3) of the Sale of Goods Act. Section 54 provides as follows: “54(1) When there is a breach of warranty by the seller, or when the buyer elects, or is compelled, to treat a breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but the buyer may – (a) set up against the seller the breach of warranty in diminution or extinction of the price; or (b) maintain an action against the seller for damages for the breach of warranty. (2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty. (3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value which they would have had if they had answered ti the warranty. (4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent the buyer from maintaining an action for the same breach of warranty if the buyer has suffered further damage.” [63] Counsel for the Defendants refers to the decision of McWilliams Wines v Liaweena [1988] ASC 55-695. It is cited as an example of a case where the damages to the -- 41 of 53 -- 42 plaintiff are able to be more than just a diminution in value.123 The submission states that the court should endeavour to put the defendant in the position it would have been in but for the breach of contract.124 It is submitted by the defence that the freight costs can be ignored.125 This is rejected by the Plaintiff. The effect of ignoring freight would be to increase the profits. It should be taken into account when considering the loss of profit claim. Subject to what evidence is called such as market value of the timber, the contract price is taken as the value the timber would have possessed had it answered to the warranty while the value of the timber in its defective state is its marketable value as such (June to August 1999). If the damages for breach of warranty equal or exceed the price of the timber, then the First Defendant as buyer does not pay anything to the Plaintiff. A buyer is not expected to spend money to render defective timber fit for sale in order to obtain a market for it.126 The principles which are referred to in those passages are apposite in the present case. [64] The submission for the Plaintiff127 suggests that the First Defendant “has not shown how it would be entitled to a full “extinction” or abatement of the price or indeed any abatement of the price”. The onus would be on the First Defendant to show that the timber was worthless before it could reduce its liability to nil. This approach assumes that the First Defendant in the first instance is liable to pay the whole of the price for the goods subject to a reduction of the difference between the value of the timber FOB Sydney and the value FOB Sydney which the timber would have had if it was up to the required warranty standard. The Plaintiff suggests that unless the 123 It is discussed in Sutton op. cit. at para.22.28. 124 Commonwealth v Amann Aviation (1991) 174 CLR 64 at 116-117. 125 Ex. E para.85. 126 Sutton op.cit.paras.22.30-32. 127 Ex. D para.21. -- 42 of 53 -- 43 timber was 100% adversely affected by blue stain FOB Sydney in July and August 1999, then the timber was worth exactly what the First Defendant agreed to pay for it, knots and all. [65] It is submitted by the Defendants that the timber was not salvageable economically and that no buyers could be found. It has been previously discussed that the inspection by both Mr. Lim and Mr. Marlborough was inadequate and not statistically acceptable as reflecting the general nature of the quality of the timber. It was conceded in the written submissions of the Defendants that the inspection was limited. Neither the samples nor the photographs were conclusive. The fact that prospective purchasers expressed certain views to Mr. Lim cannot be accepted as the truth of the matter. The attempts to sell are original evidence but not conclusive as to how or why the timber did not sell. The particular purchaser may have required clear timber not ungraded run of stack/log/mill timber. As recorded in the offer from Metsui and Carter128 there was one buyer for RM120,000. This was in October 2002 and cannot be said to be helpful if the value is to be assessed in June- August 1999. Mr. Lim said he tried some 15-20 furniture factories but with no success. It is not known how he described the timber or the nature of the production of the respective manufacturers. Finally, he rang a crate manufacturer and sold some. It is common ground that the Plaintiff did not inspect the timber in Malaysia. There was a suggestion that there may be a market in China.129 No attempt was made by the Plaintiff to pursue that avenue. Given that the timber had been on sold, it may not have been desirable or practicable to do so. 128 Ex. 34. 129 Mrs. Swanson’s Affidavit Ex. 41 LS4. -- 43 of 53 -- 44 [66] It is submitted by the First Defendant that the value of the timber, had it answered the warranty, can be assumed to be the contract price.130 It was submitted, therefore, that as the timber was worthless, then the Plaintiff was not entitled to recover the contract price. The Defendants in the present case have failed to satisfy me that the timber delivered FOB Sydney or as inspected in Malaysia was worthless.131 Further, in a letter from LM Tanco to the First Defendant dated 4 October 1999132 it is obvious that some ten containers would be taken subject to certain conditions and some discounting of 22%. The inspections in Malaysia were unsatisfactory. The evidence of an available market was sketchy and unreliable. [67] The learned author Sutton133 states that: “So far as the value of the goods in their defective state is concerned, this is measured by their marketable value as such or, in the absence of any market, the cost of making good the defects and the time taken to do it, plus any cost incurred for failure to perform as warranted. But a buyer is not expected to spend money to render defective goods merchantable in a highly speculative attempt to obtain a market for them and thus minimise his or her loss”. No attempt was made to show the cost of docking the defective goods. General evidence was given that it was uneconomical to do so. That evidence was not accepted given the limited nature of the inspection. In order to avoid an assessment of nominal damages only, regard can be had to the letter of 4 October 1999. Sutton suggests that expert evidence could be called to make some allowance. Mr. Lim who signed that letter was experienced in the timber trade. No exact figure can be assessed in any event to reflect the price to be paid subject to any abatement apart from a discount on the timber delivered. This assessment must reflect the fact that 130 Sutton op.cit.para.22.32; Hammer and Barrow v Coca-Cola [1962] NZLR 723 at 734; Auspac Trade v Victorian Dairy (unreported) Supreme Court of Victoria CA 22 February 1994. 131 Ex. 1 p.252-3. 132 Ex. 1 p.258-262. 133 Op. cit. para.22.32. -- 44 of 53 -- 45 the Plaintiff is liable for the blue stain as calculated in October 1999 at 5%. Apart from the replacement container, there were about twelve (12) containers. In an attempt to assess some damages, and accepting the observations in the letter of 4 October 1999, I would reduce the purchase price of the eleven (11) containers referred to by say 20%. I have attempted this exercise notwithstanding the findings referred to previously but giving effect to the evidence that there were some defects suggested to be more than was expected in the delivery of timber contracted for. It is based on the letter of 4 October 1999 which accepts, as I do, that the timber was not worthless. Mr. Lim confirmed the contents of the letter and to that extent it is admissible. The weight of the evidence is lessened in view of earlier findings and the ambivalent nature of Mr. Lim’s evidence.134 However, I find that the letter of 4 October 1999 is more likely to be accurate given that the inspections had occurred a short time before. The amount of the invoices in paragraph 3 of the Statement of Claim totals some $179,114.75. A diminution or abatement of some 20% is $35,823.00 leaving a balance of $143,291. There was also the amount of US$20,800.00 (A$31,486.00) paid by LM Tanco to the First Defendant for the timber. It supports the view as I have found that the timber was not worthless. Therefore, the submission by the Defendants in this regard is rejected.135 The only basis for redeeming the $179,114.75 would be that the earlier findings are erroneous or that the exclusion clause does not apply. There remains the question of loss of profits. 134 T285 – T287. 135 Ex. E Issue 9. -- 45 of 53 -- 46 Loss of Profits [68] The First Defendant submits that it is entitled to claim damages for lost profits.136 It is submitted that that case is authority for the proposition that where the timber, for example, is bought for re-sale and the Plaintiff was aware of that purpose at the time of the contract then damages for non-delivery can include: “(a) the buyer’s profit he was prevented from earning; (b) losses sustained by him in being saddled with the claims of those to whom he had, in a contemplated course of trade, disposed of the goods”. This principle has its statutory basis in s.54(2) of the Sale of Goods Act. It is also supported at law by Hadley v Baxendale.137 His Honour in Joseph & Co. also adopted the statement of Deane J in Commonwealth v Amann Aviation Pty Ltd138 which is also apposite in the present case. He then continued to discuss the interrelationship between the statute and common law. Non-delivery for present purposes can be equated with the delivery of defective timber.139 Hall v Pim140, which his Honour applied, was a case of non-delivery. I accept the First Defendant’s submissions in this respect. There is no doubt that the Plaintiff was aware that the timber was to be exported and that it was being on sold to a furniture manufacturer overseas.141 The First Defendant, in that event, is entitled to proven loss of profits and the storage costs. The freight costs notwithstanding the submission of the First Defendant 142 should be part of the overall expenditure. 136 Joseph & Co v Harvest Grain Co (1996) 39 NSWLR 722. 137 (1854) 9 Exch 341; 156 E.R. 145. 138 (1991) 174 CLR 64 at 119-120. 139 Slater v Hoyle & Smith Ltd [1920] 2 KB 11 at 24. 140 [1928] All ER763. 141 Ex. 43 paras. 2,4 and 13. 142 Ex. E para.85. -- 46 of 53 -- 47 [69] The Plaintiff does not accept that the First Defendant has suffered any loss of profit. Even assuming that every shipment was defective, the claim by the First Defendant would be less then $16,000.00. The calculation is as follows143: Ex 4, ADJUSTED (A) Sales price sale to LM Tanco of 480m³ 230 480 AUD 189,234.27 Less Costs of purchase from CSR Gross margin 100 AUD 66,234.27 480 AUD 123,000.00 Less commission 10% FOB value to LMT 66, T334 AUD 18,923.43 Subtotal AUD 47,310.84 Less 12 containers shipping cost at average of $1455 ea Ex 36, T333 AUD 17,460.00 Subtotal AUD 29,850.84 Less CIF costs in Malaysia, USD375 per container T335 AUD 9,000.00 Subtotal AUD 20,850.84 (B) Sales price sale to LM Tanco of 80 m³ P43.2 80 AUD 32,064.13 Less Costs of purchase from CSR of 120 m³ P32 120 AUD 29,200.00 Gross margin AUD 2,864.13 Less commission 10% FOB value to LMT 66, T334 AUD 3,206.41 Subtotal -AUD 342.28 Less 3 containers shipping cost at average of $1455 ea Ex 36, T333 -AUD 2,910.00 Subtotal -AUD 3,252.28 Less CIF costs in Malaysia, USD375 per container T335 -AUD 1,500.00 Subtotal -AUD 4,752.28 Overall profit before general costs AUD 16,098.56 [70] Counsel for the Plaintiff submits that there is the added costs and general overheads144 which should be offset against the $16,000.00. I accept that figure as being consistent with the evidence as referred to in those submissions. The defence did not challenge the arithmetic, only the principles. The submissions of the 143 Ex. D para. 94. 144 T322.50 and T337.60. -- 47 of 53 -- 48 Plaintiff explain some.145 In Ex.1 page 86 there is reference to some expenses involved with the timber that had cost the First Plaintiff to date (29 April 1999) US$28,000.00. This is about A$50,000.00. It was accepted by Mr. Marlborough that the First Defendant was attempting to get into the Asian market. There was a hope of repeat orders. The First Defendant submits that its expenses were paid except for the cost of the timber.146 The object of the exercise is to put the First Defendant as buyer “in the position it would have occupied if the sale had proceeded and the timber had answered the warranty”. 147 It submits that what is relevant is that because of the Plaintiff’s breach, the First Defendant has been deprived of the benefit of some $81,850.00 plus storage. It says that it is irrelevant that after having been paid by LM Tanco/Victory that the First Defendant made a profit or a loss. It was, according to the First Defendant’s submission, consistent with the decision in Joseph & Co.148 to consider only the expenses of the specific transaction. [71] The Plaintiff submits that those submissions relating to the net profit run contrary to the decision in TC Industrial Plant Pty.Ltd. v Roberts Qld Pty Ltd.149 It is correct that the case involved a sale of goods breach of a condition as to fitness for purpose. The nature of the item was a stone crushing machine. The buyer was awarded a sum representing expenditure and liabilities incurred by it in carrying out the contract less amounts paid by the Commonwealth. It was also awarded loss of profits it would have made if it had been able to carry out its contract with the Commonwealth. On appeal, it was said that an estimate should have been made of the plaintiff’s probable working profit after deducting from the future receipts that 145 T450.1 – T453.28. 146 T323.1. 147 Ex. E para.86. 148 Op.cit. 149 (1963) 180 CLR 130. -- 48 of 53 -- 49 would have been obtained from the Commonwealth the expense of earning those receipts. It might be said the expense of earning the receipts from the sale of timber would have included some of the $50,000.00 referred to above. What is certain is that the cost of freight would have lessened the profit margin. I am not satisfied that the First Defendant has established on the balance of probabilities any loss arising from its lost opportunity to receive monies from the on sale of the timber. This is particularly so if the freight is considered ($27,250.00). The inclusion of the freight as expenditure seems consistent with the case of TC Industrial Plant Pty.Ltd. v Roberts Qld Pty Ltd.150 Storage costs [72] LM Tanco incurred storage costs to Metsui & Carter for storage of the timber. The accounts are to be found exhibited to the affidavit of Mr. Lim. The timber was stored in warehouses in Malaysia. It had to be stored somewhere pending a resolution of the matter. An agreement was reached that a lesser sum be paid. The evidence of the Second Defendant was that a third party, Advance Australasia Pty Ltd, paid that sum to LM Tanco on behalf of the First Defendant. It was an associated company run by him. The sum was $24,363.00. The Plaintiff submits that the storage claim is too remote to be recoverable. Mr. Lim in his affidavit151 states that he reached an agreement with Metsui & Carter to set off any timber sales against the storage costs owing by LM Tanco. Advance Australasia then paid the compromised amount to LM Tanco. I am satisfied that the First Defendant is entitled to seek that amount from the Plaintiff.152 They were kept stored with a view to sale. Some timber was sold. However, given the general findings on liability, the 150 Ibid. 151 Ex. 23 para.24. 152 Cusack v Heath (1950) QWN 16 applied in Auspac op. cit.p.16. -- 49 of 53 -- 50 First Defendant cannot recover the whole of this amount. In the event that the 20% abatement of price was warranted a similar per cent could be allowed as it relates to storage. Duty to Mitigate [73] The onus of proving that a party failed to mitigate its damage lies on the opposing party. 153 Therefore, in the present case the onus is on the Plaintiff. There was no direct evidence called to challenge that the First Defendant and LM Tanco as its agent failed to seek alternative buyers. What was lacking was the detail in order to assess the nature of the offer and the operation of any prospective purchaser. The Plaintiff was kept abreast of attempts to sell at a discount. It failed to inspect the timber. It failed to suggest alternative markets. It was not in a position to challenge the attempts to sell. The Plaintiff has failed to establish that the First Defendant failed to mitigate its loss. In fact, by a fax154, Mr. Marlborough rejected the 22% deduction as it was not justified. He believed that at that time (18 October 1999) that “after a thorough inspection of all the pine in our warehouse on Friday 15-10- 99, I find your claims of poor quality pine to be totally inaccurate. This material is as per the requirements of your purchase order”. It cannot be said, given the way that the Plaintiff has run this case, that Mr. Marlborough acted unreasonably and failed to mitigate the First Defendant’s loss. 153 Joseph & Co. at 738. 154 Ex. 1 p.266. -- 50 of 53 -- 51 Costs [74] Clause 5 of the said Deed of Guarantee and indemnity provides as follows: “The guarantor(s) hereby indemnify CSR against any losses or expenses whatsoever directly or indirectly arising from or by virtue of any default whatsoever on the part of the customer with respect to the secured monies”. [75] Also the Terms of credit provide that “you must pay any collection, legal or other costs we incur if your account is in default”. The only submission made by the Plaintiff says that “Clause 5 also entitles CSR to obtain an order for indemnity costs in these proceedings”. The defence say that default must be shown and the costs must be proved. It says that before a court would order such costs there must be an express and unequivocal provision. The cases referred to will be discussed. It is convenient to start with the decision of Williams J in Jamieson v Gosigil Pty. Ltd155. It was held in that case that in a mortgage suit costs should be recovered by the mortgagee on a party and party basis unless there is a contract between the parties which “plainly and unambiguously” provides for taxation on some other basis. The indenture in that case provided: “And Also on demand the costs and expenses of the Grantee incidental to …any relief or discharge thereof”. His Honour compared the position in the case of In re Adelphi Hotel (Brighton) Ltd.156. Vaisey J in that case interpreted the words “other costs, charges and expenses” in a mortgage situation as meaning ordinary party and party costs. A similar approach was adopted by Street J in In re Shanahan157 but the mortgage in that case provided: 155 (1983) 2 QD. R. 117. 156 [1953] 1 W.L.R. 955. 157 (1941) 58 W.N. (NSW) 132. -- 51 of 53 -- 52 “in addition to all costs and expenses which the mortgagor may be liable at law or in equity to pay in respect of this security or otherwise in relation to thereto, the mortgagor will upon demand pay all costs and expenses incurred by the mortgagee in consequence or on account of any default…” [76] Williams J contrasted the wording of In re Shanahan to the case before him and adopted a similar approach to that of Vaisey J. A similar approach was adopted by Thomas J. in Outlook Credit v Popovic158. The costs in that case had not been ascertained and so the phrase “legal costs charges and expenses ascertained as between solicitor and own client” were not relevant. His Honour affirmed the general rule that in the absence of clear agreement to the contrary, such costs should be recovered on a party and party basis. [77] In the present case, Clause 5 of the said Deed is not clear and unambiguous as to the costs payable. The terms in the credit application do not add to the meaning of the words. Costs on an indemnity basis to the extent of solicitor and own client is refused. Alternatively, the Plaintiff seeks the sum of $2,476.23 being the legal costs in the collection and recovery of the debt on an indemnity basis pursuant to the Deed of guarantee and indemnity. This amount is recoverable. The quantum was not disputed by the Defendants and it seems fair and reasonable. 158 (unreported) Supreme Court of Queensland 4 September 1987 p.15. -- 52 of 53 -- 53 [78] Orders 1. Judgment is given for the Plaintiff against the First Defendant in the sum of $181,590.98 together with interest at the rate of nine per centum from 29 March 2000. 2. It is further ordered that the Deed of guarantee and indemnity be rectified to include the name of the First Defendant as customer and principal debtor. 3. Judgment is given for the Plaintiff against the Second Defendant in the sum of $181,590.98 together with interest at the rate of nine per centum from 29 March 2000. 4. Subject to further argument, it is further ordered that the First and Second Defendants do pay the Plaintiff’s costs of and incidental to the action including any reserve costs if any to be assessed on a standard basis. 5. Liberty to apply. -- 53 of 53 --